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Intellectual

Property Rights & Strategy Discussion sheet


- Options for IP holders


1. Exercise market power
The general upsides of exercising market power
The general downsides of exercising market power
! Changes in the nature of competition
! Rivals increased incentives for innovation
! Smaller markets for complements

Choosing amongst the potential sources of market power
! Patents
Pros and cons
! Trade secrets
Pros and cons
Trade secrets vs. patenting
! Copyrights
Pros and cons
Copyrights vs. patenting
! Trademarks
Pros and cons
! Lead time
! Complexity


7 issues of commercializing your IPR
Formal vs. informal IP protection

2. Sell
Pros and cons

3. Licensing
Pros and cons
Choosing a license strategy

4. Collaboration
Choosing a collaboration mode
! Going solo
! Strategic alliances
! Joint venture
! Licensing (in and out)
! Outsourcing
! Collective research organizations

5. Strategic disclosure
Pros and cons
1) Exercise market power


General upsides and downsides of exercising market power

The degree to which a firm can capture the rents from its innovation efforts is largely determined
by the degree to which competitors can quickly and easily imitate the innovation. Some
innovations are inherently difficult to copy; others are difficult to copy because of the mechanisms
the firm uses to protect its innovation. Thus legal mechanisms for protecting innovation are more
effective in some industries than others; in some industries, inventing around a patent or
copyright is relatively easy. Similarly, in some industries it is nearly impossible to protect an
innovation by using trade secrets because commercializing the innovation reveals its underlying
technologies. As a result, the choice between protecting or diffusing a technology is not always
obvious. Both strategies offer potential advantages. Many firms use either a wholly open nor
wholly proprietary strategy, but rather a partially open strategy.

Protecting an innovation helps ensure that the firm earns the lions share of the returns from the
innovation. These returns can then be reinvested in further developing the technology, promoting
the technology, and producing complementary goods. Protecting an innovation also preserves the
firms architectural control, enabling it to direct the technologys development, determine its
compatibility with other goods, and prevent multiple incompatible versions of the technology
from being produced by other firms.
Companies that employ IP protection to exercise market power typically hope to raise prices
above their competitive level, thereby increasing profitability. In many circumstances, IP holders
also rely on market power in order to price discriminate among customers. This broad ambition
can have serious strategic drawbacks these are three mechanisms that can turn exclusive rights
into a liability:

1) Changes in the nature of competition
IP rights grant exclusive market opportunities, but the value of these opportunities often
depends on the strategic actions of rival firms. For example, if a firm terminates a joint
marketing campaign because its competitor secured an important patent, the market share
of the competitor might increase but the overall value of the market can decline.

2) Rivals increased incentives for innovation


As the flow of profits to an innovative company increases, so do the incentives of other
companies to invent around the innovators IP. As a result, it can be desirable for an
innovator to license its patented product, making the market more competitive but
reducing the incentives for entrants to engage in R&D.

3) Smaller markets for complements


A complement is a product or service that increases the demand for another product or
service. The value of many products and services depends heavily on network effects.
Such effects are conventionally divided into two subcategories. Direct network effects exist
if the value of a product increases with the number of users. Indirect network effects
similarly enhance the value of a product. As the number of users grows, a greater number
of complements becomes available.
A distressingly common mistake made by firms holding strong IP rights is to leverage the
resultant market power in ways that neglect opportunities for network effectsor, worse
yet, enable competitors to capitalize on network effects.

Managers who overlook these potentially serious drawbacks often exhibit a mindset that is
exclusively focused on value capture. It overlooks the often more important opportunities for
value creationbusiness transactions rarely need to be zero-sumand it fails to see how
aggressive moves to capture value change the incentives of rival firms, suppliers, and customers
often to the detriment of the company. Diffusing a technological innovation can encourage
multiple firms to produce, distribute, and promote the technology, possibly accelerating its
development and diffusion. Diffusion can be particularly useful in industries that accrue increasing
returns to adoption. It is also useful when the firm has inadequate resources to be the sole
developer, producer, distributor, and marketer of a good. For these reasons, sharing value from IP
can be attractive.

