SHANGHAI: While the pursuit of proprietary technologies is a prevailing ambition among Chinese companies fearful of being left behind in the world's technological development, some companies are pursuing a different approach - open innovation.

The concept features coordinated development and sharing of new technologies and diversified ownership of intellectual property (IP), instead of the traditional notion of IP development in which a single company has proprietary ownership.

"In the old days, intellectual property was only seen in big companies, but the situation has definitely changed. We now see there are also smaller companies that own IPs," says Ruud Peters, CEO of Philips Intellectual Property & Standards.

He says the change has had significant impact in the industry due to much more widely spread IP ownership by various types of companies. The trade in IP also has also become more active, as small IP owners tend to exchange their patents for profits while big companies look for an IP they need. 

"The thought behind open innovation is that the world is much bigger than my company, and there is a lot more that I can get from the outside world than I can ever develop by myself," says Peters.

That is certainly true in the pharmaceutical business. It usually takes 10 to 15 years and costs more than $1 billion to develop a new drug - and the cost is forecast to spiral to $2 billion in 2010.

"However, we simply cannot continue to spend the dollars we've been spending to bring a new medicine to the market," says Sidney Taurel, chairman and CEO of Elli Lilly and Company, which has spent $3.13 billion or 20 percent of its total revenues, on research and development (R&D).

The seventh-largest US drugmaker has set a goal to bring the cost down to $800 million by 2010 through joint research with Chinese and Indian organizations.

Lilly has been working with chemist lab ChemExplorer in Shanghai since 2003 on molecule selection for the US company.

Drug developers usually need to analyze 5,000 molecules to find a new medicine, which greatly increases the cost of development for pharmaceuticals.

Twenty percent of Lilly's chemistry work is now done at ChemExplorer. Lilly is also expanding the scope of cooperation to include biologics and drug development.

Yet open innovation is not only about cost and increasingly complicated technologies. The rise of conflicting technologies also requires companies to work with other organizations.

In the United States in 1980, big companies accounted for about 70 percent of overall R&D expenditure, according to statistics of the US National Science Foundation. Today their proportion is only about 30 percent as smaller companies are catching up.

Philips, one of the world's largest IP owners, has devoted about 4 billion euros over the past one and half years for mergers and acquisitions worldwide, including for intellectual property, says Peters.

Aside from IP trading, the Dutch conglomerate has established an open innovation park in Eindhoven. The operation is open to other R&D institutes and smaller firms to pursue development of new technologies, including micro- and nano-technologies. Suppliers can also use the facility to test products or develop technologies for their customers.

IBM, the world's largest corporate patent filer, released more than 500 software patents to the open source software community in early 2005. Later it opened more patents for software standards in the education and healthcare industries.

Small developers add value

Karla Norsworthy, vice-president of software standards for the blue giant, said opening patents to more software developers enables small developers to add unique value to the software ecosystem.

With its sheer size as the world's largest information technology business, IBM can also leverage the achievements of smaller firms to bridge gaps created by different software standards.

Yet Chinese companies' awareness of open innovation is still lacking.

A much more popular catchphrase for many Chinese companies today is "independent innovation" seen as a symbol of a company's real technological muscle.

There are also worries among domestic companies and academies that local companies are often at a disadvantage in technological cooperation with multinationals.

In many cases local companies function as manufacturing links while foreign partners controlled the core intellectual property. Some Chinese scholars have even warned that cooperative innovation will eventually sap the technological competitiveness of the Chinese economy.

Peters with Philips said it takes "an open way of thinking" to understand the trend of open innovation.

"Even in Philips it was not that easy to change the mindset, as we have a long R&D history where we do everything by ourselves but now we source in patents from outside," says Peters. "Open innovation is the trend that big and small companies have to follow, and there is no other way."

He adds that Chinese companies do not have to be pessimistic about the changing trend.

"I think China has made a lot of progress in technological development. If you look at the number of well-respected hi-tech companies like Huawei, Lenovo, TCL and Haier, huge universities fueling people into the industry and creative people who start up businesses, it is done in a way that is much different from Europe and the United States," Peters says. "They have brought a lot of new stuff to the world and it will promote the progress of China."

(China Daily 05/14/2007 page9)