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Intellectual Property Management:
Internal Organization and External Exploitation
DISSERTATION
of the University of St. Gallen, School of Management,
Economics, Law, Social Sciences and International Affairs to obtain the title of
Doctor of Philosophy in Management
submitted by
Nicole Ziegler
from
Germany
Approved on the application of
Prof. Dr. Oliver Gassmann
and
Prof. Dr. Thomas Friedli
Dissertation no. 4125
Difo-Druck GmbH, Bamberg, 2013
The University of St. Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein
expressed.
St. Gallen, October 29, 2012
The President:
Prof. Dr. Thomas Bieger
Acknowledgements
This dissertation is the result of my research at the Institute of Technology
Management at the University of St. Gallen and the Department of Technology
Management and Economics at the Chalmers University of Technology. I take
this opportunity to express my gratitude to all those who have accompanied and
supported me on my way to the completion of the present work.
First of all, I want to thank my supervisor Professor Oliver Gassmann. The
inspiring discussions, encouragements, and the freedom he provided me to
follow my individual research path have been a major pillar for the successful
completion of my dissertation. I am also thankful to Professor Thomas Friedli
for co-supervising my dissertation.
I would not have enjoyed my time at the ITEM-HSG as much as I did without
this great team of colleagues around me. The time we spent together in the
office or outside of it – I will always keep that in good memories. My gratitude
goes to all of you. Particularly, I want to thank Frauke Rüther for sharing
everything with me: office, ideas, critiques, friendship, and even pink
accessories.
I was allowed to conduct parts of my research at the Department of
Technology Management and Economics at the Chalmers University of
Technology, Gothenburg, Sweden. I am indebted to Professor Ove Granstrand
for inviting me and for inspiring discussions and valuable inputs for my
research. I would also like to thank Marcus Holgersson for his support, input,
and friendship. My thanks extend to the Swiss National Science Foundation for
the financial support of this research stay.
Finally, my deepest gratitude goes to my family. I thank my parents Lydia
Scherer-Ziegler and Michael Ziegler, my sister Sonja Rappe, my aunt Elke
Thomé, and my grandmother Helene Ziegler for their unconditional support and
belief in me. Most importantly, I am deeply grateful to my partner Marco
Zeschky for his love and support in every moment during my research and
during all our time together.
Gothenburg and St. Gallen, September 2012 Nicole Ziegler
Contents
Contents .............................................................................................................. V
Figures ........................................................................................................... VIII
Tables ................................................................................................................ IX
Abbreviations ..................................................................................................... X
Abstract ............................................................................................................ XI
Zusammenfassung .......................................................................................... XII
1 Introduction ................................................................................................... 1
1.1 Motivation .............................................................................................. 1
1.2 Managing intellectual property ............................................................... 4
1.3 IP management in the context of open innovation ................................. 8
1.4 External patent exploitation .................................................................. 11
1.5 Research questions and structure of the thesis ...................................... 15
1.5.1 Purpose of the thesis and research questions .................................. 15
1.5.2 Thesis structure ............................................................................... 18
2 Getting the most out of your IP –
patent management along its life cycle ..................................................... 21
2.1 Introduction .......................................................................................... 22
2.2 The patent life cycle management model ............................................. 24
2.2.1 Explore ........................................................................................... 24
2.2.2 Generate .......................................................................................... 25
2.2.3 Protect ............................................................................................. 26
2.2.4 Optimize ......................................................................................... 26
2.2.5 Decline ............................................................................................ 27
2.3 Concluding remarks .............................................................................. 28
3 The role of IT for managing intellectual property–
an empirical analysis .................................................................................. 31
3.1 Introduction .......................................................................................... 32
3.2 IT tools for IP management - State of the art ....................................... 32
3.3 Research methodology .......................................................................... 35
VI
3.3.1 Research framework ....................................................................... 35
3.3.2 Method and data ............................................................................. 37
3.4 Results and case findings ...................................................................... 38
3.4.1 General results ................................................................................ 39
3.4.2 Use of IT tools along the IP value chain ......................................... 40
3.4.3 User friendliness of IT tools for IP management ............................ 44
3.5 Discussion ............................................................................................. 45
3.5.1 IT tool use along the IP value chain adopting an
organizational information processing perspective ........................ 45
3.5.2 Firms’ satisfaction and requirements of IT tools for IP
management .................................................................................... 48
3.6 Conclusion and future research potential .............................................. 49
4 Creating value through external intellectual property
commercialization – a desorptive capacity view ...................................... 53
4.1 Introduction .......................................................................................... 54
4.2 External exploitation of patents and its role in the
pharmaceutical and chemical industry .................................................. 56
4.2.1 External patent exploitation ............................................................ 56
4.2.2 The case of the pharmaceutical and chemical industry .................. 57
4.3 Research framework ............................................................................. 58
4.3.1 Internal variables ............................................................................ 60
4.3.2 External variables ........................................................................... 61
4.4 Research methodology .......................................................................... 63
4.5 Findings and discussion ........................................................................ 66
4.5.1 Internal factors influencing the firms’ external
patent exploitation .......................................................................... 66
4.5.2 External factors influencing the firms’ external
patent exploitation .......................................................................... 70
4.5.3 Internal-external factor: locus of initiative ..................................... 73
4.6 Three archetypes of external patent exploitation .................................. 74
4.6.1 Ad hoc mode ................................................................................... 75
4.6.2 Hybrid mode ................................................................................... 75
4.6.3 Leverage mode ............................................................................... 76
4.7 Conclusion ............................................................................................ 79
VII
5 Open IP strategies: Why do firms give away their patents for free? ..... 81
5.1 IP management in the open innovation paradigm ................................ 82
5.2 Theoretical background ........................................................................ 83
5.2.1 Motives for open IP strategies: evidence from the open
source software phenomenon ......................................................... 83
5.2.2 Patent donation ............................................................................... 86
5.3 Methods ................................................................................................ 87
5.4 Creating value through patent release ................................................... 87
5.4.1 Type 1: Profit maker ....................................................................... 88
5.4.2 Type 2: Cost cutter ......................................................................... 89
5.4.3 Type 3: Innovation catalyst ............................................................ 91
5.4.4 Type 4: Technology provider ......................................................... 92
5.5 Non-commercial patent pools ............................................................... 95
5.5.1 Eco-Patent Commons ..................................................................... 96
5.5.2 Golden Rice project ........................................................................ 96
5.5.3 Medicines Patent Pool .................................................................... 97
5.5.4 WIPO Re:Search initiative ............................................................. 98
5.6 Discussion and conclusion .................................................................... 98
References ........................................................................................................ 101
Curriculum Vitae ............................................................................................ 116
Figures
Figure 1: Development of worldwide patent applications 1985-2010 .................. 3
Figure 2: Overview of the thesis structure .......................................................... 20
Figure 3: The patent life cycle management model ............................................ 28
Figure 4: The use of IT tools along the IP value chain ....................................... 40
Figure 5: IT tools used by the surveyed firms .................................................... 42
Figure 6: The use of IT tools for valuation and evaluation activities ................. 43
Figure 7: Satisfaction of firms with their IT tools for IP management ............... 45
Figure 8: Research framework ............................................................................ 61
Figure 9: A typology of different patent release activities and motives ............. 95
Tables
Table 1: Literature overview on IP strategy and management ............................. 5
Table 2: Literature overview on IP in open innovation ...................................... 10
Table 3: Literature overview on external patent exploitation ............................. 13
Table 4: Overview of the research questions and paper summaries ................... 17
Table 5: Overview of the investigated firms ....................................................... 23
Table 6: Overview of the case study firms ......................................................... 38
Table 7: Overview of the investigated firms ....................................................... 65
Table 8: Three archetypes of external patent exploitation .................................. 77
Table 9: Examples for the type profit maker ...................................................... 89
Table 10: Examples for the type cost cutter ....................................................... 90
Table 11: Examples for the type innovation catalyst .......................................... 92
Table 12: Examples for the type technology provider ........................................ 94
Abbreviations
e.g. exempli gratia, for example
EPO European Patent Office
EU European Union
et al. et alii, and others
etc. et cetera, and so on
i.e. id est, that is
IP Intellectual Property
IPC International Patent Classification
IT Information Technology
M&A Mergers and Acquisitions
n/a not available
PCT Patent Cooperation Treaty
R&D Research and Development
ROI Return on Investment
SME Small and Medium-sized Enterprise
TRIPS Trade-Related Intellectual Property Rights agreement
UK United Kingdom
USA United States of America
USD US Dollar
WHO World Health Organization
WIPO World Intellectual Property Organization
WTO World Trade Organization
Abstract
The increasing predominance of intangible assets such as intellectual property
(IP) has moved the management of IP from a legal matter to a strategic issue.
Today’s global competitive environment requires that firms increasingly create
and capture value from IP. Although these challenges have recently been the
subject of a burgeoning amount of research, there is still a severe scarcity of
practical evidence showing how firms overcome these challenges. Therefore,
this thesis empirically investigates how firms manage and leverage their IP to
improve the effectiveness of their IP management. To this end, this thesis
explores firms’ approaches to internal IP organization as well as external IP
exploitation, i.e., out-licensing and selling of patents.
This thesis is a compilation of an introductory chapter and four individual,
self-standing research articles. While the introductory chapter outlines in detail
the motivation of the thesis and provides an overview of the current state of the
art in literature, the subsequent four articles investigate distinct research
questions pertaining to the management of IP. The first two articles investigate
firms’ internal management of IP. Article one explores how firms manage and
optimize their patent portfolios along the life cycle of a patent. Article two deals
with how firms employ information technology (IT) tools to support and
improve their IP management. Then, articles three and four address the external
exploitation of IP. Article three investigates how firms approach external patent
exploitation and which factors influence the specific approaches. Finally, article
four explores a recent phenomenon where firms give away their patents free of
charge and discusses why and for which benefits they do so.
By investigating the above questions in the respective research articles, this
thesis augments existing research on the management of IP. In particular, the
thesis explores hitherto unanswered questions and contributes with empirical
findings to an otherwise empirically scarce research area. Furthermore, this
thesis contributes to management practice by providing practical
recommendations for how to improve the management and exploitation of
intellectual property.
Zusammenfassung
Die wachsende Dominanz immaterieller Güter wie geistigem Eigentum -
englisch: Intellectual Property (IP) - hat das Management von IP von einer rein
rechtlichen Angelegenheit zu einem Bereich mit hoher strategischer Bedeutung
gemacht. Im heutigen globalen Wettbewerbsumfeld sehen sich Firmen
zunehmend der Herausforderung gegenüber, sowohl IP zu kreieren als auch
Wert daraus zu schöpfen. Obwohl diese Herausforderungen zuletzt Gegenstand
zunehmender Forschung war, fehlt es bislang an empirischen Daten die zeigen,
wie Firmen diese Herausforderungen angehen und bewältigen. Die vorliegende
Dissertation untersucht daher empirisch, wie Firmen ihr IP intern managen
sowie extern nutzen und verwerten, z.B. durch Auslizenzierung und Verkauf,
um die Effektivität ihres IP Managements zu steigern.
Die vorliegende Dissertation besteht aus einem Einleitungskapitel und vier
individuellen Forschungsartikeln. Während das Einleitungskapitel die
Motivation der Arbeit im Detail darlegt sowie einen Überblick über die aktuelle
Literatur gibt, untersuchen die nachfolgenden vier Artikel spezifische
Forschungsfragen zum Thema IP Management. Die ersten beiden Artikel
behandeln das interne IP Management von Firmen. Der erste Artikel untersucht,
wie Firmen ihre Patentportfolien entlang des Patentlebenszyklus managen und
optimieren. Der zweite Artikel betrachtet, wie Firmen Informationstechnologie
(IT) Tools zur Unterstützung ihres IP Managements einsetzen. Anschliessend
adressieren die Artikel drei und vier die externe Verwertung von IP. Der dritte
Artikel untersucht, wie Firmen externe Patentverwertung managen und welche
Faktoren dabei von Einfluss sind. Zuletzt erforscht der vierte Artikel ein neues
Phänomen, bei dem Firmen ihre Patente Dritten frei zur Verfügung stellen und
diskutiert die Gründe und Vorteile dieser Vorgehensweise.
Durch die Untersuchung der obigen Forschungsfragen ergänzt und erweitert
die Dissertation bestehende Literatur zum Thema IP Management. Insbesondere
analysiert die Dissertation bislang unbeantwortete Fragen und trägt mit
empirischen Ergebnissen zum Fortschritt der Forschung über IP Management
bei. Ausserdem liefert die Arbeit einen Beitrag für die Praxis durch
Managementempfehlungen für die Verbesserung des IP Managements und der
IP Verwertung.
1 Introduction
1.1 Motivation
In today’s knowledge society where the dependence on physical assets is
increasingly replaced by intangible assets such as intellectual property (IP)
rights, the management of IP has moved from a mere legal matter to a strategic
agenda (Granstrand, 2000; Smith & Hansen, 2002). As a result, the role of IP
has increasingly been the subject of discussion in research and practice. Creating
knowledge and capturing this knowledge in IP rights such as patents,
trademarks, and industrial designs are key competitive components for firms
(Carlaw et al., 2006; Hall, 1992). In many successful firms, IP and especially
patents serve as powerful instruments of corporate strategy to protect innovation
and to strengthen the firm's technological leadership (Grindley & Teece, 1997;
Sullivan, 2001). The growing number of patent applications over the last
decades, sometimes called the ‘pro patent era’ (Granstrand, 2000), reflect this
development. Since 1985, the worldwide annual patent filings have more than
doubled reaching nearly 2 million in 2010 (see figure 1). A similar trend can be
observed with trademarks and industrial designs (WIPO, 2011a). Countries
leading in terms of patent applications in 2010 are the USA with 490’226 patent
applications, followed by China and Japan with 391’177 and 344’598
respectively. At the European Patent Office, 150’961 patents were filed in 2010.
In addition to the increasing number of IP rights, and apart from their
intellectual value, the financial value of IP has also tremendously increased: in
2006, for example, Research-in-Motion, the developer of the BlackBerry
smartphone, was forced to pay USD 612.5 million to NTP, a firm focusing on
the acquisition and deployment of patent rights, due to technology infringing
NTP’s patent portfolio. More recently in January 2011, in the litigation case
between Intel and Nvidia (a computer graphics specialist), Intel paid the record
sum of USD 1.5 billion to Nvidia for a license of Nvidia’s entire technology
portfolio.
The intention of an IP right system and the patent system more specifically is
to incentivize the generation and diffusion of inventions by enabling inventors to
2 1 Introduction
exclude others from using their invention and thus creating a temporary
monopoly (Holgersson, 2011). This allows inventors to appropriate returns from
their innovation (Levin et al., 1987; Teece, 1986). The way how firms
appropriate these returns depends on how they use their patents. Regarding the
use of patents, scholars differentiate between internal and external exploitation.
Internal exploitation refers to using patents to protect own products and
processes and constitutes the traditional way of using patents. However, due to
increasing cost pressure, significant changes in the competitive environment,
e.g., globalized markets and high dynamics in technology development (Bianchi
et al., 2011a), firms are increasingly challenged to find ways to keep pace with
the environmental changes and increase their overall IP management
effectiveness (Arora et al., 2001; Granstrand, 2004). Within this context, firms
have started to commercialize their patents externally and out-license and sell
patented technologies (Lichtenthaler & Ernst, 2007). Pioneering firms adopting
this approach quite successfully are, for example, IBM and Dow which today
generate large amounts of money through externally exploiting their patents
(Davis, 2004; Rivette & Kline, 2000). This trend is impressively underlined by
the development of revenues from technology licensing over the last decades:
From 1980 to 2003, the technology licensing payments and receipts have
increased on average by 10.7% per year (Granstrand, 2004). Moreover, the
value of technology transactions has grown from about USD 40 billion in the
late 1990s to an estimated USD 100 billion in the early 2000s (Arora &
Gambardella, 2010). While the sole use of patents as protection instruments is
seen as a classical trait of closed innovation systems, the external
commercialization of patents can be regarded as a phenomenon within the trend
towards open innovation (Chesbrough, 2003b). Due to the changing competitive
environment and a growing mobility of highly skilled people (Chesbrough,
2003a), closed innovation approaches become less viable and limit interactions
with the firms’ environment (Teece, 1998). As a consequence, many firms have
recognized the potential of opening up their innovation processes and
increasingly consider their patents as tradable assets to be commercialized
outside of their firm boundaries (Gassmann, 2006; Gassmann et al., 2010).
1 Introduction 3
Overall, the growing focus on IP, its role for a firm’s success, and the need
for a progressively efficient IP management, present an increasing challenge for
firms and currently leaves research with many unanswered questions. The
understanding of the ways how firms tackle the changes of their competitive
environment, adapt to the growing importance of their IP, and manage their IP
successfully represents an important gap in current literature. Hence, the purpose
of this thesis is to contribute to the field of IP management by exploring firms’
approaches towards effectively managing and leveraging their intellectual
property.
This introductory chapter is structured as follows. The subsequent sections
1.2 to 1.4 present an overview of the theoretical background of the thesis by
outlining relevant literature regarding IP management in general, IP
management in the context of open innovation, and external patent exploitation.
Section 1.5 describes the research questions addressed in the individual articles
of this cumulative dissertation thesis and provides an overview of the thesis
structure.
Figure 1: Development of worldwide patent applications 1985-2010 (source: statistics from WIPO1)
1 http://www.wipo.int/ipstats/en/statistics/patents/
0
200'000
400'000
600'000
800'000
1'000'000
1'200'000
1'400'000
1'600'000
1'800'000
2'000'000
1985 1990 1995 2000 2005 2010
Nu
mb
er
of
pa
ten
t a
pp
lica
tio
ns
Year
4 1 Introduction
1.2 Managing intellectual property
The growing importance of intangible assets has made intellectual property
management increasingly important for firms and therefore an important topic
for research. Intellectual property management is commonly understood as the
management of a firm’s IP rights consisting of patents, trademarks, industrial
designs, and copyrights. Among all these IP rights, patents are considered to be
the most tangible form enjoying the strongest legal protection and generating the
most significant effect on a firm’s commercial performance (Lerner, 1994;
Rivette & Kline, 2000). Various studies have analyzed the patent management
and related patenting behavior of firms considering geographical regions (Cohen
et al., 2000; Duguet & Kabla, 1998; Granstrand, 1999; Granstrand &
Holgersson, 2012), firm size (Audretsch, 2002; Blind et al., 2006; Greenhalgh et
al., 2001), industry sectors (Arora, 1997; Cohen et al., 2000; Hall & Ziedonis,
2001; Levin et al., 1987; Thumm, 2001), and the positive impact of patent
strategy on firm performance (Ernst, 1995; Ernst, 2001; Lerner, 1994). Also the
motives for patenting have been comprehensively analyzed. The major motive
for filing a patent is to protect innovation from being imitated (Cohen et al.,
2000; Giuri et al., 2007; Hall & Ziedonis, 2001). Besides this traditional motive,
strategic motives such as blocking competitors, generating freedom to operate,
preventing law suits, and improving negotiation positions by using patents as
bargaining chips are becoming increasingly important (Blind et al., 2006;
Duguet & Kabla, 1998; Thumm, 2001)
To successfully appropriate returns through managing IP, scholars emphasize
the importance of aligning IP strategy to business strategy (Granstrand, 2000;
Reitzig, 2004; Smith & Hansen, 2002). In his recent review of the current state
of the art regarding patent strategy and management, Somaya (2012) categorizes
patent strategies into proprietary (e.g., protection), defensive (e.g., blocking),
and leveraging (e.g., licensing) approaches impacting the firms’ IP management.
Similarly, Davis and Harrison (2001) claim that the firms’ IP management
should be implemented according to the value which is aimed to be generated.
They develop a ‘value hierarchy’ of IP management ranging from a defensive
level, where IP is mainly used to prevent third parties from using own assets, up
1 Introduction 5
Table 1: Literature overview on IP strategy and management
Author(s)
(Year)
Title Methods Key findings
Somaya
(2012)
Patent strategy and management: an integrative review and research agenda
Conceptual paper based on literature review
• Framework of generic patent strategies and strategic patent management • Three generic patent strategies: proprietary, defensive, and leveraging strategy • Patent management is closely linked to a firms’ overall value creation strategy
Lynskey
(2009)
Aligning strategy and intellectual property to maximize business value: a proposal for new technology-based firms
Conceptual paper based on literature
• Framework of an integrated IP value chain • IP strategy should be considered as active part of corporate strategy
Carlsson et
al. (2008)
Intellectual property management: organizational processes and structures, and the role of IP donations
Interviews with 15 technology-based firms in the US Online survey
• Three organizational archetypes of IP management: centralized, decentralized, comprise structure
Daizadeh
(2007) Intellectual property management in R&D intensive firms
Qualitative survey with 58 firms Six interviews
• Managing patent information increases efficiency of converting R&D into commercial technologies • Development of an IP-specialized coordination device to optimize transaction costs
Blind et al.
