If you are going to play in the Open Innovation game, you must also understand how to prevent collaborators outside your company from owning the fruits of your company's innovations. This is a very easy issue to address on the front end of the Open Innnovation process and should be standard procedure for any innovation professional. However, as detailed by Greg Daines in his Ideanomics blog, intellectual property strategy is not a subject that is covered in business school. As a result, simple issues such as this will often be overlooked by innovation professionals because they are not recognized, often with disasterous business results. With this blog post, I hope to provide innovation professionals with a bit of learning that could prevent them from making a huge mistake in their Open Innovation efforts.
When your company collaborates with someone who is not an employee, that person jointly owns any patent resulting from that collaboration. Moreover, that person can use the jointly patented product or technology without payment to the company. Perhaps more significantly, your collaborator can freely license the jointly patented product or technology to a competitor of the company.
Let's illustrate this concept with an example. Assume you are a Director of Innovation at Acme Gizmo. Your innovation team decides that Acme Gizmo can improve its innovation pipeline by going outside the company for new product ideas. You select Dr. Smart, an independent product development consultant, to work with your Acme Gizmo team to develop a new product. The results of this collaboration are excellent: your consumer testing shows that the product your team jointly developed with Dr. Smart will likely be a blockbuster new product. Since Dr. Smart's job is done, you and she part ways. Your innovation and product development teams proceed to introduce the new product to the mariket and, as predicted, the product is a hit.
Since your testing showed that product would likely be a valuable differentiated product for your company, you correctly decided that Acme Gizmo should file for patent protection. However, you find out that because that Dr. Smart participated with your team in the invention of your new product, Dr. Smart is as much an owner of the patent on the product as is Acme Gizmo. As a joint owner, Dr. Smart holds the same interest in the invention as Acme, and Dr. Smart can use or license the patented invention in any way she wishes. This means that she can freely license her patent rights to Acme Gizmo's biggest competitor.
Significantly, Dr. Smart's interest as joint inventor exists by law. This means that your company's patent attorneys are legally required to name her as an inventor even if it is not in the best interests of Acme Gizmo. If they do not and the patent ends up in court, the judge will either make Acme Gizmo name Dr. Smart as a joint inventor or the court will invalidate the patent. Either way, Acme Gizmo does not exclusively own rights to your blockbuster new product.
As an innovation professional you understand that it is unacceptable for Acme Gizmo to not be able to wholly own the rights to the fruits of your Open Innovation projects. How can you go forward with valuable Open Innovation projects but still avoid outside collaborators such as Dr. Smart from obtaining joint rights? It's actually rather easy: prior to engaging in any collaborative activity, you must obtain a written agreement from your outside collaborator will relinquish to your company any inventions resulting from the collaboration. Note that this agreement must be completed before any inventions result. As of the moment the invention exists, Dr. Smart's rights come into existence. This actually means that the agreement should be in place before any collaboration actually occurs, because one never knows when collaboration will result in an invention.
Experienced readers will understand that an invention assignment agreement can be obtained after the invention is made, such as when a patent application is filed. However, I can tell you from years of experience that it can be very difficult and expensive to obtain an assignment after the invention is made because the collaborator will likely perceive that he or she has the upper hand in this circumstance. At a minimum, it is typically much more expensive to obtain an assignment from an outside collaborator after the invention is made. I have had to do this several times in my years as a patent attorney. This extra work to obtain an assignment from an inventor not employed by a company often added several $1000's to the cost of obtaining a patent.
Also, I have also seen that many times the patent attorney does not know that an outsider was involved in the invention and the joint inventor is left off the patent inadvertently. It then happens that inventorship must be corrected at a later date when the product covered by the patent is a blockbuster. In this case, the joint inventor (Dr. Smart in our example) may be inclined to assign her rights to the highest bidder. Unfortunately, the highest bidder may be your biggest competitor.
(Note that correction of joint inventorship after a patent attorney leaves off an out of the company inventor is a common way for defendants in patent lawsuits to make the case go away the defendant often will seek out possible joint inventors and obtain a license to practice the invention from the joint inventor--Dr. Smart in our example. The lawsuit goes away because if the patent lawsuit defendant has a license, they can practice the invention.)
You may assume that in preparing your agreement with Dr. Smart about payment and the like, your legal department will take care of making sure Acme Gizmo will own all rights to inventions from your Open Innovation project. However, I have seen that many otherwise sophisticated business attorneys do not understand that a collaboration agreement should require the collaborator to relinquish all rights in any inventions resulting from the collaboration and this agreement must be in place prior to start of the work. If the collaboration agreement does not include the provision, the damage is done, and it will be the work of the patent professionals to try to fix or mitigate the damage so that the company can own exclusive rights in any patents resulting from the collaboration.
As Open Innovation becomes more prevalent in industry, I expect that more innovation professionals will hear "horror stories" relating to joint inventorship, and hopefully more people will understand how easy it is to avoid making this mistake. In the meantime, at least the readers of this blog post will be aware of this legal pitfall in Open Innovation.
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