5.1.1. The issues related to open-innovation practices

Collaborative practices, called “open innovation”, require a delicate mediation of two opposing needs. On one hand, companies need to ward off the risk that their knowledge leaks out to their competitors who can then imitate it. On the other hand, they are required to share some intellectual assets with third parties, whether to innovate cooperatively or facilitate the development of markets related to new products. Intellectual property rights offer practical solutions to this problem, to the extent that they present a good compromise between these two opposing needs for opening and closure by specifying on which terms and with what kind of partner a specific technology may be shared [WIP 15]. This is why the opening in question does not correspond at all to the notion of open source or the lack of proprietary rights (public domain).

The situation is not necessarily this simple in practice. This is shown by the difficulties encountered by French small and medium businesses (SMB), which often find it hard to control their intellectual property when they act as subcontractors of large principal clients especially in terms of overseas operations. The misappropriation of intellectual property is often the cause of disputes in relation to business-to-business relationships [LAL 14a, OLL 13]. Germany shows us how, for a given company, the simple fact of forming an innovation partnership may increase the risk of dispute by nearly a third [SCH 15]. However, drawing on good practices makes it possible to use intellectual property rights as well as possible in relation to such collaborative innovation activities [SAU 12].

5.1.2. The requirements of innovation through reutilization and collective networked innovation

Similarly, it is difficult to reconcile the legal logic of intellectual property founded on the exclusive right, with innovation needs occasionally centered to a large degree on the reutilization of previous ideas. Naturally, this is not a new problem. A large part of innovation has always been reliant on the blend and development of preexisting ideas. “If I have seen further, it is by standing on the shoulders of giants” according to the famous sentence uttered in 1675 by Isaac Newton, who in turn drew it from the similar words that Bernard de Chartres, a philosopher, had written in the 12th Century.

This difficulty, however, has been exacerbated in recent times by the development of sectors where innovation presents a very defined cumulative nature, especially in a field like computer programming. Most pieces of software are built in collaboration by assembling components provided by several contributors who do not depend on a single company. In this context, the main issue is less the question of owning rights than the freedom to exploit [INP 15]. As is shown in the following, some so-called “open-source” models offer solutions to this problem that are both relevant and effective. Even if they clearly differ from the traditional models based on exclusivity, these alternatives remain based on some forms of licensing contracts and consequently on the foundations of intellectual property rights. These models do not imply indiscriminate openness either. In any case, they follow a logic of collective and networked innovation which offers advantages in terms of flexibility and time saving.

5.1.3. The digital revolution and the growing role of user-driven innovation and Big Data

User-driven innovation, which also corresponds to a form of networked innovation, is playing an increasingly significant role in several fields. This development is mostly associated with the recent emergence of digital platforms that disrupt the traditional forms of relationships between producers and customers. These platforms can incorporate customers in the innovation process and include the contribution of a larger number of users or partners (crowdsourcing) than ever before.

A related topic is the innovation founded on the use of “Big Data”. Intellectual property law, however, does not lack any resources in this respect: whereas it is copyright itself in the United States, in Europe a directive established in 1996 a sui generis right to provide legal protection to databases. This example shows that the legal framework is somewhat flexible in the face of technological progress. However, this does not solve the issue of finding out if the diversity of intellectual property rights allows us to suitably take into consideration the specific nature of the fields to be protected. In any case, this European legal framework will have to evolve, as it was conceived more than 20 years ago to protect the producers of databases based on a static vision centered on the production activity of such bases. Big Data now needs to include a dynamic component to avoid excessive closure and be able to consider the users’ requirements in terms of database management [INP 15].

More generally, the digital world opens a huge line of inquiry and represents a matter of concern together with its several dimensions and developments: Internet of Things, artificial intelligence, etc. Some fields recently created by the digital world lead us to reconsider the issue of patentability, for example, in relation to social networks, the Semantic Web, or smartphone apps [INP 15]. In prospective terms, as is shown by a recent study carried out by the WIPO on disruptive innovation, another issue involves, for example, finding out whether something that a robot could conceive autonomously (objects, computer codes, or other things) may be protected in the future by intellectual property rights. If this is the case, how? Even more importantly, who would be the entitled party? The producer of the robot in question, its users…or the robot itself? [WIP 15].