(2006)
Motives to patent: empirical evidence from Germany
Quantitative survey data from 522 German firms of all sizes
• Large firms have stronger incentives to patent (negotiation position, incentive for R&D personnel, performance indicator) • Patents often have a strategic reason
Reitzig
(2004) Strategic management of intellectual property
Interviews with senior IP representatives Secondary sources: publications, IP databases
• The increasing corporate value of IP requires to take a strategic approach towards IP management • Identification of fundamental strategic aspects of IP management in internal and external firm contexts
6 1 Introduction
Smith,
Hansen
(2002)
Managing intellectual property: a strategic point of view
Conceptual paper based on literature
• Strategic IP management involves managing IP in line with business strategy rather than simply having an IP strategy • IP is strategic if it links to the firms’ core capabilities
Davis,
Harrison
(2001)
Edison in the board-room: how leading companies realize value from their intellectual assets
Best practice case studies
• Comprehensive IP management framework • IP value hierarchy for a diversified IP management
Ernst
(2001) Patent applications and subsequent changes of performance: evidence from time-series cross-section analyses on firm level
Time-series data from 50 German mechanical engineering firms between 1984 and 1992
• National patent applications lead to sales increases with a time lag of 2 to 3 years • European patent applications have an even higher impact on firm performance than national patent applications
Hall,
Ziedonis
(2001)
The patent paradox revisited: an empirical study of patenting in the U.S. semiconductor industry, 1979-1995
Interviews with seven semiconductor firms Econometric data from 95 semiconductor firms
• Patents have an increasing value as bargaining chips • Blocking competitors and preventing suits are the second and third most important motivation to patent after preventing from imitation • Patents are important in attracting venture capital funds
Thumm
(2001)
Management of intellectual property rights in European biotechnology firms
Questionnaire survey with 103 biotech firms 22 interviews
• Patents are an important incentive for R&D investments in biotech firms in Europe • The firms’ use of patents exceeds the original intention of protection, strategic patenting becomes increasingly important
Granstrand
(2000)
The economics and management of intellectual property
Diverse surveys and case studies mainly in Sweden, Japan, and the US
• General and comprehensive framework regarding IP strategy and management • Patenting specifications of Swedish and Japanese firms
Ernst
(1995) Patenting strategies in the German mechanical engineering industry and their relationship to company performance
Quantitative survey from 50 German mechanical engineering firms
• Identification of four types of patenting strategies • Patent active firms reach higher economic performance • The number of international patent applications, the rate of valid and highly cited patents positively impacts firm performance
1 Introduction 7
to a visionary level applying a proactive IP management and anticipating future
trends to which the IP strategy is adopted (Davis & Harrison, 2001).
Furthermore, the organization in terms of IP functions within firms is a
central aspect of IP management. Literature distinguishes between four major
types of IP organizations: a centralized organization with a corporate IP
department; a decentralized organization where IP functions are integrated into
the business units; an organization where the IP function is managed in an
independent business unit such as an IP holding; and an externalized
organization where IP management is basically accomplished through external
services such as patent attorneys and law firms (Carlsson et al., 2008; Gassmann
& Bader, 2011; Granstrand, 2000).
Another major part of IP management is the assessment of IP (Gassmann &
Bader, 2011; Hanel, 2006). This is done for internal purposes, such as
accounting, R&D monitoring, and compensations for employees, as well as
external purposes, such as technology transfer, mergers and acquisitions
(M&A), and patent disputes (Bader & Ruether, 2009). To evaluate the
commercial and competitive value of their intellectual assets, many firms
conduct IP audits which classifies IP in several groups. An often cited example
is the case of Dow which used the classification (1) most valuable patents
related to business, (2) patents without current use but with potential value for
third parties, and (3) patents without current or potential use (Davis & Harrison,
2001). Also valuating, i.e., assigning a quantitative, monetary value to IP rights
is increasingly required for IP included in technology transfer such as selling,
licensing, and M&A activities (Hanel, 2006). Most literature builds its theories
on the assumption that there exist three core valuation approaches, namely the
cost approach, market approach and income approach (Smith & Parr, 2005).
However, it should be noted that due to the high number of variables influencing
the value of an intellectual asset ‘one valuation method does not fit all’, and that
there is an ongoing discussion regarding this topic (Bader & Ruether, 2009).
Lastly, the way how IP is perceived within firms and which IP culture is
adopted impacts IP management. Besides the need to align IP management to
business, the involvement of top management in IP management is crucial and
raises the general awareness for IP (Reitzig, 2004). Furthermore, a culture where
8 1 Introduction
patenting and IP issues in general are a common concern for all engineers rather
than solely for IP specialists makes IP management more efficient (Granstrand,
2000). Incentive systems regarding IP generation and exploitation, for example,
can help to foster an omnipresent IP culture (Granstrand, 2000).
As an overview, table 1 provides selected relevant literature and seminal
works on managing IP.
1.3 IP management in the context of open innovation
The term ‘open innovation’ was coined through the works of Chesbrough and
epitomizes the phenomenon that firms increasingly open up their innovation
processes by both integrating external knowledge and externalizing internal
knowledge (Chesbrough, 2003b; Gassmann et al., 2010). Open innovation is a
paradigm that is diametrically opposite to the old model of closed innovation
where firms adhered to the philosophy “if you want something done right,
you’ve got to do it yourself” (Chesbrough, 2003c, p. 36). Instead, firms
increasingly recognize that they cannot rely anymore solely on their own R&D
to be the best and only source of innovation, but that they also need to leverage
discoveries of others, e.g., through engaging in R&D collaborations (Luoma et
al., 2010). Although firms differ regarding the extent to which they engage in
open innovation (Keupp & Gassmann, 2009; Laursen & Salter, 2006), there is
an overall increasing trend towards open innovation throughout all industries
(OECD, 2008). Also research on the open innovation paradigm and openness of
firms in more general have significantly increased during the last years
(Dahlander & Gann, 2010). Literature basically differentiates between inbound
(outside-in) and outbound (inside-out) open innovation (Dahlander & Gann,
2010; Gassmann et al., 2010; Laursen & Salter, 2006). Inbound open innovation
refers to acquiring external knowledge resources and internalizing them into
own R&D processes. This can be done by e.g., buying and in-licensing
technologies (Bianchi et al., 2011a). Outbound open innovation involves
externalizing own know-how and technologies by making them available to
third parties. Common means for outbound open innovation are out-licensing
1 Introduction 9
and selling (Lichtenthaler, 2009). Often, research collaborations involve both
inbound and outbound activities, e.g., where know-how and IP are mutually
shared (Gassmann & Bader, 2006). Dahlander and Gann (2010) further
categorize inbound and outbound open innovation by using the distinction of
pecuniary and non-pecuniary activities. While the pecuniary activities of
inbound innovation refer to acquiring technologies and expertise from the
outside, the non-pecuniary activity involves the sourcing of external innovation
by e.g., scanning the technological environment. For outbound innovation,
pecuniary interactions refer to selling own inventions and technologies in form
of transfer and out-licensing agreements. The non-pecuniary interactions of
outbound innovation refer to revealing internal resources without direct financial
returns, as, for example, applied for open source software development (von
Krogh & von Hippel, 2006).
Open innovation and its mechanisms also entail the consideration of IP rights,
especially patents that have to be managed during these knowledge sharing
processes. Resolving IP protection and IP sharing issues is a basic challenge for
each research collaboration (Hertzfeld et al., 2006). While know-how can be
protected by formal means, such as patents, trademarks, and confidentiality
agreements, as well as by informal means, such as secrecy, especially formal
protection mechanisms play a crucial role in open innovation (Hertzfeld et al.,
2006; Luoma et al., 2010). Gassmann and Bader (2006) emphasize that
considering IP issues already in the very early stage of a research collaboration
is essential for the success of the collaboration. This is especially true for
collaborations with more than two partners, and in fact there is a trend towards
an increasing number of alliance partners within research collaborations
(Bianchi et al., 2011a). Overall and besides all challenges, IP should be seen as
an enabler of open innovation rather than a disabler (Alexy et al., 2009). While
the positive effect of inbound open innovation has been discussed in numerous
studies (Enkel et al., 2005; van de Vrande et al., 2006; West et al., 2006), recent
studies also find a positive relationship between outbound open innovation and
firm performance (Lichtenthaler, 2009). Table 2 summarizes selected works
related to IP management within the context of open innovation.
10 1 Introduction
Table 2: Literature overview on IP in open innovation
Author(s)
(Year)
Title Methods Key findings
Bianchi et al.
(2011)
Organizational modes for open innovation in the bio-pharmaceutical industry: an exploratory analysis
Longitudinal study with 20 worldwide bio-pharmaceutical firms
• Framework with organizational modes for in- and out-bound open innovation • Trend towards an increasing number of alliance partners
Kutvonen
(2011)
Strategic application of outbound open innovation
Conceptual paper based on literature review
• Six categories of strategic motives for outbound open innovation: access to knowledge, multiplication of own technologies, learning effects, controlling technological trajectories, core business model, and controlling the market environment
Lichtenthaler
(2010)
Intellectual property and open innovation: an empirical analysis
Quantitative survey data from 154 medium and large firms
• A firm’s IP portfolio is a major determinant for open innovation • While some pioneering firms act very open, many firms still follow rather closed strategies • Firm size positively effects openness
Luoma et al.
(2010)
Intellectual property in inter-organizational relationships: findings from an interview study
Interview study with 40 firms and public organizations in Finland and the Netherlands
• Major challenges of IP in collaborations are unanticipated changes in ownership, strategy and actors, and different levels of openness among partners • Patents, trademarks, confidentiality agreements, secrecy, and publishing are the most important protection mechanisms in collaborations
Alexy et al.
(2009)
Does IP strategy have to cripple open innovation?
More than 100 interviews and workshops with firms adopting open innovation
• Two critical determinants for a firm’s IP and open innovation strategy: technological environment and knowledge distribution • Firms should see IP as an enabler of open innovation and adopt a case-by-case rather than an one-fits-all approach
Keupp,
Gassmann
(2009)
Determinants and archetype users of open innovation
Data from the Swiss Innovation Study since 1996
• Determinants influencing the firms’ extent of open innovation • Four archetypes regarding open innovation activities: isolationists, scouts, explorers, professionals
1 Introduction 11
Lichtenthaler
(2009)
Outbound open innovation and its effects on firm performance: examining environmental influences
Quantitative survey data from 136 large and medium sized firms
• Positive relationship between outbound open innovation and firm performance • The positive effect mainly depends on environmental factors such as competitive intensity and transaction rates
Gassmann,
Bader (2006)
Intellectual property management in inter-firm R&D collaborations
22 case studies with successful practice firms Five in-depth case studies
• Identification of knowledge areas before, during, and after R&D collaborations which have to be considered for managing IP • Managing IP already in the early stage of the R&D collaboration increases the collaboration success
Hertzfeld et
al. (2006)
Intellectual property protection mechanisms in research partnerships
Quantitative survey data from 54 US-based firms 23 interviews
• Resolving IP protection issues is a fundamental consideration in research partnerships • Patents are the most frequently used form to protect knowledge in research partnerships
Chesbrough
(2003)
The logic of open innovation: managing intellectual property
Conceptual paper with four illustrative case studies
• Firms’ IP management depends on whether they practice a closed or open innovation model • In open innovation, firms must create business models to leverage their IP
1.4 External patent exploitation
Exploiting patents internally in the traditional way, i.e., by protecting own
products and processes, has been subject to comprehensive studies in the past
(e.g., Cohen et al., 2000; Ernst, 1995; Harabi, 1995). However, during the last
decades firms have increasingly recognized the potential of externally exploiting
their patents. External patent exploitation refers to the use of patents outside of
the firm boundaries through out-licensing, cross-licensing, selling, financing,
partnerships, spin-offs, or joint ventures (Gassmann & Bader, 2011; Granstrand,
2000; Monk, 2009; Vickery, 1988). The extent to which the technology is
externally exploited varies depending on the firm’s exploitation strategy,
motives, and the characteristic of the patented technology. Research
distinguishes between external patent exploitation with and without the transfer
12 1 Introduction
of know-how (Arora & Gambardella, 2010). External patent exploitation
without know-how transfer represents the mere transfer of the legal right and is
often used to solve freedom to operate issues (Pitkethly, 2001). Externally
exploiting patents with know-how transfer includes the transfer of related
knowledge such as research reports and technological expertise. These
transactions have also been called external technology commercialization (Ford
& Ryan, 1977).
Looking back, research on external exploitation of intellectual property has
started in the late 1970s. Especially the works of Ford, who introduced the term
‘technology marketing’, provided a first holistic approach to the topic (Ford,
1985; Ford & Ryan, 1977; Ford & Ryan, 1981). In the two decades that have
followed, however, only little research has been done on external technology
exploitation (Lichtenthaler, 2005). Research was only reactivated when external
exploitation activities increased significantly and practical challenges became
apparent (Davis & Harrison, 2001; Rivette & Kline, 2000). Several studies exist
on the strategy of external patent exploitation, e.g., revealing that the firm’s
willingness to externally exploit its patents depends on the potential competitive
advantage, the strategic appropriability, and the risk involved (Davis &
Harrison, 2001; Kline, 2003; Pitkethly, 2001). Also the firms’ motivations for
external patent exploitation, including financial and strategic motives such as
entering new markets and setting industry standards have been subject of several
studies (e.g., Arora & Fosfuri, 2003; Ehrhardt, 2004; Kollmer & Dowling, 2004;
Palomeras, 2007; Vickery, 1988). More recently, scholars started to explore the
organizational and managerial perspective of external technology exploitation.
For example, Bianchi et al. (2011b) analyze which organizational structures
firms use to conduct external technology commercialization, and Lichtenthaler
(2007b) elaborates critical steps of external technology commercialization,
resulting in the development of a process model.
From a more macroeconomic perspective, the markets for technology and
patents have been investigated revealing that asymmetric information and high
transaction costs present barriers for patent commercialization (Benassi & Di
Minin, 2009; Gambardella et al., 2007; Teece, 1998). Also, the role of the legal
1 Introduction 13
Table 3: Literature overview on external patent exploitation
Author(s)
(Year)
Title Methods Key findings
Bianchi et al.
(2011)
Organizing for external technology commercialization: evidence from a multiple case study in the pharmaceutical industry
Case studies with seven Italian biopharmaceutical firms
• Three archetypal models for organizing external technology commercialization • The organizational structure adapts to the strategic relevance and volume of the commercialization project
Lichtenthaler
(2011)
The evolution of technology licensing management: identifying five strategic approaches
Case studies with 25 firms over five years
• Firms have increased and systemized their licensing management • Five strategic approaches of technology licensing depending on licensing strategy, process, organization, culture, and frequency
Lichtenthaler
(2007)
Managing external technology commercialization: a process perspective
Conceptual paper based on literature
• Systematization of external technology exploitation into a process: planning, intelligence, negotiation, realization, and control • A systemized process helps firms to develop dynamic capabilities for external technology commercialization
Gambardella
et al. (2007)
The market for patents in Europe
7105 firm-patents of the PatVal-EU data set
• Transaction costs in the market for technologies prevent licensing agreements • The most important determinants of licensing are firms size, patent breath, economic value, and strength of patent protection
Lichtenthaler,
Ernst (2007)
External technology commercialization in large firms: results of a quantitative benchmarking study
Quantitative survey data from 154 medium-sized and large European cross-industry firms
• Most firms’ external technology exploitation activities are still limited • Successful external technology commercialization may strongly contribute to firms’ income • External technology commercialization has considerably increased
14 1 Introduction
Granstrand
(2004)
The economics and management of technology trade: towards a pro-licensing era?
Summary of several studies on large firms from Sweden, the US, and Japan during the 1980s and 1990s
• Technology licensing has grown significantly since the 1980s • Firms increasingly switch to proactive licensing including cross-, block-, core and non-core licensing
Arora,
Fosfuri (2003)
Licensing the market for technology
Conceptual paper based on literature
• Licensing is related to firms’ strategic behavior • Competition in the product market creates a strategic incentive to license • Firms lacking adequate downstream commercialization capabilities have a higher propensity to license
Kline (2003) Sharing the corporate crown jewels
Anecdotic firm data
• Strategic licensing can have significant financial and strategic benefits • Strategic licensing is a means to create and sustain competitive advantage
Kollmer,
Dowling
(2004)
Licensing as a commercialization strategy for new technology-based firms
Survey and data base data on 230 (survey 70) new technology-based biopharmaceutical firms
• Licensing strategies differ between fully and not-fully integrated firms • Fully-integrated firms use licensing for strategic reasons • Not-fully integrated firms use licensing as their major commercialization channel
Grindley,
Teece (1997)
Managing intellectual capital: licensing and cross-licensing in semiconductors and electronics
Conceptual paper with four illustrative case studies
• Innovating firms increasingly adopt a proactive IP management and leverage approach • Due to regulatory changes the importance of IP management and licensing has moved from a marginal activity to a major part of business in the investigated industries
Vickery
(1988)
A survey of international technology licensing
Quantitative survey data from 119 firms worldwide
• The extent of out-licensing activities varies strongly among the firms • The importance of out-licensing is increasing • Most technologies that are out-licensed are also used internally
1 Introduction 15
framework has been addressed revealing that the standardization of IP right
systems through international treaties – most importantly the Trade- Related
Intellectual Property Rights agreement (TRIPS) under the WTO in 1995 –
impacts firms’ ways how to manage their external patent exploitation (Davis,
2004; Granstrand, 2000; Teece, 1998).
Table 3 provides an overview of relevant literature regarding external patent
exploitation. While many studies adopt external technology exploitation or
commercialization as their scope of analysis, patents play a major role within the
transfer of technology. Hence, these studies are highly related to the
phenomenon of external patent exploitation.
1.5 Research questions and structure of the thesis
1.5.1 Purpose of the thesis and research questions
The literature review in the previous sections gave an overview of the current
state of the art regarding IP management, IP in the context of open innovation,
and external patent exploitation. While extant studies provide useful insights in
many aspects of these three streams of literature, many other questions related to
the above stated purpose are still open. The objective of this thesis is to
contribute to the topic of IP management and exploitation by exploring and
explaining firms’ approaches towards effectively managing and leveraging their
intellectual property rights. Thus, this research aims at answering four research
questions that are addressed in the Papers I to IV. The Papers I to IV are
presented in the following chapters of this thesis. Next, the four research
questions are briefly introduced and presented.
The first research question faces IP management from a strategic perspective.
Although studies exist on general IP management processes and IP value chain
models, these IP management frameworks mostly end with the application of the
patent right and lack a more comprehensive description of the entire patent life
cycle. To close this gap we address IP management from a holistic perspective
considering the entire life cycle of a patent right and ask the following research
question:
16 1 Introduction
Research question 1: How do firms successfully manage and optimize their
patent portfolios along the patent life cycle?
The second research question addresses the role of IT tools for intellectual
property management. As IP portfolios are growing and the management of IP is
becoming increasingly more complex, firms are challenged to implement
structures and processes to enable an efficient IP management. Although IT
tools are a means to support the firms’ IP management, extant literature shows
little insight in how and to what extent firms make use of IT in this regard. We
address this issue with the following research question:
Research question 2: How and for which processes do firms use IT tools to
support their IP management?
While the first two research questions focus on the firms’ internal
management of their IP by considering the life cycle of patents and IT tools to
support IP management, research questions 3 and 4 address the external
exploitation of IP, hence referring to outbound open innovation. In this context,
and as outlined in section 1.3, research question 3 deals with pecuniary
outbound open innovation, while research question 4 investigates non-pecuniary
outbound open innovation.
Research question 3 refers to the fact that firms increasingly engage in
exploiting their patents externally to generate strategic or financial benefits in
return. Despite the practical importance of the topic and earlier findings that
many firms experience substantial difficulties in creating value through external
patent exploitation, literature lacks insights in how firms organize and
implement their external patent exploitation. This leads to the following research
question:
Research question 3: How do firms manage external patent exploitation and
which factors influence their approach towards it?
1 Introduction 17
Table 4: Overview of the research questions and paper summaries K
ey fin
din
gs
• Patents should be
managed throughout their
entire life cycle
• Patent life cycle
managem
ent model
• Three major supporting
IT tools: search,
administrative, and
evaluation tools
• The use of IT tools for IP
managem
ent decreases
along the IP value chain
• Four factors impacting
firms’ managem
ent of
external patent
exploitation
• Three archetypes: ad hoc,
hybrid, and leverage mode
• Four types of patent release
modes: profit maker, cost
cutter, innovation catalyst,
and technology provider
• Firms release patents to
obtain indirect, long term
benefits
Sam
ple
10 firms from
the
pharmaceutical,
biotech, and
chem
ical industry
106 IP intensive
firms
7 case study firms
14 firms from
the
pharmaceutical and
chem
ical industry
22 firms with 27
patent release cases
4 patent pools
Res
earc
h d
esig
n
Qualitative: case
studies
Quantitative:
questionnaire
survey
Qualitative: case
studies
Qualitative: case
studies
Qualitative:
document analysis,
secondary data,
interviews
Focu
s
Internal
managem
ent
Strategic level
Internal
managem
ent
Tool level
External
exploitation
Pecuniary
outbound open
innovation
External
exploitation
Non-pecuniary
outbound open
innovation
Res
earc
h q
ues
tion
How
do firms
successfully manage
and optimize their
patent portfolios along
the patent life cycle?
How
and for which
processes do firms use
IT tools to support their
IP management?
How
do firms manage
external patent
exploitation and which
factors influence their
approach towards it?
Why do firms make
their patents available
for free and which
benefits do they gain
from
doing so?
Paper
I
Paper
II
Paper
III
Paper
IV
18 1 Introduction
Finally, research question 4 investigates a recent practical phenomenon: firms
providing their patents free of charge to third parties. While such open strategies
are known in the software industry where it is termed open source software, it is
a rather new approach to leverage patents in other industries. Since current
literature lacks explanations regarding this behavior, the following research
question is raised:
Research question 4: Why do firms make their patents available for free and
which benefits do they gain from doing so?
An overview of the papers addressing the research questions is presented in
table 4. The table also outlines the applied methodology, sample, and key
findings of the individual papers.
1.5.2 Thesis structure
The above described research questions are investigated in the self-standing
research articles papers in the subsequent chapters. Hence, this thesis is
structured as follows (see also figure 2).
In chapter 2, Paper I addresses the research question 1 on how firms
successfully manage and optimize their patent portfolios. Effectively managing
and optimizing the value of the patent portfolio is a major challenge for many
firms, especially those in knowledge intensive industries, such as the
pharmaceutical, biotechnological, and chemical industry. However, insights on
effective patent portfolio strategies are rare. We find that successful patent
portfolio management is rooted in managing the patents along their life cycles.
Based on the findings of ten case studies, a holistic patent life cycle management
model is developed reflecting five distinctive phases of patent management:
explore, generate, protect, optimize, and decline. The model helps managers to
adopt a holistic and efficient approach towards managing their patent portfolios.
