Issue 16 spring 09

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Intellectual property (IP) policies in large multinationals can be complex to develop and maintain, especially as countries around the world evolve their attitudes to invention and innovation. Open innovation is adding another layer of complexity to the task, by forcing companies to deal with the inherent tension between openness and secrecy at the heart of the approach.

These issues were addressed at a meeting of the EIRMA special interest group on intellectual property in November 2008. The meeting found that it is important to be consistent in the worldwide approach to intellectual property, irrespective of the kind of partners that you’re working with – but extremely difficult to do so.

There are a number of basic problems to be overcome in developing a consistent global IP framework within the context of open innovation. Different countries have different attitudes to the rights of employee inventors to the fruits of their efforts. Countries also have different attitudes to the concept of trade secrets. Some protect trade secrets with laws and others rely on special clauses in collaboration contracts. There are also varying attitudes to the relationships between industry and academia. Some countries are happy to see academic departments paid to invent for industrial clients while others, notably the US, expect them to retain any IP developed during an industrial collaboration, licensing it to the funding sponsor.

Paid to invent?

Anne-Mari Lummevuo, IPR legal counsel for Nokia, used her presentation to discuss how inventors are paid for their work in different countries around the world. For example, in Scandinavian countries, including Finland, Denmark and Sweden, and in Germany and China, the employee owns the invention and the employer has to pay the employee to acquire rights to it.  However, in most countries the employer owns the invention because they have paid the employee to invent it, so they do not need to pay to acquire it. Nokia tries to even out these differences by applying a global remuneration scheme, based on the invention’s importance and value to the company.

Thierry Sueur, vice president of sales and marketing for Air Liquide, added that Belgium, the Czech Republic, Slovakia, and Hungary have also subscribed to the German view that the employee owns the invention. However many companies have adopted their own systems of remuneration, in part to be able to demonstrate equal handling for all staff. This is important: there have been famous cases, for example in the development of the white LED, where employees have sued for a share of the benefits a company has gained from their innovation, and won.

Secrecy and openness

Beat Mollet, intellectual property manager at Nestlé, considered confidentiality and secrecy in open innovation environments. One key issue here is differing attitudes to trade secrets around the globe. The US defines a ‘trade secret’ as an intellectual property right, but the EU does not, trying to protect such knowledge indirectly, through breach of contract and breach of confidence clauses in contracts. Trade secret protection in China is weak and the situation is only slightly better in India.

The best way to protect a trade secret is usually by keeping it an absolute secret

The best way to protect a trade secret is usually by keeping it an absolute secret, sharing it with as few people and organisations as possible. This has an effect on open innovation strategies. It is better to work with a small group of partners whom you trust to protect your secrets as if they were their own, than to try and define collaboration agreements that punish short-term partners for a breach of secrecy.

For some, this will mean accepting the concept of co-opetition, according to Wim de Boer, intellectual asset manager at DSM, that is co-operation between competitors during the development of a market and later competition in the resultant market. This is a particularly challenging form of open innovation, in which it takes a great deal of care to preserve your IP rights and trade secrets/know-how during the necessary close collaboration with competitors. In these situations, especially the development of new technical standards, companies often agree to create a pool of shared IP that they cross-license to each other on mutually agreed terms, in order to reduce potential IP problems.

Working with academics

In the US, universities usually want to own the IP, despite having been paid to develop it

Tony Tangena, senior vice president and country manager, IP&S, at Philips, has helped develop Philips’ approach to working with universities, an important part of any open innovation strategy. Philips tries to arrange these partnerships so that it pays for the research it gets from the universities and owns the results and the patents. Philips gains access to knowledge and the university gains funding for extra research, the right to publish (when appropriate for the company), and the chance to get extra payments in case Philips makes extraordinary gains from the technology developed during the collaboration. This approach works in most places, although in Germany Philips has to make a payment for taking over the invention. In the US, universities usually want to own the IP, despite having been paid to develop it, and will then grant a non-exclusive royalty-bearing licence to use it.

Robert Matthezing, managing counsel for intellectual property at Shell, described how the company had developed a detailed IP management framework to define the IP rights it requires in its open innovation collaborations. The framework demands that each Shell business has an IP strategy that enables the company to move quickly and easily when it needs to. If a proprietary position is important to enable technology differentiation, there is much more flexibility in the IP strategy regarding mega-projects in order to ensure freedom of action. Matthezing argued that the current financial crisis meant that effective IP management was more important than ever, in order to make the most of what you have invented and to protect your IP from dilution or loss in the event that a partner company becomes bankrupt.

Emerging economies

Catriona Hammer, senior counsel for intellectual property at GE Healthcare, pointed out that the increasing role of emerging economies in technology development and consumption means that corporate IP now needs to be protected in more places than ever before, pushing up the cost of developing and maintaining an IP portfolio. She estimated that providing this new, wider protection could double or quadruple costs over the life of a patent. Other complex issues emerge – some developing nations require that some technologies are licensable, or say that technologies, particularly in healthcare, cannot be patented in their countries. Meanwhile the EU is increasingly taking the view that some patent strategies are anti-competitive, while in the US patent ‘trolls’, who acquire IPR only to assert it against companies they believe may be violating it, are becoming increasingly active.

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