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Contracting over the Disclosure of Scientific Knowledge: IP Protection and Academic Publication

Joshua Gans, Fiona Murray & Scott Stern London Business School Seminar December 2010

Saturday, 4 December 2010

Process of Growth

Saturday, 4 December 2010

Process of Growth

Increase in Knowledge

 At 

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increase in Knowledge

 At 

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increased Productivity

Increase in Knowledge

 At 

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increased Productivity

Increase in Knowledge

 At 

 δ H A (At + At )    
R&D Productivity

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increased Productivity

Increase in Knowledge

 At 

 δ H A (At + At )    
R&D Productivity

Future Knowledge

 At +1 

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increased Productivity

Increase in Knowledge

 At 

Appropriated

 δ H A (At + At )    
R&D Productivity

Future Knowledge

 At +1 

Saturday, 4 December 2010

Process of Growth

New Goods at t

xt 

Increased Productivity

Increase in Knowledge

 At 

Appropriated

 δ H A (At + At )    
R&D Productivity

Future Knowledge

 At +1 

Spillover
Saturday, 4 December 2010

Interaction between commerce and science

Saturday, 4 December 2010

Interaction between commerce and science
• Widespread and longstanding concern that ‘commercial interests’ hinder open science • Anti-commons movement (Heller & Eisenberg) • Evidence of IP protection correlated with less intense academic activities (Murray & Stern, 2007; Murray, Aghion et al, 2009) • Evidence of IP protection correlated with fewer commercial applications (Williams, 2010) • Cf: Increase in number of scientists publishing and patenting (Murray 2002;
Azoulay, et.al., 2009)

Saturday, 4 December 2010

Interaction between commerce and science
• Widespread and longstanding concern that ‘commercial interests’ hinder open science • Anti-commons movement (Heller & Eisenberg) • Evidence of IP protection correlated with less intense academic activities (Murray & Stern, 2007; Murray, Aghion et al, 2009) • Evidence of IP protection correlated with fewer commercial applications (Williams, 2010) • Cf: Increase in number of scientists publishing and patenting (Murray 2002;
Azoulay, et.al., 2009)

• Policy moves to change how academic science uses patents • Bayh-Dole Act • Reach through licensing rights • Academic science as evidence of priority

Saturday, 4 December 2010

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Stokes’ Classification of Research
Assumed in endogenous growth theory

Yes
Considerations of use?

No

No
Saturday, 4 December 2010

Yes

Quest for fundamental understanding?

Papers associated with patents
Funding Public Mixed Private #pair with #papers % paired patents 235 70 36 106 41 24 45% 59% 67%

Starting with publications: From a sample of 341 research publications (all the research articles from the leading life science journal Nature Biotechnology between 1997 and 1999). Examine which publications are also disclosed in patents. (Murray and Stern 2007).
Saturday, 4 December 2010

Patents associated with publications
Funding Public Mixed Private #pair with #patents % paired papers 1308 187 2775 1099 164 1347 84% 88% 49%

Starting with patents: From the full population of human gene patents (US patents identified using bioinformatics methods that disclose and claim a human gene sequence or fragment; Jensen and Murray 2005), which patents are also disclosed in publications? (Huang and Murray 2008 )
Saturday, 4 December 2010

Disclosure Paths
• Intellectual property system • Romer emphasized the fact that when you obtain a patent, the disclosures in the application can be used for future research • but … may prefer secrecy to obtaining a patent (Mansfield, Anton & Yao, Denicolo & Franzoni, Kultti, Takalo & Toikka, Erkal) • Open science and publication • Norms (Merton) and incentives (Dasgupta & David) • Intrinsic preferences (Stern; Aghion, Dewatripont & Stein) • Both paths involve choices and form part of a disclosure strategy

Saturday, 4 December 2010

Saturday, 4 December 2010

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S

Saturday, 4 December 2010

S F

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S Customers F

Saturday, 4 December 2010

S
Money

Customers

F

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Disclosure through publication

S
Money

Customers

F

Saturday, 4 December 2010

Disclosure through publication

S F

Money

Customers

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Disclosure through publication

S F

Knowledge

Money

Customers

Saturday, 4 December 2010

Disclosure through publication

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

Disclosure through publication

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

Disclosure through patents

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

Disclosure through patents

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

Disclosure through patents

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

Disclosure through patents

S F

Knowledge

Imitator

Money

Customers

Saturday, 4 December 2010

This paper ...

