Trade Secrets and Open Innovation

A culture that can protect trade secrets is vital for innovative companies. Such a culture becomes especially important in collaborative innovation efforts where failure to protect trade secrets can severely damage partners and the offending company’s reputation. 

Chinese companies are increasingly recognizing the value of what the West calls “open innovation.” In fact, forms of open innovation were the basis of a great deal of innovation in China long before the term was coined in the West. Innovation in China tends to be fueled by guanxi with trust between partners being far more important than the legal details drafter by lawyers for a joint venture or other collaborative effort. Innovation in China, though still largely overlooked by the West, frequently occurs as trusted friends or acquaintances discuss their needs and challenges and find new solutions by crossing disciplinary borders. The many partnerships and allies involved with leading innovators like Ten Cent, Alibaba, Foxconn, and Huawei testify to the fluidity and rapidity of innovation in China achieved via collaboration and shared vision among partners. 

However, when companies in China or anywhere collaborate to find innovation, the inevitable sharing of trade secrets between partners puts the players at risk should there be inappropriate disclosure. Two leaders may fully trust each other, but if one of them leads a company with a weak IP culture where individuals fail to respect trade secrets, the partnership can be destroyed and severe damage can be done. Those engaging in a collaborative venture should be aware of the risks and consider their own culture and processes, as well as the culture, processes, and track record of partners. Zealous efforts are needed to avoid harm, even when there is no intent to harm or defraud. Simple slips can disclose information inappropriately and hurt a partner and one’s own reputation. Those pursuing open innovation need to pay particular attention to trade secret protection and ensure that only a few well trained employees will be exposed to the trade secrets involved in the partnership. 

Unfortunately, university culture in China and throughout the world, generally speaking, is inherently geared toward sharing and publishing information, so partnerships with universities should be carefully pursued with the realistic expectation that information may be leaked. Containing the scope of the partnership and minimizing any sharing of corporate secrets can reduce risks, while still allowing a company to tap the many riches of knowledge and innovation in China’s academic community, where many companies are finding success in advancing innovation.

Tortoise Innovation: The Problem with Corporations (and Their Inventors) Hiding in a Shell

Many large companies take a tortoise approach to innovation and stay as hidden within their shells as possible, even some who advocate open innovation. Tortoise companies may have creative R&D staff, including many scientists doing good work, but they keep these inventors hidden in the shell rather than encouraging them to publish or present their work.

The hares, on the other hand, take greater risks as they frequently step out of their comfortable burrows. They let their inventors not just show up at conferences and other events, but take the podium and present. Or, when appropriate, publish their work in major journals. As a result, their inventors become known and get to know many others with related interests. It is that visibility that allows potential partners to find them, to learn about their work, and to come forward with proposals for partnership or further innovation. These visible minds become more highly connected and able to contribute more directly and effectively to the open innovation needs of the Corporation. They are connected to other industries and better connected to the market, and may be more likely to recognize ways to adapt their inventions for better success.

The extreme of tortoise innovator may well be the large body of government scientists that conducted high-tech R&D for decades in the old Soviet Union. One of my past open innovation activities at Innovationedge included traveling to Moscow to assist Russia (more specifically, ISTC: http://www.istc.ru/) in finding external partners for the huge body of invention that arose from government labs in past work (this public information: e.g., I am listed as a speaker on the published agenda of a biotech meeting in Moscow with a presentation entitled "Innovationedge Partnership to bring innovation from Russia to the U.S."). 

Unfortunately, much of that work in the Soviet Union, in my opinion, was dominated by deep drilling into highly isolated wells of expertise, with advanced technologies that were unconnected to real-world industry and markets. Creating connections and finding market opportunities after the fact (as in “answers in search of problems”) is much less efficient that developing inventions tailored to meet real market needs in the first place. The scientists were some of the best in the world, but they were working in isolation, often in great secrecy, with little ability to discuss their work with outsiders and obtain needed feedback and insights to make their work more useful outside their immediate focus. Looking back in time at the fruits of past Soviet era R&D to me looked like closed innovation to an extreme.

