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Funding Conditions, the Public-Private Research Portfolio & the Disclosure of Scientific Knowledge

Joshua Gans (University of Melbourne) Fiona Murray (MIT Sloan ) NBER Rate and Direction of Inventive Activity October 2010

Role of Public R&D Funding
•  Selection view
–  Public funding is a HUMAN GENOME mechanisms to target PROJECT the ‘gap’ in R&D funding. Initial funding by DOE (&NIH) on the basis of current underinvestment –  BUT, is it crowding out inor duplicating private a comprehensive map of the human genome. efforts?

•  Disclosure view
–  Public funding is HUMAN GENOME intended to ensure PROJECT openness & enable follow-on research. After for-profit Celera entered to duplicate public efforts argument shifted to –  BUT, are there sufficient disclosure &for its use? & incentives openness the Bermuda Rules.

Question & Approach
What types of projects are funded and what disclosures arise under different conditions relative to both selection & disclosure? •  Empirical Facts •  Model

Funders: Selection Criteria
MISSION: “to improve human health by increasing scientific knowledge related to disease and health” CRITERIA •  Significance. Does this study address an important problem? If the aims…are achieved, how will scientific knowledge be advanced? What will be the effect of these studies on the concepts or methods that drive this field? •  Approach. Are the conceptual framework, design, methods, and analyses adequately developed, well integrated, and appropriate to the aims of the project? •  Innovation. Does the project employ novel concepts, approaches or methods? Are the aims original and innovative? Does the project challenge existing models or develop new methodologies or technologies? MISSION: Our Global Health Program harnesses advances in science and technology to save lives in poor countries. CRITERIA: •  •  Topic Responsiveness – How well does the proposal address a key need illustrated in the topic description? Innovative Approach – Does the idea offer an unconventional, creative approach to the problem outlined in the topic? Execution Plan – Is the work described feasible within the budget and time allocated …and if successful, would it be sufficient to show a clear path to further support?


Funders: Selection Framework
Adapted from Stokes (1997) & building on Nelson (1959)
Immediate application


Scientific Merit

Funders: Some Disclosure Considerations
Adapted from Stokes (1997) & building on Nelson (1959)
Immediate application


Scientific Merit

Publishing, review requirements, secrecy etc.

Patenting , licensing requirements, secrecy etc. Patenting, Publishing, Patentpaper pairs, licensing, secrecy etc.

Funders: Disclosure Requirements by Public R&D Agencies
National Science Foundation Department of Defense
Section 734. Sharing of Findings, Data, and Other Research Products a. NSF expects that …[for] ‘fundamental research,’ i.e. basic and applied it DARPAexpects significant findings from research and education activities research in supports to engineering…the results publication…. It expects investigators to science andbe promptly submitted for of which ordinarily are published and shared share with other researchers, at no more than incremental cost and within a broadly within the scientific community ….. Notwithstanding…the contracting reasonable time, the data, samples, physical award instrument type and negotiate officer shall have sole discretion to select collections …created or gathered in provisions the selectees (DARPA-RA-10-76 2010) allthe course ofwith work.

Section 730 Intellectual of IP governed by the Defense Federal Acquisition Regulation PATENTS and all forms Property The disposition of rights togenerally subject to Bayh-Dole rules. BUT… Supplement (DFARS) but inventions made by …non-profit organizations… during NSF-assisted research is governed by Chapter 18 of Title 35 of the USC, –  DoD can still issue a patent secrecy order under the invention Secrecy Act (1951) which commonly called the Bayh-Dole Act. prevents the disclosure of new inventions that pose a potential national security threat –  research moves beyond patent rights not wanted by subject to United States NSFIfwill normally allow any “fundamental research,” it will bethe grantee or inventorexport control regulations to be dedicated to the public through publication …

Funders: Private Funders insides Universities
Contractual Feature
Public Disclosure

Typical Provisions for 15 leading universities

Disclosure of all information (with some provisions to maintain information not marked as confidential by the Sponsor) Pre-publication Sponsor Review Allowed Time for Review Review Exemption for Dissertations Ownership/title to IP Internal License to Sponsor for Research? Commercial Licenses Time to Elect Licenses Time to Negotiate “When is 30 days w/ a 30 day extension (up to 30 days with 180 day extension) Few - none University (some negotiation of joint title) Yes (some contingencies) Non-sublicensable NERF (non-exclusive royalty free license) but with some provisions for royalty bearing sublicensable contracts 3 months (range 1-6 mnths)

3 months Range 3-6 mnths) it reasonable for academics to expect total freedom over the data they have gathered on a company’s behalf, especially if they have signed a confidentiality agreement?” (N. Biotech 2000)

Scientists: Selection & Disclosure
Bulovic Lab, MIT Research Lab on Electronics
Immediate application

“Thin-film Transistors Center for Circuit & for mixed System Solutions ICs signal

Scientific Merit

“ExcitonHertzExciton Annihilation Foundation in polariton NSF-center $ microcavities”

DOE Solar dots” “Direct Program Patterning of HP/DARPA Metallic

“PV using Q-

Model this! How do selection & disclosure criteria influence equilibrium outcomes for R&D funding?

The Three Wise Men and the Three Monkeys by Raul de la Nuez. Courtesy of Raul de la Nuez

Model Set-Up
•  Projects associated with unique scientist •  Continuum of private funders •  Commercial Appropriability
–  Subject to potential competition (reduces profits but increases social value realised) –  Patents can block entry –  Disclosures encourage competition
Scientific merit b Uniform Distn

v Cost, k Immediate app

Pure Private
•  No public funding •  Scientist earns all profits •  Chooses exclusive licensing •  If patent ironclad always publish (Gans, Murray & Stern) •  Scientists accept lower returns for publication (Stern 2004)

Public Funding
•  Total available funding
–  K < k –  Budget constraint

•  Project selection criteria
–  Assume can only observe b –  Choose to fund b above a threshold, b

•  Funding conditions
–  No patent/commercial payments –  Patent/open licensing –  Publication requirements –  No conditions

No patent/commercial pay
•  If accept public funding
–  Must publish to get scientist participation –  Forgo monopoly profits

Crowding out + Disclosure

Open Licensing/Payment
•  Suppose there is a patent but licensing is required to be open
–  If no commercial interest, same outcome as no patent –  If commercial interest, commercialisation costs defrayed and there is a duopoly
Fewer projects funded

Increased crowding out + disclosure

No commercial restrictions

Public funding

Increased crowding out + disclosure


Few projects funded

Private funding (no publication)


•  Pure private funding involves some disclosure
–  Scientists pay to be scientists (Stern 2004)

•  Pure public funding involves some privately funded disclosure
–  Private funders opt out to avoid restrictions –  Publicly funded applications not realised

•  Licensing
–  Private funding crowded out (fewer projects funded) –  More research applied –  More disclosure (the ‘price’ of crowding out)

•  Bayh-Dole Act
–  More dissemination of given projects (applied or scientific) –  Reduced equilibrium provision of private funds

The Agenda for Research
•  How do stated criteria differ from realised criteria for both selection and disclosure? •  How do changes in commercialisation opportunities impact on project mix and disclosure? •  How do scientists actually match their desired research projects to particular funding sources? •  Do mechanisms such as matching grants, university-industry alliance funding or other joint mechanisms reduce crowding out while promoting high level of scientific openness? •  Do open licensing requirements stimulate scientific openness? •  Do foundations play a complementary role in the research-funding complex? How does their stated social mission interact with their emphasis on funding projects of high scientific merit?