Saturday, 4 December 2010

This paper ...
• Research contribution: endogenise the choice of disclosure strategy as negotiated between scientists and their funders

Saturday, 4 December 2010

This paper ...
• Research contribution: endogenise the choice of disclosure strategy as negotiated between scientists and their funders • Key output is to understand interaction between patenting and publication • What are the economic forces driving knowledge disclosure? • A missing micro-foundation for endogenous growth theory and a missing theory of patent-paper pairs • Are patents and publications complements or substitutes? • Complementarity is assumed and necessary in endogenous growth • Substitutability is the concern at the heart of policy debates

Saturday, 4 December 2010

… results

Saturday, 4 December 2010

… results
• Baseline conclusion: several fundamental drivers of complementarity between patents and publication • Congruence (overlap in patent/publication disclosures) • Competitive protection (effective patents block entry providing insurance against entry-promoting disclosures) • Non-economic payments (patents improve commercial outcomes and publications are used to reward scientists)

Saturday, 4 December 2010

… results
• Baseline conclusion: several fundamental drivers of complementarity between patents and publication • Congruence (overlap in patent/publication disclosures) • Competitive protection (effective patents block entry providing insurance against entry-promoting disclosures) • Non-economic payments (patents improve commercial outcomes and publications are used to reward scientists) • Dynamic extension: patents may reduce publication incentives

Saturday, 4 December 2010

… results
• Baseline conclusion: several fundamental drivers of complementarity between patents and publication • Congruence (overlap in patent/publication disclosures) • Competitive protection (effective patents block entry providing insurance against entry-promoting disclosures) • Non-economic payments (patents improve commercial outcomes and publications are used to reward scientists) • Dynamic extension: patents may reduce publication incentives • Design of IP protection • Stronger IP can increase scientific openness • But simple disclosure rules and rights have unintended consequences

Saturday, 4 December 2010

Key Model Elements

Saturday, 4 December 2010

Key Model Elements
• Role of disclosure • Potentially fosters imitative entry (reducing commercial returns) – can happen through patent and/or publication disclosures • Generates scientific kudos (through publication only) although scientists also care about income • Patent and publication disclosures might overlap

Saturday, 4 December 2010

Key Model Elements
• Role of disclosure • Potentially fosters imitative entry (reducing commercial returns) – can happen through patent and/or publication disclosures • Generates scientific kudos (through publication only) although scientists also care about income • Patent and publication disclosures might overlap • Disclosure strategy • Outcome of negotiation between (academic) scientist and firm over payments, IP strategy and publication rights • Scientist assumed to be wealth constrained

Saturday, 4 December 2010

Key Model Elements
• Role of disclosure • Potentially fosters imitative entry (reducing commercial returns) – can happen through patent and/or publication disclosures • Generates scientific kudos (through publication only) although scientists also care about income • Patent and publication disclosures might overlap • Disclosure strategy • Outcome of negotiation between (academic) scientist and firm over payments, IP strategy and publication rights • Scientist assumed to be wealth constrained • Simplifying assumptions • Single scientist and single firm (bilateral monopoly) • Single project (more about funding an academic scientist than scientist-employee) • No outside options (relaxed in the paper)

Saturday, 4 December 2010

Choice of disclosure regimes

Publication disclosure (d)

0 1
Patent (i)

D Patent-Paper Pairs Open Science

Commercial Science Secrecy

0

Saturday, 4 December 2010

Preferences
• Scientist

U = w + bS d   wage
kudos

• Firm (Funder): expected profit of private funder

Monopoly Profit

Π 

− k − w − Pr(Successful Entry)(Π − 
Capital Cost

Competitive Profit

π 

)

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

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Impact of Patents

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Impact of Patents
• Creates cost of workaround • Additional entry cost: λ

Saturday, 4 December 2010

Impact of Patents
• Creates cost of workaround • Additional entry cost: λ • Blocked entry • Probability entry is prohibited entirely: ρ

Saturday, 4 December 2010

Impact of Patents
• Creates cost of workaround • Additional entry cost: λ • Blocked entry • Probability entry is prohibited entirely: ρ • Disclosures • Minimum disclosure requirements in the patent: dPAT • Literally, the probability disclosures yield knowledge that reduces entry costs by bE

Saturday, 4 December 2010

Impact of Patents
• Creates cost of workaround • Additional entry cost: λ • Blocked entry • Probability entry is prohibited entirely: ρ • Disclosures • Minimum disclosure requirements in the patent: dPAT • Literally, the probability disclosures yield knowledge that reduces entry costs by bE • Congruence • Probability patent and publication disclosures overlap: α

