IP and legal issues when implementing open innovation
This blog provides some insights into the way some common IP and Legal hurdles can be dealt with when it comes to implementing an effective OI campaign within a company. The source is mainly a paper written by Denys Resnick (Director of Strategic Programs at Nine Sigma), summarised and integrated by SkipsoLabs.
Open Innovation promises to accelerate innovation and new product development while reducing overhead and improving time to market. It will enable businesses to drive smarter innovation, gain a competitive edge by developing breakthrough products, reduce costs through process improvements, get closer to their customers and other stakeholder communities, and much more. Certainly very alluring for any manager looking to grow their business in the tough economic context we are living in today. While certainly exciting on one side, Open Innovation presents some important hurdles that have to be addressed very early on in the process by all stakeholders involved. The main hurdle being the legal issues associated with the intellectual property (IP) of the ideas and submissions being exchanged between solvers (people with a solution) and seekers (organizations with a challenge to address).
Managing vs. Protecting IP
Open Innovation, be it internal (collaborating with parties within an organization) or external (extending beyond the organization's four walls to engage with external parties) implies collaborating with at least one other entity: a person, a business unit or a company. One of the key success factors in embracing 'openness' in the innovation process is to shift the intellectual property approach from managing itrather than protecting it.
Protecting IP – a protective approach to IP usually implies a blanket agreement whereby all the IP created by any collaboration will be owned by the innovation seeker. While this approach is considered to be extremely prudent from a legal standpoint, it also creates an important barrier to the open and collaborative barrier required in a successful OI environment.
Managing IP – on the other hand, an approach where IP is managed as opposed to protected, implies that all the documents, processes and relationships in a collaborative environment should maximise the value for all parties involved. What this means is that each party involved in the OI process will contribute to shaping the IP approach in order to maximise the outcome for each party.
Creating an OI IP Strategy
OI is usually triggered top-down by the visionary CEOs who set ambitious goals (allocating a % of R&D funds to collaborative external innovation projects) and the internal champions who define bottom-up initiatives towards those goals. Within this context, it is quite common to see many OI initiatives encounter internal hurdles as they work their way through the internal channels and processes. This usually happens when the legal stakeholders within the organization are excluded from the OI process until the very end. Delaying legal's contribution to the innovation collaboration will in fact increase the likelihood that IP issues will impede collaboration and possibly result in a lost opportunity.
Traditional IP policy closes the door to any possible "external" activity and collaboration. By creating a comprehensive OI IP strategy on the other hand, a company is able to set a framework that will enable external open collaboration as well as increase the probability of reaping the benefits of Open Innovation.
Building 'inclusiveness' into the OI IP Strategy
In order to build an IP strategy with cross-discipline ownership, it is crucial to build very early on in the process a steering committee with all OI stakeholders – R&D, marketing, business units, engineering and legal. This group of people will be acting as board of advisors to guide the organization through the OI implementation process. This steering committee will also be responsible for embedding the OI IP strategy within the company's existing structure and processes.
Moreover, with an inclusive steering committee in place, a company is able to evaluate any OI opportunity from multi-faceted / multi-functional perspective. The team will in fact be able to assess the opportunity based not only on the technology, but also considering other important aspects such as relationship fit and commercial opportunity.
A common methodology in this cross-functional OI IP strategy context is to adopt a tiered approach when it comes to IP considerations. So, as an example, early on in the process experts / solution providers could be engaged in early, exploratory non-confidential discussions. Should the external party require the issuance of an NDA or the presence of a lawyer, in the context of a well defined OI IP strategy some clear action paths will be defined to empower the project owner to make the right decisions or to liaise directly with the OI practice leaders.
Four Different Stages of OI
A key consideration to make when looking at OI IP is that IP and confidentiality are managed differently based on timing throughout the OI process. There are four distinct phases that any internal / external innovation initiative go through:
An effective OI IP strategy can be clearly defined by understanding the objectives and desired outcome for each phase.
This phase is probably the most critical in laying the groundwork for maximising the desired outcome throughout the OI process. Anticipating the issues that might emerge between each party very early on in the process will determine the successful implementation of any OI initiative.
