PLH 09 | Trade Secrets

Is your idea, product or service competitive? The truth is, the best ideas don’t always win because there are many things in your way to making it happen. As an entrepreneur or an inventor, you should have the best system and marketing tactics to get ahead of the competition. One of the most crucial steps is to protect your trade secrets, original business concepts and ideas. Join internationally recognized intellectual property lawyer Attorney Jason Webb of Pearson-Butler every month as he explains how to make patents, trademarks and copyright work for protecting business owners, inventors, and product developers in this ruthless global economy. He has successfully negotiated licensing agreements for Fortune 500 companies, with products and services that are sold worldwide. Get honest, educated business perspectives from Jason through the Product Launch Hazzards membership office hours.

Watch the Episode Here:

Listen to the podcast here:

Jason, welcome to Product Launch Hazzards. This is your first introduction to our community, so I want to make sure that everybody gets to know your background here. You are Jason Webb from Pearson Butler. You’re a partner there and you had been practicing intellectual property law specialty for fourteen years. That’s a lot of experience and a lot of time spent. I take it you know a lot about patents and trademarks and all kinds of IP.

That’s what I focus on. My background is in physics and numerical modeling, so I do a lot of programming in undergraduate and I was always a science geek, science nerd.

I would imagine that physics background helps in terms of understanding the kinds of claims that inventors are bringing to you or companies or corporations are bringing you.

Physics is the fundamental science of everything. It’s pretty easy for me to get pretty much any technology. The only ones that I don’t deal a lot with are real advance pharmaceutical stuff, really deep organic chemistry, but that’s about it. I handle a lot of electrical things, computer things, physical interventions, nutraceutical compounds, and cleaning compounds.

I’ve found over the years that the attorneys that we’ve worked with who have a fundamental understanding of how things work and not just the law do a much better job of constructing claims. That’s a benefit to the inventors. You do a lot of speeches. I’ve seen you talk multiple times to inventor groups, to entrepreneurs, Amazon sellers. What is the biggest area or lack of understanding about intellectual property that exists out there?

Intellectual property is made up by laws. It is not something you find in nature and so it only exists because there are laws, and the laws sometimes are weird or arbitrary, so unless you study that, then you are not going to understand what are copyrights, what are trademarks, what are patents, what do they cover, what do they not cover, how do I protect my business. Everyone knows as a law of nature that we live in this world where we need to be competitive in order to survive. It’s a world economy now and special and different in order for people to take notice of you and people have a good understanding that you’ve got to have something special about your business and you’ve got to protect that what that specialty needs, so then the big question in their heads is, “How do we do that?” A lot of times, I get questions on, “What do I have that is protectable and how do I protect it?” That’s the place where you start.

I get that all the time when people are like, “What do you think of my ideas that are marketable?” I’d be like, “I thought for five seconds.” It’s hard to evaluate at that stage.

Some of the inventions that I’ve seen, that I’ve been excited about and thought would do really well did not do nothing. Some of them where I thought I’m giving away my time to this charity, that this person is never going to do anything with this bizarre idea turned out to be great ideas that make a lot of money. I always wanted to be frank and honest with my clients and so I’ll tell him how I feel, but I don’t pretend like I can predict what’s going to be successful or not. If I have concerns, I talk about the concern. If I have excitement, I talk about the excitement. As far as whether it will be successful or not, that’s hard to predict.

When I go around and I give speeches and a lot of the people have seen me speak, the number one thing that I say, “The best ideas don’t win.” There’s so many things in your way to making that happen that you have to have the best system and the best marketing and you have to have so many best things combined together to get that best idea to win. It’s not just having the best idea.

There’s a lot of work involved and a lot of making mistakes and fixing them and a lot of due diligence and persistence and also a lot of nuts making deals and talking to people and convincing people what your vision is.

That’s true, including the patent and trademark office, you have to convince them that your vision is right.

You got something special that deserves protection.

A lot of our members here, they’ve come in because they understand this idea that they need to be competitive. They have to have value. They have to be original that they’re coming in with this idea. That’s why they’re creating original product that they may have started in the Amazon seller world and they’re growing into a new private label brand. That brand is made up of the original products and original design. Can you talk a little bit about how some of the companies that you’ve worked with use their patent portfolio to build a more asset-based company, more intellectual property valued company?