Choosing IP strategy




Choosing IPRs



Patents

Pros:
Patents makes you become the exclusive right holder of the invention, excluding others
from producing, using, or selling the invention.

Practicing a proprietary strategy based on patents offer great potential for rent
appropriability, as protecting an innovation helps ensure that the firm earns the lions
share of the returns from the innovation. Potentially it can can gain a contemporary
monopoly. These returns can then be reinvested in further developing the technology,
promoting the technology, and producing complementary goods. Protecting an innovation
also preserves the firms architectural control, enabling it to direct the technologys
development, determine its compatibility with other goods, and prevent multiple
incompatible versions of the technology from being produced by other firms. As result,
both the competitive level of the company and its profits are maximized if successfully
carried out.

A part from operating as a practicing entity, by practicing patents the company also gain
greater opportunities for licensing out the technology or selling the patent to another
party that want to commercialize it and take on the risk.

In addition, by patenting, others can build on the knowledge embodied in the patent, as a
result of disclosure. This can fore example be exploited though license-arrangements. By
filing lots of patents, the company could get some assurance of freedom to practice by
having IP to trade with other patent holders (fore example in the form of a cross-license)
in case it needed access in the future to cutting-edge technologies developed by others.
This is what economists called a real option.

In general, companies practicing patent protection, enjoy increased bargaining power in
contractual negotiations with larger firms. Also, Intangible assets and IPRs can help in the
obtainment of finance, VC funding fore example.

Cons:
Patents are by far the most time-sensitive type of intellectual property. If the company
wants patent protection for an invention in several countries, it must obtain a patent for
the invention in each country (however, international patent laws make it easier to obtain
patents for the same invention in multiple countries). To add to the difficulty, each country
has its own rules about what constitutes public disclosure of an invention, including
whether it applies to disclosures in foreign countries or only to disclosures inside the
country. Thus filling for patents is often a very expensive and complicated affair, especially
because one patents is usually not enough.

The duration of patents is only 20 years, and after this it is publicly available. In addition,
patent owners are required to pay maintenance or renewal fees to maintain their patents
in many countries and the patent owner must be diligent in taking legal action against
those who infringe his patent. Even after a patent is granted, the patent owner may have
to defend its patent against competitors claims that it was improperly granted.

In addition to the cost of filing and maintaining a patent, public disclosure of the invention
could encourage competitors to copy or imitate by making minor changes or small
incremental inventions. As the flow of profits to an innovative company increases, so do
the incentives of other companies to invent around the innovators IP. As a result, it can
be desirable for an innovator to license its patented product, making the market more
competitive but reducing the incentives for entrants to engage in R&D.

It is also sometimes difficult to prove infringement of manufacturing process-based
inventions because their use is hard or impossible to detect.

A distressingly common mistake made by firms holding strong IP rights is to leverage the
resultant market power in ways that neglect opportunities for network effectsor, worse
yet, enable competitors to capitalize on network effects. This is one of the issues why the
Orbital Engine Corporations technology never commercialized fully in the automobile
industry.
Trade secrets

Pros:
One way to avoid public disclosure of inventions as well as associated expenses is by
maintaining the inventions as trade secrets.

Trade secrets are among the least time-sensitive forms of IP. Legal protection exists the
moment a business develops confidential proprietary information, so there are no legal
formalitiesno need to file an application or obtain a registration from the government,
for exampleto obtain trade secret rights. Furthermore, it obviously has no legal
expiration date.

Cons:
To protect trade secrets, a business must take comprehensive steps to maintain the
confidentiality of its information before it is disclosed, such as restricting access to
information, marking materials as confidential or trade secret, training employees
regarding the handling of confidential information, and requiring employees and trade
partners to sign confidentiality and non-compete agreements.

Ensuring trade secret protection for confidential information therefore often requires
significant planning, effort, and money. But the cost of maintaining the secrecy of
confidential information often pales in comparison to the cost of trying to repair the
damage once trade secret information is disclosed to others. Practicing very valuable trade
secrets is often a very risky strategy, as a trade secret is good only as long as it is kept.

