Friday, April 8, 2016

Shared Information Economy - a Reframe

McKinsey & Company recently wrote that business innovation involves identifying and dissecting long-held beliefs about how value is created and the reframing these beliefs in order to innovate. One of the most long-held beliefs in business is the concept of exclusivity in ownership. However, the mere suggestion of re-examining intellectual property ownership (e.g., patent)’s role in business is controversial. It often draws criticism and a fear of losing private-sector funding. There is also a lucrative cottage industry of non-market participants (e.g., patent trolls), which likely will impact the conversation.

But any meaningful dialogue about change and business innovation must involve opening information and must involve a closer look at how intellectual properties (e.g., patents) are leveraged in the development process.
In an economic sense, patents are especially problematic. Patents limit a business model's life span, usually to as little as ten to twelve years. Upon patent expiration, the technology enters the public domain. Developers have to lean-out their operations fast, and that's becoming ever more challenging in a global marketplace. Patents are capital intensive (before and after the grant of the patent). They silo information and inhibit scientific progress. In addition, there are anti-trust and price fixing concerns with the patent-driven vertical integrations that naturally occur. To further complicate things, patent laws, regulations, and enforcement mechanisms lag behind development and market trends.

There is also no guarantee that patents will translate to market dominance. In the United States, Inter Partes Review (“IPR”) jeopardizes even patents that have been already been granted. In developing jurisdictions such as India and China, patent enforcement often is wildly unpredictable and costly to defend (e.g., Gilead's struggle with its patent for hepatitis treatment in China and India).

Reliance on patents can also hinder an industry's growth. For example, according to a 2015 industry report, bioengineered drugs continue to increase their market shares against conventional drugs. Patenting these biologics will be more difficult and unpredictable than patenting for the more traditional drugs, because this type of therapeutics frequently involves laws of nature or natural phenomena that are excluded from patent protection. Patent examiners and courts will struggle, as they did when the information technology industry first began to challenge the patent paradigm. This will put the market sector on an elevated risk platform. Investors will avoid early R&D,further starving the capacity needed to engineer biologic-based therapeutics. The success of this biopharma market sector, and the industry generally, will likely depend on a reframe of how we understand and leverage patents and other intellectual property types in the various emerging open-innovation models.

The Reframe - Information is Open, Sustainable, and Free.

Patents and ownership have become linked in our conversations about research, development, and innovation in the business process. Development often starts with patent-leveraged investments to conduct product testing and trials. The patent grows in value with positive results. Once market validation is evident and regulatory approval, if any, is granted, the patent gains even more value.

This allows for additional investments in manufacturing, advertising, and other operational expenses. This is our current model, but it is premised on the idea of scarcity—an antiquated frame of mind derived from our understanding of real and tangible property ownership. Yes, it is true there is only so much land and resources in the world, and it is important to exclude others from exploiting what you own. With intellectual property, however, the reverse is true: there is an abundance of possibilities of ideas when we put our intellectual capacities together.

Valuation of patents and the IP portfolio has generally been difficult and imprecise. In a complicated transaction involving very expensive and risky product trials, regulatory approval, and manufacturing (e.g., pharma products), exactly how does one value a patent to “de-risk” the process? Is it by excluding others from the development process, by shifting the risks to large-cap players, by delaying the risk to more mature developments, and by starving the development pipeline? Or does it make more sense to leverage value for collaboration? In modern accounting, valuation is highly dependent on the subjectivity around the product's exclusivity of market. What happens if exclusivity of market share is replaced instead with a focus on collaborative capacity?

The Shared Information Economy 

The sharing economy is a recent phenomenon enabled by connectivity and information technology. The possibilities are boundless. For example, a shared information economy of bioengineered therapeutics can do wonders towards cutting development cost and time for therapeutics, enabling rational market and treatment decisions, enforcing quality and ethical standards, and delivering to the underserved.

 To reframe how we work collaboratively in a share-information economy, we have to find a sustainable balance between self-interest and ecosystem health (see Howard Rheingold, TED 2005). The purpose is to enable distribution of knowledge, data, and developments freely and globally. This will be disruptive to the current commercial model, but it will also become more distributed, connecting the “publish or perish” academic culture with practical support structure and application development opportunities to utilize the rapidly accumulating knowledge set.

The key is finding good opportunities, retuning efficiency, leveraging existing intellectual property rationally, copyleft, and participating in the development process fully—together.
  • Open science and open data access and exchange is the driver of this process. 
  • Open reproducibility acts as check and balance for products developed under this model and should improve quality and safety. 
  • Open standards should improve efficiency and emergency demand response time. 
  • Open product trials should improve overall system integrity. 
All of this together will make a community of open businesses thrive, like Linux.

For an advocate of human progress, open business innovation is a path forward. A friend once said: “It is social engineering if you really think about it. Let's call it for what it is. But in the end, this is about changing the world and saving lives.”

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