Comments for Mixing patents and trade secrets for complex innovations

If we look at the whole change in reforms from the lens of the innovator, it is certainly more advantageous for them as it gives them the flexibility as they can file for the patent related to the trade secret. This allows them to extract benefit from the trade secret up until the point there is no imminent threat to it being discovered by somebody else. From the imitator’s point of view, the new reforms prevent them for access to knowledge that could be beneficial for them. In such a case they have to wait either to discover the secret themselves or wait for the patent to be filed, which is when they can access these secrets as they will enter the prior art repository. This will act as a push for the imitators (competitors) to keep pushing the envelope every time. The biggest beneficiary out of this would be the customer who would have a wider range of choices at competitive prices.
In my opinion, the primary objective of a patent system should be to promote interests of the consumer and in this case, the proposed reforms seem to be taking things in the right direction and thus should be hailed as a good decision. However a caveat in this case would be to give due attention to all the subjectivities that may arise in the case and to be careful about loopholes that could be exploited like in the case of some of the previous patent laws.

The strategy in deciding, whether to patent, or keep a secret is complex, thus the reform is not easy to evaluate. I guess, that in the theoretical model, the main channel by which the reform influences welfare is the shift in strategy of the firm from keeping a secret towards patenting. If many firms keep a secret rather than disclose, it is probably, welfare speaking, not the best result for the economy. Through patenting, the innovation can enter the market (e.g. through licensing), and even if it does not, it becomes publicly available after a certain period of time after which everyone can benefit from it.
However for me it is not obvious, that the reform causes such a shift. Introducing the choice to patent the secret later, may actually promote secrecy up until the point in which the threat of losing the advantage of the secret becomes too high.
When you allow for patenting parts of an innovation and keeping other parts secret, the strategy space becomes even more complex. With the possibility of patenting only a part of the innovation, one could think of a risk, that if you patent a part of your innovation, while keeping the rest as a secret, you increase the probability, that the secret will be rediscovered by someone else.
Finally, while relaxing the requirements on novelty causes may cause innovations to be patented, rather than kept as a secret, it may also cause excessive patenting (e.g. for precautionary reasons). Subsequently the bureaucracy caused by the overgrown patent system may inhibit innovation.

The topic of patent contra secret arises much more questions than first I thought – before reading the article.

First, my impression is that secret is almost always related to ,,one-product companies”, for which secret is a kind of device to make people being loyal to their products and brands. Because people do not look for just something with novelty, they look for rather myths, secrets and stories around the innovation. In the case of Kentucky Fried Chicken, Coca-Cola or Nutella we immediately associate to their appropriate products that likely did not be changed at all for decades.

Secondly, I have the feeling that nowadays most of the innovations are related to processes than products. Because it is really hard to create something new and give new responses to given needs. The solution is rather producing the same product, but with another technology that makes it better and/or cheaper. That is why I think patents are crucial for innovators at any time.

But finally, in my opinion the first movers usually are not best operating companies in the market and basically the first mover advantage does not exist. Imitation – in most of the cases – can be much faster, cheaper, less risky and more profitable. So regarding to the social welfare patents does not serve always the interest of customers and market competition.

The principal idea that we must have in mind is that “First to File” becomes law. Indeed The American Invents Act was just reformed in order to change the patent system.
That can provide some advantages but it has also its limits.

First, the advantages.
There are a good effect for the american innovators. This flexible patent system can allow small firms to try innovating to do not use a mix policy. In fact they can use this system to have benefits instead of losing time and money in order to save their secrets. For the other big firms, this could be a real advantage. Indeed, as their “inventions” and secrets are already known by people, nobody will really try to take their market share as they already are big firms or on a monopolistic situation on their market (e.g.: Coca Cola).
Another advantage of this system is that not only the americans but also the foreigners who want to have a patent will be taken into account. There is now no restrictions about the territory as it is regardless of whether the earliest effective filing date is based upon an application filed in the United States or in another country.

Then we can talk about the limits/disadvantages.
First of all, the time to obtain a patent. I think that 18 months to wait a response for a patent is very long. Indeed, Some companies could waste time and money for an innovation that could already be in a process.
Another problem is that the big firms can easily use their almost limitless ressources in order to beat some smaller companies if they use it for an innovation (e.g.: if some companies claim to be the inventor, the smaller companies will then have some financial problems if they want to go on court).

In conclusion, in one hand I think that that law could be a good thing but not in the case of the consumers. Indeed, with that kind of limits, big firms could be more efficiant and so win market share. Thus, it could start (or continues) a monopolistic situation where the cosumers won’t have fair prices for a new product. On the other hand, that could help small companies in the case that the 18 months of process are reduced. The big winners in this case are still the big companies that could still see that as an advantage.

