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REV: FEBRUARY 7, 2016

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T E AC H I N G N O T E

The LEGO Group: Publish or Protect?

How should a manager think about protecting the appropriability of process innovations? Should
they be patented and used as a “sword” against competitors? Or can they be positioned more as a

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“shield” for defensive purposes to preserve freedom of action? The purpose of this case is to help
students explore how to think about such innovations in the context of protecting them, and also to
recognize that tool suppliers often contribute to an important path of knowledge spillovers beyond an
organization’s boundaries. The case discusses two protection regimes for intellectual property: patents
and trade secrets. It then discusses strategies of defensive publication to preempt the novelty claims of
subsequent inventions and block someone else from obtaining a potentially troublesome patent. The
case emphasizes managerial questions around knowledge management and appropriability. It is not
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intended to be a comprehensive discussion of patents and trade secrets from the perspective of a legal
student or lawyer.

Case Positioning
The case was written for the course Understanding Technology Businesses offered in the second
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year MBA curriculum at the Harvard Business School. It forms part of a module that focuses on
capability building in organizations, and this case is part of a sequence that considers how
organizations can capture economic returns from their investments in research and development. The
case is taught in conjunction with a classic paper by David Teece on appropriability:

 Teece, David J. “Profiting from technological innovation: Implications for integration,

collaboration, licensing and public policy.” Research Policy, Vol. 15, No. 6 (1986): 285–305.
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Patent rights are territorial by nature, and this case adopts a U.S. perspective. Patent law is largely
harmonized, especially now that the U.S. has adopted a first to file rule, and since the U.S. is a large
market, the differences don’t overly affect teaching concepts. It is not the intent of the case to
comprehensively cover the topics of patents and trade secrets; we only aspire to give a managerial
perspective on the underlying issues while introducing some of the basic concepts.

Case Synopsis
The LEGO Group was the third largest toy manufacturer in the world in 2013. Its core product,
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introduced in its present form in 1958, was a building system that employed interlocking bricks using
________________________________________________________________________________________________________________

This note was prepared by Professor Willy Shih for the sole purpose of aiding classroom instructors in the use of “The LEGO Group: Publish or
Protect?,” HBS No. 613-079. It provides analysis and questions that are intended to present alternative approaches to deepening students’
comprehension of business issues and energizing classroom discussion. HBS cases are developed solely as the basis for class discussion. Cases are
not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2013, 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-
7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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a stud-and-tube coupling system. Per Høvsgaard, the director of the Concept Center at the LEGO
Group, was meeting with Kathrine Petersen and Tina Poulsen. Petersen was his senior director in
charge of the LEGO Group’s “concept factory” of the future, and Poulsen was a project director
responsible for a strategic cross-functional project defining the “Future Molding Platform” of the LEGO
Group. Concept Center engineers had come up with significant innovations that improved both the
speed and precision of their plastic injection molding manufacturing processes, but the three were

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uncertain on the best course to protect these new inventions.

Høvsgaard, Peterson, and Poulsen were extremely wary of competitors copying what their
engineers had done. While their first instinct might have been to seek patent protection, patenting did
not automatically convey protection. The very act of patenting meant the company would have to
disclose details of the invention in its filings. With Asian competitors operating in property rights
regimes that could best be described as mixed, Petersen questioned how much protection patenting

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would realistically afford. Alternatively, the company could choose defensive publication. Publishing
the invention would establish it in the public domain and at least prevent others from patenting
something similar, thus insuring the LEGO Group’s freedom to operate. The company could also elect
to maintain the technology as a trade secret, or it could do nothing.

The case then briefly recounts some of the history of the company, and provides an introduction to
its main injection molding manufacturing processes. The company manufactured approximately 7000
different kinds of plastic elements, and its high volume molding set-up dated back 25 years. It featured
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a modular system of molds with standard sized cavity inserts. Over the years the company had
constantly refined its processes and made incremental improvements like adding color at the point of
use, or reducing or improving the reuse of plastic scrap. The company used standard injection molding
machines supplied by German and Austrian suppliers, and they all employed hydraulic drive.

The Future Molding Platform had several broad goals: increasing the overall volume as well as
throughput per square meter of factory floor space, while improving sustainability through lower
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power consumption, less waste, and a better work environment. Petersen saw an important path to
this through higher standardization and modularization of molding. With seven standard mold sizes
that used multiple inserts, the most straightforward way to increase productivity was increasing the
number of inserts per mold. Yet the larger molds also placed more demands on mold design to ensure
uniform molding temperatures and cooling across the increased number of cavities

Process control has always been important in injection molding, but several technological changes
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foreshadowed both opportunities and challenges:

 Asian injection molded plastics producers had largely shifted to electric drive from hydraulic
drive machines. The company’s traditional suppliers had stayed with hydraulic drives and had
continued to innovate extensively in complementary equipment like materials handling
systems and robotics. While the LEGO Group had brought in some electric drive machines, the
primary benefit they saw was in reduced power consumption, which definitely furthered the
goal of sustainability. Petersen and Poulsen had begun an analysis to see if electric drive had
implications for better process control of the molding process.
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 Additive manufacturing promised a revolution in the tool making process—producing the

mold tools. Traditional tool manufacturing entailed the carving out of mold patterns through
subtractive methods, using methods such as electric discharge machining (EDM), grinding, or
high-speed milling, and this limited the design of molds to ones in which the physical grinding
paths were accessible. Because of their high labor intensity, the manufacture of a lot of injection
molding tools had migrated to China. A new additive methods used a process called selective

