A Patent is Not a Business Model

Credit: Tim Kastelle is a Lecturer in Innovation Management at the University of Queensland Business School. He also writes on the Innovation Leadership Network blog.

A patent is not a business model, and we need to stop acting like it is.

One of the statements at the Australian Association of Angel Investors Annual Conference that really rubbed me the wrong way came from a person in a university technology transfer office who said something like: “Open innovation is dead. It was just a fad, but companies are now realising that they have to have protectable IP if they are going to succeed.”

This is wrong in just about every conceivable way.

Stefan Lindegaard is one person that provides an excellent set of resources concerning open innovation. In one of his recent posts, he included links to a HUGE range of resources on open innovation, including a list of firms using it (including 3M, BMW, Dell, GlaxoSmithKline, Huawei, and Unilever), and numerous open innovation intermediaries, software and conferences. The inclusion of firms like GSM and Unilever are particularly interesting, since they are both in industries that have the capability of benefiting from patent protection, yet they are still pursuing open innovation.

This actually makes sense, because open innovation was originally designed as a method for getting more patented technologies into play. The idea is often caricatured by opponents as meaning ‘please take all of my ideas and use them’ – this is patently absurd.

However, my biggest problem with the statement is the contention that having protectable IP is the only way to succeed. I guess this is understandable coming from an organisation whose primary performance metric is patents generated. As John Steen has pointed out, overall, patents are a lousy proxy measure for innovation.

The focus on patents and IP is simply another incarnation of the overemphasis on ideas. The built-in assumption here is that once you have an idea that no one can copy, then you’re set. But we know that’s not true. Ideas have to be executed, and they have to diffuse – and empirically we know that these are the parts with which most organisations have difficulty.

A great idea is a core part of any business model. However, it is simply that – one piece of the puzzle. You still need to know who benefits from your great idea, and how to get your idea embedded into the value network. You need to know how to generate revenue from your idea. Patents create scarcity, and that is one way to make money. But there are others.

One of the reasons that open innovation being used more widely is that it lets you outsource idea execution and idea diffusion to partners that are better at it than you are. That is why many organisations use open innovation strategies to take advantage of ideas that have patented, but which they are poorly equipped to execute.

We have to stop thinking about patents and intellectual property as ends in themselves. They are components that can built into successful business models. They are one way of certifying that our ideas are good. But as we’ve said many times here, great ideas are not enough. Let me repeat that: great ideas are not enough. To succeed, we have to better than our competitors at executing our great ideas, and better at getting them to spread.