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Innovation Management > Session 3: Value Capture from Innovation > Flashcards

Session 3: Value Capture from Innovation Flashcards

1
Q

What are the options for appropriability?

A
  1. Use in own products and exclude others from use. (All revenue and cost for innovator)
  2. Collaborate and jointly bring the product to market
    (Shared costs and shared revenue)
  3. License technology to others (Development costs earned back through license fee)
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2
Q

Who profits from innovation?

A
  1. Suppliers and complementors benefit by selling larger quantities.
  2. Imitators benefit by marketing the imitation while saving on R&D cost.
  3. Customers benefit when their valuation of the new products exceeds its price
  4. Innovator benefits by selling the innovative product.
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3
Q

Example of alliance

A

EMI CAT Scanners

taken over by GE and Siemens because it lacked the high levels of training, support and servicing

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4
Q

What did Searle do?

A

1970: US patent for aspartame granted to Searle.
1982: FDA approval for human consumption
1985: Searle’s “NutraSweet” has 50% of the US sugar substitute market and is No.1 position in many other countries.

Competitors cannot ‘invent’ around the patent, as they would have to repeat the complete approval process when modifying the molecule.
By the time the patent expires (after extensions, in 1992), Searle has built strong complementary assets (brand, logo, client relations, experience with production) that keep imitators at bay.

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5
Q

What did IBM do?

A

1981: IBM introduces the PC, a small home computer with straightforward technological design.

Except the DOS system co-developed with Microsoft, the product used off-the-shelf parts from vendors.
Instead of relying on its patented hardware and copyrighted software, IBM adopted an open system architecture to allow third parties to develop software.
IBM’s strong market presence and reputation are strong complementary assets that allow it to set a new standard, for which by 1983 at least 3000 software and hardware products had been developed.

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6
Q

Explain the Teece Model

A 
1. Appropriability regime
(tight, weak)
2. Life Cycle Phase
(pre-paradigmatic, paradigmatic)
3. Complementary assets 
(generic, specialised, co-specialised)

They all contribute to profitability of the innovation

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7
Q

What’s the Appropriability Regime in the Teece Model?

Table slide 16

A

Table slide 16

Appropriability regimes characterize industries in terms of the general ease or difficulty to appropriate value from innovations.

Tight (strong) and Loose (weak) appropriabilities

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8
Q

Draw The ease/difficulty of innovation square

A
  1. Nature of technology
    a) Can the technology be easily reverse engineered?
    b) What is the importance of tacit knowledge in the technology?
    c) Is it realistic that key aspects of the technology are kept secret
  2. Strength of formal IPR
    a) Is formal IPR available/suitable for the technology?
    b) Is formal IPR effective to protect against imitation?
    c) Does disclosure of technology in the patent enable ‘designing around’?
  3. Costs of imitation
  4. Time it will take to innovate around IPR
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9
Q

Where does the innovator’s success depend on in the fluid phase/transient?

A

In industries in which new products are easy to imitate and a dominant design has not yet been established, innovators’ success depends on their ability to make their technology the dominant design.

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10
Q

Where does the success of innovators depend in industries where the dominant design has been established?

A

Innovators’ success depends on control of complementary assets:

When:
– IPR protection is weak
– a dominant design exists
– and innovators do not control specialized complementary assets

being an imitator is a better strategy than being an innovator.

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11
Q

When is being an imitator a better strategy than being an innovator?

A

When:
– IPR protection is weak
– a dominant design exists
– and innovators do not control specialized complementary assets

being an imitator is a better strategy than being an innovator.

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12
Q

What is the definition of complementary assets?

A

Bundles of know-how and capabilities a firm needs – in addition to the core technological know-how - to successfully launch an innovation.

Often relates to manufacturing, distribution, service capabilities etc.

Also includes complementary goods: i.e. computers for software developer

If someone else owns essential complementary assets, it is highly likely they will get a “slice of your cake”.

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13
Q

How can firms manage complementary assets?

A

Firms can either:
INTEGRATION MODE
1. own the CAs already
2. build the CAs by themselves

CONTRACTUAL MODE

  1. acquire CAs from an external party
  2. contract CAs for access.
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14
Q

What happens in Integration Mode of Complimentary assets?

A

– Firms bear the full cost of developing the CAs, but also retain control.

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15
Q

What happens in Contractual Mode of Complimentary assets?

A
  1. Reduces risks and capital expenditures for innovator.
  2. Holder of complementary assets shares in the profits.
  3. Potentially brings credibility to innovator if they are unknown and the contractor is well established.
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16
Q

What are the types of complementary assets?

A
  1. Generic complementary assets

2. (Co-)specialized complementary assets

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17
Q

What are the characteristics of Generic complementary assets?

A
  1. Do not need to be modified to fit the innovation
  2. Tend to be available in competitive supply
  3. Can typically be accessed through contract-based transactions.
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18
Q

What are the characteristics of (Co-)specialized complementary assets?

A
  1. Are specific to the innovation: they need to be fundamentally modified to fit the innovation.
  2. If innovator does not own or cannot build these assets, it may dependent on those who hold them.
  3. This dependency is particularly strong if the assets are ‘tightly held’ or scarce: i.e. when only few players in the market own these CAs.
19
Q

Draw the appropriability strategy box according to teece

slide 23

A

Y: Appropriability regime: LOOSE/TIGHT

X: Complementary assets
GENERIC CAs/TIGHTLY HELD

  1. Difficult to make money
  2. Holder of CAs makes money
  3. Inventor makes money
  4. Party with both technology and assets or with bargaining power makes money
20
Q

Explain the stepwise approach to Teece’s Model

A
  1. Is the appropriability regime tight or loose?
  2. What are the key CAs the firm needs to successfully launch its innovation? Characterize the key CAs. Are they…
    – Generic and freely available?
    – Specific and tightly held by the innovator?
    – Specific and tightly held by third parties?
  3. If important CAs are held by third-parties, the innovator has to decide whether to choose the integration or contractual mode.

