Open Innovation is already under scrutiny due to the performance of P&G (Procter and Gamble) showing that open innovation may be a failed experiment. Two articles (from  BusinessWeek.com and Bloomberg.com ) have investigated how P&G, at one time the innovation leader, has lost it’s lead against companies that use traditional innovation methodologies (such as internal R&D and 3dIP ) including Unilever, Henkel, Colgate, Kimberly-Clark and others. More pressure on open innovation comes from changes to patent law found in the America Invents Act that go into effect on March 16, 2013.

The America Invents Act, also referred to as patent reform, goes into effect in March of 2013. Some of the law’s key provisions directly effect how companies can practice open innovation, they will change how inventors respond to open innovation initiatives and will make it more expensive and time consuming to identify assess and acquire innovations.

Open innovation is a widely used tool within research and development (R&D) and new product development (NPD) organizations. It is used to find and acquire innovations from outside a company’s internal innovation organization. Sources of innovations for open innovation typically include; other companies, suppliers, consultants, academia and individual inventors. Open innovation is utilized by leading US and global companies, including Apple, 3M, Starbucks, P&G, GE Medical, Kraft, General Mills, Dial, Unilever and others. These initiatives often utilize web based portals to facilitate communication and outreach to inventors and suppliers. Some examples are P&G’s Connect + Develop, GE’s Healthymagination, and Unilever’s portal managed by Yet2.com. Leading innovation consultants, including  Newlogic , are working with their client to make changes necessary to adapt to patent reform.

Be Afraid, Very Afraid:
Patent Reform, officially known as the “America Invents Act” (AIA), will go into full effect on March 16, 2013. The law change will demand a massive shift in activities impacting research & development (R&D) and new product development (NPD) processes that most US based companies and inventors are unprepared for.
• Patent reform will change innovation, R&D and NPD strategy
• Patent reform will change the time available for innovation
• Patent reform will change how much budget is available for innovation
• Patent reform will change which innovations can be protected
• Patent reform will change how inventors respond to open innovation initiatives

First Inventor to File:
The law has many components, however, the change from a ‘first to invent’ to a ‘first to file’ system has the greatest impact on the assumptions that underpin open innovation. A first to file system grants the right of a patent for a given invention to the first person or organization to file a  patent application for protection of that invention, regardless of the date of the actual invention.
In a first to file system Inventors will have to fully protect their inventions before disclosing them to other parties. This effect of first-to-file should not be under estimated, as it is likely to lead to the end of open innovation as it is currently practiced. The reason patent reform will change open innovation is three-fold:
1) Inventors will be unwilling to disclose early-stage ideas, innovations and inventions for risk of losing their rights. Sophisticated inventors will likely delay disclosing their ideas until they have filed a full patent (not just a provisional). This is in order to capture the greatest protection against the theft of their IP after disclosure to potential investors. This will significantly delay the disclosure of new ideas and innovations by inventors and suppliers. Provisional patents, because their protection expires in 1 year, will not be adequate protection all but well-funded and fully-developed inventions.
2) Because inventors will have spent the time and resources required to file a ‘non-provisional’ patent, they will have much invested in their inventions. This works both the favor of and against an acquiring company’s interests. Although the invention will be a more attractive IP asset to acquire. Inventors will also want a greater return on their high-risk investments. This makes open innovation inventions more expensive to acquire.
3) Unlike the current, first to invent, patent system, patent reform will increase the participation of IP lawyers in open innovation. The lawyers’ participation will likely include patent filings as well as the marketing to, and negotiations with, potential purchasers We expect that these changes, brought about by patent reform, will create more, not fewer, situations where inventions are represented by IP law firms and “patent trolls”, instead of the inventor. This will not only increase costs, but also the risk of litigation if an inventor, or their representative, feels there has been infringement.

The effects of these changes directly effect many of the advantages open innovation provide to R&D and new product development:
• Patent reform will significantly delay the discovery of new ideas
• Patent reform will significantly increase the cost of finding, assessing and acquiring innovations from outside sources
• Patent reform will make open innovation more risky because IP holders, and their representative, will be much more sophisticated and proactive about filing suit against potential infringements.

Without these advantages, open innovation initiatives will likely struggle to demonstrate value and performance. They will no longer be able to capture and assess early stage ideas from inventors and suppliers. Companies will lose technology-push innovations typical of open innovation programs.

The Four Tools Used by Leading Innovation Organizations
In order to counter the negative effects patent reform will have on open innovation companies can implement four R&D and new product development (NPD) strategic management tools used by leading innovators:
• R&D Portfolio Management
• Technology Strategy
• Technology Platforms
• Innovation Inventory Management

These tools will not only counter the negative effects patent reform will have on open innovation, they will improve a company’s overall R&D and new product development (NPD) performance. These tools contribute to improving outcomes, reducing time to market, reducing costs and increasing the predictability of innovation programs. These four tools achieve these goals by providing the following:
• Clearer vision of long-term trends in market/customers, competitors & technology
• Better process to select the most promising innovation opportunities
• Clearer & better process to plan and allocate development capacity
• Better focus in product portfolio strategy priorities
• Better focus in technology & manufacturing strategy priorities
• Clearer & better process to optimize product & portfolio plans
• Better process to determine which resources to build where
• Better focus in product planning and faster product development

Addressing Patent Reform:
Patent reform will likely cause the end to open innovation as it is currently practiced. This change creates the opportunity for R&D and NPD organizations to implement changes to improve their overall performance. Leading innovators utilize four key tools to achieve their leadership performance. These four tools;  1) R&D Portfolio Management, 2) Technology Strategy, 3) Technology Platforms, and 4) Innovation Inventory Management, will not only counter the negative effects patent reform will have on open innovation, the tools will improve the performance of R&D, innovation and new product development organizations as a whole.

Image credit:  CNN Money