My observation of the isolation of Russian R&D relative to industry and markets is consistent with the detailed observation and analysis by Dina Williams in “Russia’s innovation system: reflection on the past, present and future” in The International Journal of Transitions and Innovation Systems, Vol. 1, No. 4, 2011, p. 394-412, available via Academia.edu at  http://www.academia.edu/1207385/Russias_innovation_system_reflection_on_the_past_present_and_future (free download with registration).

Success in open innovation and even in making conventional internal innovation more successful can be enhanced when innovators “get out more often” and increase their visibility in relevant communities. Innovation is frequently about crossing boundaries and making new connections, and open innovation almost by definition involves reaching past one’s own corporate boundaries to find solutions outside. What better way to do this than by having innovators physically or virtually stepping outside those boundaries and being visible to potential partners?

One of my favorite experiences during my days at Innovationedge involved seeing a technology go from an inventor’s garage to a multinational corporation where it is now being commercialized globally. A key event in that story involved speaking at technical conference where my presentation included some information about our client’s invention. Afterwards, I was approached by an R&D leader from a significant corporation who wanted to know more. There was much more work after this—open innovation success is rarely fast and easy—but that new connection took us on a path toward success. Related stories occur frequently when innovation is shared. But silent companies who rely on their tortoise shell eventually find that solid defense is irrelevant. Sometimes, the prizes go not to those who best hide behind their fortifications but to those who cross the finish line in the race for innovation.

Review: Prisoners of Hope: How engineers and Others Get Lift for Innovating

Prisoners of Hope: How Engineers and Others Get Lift for Innovating by Larry Vincent is an unusual book on innovation that I found to be a refreshing guide to strengthening innovation with great practical value. Part of what makes this book unusual and, for some, perhaps highly challenging, is that it is written from the perspective of a preacher turned innovation champion, filled with references to biblical material, including frequent passages cited from scripture and analogies, sometimes extensive and detailed, drawn from the Bible. Although I treasure the Bible, initially this approach caught me off guard. In fact, at first I felt the attempt to find practical secular lessons for innovators from Bible stories was strained, even to the point that I initially disliked the book after the first chapter or two. But after a few more pages, I began encountering many valuable insights and modern case studies that revealed the author really did understand the practical challenges of bringing innovation to life, especially in a corporate environment. Once I got past my initial challenges with the unique angle of the book, I found it well worth my time, even inspiring. I still struggle with some of the passages using scripture to explain innovation and its challenges, but others may enjoy that. On the other hand, I was impressed by his application of Ezekiel’s “dry bones” vision in the Old Testament, where the prophet Ezekiel saw a valley of dried bones that became living humans again. His treatment made it a very apt and interesting analogy for the challenges inventors face in breathing life and commercial success into their inventions.

Author and innovation expert Lanny Vincent understands the life and challenges of innovators, especially those in corporations. Inventors and innovators are the “prisoners of hope” of the title, people driven and even held captive by their vision of changing the world with their innovation. It is their faith and hope that drives them forward, and this faith and hope allows for many biblical insights to be relevant. Whatever their feelings about scripture, this book can be valuable for them and for those who guide or influence them. Vincent understands how they can be more successful.

Aspects I especially enjoy are the numerous case studies and examples. While many come from the consumer products industry, especially from Kimberly-Clark Corp. where Lanny Vincent had a great deal of industrial experience, the lessons and practical guidance from the author will help engineers, scientists, and other inventors in many disciplines, and may be especially helpful to leaders responsible for innovation and business development.  In these case studies, Vincent draws out key lessons to guide and inspire innovators today.

