Open Innovation and Intellectual Property Rights — A Paradox?

With globalisation and increasing competition, technological self-reliance has become a necessity. India has always believed in the middle path. It can be traced to the tendency in our cultural milieu to avoid extremes in any thought process. Intellectual property rights (IPR) management is no exception. However, while the law is evolving, the practices are changing even faster.  The companies which traditionally held our hands on technology and supplied us know-how (at a price), have started to see us as a competitor. As a result of which in the recent years there have been several cases filed by Indian companies against other Indian companies demonstrating increasing awareness among the inventors of their rights. At the same time the case for open source technologies has also become quite strong. It is not just in softwares that one ought to be concerned about open source technologies, but even in hard technologies, the Government can incentivise innovators to bring their technologies in public domain. One can hybridise both IP and open source system protection among corporations and other organised sector entities but freedom to copy, improve, and learn from each other at the community level. Open innovation contrasts with the traditional “closed innovation” model employed by the large vertically integrated firms which grew prominent during the twentieth century.[1]

The most closely linked intellectual property relating to the open innovation is patents, and that is where the column focuses on. Most patent jurisdictions in the world were designed keeping in mind the lone inventor who, through the marshaling of extraordinary insight and experimental toil, conceives a novel invention. As a reward, the inventor is given the right to profit from his contributions through personal commercial exploitation. Open innovation suggested that this model can no longer be successful because the growth of alternative models of technology development challenges the competitive advantage of integrated R&D.

Having established that intellectual property rights would often lock horns with the concept of open innovation, this column would like to explore how to manage one’s intellectual property in order to successfully implement an open innovation model.

What justifies an open innovation model?

Having established that the underlying philosophies of open innovation model and patent laws are polar opposites, it is safe to conclude that an open innovation model would be in conflict with existing patent laws. The question that needs to be asked is, what then, justifies the concept of open innovation model. Traditionally, patent doctrines look for a “flash of creative genius” in the invention as in Graham v. John Deere Co. of Kansas City Calmar Inc.[2] But it is largely accepted now that the process of innovation is not random. The creation of new ideas in the modern world often heavily relies on existing ideas and builds on them.

New technologies arose from the intersection of previously unconnected fields. Technology fusion describes the process whereby entirely new technologies, such as electro-mechanical manufacturing equipment, are spawned by the integration of different fields of art. New fields, such as biotechnology and nanotechnology, stem from the integration of existing disciplines.

There are an almost unlimited number of potential recombinations which an innovator may pursue. The process of finding and trying new technical inputs is often referred to as search. Search processes are often characterised as local and distant search. Local searches involve component with which the innovator is familiar. Distant search tap into unfamiliar fields.

An open innovation model need simplifies the distant searches for an innovator. This may help and tap into different solutions for the same problem developed by different entities and make a breakthrough innovation. Such innovations are beyond the abilities of any one firm to envision.

It is easy to see from the above that open innovation model is beneficial in many ways like maximising profit, avoiding unnecessary competition and, to innovate in the intersection of two different fileds of art.

Managing the open innovation model vis-à-vis patent laws

It is well established that traditional patent laws, offering monopoly rights to the innovator, discourage the very idea of open innovation. But the author would like to postulate that if the intellectual property of an innovator firm is managed in an intelligent manner, it would be helpful in developing innovation model, should they choose to do so. By systematically managing the open innovation and patent management processes a firm might optimise the benefits that are to be gained by these two seemingly conflicting systems.

Some of the world’s largest patent-holders (firms like Philips NV, IBM, and Microsoft) have embraced the open innovation model. As an example transformation of Microsoft’s IP strategy due to the increased demand for interoperability of their Linux and Windows systems has encouraged the move. And if we examine the patenting activities of Microsoft, we observe that it does not appear to have reduced its patenting activities in response to this strategic shift. Microsoft has maintained a constant patenting.[3]

Managing the open innovation process

The volatility and the conflict in the open innovation model make it difficult to manage especially in the light of patent laws. The facts that make management difficult are:

  • There are always multiple claim holders who have heterogeneous interests.
  • Open innovation requires openness in the communication and exchange which is not always forthcoming.
  • Joint ownership and management of intellectual property is complicated.

