Business Models and Patent Strategies in Multi-Invention Contexts

By Somaya, Deepak; Teece, David J. et al. | Ivey Business Journal Online, September/October 2012 | Go to article overview

Business Models and Patent Strategies in Multi-Invention Contexts


Somaya, Deepak, Teece, David J., Wakeman, Simon, Ivey Business Journal Online


To win the competitive battle in multi-invention contexts, it is crucially important that a firm develop and align its patent strategy with its business strategy and model from the beginning - not merely on an ad hoc basis or as an afterthought. These authors describe three strategies that firms can deploy to achieve such an alignment.

More than ever, commercializing new technological innovations means drawing on multiple inventions that are spread among a number of organizations. However, doing so successfully requires that companies choose the right business model, and manage their patent strategies prudently and proactively, and in alignment with their business model and company strategies in order to develop and maintain their competitive advantage.

MULTI-INVENTION CONTEXTS AND INNOVATION

In many industries, companies are faced with a "multi-invention problem": the development of new, commercially viable products requires the combination of ever- larger numbers of inventions. At the same time, ownership over these inventions - through patents and other forms of intellectual property (IP) - is becoming increasingly fragmented. Smart phones and their use implicate thousands of patented inventions. Little surprise then that Apple, Google, HTC, Microsoft, Motorola (now owned by Google), Nokia, and Samsung are all suing each other over the alleged infringement of smart phone patents. Or take biotechnology, where innovators must assemble large portfolios of patented genomic information, research tools, other inventions, and license rights from other innovators in order to conduct research and to bring new medical solutions to market.

In multi-invention contexts such as these, rarely does one person or one company invent and patent all the components necessary to create a commercially viable, multi-invention product. In some rare cases, a pioneer may be far out ahead of the pack and control all or most of the technologies in the first-generation product. However, once a pioneer has proven its commercial viability, others rush to imitate and improve on the product idea, and inevitably, ownership over key technologies becomes scattered among multiple entities.

Thus, in order to be successful in multi-invention contexts, an innovator has to obtain the rights to inventions from different sources, some of whom may even be competitors. Success requires that the innovator structure its business model and manage its patent strategies to combine all the inventions necessary to create value, and at the same time, to appropriate value from the combinations they create. This is a non-trivial challenge for managers, requiring both expertise and foresight, in addition to planning and execution.

BUSINESS MODELS FOR COMMERCIALIZING MULTI-INVENTION PRODUCTS

In combining inventions, innovators typically must choose between integrated and non-integrated business models. An integrated model entails assembling as many of the required complementary technologies and commercialization assets as possible within the same innovating firm. For example, in electronics, integrated device manufacturers (IDMs) often design and build entire products in-house. Under a non-integrated (or "open innovation") model, the innovator combines their inventions with those of others through a series of component or licensing market relationships. For example, many semiconductor companies develop designs for chips but outsource the manufacturing of them. They then market the chips to downstream assemblers of end-use products.

Ultimately, the distinction between integrated and non-integrated business models (or open and closed innovation) is a matter of degree. Thus, Apple pursues a more integrated model in the smart phone market than does Google with its Android ecosystem. But, Apple itself has licensed technology from others and focused primarily on product design and software. It has outsourced virtually all of its components and manufacturing. …

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