How Intellectual Property (IP) Enables And Protects Open Innovation Platforms

For decades, Bell Laboratories, a research and development subsidiary of the American Telephone & Telegraph Company (AT&T) formally organized in 1925, had an extraordinary stream of talent enter its ranks. Most of its scientists in the early years were young PhDs in physics who had studied under

University of Chicago professor Robert Millikan. Many of those students enjoyed layovers teaching at MIT or Caltech before joining Bell Labs.

AT&T’s internally stated goal in those days was bold:

To devise and develop facilities that will enable two human beings anywhere in the world to talk to each other as clearly as if they were face to face and to do this both economically as well as efficiently.

John Gertner, The Idea Factory: Bell Labs and the Great Age of Innovation (Penguin Press 2011).

In the name of “the operation of genius,” Bell Labs researchers worked on both applied and theoretical research, which was unusual for an industrial lab at the time. They were actively encouraged to work on projects of their choice that, on their face, seemed to have nothing to with the telephone industry. According to Gertner:

These young scientists, many of whom came through [Professor] Millikan, were encouraged to implement [the] long-term vision for the phone company – to look beyond the day-to-day concerns that shaped the work of their fellow engineers (to think five or ten years was admirable) and focus on how fundamental questions of physics or chemistry might someday affect communications. Id.

AT&T and its superstar cast at Bell Labs worked in a closed system of innovation; that is, research and development remained within the company. AT&T did not allow its R&D to be leveraged by others, either in partnerships or otherwise. At its core, it was a strategic asset that served as a barrier to entry by competitors in many markets. (As an important corollary, this resulted in legal (antitrust) woes beyond the scope of this piece.)

Research & Development in Today’s Business World

Our modern corporate R&D landscape looks very different. Well-known startups like Amazon, Google, and Facebook grew at breakneck pace and now dominate the Internet. Before them, two upstarts by the name of Apple and Microsoft successfully challenged the status quo. While R&D is essential to all these companies, they came of age in an era during which a premium was (and still is) put on getting to market as quickly as possible. The market demands it; technology evolves too quickly to be left behind; and venture capitalists want to see a return on investment.

This paradigm shift counsels companies to rethink their approach to R&D. Closed systems no longer allow the type of development—nor the realization of its benefits—required in today’s marketplace. Rather, R&D should be focused on promoting open innovation-based platforms around which entire ecosystems can be fostered. These ecosystems include both partners and competitors (and indeed some unholy alliances that combine those two).

Companies that pursue open innovation strategies share some common traits:

1. They are willing and wish to source and use external knowledge, ideas, intellectual assets, and technologies to complement their internal capabilities.
2. They understand that such complements allow them to capitalize on opportunities, especially with the right IP structure and strategy in place.
3. They wish to create new products and services.
4. They improve their processes.
5. They design new organizational systems and business models.

Facebook is a prime example. One of the geniuses of its model was Mark Zuckerberg’s early insistence that Facebook had to be a platform with open APIs in order to reach its potential. He discussed this strategy with Bill Gates, who knows a thing or two about platforms. How can we tell that the strategy is working? Zynga (Nasdaq: ZNGA), a social network game development platform that developed games that work on Facebook and other platforms, went public (IPO) within five years and has a market cap of approximately $6.1 billion (Apr 23, 11:15am). Zynga no doubt appreciates Zuckerberg’s prescience, and vice versa.

Open innovation ecosystems are not without challenges. According to Tyron Stading, CTO of Innography, a provider of intellectual property (IP) business intelligence tools, open innovation ecosystems that consist of companies that are vastly different in size and market power produce unique hurdles and opportunities that can be addressed by the proper use of IP as a market leveler.

Companies like Procter &Gamble have developed a significant market presence, however, they realize they cannot invent everything in the world.  They understand it is better to partner with companies in a symbiotic relationship to bring a technology to market. Intellectual property has really made this model possible in many ways.  If a smaller company partners with a larger company, they have little to no protection without IP in place.  IP creates a framework where both parties are able to make money – one with the know-how, and the other with the commercial path to market.  Some people see IP as only a negative right, but the CPG companies have shown it can be used in a very collaborative model.

Open innovation and an ecosystem of symbiotic relations address a common problem – the failure of enterprises to leverage their IP financially by profiting from others’ use of their own technology through licensing agreements, joint ventures, and other arrangements. Yet Stading emphasized an important point: symbiotic relationships “create a win/win model.” Examples of such symbiosis include Facebook’s APIs, Amazon Web Stores, and Apple’s myriad app offerings.

Symbiotic but asymmetrical (in terms of size) relationships require a sound IP strategy more than ever. Stading told me:

Intellectual property becomes particularly important in this model as the “platform” company needs to have a solid IP protection strategy.  With the other vendors depending on them, the more successful they are the larger of a target they become.  The mobile wars are a good example of this as the base technologies are the subject of massive IP rights issues.  Larger companies have problems continuously innovating, and partner with the smaller companies to bring innovation.  The small companies need to think about protecting their IP, but with the examples above, the larger company must think about using its IP to protect its partners.  IBM, Google, and Microsoft [are prominent examples of how] to leverage their IP to protect their alliances.

In other words, they provide massive IP air cover.

Launching Open Innovation Platforms

The examples above show that companies need to commercialize both their own and partners’ ideas (legally) by deploying new pathways to market. This is not easy. Stading states that there are two fundamental hurdles in this regard.

First, most corporate cultures are not familiar with the benefits of open innovation platforms and thus may wish to remain entrenched in old paradigms. In this respect, some “may view [open innovation] as representing a dilution of brand.” Changing such cultures requires top-down support, outlook, and understanding of the benefits of open innovation ecosystems as a complement to, rather than a wholesale replacement of, internally generated innovation.

The second hurdle is that willing companies may not be sufficiently choosy. According to Stading, it is critical to choose open innovation projects with the right context “where it is clear that externally developed technologies can be used in their entirety.”

Open innovation is not a matter of out with the old and in with the new, but rather a well-considered fusion of the two.

As Stading states above, these hurdles are surmountable by forward-looking enterprises that realize the value of and progress to the open innovation platform paradigm that is central to today’s R&D model.