Saturday, 4 December 2010

Probability of Entry 1

0
Saturday, 4 December 2010

Probability of Entry 1
π

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π

(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π

(1 − i ρ )π − iλ + bE Pr(Disclosure)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π
Pr (Disclosure)

(1 − i ρ )π − iλ + bE Pr(Disclosure)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π
Pr (Disclosure) = (1 − α ) ( i Pr (Learn from Patent)+Pr(Learn from Pub))

+ α i Pr(Learn from Either)

(1 − i ρ )π − iλ + bE Pr(Disclosure)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π
Pr (Disclosure) = (1 − α ) ( i Pr (Learn from Patent)+Pr(Learn from Pub))

+ α i Pr(Learn from Either) = (1 − α ) ( idPAT + d ) + α ( idPAT + d − idPAT d )

(1 − i ρ )π − iλ + bE Pr(Disclosure)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π
Pr (Disclosure) = (1 − α ) ( i Pr (Learn from Patent)+Pr(Learn from Pub))

+ α i Pr(Learn from Either) = (1 − α ) ( idPAT + d ) + α ( idPAT + d − idPAT d ) = idPAT + d − α idPAT d

(1 − i ρ )π − iλ + bE Pr(Disclosure)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1
π
(1 − i ρ )π

(1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)
(1 − i ρ )π − iλ

0
Saturday, 4 December 2010

Probability of Entry 1 1

(1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)

0
Saturday, 4 December 2010

0

Probability of Entry 1 1

(1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)

Random Fixed Cost, θ

0
Saturday, 4 December 2010

0

Probability of Entry 1 1

(1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)

= Pr (entry)

Random Fixed Cost, θ

0
Saturday, 4 December 2010

0

Expected Profits

Monopoly Profit

Π 

− k − w − Pr(successful entry)(Π − 
capital cost

Competitive Profit

π 

)

Saturday, 4 December 2010

Expected Profits

Monopoly Profit

Π 

− k − w − Pr(successful entry)(Π − 
capital cost

Competitive Profit

π 

)

Pr (successful entry) = (1 − i ρ )Pr(entry) = (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d))

Saturday, 4 December 2010

Expected Profits

Monopoly Profit

Π 

− k − w − Pr(successful entry)(Π − 
capital cost

Competitive Profit

π 

)

Pr (successful entry) = (1 − i ρ )Pr(entry) = (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d))
The potential for entry is increasing in both patenting and publication disclosure, while the cost of entry may or may not rise if there is a patent.

Saturday, 4 December 2010

Easy Case: 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.
Secrecy

Returns to i
Patent-Paper Pairs

Returns to d

Saturday, 4 December 2010

Negotiations
• Use the Nash bargaining solution • Negotiate over w, i and d ∈ [0, D] • Patent (i) and publication (d) used to increase surplus • Wages (w) used to distribute surplus • Technical issue: wages cannot be negative • When w > 0, choose i and d to maximise total surplus • But if w = 0, total surplus not maximised • As increase d, reduce w: if bS relatively high may want zero wages • This occurs if

Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE idPAT ) (Π − π ) D>d= bS + bE (1 − i ρ )(1 − α idPAT )(Π − π )

Saturday, 4 December 2010

Total Surplus Maximisation (d)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Disclosure Choice: set d = D if

Saturday, 4 December 2010

Total Surplus Maximisation (d)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Disclosure Choice: set d = D if

bS ≥ (1 − i ρ )bE (1 − α idPAT )(Π − π )

Saturday, 4 December 2010

Total Surplus Maximisation (d)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Disclosure Choice: set d = D if

bS ≥ (1 − i ρ )bE (1 − α idPAT )(Π − π )
bS Δd ≡ ≥ (1 − i ρ )(1 − α idPAT ) bE (Π − π )

Saturday, 4 December 2010

Total Surplus Maximisation (d)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Disclosure Choice: set d = D if

bS ≥ (1 − i ρ )bE (1 − α idPAT )(Π − π )
bS Δd ≡ ≥ (1 − i ρ )(1 − α idPAT ) bE (Π − π )

Saturday, 4 December 2010

Total Surplus Maximisation (d)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Disclosure Choice: set d = D if

bS ≥ (1 − i ρ )bE (1 − α idPAT )(Π − π )
bS Δd ≡ ≥ (1 − i ρ )(1 − α idPAT ) bE (Π − π )
More likely to be satisfied if there is a patent.
Saturday, 4 December 2010

