The adoption of open innovation creates a dilemma for firms. On the one hand, a commitment to openness facilitates the flow of knowledge between firms, with this flow (generally) unconstrained by royalties and other appropriation mechanisms. However, openness has also led to unintended knowledge spillovers, limiting firms' abilities to protect their core knowledge. This dilemma has created a need to consider the relationship between openness and firms' appropriability regimes. In order to

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... e this 'paradox of openness', an investigation of the appropriability regimes adopted by Australian firms through an empirical analysis of innovation-related data from 4,322 businesses was undertaken. It was found that the relationship between two indicators of openness (the breadth of external knowledge sources and the scope of inter-organizational collaborations) and the scope of appropriability regimes employed by a firm exhibits a non-linear, inverse-U (∩) form. The results also indicated that open innovators actually increase controls on their intellectual property through informal appropriability regimes rather than loosening appropriability mechanisms to promote knowledge spillovers as open innovation theories suggest. Managerial Relevance Statement: This research has provided practitioners with insights regarding how to appropriate returns from tangible and intangible knowledge assets while implementing open innovation. In order to benefit from openness, firms need to gradually reduce the control on their intellectual property, particularly in terms of their use of informal appropriability regimes, to promote effective knowledge exchanges. However, managers must balance knowledge sharing and knowledge protection. This balance can be maintained by continually evaluating knowledge flows, both inward and outward, by monitoring and adjusting the appropriability regime portfolio and by carefully developing relationships with external partners to ensure a balanced 'give and take' relationship.