Abstract - Sustainability: shifting emphasis to fostering deployment
The traditional paradigm of an isolated invention environment resulting in protected inventions has already come under pressure by using different variants of open innovation. More or less independent of that development, it also seems prudent to think about how deployment can evolve, especially in sectors where products and services are related to "essential needs" like health (including food safety, clean water etc), access to education and access to clean energy, or in other words, sectors that constitute realisation of social values and therefore stimulate a sustainable world.
Without more deployment of technology (currently protected by patents), society is not benefiting optimally from innovation efforts. This is true in general, but especially with regards to developing countries and the aforementioned sectors this is an undesirable situation. The playing field is vastly multi-dimensional and interrelated, ranging from IP-aspects to investor interests; various stakeholders hold different interests.
A core aspect of the analysis on how to optimise deployment is the system of IPR (intellectual property rights). To protect social values better, a radical change in the IPR-system is not necessary. Voluntary mechanisms to stimulate wide deployment exist, but need to be utilised more actively. Examples include conditional licensing, no-use clauses, valuing (shared) learning-by-doing to speed up the learning curve, no or partial patenting and valuing reputation as competitive advantage. In general, producers should realise that they have more options at their disposal than a mere focus on (short term) payback of investments in innovation. Such a change in mindset could lead to an increased atmosphere of "open deployment" as a logical evolutionary step after "open innovation". This is particularly important regarding deployment of technologies that serve essential needs as the basis for a sustainable economy.
This paper aims to provide a basis for an open discussion on this topic to contribute to this change in mindset. At this stage it is not intended to "make a coherent point", but rather to provoke discussion and stimulate thinking about new methods that address the concerns of the 21st century.
This discussion paper[1]was born out of the observation of the following issue: technologies are not always used as intensively as they could, and especially when basic human needs (education, health, energy, liveable environment) are concerned this is an undesirable situation. If we for a moment agree to this contention, why is this situation occurring? Simply formulated but less easily answered, amongst others, because technologies are being developed in a complex playing field. The core question is this: which forces influence the extent of deployment of innovations (invention) and how can the degree of deployment of a given technology be increased towards the socially optimal level? A first, and not necessarily exhaustive, analysis leads to eight interrelated factors that influence the step from invention to deployment. An additional complication is introduced as their relevance and the way they manifest themselves varies across sectors. For the purpose of this paper, we are talking primarily about sectors that deal with goods with a public character, that are beneficial to substantial 21st century values: health (including food safety and clean water), access to education, a clean environment and access to clean energy.
The identified factors that influence deployment are:
- IP-protection: is supposed to stimulate inventions. Does it indeed but more importantly, does it stimulate deployment or block it?
- Resources in the supply chain: are these used efficiently and effectively?
- The role of the market for public goods: what responsibilities are shared, what is the role of the government, are market forces a suitable mechanism to regulate public goods?
- Science & technology: relying on laboratory environments or practical circumstances?
- Legislation other than IPR: do existing roles, inadvertently or not, block the deployment of new inventions?
- Pricing strategies: how are products and services introduced in the market, does pricing take the purchasing power of the target groups into account?
- Investors: are their decisions based on short or on longer term incentives, which demands do they put on companies, e.g., regarding IP?
- Strategic decisions: concealing innovations and shielding technologies may be regarded as functional to competitive advantage.
These influences of the individual factors cannot be analysed in isolation, they overlap and are strongly interrelated. The question may also lead to different answers when we would focus on "non-essential" consumer goods. This paper does not intend to exhaustively discuss all elements, nor does this list imply that there are no other influencing factors.
There is another angle for looking at this complex issue, which may provide a more structured approach in arriving at solutions. This is the stakeholder approach. For now, we have identified 5 stakeholders, with different interests:
- National governments: supply public goods and goods that benefit aforementioned social values, but also aim to protect the competitiveness of their country"s economy
- Large companies: need to earn back their innovation investments, need to compete with other innovations on a strategic level, and are influenced by shareholders.
