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Integrating IP Protection with Open Innovation Business Practices


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Integrating IP Protection with Open Innovation Business Practices by John Harris and Robert Ford

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Integrating IP Protection with Open Innovation Business Practices

  1. 1. Integrating IP Protection with Open Innovation Business PracticesSpringBoard AtlanticMoncton, NBNovember 13, 2012
  2. 2. • Open Innovation Business Practices: An Overview Bob Ford• Protecting and Licensing IP in Open Innovation Business Models: John Harris 2
  3. 3. GowlingsOne of Canada’s largest national law firms• 750 professionals across 8 Canadian offices and Moscow and LondonCross-disciplinary:• Intellectual Property• Advocacy• Corporate Finance• Licensing, Strategic Alliances and Joint Ventures• Mergers and Acquisitions• Regulatory, Government Relations and Product Liability services 3
  4. 4. com·mer·cial·i·za·tion com·mer·cial·i·za·tion 1. to manage on a business basis for profit 2. to leverage in quality for more profit The What, How and Why of IP Commercialization“Commercialization is a set of activities which add value to a discovery by bridging the gap between conception and creation of a marketable product or process, to create financial gain for inventors, investors and their respective institutions and stakeholders.”“Innovation is the ability to turn knowledge into new and improved goods and services.” (Conference Board of Canada) 4
  5. 5. What is Open Innovation• “Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”• Henry Chesbrough, Open Innovation: Researching a New Paradigm "...Companies can no longer keep their own innovations secret unto themselves; ... the key to success is creating, in effect, an open platform around your innovations so your customers, your employees and even your competitors can build upon it, because only by that building will you create an ongoing, evolving community of users, doers and creators." Randall Rothenberg, editor, strategy+business (published by Booz Allen Hamilton) 5
  6. 6. Henry Chesbrough• The term Open Innovation was first developed by Henry Chesbrough in 2003, when he published Open Innovation: The New Imperative for Creating and Profiting from Technology (HBS Press).• According to Mr. Chesbrough, Open Innovation is the use of internal and other companies ideas to develop new businesses. He identifies five key elements in the new innovation process, i.e.:1. Networking2. Collaboration involving partners, competitors, universities, and users3. Corporate Entrepreneurship, especially through corporate venturing, start-ups and spin-offs4. Proactive Intellectual Property Management: to buy and sell intellectual property and so create markets for technology5. Research and Development (R&D): to obtain competitive advantage on the marketplace 6
  7. 7. Innovation Ecosystem Industry Association Academia & Researchers University IPGrants/Basic Science Favorable Tax Funding Structures Domestic & International VC Success Service Organizations Capital Equity Markets IP Laws Entrepreneurs Anchor Companies
  8. 8. Canadian IT Innovation Ecosystem 8
  9. 9. . Booz & Company The 2012 Global Innovation 1000: Introduction and Key Findings • Every year since 2005, Booz & Company has conducted the Global Innovation 1000 study, which investigates the relationship between how much companies spend on R&D and their overall financial performance and long-term financial success—and every year, the study reinforces the conclusion that there is no correlation between the two. Instead, it is how companies leverage their R&D investments in conjunction with other resources and internal structures—such as personnel, capabilities, and decision-making processes — that determines their ability to execute their innovation agendas. • For the third year running, management consulting firm Booz & Co. has named Apple the worlds most innovative company in its annual report, Global Innovation 1000 Study: Making Ideas Work. Booz & Co. bases its rankings on an analysis of the "fuzzy front-end" of innovation -- the ability of a company to turn ideas into commercial successes. 9
  10. 10. Booz & CompanyThe 2012 Global Innovation 1000: Introduction and Key Findings con’t. 10
  11. 11. Booz & Company The 2012 Global Innovation 1000: Introduction and Key Findings con’t.• “….Overall, money handed out for research and development continues to increase steadily, even in the face of widespread economic difficulties. According to the report, 2011 represents the most money ever collectively spent to turn ideas into commercial products and services -- a whopping 10 percent increase to $603 billion over the previous year.….• ….Although Apple spends a sizeable amount on R&D ($2.4 billion), the Cupertino-based company only ranked 54th in terms of annual research spending. In fact, one of the reports key findings (and the reports before it) are there is virtually no correlation between budget, innovation and success. Only three of the top 20 spenders were considered top innovators…...• ……Despite recent high-profile coverage of companies seeking innovative ideas from social networks, “the wisdom of crowds,” and open innovation contests, in reality, the majority of new ideas still come from traditional sources. By far the most popular method for generating ideas is “direct customer observation” (ranked as one of the Top 5 most used methods by 42 percent of survey respondents). Other categories that were cited by less than 15% of respondents included tools such "social media network mining", "seed funding for exploratory research", "external idea scouting", and "cross business unit communities/sharing"….” 11
