How (and how not) to protect intellectual property

By Henry Kressel

Technology leaders have been fighting intellectual-property theft for centuries. History shows that a static defense has never worked for long.

Sustained leadership depends on innovation, not barriers. The United States is now engaged in an unprecedented effort to deny semiconductor technology to China. Maintaining US leadership depends more on US innovation than on technology controls.

Some notable examples from history include the following.

Chinese porcelain products were the best in the world for centuries. These products were widely exported and the technology was fiercely protected – until it became  known to diligent European visitors, and competing products emerged in Germany and France in the 18th century.

Venice had Europe’s most sophisticated glass technology and forbade the emigration of its craftsmen on pain of death. Then the French government under Louis XIV decided to enter the fine-glass business and attracted Venetian craftsmen to build the Saint-Gobain enterprise. What remain in Venice are exhibits for tourists.

The invention of the practical steam engine launched the Industrial Revolution in Great Britain. The British restricted the export of steam engines to keep their industrial lead. They also protected equipment for its dominant textile industry. Eventually, enterprising foreigners copied the  designs, and a textile industry emerged in the United States, where low-cost mass-production technology built a highly competitive industry that surpassed Britain’s.

R&D and manufacturing

While patents and secrecy are powerful defenses, key industrial technologies sooner or later escape private control. Sometimes this happens because governments demand it. The US government has stepped in to break up technological monopolies. AT&T was forced to license its patents for transistors invented at Bell Labs, just as RCA had to license its color-television patents..

Ultimately, industrial leadership can only continue on the basis of competitive product excellence and cost structure. The example of color television is instructive.

After licensing the RCA technology, Sony in Japan focused on image quality and improved manufacturing, and developed the finest television receivers, challenging RCA as the technology leader. It took a massive development program at RCA to compete.

Where manufacturing is vital, leading product companies maintain their position by strong  programs of research coupled with manufacturing. A successful example is the Corning Corporation, a world leader in special glass technology.

Corning spends about US$1 billion a year on research and development that extends into developing its own proprietary manufacturing technology. Its market-leading glass products range from thin glass strands in optical-fiber communications to special glass plates used to enclose smartphones.

All its products are manufactured in Corning-owned plants. By maintaining technology control from concept through production, the company keeps its lead over competitors.

Offshoring

Today, the industrial business that has emerged as key to the modern economy is semiconductors – first developed in the US and now a global business generating $400 billion in annual revenue. Over the past three decades, the major focus of the US industry was to outsource manufacturing while focusing on product design. Intel remained the only major US semiconductor company with advanced manufacturing technology.

Barely 10% of semiconductor products are still manufactured in the US. About 90% of the highest-performance integrated-circuit chips (with transistor widths of 7 nanometers or below) are produced in Taiwan by TSMC, a company that solely manufactures devices designed by its customers.

These products enable the most sophisticated computing systems as well as consumer products such as smartphones. Taiwan Semiconductor Manufacturing Company is an example of how technologies migrate. After starting as a licensee of US technology, it has developed what are arguably the most sophisticated semiconductor manufacturing  facilities in the world.

Recognizing the need to build domestic production, the US government has recently created a $50 billion fund to assist with the capital costs of new semiconductor production plants inside the country. The aim of this program is to revitalize the manufacturing-innovation programs that once were a vital part of the domestic industry.

Expectations for the outcome of this program should be modest. This will take patience, because it requires long-term research and development for major innovations to make it from the drawing board to production. And that can take years.

An example of this timescale is the implementation of the CMOS (complementary metal oxide semiconductor) process as the dominant integrated-circuit chip technology. First invented in 1963, this technology enables low power dissipation and high-speed switching. Because of competing factors of density and cost, it was neglected by major companies in favor of another technology. It took 10 years of development before it gained acceptance.

The first CMOS products, manufactured by RCA, found their way in a small scale into defense systems in the late 1970s. Some of this research work was funded by US Department of Defense contracts. In fact, the CMOS technology did not become mainstream until the 1980s as other technologies started to fail.

Corporate investment is needed along with academic research programs to increase the rate of innovation and move from the lab into manufacturing. It is that coupling that was once so successful in the US in building the industry, and that is what is needed to reinvigorate it today.

Henry Kressel is a technologist, inventor, author and long-term private equity investor.