A Patent is Not a Business Model

A patent is not a business model, and we need to stop acting like it is.

One of the statements at the Australian Association of Angel Investors Annual Conference that really rubbed me the wrong way came from a person in a university technology transfer office who said something like: “Open innovation is dead. It was just a fad, but companies are now realising that they have to have protectable IP if they are going to succeed.”

This is wrong in just about every conceivable way.

Stefan Lindegaard is one person that provides an excellent set of resources concerning open innovation. In one of his recent posts, he included links to a HUGE range of resources on open innovation, including a list of firms using it (including 3M, BMW, Dell, GlaxoSmithKline, Huawei, and Unilever), and numerous open innovation intermediaries, software and conferences. The inclusion of firms like GSM and Unilever are particularly interesting, since they are both in industries that have the capability of benefiting from patent protection, yet they are still pursuing open innovation. This actually makes sense, because open innovation was originally designed as a method for getting more patented technologies into play. The idea is often caricatured by opponents as meaning ‘please take all of my ideas and use them’ – this is patently absurd.

However, my biggest problem with the statement is the contention that having protectable IP is the only way to succeed. I guess this is understandable coming from an organisation whose primary performance metric is patents generated. As John has pointed out, overall, patents are a lousy proxy measure for innovation.

The focus on patents and IP is simply another incarnation of the overemphasis on ideas. The built-in assumption here is that once you have an idea that no one can copy, then you’re set. But we know that’s not true. Ideas have to be executed, and they have to diffuse – and empirically we know that these are the parts with which most organisations have difficulty.

A great idea is a core part of any business model. However, it is simply that – one piece of the puzzle. You still need to know who benefits from your great idea, and how to get your idea embedded into the value network. You need to know how to generate revenue from your idea. Patents create scarcity, and that is one way to make money. But there are others. One of the reasons that open innovation is being used more widely is that it lets you outsource idea execution and idea diffusion to partners that are better at it than you are. That is why many organisations use open innovation strategies to take advantage of ideas that they have patented, but which they are poorly equipped to execute.

We have to stop thinking about patents and intellectual property as ends in themselves. They are components that can built into successful business models. They are one way of certifying that our ideas are good. But as we’ve said many times here, great ideas are not enough. Let me repeat that: great ideas are not enough. To succeed, we have to be better than our competitors at executing our great ideas, and better at getting them to spread.

(picture from flickr/gurdonark under a Creative Commons License (of course!))

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

24 thoughts on “A Patent is Not a Business Model

  1. Tim and John, I recently have finished reading a very interesting article written by Gerard Tellis, Jaideep C. Prabhu & Rajesh K. Chandy, entitled: “Radical Innovation Across Nations: The Preeminence of Corporate Culture” (Journal of Marketing, Vol. 73, January, 2009). You might want to give it a read (if you haven’t already).

    It shows that “corporate culture is the strongest driver of radical innovation across nations” (Tellis et.al, 2009, pg. 3) , and is “a stronger predictor of financial performance than other popular measures such as patents.” (Tellis et.al, 2009, pg. 3). They surveyed 759 firms from 17 different nations that have world’s leading economies.

    Moving from academic to the ancedotal, the problem with patents, as I see it, is that anyone can patent something – the challenge lies in the commercialization of that knowledge. Recently our class discussed reasons why a firm might prefer to NOT patent a technology (ie. in fast moving industries where the lead time advantage is a competitive advantage – a firm we read about was Rubbermaid via. Harvard Business Case).

    Thanks, as always for your postings, I am following with great interest!

    (at) createpei

  2. Thanks for questioning the definition of innovation. The old definition, in our opinion, does not serve as an adequate description of how, when, where, and why innovation is occurring today. Keep chipping away at this rock – there will be resistance.

    Here’s a video we posted on the subject. http://www.ingenesist.com/general-info/the-new-definition-of-innovation.html

    The Ingenesist Project specifies the structure for an innovation economy built on a platform of social media.

  3. Great point.

    Patents ought to come with warning labels saying that they do not guarantee profits without a super business plan (and a lot of luck) or protection of intellectual property without good lawyers.

    Thanks for the post.

  4. Thanks for the reference createpei – I’ll check that out. As for your second point, I think you’re right. I use a similar exercise in my MBA classes – it’s incredibly hard to get people to think of other ways to profit from ideas. The empirical evidence though is that the vast majority of firms use informal IP protection much more frequently than they use legal methods.

  5. Thanks for the comment Nicholas. You’ve summarised the issue nicely – and your last point about lawyers is really important too. Patents only provide protection if you’re willing and able to enforce them.

  6. haha good point John!

    I think createpei’s suggestion that thinking about “why a firm might prefer to NOT patent a technology” would be really useful. It would make a great “list” post.

