Proprietary Technology: Overview, Types, Example

What Is Proprietary Technology?

Proprietary technology is any combination of processes, tools, or systems of interrelated connections that are the property of a business or individual. These combinations provide a benefit or competitive advantage to the owners of proprietary technologies.

Companies capable of developing useful proprietary technologies in-house are rewarded with a valuable asset and can either use it exclusively or profit from the sale of licensing their technology to other parties.

Access to valuable proprietary technologies can also be purchased. This option, however, is often costlier and comes with greater restrictions on the use of underlying technologies.

Understanding Proprietary Technology

Proprietary technology involves an application, tool, or system that belongs exclusively to an enterprise. These are generally developed and used by the owner internally in order to produce and sell products or services to the end user or customer. In other cases, they may be provided to an end-user or customer for a cost.

In some industries, proprietary technologies are a key determinant of success. As a result, they are confidential. Being carefully guarded within a corporation, they are protected legally by patents and copyrights. For many businesses, particularly in knowledge-based industries, intellectual property can make up a majority of assets on an entity’s balance sheet. For these businesses, investors and interested parties go to great lengths to assess and value proprietary technologies and their contribution to business results.

Because research and development (R&D) expenses are something of a silent key to success, many businesses do not freely give away hints to what they’re working on behind the scenes. Analysts and investors try to uncover undisclosed breakthroughs in corporate proprietary technologies so they can take advantage of proprietary investment accounts as well.

Types of Proprietary Technology

Proprietary technology takes many forms and depends on the nature of the business that owns it. It can be both a physical and an intangible asset developed and used by the organization.

For example, a company may own its own data system. For example, financial institutions develop their own internal systems to collect and process data that is used internally. These systems can be found in a bank branch, where employees input information when customers come in to do routine banking at the teller line.

Companies may also develop their own software. Proprietary software is the opposite of free software, which has no limitations on who uses it. Its ownership is restricted to the publisher or distributor. Certain conditions must be met before the owner allows an end-user access to the software. For example, a tax preparation company may charge customers a fee to use their software to complete their tax returns.

Examples of Proprietary Technology

While the advantages of some proprietary technologies are clear, others are not so evident. And it's only through recombination with other technologies where the true value is uncovered—an effort now simply known as innovation.

The story of Xerox and Apple’s Steve Jobs is a classic example. Not knowing what they had on their hands in the late 1970s, Xerox essentially gave away the idea behind a computer mouse to Jobs who went on to use the technology in Apple’s early computer designs.

Proprietary technology is also a big part of the biotech industry. Let's say a company in this industry successfully develops a new drug to treat a major disease. By patenting the process, method, and the end result of the drug, the company can reap substantial rewards from its efforts to develop its proprietary technology.

Protecting Proprietary Technology

Companies go to great lengths to keep their proprietary technology protected. After all, organizations spend a lot of time, effort, and money on developing the know-how for their products and services. Not taking the time to protect their interests could spell disaster for their operations.

Because it's so valuable, proprietary technology is always at risk. As mentioned above, companies can protect themselves by taking out patents and copyrights on their proprietary technology. These give the owner rights to the intellectual property and prevent others from copying the innovations.

Employees may leak or share it with others including the competition—accidentally or intentionally—or a data breach may occur, exposing trade secrets to hackers. So how do companies safeguard themselves from these unforeseeable actions?

Many corporations control and/or limit employee access to data. Employees may also be required to sign non-disclosure agreements (NDAs), a contract that gives the employer legal recourse if internal, confidential information is shared with outside parties. Companies may also need to continuously update their security systems to ensure there is no data breach, exposing their secrets to third parties.