Contractual mode: appropriate when appropriability regime tight and CAs available in competitive supply (Box 3)

Integration mode: Costly but essential in loose appropriability regimes and if specialized assets are important (Box 2)

21
Q

Example of firm in box 2

A
  • Wim Obouter was a former Swiss banker invented the micro-scooter
  • Lacking the complementary assets to produce and market the scooter he partnered with a Chinese company to fund the manufacturing and a Japanese retail partner to sell his product .
  • Patenting was not an option because of the delay in obtaining them and the investment needed to enforce them.
  • The only way to survive was to have a strong brand, to maintain a market leadership position and to introduce new product innovations.
22
Q

Outline all appropriability strategies

A

Appropriability strategies

A. Protection mechanisms

  1. Formal
  2. Informal

B. Appropriation mechanisms

  1. Exclusion
  2. Licensing
  3. Own use
  4. Control over complementary assets
23
Q

Key learning points about appropriability

A
  1. A smart idea is not enough to profit from innovation!
  2. Firms need appropriability strategies to appropriate the returns on their (R&D)
    investment.
  3. Firms can appropriate returns on their innovations, either by excluding their use by others or by profiting from their use by others (e.g. licensing)
  4. Firms need to have access to complementary assets. In combination with the degree to which a technology is imitable, these largely determine whether a firm can profit from its innovations.
  5. Firms can either attempt to integrate key complementary assets or access them through contracts with other firms.
24
Q

Why do we have Intellectual Protection Rights?

A
  1. They confer ownership and incentives to the innovator
  2. R&D is expensive but cheap to copy
  3. IPRs protect against rapid imitation and allows the monopoly of the innovator, which pays back the R&D cost
  4. Without protection, the market would under-produce knowledge
25
Q

What are the different types of IPR protection?

A

A. Formal

B. Informal

26
Q

State all formal IPR protection mechanisms

A
  1. Patents
  2. Copyrights
  3. Trademarks
  4. Confidentiality agreements
  5. Standards (de jure)
27
Q

State all informal IPR protection mechanisms

A
  1. Secrecy
  2. Lead times or first mover advantages
  3. Complexity of design
  4. Standards (de facto)
28
Q

What is the condition required to be fulfilled to be granted formal IPR?

A

condition of novelty and distinctiveness has to be fulfilled for a right to be granted

29
Q

Definition of patent

A

A patent is the right of ownership of an invention, which is granted to an inventor by a government for a specified period of time. The patentee, has the right to sell the patent, license it, or prevent others from making, using or selling the invention without permission.

Patents have territorial rights; a UK patent relates only to the UK. After the patent lapses, invention becomes available to all.

Duration of patent: 20 years

30
Q

What’s the social contract dimension of patents?

A

Exclusivity of use in exchange of obligation to reveal invention

Patents are publicly accessible, which allows others to learn from it and improve upon it.

31
Q

What 3 rights do patents grant?

A
  1. Prevents other from making things for 20 years
  2. Exclusivity of use in exchange of obligation to reveal invention
  3. Patent holders can sell, license etc
32
Q

What is patentable?

A
  1. Be new; prior public disclosure can invalidate application
  2. Have inventive step; something that’s no apparently obvious
  3. Be capable of industrial application; practical form of a device or apparatus
33
Q

What cannot be patented?

A
  1. Scientific discoveries without industrial application
  2. Scientific methods or mathematical methods
  3. Aesthetic creations (music, art)
  4. A device contrary to physical laws (time machine, perpetual motion machine)

Also in the UK and Europe you can’t patent

  1. Computer programmes (except if technically novel)
  2. A business method (except if technically novel)
  3. Invention of a new animal or plant variety
  4. Methods of human/animal treatment or diagnosis
34
Q

Reasons to use patents

A
  1. Measure performance
  2. Licensing revenue
  3. Use in negotiations
  4. Prevent lawsuits
  5. Prevent copying
  6. Blocking
  7. Enhance reputation
35
Q

Why do you think Google was mostly interested in Motorola’s patents when it decided to acquire Motorola Mobility for $12.5 billion?

A

Blocking Microsoft, Apple etc from anti-competitive threats to Google.

36
Q

What is registered design protection?

A

UK patent office

“A monopoly right for the appearance of the whole or part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture, materials and so on”

To qualify:

  1. Be new
  2. Have individual character

25 years duration

37
Q

Trademark definition

A

A sign which serves distinguish the product of one enterprise from other enterprises

38
Q

What can a trademark include?

A

Must be visible

Can include names, existing or invented words, letters, logos, symbols, colours, sounds, etc

39
Q

Is copyright a registered right?

A

Nope

40
Q

What is copyright?

A

It’s a right against copying, protects expression of ideas not the ideas themselves, which is what patents do.

Applies mainly to artistic works, but also computer software

41
Q

Characteristics of copyright

A

Copyrights are “free” and long-lasting. They are free in the sense that they automatically apply to all artistic work produced and don’t require registration.

They are also very long- lasting. Literary works in the UK, for example, are protected for 70 years after the author’s death.

However, like other forms of IP protection, copyrights are self-policed and infringements, other than exact copies, are difficult to prove. The public attitude towards acceptance of copying makes widespread enforcement difficult.

42
Q

Trade secret pros

A

If you keep it secret imitators wont catch up

43
Q

Trade secret cons

A

If revealed, then no formal protection.

Usually protected by confidentiality agreements with employees

Innovation Management (8 decks)

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