- Entrepreneurs: also look at returns but a growing segment is also looking at the positive societal impact and how to maximise that. This is the increasingly recognised group of social and sustainable entrepreneurs.[2]
- Society: "we the people", in both our roles: citizens (mostly interested in availability and distribution of public goods) and consumers (mostly interested in access to private goods with suitable quality and affordable prices).
- Investors in companies: in general will require a return on their investment, with clear distinctions in demand for high returns within a short period to modest, or broader social returns that possibly materialise only after a longer period.
If we were to identify paths for change, it may help to map the characteristics of these pathways on this stakeholder overview in order to identify leverage points (supporters) and expected pockets of resistance. This will help to determine actions to turn a possible development path into reality. A first attempt will be made towards the end of this paper.
This topic is very complex and multi-dimensional. This discussion paper will take the first factor as mentioned above as a main starting point (the role of IPRs in deployment), but will necessarily touch upon all other factors as well. This paper does not provide the final answer on dealing with IPR, nor does it propose a clear and coherent stance in this issue. Rather it is intended to serve as a starting point for further discussion, research, and possibly experiments to test or verify assumptions. Collaborations between various stakeholders to help to realise these intentions to become reality are therefore encouraged.
Deployment of technology, lead-up to the role of IPRs
The questions that were raised in the introduction are especially relevant in the context of sustainability (including health and social-economic opportunities) and/or technology transfers to communities that are less well off, like developing countries. Many technologies that are currently available would already be of extreme use there (renewable technologies, affordable ICT, medicines, water purification). However, while technology transfer is generally regarded as a strong potential vehicle for economic growth in developing countries, the degree of transfer and its effects appears to be limited at the moment.
As enforced by the TRIPS-agreement (Trade Related aspects of Intellectual Property Rights), developing countries must have a certain level of IPR (Intellectual Property Right)-protection in place to avoid import sanctions. This, in theory, assures their participation in the fight against piracy and illegal copying of technology even though it has not been proven that stricter IP-regimes actually lead to more technology transfer (Maskus, 2004). If, additionally and for any reason, developing countries are not (yet) able to assure this level of protection, they stay bereft of many new inventions. This includes ones which, when implemented by those countries, would benefit us as well, like climate friendly technologies or medicines in case of outbreaks of highly contagious diseases. This is a lose-lose-lose situation and therefore a very valid argument why governments could decide to intervene, and not solely trust on "market forces". This concern for securing the provision of goods that protect basic social values in practice will have to be balanced with the fear of governments that lack of enforcement of IPRs endangers the competitive position of a country.
Another likely, and in a sense related reason why technologies are not more often transferred to communities that need them is the price of this technology as offered in the recipient countries. Companies that have invented and developed new products need to earn back their investment. While in case of medicines some companies may indeed adjust their price level to the purchasing power in the recipient countries (Garnier, 2008), this is also putting pressure on their financial bottom line. Without any additional measures (see later in the article for examples), this may not happen too often. But many of such communities, e.g., developing countries simply cannot afford new technologies, and no one else seems to be picking up the tab. A host of multi-lateral funds, the CDM for climate change mitigation and several other channels are still not sufficient, although lately efforts seem to be increasing (e.g., GEEREF). Can such efforts be fostered, increased, and how could this materialise? It is clear that IPRs play a central role in this issue, although obviously not the only one, as discussed at the start of this article. National and international policies and circumstances as well as various stakeholder interests may block adoption of new technologies as well. Nevertheless, a core question in this article will be: if we look at the deployment phase of the innovation cycle, is the role of IPRs a positive one or not, and what options are available - within the current IPR regime or as adjustments - so as to ensure benefits for inventors, companies, and society as a whole?
The case for IPRs and recent responses
First, the issue must be broken down in elements. The introduction of new inventions (for now limited to technologies), is divided into several phases: inventions as acknowledged by law[3] (with the IPR-system as assumed stimulant), dissemination of information on these inventions (the patent application containing information with which a "skilled craftsman" should be able to build it (WIPO), diffusion of the applications and actual deployment. The challenge that is addressed in this article mainly lies in the last two phases.
