Professor Joel West discusses the contours of "open innovation."

The longer explanation of open innovation-

Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.

The shorter version-

Firms that embrace open innovation employ markets rather than hierarchies to obtain and commercialize innovations.

The essence of open innovation, or at least a major part of it, is the vertical decentralization of organizations, enabled by patents and other means of exchange that allow firms to specialize and leverage comparative advantage in their commercial strategies. The role of patents in vertically decentralized industries, which support innovation by small-specialized firms, has also been discussed by Teece-Somaya.