  7. A patent is a government issued security instrument. The value of the patent is variable based upon a myriad of considerations. Enforceability varies from country to country. Value varies in relation to the ROI business models and the economies to which those models are applied. Value varies in relation to the knowledge base being addressed (if the aren’t conversant with patents, they aren’t conversant). Value varies in relation to the ideological base being addressed ( if they are anti-patent, the patent may actually have a value less than zero!). Yes, patents are a security. They are not a business model. But they can also be viewed as a window into the soul of company. They can reveal how disciplined the inventors are about their invention. There are well written patent claims and there are poorly written patent claims. There are patent claims prepared by top of the line legal talent and others not so much. Did the inventors understand that one gets what they pay for? Or did they just think that getting a piece of paper that said ‘patent’ on it was enough? Patents are securities. And they are a kind of open, public diary about the minds of the inventors.

  8. Thanks for the thoughtful comment Steve! I think that is a pretty nice way of looking at patents. My main point is that firms shouldn’t treat them as a goal in and of themselves, which I think is compatible with what you’ve said. Thanks again for stopping by.

  9. Great post, Tim. I am an attorney who specializes in intellectual property and contracts and run into this problem often when someone gets an issued patent. They immediately ask–now how do we make money off the patent?

    My immediate question is: why in the hell did you patent something without understanding the answer to that question BEFORE you filed?

    In the end, having an exclusive right to do (or in the case of patents, to prevent from doing)/have/use something is only worth $$ if someone has a reason to want to do that something. Educating the market and tapping into demand for an idea is where the heavy lifting happens.

    Even if an inventor chooses not to run a company and build the product him/herself, I rarely see a “naked” patent license unless it is a result of expensive and wasteful litigation.

    As a result, even inventors that want to work from home need to think about how to supplement any patent rights with practical advice/hands-on consulting on how to build and commercialize the patented idea. As a result, more than ever, inventors need collaboration partners to help fill the gaps between idea and execution. Without it, you may have a patent, but it may not protect anything of value.

    Thanks for the post.


  10. Thanks for stopping by and making the comment Kendall. I’m glad that the post rings true to you since you have so much direct experience with the issue. It is always a difficult idea to get across to my classes – particularly because a lot of the discussion of ‘commercialisation’ around here ends at getting patents.

  11. I agree that patents are just possible components of a business model, rather than being models in their own right. I also agree that commercialization of a business plan involving an innovation (or even merely an idea) need not be through patent enforcement. Even the most rigid patent-advocate theoretically would recognize the utility of the elusive idea/application remaining a trade secret rather than being “traded into’ the public domain in return for a limited-term exclusivity.

    Beyond, that, though, the open source software movement has shown that voluntary liberal licensing can help foster profits, as in the business model of companies who provide free software but charge for maintaining the system using the software.

    On the other hand, though not essential, patent can be very useful in the right situation. I find all too often that the aesthetic/philosophic debate about whether the government should grant exclusive rights to use a technology blurs the issue, as patent enforcement has worked a benefit for those whom the law grants those rights.

    I’m deeply in favor of liberally licensed technology,
    of companies which recognize that research placed in the public domain can minimize the business risk attached to a competitor’s potential patents, and of research freed from the constraints of a patent system. Here in the USA, I favor patents but want to see them issued only when a right is properly established. I favor a more limited copyright term without the artificial new extensions. I do not favor using trademark law as a patent surrogate.
    That said, a patent license can be a very useful thing, and is one path to commercialization.

    I’m delighted to see my image in use here. This is just the kind of post I hoped might use it.

  12. Thanks very much for stopping by and making the comment – and thanks for making the great image too! (from your standpoint, are you happy with the way you’ve been acknowledged here? Would you prefer an email or notification? I’m still not quite sure what the etiquette is on the CC pictures)

    I’d say that overall I’m in accord with all that you say here. I’m certainly not arguing against patents – but I do think that a lot of people have an over-reliance on them.

    In my classes, if just ask people how they can profit from innovation, all they can think of is patents. But if I tell them a story first, like how Apple ended up with the Graphical User Interface from Xerox, then ask for ways that the idea could have been better used by Xerox, they come up with tons of ideas. So I spend a fair bit of time trying to think up creative ways to move people beyond thinking only of patents…

  13. Seems to me that companies are pushing harder than before to compete with competitors without doing the actual work of inventing new things rather just building on the work of others I think as this trend continues so will the cases of patent enforcement increase. For more info on the subject. http://www.aminn.org/patent-enforcement

  14. Hi Tim,

    I am a patent examiner and i cannot stop nodding at all the post that i just read. This is my third year into the job and i must say that all the problems raised above regarding patents is so true especially as to how inventors tend to miss the whole point of patenting. I cannot agree enough with what the patent attorney said. People come into the office and enthusiastically ask “So how do i protect my patent?” After explaining the whole process they ask “So how do i get money out tof it?” (sigh).

    In addition most often creators or inventors walk in with this great idea and when you tell them it part of a non-patentable subject matter, they object by saying “But this is my intellectual property”…explaining the idea behind patent registration with respect to having to really work that idea and the patentability test inplace puts most of them off and they often walk off un-satisfied.

    So yeah, thank you so much everyone for all the post because it only confirms my thoughts about this profession that i have.


  15. Hi Xen,

    Thanks for the thoughtful comment Xen. In one sense, I’m glad that this rings true to you given your experience. On the other hand, this is a frustrating situation, so in some respects it would be better to be wrong about it!

    In any case, I’m glad that you found the post and made the comment.

    Thanks – Tim

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