Jack Ellis

A post over at the Innovation Excellence blog has just brought my attention to an interesting study from the UK Innovation Research Centre (UK-IRC). While it is a little dated – having first been published in June 2011 – the report contains some fascinating insights into the important role that patents and other forms of IP protection play in open innovation among British SMEs.

The report from Andy Cosh and Joanne Jin Zhang of the UK-IRC – entitled ‘Open Innovation Choices - What is British Enterprise doing?’ – suggests that small to medium sized UK companies that obtain more patents relative to their peers are more likely to engage in open innovation, share technology and information externally and collaborate with third parties.

Cosh and Zhang identify three categories of UK businesses that each takes differing approaches to open innovation. These categories were defined by examining common behaviours in terms of ‘hunting’ (searching for external innovation), ‘cultivating’ (partnering activities) and ‘exploiting’ (transferring internally developed innovation to third parties).

Businesses following a ‘traditional’ innovation strategy – the first category – typically have a very low involvement in partnering and collaborating with other companies. ‘Hunting-cultivating’ firms tend to place very high importance on gathering knowledge from external sources and forming partnerships. The third category – ‘ambidextrous’ companies – are heavily engaged in both importing information from elsewhere and exploiting their in-house innovation through external transfer, and are therefore considered to be the most ‘open’ in their innovation strategies.

Of the companies covered in the study which engage in outbound transfer, 31% use patents to protect their innovations. This figure may seem low but can perhaps be explained by the study sample, which included high tech and conventional manufacturers and high tech and conventional services providers; for many of those businesses, patents may simply be an impractical or inapplicable method of IP protection. Of those companies that do seek patents, 58% regard patenting to be crucial to protecting their innovations.

The study found that the most ‘open’ (or ‘ambidextrous’) companies are also the most likely to obtain patents, with 21% of ambidextrous businesses granted patents in the three years leading up to the publication of the report, compared to 17% of hunting-cultivating and just 5% of traditional businesses. Ambidextrous businesses are also far more keen on patenting – with 64% of those that have obtained patents in the same three-year period granted four or more patents, compared to 50% for hunting-cultivating and 11% for traditional.

In other words, it appears that in sectors where patent protection is available and makes business sense, companies with more patents are more likely to share their innovation externally and collaborate with third parties. As the report’s authors put it: “[The research] indicates that more open firms had more patents, suggesting that ‘openness’ seems to go hand in hand with ‘protection’.”

That makes a lot of sense. If the fruits of your investment in R&D are protected with IP, you can maintain a level of control over the way in which they can be used and ensure that you can get something in return if needs be – whether that is a licence fee, an agreement to collaborate or access to someone else’s technology. That means that you are more likely to be comfortable and willing to share the output of your in-house R&D with other organisations.

That is not to say that all businesses with patents are going to be open to the idea of sharing innovation; 9% of participants in the UK-IRC study considered IP and other legal issues as a very significant constraint on their ability to utilise external technology and knowledge. The fact is that patents can be a barrier to collaboration just as they can be an enabler of it – but that is not down to an inherent problem in the patent system. Rather, it depends on the patent owner and the choices they make.

However, the UK-IRC report also carries what may be an important message for SMEs that are unwilling to entertain the possibilities of collaboration and sharing information and technology. Interestingly, 63% of respondents to the study – a majority – said their main objective in importing innovation is to ‘enhance their company’s reputation’ (with the least popular response – at 16% – being ‘to ensure freedom to operate’). For businesses exporting innovation, reputation enhancement was again the key driver, with 76% of respondents saying that reputational benefits were a very important reason for offering access to their technology and knowhow via open innovation. By participating in open innovation, SMEs can not only increase their own rate of innovation, reduce R&D costs and accelerate time to market; they can additionally create a name for themselves in their industry, build a reputation and improve their opportunities for securing funding, achieving growth and being bought out. And by facilitating open innovation, patents and other forms of IP protection play a critical role in allowing SMEs to pursue and realise those objectives.