Arena IP Analysis

Managing Intellectual Property in an Open Innovation Environment : 

Managing Intellectual Property in an Open Innovation Environment Chris Arena Partner – Woodcock Washburn 404.459.5644 carena@woodcock.com

Managing IP in Open InnovationTopics : 

\ Managing IP in Open InnovationTopics Intellectual Property Defined Open Innovation Defined Compare and Contrast Open and Closed Innovation The Business Model and Value Extraction Risk Defined Value Defined Allocation Framework Examples

Intellectual Property Defined : 

\ Intellectual Property Defined Patents (utility, design, plant) Trademarks Copyrights Trade secrets Sui Generis (mask works, databases, etc) Non secret information (know how, etc.) Agreements (suppliers, customers, JV, pooling A bundle of rights that helps to protect and enhance a firm’s competitive position and/or extract value from the creations, inventions, innovations and information produced and acquired by the Firm

Open Innovation Defined : 

\ Open Innovation Defined “Open Innovation is a paradigm that assumes that firms can and should use external and internal ideas, and internal and external paths to market. ... Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model. The business model utilizes both external and internal ideas to create value, while defining internal mechanisms to claim some portion of that value.” Chesbrough, Henry (2003a) Open Innovation, Boston: Harvard Business School Press.

Open Innovation : 

\ Open Innovation Types of Collaborations Party licensing a patent Parties forming a joint venture Parties jointly developing a product Party accepting an idea submission Free exchange of information in a network Open Source Acquisitions Alliances Government / Industry Collaboration University Research/licensing Users developing add on to products

Internal Innovation : 

\ Internal Innovation Advantages Simpler Sole Control of Process Capture entire benefit of successes IP ownership clear Fewer competing interests Disadvantages Bear entire risk of failure Must invest to develop skills in new technologies Does not leverage other perspectives Tendency to stay with loser projects longer

Open Innovation : 

\ Open Innovation Advantages Access to more ideas Hedges your innovation risks Access to different skills Ability to concentrate on core business Potentially lower costs Potentially faster time to market Potentially more successes Disadvantages More complex Time for structuring deal Requires sophisticated management of IP Requires careful allocation of innovation risks More lawyer involvement

Value Chain Business Model : 

\ Value Chain Business Model A firms’ value chain and business model affects the firm’s ability to protect and enhance its competitive position The firm’s ability to extract value from the IP that it controls

Business Model / Value ChainEx. 1 – Beverage Co. : 

\ Business Model / Value ChainEx. 1 – Beverage Co. Beverage Company Fast Food Customer 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Fast Food Customer 2 Markets to Consumers EquipmentManufacturer

Value Proposition : 

\ Value Proposition EquipmentManufacturer Beverage Company Fast Food Customer 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Fast Food Customer 2 Bev. Co. Value Proposition: Service and innovation Bev Co. Value Proposition: Brand Image High quality product

Value Extraction Points : 

\ Value Extraction Points EquipmentManufacturer Beverage Company Fast Food Customer 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Fast Food Customer 2

Business Model / Value ChainEx. 2 – Beverage Co : 

\ Business Model / Value ChainEx. 2 – Beverage Co Value Chain Package Manufacturer Beverage Company Bottler 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Bottler 2 Retailer 1 Retailer 2 Markets to Consumers Buys Exclusively from Bev. Co. Sells to Retailers in Territory

Value Proposition : 

\ Value Proposition Package Manufacturer Beverage Company Bottler 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Bottler 2 Bev. Co. Value Prop. : Flavor Quality Brand Image Retailer 1 Retailer 2

Value Extraction Points : 

\ Value Extraction Points Package Manufacturer Beverage Company Bottler 1 Supplier 1 Consumers Firm’s Competitors Supplier 2 Bottler 2 Retailer 1 Retailer 2

Value Extraction : 

\ Value Extraction Ability to extract value will depend on Industry Product component, product, service, software, etc. Firm’s location in Value Chain Is the firm selling the new product? component of new product? Value proposition Is the product relevant to the firm’s value proposition IP rights acquired

Allocation Framework : 

\ Allocation Framework Risk Risk = F (P, I, C) where P is Probability of failure (eg. 1 in 10000) I is Incidence of failure (eg. 10 v. 10000 failures) C is Consequence of failure (eg. reboot computer v. airplane crash)

Allocation FrameworkDevelopment Stage v. Risk : 

\ Allocation FrameworkDevelopment Stage v. Risk Discovery Scoping Business Case Development Testing & Validation Launch RISK Development Stage

Allocation Framework : 

\ Allocation Framework Risks Legal Technology Marketing Timing obsolescence ahead of time Costs Intellectual Property Infringement

Allocation Framework : 

\ Allocation Framework Success = Value Generation Revenue Market Share Margins Reputation Access to new markets Access to new technology Cost Reduction Risk Sharing

Allocation FrameworkFor Nano Valley Consortium : 

\ Allocation FrameworkFor Nano Valley Consortium Consider the perspective of the firm and the firm’s partners Consider the perspective of the government Consider that there may / will be more than one business model or value chain Dual use scenarios create additional challenges Consider second source requirements in IP discussions

Value Chain AnalysisExample : 

\ Value Chain AnalysisExample Supplier 1 Supplier 2 Firm Customer 1 Customer 2 Consumers A+B A+B+C1 A+B+C2 A A

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer The Firm What is the firm’s industry? What is the firm’s size? What is the firm’s risk profile? What is the firm’s existing value chains? Does the innovation fit within the existing value chains?

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer The Partner What is the partner’s industry? What is the partner’s size? Is the partner within the firm’s existing value chains? Does the innovation fit within the partner’s existing value chains?

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer The Government What are the governments requirements? Is there going to be a single contracting firm (i.e. prime / sub) ? Is the government within the firm’s or the partner’s existing value chains? Will there be additional government contractual requirements?

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer The Object of the Open Innovation Project What is the stage of development? What is the business model for the object? What is the value proposition for the object? Where are the value extraction points for the firm and its partner? What is the relevance to the firm’s IP portfolio?

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer Allocation of Intellectual Property Rights Relating to the Object What rights does the firm require to execute its business model? What rights does the partner require to execute its business model? Who controls the value extraction points for the object?

Allocation FrameworkQuestions a Firm Must Answer : 

\ Allocation FrameworkQuestions a Firm Must Answer Allocation of Risk Who should bear innovation risk? Who should bear technology risk? Who should bear market risk? Who should bear infringement risk? Who should bear financial risk?

Value Chain AnalysisExample 1 – Innovating A’Project w/ Supplier to Develop Improved A : 

\ Value Chain AnalysisExample 1 – Innovating A’Project w/ Supplier to Develop Improved A Supplier 1 Supplier 2 Firm Customer 1 Customer 2 Consumers A+B A+B+C1 A+B+C2 A A

Value Chain AnalysisExample 2 – Innovating B’Partner outside of Value Chain to DevelopImproved B : 

\ Value Chain AnalysisExample 2 – Innovating B’Partner outside of Value Chain to DevelopImproved B Supplier 1 Supplier 2 Firm Customer 1 Customer 2 Consumers A+B A+B+C1 A+B+C2 A A

Value Chain AnalysisExample 3 – Innovating C1’ Project with Customer 1 to DevelopImproved C1 : 

\ Value Chain AnalysisExample 3 – Innovating C1’ Project with Customer 1 to DevelopImproved C1 Supplier 1 Supplier 2 Firm Customer 1 Customer 2 Consumers A+B A+B+C1 A+B+C2 A A