Keep an open mind when it comes to open innovation

Modifications to the Patent Box in this year’s Budget are designed to encourage R&D investment in the UK and to get companies innovating. But how can UK manufacturing ensure that maximum value is extracted from these new government measures for individual firms and the industry as a whole? Dave Croston, partner and patent attorney at Withers & Rogers, argues that open innovation has a role to play.

Over the last few years, an increasing number of organisations have become involved in an approach to innovation that is described as ‘open’. Broadly speaking, open innovation is any kind of innovation which is not in-house, silo-based or secretive.

However, for a true representation of ‘openness’ in innovation, something more is required of an organisation. They must reach out to the outside world, revealing sometimes sensitive issues or requirements in order to seek solutions from third party collaborators.

Many multinational businesses, which previously operated only closed approaches to innovation, have found that being more open has resulted in a higher return on investment for R&D expenditure and revealed unanticipated opportunities to develop exciting and innovative products. Furthermore, smaller technology businesses that may previously have struggled to gain the attention of large businesses in their sector, are gaining ever more opportunities to engage with them as open innovation programmes increase in number.

If new above the line tax credits succeed in attracting more foreign invsestment into the UK then this may well increase even further. Open innovation collaborations have demonstrated their ability to deliver new products to market much more quickly than if they had been developed in-house.

In the current postrecessionary climate, businesses are struggling with cash management and finding it difficult to achieve growth by following standard R&D practices, which can continue for many years without bringing any real commercial gain. This has recently been particularly evident in the pharmaceutical industry. Product development approaches here are being put under pressure to change, to provide better return on investment and a lower attrition rate of investment pipe-lines.

With global R&D spend in pharmaceuticals dropping for the first time in 2010, cost effectiveness is more important to innovation than in days gone by and, against this back drop, open innovation offers an attractive chance to short-cut traditional process and bring well-considered commercial products to market more quickly.

Hurdles

But there are sticking points in moving toward open innovation. A large organisation may feel institutionally uncomfortable about publically disclosing its development requirements. That information may be considered confidential or market sensitive and there may be an understandable reluctance to expose perceived weaknesses to the public, including competitors.

Ownership of IP rights, both in terms of background technologies and programme-related technology, is a common reason that open innovation relationships flounder or don’t even begin. Caution persists and most companies seek advice about how to protect their knowledge and IP before getting involved in any collaborative R&D initiatives. This is largely justified.

It would be foolhardy to release valuable IP without a clear understanding of who owns what, what each party can do and what the IP owner or owners can expect to get in return. The most successful open innovation relationships have involved the collaborating organisations securing buy-in to the open nature of the process at the start.

How it’s done

The principles of open innovation are already commonplace in some sectors. The aerospace engineering industry, for example, has been collaborating on R&D initiatives for years, largely out of necessity. When it can take a decade to develop a component for use in the construction of a new aircraft and the specialist knowledge is outside the prime manufacturer with a supplier, then long-term partnership is essential.

Despite noting open innovation in parallel sectors however, some smaller knowledge-based businesses remain skeptical.

Any business choosing to get involved in early stage discussions about open innovation projects should set clear ground rules in advance. They should ensure that these discussions are treated as confidential, while allowing the parties involved to talk freely within the confines of the specific ‘quarantined’ programme area.

Before embarking on an open innovation project, both partners need to establish exactly what they hope to get out of it and this needs to be discussed with a sense of fairness that takes into account the investment being made by each of the parties involved.

The professional advisors chosen to represent organisations involved in open innovation projects must be fully briefed to ensure that they appreciate their client’s commercial objectives and adjust their approach accordingly. That may entail softening the negotiation style, taking a less risk-averse approach and encouraging the various parties to stay focused on the end goal of working together.

Some larger businesses have chosen to create open innovation portals where engineers can post specific questions or requirements asking for input and assistance. These portals allow an organisation to advertise their technical requirements and provide a line of communication between third-party providers and themselves. Third parties using such portals however, should take care to consider the terms and conditions which apply to submissions made through them.

Cisco’s global I-prize innovation competition is an interesting initiative, which has harnessed some of the principles of open innovation in order to gather fresh business ideas which may be suitable for further development and commercialisation.

The competition challenges entrepreneurs to share their ideas in four categories including the future of work, connected life, new ways to learn and the future of entertainment. A cash prize is offered to the winner but all entrants are required to assign their IP to Cisco. The latest cash prize (US$250,000) went to a group of four university students in Mexico whose winning idea was to create a ‘Life Account’ that gathers information about users through connected devices in the physical world, combined with online data.

In another model, a large corporation has outsourced part of its open innovation function to a third-party specialist, which advertises the corporation’s requirements and filters and assesses responses before setting up the framework of a potential collaboration. This arrangement provides the third-party collaborator with reassurance that its proposal is not being misappropriated by the corporation and also insulates the corporation from frivolous claims of breach of confidence.

Whatever the model, it is important that all parties in the process understand the terms from the outset. Nasty surprises are just as toxic to open innovation relationships as they are to those in other areas of life.

To some, open innovation may be nothing more than a repackaging of collaborative approaches already in use. For others, it is an exciting area of untapped opportunity. More than anything, the open innovation trend is a mindset in which the positive aspects of opportunity are emphasised over the negative aspects of risk. Any organisation approaching an open innovation relationship should do so with an optimistic, commercial outlook tempered by strong, pragmatic IP advice.