"Is it possible to invent or innovate in a more open or collaborative manner, leveraging the intellect of inventors outside of a traditional corporate structure, given the current frameworks for IP protection?"

Opening Statement

Most readers of Cutter IT Journal -- indeed, most CIOs and CTOs and their staffs -- live their professional lives somewhere at the intersection of IT and business management. Therefore, the impact of information and collaboration technologies on the processes of invention and innovation, as well as the effect of changing business conditions (including issues of scale), should be of key importance to them. This is the topic we address in this issue.

In most US-based publications, authors tend to start discussions of intellectual property (IP) by referring to the creation of the US patent system as part of the US Constitution. Let's be a little more global, as befits a 21st-century journal, and remind the reader that there is a solid record of laws and grants establishing a regime of invention protection dating back to 14th-century England. Italian republics followed suit in the 15th century, France in the 16th, and the British colony of Massachusetts in the 17th.

For most of these almost 700 years, invention (as well as forms of creation protected by copyright) was an individual act, a notable exception being the French Encyclopédie of d'Alembert, Diderot, Rousseau, Voltaire, and others. Note that in the absence of modern collaboration techniques and tools, the Encyclopédie was relatively easy to create. In fact, collaboration consisted largely of agreeing who would write what ("Mr. Voltaire, why don't you take history, literature, and philosophy, please? Sounds like these are right up your alley.") and delivering manuscripts to Diderot, who served as both coauthor and editor. For technical innovations, there was initially little infrastructure required, and indeed none available, to create the sorts of mechanisms described in early patents. As a result, early patent holders were individuals. Early inventors either had a personal fortune that gave them the freedom to devote time to experiments, or they created a company after they protected an invention and were able to exclusively manufacture a product for the duration of the patent.

Although longitudinal studies of patent filings are not readily available, there was clearly a shift from the former situation to the current one, in which most patents are filed by companies. While the system still requires the names of individual inventors to appear, today most patents are assigned by the inventors to their employers. In fact, those of us who worked in technology-intensive corporations all had to drink the Kool-Aid from our legal departments at some point: our employer owns our inventions, these can be protected in three ways (trade secrets, copyrights, or patents), there is an established process to file for a patent, and there are many things we are not allowed to do during the phase preceding the filing.

Thus we get to the 20th-century accumulation of extensive patent portfolios by large companies, amplified by various laws that allowed patents on semiconductor chips, on software, on business methods, and even on genetic material. In a March 2012 article in Business Insider, Matt Rosoff writes that IBM is the record holder with over 70,000 patents, followed by Samsung with almost 48,000.¹

For more extensive analysis of modern patent ownership, John Allison and Mark Lemley authored several important studies, based on a thorough analysis of US patent data, about a dozen years ago.^{2, 3} During the period 1996-1998, 85% of patents (from a total of almost 150,000) were assigned to a corporate entity. In a first study performed 20 years earlier (by the same authors and quoted in the same report), that percentage was already 79%.⁴ Furthermore, in the later data set, 71% of patents were assigned to "large entities," versus 11% to small businesses, 18% to individuals, and 1% to nonprofits. For software patents, the distribution was even more skewed, with 87% of patents filed by large companies.⁵

And yet, despite this concentration of patents in the hands of corporate giants, new trends have been emerging in the last couple of decades. There isn't a single collective term for these new intellectual property regimes, but "joint innovation" and "open innovation" are the terms most frequently used. I list some of these key changes below:

• While of limited scope relative to our overall discussion, the 1990 Bayh-Dole amendment to the US patent laws allowed universities to file patents on inventions they made using government grants. The intellectual act of inventing something was therefore somewhat dissociated from the question of who provided the funds, providing a limited exception to the trend of concentrating patents into the hands of the people who provide the money to do the research.

• Startup companies also bucked the trend -- but not always in a popular way. Compared to IBM's 70,000 patents, Amazon has "only" less than 500, but this includes the widely derided patent on one-click buying. The opening up of patents to both software (in some parts of the world) and business methods has allowed small entities to carve out profitable niches.

• Extensive analysis of new innovation mechanisms started with the 1995 publication of Clayton Christensen's article on disruptive technologies.⁶ This was followed by the examination of alternate models of value creation that did not entail hoarding IP rights. For example, in 2003 Eric von Hippel and Georg von Krogh invented the notion of a "private-collective" innovation approach,⁷ in which private investment leads to innovations that are freely shared with the public. Investors benefit solely (is this utopian?) from their early access to the inventions they funded but not from any attempt to exclude others from exploiting the innovation, which is the essential purpose of a patent. In that same year, Henry Chesbrough introduced "open innovation,"⁸ which is perhaps the best-known of the new innovation mechanisms.