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laser sintering in which a high-powered laser was used to fuse finely ground martensitic1
thermo-setting tool steel into the desired three-dimensional shapes. Finished pieces had to be
heat-treated in a furnace and polished, but the additive process not only meant faster cycle
times for tool production, it also meant that molds could incorporate radically new designs that
were not physically possible to build in the past. This was particularly important in the design
of conformal cooling channels and for making small parts. The improved cooling could lead to

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faster cycle times as well as better quality. The Future Molding Platform team was also
evaluating a number of other new technologies that would speed cycle time, improve
productivity or quality.

As LEGO Group engineers experimented with these new tools and tool making methods, they
developed important improvements. Høvsgaard, Peterson, and Poulsen now had to decide what to do
with them. They were most fearful that competitors, through parallel development and patenting,

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might limit LEGO’s freedom to practice. This is the core issue in the case.

Case Analysis
The case illustrates many managerial issues associated with the introduction of a new
manufacturing process technology. The LEGO Group was a lead user for some of its tools suppliers,
particularly the German maker of the selective laser-sintering tool. The tool embodied a great deal of
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know-how, and as such it could be a transmission path for knowledge spillovers. Because the selective
laser-sintering process is new and relatively immature, there was likely to be a substantial amount of
close collaborative work with the tool supplier. The tool supplier is motivated to share any know-how
thus obtained with its other customers, who may include present or future LEGO Group competitors.
There was likely less of an issue vis-à-vis design of injection molding tools (die) using the selective laser
sintering process, as these would be easier to conceal. Similarly, new process designs using electric
molding machines carried the same types of spillover risks.
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Patents
Most economists believe that inventors, absent a reward, would be inclined to keep inventions
secret. A patent represents an effort to overcome this problem by granting an inventor the right to
exclude others from using his or her invention for a period of time in exchange for disclosure of that
invention. Others can then build upon that knowledge, either with proper compensation, or after a
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period of time (the length of the patent grant). Patents are granted by a government (hence are only
granted within the granting country), and convey a right to exclude others from making, using, selling,
offering to sell, or importing an invention.2 To be patentable, an invention must embody patentable
subject matter, must have a demonstrable utility, be novel, and non-obvious.3 The novelty requirement
is particularly relevant for this case discussion, because it asks whether a patent’s “teaching” has been
previously used or described in a single publication. Thus it is not sufficient that pieces have been

1 “Martensitic” refers to the crystalline structure of the steel.

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2 Under U.S. patent laws, importing constitutes infringement only in the case of the importation into the U.S. of a product that
was made by a patented process outside the U.S. The laws governing practices in import trade prohibit importation of a patented
invention (19 USC 1337)
3 The case uses U.S. rules, which are largely similar to the European regime, especially after the change to “first to file” from
“first to invent.” U.S. rules are also important as most patent applicants file in the U.S. because of the size and importance of its
market.

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described separately, rather the combination of claims must be non-obvious. Patentable subject matter
includes: (1) a machine, (2) a manufactured product, (3) a composition made from two or more
substances, or (4) a process for manufacturing objects.

Though the case is set in Denmark, U.S. law is relevant because the U.S. is the largest market in the
world and has an effective enforcement regime. Basic concepts involving patents are similar across

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regions. U.S. Patent law, which is enacted by the United States Congress, is in volume 35 of the United
States Code, referred to as 35 USC. Over the years, this law has been clarified and changed by court
decisions.

Rights conferred by intellectual property are only valuable if exclusive use can be enforced. The
most common enforcement mechanism is court actions that force infringers to pay monetary damages,
often in the form of lost profits or a “reasonable royalty.” Under U.S. law if the infringement was
willful, the infringer can be forced to pay treble damages. In some cases, the patent holder might wish

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to stop an infringer from selling a product.

Høvsgaard and his colleagues were concerned both about the merits of filing for patents as well as
the possibility of being excluded from practicing by patents held by competitors. The key concept is
that a patent disclosure must necessarily be complete. Høvsgaard’s concern was that manufacturers in
geographic regions like China with weak property rights regimes would happily take the disclosed
information and copy it, and LEGO would have minimal recourse through the Chinese legal system
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(the company would also have to file in every country where it expected to compete, including China).

Western markets with strong property rights regimes, like North America and Europe, presented a
different problem. Historically patents were also seen as a tool for maintaining access to the intellectual
property of others through cross-license exchanges. Hence they were viewed as one tool for ensuring
design freedom, or freedom of action or freedom to practice. This was important because there were
numerous examples of heavy investment in patenting being used successfully to build high entry
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barriers to specific technologies and exclude others from practicing. The inkjet printer industry was
one such example. Companies used patenting to limit market access for many years. Canon, Inc. with
its Bubble Jet technology, HP with its thermal inkjet technology, and Seiko-Epson with its piezoelectric
ink deposition technology, were able to successfully build significant barriers to entry to the field and
utilize litigation to protect these barriers. Few competitors were able to navigate the resulting patent
thicket. The clever packaging of the intellectual property in the heads as a disposable ink cartridge (in
the cases of HP’s and Canon’s thermal inkjet technology) made it very difficult to intercept the value
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stream in this product category. This resulted in an enviable situation where ink cartridge profits
became huge profit engines, and the strong appropriability regime prevented competitors from
entering and commoditizing the sector for two decades.

