4 Managing intellectual property in R&D collaborations

The ability to generate innovations has become a key factor for success. However, it is becoming increasingly evident that only in few cases product innovations could be handled by companies themselves, anymore: In this context, R.Z. Gussin, Corporate Vice President Science and Technology of Johnson & Johnson, New Brunswick, NJ reasoned that “technology has become so sophisticated, broad and expensive that even the largest companies cannot afford to do it all themselves.” Companies are therefore increasingly accessing sources outside their firms’ boundaries and no longer rely on getting everything done internally. This innovation process, which large companies are already actively practicing, will also reach small and medium sized enterprises soon. The enhancement of this so-called open innovation trend has influenced the surrounding intellectual property environment: Organizations are more willing to share and propagate intellectual property.

4.1 Increasing relevance of research and development collaborations
There has been an increasing trend of focusing on core competencies (Hamel and Prahalad 1990, Boutellier, Gassmann and von Zedtwitz 2000). On the other hand, the demand for integrated solutions is also growing. Many companies can no longer afford to successfully develop these solutions internally (Hamel and Prahalad 1995). Therefore, they are collaborating with other parties to develop and market integrated solutions (Belz 1998). Although the number of R&D partnerships has almost tripled during the last two decades (OECD 2002), surprisingly only 45% of such collaborative arrangements and joint ventures in general are found to be successful for all parties involved (Harrigan 1988). 

Evidence suggests that the issue of intellectual property has been gaining increasing importance during inter-firm R&D collaborations (Hagedoorn, van Kranenburg and Osborn 2003) and that the proportion of jointly owned patents has steadily increased during the last decades (OECD 2002). Dealing with intellectual property issues in R&D collaborations at the early stage of a collaboration is difficult as the partners may not precisely know their future situation or may not want to disclose all their expectations (Brandenburger and Nalebuff 1996). In particular, the early phase is especially delicate due to high uncertainties and risks (Doz and Hamel 1998).

R&D collaborations are of greater importance for companies today due to increasing complexity of scientific and technological development, shortened innovation cycles and higher risks and costs for generating innovation. Due to strategic technology alliances for several decades the numbers of R&D partnerships have steadily increased (OECD 2002; Hagedoorn 2002). The growth in technology alliances was mainly driven by the hightechnology industry, for example biotechnology, information and communication technology as well as aerospace. Important criteria for characterizing collaboration are motivation, structure and performance (Kale, Dyer and Singh 2001). Aspects of motivation: A collaboration between competitors is meaningful only when a win-win situation is created and if the customer perceives the added value (Dixi and Nalebuff 1990). Major reasons for forming such collaborations are intense competition, opening of new markets, insufficient internal resources, lack of know-how and inability to generate opportunities alone (Müller-Stewens and Lechner 2003; Gassmann and Fuchs 2001). From the strategic point of view, collaborations further strengthen a company’s competitive position on a long- term basis (Kogut 1988). However, transaction costs need to be kept low in order to achieve optimized benefits (Williamson 1985; Hennart 1988).

Aspects of structure: Collaborations can be classified in different categories based upon marketing strategy (Sydow 1992): Purchase contracts and barter deals are the most market driven forms of collaborations. On the other hand, profit centre organizations are mostly driven by hierarchy. Interorganizational networks can be formed through long term supplier contracts, licensing and franchising contracts or joint ventures. Especially for R&D, collaborations can be differentiated into three categories for the background of collaborations partners (Schögel 1999): Collaborations between independent business units, suppliers and competitors as partners. Typical inter-firm collaboration partners are completion partners, suppliers, customers or competitors.

Aspects of performance: The overall performance and value creation that is achieved through collaboration is usually greater than what can be achieved by the individual efforts of its collaboration partners. Ideally, the process of cooperation should challenge each of the collaboration partners (Beamish 1987; Harrigan 1985; Merchant 1997). Gaining consensus across the individual views of the partners is a pre-requisite for a successful collaboration (Kelly, Schaan and Joncas 2002). Therefore considerable efforts need to be made by all partners to reach consensus during the early stages of forming such collaboration.