Why do patents exist, and are the reasons valid?
In general, intellectual property rights like patents exist to offer inventors the recognition for their creativity, which should encourage innovation (WIPO, no year). One could indeed hypothesise that without any form of protection of intellectual property, inventors would be less enticed to spend their time and energy on inventing anyway. In more formal scholarly terms, without intellectual property protection, firms are in a deadlock when determining to use inventions by others, which would lead to prohibitive transaction costs. This requires some explanation.
New ideas are in a sense a public good and are therefore non-exhaustible non-excludable (Burk and McDonald, 2007). Because of the latter characteristic, without intellectual property rights, the optimal strategy for any firm would be to free ride, wait until others generate ideas, take them and then develop these further themselves. If everyone would however follow this strategy, no one will spend resources on generating new ideas. This would stifle innovation.
In current reality it is assumed that a mechanism must exist by means of which potential buyers can determine whether it is economically justified to indeed purchase an invention (or idea), or develop these themselves. Following conventional wisdom they can only decide to do so if they have sufficient information on the invention. In this line of reasoning, from the inventor"s part, by disclosing the information, they face the risk of free-riding by the potential buyer. This situation results in a deadlock: the inventor will not easily provide the information and the buyer will not want to acquire it if he cannot assess what it is worth. This in theory leads to prohibitive transaction costs (Burk and McDonald, 2007) and will thus block any invention from being used if the inventor has no capacity to turn the invention into actual products.
This is partly the case in favour of the current Intellectual Property Rights system. Patent applications require the publication of the invention. This means that potential buyers can assess whether they want to attempt to acquire a license, or are better off developing an alternative themselves. At the same time, the inventor by sharing the information enables the potential buyers to make this assessment. This system is designed to prevent the initial deadlock and thus in theory bring down the prohibitive transaction costs to manageable levels, i.e., by creating a regulated market for information on inventions, which reduces the risk level for both parties. This reduced risk level combined with an assessment of the value of the invention for the buyer is then incorporated in the reduction of transaction prices to a non-prohibitive level. On the other hand, if the main incentive of the patent owner is to get a monopoly profit, the maximal benefit to society will not be achieved (Dixon and Greenbalgh, 2002).
By and large this system implies that the powerful market parties (knowledge, patent experience, market access) have an almost natural advantage over the ones that have fewer financial resources. Such benefits for the larger more powerful market parties (both sellers and buyers) could be socially acceptable if we talk about non-essential consumption products like expensive cars: sellers can use their powerful positions to develop products and sell to customers who are willing to pay high premiums. This picture changes if market power dominance refers to necessities or basic subsistence related products and services that would make the lives of millions just a bit more bearable. In that case, benefits flowing to only the powerful parties seems undesirable. To have access to their life"s essentials less powerful parties and governments are then dependent on the "mercy" of the ones with the resources (e.g., to sell products an appropriate price level) which may or may not happen. This situation is exacerbated by the (perceived) instability of capital markets in some developing countries. This makes investments more risky and therefore more expensive, hence reducing the opportunities for less powerful market parties to get into the game.
Developments that move away from IP-focus
The development of new technologies and products depends strongly on the capacities of the inventors to develop the ideas into products, but also of the goals of the inventors. Ideally, seeing their inventions being put to use would be the real recognition. This is definitely not always the motive for research, as will be discussed in the next section. If we however look at a phenomenon like the open source movement, it is the actual free sharing of information and (software) inventions and improvements that forms the whole basis of that industry and does not seem to suffer from the transaction cost-deadlock. Mere recognition by their peers of the value of their contribution, the value of (as opposed to disruptive) incremental improvements as well as being able to influence the quality of a product are the actual drivers here, not a monetary compensation for that contribution. Although an increasing number of OS-developers seem to be paid, in some shape or fashion, the core idea seems to hold. The main business model for OS-companies lies in the services (installation, help-desk, manuals, regular updates, integration in regular systems-architecture, security etc). Obviously, a quickly evolving product like a software programme is very suitable for continuous and small improvements and lends itself for value-adding services, while this may be less valid for other sectors and products.