These demand formation of a governance structure that can decide how multiple claims be prioritised. The open innovation model requires an open exchange of communication, but at the same time an understanding of confidentiality. This becomes all the more important due to the sensitive nature acquired by patents with regard to the time and value. Such confidentiality can be achieved by either signing a formal non-disclosure agreement, or by informal means of community norms, trust and implicit corporate culture.

Managing the intellectual property

To foster the open innovation culture without letting go of the advantages brought by the patent laws, firms must be very intelligent in the management of their intellectual property.  This is not to suggest that one circumvent the patent laws but only that firms utilise it in such a way that it provides a harmonious environment for the open innovation model.[4]

First, in competitive field of technology, like pharmaceutical, the importance of earliest filing of a patent cannot be understood. Since patent rights are granted to the first person who files for it, the application must be made at the earliest. Firms wishing to foster an open innovation model must adapt to the existing patent laws. An application must be made at the earliest, even if it is just a provisional application. The pace of the application process must also not be relaxed. The goal is to get the patent granted as fast as possible.[5]

Second, if possible, the patent application should be filed before collaborating with the partner. This helps with the issue of non-confidentiality encountered while entering into an agreement with a partner. Therefore, this issue may be simply solved by filing a provisional application before making a partnership. Although the applicant must make sure, even with a provisional application, that it meets the legal standards set by the rules. This is so because mere filing of a patent application does not guarantee the grant of patent, it must satisfy all the requirements of law. Although it is better to file a complete specification from the very start, the author realises it may not be financially, economically and realistically feasible.[6]

Third, it is very important to refrain from making any public disclosures about the invention at least till the provisional specification has been filed. The need for secrecy in a competitive market must be stressed upon. The firms involved in the transfer of technology should try to avoid publishing any material by themselves, as it would adversely affect their later claims to joint ownership.[7]

Fourth, third party technology-based solutions with staged disclosure can perhaps ease the tension that arises from receiving ideas that are not yet patented or subject of patent application.

Conclusion

Innovation as a process has increasingly become dependent on many factors including external technologies. It has become so saturated that groundbreaking innovations are becoming more prominent in the intersection of two or more technologies rather than in the realm of one. This has led to the increasing need for firms to collaborate among themselves to continue to increase their innovative output. But at the same time the concept of sharing technologies is directly in contrast with the intellectual property regime built in most jurisdictions.

But we can conclude that with proper management of open innovation model and of the intellectual property, a harmonious environment, where both can survive, can be made. This can be achieved by adopting better mechanisms for technology transfer and by adopting proper licensing practices.

Also, it is imperative to speed up the patent application filing process to supplement the open innovation made adequately. Some problems faced by the open innovation model can be directly solved by optimally utilising the patent law. The two systems, though prima facie at loggerheads with each other, are actually beneficial to each other. Open innovation fosters radical innovation and the intellectual property regime helps to design a better open innovation model. Therefore, the two systems share a symbiotic relationship. They aid in each other’s growth, provided that both are managed in an intelligent manner.

*Vaishali Singh is Research Associate, GNLU-Microsoft IPR Chair, Gujarat National Law University.

[1]  Chesbrough, Henry W. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard Business School Press.

[2]   1966 SCC OnLine US SC 19 : 15 LEd 2d 545 : 383 US 1 (1966).

[3]   Phelps, Marshall and David Kline (2009), Burning the Ships: Intellectual Property and the Transformation of Microsoft.

[4] The Open Innovation Model, © International Chamber of Commerce (ICC), 2014: <www.iccwbo.org/Innovation-and-intellectual-property>.

[5]    Ibid.

[6]    Ibid.

[7]    Ibid.

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