References:
– http://www.ipwatchdog.com/2013/03/16/a-brave-new-patent-world-first-to-file-becomes-law/id=37601/
– http://blogs.orrick.com/trade-secrets-watch/2014/10/15/on-obtaining-and-asserting-both-trade-secret-and-patent-protection-the-itc-and-federal-circuit-weigh-in/
– http://inventivestep.net/2013/03/11/america-invents-act-secret-prior-art/

Firstly, summarise the effect of the AIA Reform. Following that reform, the system has switched form a “first-to-invet” (FTI) regime to a “first-inventor-to-file” (FITF) regime. That law also expanded the inventor’s “publication-conditioned grace period” by holding that actions like public use, sales, publications, and other disclosures available to the public anywhere in the world as of the filing date, other than publications by the inventor within one year of filing whether or not a third party also files a patent application.

One of the most important consequence of that reform is the loosening of the novelty criteria. Indeed, under the past regime, the inventor was in front of a binary choice because of the hardness of that novelty criteria, patented or not patented. If he decides to not patent its invention could lost its novelty criteria and thus could not be patented anymore. Currently, by the AIA reform, this novelty criteria is softens and the inventor is on front of a more flexible choice which can be very efficient for him if he find a good compromise between trade secret and patent.

On the contrary, from a consumer’s perspective, it seems less convenient because as the novelty criteria is softened, the company that maintain old trade secret from years will be able to patent these secrets if they are exposed on the contrary with the past law so these trade secrets could not fall into the CC domain for some years and everyone knows that something patented or trade secret is more expensive than a CC domain product.

To conclude, in an overall welfare perspective, it seems to be pretty well equilibrate to me and I would like to conclude that reflexion by a questioning. The patent theme seems to be pretty popular these last months and I would like to ask the benefit if the Open Source. I think that the decision to patent or not depend of its activity sector. Indeed, a company as Ferrero will have much more interest to patent its recipe because if that one fall into the CC domain, the only difference between its Nutella and an other bread pasta will be the marketing behind. But in the case of a technology company, where the competitive advantage is coming from the technological advance, these company do not have more interest to focus on developing new technologies than patent the old one which will be soon obsolete ?

Where is the economic frontier between the choice of patent or not patent does it exist a model ?

The AIA, seen as one of the major reform about American patent law promote a conversion from a “first to invent” to a “first to file” .Previously, the inventors had to show that they were the first to get the idea. Now, the AIA reform want to give the right at the first who files the idea. We shall here discuss about, first, its advantages and then its disadvantages.
According to me, this reform will bring a faster and mainly an easier system in order to know who should obtain the patent. In fact, this new reform is less complicated in an international point of view. Furthermore, before the reform application, the appropriability was mainly decided through lawsuits which cost a lot of time and money.
However, I truly think that this reform will harm the smaller company rather than the biggest one. Why? Because of their lack of financial, and mostly, human resources.
Indeed, a bigger company can hire better employees with more experience in terms of filing an innovation. Besides, on a macro point of view, it can lead to a monopoly if the big companies succeed by getting several innovations. It will force the small company to go bankrupt
In conclusion, this reform is positive only if the small companies are treated equally regarding the filing in order to get a patent. Nevertheless, the AIA can only bring much more clarity and simplification.

AIA modifications to the patent law incentivizes trade no doubt, but it is also more a step towards a free economy. Two important levers that have been modified in the AIA reform is a) scope of prior art definition and b) the softness quotient in the novelty criteria that eases the requirements of inventions to be patented. The former is something that definitely strengthens the patent laws (calling only public information as Prior Art and encouraging free flow of information) but the latter is something that somehow eases the grip on patent filing processes (by allowing easy referencing and mixing of references). The desired impact is multi-fold, of course: – 1) Allow inventor companies an extended patent duration by allowing them to operate under secrecy on their own risk 2) incentivize competitors to keep investing in R&D and vie for more innovations so that they could patent it as early as possible (“first to file”) 3) To balance the monopoly gains being earned by the inventor vs. the society benefits gained through the invention.

In my opinion, the ideal circumstances (read “stable economy”) would have warranted only changing the scope of the prior art and not softening the novelty requirements. This change may lead to proliferation of inventions on similar lines with slight modifications here and there and may evolve into a bubble where consumers start paying high for most of the things because of it being patented and unique. Or, on the flip side, it may lead to a situation where patents become meaningless as slight modifications may allow anyone to obtain their filing on a similar product/ process and making the original invention useless. Softening novelty is a serious issue and a tight grip on it needs to be maintained because there is a fine line between pushing an economy to growth vs. over-empowering the manufacturers/ inventors.