In a worst-case scenario it ran the risk of losing its freedom to operate if imitative
competitors succeeded in appropriating and patenting the companys inventions. As
stated in the LEGO case: The absolute worst case would be if we come up with an
innovation and then our competitors use it, or even worse, they prevented us from using
it!

Once confidential information becomes sufficiently public, it ceases to be eligible for
legal protection as a trade secret. In such cases, trade secret owners can still seek
monetary damages against the party who publicly disclosed their trade secrets. But the
true value of a trade secret may often be hard to quantify. The most efficient and effective
way to manage trade secret information is to ensure that it remains a trade secret.


Trade secrets vs. patents considerations
1. First, trade-secret protection is potentially infinite in duration, whereas a patent lasts only
for 20 years from the date the patent application is filed.
2. Second, maintenance of trade-secret protection will require the firm to impose
confidentiality obligations on its employees whose aggregate costs may well exceed the
costs of obtaining a patent.
3. Third, licensing the use of a trade secret is logistically more difficult than licensing the use
of a patent because the latter poses a smaller risk that the innovation will be inadvertently
released into the wild.
4. A fourth consideration is of particular importance for entrepreneurial firms that seek
external finance. Through disclosure, patents help to signal credibly the quality of the
venture to potential investors. There is strong empirical evidence to suggest that patents
help improve the terms of external finance available to entrepreneurs.
5. Finally, the choice between trade-secret protection and patents also hinges on the
strength of property rights. Because patenting involves the (partial) disclosure of
information, the likelihood of rival firms imitating a patented product increases if property
rights are weak and the innovation is particularly valuable. As a consequence, it can be
optimal to patent little ideas but keep the most promising innovations secret.

Ironically, even though the purpose of both these strategies is to protect the companys
intellectual property, they both include great risk, potentially creating increased incentives for
companies to replicate the firms inventions without violating the companys IP rights.

Copyrights

Pros:
The purpose of copyrights is to protect the creator against copying.

Reproduction becomes illegal and you gain economic rights and moral rights, as you have
to be credited whenever someone uses your copyrighted material.

Copyrights are free and long lasting: Literary works protected in EU for 70 years after
authors death.

Unlike patents and trademarks, under international law, copyright protection is granted
automatically when a work is created, so there are no legal formalitiessuch as filing an
application or depositing a copy of the work with the governmentrequired to create or
preserve the copyright in ones work.

Under the law in many countries, timing in the enforcement of copyright is only critical in
cases where the copyright owner delays in taking action to enforce its rights. In the U.S.,
for example, a copyright owner can only file a lawsuit against someone who has infringed
his copyright if the lawsuit is filed within three years after the infringement commenced.
However, even in such cases, copyright owners do not lose the copyrights in their
worksthey are merely prevented from enforcing their rights against that particular
infringer based on that particular infringement.


Cons:
Infringements, other than exact copies, are difficult to prove. Example: Rewriting of
literary work or songs, that are similar to each other.

It is difficult to determine the degree of infringement.

Public attitude makes widespread enforcement difficult. Copyright is, specifically, a
prohibition against copying a work. What about loaning a work or selling a used copy?
What about home copying for personal use? What about quoting a work or satirizing a
work?
o Loaning a work generally falls under the doctrine of first sale, which allows the
purchaser of a work subsequently to do with it what he desires. This doctrine gives
a legal basis for libraries and other forms of institutional sharing. Renting a work
falls under the same doctrine. The last two uses of a work run up against free
speech issues and are normally counted as fair use.
o The combination of technological progress in both digitization and computer
networking has been a challenge for traditional ways of managing intellectual
property, and it is pushing boundaries of IP rights every day. Peoples perception
about what they consider fair use will continue to change. Now that most
information is born digital and that digital information is typically very easy to copy
and distribute, it is conceivable that copyright laws may become almost impossible
to enforce. Some observers have even questioned whether current models for
intellectual property can or should survive in a digital world. For example, there is
widespread concern about piracy of popular music and film. This issue is being
covered in the case of BitTorrent and the supplementary litigations against Napster,
Grokster and Google being discussed in the case.

