In 1959, Volvo introduced the three-point seatbelt, invented by engineer Nils Bohlin. The company held the patent and could have turned it into a lasting competitive advantage. Instead, it made the design freely available to other manufacturers. Fifty-five years later, Tesla published a blog post declaring it would not sue anyone who used its electric vehicle patents in good faith.

At first glance, both decisions looked like value being given away. Yet neither company was being charitable. Each made a calculated bet that the market itself was the bigger prize. A protected technology that nobody adopted was worth less than an open one that reshaped an industry.

This is the puzzle at the heart of intellectual property strategy. Patents, copyrights, and trade secrets are usually discussed as assets to accumulate and defend. But every protection decision is also a decision about diffusion, ecosystem growth, and where value will ultimately be captured. The real question is rarely whether to protect. It is what you are trying to win, and which forms of control actually help you win it.

Intellectual property exists to solve an appropriation problem. Innovation is expensive to produce and often cheap to copy. Without some form of exclusivity, the firm that bears the cost of discovery can watch imitators capture the returns. Protection restores the incentive by granting a temporary monopoly over the idea's commercial use. In some industries, that logic is the entire business model.

But exclusivity has a cost that is easy to underestimate. Every barrier that keeps imitators out also slows the spread of the technology. Fewer firms build on it, fewer complementary products emerge, and customers face a narrower and often more expensive set of options. For technologies that depend on network effects or standards, this slowdown can be fatal. A format that only one company can produce rarely becomes the format everyone uses.

David Teece's work on profiting from innovation offers a useful lens. He argued that who captures value depends on two factors. The first is the strength of the appropriability regime, meaning how well the law and the technology itself prevent copying. The second is control over complementary assets such as manufacturing, distribution, and brand. When appropriability is weak, the firm with the complementary assets often wins, regardless of who invented the thing.

This reframes the protection decision. Pharmaceutical firms protect aggressively because a single molecule is easy to define, hard to invent around, and directly tied to revenue. Tesla, by contrast, needed a larger electric vehicle market, more charging infrastructure, and a deeper supplier base. Its advantages lay in manufacturing, software, and brand rather than in any individual patent. Toyota followed similar reasoning in 2015 when it offered thousands of fuel cell patents royalty-free, hoping to accelerate a hydrogen ecosystem it could not build alone.

Takeaway

Before protecting an innovation, ask where its value will actually be captured. If the answer lies in complementary assets rather than the idea itself, exclusivity may shrink the very market you most need to grow.

Not all patents are meant to be enforced. A useful distinction separates IP held for offensive purposes, such as generating revenue or excluding competitors, from IP held for defensive purposes, which preserve the freedom to operate. The two strategies call for different portfolios, different budgets, and different measures of success.

Offensive portfolios are built around licensing or exclusion. Qualcomm is the classic example. Its patents on wireless communications standards generate licensing revenue from a large share of the world's smartphone makers, funding research that produces more licensable patents. Offensive portfolios work best when patents are narrow enough to hold up, broad enough to be hard to design around, and tied to standards or products others cannot avoid. Here, quality and enforceability matter more than volume.

Defensive portfolios follow a different logic. In crowded fields like software and consumer electronics, nearly any product may touch dozens of patents held by others. A defensive portfolio works as a deterrent. If a rival sues, you can countersue, which often leads to cross-licensing rather than prolonged litigation. Google's 2012 acquisition of Motorola Mobility, driven in large part by its patent portfolio, reflected exactly this need. Breadth and coverage of competitors' product areas matter more than licensing potential.

Defensive goals do not always require ownership. Firms can publish inventions to establish prior art, preventing anyone else from patenting them. They can join collective arrangements such as the Open Invention Network, whose members agree not to assert patents against core Linux technologies. These approaches buy freedom to operate at a fraction of the cost of building a large portfolio. The strategic error is mixing purposes unconsciously, filing by habit and ending up with a portfolio too thin to license and too narrow to deter.

Takeaway

A patent portfolio is only as useful as the purpose it was built for. Decide whether you are trying to earn, exclude, or simply stay free to operate, then design the portfolio around that answer.

Henry Chesbrough coined the term open innovation to describe firms that use external ideas and external paths to market as deliberately as internal ones. The concept is often misread as an argument for giving everything away. In practice, the most successful open strategies are highly selective about what is shared and what is held back.

The core principle is to open the layers where adoption matters and protect the layers where differentiation matters. Google released Android as open source, which helped it spread across countless manufacturers and devices. Yet core services such as the Play Store and many flagship apps remained proprietary and were licensed under separate agreements. The openness drove reach. The controlled layer captured value and kept the ecosystem pointed toward Google's services.

A similar pattern appears in enterprise software. Red Hat built a large business on Linux, code anyone could download for free. Its revenue came from certification, support, and the assurance that the software would work reliably in demanding environments. The open layer created a standard. The closed layer, in this case a set of services and relationships rather than code, created the margin. What gets protected need not be intellectual property in the legal sense at all.

Building this balance means mapping the value chain and asking three questions. Which components benefit most from broad adoption? Which are genuinely hard for others to replicate? Where will customers pay once the ecosystem exists? Christensen observed that when one layer of a value chain becomes modular and commoditized, profits tend to migrate to an adjacent layer that remains difficult to do well. The strategic task is to commoditize the layers next to your advantage, not the advantage itself.

Takeaway

Openness is not the opposite of control; it is a decision about where to place control. Give away the layers that grow the market, and guard the ones the market will eventually depend on.

Intellectual property strategy is often treated as a legal function: file what you can, defend what you must. The patterns explored here suggest it belongs much closer to the center of competitive strategy.

Protection captures value but limits diffusion. Portfolios serve different purposes depending on whether a firm aims to earn, exclude, or simply operate freely. And openness, used selectively, can build markets that proprietary approaches never would. In each case, the right choice depends on where value will be captured once the technology matures.

Volvo and Tesla were not abandoning their interests. They were placing them somewhere else. The most important IP decision is rarely about a single patent. It is about which game you are playing, and which pieces you need to hold to win it.