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Open Standards, Open Source, and Open Innovation

Harnessing the Benefits of Openness

Innovations: Technology, Governance, Globalization | Summer 2006

CREDIT: Adam B. (CC).

By Elliot Maxwell

In many many ways, the Internet has changed our lives. For those concerned with public policy, one of the most important of those changes has been in the treatment of intellectual property, and the ways we view both the process of innovation and the process of deriving value from creative acts.

As the Internet grew, and as all forms of information increasingly became digitized, the sale of digital information in its many forms has been replaced by various licensing agreements between the rights holder and the consumer. These changes have led to what the National Academy of Sciences labels the "digital dilemma": A digital information product, unlike a physical good, can be created, modified, perfectly duplicated in innumerable quantities, and distributed to millions of people around the world at little or no cost. But its creator, or those who owned the rights to it, could control it completely, lock it down or make it inaccessible, at least temporarily.

This paradox is visible in two different and contradictory phenomena. The rise of Napster, and other file-sharing networks using the Internet, allowed millions of users to download billions of digital audio and video files, many of which they were sharing without the authorization of the rights holders. At the same time, rights holders were using licenses and digital rights management systems to dictate the conditions under which consumers could use and manipulate digital information products. The views of many rights holders—defending their right to control their works—were increasingly coming into conflict with the views of many users who saw themselves as prevented from undertaking activities that they had long considered well within their rights.

As rights holders increasingly complained about the impact of rampant "piracy," many proposals to change laws and regulations to deal with the unauthorized access and use of digital information products were introduced in Congress, state legislatures, and regulatory commissions. The proposals shared common aims: to make it easier for rights holders to enforce their rights through the courts in order to prevent or punish misappropriation and to provide rights holders greater control over digital information products. Some of the proposals even sought to give rights holders increased control over the design and operation of technologies for recording, modifying, displaying, or distributing digital information products.

These proposals to increase the power of rights holders served as the stimulus that eventually led to this paper. As I studied them to see how they related to the goals of intellectual property law, I developed the ideas about openness that I set out later in this paper.

Proposals to increase the control given to rights holders are based on two assumptions: (1) creative acts will not take place unless creators see a promise of some economic returns; (2) the best way to provide those economic returns is to allow the creator to control, for some period of time, access to and use of the creation, and to sell or lease different rights of access and use. For purposes of analysis, I will call this a closed model, as the creative work is "closed" to others until they provide some form of benefit to the rights holder under terms that the rights holder sets. The Internet and digitization are often seen as fundamental threats to this model, given how easy and cheap it is to modify, copy, and distribute digital information products.

I do not reject the closed model. I do argue that a closed model is not the only possible way to create value. Indeed, an alternative model— the mirror image of the closed model—often encourages even greater creative activity and innovation. This open model rests on several assumptions: (1) creative acts take place for a variety of reasons; (2) the value of a creative work can be increased by sharing the work and allowing, even encouraging, more potential innovators to contribute to its development; and (3) economic value can be enhanced by such sharing.

The founders of the United States believed in the importance of creative activity. They generally opposed monopolies—closed models—but they offered creators what amounted to limited-term, government-sanctioned monopolies of control over their creations, subject to certain conditions. The founders knew that these monopolies, like any monopolies, had a cost to society, but in the case of patents and copyrights they thought the cost was justified because the incentives they were providing would increase creative activity. They recognized that society benefited if all these creations eventually became part of an ever-expanding "commons," an open model available for anyone to use as the basis for their own "follow-on innovation."

To understand the difference between the closed and open models, it is useful to first look at the process of innovation. Innovation can be characterized (all too simply) as a process with a first creator and many follow-on creators. But innovation is almost always a cumulative and unending process, with every "first" creator, in Newton's words, "standing on the shoulders of giants." In other words, almost every first creator is a follow-on innovator to someone else.

In order for intellectual property law to achieve its aim—stimulating the greatest possible innovation for the benefit of society—it must balance the interests of first creators and those who follow them. Providing too great an incentive to either group would unbalance the system. If, for example, the incentives for first creators are too strong—they are given too much control or control for too long—little opportunity would be left for follow-on creators. The result, in economic terms, would be "under-production" of follow-on innovation. On the other hand, if the system helped follow-on innovators by eliminating the incentives that were needed to generate first creations, we would see "under-production" by first creators. The policymaker should aim to encourage the most innovation, not to favor either first creators or follow-on innovators. As the Federal Trade Commission wrote in its recent report on the patent system, "[P]atent policy is for the benefit of the public, not patent holders. The ultimate point of granting a patent is not to reward inventors, but rather to create incentives for actions—invention, disclosure and commercial development—that will further the public interest and thus benefit consumers over time."

