David Teece's 1986 seminal work' Profiting from Innovation' set out a framework highly relevant to trhe industrial age but not so specific to address the digital landscape of today. The 2018 version has just done that. These are notes and musings from reading the paper, extracting valuable insight into IP and appropriations that protect. IOt also addresses the issues of how we reward the inventor in a permiable society,

1. PROFITING FROM
INNOVATION IN THE
DIGITAL ECONOMY:
ENABLING
TECHNOLOGIES,
STANDARDS, AND
LICENSING MODELS IN
THE WIRELESS WORLD
Personal notes and
possible applications of
the paper

2. MUSINGS

3. ABSTRACT
The means by which a business model
captures value has changed measurably since
the landscape shifted from industrial to digital.
The value chain – both downstream and
lateral – is a constant game of who profits
more? Technology is fluid, it crosses over into
different industries/markets making the ability
to appreciate where and how technology
contributes to profit and value creation,
harder than ever.
The default position for most enabling
technologies is to drive value through
licensing and/or patenting the technology.
Both these avenues are increasingly complex
and hard to manage in a digital ‘free-love’
world creating issues over protecting the
protection.
This paper, written by Teece, addresses his
original work, the Profiting from Innovation
(PFI) framework (1986) that seeks to answer
‘who profits from an innovation?’ And shifts
the context 30 years on to address how digital
convergence and disruption have changed
things.

4. THE INTERNET
OF THINGS
HOW DO YOU PROFIT
FROM YOUR IDEAS?
---------
PROFITING FROM
INNOVATION
(PFI)

5. SHIFTING LANDSCAPES –
THE RESULT OF
CONVERGENCE ACROSS
INDUSTRY ECOSYSTEMS
 WIRELESS COMMUNICATIONS ARE AT
THE CORE OF THE CURRENT PHASE OF
DIGITAL CONVERGENCE.
 MOBILE PHONES HAVE DEVELOPED
INTO MOBILE COMMUNICATION AND
COMPUTING DEVICES
 THE CLOUD IS NOW THE DRIVING
FORCE FOR THE INTERNET OF THINGS
 CONVERGENCE IN DATA COLLECTION,
DATA MANAGEMENT, DATA HOUSING
AND MOBILITY OF DATA

6. PROFITING FROM
INNOVATION (PFI)
FRAMEWORK.
1986 REVISITED
DRIVERS OF PFI
In the standard PFI model of 1986 the drivers
of the PFI framework were:
1. The Appropriability regime ((i.e., strength
of IP protection and difficulty of
imitation)
2. Complementary assets (owned or co-
owned) and technologies and related
business model issues
3. Standards & regulations along with the
underlying maturity of organisation and
industry (base effects)
4. Timing – whether the market is receptive
or whether the organisation, in respect of
its own development, is ready
5. Ecosystem – the strength of the
prevailing ecosystem that an industry
operates, in 1986 these were very
different from today

7. PROFITING FROM
INNOVATION (PFI)
FRAMEWORK-
1986 REVISITED
The new business landscape is indeed a
challenging one with new layers of connectivity.
Teece’s original 1986 paper is still very much a
valid representation of how innovators profit, but
what we have to consider is that ‘spillover’, the
way ideas leak and are exploited by others, is
now potentially easier since industries have
converged within interconnected and porous
ecosystems. His original paper avoided the
question of ‘why so many inventions fail, some
not even making it to market?’ This paper has
shifted the thinking further to consider:
 Multi-invention contexts
 The network effects magnified through new
technology
 Business models specific to the internet
 The rise of complementary technologies
 How communication now flows through
multiple applications and different means

8. PROFITING FROM
INNOVATION (PFI)
FRAMEWORK-
1986 REVISITED
There are many examples of businesses that
have created enabling technologies only to
see these usurped by the next generation as
imitator beats innovator in profits. The issue
of the ‘game-changers’ failing to capture the
value that others do and the eventual
marketplace offers.
Teece quotes three examples of failed
innovators: MP3 vs Apple; Merck cholesterol
busting drug (Zocor) vs Pfizer’s Lipitor;
perhaps the most famous example, Kodak vs
the digital industry, where Kodak had the
invention in the 1970’s and still lost out.
In all cases the innovator failed to capitalise
on the innovation – Teece suggests we
shouldn’t see this as an example of
Schumpeter’s creative destruction concept
where entrants are continually challenged
then beaten by second arrivals. Teece see this
as something else – because the new entrant
offers not a radical change but an
incremental one, even a direct imitation.