  12. 12. Booz & Company The 2012 Global Innovation 1000: Introduction and Key Findings con’t.• “……Another noteworthy survey finding is the limited use of open innovation in idea generation. In the past decade or so, the concept of open innovation has generated a great deal of buzz, and a small but growing number of companies are seeking out new ideas from a variety of sources outside their conventional domains, including innovation contests and social networking. However, less than 15 percent of all companies ranked mining social media for ideas and using open innovation as important. We see indications of why some companies see value in the techniques while others are left cold. Companies in more consumer-oriented industries, including software and Internet, computing and electronics, consumer, telecom, and some healthcare sectors, are twice as likely to employ social media in their search for new ideas than are companies in sectors with more highly engineered products and services, such as auto, industrials, aerospace, and chemicals and energy, where these methods seem to have less efficacy.” 12
  13. 13. By Open, Participative Innovation there is a multiple win:• The business get scalable solutions and faster and richer innovation cycles• The citizens get personalized, better optimized and affordable solutions• The services providers (for example, the public sector) can find new approaches in their service provisions, making the service creation and personalization more affordable also for them• Source: 13
  14. 14. Conference Board of Canada - Council for Innovation and CommercializationAccording to the Conference Board of Canada’sReport Card on Innovation, Canada receives a"D" grade and ranks 14th out of 17 OECDcountries on innovation performance. Oureconomy remains a below-average performer onits capacity to innovate ……The generalconsensus is that there is a lack of progressbeing made in both innovating and adequatelycommercializing the intellectual property beingdeveloped. 14
  15. 15. OECD Economic Survey of Canada 2012“ …Indeed, innovation is high on the government’s agenda. While Canada has made great strides in macroeconomic and structural policy settings, and its academic research is world class, the pay-off in terms of business innovation and productivity growth has not been large. Business R&D is particularly low, despite significant policy support, suggesting substantial scope for improvement…. Reforms are needed to improve knowledge flows to business and strengthen the process of commercialization.” 15
  16. 16. Business Models for Technology CommercializationClosed Innovation ruled the 20th centuryOpen Source emerged early 1990sOpen Innovation emerged mid-late 1990s
  17. 17. Closed Innovation Research Product Market developmentUniversity IP Firms boundary Internal research projects Firms boundaryGovt R&D IP Product pipelineUniversity IP Firms boundary Internal research projects Firms boundaryGovt R&D IP Product pipeline © Henry Chesbrough, 2003, “Open Innovation”
  18. 18. Stall of Closed Innovation• mid-1970s oil crisis broke NA auto monopolies• late 1980s-early 1990s – end of Reaganomics• mid-late 1990s – Japanese “Tiger” free-fall• 1999-2000 – “” bubble burst• 2000s – S. Korea & China become economic powers• 2008 – world-wide recession / depression• Globalization/Flat World/R&D budget restrictions. Companies looking for alternatives to internal R&D in the early 1990s – more so today!
  19. 19. Open Source• early 90s – huge lay-offs by IBM & Xerox=  unemployed highly qualified technical expertise• emergence of stand-alone personal computers• goal was to reduce dependency on IBM, Xerox & related software vendors• free re-distribution of software in source code form• shared rights to use the technology• no monetary rewards to the innovators• fast-tracked development of (a) software applications & (b) systems architecture/operating systems for desktops
  20. 20. OPEN INNOVATION is not the same as OPEN SOURCE 20
  21. 21. Open Innovation (How it works) Other companies IPUniversity IPGovt R&D IPUniversity IPGovt R&D IP Other companies IP © Chesbrough et al., 2006, “Open Innovation; Researching a New Paradigm””
  22. 22. Open Innovation (Principles)• takes advantage of others’ knowledge, successes & IP• accelerates speed of commercialization• based on rapid diffusion – adoption – imitation• patents used as “currency” & “inducements” (not as barriers)• focus on extensive licensing (non-exclusive) • licensing-in • licensing-out • cross-licensing
  23. 23. Open Innovation (Principles)• requires brokering of knowledge & IP & collaborations• greatly expands value capture from protected IP • existing patents • developmental agreements (funding) • staff placements• corporate research shifting from “exploration” to “exploitation• corporate “discovery” research now includes searching for complementary external IP
  24. 24. Open InnovationCluster SME’s IP Start-up’s IP University IP Govt R&D IP University IP Govt R&D IP SME’s IP Start-up’s IP
