Contracting over the Disclosure of Scientific Knowledge

8/8/2019 Contracting over the Disclosure of Scientific Knowledge

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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


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Process of Growth



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Process of Growth

At

Increase inKnowledge



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Process of Growth

At


x

t

New Goods

at t



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Process of Growth

At


x

t

New Goods

at t

Increased

Productivity



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Process of Growth

At


x

t

New Goods

at t

Increased

Productivity

H

A(A

t+ A

t)

R&D Productivity



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Process of Growth

At


x

t

New Goods

at t

Increased

Productivity

H

A(A

t+ A

t)

R&D Productivity

At+1

Future Knowledge



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Process of Growth

At


x

t

New Goods

at t

Increased

Productivity

H

A(A

t+ A

t)

R&D Productivity

At+1

Future Knowledge

Appropriated



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Interaction between commerce and science



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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)



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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



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Stokes Classification of Research

Yes

Yes

No

No

Quest for fundamental understanding?

Considerations

of use?



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Yes

Yes

No

No


Considerations

of use?



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Yes

Yes

No

No


Considerations

of use?



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Yes

Yes

No

No


Considerations

of use?



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Yes

Yes

No

No


Considerations

of use?



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Yes

Yes

No

No


Considerations

of use?

Assumed in

endogenous

growth theory



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Papers associated with patents

Funding #papers#pair with

patents% paired

Public 235 106 45%

Mixed 70 41 59%

Private 36 24 67%

Starting with publications: From a sample of 341 research publications (all theresearch articles from the leading life science journal Nature Biotechnology between1997 and 1999). Examine which publications are also disclosed in patents. (Murray and

Stern 2007).



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Patents associated with publications

Funding #patents#pair with

papers% paired

Public 1308 1099 84%

Mixed 187 164 88%

Private 2775 1347 49%

Starting with patents: From the full population of human gene patents (US patentsidentified using bioinformatics methods that disclose and claim a human gene sequenceor fragment; Jensen and Murray 2005), which patents are also disclosed in

publications? (Huang and Murray 2008 )



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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



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Disclosure through publication



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Disclosure through patents



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This paper ...



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This paper ...

Research contribution: endogenise the choice of disclosure strategy as

negotiated between scientists and their funders



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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 amissing 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



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results



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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)



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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



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Key Model Elements



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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



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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)



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Choice of disclosure regimes

Publication isclosure (d)

0 D

Patent

1 CommercialScience

Patent-PaperPairs

(i)0 Secrecy Open Science



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Preferences

Scientist

Firm (Funder): expected profit of private funder

MonopolyProfit

k

CapitalCost

w Pr(Successful Entry)(

CompetitiveProfit

)

U = w

wage

+ b

S

kudos

d

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:



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Impact of Patents



Blocked entry

Probability entry is prohibited entirely:



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Impact of Patents



Blocked entry


Disclosures

Minimum disclosure requirements in the patent: dPAT

Literally, the probability disclosures yield knowledge that reduces

entry costs bybE



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Impact of Patents



Blocked entry


Disclosures

Minimum disclosure requirements in the patent: dPAT

Literally, the probability disclosures yield knowledge that reduces

entry costs bybE

Congruence

Probability patent and publication disclosures overlap:



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1

0

Probability of Entry



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1

0

(1 i)




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1

0

(1 i)

(1 i) i




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1

0

(1 i) i+ bEPr(Disclosure)

(1 i)

(1 i) i




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1

0


(1 i)

(1 i) i

Pr(Disclosure)




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1

0


(1 i)

(1 i) i

Pr(Disclosure)

= (1) i Pr(Learn from Patent)+Pr(Learn from Pub)( )

+i Pr(Learn from Either)




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1

0


(1 i)

(1 i) i

Pr(Disclosure)



= (1) idPAT

+ d( )+ idPAT + d idPATd( )




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1

0


(1 i)

(1 i) i

Pr(Disclosure)



= (1) idPAT

+ d( )+ idPAT + d idPATd( )

= idPAT + d

idPATd




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1

0

(1 i)

(1 i) i

(1 i) i+ bE(id

PAT+ did

PATd)




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1

0

(1 i) i+ bE(id

PAT+ did

PATd)

1

0




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1

0

(1 i) i+ bE(id

PAT+ did

PATd)

1

0

Random

Fixed

Cost,




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1

0

(1 i) i+ bE(id

PAT+ did

PATd)

1

0

Random

Fixed

Cost, =

Pr(entry)




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Expected Profits

= (1 i) (1 i) i+ bE

(idPAT

+ didPAT

d)( )

Pr(successful entry)

= (1 i)Pr(entry)

MonopolyProfit

k

capitalcost

w Pr(successful entry)(

CompetitiveProfit

)



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Expected Profits

= (1 i) (1 i) i+ bE

(idPAT

+ didPAT

d)( )

Pr(successful entry)

= (1 i)Pr(entry)

MonopolyProfit

k

capitalcost

w Pr(successful entry)(

CompetitiveProfit

)

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.



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Easy Case: Complete Overlap

Suppose that theknowledge disclosed in a

patent and publication were

exactly the same.

Then if decide to patent,

there is no additional costin publishing and vice

versa.

