Open Innovation Goes Global

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Corporate Strategy

A venture capital company that began life inside Lucent Technologies Inc. taking promising ideas from its Bell Labs unit and spinning them out into new commercial ventures has built a global business on "open innovation."

Launched in the early 1990s to generate revenue from research projects collecting dust in the world renowned lab, New Ventures Partners LLC has since become an independent company, winning several technology powerhouses as customers, including Britain's BT Group PLC and Koninklijke Philips Electronics NV of the Netherlands. A fundamental shift in corporate R&D thinking, the company says, has helped create demand for its start-up service.

"Chief technology officers at major corporations recognize they need to be part of a community that is exchanging intellectual property rather than having closed walls around their R&D labs," says Andrew Garman, managing partner of New Venture Partners, which is based in Murray Hill, New Jersey (see "Sustaining Venture Creation from Industrial Labs," RTM, July-Aug. 2003, pp. 16-19). Open innovation, he contends, has become a way for many big high-tech companies to achieve a higher return on the billions of dollars they spend annually on researching and developing new products.

Garman points to Microsoft Corp.'s IP Venture program, which licenses technology collecting dust in the U.S. software maker's labs, as "indicative of the trend toward open innovation" (see "Microsoft To Sell Non-Core Tech," RTM, July-August 2006, pp. 4-5). If 20 years ago most big corporate R&D spenders felt they could develop all the technology they needed on their own, very few believe that anymore. Garman says. Instead, many now see opportunities in a two-sided exchange that allows intellectual property (IP) for some innovative ideas to leave their labs and, equally important, for others to come in.

"Sometimes, it makes more sense for a corporation to spin out a research project that doesn't fit strategically with what the business units are doing or that can't be easily turned into a marketable product or, if it can be turned into product, then one that the company would prefer to sell rather than manufacturer itself," Garman says. "And then sometimes, it makes more sense to buy companies to acquire their IP."

Bell Labs Spin-Out

Flarion Technologies Inc. a Bell Labs spin-out acquired earlier this year by Qualcomm Inc., is an example of company that was ahead of its time. Flarion pioneered the next-generation wireless technology Flash-OFDM, an unwieldy acronym that stands for Fast Low-latency Access with Seamless Hand-off Orthogonal Frequency Division Multiplexing. High-speed OFDM can be used either to connect notebook computers of mobile users or serve as a fixed wireless access system for homes or small businesses. The fully Internet-based technology, for instance, enables users traveling at more than 100 miles per hour to download data at speeds up to 1.5 mbps (megabits per second) or upload at speeds up to 500 kbps (kilobits per second).

"When we started with Flarion in the late '90s, the company was literally a single researcher who believed the existing mobile infrastructure, which is optimized for voice communications, would remain sub-optimal in a world in which traffic would be dominated by data," Garman said. "He was talking about 4G (fourth-generation) wireless technology at a time when 3G was still not off the ground."

After concluding that Flash-OFDM was too far ahead of its time, Lucent spun out the Bell Labs venture in 2000. In February, 2006, Qualcomm agreed to buy Flarion for about $600 million, plus an extra $205 million or so if certain goals are met over the next few years. …