In chapter 3, Paper II answers research question 2. The effective management
of IP is an increasingly complex challenge in today’s global knowledge
economy, especially for firms with large IP portfolios. Although IT tools are a
1 Introduction 19
means to support the management of these portfolios, there is little insight in
how firms actually make use of IT tools in this regard. Hence, this article
analyzes how and for which processes firms use IT tools to support their IP
management. Based on a data set of 106 IP intensive firms worldwide, we find
that firms use at least one of three major IT tools for IP management: search
tools, administrative tools, and evaluation tools. We also find that the use of IT
for IP processes is decreasing along the IP value chain: firms use IT mainly in
the early IP generation phase, e.g., for absorbing technological developments.
The article concludes by outlining where and how IT tools can improve the
management of IP.
In chapter 4, Paper III investigates research question 3. In open innovation
systems, capturing value through external IP commercialization is an
increasingly important strategy for firms to keep pace with competitive changes.
However, many firms have major difficulties in creating value through external
patent exploitation. To understand these challenges, this paper adopts a multiple
case study research design with fourteen firms from the pharmaceutical and
chemical industry and explores how firms manage their external patent
exploitation. Adopting a desorptive capacity perspective we find four main
factors influencing the firms’ management of external patent exploitation: the
type of value creation, the organizational structure, the locus of initiative, and
the extent of know-how transfer along with the patent. Based on these factors,
three archetype modes of external patent exploitation with different levels of
desorptive capacity are identified: ad hoc mode, hybrid mode, and leverage
mode. The article extends the concept of desorptive capacity and existing
literature on intellectual property management in the context of open innovation.
Managerial implications helping firms to implement external IP
commercialization structures are discussed.
In chapter 5, Paper IV explores research question 4 on why firms make their
patents freely available to third parties and which benefits they gain from this
behavior. Commercializing patents beyond firm boundaries through licensing
and selling is an increasingly discussed topic among scholars and practitioners.
Collecting royalty payments or similarly contractually defined monetary and
strategic returns have become a viable business model for many firms. However,
20 1 Introduction
within this external patent exploitation, a recent phenomenon where firms give
away their patents free of charge can be observed. This seems contradictory to
the original intention of the patent system of enabling firms to create temporary
monopolies to appropriate returns from their R&D investments. Adopting the
open source software phenomenon as a background and using firm data from 27
patent release cases, we develop a typology consisting of four types of free
patent release approaches – namely the profit maker, the cost cutter, the
innovation catalyst, and the technology provider – and discuss the motives of the
firms to offer their patents as ‘open source’. We find that firms may obtain
valuable technological input for subsequent innovations as well as social
benefits in return for their free patent release. The article contributes to the
burgeoning literature on open innovation by highlighting the importance of open
IP strategies.
Figure 2: Overview of the thesis structure
Thesis structure
Chapter 1 Introduction State of the art in IP management and exploitation, thesis framework
Chapter 2 Paper I Getting the most out of your IP - patent management along its life cycle
Chapter 3 Paper II The role of IT for managing intellectual property - an empirical analysis
Creating value through intellectual property commercialization– a desorptive capacity view
Chapter 5 Paper IV Open IP strategies: Why do firms give away their patents for free?
Internal management
Externalexploitation
Chapter 4 Paper III
2 Getting the most out of your IP – patent
management along its life cycle
Co-authored by Martin A. Bader, Oliver Gassmann, and Frauke Ruether
Published in Drug Discovery Today:
Bader, M.A., Gassmann, O., Ziegler, N. and Ruether, F. (2012) Getting the most
out of your IP - patent management along its life cycle, Drug Discovery Today,
17(7-8), 281-284.
Effectively managing and optimizing the value of the patent portfolio is a
major challenge for many firms, especially those in knowledge intensive
industries such as the pharmaceutical, biotechnological, and chemical industry.
However, insights in effective patent portfolio strategies are rare. Therefore,
this article investigates in detail how firms successfully manage and optimize
their patent portfolios to increase their overall competitiveness. We find that
successful patent portfolio management is rooted in managing the patents along
their life cycles. Based on the findings of ten case studies, we develop a holistic
patent life cycle management model reflecting five distinctive phases of patent
management: explore, generate, protect, optimize, and decline. We conclude
with how our findings can be used in practice.
22 2 Getting the most out of your IP – patent management along its life cycle
2.1 Introduction
Intellectual property (IP) has moved moving from a legal matter to a strategic
issue (Smith & Hansen, 2002). Research and practice have recognized IP as a
critical part of corporate strategy (Grindley & Teece, 1997; Sullivan, 2001) and
a main source of competitive advantage (Hall, 1992). This has been underpinned
by the growing number of patent applications over the last century. Since 1985,
the worldwide yearly patent filings have more than doubled and in 2009, 1.85
million patent applications were filed worldwide (WIPO, 2011b). The major
patent application countries are the United States with 456,106 patent
applications, followed by Japan with 348,596 and China with 314,604 patent
applications. At the European Patent Office, 134,580 patents were filed in 2009.
These numbers show that firms have increasingly accumulated patent rights and
therefore are challenged to manage their growing patent portfolios effectively.
Especially in the pharmaceutical, the biotechnological, and the chemical
industry with their long product cycles, patents are an important instrument for
maintaining competitive advantage through temporary monopolies and are a
major means of appropriating increased returns on investment (Levin et al.,
1987; Thumm, 2001). Many successful firms such as Dow Chemical, Roche,
Novartis, and Bayer have established well-structured IP management processes
and organizational structures and consider IP as a major corporate asset. Despite
the increasing importance of IP management in literature and practice, insights
in how firms manage their patents from a holistic, strategic perspective, and how
the portfolio value of patents can be optimized, are scarce.
Smith and Hansen (2002) split the strategic management of IP in the activities
IP generation, protection, and valuation and argue that firms must ensure that
these activities are aligned with business strategy. Carlsson et al. (2008)
conducted a case study research with 15 technology-based firms from the U.S.
and developed a general IP management process consisting of the phases
pushing for strategic IP, inventors’ activities, screening techniques and
checklists, and, finally, patent prosecution. In a study on new technology-based
firms Lynskey (2009) based his research on a classic value chain model and
applied this to the IP generation process. The developed IP value chain model
comprises the steps conception, primary document, review, formal document,
2 Getting the most out of your IP – patent management along its life cycle 23
legal document, patent prosecution, and IP portfolio (Lynskey, 2009). However,
all these IP management frameworks finish with the application of the patent
rights, and a description of a more comprehensive patent management model is
missing. To find out how a more holistic model could look like, we conducted
36 semi-structured interviews with ten firms from the pharmaceutical,
biotechnological, and chemical industry (table 5). The firms were chosen
because they are all characterized by well-structured IP management processes
and organizational structures and thus provided the most detailed and insightful
information.
The persons interviewed were upper managers responsible for the firm's IP
and R&D management. Based on the findings of our interviews we argue that
the management of patents should not stop with the filing of the patents but that
it should be better linked to the innovation process of a technology.
Table 5: Overview of the investigated firms
Firm Industry Turnover Patents
Roche Pharma >35 billion EUR 53,000
Novartis Pharma >30 billion EUR 25,000
Bayer Pharma >30 billion EUR 78,000
Beiersdorf Pharma >8 billion EUR 2,580
Henkel Chemicals >13 billion EUR 8,000
Kodak Chemicals >5 billion EUR >20,000
Sika Chemicals >3 billion EUR 1,600
Prionics Biotechnology >25 million EUR n/a
Cytos Biotechnology >5 million EUR 450
Biotronik Biotechnology/
Medical Devices
n/a n/a
24 2 Getting the most out of your IP – patent management along its life cycle
2.2 The patent life cycle management model
The analysis of the case studies revealed two major findings. First, we find
that successful patent management follows technology management, i.e., that
the firms’ patent management is strongly oriented to the life cycle of
technologies starting with the discovery of ideas until a product is discarded
from the firm's portfolio. Based on this, we identified five distinctive phases
which reflect the patent life cycle management of the firms following the
technology life cycle: explore, generate, protect, optimize, and decline. Second,
the findings suggest that the way how patents are managed largely depends on
the patent's strategic value and the firm’s internal resources. The patent’s
strategic value refers to the strategic value of the technology or patent relative to
existing markets, competitors, and substitution technologies. The strength of
internal resources refers to the firm’s assets such as employees, know-how, and
experience regarding a certain technology. While in the first two phases, i.e.,
explore and generate, the firm accumulates new competencies about a new
technology, these competencies remain at a high level in the phases protect and,
optimize. This is true even for the decline phase, although here, the firm may
decide to discard the patent. Thus, our framework displays patent life cycle
management as a function of strategic impact and internal resources available in
which each phase addresses three core dimensions of patenting: freedom to
operate, differentiation from competitors, and external patent exploitation
(figure 3).
In the following sections, the phases of the patent life cycle management
model are described and exemplified by the findings of the case studies.
2.2.1 Explore
In the first phase explore, the firms collect ideas for new inventions. The
strategic impact is still low or unpredictable and technological trends are
explored through broad cross industry patent searches such as, for example,
patent scanning. Also the patentability of existing technologies and the freedom
to operate is simultaneously checked during these patent scanning activities. In
addition, the strategic positioning of the firm with regards to potential future
2 Getting the most out of your IP – patent management along its life cycle 25
cross-licensing opportunities to enhance the access to external knowledge is
considered. For example, Prionics follows the strategy that a new project always
starts with a comprehensive patent search. For each new project Prionics
compiles an individual search profile – often with the help of external experts
like the national patent and trademark office. The patent monitoring is
conducted on a monthly basis with the data bases of Medline and Derwent.
During this search, 400 to 500 potentially relevant literature citations and 75 to
120 potentially relevant patent citations are identified. In a second screening, an
internal group of experts, consisting of R&D project leaders and product
managers, evaluates the search results and filters 30 to 50 relevant literature
citations and 10 to 25 relevant patent citations. This kind of search process is
very successful at Prionics and has been established as an integral part of new
product development.
2.2.2 Generate
The exploration activities are succeeded by the phase generate where ideas
are realized through the development of new products. At Henkel, for example,
the strategy for its core competence areas is to strive for an exclusive protection
of its products, technologies, packaging, and substances. Inventions in non-core
competence areas often are not protected through patents but are published, e.g.,
in professional journals to prevent potential patenting of competitors. Cytos’
strategy is to identify and patent new specific substances as early as possible and
to partner with large pharmaceutical companies for further clinical development.
Key aspects for Cytos are the maximization of the cost-benefit ratio and
ensuring an appealing patent portfolio for partnering with large pharmaceutical
companies.
Also, firms increasingly open up their research processes and acquire external
technologies to complement their own technology portfolios (Chesbrough,
2003c; Gassmann & Bader, 2006). In our cases, Roche’s research and
development network, Bayer’s engagement in cross-licensing, and Biotronik’s
strategy to in-license technology are ways to complement internal know-how.
Also Henkel – although the company is rather reluctant to open its innovation
26 2 Getting the most out of your IP – patent management along its life cycle
process – uses cross-licensing agreements with cooperation partners for specific
parts of the portfolio. In these cooperations, Henkel aims to avoid financial
compensations but tries to agree on a patent exchange based on the quality of the
patents.
2.2.3 Protect
The protection phase is characterized by high strategic impact and strength of
resources. The firms have accumulated comprehensive know-how in a field of
competence with a high level of strategic importance. The potential for filing
broad basic patents is declining since public knowledge in these fields has
already greatly increased. The patent applications now focus increasingly on
more detailed, very specific embodiments, often with the motivation to build
patent fences around a core invention to foreclose patenting of substitutes by
rivals (Cohen et al., 2000). Therefore, the firms increasingly seek to create
patent clusters in strategically important fields of technology. This involves
generating patent portfolios which have a broad sweep but which later , when it
is easier to estimate which ideas are technically and commercially viable, are
thinned out again. Roche for example continuously builds up patent clusters by
filing patents for back-up compounds and follow-on patents to enhance the
protection of their products. About 1 to 10 basic patent applications and patents
for back-up compounds are filed per project. During the clinical development
and early commercialization phases, about 3 to 30 follow-on patents are filed.
Follow-on patent applications include for example patents for polymorphs, salts,
or alternative formulations.
2.2.4 Optimize
In the optimization phase, the firm has a high level of competence in the
respective technological field but the strategic importance with regards to
customers, markets, competition, or technology is declining. The firms monitor
competitors’ patenting activities and review their own patent clusters thoroughly
in respect to cost-benefit considerations. For example, a potential reduction of
2 Getting the most out of your IP – patent management along its life cycle 27
the territorial coverage of the patents is checked regularly. Also the risk of
substitute technologies analyzed. If there is a risk of competencies being
replaced by substitute technologies, the firms’ own patents in these fields can be
used as blocking property rights to prevent a decline in value of the existing core
technologies.
For research-based pharma firms, the risk of infringement especially emanates
from generic drug companies. Generic drug companies are becoming
competitors when the relevant patent’s expiry day approaches. About five years
before the generic companies are able to legally enter the market and use the
specific agent, Novartis, for example, performs active competitive intelligence
to identify potential infringement. As generic companies can start regulatory
readiness before the innovator exclusivity period has expired, Novartis keeps an
active eye on all developments of ‘their’ products. The first assessment is
undertaken in the preclinical phase, further assessments take place at the entry of
each development phase.
2.2.5 Decline
When the strategic importance of a technology or competence has greatly
declined, the corresponding patents are reviewed to determine whether they still
add value to the firm and to define the divestment strategy. Before the patents
are abandoned, the firms check the patents for out-licensing, selling, or donation
opportunities. Biotronik evaluates in a yearly review its patent portfolio and
decides on how to proceed with obsolete patents. The IP review board,
supported by R&D and management, is responsible to assess obsolete patents
with regards to an external exploitation through out-licensing. They check if the
patent protects one of Biotronik’s products or if its internal exploitation is
planned in the future. Furthermore, they analyze whether competitors could
potentially use Biotronik’s patents for their technologies and also whether the
patents could be enforced in case of an infringement. Finally, the overall costs
and efforts are estimated before Biotronik decides on licensing or abandoning
the patents.
28 2 Getting the most out of your IP – patent management along its life cycle
Figure 3: The patent life cycle management model
2.3 Concluding remarks
This paper explored how firms from the pharma, biotech, and chemical
industry manage their patents from a strategic perspective and suggests a holistic
patent life cycle management model for an efficient management of IP. The key
massage is that patent management should not be regarded as an isolated
function but as an integrated activity that considerably contributes to firm
success because intellectual assets have become critical firm resources. Firms
Strength of Internal Resources
Strategic Impact
Low
Low High
Generate
• Focused patent searches
(patent monitoring)
• Analysis of
competitor activities
• File strategic patents
- with respect to competitors
- with respect to alternative
areas
• Check and realize potential for
patent cross-license
agreements
Explore
• Evaluation of potentials
by cross industry sector
patent searches
(patent scanning)
• Identif ication of potentials,
application of broad and
conceptual patents
Decline
• Check potential for exclusive
out-licensing
• Abandon, sell, donate patents
Protect
• Consideration of in-licensing and
circumvention
• Creation of patent clusters for a
systematic protection of competitive
advantages: broad basic patents and
patents for specif ic variations
• Check potential for out-licensing into
other market or technology areas
(long-term ROI)
Optimize
• Monitor subsequent patent applications
of competitors (improvements, variations)
• Check patent clusters with respect to
cost-benef it ratios
• Protection f rom substitute technologies
by f iling deterrent patents
• Check potential for out-licensing within
own market or technology areas
(short-term ROI)
High
Legend:
I. Freedom to operate
II. Differentiation
III. External exploitation
I.
II.
I. I.
I.
II.
II.
II.
III.
III.
III.
III.
2 Getting the most out of your IP – patent management along its life cycle 29
should therefore take a holistic view on their patent management, considering
the following:
Identifying new technological challenges is an important factor to create
innovation. Thus, firms should establish active technology scouting and patent
scanning processes. The earlier technological trends are found the better the firm
can react and reach a first-mover advantage. Especially important is that these
technology scouting and patent scanning activities are conducted and updated on
a regular basis. Also, firms should ensure that the respective employees, e.g.,
R&D employees, patent managers, and business developers, are given access to
the results.
During the development of new technologies and products, it is important to
keep an eye on competitor and market activities. Firms should therefore
establish a patent monitoring system which regularly observes the firms’
environment. Special attention should be paid to identifying substitute
technologies because they might weaken the firm's temporary monopoly gained
through the patent protection.
External leveraging of patents through, e.g., out-licensing, cross-licensing,
sale, strategic alliances, and joint ventures may enable firms to generate
additional returns on investment and to induce strategic benefits. Therefore,
considering external exploitation opportunities at all stages of the patent life
cycle should be a standard activity of patent management at the firms.
Firms are advised to conduct regular (e.g., yearly) patent audits where the
value of the patent portfolio is assessed. These audits should also be used to
keep an overview on how each patent is exploited, i.e., which patents protect
which products or technologies, which patents have a blocking function, which
patents are out-licensed and to whom, and also which patents are currently not
used for any competitive advantage or financial benefit. Based on the audit,
decisions on when and where new patents should be filed and which patents
could be out-licensed to generate additional income can be made and further
steps for implementing these activities can be defined.
Issued but unused patents cause unnecessary maintenance fees. Hence, firms
should make proactive patent divestment decisions to avoid the accumulation of
unused patents. First, potentially obsolete patents should be evaluated and
30 2 Getting the most out of your IP – patent management along its life cycle
balanced with regards to the benefits and costs for the firm. If the patent reveals
potential attractiveness for other firms, out-licensing, sale, or donation should be
considered.
Finally, patent life cycle management should be considered as a holistic and
interdisciplinary task. Thus, the above mentioned recommendations should be
implemented by a small group of senior executives, consisting of heads of IP,
R&D, business development, product development, and marketing.
3 The role of IT for managing intellectual property
– an empirical analysis
Co-authored by Oliver Gassmann, Frauke Ruether, and Martin A. Bader,
Published in World Patent Information:
Gassmann, O., Ziegler, N., Ruether, F. and Bader, M.A. (2012) The role of IT
for managing intellectual property: An empirical analysis, World Patent
Information, In Press, doi:10.1016/j.wpi.2012.03.005.
The effective management of intellectual property (IP) is an increasingly
complex challenge in today’s global knowledge economy, especially for firms
with large IP portfolios. Although information technology (IT) tools are a means
to support the management of these portfolios, there is little insight in how firms
actually make use of IT tools in this regard. Hence, this article analyzes how
and for which processes firms use IT tools to support their IP management.
Based on a data set of 106 IP intensive firms worldwide, we find that firms use
at least one of three major IT tools for IP management: search tools,
administrative tools, and evaluation tools. We also find that the use of IT for IP
processes is decreasing along the IP value chain: firms use IT mainly in the
early IP generation phase, e.g., for absorbing technological developments. The
article concludes by outlining where and how IT tools can improve the
management of IP.
32 3 The role of IT for managing intellectual property – an empirical analysis
3.1 Introduction
The number of intellectual property (IP) right applications has been
constantly growing over the last century. Since 1985, the annual patent filings
worldwide have more than doubled; a similar trend can also be observed with
trademarks and industrial designs (WIPO, 2010). This accumulation of
intellectual property – and thus the growth of the firm's overall IP portfolio –
poses several challenges on the effective management of IP. Firms with large IP
portfolios are more than ever challenged to design strategies and to implement
structures and processes to enable an efficient IP management. Towards this
backdrop, dedicated IT tools which are capable of storing, structuring, and
making IP information accessible may represent an important efficiency gain for
the firm's IP management. Many firms with large IP portfolios such as IBM or
Infineon have already established IT systems for managing their IP. However,
there is a lack of insights with respect to where exactly IT tools are used in the
management of IP, and how firms can use these tools to increase their IP
management effectiveness. This article aims to provide answers to this question
by presenting the results of a worldwide survey on IP management and IT
support at the firm level. Towards the backdrop of managing IP, we define IT
tools to span everything from specific IP based applications to general IP data
bases.
The paper is structured as follows. The next section gives an overview of
literature on IP tools for IP management. Section 3.3 describes the research
framework and the methods applied for the investigation and provides
information on the analyzed sample. Section 3.4 depicts the findings on the use
of IP software which are analyzed in section 3.5. Finally, section 3.6
summarizes the paper, presents some recommendations on how firms may boost
their IP management, and gives a brief outlook for future research.
3.2 IT tools for IP management - State of the art
Extant literature on IT solutions for IP management can be divided into three
major strands, one which focuses on the technical functionality of IT tools in IP
3 The role of IT for managing intellectual property – an empirical analysis 33
management, one which adopts the user perspective of such tools, and one
representing the patent offices’ activities. In the functional strand, Fabry et al.
(2006), for example, present a method of using IT tools to evaluate patent
portfolios in order to use this information to identify new business opportunities.
Bergmann et al. (2008) present an IT tool based on semantic analysis to detect
risks of patent infringements through patent information. Moehrle et al. (2010)
analyze major tasks of patent search and indentify IT tools that can be deployed
to accomplish these tasks. Focusing on the challenge of retrieving relevant
information from data bases, Dou (2004) presents a possibility to link patent
data base search with a dedicated software to filter search results according to
specific needs (the author presents the case of esp@cenet® and Matheo-Patent).
This kind of software facilitates search activities and fosters the use of patent
information for all user types (Dou, 2004). Spangler et al. (2011) have
developed a holistic web-based IP mining tool called SIMPLE that facilitates
patent data processing, warehousing, and analysis. Others have investigated data
visualization tools which enhance the interpretation and analysis of collected
patent information (Yang et al., 2008). Based on the experience of a
pharmaceutical company, Eldridge (2006) gives an overview of selected data
visualization tools and their applicability from a practitioner point of view.
Moreover, Lupu et al. (2011) describe a tool that evaluates the results of
different patent information search technologies. They present the TREC
Chemical IR (Information Retrieval) Track tool that focuses on evaluating
search results of chemical patent information.
In the literature strand adopting a user perspective, Bonino et al. (2010)
analyze the functionality and user needs of current patent information tools
including data bases, search tools, benchmark tools, and semantics-based tools.