9. PROFITING FROM
INNOVATION (PFI)
FRAMEWORK-
1986 REVISITED
With those arriving late to the party liable to
gain at least twice what the innovator will, the
appropriability regime that is chosen matters.
Do you license, patent or trademark or chose
a different course
“THE FUNDAMENTAL IMPERATIVE FOR
PROFITING FROM AN INNOVATION IS
THAT, UNLESS THE
INVENTOR/INNOVATOR MOVES DOWN
AN IMPROVEMENT PATH AND ENJOYS
STRONG NATURAL PROTECTION AGAINST
IMITATION AND/OR HAS STRONG
INTELLECTUAL PROPERTY PROTECTION,
THEN POTENTIAL FUTURE STREAMS OF
INCOME ARE AT RISK. THE RELEVANT
APPROPRIABILITY REGIME IS THUS
CRITICAL TO SHAPING THE POSSIBLE
OUTCOMES.”
Tacit knowledge travels – people move and
no matter what NDA or Confidentiality Clause
we sign – litigation costs.

10. EXPANDING
THE PFI
FRAMEWORK
TAKING A DEEPER VIEW OF
COMPLEMENTARY ASSETS,
STANDARDS WITHIN THE
CONTEXT OF EVOLVING
BUSINESS MODELS AND INTER-
CONNECTED ECOSYSTEMS
FACING DOWN THE
APPROPRIABILITY CHALLENGE

11. EXPANDING THE PFI
FRAMEWORK
GENERAL-PURPOSE TECHNOLOGIES, ENABLING
TECHNOLOGIES, & THE
APPROPRIABILITY CHALLENGE
GENERAL PURPOSE TECHNOLOGIES
(GPTS)
There are, according to Bresnahan and
Trajtenberg’s 1995 paper, as cited by
Teece, three determinants of a GPT:
1. They are in wide use
2. They can be technically enhanced
over time
3. They can crossover between
different sectors – multi-faceted
and multi-functional
GPT’s are observable over the long-
term (10+ years) recognisable by their
cumulative economic impacts over that
time.

12. GENERAL PURPOSE
TECHNOLOGIES

13. EXPANDING THE PFI
FRAMEWORK
GENERAL-PURPOSE TECHNOLOGIES, ENABLING
TECHNOLOGIES, & THE
APPROPRIABILITY CHALLENGE
ENABLING TECHNOLOGIES (ET)
ETs are technologies that have the
ability, when combined with other
technologies, to make major leaps
forward. They are not easy to analyse in
regarding to an extended economic
impact. The EC have identified six (non-
software) enabling technologies that
they believe go someway to supporting
social impacts. These include nano-
technologies and advanced materials
and manufacture.
“An enabling technology can be
used to drive technological change
in an industry. The utility of the
enabling technology is not
exhausted by embedding it in a
single product or even a single
system; it can be used by a range
of downstream customers for their
own products and services.”

14. ENABLING
TECHNOLOGIES

15. EXPANDING THE PFI
FRAMEWORK
GENERAL-PURPOSE TECHNOLOGIES, ENABLING
TECHNOLOGIES, & THE
APPROPRIABILITY CHALLENGE
ETs that may become GPTs
AI currently is seen as an enabling
technology but, dependent on how it is
used and how it develops, it could
become a GPT. The cost of AI is falling, its
accessibility is rising and it’s only a matter
of time before it starts to reshape human
to system communication even more.
Machine learning is another possibility
where computers are starting to evolve
into ‘deep learning’ mechanisms. These
applications are starting to make serious
inroads into key industries such as
investment and finance.
Deep learning as an emerging technology
often falls under the domain of ‘open
software’ solutions, where the code
belongs to no one and the benefits of
ownership become less recognisable and
important. Benefits accrue differently in
this environment and appropriability is less
important.

16. EXPANDING THE PFI
FRAMEWORK
GENERAL-PURPOSE TECHNOLOGIES, ENABLING
TECHNOLOGIES, & THE
APPROPRIABILITY CHALLENGE
GPT AND ET - STATIC AND DYNAMIC
SPILLOVER
Static spillover: defined as benign
outcomes that leave the environment
unconcerned or impacted at the time of
the change or any time in the future.
Dynamic spillover: these are far more
impactful and alter the existing and
future worth of the prevailing
technology. They also impact the future
pathway of innovations and
opportunities.
“These circumstances render
profiting from innovation
complex and difficult.”