Secondly, we see an increasing number of mechanisms that are used in invention phases nowadays that seem to be less defensive in protecting the isolated source of an invention but instead recognise the value of cooperation in this phase. Such mechanisms include (user) co-creation, crowd sourcing and acknowledging possibilities for open innovation in general (Chesbrough, 2003). This has many potential advantages (most notably product quality and addressing actual demand), but does require a more open mindset towards "property". This mindset can in extreme cases be labelled as "nothing is invented here syndrome" (Hargadon and Sutton, 2000) as a source of pride, not shame. Companies in such an environment need to identify and manage the value that is created in the co-creation process, capture that value and translate it into products and services that provide their specific competitive advantage. Such capacities, i.e., using other factors than just invention and protection, will move a company right to the core of the 21st century and customers will notice this. This core is not just about producing, not even about learning, it is about the ability to effectively incorporate knowledge that is in principle available to anyone. In that sense it will help to look at the discussion on how companies can make money while their primary product is a commodity, i.e., potentially free of charge (Kelly, 2008). That discussion can be extended to the situation where many companies delve into the same knowledge pool: the outcomes may be different, depending on the ability to incorporate special, or even non-copyable elements, including brand name and reputation!
The IP-system has already started to work against even the largest companies, due to the emergence of "patent sharks" (Henkel and Reitzig, 2008). These exist primarily to identify, but and then exploit patents, many of which are "hidden". Once a company inadvertently infringes on such patents, the "sharks" are quick to rise to the surface and attack, i.e. sue. While their case may not even be that strong, until recently they were usually awarded a "preliminary injunction", preventing the company they were suing from entering the market. In many fast-paced industries, such delays are lethal and companies quickly settle. Later sections of this paper will address how this danger can be circumvented.
Innovation cycle phases
As discussed above, this paper attempts to identify directions for solutions that allow "less resource-rich" parties to be included in the game, and/or allow for (wider) deployment of products and services that protect basic social values. These directions include mechanisms that would reduce the price level of the final products while not endangering the economic position of bona fide parties that sell such products. Before we turn to such potential solutions, first some brief remarks about the various phases in the innovation cycle.
Invention
IPRs protect inventors, and following the arguments as outlined above enable inventions (and their expected revenues) to be negotiated about. Without protection, but apparently still allowing for the situation that inventions become public somehow, the assumed "problem" is spill over to (local) companies who can copy the technology (Wakasugi and Ito, 2007) and start selling it at a lower price. This would endanger the original inventing company, or in case of developing countries, their local subsidiary (Cave, Van Overwalle & Nooteboom, 2005).
This poses a challenging question to the proprietary companies: if they offer a product on a market that can easily be copied and sold at a lower price, did the company then offer a good value proposition in the first place? Did it take the context sufficiently into account? Part of this context is the purchasing power of local consumers, as well as the quality that suffices. If both are overestimated, or even ignored, then the price/product ratio does not suit that market. While it is fair that companies earn back their costs for developing new products, they also should take care to offer a combination of functionality and price that does correspond with the local market needs and consumer possibilities. To achieve this they could for example decide to use more local resources in development and production and complement these with the "abracadabra" element that remains secret.
Obviously, the situation where a premium product is fully copied without permission and sold at a much lower prices is not acceptable. But apart from that case, any other situation where companies do not approach a particular market appropriately creation of very similar products that do take the local market needs into account better[4] is a logical response. Instead of spending energy on protection, doing more market research seems a justifiable re-allocation of resources. Interestingly, this contradicts one of the findings of Garnier (2008) for pharmaceutical companies. He asserts that their cost basis is dominated too much by sales and marketing instead of the core (R&D). He does however seem to refer more to the expensive advertising campaigns in developed countries than targeted market research in developing or emerging economies. "Marketing" in these countries, especially for the bottom segments, may have to focus more on basic information provisioning, thus lowering the overhead costs.