  25. 25. Open Innovation Cluster Criteria Every successful Open Innovation Cluster requires & depends on three things1. Sources of ideas2. Sources of capacity and capability (knowers and doers)3. Sources of funds (risk bearers)
  26. 26. Open Innovation Cluster CriteriaOverview:• Industry, university, government, college partners• Multiple members for multiple years• Large pools of resources• Common objectives, common interests, cooperative projects• All IP is shared by participants in the cluster• Must facilitate rapid transition of technology from institutions to industry to markets
  27. 27. Open Innovation Business Expectations of Institutional Partners in Open Innovation Clusters1. Delivery on agreed-to promises & timelines2. Clear understanding of project milestones & objectives3. Close coordination of industry & institutional researchers4. Mutual alignment of research objectives, priorities & time horizons5. Agreed-to criteria for measuring progress & performance
  28. 28. Open InnovationBusiness Expectations of Institutional Partners in Open Innovation Clusters (cont’d)1. Up-front defined IP ownership and license rights2. Adequate time to decide license options3. No publishing without prior company review & approval4. Protection of high-value IP with high-quality patent applications5. Company-directed patent prosecution
  29. 29. Open Innovation Summary of Business Expectations1. Long-term research partnerships that share risk2. Access to technical expertise that delivers3. High-quality commercially valuable IP that is shared within the cluster4. Input & control over development & prosecution of IP portfolios5. Flexibility in agreements on a case-by-case basis
  30. 30. Open Innovation Institutions1: Business-friendly culture: • Visible – accessible – approachable • 1 entry point for technology shopping • “Walk their walk – talk their talk” • Opportunity focused, opportunity-capture motivated • Focus on business needs and motivation (not the “deal”) • Flexibility to negotiate value-added licenses • Know how to: (i) negotiate (ii) put a deal together • Proactive & timely processes
  31. 31. InnoCentive, Inc 31
  32. 32. Slide (Google’s) 32
  33. 33.“Hello everyone, we wanted to take a moment to thank our Prizes community for all ofyour support and provide a product update. Over the next six months, we will beretiring the product. By January 31, 2013, across platforms--onthe web, Android or iOS--will no longer be supported.We’re so grateful to all of you for your participation and engagement since welaunched last year, but the product isn’t experiencing the kind of adoption we hadhoped for. We wanted to provide you with advance notice and some additionalinformation about timing, exporting your text-based entries and cashing out yourremaining credits:…January 31, 2013 -- last day to cash out any remaining credits via PayPal” 33
  34. 34. Networks Of Centres Of Excellence Research-driven partnerships: 16 Networks of Centres of Excellence• NCE networks are large-scale, academic-led virtual research centres that bring together multi-disciplinary partners from academia, industry, government and not-for-profit organizations. Networks perform R&D and “translation- commercialization” activities, and enable Canadian researchers and students to work with receptor communities to accelerate the creation and application of knowledge. Examples include:• Allergy, Genes and Environment Network – AllerGen McMaster University, Hamilton, Ontario ($74,358,000 for 2004-19)• Carbon Management Canada – CMC-NCE University of Calgary, Calgary, Alberta ($25,000,000 for 2009-14)• Graphics, Animation and New Media Canada – GRAND University of British Columbia, Vancouver, British Columbia ($23,250,000 for 2009-14)• Marine Environmental, Observation, Prediction and Response Network – MEOPAR Dalhousie University ($24,997,535 for 2012-17)• NeuroDevNet University of British Columbia, Vancouver, British Columbia ($19,572,000 for 2009-14)• Stem Cell Network – SCN University of Ottawa, Ottawa, Ontario ($82,819,000 for 2001-15) 34
  35. 35. One Example: Orthopaedic Innovation Centre Inc. (Winnipeg, Manitoba)Mandate• The Orthopaedic Innovation Centre (OIC) will evaluate, create, acquire, protect, commercialize and license novel orthopaedic medical technologies in a multidisciplinary environment through industry partnerships, government grants, and strategic collaborations. The OIC will provide technical services to Universities and industry while educating and training Highly Qualified Personnel in the process. 35
  36. 36. SummaryOPEN INNOVATION:• Accessing & capitalizing on ideas of others• Deriving ROI benefits from your no-core IP• Putting the “right ideas” into the “hands of the right people” to fast-track new products / services into markets 36
  37. 37. Protecting and Licensing IP inOpen Innovation Business Models 37
  38. 38. IP ProtectionTypes of Protection• Patent • Provides and protects a tangible asset• Trademark • Protects the reputation of the research• Industrial Design • Protects features of shape, configuration, pattern or ornamentation• Copyright • Protects artistic work including drawings, compilations, manuals, etc.• Trade Secrets • Not much opportunity for collaboration in an Open Innovation setting. No Protection. No publication. No recourse.