You need to fixate you work for it to be eligible for copyright protection. If you disclosure
too much information, others can steal your work legally if it is not yet fixated.

Copyrights (like other forms of IP protection) are self-policed. Copyright exists from the
moment a work is created, but some countries require copyright owners to register their
copyright with their national government before they can enforce their copyrights. In many
cases, the economic feasibility of legal action to enforce ones copyright depends heavily,
if not entirely, on the availability of these additional remedies. Given that statutory
damages and attorneys fees are often significantly greater than the copyright owners
actual damages from infringement, registering the copyright in a work when it is first
created could allow the copyright owner to recover many times what it otherwise would
be able to claim.



Copyright vs. patents considerations
Consider, for instance, the case of software. Software firms can rely on both. In part, the choice
depends on the nature of the imitation managers would like to prevent

Pro Patents: If the activity the firm anticipates and wishes to block is the development of
another program that performs the same function in a similar way without using any of the
same code, then obtaining a patent might be worth it, because on this axis copyright
protection tends to be weaker than patent protection.
Copyright only protects the expression of a work, but not the ideas behind it, which is what
e.g. patents would do. Therefore, you can rewrite and avoid copyright.


Pro Copyrights: Patents are both more expensive and harder to obtain than copyrights. If
the activity consists of verbatim replication of the object code in which the program is
embodied, patents offer few advantages over copyrights



Trademarks

Pros:
A trademark is a word, phrase, symbol, design, or other indicator that is used to distinguish
the source of goods from one party from goods of another. The basic function of a
trademark is to denote the original of particular goods and services and attach a certain
quality stamp for the manufacturer.

Trademarks last forever upon renewal (in most territories, renewal every 10 year) and is
typically cheaper to acquire compared to patents.

Franchising is a viable business strategy that stems from Trademark licensing.

Famous marks are generally awarded a broader scope of protection than regular
trademarks. Well-known marks are usually protected, irrespective of whether they are
registered or not, in respect of goods and services which are identical with, or similar to,
those for which they have gained their reputation.

Cons:
The purpose of trademarks is to distinguish goods or services from one undertaking to
another. However, this sometimes can be challenging to decide, thus making it difficult to
prove infringement in court (a subjective matter to a certain degree).

Even after trademarks are registered, owners of registrations must file documentation and
pay fees periodically to maintain and renew their registrations.

As with patents, trademark owners must timely assert their rights against infringers or risk
being barred from doing so. In the U.S., for example, a trademark owner who delays for up
to three years before taking action against an infringer risks being prevented from
asserting his rights against the infringer under on a legal doctrine known as laches.

There has been intense discussion both in Europe and in the US about the issue of
protecting fashion designs (either by registering the design or by copyright), because of
fear of losing market to cheap counterfeited products. However, the copying of designs has
not been a serious threat to the survival of the industry, and much of the growth and
creativity in the industry depends on imitation creating a trend. Most designers apply for
protection for designs that tend to last a long time (such as furniture), rather than for the
time span of a season (such as clothing).

7 issues of commercializing your IPR (patents)
Turn your science into a business
Kotha, R., Kim, P.H. and Alexy, O. (2014)


Formal vs. informal IP protection - Lead time & Complexity

Companies have the choice between a range of mechanisms to protect their innovative activities
and output.
On the one hand, they can choose formal intellectual property (IP), which includes patents,
trademarks, registered designs, and copyright.
On the other hand, firms can choose a range of alternative or informal appropriation
mechanisms, such as secrecy, confidentiality agreements, lead time, or complexity.

It is found that firms use both patents and trade secrets to protect valuable inventions and,
contrary to a commonly encountered belief, patents may not necessarily protect a companys
most valuable inventions. Such inventions may be kept secret despite being patentable.

In fact, the available empirical evidence in the article, strongly suggests that only a small fraction
of innovative companies relies on patents to protect their inventions.

