Open Innovation is a term coined by Henry Chesbrough in 2003. It focuses on both the in-flow and out-flow of knowledge in the innovation process of a company. Open innovation “assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” Thus, Open Innovation blurs the boundaries between a company and its environment, making innovations easily transferable inward and outward. Open Innovation is often opposed to Closed Innovation, which was the dominant paradigm in the recent past. Under the Closed Innovation Model, companies conduct independent R&D, develop their own innovations and avoid sharing their valuable ideas (the so called “crown jewels”) with others. Closed Innovation promotes strict control over ideas and expertise, which becomes an increasingly strenuous task in the hyper dynamic flow of knowledge and human capital in today’s modern economy.
In comparison, Open Innovation postulates the participation in joint-ventures, research consortiums, patent pools, cross-licensing, etc. so long as those initiatives are beneficial for the company. This benefit can come in many forms, such as a decrease in R&D costs, sharing production risk, making markets more easily reachable, and widening the innovative capacity of the firm through diverse ideas. Cooperative efforts, however, raise some crucial questions, such as who gets ownership over the mutually-developed product, if someone does at all.
To avoid expensive litigation and legal disputes in this sense, when companies conduct joint research or any collaborative initiatives with other enterprises or research institutes, they need to make sure that there is sufficient clarity on who will own potential intellectual property generated from the project. This could be executed beforehand through varying contractual instruments, which should address both the background intellectual property (the technology, owned by the participants and contributed by them for the aims of the mutual initiative) and foreground intellectual property (the product of the collaborative efforts).
Some members of the open innovation community view intellectual property as a barrier for innovation, due to the exclusive character of intellectual property rights. Furthermore, especially in the software industry, patents are deemed as way too broad and indeterminate in their scope, thus undermining the legal certainty in this technological field and further stifling innovation.
However, intellectual property plays a role as the “currency” of Open Innovation since it facilitates collaboration and eases the exchange of knowledge. A valuable patent for instance serves for a company basis for negotiation about a licensing agreement, cross-licensing, or the very sale of the patent. Furthermore, a patent will enable the easy transfer of ownership over the valuable technology in discussion. Intellectual property ownership is a facilitator of innovation as long as intellectual property instruments are used more as an indicator of valuable ideas and less as an instrument for exclusivity. The publicity of patents for example, allows incumbents and partners to “spot” potential ideas, worthy of investments or partnership.
 Chesbrough, Henry William (1 March 2003). Open Innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press. ISBN 978-1578518371.