THE Cavan entrepreneur Jimmy O’Donnell and Microsoft’s Steve Ballmer probably don’t share a lot of common commercial interests, but the two men are enthusiastic proponents of a growing area of global business — licensing.

O’Donnell’s taste for innovation came from sheer fright. Originally a distributor of agricultural products, he got a scare when there was a fire on a local farm. His product, an imported heating pad for new-born piglets, was not at fault, but it set the Cavan man thinking.

He discussed the problem with a friend, who introduced him to a student doing a master’s in applied physics who had a bent for electronics. The young man ended up living with the O’Donnell family for six months while developing a prototype for a safer, more energy-efficient piglet pad.

Within four years, the company had posted sales of IR£500,000 (€635,000) in Ireland and Britain, but the real break came in America. After two years going from trade show to trade show there, O’Donnell landed a bumper order for 2,500 pads. “It nearly killed us (to fill the order),” he said.

O’Donnell was advised to consider licensing. Now an American company manufactures 2,500 of O’Donnell Enterprises’ heating pads every month under licence.

The Cavan firm is a small part of a global movement. Dubbed “open innovation” by the Harvard professor Henry Chesbrough, it goes against the long-established tenet that all innovation must be tightly and centrally controlled within a company. Rather, Chesbrough argued, innovation is universally disseminated through large and small companies.

Procter & Gamble, a multinational manufacturer of household care and cleaning products, prescription drugs and disposable nappies, estimates that half of its future innovations will be sourced from outside the organisation. Alimentary Health, a small Irish company, is working with P&G on innovations in the area of probiotic medicines.

For its part, Microsoft IP Ventures was established commercially to exploit those technologies developed under its billion-dollar research programmes that are not directly relevant to its core business.

The unit’s first two licensing deals were with the Irish software companies Softedge Systems and Vimio, which are now using Microsoft innovations in their products.

Enterprise Ireland (EI) estimates that 35 licensing deals worth €1m will be signed by its clients this year, a substantial increase on last year. Through its TechSearch programme EI is looking to increase the exploitation of licensing in this country, marrying companies with technologies and potential partners.

Some Irish firms are looking to boost their research and development capability through licensing in technologies, while others, like O’Donnell, are opening up markets by licensing out products overseas.

“The agenda is being driven by large multinational companies, but we believe that there are substantial opportunities for Irish businesses,” said Jim Cuddy, Enterprise Ireland’s manager of innovation and technology transfer. Cuddy recommends building in licensing as part of an R&D strategy. “Our advice is always to consider licensing as an option,” he said. “A company may go ahead and develop its own technology, but buying in technology should also be considered.”

By 2008, Cuddy believes that licensing-in technology could account for up to 10% of the €1.5 billion spent by Irish business on R&D. The Tech Search website has been launched with a view to bringing companies and technologies together. It includes guides to the tax and the legal implications of licensing.