Whenever you have protection around something that allows you to push competitors away so that you’re the one that has the space, you’re the one selling that product. It allows you to sell the product easier. It allows you to sell it for a bigger profit margin. It allows you to grow where you don’t have to have a humongous marketing budget in order to catch the market. You can grow organically and a lot of times where you’re a small business, medium-sized business, or entrepreneur, you don’t have the Fortune 500 budget to launch a product. Having that protection allows you to grow and incubate this concept to something bigger, which then allows you to add more pieces and add more products an version 2.0 and ancillary products. It becomes this firm foundation that you can grow the rest of your business on. On top of that, your large companies, patents are their currency. There are patents and eyeballs, and you protect eyeballs through trademarks. When you are trying to build something that you want eventually to sell to a larger company, having patent protection, having trademark protection, having contracts in place with the right people, that’s what they’re buying. You want to make sure that you own what’s making you successful so that when you sell to the larger company, if that’s your exit strategy, then you have what they’re looking for and what they want.

The way you said that the eyeballs are important because there are two value currencies just as you pointed out. There’s the, “I have access to the market, to the people, and then I also have the best product,” and people are buying it. It’s still tied to the, “and people want it” and I have proof that people want it. That’s where I see a lot of the statistics. I have not looked at it, but it is probably a couple of years old, but it is that less than 2% of patents according to the US Patent and Trademark Office are commercialized or make money. They don’t make money, they aren’t on the market in some way, shape, or form, and I found that number to be shocking because you have to think about how many patents does Apple own, and those are pretty much all commercialized, but that means that there’s a lot of patents out there that aren’t on the market.

I have a good friend and client who did his own stats and he’s been very successful as an inventor. He said he had about 7% success rate on his patents, which is phenomenal.

It makes my numbers sound like a lie then. My number is 86%. We have a different strategy. Is that pretty common among your other clients?

That’s not something that I can measure because I’m there at the beginning and it’s more like the securities attorneys to see things shift over where it gets bought, so I don’t have a good way of collecting that data. Going for a patent and starting a business is definitely better than trying to win the lottery. It certainly isn’t a sure thing and it takes a lot of work and a lot of effort. I do have clients that we get three, four or five years into the patent process, and they say, “We’re shutting the business down.” I’d say most of them aren’t shutting things down around that time. Whereas the stats that I’ve seen when you’re starting a small business is 85% of them are out of business by the first five years or something like that.

It’s within the first three years.

My clients have a better rate than that, but it is hard in certain businesses.

Do you find that lots of your clients end up with patent portfolios like stock portfolio, that’s what I term it, where they start to realize that this has been valuable after the first one, this is valuable and they start to build more to build a better valuation for their company?

Yeah, sometimes the reason is that the first patent or the first technology they came up with was your first attempt to solving the market problem that you became aware. You became aware of this problem and you are like this is how I will solve it, but then as you build the business, as you access those customers, as you look into manufacturing or logistics, you realize, “It has this flaw and I need to make it better in this one.” You’re always improving, always making things better, and so a lot of times, your first go at it might not be exactly how the market wants it done, but at least it gave you the direction and puts you in the right place so that you could.

We find that often. It’s like the seed of the idea. This is the hard thing when I work with smaller clients, because a lot of them already have their patent and they’re finally excited about it and then they finally get to me and I’m like, “We’re going to design this for manufacturing, but I can’t make it the way that you originally patented.” Sometimes they went too far in the patent process before they got that advice and got through that design stage of it for manufacturing. You know they designed it out some time.

There’s also on the side of the patent attorney, one of the things you’re trying to do when you’re drafting the application, unless you’re doing really cheap, is you’re trying to predict and tell the future as to how it might change, what are the different variations. That’s one thing I spend some time with my clients on, “You described to me how you think it’s going to be, but let’s talk about second best variations and not force particular materials or force particular sizes or exact arrangements.” How can we keep it open? I have a lot of situations where clients call me up or send me an email and say, “This is how we’ve changed things. Is the patent still covering it?” I’d say probably about half the time, I look at the patent and say, “We anticipated that it might go in that direction.”

PLH 09 | Trade Secrets

Trade Secrets: Provisional are great tools. When it’s not appropriate, then no, you don’t want to do it.

That’s where that physics skill comes back in as you’re thinking about things, “How might they be made?” That’s valuable and it’s something that we provide as a service here. If someone has a patent, we provide a service where we help surround their patent with all the other ways that might be made because we have lots of experience making things so that they can either be thinking about plugging those holes from a competitive standpoint or they might make a patent portfolio that makes it more valuable to sell off because you have cornered your little section of the market. It’s very valuable to be thinking about that. Do you advise a lot of your clients to do provisionals?

