Innovation vs. Imitation: Understanding the Fine Line Between Inspiration and Counterfeiting

My friend Angelika Blendstrup recently drew my attention to a piece by Vivek Wadhwa , published in The Economic Times and titled “Masters of imitation: Copying has been a foundational element of innovation in the most successful tech ecosystems.” Wadhwa wrote this in response to criticism he received for celebrating the IPO achievements of Ola Cabs' Bhavish Aggarwal on social media. As he noted, “I was met with a wave of comments accusing him of copying ideas to build his company.” Wadhwa argues that such criticism stems from a misunderstanding of how innovation truly works. He references Steve Jobs’s famous quote: "Picasso had a saying -- 'good artists copy; great artists steal' -- and we have always been shameless about stealing great ideas." He also provides multiple examples of innovations inspired by other innovations, explaining that “Ola didn't just mimic Uber's business model - it also innovated far beyond, especially in its understanding of the Indian market.” My extensive research on the history of innovation for my book proves him right from A to Z. That being said, it is the term "copy" that can be confusing and ruffle feathers.

What is constantly at issue here is the boundary between existing innovations as a source of inspiration and outright counterfeiting.

When we say that innovations inspire similar innovations, we acknowledge that most innovative products were built “on the shoulders of others, but they also were put together in ways that reinvented the product categories,” as Dan Farber aptly described when discussing Jobs’s statement. Significant innovations rarely come out of the brain of one innovator out of the blue. They typically result from the maturation of one or several innovation stacks and as a result, emerge in dynamic environments where numerous entrepreneurs experiment with a combination of new features, different targets, and business models. For example, several personal computer companies popped up at the same time and the first PC clones (Compaq, Dell, HP, Acer, etc.) appeared soon after IBM launched its IBM PC.

Counterfeiting, however, is a different matter and poses a gigantic economic challenge. Counterfeit goods are produced in various countries, with China leading the way, where the phenomenon of shanzhai (copycatting) permeates every industry. Is this justifiable? In 2016, Jack Ma, founder of Alibaba, stirred controversy by stating, “The problem is that the fake products today make better quality, better prices than the real products, the real names.” He further added, “It’s not the fake products that destroy them; it’s the new business models.” While his point holds true in some instances, imagine being an Israeli entrepreneur who, just a week after launching a crowdfunding campaign for his product on Kickstarter, discovered it was already available on Alibaba with the same design!

Imitation—and the fear of it—has been a significant concern since the first industrial revolution. Jean-Baptiste Say, the first modern theorist to acknowledge the importance of patents, highlighted the bind in which innovators inevitably find themselves: “Nothing can long escape publicity, least of all what people have a personal interest in discovering, especially if the secret be necessarily confided to the discretion of a number of persons employed in constructing or in working the machine.” He was undoubtedly correct. In the French version, he mentioned Richard Arkwright’s spinning machine powered by water, known as the “water-frame.” Arkwright became the richest untitled man in England, though he also sparked copycat empires in Germany and the United States. German entrepreneur Johann Brüggelmann, born into a wealthy merchant family in Elberfeld (now part of Wuppertal), had a friend, Carl Delius, smuggle a water-frame model out of England in 1782, along with a skilled worker who knew how to operate it. In the United States, Arkwright’s design was imported by Samuel Slater, who, after memorizing the cotton spinning techniques and machinery in 1789, arrived in America and opened his first factory in Pawtucket, Rhode Island, in 1793. More entrepreneurs followed suit, notably Francis Cabot Lowell. American entrepreneurs built their success by adapting and improving British innovations to local conditions and fiercely protecting their markets. Lowell, for instance, successfully lobbied Washington to establish tariffs protecting US-manufactured goods from overseas competition, including cotton cloth from Great Britain and its colonies. The Tariff of 1816 was the first tariff passed by Congress.

So, can innovators be protected? Patents certainly help, but they safeguard inventions and methods rather than innovations per se, because there is rarely a direct correlation between an invention and an innovation. Most innovations incorporate multiple existing or new inventions, but more importantly, what defines an innovation is how these inventions are staged and contextualized for a market. As an inventor, you may want to protect a specific invention, but as an innovator, your goal is often to achieve maximum reach—which inevitably risks inspiring countless others. The apparent first-mover advantage for pioneers has always been fleeting, and this is even more true in today’s world of pervasive communication. Thus, protecting one’s innovations is first and foremost about developing a multi-faceted strategy that includes continuous innovation, unseen differentiators, leveraging behavioral economics, creating an ecosystem lock-in, brand-building, and more.