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The Social Accumulation of Knowledge

  The mere production of knowledge does not guarantee that others will be able to exploit that knowledge (Polanyi; Mokyr)
  Tacit Knowledge   Trade Secrecy

  Intriguingly, the ability to provide private incentives to produce knowledge that can be exploited by others is a the heart of modern theories of endogenous growth (Romer)   Open Science and Patenting are two institutional arrangements that require the disclosure of knowledge (Dasgupta and David)
  By and large, the spheres of knowledge governed by Open Science and Patenting are assumed to be relatively independent

The Duality of Knowledge
Adapted from Stokes (1996)
Low Immediate usefulness

High

Low Scientific Merit High

Human Genome Project
  The Human Genome draft was published in early 2001, providing almost-comprehensive location and sequence information for more than 20,000 individual genes
  “Without a doubt, this is the most important, most wondrous map ever produced by humankind.” (Bill Clinton, 2000)

  Two principal routes for documenting further explorations of individual genes
  Scientific publications -- kudos & naming rights   Patent disclosures – protection of discoveries and licensing rights

  What do we know today about the Human Genome? How has that information been disclosed?

Chromosome 10: Multiple disclosure outcomes over similar types of knowledge
Gene
Patent
 Yes
 126
 40


No


424


669


No


Yes
 Gene
Publication


Both public and private researchers observed in each of the three disclosure regimes, though private researchers more likely to be associated with patents or PP Pairs – overall, ~25% of the Human Genome is protected by formal IP rights (Murray and Jensen)

Chromosome 10: Multiple disclosure outcomes over similar types of knowledge
Gene
Patent
 Yes
 10%
 4%


No


34%


52%


No


Yes
 Gene
Publication


Both public and private researchers observed in each of the three disclosure regimes, though private researchers more likely to be associated with patents or PP Pairs – overall, ~25% of the Human Genome is protected by formal IP rights (Murray and Jensen)

The BLNK gene
  “We describe here the identification of a novel B cell linker protein,
termed BLNK, that interfaces the B cell receptor-associated Syk tyrosine kinase with PLCgamma, the Vav guanine nucleotide exchange factor, and the Grb2 and Nck adapter proteins” (Fu et al, Immunity, 1999).   “the discovery of molecules which interact with either Grb2 or PLC-γ … play a role in the regulation of … signaling pathways are desired. Accordingly, it is an object of the present invention to provide such molecules, termed ‘BLNK’ proteins, and to provide methods of using such molecules in screening assays”. (USPTO patent 5994522)   While the patent and paper disclose essentially the same information in this congruent patent-paper pair, other publications go beyond the patent disclosure to offer a landscape for future research or enable imitation above and beyond the patent disclosure

Research Questions
  What are the key factors shaping the disclosure of knowledge in the form of scientific research publications, patents, or both?
  A Theory of Patent-Paper Pairs

  How does disclosure strategy depend on the disclosure environment?
  Patentability Requirements?   Public versus Private Funding?   The Potential for Licensing in the Market for Ideas?   The Impact of Scientific and Market Competition?

Scientific Researchers and Private Research Investors
  Regardless of potential commercial returns, scientific researchers realize benefits from knowledge disclosure through scientific publications
  Intrinsic preferences for kudos   Signaling to both private and public employers

  Regardless of potential impact on the scientific community, private research investors realize benefits through the protection of ideas
  Formal intellectual property rights (patents)   Trade secrecy and inimitability

  Researcher preferences for scientific disclosure may conflict with the commercial objectives of research funders
  May be willing to trade of wages for ability to publish in the scientific literature

  Disclosure strategy results from the contract between researchers and research funders when bargaining over compensation

The Model
  Single researcher is hired by a single firm in order to produce knowledge that potentially has significant scientific value and/or commercial returns   The firm’s expected return from the innovation depends on their ability to limit potential competition

  Relative to secrecy, a patent grant increases the fixed cost of entry (λ) but only a imperfect chance of blocking entry (ρ)   However, disclosures through patenting (dPAT) or publication (d) reduce the fixed cost of entry

  The researcher cares about their monetary compensation (w) and their ability to earn “kudos” through publication (bs)

Under what conditions does the firm and researcher choose each of the following disclosure regimes?

Publication disclosure (d)

0 1
Patent (i)

1 Patent-Paper Pairs Open Science

Commercial Science Secrecy

0

Preferences
  Scientist

  Firm/Private Funder
  Monopoly profit: Π – w   Competitive profit: π – w   Expected profit of the private funder:

Π−

capital cost

k 

− w − Pr(entry(d,id PAT ,iλ ,iρ )(Π − π )

  While researchers care about scientific disclosure, investors care about the impact of disclosures on potential competition

Disclosures Jointly Impact on Entry
  Consider a potential entrant who faces the following profit function
(1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d)

(

)

  λ and ρ are the strength of patent protection   α is the degree of fidelity between disclosure paths   bE is the reduced marginal cost of entry due to disclosures d and dPAT
  θ is distributed uniformly on [0,1]
  π + bE < 1 (entry always uncertain)   The potential for entry is increasing in both patenting and publication disclosure, while the cost of entry is increasing in the receipt of a patent

Complete Overlap
  Suppose that the knowledge disclosed in a patent and publication were exactly the same.   Then if decide to patent, there is no additional cost in publishing and vice versa.   Would only observe secrecy and patent-paper pairs.