Provisional are great tools. When it’s not appropriate, then no, you don’t want to do it. Typically, the circumstances where it seems to be appropriate are where the client is short on money, where they’re short on time, or where they’re short on commitment to the invention. Short on money, everybody understands that. You get cheaper. Short on time, you can file a provisional several ways. I’ve done some same date you where you’re super desperate to get something filed super-quick, now you’re cutting a lot of corners and taking a lot of shortcuts, but it’s possible to do that. It’s super hard to do that whether it’s standard or non-provisional, but typically, a non-provisional may take two months and a provisional may take a month if you’re doing things according to normal and not cutting corners.

The last one, short of commitment to the project, you can look at that in multiple ways. One of them is that I have ten ideas and I don’t have enough money to file ten patents, but I can file a single provisional with lots of ideas in it and then we can go to trade shows and whatever, so I have some clients that do that. They’re not fully committed to one of their ideas. They’re looking to see what’s going to work. Another one is, “I have the idea, but I need to work with someone like you to figure out how I’m going to implement the idea. I want protection before I start into that and so I’m going to file a provisional now and then later when we file a non-provisional, we have had about nine months to do product development and some research and figure out.” The way we described it in the provisional is how it’s going to be or has it mutated or changed into something that’s more appropriate.

That’s one of the number one reasons when someone comes to us and we say, “You should file a patent.” Our recommendation is when it’s still at that uncertain stage about how it’s going to turn out or what materials or how many pieces of something it might have, that’s uncertainty. In our case, we consider it most marketable because at the end of the day, if you can’t sell it, then to us it’s not worth filing a patent for if you’re never going to sell it. That’s the way we look at it. If it’s that stage, then we do recommend that they go see an attorney and file a provisional because we think that that’s the right stage for it especially before we go into any factory and get quotations or we go to that level of it. With prototypes, we have lots of relationships and we have lots of places we can break up parts of the prototype, so we don’t always worry about privacy there. When we get to that next stage, it’s essential, we can’t do it without information and I hate for people to be exposed.

There is a race to the patent office. You have this interest of, “I want to have it well developed before I file something, but I need to file something quickly and I need that privacy protection.” you have to find that sweet spot and provisionals widen that sweet spot. It gives two stabs at it and that’s helpful.

That’s what I look at it, the speed to market that we have for getting on eCommerce is that reality is even with some of the products we develop, we can be in the market within six to nine months, so we’re still within the timeframe of that provisional to find out if people want to buy this. We even have that opportunity of assessing its market value to say, “I want it” and it may even seem that the UK wants it in and it’s going to go great in Australia. If you can even make some educated decisions on international patents, which I find, some people do them too soon.

To be able to have feedback on that is great. I have some clients where their US sales are lackluster but in Asia, they are doing phenomenal, and you never would have known that.

It gives you a lot of opportunity. I have been a big proponent of it because it has helped us be more dialed in when we do file patents and not have to file extensions and many other things and have it be correct the first time and in the right way. That’s part of the reason that our statistics is 86% commercialization. Part of it is we work with clients who already have access to a market so there’s going to be sales or there should be, but we also don’t recommend they file until we’ve gotten that far down the process. That’s part of the success rate that makes a difference for most people.

Let’s talk a little bit about your beginnings. You have been practicing for fourteen years. You said a little bit early on that there’re lots of mistakes that happen. We’re here about the hazards of product launching. What kinds of things have gone wrong? What kind of mistakes are common in IP in general? I’m sure you pick up the pieces for a lot of people at some point.

A lot of times when people think that they are protected, they are not, so when it matters and they want to be protected and when someone’s infringing, then it’s a lot harder to enforce the protection or if it’s even possible at all, so that can be a problem. Another problem is when people don’t keep their intellectual property portfolio up to date with the organic growth of the business. Intellectual property is this firm rigid thing that covers what it covers but if over the years, you update your brand, your trademark doesn’t automatically update along with it. I’ve even seen situations where I’ve done a review of I have someone’s patent compared to the product and in an attempt to say, “How do we need to change this product to get around this patent?” and I’ve realize their own product doesn’t infringe their on patent. You have to be careful with how this shifts around and now that we’re changing things with the product, does the patent’s still apply. That’s some of the mistakes that sometimes people make.

