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Closed Innovation & IP

This post is from a series on Open Innovation. For more information, please click the "Open Innovation" Tag. I recommend reading the posts in chronological order.

Recall that in a "closed innovation" model, firm boundaries are established so that only internal research ideas are considered for development, and once considered they are either developed internally and brought to market or left to die.

Chesbrough notes six principles (or six axioms) of the traditional closed innovation models. The proponent of the closed innovation model believes:

1. We have hired the smartest people.

2. We must be vertically integrated (e.g., to profit from R&D, we must discover, develop and ship it ourselves).

3. We must research and originate ideas to get it to market first.

4. The first to the market will typically win.

5. The best ideas in the industry will typically win.

6. We should have strict control over our IP so that competitors don't profit from our ideas.

He then outlines four factors that have eroded the traditional closed innovation paradigm. In a way, each of the four factors has vitiated one or more of the principles above. The four factors are (1) the increasing availability and mobility of skilled workers, (2) access to the venture capital market, (3) external options for ideas sitting on the shelf, and (4) the increasing capability of external suppliers.

These four factors can really be distilled down to two. First, a more educated public now has instant access to traditionally difficult to obtain knowledge. This educated public is the "raw material" necessary to produce useful knowledge, and it can form such useful knowledge by relying on online resources and useful knowledge from other members of the public. From an IP perspective, patents and published applications are now readily accessible from sites like Google Patents and others. Google Books allows the public to search millions of books in a matter of minutes to find relevant information, and even has the capacity to locate where these books are found in local libraries. Sites like Meetup and LinkedIn facilitate connection with others in the industry who may be able to provide additional assistance or complementary skill sets. Second, access to venture capital erodes the second two principles of closed innovation. As a result, more options are available to work outside of the closed innovation model. Moreover, the same two factors (an educated populace and venture capital) has also created qualified external suppliers that are necessary to further research and develop an idea.

From an IP point of view, the old paradigm resulted in industries with a patent landscape that was once heavily consolidated to a few major market participants. This is no longer the case as talent outside of the firm is fully capable of innovating. As a result, key patents in an industry may be held by an individual or a small startup. Venture capital and online-funding platforms like Kickstarter often provide the necessary monetary support to keep ideas viable until their full potential is realized. Additionally, there is an increasing uncertainty when looking at the patent landscape. No longer can firm A simply look at firm B's patent portfolio and conclude that there are no risks of infringing an issued patent. Instead, firm A must account for the ever-increasing possibility that some relatively unnown member of the public owns valuable IP real estate. The takeaway is that you do not need to be a corporate giant to innovate. In fact, as we will discuss in greater detail in the following segments, the decline of closed innovation necessarily forces established market leaders to take a new look at their IP strategy.

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