The changes implemented by AIA are beneficial to the general innovation ecosystem in several ways. Firstly, it provides the innovators who have kept trade secrets for a long time to patent the same for protection against its competitors. Under the earlier patent law system, ‘prior art’ also included trade secrets and obtaining patents for these ‘secrets’ became an issue because of the ‘novelty’ clause of the patent requirement. This is a welcome change for the innovators in the extremely competitive environment and it also promotes innovation. The permission of patenting secrets will also reduce the problem of industrial espionage as even bigger and powerful corporations can’t use the patent of its smaller but innovative competitors.

Secondly, in the US patent application process, there is a time delay of 18 months between the filing of the application and publishing of the same. But if the application is approved and published, any patents filed in these 18 months will have to stand the test of novelty and obviousness clause treating the above mentioned application as ‘prior art’ whereas the applicant had no public information of the process/product at the time of his application. This fallacy prevents an honest applicant from obtaining a patent even though the patent it’s seeking is genuine and new. AIA resolves this discrepancy for the benefit of these applicants.

Thus the changes brought about by AIA seek to reform the patent process and system for ‘trade secrets’ and can be viewed as a long-term beneficial concept for all the parties involved in the innovation ecosystem.

The America Invents Act, described as the biggest reform of American patent law will be discussed in this comment.

The conversion to a “first to file system” is certainly the main point of this reform. Before that, it was a “first to invent” system in which the inventors had to prove that they were the first to think about the idea. Now, the reform want to give the right at the first who file the idea. Let’s discuss about the pros and cons of this point of the reform.

As far as I’m concerned I think that the reform will lead to a quicker and simpler system especially to decide who should get the patent. Indeed, before the reform, the decision was often decided by legal battle in the court. A second point is that this new reform is more in accordance with many other parts of the world. Finally for those who can not file a full invention quickly, there is a new possibility of filing a limited “provisional application” for 12 months

As a negative point, I think that in the long run, this reform will beneficiate to the biggest company rather than the small one. Indeed, with their staff and ressources, they are more likely to file quickly an innovation. Therefore, small companies and individual inventors will be constrained. In this extant, we could say that the consumers won’t be beneficiary of this reform. Indeed, the biggest companies of an industry could act as a monopoly when they will sell their new product or use new processes.

As a conclusion, I would say that the reform have both advantages and disadvantages which is the condition to end as a debate. For my point of view, I would say that it’s non-ended reform meaning that as long as the small companies won’t be beneficiary of this reform, as long the debate will continue.

To be continued…

As far as I am concerned, I am strongly convinced that points of view change regarding from where we analyse the debate. A huge multinational company won’t have the same opinion than a little start-up or even consumers. Indeed, one will earn plenty money and will have no difficulties to patent their innovation while another that doesn’t have such financial resources will prefer not to patent but still want to keep their assets hidden from potential competition. One will be sure that nobody will steal their innovative idea thanks to the patent; the other that can’t afford such high costs to patent, will prefer to hide their idea and its specifications during few years. This period will be required by the company to make money and to be able to afford the purchase of a patent at the right time… However, I think every company will be able to find pros and cons from the AIA reform that will lead them to extract pretty good things from that decision.

This reform starts with good ideas and try to promote the development and the protection of new ideas; however, like said earlier, every players of this game have to take the advantages offered to them and try to exploit it as much as possible. But each player doesn’t play with the same starting assets. Then, it’s more and more complicated to know what’s the best strategy to undertake with such a competitive environment where everyone is not on the same equal footing.

The AIA is the American Invents Act which was just reformed in order to soften the novelty requirement and to eliminate the priority of novelty in the secret.

First, thanks to the reform of the AIA there are now a more fair system who attribute the right to patent on the first who claim the novelty. Indeed, the previsous system follows the law “first to invent”. If a firm chooses to keep his recipe secret for a sauce and then a year after another firm try to patent the same recipe, if the first one proove she invent it before (a year before) she deserve the priority to patent the recipe.This first rule let too much importance to secret. Furthermore this was not “fair”. The new rule follow the principle “first inventor to file”. Now, the faster firm who invent the recipe can choose if she keep it secret or if she patent it. If she keep it secret and a year after a competitor find the same recipe she can’t claim that she was first to invent it. This new method eliminates part of the “secret prior art”.

Second, another advantage of the reform is that there are positive welfare effects especially for the american innovator and the consumers in my opinion. It is not surprising, this more flexible patent regime allows smaller firms such as “Petites et Moyennes Entreprises” to innovate without spending money or loosing time by keeping their innovation secret. For big firms the positive effect is even bigger. When we think about the consumer’s utility, as long as the innovation is keeping secret by the firms there are less competition and therefore the consumer surplus is bigger.

