Book Review and Commentary: Patenting in an Era of 'Open Innovation'

“Open Innovation” by Henry Chesbrough.

Harvard Business School Press (2003). 225 pp.

In “Open Innovation,” Henry Chesbrough proposes that a fundamental change is taking place in the business of innovation ' a traditional closed innovation model is being supplanted by an emerging open innovation one. The closed innovation archetype was the isolated corporate research center that sought to single-handedly develop, commercialize, and dominate an emerging technology. Open innovation is heralded by companies that combine their internal capabilities with an awareness of the innovation marketplace and a willingness to license, acquire, and collaborate to maximize the speed and impact of innovation. The author opines that companies that continue to rely on closed innovation cannot compete against the new breed of open innovators.

“Open Innovation” provides insight into the business of innovation that should be of interest and assistance to patent practitioners. More importantly, it carries a profound message for the patent community that should spark conversation about the role of patents in a fast-moving technology ecosystem. It has implications for patent practice, policy, and the direction of the profession. Patents could be the currency of the open innovation world, even as they once served the closed innovation R&D megaliths. But in order to remain relevant, patent practitioners and patent systems must adapt to the changing demands of an open innovation marketplace.

Too Many Smart People

“Open Innovation” is well written, informative, and replete with interesting case studies of innovative companies. It is neither a boom-time book about the competitive virtuosity of venture-backed startup companies, nor a post-boom, back-to-basics homage to corporate conservatism. It starts from the painful and recently reinforced reality that innovation is hard and that most innovations fail. The message is not so much about the failure of technology, but the difficulty of merging multiple technologies, compelling knowledge of an addressable market, and the necessary business model to bring a technology-based product to that market. If limited to the resources of any given company, the likelihood of success is low. The fundamental reason is that there are simply too many smart people and too much capital addressing the same market needs for a company to succeed on internal resources alone.

The usual new economy suspects provide the context for the transition from closed to open innovation: the explosion of a highly educated work force (many with advanced degrees), high labor mobility, availability of venture capital and other private equity vehicles, growth in applied university research, and the birth of active startup ecosystems in many regions of the United States and abroad. Startups play an important role in the open innovation economy, but are not its focus. They are largely a testing ground for nascent technologies and business models and frequently begin or end with a dependent relationship to established companies. The author's strongest examples of companies pursuing an open innovation strategy include: IBM, Lucent, Intel, and those in the pharmaceutical industry. Their strategies depend upon looking to universities, startups, partners, customers, and even competitors for developing technologies, markets, and business models.

Open innovators do some or all of the following:

• spin out technologies to allow them to find their business model through experimentation, failure, and integration of ideas from multiple sources;
• actively invest in startups and/or outside research in current and future markets;
• actively engage in acquisition of companies, technologies, and expertise;
• support partnering through joint development, standards bodies, customer collaboration, etc.;
• actively license their own IP, even to competitors;
• actively license in others' IP to enhance products and business models;
• prize market and competitive intelligence as a cardinal virtue;
• avoid duplicating the efforts of others; and
• rely upon their internal R&D function as a tool for competitive intelligence and to help guarantee the expertise necessary to evaluate and exploit external opportunities.

Three Additional Insights

One interesting insight in the book is the symbiotic relationship between a new technology and the business model to bring it to market. One without the other is of limited business value. Patent practitioners constantly see underutilized portfolios, forgotten technologies, and the moldering fruits of R&D that never found its way to the marketplace. While some technologies may indeed have no market application, many others have simply never been applied to the right problem or commercialized through the right business model. Orphan technologies and the rapid evolution of market opportunities highlight the importance of an open marketplace for innovation, one that allows technologies and opportunities to mix and match beyond the sphere of their creators. The book provides a helpful reminder that technology, even novel technology, is only as strong as the business model that supports it.