Besides, the major issue is that the monopoly rights conferred by intellectual property may accentuate some monopoly positions created by the digital world. As [STI 08] indicates, they end up nurturing monopolies that are lasting rather temporary, especially when supported by network externalities.

From this point of view, the digital world also makes us reconsider the issue of the protection term for network technologies, which are now developing very rapidly. According to [LES 01], the legal term of patents should be shortened, for example, to a maximum of five years – or even less – if the object to be protected is a business method.

Finally, the development of the digital world is also quite problematic in that it multiplies the risks of counterfeit products, especially by drastically reducing the copying costs.

5.1.4. Risks of mass counterfeiting linked to the development of 3D printing

The intellectual property system is particularly affected by the risk of a mass counterfeiting problem linked to the development of so-called “additive manufacturing” technology. The users of personal 3D-printing equipment could easily – and without asking permission – make and market exact copies of models whose design is protected by industrial design right or copyright. The relevant jurisdictions will have to decide if something is legal or illegal, especially according to how many copies have been made and in relation to the exceptions or limitations envisaged by the legal framework. Naturally, several factors should limit the range of these counterfeiting issues, in particular the difficulty involved in identifying the possible counterfeiters. Moreover, these unscrupulous users will undoubtedly be the customers of the entitled parties in question, whose brand image runs the risk of suffering if they decide to increase their number of legal proceedings. Besides, and to the extent that innovation in this field proceeds partly by interacting with the users’ practices, legal action runs the risk of becoming, to a certain extent, counterproductive by ultimately limiting the innovation concerning how 3D printers are manufactured and marketed.

To what degree and how could the injured entitled parties react? Several possibilities can be considered, especially on the basis of what we observed in the first half of the 2000s, when the cultural industries and copyright started to feel the full brunt of the digital revolution. One involves changing the industrial strategy, for example, by deciding to invest more in the market for supply materials than in the printer market and increasing the sales price of these printers to discourage counterfeiting. Another avoids fighting counterfeiters by choosing to integrate their practices insofar as they can enrich the future innovation potential. Another involves resorting to control technological tools similar to so-called digital rights management (DRM) implemented in the music industry. However, according to the WIPO, the counterfeiting issue in general will be naturally less widespread than the piracy that affected the cultural industries (music, cinema, publishing, etc.) 10 or 15 years ago because of the digital revolution. For we can suppose that illegal copies may in the future be made on a much smaller scale, taking into consideration the time and investments necessary to obtain a 3D printer and the raw materials required as well as the ability to program and use computer assisted design software [WIP 15].

Intellectual property rights may thus become very useful, as a means of collaborative innovation, as the foundations of open source models, etc., even if the digital revolution is straining them. However, we still need to analyze the extent to which these rights work in practice as catalysts or obstacles, and what they entail in terms of collective welfare.

5.2.1. Is an increasing number of patents stifling innovation in some sectors?

After highlighting the wide range of strategic uses of patents, authors like [COH 00] consider the ability of patents to fulfil their ultimate role, that is the promotion of technological progress. Their worries mostly concern sectors based on complex technologies such as the electronic industry, where a product or process innovation includes a fairly high number of elements that can be patented separately. In these situations, the races for patent portfolios have become faster as companies, interested in tipping the balance of power in their favor, have been led to file patents based either on the need to protect themselves from the risk of being themselves blocked or on the belief that they need a large patent portfolio to make rivals license out their technologies. Consequently, it is in this kind of sector that patents have mostly increased in the United States. According to this analysis, this situation corresponds to an excessive number of filed patents in terms of society’s welfare, as it unnecessarily increases the costs involved in innovation. A good deal of the patents in question reflect strategic considerations and are hardly linked to an increase in R&D. Hall and Ziedonis [HAL 01] agree with this analysis and show that, in the semiconductor industry, patents have been growing disproportionately in relation to R&D since the 1980s. Compared with R&D spending, the number of patents more than doubled in this sector between 1982 and 1997.