• Around the same time, the concept of "crowdsourcing" of knowledge became established. Applying this concept to innovation, not just to general knowledge sharing (i.e., the Wikipedia model), gave rise to a new way to combine the brains of individual inventors with the money of large companies. The poster child was InnoCentive, which was created in 2001 but really started being heard of in 2004. The company now boasts a network of 260,000 "registered solvers" (inventors) from 200 countries, and its corporate clients, called "seekers," awarded over 1,200 awards to solvers who responded to their calls for a solution to a problem they had. When striking such a deal, any resulting patents are the property of the seeker, not the solver.

• Finally, I will mention the rise of entities whose purpose is to serve as intermediaries between (typically) small inventors who filed for a patent and large corporations that have an interest in applying the invention. Small inventors may sit on their invention without having the means to commercialize it. The "non-practicing entities" (NPEs) I'm talking about buy the rights to the patents, often bundle them with other patents that together form a more useful and more defensible body of IP, and sell those bundles to large corporations. After all fees are paid, the inventor gets something, which is better than nothing (his or her prior situation). NPEs are, at least in part, law firms, and most of them are just law firms. Their focus on patent law is related to their practice of patent litigation, and they do play a role in bringing litigating patent lawsuits on behalf of small inventors. One NPE, Intellectual Ventures, also operates an R&D laboratory that it uses to validate the claims of patents it is considering buying. It also uses the lab to integrate multiple technologies and add value to them, potentially creating new value and new patentable material.

Discussions of collaborative IP tend to focus on patents, because this is the primary protection mechanism for inventions that lead to products and services, the engines of economic prosperity. But this debate has not spared the world of artistic and literary creation, typically protected through copyrights. Creative Commons was founded in 2001 to "enable the sharing and use of creativity and knowledge through free legal tools." One of these tools is the Creative Commons Licenses, a set of six models that define how a creative work can be shared, redistributed, reused, or modified, and whether commercial reuse is permitted.

An earlier challenge to traditional copyright was pioneered as early as the mid-1980s by computer scientist Richard Stallman, who was staunchly opposed to proprietary software. The scheme he proposed became the "copyleft" license, which allows reuse and modification of a work (not limited to software) as long as the person or company that uses or modifies it allows others, in turn, to use the new version under the same license. Copyleft licenses appear to be an enabler of collective innovation, not in the sense of facilitating direct collaboration between multiple creators, but by allowing more and more complex works to be created through sequential, not simultaneous, creation that does not violate the previous creators' rights.

All these schemes and their historical evolution set the stage for a key debate. Is it possible to invent or innovate in a more open or collaborative manner, leveraging the intellect of inventors outside of a traditional corporate structure, given the current frameworks for IP protection? Are these frameworks outdated, and have they become detrimental to progress?

The debate is not new. In 1809, a judge in Philadelphia briefly ruled that the "public right" demanded that patents be considered invalid. (The decision was soon overturned, as the US is unique in that patent protection is inscribed in its Constitution.)

Of course, patent lawyers only keep their jobs if patents are filed and defended, so don't expect them to tell you that there are problems with this system. Other organizations similarly argue that the IP system, as it exists or with minor tweaks, is the lifeblood of the innovation process.⁹ Yet the World Intellectual Property Organization (WIPO) paints a more nuanced picture:

Nowadays, it is generally accepted that in a knowledge-driven, competitive business environment, technological innovation [...] is a principal determinant of successful firm performance. But differences of opinion persist amongst economists and policymakers about the exact role of intellectual property (IP) in relation to innovation. On the one hand, in theory, the IP system is considered to be absolutely necessary "to encourage creative intellectual endeavor in the public interest," and on the other, some observers believe that, in practice, the IP system hinders competition to the extent that it is often seen to be playing a negative role in innovation.¹⁰

Several cracks have appeared in the patent system -- and not just the US system, embodied in the policies and practices of the US Patent and Trademark Office, but also the European Patent Office and others. The key issues are:

• Patent offices are so overwhelmed with applications that, due to the increasingly arcane technical nature of many inventions, it takes more resources to evaluate the applications than they can marshal. This leads both to the approval of bad patents and to delays in accepting good ones.