The first step in the OI process is usually to identify a (pre-qualified) need with high strategic value that the company is free to engage in the solution space. At the same time, the existing legal landscape should be evaluated to determine whether or not the OI initiative should be pursued. Researching for example into prior art and adjacent intellectual property will help the company determine whether or not there is freedom to operate without infringing any IP as well as the opportunity to create new IP in that specific domain. Based on the outcome of this preparatory research, the company might determine that accessing the IP through a licensing agreement might be the right solution as opposed to 'owning the IP' (in case this is already established). This outcome will obviously have an important impact on how the company engages with external solution providers.
Another extremely important aspect to define in the preparation phase is what information should be disclosed in order to maintain some degree of confidentiality (e.g. the company might not want to tip-off competitors), but also to make sure that enough information can be shared to attract high-quality solvers. A common approach to address this is to break the process in multiple phases with in initial phase where some basic information is asked to the solvers, enough to allow some preliminary non-confidential information exchange. A subsequent phase could request for additional information under an NDA. In case of extremely sensitive information the company might work with an intermediary that can create anonimity for the seeker, although more large companies are moving away from intermediaries.
The other important aspect to define in the preparation phase is to specify clearly who, on the company's side, should be exposed to the information exchange at each stage. While the R&D team is certainly the most suited to carry out the technology evaluation, he / she is probably the most vulnerable to IP contamination / leakage.
The objective of the discovery phase is to identify and screen the best solutions that can satisfy the pre-defined innovation need. In order to attract the right number of solutions the innovation seeker will have to define all the possible (internal / external) channels and resources that can lead to the best outcome without compromising the IP. It is usually through a combination of internal and external networks of experts, partners, and suppliers that a company can manage and control who receives the information. Companies can extend the outreach beyond known networks (e.g. broad internet-based crowdsourcing campaigns) depending on how much they want to disclose and to whom.
Depending on the OI channel (open / close) and tools used during the discovery phase will highly impact how information is exchanged during the discovery phase. Very rigid and traditional IP policies are usually a big barrier to a company's OI success because they narrow the scope and the value of the potential solutions. On the other hand, a more open approach will provide the 'seekers' with the confidence of generating a high-quality funnel of solutions that they can tap into to select the best partner / provider during the evaluation phase.
During the evaluation phase the innovation seeker reviews and evaluates the potential solutions against the set of pre-established criteria. From this evaluation process the company will identify one, or more, potential solutions to their initial challenge. Without a comprehensive OI strategy, this might be the first time the OI team reaches out to the legal team to seek guidance on IP and information exchange. As described above this could potentially represent a big showstopper as legal might require that an NDA is signed for each submission received. With a proper OI IP strategy this phase represents a narrowing of the funnel. A selected few will go through the funnel and will be asked to submit the confidential information within a confidential environment.
The ideal "funnel" process is to allow an early exchange of non-confidential information early on in the OI process. In this phase the innovation seeker, through this initial information exchange, is already able to filter submissions allowing some partners and solutions to rise in preference while others are eliminated. In this way only the preferred shortlisted submissions will require the execution of a confidentiality agreement and subsequent information exchange in a pre-agreed "secure" environment.
In this final stage the innovation seeker and the solver / expert agree and commit to engage into a formal collaboration. The agreement between the parties will outline clearly the relationship between seeker and solver, the shared obligations as well as the mutual rewards. This is the stage when the legal team is most highly engaged. Once again, without a comprehensive OI IP strategy the legal team might find itself taken abruptly in the process without the full background and with he serious risk of joepardizing the entire OI process. On the contrary, having engaged the legal team and all the key company stakeholders from day one, this agreement phase will just represent the confirmation and mutual understanding of each party involved.
The nature of the agreements in this final phase may vary according to the type of collaboration that emerges from the OI programme. They could include anything from material transfer agreements (MTAs), exploratory research agreements (ERAs), joint equity agreements or licensing agreements. Assuming the focus for each party is to maximise each other's value as clearly defined in the initial stages of the process, this negotiation phase should not be contentious.