Over time some of my interest has included: the "economics of information", innovation, and IP. A great deal of this is derived from my interactions as a student at Michigan and post grad school world of work.
Spark for Initial Interest
This interest began with some conversations at grad school during and after CK's strategy class. One of the many very valuable insights he taught me was that innovation was at the boundaries of industries, scientific fields, and academic disciplines. He felt the lines of many industries would break down and scientific fields would overlap, merge, or somehow become complementary...you see it all the time now.
I had the opportunity to work in Silicon Valley several years after earning my MBA degree. One initiative led me to the field of intellectual property. I gained insight into all that was wrong with our patent system, especially how trolls, big companies, and patent lawyers work to undermine innovation. Our failure to truly fix the problem has enormous economic consequence. A former colleague from Silicon Valley recently suggested the need to re-create an "IP exchange" in the semiconductor design industry was even greater than before.
A writer in the Economist magazine said the following:
"Patents are supposed to spread knowledge, by obliging holders to lay out their innovation for all to see; they often fail, because patent-lawyers are masters of obfuscation. Instead, the system has created a parasitic ecology of trolls and defensive patent-holders, who aim to block innovation, or at least to stand in its way unless they can grab a share of the spoils […]
Innovation fuels the abundance of modern life. From Google’s algorithms to a new treatment for cystic fibrosis, it underpins the knowledge in the “knowledge economy”. The cost of the innovation that never takes place because of the flawed patent system is incalculable."
Near Adjacencies -- An Alternative to Open, Accessible System of IP
One corporate strategy that is complementary to an open, easily accessible world of IP is the movement from a "core business" into near adjacencies. As organizations map a shift from their core business, they look at the competencies which might be required for such a move.
So for example, if you were a paper products company what core competencies are necessary to move into a specialized filtration market? In a world of open IP you could come across a number of patents in non woven membranes. What if some clever entrepreneur created a specialized IP market for a sub-segment of material science, like non-woven fabric? Suddenly the paper products company could discover a non-woven that was engineered with graphene with qualities applicable for markets, fundamentally altering price performance tradeoffs and layer a new form of functionality. That scenario could happen.
Earlier Writing and Thoughts -- a difficult economic equation to close
I wrote the following in the late 90's.
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The beginning of the century brought us some basic technological inventions, fundamentally changing our economy. However, none of these technological breakthroughs can be attributed to one company, one lab, or one inventor. In fact even one of the most basic inventions, the “radio system”, was the collection of technology from several different companies, from different continents, derived from research done by Maxwell, Hertz, Lodge, and Marconi. In many industries such as electronics and biotech, one innovation builds on another and products draw on several related, or seemingly unrelated technologies.
In essence, the commercialization of different “product systems” that embody a span of different technologies that require the need to share intellectual property from different parties. This problem was solved in the case of the radio by the “cross licensing” of patent portfolios.
Cross licensing, in one form or another, became the primary means that large companies shared intellectual property for many decades so that they could avoid patent infringement, access technology, and gain income. Large companies like AT&T and IBM made their patent portfolios available to each other for next to nothing and provided financial offsets where disparities existed.
The landscape for hi-tech industries has changed considerably in the last few decades. Product systems have become far more complex and encompass a much greater array of technologies. In fact Kodama argues that technology fusion, the combination of different technologies into a hybrid form, is a driver of innovation that has resulted in entirely new technologies or disciplines such as mechatronics and fiber-optic communication systems.
In the same vein, Prahalad and Hamel suggest companies create value and gain industry leadership by redefining the industry they are in by finding “white spaces”(products or technologies that open whole new markets and potential applications that currently not being served).
Moreover, while large companies like IBM, Motorola, and Microsoft still have a large presence in the their industries, an enormous amount of value has been created by small and medium sized companies in the last decade. Yet, while the start-up phenomenon has been a tremendous engine for value creation and innovation, the system for intellectual property protection and exchange as it presently exists is inadequate to act as a complement to this new environment.
Cross-licensing - not a likely option:
Given the variety of new entrants into the market in last two decades that have small or insignificant IP portfolios, cross-licensing is not a viable option. As a result many small and medium sized companies must negotiate “one off” licensing negotiations where the transaction cost are high and the negotiations are lengthy. The combination is economically unfeasible when product cycles that last months are eclipsed by the timescale necessary to acquire IP. As a result, some companies are unable to introduce new products, and in some cases violate patent law that can prove fatal for some companies.
I believe there must be an alignment of IP protection, enforcement, and licensing system serving to create an environment where protection is strong, but allows for simplified means to exchange IP between innovators and buyers. The economic gains of a “free market” for IP can have profound effects on the ability of companies of all sizes to innovate and fundamentally create new value. Romer and “new growth theories” would suggest at a macroeconomic level the benefits of creating an expedient system for the exchange of all types of IP could have exponential spillover effects.
The current system causes three major drags on the economy: transaction, development, and opportunity cost. Transaction costs can translate into high legal cost in order to execute a number of the “one-off licensing” deals (not to mention a waste of good talent). Development cost could be lowered because firms, to a degree could specialize in certain technologies and buy others externally. Opportunity cost represent the products not made and value lost because intellectual property. is not widely available.
This relates well to several aspects of innovation. Innovation concerns the search for, and the discovery, experimentation, development, imitation, and adoption of new products, new production process and new organizational set-ups (Dosi, 1988). An important complement to innovation is “learning by doing” and learning by using (Rosenberg, 1976, 1982). Having a wide body of easily accessible IP will greatly enhance this process.
| Leading Scientists Discusses Converging Technologies (George Whiteside, Harvard University) |
On the Verge of a New Time?
Gary Hamel writes:
"We live in a discontinuous world. Digitalization, deregulation and globalization are profoundly reshaping the industrial landscape. The convergence of these forces has produced a "Cambrian" explosion of new organizational forms, institutional relationships and value-creating possibilities. What we see today is a dramatic proliferation of new economic life forms: virtual organizations, extended enterprises, global consortia, Net-based commerce, ad Infinitum. Schumpeter's gale has become a hurricane. We are on the verge of a phase transition between an old economic order and a new one. Call it the "digital" economy, the "knowledge" economy, or just the "new" economy. But, of course, we know this...."
You may have read Alvin Toffler, Nicholas Negroponte and Wired magazine. Inevitably, the economic sea change now under way will drive an extraordinary amount of wealth creation over the next few decades, like the move from the agrarian economy to the industrial economy generated enormous new wealth around the turn of the 20th century. Wealth will also get destroyed, as new business models drive out the old. That is obvious.
The deeper question is -- Who will capture the new wealth? On the road to the future, who will be the "windshield" and who will be the "bug?" Or, simply, what does it take to turn discontinuities into opportunities?
What it takes, I will argue, is a deep capacity for strategy innovation, an ability to fundamentally reinvent the basis of competition within existing industries and invent entirely new industries. Process re-engineering tinkers at the margins. The real challenge is to become the author of industry revolution. In an increasingly non-linear world, only non-linear strategies will create substantial new wealth.”
Whether one is talking about innovation and adaptation, which Hayek described as the MAIN problem of economic organization, as cooperative of the intentional kind (Banard, 1938) or autonomous spontaneous adaptation (Hayek, 1945), the consequence remains the same with regard to our overall thinking on creating a unique environment for intellectual property.