Total Surplus Maximisation (i)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Patent Choice: set i = 1 if

Saturday, 4 December 2010

Total Surplus Maximisation (i)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Patent Choice: set i = 1 if

Π − k − (1 − ρ ) ( (1 − ρ )π − λ + bE dPAT ) (Π − π ) Δi ≡ ≥1 Π − k − π (Π − π )

Saturday, 4 December 2010

Total Surplus Maximisation (i)
• Assume that D < d • Choose i and d to maximise:

bS d + Π − k − (1 − i ρ ) ( (1 − i ρ )π − iλ + bE (idPAT + d − α idPAT d)) (Π − π )
• Patent Choice: set i = 1 if

Π − k − (1 − ρ ) ( (1 − ρ )π − λ + bE dPAT ) (Π − π ) Δi ≡ ≥1 Π − k − π (Π − π )

Can show that publication means that a patent may be chosen even if Δi < 1.
Saturday, 4 December 2010

Complementarity
Δi
Commercial Science Patent-Paper Pairs

Secrecy

Open Science

Δd

Saturday, 4 December 2010

Sources of Complementarity
• Congruence (α): as α increases, 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. • Patent breadth (λ): as patent breadth increases, this increases patent-paper pairs relative to other regimes. • Intuition: patents more effective at reducing entry so more likely to be chosen reducing the marginal cost of publication disclosure.

Saturday, 4 December 2010

Independent Choices
• Suppose d and dPAT revealed information about distinct knowledge (α = 0) • Suppose patent protection ineffective in blocking entry (ρ = 0) • When Δd > 1, surplus maximisation would involve d = D • Wages always zero (the outside option) when there is publication • Decisions do not interact.

Δi
Commercial Science Patent-Paper Pairs

1
Secrecy Open Science

1

Δd

Saturday, 4 December 2010

Possibility of Zero Wages
• D>d • If publishing maximises joint surplus, w = 0 • Increase d until wage is constrained • Beyond this point, d used as compensation. • Increasing λ and ρ • 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, increases disclosure

d =
* i

Π − k − (1 − iρ ) (1 − iρ )π − iλ + bE id PAT (Π − π ) 2(1 − iρ )bE (1 − α id PAT )(Π − π )

(

)

Stronger IP protection (higher λ and ρ) stimulates open science. Higher dPAT may not increase disclosure if it causes strategy to move to secrecy.
Saturday, 4 December 2010

Dynamic Extension

Saturday, 4 December 2010

Dynamic Extension
— Suppose that scientists and firms live two periods — Overlap with other generations — Future kudos generated by citation as well as publication — Assume away sources of complementarity (α = ρ = 0) but otherwise same model

Saturday, 4 December 2010

Dynamic Extension
— Suppose that scientists and firms live two periods — Overlap with other generations — Future kudos generated by citation as well as publication — Assume away sources of complementarity (α = ρ = 0) but otherwise same model — Past knowledge reduces future capital costs, k — Full transfer (under contracting): zero future costs — Partial transfer (through publication): (1-dt-1)k

Saturday, 4 December 2010

Dynamic Extension
— Suppose that scientists and firms live two periods — Overlap with other generations — Future kudos generated by citation as well as publication — Assume away sources of complementarity (α = ρ = 0) but otherwise same model — 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 γ. — However, if work-around then do not cite previous work.

Saturday, 4 December 2010

S F

Saturday, 4 December 2010

Old
S F

Saturday, 4 December 2010

Old
S F

New

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Old
S F

New
S

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Old
S F

New
S F

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Secrecy Old
S F

New
S F

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Secrecy Old
S F

New
S F

No flow of knowledge or money

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Secrecy Old
S F

New
S F

No flow of knowledge or money

Full Costs

Saturday, 4 December 2010

Open Science Old
S F

New
S F

Saturday, 4 December 2010

Open Science Old
S
Knowledge

New
S F

F

Saturday, 4 December 2010

Open Science Old
S
Knowledge

New
S F

F

Full Transfer

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Commercial Science Old
S F

New
S F

Saturday, 4 December 2010

Commercial Science Old
S
Knowledge

New
F S F

Saturday, 4 December 2010

Commercial Science Old
S
Knowledge

New
F S
Money

F

Saturday, 4 December 2010

Commercial Science Old
S
Knowledge

New
F S
Money

F

Full Transfer

Saturday, 4 December 2010

Patent-Paper Pairs Old
S F

New
S F

Saturday, 4 December 2010

Patent-Paper Pairs Old
S
Knowledge

New
F S F

Saturday, 4 December 2010

Patent-Paper Pairs Old
S
Knowledge

New
F S
Money

F

Saturday, 4 December 2010

Patent-Paper Pairs Old
S
Knowledge

New
F S
Money

F

Full Transfer but partial transfer if negotiations fail
Saturday, 4 December 2010

