Open innovation: Solving IP challenges for SMEs

Dr Frank Titze, Head of the Laboratory of Innovation and Intellectual Property Management (IIPM) of the Institute of Manufacturing (IfM) and co-author of the European Commission’s new report on IP and Open Innovation (OI), explains how SMEs can use IP more strategically to gain competitive advantage .

As a hotbed of creativity, small and medium-sized enterprises (SMEs) stimulate growth through the development of new technologies, products, services and software. Intellectual property (IP) can play an important role in exploiting the value of these innovations.

SMEs are very good at inventing and innovating. And as new solutions become more technologically sophisticated, SMEs are more likely to collaborate on various forms of open innovation projects to stimulate long-term growth. Open innovation provides SMEs with key benefits such as access to new markets, new customers and market knowledge; as well as access to additional knowledge and other technologies needed for innovation. Open innovation can also help SMEs strengthen their brand credibility and reputation.

But some research (Is Intellectual Property Important for Future Manufacturing? UK Government Foresight Future of Manufacturing Project – Hall, BH 2013) shows that only six to eight per cent of UK manufacturing firms own patents and other forms of IP rights, leaving them potentially vulnerable to IP theft by partners or competitors, especially when entering into joint innovation processes.

This potentially poses a significant threat to the competitiveness and survival of SMEs. In order for SMEs to truly benefit from open innovation, understanding how to use and manage IP, especially soft-IP (e.g., data, know-how, algorithms), is crucial to help them achieve their goals. Simply put, those who understand how to use IP strategically are more likely to experience growth than those who don’t.

Although there is great support for understanding the nature of IP, very few tools are available to help SMEs think about IP strategically as well as understand and manage it. So what are the main issues around SMEs, open innovation and IP? And what can be done to improve the capabilities of SMEs in the field of IP?

4 major IP management challenges in open innovation (according to SMEs)

The new report, prepared by the Institute of Production (IfM) and published by the European Commission, draws on evidence from SMEs (mostly from the EU) and reveals four main reasons why they lack understanding and confidence in navigating and negotiating IP conditions in open innovation. Let’s unpack them in more detail:

  1. Lack of strategic thinking around IP:

Many SMEs we surveyed understood some of the “necessary IP points” but did not have their own experience in strategic IP management. Lack of strategic understanding of FEs creates problems, for example, in concluding cooperation agreements not only with other SMEs, but especially with partners who differ in organizational terms, such as large firms and institutions.

These partners typically have their own IP capabilities created. Although SMEs have access to external IP expertise, existing IP experts are mostly “IP specialists” who focus on certain types of IP, such as patent or trade attorneys / lawyers. . Lack of strategic thinking may mean that leverage over IP negotiations is lost, and SMEs may miss opportunities to gain value from their background IP (SPs owned by different parties prior to cooperation).

Intellectual property research is provided for the IfM column

  1. Difficulties in identifying and formulating background-IP:

It is important for SMEs to know and understand what IP background they have before starting to collaborate. Ideally, they should be audited or properly tested to understand what IP they already own. In the context of open innovation, a lack of clarity about the full set of IPs, including hard IP and soft IP required for innovation, can undermine a collaborative project.

For example, data is a form of soft IP that SMEs find particularly complex. For example, when developing digital solutions that require the integration of the developed digital component into the client system and the use of client data, SMEs may face problems in determining ownership of an IP address (IP created during collaboration).

The study found that SMEs find this particularly challenging. However, if they do not understand this correctly, the risk is that the IP, which could and should have been the background, IP suddenly becomes the subject of IP address foresight, which was stipulated in the open agreement on innovation, and suddenly it is claimed by a cooperation partner. Therefore, it is important for SMEs to analyze the background IP address they have and understand which models exist and prefer to share front IP.

  1. Lack of IP negotiation skills:

For SMEs, negotiating with partners who typically have their own IP experience can be a challenging prospect. But it is especially important to have these negotiation skills when the SME product is close to the market and they are collaborating with a larger organization, ie. in negotiations where there is a high commercial risk.

We spoke with small and medium-sized enterprises about the shortcomings related to their lack of contract negotiation skills, inexperienced risk assessment in the field of individual entrepreneurship and lack of experience in sharing responsibilities between open innovation partners. Most importantly, SMEs stated that they need IP negotiation skills to be able to come up with favorable IP address exchange conditions, which requires knowledge of possible IP address exchange models, their advantages and disadvantages. It seems that large firms tend to claim the whole of the FE, while SMEs are in favor of equal and fair conditions for the sharing of FEs, and also want to limit the possibilities of use.

  1. Organizational differences:

SMEs tend to collaborate with other, larger firms, mainly because such collaboration offers competitive, commercial, and market advantages. But differences in culture and thinking due to different openness of individual entrepreneurs, differences in approaches to contract formality, overall pace of progress and risk tolerance – all this becomes a problem when participating in open innovation with such organizationally different partners.

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What can be done to support SMEs in building strategic IP management capabilities?

There is a lot of IP support. However, most of them are very simple and it is not aimed at developing strategic thinking. Given this gap, in the short term, SMEs can use simple tools such as crosstabs that can be used to distribute the IPs they own, for their various products, technologies or services.

This can be a really rewarding exercise to do before they collaborate. In the long run, we encourage SMEs to access training programs where they can learn and develop these skills to build the internal strategic thinking about IP needed to enter into high commercial risk contracts for open innovation projects.

For example, IfM Engage offers IP strategy courses aimed at small and medium-sized businesses that help them build IP strategies and align their IP with business goals. Some courses are targeted at Level C executives and do not require in-depth technical knowledge of IP, but seek to view IP as a strategic issue for the firm. IfM Engage also offers one-on-one advice on IP strategy to support SMEs with the maximum value of their innovation.

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