In determining the appropriate balance between the rights of "first" creators and those of "follow on innovators," we should remember that, by definition, far more creators fall into the second category. The first creator may well know more about his or her creation than anyone else. Based on this, some have argued that he or she should be given absolute control over its subsequent development. But this argument rests on the assumption that one person or a small group of people can anticipate the many ways that millions of other people—all potential follow-on innovators—will use and improve a creation. Would it be wise to base public policy on such an assumption? For example, would we be prepared to grant control over all future uses of the wheel to its inventor? Are we prepared to believe that he or she would have been able to anticipate all of the uses that follow-on innovators made of it without the permission of its creator? Would we be prepared to believe that the creator would give up control to allow others to profit from the discovery? Perhaps. But in answering these questions, we begin to see why a careful balancing of interests is the goal of policy in this arena.

The most recent proposals for changes in intellectual property law were based on the threats of "piracy" and sought to enhance the rights of first creators (or those who now controlled those rights)—by closing the more balanced intellectual property model that had evolved in the U.S. over the years. Thus they tended to minimize or even ignore the contributions of follow-on innovators. But the contributions of these innovators require us to look not only at more closed models, but also more open ones.

Openness, facilitated by the Internet, is challenging the conventional closed model of intellectual property and providing a springboard for unprecedented global collaboration. As it does so, it is leading to dramatic changes in the very process of innovation. It is this phenomenon that this paper seeks to illuminate.

Download: Open Standards, Open Source, and Open Innovation

Elliot E. Maxwell advises public and private sector clients on strategic issues involving the intersection of business, technology, and public policy in the Internet and E-commerce domains. He is a Fellow of the Communications Program at Johns Hopkins University, and Distinguished Research Fellow at the eBusiness Research Center of the Pennsylvania State University.



Related Letters from Innovations: Technology, Governance, Globalization

Elliot Maxwell's article on "Open Standards, Open Source, and Open Innovation," should be required reading for any government policy maker seeking to understand the changing nature of software and innovation (particularly in the IT sector). His comprehensive tour of the horizon illustrates the interplay between open standards, open source software, and intellectual property policy—and the impact that each is having on innovation. The trend towards openness is increasingly important because: (1) it could accelerate the shift of software applications off of the desktop and into the "cloud," and (2) enable a new model for globally integrated corporations and the growth of virtual companies and institutions.

The Internet is no longer just a communication network—it has become a platform for computing and collaboration—a vast, interconnected, virtual supercomputer. Many different terms have been used to describe this development: Cloud computing, Web 2.0, Software as a Service, Web Services, the Grid—but the result is all the same. Internet users are able to use the Web to combine software, data, and computing power scattered in multiple locations across the network.

The continued evolution of this new paradigm depends critically upon open standards—truly open standards, implemented in open source software. With open standards for Web Services, users will be able to combine thousands of pieces of software and databases available on the Web to create millions of different customized solutions—but only if the building blocks they use are truly interoperable. It is not enough for companies to develop software that is "based on open standards"—and then add special proprietary features. IBM's Robert Sutor has distinguished between true interoperability, where software is designed to work with all similar products, and intraoperability, where vendors use open standards, but only in order to ensure their own products work together. In the evolving world of cloud computing, there is going to be a continuing struggle between those of want to exert control through proprietary solutions and those of us who strive for true interoperability. In the next two or three years, critical choices around the Open Document Format, authentication and identity management standards, security standards, privacy-enhancing technologies, and network management tools will define the next phase of the Internet and whether it continues to be an open, user-centric platform for collaborative innovation.

This next phase of the Internet will also enable a major shift in the nature of global corporations. As Sam Palmisano pointed out in his Foreign Affairs article, "The Globally Integrated Enterprise," the multinational corporation is evolving from a collection of relatively independent national entities into a single, integrated enterprise in which virtual teams of employees, business partners, and contractors scattered around the globe are able to work across national boundaries almost as easily as if they were in the same building. Thanks to the Internet, every team member can get the computing power, the data, and the software he or she needs—and use those tools to collaborate with their colleagues. By fostering collaborative innovation in this way, more powerful software applications, which meet a wider range of needs can be more quickly developed and deployed. A recent report from Harvard's Berkman Center on "open ICT Ecosystems" highlights the opportunities and describes how governments can help.