They find that the requirements on these tools depend firstly on the user type,
e.g., patent specialists or managers, and secondly the objective of the patent
information activity, e.g., technology scouting or patent monitoring. Radauer
and Walter (2010) adopt an SME (small and medium-sized enterprises) focus
and discuss, based on a benchmarking study of 72 IP services in the EU-27
countries, the gap between the need of SMEs for patent information and the
existing patent information services in the European Union. They find that
34 3 The role of IT for managing intellectual property – an empirical analysis
SMEs need more than mere technical patent information and especially require
support in the interpretation of the search results. In the light of data base search,
Emmerich (2009) investigates the level of information of different patent data
bases and analyzes in a case study of the pharmaceutical industry how firms can
generate high quality search results of a patent search. The results emphasize the
necessity to search all high information level patent data bases in order to
provide high quality results.
Finally, also patent offices increasingly integrate IT solutions into their
service systems. For example, the World Intellectual Property Office (WIPO)
developed the online filing system PCT-SAFE (Patent Cooperation Treaty –
Secure Applications Filed Electronically). The software was launched in 2004
and enables inventors and firms from all PCT member countries to file their
PCT patent applications electronically (Metcalfe, 2004). More recently, the
WIPO also launched an online tool for filing trademark applications and
searching internationally registered trademarks via the Global Brand Database
(Blackman, 2011b). The European Patent Office (EPO) offers with EPO Online
Services a comprehensive online service portal including the PatXML software
for online patent filings, and Register Plus and WebRegMT (for details see
Rogier (2005)) for IP monitoring and search activities. Furthermore, EPO
provides patent organizing systems and an online fee payment tool2. The
Swedish and the Australian Patent Office have gradually improved their online
services over the last years and recently replaced their old patent data base
systems by new online and freely available systems (Blackman, 2011a; Eagle,
2011). Furthermore, with the Centralized Access to Search and Examination
system (CASE), the IP offices of Australia, Canada and the United Kingdom as
well as the WIPO have started a pilot system that facilitates the online search of
the participating IP offices (UK-IPO, 2011).
However, while extant literature has mainly focused on the technical
functionality of e.g., searching for IP and extracting valuable information from
patent information, the investigation of the user perspective, i.e., how and to
what extent the users deploy IT for all IP management activities, starting with
technology scouting and ending with divestment decisions, is under-researched.
2 Information under www.epoline.org
3 The role of IT for managing intellectual property – an empirical analysis 35
Firms’ IP management focus increasingly shifts from the traditional defensive
approach to a more proactive approach of exploiting the IP portfolio (Bianchi et
al., 2009; Giuri et al., 2007; Lichtenthaler, 2005). Thus, effectively leveraging IP
information in order to identify new technology areas, new business
opportunities, or to assess the value of the portfolio is an important part of
modern IP management (Bonino et al., 2010). The field of application of IP
software extends from mere search activities to the evaluation and external
exploitation (i.e., out-licensing and sale etc.) of IP. Therefore, this paper adopts
a user perspective and investigates how and for which processes firms use IT
tools to support their entire IP management.
3.3 Research methodology
3.3.1 Research framework
Intellectual property rights are the most visible form of intangible assets and
are therefore defined as explicit knowledge assets (Nonaka et al., 2000). Hence,
managing intellectual property constitutes a specific form of knowledge
management. Knowledge management literature distinguishes between creating
knowledge and appropriating returns based on this knowledge as major steps
for firms to gain competitive advantage (Bogner & Bansal, 2007; Nonaka et al.,
2000). From an IP management perspective, these activities can be reflected in
the generation of IP, i.e., creating ideas and protecting them through IP rights,
and the subsequent exploitation thereof to appropriate returns, either internally
through securing own products, or externally through, for example, licensing.
(Teece, 1986). Furthermore, IP management literature emphasizes the
importance of valuating IP within the IP management process (Smith & Hansen,
2002). Due to its impact on the firms’ decision making, IP valuation is seen as a
central activity of IP management, especially in preparation of the
commercialization of the IP (Kutvonen et al., 2010; Lichtenthaler, 2007b).
Thus, drawing on the contributions from knowledge management and IP
management literatures, we identify three core phases for managing intellectual
36 3 The role of IT for managing intellectual property – an empirical analysis
property: Generate, assess, and exploit IP. We will call this the IP value chain
model.
The first phase, IP generation, includes the idea finding and realization
process as well as the IP registration. This phase is characterized by a strong
technology focus mainly resulting from R&D outcomes and is driven by
technology search activities. In a first step, potentially relevant technological
fields are scanned broadly via, e.g., patent data bases, including also cross-
industry searches. In a second step, the IP search is narrowed focusing on the
identified relevant areas (Gassmann & Bader, 2011). Also the patentability of
new technologies and the freedom to operate is checked in this phase. Ensuring
freedom to operate, i.e., creating and maintaining a position through IP rights
where the firm can continue its research and development in the specific
technological field free from third party IP rights is a crucial aspect of
generating new IP (Davis, 2004). Based on the search and idea generation, IP
right applications are filed with respect to the firm’s IP strategy. Blind et al.
(2006) state that besides the traditional and still major reason for patenting
protection from imitation, strategic motives such as blocking competitors,
enhancing firm reputation, and improving the firm’s negotiation position are
becoming increasingly important and thus are increasingly taken into account by
firms when defining their IP strategy.
In the second phase assessing IP, the IP portfolio or single IP rights are
assessed to obtain a qualitative or quantitative value, mostly applied for patents.
While the quantitative valuation approach aims to give the patent an absolute
value in terms of money, e.g., for balancing, tax, enforcement, or
commercialization reasons (Bader & Ruether, 2009), the qualitative evaluation
of IP stresses the strategic value of a patent such as its legal strength or relative
importance in its technological area (Chen & Chang, 2010; Pitkethly, 2001). The
evaluation of IP also includes IP portfolio analyses classifying the patents
according to the products or processes they protect and analyzing the patent
portfolio pertaining to which strategic value the patent creates for the firm, e.g.,
protecting own technologies, blocking competitors, licensing and alliance
options, and future potential.
3 The role of IT for managing intellectual property – an empirical analysis 37
The third phase exploitation of IP entails internal and external exploitation
activities of the firm as well as enforcing IP rights. Traditional internal patent
exploitation in own products and processes ensures freedom to operate and
generates a temporary monopoly for the patent owner (Blind et al., 2006;
Gassmann & Bader, 2006). External IP exploitation through e.g., licensing
permits generating additional revenues or strategic benefits like setting standards
or accessing third party IP (Granstrand, 2004; Lichtenthaler, 2005). Finally, IP
rights only create value if they are defended, i.e., enforced in case of
infringement by third parties (Lanjouw et al., 1998). Thus, detecting the
infringement, defining the enforcement strategy and managing the enforcement
process forms also part of the IP exploitation phase. IP infringement cases are
either decided in court or by a direct settlement between the concerned parties
out of court. In a settlement out of court the IP owner and the infringing party
usually agree on a defined compensation payment or a cross-licensing
agreement, allowing the infringing party the continued use of the IP of question
by giving licenses of their IP portfolio to the infringed party (Shapiro, 2001).
3.3.2 Method and data
Our research approach consisted of two phases. In the first phase, we
conducted a worldwide online questionnaire survey to obtain a broad picture of
how firms use IT tools within their IP management. In this survey, we focused
on IP intensive firms, i.e., firms where intellectual property is of strategic
importance and which actively manage an IP portfolio. 1210 IP intensive firms
in cross-industry sectors were contacted and investigated regarding their IP
management including patents, trademarks, industrial designs, and, for some
specific questions, domain names. In total, we received 106 usable
questionnaires which corresponds to a response rate of 8.8%.
In the second phase, case studies were conducted to deepen the insights
obtained from the questionnaire survey. We applied purposeful sampling and
chose those firms which provided the most detailed and insightful information
(Eisenhardt, 1989). Table 6 provides a brief overview of these firms. They are
characterized by well-structured IP management and the deployment of IT tools
38 3 The role of IT for managing intellectual property – an empirical analysis
Table 6: Overview of the case study firms
Firm Industry Turnover Employees IP portfolio
Alcatel-
Lucent
Telecommunication 16 billion EUR 78,000 27,600 patents
Henkel Consumer goods 15.1 billion EUR 48,141 8,000 patents
IBM Information
technology
75.4 billion EUR 426,751 40,000 patents
Infineon Semiconductors 3.3 billion EUR 25,216 17,700 patents
Kodak Chemicals, Imaging 5.4 billion EUR 18,800 12,100 patents
OC
Oerlikon
Mechanical
engineering
2.9 billion EUR 16,657 1,600 patents
Schindler Mechanical
engineering
6.6 billion EUR 43,010 9,000 patents
for specific IP processes, either self-developed tools or commercial tools. The
case studies allowed to gain in-depth information on how firms use IT tools
within their IP management. The data were primarily collected through semi-
structured face-to-face interviews with IP and R&D managers (Yin, 2009). In
addition, desk research of firm reports and public announcements was conducted
for data triangulation and to increase the robustness of the results (Jick, 1979).
In the subsequent sections, the results of the survey and the case studies are
presented and discussed using the IP value chain model as a guideline.
3.4 Results and case findings
This section presents the findings of our analysis on how firms’ manage their
IP using IT tools. Descriptive statistics resulting from the questionnaire survey
are depicted and the insights are deepened by the findings from the case studies.
First, the results on the firms’ use of IT tools regarding the entire IP value chain
3 The role of IT for managing intellectual property – an empirical analysis 39
are presented. Second, the IP management and IT use of each phase of the IP
value chain, i.e., generate, assess, and exploit IP, is analyzed in detail. Third, the
satisfaction of the firms with the usability and utility of these tools for IP
management is examined.
3.4.1 General results
Analyzing the firms’ deployment of IT along the IP value chain, three major
categories of IT tools for IP management can be identified. The first category
search tools includes all tools helping to gain information on existing IP rights,
technological state of the art, technological trends, and competitive environment
activities. Next, administrative tools are tools supporting the firms’ internal IP
management with regards to annual IP rights renewal payments, storing
information of the firms’ IP portfolio such as the current use of the IP rights in
products, services, or other forms, patent specifications, pending IP right
applications, lifetime of IP rights, etc. Finally, the category evaluation tools
comprises tools supporting to give a qualitative and quantitative value to the IP
portfolio or single IP rights. The results also show that firms use both
commercial IT tools as well as internally developed tools.
The results of the use of IT tools for IP management reveal two major
findings. Firstly, the firms’ use of IT decreases along the IP value chain (figure
4). This behavior is similar for all forms of IP rights, i.e., for patents,
trademarks, industrial designs, and domain names. While firms mostly use IT
tools in the IP generation phase, they are rarely used in the IP exploitation phase.
The second major finding is that patents are the form of IP rights supported most
by IT tools followed by trademarks and industrial designs. Almost no IT support
is provided for domain name management.
Overall, 98% of the investigated firms use IT tools to support their IP
management. 74% use IT tools for patent management, 60% for trademark
management, 53% for industrial design management, and 45% for domain name
management. Only 2% do not use any supporting IT tools for their IP
management at all.
In the following section each phase of the IP value chain is depicted in detail.
40 3 The role of IT for managing intellectual property – an empirical analysis
Figure 4: The use of IT tools along the IP value chain
3.4.2 Use of IT tools along the IP value chain
In the IP generation phase, 72% of the firms use IT applications for patents,
49% for trademarks, and 26% for designs. The IP generation phase is
characterized by a broad range of activities including technology scouting, IP
monitoring, idea management, and IP registration (patent filing, trademark
registration, etc.). In order to get a more detailed picture of the firms’
management of IP generation, we also analyzed for which activities the tools are
used. Search tools include technology and IP search and monitoring tools, idea
management tools are tools supporting the creativity process at the firm, the
inventor’s bonus tool supports the remuneration of important inventions. Despite
the latter two may not specifically be IP tools, these activities are crucial for
generating IP at all and are therefore included in our analysis. Docketing and
term management, document management systems, and electronic files are tools
supporting IP administration, such as the punctual payment of renewal fees,
controlling the filing process, and the legal status of the IP right The investigated
firms used, for example, software tools provided by Dennemeyer (DIAMS),
CPA (Memotech, Inprotech, FoundationIP), Thomson Reuters (Thomson IP
Manager), GSI (WINPAT), Unycom (IPAS), Eidologic (EIDOpat), and
Brügmann (PatOrg).The findings reveal that the firms mainly use IT tools for
0%10%20%30%40%50%60%70%80%
Generation of IP
(E)valuation of IP
Exploitation of IP
% of firm
s
Phases of IP value generation
Patents
Trademarks
Designs
Domain names
3 The role of IT for managing intellectual property – an empirical analysis 41
search activities, followed by administrative tools. 88% of the firms use search
tools to optimize their IP search processes (figure 5). For example, Henkel uses
the services of Derwent and MicroPatent to monitor markets and competitors.
About 5,000 patents are analyzed per year focusing on the activities of
competitors. Additionally, Henkel monitors specific technology areas through
keyword searches. Technology experts, typically leaders of an R&D group, are
responsible for controlling and evaluating the patent data. For example the group
leader of dishwasher and laundry tabs is responsible for the search field “tabs”.
The R&D group leader regularly informs the head of R&D about the patent
situation.
Kodak has developed a specific IT tool to support its IP generation process,
the so called Invention Tracker. The Invention Tracker manages the information
processing between different departments and involved employees from idea
finding and evaluation to patenting decisions and patent filings. Furthermore,
Kodak uses the commercial data base MicroPatent which enables R&D
employees to gather IP information, e.g. about external patents and state of the
art technology.
Alcatel-Lucent conducts comprehensive patent searches using data profiles
and statistical evaluation methods. Typically, Alcatel searches in the public data
bases Derwent WPIDS, Inpadoc of the European Patent Office, EUROPatfull
and USPatfull. The further data processing including statistical analyses is
accomplished in Excel and is structured according to business areas and specific
keywords. The results are reviewed by the senior IP counsel and published on
Alcatel’s internal intranet side. As data base Alcatel uses a self-configured Lotus
Notes data base. Alcatel made the point that in their experience treating and
evaluating the data on their own is cheaper than outsourcing these process steps
to an external service provider. Moreover, all researchers and developers have
the possibility to conduct own patent searches within the intranet data base.
42 3 The role of IT for managing intellectual property – an empirical analysis
Figure 5: IT tools used by the surveyed firms
In the second place after search tools are docketing and term management
tools followed by electronic file, document management systems, inventor’s
bonus tools, idea management tools, and others like e.g., budget forecasting
tools. Alcatel uses the patent management software Memotech from CPA to
support its IP administration. Kodak uses the software IP Master, a commercial
patent workflow management tool which was designed especially for patent
attorneys, to administrate its more than 12’000 patents large portfolio. It helps
Kodak to control the patent filing process and to coordinate the patent fees. Also
OC Oerlikon has established a commercial IT tool which supports the IP
management for docketing and term and portfolio management.
Examining the IP assessment phase, the results show that valuation and
evaluation activities are rarely supported by software. In total, only one third of
the firms uses IT tools to support the assessment of their IP rights. Figure 6
illustrates the results of the analysis distinguishing between valuation and
evaluation activities. The results reveal that firms behave similarly regarding the
use of IT tools for each of the method: 16% respectively 15% of the firms make
use of IT tools for IP valuation or evaluation. The investigated firms use either
commercial tools offered by IP offices and service providers, e.g., IPscore®, or
self-developed systems, e.g., based on Microsoft Excel.
6%
2%
27%
33%
41%
59%
65%
88%
0% 20% 40% 60% 80% 100%
Others
None
Idea management tools
Inventor's bonus tool
Document management system
Electronic file
Docketing and term management tools
Search tools
3 The role of IT for managing intellectual property – an empirical analysis 43
Schindler, for example, has developed an internal IP data base storing ideas,
invention disclosures, and patent data. In the data base patents are classified
according to defined criteria. The keywords of the classifications are renewed
every two years. The patents are evaluated with a standard evaluation form
including a point system. The evaluation form considers both the economic
perspective, i.e. market success, as well as the legal perspective, i.e. patent
sustainability. In addition, technical aspects are assessed, too. The challenge for
Schindler regarding the data base is on the one side to provide firm-wide
communication and, on the other side, to ensure confidentiality of the
information. Data communication and communication between the data base
users is therefore implemented via a secured intranet. Additionally, Schindler
has established different levels of access authorization. Moreover, especially for
the requirements of the U.S. law of inventions (currently “first-to-invent”, soon
to become “first-to-file” under the America Invents Act (USPTO, 2012)), all
documents are marked with a time stamp that “freezes” the new document and
makes it unchangeable. In this way, Schindler is able to exactly track the date of
the inventions.
Kodak uses the internally developed software system MP-Tools consisting of
patent analysis tools to support acquisition and evaluation decisions. This
process is a standardized tool for qualitative patent evaluation which is
implemented throughout the firm.
The last phase of the IP value chain, IP exploitation, is least supported by IP
applications. Even for patents, only 13% of the investigated firms use IT tools
for exploitation, 83% of the firms do not use IT support in this phase at all.
Figure 6: The use of IT tools for valuation and evaluation activities
16%
15%
84%
85%
0% 20% 40% 60% 80% 100%
Valuation
Evaluationyes
no
44 3 The role of IT for managing intellectual property – an empirical analysis
3.4.3 User friendliness of IT tools for IP management
At the investigated firms, an IT tool for IP management is used on average by
10 employees. About nine employees are involved in patent management tools.
For trademark, design, domain, and contract management, the average number
lies between two and five employees. To get a picture of the users’ mindset
regarding the usability and utility of their IT tools an analysis of the degree of
satisfaction was conducted. The results reveal that on a five point Likert scale
from 1 = very unsatisfied to 5 = very satisfied, the average degree of satisfaction
is 3.21, i.e., neither totally satisfied nor unsatisfied. Also, there is no remarkable
difference between the single IP rights. In percentage, 49% of the firms are very
satisfied or satisfied with their IT tools for managing IP. 36% are neutral, 15%
are unsatisfied or very unsatisfied (figure 7). Reasons for the users’
dissatisfaction are that the tools demand too much working hours, that they lack
adequate functionality, cause redundant work, and lack the integration of several
functionalities like document management, literature management, and search
processes.
Another perspective on the satisfaction level of firms with their IT tools reveals
that the degree of satisfaction of firms using an integrative IT tool system, i.e., a
system including all necessary processes for all IP rights, is higher than those
firms working with different single IT tools. About two-thirds of the firms
currently work with several IT tools, only one third has an integrative system.
But the findings reveal that the users of the integrative systems are more
satisfied than those using many different tools. 64% of the integrative tool users
are at least satisfied with their system, while not even half of users in the firms
using different tools are satisfied with their system.
IBM is an example for the use of an integrative IT tool system helping to
generate, assess, and exploit the IP portfolio. IBM uses a know-how and
management software which helps to align business and IP strategy, identify
new patent opportunities, evaluate and leverage patent portfolios. The patent
management software has been developed internally by IBM’s patent and IP
experts for over a decade with the aim to support analysis, assessment and
administration of IBM’s patent portfolio with more than 40,000 patents. The
3 The role of IT for managing intellectual property – an empirical analysis 45
Figure 7: Satisfaction of firms with their IT tools for IP management
integrative IP management tool has enabled IBM to balance its IP strategy with
business needs and find new ways to derive value from its IP portfolio.
Also Infineon’s IP software system has been developed towards an integrative
system. Infineon has established three IT tools: an internally developed patent
administration tool, an IP search tool, and an IP portfolio management tool. The
three tools are linked and complement each other. The stored data is available
for people involved in R&D management, IP management, and the IP decision
process.
3.5 Discussion
3.5.1 IT tool use along the IP value chain adopting an organizational
information processing perspective
The results reveal that the use of IT tools decreases along the IP value chain
from IP generation over assessment to exploitation. This can be discussed
adopting an organizational information processing theory perspective. The
organizational information processing theory assumes that acquiring data,
transforming data into information, communicating, and storing data are major
challenges of complex organizations (Galbraith, 1974). Accordingly,
organizations obtain higher performance when they reach a fit between
16%
33%36%
10%
5%Very satisfied
Satisfied
Neutral
Unsatisfied
Very unsatisfied
64%
43%
0%
20%
40%
60%
80%
% of m
entions
Integrative IT tool system and (very) satisfied
Different IT tools and (very) satisfied
46 3 The role of IT for managing intellectual property – an empirical analysis
information process requirements and information process capabilities
(Egelhoff, 1991). In this vein, our data supports the theory as most IT support is
realized during the IP generation phase where high requirements for
information, e.g., patent information, technical state of the art, and market
information, matches the search capacities of the firms. The IP generation phase
is traditionally the phase where firms have established well structured IP
management processes. Searching new technologies and monitoring the IP
landscape is a core R&D activity and important for sustained competitiveness of
the firm (Boutellier et al., 1998; Reger, 2001). Consequently, firms proactively
attempt to optimize these processes. Today, these attempts are facilitated as
search and information processing software has progressed significantly in
recent years (Bonino et al., 2010). Hence, the generation phase offers optimal
conditions for integrating software solutions because firms can use their existing
structures and processes and complement them by IT tools to increase overall
efficiency. In contrast, in the phases IP assessment and IP exploitation many
firms do not meet the above described fit of requirements and capabilities, i.e.,
they do not have defined processes for their evaluation and exploitation
activities, resulting in a difficult integration of IT tools. At Henkel, for example,
the effort for IP evaluation currently does not require automated processes.
Instead, Henkel’s IT tools offer requested support for reliable information for
monitoring the competitive environment and detecting new technological and
marketing trends. In contrast, Kodak has established IT tool support for the
evaluation of parts of its portfolio for acquisition, maintenance, or out-licensing
reasons, activities representing a crucial part within their IP management.
