Intellectual Property_ Open Sour

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					  Open Standards,
Open Source Software
  Open Innovation
The developing case for openness

                             July 19th, 2005
 Four Pieces of Conventional
• The creator (inventor, lone genius) must be
  the focus of any inquiry about innovation
• Intellectual property protection is justified by
  the substantial costs incurred by the creator
  and distributor of new works
• Consumers and partners play a passive role
  in innovation
• Restricting access to creative works is the
  only sustainable way to create incentives for
  the creation of additional works
     Intellectual Property Law
• As an incentive to stimulate innovation, intellectual
  property law conveys a ―bundle‖ of rights to creators
  allowing them to control their works
• Provides a limited-term ―monopoly‖
• Creative works ultimately enter the public domain for
  use by all
• The Economic View of Information
   – Society benefits from the fullest availability of information for
     all, particularly where there is little or no cost involved in its
     production and distribution
   – In the absence of other compelling interests, monopolies,
     such as these intellectual property monopolies, are
     detrimental to society
    Intellectual Property Law
• Assumes that the incentives lead to the
  creation of works that otherwise would not
  have appeared
• Reflects the historical concern with the
  creation of physical products that are costly to
  produce and distribute
• Little empirical evidence to show the levels of
  creation that would occur under different
  conditions (shorter time periods, more limited
    Two Broad Categories of
• First innovators who     • Follow-on
  are granted rights         innovators who build
  – Almost always            upon earlier work
    follow-on innovators     – Outnumber the first
    to prior first             creators of the work
    innovators               – Every artist is a
  – Standing on the            cannibal, every poet
    shoulders of giants        is a thief (U2)
  Intellectual Property Rights
• Serve as a form of tax on innovation by one
  of these categories
  – If the rights of first innovators are increased, follow
    on innovation will be under-produced
     • Extending terms
     • Stronger tools to combat infringement
     • Failure to disclose
  – If the rights of first innovators are reduced,
    innovation by first innovators will be under-
  – The ―Goldilocks‖ solution
  Three trends that challenge
• Digitization
• Increase in the relative
  value of intangibles
  versus tangible goods
• Licensing rather than
  selling digital goods
• The Digital Dilemma
   – Same technologies that
     allow virtually free
     copying and distribution
     of digital information
     products allow control of
     distribution (NAS)
What is Openness
        • Data and information
          accessible by anyone
        • Subject to modification
          by anyone
        • Wide range
           – Open standards including
             proprietary material
           – W3C standards
           – Linux
           – Wikipedia
        • The Internet as
           Open Standards
• Advantages                 • Issues
  – Facilitate competition     – Openly arrived at?
  – Reduce threat of           – Timeliness?
    lock-in                    – Proprietary?
                                  • What the market can
  – Encourage                       bear?
    innovation ―further up        • RAND or royalty-
    the stack‖                      free?
  – Foster                     – Standards strategies
    interoperability              • Embrace and extend
                                  • Sloth
                                  • Seeding the market
              Policy Issues
• Government
  requiring open
• Mandating
        Open Source Software
• Uses intellectual property
  law as basis for license
• Mirror image of standard
    – Rather than controlling
      access to limit production
      and raise prices,
      encourages the widest
      possible distribution
• Open source software
  success depends on
  encouraging further
       Open Source Software
• The larger the number and the more heterogeneous
  the group with access, the more likely the exposure
  to someone with appropriate experience, skills, and
   – Depends on self-identification for tasking
       • Problems are broken into small pieces lowering cost of
   – Certain incentives greater with larger audience
       • Reputation
       • Access to venture capitalists, potential employers
   – 50% of cost of software development cost in testing and
       • More likely to get help in ―non-creative‖ work
   – Larger the group, the more likely to find the 20 in the 80/20
               Policy Issues
• Many calls for governments to mandate open
  source eg. Peru, California Resources Board
• Interoperability may be the answer (Perens)
  – For critical governmental functions interoperability
    should be required
  – Bumper sticker—―You shouldn’t need to buy
    software from a particular company to
    communicate with your government‖
• US Government objections based on TRIPS
  and WTO government procurement rules
               Open Innovation
• Known by many names—collective, distributed, cumulative,
  reactive innovation
• As old as Adam Smith and the Yankee tinkerer
• Von Hippel—customer driven innovation
   – Leading edge customers with skills and resources
   – Identify market needs before the market develops
       • Customers know their needs best—tacit, sticky knowledge
       • Manufacturers know their solution set best
           – Don’t know all solution sets
           – Have economic incentive to provide most generalized solution
           – Have economic incentive to provide their existing, proprietary solutions
• Hagel and Brown
   – Only sustainable competitive advantage based on productive
     friction with partners
• Henry Chesbrough–Firms should leverage internal and external
           Open Innovation
• Open innovation– from customers, partners,
  employees—collective wisdom
  – Toyota production line versus General Motors
  – Digital information goods—increasingly important
  – Not limited to information goods--design and
    production of physical goods is increasingly digital
  – ―Long tail‖ demonstrates heterogeneity of
    customer needs
             Policy Issues
• Need to measure—much open innovation
  occurs outside formal innovation system
• Potential incentives
  – R&D tax credit?
  – Innovation impact statement
  – Manufacturing Extension Program helping SMEs
• Removing disincentives
  – P&G web warning on customer suggestions
        Four Pieces of
    Unconventional Wisdom
• The focus should be on the process of
  innovation and the many potential
• The low cost of the creation and distribution
  of digital goods requires a different view of
  intellectual property
• Consumers, partners and others are playing
  an active role in innovation
• There are many sustainable reasons to
  create and to share, rather than to create and
• There is increasing evidence of the effectiveness of
  openness in creating and distributing digital
  information products and in many other economic
• Utilizing the collective wisdom of people around the
  world is more than just intuitively appealing, it is
  being validated as a coherent and sustainable basis
  for a different view of innovation and intellectual
• A through review of public policy to increase
  ―openness‖ is likely to be fruitful for the 21st Century