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INTRODUCTION At one end of spectrum, rapid diffusion of open source software (OSS) since mid-1990s could loosely be characterized as freely shared innovation, unencumbered by kind of formal intellectual property rights such as patents that have been traditionally relied upon by owner of such intellectual property to protect its proprietary products from appropriation by others. At other end of spectrum, litigation to enforce owner's formal intellectual property rights, particularly patents, could be characterized as fostering a legal regime that has imposed additional costs and risks on innovators that are extrinsic to costs and risks inherent in R&D undertakings. The reality lies somewhere in between these two polar extremes. As discussed below, patents and open source can co-exist quite well and provide a framework that combines best of both worlds, producing a mutually reinforcing climate to bring about more socially useful innovation. CONCEPTUAL BACKGROUND Open Innovation The emergence of an open innovation model, which involves firms opening up their otherwise proprietary innovation to external players in order to accelerate their internal innovation has been suggested by Chesbrough (2003, 2006), Moore (1993, 1996) and Radjou (2006), among others. Chesbrough (2006) defines open innovation as the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand markets for external use of innovation, respectively (p.1). Open innovation model is opposite of closed model, where R&D is vertically integrated and innovation in terms of new products, services, and processes is internally developed and zealously protected through IPRs to prevent imitation by competitors. Open innovation involves mutual sharing by firms of otherwise proprietary knowledge and mixing competition and cooperation to create greater value for all (Isckia and Lescop, 2009). Open innovation, when combined with open coordination leads to business ecosystem, which represents interplay between multiple industries with wider and beneficial implications for all (Chesbrough and Appleyard, 2007). As an example of business ecosystem, Moore (1993) suggests that IBM's decision in 1980s to make its personal computer (PC) architecture public led to numerous IBM compatible PCs which when coupled with Microsoft's operating system and Intel's microprocessors set standard in PC industry and facilitated profiliferation of independent application software developers, video content developers, and like. When open innovation model works well, it is a win-win outcome for all players in network. Chesbrough and Appleyard (2007) provide a taxanomy of outcomes in terms of open innovation and closed innovation depending on two dimensions--how value is created (in-house vs. community-driven) and how value is captured (company versus ecosystem). As shown in Figure 1, Microsoft, which develops source code for its operating system in-house and captures much of value through IPRs is a case of closed innovation. At other end of spectrum--the lower right quandrant--is Linux kernel operating system, whose creation is community--driven and benefits diffused, represents a clear phase of open innovation. One might characterize upper right and lower left quandrants as mixed models of innovations. In upper right quandrant, owner of My Space, News Corporation, captures value of content contributed by community through advertising. Similarly, in lower left quandrant, IBM creates Linux code in-house (which in turn contributes to Linux kernel operating system) and value is captured by broader community including IBM, which is likely to be largest beneficiary given its size and diversity of needs. More recently, Isckia, and Lescop (2009) documented evolution of Amazon as a firm that increasingly moved towards a mixed model of closed and open innovation. …
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