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Open Innovation is the Answer for the U.S. Economy

Written by Eric Burkhard
Marketing Director and Business Analyst
VerifIP
Posted: Oct 9, 2012 @ 7:25 am
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A report assembled by the USPTO and the economics and statistics administration (ESA) states that intellectual property intensive industries account for 27.1 million jobs (18.8% of all employment). These same IP intensive industries, which are better defined in the report, also account for $5.06 trillion or 34.8% of the U.S. GDP. See also IP Contributes $5 Trillion and 40 Million Jobs to US Economy. Therefore, it is clear to see the importance of intellectual property within the economy of the United States.

“The first step in winning the future is encouraging American innovation,” said President Barack Obama explains almost two years ago in his State of the Union Address delivered to Congress in January 2011. Innovation is the process through which new ideas are generated and ultimately put into the marketplace.  Innovation is one of the main forces behind the growth of the U.S. economy — it spurs national competitiveness.

Innovation and how to foster next generation technologies is a topic of very active discussion within businesses across the country. But how can America continue to be one of the most innovative countries in the world?  The rapid adoption of IP management and licensing platforms built around social collaboration seems to lead us to one answer – open innovation. Indeed, with today’s technology allowing for the seamless transfer of information – R&D departments have little to no choice but to begin to embrace the open innovation model and use it to their advantage. Understanding your intellectual assets and being able to capitalize on them in order to generate more revenue must be an important part of managing IP and fostering innovation.

What is “Open Innovation”?

Henry Chesbrough, Executive Director for open innovation at University of California Berkeley, defines open innovation as, “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” With today’s open innovation model, opening an innovation platform to customers, employees, and even competitors is a proven way to encourage innovation growth within different sectors of the marketplace. The ability to connect people with the right resources on a common platform creates an ongoing, evolving community of innovators.

The most innovative companies have the ability to properly manage their IP – allowing them to harness outside ideas while simultaneously leveraging their own internal ideas. These open innovation platforms are the bridges that connect the brilliant minds of today – no matter their geographical location or place of business.

Opening innovation to outside groups, however, does tend to make people more cautious and apprehensive to join the open innovation movement. With IP litigation more popular now more then ever, this is a realistic fear for many. That is why the proper management of IP and the ability to properly track the process of innovation is so vital in this model of open innovation.

With non-performing entities (NPEs) constantly instigating these IP litigation cases it is as crucial as ever to have proper ownership and management over your IP. These NPEs are not only going after the large corporations with money to spare but you can now see a trend in NPEs attacking start-ups who have raised substantial amounts of money from VCs in order to advance and promote their products and brand.

Two prime examples of NPEs attacking start-ups can be found with a cloud-storage startup “Box” and an online clothing retailer “Gilt Groupe.” Box has recently received investment funding of $125 million towards the end of this past July. In 2011, Gilt Group raised $138 million in May and gained the attention of TQP – a company based in Texas believing that Gilt Groupe is currently violating an encryption patent.

Opting to avoid litigation at all costs, many companies are turning to joint venture opportunities and strategic alliances with one another. An innovation ecosystem relies on a balance of interdependencies within a broad open innovation network – consisting of individuals and businesses potentially worthy of future alliances.

Working together through collaboration and joint ventures is how successful innovation ecosystems can be built. Typically in the past, common traits of innovation hot-zones would include a highly populated city with college institutions at the heart of it. This has allowed for the partnering of local businesses with local colleges and universities to continue the advancement of innovation. The most obvious example of this can be found in Silicon Valley. At the time, working outside the R&D department to team up with local universities was considered open innovation. Now, with open innovation platforms – an innovation hot-zone no longer needs to be restricted to these prerequisites.

Open Innovation – Who Owns It?

The concerning side of open innovation is how to properly track the ownership of an idea that has been collaborated on by several parties from several companies. Ownership is hard to define in this broad sense and must be looked at by a case by case basis. There is also the inclusion of open sourcing which can be intertwined with open innovation. A look at IBM’s Eclipse software is a good example of a free and open sourced software.

One solution helping to clarify the ownership of assets created through open innovation could be the implementation of IP modularity. In order to entice external contributors to your innovation platform, you have to allow them access to certain knowledge associated with the product. This is in a sense exposing IP by revealing previously exclusive knowledge to external sources. Once external contributors have added a valuable piece to the product this will more so then not give them partial or joint value of the improved product. This exposes the major risk of open innovation – relying on the outside owner of your newly created IP which in most cases leads to a slow and unproductive hold up of the innovation process.

Harvard Business School (HBS) argues that, “by managing a system’s modular structure in conjunction with its IP, firms can reconcile opportunities for distributed innovation with their need to capture value.” HBS explains IP modularity and capturing value of IP more in depth in their full report, “IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property.”

Open innovation is spreading rapidly and has become a popular way to accelerate the innovation process. Because of technology enabling companies to collaborate across boundaries that in the past they were unwilling to cross, open innovation has now spread from market to market. This collaboration between markets has paved the way for disruptive innovation and the continued innovative growth that America needs to stimulate the economy.