To conclude I would like to remind the first aim of a patent : to reward and protect the innovation. Thanks to the reform of the American Invents Act, the innovators receive more retribution for the innovation they keep secret or they patent because they avoid to spend money to proove they were the first to invent.

I agree with the opinion that the AIA reform should, in very general terms, be beneficial to the different actors of society in the long run since the mere fact of having more information available – the patents themselves – is favorable per se.
But trying to be more specific seems complicated: given that it is almost impossible to reduce the variety of patents to simpler cathegories, it’s difficult to predict the specific effect of the AIA reform on the different kinds of patents – different in the aspect that they reflect different economies of scale and profit functions w.r.t. innovations – and consequently on the different fields of production.

As Professor Belleflamme reminds us in the article, we can draw favorable results from the AIA reform only under the concavity assumption of the innovator’s profit function in the fraction of the innovation that the imitator can exploit: that is to say that the AIA reform produces favourable effects if “the imitator must learn a large fragment of the innovation in order to be able to exploit it usefully”.
Otherwise, if convexity prevails, the innovator loses a lot of its choice elasticity and is left with a strict all-or-nothing patent strategy that will allegedly harm the stakeholders in the long run (since the secret is kept).

If we think the problem in terms of convexity or not of the different profit functions, the answer seems more unclear and I feel like the AIA could even produce overall negative effects, since I imagine that the concavity assuption could not be verified in a lot of relevant cases.
Why is that? Going by intuition, due to efficiency reasons I would expect to have more frequently than not markets made by similar firms with similar shapes: that is to say that the innovator and the imitator are “separed” only by the respective patents and trade secrets, which implies that in most cases they are both fairly near to each other and that just a fragment of information on the aformentioned innovation could be enought to exploit some advantages.
Is this reasoning unrealistic? It seems to me that if we do not obtain information on the concavity of the innovator’s profit function it is difficult to really value the complex effects that the AIA reform will bring. But is it possible to measure it, given the bias that follows the complexity and heterogenity of the patent sistem?

Trying to combine trade secrets and patent in the best way possible it is a difficult task.
First of all trade secrets exists because there are many technical information or just specific recipes, as we saw from the article, which represent a great economic value for the companies or the inventors. When I talk about technical information I’m referring to the know how of a certain industry or firm. Those firms are willing to keep their know how secret, it represent a great deal for them it could be the very reason of their profit. In order to protect it patent are neither sufficient nor satisfactory enough, that’s the main reason that lies behind trade secrets; keeping trade secrets certainly does not have an impact on other inventions and it does not instil the urge to create new innovations. A part from that trade secrets have a greater risk of industrial espionage from the competitors and, therefore, firms would try to use if the have a positve trade off.
With that being said, though, I believe that the limitations on trade secrets are essential and they will have a positive welfare effect. Just as I believed that prolonging the copyright protection was a mistake, because that would have had a negative effect on the public, I think that the conversion made in the U.S. going from “first to invent” system to a “first inventor to file” system is good news. By doing so firms will have less incentive to keep their information secret but instead could have an incentive in patenting them and innovations will be favoured. The process of sharing information is crucial in order to progress and the “policy” of trade secrets certainly does not go on this direction.
I still believe that a certain degree of secrecy is impossible to prohibit and is probably necessary, but since a perfect combination between patent and trade secrets seems really hard to achieve, trying to limit, for what is possible, trade secrets can improve the public and have a positive effect on the welfare.

Discuss this mixture of strategies for protect the inventions or innovations is complicated, because the decision of the use of patents or trade secrets depends on the product’s characteristics or the innovation’s recipe, it depends also in the company´s resources and needs. Maybe for Coca-Cola Company is okay to keep in secret their syrop formula and patent the preservatives, but for other companies of beverages would not be so clever to trade secret their formulas because of the reverse engineering or the lack of loyalty in their crew. For Coca-Cola Company it is a good strategy to do this because of the name of the company, if in the unlikely event one were to concoct the very solution Coca-Cola uses, the value would not be as high because the product would not be marketed as Coca-Cola (1). That´s why for this company it is the best choice to keep secret their formula and avoid pay for a patent instead.

Of course the change made by the AIA will produce positive welfare effects. With the AIA reform you have the option of decide if you´ll trade secret or patent an idea for as long as you want, with this you can manage your resources at your convenience and keep your idea as trade secret at the beginning because it won’t cost anything and depending of the success of your product and the develop of it, decide if you are going to patent it or you´ll keep it as a secret (as long as you’re sure that it is impossible to exposure it). You can also patent only some fragments of your product and others keep them as a secret. This allows you to protect your intellectual property by the most practical and efficient way.

