I’ve just finished reading a nice article on IP strategy and open innovation that was published in the MIT Sloan Management Review last year. It’s worth reading because the authors, Oliver Alexy, Paula Criscuolo and Ammon Salter have been doing research in this area for a while and now have a good corpus of evidence about how to successfully manage open innovation. I’ve written a blog post previously on one of Ammon’s papers where he talks about the Gollum effect, where obsessive IP protection shuts down the possibilities for valuable innovation partnerships.

The main point of the paper is that some organizations obsess about IP with a ‘one size fits all’ approach, which disables innovation. Universities in particular are becoming notorious for this and it is having a detrimental effect, as the authors explain.

For example, Rolls Royce plc finds that it takes 18 months to negotiate a research collaboration agreement with a university partner; having routinely experienced such delays, the company is considering whether to terminate its extensive network of university research centres altogether.

Obviously, if enough IP is patented then there will eventually be something of value that may become a ‘blockbuster’ product. However, as Tim has observed before, a patent is not a business model and the costs of holding and maintaining all this unproductive IP are staggering. In the US, 99% of all patent-licensing revenue can be attributed to 40% of patents. The main beneficiaries of the remaining 60% are the patent attorneys and at the level of firms this poor use of IP results in the destruction of shareholder value.

Siemens and Proctor and Gamble for example, recently reported that they use a mere 10% of their patents but nevertheless pay millions in annual renewal fees for the remaining 90%. In addition, all the IP they have generated can create patent thickets that inhibit potential collaborators.

So bad IP strategy can destroy value, but how can IP be aligned with successful open innovation? According to the MIT Sloan Review, IP can disable open innovation when:
* One-size-fits-all approaches, such as “no patents no talk” predominate.
* IP and open innovation strategies are disconnected
* Lawyers are a roadblock to open innovation, dictating the who, when and how
* There is a “patent everything” outlook
* IP is treated as an end it itself
* IP builds fences through the hoarding of patents and excessive secrecy

However, IP can be an enabler of open innovation when:
* IP management is adaptable
* IP and open innovation strategies are integrated
* Lawyers help pave the way for cooperation
* Smart patenting – which involves only valuable inventions -prevails
* IP is seen as an opportunity for value creation and the building of ecosystems.
* IP is available to others and, through licensing and cooperation, is likely to be profitable

In summary, IP protection can be useful when it is part of an open business model rather than a substitute for a business model. Rather than a trench to stop competition and extract rents, IP becomes a vehicle for communication and collaboration, as the authors suggest:

Generally, intellectual property is beneficial to open innovation when it is used as a signaling device than as a control right.