That’s possible and that’s where some people think, “I have this piece of paper” and you can see mine up there, I have a few up there. You’ve got this little booklet. It got prettier by the way; they designed the cover. It’s pretty now. There was a big announcement at South by Southwest, and Tom goes to the thing and he was like, “It wasn’t an announcement about any law changes. It was a pretty cover.” You have that and you think, “That’s it,” but it’s not it. It is a dynamic thing. The market changes the businesses. That is a great point. I hadn’t thought of it that way. When we do, we do make sure that we’re keeping up on those things, especially trademarks in our business. It’s doable. You can file extensions, you can file another patent that builds off your old one and you can give yourself a lot more life than you think for the overall intellectual property. Too many people also underestimate the amount of value they have from having made it for so much longer than everybody else in the market, so competitors start jumping in with something that maybe isn’t as good or circumvents a patent, finding out that your way over time is the best way for a reason. It is more cost effective or it’s more reliable, and so keeping that up is essential. That’s such a good point.

Another mistake that people make is they will not be clear about ownership, so when you’re inventing something, anybody that you include in the invention process is potentially an owner of the patent and so as you include people, you include your buddy, you will have to deal with it. Now that you’re putting a deal together, he wants more than what’s reasonable. You have to be more careful with that. With trademarks, the person who comes up with the idea for the trademark, they don’t have any ownership in it at all. That’s different. That’s the opposite of what it’s like for patenting things and copyrighting things. The author or the inventor has ownership rights at the very beginning whereas the person who came up with the branding idea has no ownership at all. The ownership rights for branding come from using the brand and/or filing a trademark application.

It’s not your graphic designer. It’s the using it on the product or on the package.

With copyright rights, some people don’t understand that the author has rights to it unless they assign rights away in writing, and so if you have a graphic designer or photographer or web developer or any of these people that are creating things that can be copyrighted, they own the rights unless you have a written agreement that clearly transfers those rights to you. Just because you paid for them to do it doesn’t mean that you own it.

That has to be clear in your contracts with them and your employment agreements and we do that. We’re very careful about that here. We respect that creative, and so we are clear on are we doing this design for hire and is that clearly then belonging to us or are you doing this on spec and it should belong to you too or as a joint venture in that case. It does have to be careful.

This is more of a subtle mistake. I have seen entrepreneurs, clients of mine, who are good at talking to people and doing deals. I have seen them work magic with intellectual property that was great. I have seen people who have strong solid intellectual property who can’t make a deal happen at all because they’re not social enough. So much of business has to do with trust and relationships, and so the mistake I’m talking about is that if you are not the right person to be doing one or more aspects of your business, then get help.

Seeking licensing or selling it or whatever that might mean.

If you don’t like talking to people, maybe you shouldn’t be the one trying to do the license. I never try to negotiate licenses for people because that’s not me. I’m in the background. I’m making sure that it’s a good license, that it is written well, that’s what I’m great at, but I have some clients who put together some deals that I couldn’t have predicted.

I see that a lot. People who invent things get very caught up in their what and the thing and so explaining the business case, even if it has a good one, they don’t dive into that first. They dive into their ‘what’ and in that case sometimes you lose your audience. I get that a lot with people who say, “I’ve gotten so much interest around my product. It should be licensable but no licensing deals have happened.”

Some of my more successful clients are ones who found a great person to be their CEO who was passionate about the project, who understood it not as well as they did, didn’t understand the technology as well, but we’re able to grab the reins and make deals with people and sell it.

We should be modeling Edison and not Tesla is what I keep saying to people because Edison was a better businessman and Tesla, not successful. Amazing inventions, but not as successful in terms of getting it to market. If that’s your goal, if that’s where you’re going with it and this is a business venture for you, make sure you get business help. That is so critically important.

As you start to grow the business, then keep what you are best at, those hats, and the hats that you are the worst at, find other people to get involved so take those over. Give them the freedom and the reins to do it.

How early do you get involved sometimes? Do you see stuff on a napkin?

I don’t think there’s a point where it’s too early to have an intellectual property attorney involved. There’re certainly times where it’s too early for filing and too early for me to reach your attention, but to help you identify, “You got something that might be worth protecting. It’s at least a decent candidate. You should keep secret about this. You don’t have to keep secret about that.” Getting intellectual property attorney involved very early on is great and then as things change, he’s involved.

I worked for an amazing company early on. This set the framework for my understanding of intellectual property, Milliken & Company. They’re one of the largest textile companies in the world, and by now, they probably have thousands of patents on everything from looms and machines, ways that they make yarn and everything, but they also have just as much proprietary technology. That’s an underestimated or not well understood part of intellectual property portfolio that sometimes proprietary technology makes more sense.