  39. 39. The Patenting Process Patenting is not about the technology It’s all about protecting thebusiness opportunities created by the technology 39
  40. 40. What is Patentable??Requirements: Considering a Patent1. Novelty - the invention is “new”2. Non-obvious – the invention not a minor tweak on what has been done before3. Utility –invention does what it is described to do4. Subject Matter 40
  41. 41. The Patenting ProcessThe Patenting ProcessStep 1: Decision to patent • Invention disclosure • Commercial value assessments • Patentability assessment • Potential commercialization / licensing = Go / No go decision Based on potential business value & licensing opportunities 41
  42. 42. The Patenting ProcessStep 2: Patenting Decision-making 1. What is the invention?: • product / process / system / method? 2. Product: • what will it look like? • how should it be packaged? • handling, shipping, storage issues? • fit with customers’ needs & comprehension? 3. Production: • fit with existing equipment / systems? • requires new systems that need to be developed? 42
  43. 43. The Patenting ProcessStep 2: Patenting Decision-making4. Customer5. Market size6. Competitors7. Market Receptivity / Pushback8. Product / Process Development9. Marketing Partners 43
  44. 44. The Patenting ProcessStep 3: Patent preparation1. Title2. Brief description of the prior art3. Summary of your invention4. Brief description of the drawings5. Detailed description of the invention6. Examples7. Claims MOST IMPORTANT (define & limit the scope of invention)8. Abstract Business Opportunity should define the Claim Strategy 44
  45. 45. Where to fileThree-step process over 2 ½ yearsStep 1: file an application with CIPO or USPTO • priority date / priority filingStep 2: file an international patent application (PCT) with WIPO through CIPO • within 12 months of priority date • defers “where-to-file” decisions & costs for 18 monthsStep 3: national-phase filings in selected countries • with 30 months from priority date (18 months after the PCT) • file where there are business opportunities &/OR • where competing products may manufactured 45
  46. 46. What Is IP Used For In Open Innovation Approach?1) Income Generation Through Licensing to: 1) Other institutions 2) Industry 3) Government2) Sale of IP rights to advance research3) Collaboration to advance research - NOT to increase market share and prevent competitors from coming to market 46
  47. 47. Claim BreadthSpecific research expertise Variants Portfolio/Niche
  48. 48. Claim Breadth – Open Innovation Specific research expertise Variants Portfolio/Niche Opportunity Variants Portfolio/Niche Specific expertise
  49. 49. How to Obtain a Desirable Claim ScopeFiling of a full and complete disclosure Disclosure of all contemplations of the invention. Recognize your niche expertise and protect it. Sound Prediction You can only get protection for what you have done and shown in the description and what you can soundly predict. Demonstration of utility through test results whenever possible. Carrying out the right tests and trials to ensure broad coverage in the patent. Selection PatentsLack of full disclosure can lead to unduly narrow claims and possibleinvalidity of the patent.
  50. 50. What is “Patent Value”? • Validity • Claim Breadth • Scope of Protection • Ownership • Surviving an IP Audit 50
  51. 51. Validity• Will the application survive the scrutiny of examination into allowance and issue?• Will the issued patent survive the scrutiny of litigation?• Will the IP hold up under the microscope of an IP audit?
  52. 52. ValidityMistakes that impact validity • Prior disclosure • Publications • Presentations • Collaborations without NDA • Prosecution mistakes • Double patenting/Voluntary divisionals • Duty of Candor • Claiming too Broadly • Sound prediction
  53. 53. Scope of ProtectionMarket Analysis• Value is increased if protection is obtained in all relevant jurisdictions. Keep options open (PCT).1. Where is the market for the product?2. Where are my collaborators/partners/potential competitors located?3. Where is the R&D market? • 20 year term • Growing Economies • China• Where is the product manufactured? • Prevent manufacture of product in strategic locations • Import/Export Regulations
  54. 54. Scope of ProtectionConsumer Markets• USA High Population, Disposable Income• Europe High Population, Disposable Income• Canada Disposable Income, US Trading partner, Drug plan• Japan High Population, Disposable Income• China Highest Population, Increasing Disposable IncomeManufacturing Markets• China Low cost manufacturingCollaboration/Licensing Opportunity• USA Institutional Density, Industry, Funding• Europe Institutional Density, Industry, Funding• Canada Institutions, Tax benefitsEnforcement• China Emerging policing and government backing regarding enforcement
  55. 55. Scope of ProtectionU.S. StrategyConsider continuation practice • Obtain allowed claims to narrow scope and then file continuation patent directed to broader claim scope. Allows patentee to adjust the claims based on actions of competitors or as R&D directs product evolution.Terminal Disclaimers/Double Patenting.Continuation-in-Part Applications for improvements.
  56. 56. Scope of ProtectionCanadian Strategy• No Continuation practice.• No Terminal Disclaimers.• Voluntary Divisional applications for broader claims likely to invalidate divisional and even the parent on grounds of double patenting.• Forced Divisional applications.• 5 year delay for requesting examination.• 2 year+ backlog at Patent Office.• Amendment after allowance.• Reissue – 4 year deadline.
  57. 57. Ownership1. Clearly established ownership saves headaches and money2. Establish ownership sooner rather than later3. Grey areas: • Employee agreements, • Agreements to assign eventual IP, • University policies for students4. Roche v. Stanford
  58. 58. Summary – Protecting IP• Identify your niche expertise and potential Industry and Institutional collaborator• Avoid pitfalls that lead to invalid patents or unduly narrow claim scope• Obtain proper claim scope that is supported or predicted• Obtain broad patent coverage• Keep options open• Clearly establish ownership• Obtain professional IP services as early as possible
  59. 59. Steps in Commercialisation of IP1. Pre-patent • Non-Disclosure Agreements • Assignment of Rights (e.g. Joint Development Agreement)2. Post-Patent • Joint Ventures • License Agreements • Capital Raise through Equity or Debt • Sale 59
  60. 60. Pre-Patent: Non-disclosure Agreements- Protect confidential information under contract law- Can be unilateral or bilateral (two way)- Should be entered into at the very beginning of the relationship prior to exchange of informationPurpose:i) protect sensitive technical or commercial information from disclosure to others;ii) Prevent forfeiture of valuable patent rights (loss in patent rights);iii) define exactly what information can and cannot be disclosed; andiv) prevent use by recipient for anything else but the Purpose, as defined. 60
  61. 61. Pre-Patent: Assignment of RightsJoint Development Agreements:- like a prenuptial agreement and planned divorce- written agreement that addresses important aspects of IP rights before, during, and after the project- identifies which inventor under the proposed patent will ultimately own the patent post patent filing 61
  62. 62. Post-Patent: Joint Venturesi) Contribution: What IP will be contributed by each partner to the JV? For what field of use and on what terms (assignment v. license, royalties, exclusivity)?ii) Ongoing obligations: Will there be any on-going obligations to contribute IP? If so, any limitations on this and how to implement those limitations?iii) Foreground IP: Who will own “Foreground IP” (IP created by the JV either alone or in combination with the JV partners)? Any different result if the Foreground IP is an improvement on a partner’s IP?iv) Ownership on Termination: Who owns IP on termination (buy/sell, liquidation, run-off)?v) Background IP: On termination, who will have continued access to any “Background IP” (IP licensed by a partner to the JV)? 62
  63. 63. Post-Patent: License Agreements• Gives an organization (or individual) the rights to use another’s intellectual property, typically in exchange for royalties.Special Considerations with Licenses1. Exclusive v. Non-exclusive2. Field of Use: Where can JV and each partner use IP? Unlimited?3. Geographic Territories: worldwide vs. territorial4. Term of License: Most often the term of the JV, or the duration of IP rights, if shorter5. Control over IP (Prosecution/Maintenance/Enforcement)6. Representations and Warranties: On-going as opposed to time of contribution?7. Assignability/Sublicensing8. Royalties/Fees9. Perpetual vs. timed 63
  64. 64. Post-Patent: Capital Raise - Equity vs. Debt• Alternative to JV or License Agreement• Can raise capital through issuance of equity or debt financing• Proceed to commercialization on your ownEquity• No repayment obligations• Potential loss of control• Flexibility depends on type of investors (friend/family vs. VC/PE)Debt• Solvency issues• Risk of default• Difficult to obtain (issues with security)• Maintain control 64
  65. 65. Preserve your Rations - Stay Lean and Focused• Capital efficiency for leaner times – spend only on core assets and avoid infrastructure spending• Articulate value proposition early in R&D as regulatory scrutiny, etc. causes increased delays and risk• Focus on core technology; postpone other ideas and pull the plug early• Make technology as marketable as possible (reduces sale effort)• Need for increased R&D productivity – open innovation models are useful where appropriate! 65
  66. 66. Thank YouJohn Harris Robert FordPartner, Patent Agent PartnerPhone: (613) 786-8671 Phone: (613) 786-0142Email: Email:éal  ottawa  toronto  hamilton  waterloo region  calgary  vancouver  moscow  london