Intellectual Property and S&T Policy

Outline• Economic perspective on S&T policy

– Science, technology, information as economic resources– Market failure theory of S&T policy– Patents vs. Patronage as “Instruments” of S&T Policy

• Legal requirements for patent protection

• Empirical evidence on the effectiveness of patents

• Current policy concerns– Diminished patent “quality”– “Patenting of publicly funded research (Bayh-Dole)– Patents on inputs into subsequent research (Tragedy of the

Anticommons)– TRIPs

An Economic Perspective on S&T Policy

Types of Economic Resources

Yes No

High

Private Good:(Lollipop)

Low

Public Good(Scientific/

Technological

Information)App

ropr

iabi

lity

(or

Exc

luda

bilit

y)Rival

Types of Economic Resources

Yes No

High

Private Good Patented Public Good

Tragedy of the Anti-

Commons

Low

Common Access

Resource:

Tragedy of the Commons

Pure Public Good

App

ropr

iabi

lity

(or

Exc

luda

bilit

y)Rival

Market Failure Theory of Public Policy

• Private Economic Goods: Markets do a good job allocating resources

• Public Goods: There are “spillovers” from investments

– Spillover gap: Because of limited appropriability, “social returns” exceed “private returns”

– Markets tend to under-invest in goods with high spillovers – Government intervention can improve on the market

outcome • The “market failure” theory of public policy

$5

$50

$10

Standard policy instruments for market failure in the case of

(positive) spillovers

1. Internalize the externality– Create a property right in the innovation

closing the gap between private and social returns (Patents)

2. Subsidize the activity– Government funding of the research

(Patronage)

Instruments of S&T Policy: The Two P’s

• Patronage:– Direct government funding of research

• Patents: – Article I, Section 8 of the Constitution: “Congress has the power to

promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”

– Social bargain• Government grants a 20 year “monopoly” to inventors (gets to “appropriate”

the social return for 20 years)• Invention goes in public domain after patent term• “Schumpeterian tradeoff” between dynamic and static inefficiency

• Note: Two other P’s too– Procurement and Prizes

Instruments of S&T Policy: Patronage Versus Patents

The Good

(Benefits)

The Bad

(Costs)

Patronage (Government Funding)

Once created, research diffuses widely: Efficiently priced

Information asymmetry: Funders lack information about private costs, social benefits; researchers have incentives to exaggerate both

Moral hazard: Difficulties in monitoring create incentives for grantees to shirk

Patents Incentive compatibility:• Researchers will only conduct research where benefits exceed costs• Researchers only rewarded for “successful” inventions

Inefficiencies from restricted access: “Schumpeterian tradeoff” between dynamic, static efficiency

Legal Requirements for Patentability: The Basics

Legal Requirements for Patentability

• In assessing whether an invention is patentable, patent examiners assess (among other things):– Utility– Novelty– Non-obviousness

• Why?

• Role of “Prior Art”

Empirical Work on the Effectiveness of the Patent

System

Empirical Work on the Effectiveness of Patents

• Levin et al. (1987), Cohen et al. (2000)– In most industries, patents are not important

mechanisms for appropriating returns from R&D

• Lead time, secrecy, “tacit” knowledge more important

– Exception: Pharmaceuticals and Chemicals• Why?

Current Controversies

Current Policy Controversies: Diminished Patent “Quality”?

• Consider:– peanut butter and jelly patent– how to swing on a swing– one-click check out patent

• What is wrong with these?

Current Policy Controversies: Diminished Patent “Quality”?

• Resource starved PTO examiners increasingly granting patents on inventions that fail novelty/non-obviousness tests

• Particularly salient in “new” fields (e.g. software, nanotech) where examiners lack ability to effectively search for prior art

• Solutions?

Current Policy Controversies: Patenting of Publicly Funded

Research• Bayh-Dole Act of 1980 and the growth of academic

patenting

• Potential benefit: – Academic patents facilitate technology transfer

• Potential costs:– Universities patenting inventions that would be “transferred”

anyhow– Distortion of research agendas away from “basic” research– Growth of secrecy, publication delays, etc.– Universities patenting research tools and inputs to science

• Tragedy of the anti-commons?

Current Policy Controversies: TRIPs

• Trade related intellectual property rights (TRIPs) agreement– Part of the 1995 Uruguay Round trade negotiations

• Requires harmonization of patent regimes across countries

• Exogenous “strengthening” of patent regimes in developing countries– Previously, most had lax patent regimes– Historically, most “developing” countries stole knowledge from

developed countries– Will this make development more costly?– Note: Much of the current concern is about ARV pharmaceuticals

in India