Apparently for some people the fact of give those kinds of facilities to protect the intellectual property is unfair for the market or the innovation fields, because the companies can protect their ideas in many ways that could for instance stock the market, but in the other hand I see it like a fair way to protect the rights of the inventors and a way to promote other people to create new ideas from other angles and not to try to copy other’s ideas, like we saw it in the past themes that’s why there is another controversial topic that discus about patent the method and no the final product, an example is Coca Cola and PepsiCo, the product is somehow the same but the recipe changes and it is not plagiarism. I think it is good to have several choices to protect your ideas and it depends on you which way you´ll take for improve the benefits from your products or methods.

In the scientific field there is also another option that is published an article in specialized journals with your formula and with that protect it from imitators, although it doesn´t always apply.

(1) http://www.pellegrinoandassociates.com/why-coca-cola-will-never-patent-its-formula/

When referring to patents or any other kind of intellectual property rights, independently of the type of innovation aimed to be created, one might understand that they exist as tools to achieve the best balance between dynamic (incentives for innovators to keep innovating) and static efficiency (social benefit for users). One recognize the importance of patents to enhance further investments in production of Knowledge, given its specific properties as a (pure) public good.

Taking into consideration complex innovations, the relevance of patenting emerges, since it undermines the possibility of imitation and strong competition, due to the fact that complex innovations entail several sub-innovations, which being patented harm competitors – the monopoly market power is larger and imitators, on one hand should incur in more transaction costs, and in other hand have to fulfill more technical skills in order to comprehend the connections within sub-innovations. The critical point to the innovator is to decide the appropriate balancing and/or mix strategies between the acquisition of patents to all sub-innovations and respective enforcement or to keep some ideas behind such sub-innovation in secrecy. Nevertheless, this decision is not straightforward, assuming not only the requisites an innovation should entail to be patented – novelty (prior art) and utility, but also given the reform of AIA, that underlines “(…) inventors (…) are left with the option to practice their invention as trade secrets for now and still patent those same inventions later”. This reformation, at a glance, seems flexible, however when analyzing deeply it evidences some shortcomings.

First of all, as argued by some experts, the definition of “prior art” is not clear ( “ In this way, the AIA expanded prior art to include the variety of ways information can now be published, not the least of which is publication via the Internet. This would seem to indicate congressional intent to broaden the definition of prior art.”; “The trouble is defining what is “new.” Prior art must be a reference of some type (i.e., a patent or a printed publication) or some type of knowledge or event (i.e., public knowledge, public use or a sale of a product) that demonstrates that the invention in question is not new.(…) in http://www.ipwatchdog.com/2012/10/03/the-impact-of-the-america-invents-act-on-the-definition-of-prior-art/id=28453/ ).

Secondly, a secrecy can only be patented if there is yet no patent for the same idea kept as a secret, it means that this reform benefits most not the “first to invent” but the “first inventor to file”, which of course discourages secrecy at all. Although, one of the properties of a secrecy is that it is defined as “tacit” Knowledge, in other words, some ideas can be expressed but only perfectly performed by the inventor (case of most recipes kept secret); therefore patenting some secrecies is worthless.

Last but not least, I would say that assuming a given secrecy is patented, the length of protection of the innovation as a whole will increase, which will benefit, at the first stage the innovator, who keeps his market power for a longer period. Additionally, in medium-long term, the social welfare will overall decrease, given that :

– For inventors, there will be an increasing R&D costs of innovation and diminishing expected present value of their returns (discounting).
– For users, they are delaying the use of new Knowledge.
– Higher temporarily deadweight losses.

After reading the different articles, my thoughts are that the changes are for the better. Because the required work by the patent offices will decrease, as they don’t have to dig as deep to find out whether the invention is prior art or not. Further on I support the idea that the rules becomes more comprehensible, and that the law focuses on higher prosperity. With more information available for those who want to find it, the change in rule is an improvement.

Further on I support the idea of “first-to-file”. Again this gives an incentive to patent secrets, as you don’t know when someone might “crack open” your secret. Although patents might lock up information, its at least only for a certain amount of time, and not forever (which might be the case for a secret). I strongly believe that sharing information is the best way of obtaining further improvement, and secrets might slow down our development.

Touching upon this theme, I was inspired when Tesla Motors published the content of many of their patents. Not only contributes this to increased research and development on electrical engines. But I believe Tesla Motors can profit from this move, as hundred of researchers will work on improving the technology used in their engines, without Tesla having them on their payroll. This is also an example on how sharing information can contribute to public wealth, and at the same time be profitable for the firm.