Although there is a persistent demand for the firms' assessment of IP
(especially patents) (Wanner et al., 2008), the firms' valuation and evaluation
processes are rather underdeveloped and lack respective IT support. This
situation is exacerbated as firm strategies increasingly consider IP as a valuable
asset which contributes to sustainable firm success. In particular, firms
increasingly require IT tools as they try to value their IP portfolio to optimize
tax and balancing matters. IPscore® is an example of a successful patent
evaluation software tool which was originally developed by the Danish Patent
and Trademark Office and which was later acquired by the European Patent
3 The role of IT for managing intellectual property – an empirical analysis 47
Office3. The tool offers both a qualitative and quantitative assessment of patent
portfolios and technology development processes (Nielsen, 2004). But also IP
service providers increasingly offer IT tools for IP valuation, such as
PatentRatings® by Ocean Tomo4, the Patent Value Predictor by Pantros IP5, and
the Global IP Estimator® by Global IP Net6, of which the latter besides patents
also valuates trademarks and designs. Furthermore, in a recent research project
of the European Commission an IP valuation tool specifically for SMEs has
been developed: The AIDA IP diagnosis tool helps SMEs to analyze their IP
portfolio by applying an three-step IP auditing approach with a visual
representation of the results at the end (Petit et al., 2011). Through the
organizational information processing lens, these tools can support the firms by
supplementing their capabilities and thus helping reaching the fir between
requirements and capabilities.
Despite the potential that IT solutions offers for the external exploitation of IP
(Bergmann et al., 2008), the results show that only a few firms use IT tools for
licensing, IP transactions, or financing. A reason for this could be that external
IP exploitation is still not a standard activity at most firms. Apart from
pioneering firms such as IBM or Philips, where external IP exploitation is
implemented in business strategy, the majority of the firms engage in external IP
exploitation on a – if at all – ad hoc basis (Lichtenthaler & Ernst, 2009). As a
consequence of the low frequency of external exploitation, the development of
respective IT tools and support is difficult or may not yet be required. This again
points to the need of an increased match between requirements and capabilities
of the organizational information processing theory. Considering current
developments, the increasing proactive IP management approach of firms
including burgeoning out-licensing and sale strategies will enhance the need for
IT support tools in the future (Rivette & Kline, 2000).
Moreover, the findings show that patents are the type of IP rights which is
supported most by IT tools. Due to the large amount of technical data included
in one patent application, public and firms’ internal patent data bases entail an
enormous amount of data. As a consequence, it is difficult for the firms to search
3 http://www.epo.org/patents/patent-information/business/valuation/ipscore.html 4 http://www.oceantomo.com/ratings/system 5 http://www.patentvaluepredictor.com/ 6 http://www.globalip.com/
48 3 The role of IT for managing intellectual property – an empirical analysis
the patent data base in the absence of efficient IT support. Also, as the
characteristics of patent specification and patent data can be easily classified, a
target-oriented search is enabled. In their conceptual work, Moehrle et al. (2010)
have developed a patent information process model structuring the variety tasks
related to patent information management and highlighting for which patent
management tasks IT tools could possibly be used. Our empirical investigation
supports their model by finding that especially the authors’ defined tasks related
to searching and analyzing the search results (document query, content analysis,
and visualization) are frequently supported by IT within our investigated firms.
Moehrle et al. also propose the task “evaluation” for being supported by IT
tools, which is in line with the above discussion on the increasing demand of IT
tools for IP assessment.
Finally, organizational information requirements increase with complex
environments, uncertainty, and interdependence of work processes (Bader &
Ruether, 2009; Pitkethly, 2001). Our data supports earlier findings that these
characteristics can be found at intellectual property management processes
(Chesbrough, 2003a; Pisano, 2006; Rivette & Kline, 2000). Growing IP
portfolios, increasing emphasis on intellectual assets, and a high
multidisciplinarity have made IP management increasingly complex and the
availability of technical and managerial information a major success factor. This
trend is also supported by the findings from the case studies. For example, OC
Oerlikon, which has the smallest portfolio of the sample firms with about 1’600
patents, uses IT support less than the other firms. For OC Oerlikon, the most
important aspect for automation are administrative processes, while other firms
with larger IP portfolios have extended the IT support for IP search, evaluation,
and exploitation activities. In summary, these findings suggest a positive relation
between firm size, IP portfolio size and the use of IT tools for IP management.
3.5.2 Firms’ satisfaction and requirements of IT tools for IP management
The results on the user satisfaction of IT tools for IP management show that
firms tend to prefer integrative IT tool systems instead of using many different
tools. An integrative tool system offers the user several functionalities combined
3 The role of IT for managing intellectual property – an empirical analysis 49
in one tool instead of working with different tools. Working with a range of
different tools entails the risk of redundancies, i.e., that identical information
must be entered separately in several tools or basic information analyses have to
be conducted several times. Integrative IT tool systems potentially avoid such
redundancies because all functionalities and analyses can be based on a central
data base containing all relevant information. In summary, the findings show
that integrative IT tool systems provide more efficient support to firms’ IP
management than many single tools.
Different types of users and a broad spectrum of tasks inherent in IP
management present important challenges for the development of IT tools for IP
management (Bonino et al., 2010). Our findings reveal that customization to
individual processes and firm characteristics is the most important requirement
of an IT tool. Firms profit best from IT solutions for their IP management when
they have the possibility to complement the basic standard functionalities
according to their individual needs. This is also confirmed by the findings of the
case studies which provide insights in how firms with large IP portfolios and
established IP management structures integrate IT tools. In line with Daizadeh
(2007), the cases show that many firms have developed own IT solutions for
their IP management instead of using commercial tools. Thus, because specific
needs of the firms are often not met by commercial products, firms are willing to
invest in own software development programs because they consider IT tools to
improve their IP management processes.
3.6 Conclusion and future research potential
Firms are increasingly challenged by growing IP portfolios and have to adapt
structures and processes to ensure efficient IP management. Towards this
backdrop, IT may be a powerful tool to improve the effective management of IP.
As the current user behavior shows, IT tools can significantly improve how IP
data is managed and how information can be efficiently processed. The present
paper provided insights into the use of IT tools in the entire IP management of
50 3 The role of IT for managing intellectual property – an empirical analysis
firms by presenting the results of a worldwide survey. Three key findings can be
derived from the results:
• Three major categories of IT tools for IP management were identified:
search tools, administrative tools, and evaluation tools.
• The firms’ use of IT tools decreases along the IP value chain: Firms
most frequently use IT tools in the IP generation phase for searching
activities. The IP evaluation and IP exploitation phases are less
frequently supported through IT.
• Patents are the form of IP rights which are supported most by IT tools.
Based on the findings of this paper, several recommendation emerge. Besides
patents, firms should also consider IT support for trademark and design
management, e.g., by integrating trademark and industrial design data in the data
base and search systems. This allows the firm to maintain a reliable overview of
their entire IP portfolio and increases the efficiency of the overall IP
management.
Furthermore, evaluation and valuation activities have gained increasing
importance for firms in recent years. By supporting these activities through IT
tools, firms can improve the reliability of their evaluation results. Using an IT
tool for the assessment of the IP portfolio or for single IP rights implies that the
data used for the evaluation and the proceeding of the evaluation is documented
within the system. Hence, the tool ensures to trace back the evaluation activity
and increases the validity of the results.
Also, with respect to the ongoing trend towards a more proactive IP
management, firms should consider using IT tools to efficiently leverage their IP
portfolios. A data base system, for example, can be used to structure the IP
rights according to their current use and thus helps to identify patents for
external commercialization.
Moreover, from our analysis of the various activities along the IP value chain,
it seems that IP information is not only important for the firm's patent
department but also for R&D (e.g., new technology and state of the art searches)
and marketing or business development functions (e.g., pricing considering the
patent value, entering new markets through licensing). Hence, firms should
3 The role of IT for managing intellectual property – an empirical analysis 51
consider that IT tools may facilitate the access to IP information which can then
be used for improved strategy making.
Finally, it is worth noting that we addressed IP intensive firms worldwide
regardless of industry sector or firm size. Thus, the investigation of the impact
of industry, firm size, and geographical effects would enhance our
understanding of contingency factors important for IP management.
Furthermore, in the case studies we focused on those firms that already have
implemented well-structured IP management processes. To extend and
complement our findings, longitudinal studies on how firms starting to establish
IP processes use IT solutions for their IP management would provide important
insights in the success factors of IT tool support. Lastly, due to the fact that
much less attention has been paid to phases two (assess) and three (exploit) of
the IP value chain, a promising further research avenue would be to investigate
the impact of using IT tools in these phases on the overall effectiveness of the
firms’ IP management as well as to analyze the role of different user types of
these IT tools.
4 Creating value through external intellectual
property commercialization – a desorptive
capacity view
Co-authored by Oliver Gassmann, Frauke Ruether, and Martin A. Bader
In open innovation systems, capturing value through external intellectual
property (IP) commercialization is an increasingly important strategy for firms
to keep pace with competitive changes. However, many firms have major
difficulties in creating value through external patent exploitation. To understand
these challenges, this paper explores how firms manage their external patent
exploitation based on a multiple case study research design with fourteen firms
from the pharmaceutical and chemical industry. Adopting a desorptive capacity
perspective we find four main factors influencing the firms’ management of
external patent exploitation: the type of value creation, the organizational
structure, the locus of initiative, and the extent of know-how transfer along with
the patent. Based on these factors, three archetypes of external patent
exploitation with different levels of desorptive capacity are identified. The
article extends the concept of desorptive capacity and existing literature on
intellectual property management in the context of open innovation. Managerial
implications helping firms to implement external IP commercialization
structures are discussed.
54 4 Creating value through external IP commercialization – a desorptive capacity view
4.1 Introduction
In the traditional closed innovation system, intellectual property rights such as
patents were seen as a means to protect own technologies from being imitated
(Chesbrough, 2003a). However, due to significant changes in the competitive
environment, e.g., globalized markets, high dynamics in technology
development (Bianchi et al., 2011a) and a growing mobility of highly skilled
people (Florida, 2002), closed innovation approaches become less viable and
limit interactions with the firms’ environment (Teece, 1998). Many firms have
recognized the potential of opening up their innovation processes and
increasingly look for and share ideas with organizations outside of their firm
boundaries (Gassmann, 2006). From a patent management perspective, opening
up the innovation process requires a shift from the traditional patent protection
approach towards a wider approach that considers patents also as tradable assets.
Within this context, firms have started to commercialize their patents externally
and out-license and sell patented technologies (Davis, 2004; Rivette & Kline,
2000). This trend is underlined by the development of revenues from technology
licensing over the last decades: From 1980 to 2003, the technology licensing
payments and receipts have increased on average by 10.7% per year
(Granstrand, 2004). Moreover, the value of technology transactions has grown
from about $40 billion in the late 1990s to an estimated $100 billion in the early
2000s (Arora & Gambardella, 2010). This development is argued to be due to
the increasing competitive pressure through the globalization of markets,
customers, and competitors which force firms to find ways to keep pace with the
environmental changes and to increase their overall IP management
effectiveness (Arora et al., 2001; Granstrand, 2004). At the same time, recent
studies claim a high level of unused patents within the firms. In a large scale
study with European firms, Guiri et al. (2007) find that nearly 18% of the
patents are unused, in the pharmaceutical and chemical industry even 22%. A
US based survey revealed that more than 35% of patented technologies are not
used by the firms (Rivette & Kline, 2000). A closer look at this licensing
paradox of increasing technology licensing revenues on the one hand, and a
large rate of underexploited patents on the other hand, implies that relatively few
firms account for the majority of the increase in licensing, while many firms still
4 Creating value through external IP commercialization – a desorptive capacity view 55
engage little in out-licensing (Lichtenthaler & Lichtenthaler, 2010). A recent
study revealed that 40% of the patent holders of all US patents account for 99%
of the US licensing revenues, while 60% of the patent holder only generate 1%
of the licensing revenues (Alexy et al., 2009). In contrast to often cited examples
such as IBM and Dow which have established comprehensive licensing
programs and generate large amounts of money through externally
commercializing their patents (Davis & Harrison, 2001), many firms fail to
exploit the full potential of their intellectual assets (Elton et al., 2002).This
discrepancy points to a large heterogeneity between the firms and literature
increasingly refers to managerial difficulties to implement external patent
exploitation (Elton et al., 2002; Lichtenthaler, 2011; Rivette & Kline, 2000).
Several studies exist on the strategy of external patent exploitation, e.g.,
revealing that the firm’s willingness to externally exploit its patents depends on
the potential competitive advantage, the strategic appropriability, and the risk
involved (Davis & Harrison, 2001; Kline, 2003; Pitkethly, 2001). Studies also
exist on the firms' motivation for external patent exploitation, including financial
and strategic motives such as entering new markets and setting industry
standards (Ehrhardt, 2004; Grindley & Teece, 1997; Palomeras, 2007), and
firms’ organizational structures for technology trade (Bianchi et al., 2011b;
Granstrand, 2004; Lichtenthaler, 2011). Also, the markets for patents have been
investigated, e.g., revealing that asymmetric information and high transaction
costs present barriers for patent commercialization (Benassi & Di Minin, 2009;
Gambardella et al., 2007; Teece, 1998).
However, despite the practical importance of external patent exploitation and
the fact that many firms experience substantial difficulties in managing it
(Rivette & Kline, 2000), literature lacks empirical insights in how firms
organize and implement their external patent exploitation. Extant literature is
mostly limited to conceptual approaches (Grindley & Teece, 1997) and
anecdotal evidence (Kline, 2003; Rivette & Kline, 2000). Moreover, most
studies adopt knowledge or technology as the unit of analysis within
exploitation activities, including the exploitation of unpatented technology.
Based on the findings of several studies claiming that the firms’ patent portfolios
are often underexploited and hold significant unused commercial potential
56 4 Creating value through external IP commercialization – a desorptive capacity view
(Elton et al., 2002; Giuri et al., 2007; Rivette & Kline, 2000), understanding
external technology exploitation from a patent management perspective is an
important gap in research. In particular, there is a lack of in-depth empirical
insights into how firms actually manage their external patent exploitation.
Consequently, this article aims to fill this gap by empirically investigating how
firms manage external patent exploitation. Applying the concept of desorptive
capacity as theoretical research setting (Lichtenthaler & Lichtenthaler, 2009),
we explore which factors influence the firms’ approach towards managing
external patent exploitation. To this aim, the empirical analysis of the paper is
based on data from fourteen firms of the pharmaceutical and chemical industry.
The remainder of this paper is structured as follows. In section 4.2, a brief
overview of relevant literature on external patent exploitation and its role in the
pharmaceutical and chemical industry is given. In section 4.3 and 4.4, the
research framework is developed and the research methodology is described.
Sections 4.5 and 4.6 present and discuss the empirical findings and the
developed archetype model. Lastly, section 4.7 concludes the paper and outlines
future research avenues.
4.2 External exploitation of patents and its role in the
pharmaceutical and chemical industry
4.2.1 External patent exploitation
Intellectual property management is commonly understood as the
management of a firm’s IP rights consisting of patents, trademarks, industrial
designs, and copyrights. In this study we focus exclusively on patents for two
reasons: first, patents are the most tangible form of IP rights and enjoy the
strongest legal protection compared to other types of IP. Second, patents mostly
have, compared to the other IP rights, the greatest effect on a firm’s commercial
performance (Ernst, 2001; Lerner, 1994; Rivette & Kline, 2000).
The intention of the patent system is to create incentives for investments in
R&D and the diffusion of R&D results by enabling firms to appropriate returns
4 Creating value through external IP commercialization – a desorptive capacity view 57
from innovation (Levin et al., 1987; Teece, 1986). To do this, literature
distinguishes between internal and external exploitation of patents. Internal
patent exploitation involves protecting own products and processes from
imitation, creating entry barriers for competitors into a technological field, and
ensuring freedom to operate, i.e., creating and maintaining a position where the
firm can continue its research and development (R&D) activities free from third
party IP rights (Blind et al., 2009; Cohen et al., 2000; Harabi, 1995; Levin et al.,
1987). External patent exploitation refers to the exploitation of patents outside
the firm boundaries through out-licensing, cross-licensing, or selling of patents
(Granstrand, 2000; Monk, 2009). To clarify the meaning of the term ‘external
patent exploitation’, we define it, based on the definition of external knowledge
exploitation of Lichtenthaler (2005), as follows: External patent exploitation
describes an organization’s deliberate exploitation of patents to another
independent organization with or without know-how transfer involving a
contractual obligation for monetary or non-monetary compensation.
4.2.2 The case of the pharmaceutical and chemical industry
The important role of patents in the chemical and pharmaceutical industry has
been subject of various studies (e.g. Arora et al., 2001; Gambardella, 1995;
Teece, 1998). The character of pharmaceutical and chemical inventions enables
firms to effectively define patent rights over a specific chemical composition
and to create temporary monopolies (Levin et al., 1987). Cohen et al. (2000)
have termed this characteristic as ‘discrete technologies’, i.e., technologies
where one patented substance often protects one product. This is in contrast to,
for example, the electronic industry where final products are protected by entire
patent clusters. As a result, research and development of pharmaceutical and
chemical firms is more dependent on patents than most other industries
(Granstrand, 2000; Thumm, 2001).
Furthermore, pharmaceutical and chemical firms are under increasing
regulatory and commercial pressure due to exceptionally high initial R&D costs
(Arora & Fosfuri, 2000; Whitehead et al., 2008) and long product development
life cycles (Teece, 1998). In the pharmaceutical and chemical industry, the
58 4 Creating value through external IP commercialization – a desorptive capacity view
average time until a new product is launched is between 7 to 15 years (Fine,
1996). Considering the maximum patent life time of 20 years, with some
exceptions in the pharmaceutical industry with 25 years, firms often have only a
short time to realize earnings from their products. Moreover, the fact that only
about one out of 10’000 substances discovered in the R&D phase in the
pharmaceutical industry becomes a marketable product (Gassmann &
Reepmeyer, 2005) shows the tremendous risk that these firms face regarding the
outcome of their innovation efforts. Towards this backdrop, pharmaceutical and
chemical firms need to look for improved commercialization opportunities and
increasingly adopt a more proactive patent management approach by capturing
additional value through externally exploiting their patents (Arora & Fosfuri,
2000).
Despite the increasing importance of external patent exploitation especially
for the pharmaceutical and chemical firms, literature lacks empirical insights
into how the firms actually manage external patent exploitation. This article
aims to fill this gap by empirically investigating which factors influence the
firms’ management of their external patent exploitation and how this impacts the
success thereof. In order to analyze the data, a research framework adopting the
concept of desorptive capacity is developed in the subsequent section.
4.3 Research framework
Open innovation literature distinguishes between outside-in and inside-out
flows of knowledge at firms (Gassmann et al., 2010). The outside-in process
entails acquiring and integrating external knowledge into the firm. The inside-
out process implies the transfer of own knowledge assets outside to third parties,
e.g., through licensing or selling of technologies. The dynamic capability theory
assumes that organizations need to adopt to changing business environments and
renew their competences in order to stay competitive (Teece et al., 1997). Thus,
firms in open innovation systems need to develop capabilities to internalize and
externalize knowledge to gain competitive advantage. Regarding the outside-in
process, the widely known concept of absorptive capacity has been successfully
4 Creating value through external IP commercialization – a desorptive capacity view 59
applied in numerous studies. The theory of absorptive capacity was originally
introduced by Cohen and Levinthal (1990) and refers to a firm’s ability to
recognize, evaluate, assimilate, and apply external knowledge. While the
outside-in process and the firm’s absorptive capacity have been
comprehensively studied in previous research, its counterpart, the inside-out
process, is still under-researched. Towards this backdrop, Lichtenthaler and
Lichtenthaler (2009) recently introduced the concept of desorptive capacity. As
opposed to absorbing external knowledge, desorptive capacity refers to a firm’s
ability to externalize internal knowledge assets in order to appropriate returns
from innovation. Accordingly, Lichtenthaler and Lichtenthaler (2009, p. 1321)
define desorptive capacity as “a firm’s ability to externally exploit knowledge”.
The authors propose two main stages of desorptive capacity within the
external technology exploitation process: the identification of technology
transfer opportunities and the transfer of the technological knowledge.
According to the authors, identifying potential technological assets for being
externally exploited is an often underestimated but crucial managerial challenge
for the firms. Many firms face difficulties in recognizing external exploitation
options due to the lack of transparency of technology markets (Lichtenthaler &
Lichtenthaler, 2009). At the same time, a study shows that a proficiently
managed process to identify new external exploitation options positively
impacts a firm’s external technology commercialization performance
(Lichtenthaler et al., 2009). Therefore, developing capacities to initiate an
external exploitation project is a key aspect of developing desorptive capacity.
In the second stage, the transfer stage, the firms have to assign a value to the
patents and to develop a pricing strategy considering the cost benefit ratio. Also,
the contractual agreement with the partner firm is negotiated. Besides the
financial compensation this can also include the agreement on additional know-
how to be transferred to facilitate the application of the technology at the partner
firm.
Furthermore, dynamic capability theory suggests that the transfer of
knowledge is affected by internal and external variables (Lichtenthaler et al.,
2010), which we, based on prior research on knowledge and technology transfer,
consider for our research framework.
60 4 Creating value through external IP commercialization – a desorptive capacity view
4.3.1 Internal variables
Motives
Studies on the firms’ rationales to externally exploit their IP suggest two
major types of motives: monetary and strategic motives. Monetary motives have
the objective to enable direct revenues and include generating new income,
maximizing the return of investment, and reducing maintenance costs
(Palomeras, 2007). Strategic reasons entail entering new markets, maintain
freedom to operate, setting industry standards, create a complementary
relationship with partners, gain access to third party IP, reducing risks, and
achieve learning effects (Koruna, 2004; Kutvonen, 2011; Lichtenthaler, 2005)
and allow the firms to generate long-term indirect revenues. Previous findings in
literature suggest that the motive of external technology exploitation has an
influence on how firms manage the exploitation process. For example,
Lichtenthaler (2007a) states that strategic driven technology licensing is much
more complex than purely monetary driven licensing and hence requires a
different managerial approach.
Organization
A firm’s organizational structure also impacts its management of external
technology exploitation. In a study with 152 firms, Lichtenthaler et al. (2009)
highlight the role of organizational structures in the early technology
exploitation phase, i.e., for identifying new external exploitation opportunities.
Also, in a multiple case study analysis with firms from the pharmaceutical
industry, Bianchi et al. (2011b) find that the firms’ organization of external
technology commercialization is linked to distinct characteristics of the
exploitation project. They find that adapting the organizational structures
according to the strategic relevance of the project, the volume of the transaction,
and the maturity of the technology can be an important success factor of external
technology commercialization.