According to this group of authors, the multiplication of rights in sectors like the electronic industry has – for established firms – led to patent races and royalty stacking phenomena that may prevent new innovative companies from entering the market. In the semiconductor industry, every new actor must spend between 100 and 200 million dollars in license fees to obtain basic technologies whose usefulness may occasionally be questioned [HAL 11].

Insofar as in these sectors it is indispensable to possess a large patent portfolio to gain permanent access to the market as a competitor, the proliferation of patents may become the way in which new competitors and the innovation they bring are prevented from entering the market. Ultimately, it would favor the creation of excessively large monopolies, slowing down the emergence of new actors and their innovation potential.

A similar situation is all the more problematic as the existence of multiple patents and entitled parties in sectors based on complex technologies involves prohibitive negotiation costs when there are plans to obtain authorizations required for further developments and for entering the market. Taking into consideration the fragmentation and interconnections of the rights within such “patent thickets”, costs like these may sometimes hinder innovation by hampering its profitability [HEL 98, SHA 01].

Other authors are less certain and think that such fears are mostly exaggerated. Specifically, this is what the WIPO explains. As for nanotechnologies, according to the WIPO, few empirical elements can confirm the fears related to these patent thickets, despite the high number of patents filed in this sector since the 1990s. This may be explained by the fact that the market of the products based on nanotechnologies is still relatively narrow, or that the license market has been more effective in this field than certain people imagined. Similarly, few empirical elements denote in the aviation industry the existence of actually “blocking” patents in the period from the 1930s to the 1950s. This is largely due to how innovation in this sector involves the integration of a large number of technologies belonging to different fields (electronic, materials, etc.) [WIP 15].

Therefore, everything depends on the sector in question, especially if we disregard the sectors based on complex technologies considered by the aforementioned authors. In most sectors, patents block competition only partially, provided that they only limit the use of the specific technological solutions claimed in the patents considered. Overall, actual blocking patents are still rare. In most cases, the patents held by competitors simultaneously slow down and boost innovation, since they lead inventors to imagine solutions that get around these obstacles.

5.2.2. Problems encountered mostly by sectors based on incremental innovation

In this respect, we should distinguish between the sectors where each invention follows a specific path and is therefore completely independent of the previous ones and those where the inventor is “standing on the shoulders of giants”, that is where innovation is cumulative, based on previous innovations, and results directly from them. ICT, the software industry, biotechnologies, or nanotechnologies are among the sectors that best represent this incremental innovation process. The consequences of patents on collective welfare may very well be negative in the second case. More precisely, the problem arises when the patents in question protect upstream inventions and have a relatively wide scope, limiting the use of certain technologies in further research to the extent that the cost for all of society is higher than the private profits linked initially to the invention patented.

In relation to this topic, the WIPO acknowledges that patents represent a significant obstacle for further innovation in certain circumstances, as the marketing of an innovation occasionally requires one to resort to basic technologies held by third parties, who may either refuse to grant access to them or claim license fees in return so high as to compromise the profitability of the operation. This hold-up situation may especially take place in circumstances where marketing new products unintentionally infringes patents that have been granted after these products have been conceived [SHA 01]. In the semiconductor industry, in any case, large patent portfolios have been built since the 1980s in order to allow holders to ward off the risk of litigation but also block competitors or potential new actors and raise barriers against further innovation. The resulting patent hold-up situations are likely to slow down technological progress, according to what the American competition authorities (the Federal Trade Commission) stated in a famous report [FTC 03]. However, according to the WIPO, these trends – “patent hold-up” situations and the increased frequency of legal proceedings – have not been shown to significantly affect innovation in the semiconductor industry. The increased number of patents filed may well have demonstrated the improved effectiveness of the innovation activity of the semiconductor industry, namely an increase in the ratio between the number of patents and R&D spending. Moore’s law – according to which the number of transistors on a silicon chip doubles every two years – remains globally valid. Beneath the surface, it seems that semiconductor designers and producers are still not only resorting to a large extent and explicitly to cross-license agreements but also, by means of implicit agreements, avoiding mutual prosecutions [WIP 15].

