The term “open innovation” has gained considerable use in technology transfer circles over the last decade. However, practical understanding of what open innovation actually means and how it can be applied to facilitate technology commercialization is often confused with open source. Each term describes a distinct business model for commercializing technologies, and both are often used in comparison to closed innovation.  

Closed Innovation: The Beginnings

Closed innovation is a technology business model dominant in the 20th century, with roots in the North American automobile industry of the early 1900s. It became the primary technology commercialization business model for most corporations in North America, Europe and Japan from the 1950s to the 1990s, representing vertical integration of product development and marketing by individual companies. Work on a company’s new product and/or service would be initiated in an internal research and development program conducted within the company’s facilities. Product concept testing, validation, scale-up manufacturing, marketing testing and launch would all typically be done internally by company scientists and engineers.  

Intellectual property (IP) protection strategies were focused on creating: (i) fences around the company’s inventions, and (ii) barriers to the creation of similar technologies so other companies were discouraged from producing or using similar innovations. The Bayh-Dole Act, promulgated in the U.S. in 1980, encouraged industry uptake of innovations from universities and fostered extension of the closed innovation business model to business engagement of institutional technology transfer offi ces across North America. In most cases, businesses negotiated for exclusive licences of IP from institutions in order to expand their corporate IP portfolios and, at the same time, prevent their competitors from accessing that specifi c institutional IP. In many cases, the licensed-in IP competed with internal IP for commercialization priority and, as a consequence, much of the institutional IP licensed-in under the closed innovation business model did not reach the marketplace.  

Open Source: New Models Emerge

The open source approach to commercializing technology emerged in the early 1990s in the computer software and hardware industries. This approach was driven primarily by highly interactive groups of academics, individuals, consultants and startup companies who collectively focused on using the UNIX platform for: (i) rapid development and deployment of software development tools, and (ii) rapid production and distribution of software. Their motivation was to reduce dependency on large, established software vendors for access to software applications and systems architecture/operating systems for desktop and laptop computers.

The main precepts in the open source approach are:  

  • Free re-distribution of software in source code form;  
  • Shared rights to use the technology;  
  • Collaborative further development and sharing of the technology; and  
  • No monetary rewards for the innovators.  

Developers and users of open source software are typically required by others in these industry communities to agree to and sign “open source software” or “general public use” licences. Because the open source approach does not provide monetary compensation to the originators and developers of the shared technologies, it has not proved to be a sustainable business model and, consequently, has been primarily embraced by only academia and the electronic gaming industries.  

Open Innovation: Where We are Today

Increasingly, the open innovation business model has been adopted by large international companies throughout the 2000s based on the premise that technology commercialization can be greatly simplifi ed, expedited and accelerated by incorporating external IP, expertise and multiple partnership relationships into technology commercialization activities, instead of relying solely on internal IP and expertise.

Patent protection is a key element in open innovation business models. However, unlike the closed innovation approach that regards patents as monopolistic “fences” and “barriers” to keep competitors away, the open innovation approach considers patents as “currency” that can be used to acquire access to third-party IP to expedite technology development through non-exclusive licensing and/or cross-licensing. Moreover, the open innovation approach is comfortable with the selling or bartering of non-essential IP to secure at least some return on the investment for IP protection, instead of simply abandoning patents that have little or no direct value to the IP holder.

Businesses need and seek access to expertise and knowledge they can directly input into corporate R&D and product development programs. Specifi c questions businesses would ask of institutions considered for multi-partner technology development and commercialization programs include:  

  • What are you good at?  
  • Why are you good at it?  
  • What is your competitive landscape?  
  • Why is your research better than that of competitor institutions?  
  • Why should we work with you?  
  • Are you willing to invest your institution’s expertise in our partnership?  

Open innovation business models provide unique opportunities for institutional technology transfer offi ces and businesses to engage each other far beyond their traditional focus on securing exclusive licence deals. Well-informed IP and legal counsel can help you determine if the open innovation model will help you strengthen your IP and business strategy.