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October 8, 2005

Conceptual Capital versus Intellectual Property

Innovation continues to gather more momentum as a primary economic "performance" improvement objective in the post-cost-cutting enterprise. But if innovation is a new top gun in the "competitive advantage" arsenal, then what does it mean that big companies are starting to give away their innovations?

The most interesting choice for breeders of innovation is to decide whether the innovation is more beneficial as conceptual capital to spread around like investments, or as intellectual property to spread around like products.

I.

With today's web-based content discovery tools, there is much more often the case where as a matter of historical fact we find that some great ideas have occurred in more than one point of origin, independently and even concurrently. Under examination, any particular source of the concept might truthfully claim "originality" -- so what does this mean?

It means that a concept is simply not necessarily unique. In such cases where one idea evidently has multiple origins, in what way is it important that the concept has "owners"? Unless something would prevent yet more "original" (not "unprecedented") occurrences of the concept in yet other locations, then there is no obvious reason why the concept itself should be considered "property" although the rights to certain versions of it might be. This shifts attention to the mechanism that controls and distinguishes the versions.

Consider this from The Idea Economy: Battle Over Right to Sell Knowledge, James Kantner's October 3, 2005 article in the International Herald Tribune (reprint via the NY Times):

"Like any other form of property or asset, patents can be bought, sold, leased or mortgaged. Businesses even give patents back to the government in exchange for tax breaks. Start-up companies use patents -- often their only collateral -- to lure investment from venture capitalists... IBM's patent strategy helped make research into 'a profit center rather than a cost center,' said Dam, now an emeritus professor at University of Chicago Law School."

These cases involve an issue of "ownership" -- which we can break down for examination in several different perspectives including:
- authorship;
- usage rights; and
- asset claims.

Using those three factors, companies find various ways to charge for access to the ideas.

But the main thought that crosses my mind is that knowledge is essentially more like capital than it is like product. For that matter, most conceptual innovation, whether given away or not, has never become recognized as intellectual property, and most intellectual property has never become a significant commercial asset.

Why not? Because, most conceptual innovations are not practically applied strongly enough to develop visibility as a coveted proprietary item. As any serious art student who went "professional" knows, the amount of great art never finished and never circulated far exceeds the amount ever known and bought by parties other than the work's creator.

The flip side of that coin is that because artists study the work of other artists, the influence of the larger group of under-the-radar art is easily as strong as the influence of that which was sold -- if not stronger. That brings up the prospect of capturing value from the influence (communicability) instead of just from the sale (transferability of ownership).

II.

For a competing enterprise, circulating concepts is a sensitive issue. On the one hand, giving away ideas is neither very risky nor helpful if those ideas can't be used by others in a practical way. Practicality calls for having additional ideas about how to use the ideas received -- whether that results in something beneficial or harmful to the donor. If the innovation in question is too difficult for other parties to handle, you might see giving it away as being more of a gesture than anything else. But that shifts attention to whatever mechanism controls the circulation and directs the ideas to wind up in "capable" hands.

Usually, property is the default perspective on the value of distributing an idea. Making an idea into "property" requires holding its circulation back in some way. Protecting intellectual property typically means controlling an idea's exposure and accessibility for the benefit of predesignated parties who pay for the privilege. Uncontrolled exposure or distribution contradicts the idea of property.

But on the other hand, due to the web, the cost and difficulty of accessing concepts has dropped so much that the effectively available audience for them is orders of magnitude larger. In turn, that availability of ideas spawns the increased followup occurrence of new and also possibly similar ideas in a wider range of unrelated (i.e., independent) locations. In massively increased distribution, concepts are at least like currency if not obviously like capital. We can't go so far as to say that the web makes companies look like they're printing money, though. However, since concepts cannot be reeled back in after they are released, what makes them into "property" is restrictions on the right to use them and on the effectiveness of those rights. While concepts are inherently more or less communicable, rights to them are artificially more or less transferable.

III.

Importantly for the asset-minded, the new degree of ad hoc exposure/distribution might easily mean that a given concept can now "seed" many more potential properties than before. This makes conceptual innovations clearly more valuable (like capital) as resources, and potentially more valuable than they are as products. But that shifts attention to the mechanism that nurtures the concept to an application and, getting back to the competency issue one might expect that some nurturing mechanisms are more successful than others. Thus, buying stakes in superior developers and donating conceptual innovations to them from the stockpile is a strategy that reduces the risk of wasting cultivated innovations while improving the cost-benefit ratio of generating them.

Companies increasingly recognize that ongoing operations and workforce skills combine to spontaneously generate innovations that were often not solicited or foreseen. Switching to a purposeful cultivation is one major element of "improvement". But the more complex question and philosophical choice is, would the investment-style strategy for lending conceptual capital be more valuable than a vending-style strategy for selling intellectual property?

Posted by Malcolm Ryder at October 8, 2005 4:03 PM

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