4 Creating value through external IP commercialization – a desorptive capacity view 61
Figure 8: Research framework
4.3.2 External variables
Technology Market
Towards the backdrop of the open innovation era, the role of patents has
shifted from solely protecting a product or a process from imitation towards
being a tradable good itself. In this vein, markets for patents and technologies
have emerged (Arora et al., 2001; Guilhon, 2001; Teece, 1981). However,
markets for intangible goods such as patents differ significantly from product
markets. Although studies have observed a growth of technology markets and
licensing revenues over the last decades, they also point to a major aspect that
limits the growth of these markets: high transaction costs caused by asymmetric
information between the two involved parties and uncertainty, e.g., regarding the
extent and legal status as well as the economic value of the patent (Arora &
Gambardella, 2010). Many firms do not finish or enter a licensing deal at all
because of high transaction costs such as costs for finding a partner, negotiation
effort, or a weak legal strength of the patents (Arora & Gambardella, 2010;
Gambardella et al., 2007). In a survey with US and Canadian firms Razgaitis
Desorptivecapacityfor external IP exploitation
Identify Transfer
Internal factorsMotivesOrganization
External factorsTechnology marketPartners
Value Creation
62 4 Creating value through external IP commercialization – a desorptive capacity view
(2004) found that only for 25% of licensable technologies a partner firm could
be found, and that again out of these, only 25% entered into negotiations of
which then about half of the deals were closed. Along with the rise of the market
for patents and technology and the firms’ difficulties to act on these markets,
intermediary services have emerged (Ewing & Feldman, 2012; Ruether, 2012).
IP intermediaries can be described as “organizations whose business is to match
supply and demand of technology to facilitate IP-based transaction” (Benassi &
Di Minin, 2009, p. 69). Their activities entail for example advising the firms in
evaluating their patents, finding new business options, developing business
models, and identifying potential partner firms.
Partners
Besides the patent owning firm’s exploitation strategy and motives, the extent
of the patent and technology transfer also depends on the partner firm’s previous
know-how and competencies of the technology, or, in other words, on the
partner firm’s need for additional know-how to apply the technology. In this
regard, literature distinguishes between external patent exploitation with and
without the transfer of know-how (Arora & Gambardella, 2010). External patent
exploitation without know-how transfer stands for the transfer of the bare legal
right and is often used to solve the freedom to operate issues (Pitkethly, 2001).
External patent exploitation with know-how transfer includes the transfer of
related explicit and implicit knowledge such as research reports and
technological expertise. These transactions require an active participation of the
patent owner to facilitate the successful application of the technology at the
partner firm (Lichtenthaler & Lichtenthaler, 2010).
In figure 8, the above presented aspects are synthesized in a research
framework on which the subsequent data analysis will be based. Building on the
concept of desorptive capacity (Lichtenthaler & Lichtenthaler, 2009;
Lichtenthaler & Lichtenthaler, 2010), we consider both internal and external
factors impacting the firms’ management of external patent exploitation, which,
in turn, is assumed to impact leveraging and capturing value of the firms’ patent
portfolios.
4 Creating value through external IP commercialization – a desorptive capacity view 63
4.4 Research methodology
Due to the scarce empirical insights pertaining to how firms manage their
external patent exploitation, the research is based on a qualitative, exploratory
research design. A multiple case study research with the firm’s external patent
exploitation activities as the unit of analysis is employed. This research design
allows addressing detailed questions to gain deeper insights in the firms’ patent
management approach and to understand the context and motivation of
behavioral patterns (Eisenhardt, 1989; Gibbert et al., 2008; Yin, 2009). The
cases were selected in a two-step selection process following theoretical
sampling (Eisenhardt, 1989). In a first step, initial interviews with 50 firms
following Yin’s replication logic (Yin, 2009) were carried out in order to gain
general insights into the firm’s external patent exploitation activities. In a second
step, fourteen firms were chosen which provide the most detailed and insightful
information and have the highest learning potential with respect to their external
patent exploitation approach (Eisenhardt, 1989). First, we followed the
contingency approach which suggests that an organization’s ability to achieve its
goals depends on the organizational situation and context (Fiedler, 1964). In the
context of external patent exploitation, we focus on the industry as a
contingency factor (Chenhall, 2003; Mansfield, 1986) and exclusively
investigate firms from the pharmaceutical and chemical industry. With regards
to patent management, these industry sectors are highly comparable because
they deal with discrete technologies (Cohen et al., 2000). Second, we included
firms representing ‘polar types’, i.e., illustrating extreme sides of the
investigated phenomenon (Yin, 2009). To do this, we chose firms with both high
and low activities of external patent exploitation. Third, we considered the
firms’ accessibility and chose those firms which allowed for a personal face-to-
face contact. Also, due to the sensitive data on the firms’ intellectual property
strategies, building up a trust relationship through personal contact is a crucial
aspect for the quality of the data. As a result, seven firms headquartered in
Germany, six in Switzerland, and one in the United States of America were
chosen.
The data collection was conducted through personal face-to-face and
telephone interviews using a semi-structured interview guideline. For the initial
64 4 Creating value through external IP commercialization – a desorptive capacity view
interviews, the heads of the firms’ IP departments were contacted. For the
interviews with the fourteen selected firms, at least one more detailed follow-up
interview was conducted with the same persons contacted for the initial
interviews. Whenever possible, one or two other employees of the firms were
interviewed. This was the case for nine of the fourteen firms: With seven firms,
a second person could be interviewed, with two firms two other persons. While
the first interview partner at all firms was the head of IP, the other interviewed
employees where IP and licensing managers involved in external patent
exploitation projects (see table 7). In addition to the interviews, data was
collected through desk research analyzing the firm’s internal and external
documents and press releases. This multiple source approach allows to
triangulate the data which increases the validity and reliability of the results
(Jick, 1979).
The fourteen sample firms are all research-intensive pharmaceutical and
chemical firms. The size of the investigated firms ranges from 20 to more than
100’000 employees, and their patent portfolios contain between 450 and
140’000 patents. To start the data analysis, we synthesized all data into
individual case histories. Each case history includes narratives, selected quotes
from the interviewees, and tables summarizing the key facts. Then, within-case
analysis was used to identify the specific way how each firm manages their
external patent exploitation (Eisenhardt, 1989). When all individual case
histories were completed, the cross-case analysis was conducted to identify
general patterns across the cases. To do this, the data was tabulated and cross-
case pair wise comparisons were conducted (Miles & Hubermann, 1994). This
allowed us to see similar themes across the cases and to deduce factors that
impact the firms’ management and approach towards external patent
exploitation.
4 Creating value through external IP commercialization – a desorptive capacity view 65
Table 7: Overview of the investigated firms
Firm Headquarters Employees Interviewee(s) Interviews
Firm1 Germany >100,000 Head of IP (regional),
IP Manager 2
Firm2 Germany <500 Head of IP,
Portfolio Manager 2
Firm3 Germany >1000 Head of IP 2
Firm4 Switzerland <500 Head of IP,
Licensing Manager 4
Firm5 Germany >30,000 Head of IP, IP and
Licensing Manager 2
Firm6 Germany >40,000 Head of IP,
IP Manager 2
Firm7 USA >10,000 Head of IP (regional) 2
Firm8 Switzerland >10,000 Head of IP,
Patent Manager 2
Firm9 Germany <500 Head of IP 2
Firm10 Switzerland >100,000 Head of IP (pharma),
IP Manager (corporate),
IP and Licensing Manager
(pharma)
5
Firm11 Switzerland >80,000 Head of IP (corporate),
Head of IP (regional),
Licensing Manager
5
Firm12 Switzerland >10,000 Head of IP,
IP Manager 4
Firm13 Germany >5000 Head of IP 2
Firm14 Switzerland >20,000 Head of IP 2
66 4 Creating value through external IP commercialization – a desorptive capacity view
4.5 Findings and discussion
4.5.1 Internal factors influencing the firms’ external patent exploitation
Motives of external patent exploitation
The motive why firms exploit their patents externally often determines the
form of external exploitation, i.e., out-licensing, cross-licensing, and the sale of
patents. The firms in our study use all of these forms and follow both financial
and strategic motives to commercialize their patents outside of the firm
boundaries. Generating revenues and cutting costs are the most important
financial motives at the investigated firms. Firm1, for example, sells patents of
terminated research projects to reduce the maintenance costs of its patent
portfolio and to receive additional revenues. Selling a patent leads to a one-time
revenue and shifts the patent ownership to the partner firms. In contrast, an out-
licensing agreement usually consists of an initial up-front payment and
subsequent regular royalty payments. Firm11, for example, has out-licensed a
terminated research project to a spin-off company and has gained constant
revenue streams through the royalty payments of 10% of sales for more than a
decade.
Strategic motives to externally exploit patents are more diversified than
financial motives. One of the most important strategic motives is the transfer of
technologies for further development and product commercialization. Firm3, for
example, out-licenses or sells patents of secondary technologies which need
further development to finalize a product that exceeds Firm3’s own resources.
Another important strategic motive is to gain access to third party patents. Firm6
uses cross-licensing agreements to access patents of other firms or institutions
which are important for their own already realized products or for potential
future products. Moreover, for certain technologies, standardization can be a
reason for external patent exploitation. Firm12, for example, considers to
broadly out-license a sub patent portfolio containing approximately 40 patent
families covering a specific technology in order to set an industry standard. The
technology has the potential to being widely used within the own industry as
well as in applications in other industries. Moreover, through out-licensing
either in broad licensing programs or exclusively to selected partner firms, the
4 Creating value through external IP commercialization – a desorptive capacity view 67
firms also intend to enhance the firm’s reputation. Their objective is to be
perceived as an innovative and technology creating firm. Finally, out-licensing
for legal reasons is a motive at the analyzed firms. While none of the firms
follows an aggressive approach regarding patent enforcement, they are willing
to defend their patents in case of infringement. Firm7, for example, uses out-
licensing and cross-licensing agreements to solve infringement cases. The
additional revenue is used to further innovate and develop new products.
From a desorptive capacity perspective, the motive for external patent
exploitation refers to the type of value the firm wants to create. The firms
approach towards external patent exploitation is closely related to their business
strategies and commercialization capabilities (Teece, 1986). While some of the
sample firms treat out-licensing as a distinct opportunity to gain additional
revenues and follow a rather short-term perspective, others intend to engage in
long-term alliances with its partners and build up a network for future out-
licensing opportunities. Respectively and in line with Chesbrough’s
argumentation on creating value through managing IP, the firms follow different
business models and have defined different strategies to appropriate returns
through their patents portfolio (Chesbrough, 2003a). The role of the firms’
business model can be demonstrated with the example of Firm2 which changed
its business strategy over the last years including an active shift of its approach
towards patent exploitation. In the past, Firm2 regarded its patents as a ‘safety
fence’ to protect products and block competitors. Only the internally used
patents were considered as valuable patents and there was not any willingness to
share patents with third parties. Today, Firm2 treats its patents as tradable assets
with the objective to gain access to new technologies, create partnerships and
joint ventures, and gain revenues. Accordingly, Firm2 restructured its patent
management to better handle the external patent exploitation. Hence, firms are
advised to establish desorptive capacities according to their IP
commercialization strategy that defines if the firm aims to exploit its patents
internally through protecting own products, externally through e.g., out-
licensing, or a combination of both. Firms should define which type of value
they wish to create through the external exploitation of the patent and adopt their
management accordingly. This also includes decisions on which form of
68 4 Creating value through external IP commercialization – a desorptive capacity view
external exploitation, i.e., out licensing or selling, should be chosen. For out
licensing, firms should decide whether the technology should be spread using
non-exclusive licenses, or if the best benefit is reached by licensing it
exclusively to one partner firm. While broad licensing can be appropriate to
introduce an industry standard, exclusive licensing can be applied for early
technologies that need further development.
Organizational structure
The way how patent management is implemented within the firms’
organizational structure differs basically between a centralized versus a
decentralized IP structure (Carlsson et al., 2008; Granstrand, 2000). In our
sample, nine of the firms have a centralized and five a decentralized IP
organization. At Firm14, IP management is a decentralized function organized
in multifunctional teams consisting of patent attorneys, legal attorneys, and
licensing specialists. These teams act as interfaces between the R&D department
and the business units and provide support during the creation of IP and the
subsequent transformation thereof into intellectual capital. They also support
decisions regarding the continuation and strategic orientation of projects by
providing the relevant information regarding the legal situation and state of the
art of the technology to ensure freedom to operate. At Firm3 and Firm12, the IP
function is organized centrally in a holding firm. The IP holding is the owner of
all IP rights of the two firms. At Firm12, the IP holding is financed by licensing
patents internally to own companies and externally to third parties. While
currently most of the licensing deals are still conducted internally, Firm12 aims
to enhance the exploitation of patents outside of the firm.
However, with regards to the firms’ desorptive capacity another
organizational aspect seems to be more important than differentiating between
centralized versus decentralized function. Instead, supporting the findings from
Bianchi et al. (2011b) and Lichtenthaler (2011), we find that dedicated or
temporary functions for external patent exploitation impacts the firms‘
management of external patent exploitation. In our sample, eight of the firms
have dedicated functions for external patent exploitation. Firm5, for example,
has established a technology transfer and licensing department exclusively
4 Creating value through external IP commercialization – a desorptive capacity view 69
responsible for the externalization of its intellectual assets. However, our
findings suggest that a dedicated external patent exploitation function is not
always the best solution. Firm11, for example, has had a dedicated function but
recently reduced it and integrated it into the patent acquisition function because
of the low frequency of external patent exploitation projects. Hence, especially
firms focusing on product commercialization with limited external patent
exploitation activities should consider the cost benefit ratio of a dedicated
function and assess which desorptive capabilities they need and can afford. For
them, a well-organized project based temporary team staffed with experts
related to the respective technology might be the more efficient way to manage
the external exploitation project.
Despite these differences regarding the organizational structure, all firms have
in common that the teams managing the external patent exploitation – within a
dedicated or a temporary function – are highly multidisciplinary. Besides patent
specialists there are employees from the R&D, business development, legal, and
marketing department involved to decide whether a patent should be
externalized or not and to prepare and realize the transfer of the patent. This is in
line with Bianchi et al. (2011b) who find that for both dedicated and temporary
functions employees with heterogeneous skills are involved. For example,
within their sample firms the dedicated functions are composed of at least six
experts from different disciplines.
The multidisciplinarity of external patent exploitation is seen by the firms
both as a challenge to coordinate the different perspectives of e.g., the IP, R&D,
marketing, and legal departments, but most importantly as necessary in order to
manage the complexity of the external patent exploitation. Thus, firms should
move away from regarding patent management as a pure legal function and
increase the awareness of the multidisciplinarity of external patent exploitation
to increase the chances of success. This involves, for example, to ensure that all
needed information for an external exploitation project can be accessed by the
external exploitation function, e.g., at the R&D, marketing, and business
development department. This requires a general openness and commitment at
the firm to use the patents beyond the firm’s traditional boundaries (Chesbrough,
70 4 Creating value through external IP commercialization – a desorptive capacity view
2003a; Kline, 2003), or differently put, to overcome the not-sold-here attitude
(Lichtenthaler et al., 2010).
4.5.2 External factors influencing the firms’ external patent exploitation
Partners
The requirements of the partner firms with regards to additional know-how
besides the patent itself as well as their expectations regarding the quality of the
patent significantly impact the management of the external patent exploitation at
the investigated firms. To ensure the quality and to meet the expectations of its
partners, Firm2, for example, bases the internal selection of tradable patents on
specific quality criteria. The technology must be internally tested through a
feasibility study and prototypes, and the documentation of the technology must
be available. Also, Firm2 has an internal policy that the remaining life time of
the patent should be more than six years to allow the partner firm a reasonable
period for commercialization. Due to its earlier experiences, Firm2 avoids out-
licensing or selling patents of unsuccessful research projects or to trade solely
the patent rights. The finding that the management of external patent
exploitation depends on the extent of know-how transfer in addition to the pure
patent right can be compared with Granstrand’s (2004) conceptualization linking
a firm’s technology exploitation strategy with the degree of organizational
integration of the technology at the receiving firm. A partner firm that requires
comprehensive additional know-how probably intends to integrate the
technology to a higher degree than a partner firm that only in-licenses the pure
patent right. Hence, one can conclude that the management of external patent
exploitation at the patent owning firms depends on the organizational integration
of the patent at the receiving firm. Interestingly, the analysis of the firms has
shown that all firms usually have at least a medium extent of know-how transfer
when they commercialize their patents externally. According to the firms,
offering a package of technology together with the patent is a key success factor
of external patent exploitation. Firm2, for example, offers its partners
comprehensive reports of the technology development. Also Firm3 mainly
conducts out-licensing deals with know-how transfer providing documents and
4 Creating value through external IP commercialization – a desorptive capacity view 71
personal support through an R&D employee. Firm4 often cooperates with its
partners for several years because the firm generates patents of early
technologies which are not yet ready to be commercialized and need further
development. Therefore, the transfer of technical know-how in addition to the
patent is a core aspect for Firm4 to commercialize its patents. While literature on
external technology and knowledge exploitation implicitly includes the transfer
of know-how, but also considers the exploitation of unpatented technologies
(Arora et al., 2001; Lichtenthaler, 2009), literature approaching the topic from a
patent management perspective mostly neglects the aspect of know-how transfer
along with the patent (Kline, 2003; Rivette & Kline, 2000). Only Chesbrough
(2003a) underlines that the successful commercialization of patents should be
treated as a business case and requires a business model. Hence, our results
contribute to patent management literature by emphasizing the importance of
offering additional know-how along with the patent transfer. To increase the
success of external patent exploitation, firms should consider to provide a
technology package rather than the sole patent right. This makes it easier for the
partner firm to integrate the patent into its technology portfolio and to realize
and market the final product successfully. Selling or licensing the pure patent
right is mainly appropriate to solve freedom to operate issues.
Technology market
The target market for an external patent exploitation can either be within the
firms’ own competitive environment or outside of it. Especially when the patent
is out-licensed within the own industry, the firms conduct a comprehensive
analysis of the competitive situation. This helps on the one hand to assess the
potential of the technology in the market, and on the other hand, to reduce their
risk of unintended losses of their competitive position (Kline, 2003). Out-
licensing into another industry involves less risk regarding the firm’s own
competitive position and can be a source for substantial additional revenue
(Elton et al., 2002). Firm12, for example, intends to out-license a technology,
but considers licensing it first to firms in other industries because it is less risky
with regards to the own competitive position than within its direct competitive
72 4 Creating value through external IP commercialization – a desorptive capacity view
environment. Before out-licensing the technology within the own industry,
Firm12 intends to conduct a more comprehensive risk analysis.
Furthermore, the choice in which market the patent is transferred also
influences the firms’ willingness to cooperate with IP intermediaries. From a
desorptive capacity perspective, cooperating with an IP intermediary can be an
alternative to build own desorptive capacities. IP intermediaries can complement
the firms capacities by helping the firms to find a partner firm and to prepare
and realize the transaction (Benassi & Di Minin, 2009). Our interviewees state
that their main reason for working with an IP intermediary would be to
complement the limited resources and realize a fast transfer of patents without
huge internal effort. Firm8 for example, considers working with intermediaries
to realize a fast commercialization of abandoned patents. At Firm2, the
identification of a transaction partner sometimes requires the support of IP
intermediaries, e.g., for the commercialization of patents in specific
geographical regions such as China. The Chinese market is nearly unknown to
Firm2. Additionally, cultural differences play an important role for a successful
patent transfer deal. Therefore, for transferring patented technologies into
Chinese markets Firm2 mandates IP intermediaries. In a study on the importance
of intermediary services in the market for technologies, Lichtenthaler and Ernst
(2008) argue that IP intermediaries should be seen as a complement for internal
competencies. Hence, cooperating with IP intermediaries can help firms to
complement and extend their own desorptive capacities of external patent
exploitation. However, some efforts at the sample firms to close a deal with the
support of an intermediary have failed because internally required resources
were still higher than expected. Thus, while intermediaries should be considered
as a supporting option for certain external patent exploitation projects, the firms
should carefully assess which tasks could be done by an intermediary and which
still have to be accomplished internally. Also, the intermediary should be chosen
according to his competencies which best complement the firms’ own desorptive
capacities.
4 Creating value through external IP commercialization – a desorptive capacity view 73
4.5.3 Internal-external factor: locus of initiative
The analysis of the firms reveals that another factor which was not considered
in our research framework impacts the firms’ management of their external
patent exploitation: the locus of initiative of the external exploitation. An
external patent exploitation project can be initialized either internally by the firm
itself or externally by a third party. In case of an external initiation, a third party
approaches the patent owning firm and makes a request to access certain patents.
For the patent owning firm, the external patent exploitation process starts with
assessing the value of the patents on which the keep-or-sell decision and the
potential price for the transfer is based. Firm8, which usually out-licenses based
on external requests, decides from case to case if the deal could be interesting.
Especially licensing requests from firms in other markets are promising options
for Firm8. In case of an internal initiation, the management process starts much
earlier with identifying potential patents for external exploitation. At the
investigated firms, a starting point often is a regular, e.g., annually, patent
portfolio review. Based on the result of the periodical review, Firm12, for
example, creates an exploitation portfolio containing patents for potential
external exploitation. The exploitation portfolio allows Firm12 to structure the
potential patents for external commercialization and to offer packages of patents
to the partner instead of only single patents. The patents in the exploitation
portfolio are evaluated with regards to their commercialization potential. The
evaluation is based on market data and the technology life cycle. Another major
challenge of the self-initiated approach is to identify a partner firm. At our
sample firms, the technologies are often quite specific which makes it difficult
for the firms to find a suitable partner who can potentially use the patent.
Proceeding with the example of Firm12, the firm creates in a first step a list with
possible transaction partners. The list is based on experience and previous
contacts. In a second step, Firm12 conducts patent searches to identify potential
partners. To do this, patent data bases are analyzed according to patent
classifications. For this patent search Firm12 cooperates with an IP service
provider because this task would exceed Firm12’s internal resources. The results
of the patent search help Firm12 to find firms that might be interested in the
technology because of related technologies and applications.