For the LEGO Group, securing their future freedom to practice was strategically critical. Should
they accumulate patents so that they can secure access through cross-licensing, or were they at risk of
being precluded from practicing a critical future technology?

Trade Secrets
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Trade secrets cover a wide range of confidential information. They can be formulas for products,
know-how, technical recipes for processes, or even things like customer and employee lists, marketing
strategies, are other things of commercial value to a company. The law on trade secrets varies—in the
U.S. different states may have different interpretations, and there is variability from country to country
as well. Most states have adopted language from the Uniform Commercial Code. In general the
requirements are:

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 The owner must derive economic value from the trade secret not being readily known or
ascertainable by others.

 The owner has taken reasonable steps to keep it secret.

 The secret is not publicly available.

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This form of protection is particularly attractive if the owner believes the trade secret will never leak
out and if it would never be rediscovered independently by someone else. Some inventors choose trade
secret protection when they think patent protection is too costly in relation to the value of the invention,
or because of a limited ability to reap profits because the invention is not patentable, or the length or
breadth of patent protection is insufficient to warrant the expense of filing. While unique compounds
that can be protected by a composition of matter patent are generally easy to observe with modern
analytical tools, some chemical formulations might be revealed in a patent, enabling others to produce

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close approximations through material substitutions.

Observability (also referred to as detectability) is a key practical consideration for patenting. If a

patent is not detectable in its use or application, as is often the case with manufacturing processes,
enforceability is difficult because it may require access to an infringer’s premises and direct observation
of the invention in use, something that is practically impossible to gain. Thus an inventor could patent
an invention that was not observable, but that would simply disclose the invention without any means
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of enforcing exclusion. So why would you?

Supplementary Background Readings

Formal mechanisms for protecting intellectual property include patents, copyrights, trade secrets
as well as special statutes. This is a very broad topic with extensive literature, so it is not easy to find a
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succinct summary. One book that offers not only a well written history but a good primer for non-
lawyers (in Chapter 3) is:

 Scotchmer, Suzanne. Innovation and Incentives. MIT Press, 2004.

A number of other papers offer the instructor helpful background. Mansfield’s widely cited article
from 1985 offers a succinct summary of spillover mechanisms:


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Mansfield, Edwin. “How rapidly does new industrial technology leak out?” The Journal of
Industrial Economics, (1985): 217-223.

 Hall, Richard. “The strategic analysis of intangible resources.” Strategic Management Journal, Vol.
13, No. 2 (2006): 135-144.

 Teece, David J. “Capturing value from knowledge assets.” California Management Review, Vol.
40, No. 3 (1998): 55-79.

 Cheung, Steven N.S. “Property rights in trade secrets.” Economic Inquiry, 20.1 (1982): 40-53.
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A good introduction to the language of intellectual property can be found in the following HBS
note:

 David B. Yoffie and Debbie Frier, “Intellectual Property and Strategy,” HBS Case Number 9-
704-493.

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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For general reference, the following volume provides a good overview of the processes in patent
filing and litigation in the United States:

 Federal Judicial Center, Patent Law and Practice, 4th Edition, Washington, D.C., The Bureau of
National Affairs, Inc., 2003.

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U.S. patent law underwent a major shift from a first-to-invent to a first-to-file system on March 15,
2013. While the long-range implications of the change are significant, they do not really impact the
issues or the teaching points in this case.

Student Background Reading—Part of Case Preparation

The student will need to have a basic vocabulary in patents and litigation. A good way to do this is

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to have students view the 17 minute video “An Introduction to the Patent System” produced by the
Federal Judicial Center as part of preparing the case. This video, available from the Office of Public
Affairs of the US Patent and Trademark Office, can be downloaded from http://www.fjc.gov/
public/home.nsf/pages/557. The video is not copyrighted. It is intended to be shown by federal judges
to jurors in patent jury trials. It is very carefully constructed and defines many important terms such
as infringement and invalidity, since it is meant as instructions to jurors. The video references a sample
patent that is also available for download at this site.
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Assignment Questions
There are a number of excellent videos that support the teaching of this case. In the course at HBS,
I have posted three videos to both provide some background for students who may not be familiar
with the U.S. patent system or the manufacturing of plastic parts. These actually help to transport
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students into the case setting. The URLs for each video are shown after each title.

A suggested assignment posting follows:

There are three videos that provide useful background for the case:

Video: Introduction to the Patent System http://www.youtube.com/watch?v=vZ1SBP8ul1s

This video is offered by federal district court judges to juries in U.S. patent trials. It offers a quick
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explanation of the U.S. patent system, and is a very useful introduction to the language and key
concepts underlying patents.