4.2 Setup and early phase of collaborations
Various studies have proved that 50% to 60% of R&D collaborations fail (Spekman, Lynn, MacAvoy et al. 1996; Dacin, Hitt and Levitas 1997; Duysters, Kok and Vaandrager 1999, Kelly, Schaan and Joncas 2002). Most failures happen during the setup phase of the collaborations (Bleeke and Ernst 1993). The setup phase and the early phase of a collaboration are well known to be the crucial period for success as the quality of working relationships is established (Anderson and Weitz 1989; Sherman 1992; Doz and Hamel 1998).

Trust decreases the risks based on transaction costs, enables conflict resolution and may help adapting to changes (Ring and van de Ven 1992; Parkhe 1998b). Another important aspect of the setup phase is the assessment of cultural compatibility amongst the potential partners which is often underestimated (George and Farris 1999). The selection of the right people who will finally be part of the collaboration is crucial (Yoshino and Rangan 1995). Learning already in the early phase is very important (Doz and Hamel 1998) and a communication culture has to be developed early that fits the needs of the collaboration (More and McGrath 1996).

More and more companies use external intellectual property and do not rely anymore solely on their own intellectual property (Chesbrough 2003a, 2003b). At the same time, more and more companies are willing to share their intellectual property with external third parties (Kline 2003).

While intellectual property can be acquired through internal processes, it can also be acquired by external activities, for example collaborations, acquisitions or in-licensing. Utilization of intellectual property can be internal also as external as a means for keeping other parties from selling or out-licensing also by multiplying its value through cooperating with other partners.

4.3 Joint intellectual property
A company's propensity to patent is significantly higher among R&D collaborators (Brouwer and Kleinknecht 1999). The exceptions seem still to be small and medium size enterprises that rarely collaborate in obtaining patents, even though collaboration has been proved to be a good way to solve their problems concerning patents (Masurel 2002). 

Hicks and Narin (2000) concluded an increase of jointly owned patents with respect to a growth of collaborative R&D. In fact, there is an increasing amount and relative share of jointly owned intellectual property rightsiii, especially in form of joint patents: An empirical investigation reveals that even the share of co-patent-applications in triad patent families has been increasing from almost 7% in 1980 to more than 10% in 1995 (OECD 2002).
However, jointly owned patents are still seen as suboptimal due to necessary contractual and administrative regulations that remain incomplete and still leave open various legal and economic risks. Haagedoorn (2003) compared different industries concerning their joint patenting behaviour that seems to depend on the sectoral patent intensity, partnering intensity and strength of intellectual property. 

Hagedoorn, van Kranenburg and Osborn (2003) observed that formal inter-firm R&D collaborations may generate valuable results for the partners but that “surprisingly” the collaboration partners recognize joint patents not really as a collaboration benefit. The general willingness of companies to share patent ownership in formal inter-firm R&D collaborations, however, depends on their experience with the joint patenting process as a such. Once the partners have learned to process joint patent ownership they continue to do so with collaboration partners.

4.4 Intellectual property in the early phase of R&D collaborations
Finding solutions on the treatment of intellectual property that evolves from R&D collaborations poses a big challenge to the collaboration partners and their strategists: Before entering an R&D collaboration, companies seem to be frequently trying to save as much intellectual property on their side as possible (Markwith 2003). On the other hand, in practical terms it is a challenge to agree upon how to manage intellectual property which shall be created during the collaboration (Dillahunty 2002). However, the willingness to solve intellectual property issues and the success rate in R&D collaborations depends upon the previous experiences of the collaboration partners with the joint patenting process itself (Hagedoorn, van Kranenburg and Osborn 2003). Therefore intellectual property management in R&D collaborations plays a decisive role already in the early stages of collaborative processes. Early and explicit agreement on how intellectual property ownership and benefits are to be allocated among collaboration partners is generally important. 

It is a general interest of companies to involve external parties in their innovation processes. This includes the management of collaborations with third parties, for example customers, suppliers or even competitors. The study further revealed that about two-third of the surveyed companies are already involving external partners in their idea generation process, but that still one third of the companies has an insufficient success rate in solving intellectual property related issues in the early phase of collaborations. It turned out that one key problems seems to be the conflicts of objectives, for example between suppliers and customers. During negotiations the partners need to determine and explain the rights and duties that are expected from both parties. An important issue seems to be the level of discipline: For example, the successful parties in general sign and stick to nondisclosure agreements even before the start of the negotiations and prepare minutes of the meeting signed by both parties.