17. EXPANDING
THE PFI
FRAMEWORK
APPROPRIABILITY

18. EXPANDING THE PFI
FRAMEWORK
APPROPRIABILITY
APPROPRIABILITY
The challenge of the innovator is establishing
a pathway to value – if the spillover is too
great and external then investment in ET or
GPT will be less, incentives leave the system.
The value to the value chain is limited by the
ability of business model being developed
that internalises the spillover. The example
cited was Pilkington Glass’s float system – the
inability of Pilkington, despite having strong
IP in place, to develop a business model that
could capture full value meant that the
technology was licensed for 6% of sales.
“Capturing more value requires not
only applying the technology but
also driving the technology’s path
forward into derivative
applications.”

19. EXPANDING THE PFI
FRAMEWORK
APPROPRIABILITY
APPROPRIABILITY
Four factors that amplify owners of GPTs
and enabling technologies inability to
capture value from the value chain.
1. Business model – designing and
delivering a suitable business model
that internalises spillover is expensive
2. A lack of clarity over the future value of
the technology means value is always
left on the table
3. ET are intermediate inputs into the
business value chain – control
downstream is passed to others
4. Not all inventors are created equal –
negotiating from a position of
weakness means value is ceded

20. EXPANDING THE PFI
FRAMEWORK
ENABLING TECHNOLOGIES IN MOBILE
COMMUNICATION ECOSYSTEMS
CASE STUDY
One of the primary risks’ for innovators within
mobile communication market is if the
enabling technologies do not keep pace with
the growing broadband speed, the loss of
functionality will result in falling expectations.
There is ongoing demand for capacity as
people continue to rely on mobile for their
intake of entertainment whilst services like
live video streaming continue to chew-up
band width. The next generation of video
may well be lower bandwidth and improved
quality.
The current model for ET is facilitated by
licensing agreements between European
regulators and the mobile companies under
the FRAND agreement (fair, reasonable and
non-discriminatory). The negotiations in this
3.3 trillion USD market accentuate positions
of strength and weakness.

21. MOBILE
ECOSYSTEM –
REVENUE
BREAKDOWN
2014 – COURTESY
OF BGC
PROFITS ARE HARDER TO
APPORTION
A good quality eco-system will allow for the existence of
supporting business models that drive a diversity of
revenue streams

22. EXPANDING THE PFI
FRAMEWORK
ECOSYSTEMS
ECOSYSTEM
A sign of high functioning ecosystem are the
revenue opportunities that it creates. So in the
case of Google – they earn from the technology
but also from the AdWords, equally Apple earns
from the devices it sells – but also the music it
licenses to its users
“Within ecosystems, value
captured by individual firms
will depend on firm-level
dynamic capabilities, the
scarcity of each firm’s
resources, the nature of
complementarities, and the
business models they adopt.”
Strong ecosystems are lead – that is leadership
within the organisation is dedicated to
developing the ecosystem beyond the
boundaries as well.

23. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARY ASSETS
COMPLIMENTARY ASSETS
These are those aspects of the business
model that are related to the core innovation
and in the ownership or co-ownership of the
innovating organization. They can include:
distribution channels, reputation, marketing
capabilities, brand equity, strategic alliances,
customer relationships, licensing agreements,
among others.
Freely Available Tightly Held
High
Difficult to make
profits
Holder of assets
profit
Low Innovators profit
Highest
bargaining
power profits
Imitability
Complementary Assets
Diagram courtesy of Innovation Zen [online].
(2006).

24. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARY ASSETS
COMPLEMENTARY ASSETS
Teece recognised that his original paper left behind
some of the variables that matter in the construction
of these assets. Time was a big factor since this was a
determinant of the relationship between cocreator of
the assets and their ultimate availability and quality.
Assets within a business, according to Teece, can be
forced into a ‘bottleneck’ at the point of
commercialisation. Therefore whoever controls the
flow (distributers / manufacturers) can extract value
from the value chain disproportionate to any
contribution.
“In many instances, technologies
that were not obviously
complementary, such as microchips
and biological materials, can be
combined (“orchestrated”) to
produce entirely new products that
are unique and valuable to users. “
To understand the ecosystem and they way it
functions depends largely on the multiple types of
‘complementary’ establish the fundamental workings.

25. COMPLEMENTARITY
THE PRINCIPLE OF COMPLEMENTARITY IS
THE BASIS OF THE RELATIONSHIPS THAT
COEXIST IN AN ECOSYSTEM BUT WHERE
THE CONTRIBUTION THAT EACH
ELEMENT MAKES IS HARD TO VALUE OR
MEASURE

26. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
COMPLEMENTARY
How do we explain complementarity in the
context of economics? According to Edgeworth,
as cited by Teece, the idea is simple to say but
full of complexity in the knowing/doing – what
we can say is that the marginal value of one
variable increases with another variable.
“In the PFI framework,
complements need to be
considered with more granularity
in order to Illuminate value
capture issues, particularly the
ramifications of digital
convergence.”
Examples of such complementary technologies
include – the steam engine coupled to a coal
cart; the lawnmower, the combination of engine
to manual reaper; the computer to laser as a
means of reading CD’s.
It is not uncommon to couple two or more
technologies together and see the sum greater
than the parts.

27. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
COMPLEMENTARY
The existence of complementarity is crucial to the
development of innovative technologies in that
they strengthen appropriability but also without
them functionality may well never happen.
Complementary assets at the higher level can be
broken down into three different segments:
1. Generic assets: These are "general purpose"
assets that exist not to assist a specific
innovation but are a part of the fabric of a
business
2. Specialized assets: dedicated to the
innovation, they exist solely to make this
one thing work and they themselves are not
reliant upon it
3. Cospecialized assets: two-way dependence
upon the asset and the innovation, neither
can exist without the other.
In the 2018 paper Teece expands on these three
high level typologies

28. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
HICKSIAN (PRODUCTION)
Complementarity
A decrease in the price of one factor which
may be attributed to the lowering of a cost,
leads to an increase in the complements use.
This assumes an already dependent
relationship between asset and complement.
It goes to support the contention that a rise
in demand for an innovation raises demand
for the complementary asset.
This Photo by Unknown Author is licensed under CC BY-
SA

29. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
EDGEWORTH/PARETO (CONSUMER)
COMPLEMENTARITY
“Two goods, X and Y, are
Edgeworth complements in
consumption if the utility of
consuming them together is
greater than that of consuming
them in isolation.”
In this realm the demand for one asset
creates demand for another. In Edgeworth’s
thinking these do not have to be priced
assets and could be intangible assets such as
government policies or organisational
structure. What matters is that the utility of
the whole is greater than the sum of the
parts.

30. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
HIRSHLEIFER (ASSET PRICE)
COMPLEMENTARITY
This is a means to (in theory) gain from
foresight in the value of assets affected by the
innovation. If the innovation has a positive or
negative impact of meaningful proportions
on the underlying production assets, then an
inventor could exploit this knowledge and
seek to take long or short positions in that
asset.
The example given is a Eli Whitney who got a
the cotton gin patented in 1794 – only to die
a pauper because of patent disputes. If he
had envisioned the impact of his invention
upon the demand for cotton and the price of
land he could have exploited the knowledge
in different ways.
If anything this is a warning for those who
seek patents rather than let the ideas
permeate – make the business and assets the
engines of success not the design itself.

31. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
COURNOT (INPUT OLIGOPOLY)
COMPLEMENTARITY
Largely theoretical because markets never
stay in equilibrium if at all but often used in
patent litigation where one holder of an asset
is deemed to be exploiting the overall utility
of the combined assets for personal gain.
If two assets were required for the innovation
and both parties had a monopoly or near
monopoly on each asset despite increased
opportunity if the two organisations colluded,
then negotiated stalemate could exist.
An example quoted was Microsoft and Intel –
but eventually no harm was done to
consumers because the flexible supply chain
meant that both benefited from the rise of
the PC market.
In essence this complementarity states that
“Inputs X and Y will be sold for less if the
companies can collude to maximize profits.”

32. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
TECHNOLOGICAL COMPLEMENTARITY
Rarely does any innovation sit in glorious
isolation – for it to profit it must have other, often
lesser valued technologies to be present for the
full price and utility to be exploited. The growth
in the 2-g to 4-g networks could only be
exploited by the technology of handsets,
microprocessors and creative use.
We are talking about enabling technologies that
complement.
“Technological complementarity
can pose a PFI challenge for an
innovator if the complement is
created by a separate company and
becomes a bottleneck asset. One
solution is to create the
complement in-house, but the
innovator may lack the capabilities
to do so.”

