Lately I’ve been reading “Burning the Ships: Intellectual Property and the Transformation of Microsoft” – a book written by Marshall Phelps (Microsoft’s VP of Intellectual Property Policy & Strategy) and David Kline (co-author of “Rembrandts in the Attic”). While I’m reserving the right to write up a proper book report (my 5th grade teacher would be so proud) once I’ve finished it, there was one particular insight I thought was worth sharing on my blog right away.
Throughout the initial chapters of the book Phelps continually states that Microsoft’s assertion of their intellectual property rights – particular their patents – has been a key part of a shared innovation strategy. I know, I know – I had same initial reaction. Self-serving corporate propaganda. But the more I read, and the more I thought about this, the more I started coming around to his thinking.
As some background, Phelps explains in some detail how Microsoft moved away from the “non assertion of patents” (NAP) clause in their OEM agreements. NAP clauses had been the backbone of how Microsoft protected themselves, and other OEMS, from claims of patent infringement. That was seen, and I believe rightly so, as being monopolistic by those OEMs. So, Phelps moved the organization towards the use of broad patent cross-licensing (PCL) agreements with these organizations.
The underlying objective of a NAP and a PCL are essentially the same – to protect an organization from patent infringement claims. But the approach to achieving those aims are as different as night and day. The NAP achieves this outcome by restraining a particular behaviour – suing for patent infringement. A PCL does this by encouraging another type of behaviour – cross-pollinating innovation between organizations. The whole point of a PCL is to say, “why sue each other, let’s just give each other access to our respective portfolios and spend our energy figuring out how we can our share our ideas.”
This is a disconcerting perspective if you see IP as being tool of exclusion – an exclusive right that derives its value from the ability to stop others from doing something. And I must admit, that has often been my default view of IP. According to Phelps, that view was broadly held by most of the staff at Microsoft too!
Instead, Phelps is advocating a different view of IP, particularly patents, as a tool of inclusion – a right that can be used to bring organizations together. Looking at patents in this light makes it difficult to avoid direct comparisons with the underlying objectives of open source. Instead of the confrontational dichotomy so often drawn between open source software and software patents, the two can actually be channelled for exactly the same objective.
In this context the contrast between open and proprietary blurs. Yes, they are distinct states. But how do these different states create value?
I think the answer lies in Geoffrey Moore’s work on the Flow of Innovation and, specifically, the difference between core and context. Patents are relevant in the area of core capabilities – the activities that create distinct value for an organization because they create clear competitive differentiation. As Moore points out, core capabilities are areas where organizations invest more resources. But nowadays Fortune 500 companies are questioning the value of internalizing all that investment. Companies like Proctor & Gamble have proven how success one can be by integrating innovation between organizations. Patents and PCLs then become a critical requirement in being able to innovate core capabilities in a world of open innovation.
Context, on the flip side, is everything that is not core. And, to Moore’s point, organizations seek to extract resources in these areas. Open source has unique value in achieving that objective. There are few mechanisms more successful than open source in remove price and supplier distortions that make resource extraction difficult, if not impossible. But where patents underpin open innovation, open source underpins shared commoditization. Or, as I define it, patents are critical to achieving core competency while open source is critical in achieving collective competency.
Therefore, open source and patent must co-exist as two components of a comprehensive approach to opening up an organization.
Having said all this there is one inconvenient truth that Phelps avoids – at least up to the point in the book I’ve read up to. What happens to all those organizations that can’t build up juicy patent portfolios because of the cost, overhead and complexity associated with doing so? How do they get to participate in this brave new world of PCL-based shared innovation?
But that’s a topic for another day.
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