5.3.1. Biotech: what kind of access to genetic resources and research tools?

The standard drugs industry – as well as the chemical industry – provides the example of a sector based on so-called simple or discontinuous technologies, where innovation involves a reduced number of patentable elements. However, the situation is different if we consider biotechnologies. The rules established in the United States since the beginning of the 1980s have allowed gene fragments to be separately patented, so that marketing a single biotechnological drug may now require the enjoyment of rights to many patents [COH 00].

In this sector based on complex technologies, the basic issue involves those patents that may prevent access to all the new avenues of research. It notably concerns the so-called “green” biotechnologies, that is, plant biotechnologies. In this regard, the risk that access to genetic resources may be limited is especially present in the United States and derives mostly from the fact that new plant varieties can be patented all over the country, whereas this is not the case in Europe, where the most commonly used tool in these circumstances is plant variety rights (PVR), which protect the work of the breeders of new seed varieties while also making it possible to freely use the varieties in question for research purposes.

However, the problem is most often tackled in relation to the so-called “red” biotechnologies applied to biomedical innovation, which is increasingly combining advances in molecular biology with automated sequencing and bioinformatic technologies. It involves cases where the initial inventions represent “essential facilities”, namely situations in which it is not possible to explore the research avenues in question by inventing around them. The problem is particularly serious in terms of access to genetic resources and research tools.

In relation to this topic, Walsh et al. [WAL 03] identify two specific matters of concern. First, when the intellectual property that must be obtained to carry out downstream research is the same as the one applied to screening tests for genetic predispositions to specific diseases, like in the famous Myriad Genetics case (Box 5.1). The high prices of the licenses that authorize these diagnostic tests are generally prohibitive for hospitals, which need the results of these tests for their research activities. This may slow down clinical research and consequently it involves a high price for society as a whole. Then, restricting access to inventions at early stages could in the future substantially slow down R&D activities focused on specific categories of diseases and therapies, which is why we need to remain vigilant in order to actively defend the concept of open science.

At the end of their survey about the effects of patents and licenses related to the tools for research on biomedical innovation, [WAL 03] (still) do not identify any significant obstacle to the development of drugs and other therapies. More precisely, the authors observe that virtually no respondent mentioned anything about promising projects on a scientific or commercial level that had been stopped due to issues of intellectual property restricting access to certain research tools. According to them, this depends on several factors, among which the fact that the number of patents necessary to carry out R&D projects in this field remains relatively small, as well as the fact that in the United States the National Institutes of Health (NIH) attempts to a certain degree, to facilitate, access to materials and research tools regarded as significant. Besides, it seems that the actors of the field rely on practices that allow them to overcome or bypass the obstacles posed by patents, which in this case may be classic license agreements, legal action, inventing around patents, or the use of alternative databases and research tools. However, other more discrete solutions are also chosen, including the very common decision to deliberately infringe the patent rights of third parties. Where appropriate, these infractions seem tolerated to the extent that they do not entail any business prejudice and may be interpreted by courthouses as a case of research exemption. At the same time, the use of these evasive strategies raises certain problems, since it involves some costs for society and, in this sense, it represents a social waste: financial costs in case of lawsuits, extra costs and time due to the need to negotiate with the entitled parties, etc. Moreover, the hypothesis that access to biomedical research tools is flexible was contradicted by case law, especially after the verdict given in 2002 by the aforementioned Court of Appeals for the Federal Circuit (CAFC) about the Madey versus Duke University case. In any case, these experts draw the conclusion that in the biomedical industry the actors involved have now reached a relative balance between the required strong incentives to carry out R&D and the need to preserve a margin of freedom in relation to further discoveries.

5.3.2. The software industry: what kind of balance between copyright and patents?

The software industry, characterized by frequent and cumulative innovations with a narrow scope, belongs to those sectors where innovation is mostly sequential and conferring intellectual property rights can then a priori reduce the innovation rhythm and welfare, according to some analyses. In this case, the rights in question are copyright and patents, but their respective advantages and shortcomings are at the center of complex and controversial debates. Software has been made patentable only recently. In the United States, it started being patentable in the 1980s, whereas it has remained subjected to some restrictions in Japan and Europe. In relation to this topic, Bessen and Meurer [BES 08] underline that historically software publishers have been mostly opposed to patentability in this sector and that most of them do not file patents. They observe that most patents involving software are issued to companies belonging to other sectors, especially to computer, semiconductor, and electronic material manufacturers.