Video: Plastic Injection Molding [5:27] http://www.youtube.com/watch?v=eUthHS3MTdA

This video, produced by the Society of Manufacturing Engineers, is an excellent introduction to the
injection molding manufacturing process. This is a key capability of the LEGO Group, and the case
centers in this technology.

Video: EOS Laser Sintering [6:35] http://www.youtube.com/watch?v=zqWOrwBzOjU

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This video is produced by EOS GmbH Electro Optical Systems, and describes the laser sintering
tool used by LEGO Group. It describes the process of making an injection molding tool via 3D
manufacturing using laser sintering.

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The Introduction to the Patent Systems video builds on the appropriability discussion. Watch that
first before reading the case. Then as you read the case, you might find the other two videos helpful for
understanding the technology discussion. As you read the case, consider the following questions:

1. How much know-how should LEGO Group share with its tool suppliers? How practical is it in
reality to prevent spillovers?

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2. How much of LEGO Groups’ process innovations are actually detectable? In other words, when
looking at the product, do you think you would be able to see how they made it?

3. What is your recommendation about what to do about how they should drive their molding
platform and protect it?

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Class Plan
For an 80-minute class, I envision the following discussion pastures:

10 minutes Introduction and framing of case

20 minutes Patent claims, patentability, when to patent

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30 minutes Lay out the case issues: What are LEGO’s options?

15 minutes What should LEGO do?

5 minutes Wrap-up
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Discussion Pastures
The time allocation of suggested discussion pastures reflects the real heart of the teaching points of
the case—understanding at some depth the principle alternatives for maintaining LEGO’s freedom of
action in practicing new process innovations. Thus the first two pastures focus on understanding the
notion of claims overlap, and the third pasture focuses on a segmentation of the detectability of
innovations versus uniqueness, or how many ways there might be to implement an innovation. Then
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in the final pasture on what the company should do, we come back to the core freedom of action issue
and discuss the use of patents as a “sword” versus use as a “shield.”

First discussion pasture: Introduction and framing of the case

It might be helpful to students to set the context of the case. The instructor can point out that LEGO's
circumstances are not unusual in today’s globalized economy. Knowledge spillovers are common, and
they are a key part of the catching up strategy of firms in many emergent markets. Knowledge
spillovers via embodiment in tools is also a significant challenge for some industries like
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semiconductors and LCD flat panel displays. In these sectors the ability to purchase tools (i.e. having
sufficient cash) is perhaps the most significant entry barrier, rather than having a strong research and
experience base. This makes the diffusion of know-how and loss of competitive advantage very rapid.

The instructor can start by asking students to describe all the different paths of knowledge spillovers
that LEGO or any firm might face. This might look like TN Exhibit 2.

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Most students will quickly appreciate that people are a primary avenue for knowledge leakage,
both through employee movement and through disclosure to acquaintances. Other people, employees
of partners and complementers (like tool suppliers) are a big worry for LEGO.

It’s helpful to highlight that public information, either through disclosure of ideas in the form of
products offered for sale, are another route. Once a firm offers a product in the marketplace, the

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product may be subject to reverse engineering, something that is both legal and a widely accepted
practice. Pointing this out here will aid the discussion of patentability in the next pasture. Publication,
either through disclosure in a patent, or other publications, or through forced disclosure (as in the case
of an FDA new drug filing) are other avenues for information flow.

Second discussion pasture: Patent claims, patentability, when to patent

In the next pasture, the instructor might remind students that LEGO’s priority is preserving the

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freedom to operate, it does not want to be precluded from practicing in an area because another firm
or firms may have blocked access through patents.

Most students probably have the general understanding that a patent grants an inventor an absolute
right to exclude others from using his or her invention in exchange for publication of the details of the
invention, so at the time of expiration of the patent others can build upon it and use it freely. I think a
good way to deepen their understanding is to probe with some questions that will encourage students
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to look beyond the straight definition and consider the importance of claims overlap. This is one way
to get students to actually think about what the structure of claims mean in a patent.

I am going to start with a discussion of claims. The purpose here is to dial up the contrast on
patentability vs. freedom to operate. As you saw in the video and in the sample patent, the claims
are where the inventor describes what is new and novel about an invention, and what she is trying
to protect. The claims section of a patent technically defines the scope of protection granted by the
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patent, or protection sought in a patent application. Let me draw a table on the board and say the
prior art embodied in a single patent contains limitations A, B, C, and D. Now let’s say I have a new
invention that only uses limitations B, C, and D. Is it patentable?

The instructor can draw a table as in TN Exhibit 3. Students can offer their reasons for yes and no.
Students may need help understanding that the claims limitations A and B and C and D used in
combination is what defines the patentable invention. The instructor can then build successive examples
of different circumstances to follow.
No

Claim Limitations

A B C D E

Prior Art X X X X
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New X X X
Invention

Figure A Patent claims exercise

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The new invention does not use claims limitation “A” so it does not infringe, and the inventor has
the freedom to operate. But since the new invention uses claims limitations that have all been disclosed
in the prior art, the new invention is not novel and is therefore not patentable. Also, just because the
inventor of the new invention came up with something independently, that is not a defense against an
infringement claim from someone who held a patent on the prior art. This example highlights LEGO’s
concern regarding freedom to practice. What if somebody else has patented something that LEGO

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might need some day? The patented technology is disclosed so that rivals and courts know what is
protected, yet it would be incumbent on LEGO to find out that this patent existed, which can consume
a lot of resources and be quite difficult these days.

