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Corporate Espionage the Honest Way

Bloomberg Law Reports
May 3, 2010

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The pressure is on. Corporations must perform, they must perform quickly, and they must perform better than competitors. But what is the gauge? After all, "success" is a relative term. We can certainly ask who is making the most money today, but isn't the true test for long-term success gauged in terms of innovation? Whose products are the most innovative? Whose products are moving the industry in a new direction?

In today's pressure-cooker economy, corporate espionage of all sorts can be tempting. Through espionage, a corporation can, at a minimum, make sure that it is keeping up with the innovation of the Jones Corporation. But corporate espionage need not be nefarious. Indeed, isn't "corporate espionage" just another name for "competitive intelligence"? Business schools teach that competitive intelligence is the systematic study and analysis of business rivals in the relevant market. And business schools teach that long-term strategic planning should take account of competitive intelligence as a matter of corporate policy. Failure to do so might result in a missed opportunity to expand market share or even a loss in market share.

An all-too-often overlooked tool for honest competitive intelligence is patent research. Innovative companies file patent applications to protect their investment in research. Those patent applications often reveal not only a corporation's current research projects but also its planned research projects. And because those patent applications are usually published even before the U.S. Patent & Trademark Office ("USPTO") has made a final determination of patentability, they can be an invaluable, early source of information to competitors. Indeed, often the earliest indicator of an impending product launch is reflected in a competitor's patent portfolio.

Consider, for example, the recent commercial introduction of the Apple iPad®. Apple successfully maintained its notorious veil of secrecy up until the day of the product unveiling on January 27, 2010. A savvy competitor keeping track of Apple's patent portfolio, however, might have taken note of the following drawing figure in an Apple patent application published on July 20, 2006:

That figure was, in effect, a sneak preview of the Apple iPad®. (Figure 19A of U.S. Patent Application Publication No. US 2006/0161871 A1.) While Apple's ultimate patent from that patent application did not issue until the day before the product unveiling, the "sneak preview" drawing was actually published three and a half years prior in Apple's patent application.

Similarly, by tracking a particular competitor's patent applications over time, valuable information can be gained regarding that competitor's allocation of resources and the competitor's research priorities. A competitor's earlier patent applications might have emphasized a certain technology, which may be noticeably lacking in the later applications. Early tracking of an automaker's patent portfolio, for example, might have provided early indicators of research directed toward alternative fuel sources and a shift away from research in the more traditional energy space. Early tracking of a coffee maker's patent portfolio may have provided early indicators of a shift toward individual brewers and a shift away from instant products.

Additionally, patent tracking might indicate a shift in a competitor's business objectives. Monitoring a drug company's patent portfolio might indicate that the drug company is making a shift into a new medical indication. While the drug company may have never before offered medicines to treat heart disease, the company's patent portfolio might reveal that new business objective. Likewise, if a supplier of consumer products begins to file applications directed to the methods of manufacturing such products, it might be surmised that the supplier intends to soon begin manufacturing its own products in lieu of its current practice of paying third parties for such manufacture.

In addition to revealing the activities of a given corporation, patent research can also provide insights into big-picture changes in the marketplace. Patent research can reveal industry trends, open niches, and nascent technologies. Patent research might reveal, for instance, that each of your competitors has a patent application directed to a "hands-free" mode. In that situation, "hands-free" might be becoming the new industry trend. Hence, you might consider applying some research energies in that direction as well. Alternatively, patent research might reveal that none of your competitors has yet to move in the direction of having a "hands-free" mode. In such case, "hands-free" is a nascent technology in your industry space, and you might press forward aggressively and broadly.

Patent research can reveal which entities are the major players (i.e., innovators) in a specific field. The patent portfolios of the major players might reveal competitors that pose an immediate threat, but they might also reveal potential business collaboration opportunities or cross-licensing opportunities. The patent portfolios of such major players can also serve as an important benchmark for the corporation conducting the search. A corporation seeking competitive intelligence might use such analysis to measure its strengths and weaknesses relative to other entities in the field. After such an evaluation, a corporation may decide that it needs be more focused in its product line, or that it is lacking a presence in a particular market.

Alternatively, patent research might reveal entities that are ripe for takeover, such as a start-up company with an impressive patent portfolio. Although the start-up company may not have yet made an entry into the commercial marketplace with a viable product, a savvy competitor who learns of the patent portfolio might swoop in and make an irresistible offer to the start-up company. Similarly, patent landscape analysis might also help an entity differentiate itself from its competitors for the purposes of marketing or attracting business partners: "The Smith Company is the only company having patented widget technology."

Strategic analysis of published patent applications and issued patents might also reveal areas that are yet unexplored. Before investing significant resources in a particular technology, a company might search for applications and patents in that area and learn that there are none. Based on this information, a company might decide that the time is right to enter a specific market. Conversely, a sudden burst of patent activity in an open technology area might indicate an emerging trend. A company looking to launch a product might find that the area is already crowded with patents and applications in the particular technology and therefore decide to forgo the launch. An early investment in competitive intelligence can, therefore, save a company from expending significant resources unnecessarily. Alternatively, if a field is still relatively open, a company may pursue an emerging trend while it is still profitable to do so.

Although all companies can benefit from competitive intelligence, it is especially useful to the smaller company. For a small company with limited funds, one bad business decision can be fatal. Engaging in competitive intelligence can enable such companies to make prudent decisions before unnecessarily investing limited funds. A patent search might reveal, for example, the existence of a critical patent that might impede a corporation's current product development efforts unless it obtains a license.

For certain small companies, the entire company might be built upon one invention. Competitive intelligence may indicate that the small company should not expand beyond this one product line because the market of interest is already crowded with competitors. Or even if the search reveals the existence of only one other patent in the market of interest, expansion still might not be wise if the small company could not survive the costs of any litigation as result of entering that market.

Competitive intelligence can also be used for purposes of strategic patent claiming. By examining the patents of rivals in the same field, a patent owner might learn new and creative ways to craft its own patent claims in their particular field. Or, where patent families might be the subject of either cross-licensing or cross-suits, a patent owner might serve itself well by making sure its claims are in the same format as its competitors. For example, a competitor might use a certain type of functional language that the patent owner could utilize as well.

So how is a patent search conducted? The Patent Office maintains a web-accessible electronic database of patents. That database is text searchable and any search may be further limited by inventor, by assignee (or patent owner), by date, and the like. Alternatively, the Patent Office database may be accessed through the Patent Office's elaborate classification system. Patent searches may also be conducted on privately managed databases. Free databases are available, such as Google Patents; however, the databases with more sophisticated search capabilities require payment of fees. As with any search, however, the output is only as good as the search query input into the system. For that reason, many companies hire professionals to assist with patent searching.

In the end, whether a company is small or large, a new-comer or an old-timer, competitive intelligence is an invaluable tool for facilitating critical business decisions. A company engaging in competitive intelligence need not rely on mere speculation regarding its competitors; rather, it can base its business decision on real facts. And more specifically, competitive intelligence through patent research forces corporate decisions to be made with a focus on innovation.

Go ahead! Participate in corporate espionage, the honest way. To be sure, patent research requires an investment of resources, but the return on that investment is real. At a minimum, the return is the intangible satisfaction of knowing that your long-term strategic business decisions are well-informed. At maximum, the return can be measured in terms of innovative success vis-a-vis competitors.

©Bloomberg Finance L.P. 2009. Originally published by Bloomberg Finance L.P. Reprinted by permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws.  This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.