Garnier (2008) also urges pharmaceutical companies to re-think their R&D-efforts, but focuses on the organisation and incentives structures, because of an upcoming wave of patent expirations in the sector and an observed decline of the period that premium prices can be asked. This actually seems to be the result of regulatory changes that demand a shorter period for generic derivate medicines ("generics") to be allowed to become available. Instead of solely thinking in terms of productivity and re-organisation, the situation could also be seen as opportunity, an invitation actually, to really rethink the paradigm of invention > patenting > reap benefits > redo.
This may also relate to another increasingly interesting topic, that of incentive schemes. In open source software-communities it is widely accepted that without diffusion of inventions and the recognition of individual contributions, innovations are useless. Rewards within groups include non-monetary aspects and especially status. Money is still being made, but not necessarily on the base products that involved many contributors that would be difficult to reward following a fair financial system. The business model for the commercial entities in this environment therefore lies in the services around the product. This goes to prove that lower or even no formal protection can also stimulate creativity by thinking of new ways to make money, while stimulating wider use of the product. This raises the almost rhetorical question: could this be applicable in other sectors as well? And linked to this question: would an infrastructure for services be less complicated than for products?
By introducing a high barrier for others to use the technology, it is easy to see how overzealous protection can lead to crowding out of local competitors. Especially in the domains of sustainability, development cooperation but also health care, this raises serious doubts about the intended effects of technology transfer: Shouldn"t the main aim be breadth of use that is socially optimal (at least, for these technologies)? Maybe the added value for the original inventor (and when applicable, his or her employer) lies not so much in protecting and selectively selling the products but in providing training or experience in bringing the product to the market. High-quality training, or targeted information (possibly even paid by semi-government sources) are for example much less easy to copy. This may for some people also be a more pleasant way to transfer one"s knowledge than a one-time invention. This argument is certainly applicable to health and energy sectors.
Dissemination
Several publications have to an extent demonstrated that a stricter IPR regime in a host (i.e., recipient) country has a positive effect within MNCs (multinational companies) on the intra-firm technology transfer from the parent firm to the subsidiaries (Wakasugi and Ito, 2007). This supposedly also happens when parent and subsidiary are located in the "north" and "south" respectively (Yang and Markus, 2001). However, while such findings indicate that technologies may become available within the multinational firms, in locations in other countries, this still says very little about whether the technologies are actually used, implemented and deployed more than would have been the case without the stricter enforcement. Wakasugi and Ito (2007) acknowledge as much, but claim that it is too difficult to investigate the influence of stricter IPRs on actual deployment, and therefore only focus on the intra-firm transfer.
There is more: many examples exist where people do not even dare to develop new technologies, because they know the area is rife with patents (patent "thicket"), many of which are not even used but just kept from the market on purpose (Cave, Van Overwalle & Nooteboom, 2005). This phenomenon basically prevents a good idea from being used. What value is innovation (and patents) for society as a whole then? It is even a built-in attitude in the whole patent system: "the patentee [...] a statutory right tot prevent others from commercially exploiting it" (WIPO, no year); even if those "others" would be much better equipped and could make sure that the invention is actually used. This in practice leads to the situation where especially large companies have many patents lying on the shelf, gathering dust, for not much more reason than preventing others from using that invention. This in a sense is contrart to competition laws which more explicitly than IPR laws strive for optimising consumer welfare (Dixon and Greenbakgh, 2002). Together with non-published inventions (i.e., trade secrets), such "pre-emptive patenting" means society is robbed of many potentially good products, which is undesirable in the sectors that this article focuses on. This issue is actually a main theme in this context: reducing pre-emptive patenting in the field of innovations for products with a public character. It is therefore touched upon several times in the remainder of this article.
Deployment
Branstetter et al (2005) are in favour of stricter IPR regimes since their research shows that in case of stricter IPR regimes in host countries, royalty payments to the parent company increase, indicating a higher value of the technology transfer. It however remains to be seen whether this also means that actual rate of deployment increases. The relation between the size of the royalty payments and the degree of deployment depends on what type of license is agreed upon (fixed amount, volume based, sales percentage, fixed percentage of revenues, etc), so as a general statement a higher royalty payment of local subsidiaries to the parent companies is not necessarily an absolute proof for higher deployment.