Another insight of particular relevance to patent practitioners is a new focus for IP management in an open innovation environment. It builds upon the foundations of active IP management and active licensing and advocates an active IP marketplace. “In a world of abundant knowledge, companies should be active buyers – and active sellers ' of IP.” This implies knowing your own IP, as well as the IP and technology of partners, competitors, university researchers, startups, and others. It requires that management actively license its portfolio to generate revenue from IP investments and contribute to a robust marketplace of recombinant technology ' profiting from others, rather than excluding them. Most important is becoming an active consumer of IP, proactively seeking opportunities to license and use other companies' IP to improve products and expand markets. While more and more practitioners have been seeking opportunity to license out technologies, few seem to have fully embraced in-licensing, and even out-licensing has been limited to non-core or unused technologies. An active IP marketplace is only possible with willing buyers and sellers and requires that the best of technology, not the margins, be allowed to move freely.

A final insight relates to the changing role of internal R&D in an open innovation ecosystem. R&D departments are no longer expected to be the sole source of product improvements and new product development. In fact, open innovation proceeds from the idea that new technologies are as likely to originate outside the organization as within. This raises the question of whether to bother with internal R&D at all. According to “Open Innovation,” internal R&D capabilities continue to be critical for several reasons: community, competence, integration, and exchange. Internal R&D becomes a link to the broader innovation marketplace, the company's eyes and ears within the communities of scientists, engineers, and technologists pursuing new discoveries and applications. Internal R&D is required to maintain the skills to understand, evaluate, and try to predict technological advances. Without current and capable R&D personnel, companies are not able to appreciate what is happening on the cutting edge of technology. Internal R&D is also necessary to be able to bring new technologies into the company and integrate them into present products and research initiatives. Finally, internal R&D will continue to generate some of its own discoveries, which become a critical medium of exchange and measure of success in the active IP marketplace. This shift to using internal R&D to monitor external activities is perhaps most apparent in the pharmaceutical industry, where executives have been forced to recognize that the next blockbuster is unlikely to come from within their own labs.

There is much to explore and enjoy in “Open Innovation” and patent practitioners should be interested in its vision of “a world of abundant knowledge” and the implications of that world.

Commentary: Patent Practice, Policy, and the Profession

The concept of open innovation ' technology and business innovations from disparate sources constantly combined, tested, and improved in an active marketplace – is a compelling one. If it is true, the rate of innovation will only continue to increase. The complexity of technology-based products and the number of innovators contributing to them will continue to grow. New market opportunities will continue to emerge and be rapidly exploited by startups and established companies alike. Innovation cycles and the useful lives of new products will continue to shorten. If patents are to be the currency of a dynamic innovation marketplace, some changes in patent practice will need to be made. At present, patents are unclear, unreliable, unwieldy, and slow ' the antithesis of the transparency and efficiency required of an open innovation marketplace.

To meet the demands of an open innovation marketplace, patents and their technical and legal content need to be clearer. They need be perceived as a medium of technical exchange, rather than a barrier to it. The quality of patents, including their scope and novelty, needs to be more reliable and respected in the marketplace and public opinion. Systems for locating and processing patent data and other technical information need to be improved so that they provide access to technology and a view of the market, rather than concealing the valuable among the uncertain and the irrelevant. Finally, speed needs to be improved ' speed of disclosure, speed of review, speed of transaction, and, when necessary, speed of adjudication ' to keep pace with the innovations they represent.

This is not a charge laid solely upon the overwhelmed USPTO or the Federal Circuit. Certainly, the PTO, courts, and policymakers have a role to play. However, it is the patent practitioners ' the patent attorneys, in-house counsel, licensing executives, consultants, support service providers, and corporate management ' that need to be agents of change and innovators within the patent industry. The call has gone out for proactive management of patent assets, and many have heeded it. Awareness and sophistication are growing, but not fast enough. More needs to be done: better management techniques, more diverse and leveraged business models, better application of technology, increased interdisciplinary approaches, and better service to the innovators the industry supports. Otherwise, the patent industry will be overwhelmed by demand and climbing costs, eventually buckling under the weight of its own inefficiencies.

If the patent system fails to support the needs of the open innovation marketplace, anti-patent sentiment will spread and another form of innovation currency will be found to take its place. To prevent this, experimentation and dialogue regarding the business of patents, not just their legal intricacies, need to be encouraged. The only purpose of the patent system is to serve the innovation marketplace. Like the new technologies it protects, the patent industry will only be as strong as the business models it employs and supports.