Now let’s look at a different circumstance. Let’s say the prior art patent includes claims
limitations B, C, and D, and that the new invention in addition includes a new claim limitation E.
Is this now patentable?

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Figure B illustrates this set of circumstances.

Claim Limitations

A B C D E

Prior Art X X X
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New X X X X
Invention

Figure B Patent claims exercise

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In this example, the prior art fails to disclose claim limitation E, so the invention is patentable, but
practice of the new invention infringes on the prior patent. The key point is that a patent is an
exclusionary right, and it does not necessarily give the patent owner the right to exploit the patent. This
example involves an invention that is an improvement of a prior invention that is still covered by
someone else’s prior patent. Both inventors have blocking rights; in order to practice the new patent,
one would have to obtain a license to the prior art as well.
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Let’s now look at a third circumstance (Figure C). Is this new invention patentable?

Claim Limitations

A B C D E

Prior Art X X X X
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New X X X X
Invention

Figure C Patent claims exercise

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In this example, the prior art fails to disclose claim limitation E, and the new invention does not
include claim limitation A. Since protection of a patent is granted for the minimal combination of
elements (claims), any missing elements saves the offending product from infringement. An accused
product must embody every element of at least one claim. Therefore the new invention is patentable,
and practice of the invention does not infringe on the prior patent because it uses a new combination
of claims in which A is no longer necessary. This kind of new invention is an example of how a

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company might build a “wall of patents” by filing for many incremental patents, making it difficult for
others to do anything in the space.

Hopefully this exercise will help students appreciate the notion of claims, which are core to an
invention’s uniqueness. The next part of the discussion will try to develop two other important notions:
(1) how unique an invention is, in other words how easy it might be to generate an alternative means
for accomplishing the same result, and (2) detectability, or how hard is it to discern use of the patent.

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A question on design-arounds might initiate this part of the discussion.

How hard is it to design around a patent?

Students will inevitably come up with the default case discussion answer when they don’t have a
good response: “It depends.” Of course the instructor can then respond, “Depends on what?” What the
instructor should try to get students to recognize is that in some circumstances, there are many ways
to solve a problem while in others there are very few ways or only one way. The instructor could cite
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an example. At one extreme, the instructor could draw (or project) the chemical structure of DuPont’s
Kevlar polyaramid fiber on the board (Figure D), something that would be very difficult to design
around because its physical properties are a direct consequence of its chemical structure. At the other
extreme, one might think of the stool example in the sample patent that accompanied the video. Would
there be other devices that a person could invent that would serve the same purpose? Yes, many. If the
instructor draws a horizontal axis labeled “uniqueness” at about the center vertical level of the board
with “many ways” at the left extreme and “only one way” at the right extreme (see Figure E and TN
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Exhibit 4), this will set up the next question.

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Figure D DuPont Kevlar Polyaramid Fiber

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Figure E Uniqueness

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Do you think a patent is more valuable when there are few ways of doing things, or when there
are lots of ways of doing things?

It should be obvious to students that when there is only one way of doing something, a patent on
that invention is extremely valuable, assuming there is a market for the product. At the other extreme,
if it is easy to design around, it may not make much sense to patent. It also means that there is less risk

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of being excluded from practice of a particular invention field. This sets up the next question.

Along this range of possibilities, where do you think patenting makes the most sense?

Students will likely volunteer that the right side of the board is where patenting makes the most
sense, because if the invention is truly unique and it represents the only alternative, then it will be hard
to design around. If on the other hand if there are many alternate ways of achieving the same objectives,
a patent may be of far less value, unless of course those ways are also patented and therefore would

yo
require a license or the deign-arounds are more expensive or result in a lower quality product.

As a further note, the instructor can point out that an inventor could increase the value of his or her
patent by “patenting around” it, sometimes referred to as building a patent fence. The inventor would
think of as many design-around as possible and patent all of them as well.

Before indicating anything on the board, the instructor can ask a follow-up question that will help
set up a segmentation:
op
Okay, how about if an invention is hard to see or detect?

The instructor can then expand on the drawing of Figure E by drawing a vertical axis with “easy to
see” at the top and “hard to see” at the bottom (Figure F and TN Exhibit 4).
tC
No
Do

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os
Easy to see

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Many possible
Only one alterative
alternatives

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op
Hard to see
tC

Figure F Segmentation of space

Where in this space does it make the most sense to patent? Some inventions are easy to see; they are
often referred to as self-disclosing because a competitor can immediately appropriate the inventive
idea and begin commercial competition as soon as the inventor brings the idea to market. Most
mechanical inventions are of this type. The instructor can build on the map on the board as in Figure
G.
No
Do

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Easy to see

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Detectability
Patents make the
most sense here

Many possible

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Only one alterative
alternatives

Uniqueness
op
Hard to see
tC

Figure G Where do patents make sense?