Graham and Mowery [GRA 03], who start from the same observation, add that in terms of software the shift from copyright towards patents that started in the 1980s took place as the patent regime became stronger than copyright. In compliance with the Bern Conference, any software is any case protected by copyright from its very creation. However, in the American system, only the pieces of software registered at the US Copyright Office allow individuals to start a proceeding for infringement by a third party. This registration process is quick, requires a mere two-page document to be submitted, and only costs a few dozen dollars. Therefore, ever since the 1980s, software publishers have been allowed to use copyright and patents simultaneously, at least in the United States. As for software protection, these two tools may be considered as complementary rather than alternative options, since copyright protects the program code (its expression) and patents cover the underlying technological development.

This means that even in those cases, like in Europe, where law considers an algorithm unpatentable – independently of any technological context in which an algorithm is devised – patents make it possible to protect an invention implemented by a computer program. In this sense, they are often thought to provide more protection than copyright to these computer-assisted inventions. Copyright mostly makes it possible to start legal action against a third party for copying the code that implements a given algorithm, which is particularly suitable for the fight against mass software piracy. On the other hand, copyright cannot be used against a third party that implements this algorithm by using another code [STR 16]. In other words, copyright does not exclude independent creation. It allows similar parts of pieces of software to be legally recreated independently, to a certain degree, of the initial creation. This is a crucial point for those against patentability who, in this situation, favor the copyright system as it does not lead to stalemates.

Nonetheless, the protection of an exclusive source code provided by the combined interplay of copyright, trade secrets, and network effects has a greater exclusion potential than patents in certain parts of the software market [ENC 06]. The issue is that in the software industry the protection provided by copyright is essentially characterized by the possibility of maintaining secrecy, as it does not require any disclosure of the source code, that is human readable instructions, as opposed to the object code, which consists of a series of 0s and 1s and can only be read by a machine. Besides, as it has already been pointed out, the protection term of copyright is considerably longer than that of patents.

For the detractors of patentability in this matter, the main problem raised by patents is that they involve very substantial costs. A significant part of these costs is incurred by the entitled party, if only due to the fees involved in filing patents and maintaining a patent portfolio in force. In the software industry, where a large part of the creation and dissemination activity is carried out independently of profit companies, patents are thus thought to require excessively high investments and in return excessively hypothetical returns. Besides, there is also the relatively high risk of litigation, whose cost is even more significant (Box 7.1).

In the United States, this costly uncertainty also derives from the difficulty encountered by the USPTO examiners in assessing the patentability of inventions in domains such as software or business methods, where the state-of-the-art is still not very well known. Moreover, patentability criteria have often been applied too laxly in these sectors. This problem, for example, arose in the United States in relation to the famous case of Amazon’s patent for “1-Click Ordering” [GRA 03]. This controversial patent was licensed out to Apple for the sale of music tracks on iTunes. A request for re-examination lodged in 2006 led in 2010 to a slight reduction of its range of claims. This patent, filed in 1997 and issued in 1999, will in any case expire in 2017.

What should we ultimately think of the respective advantages and drawbacks of copyright and patents in these fields? We can see that before the United States accepted patents for software in the 1980s, the software industry could certainly develop while being regulated only by copyright. However, this industry is still booming today, whatever may be said about the increased number of software patents on the other side of the Atlantic. Finally, [STR 16] wonder whether the fact that the computer and software industry is markedly less developed in Europe could be related to how laws on the patentability of computer-assisted inventions have been more restrictive here than across the Atlantic, unless the legal framework and the practices in terms of intellectual property rights ultimately affect the dynamism of the software industry only to a small degree…

