Biotechnology - Genomic and Proteomics/Overview of Economics of Intellectual Property in BGP

Where does the literature says IP works and does not work?

Introduction

• Literature review revels that:
  • The past three decades have seen a significant increase in the scope of formal intellectual property (IP) rights, such as patents, over knowledge traditionally maintained in the public domain (Mowery, et al 2001; Heller 2008).
  • This dramatic expansion in IP rights over the earliest stages of research has caused widespread debate about the effectiveness of incentives for innovation (Scotchmer 1991, 1996).
  • The implications of expanding IP rights in the earliest stages of the innovation process are mixed:
    • On the one hand, early stage IP may be important to encourage the establishment of new research lines, since upstream researchers can thereby avoid expropriation by downstream researchers (Scotchmer, 1996).
    • On the other hand, by requiring downstream innovators to contend with a large number of fragmented upstream IP rights, their projects may suffer from "gridlock" as a result of transaction costs and complexity (Heller & Eisenberg 1998; Heller 2008).
  • Additionally, since a single upstream idea can, in principle, be applied across multiple later-stage domains and applications (Breshnahan & Trajtenberg 1995, Rosenberg & Trajtenberg 2001) and it may be extremely difficult in advance to precisely articulate the diversity and range of applications arising from a given upstream idea (Rosenberg 1996), scholars point the diversity of scientific experimentation across a range of research lines also may be affected by the enclosure of ideas. (Murray et all, 2009)
    • Murray et all concludes that: "openness not only impacts innovation incentives within a given research line but also encourages exploration and investment in new and speculative research directions." See more Murray et all - here.
  • When at least one of the starting materials or end products are non-obvious, biotech processes can be patented. This probably makes it less likely that people will keep trade secrets if they believe there is a possibility of licensing the process (Ladas & Parry "Patentability of Process Claims in the United States")

When IP does work

• When R&D costs are high
  • “On average, a lack of patent protection would have prevented the development of 60% of pharmaceutical and 38% of chemical inventions. In most sectors, a lack of patent protection would have had little impact, resulting in 17% fewer inventions in machinery, 12% less in fabricated metals, 11% less in electrical equipment, and no effect at all in office equipment, motor vehicles, rubber, and textiles.” (Arundel pp. 11)
  • “Only four chemical industries (drugs, plastic materials, inorganic chemicals, and organic chemicals) and petroleum refining rated process patent effectiveness higher than four on a seven-point scale, and only these four chemical industries and steel mills rated product patents higher than five.” (Levin pp. 796)
• When research methods can be patented (as in Biotech)
  • research tools develop faster in biotech than in other industries - so there's a profit to be had just coming up with new research processes (Harison pp. 26)
  • Current US IP law does not make a distinction between discovery and invention, could have possible impact on innovation (pp. 28)
• When patents can be used strategically
  • “The patenting strategies of American firms appear to be strongly driven by the wish to block competitors and to prevent copying. The use of patents as a means of sharing information, for example through licensing or in negotiations, is less important for American firms than for European and Japanese firms.” (Arundel pp. 13)

When IP doesn't work

• When lead time is a primary competitive advantage
  • von Hippel and Levin both found that companies preferred to protect innovations through secrecy and lead times (pp. 3)
• When the goal is spreading information
  • only a small number (3%) of high technology firms use patent and copyright publications sources of new information. Compare to trade conferences: 70% (Arundel pp. 3,5)
• When there are other means of protecting competitive advantages (Levin pp. 794):
  • on a scale of 1-7 (7 being the most important), business executives were asked to rate the importance of various techniques for protecting competitive advantages. The number is the average score, and the bracketed number is the margin of error. Compare between Products and Processes:

	Processes	Products
Patents to prevent duplication	3.52 (0.06)	4.33 (0.07)
Patents to secure royalty income	3.31 (0.06)	3.75 (0.07)
Secrecy	4.31 (0.07)	3.57 (0.06)
Lead time	5.11 (0.05)	5.41 (0.05)
Move down the learning curve	5.02 (0.05)	5.09 (0.05)
Sales or service efforts	4.55 (0.07)	5.59 (0.05)

• As you can see from the table above, IP was viewed as marginally effective for protecting processes, and least effective compared to other methods for protecting products

Academic Research versus Private Research: relation between freedom of research and openess

• Academic freedom tends to dominate private sector focus at early stages on a research line (Aghion, Dewatripont and Stein 2008).
• "Academic research (or freedom) differs from private-sector research in that it leaves control rights over the research strategy in the hands of the researcher." (pg 7) (Murray et all, 2009)
• "The key result is therefore that academic freedom will be the optimal governance structure at earlier stages and private sector research will be optimal at later stages." (pg 8) (Murray et all, 2009)

What are the other incentives mentioned by the literature?

• Variety of reasons for choosing not to patent (Levin pp. 784):
  • not perfect appropriable
  • often not worth the cost of the application process
  • patents considered easily circumvent-able
• As seen in above table, there seem to be other means of capitalizing on competitive advantage

Is there data on "how much of an increase of the tendency towards enclosure".

• initial answer: yes.
  • Between 1965 and 1989, university patents rose 15-fold. At the end of that period, drug and medical patents accounted for 35% of the total, up from 15% at the beginning of that period (Henderson pp. 121)
• remaining points of investigation: how are practices of emerging and established private institutions changing?

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Bibliography for Item 1 in BGP
Biotechnology_-_Genomic_and_Proteomics