In contrast some inventions are hard to see; they may only be detectable, as in the case of a
manufacturing process innovation, if the inventor can directly observe somebody using the process.
Manufacturing process innovations often fall into this category. It might also be helpful to students to
build a comparison list of easy versus hard to detect (TN Exhibit 5). While seemingly obvious, pushing
No

students to think about this question will help them to internalize the significance of the question. This
sets up the trade secrets discussion. Trade secret law protects individuals and businesses against
misappropriation by improper means.

Do you think something that is hard to detect is better protected as a trade secret? How do you
establish a trade secret?

Trade secrets generally have three requirements, and it is probably useful to help students to
articulate these to the class. These come from common aspects of the Uniform Commercial Code, but
Do

are also common sense:

 Trade secrets derive economic value from not being known

 Trade secrets are not publicly available
 The owner of a trade secret needs to have taken reasonable steps to protect it

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Let’s take a chemical formulation, like that for Coca-Cola. Is maintaining the formula as a trade
secret the best form of protection?

Even though modern chemical analysis methods probably could decipher the formula for Coca-
Cola, its protection as a trade secret is legendary. Certainly when it was originally offered, trade secret
protection served the company well. This may be an interesting sidebar discussion: how technology

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advancements make protecting trade secrets increasingly difficult. The instructor can point out that
many manufacturing processes, especially ones that involve the transformation or removal of material,
or intermediate chemical treatment steps, are very hard to reverse engineer just by looking at resultant
products. Catalytic steps are also hard to detect. Publishing such information in a patent application
would reveal all of this. The instructor can add to the board as in Figure H.

yo
op
tC
No

Figure H Where do trade secrets make the most sense?

If you are going to maintain this as a trade secret, are there some practices that you would
Do

recommend?

Most jurisdictions require that inventors took demonstrable steps to protect trade secrets. Employee
confidentially agreements, marking and controlling access to confidential or trade secret formulas or
processes are all necessary and reasonable steps

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Under current U.S. law, inventors who develop non-self-disclosing inventions are faced with a
difficult choice: maintain the process as a trade secret, and run the risk of being blocked later by another
inventor who obtains a patent, or file for a patent and disclose the process to the public. Both options
have significant costs associated with their selection but the patent and disclose option is hardly
foreclosed.

rP
Next the instructor can explore what happens if there are many alternative ways of accomplishing
what the invention does; in other words, design-around is easier.

Let’s move to the left on the uniqueness axis. How do I think about this problem if there are
many alternative ways of accomplishing the invention? (See Figure I.)

Students will likely realize very quickly that if there are many ways of doing something, patenting
may not accomplish much. Similarly, maintaining the invention as a trade secret has the downside of

yo
potentially allowing someone else to patent and preclude the inventor from using his or her own
invention, forcing a design-around. Hence this is a range where a defensive disclosure could at least
pre-empt this possibility.
op
Easy to see

Detectability
Patents make the
most sense here
tC
Disclosure

Many possible
Defensive

Only one alterative

alternatives

Uniqueness
No

Trade secrets
make the most
sense here
Do

Hard to see

Figure I Where does defensive disclosure make sense?

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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At this point it will probably be very helpful to students to build a table on the board that compares
important aspects of patents, trade secrets, and defensive disclosure (see TN Exhibit 6). The instructor
can ask students to help fill in the table, using comparison in each row as a way to explore nuances.
For example, under “Protection,” most students probably don’t think of the protection afforded by a
valid patent as a matter of the law, but that is precisely how litigants refer to patents that prevail at
trial. Liability and relief are a matter of the law. Trade secrets require reasonable efforts to protect, and

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defensive disclosure serves as an opportunity to establish prior art. Building the table while discussing
it will help cement students’ understanding and comparison of the three avenues. This will also help
flesh out some of the details under defensive disclosure.

A defensive publication, or defensive disclosure, is an intellectual property strategy used to prevent

another party from obtaining a patent on a product, apparatus, or method. The strategy consists of
disclosing an enabling description and/or drawing of the product, apparatus, or method so that it

yo
enters the public domain and becomes prior art. Therefore, the defensive publication of perhaps
otherwise patentable information may work to defeat the novelty of a subsequent patent application.
One reason why companies decide to use defensive publication over patents is cost. The instructor
could push with:

In a defensive disclosure, how much would you disclose? Do you need to disclose the whole
thing?
op
The idea is to defeat the novelty of subsequent inventions by ensuring that the disclosure shows up
as prior art. But students might not appreciate some of the nuance here. One ideally wants to establish
the invention as prior art without necessarily introducing the whole world to a new line of thinking.
See TN Exhibit 7. That leads to the next question.

Where would you think about publishing this?

tC

Published journals, conference proceedings, trade magazines, and other published works are all
excellent vehicles. Vehicles like www.researchdisclosure.com are also increasingly popular, especially
because they provide a companion print publication. Researchdisclosure.com also places its
information in front of patent examiners globally. A more cynical view might be that one should only
clear the threshold of being prior art without telegraphing more information than is necessary.