This example stresses my fundamental support of openness and shared information. And as the law now opens for patenting long held secrets, I believe that the end result will be more information available to more people. On the same time I understand the importance of patents, as this gives the innovators an incentive to invest in R&D.

So to sum up, patents are in my opinion better then secrets, but keep the patents flexible and easy to understand.

Both patents and trade-secrets work in an essentially similar way when we look at them from the perspective of the innovator; through both these tools an innovator is trying to reap maximum returns either by completely with-holding information pertaining to his innovation or by legitimately patenting his innovation so that although his innovation is available to the industry at large, but in the wake he has bought himself a right to use that innovation exclusively for a stipulated time.
Now, the essentially similar looking tools being discussed here must have a very substantial difference between them for their usage finds most relevance under very specific scenarios, and the truth is, that yes, there is, as a matter of fact, very significant difference in their risk-return outline.
We obviously know that, a trade-secret works for the innovator as long as it is managed to be kept under the wraps, once it is out in the hands of the competitor, he can virtually do anything and can push us out of the business, yet we take this herculean amount of risk for just 1 reason, and that is the notional return. This above is the reason why Coke’s syrup formula is still a pursuit for many, or the KFC’s list of secret herbs, still boggles the minds of chefs and competitors alike.
Now, a patent for sure is a less risky avenue, I mean you potentially define for yourself the time for which you and you alone would be able to reap the benefits of you innovation (actually the innovation which was filed by you!), no one can definitely take that away from you. But, in the wake, you obviously are ready to assume the risk what all the industry can do with your innovation. I mean it can probably run its course even before the patent period ends!
Coke’s syrup formula, KFC’s 11 herbs or McDonald’s special sauce on one hand; and ‘Beverage preservatives’ by Coke, ‘Device and method for frying and grilling’ by KFC, or the ‘Method and apparatus for making a sandwich’ by McDonald on the other hand – these two groups fundamentally represent two different classes of innovations, first one is such that innovator must protect them even 100 years post innovation for their disclosure might just make the company irrelevant, it is because these innovations may or may not be replicated again, it was just sheer chance that what was developed was well received by the end consumer. However, the second group majorly points at methods of increasing operational efficiency, now one thing is for sure that they are much more mechanical innovations as compared the first group, hence sooner or later they can be replicated, hence it makes more sense to patent them.
We have in front of us a very clear motive for choosing either of the modes discussed above, now with that been established, let me ask you a question – Will coke ever disclose its Syrup recipe? Will KFC ever make public the list of those 11 magical herbs? Now, in the wake of above, the latest move by AIA to allow innovators to patent their trade-secrets at a later stage, will this move ever find its relevance?!
For me the answer is a straight NO. If I am the Coke of this world, I will never disclose the one thing that alone stands for my survival. Absolutely No! And, not today, not in future!
However, let’s amuse ourselves by considering an hypothetical scenario that Cokes and KFCs of the world decide to shut themselves one day, and just to ensure that last piece of return from that innovation, they go for patenting their innovation since they won’t be using them for their own usage anymore, then yes in that amusing hypothetical scenario, this move may serve the mankind.
Before, I end; I must consider one more possibility, where an innovator himself is not sure about which of these tools serves his purpose more, and then the latest modification is sure going to find usage as it still leaves the option of patenting at a later stage for the innovator.

Before introducing my opinion on the matter, I would like to point out the rationale behind the existence of IPRs such as patents in the first place. Drawing my analysis from the Romer Model (Romer, Paul M, 1990. “Endogenous Technological Change,” Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October), I would like to list two important lessons from Romer’s paper to support my analysis –

1. Knowledge is a non-rivalrous good, i.e. the same piece of knowledge can be simultaneously consumed by many
2. If we consider technological knowledge (A) as an input in production, then due to the non-rivalrous nature of knowledge, the production function would show increasing returns to scale w.r.t. technological knowledge. This means that if technological knowledge is doubled, along with other factors of production, then the output should be more than double.

Due to the above mentioned reasons, while the innovator who produces the first unit of a new idea incurs large fixed costs, the imitators face a very low marginal cost of production (MC). Hence the average cost of production for the innovator, AC > MC.

In a world absent protection to the innovator, i.e. in a perfectly competitive world, the price, P would be equal to MC. In effect, the innovator would face losses as AC<P. Hence, a world absent patents and other forms of IPRs doesn’t offer any incentive to the innovator to invest in innovation. Trade secrets and patents are two of the many possible solutions to this problem.