“Open Innovation” by Henry Chesbrough.

Harvard Business School Press (2003). 225 pp.

In “Open Innovation,” Henry Chesbrough proposes that a fundamental change is taking place in the business of innovation ' a traditional closed innovation model is being supplanted by an emerging open innovation one. The closed innovation archetype was the isolated corporate research center that sought to single-handedly develop, commercialize, and dominate an emerging technology. Open innovation is heralded by companies that combine their internal capabilities with an awareness of the innovation marketplace and a willingness to license, acquire, and collaborate to maximize the speed and impact of innovation. The author opines that companies that continue to rely on closed innovation cannot compete against the new breed of open innovators.

“Open Innovation” provides insight into the business of innovation that should be of interest and assistance to patent practitioners. More importantly, it carries a profound message for the patent community that should spark conversation about the role of patents in a fast-moving technology ecosystem. It has implications for patent practice, policy, and the direction of the profession. Patents could be the currency of the open innovation world, even as they once served the closed innovation R&D megaliths. But in order to remain relevant, patent practitioners and patent systems must adapt to the changing demands of an open innovation marketplace.

Too Many Smart People

“Open Innovation” is well written, informative, and replete with interesting case studies of innovative companies. It is neither a boom-time book about the competitive virtuosity of venture-backed startup companies, nor a post-boom, back-to-basics homage to corporate conservatism. It starts from the painful and recently reinforced reality that innovation is hard and that most innovations fail. The message is not so much about the failure of technology, but the difficulty of merging multiple technologies, compelling knowledge of an addressable market, and the necessary business model to bring a technology-based product to that market. If limited to the resources of any given company, the likelihood of success is low. The fundamental reason is that there are simply too many smart people and too much capital addressing the same market needs for a company to succeed on internal resources alone.

The usual new economy suspects provide the context for the transition from closed to open innovation: the explosion of a highly educated work force (many with advanced degrees), high labor mobility, availability of venture capital and other private equity vehicles, growth in applied university research, and the birth of active startup ecosystems in many regions of the United States and abroad. Startups play an important role in the open innovation economy, but are not its focus. They are largely a testing ground for nascent technologies and business models and frequently begin or end with a dependent relationship to established companies. The author's strongest examples of companies pursuing an open innovation strategy include: IBM, Lucent, Intel, and those in the pharmaceutical industry. Their strategies depend upon looking to universities, startups, partners, customers, and even competitors for developing technologies, markets, and business models.

Open innovators do some or all of the following:

• spin out technologies to allow them to find their business model through experimentation, failure, and integration of ideas from multiple sources;
• actively invest in startups and/or outside research in current and future markets;
• actively engage in acquisition of companies, technologies, and expertise;
• support partnering through joint development, standards bodies, customer collaboration, etc.;
• actively license their own IP, even to competitors;
• actively license in others' IP to enhance products and business models;
• prize market and competitive intelligence as a cardinal virtue;
• avoid duplicating the efforts of others; and
• rely upon their internal R&D function as a tool for competitive intelligence and to help guarantee the expertise necessary to evaluate and exploit external opportunities.

Three Additional Insights

One interesting insight in the book is the symbiotic relationship between a new technology and the business model to bring it to market. One without the other is of limited business value. Patent practitioners constantly see underutilized portfolios, forgotten technologies, and the moldering fruits of R&D that never found its way to the marketplace. While some technologies may indeed have no market application, many others have simply never been applied to the right problem or commercialized through the right business model. Orphan technologies and the rapid evolution of market opportunities highlight the importance of an open marketplace for innovation, one that allows technologies and opportunities to mix and match beyond the sphere of their creators. The book provides a helpful reminder that technology, even novel technology, is only as strong as the business model that supports it.