74 4 Creating value through external IP commercialization – a desorptive capacity view
For the firms the active, internally initiated approach implies a lot more effort
in the pre-commercialization phase than in case of an external initiative where a
third party approaches the firm and asks for certain patents (Kutvonen et al.,
2010). While in the externally initiated case the patents and partners are already
known, an internally initiated exploitation project requires efforts to identify a
potential patent as well as to find a suitable partner firm. The importance of
these activities has been highlighted in several studies, especially the
identification of a partner firm is considered a major challenge or even a barrier
of external patent exploitation (Arora et al., 2001; Palomeras, 2007). Thus,
moving from a passive towards an active approach is a big step for every firm.
Firms who consider shifting their external patent exploitation towards an active
approach should especially pay attention to establishing capacities to manage the
potential patent and partner identification.
4.6 Three archetypes of external patent exploitation
Based on the above discussion, four main factors influencing the external
patent exploitation management at the investigated firms emerge. Firstly, based
on the motive why the firm wants to externally exploit its patent the type of
value the firm intends to create through the external exploitation influences the
way it is managed. Secondly, the organizational structure at the firm is
important. The findings suggest that a centralized or decentralized IP structure
does not have a direct effect on the management of the external patent
exploitation. Instead, it seems that the fact if and to what extent the firms have
established dedicated functions for external patent exploitation is crucial.
Thirdly, the locus of initiative of the external patent exploitation project
determines at which point of the process the firm actively starts to manage the
external exploitation. Fourthly, the requirements of the partner firms regarding
additional know-how along with the patent has shown to be an important aspect
the firms have to consider when out-licensing or selling their patents. Thus, the
extent of know-how transfer from the patent owning firm to the partner firm is a
factor impacting the firms’ external patent exploitation management. The
4 Creating value through external IP commercialization – a desorptive capacity view 75
combination of different characteristics of these factors lead to three distinct
archetypes of firms adopting different modes towards their management of
external patent exploitation (table 8). In the following, the three archetypes are
described.
4.6.1 Ad hoc mode
The business strategy of the firms adopting the ad hoc mode is focused on
product commercialization. Thus, their IP strategy is optimized to exploit their
patents internally in own products and processes. External patent exploitation is
not the focus of their IP management and therefore occurs only on an ad hoc
basis and is mostly initiated externally by firms that wish to use certain patents.
The patent out-licensing and sale projects are mainly conducted to generate
additional income or recoup costs. Hence, these firms basically aim to create a
financial value through external patent exploitation. In our sample, the only
exception is Firm6, who does not intend to generate revenue through licensing
in the first place but engages in cross-licensing to access third party patents
emphasizing the mutual exchange without a financial compensation. Due to the
small role external patent exploitation plays for the business of these firms, they
do not have a permanent dedicated function. The teams conducting the external
exploitation are either staffed temporary for each project or the external
exploitation function is coupled with the patent acquisition function.
4.6.2 Hybrid mode
The hybrid mode archetype includes firms following a twofold IP strategy.
The firms consider both internal and external exploitation as an equal means to
generate benefits of their patent portfolios. The main motive of external patent
exploitation is often of strategic nature such as entering new markets difficult to
access through a product strategy, introducing an industry standard, or
transferring further development and production to a partner firm because of
limited internal resources. An example for the hybrid mode is Firm3. Firm3 is a
developing and producing firm for specialty chemistry. During the development
76 4 Creating value through external IP commercialization – a desorptive capacity view
of new products, Firm3 cooperates closely with partner firms leading to two
options to exploit its patents. The first option is to use the patents internally in
own products. The second option is that the partner firm takes over the
production and the patents are exclusively out-licensed. In this case, the firm
emphasizes to offer ‘licensing packages’ which, besides the patent itself, include
the transfer of know-how for the integration and application of the technology at
the partner firm. In contrast to firms following an ad hoc mode, the hybrid firms
actively initiate the external patent exploitation themselves. Firm5, for example,
estimates that roughly 95% of their external patent exploitation projects are self-
initiated, while only 5% are initiated externally. Regarding the organizational
structure, the firms in the hybrid mode have established dedicated external
technology exploitation functions which complement the classical product
commercialization.
4.6.3 Leverage mode
The firms following a leverage mode use external patent exploitation as their
business strategy. Hence, they aim to create both strategic and financial value to
ensure the survival of the firm. Respectively, the organization and the process
management are tailored to external patent exploitation and are highly
professionalized. In our sample, Firm4 adopts the leverage mode. Firm4’s
business strategy focuses on the research intensive part of the pharmaceutical
value chain. Thus, the firm aims to develop drug candidates until clinical phase
two and then tries to partner with established pharmaceutical firms for late-stage
development and marketing of the product. This strategy requires a
comprehensive technology transfer phase in which the transfer of know-how is
as important as the patent itself. The firms following the leverage mode often
cooperate with their partners for months or even years to further develop the
technology and realize the final product. Thus, especially for the firms adopting
the leverage mode, external patent exploitation involves a long-term
commitment regarding their own resources and the collaboration with their
partner firms.
4 Creating value through external IP commercialization – a desorptive capacity view 77
Table 8: Three archetypes of external patent exploitation Extent of know-how
transfer
Very high:
comprehensive know-
how transfer, often
lasting for months or
years
High: intensive but
limited know-how
transfer
Medium: short know-
how transfer phase
Locus of initiative
Internal
Active, professionalized
Internal
Active
External
Reactive
Organizational
structure
All functions focused on
external exploitation
Dedicated function,
separated from
acquisition function
No permanent dedicated
function, often
combined with
acquisition function
Type of value creation
Strategic + financial
Long-term perspective
Strategic
Mid to long-term
perspective
Financial
Short-term perspective
Investigated
firms
Firm4
Firm2
Firm9
Firm3
Firm5
Firm7
Firm12
Firm14
Firm1
Firm6
Firm8
Firm10
Firm11
Firm13
Arc
hetype
Lev
erage
mode
Hybrid
mode
Ad h
oc
mode
Lev
el of
des
orp
tive
capacity
High
Medium
Low
78 4 Creating value through external IP commercialization – a desorptive capacity view
From a desorptive capacity perspective, these three archetypes are
characterized by different levels of desorptive capacity. The highest level of
desorptive capacity can be found at those firms adopting the leveraging mode.
Based on their long-term strategy to generate strategic and financial benefits,
they have organized their daily business accordingly and all functions are
focused on the externalization of the patented technologies. In contrast, the firms
in the hybrid archetype consider external patent exploitation as a complement to
their product commercialization. While they, equivalent to the leverage
archetype, actively initiate external exploitation, the external patent exploitation
function is not the focus but a separated part of their business. Firms using
external patent exploitation on an ad hoc basis have the lowest level of
desorptive capacity. Focus of their business is clearly the product
commercialization and revenues through external patent exploitation rather a
side effect. This finding is also in line with discussions on the role of earlier
experience for building dynamic capabilities. Equivalent to absorptive capacity,
Lichtenthaler and Lichtenthaler (2010) suggest that a firm’s desorptive capacity
is path-dependent, i.e., a firm’s previous engagement in external patent
exploitation influences its probability and success thereof (Kim & Vonortas,
2006; Teece et al., 1997). Firms using external patent exploitation more
frequently are more experienced and thus able to build a higher level of
desorptive capacity than firms which rarely conduct external exploitation
projects. To profit from their experience, firms should carefully analyze earlier
patent exploitation projects and use their lessons learned to increase the chance
of success for future projects. For example, one lesson learned at Firm2 was that
many deals were not closed because it turned out that the expectations of the
supply and demand side did not meet. To avoid this for future projects, Firm2
now pays attention that the expectations of both sides are clearly defined and
communicated right from the beginning.
Furthermore, it should be noted that reaching a high level of desorptive
capacity is not necessarily the most effective way to manage external patent
exploitation. On the contrary, as the example of Firm11 in section 4.5.1,
organizational structure, demonstrated, firms using external patent exploitation
on an ad hoc basis might work more effectively with a relative lower level of
4 Creating value through external IP commercialization – a desorptive capacity view 79
desorptive capacity. Hence, firms should establish their desorptive capacities
according to their needs, i.e., external patent exploitation frequency and value
creation objective.
4.7 Conclusion
Along with the open innovation trend, rethinking patent management by
considering increased external exploitation of patents to improve the efficiency
of the patent portfolio is a crucial aspect for firms. While some pioneering firms
use external patent exploitation with great financial and strategic success, many
other firms experience substantial managerial difficulties. This paper has
explored which factors influence the firms’ management and their success of
external patent exploitation using a case study approach with fourteen firms
from the pharmaceutical and chemical industry. Adopting a desorptive capacity
perspective, four main factors were identified: the type of value creation for the
firm, the firm’s organizational structure, the locus of initiative and the extent of
know-how transfer. Furthermore, three archetypes of external patent exploitation
with different levels of desorptive capacity were deduced. Specifically, our
findings emphasize that creating value through external patent exploitation is not
a simple quick win, but requires a certain commitment by the firms in terms of
internal effort, collaboration with the partner firm, and the transfer of know-
how. This study is the first which uses the concept of desorptive capacity to
analyze the management of external patent exploitation at the firm level. Thus,
the article contributes to the concept of desorptive capacity and existing
literature on intellectual property management in the context of open innovation.
The findings might also help firms to improve their management and success of
creating value of their patents by exploiting them outside of the firm boundaries.
Naturally, our exploratory study also has some limitations. First, our study
focuses on the pharmaceutical and chemical industry, i.e., industries with
discrete technologies. Conducting the study within other industries and different
characteristics of the technology, e.g., the semiconductor industry might result in
other key factors impacting the firms’ approach towards external patent
80 4 Creating value through external IP commercialization – a desorptive capacity view
management. Furthermore, we studied mainly European firms. Due to cultural
reasons or a development within the open innovation trend that differs from
European firms, firms in other countries, e.g., the USA and Japan, might behave
differently regarding managing external patent exploitation. Lastly, it has to be
taken into account that the generalizability is restricted to due to the number of
analyzed firms. Hence, a large scale study testing the influence of the identified
factors would be a promising further research path.
The phenomenon of external IP commercialization is becoming increasingly
relevant in research and practice, and while existing literature has addressed
some issues, many open questions still remain. This paper invites researchers to
further engage and investigate white spots in this young research field.
5 Open IP strategies: Why do firms give away their
patents for free?
Single-authored
Commercializing patents beyond firm boundaries through licensing and
selling is an increasingly discussed topic among scholars and practitioners.
Collecting royalty payments or similarly contractually defined monetary and
strategic returns have become a viable business model for many firms. However,
within this external patent exploitation, a recent phenomenon where firms give
away their patents free of charge can be observed. This seems contradictory to
the original intention of the patent system of enabling firms to create temporary
monopolies to appropriate returns from their R&D investments. Consequently,
this paper explores why firms make their patents available for free and which
benefits they may gain from this behavior. Adopting the open source software
phenomenon as a background and using firm data from 27 patent release cases,
we identify a typology consisting of four types of free patent release approaches
- namely the profit maker, the cost cutter, the innovation catalyst, and the
technology provider - and discuss the motives of the firms to offer their patents
as ‘open source’. We find that firms may obtain valuable technological input for
subsequent innovations as well as social benefits in return for their free patent
release. The article contributes to the burgeoning literature on open innovation
by highlighting the importance of open IP strategies.
82 5 Open IP strategies: Why do firms give away their patents for free?
5.1 IP management in the open innovation paradigm
The open innovation paradigm in which firms increasingly share know-how
and resources has reached many industries such as software, electronics,
telecommunication, pharmaceuticals, and biotech. Prominent examples for open
innovation in practice are Philips with its open innovation park, Siemens’ open
innovation program, or Bayer’s Creative Center. Also Microsoft and SAP have
initiated decentralized research labs to increase the absorption of external
knowledge (Gassmann et al., 2010). Many firms have recognized that internal
idea development is only one part of successful innovation and that many
valuable ideas are whirring outside of the firms’ boundaries. In addition to the
outside-in approach, open innovation also implies inside-out activities where
firms externalize know-how to obtain monetary or strategic benefits in return
(Gassmann et al., 2010; Lichtenthaler, 2010). This also impacts the firms’ IP
strategy which traditionally focuses on protecting know-how and retaining
freedom to operate. From an IP strategy perspective, opening up the innovation
process means also to consider using IP, and especially patents, as a means to
exchange and share knowledge. Extant literature on open innovation emphasizes
that IP should be considered as an enabler of open innovation instead of a
disabler (Alexy et al., 2009). Out-licensing, cross-licensing, and selling of
patents are the most prominent forms of how to use the IP portfolio in open
innovation systems (Granstrand, 2004; Lichtenthaler, 2005). These external
patent exploitation forms actively make use of the patent right system by
demanding a contractually fixed compensation for the use of the patented
technology. In recent years, however, the scholarly debate has evolved around
the question how patents can be effectively used other than licensing or selling
(Hasper, 2009; Henkel & Maurer, 2009; Reisch, 2002). Also in practice one can
observe cases where firms apply another form of external patent exploitation:
they donate patents or make patents freely available either to the open public or
a specific community. At first sight, this behavior stands in contrast to the
original sense of the patent system aiming to prevent third parties from using the
patented technology. So the question arises why firms release technologies in
which they have invested R&D resources and which they have protected
5 Open IP strategies: Why do firms give away their patents for free? 83
through a patent right? Consequently, this article aims to answer this question by
exploring why firms give their patents away freely.
While literature on open IP approaches mainly focuses on the software
industry discussing the open source software phenomenon (Andersen-Gott et al.,
2012; von Krogh & von Hippel, 2006), there has been, to our knowledge, no
comprehensive discussion on providing IP free of charge in other industries.
Furthermore, open source software is mainly based on copyrights, and the
perspective of releasing patents is a new perspective on open IP strategies.
Patent release or give away for free means that in contrast to classic licensing
and cross-licensing agreements, there is no contractual definition of
compensation from the receiving side to the original patent holder. Instead, the
benefits for the original patent holder are either obtained indirectly through tax
benefits in the case of donation, or they are highly uncertain, difficult to
quantify, or based on a long-term perspective.
The article is structured as follows. Section 5.2 provides a theoretical
background by reviewing extant literature related to open IP strategies. Section
5.3 describes the methods used for this article. In section 5.4, a typology of
patent release approaches is developed and illustrated by 22 case study firms.
Section 5.5 briefly presents selected non-commercial patent pools which
aggregate patents freely released by firms. Finally, section 5.6 discusses the
findings and concludes the article.
5.2 Theoretical background
5.2.1 Motives for open IP strategies: evidence from the open source
software phenomenon
In the software industry, the success of open innovation strategies through
open sourcing is widely known and acknowledged. The open source approach to
create software innovations has become a vital alternative to in-house
development for many firms. In fact, in open source software projects, the major
innovations come from the users, or in other words, the open source community
(von Krogh & von Hippel, 2006). Open source communities consist of people
84 5 Open IP strategies: Why do firms give away their patents for free?
who voluntarily contribute to the open source software development by writing
software code and sharing their modifications with the community and the
original software supplier (von Krogh & von Hippel, 2006). Open source
software projects are mostly based on copyright licenses. Historically, software
was not patentable prior to the 1970s. Today, only in the US and in Japan
software can be generally protected through patents. Some other countries such
as China or the UK allow software patents under certain conditions, e.g.,
including a visible technical contribution (Yang, 2012). However, in most
countries and IP regimes software patenting is not possible but falls under the
copyright protection. The motives why firms contribute to the open source
software development by releasing their software code and related IP rights to
the public are have been discussed by many scholars during the last decade.
Open source software literature basically distinguishes between three major
areas of motivations of firms for participating in open source development:
economic, technological, social reasons (Bonaccorsi & Rossi, 2006; Dahlander
& Magnusson, 2005). These three areas of motivations are briefly presented in
the subsequent paragraphs.
Economic reasons
Commercial firms are driven by maximizing profits, thus the economic
perspective behind releasing innovations free of charge is obviously an
important, although counterintuitive, aspect for the firms. In the software
industry, literature emphasizes the selling of complementary services as a
dominant strategy of firms to appropriate returns through open source software
activities (Dahlander, 2005; Dahlander & Magnusson, 2005; Lerner & Tirole,
2002). Besides the software itself, complementary products and services such as
installation, training, maintenance, consultancy, and certifications play a major
role for firms to achieve competitive advantage (Andersen-Gott et al., 2012).
Another economic reason for releasing software to the open source
community are cost savings. By using the community in addition to internal
development efforts, the firms on the one hand lower their internal R&D costs
(Hawkins, 2004), and on the other hand they increase their R&D resources by
profiting from external ideas (George et al., 2005). Without receiving any
5 Open IP strategies: Why do firms give away their patents for free? 85
monetary compensation in return, the developers in the community for example
identify and report bugs and test the software on its functionality (Henkel, 2004;
Lerner & Tirole, 2002). This enables the firms to develop their products faster
and make them better than what they would be capable of doing solely by
themselves (Andersen-Gott et al., 2012).
Technological reasons
By opening the innovation process to the open source community, firms can
also profit on the technology side through comments, ideas, and further
developments from users and developers, thus enabling a cumulative innovation
process (Henkel, 2004). Through this, firms can lower their development costs
and improve quality and applicability of the technology (Bonaccorsi & Rossi,
2006). Moreover, the open source concept allows the developers in the
community to ‘stand on the shoulders of giants’, i.e., to base their further
development and contribution on an already existent basis of technology
(Scotchmer, 1991). For the technology releasing firms, using the feedback of the
community on their basic software technology involves to profit from capacities
that go beyond their internal development capacities, and thus enables them to
speed up their innovation process (Andersen-Gott et al., 2012). Also, promoting
a technological standard can be a reason for firms to freely release their software
(Bonaccorsi & Rossi, 2006).
Social reasons
Besides the mainly profit-driven motivations based on economic and
technological reasons, literature also points to social reasons to contribute to
open source development. On the one hand, firms aim to conform to the social
norms of the open source community and feel a moral obligation (Andersen-
Gott et al., 2012; Bonaccorsi & Rossi, 2006). On the other hand, due to rising
public interest and attention to the open source phenomenon firms have
recognized that participating in this movement can be a chance to enhance
corporate reputation (Bonaccorsi & Rossi, 2006). In a study on open innovation
practices of firms in the UK, Holmes and Smart (2009) analyze partnerships
between firms and non-profit organizations and find that firms commit
86 5 Open IP strategies: Why do firms give away their patents for free?
themselves to cooperations which are not purely economic-driven, but driven by
social responsibility. Firms share their innovations voluntarily with non-profit
organizations in exchange for social legitimacy, which is becoming part of the
firms’ innovation capital (Holmes & Smart, 2009).
5.2.2 Patent donation
From the patent management perspective, some studies exist regarding patent
donation as a form of patent release. Patent donations are especially common in
the US and are based on the concept that patent owners donate patents to non-
profit organizations such as universities and other research institutions. For the
patent donation, the original patent owner transfers the entire patent right
including all obligations to the receiving party, i.e., the receiving party
becoming the new patent owner. By donating a patent, the original patent owner
can gain both tax benefits and cost reductions, e.g., by reducing yearly patent
maintenance expenses. On the side of the receiver , the donated patent is
integrated in the own research and development process with the aim to generate
a new product, i.e. the patent donation is representing a potential source of
income (Reisch, 2002). Additionally, both sides can benefit from strengthening
their research network through cooperating during the patent donation process
and subsequent collaboration (O'Haver, 2003). While patent donations have
been possible in the US since 1954, firms only began during the 1990s to
recognize the potential benefit and to make increasingly use of it. At that time,
the tax benefits were calculated based on the patent’s fair market value. Because
of increasing cases of abuse in which donors have overestimated their patents
significantly, the law regarding patent donations was changed in 2004. Under
the new law, tax benefits are now defined by the lower amount of either the
patent’s fair market value or its cost basis (Mcbean, 2005). In a study with 36
US based firms, Carlsson et al. (2008) analyze the role of patent donations
within the firms’ IP process. They find that generating good will, profiting from
tax deductions and other financial benefits, and philanthropy were motives of
the firms to donate their patents (Carlsson et al., 2008).
5 Open IP strategies: Why do firms give away their patents for free? 87
5.3 Methods
To answer the question why firms release their patents free of charge to third
parties, we investigated 22 firms in which a total of 27 patents release projects
had been conducted. The data was collected by searching publicly available
cases of patent donation and free-licenses, i.e., using data bases, press releases,
firm reports, website information, and journal publications. We focused on mid
and large sized firms that are pioneering in open innovation approaches. The
investigated firms have their home bases in the USA (15), Switzerland (3), the
UK (2), Germany (1), and the Netherlands (1) and operate in the
pharmaceutical, chemical, life sciences, information technology, and electrical
and mechanical engineering industries. In addition to the releasing firms and due
to their eminent role for some of the investigated patent release cases, four major
players in terms of non-commercial patent pool organizations were investigated.
Here too, data was gathered through the pools’ websites, reports, presentations,
and journal publications.
5.4 Creating value through patent release
The literature review has shown that firms engage in open source activities for
economic, technological, and social reasons. For open source software activities,
the economic reasons comprise reducing costs and selling complementary
services to boost their profit. In addition, the patent donation perspective
emphasizes the financial aspect of benefiting from tax deduction and reducing
patent maintenance costs by donating patents to a non-profit organization.
Furthermore, literature also points to reasons that do not have a direct financial
effect. Technological reasons such as profiting from feedback from the open
source community as well as moral obligations, social responsibility, and
generating good will seem to play an important role for firms to decide on
opening up their innovations. Based on these findings from literature as well as
our case studies, we identified four different types of approaches towards patent
release. On the one hand, these types differ regarding financial and non-financial
motives of firms with regards to patent release. On the other hand, we
88 5 Open IP strategies: Why do firms give away their patents for free?
differentiate regarding the type of the patent. In addition to literature, the
analysis of the case study firms revealed that the firms’ motives to release a
patent often depend on the type of patent at question. For example, donating
patents, i.e., transferring the entire patent right to a third party, was solely
applied for patents that had no more function for the firm, i.e., did no longer fit
their business. We call this type of patent non-core patent. But the firms also
made patents freely available to others that were still in use within the firm, e.g.,
in current or future products and processes, to maintain freedom to operate, or to
block competitors. These patents are referred to as core patents in our typology.