This is much lower than would be expected if companies protected innovations through patents
by default. In fact, the available survey-based evidence indicates that companies report heavier
reliance on alternative mechanisms, such as lead time, first mover advantage, complexity and
secrecy by which they appropriate rewards to invention and innovation and the available
empirical evidence suggests that firms rely on these alternative mechanisms much more than on
formal IP.

From the survey evidence it is apparent that firms tend to treat various kinds of IP protection as
complements, in the sense that use of one makes it highly probably they will use the others. In
most industries, patents are not seen as an effective tool to appropriate returns to innovation
especially not in isolation. Instead, companies appear to use a combination of different
appropriation mechanisms even for the same invention.

Loose or tight appropriability regime?
First-to-market will not automatically win. According to Teece the profitability of your innovation
depends on 1) the appropriability regime, 2) the dominant design paradigm and 3) complementary
assets.


The paper attempts to explain why innovating firms often fail to obtain significant economic
returns from an innovation, while customers, imitators and other industry participants benefit.

The paper demonstrates that when imitation is easy, markets don't work well, and the
profits from innovation may accrue to the owners of certain complementary assets, rather
than to the developers of the intellectual property.
The analysis provides a theoretical foundation for the proposition that manufacturing
often matters, particularly to innovating nations. Innovating firms without the requisite
manufacturing and related capacities may die, even though they are the best at
innovation.

When analyzing the appropriability regime, factors to consider include the nature of the
technology, fitting legal instrument (I.e. patents, trade secrets, copyrights and so on) and the
degree of tactic/codified knowledge. If the appropriability regime is characterized by being tight,
profits are typically easier to realized and there is more time to clarify the right design and to
access complementary assets. When it is weak, on the opposite side, it is essential to utilize
business strategy to secure a strong position and to evade imitators.

The dominant design regime refers to the current phase of the products life circle. When
characterized by being pre-paradigmatic, many fluid design concepts still exist and manufacturing
processes are typically more loose, whereas, when paradigmatic, competition shifts to price and
cost-minimization as a standard is starting to evolve, eventually resulting in a dominant design.

In industries in which new products are easy to imitate and a dominant design has not yet been
established, innovators success depends on their ability to make their technology the dominant
design.

3) Complementary assets
When analyzing the market conditions in regard to complementary assets, factors to consider
include marketing, competitive manufacturing, after-sales supports, distribution channels
amongst others.
After a dominant design has emerged, access to complementary assets becomes critical, as
specialized assets increase protection and secure long-term profit.
There are three types of complementary assets: Generic, specialized and cospecialized. Your
strategy of complementary assets can be based on contractual and/or integrated modes, as you
can either own, acquire or contract complementors for access.



When imitability is high, the appropriability regime is loose, whereas then imitability is low,
the appropriability regime is tight

When complementary assets are freely available and generic, they are often of less
importance, whereas when complementary assets are scarce or (co)-specialized, they are
typically held tight and important.

The framework indicates that the boundaries of the firm are an important strategic variable for
innovating firms. The ownership of complementary assets, particularly when they are specialized
and/or cospecialized, help establish who wins and who loses from innovation. Imitators can often
outperform innovators if they are better positioned with respect to critical complementary assets.







2) Sell

Pros:
If the firm lack the resources to exploit the innovation effectively, it can consider selling the
rights to another company. That way the founders can compensate for their lack for
competencies and resources and potentially still gain a solid profit without taking further
risk.

Cons:
However, the process of selling IP is often fraught with difficulty as a result of asymmetric
information issues, both because the potential buyer will have limited information about
the value of an innovation, and because the seller, concerned about misappropriation, will
have limited incentives to disclose his or her idea fully. This issue can be addressed though:
o Block to fence: Acquiring a large number of patents not only for their core
innovation, but also for related processes and substitute products, will often drive
up the cost of inventing around. As the cost of imitation rises, the innovative firm
can more easily disclose information, thereby reducing buyer uncertainty. Also they
can charge higher prices (i.e. OEC case)
o Bluff: Companies can fully disclose the novel product to a single buyer, threatening
to sell the idea to others should the buyer attempt to misappropriate the
innovation.
o Retaining skin in the game: Companies can also partially disclose valuable IP and
offer to retain some skin in the game, for instance by accepting the buyers stock
options as a form of compensation.