The kind of open innovation that Maxwell describes is not restricted to the private sector. Indeed, by harnessing the power of openness and the Internet, governments and non-governmental organizations can better collaborate to develop innovative policy and societal solutions. For instance, in late 2005, in preparation for the World Urban Forum, the United Nations held a three-day Habitat Jam in which tens of thousands of people shared ideas on urban sustainability and outlined more than 70 specific proposals for action. Governments and international organizations are actively exploring virtual worlds, chat rooms, and other collaboration tools, many of which are based on open standards implemented in open source software. The use of the Internet to enable more broad-based collaboration among governments, the private sector, non-governmental organizations, academia, and the technical community is particularly crucial for international organizations like the OECD, ICANN, and the Internet Governance Forum, which are dealing with policy issues related to the global Internet, which cannot be addressed on a solely national basis. So in addition to Maxwell's excellent policy recommendations on open innovation, I would suggest that governments can and should become "early adopters" and embrace open collaborative innovation whether in developing software for government use or in drafting policy proposals.

Michael R. Nelson
Director, Internet Technology and Strategy
IBM Corporation
Washington, DC USA


At many conferences I have mumbled privately that the word "open" should be banned. Everyone agrees that "open" is good, but agreement ends there. Different speakers use the word for different purposes, referring to different processes or outcomes. While it would be Draconian to ban the word, it would force speakers to be clear about what they mean. Of course, banning a single word would not be very practical. Fortunately, the next best thing is: defining terms carefully and employing their meaning in a consistent manner. That is what Elliot Maxwell does.

Elliot Maxwell distinguishes between various meanings of open: making decisions transparent; making outcomes accessible to others; making a process welcoming to input from a wide set of decision makers; and making a process capable of debating distinct points of view. It would be excessively blithe and inaccurate to say that he is in favor of them all. Rather, he finds merits in transparency and accessibility, because they nurture accountability in processes that welcome diverse viewpoints. In many contexts—both business and government decision making—that leads to more innovative outcomes.

Maxwell also recognizes that some types of transparency are not a slam dunk all the time: transparency can clash with other values, such as privacy and security. After all, nobody wants the records from their latest medical exam to end up on the Internet without their permission, but if a doctor makes an incompetent decision we also want the doctor to be accountable.

Finding the right balance has become more challenging in recent times. Two of Maxwell's arguments resonated with me. On the one hand, most of the time, an incremental movement towards more transparency and accountability results in an improvement. That is true in many parts of the developed world, including the U.S., as well as in the developing world. Second, we are entering an era when know-how in our society accumulates more easily and spreads more quickly than in the past. Most of us recognize this in its pieces: when we send email; when we read Wikipedia; when we find lost writing with Google; when we contribute to an open source project like Linux; when we read on-line journals. The act of acquiring, accumulating and generating knowledge is changing. That change demands a rethinking of core principles.

Clear language has a clear benefit: it identifies the hard problems. Maxwell's paper brings two such problems to the fore:

First, if we agree on the direction of movement, how do we get from here to there, even incrementally? It is not easy to operate processes in the way that Maxwell advocates. Accountability from transparent information has a benefit, but it also has costs that self-interested participants in society can and will seek to avoid. The details of such choices do not always lead to easy decisions about how to balance competing values. Why would a big private firm want its decisions to be transparent to others if they gain strategic advantages from cagey secrecy? Why would the stockholders for a marketing company holding lists of names, addresses, and social security numbers want their firm to be held liable for a clerical error? Why would a big firm devote its valuable human resources to a national standardization effort, if it can just live off the efforts of others who do the coordinating in standards committees?

Second, there are unanticipated consequences from the movement towards more accessible information. It makes it possible for different facets of society to broadcast their behavior in new ways. As a parent, teacher, and participating member of civil society I find myself struggling to come to terms with the unwanted sides of these changes. For example, it is becoming tremendously distracting to watch vanity behavior increase—from teenagers, musicians, athletes, and self-aware politicians, not just porn stars. Most of us want the Internet to lead to a grocery with better produce, dairy, and meat sections, not a larger section devoted to the National Inquirer and other eye-catching tabloids. Yet, what comes across many of our computer screens every morning makes us confront what we happily and much more easily avoided in the past.

Shane Greenstein
Elinor and Wendell Hobbs Professor of Management and Strategy
Kellogg School of Management
Northwestern University

© 2006 Tagore LLC. Republished from Innovations: Technology, Governance, Globalization with kind permission.

Download: Open Standards, Open Source, and Open Innovation (PDF, 366.11 K)

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