• Patents are being issued in areas that appear to stifle innovation by creating quasi-monopolies on trivial techniques, the archetypal example being Amazon's "one-click" purchase process mentioned earlier.

• While NPEs state that their purpose is to help small inventors realize money from their otherwise unexploited patents, some of these companies seem to have as their sole purpose the extraction of money from organizations with deep pockets by suing them for infringement.

• People have started arguing that the patent system discourages collaborative innovation among partners, and that in some domains this is hurting scientific, technical, economic, and societal progress. In a concise and compelling 2010 paper, Bronwyn Hall (an economics professor at Maastricht University and University of California, Berkeley) describes how this movement has influenced some large companies, including IBM and Microsoft, to change how they handle the protection and sharing of intellectual property. She concludes by showing that in the leading-edge world of social media, "open innovation is the norm, and it is somewhat less mediated by IP licensing agreements than in more mature industries."¹¹

• Below are some examples to better frame this last issue. They should be read with this key question in mind: do our IP practices hurt our ability to innovate in a world that increasingly relies on partnerships between multiple organizations?

• Data sharing. The oil and gas industry, among others, uses increasingly complex computer models to optimize the exploration and production of hydrocarbons. The more petabytes of historical data you can throw at those models, the more accurate the results will be. But that data is fragmented between governments, national oil companies, the "majors," service companies, and small independent operators. At the SPE Intelligent Energy International 2012 conference in Utrecht, Netherlands, one of the most frequently raised questions was "Can we share rather than hoard the data?" Interestingly, the data in question is usually not protected by patent or copyright but by trade secret.

• Innovation brokers. Companies like InnoCentive, mentioned earlier, are directly related to Chesbrough's idea of open innovation. But how can they assure their clients that a crowdsourced innovation does not violate someone's IP, especially that of the solver's employer or of a previous client of his or hers? Is the risk of an infringement lawsuit greater than the benefit of this open market? When you read the numerous FAQs on InnoCentive's website, there are only a couple of them about this issue, and all they can promise is that (1) the solver, in order to respond to a challenge, attests that the solution is novel and unencumbered, and (2) it is up to the seeker to perform all necessary diligence to verify this.

• Antitrust violations. When 14 US-based semiconductor companies and organizations came together in 1988 to establish SEMATECH, a manufacturing technology research consortium, in response to then-recent technology advances by the Japanese electronics industry, they required no less than an act of Congress to exempt them from antitrust actions. Could other innovation partnerships face similar risks?

• Patent bureaucracies. I have seen this issue myself from two opposite perspectives. In one instance, I wanted to conduct a small research project using technology from a major computer manufacturer's research lab. It took six months to get a mutually agreeable license agreement, even though we had no intent to exploit the idea commercially. The other party wanted all sorts of protection (and future revenue from us) in case they created a commercial offering themselves -- something they never actually did. In a separate case, I wanted to get a university lab to apply some of their techniques to a problem we had, but that would have required disclosing aspects of our own yet-to-be-filed invention. The process of obtaining a mutually acceptable agreement from opposing lawyers was so slow that we had to forgo the whole opportunity.

To contribute constructively to this discussion, we asked this month's contributors a number of questions to guide their reflections:

• Have many problems become simply too big to be addressed by a single company? What are the trends toward pooling brains to innovate, and how should people address the IP sharing in such cases? What are examples of successes, failures, and headaches?

• How can you crowdsource novel ideas while addressing the issues raised above, such as how the client ascertains that the invention submitted by an external partner is not infringing on someone else's IP?

• Do NPEs play a positive role by helping small inventors make their ideas available to larger companies, as they proudly claim, or are they practicing a glorified form of extortion? When they combine multiple inventions, validate them in their own lab, and sell them as a package, does this really help innovation?

• What collaboration techniques are being used to perform joint innovation while protecting sensitive information?

In our first article, Cutter Senior Consultant Bhuvan Unhelkar and Haydar Jawad remind us of the advantages and mechanisms for joint innovation and invention -- such as the ability to share interpretations of data stored in the cloud. The ease with which the information can now be shared tends to result in more people being involved, without the same strong sense of belonging to a single corporate entity. This is just one of the consequences of this new age of rapid collaboration, but it immediately leads to challenges in protecting the intellectual efforts of the participants. The authors argue that our legal frameworks need to be updated to not only protect, but also to promote joint innovation. They explain the criteria that a good framework needs to meet in our brave new age.

