What is open innovation?

There are many types of licences depending on the intellectual property involved.
There are many types of licences depending on the intellectual property involved.

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KUALA LUMPUR, Feb 23 — Innovation in Malaysia has been the buzzword for the last few years especially with the establishment of Agensi Invoasi Malaysia (AIM) back in 2010.

AIM was established to spearhead wealth creation activities through knowledge, technology and new ideas to stimulate and develop the innovation eco-system in Malaysia.

Around the world, this buzzword however has been there for decades in the worlds of business, politics and education. Being so frequently coined as “the key to the future” by politicians, big multinationals and the academic world, what does innovation really mean to a layman?

According to SME Corp, the central co-ordinating agency that formulates overall policies and strategies for SMEs in Malaysia, SMEs account for 97.3 per cent of total business establishments in 2010.

To those small and medium enterprises (SMEs) out there, can they relate or be bothered by the buzzword?

There are multiple definitions of innovation out there, from the most comprehensive academic definitions to the more modest ones, innovation simply means creating value from knowledge.

Be it new or existing knowledge.

In the context of SMEs, it is a question of how they can create more value for their business by leveraging specific pieces of knowledge that is unique to them or acquired from others.

The majority of Malaysian tech-based businesses are within the trading category whereby foreign technologies are bought and sold to the domestic market.

While trading makes perfect sense for a business person to make economic gain, the nation’s prospects on a macro level might not be as rosy.

It creates a dependency on foreign technologies and hinders human capital development within the business itself as no product/technology development activities were conducted.

We should be inspired by developed countries such as Germany where the majority of SMEs, although small, are technology providers/creators.

To really dissect innovation to the simplest form, there are two ways how SMEs can be innovative and create more value for their businesses, either by internal approach or external approach.

Internal approach is where a business invests in its own capability to develop an improvement to their existing products or even new offerings to expand their market share.

Often, these groups of SMEs are more established in the market that they are serving, develop a deep understanding of the market needs and also willing to invest in internal R&D activities.

They understand the gaps in the market and react by offering their own developed solutions rather than sourcing less than optimum readily available offerings to fill those gaps.

How well the offerings address those market gaps will determine the success of any business. The ability to create new products is just half of the battle won, ensuring the successful commercialisation of these products is the other half of the battle to be fought.

Often, products are at ideation stage or at very low technology readiness level. SMEs should be guided accordingly through the commercialisation stages that normally include prototype development, productisation, testing & validation, regulatory, technical assistance, incubation and market studies etc.

An awareness of the processes involved in bringing a product to the market is important as most companies only focus on the product development and fail to cross the valley of death.

The second approach is looking beyond the company’s boundaries. This approach is particularly relevant to SMEs with limited resources and unable to rely on their own R&D, where the SMEs can leverage on external knowledge and bring it into their business to create value.

This approach systematically encourages the exploration of a wide range of external resources/technologies for innovative business opportunities.

This approach, which is also known as "open Innovation" as promoted by Henry Chesbrough has triggered paradigm shifts in how big corporations view their innovation process, no longer in the race of hiring and maintaining the best R&D minds in-house, instead, scouting and managing knowledge flows across organisational boundaries, enabling the easy transfer of knowledge inward and outward.

Now, back to the Malaysian SME context, how can this relate to them? Well, the transfer or adoption of external Intellectual Properties (IP) in the form of knowledge, technology, know-how and skills can easily be done through a licensing agreement.

Throughout the years, there has been multiple technology showcases and exhibitions organised but the transfer of IP is limited due to the lack of understanding of the licensing mechanism that allows the flow of bilateral information between two parties.

In a nutshell, technology licensing is the process by which IP ownership rights is granted by the IP owner (licensor) to a recipient (licensee) with terms and conditions attached to it on how to use the licensed IP to generate revenue.

There are many types of licences depending on the IP such as patent licence, know-how (trade secret) transfer licence, marketing and distribution licence, franchise licence, software licence etc.

Any legal agreement is complex; technology licensing is one of the more complex ones as there are more key issues in such agreements than in most other types of agreements.

Also, for each key issue, there are many possible variations on how the issue can be resolved. However, this article is aimed at dissecting technology licensing for general understanding rather than clause by clause in legal perspective.

To simplify, the key terms can be grouped into four “clusters.” It is useful to think of the key terms in this way, and then to mentally break them down into smaller headings within each cluster.

By ignoring the legal jargon or rather leaving it to the legal professional, SMEs can focus their attention and decisions on these basic key clusters

Cluster 1: The subject of the licence

This cluster of issues relates to the definition of the technology that is being licensed.

  • What is the subject matter of this license?
  • Is the thing that is being licensed completed?
  • Who owns the IP that underlies the technology?
  • Can you see the technology before you commit?
  • Do you need a license to use the trademark?

Cluster 2: What kind of right does the licence give

Once you have determined the issues in Cluster 1 and have a clear understanding of WHAT you wish to license in or license out, you will need to reflect on what you need to be able to DO with the IP technology in order to use it effectively in your business.

  • What is the scope of rights?
  • What is the territory?
  • Is there an exclusivity commitment?

Cluster 3: Financial terms

The financial terms of the licence are often the first topics that are discussed when thinking of licensing.

  • How much it will cost?
  • How will the licensee pay?
  • When to use cross licences and covenants not to sue?
  • What are performance warranties/indemnities?

Cluster 4: Technology growth and development over time

It is important to clarify whether the licensee has rights to future versions of the technology or product.

  • Will the licensee receive rights to future releases, versions and products?
  • Are service and support/spare parts included in the licence?
  • How to deal with documentation, know-how, consulting and training?

As SMEs in Malaysia, it is important to understand that there are technologies out there that are easily accessible to them. Local universities and research institutes have multiple solutions and technologies that might just fit nicely into your businesses.

One observation that is rather obvious in the Malaysian landscape is that there is a misconception of both industry and academia that technology transfer and innovation is too complex and is the game for big corporations only.

Well, that is simply not true. The collaboration can be simplified in three basic steps. First is to explore what technology offerings are available out there. Second is to collaborate and evaluate if that particular technology really suits the business. Lastly, seal the collaboration with a technology licensing agreement.

Be very mindful, technology licensing is definitely a collaboration rather than a mere transaction, both licensee and licensor must work together to ensure sustained long-term value creation.

* Dr Ng Sing Kwei is assistant vice president — commercialisation specialist of PlaTCOM Ventures Sdn Bhd, the national technology commercialisation platform of Malaysia, a wholly owned subsidiary company of Agensi Inovasi Malaysia (AIM) formed in collaboration with SME Corp Malaysia.

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