For this project I chose an article published on the Harvard Business Review website on the 29th

of January 2019. The article is called “How Trade Secrets Hurt Innovation" and dives into the subject of
whether or not trade secrets or other form of intellectual property protection such as non-disclosure
agreements or non-compete clauses hinder innovation in the long run. I do not agree with the article
and will get into more detail in this paper, but I will summarize the important points that I discovered
and then develop them further. Firstly, we have the problem of smaller firms that innovate and their only
competitive advantage over a larger firm is their way of doing business, secondly, I will argue that
protection and secrecy helps development and innovation even further, albeit more expensive, and
lastly, I will show how an employee can benefit from being of importance to his employer.

The article makes a correlation between Trade Secrecy and other forms of protecting intellectual
property and how it hinders innovation in the long run, presenting different theories to support its claim
and offering diverse examples of how innovation in an industry can help another (this though, is not a
problem with non-compete agreements). Then the article goes into offering an analysis that shows that
innovation is negatively affected by trade secrets, but does this by patent counts weighted by
patent-forward citations, a ratio that can be affected by the fact that businesses do not necessarily file
patents because they are protected in other ways.

Smaller businesses and start-ups in particular that find a disruptive way of doing business or
develops smarter and more efficient services are at risk of losing their competitive advantage to bigger
and more resourceful businesses that can more easily implement their ideas. The most important factor
that investors take into account when deciding whether to invest in a business or not is how likely and
how easily a competitor can copy the business model. The more disruptive and harder to copy business
model, the more likely the investor will be to invest, if the business idea is viable. With this in mind,
imagine how a business like Tesla Inc. that manufactures cars and batteries and has innovated the way it
packs its batteries would’ve been eaten by a goliath of a business like the Daimler Group or Porsche
Group that has the resources to copy a model fast and buy out key personnel from Tesla. By developing
an innovative way of packing their batteries, Tesla has developed an advantage from being only a small
player in the automotive industry to leading the development of Electric Vehicles all from the fact that it
has kept secret the way they pack their batteries, a secret that big businesses have tried to find for
years.(1)

Intellectual property protection and secrecy helps innovation by making competitors find
different ways to come up with better products. Competition is an important factor in business that
mostly helps the end customer that benefits from competition and businesses fighting to develop better
products. Great developments had happened while two or more sides competed with each other and
have helped push innovation further. A great example for how this argument makes sense is during wars,
while you have no idea how the other side is developing and innovating different weapons you have to
keep pushing and develop ways to beat the competition. In this example your direct competition. Wars
have helped develop so much area of technology and medical research that have direct implication in
today's technology. It is more expensive for the businesses to operate in this way but also ensures
product diversity. Consumers don’t want the same product. They want to choose between different
products that have distinctive features. This is shown in how graphic designers are more likely to use
Apple products such as the Macbook and Mac Pro instead of a windows PC. Windows and Apple have
developed their operating systems on different product concepts. While Apple puts great attention to it’s
end user experience and flawless navigation, having their apps optimized for speed, Windows is offering
an operating system that supports a greater variety of apps, but is slower. While Open source may seem
like a good idea, the businesses that develop open source are few and are mostly functioning on
donations. (2)

By working in an environment where your input is important and where an employee knows a
lot of the way a business is functioning can help the employee have a greater job security at his place.
Businesses are more wary to fire key important people from the fear of them being later hired by the
competition. A similar case happened in Formula 1, where an important person from the FIA (the body
governing the sport) has been hired by one of the teams competing.(3) This offered them an immense
advantage as the person Renault hired (the team in question) had access to all of the other team’s
technical documents as well as tests and competitive secrets that the bigger teams had. This made the
FIA to impose a non-compete clause in which it denied the engineer to join Renault for one and a half
year, ensuring that the information he knew wasn’t being used in bad faith.

Although keeping Trade secrets is an important part of doing business, the article goes to show
that there are cases where businesses can both help each other to develop better products and helping
innovation strive on the long term. The idea of free communication for innovation is a great one, but
very hard to implement. It can also have the side-effect of backfiring: Businesses wouldn’t feel the need
to develop better products as they can copy everything their competitor is doing at a much lower cost
and invest the money that could’ve been spent in Research & Development to marketing, giving them an
advantage over the business that had to carry the extra costs. In academic research and science
research, a free open source medium would work. My opinion is that the authors tried to show this
argument could also work in business, but is better suited for science than business. (4)

Finally, I want to champion just how important secrets are and how much they can help
businesses grow. Finding a better way to solve a problem creates opportunity, opportunity that creates
jobs. Without businesses like Uber or Tesla, that innovate and use Trade secrets to keep their way of
doing business a secret, big businesses would profit even more by copying their model. Competition is
good, and keeping secrets is part of a healthy economy.
Refrences

1. Vance, A. (2015). Elon Musk: Tesla, SpaceX, and the quest for a fantastic future.

2. Weinberger, M. (2018). There's a very simple reason why the resurgent Microsoft is threatening to
overtake the slumping Apple. Retrieved from
https://www.businessinsider.com/microsoft-vs-apple-cloud-vs-iphone-2018-11

3. Delaney, M. (2017). FIA and Renault agree to delay Budkowski arrival. Retrieved from
https://f1i.com/news/287341-fia-renault-agree-delay-budkowski-arrival.html

4. Ghemawat, P. (2002). Competition and business strategy in historical perspective. Business history review,
76(1), 37-74.

Article in question:

Contigiani, A. and Hsu, D. (2019). How Trade Secrets Hurt Innovation. Retrieved from
https://hbr.org/2019/01/how-trade-secrets-hurt-innovation