Charles Bieneman picks up exactly where the previous authors left off, by providing us with a pragmatic, concise, and clear approach to basing a collaboration effort on firm ground. He defines a seven-step process during which each party's preexisting IP is identified and the parties discuss how new IP rights will be allocated -- before joint innovation starts. Assuming that the lawyers applying this approach are as clear and practical as Bieneman is (not necessarily a foregone conclusion), it should be possible to apply this process quickly and amicably, resulting in appreciable risk and cost avoidance without delaying the start of the work much.

In the next article, Ned Preble takes a radically different viewpoint. Instead of focusing on the legal means to protect IP, or even on the joint innovation mechanisms of the last decade, he leverages 30 years of jump-starting innovative thinking for clients of his consulting practice and asks us to consider a new concept, "collateral innovation." What happens to all the ideas that can emerge from various forms of collaboration, including innovation workshops in which ideas surface and are shared before the lawyers even have a chance to suit up? While this concept raises more questions than it answers, it can be seen as the ultimate form of rebellion against the strictures of traditional IP law and even a descendant of the open source and copyleft initiatives.

We close the issue with an article from Andy Elder and Patrick Ennis of Intellectual Ventures (IV). Since their company comes up in every conversation about NPEs, and since IV has adopted the distinctive approach of actually performing scientific and technical investigations, in its own laboratory, on the inventions that it acquires and bundles for reselling, it was not only fair but also crucial to give them the opportunity to explain how they contribute to collaborative innovation. They start by explaining the "Invention Gap" -- what happens when a company creates a product based on certain inventions but is at risk of infringing on a number of other inventions that are also exploited in its product. Coming as it does just after the billion-dollar Apple v. Samsung verdict, this is a very useful discussion. The authors describe the "build, buy, partner" options for creating new IP and present a case study of how their company helped a client gather the necessary portfolio to be successful with its new product strategies.

The last 20 years have seen quite a few new models for both the protection of ideas and their release into the world. It is not coincidental that this is roughly the age of the Web. The emergence of the Web changed the way we research technologies and products, the way we find prior art, and the way we collaborate, including the occasional unplanned disclosure of information that could hurt our ability to protect our inventions. The legal framework may still have to catch up, as one of the articles points out, but we also have to decide, in the corporate boardroom and in society at large, what flow of ideas we would like to facilitate. Just as we haven't quite figured out when it is polite to answer a cell phone call or not, we haven't quite figured out the right new balance between sharing and hoarding ideas. We just know that sharing has become a lot easier, hoarding has become more difficult, and the world continues to need innovation and inventions. May the debate continue.

ENDNOTES

¹ Rosoff, Matt. "If Patents Are Weapons, These Companies Are Armed to the Teeth." Business Insider, 14 March 2012.

² Allison, John R., and Mark A. Lemley. "Who's Patenting What? An Empirical Exploration of Patent Prosecution." Vanderbilt Law Review, Vol. 53, January 2000.

³ Allison, John R., and Mark A. Lemley: "The Growing Complexity of the United States Patent System." Boston University Law Review, Vol. 82, February 2002.

⁴Allison and Lemley. See 2.

⁵Allison and Lemley. See 2.

⁶ Christensen, Clayton M., and Joseph L. Bower. "Disruptive Technologies: Catching the Wave." Harvard Business Review, January 1995.

⁷ von Hippel, Eric, and Georg von Krogh. "Open Source Software and the 'Private-Collective' Innovation Model: Issues for Organization Science." Organization Science, Vol. 14, No. 2, March/April 2003.

⁸ Chesbrough, Henry. Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press, 2003.

⁹ "Intellectual Property: Source of Innovation, Creativity, Growth, and Progress." International Chamber of Commerce (ICC), August 2005 (www.iccwbo.org/advocacy-codes-and-rules/bascap/value-of-ip/innovation,-creativity,-growth-and-progress).

¹⁰ Kalanje, Christopher M. "Role of Intellectual Property in Innovation and New Product Development." World Intellectual Property Organization (WIPO) (www.wipo.int/sme/en/documents/ip_innovation_development.htm).

¹¹ Hall, Bronwyn. "Open Innovation and Intellectual Property Rights: The Two-Edged Sword." Japan Spotlight, January/February 2010.

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