A historically interesting approach was taken by IBM, which published the IBM Journal of Research
and Development, and other books like the IBM System Journal. These publications not only gave
No

employees an opportunity to publish in a credible, well-regarded technical publication, but papers

were only published after everything the company wanted to patent had been filed. The papers then
became a solid documentation of prior art without pointing too specifically to particular claims or fields
of invention.

Does it ever make sense to do nothing?

Students can consider this question as well. This approach tends to look more like a trade secret
route, but it will get students to think.
Do

Third discussion pasture: Lay out the case issues—What are LEGO’s options?
Per Høvsgaard’s boss John Hansen has come to him and told him, “I want protection so that our
competitors can’t copy and repeat what we are doing.” And he doesn’t want to teach competitors to
do what they do. If you are Per, where do you start?

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This question is intended to get the class started in laying out the issues in front of Høvsgaard and
helping to structure the analysis. Høvsgaard has two closely related but different problems: On the one
hand, he doesn’t want competitors using the LEGO Group’s inventions, but on the other hand his team
wants freedom to practice. In other words, he doesn’t want others to block LEGO with patents or
demand royalties. Does he need the “sword” or the “shield” or both?

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How do you think about patenting versus maintaining freedom to practice? Are you thinking he
needs to use patents as a “sword” or as a “shield”?

If Høvsgaard anticipated offensive use of any patents LEGO comes up with, he might be thinking
of a very different game than freedom to practice. Patents give the patent owner the right to exclude
others from making, using, and selling (i.e. practicing) the patented invention, so he might consider
using a patent to exclude present or future competitors. In contrast, freedom to practice has a very
different character and suggests a much less combative stance. Practically speaking most managers will

yo
choose a mix of the two. It is probably helpful to ask students why freedom to practice is important to
LEGO.

Why is freedom to practice important? How might someone use patents to prevent you from
practicing? Should Høvsgaard, Peterson, and Poulsen be worried?

The concerns of the LEGO team rest with somebody inventing a process, or potentially copying a
LEGO invented process involving one of the new manufacturing technologies and patenting it,
op
preventing LEGO from using it. The most likely path of a knowledge spillover is via the toolmakers,
as they often have access to multiple customers. Practically speaking, the right of exclusion is enforced
through an infringement action, in which the patent holder files a legal action, normally an
infringement suit. How might we analyze this problem? The instructor could push students to ask the
same questions regarding detectability and alternative ways of innovating as was discussed in the first
pasture. Just as LEGO might not find it realistic to patent a process innovation because it was not
tC

detectable, so too such innovations from others might not prove to be that great a threat because a
patent holder would have to get into LEGO’s factories to see if a patented invention was being used. If
the invention did become embodied in the manufacturing tool, that would presumably have been part
of the tool maker’s responsibility. The instructor could basically switch the point of view from LEGO
to the other side of the table, as it is instructive to see it this way.

So then the core issues really come back to detectability and alternatives to an invention. Where
would we put LEGO on this map?
No

The instructor could come back to Figure I (also TN Exhibit 4) and get students to try to categorize
the innovations. Since the case doesn’t go into great detail on the specifics of the innovations, the
instructor will likely need to give this more structure by asking what are some characteristics of
detectability? It might help students to construct a table of attributes that are detectable and not
detectable and test these with students (see TN Exhibit 5). So for example, is a new type of plastic or
a new material detectable? Yes, because one can employ a chemical analysis. How about a method
for heat treating a metal? Probably not, because the only evidence of the process would be in the
microstructure of the metal crystal, and one could have taken numerous different ways to arrive at
Do

that. How about a software algorithm when a program is distributed in an executable form? No,
though the original program can be copyrighted. Students will quickly see that things that can be seen,
or leave unique marks or artifacts probably are detectable, but other attributes are more difficult. There
is a temporal aspect as well. Semiconductor circuits can be analyzed, but as transistor counts exceed a
billion on a chip, it becomes impractical to find them.

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So as you look at the selective laser sintering system, how would you protect innovations that
LEGO comes up with using this tool?

It is probably helpful to think about what LEGO chooses to make with the machine versus how. If
the main output is injection molding tools with unique designs, for example, cooling channels that
speed reduce the cycle time for each machine shot, it is highly unlikely that outsiders would have an

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opportunity to study these tools unless LEGO gave them access. Most of the know-how would be in
the heads of the designers, in the process for making the tool, or in the physical tool itself (the injection
molding die). It would likely be very hard, if not impossible, to detect any attributes of the tool design
in the finished plastic bricks. Because the selective laser sintering process is quite new, LEGO engineers
probably have a lot of interactions with the tool maker. This is the critical path. A similar argument can
apply to the electric drive systems, though since these are more mature, there is probably less risk.

Fourth Pasture: What should LEGO do?

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By this point in the discussion students should have a pretty clear picture of what LEGO can do.
The key is to understand the detectability versus uniqueness map and consider the innovations using
this framework. But what should LEGO do? The instructor can trigger this discussion by asking the
sword or shield question.

Do you think intellectual property like patents are more valuable as a sword or as a shield?
op
Use of patents as a sword is fraught with risks. Unless you are a non-practicing entity (NPE) whose
sole business is the licensing of patents, using patents as an offensive tool invites conflict. Even very
large and successful patent licensors such as IBM have at the heart of their strategy the importance of
maintaining freedom of action. In IBM’s case, because it historically has had such a large and
foundational portfolio in so many information technology and related fields, it has been able to secure
favorable cross license terms as well as a large cash stream of payments, but it always secured a grant-
tC

back cross license as part of every agreement.