Negotiations
  Scientist and firm negotiations over disclosure regime:
max w,i,d w + bS d Π − k − w − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d) (Π − π )
w* = max ⎡0, 1 Π − k − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d ) (Π − π ) − bS d ⎤ ⎣ 2 ⎦
Unconstrained wage: w > 0 • Relative commercial return high • Choose (i, d) to maximise joint surplus • So long as
Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π ) bS + bE (1 − iρ )(1 − α id PAT )(Π − π )

(

)(

(

)

)

(

(

)

)

Constrained wage: w = 0 • Relative commercial return low • Use d to transfer utility between firm and scientist (d > d) • Choose (i, d) to maximise NTU Nash objective
di* = Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π ) 2bE (1 − iρ )(1 − α id PAT )(Π − π )

d* ≤ d =

Two key expressions shape the decision of whether to allow scientific disclosure, patenting, or produce patent-paper pairs…
  Consider the choices that maximise surplus
bS d + Π − k − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d) (Π − π )

(

)

  Scientific disclosure? … consider the ratio of the marginal benefit versus marginal cost of scientific disclosures. Choose no disclosure if

Δd ≡

bS bE (Π− π )

≤ (1 − iρ )(1 − id PAT )

  Patent?… consider the ratio of the marginal benefit to the marginal cost of publication…choose to patent if

Δi ≡

Π− k −(1− ρ )((1− ρ ) π − λ + bE d PAT )(Π− π ) Π− k − π (Π− π )

≤ 1 ⇔ − λ + bE d PAT ≥ π

ρ (2− ρ )
1− ρ

Complementarity: when patents and publications are partially overlapping in terms of disclosure, the patent-paper regime expands when the strength of intellectual property protection increases…

Commercial Science

Patent-Paper Pairs

1

Secrecy

Open Science

1

Δd

Sources of Complementarity
  Fidelity (α): as a grows, this increases patent-paper pairs relative to other regimes.
  Intuition: the marginal cost of disclosure is lower if there is a patent as less entry-facilitating knowledge is likely to be generated.

  Patent effectiveness (ρ): as the effectiveness of a patent in blocking entry rises, this increases patent-paper pairs relative to other regimes.
  Intuition: if a patent can actually block entry (ρ = 1), the disclosures are not commercially harmful.

Possibility of Zero Wages
  If publishing maximises joint surplus, w = 0
  Increase d until wage is constrained   Beyond this point, d used as compensation.
di* = Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π ) 2bE (1 − iρ )(1 − α id PAT )(Π − π )

  Increasing λ
  More likely to take out a patent   If there is publication, negotiate more disclosure

  Increasing dPAT
  Less likely to take out a patent   If there is a publication, reduces disclosure

Stronger IP protection (higher λ and lower dPAT) stimulates openness in science

Independent Knowledge
  Suppose d and dPAT revealed information about distinct Δi knowledge (α = 0)   Suppose patent protection ineffective (ρ = 0)   When Δd > 1, surplus maximisation would involve 1>d   Wages always zero (the outside option) when there is publication   Decisions do not interact.
1 Commercial Science Patent-Paper Pairs

Secrecy

Open Science

1

Δd

Dynamics
  Suppose that scientists and firms live two periods   Overlap with other generations   Future kudos generated by citation   Past knowledge reduces future capital costs, k   Full transfer (under contracting): zero future costs   Partial transfer (through publication): (1-dt-1)k   Firm owns patent and can license it to next generation   Disclosure, fee & wages now a 3-way negotiation   Use Nash bargaining solution   Past publication gives future pair an easier work-around if there is no license – work-around possible (on same research path) with probability ρ.

License Negotiations
  Outcomes
  If no patent, τ = 0   If patent but no publication, τ = k/3   If patent but publication, τ = k(1-(1-ρ)dt-1)/3

  Patent-Paper Pairs
  For δ sufficiently high, patent-paper pairs can be an equilibrium   Presence of patent reduces incentives for publication and vice versa when ρ < 1   Increasing ρ causes more disclosure under patent-paper pairs

Substitutability
Commercial Science Patent-Paper Pairs

1
Open Science

Secrecy

1

Δd

Other implications
  Look only at symmetric dynamic equilibria   Inter-temporal complementarity
  Only worthwhile publishing if expect future scientific work to be published (so can earn a citation)   Therefore, always exists a commercial science or secrecy equilibrium.

  Domain of open science is expanded as a result of substitutability   Key issue: who should own IP rights?

Key Extensions
  Public funding: impact and restrictions   Scientific and Commercial Research Racing   Empirical: Human Genome Project

Conclusions
  The disclosure strategy of privately funded research is grounded in the disclosure environment and is shaped by the bargaining over disclosure between scientific researchers and their funders   Rather than an anomaly, patent-paper pairs emerge as an equilibrium outcome in which scientific researchers trade off wages in order to gain scientific credit, while investors (private or public) seek to retain the ability to capture value from these “dual-purpose” discoveries   Interestingly, in most circumstances, increases in the strength of formal intellectual property protection enhances the scope for patent-paper pairs.   More generally, the model suggests that the key requirements for cumulative disclosure in the aggregate requires a careful evaluation of the strategic foundations of disclosure strategy.