3) Licensing


Pros:
Licensing is attractive and likely in situations in which rival firms are more efficient than
the innovator or in which rivals have resources and capabilities that the innovator lacks. In
stead the company will earn profits on royalties and take on less risk.

Depending on the licensing arrangement, however, profiting from royalties, might not be
the main reason for practicing a licensing strategy, as gaining capabilities might also be a
main determent for this decision.

Licensing IP might help an innovative firm to increase capacity or to augment the demand
for its products. By capitalizing on the production capacity and marketing abilities of other
firms, the inventing firms can spread the technology faster than it could have done on its
own. Few firms have the personnel or resources to market their product worldwide
because of the need to deal with foreign language issues, customs and physical
modifications of the products as required under local law.

Also licensing can discourage rival firms from investing in R&D that threatens to imitate
protected products. By making a product available at a reasonable cost, rival firms have
reduced incentives to challenge the validity of a patent. Therefore, licensing can extend the
effective life of the patent


Cons:
Dilemma of disclosure: To interest a potential buyer, the inventor must reveal enough
information to convince the buyer of the value of the IP. However, once the buyer
possesses this information, it no longer needs to pay a fee to gain access to it. The buyer
might, perhaps, use this knowledge to invent around the vendors patents. Not only would
the IP vendor lose the opportunity to earn license fees, it might also create a competitor.

Not invented here syndrome: One common problem is the not invented here syndrome.
The licensees R&D, production, and marketing staff may not be interested in further
developing the invention, since it is externally sourced and does not necessarily fit into
their own plans or match their own competences.

Agency problems: A range of agency problems can arise. The licensor has developed the
invention and possesses the relevant experience; the would-be licensee lacks information
needed to evaluate the expected pay-offs.

Risks of licensing: There may be loss of control over further exploitation of ones
intellectual property, e.g. under a manufacturing license, the licensor surrenders direct
control over the details of the manufacturing process and quality of the products. This risk
of piracy increases because licensing reduces licensors control over the manner in which
the intellectual property is exploited and the precautions used to prevent unauthorized use
and disclosure. Thus licensing may create a potential competitor during and after the
licensing term or any applicable statutory period.

The number of patents required for successful vending can be phenomenal. By 2007, for
example, Qualcomms patent portfolio included some 6,100 United States patents and
patent applications for CDMA and related technologies. Such patenting costs can seem
exorbitant. Yet without an impregnable patent position, the vendors bargaining stance
will be too weak.



Other points:
In the most basic licensing decision, companies compare the revenue they could earn in
license fees with the cost of increased competition.
You don't necessarily need a IPR to license. However, companies practicing patent
protection, enjoy increased bargaining power in contractual negotiations with larger firms
Does it make more sense to use the license to extract royalties, or to see it more as a
building block in establishing in a longer-term relationship with the licensee? Managerial
choices are also constrained by the nature of the technology (the degree of
cumulativeness). Success will depend on how effectively managers deal with market
imperfections described earlier through the contractual agreement(s) and at what cost.
The risk of licensing can be minimized by a well drafted license agreement. The major legal
issues to be considered include a clear definition of the technology licensed, any provision
for technical assistance and training, a clear delineation of the scope and extent of the
rights licensed, its duration and termination, provisions to maintain quality control and any
warranties and infringement provisions with respect to the licensed technology, provisions
for royalties and fee payments, antitrust issues and tax considerations.
Choosing a licensing strategy

IP Vendors Four Licensing Strategies:
1. The independent strategy (stand-alone licensing/technologies of low cumulativeness),
2. The complementor strategy (stand-alone licensing/technologies of high cumulativeness),
3. The directed strategy (licensing plus/technologies of low cumulativeness), and
4. The reciprocal knowledge-sharing strategy (licensing plus/technologies of high cumulativeness).