Students may wish to debate this question, but the instructor can try to foster a lively debate and
inject questions like: Does LEGO have to worry about its brand image? Does it know where all of
the future process innovations are going to come from? The difficult in foreseeing how all the pieces
to the puzzle eventually fit together argue for a dynamic and flexible strategy where LEGO focuses on
securing its rights separately from figuring out how it’s going to use them. Thus following the
discussion of the previous pasture, the company can select the appropriate avenue for each of the
No

different innovations. It should also ensure that its basic institutional processes for protecting trade
secrets, collecting information, and filing for patents etc. are robust. This includes reviewing its
employment agreements, confidentiality agreements, and measures it takes to protect trade secrets.

Wrap-up
It is probably helpful for students to summarize key discussion points of the case:

 If inventions are not detectable, freedom to practice in such a space is probably straightforward.
Do

As long as others cannot detect that you are infringing, the likelihood that someone has
patented it or can enforce a patent is lessened; the risk of enforcement should be lower.

 If it’s not detectable, it’s probably not worth the cost of patenting. But that also means a firm is
unlikely to get excluded from practicing as well.

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 Trade secrets require explicit protection steps. A lot of what LEGO is considering might be best
protected with such mechanisms.

 Defensive disclosure does not need to be complete, and LEGO does not need to make it easy to
find. It just has to meet the hurdle of acceptance as prior art.

rP
The case and teaching plan argue for a balanced and flexible strategy for managing intellectual
property. This is a complex subject with a lot of nuance, and hopefully students will appreciate from
the case discussion that they need to think carefully and strategically about such circumstances.

A proposed board layout is offer in TN Exhibit 1.

yo
op
tC
No
Do

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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TN Exhibit 1 Board Layout

Knowledge Spillover Pathways

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Firm Theft

Other People Own People Public Information

(Complementors)

Tool Suppliers Disclosure to Sale of product

others Published
• Disclosed in
Partners product
Employee
Distributors movement
Reverse Pubs Patents
Engineering
FDA

yo
op
tC

Source: Prepared by teaching note writer.

No
Do

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 Teaching Note—The LEGO Group: Publish or Protect? 613-097

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TN Exhibit 2 Knowledge Spillover Pathways

rP
yo
op
tC

Source: Prepared by teaching note writer.

No
Do

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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TN Exhibit 3 Claims Limitations Discussion

Claim Limitations

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Claim A Claim B Claim C Claim D Claim E

Prior Art

New
Invention

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Source: Prepared by teaching note writer.

TN Exhibit 4 Detectability vs. Uniqueness (completed board)

op
Easy to see

Detectability
tC

Patents make the

Default: most sense here
Do Nothing
Disclosure

Many possible
Defensive

Only one alterative

alternatives
No

Uniqueness

Trade secrets
make the most
sense here
Do

Hard to see

Source: Prepared by teaching note writer.

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 Teaching Note—The LEGO Group: Publish or Protect? 613-097

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TN Exhibit 5 Easy versus Hard to Detect

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Detectable Not-detectable or hard to detect

• A new type of plastic or new • A method for heat-treating a

material metal to obtain particular
properties

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• A semiconductor circuit design
incorporating thousands of • A semiconductor circuit design
transistors incorporating a billion
transistors

• Software algorithms when

op
program is distributed as an
executable

• Process chemistry steps when

no residue or by-products
tC

remain

Source: Prepared by teaching note writer.

No
Do

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 613-097 Teaching Note—The LEGO Group: Publish or Protect?

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TN Exhibit 6 Patents, Trade Secrets, versus Defensive Disclosure

Patent Trade Secret Defensive

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Disclosure
Criteria New, useful, non- Derives value No limitations on
obvious from not being breadth
known
Disclosure Fully disclosed Not really Full
with publication of discernable by

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patent proper means
Protection A matter of the Requires Establishes prior
law reasonable efforts art
to protect
Liability Infringement; lack Misappropriation None
of knowledge is – acquisition by
op
not a defense improper means
Defenses Non-infringement Obtained by None
or invalidity proper means, or
not really a secret
Remedies Damages or Compensatory None
injunctive relief damages
tC

Source: Prepared by teaching note writer.

No
Do

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TN Exhibit 7 Defensive Disclosure

Disclosure

rP
yo
Easy to Find Hard to Find

Published technical Obscure web postings and

articles and conference reports
proceedings
Research disclosure
op
Trade publications journals
-- Example – IBM Journal
Researchdisclosure.com of R&D, Bell System
Technical Journal
tC

Source: Prepared by teaching note writer.

No
Do

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TN Exhibit 8 Summary—Key Observations

Key Observations

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• If it’s not detectable, it’s probably not worth patenting. But that also
means I probably won’t get excluded from it as well

• Trade secrets require explicit protection steps

yo
• Defensive disclosure does not need to be complete
– There is “art” to this op
tC

Source: Prepared by teaching note writer.

No
Do

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