Would only observe secrecy

and patent-paper pairs.Secrecy

Patent-Paper Pairs

Returnsto i

Returnsto d



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Negotiations

Use the Nash bargaining solution

Negotiate over w,iand 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, chooseiand dto maximise total surplus

But if w = 0, total surplus not maximised

As increase d, reduce w: ifbS relatively high may want zero wages

This occurs if

D > d= k (1 i) (1 i) i+ b

Eid

PAT( )( )bS+ b

E(1 i)(1id

PAT)( )



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Total Surplus Maximisation (d)

Assume that D < d

Chooseiand dto maximise:

Disclosure Choice: set d= D if

bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

bS (1 i)b

E(1id

PAT)( )



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

bS (1 i)b

E(1id

PAT)( )

d

bS

bE( )

(1 i)(1idPAT )



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

bS (1 i)b

E(1id

PAT)( )

d

bS

bE( )

(1 i)(1idPAT )



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

bS (1 i)b

E(1id

PAT)( )

d

bS

bE( )

(1 i)(1idPAT )

More likely to be satisfied if there is a patent.



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Total Surplus Maximisation (i)

Assume that D < d


Patent Choice: seti= 1 if

bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

i k (1 ) (1 ) + b

EdPAT( )()

k

(

)

1



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Assume that D < d



bSd+ k (1 i) (1 i) i+ b

E(id

PAT+ did

PATd)( )( )

i k (1 ) (1 ) + b

EdPAT( )()

k

(

)

1

Can show that publication means that a patent maybe chosen even ifi< 1.



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Complementarity

Secrecy

Commercial

Science

Patent-Paper Pairs

Open

Science

d

i



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Sources of Complementarity

Congruence (): as increases, this increases patent-paper pairs relative toother 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 (): 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 ( = 1), the disclosures are not

commercially harmful.

Patent breadth (): 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.



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Independent Choices

Suppose dand dPATrevealedinformation about distinct

knowledge ( = 0)

Suppose patent protection

ineffective in blocking entry ( = 0)

When d> 1, surplus

maximisation would involve d= D

Wages always zero (the outside

option) when there is publication

Decisions do not interact.

1

1

Secrecy

Commercial

Science

Patent-Paper

Pairs

Open

Science

d

i



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Possibility of Zero Wages

D > d

If publishing maximises joint surplus, w = 0

Increase duntil wage is constrained

Beyond this point, dused as compensation.

Increasing and

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

Stronger IP protection (higher and ) stimulates open science.Higher dPAT may not increase disclosure if it causes strategy to

move to secrecy.

di

*=

k (1 i) (1 i) i+ bEid

PAT( )( )

2(1 i)bE(1idPAT)( )



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Dynamic Extension



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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 ( = = 0) but otherwise samemodel

Past knowledge reduces future capital costs,k Full transfer (under contracting): zero future costs

Partial transfer (through publication): (1-dt-1)k



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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 ( = = 0) but otherwise samemodel

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 .

However, if work-around then do not cite previous work.



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Old



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Old New



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Old New


Secrecy


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Old New


Secrecy


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Old New

No flow of

knowledgeor money


Secrecy


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Old New

No flow of

knowledgeor money

Full Costs


Open Science


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Old New



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Open Science


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Old New

Full Transfer


Commercial Science


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Old New


Commercial Science


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Old New


Commercial Science


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Old New


Commercial Science


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Old New

Full Transfer


Patent-Paper Pairs


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Old New


Patent-Paper Pairs


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Old New


Patent-Paper Pairs


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Old New


Patent-Paper Pairs


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Old New

Full Transfer

but partial transfer

if negotiations fail


Patent-Paper Pairs


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Old New

Full Transfer




License Negotiations


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Outcomes

If no patent, = 0

If patent but no publication, =k/3

If patent and past publication, =k(1-(1-)dt-1

)/3




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Outcomes

If no patent, = 0

If patent but no publication, =k/3

If patent and past publication, =k(1-(1-)dt-1

)/3

Patent-Paper Pairs

For sufficiently high, patent-paper pairs can be anequilibrium

Presence of patent reduces incentives for publication andvice versa when < 1


Licensing cumulative innovation


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Suppose that future research teams build on current innovation




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Disclosures reduce costs to future research teams



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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 non-contractibility 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




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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 non-contractibility 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 scientists desire

for future kudos (through citation)


Substitutability


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Substitutability

1

1

Secrecy

Commercial

Science

Patent-Paper

Pairs

Open

Science

d

i


Other implications


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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 orsecrecy always an equilibrium under certain conditions.

Domain of open science is expanded as a result of substitutability


What if scientist owns IP?


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Old New




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Old New




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Old New




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Old New

Full Transfer





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Old New

Full Transfer




IP ownership


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p

Dynamic model assumes that the firm owns the IP rights and negotiates overthe 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 firms hands.


Key Extensions


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y

Public funding: impact and restrictions

Scientific and Commercial Research Racing

Empirical: Human Genome Project


Conclusions


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Disclosure strategy grounded in bargaining and shaped by the disclosureenvironment (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.

Contracting over the Disclosure of Scientific Knowledge

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