4) Collaboration

The general upsides and downsides of collaboration

Firms must often choose between performing innovation activities alone or in collaboration.
Collaboration can enable firms to achieve more, at a faster rate, and at less cost and risk.
However, collaboration also entails sharing control and rewards, and may risk partner
malfeasance.

Firms may choose to avoid collaboration when they already possess the necessary
capabilities and other resources in-house, they are worried about protecting proprietary
technologies and controlling the development process, or they prefer to build capabilities
in-house rather than access a partner firms capabilities.

Some of the advantages of collaborating include sharing costs and risks of development,
combining complementary skills and resources, enabling the transfer of knowledge
between firms and the joint creation of new knowledge, and facilitating the creation of
shared standards. Collaboration can be suitable for technologies where others have
something to offer you: Creating a standard, developing complementary products, sharing
ideas fore example.

Each form of collaboration mode poses a different set of trade-offs in term of speed, cost, control,
potential for leveraging existing competencies, potential for developing new competencies, or
potential for accessing another firms competencies. An organization should evaluate these trade-
offs in formulating a collaboration strategy.


Going solo
Considerations for going solo
" Availability of capabilities: Does the firm have needed capabilities in house? Does a
potential partner?
" Protecting proprietary technologies: How important is it to keep exclusive control of the
technology?
" Controlling technology development and use: How important is it for a firm to direct
development process and applications?
" Building and renewing capabilities: Is the project key to renewing or developing the firms
capabilities?



Strategic alliances
A contractual arrangement aimed at collaboratively pursuing research or product development.
Strategic alliances can enable simple pooling of complementary resources for a particular project,
of they may enable the transfer of capabilities between partners.

Pros:
Through strategic alliances firms can gain access to capabilities not available in house, leverage
their capabilities by combining their efforts with another firm, achieve innovation goals faster, at a
lower cost and with less risk, get the flexibility to pursue various opportunities for innovation and
access different types and scale of capabilities.

Cons:
However, this transfer of capabilities often requires extensive coordination and cooperation,
which is not necessarily offset by the gains of the arrangement. Also issues of legal rights as a
result of many people working together can emerge.

Joint venture
A joint venture partnership between firms that entails a significant equity investment and often
results in the creation of a new separate entity.

Pros:
Joint ventures are usually designed to enable partners to share the costs and risk of a project, and
they have great potential for pooling or transferring capabilities between them. Example: Sony
Ericsson.

Cons:
Challenges in building a successful joint venture include building and maintaining a strategic
alignment between partners, creating a joint governance system, managing the economic
interdependencies between the parent firm and the joint venture and building the organization of
the JV



Licensing (in and out)
Licensing is a contractual arrangement that gives an organization (or individual) the rights to use
anothers intellectual property, typically in exchange for royalties. Licensing enables a firm to
rapidly acquire a technology it doesnt possess. For the licensor, licensing can enable the firms
technology to penetrate a wider range of markets. Licensing can lead to losing the technology as a
source of sustainable competitive advantage and offers little opportunity for the development of
new capabilities.

For more pros and cons, see section; licensing.


Outsourcing
The act of outsourcing is when an organization (or individual) procures services or products from
another rather than producing them in-house.

Pros:
Outsourcing enables a firm to rapidly access another firms expertise, scale, or other advantages.
Firms might outsource particular activities so that they can avoid the fixed asset commitment of
performing those activities in-house. Outsourcing can give a firm more flexibility and enable it to
focus on its core competencies.

Cons:
Overreliance on outsourcing, however, can make the firm hollow. The disadvantages on the other
hand are; potential loss of important learning opportunities, potentially high transaction costs and
risk that a contract manufacturer will appropriate proprietary technology. Also using cheap labor
manufacturing by outsourcing your production to development countries can harm the brand of
your firm and its CSR reputation. An example of this is Nike and the accusation of the firm using
child labor I Asia.