5.3.3. What is the role of open-source software?

Another possible explanation is that the traditional model of intellectual property – the exclusive right – only represents part of these practices. This proprietary model must compete with the so-called open-source (or copyleft) model, that is with “free” (libre) software. Naturally, the notion of free software should not deceive us, as freedom in this matter is not necessarily synonymous with the lack of charges. However, this is not a fundamental point. What plays a key role in the open-source model is the reliance on specific forms of licenses – especially General Public Licenses (GPL) or creative commons – which prevent the private appropriation of codes. Open-source codes, protected by copyright and these types of licenses, have a “viral” nature that makes it possible to facilitate this logic of sharing by guaranteeing access to a piece of software. In relation to GPLs, this virality means that the code in question can only be modified if the product of this change keeps the same specific types of licenses as the original version. Investing in the dissemination of information and network innovation, the practices in place in the open-source software world are often quite out of step with the most common legal norms in terms of intellectual property. This is in part due to the fact that ever since the 1980s these GPL tools have been created by the community of computer scientists and software practitioners rather than by lawyers. Due especially to the viral nature of the licenses in question, there is a debate on the possibilities of coexistence between “closed” models – involving exclusive right – and the more recent “open” models.

This coexistence is possible first of all because licenses that are less demanding than GPLs in terms of openness now figure quite commonly among these recent models [TIR 16].

In terms of this coexistence, the WIPO mentions 3D printing as a first example. In this industry, the FabLab project launched at the MIT in 2001 involved building an open-source manufacturing laboratory – which could rely on industrial manufacturing equipment and electronic tools which operate thanks to open-source software and related programs developed by the MIT – at low prices in order to encourage users to create depending on their needs and without having to negotiate licenses to obtain 3D printers. Yet, there is tension between the two parts of the market. Although personal 3D printing, on one hand, relies on an open-source appropriation regime, industrial 3D printing, on the other, is based on a closed, exclusive, appropriation regime. Nevertheless, the future development of the 3D-printing market could involve the integration of open-source codes into proprietary hardware.

Robotics is another example analyzed by the WIPO. In this specific case and in relation to both industrial and academic actors, innovation relies more and more often on platforms, which are in turn increasingly more founded on open-source software or designs, so that the prototype phase can be reached more quickly and experimenting becomes more flexible by avoiding stages that involve negotiations or the registration of intellectual property rights. Resorting to open-source cooperative approaches allows these actors to build common robotics platforms by saving on resources and avoiding potential duplication of their efforts. These open-platform organizations are not limited to the development of software, as they also concern other elements involved in design for example. The actors of this sector make the open-source dimension and the proprietary mode coexist: on the one hand, the open-source dimension essentially concerns the collaborative and pre-competition stages of innovation whereas, on the other hand, the proprietary mode corresponds to a logic of competition and can protect the phase of the innovation process close to the final products. This suggests that, both for robotics and 3D printing, open-source communities have been able to develop in tandem with the approaches that bank on exclusive rights [WIP 15].

Besides, it is clear that open-source models may also be adopted by companies that otherwise follow a logic of exclusion. Let us consider an example. The Android operating system for mobile phones and tablets developed by Google is based on a Linux kernel, which is open source. This company freely distributes Android but it obtains indirect revenues especially through the data gathered by users and advertising revenues, the online store Google Play, YouTube, etc. [TIR 16]. Similarly, the Californian company announced in November 2015 its choice to propose the code of TensorFlow in open source, which is a machine learning algorithm combining artificial intelligence and neural networks. In so doing, it probably aims to speed up the dissemination of this tool to a large number of users in order to make it a de facto standard.

Overall, the contribution of intellectual property rights to the new needs of innovation is still mixed and occasionally hard to assess. In many respects, these rights play a significant role for structuring the markets, especially for collaborative innovation and when the actors involved vary widely. In the context of partnership-based innovation projects, they may also allow SMBs to regulate their relationships with larger, and consequently more powerful, actors. In this type of situation, patents often work less as obstacles than catalysts and even sources of creativity. However, the analysis turns out to be quite different according to the sectors. The primary concerns involve finding out if and to what extent patents slow down, and even hinder, cumulative innovation. As [WAL 08] show in relation to the biomedical industry, there are several ways of overcoming the challenges that patents may pose in terms of access to critical resources (genetic material, research tools), but their cost is problematic. If we consider the software industry, the respective advantages and drawbacks of the protection offered by patents or copyright are still hotly debated, but the possibilities given by open-source license models make it possible to maintain an appropriate degree of openness.