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 an individual. These combinations provide a benefit or competitive advantage to the owners of proprietary technologies.

Companies that are capable of developing useful proprietary technologies in-house are rewarded with a valuable asset: they can either use it exclusively or profit from the sale of licensing of their technology to other parties. Access to valuable proprietary technologies can also be purchased, but this option is often costlier and comes with greater restrictions on the use of underlying technologies.

BREAKING DOWN 'Proprietary Technology'

For example, let's say a biotech company 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.

In some industries, proprietary technologies are a key determinant of success. As a result, they are guarded closely within a corporation and 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 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 too can take advantage of proprietary investment accounts.

Examples of Proprietary Technology

While the advantages of some proprietary technologies are clear, others are not so much. And it's only through the 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.

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