Collective research organizations
Organizations formed to facilitate collaboration among a group of firms working on a well-
specified project. They may take the form of trade associations, university- based research centers
or private research corporations and are formed through government or industry association
initiatives or groups of private companies.

Work with competitors (SSOs)
One of the most important of the collaborative strategies is participation in standard-setting
organizations (SSOs). Agreements among competitors to adhere to common standards when
designing and manufacturing their products often sharply increase the value to consumers of
those products, which in turn benefits all of the competitors.

Work with complementors:
A second form of potentially profitable collaboration involves working with the developers of
complements to ones product or service. Apple attempted simultaneously to encourage the
development of applications, while exercising veto power over which of those applications were
available to consumers and the prices that consumers were obliged to pay for them.

Work with customers (open innovation):
A third form of strategic collaboration consists of encouraging and then capitalizing upon
innovations by independent developers and even customers through models of open innovation
and innovation platforms.



Collaboration in general: Partner selection considerations
Finding a collaboration partner that fits your company in terms of strategy and resources and
prove difficult. Here are some considerations to keep in mind:
" Degree of partner complementarity (resources fit): non-overlapping resources, allowing
each partner to bring something new to the collaboration
" Degree of partner compatibility (strategic fit): mutual business aims, understanding of
space to work together
" Degree of partner commitment: similar levels of resources, time and attention, senior buy-
in
5) Strategic disclosure

Information is often given away when it cannot be protected effectively anyway. But making
information publicly available so that it cannot be patented can also help reduce the risk of future
holdup. Making research publicly available can produce two advantages.

1. The move could potentially lead to faster scientific progress, which would make the
companys marketing and sales capabilities more valuable.
2. In addition, keeping the knowledge in the public domain reduces the risk of rival firms
patenting research that was important to the firms efforts.

In general, if the firm has technology that is commercializable in a current market, and feels that
its IP barriers are strong, and relies on selling access to its technology in its current markets,
strategic disclosure may not be a good choice. On the other hand, if the technology will not be
ready for several years, or the firm is not ready to move into other applications of its own
technology, or if the option value of future market entry is high, strategic disclosure of some parts
of the IP portfolio may be an excellent choice.

Pros:
An alternative route is simply publishing the innovation. A cheaper alternative to
patenting, publishing inventions established them in the public domain as prior art, which
meant nobody else could patent them. This provided some measure of freedom to
operate (FTO).
Because patent applications are evaluated in light of the prior art, a firm trailing in a given
patent race has an incentive to disclose its research to the public. The incentive in this case
is not the conventional possible patent monopoly. The incentive is the possibility that by
disclosing information the laggard will create prior art that will in turn narrow or even fully
preempt any patent application the leader might ultimately file. While some firms may
consider having the power to prevent others from copying inventions to be an important
motive, many other actors are predominantly interested in a somewhat broader concept
of freedom to operate (FTO): The ability to compete in a fair marketplace on the merits of
the product without being excluded by opportunistic actors and frivolous patent litigation.

As alternatives to the prevailing dichotomy of patenting vs. secrecy, non-patenting
disclosure can sometimes either substitute for resource-intensive patenting or can be
combined to enhance the value of the patents. Publishing inventionseither in
conjunction with existing patents, or as a substitutecan yield significant benefits in
terms of speed, cost, and available options in the innovation and commercialization
process, thus helping protect and strengthen the market position of firms in highly
dynamic market environments.

Generally, disclosing IP is worth considering when FTO (freedom to operate) is a primary
consideration, reduction of patenting and litigation costs is a priority, when there is more
revenue from product related services than from product itself and when reverse
engineering is possible and there is uncertainty about the security of trade secrets.

Cons:
However, if a competitor should develop a patent portfolio that the firm needed access to,
it would not have as much in its portfolio to trade. The firm would also essentially be
giving away the fruits of its R&D, without recovering any potential license income to
offset the costs.

The benefits of strategic disclosure are generally limited when your business model is
dependent on licensing, you have a highly novel technology with near-term market
potential, you intend to seek outside or VC funding or when your technology has a
narrowly defined market application.

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