The AIA reform can be seen as another incentive for innovators to invest time and money into innovation. Between patents and trade secrets, while patents require a) government approval, b) involve costs to the innovator and c) require the innovator to go through the statutory litigation procedure, trade secrets, in my opinion, offer a better alternative to innovators for protecting new ideas without going through all of the above.

Attempting to gain an advantage from an innovation boils down to the choice between filing a patent or trying to keep it a secret from competitors. A patent protects the innovator for a certain period of time but competitors will know how the innovation functions. Trade secrets have no such explicit protection but as long as the innovator manages to conceal how his innovation works, he will have an effective advantage over his competitors and it will also allow him to stay “ahead of the curve” (further develop the idea, create spin offs, etc.).

The best strategy then largely depends on the type of invention. Innovations that are relatively easy to reverse engineer, are better protected by a patent. Innovations that are more complex to reverse engineer, can perhaps be protected by secrecy for a longer period of time than what a patent would achieve.

The first-to-invent (FTI) system allowed the original inventor to have priority when filing for a patent. If a competitor creates a very similar innovation at a later date than the innovator, it will not be granted the patent even if the competitor filed for the patent at a prior date than the innovator.

The switch to first-to-file (FTF) system under the AIA reform does not take into account the date at which the innovation was created. Only the date of the filing for patent matters. First-come, first-served. If a competitor manages to crack the trade secrets of an innovator, the competitor can be granted a patent even though it never really was the originator of the innovation.

Thus, it would appear that companies that have extensive resources to reverse engineer trade secrets could benefit from the switch from FTI to FTF. Indeed, looking at the corporations that lobbied for the pass of the AIA reform and the money they spent [1], it does appear that large corporations were very interested in the reform. I would argue that they would not have lobbied in that dimension if it went against their interests. “The Coalition for 21st Century Patent Reform” includes such companies as PepsiCo, DuPont, 3M, P&G and General Electric [2]. “The Coalition for Patent Fairness” which includes such companies as Google, Adobe, Intel and Samsung [3], was also in favor of a switch to a FTF system [4].

Amanda Becker [5] from the Washington Post, notes that “the shift [from FTI to FTF] was a victory for big companies” and “smaller start-ups and entrepreneurs — and the organizations that represent them — lobbied fiercely on the idea that the first-to-file system favors powerful corporate players”. Large companies not only have the capability to appropriate other companies’ ideas through reverse engineering, but also to beat smaller companies in a race to the patent office, due to the fact that they generally have an army of lawyers at their disposal. Becker continues by quoting The National Small Business Association, saying that the reform is “strongly titled in favor of large incumbent corporations”.

This is of course a point of view that is not based on economic models. However, considering the large sums of money spent by large corporations to pass this reform, it is not obvious to see why they would do that if it went against their interests. Social welfare is usually not one of their main priorities.

References :
[1] http://firststreetresearch.files.wordpress.com/2011/11/first-street-report-lobbying-the-america-invents-act.pdf
[2] http://www.patentsmatter.com/about/coalition.php
[3] http://www.patentfairness.org/learn/about
[4] http://www.uspto.gov/aia_implementation/pur-2011nov08-coalition_for_patent_fairness.pdf
[5] http://articles.washingtonpost.com/2011-03-27/business/35208767_1_first-to-file-system-patent-system-patent-office

I think we need to change the protection regulation so that inventors can get more incentive to some innovation. Because I have several reasons for this.
First, I wonder what makes inventors, some companies or some institutions more incentive to the innovation. The patent protection is good system to the public, I think. Because if a company keeps some innovation as a trade secret, other companies or some actors in the same field as the companies cannot get the key to new innovations, so if the trade secret is disclosed to the public, the new innovation will happen easily using the secret even though some money was needed. But this is just on the point of view of receivers. How does the suppliers of the innovation think about patent? It is true that they can get money using the patent system. But is it enough for them? I also think it is better for them to disclose their innovation and make the society better. But for the innovation, we need the incentive. To maintain the incentive we need make the patent system more profitable to investors.
Second, what I think is different from just making the criteria of patent softer. The reasons why the inventors maintain their innovation secret are the desire to make more profit and feeling of superiority. The feeling of superiority is the important factor of it. So, I think that we need to make some patent system concerning to the point of view. For example, the system give some award of extra fee to the investors.
For these reasons I think we need to change the protection regulation so that inventors can get more incentive to some innovation. In addition to making the patent criteria softer.

Thеrе arе many factors to considеr whеn dеciding which typе of protеction to sееk for a nеw idеa or dеvеlopmеnt.