Patent-Paper Pairs Old
S
Knowledge

New
F S
Money

F

Full Transfer but partial transfer if negotiations fail
Saturday, 4 December 2010

License Negotiations

Saturday, 4 December 2010

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

Saturday, 4 December 2010

License Negotiations
— Outcomes
— If no patent, τ = 0 — If patent but no publication, τ = k/3 — If patent and past publication, τ = k(1-(1-γ)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 γ < 1

Saturday, 4 December 2010

Licensing cumulative innovation

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Licensing cumulative innovation
• Suppose that future research teams build on current innovation

Saturday, 4 December 2010

Licensing cumulative innovation
• Suppose that future research teams build on current innovation • Disclosures reduce costs to future research teams

Saturday, 4 December 2010

Licensing cumulative innovation
• Suppose that future research teams build on current innovation • Disclosures reduce costs to future research teams • Having a patent, gives current research team an opportunity to extract some future innovative rents through licensing • Suppose that licensing is accompanied by full disclosure (no noncontractibility problem) • Publication may allow some knowledge transfer even without licensing • Therefore, publication reduces the future license fee

Saturday, 4 December 2010

Licensing cumulative innovation
• Suppose that future research teams build on current innovation • Disclosures reduce costs to future research teams • Having a patent, gives current research team an opportunity to extract some future innovative rents through licensing • Suppose that licensing is accompanied by full disclosure (no noncontractibility problem) • Publication may allow some knowledge transfer even without licensing • Therefore, publication reduces the future license fee • As future licensing is only possible with a patent, it follows that stronger patent incentives may cause a reduction in publication incentives

Saturday, 4 December 2010

Licensing cumulative innovation
• Suppose that future research teams build on current innovation • Disclosures reduce costs to future research teams • Having a patent, gives current research team an opportunity to extract some future innovative rents through licensing • Suppose that licensing is accompanied by full disclosure (no noncontractibility problem) • Publication may allow some knowledge transfer even without licensing • Therefore, publication reduces the future license fee • As future licensing is only possible with a patent, it follows that stronger patent incentives may cause a reduction in publication incentives • This is countered by static publication incentives and also scientist’s desire for future kudos (through citation)

Saturday, 4 December 2010

Substitutability
Δi
Commercial Science Patent-Paper Pairs

1
Secrecy Open Science

1

Δd

Saturday, 4 December 2010

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, there can exist multiple equilibria with commercial science or secrecy always an equilibrium under certain conditions. • Domain of open science is expanded as a result of substitutability

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What if scientist owns IP? Old
S F

New
S F

Saturday, 4 December 2010

What if scientist owns IP? Old
Knowledge

New
S S

F

F

Saturday, 4 December 2010

What if scientist owns IP? Old
Knowledge

New
S S

F

Money

F

Saturday, 4 December 2010

What if scientist owns IP? Old
Knowledge

New
S S

F

Money

F

Full Transfer but partial transfer if negotiations fail
Saturday, 4 December 2010

What if scientist owns IP? Old
Knowledge

New
S S

F

Money

F

Full Transfer but partial transfer if negotiations fail
Saturday, 4 December 2010

What if scientist owns IP? Old
Knowledge

New
S S

F

Money

F

Full Transfer but partial transfer if negotiations fail
Saturday, 4 December 2010

IP ownership
• Dynamic model assumes that the firm owns the IP rights and negotiates over the license fee. • What if the scientist owned those rights? • It would then care about future publication in order to generate a citation. • Consequences: • A reduced future license fee when there is a publication • In negotiations, the scientist and firm are less likely to publish as this will reduce license revenues even further • Openness may be facilitated by leaving IP rights in the firm’s hands.

Saturday, 4 December 2010

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

Saturday, 4 December 2010

Conclusions
• Disclosure strategy grounded in bargaining and shaped by the disclosure environment (kudos and IP protection). • Patent-paper pairs are a potentially important equilibrium phenomenon and not an anomaly. • In most circumstances, increases in the strength of formal intellectual property protection enhances the scope for patent-paper pairs. • Important implications for strategy in the context of science-based innovation.

Saturday, 4 December 2010