One of my favorite sections is in the middle of Chapter 6, “Inspiration and Appreciation,” where Vincent recounts how we worked with a team of automotive engineers in Michigan to help them innovate in the area of automotive suspensions. As he observed their responses and discerned that they were there because they had to be, not because they wanted to be, he departed from his normal process. He sought a way to help those jaded survivors of extensive downsizing become more inspired about the innovation task before them. He asked them to tell him the basics of the suspension system, including the history of its development. Admitting his naiveté and asking the engineers to share their knowledge seemed to engage them. They were then asked to draw a timeline of the development of related systems and then to characterize major epochs of the timeline as if they were historians. Then, in light of the past, how would they characterize the next era of development? They energetically and swiftly responded, and then Vincent simply explained that that was the area where they needed to invent. The invention workshop turned out to be highly productive.

One of the interesting insights regarding corporate barriers to innovation is the tendency for companies to promote successful innovators in their ranks to new positions where their rich innovation experience may be unused or essentially lost. The wheels of innovation are constantly being reinvented in companies as those who succeed are moved away from the field where they were able to create success.

Vincent also calls for corporations keep inventors and innovators close to projects as they become commercialized. There is a tendency in large corporations to hand off new products to others and leave those with the original vision and passion out of the picture by the time consumer feedback is being obtained, but Vincent identifies this as a huge missed opportunity. The inventors and innovators may have exactly the insights and knowledge needed to interpret and apply the feedback from the market, and they should play a pivotal role in refining and adapting the product as it moves forward.

Chester Carlson and the Xerox Story: Do Great Inventors Really Have to Die Early and Lonely?

The photocopier, one of the most valuable inventions in the modern world, began with the all-consuming passion of one man, Chester Carlson, who sacrificed almost everything he had for years to realize his dream of "dry printing" using electrostatic means. In the end, he became wealthy and successful, but the years of effort required should be noted by all seeking to launch a major new invention. One of the most important lessons in his story is that he obtained a valid and valuable patent, otherwise companies could have taken his idea and left him behind. You cannot neglect IP if you are an inventor.

Chester's path to invention and innovation began in poverty at age 13, working as a printer's assistant. It was there that he began thinking about better ways to print. He went on to graduate from Cal Tech and then, still at the edge of poverty, dedicated his spare time to tinkering in his kitchen, looking for ways to pint without wet inks, taking advantage of the potential he saw with static electricity as a tool for moving dry particles onto paper.

Chester's story is told well in the Engines of Our Ingenuity radio program series by John Lienhard at the University of Houston. Here is an excerpt:

Carlson patented a copying process in 1937, before he'd really figured out how to make it work. Author Dean Golembeski tells us that he hired a German refugee named Otto Kornei to help him. Working on a budget of 10 dollars a month, they finally managed to reproduce an inked message by electrostatic means. Kornei saw little future in the process, so he went on to a regular job. Carlson spent the next six years looking for corporate backing.

Battelle finally bought into his patent, and Carlson vanished into the work of developing the process. First his marriage fell apart. Then Battelle gave up on the process. Finally, a little company called Haloid bought the patent rights and hired Carlson.

Haloid turned to a Greek scholar for help in naming the process. Since it didn't use any photographic liquids, he suggested that they base the name on the Greek word for dry -- xeros. He suggested that they call it "Xerography." That word was simplified to "Xerox," and Carlson's dream was finally on its way. It took another 13 years to produce the first really successful Xerox machine, but then Carlson was suddenly worth 150 million dollars.

Endless toil, an all-consuming passion, years of sacrifice, then an invention, a patent, and years more of work to obtain corporate investment and eventually commercialize the process--this was what it took for Carlson to achieve success and wealth. And then he dropped dead at age 62, a lonely man. Was it worth it?