On thе onе hand wе can chosе thе protеct our idеa with a patеnt. Patеnts typically last for 20 yеars from thе filing datе. Maintеnancе fееs must bе paid pеriodically to kееp thе patеnt in forcе –е.g. еvеry four yеars in thе Unitеd Statеs. Assuming that thе fееs arе paid as thеy bеcomе duе, thе еxclusivе patеnt rights will last for thе full 20-yеar tеrm. Aftеr еxpiration, thе еxclusivе right to prеvеnt othеrs from using thе claimеd invеntion еxpirеs and thе invеntion can bе usеd by anyonе with no liability to thе patеnt holdеr.

On thе othеr hand wе can dеcidе to usе tradе sеcrеt. As an altеrnativе to patеnts, tradе sеcrеts may bе onе of thе most important ways to protеct and dеvеlop nеw idеas for thе most of innovativе products. Tradе sеcrеts arе gеnеrally dеfinеd as an еxclusivе right to valuablе information not gеnеrally known in thе industry. In many casеs, it makеs morе sеnsе to protеct intеllеctual propеrty using tradе sеcrеts rathеr than patеnts. Tradе sеcrеt law: providеs broadеr protеction than patеnt law; pеrmits thе invеntor to kееp thе innovation is immеdiatеly availablе and rеquirеs no govеrnmеnt approval and costs significantly lеss; “sеcrеt” without having to disclosе thе idеa through patеnt publication. Howеvеr, tradе sеcrеts havе nеgativе part as wеll. Tradе sеcrеts arе not protеctеd if anothеr pеrson dеvеlops – indеpеndеntly and without accеssing thе sеcrеt information – thе samе еxact idеa. Morеovеr, if a product that contains a tradе sеcrеt is rеlеasеd into thе markеt, tradе sеcrеt protеction is lost if thе tradе sеcrеt can bе rеvеrsе-еnginееrеd. Thus, tradе sеcrеt law is not еffеctivе for obvious and gеnеric nеw idеas or thosе that could bе еasily rеproducеd oncе a product is in thе markеt.

Having in mind all good and bad aspеcts of patеnts and tradе sеcrеts, I agrее with thе AIA Rеform, as it compounds patents and trade secrets. This act еncouragе companiеs and invеntors focus on innovation and job crеation rathеr than costly, and somеtimеs unnеcеssary, litigation.

What should we think about the America Invents Act reform? Actually, I think it depends on which side of the debate we look it from. Indeed, competitors (the first potential imitators) are willing to know how and why their competitors have lower production costs than them in the industry, and why do the innovative firms make highest margins. From the point of view of competition regulatories, if firms compete in Bertrand fashion, the competitive advantage that innovatives firms are going to enjoy with secret and then extended patents, could threat the competition between firms by promoting the emergence of a firm among the others.
While forbidding that long held trade secrets are then patentable would allow a faster diffusion of the ideas and promote a faster economic growth.

But it seems that the whole society would benefit from this reform. Now that the AIA has softened the novelty conditions there will be more and more possibilities of mixing patents and secrecy. I think it could lead to an increasing trend to innovate, because if innovators are consolidated to have the exclusivity of using their own products and processes, they will be encouraged to invest more in R&D, to have a bigger “innovation rate” (which can be compared in the macroeconomic perspective to the “intensity of innovation” equals to R&D expenditures/GDP) etc.
We can conclude that although such practices (secrecy and patent) could be badly seen for the innovation and economic growth, they are welcomed from an economic point of view. Moreover we know some examples where there are lot of patents combined with sercrets (i.e. Coca-Cola Company, Mc Donald restaurants, …) and that despite of these “barriers at the entry” there exist other firms which almost copied them succesfully (i.s Pepsi, Quick, Burger King, …).

Finally, in aspects of law, I think that the switching from the “first to invent” system to a “first inventor to file” system will give facilities for all what concerns industrial espionage, and the “Justice” should take it in account. But that is an different debate…

Paul,
I think you should indicate that your analysis is done with reference to the US patent system only.

For European ears, it is strange to read the following:

A first requirement for patentability is that the invention be of practical use. A strict enforcement of this utility requirement could prohibit the patenting of fragments of innovations. As a result, the innovator would be left with a binary decision: seek patent protection for the entire innovation or for nothing.
A second requirement is that the invention show an element of novelty; that is, it must show some new characteristic that is not known in what is called the “prior art”, i.e., the body of existing knowledge in the technical field of the claimed invention. Hence, a strict interpretation of the novelty requirement could prevent inventors from patenting long held trade secrets.

Utility (as such) is not a patent requirement under European law (you might discuss of course whether the industrial applicability requirement is the same). An invention that is kept secret (therefore the role of NDAs) can always be patented.