In the old days, about 15 years ago, having a great CD collection marked out the owner as someone of discerning musical taste. Or perhaps not, depending on what exactly was in their particular collection. But owning the CDs was important. Apart from anything else, it was the only way to get access to the music on them. Streaming services such as Spotify put paid to that: now, for a monthly fee approximately equal to the price of a single CD, almost the entire world of music is available, at any time.
The same was true with data storage and computer software. You had to own them to use them. Software-as-a-Service and cloud-based technology are changing the information technology landscape.
And cars. Sure, you could hop in a taxi, but for regular jaunts such as driving yourself and your friends somewhere for the day or going Christmas shopping without the hassle of dragging all your purchases home on public transport, you had to own a car. You could rent a car, but the cost and form-filling obliterated any sense of convenience. That was before Zipcar and other vehicle-sharing services. Ironically, Zipcar is owned by the Avis Budget rent-a-car group.
In other words, it’s less and less necessary to own something in order to be able to use it. Perhaps, as Fast Company magazine put it recently, this is a ‘millennials’ thing: it’s the new generation’s way of thinking in a digital, sharing world.
Companies are finding that the same is true of the intellectual property that arises out of supplier-enabled innovation. Whether developed solely by suppliers or in partnership with them, buying organizations are starting to realize that being able to use intellectual property is far, far more important than actually owning it.
“We used to file for IP for everything,” said Karina Larsen O’Halloran, executive director, head of global innovation sourcing at Johnson & Johnson Consumer. “We used to always want to have control of everything, everywhere. Now, we’ll talk with suppliers to build agreements that say, for example, if we fail to commercialize in a certain period or if we drop out of the project, even if we own IP then they will have access to it and can use it.”
Perhaps the two most important words there are “build agreements”. That’s because the one thing you obviously can’t do is the thing that millennials and everyone else does: you can’t just click the button that says ‘I have read and agree to the terms and conditions’ – without actually having read them.
The ownership of IP and the rights to use it still have to be negotiated and written into the contract, but it’s no longer necessary to insist either on total ownership or even the rights to perpetual exclusive use of jointly-developed innovation. This may come as an unwelcome shock to the IP lawyers, whose fee is earned by fighting every battle tooth and nail in the belief that their client’s position is compromized unless it engages in a land grab of every intellectual property asset within reach. Intellectual property cannot be ignored, but it need not be owned outright.
“It is important that intellectual property ownership is agreed in a cooperation agreement before any work takes place, although I accept that this is often not possible,” Donal O’Connell of iPeg, an intellectual property consultancy, wrote in a blog. “At the very least, intellectual property ownership should be discussed and agreed before any money has been expended.”
Instead of outright ownership, for example, buying organizations can negotiate deals that give them exclusive use of jointly-developed intellectual property for a set period of time, after which the vendor is able to sell it to other customers. That gives the vendor the ability to generate the needed returns on the innovation investment while giving the buyer a ‘head start’ to steal a march on its competitors.
Care needs to be taken, however. The legal environment regarding jointly-owned intellectual property can be very different in different jurisdictions, as O’Connell pointed out. The default position in the US is that joint patent owners can exploit he technology without sharing licence revenues with other joint owners. In China, unless otherwise agreed, any such fees must be shared.
The important thing, however, is to allow the strategic goals to drive the negotiations – not the other way around. Supplier-enabled innovation is about growing the business or improving the bottom line – it’s not about creating a bank of patents.
“Innovation comes from synergy between people inside and outside the company. We don’t have to control our IP to create innovation,” says Lucia Chierchia, open innovation manager at Electrolux. “It is the use of IP that enables innovation.”