Frankly, one thing that passionate inventors often need is a touch of balance in their lives, with more attention to family and personal growth. Chester's zealous focus appears to have cost him his marriage and perhaps his health. Sometimes that kind of balance gives people insights and connections that help them bypass some of the fruitless decades of futile meandering that occurs in many inventor's lives and more directly realize their goal. It also gives them longevity. High stress for decades to realize your passion, only to be promptly terminated with an early heart attack, is too common a pattern in "successful" business leaders and innovators. Again, with balance, more complete and meaningful success may be realized and enjoyed for much longer. Don't overdo it, inventors! Slow down, pay attention to your family and your health, and open channels of creative inspiration to realize you dream more efficiently.

Changes in China: Moving from Copied in China to Invented in China--Seriously

My two years in China have overturned many previous paradigms that I held, including the stereotype of China as merely an IP copier and not an IP generator. While the West clings to that view, largely discounting the patents and innovation capability of China, a rapid transformation is occurring in which China has taken the global lead in national patent filings and is about to tie with Germany as the #3 international patent filer (expensive, generally high-quality PCT filings). China is now #2 internationally in scientific publications, behind the US but ahead of England and everywhere else. In hot areas like graphene, the two-dimensional carbon nanomaterial that is opening whole new vistas of nano-possibilities, China has a clear global lead in the number of patents filed so far.

In my own innovation-related experiences, I have seen that teams of Chinese college graduates, though often seemingly shy and unresponsive at first when challenged to contribute in ideation and innovation sessions, can, with the right guidance and framework, become as energetic and innovative as any Western team I've worked with. One must understand Chinese culture a little and take some steps like removing the boss from the room and setting up rules and guidelines that make it clear they won't lose face by participating and might lose face (or delay lunch and bathroom breaks) if they don't. Once we get past the initial shyness, it can be hard to get them to turn off the innovation juice.

For some, the biggest challenge in China has been the IP system, which many have felt was too weak and lacked adequate means for enforcement. This is being addressed, and the new 4th Amendment to Chinese patent law looks like it will bring some major steps forward, including opportunities for discovery of evidence and stronger penalties. The trend is clear, though, that China is working to strengthen its systems and is treating foreign IP holders as fairly as Chinese companies in general.

Do not ignore the rising tide of IP and innovation in China. Some extremely importance advances in technology and business models are emerging here. The nations and companies that can respect China and its IP are the ones that will benefit most. The opportunities are staggering.

My Presentation at IP Counsel 2013: Shenzhen Station

March 19-20 was the 5th IP Counsel Congress held at Shenzhen, one of 3 2013 IP Counsel events in China managed by JFPS Group. This was their first year in Shenzhen, and I think it was highly successful. I think about 150 delegates from China and other nations were present, including IP leaders and influencers from Hungary, Germany, South Africa, Korea, Japan, and other nations.

I was especially pleased to learn from IP leaders from some of the world's leading IP generators such as ZTE, the top international filer recently.

 I had the pleasure of chairing day one of the two-conference, and being the lead speaker with my presentation on IP, China, and innovation. I briefly retraced some of the monumental achievements in the history of China, including some major inventions that the West originally thought came from the West but actually started in China. I began with the example of the printed book, and quizzed the audience about who invented the world's first mass-produced book printed with movable type? Gutenberg is a pretty good answer and his Bible was a remarkable achievement, one that came just 142 years after the world's first mass-produced book printed with movable type was created in China by Wang Zhen. Had some fun with that bit of history, and caught a lot of the Chinese people by surprise. Many don't realize how rich China's tradition of innovation actually is.

 Today, many people think of China as a great copier, but China is rapidly and deliberately moving from a copier to an inventor and a leading source of IP. There are still barriers and inertia to overcome, but the goal is being realized and by the time the West understands the significance of this transformation, many players will have missed the opportunity of a lifetime and some will be completely disrupted. Those who recognize what is happening here may more wisely prepare for the opportunities and risks that will be created, and adapt.

China as a source of innovation and IP must not be ignored. But tapping its potential requires a deeper understanding of Chinese culture and business, which is much different that what the West is used to. I gave some basic tips and reviewed the importance of Chinese concepts such as guanxi, yuanfen (destiny in chance encounters), and hexie (harmony).