33. EXPANDING THE PFI
FRAMEWORK
COMPLEMENTARITY
INNOVATIONAL
COMPLEMENTARITY
This could be seen as simply a statement of
the technological complementarity but it
does make specific linkage between the
General Purpose Technology which, because
of its existence, increases the productivity of
goods in downstream technologies.
Mobile innovation has led to a growth in App
industries and technologies that support
those industries through improved operating
systems.

34. “WHAT ALL THESE TYPES OF
COMPLEMENTARITY HAVE IN
COMMON IS THAT
THEIR PRESENCE RAISES
COMPLEX COORDINATION
ISSUES, WHICH IN TURN
RENDERS
APPROPRIABILITY MORE
DIFFICULT.”
This Photo by Unknown Author is licensed under CC BY-NC

35. “IN MOST CASES, HOWEVER,
IT MUST BE RECOGNIZED
THAT TECHNOLOGICAL
AND INNOVATIONAL
COMPLEMENTARITIES
IMPOSE SEVERE
COORDINATION,
MARKET DESIGN, AND
CONTROL CHALLENGES
THAT IMPAIR THE
ALIGNMENT OF
ACTIVITIES ACROSS FIRMS IN
A MARKET ECONOMY”

36. ENTREPRENEURS
ARE THE
DESIGNERS OF
THEIR OWN
FUTURE
“SOFTWARE-BASED BUSINESS MODELS
ARE RELATIVELY EASY TO MODIFY IN
RESPONSE TO CUSTOMER FEEDBACK,
CHANGES IN THE USER BASE, OR OTHER
EVIDENCE OF MISSED OPPORTUNITIES.”

37. PLATFORMS AND
ECOSYSTEMS

38. TYPES OF
DIGITAL
PLATFORMS
AND THEIR
FUNCTIONS

39. TYPES OF PLATFORM EXPLAINED
1. A transactional platform: facilitates
the exchange process – e.g. E-bay
or the credit card industry where
the platform allows for payments to
be accepted by merchants and
settled by banks.
2. An innovation platform: one that
welcomes external partners to
contribute their own innovations to
the platform, thus increasing the
value of the system as a whole.
Apple’s app ecosystem is a prime
example.
3. Hybrid platform: Amazon is an
example here – a platform that
facilitates exchange between
consumer and merchant but also
welcomes partners as the means to
increase choice

40. OPPORTUNITY
Opening up a platform from which other firms can erect their business model can
provide the platform provider with a commanding position, enhancing the ecosystem
overall and their place within it. Opportunity comes to those who facilitate others
wellbeing.
Not all platforms are created or managed by one organisation, often they are
composed of many but coordinated through rules and standards, a bit like a
‘community of practice’.
“OVER TIME, THE ADVANTAGE BELONGS TO THE PLATFORM LEADERS THAT SET THE
RULES IN THE MANNER MOST LIKELY TO BENEFIT THE SYSTEM AS A WHOLE AND NOT
JUST THEIR OWN SHORT-TERM INTERESTS.”

41. MULTI-LEVEL
PLATFORMS AND PFI
Anything on multiple levels creates
complexity in the dynamics of
communication. These interactions
can create bottlenecks and these,
in turn, instill opportunity in the
system.
How we solve the bottlenecks
depends upon those who are
involved. Therefore
“A GOOD VALUE CAPTURE
STRATEGY IS TO COURT WELL-
KNOWN BRANDS/PARTNERS
WHO CAN BRING LARGE BLOCKS
OF CUSTOMERS TO THE
PLATFORM”
How we manage partner-platform or
partner-partner relationships is a
matter of balance between competition
and cooperation.

42. MODULARITY AND INDUSTRY
PERFORMANCE
Modular business models is about extracting value from the component building blocks of an
industry. Just as the pc industry saw drivers of innovation at the components of hardware and
engines of software, this vertically modular industry only gained real value once innovation
happened at the system level.
In financial derivative innovation profitability was maximised when the components of the system
were fully commoditised. The building blocks of price, modular inputs were sourced widely and
packaged amid the client offer. Margin was then extracted at the system level not the component
one.
“HOWEVER, MODULES ARE INHERENTLY COMPETITIVE, MAKING IT HARD TO EARN SUFFICIENT
PROFITS TO FUND R&D THAT IS LIKELY TO BENEFIT THE INDUSTRY AS A WHOLE. THIS
EFFECT IS EXACERBATED IF THE PROVIDERS OF ENABLING TECHNOLOGY (INCLUDING
OWNERS OF STANDARD ESSENTIAL PATENTS) ARE UNABLE TO REAP A REASONABLE
RETURN FOR THEIR TECHNOLOGICAL CONTRIBUTORS TO STANDARDS DEVELOPMENT.”
The challenge/opportunity then is to contributors from the top line not from the component
one.