People use the word proprietary and it means that I own it. Sometimes when people say this is proprietary, they don’t own anything, it’s a marketing word but sometimes when they say it, what they mean is that this is a trade secret. I don’t have a trademark on it. I don’t have a registration, but I have done what it takes in order for this to be a trade secret. That’s definitely one of the valuable properties. It can be super valuable and it’s great because the rules for trade secrets are pretty much the same all over the world. I did some research on variances in the trade secret law over different countries. In all the developed world, the rule is if you have a secret and you’re able to keep it a secret, it’s not something that automatically gets disclosed as soon as you sell the product and people can look at it. It’s a secret. It has value because of it being a secret, and you take reasonable steps to keep it a secret, then that’s a trade secret and it’s protectable as a trade secret.

This is the example of how I really understood the difference between some of the things that they had filed patents for and some of the things that they created. There’s a loom, a machine that makes fabric, and it makes a pattern in the fabric not by weaving it but by jets of different things. Sometimes it’s air and sometimes it’s water and sometimes it’s this thing, and that’s all that they tell anyone their customers. You have no idea how the machine works. If you come to the factory and take a tour, the machine is covered up. From the proprietary section, you can see the fabric coming out of the machine, so you see the result and you see the yarn going in at the other end, but you see nothing in the middle and that’s how they’ve kept it a secret for over 50 years now.

PLH 09 | Trade Secrets

Trade Secrets: If you’re using techniques that everybody else uses, then is it really a secret?

With employee limits, all the employees who have access to that and even those who fix it, upgrade it, they all have agreements to keep it confidential. The other employees aren’t allowed to go behind the fabric. You’re doing all these reasonable steps to keep it a secret. In the world of manufacturing, there’re lots of trade secrets and it’s something that the manufacturing that is suited for that. When you’re talking about “I’ve invented a gadget,” if I invented the fidget spinner, obviously I can’t keep that a secret. As soon as I sell one, someone can take a look at it and see exactly how it works and whatever parts and pieces and they can cut it in half and look at how it’s put together. You have to be intentionally clear about is this something that can become a secret like a manufacturing technique or is it something that just can’t be kept a secret?

There’re many members who are in that beauty world and making formulated creams and other things. Can they use that under trade secret because someone could use the machine and analyze it, you certainly couldn’t tell from using it. Could you keep it still as secret ingredients? Is that allowed?

You’re required to put some of your ingredients in order to be able to sell it with FDA laws. To some degree you’re required to talk about what’s in it and certainly if there’s anything that would be an allergen or something like that. There’s only so much you can keep secret. On top of that, with modern chemistry and analytic techniques, it doesn’t take much for someone to buy your product and run it through their scientists and say, “It has exactly this much of this and all that.” How you mix it together and how you compound it, those sorts of things, those might be something you can keep a secret. If you’re using techniques that everybody else uses, then is it really a secret? That goes back to sometimes people will say it is trade secret when not really.

Secret ingredients, they’re not so secret because they are on the label.

We get things like Coke secret formula or eleven herbs and spices of Kentucky Fried Chicken and there’s a real question as to whether those are trade secrets or whether those are marketing. If you work at recent advertising, over the past ten years, when’s the last time you heard eleven herbs and spices? When’s the last time you heard Coke secret formula?

We know Heinz 57 does not have 57 in it.

With a lot of compounds in food, cosmetics, and things like that, I’m not convinced that you can keep that stuff secret.

Technology has certainly changed in making that less possible nowadays as well. Is there anything else that you would like people to know about you and about how you run the business or how they might have access to you?

I love talking with people who have something cool or interesting about their business and they value it and they feel like it matters. I got into patent law because I’m a very curious person and I love understanding everything. I love hearing about new technology and that is my everyday thing. I’m surrounded by people who are creative and intelligent, who are making the world a better place. I’m excited about it.

I’ve seen you in action and I know that that’s the case. You’ve spent a lot of time with people at the events that we go to. We do a lot of mentorship events together and you take time to think about and through. It’s not just, “Yeah, it’s patentable.” You take the time to understand them and think through them and advise some of the best methods. There’s a lot of attorneys out there who will be too quick to say, “Yes, we’ll patent that” and they aren’t evaluating the idea for what the right timing is, so I appreciate that about you.

I also know that you have this fabulous newsletter of which I am a subscriber and I’m a vicious unsubscriber. I get so much email, so I’m sure you understand that as well. Yours is one that I stay subscribed to and I read every time you send it out and I’ve downloaded every single one of your resources. Thank you for giving us permission to put those documents into our resource library, which is private to members only.

Tune in to Jason’s next Office Hours. Connect with and find out more about Jason in our Experts Directory.

Important Links:

Love the show? Subscribe, rate, review, and share!
Join the Product Launch Hazzards community today: