KUALA LUMPUR, Dec 23 ― The patent system is at an inherent tension with contemporary practices of innovation. American patent doctrine reveres the lone inventor who, through the marshalling of extraordinary insight and experimental toil, conceives a novel invention.
As a reward, the inventor is given the right to profit from his contribution through personal commercial exploitation. While this perspective may have reflected the practice of the mechanical arts at the time of the nation’s founding, it no longer reflects contemporary industrial research and development, where innovation is an increasingly networked process.
This disconnect is evidenced by the fact that contemporary patent doctrine has failed to balance the costs and benefits of its intervention in industrial market structures. Its benefits ― primarily an increase in innovative output by American firms ― have been on the decline in the past decade.
On the contrary, its costs ― most notably manifest in the rise of opportunistic patent trolls seeking to extract royalties on unpractised patents, are on the public rise. In today’s article, we are going to look into the Open Innovation concept as a potential mechanism to increase the innovative output.
Open Innovation is a contemporary management theory which teaches that corporations can increase their innovative output by importing ideas from outside the firm. It holds much promise, in particular, as a means for small innovative companies to collaborate with large, established producers to create otherwise impossible radical innovations.
Open innovation does not refer to free knowledge or technology. While “open source” refers to royalty ― free technologies, open innovation refers to collaborative networking, and may still involve the (significant) payment of license fees for IP.
Companies engaged in open innovation organise licensing activities and strategic alliances for a pro-active intellectual property strategy that aims at sharing technologies rather than hoarding IP as a defence mechanism.
Freedom to operate (FTO) in product and service markets, sometimes referred to as market freedom to operate is a driving factor for large firms and SMEs to patent in order to block competition. This is related to the freedom of keeping R&D and design options open, i.e. to maintain technological flexibility or what we can also call freedom to operate in R&D.
As innovation is becoming an increasingly networked process, trends like the Bayh-Dole act and venture capital financing have created a rich sea of ideas outside traditional integrated research and development departments.
The concept of Open Innovation advocates that companies tap into this resource. Open innovation teaches that companies or innovation producers can benefit by integrating external innovations into their existing products.
For innovators, commercialisation by licensing to an open innovation programme is lucrative only if the manufacturer can offer an established commercial use for the innovation and the necessary complimentary assets to realise it. In these situations, however, the innovator is at an extreme bargaining disadvantage.
Recombinant innovation model teaches that radical breakthroughs are created through the combination of unfamiliar technologies. Open innovation yields the best results, therefore, when it accesses technologies that are very different than existing products.
In order to transfer these technologies effectively, the innovator must transfer its tacit know-how to the producer. Know-how transfer can only be legally protected by trade secrets, and is fraught with hazards. The innovator, in a weak bargaining position to begin with, is in need of greater leverage against its partner than trade secret protection will allow.
Therefore, patents are necessary in order to protect the transfer of know-how. Patent protection is strongest when the final product is most similar to the licensed innovation. However, recombinant innovation concept suggests that breakthroughs occur when technologies are licensed across great distances. Therefore, patent protection alone is insufficient to facilitate open innovation systems. Private mechanisms, utilising repeat interactions and reputation fills this legal void.
Discovering a gap in the local landscape, PlaTCOM Ventures, a wholly owned subsidiary of Agensi Inovasi Malaysia (AIM), is fostering Open innovation under the quadruple helix model, where we emphasise collaboration with Government, Rakyat, Academia and Industry to promote innovation and accelerate technology transfer. To-date, our team of experts have facilitated a total of 174 intellectual property transfers from academia into industry over a span of just over two years.
Open innovation is becoming a prevalent trend in some industries and it this trend continues, it will soon place a novel tension on a patent system traditionally focused on rewarding lone inventors. Although contractual and private mechanisms are being developed to foster these transactions, there is significant potential for legal and institutional development in this area.
Open innovation can accelerate the internationalization of innovation in SMEs. However SMEs must be prepared to connect, develop and integrate global innovation networks. It is time for businesses to embrace Open innovation as it creates new market opportunities which requires new innovation strategies, IPR protection, sourcing of knowledge and capacity across the globe whilst lowering transaction costs and advancing product development.
Source: The Malay Mail Online