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The Pros and Cons of Sharing Intellectual Property - Ideas for Leaders
Idea #124

The Pros and Cons of Sharing Intellectual Property

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KEY CONCEPT

This research reveals why, in certain situations, it is more beneficial for innovators to share their secrets rather than to protect them. It also shows why, perhaps even more surprisingly, that it is wise for imitators to limit the amount of intellectual property they absorb from others.


IDEA SUMMARY

The purpose of R&D is to invest time and money in a technology in order to bring it to market to make a profit. The window of competitive advantage that exists when a company brings a new technology to market before everyone else is one of the primary incentives for a company to make that investment. So why do some companies, once they have gone to market, freely reveal their research findings, thereby narrowing their window of competitive advantage? The research shows that, in fact, sharing IP can benefit innovators more than withholding it, and, at the same time, that imitators have reason to limit how much IP they appropriate from others. It all depends on the amount of IP that is being shared.

Concurrent versus Imitative Development: Under ‘concurrent development’, companies start developing technologies at the same time and do not share any significant IP with each other. Conversely, under ‘imitative development’, the innovator completes its development process and goes to market before imitators start — usually either because a company saw an opportunity that others missed, or because imitators are waiting to benefit from the innovator’s research. A significant difference between the two is that there is no race between innovators and imitators to go to market under imitative development. To eliminate the pressure to move fast, therefore, innovators can share just enough IP to encourage followers to adopt imitative versus concurrent development: Alternatively, when an innovator excessively limits the access of imitators to their IP, it pushes competitors (who, at that point, do not stand to gain enough to make it worth their while to wait) to switch to concurrent development — to ‘race’.

Trade-off between Time and Cost: When a company brings a technology to market, its flow of profits from the market increases and the profit flow to other companies with the same offering (at least weakly) decreases. The longer an innovator is the only one on the market, the more revenue it stands to make from a given innovation; put another way, the longer the window of competitive advantage, the more incentive an innovator has to invest in R&D. This constitutes one of primary observations of how timing influences the benefits of a new technology, and the research suggests that innovators do in fact have reason to limit the amount of IP they reveal, since the more they reveal, the faster followers will be able to catch up and go to market, too. On the other hand, it points out that the costs of R&D increase relative to the speed at which a company

Qualifying the Established View of IP: The findings reveal that innovators should consider revealing more of their IP than previously thought. By sharing adequate levels of IP, innovators encourage imitative versus concurrent development, which gives them greater control over the timing of new technologies and thus significantly reduces the costs of their R&D. But share too much, and they overly narrow their window of competitive advantage, nullifying any cost savings in R&D. At the same time, imitators should consider restricting how much IP they absorb, because they are better off when innovators have adequate incentive to invest in R&D and then share it with them. In other words, if imitators overly reduce the leader’s incentive by appropriating too much of their IP, they essentially “bite the hand that feeds them,” which, ultimately, works against them. 


BUSINESS APPLICATION

Companies should bear in mind that the potential benefits for innovators and imitators of imitative development can go both ways (in fact, must go both ways), and, perhaps even more significantly, that the best interests of innovators and imitators alike are inextricably linked.

To freely share some of their IP (and to publicly indicate this intention), innovators can stop defensive patenting and open up more inventions to competitors via technical papers, the Internet, or industry conferences; patent in countries with weak enforcement of IP protection laws; collaborate on R&D with other companies or build centres close to followers in order to facilitate the leakage of private information.

To limit transparently how much IP they appropriate, imitators can choose to operate in different geographical sites than innovators; choose not to align strategy and organization with that of the leader; avoid hiring employees from innovator companies; reduce investments in complementary R&D or in capabilities to reverse engineer the leaders’ products.


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Institutions

Idea conceived

January 1, 2012

Idea posted

Apr 2013
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