Another insight of particular relevance to patent practitioners is a new focus for IP management in an open innovation environment. It builds upon the foundations of active IP management and active licensing and advocates an active IP marketplace. “In a world of abundant knowledge, companies should be active buyers – and active sellers ' of IP.” This implies knowing your own IP, as well as the IP and technology of partners, competitors, university researchers, startups, and others. It requires that management actively license its portfolio to generate revenue from IP investments and contribute to a robust marketplace of recombinant technology ' profiting from others, rather than excluding them. Most important is becoming an active consumer of IP, proactively seeking opportunities to license and use other companies' IP to improve products and expand markets. While more and more practitioners have been seeking opportunity to license out technologies, few seem to have fully embraced in-licensing, and even out-licensing has been limited to non-core or unused technologies. An active IP marketplace is only possible with willing buyers and sellers and requires that the best of technology, not the margins, be allowed to move freely.

A final insight relates to the changing role of internal R&D in an open innovation ecosystem. R&D departments are no longer expected to be the sole source of product improvements and new product development. In fact, open innovation proceeds from the idea that new technologies are as likely to originate outside the organization as within. This raises the question of whether to bother with internal R&D at all. According to “Open Innovation,” internal R&D capabilities continue to be critical for several reasons: community, competence, integration, and exchange. Internal R&D becomes a link to the broader innovation marketplace, the company's eyes and ears within the communities of scientists, engineers, and technologists pursuing new discoveries and applications. Internal R&D is required to maintain the skills to understand, evaluate, and try to predict technological advances. Without current and capable R&D personnel, companies are not able to appreciate what is happening on the cutting edge of technology. Internal R&D is also necessary to be able to bring new technologies into the company and integrate them into present products and research initiatives. Finally, internal R&D will continue to generate some of its own discoveries, which become a critical medium of exchange and measure of success in the active IP marketplace. This shift to using internal R&D to monitor external activities is perhaps most apparent in the pharmaceutical industry, where executives have been forced to recognize that the next blockbuster is unlikely to come from within their own labs.

There is much to explore and enjoy in “Open Innovation” and patent practitioners should be interested in its vision of “a world of abundant knowledge” and the implications of that world.

Commentary: Patent Practice, Policy, and the Profession

The concept of open innovation ' technology and business innovations from disparate sources constantly combined, tested, and improved in an active marketplace – is a compelling one. If it is true, the rate of innovation will only continue to increase. The complexity of technology-based products and the number of innovators contributing to them will continue to grow. New market opportunities will continue to emerge and be rapidly exploited by startups and established companies alike. Innovation cycles and the useful lives of new products will continue to shorten. If patents are to be the currency of a dynamic innovation marketplace, some changes in patent practice will need to be made. At present, patents are unclear, unreliable, unwieldy, and slow ' the antithesis of the transparency and efficiency required of an open innovation marketplace.

To meet the demands of an open innovation marketplace, patents and their technical and legal content need to be clearer. They need be perceived as a medium of technical exchange, rather than a barrier to it. The quality of patents, including their scope and novelty, needs to be more reliable and respected in the marketplace and public opinion. Systems for locating and processing patent data and other technical information need to be improved so that they provide access to technology and a view of the market, rather than concealing the valuable among the uncertain and the irrelevant. Finally, speed needs to be improved ' speed of disclosure, speed of review, speed of transaction, and, when necessary, speed of adjudication ' to keep pace with the innovations they represent.

This is not a charge laid solely upon the overwhelmed USPTO or the Federal Circuit. Certainly, the PTO, courts, and policymakers have a role to play. However, it is the patent practitioners ' the patent attorneys, in-house counsel, licensing executives, consultants, support service providers, and corporate management ' that need to be agents of change and innovators within the patent industry. The call has gone out for proactive management of patent assets, and many have heeded it. Awareness and sophistication are growing, but not fast enough. More needs to be done: better management techniques, more diverse and leveraged business models, better application of technology, increased interdisciplinary approaches, and better service to the innovators the industry supports. Otherwise, the patent industry will be overwhelmed by demand and climbing costs, eventually buckling under the weight of its own inefficiencies.

If the patent system fails to support the needs of the open innovation marketplace, anti-patent sentiment will spread and another form of innovation currency will be found to take its place. To prevent this, experimentation and dialogue regarding the business of patents, not just their legal intricacies, need to be encouraged. The only purpose of the patent system is to serve the innovation marketplace. Like the new technologies it protects, the patent industry will only be as strong as the business models it employs and supports.