43. BUSINESS MODEL CONFIGURATION:
LICENSING AND ALTERNATIVES
No matter how you spin it – patent royalties for innovators are low. Whether this is due to the wide
reaching issues of a weak global system or simply that litigation is so hard and expensive to win –
innovator’s profits are often such a small % of the whole you have to question why you would not
simply always use the ideas of others.
The spoils of innovation go to the entrepreneurs and business model innovators who can harness rents
and assets through the strategies they create and pursue not, from the innovation itself but from the
way you explot it.
The opportunity therefore lies in maximising the initial idea and building an ecosystem around it that
works with those complementary assets previously discussed.
“FURTHERMORE, THERE ARE A PLETHORA OF OTHER ISSUES TO CONSIDER BESIDES
COMPLEMENTS. FOR INSTANCE, STRATEGY ANALYSIS IS AN ESSENTIAL STEP IN DESIGNING
A COMPETITIVELY SUSTAINABLE BUSINESS MODEL. UNLESS THE BUSINESS
MODEL DESIGN PASSES THROUGH THE FILTERS OF STRATEGY ANALYSIS, IT IS UNLIKELY
TO BE VIABLE. GETTING THE BUSINESS MODEL DESIGN (AND THE STRATEGY) RIGHT
IS CRITICAL TO CAPTURING VALUE.

44. THE LIGHTHOUSE – A
METAPHOR FOR
DISSIPATED VALUE AND
FREELOADERS
It is not always possible to capture value
when value is present – the strategic
approach to business model design fails to
illuminate the means to capture the worth
for the inventor. And even if it could the
inventor might not have the resources to
deliver all the potential.
A lighthouse cannot choose who it serves –
some would pay for its service others,
simply freeload - it is what it is ‘a public
good’ in the ‘public domain’
It is the lighthouse keeper who would
directly prosper, the occupier of the
innovation who tends to its needs but
creates a home for themselves.
“IMPLEMENTERS IN DIFFERENT
INDUSTRIES OFTEN ACHIEVE WINDFALLS
FROM THE INVENTOR’S TRAVAILS”

45. STANDARDS

46. STANDARD SETTING AND
STANDARDS DEVELOPMENT
In the digital world the creation of
standards requires that corporations, r&d
labs and all participatory firms ‘hammer
out’ the most appropriate standards for an
industry in the forum of a standard
development organisation (SDO).
Setting the standards then opens the
doors for organisations to exploit their
chosen business model.
“The investment to develop high-
performance technology good enough
to make it into a standard can be
monumental.”
The next slide shows Teece and Sherry’s
comparison between the Standard Setting
Organisation (SSO) and the SDO
framework

47. STANDARD SETTING AND STANDARDS
DEVELOPMENT
IN THE DIGITAL WORLD STANDARDS HAVE DEVELOPED IN COMPLEXITY – NOW WE HAVE STANDARDS FOR THE
DEVELOPMENT OF TECHNOLOGIES AS WELL AS ASSURING COMPATIBILITY

48. STANDARD ESSENTIAL PATENTS
(SEPS) AND ROYALTIES
“STANDARDS DEVELOPMENT BODIES GENERALLY RECOGNIZE THAT
(PATENTED) CONTRIBUTIONS TO A STANDARD OUGHT TO RECEIVE
RECOGNITION BY BEING ELIGIBLE FOR ROYALTIES TO BE PAID BY THOSE
THAT IMPLEMENT THE STANDARD.”
Most SDOs have a process that accepts the value of the ‘fair, reasonable and non-
discriminatory’ (FRAND) a ‘Global’ code of practice. This has been around for the last 50 years
and worked well, in the most part, as a means to offer the means of enforcing a patent owners
rights on those who are selling in an unlicensed manner.
The legalities around patents, especially in the digital world, remain complex and highly
charged – many argue that some technologies have no value unless they are embedded in a
standard – or does the standard only become one when that technology is applied to it?
What ever the issue – the idea generator has to make the case for reasonable reward from their
ideas.