In a system that is only focused on protection (instead of actual ROI), the most likely move of the price of technology is upwards, especially on the short term, if only because protection blocks competition. This hampers adoption and deployment or poses customers with much higher costs than is socially acceptable. An area where this has already occurred is health care, e.g., the medicines that have been developed to battle avian flu outbreaks (Klein, 2007). Companies also rob themselves of the chance to sell and implement more, therefore learn more which can feed into their organisational processes which can speed up their learning curve and would further enhance their competitive position in all the markets they operate in. This, in combination with having measures in place to prevent parallel imports, could justify a lower price in countries that cannot afford the high initial prices. Companies unfortunately rarely take this approach. Whereas a concept like open innovation is by now increasingly used, the time may be ripe for "open deployment" as well, to stand a higher chance of inventions being scaled up quicker and better (Oey, H, 2006). The solutions-section will discuss strategies that may achieve this in more depth.
All in all, it seems to be worth questioning whether too much focus on protection and patenting is worth the trouble. While simply copying and selling products is not allowed, reverse engineering of products that use new technologies is permitted (Burk, 2007). Especially in the case of inventions that are relatively simple, companies can perhaps consider to spend their resources better[5] by working on improving products by deploying them and learning from that experience to gain their competitive advantage. Especially if they would engage in "purposeful learning" (Johansen, 2006) they may achieve better results. But learning in the deployment phase is only possible if deployment happens in the first place.
Avenues for solutions: existing possibilities and more radical options
One way or the other, more attention is required for diffusion and especially deployment. Use that is socially optimal should mean highest volume, not highest price. Part of the solution may be to realise that inventing is a different cup of tea than deploying, so if companies combine this, it is likely that inefficiencies take place, even further increasing prices. Specialisation is actually a central theme in the theory of the existence of firms in the first place (Burk and McDonald, 2007). In practice, larger companies acquire small companies that have made a ground breaking invention all the time. But they do not always bring these inventions to the market. Similar to pre-emptive patenting, they simply keep their competitors from doing so. Society suffers in the process. [Some examples would be good to include here] The opposite also happens, like with the aforementioned patent sharks who thrive on products actually being brought to the market that contain (hidden( infringed) patents, which enable them to sue, as a primary and sometimes only source of income (Henkel and Reitzig, 2008).
There are however several possibilities, even within the current framework, to stimulate dissemination and deployment more than currently is the case. Much depends on the vision of the source of the innovator in that case. Governments, if reluctant or unable to regulate towards more deployment, on their part can decide to stimulate a mindset in which such current possibilities are chosen more often. The possible role of governments is discussed in the final section.
The following sub-sections briefly describe some of the possible solution directions. The first set is composed of relatively simple alternatives that do not require a system change, but rather a specific assumption on motives and mindset of the originator of the invention. The final two suggestions need much further elaboration and analysis.
Possibilities within current regimes
The following avenues for solutions do contain similar elements. The actual solution may therefore a combination of more than one of the options that is described below.
- ↑ First snippets of this article can be found in posts from 2007 on Wouter Kersten's blog: http://woutersinnovationspace.web-log.nl.
- ↑ A possible more appropriate name is issue-driven entrepreneurs: they exist to solve particular issues, and profit is a means to keep achieving that mission. Focus shifts from profit maximisation to impact maximisation.
- ↑ http://web.archive.org/web/20110224151551/http://www.epo.org/patents/law/legal-texts/html/epc/1973/e/ar52.html
- ↑ These countries, like China, have a demand for different segments, from high quality premium prices, via 'good enough' to lower quality but low price variants (Gadiesh et al, 2007).
- ↑ This argument includes the necessity of required resources to actually monitor and act upon patent infringements, which not every company may be able to bear. They have the law on their side but are they able to use it? I.e., can they defend that right and if not do alternatives exist that make a better use of resources in building a sustainable company?