Whether you embrace open innovation or are hesitant to do so because of its inherent risks, there is one factor that remains of constant importance when handling innovation – the management of your intellectual assets. The ability to properly track and manage your intellectual assets allows for innovation optimization and a seamless creation process.

About the Author

Eric Burkhard has been a freelance writer for the past five years and commonly writes about the advancement of innovation and new technology. Over the last two years Eric has been a part of VerifIP – an IP management software company located in Tampa, FL. Eric has helped VerifIP translate concepts and developments in the IP and IT domains into understandable terms. Today he continues his role as Assistant Marketing Director and Business Analyst – helping to oversee the company’s marketing, branding, and public relations efforts.


9 comments
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  1. If we don’t get our definitions right then all else that follows is likely to be wrong.

    “Innovation” is NOT invention (of the patent kind) and it is not the introduction of something totally “new” to the buying public.

    Rather it is the convincing of a certain market segment that they are getting something they (that market) segment were not recently aware of.

    Take “pet rocks” as an example.

    Rocks are not new.
    The attachment of a paper document to the rock with descriptive material directed to the rock is not new.

    Geologists do it all the time.

    So what was (at its time) so “innovative” about “pet rocks”?

    It was merely that a specific market segment (yuppies) were convinced through clever marketing that for them (those who had not studied geology) this was a remarkable “new” idea, namely, that one should put in writing one’s ideas about a given rock.

    That’s “innovation”. A clever form of marketing.
    But it isn’t patentable “invention”. Not by a long shot.

  2. Step-

    I disagree. I don’t see how you can separate invention from innovation.

    Innovation is defined: “1: the introduction of something new; 2: a new idea, method, or device : novelty.” See:

    http://www.merriam-webster.com/dictionary/innovation

    I caution you to carefully think of the ramifications of what you say and how you characterize things. The anti-patent community throws the term “innovation” around extremely loosely. That is how they can claim that patents harm innovation. No. Patents foster innovation, but they do make it difficult for those who want to simply copy from taking without paying. Those who want to take without paying are not innovators. They are second comers and have not contributed the something new that is by definition required to be considered an innovation.

    I am working on a longer piece on this topic. Completion date and publication time uncertain. Want to get this one 100% correct.

    -Gene

  3. Gene,

    I’ve seen many conflicting definitions of “innovation”.

    One thing for sure, “innovation” and patentable “invention” are not one and the same thing.

    In so far as I can make out, many pundits insist that “innovation” must include getting the innovative thing into the hands of the end users; basically full market acceptance.

    If you invent something and it doesn’t penetrate into the market (it doesn’t sell), it is not “innovation”.

    On the other hand, if all you have is a pure marketing gimmick (e.g. pet rocks) and the buying public is fooled into thinking that this is something “new” and cool in so far as they can see, then that is “innovation” simply because it sells and because the buying public sees it as being new for them. (Prior art is irrelevant.)

    It is my belief that there has been a full blown (yes, conspiratorial) effort to eradicate the words “inventor” and “invention” from the public discourse and to replace them with the new and improved “innovation” word. A studied article on the changeover would be welcome.

    (Indeed one cute TV commercial –no longer on the air– asked the deep question: Who put the NO in inNOvation?)

  4. p.s. see definition number 2 in this Wiktionary link:

    2. A change effected by innovating; a change in customs; something new, and contrary to established customs, manners, or rites.

    http://en.wiktionary.org/wiki/innovation

  5. Just read something today about a new California law that puts the “close” on open innovation.

    California employees (including its massive state university system) have new constraints on divulging “innovative materials” (i.e., anything that may be patentable).

  6. Define your terms? Agreed.

    Pet rocks? Good example of an innovation that is not an invention.

    Why not an invention? Because for something to deserve the name “invention” it has to be a solution to a technical problem. The problem how to persuade people to pay lots of money for worthless lumps of rock might be a marketing problem but it is certainly not a technical problem.

  7. Max,

    On this side of the pond “invention” is a broad genus of which “patentable invention” is a subset (a species).

    One can “invent” a false story.
    One can “invent” a fictional character.
    One can also “invent” a mathematical equation that allegedly models the physical world (i.e. e=mc^2)

    Lately, at least in the USA, the word “innovation” has supplanted “invention” in the discourse carried on both by politicians and by the mass media (MSM).

    From what I sense, it’s part of the war against NPIE’s (Non-Practicing but-still-nontheless Inventing Entities) because “innovation” (in one sense of the word) requires causing an actual change in common customs and practices, this meaning substantial market penetration. If you don’t get to that last stage, you are not “good enough” to warrant compensation for you efforts according to those who demand full “innovation” as opposed to just “invention”.

  8. Anon-

    Do you have a link or cite you can share.

    -Gene

  9. Sorry Gene,

    I thought it was a Law360 article, but I could not find it.

    Please disregard; my apologies for any confusion.