49. MANAGEMENT
AND POLICY
CONCLUSIONS
“COMPLEMENTARY ASSETS AND
COMPLEMENTARY TECHNOLOGIES ARE MORE
SIGNIFICANT THAN EVER IN A WORLD OF
COMPETING AND INTERSECTING DIGITAL
PLATFORMS”
The digital economy has broken down the
industrial barriers of the past and in doing so has
created additional complexity in the domain of PFI.
The ‘one technology, one product, one patent, low
uncertainty’ framework has been superseded by
permeable walls between industries and products
and platforms that have been enhanced by
technology that has no natural boundaries.

50. CONCLUSION #1
UNLESS WE CAN SOLVE
THE PROBLEM OF VALUE
CAPTURE FOR
INNOVATORS, ESPECIALLY
OF ENABLING
TECHNOLOGIES, R&D WILL
BE STIFLED AND SOCIETY
DENIED THE LEVEL OF
INNOVATION IT NEEDS

51. CONCLUSION #2
THERE ARE MANY AREAS OF
POLICY STILL NOT GETTING
THE ATTENTION THAT
ENABLING TECHNOLOGIES
DESERVE. WE CANNOT
EXTRACT VALUE USING THE
EXISTING SYSTEMS OR
MARKET MECHANISMS. THE
‘FRAND’ FRAMEWORK HELPS
IN COORDINATION BUT
THERE NEEDS GREATER
UNDERSTANDING

52. CONCLUSION #3
THE ECONOMIC SYSTEM NEEDS TO BE
ADDRESSED SO THAT IT IS SUPPORTIVE
OF INNOVATORS, AT THE INDIVIDUAL
AND FIRM LEVEL THAT ARE WORKING
ON ENABLING AND GENERAL PURPOSE
TECHNOLOGIES. THE CURRENT IP
PROCESS IS TOO HARD TO WORK WITH
AND THE BUSINESS MODELS REQUIRED
TO DELIVER ON THESE TECHNOLOGIES
DEEMED PROHIBITIVE. IF WE WANT AN
INNOVATIVE SOCIETY WE HAVE TO PUT
IN PLACE THE FOUNDATIONS

53. CONCLUSION #4
THE 1986 PAPER LOOKED AT
BUSINESS MODEL FOR PROFITING
FROM INNOVATION (PFI) AS A
CHOICE – LICENSE OR BUILD A
VALUE EXTRACTION MECHANISM IN-
HOUSE.
THE DIGITAL AGE WITH ITS
PLATFORMS AND ECOSYSTEMS IS
NOW MORE COMPLEX IN MANY
WAYS BUT ALSO NOT WITHOUT
GREATER OPPORTUNITY. WHAT IS
REQUIRED ARE STRONG DYNAMIC
CAPABILITIES TO RECOGNISE
COMPLEMENTARITIES AND EXPLOIT
THEM, OVER TIME. LEADERSHIP THAT
EMBRACES THIS IS AN ESSENTIAL
FACET OF PFI

54. CONCLUSION #5
THE NOTION THAT A SINGLE
INVENTION CONSIST OF AND
HARNESSES THE VALUE OF THE
MANY INVENTIONS WITHIN IT, IS
AN ACCEPTED IDEA MADE RELEVANT
BY TECHNOLOGY.
INDIVIDUAL PRODUCTS OFTEN
UTILISE VARIOUS INTERNAL AND
EXTERNAL SOURCES OF
TECHNOLOGY SOME OF WHICH ARE
PATENTED AND OTHERS
UNPATENTED, HOW WE ENGAGE
WITH THESE ELEMENTS (FAIRLY AND
NON-DISCRIMINATELY) IS A
CONSIDERATION THAT SHOULD BE
THE NORM AS WE STRIVE TO PROFIT
FROM INNOVATION.