Based on the differentiation regarding motives and type of patents, we term the
four identified types profit maker, cost cutter, innovation catalyst, and
technology provider. In the following, each type is briefly described and
illustrated by the case studies.
5.4.1 Type 1: Profit maker
The profit maker approach represents firms releasing selected core patents
mainly based on financial motives by benefiting from the open source
community and gain network effects (table 9). This trend of open source
strategy is mainly driven by the software industry where many firms have
become aware of the potential of know-how and ideas of the users to improve
own products and thus secure their dominant market position and boost profits.
Examples for open source technology providers including the free release of
related patents are Sun Microsystems, ARM, and IBM. In 2005, for example,
IBM made 500 valuable patents freely available to the open-source software
community with the objective to stimulate the flow of innovation. Another
example refers back to the 1970s when Dolby decided to free-license patents
covering its noise-reduction technology through releasing pre-recorded cassettes
encoded with this technology. Instead of gaining licensing fees directly from the
patents, Dolby successfully profited from the lock-in effect of its noise-
reduction technology and earned its profits through the sales of the tape players
using this technology.
5 Open IP strategies: Why do firms give away their patents for free? 89
Table 9: Examples for the type profit maker
Form of patent
release
Firm Year Description
Free-license Dolby 1970 Licensed patents covering its noise-
reduction technology on pre-recorded tapes
for free.
Free-license IBM 2005 Made freely available 500 patents to the
open software community.
Free-license Sun Microsystems 2005 Made freely available 1670 patents, mostly
related to the Solaris operation system, to
the open source community.
Free-license ARM n/a Made freely available specific parts of its
patent portfolio to current and potential
clients.
5.4.2 Type 2: Cost cutter
In the cost cutter category, firms donate obsolete patents to universities, other
research institutions, and non-profit organizations with the main motive to
reduce their costs for the patent (table 10). These costs include on the one hand
maintenance fees which have to be paid to the patent offices to keep up the
patent, and on the other hand any liabilities attached to the patent, e.g., costs for
enforcement in case of infringement. Furthermore, in the USA firms can benefit
from tax deductions. During the last decade, firms such as DuPont, Shell,
Kellogg and Lubrizol donated patents worth several millions US dollars to
universities and institutions such as the Mid-America Commercialization Group,
or the National Institute of Standards and Technology and enjoyed substantial
tax savings. Often, patent donations are caused by a firm’s shift of its business
strategy so that valuable patents become obsolete for the firms’ business. In the
late 1990s, Shell, for example, shifted its core business to petrochemicals and
gave up its specialty chemicals technologies (Tullo, 2011). Towards this
backdrop, Shell donated the patents covering its Carilon and Carilite
technologies, which were considered to be applicable across a wide spectrum of
industries, to the non-profit research institute SRI who incorporated the patents
into its own polymer technology portfolio.
90 5 Open IP strategies: Why do firms give away their patents for free?
Table 10: Examples for the type cost cutter
Form of patent
release
Firm Year Description
Donation DuPont 1999 Donated patents valued at 64 million USD
to Pennsylvania State University (6 million
USD), University of Iowa (35 million
USD), and Virginia Polytechnic Institute
(23 million USD).
Donation Eaton 1999 Donated 57 patents valued at 17 million
USD to Kansas State University.
Donation Shell Technology
Ventures
2000 Donated patent s and equipment valued at
83.5 million USD to University of Texas.
Donation Caterpillar 2001 Donated patents valued at 50 million USD
to Mid-America Commercialization Group.
Donation Kellogg 2002 Donated patents valued at 49 million USD
to Michigan State University.
Donation Lubrizol 2002 Donated 17 patents valued at 22.4 million
USD to National Institute of Standards &
Technology.
Donation Shell 2002 Donated patents on Carilon and Carilite
technologies to SRI International, a non-
profit research institute.
Donation DuPont 2007 Donated 250 patents to the Delaware
Economic Development Office (DEDO)
Donation Hercules 2007 Donated 5 patents to the Delaware
Economic Development Office (DEDO)
Since a change of law regarding tax benefits through patent donations in 2004
(Mcbean, 2005), the incentives for firms to donate are moving away from the
mainly financial-driven motive towards a combination of financial benefits and
fostering innovation. In 2007, DuPont and Hercules donated patents that had
become obsolete to their businesses to the Delaware Economic Development
Office (DEDO). One of Hercules’ patents, for example, was considered
particularly promising as an environmentally friendly alternative to a current
technology impacting the depletion of the ozone layer. Instead of abandoning
the patent and to ensure its further development and exploitation, Hercules
5 Open IP strategies: Why do firms give away their patents for free? 91
donated the patent to the DEDO, which licenses such patents to entrepreneurs to
commercialize the technologies via new business ideas. In this model, the patent
maintenance fees are covered by the state of Delaware (Bond, 2007).
5.4.3 Type 3: Innovation catalyst
Firms also release parts of their patent portfolios for non-monetary reasons.
The innovation catalyst firm gives away non-core patents to universities or other
research institutions in order to trigger innovation activities and open up new
fields of business (table 11). Boeing, for example, developed a material they
used in aircraft antenna units but which, due to its bio-compatibility, strength,
and density, also showed remarkable potential for being used in the medical
sector to replace bones in humans. Since the medical area is very different from
Boeing’s business and the firm also lacks respective know-how, Boeing donated
the patent covering these applications to the University of Pennsylvania, where
the technology was further developed (MCAM, 2003). Also Celera granted free
access to patents which were beyond Celera’s core business to a non-profit
organization, the Institute for OneWorld Health, whose mission is to develop
affordable drugs against neglected parasitic diseases. The patents cover a drug
against the Chagas disease, a tropical parasitic disease affecting approximately
18 million people in Central and South America. Celera did not expect financial
benefits by releasing its patents, but wanted to make the patented drug
component available for further clinical development. Another example is
Procter & Gamble which started in the late 1990s to increasingly donate patents
to third parties. The company realized that they were creating more technologies
than they could finalize into a product and decided to open its doors and make
its patented technologies available to other institutions. One example is the
donation of 196 patents and all associated IP covering chemical compounds
which have the potential to become a new ‘super aspirin’ drug, i.e., a new drug
without the gastric side effects of the current aspirin drug. For this patent
donation, Procter & Gamble selected the patent receiver carefully according to
its competence for developing the technology further. In the end, they
considered the Vanderbilt University as the most appropriate institution and
92 5 Open IP strategies: Why do firms give away their patents for free?
Table 11: Examples for the type innovation catalyst
Form of patent
release
Firm Year Description
Donation Procter & Gamble 2000 Donated 196 patents covering a technology
with potential for a ‘super aspirin’ drug to
the Vanderbilt University. Besides the
patents, P&G provided funds to maintain the
patents as well as assistance for
development.
Donation Procter & Gamble 2001 Donated a patent for testing manufacturing
process emissions with the potential of
being used in ca. 4000 manufacturing
utilities to the Midwest Research Institute.
Donation Boeing 2001 Donated patents with potential applications
in the medical sector to the University of
Pennsylvania.
Donation DuPont 2001 Donated patents for a new papermaking
technology to the University of Maine for
further development and implementation at
an industrial scale. Besides the patents,
DuPont employees support the continuing
studies.
Free-license Celera 2002 Granted an exclusive free-license of patents
covering compounds to treat the Chagas
disease to the Institute for OneWorld
Health.
provided besides the patent rights also technical assistance as well as financial
assistance to cover the patents’ maintenance fees for three years (MCAM,
2003).
5.4.4 Type 4: Technology provider
The fourth type, the technology provider, is characterized by making specific
core patents freely available to third parties. The motives of this behaviour is
mostly a combination of creating good will, serving the society, and accessing
third party patents via patent pools (table 12). In 2010, for example, Hewlett-
5 Open IP strategies: Why do firms give away their patents for free? 93
Packard pledged three patents on a battery recycling technology to the Eco-
Patent Commons patent pool. Although the technology had the potential of
generating earnings for Hewlett-Packard, the company made the patents
available without any purchase or royalty obligations in order to support the
green technology initiative of the Eco-Patent Commons. Syngenta released
patents on a specific rice breed to the Golden Rice patent pool. Since the patents
of Syngenta entailed the key patents for this technology, new inventions based
on these patents were assigned to Syngenta, so that the company received in
return an advanced, nearly marketable technology with relatively little internal
R&D effort. In another case, Boehringer Ingelheim, a German-based
pharmaceutical company, granted a free-license of patents covering a HIV drug
to Aspen Pharmacare, a South African pharmaceutical manufacturing company.
This free-license allows Aspen to produce and distribute the HIV drug in South
Africa as well as in thirteen other countries of the South African Development
Communities at an affordable price. For Boehringer Ingelheim, this voluntary
free-license marks a step towards its commitment to fight HIV. As Boehringer
Ingelheim, many other pharmaceutical firms have realized the need to bundle
efforts to provide medical treatment also to the poorest regions of the world.
Thus, many pharmaceutical firms such as Roche and Novartis do not file or
enforce patents, especially related to antiretroviral drugs, in least developed
countries7, thus providing free access to its patents to express their social
responsibility.
In summary, the above presented four types of patent release can be compiled
into a typology differentiating between financial and non-financial motives of
the firms to release their patents on the one axis, and between the release of core
versus non-core patents on the other axis (see figure 9).
7 As defined by the United Nations
94 5 Open IP strategies: Why do firms give away their patents for free?
Table 12: Examples for the type technology provider
Form of patent
release
Firm Year Description
Free-license Syngenta 2000 Granted free-license of patents covering a
technology to produce vitamin A enriched
rice to the Golden Rice patent pool.
Free-license Boehringer
Ingelheim
2002 Granted free-licenses of patents covering a
HIV drug for a period of 5 years to Aspen
Pharmacare, a South African pharmaceutical
manufacturer.
Free-license Alnylam 2009 Granted free-licenses of more than 1500
patents to the pool for Open Innovation
against Neglected Tropical Diseases.
Free-license GlaxoSmithKline 2009 Granted free-licenses of more than 800
patents to the pool for Open Innovation
against Neglected Tropical Diseases.
Free-license Hewlett-Packard 2010 Granted free-licenses of 3 patents covering a
technology for battery recycling to the Eco-
Patent Commons pool.
Free-license Gilead 2011 Granted free-licenses of patents covering
certain HIV drugs to the Medicines Patent
Pool.
Free-license Roche 2011 Started negotiations for free-licenses of HIV
patents to the Medicines Patent Pool.
Free-license Novartis , Roche general Do not file or enforce patents in least
developed countries
5 Open IP strategies: Why do firms give away their patents for free? 95
Figure 9: A typology of different patent release activities and motives
5.5 Non-commercial patent pools
For the free release of patents without direct financial benefits, non-
commercial patent pools seem to be a platform that is accepted by many firms.
In our sample, this has been shown by firms such as Syngenta,
GlaxoSmithKline, Hewlett-Packard, Gilead, Roche, and Alnylam. Non-
commercial patent pools are alliances in which patent owners license one or
more patents on a royalty-free basis to an organization that manages the patent
pool. By doing this, the licensed patents are available for other members of the
pool as well as non-member research institutions. In return, the patent owners
are granted access to all patents within the pool, can initiate new research and
business collaborations, reduce development costs and risks through shared
Cost cutter
Patent donation to research institutions and non-profit
organizations.
Benefit: reduce patent maintenance and liability
costs, achieve tax deductions
Technology provider
Free-licenses to patent pools,
certain geographical regions, and for certain technologies.
Benefit: Serve society, reputation, access to third
party patents (pools), generate
good will
Innovation catalyst
Patent donation or free-license
to research institutions, non-and for-profit organizations.
Benefit: avoid throwing away potentially valuable
technologies, strengthen
research network, speed up exploitation of innovation
Profit maker
Free-licenses as open source
strategy and setting industry standards.
Benefit: improve product by integrating user modifications,
network effects to increase
profit
financial non-financialMotive of
the firm
core
Type of
patent
non-core
96 5 Open IP strategies: Why do firms give away their patents for free?
efforts, and generate good will by serving society (WIPO, 2011c). To shed light
into how such non-commercial patent pools work and why firms participate in
their concept, in the following section four selected non-commercial patent
pools and their purposes are shortly presented.
5.5.1 Eco-Patent Commons
Eco-Patent Commons is an initiative providing an online repository of patents
covering environmental friendly technologies that are provided by firms for free
use, without a need to license or to purchase. The Eco-Patent Commons patent
pool was launched in January 2008 by the World Business Council for
Sustainable Development (WBCSD) and a firm consortium. The objectives of
the Eco-Patent Commons are to foster the sharing of technologies that help to
protect the environment in order to establish collaborations between patent
holders and facilitate the implementation of the technologies. The patents
included in the Eco-Patent Commons have to provide an environmental benefit
and are basically selected via their International Patent Classification (IPC)
class. Currently, thirteen firms8 have joined the Commons and released specific
environmental-related patents, among them Bosch, IBM, Nokia, and Sony. The
patent holding firms grant free access to the patents to members and non-
members of the patent pool interested in further development of these
technologies. In return, the firms can profit from the innovative outcomes of this
research collaboration and gain recognition through their contribution to
enhancing the development of green technologies.
5.5.2 Golden Rice project
Another example for a non-commercial patent pool is the Golden Rice
initiative which is dedicated to increase accessibility to agricultural technologies
to users in developing countries. The Golden Rice breed has been developed to
fight diseases and deaths in developing countries in Africa and Asia caused by
vitamin A deficiency. The Golden Rice is genetically modified in order to reach 8 Bosch, Dow, Dupont, Fuji Xerox, Hewlett-Packard, Hitachi, IBM, Nokia, Pitney Bowes, Ricoh, Sony, Taisei, Xerox
5 Open IP strategies: Why do firms give away their patents for free? 97
a higher level of vitamin A in the rice. Having started the Golden Rice project in
1992 as an initiative of the Rockefeller foundation, the project soon faced patent
issues regarding the Golden Rice technology. Eleven patents belonging to
different firms were identified as crucial to produce the vitamin-A rich Golden
Rice. Thus, in 2000, the initiative successfully negotiated to pooling the needed
eleven patents and to make them available to small farmers and humanitarian
research institutions in developing countries free of charge. The firms
contributing their patents to the Golden Rice pool are Syngenta, Bayer,
Monsanto, Novartis, Orynova, and Zeneca Mogen. By freely providing their
patents for a humanitarian use to the highly observed Golden Rice project, the
firms may gain positive public relations and reputation effects, especially
towards the backdrop of the critics regarding patenting in the life sciences
industry.
5.5.3 Medicines Patent Pool
The Medicines Patent Pool was established in 2010 by UNITAID, an
international institution hosted by the WHO dedicated to improve the treatment
of HIV/AIDS, tuberculosis, and malaria. The Medicines Patent Pool’s objectives
are to improve the access to HIV drugs in developing countries by decreasing
their prices through providing access to patents related to these drugs. To date,
the US National Institutes of Health (NIH) and Gilead have granted free-licenses
to the pool and five more firms, namely Boehringer Ingelheim, Bristol Meyers
Squibb, Roche, Sequoia, and ViiV Healthcare, are negotiating to contribute one
or several patents to the pool. The main driver behind the Medicines Patent Pool
is public health rather than commercial interests. Hence, the motivation of the
patent holding firms to release patents to this pool is to express their
responsibility for the supply of HIV drugs for developing countries and to
generate a long-term reputation enhancement. Also, it offers the pharmaceutical
firms an alternative to non-voluntary measures, e.g., compulsory licensing, and
avoids dismay both from public as well as from generic drug firms regarding
patenting in these disease areas.
98 5 Open IP strategies: Why do firms give away their patents for free?
5.5.4 WIPO Re:Search initiative
The most recent example of non-commercial initiatives to pool patents is the
WIPO Re:Search initiative. The WIPO Re:Search initiative was established in
October 2011 with the objective to provide a platform where firms and research
institutions share their knowledge and intellectual property regarding the
treatment against neglected tropical diseases9, which affect approximately 1
billion people worldwide. WIPO Re:Search is based on the Pool for Open
Innovation against Neglected Tropical Diseases (POINT), which was launched
in 2009 by GlaxoSmithKline and Alnylam and is now sponsored by the WIPO
and BIO Ventures for Global Health. Besides GlaxoSmithKline and Alnylam,
also AstraZeneca, Eisai, MSD, Novartis, Pfizer, and Sanofi have joined the
initiative and grant royalty-free access of their patents in order to promote the
development of drugs, diagnostics, and vaccines against neglected tropical
diseases. Moreover, drugs related to these patents are sold royalty-free in least
developed countries. By participating in WIPO Re:Search, pharmaceutical firms
can contribute to their role as important players for global health and generate a
positive effect on their public perception.
5.6 Discussion and conclusion
This paper conceptualized why firms make their patents available for free to
other firms or institutions and which benefits they gain from doing so. Adopting
insights from open source literature and based on 27 patent release cases, a
typology with four different types of patent release approaches and their
motivation was developed. Based on this, four major findings can be derived.
First, comparing our results with those from open source software literature
which is mainly based on copyright aspects in terms of intellectual property
rights (Yang, 2012), we find that the firms’ motives to give away patents for free
are more diverse. Within the economic reasons, the main motivations are
reducing costs through saving R&D efforts as well as cost reduction in terms of
maintenance fees when patents are donated (Carlsson et al., 2008; Reisch, 9 As listed by the World Health Organization (WHO)
5 Open IP strategies: Why do firms give away their patents for free? 99
2002). Furthermore, tax deductions through patent donation (Mcbean, 2005) is a
benefit that is unknown in the open source software literature. Within the
technological reasons, our results are in line with open source software literature
finding that speeding up the innovation process and profiting from network
effects are important motives (Andersen-Gott et al., 2012; Henkel, 2004; von
Hippel & von Krogh, 2003). In addition, donating or making patents freely
available is also seen by the firms as an option to avoid ‘throwing away’
potentially valuable technology that does not fit into the firms’ business strategy.
Second, we find that the importance of the motives differs between the open
source software phenomenon and our investigated firms. Firms engaging in
open source software are mainly driven by economic and technological reasons,
while the social reasons are less important (Bonaccorsi & Rossi, 2006). In
contrast, we find that social reasons play a major role for releasing patents in the
firms acting in other than the software industry. Especially the examples of the
green technologies and the medical sector show that the firms emphasize their
public perception and feel a need to respond to their social responsibility.
Third, releasing non-core patents free of charge is only reasonable for
valuable patents. Releasing a patent, either through donation or free-licensing,
always involves a certain effort for the patent owner (Reisch, 2002). Identifying
an appropriate organization to receive the patent, going through the formal
process of e.g., donation, and providing technical assistance to the patented
technology only makes sense for the patent owner if the patent at question is
considered to be valuable. If this was not the case, the firms would rather
abandon the patent without having any additional effort (Bader et al., 2012). The
patents in the Eco-Patent Commons pool, for example, are assessed to be more
valuable than the average patent of the participating firms (Hall & Helmers,
2011). At the investigated firms, patents for donation and free-licensing were
selected carefully and covered technologies that were considered valuable but
did not fit into the firms’ business strategy. This is in line with earlier findings
on external technology exploitation that emphasize the need to put effort into
commercializing technologies based on a business decision (Anokhin et al.,
2011; Ziegler et al., 2012).
100 5 Open IP strategies: Why do firms give away their patents for free?
Fourth, our results indicate that releasing patents can also be effective other
than in the software industry. This finding contributes to the question asked by
Lerner and Tirole (2002, p. 230) if “the open source process can be transported
to other industries”. They state that even though the open source software model
may not be easily adopted in other industries, there are a number of aspects that
are not software industry specific. As an example they compare the selling of
additional services with giving away the razor to sell more razor blades (Lerner
& Tirole, 2002). In our sample, Dolby used this strategy by offering its noise
reduction technology for free in order to gain returns through selling the tape
player using it. Furthermore, in the current dynamic and fast development of
high technologies, most technical progress is based on a foundation provided by
earlier innovators (Scotchmer, 1991). Thus, participating in this extreme form of
open innovation (Dahlander & Wallin, 2006) by sharing know-how and
intellectual property free of charge can be a viable strategy in many high-tech
industries to foster innovation.
In conclusion, releasing patents by making them freely available to research
partners, customers, users, and suppliers, and profiting from rewards in the long
term can help firms to establish a sustainable ecosystem. The results of this
article contribute to the burgeoning literature on managing intellectual property
within the open innovation paradigm by highlighting the importance of open IP
strategies and exploring how firms can benefit from opening up their patent
portfolios. Being among the first works on the question why firms release their
patents free of charge, this article is hoped to encourage research in this field
where many questions are still open. A large-scale survey on the firms’ motives
to give away their patents freely could provide important statistical evidence
testing the conceptual findings of this article. Furthermore, details on which sort
of patents are considered for releasing as well as an analysis of industries would
be an interesting research avenue. Lastly, investigating the long-term effects of
patent release in terms of benefits or losses for the original patent owner would
shed light on the impact of such open IP strategies on firm performance.
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Curriculum Vitae
Personal Details
Nicole Ziegler, Dipl.-Wi.-Ing., Ingénieur INPG
Born November 26th 1982 in Saarbrücken, Germany
Educational Background
2011-2012 Chalmers University of Technology, Gothenburg, Sweden
Visiting Researcher at the Department of Technology
Management and Economics (Prof. Ove Granstrand, PhD)
2008-2012 University of St. Gallen, Switzerland
Research Associate and doctoral candidate at the Institute of
Technology Management (Prof. Dr. Oliver Gassmann)
2007-2008 Grenoble Institute of Technology (INPG), France
Studies of Industrial Engineering (Ingénieur INPG, Master
de Recherche en Génie Industriel)
2002-2008 Karlsruhe Institute of Technology, Germany
Studies of Industrial Engineering (Diplom-Wirtschaftsingenieur)
2002 Max-Planck-Gymnasium, Dortmund, Germany
German-French high-school diploma