55. CONCLUSION #6
THE BUSINESS ECOSYSTEMS ARE
SEEN AS THE COMPETITIVE
LANDSCAPE FOR EXTRACTING PFI.
IT IS THE MATCHING OF A
PLATFORM WITH THE NEEDS OF
THE ECOSYSTEMS THAT MATTERS
MOST AND ONCE MATCHED TO
BUSINESS MODELS, THEY DRIVE
AND ULTIMATELY CAPTURE VALUE.
IT IS THIS AREA THAT IS THE
FOCUS OF RELOCON – MATCHING
THE NEEDS OF THE ECOSYSTEM TO
A PLATFORM TO FACILITATE
MULTIPLE BUSINESS MODELS

56. CONCLUSION #7
COMPLEMENTARITIES ARE SO
IMPORTANT IN THE HARNESSING
OF VALUE – THE SIX TYPOLOGIES
DISCUSSED IN THE EARLIER SLIDES
SHOULD FORM THE BASIS OF ANY
DISCUSSION ON HOW TO
HARNESS INNOVATION AND
TECHNOLOGIES.
THE NATURE OF THE
COMPLEMENTARITY IS AN
ESSENTIAL DRIVER OF ANY
BUSINESS MODEL
“IT IS NO LONGER POSSIBLE TO
HAVE MEANINGFUL DISCUSSIONS
ABOUT COMPLEMENTARY ASSETS
AND TECHNOLOGIES WITHOUT A
CLEAR UNDERSTANDING OF THE
NATURE OF THE
COMPLEMENTARITY AT ISSUE.”

57. CONCLUSION #8
MODULARISATION IS A TWO-WAY
SWORD – IN ITS COMPONENT FORM IT
ALLOWS FOR INNOVATION TO OCCUR
AT EACH LEVEL OR BUILDING BLOCK
BUT ON THE OTHER SIDE, IT DETERS
SYSTEMIC INNOVATION THROUGH
WHOLE BUSINESS DESIGN. A COMPANY
LIKE APPLE INNOVATES ACROSS THE
VALUE CHAIN AND SYSTEMICALLY
WHILST GOOGLE AND ANDROID ARE
FAR MORE MODULAR, THE
INNOVATION BEING MORE
INCREMENTAL THAN RADICAL. IT HAS
TO BE SAID THAT APPLE SEEMS TO BE
CHANGING AS THE FOCUS SHIFTS TO
YET ANOTHER ‘INNOVATIVE’
HARDWARE RELEASE

58. CONCLUSION #9
STANDARDS ARE EVERYWHERE –
BY THEIR VERY NATURE THE ARE
REQUIRED TO FACILITATE
COMMUNICATION BETWEEN
SYSTEMS AND TECHNOLOGIES.
WITHOUT THEM INNOVATION
WOULD HAVE TO OVERCOME YET
ONE MORE BARRIER. STANDARD
DEVELOPMENT DEVELOPMENTS
AND THE LICENSING THAT
ACCOMPANIES THEM ARE VITAL
TO CONTAINING THE SPILLOVER
OF VALUE THAT LEAVES THE
SYSTEM AND IS DESTINED TO THE
INVENTORS AND INSTEAD ENDS
UP WITH THE EXPLOITERS AND
FREE-LOADERS

59. FINISHING OBSERVATIONS

60. VR, AR, MR and now xR – The
future technologies all under
one umbrella

61. Relocon
Unearthing entrepreneurial
opportunity across the region in
pursuit of quality jobs that keep our
talent pool here
Relocon is an agitator and change agent to the regional
ecosystems of North Essex and Suffolk. We are building a
community of practice in the domain of enterprise.
We connect aspirational entrepreneurs to the entrepreneurial
ecosystem of education, talent, finance and networks. Our events
explore the prevailing environments, set out the means to exploit
these challenges and deliver access to institutions, people and
ideas that make a real difference.
Email : info@Relocon.co.uk to find out how you can benefit
through engagement

62. REFERENCES
TEECE, D. J. (2018) ‘PROFITING FROM INNOVATION IN THE DIGITAL ECONOMY: ENABLING
TECHNOLOGIES, STANDARDS, AND LICENSING MODELS IN THE WIRELESS WORLD’,
RESEARCH POLICY. ELSEVIER B.V., 47(8), PP. 1367–1387. DOI:
10.1016/J.RESPOL.2017.01.015.
INNOVATION ZEN [ONLINE]. (2006). AVAILABLE FROM:
<HTTP://INNOVATIONZEN.COM/BLOG/2006/08/24/INNOVATION-MANAGEMENT-
THEORY-PART-5/>. [ACCESSED 10.09.2019].
NAYAMPALLY, N. (2019) ‘IMMERSIVE EXPERIENCES TO ENHANCE ENTERTAINMENT AND
INDUSTRY’, ARM BLUEPRINT. AVAILABLE FROM
<HTTPS://WWW.ARM.COM/BLOGS/BLUEPRINT/IMMERSIVE-EXPERIENCES> . [ACCESSED
16.09.2019].