THE ROLE OF INTELLECTUAL PROPERTY RIGHTS (IPR’S) IN SCIENCE

Paula StephanGeorgia State University, NBER and ICERpstephan@gsu.edu

Milano, June 9, 2011

Two kinds of Property Rights play an important role in science Property rights established by priority of discovery

—being first to communicate a discovery Property rights established by patenting that

grant inventor ownership Each gives researcher ownership, but

mechanism by which ownership is established is different and rights associated with ownership also differ.

Affects on the accumulation of knowledge are also different, although interdependent.

IPRs in Science

Plan for talk Provide an overview of two types of IPR Discuss functionality of the system Reasons for increase in patenting among

academics Incentives of academics for patenting Close with a discussion of what is

referred to as the “anticommons” issue—that is the extent to which patenting—especially among academics-- has a negative impact of on the diffusion of knowledge

Why scientists do science At least three reasons that scientists

engage in research from an economics perspective: Interest in reputation—priority Interest in solving puzzles Interest in money

Reputation Reputation established in science by

being first to communicate a finding Establish priority of discovery

Necessary condition for establishing priority is to report one’s findings—to publish one’s results

A measure of importance of a scientist’s research is count of citations the research has received

Priority Robert Merton, sociologist of science, established

importance of priority in scientific discovery Reward of priority is recognition awarded by

scientific community to being first to communicate a discovery.

Unusual form of property rights—Priority bestows ownership through very act of giving one’s ideas away.

Priority has been an overriding characteristic of science for over 300 years. (Newton went to considerable work to establish that he, not Leibniz, was the inventor of the calculus; Darwin only published when he learned that Wallace planned to publish).

Recognition awarded priority takes several forms Eponymy—practice of attaching the name of the scientist

to the discovery: Haley’s comet, Planck’s constant, Hodgkin’s disease, Moore’s Law, Higgs Particle.

Prizes—Nobel best known—but number with purses of over $500,000 and number of prizes has been growing faster than number of scientists

Membership in learned societies Publication-- lesser form, but necessary in establishing

priority. It is through publication (and the date associated with publication) that the scientist establishes being first. Major industry has evolved in measuring reputation—

Thomson-Reuters Web of Knowledge, Scopus, Google Scholar Some scientists are not shy about advertising their reputation

Reputation plays major role in providing access to resources through granting agencies Example in US is role publications play in

funding decisions at NIH and NSF Reputation plays major role in location of

where one works, the students one works with (as work of Azoulay shows), one’s rank, and, in certain countries, the salary one receives.

Status Not Only Reward Associated with Reputation

Functional Nature of Reward Structure

Scientific research has characteristics of what economists call a “public good.” Knowledge is not depleted when shared Once it is made public others cannot easily

be excluded from its use Unlike case with other public goods, not

only is knowledge not diminished by extensive use, it is often enlarged.

Cornerstone of economic theory Competitive markets provide poor

incentives for the production and sharing of a public good—because it is difficult to appropriate the benefits.

Non-excludable nature of public goods invites free-riders and consequently makes it difficult for providers to capture economic returns.

Also, and related—from an economic point of view an efficient price is 0 because one more user does not diminish amount available for others; yet no one could be in business providing a product with a 0 price

Appropriability Problem Particularly difficult to appropriate benefits arising

from basic research, which at best is years away from contributing to products that market may or may not value.

Equally, if not more important, virtually impossible to appropriate benefits that arise from contribution that basic research makes to future fundamental research

Because of these kind of issues, private firms rarely engage in basic research—thus there could be “market failure.”

Priority and Public Goods Priority addresses the public good problem—

encourages both production and sharing of research

The solution: by sharing knowledge, public good becomes the private property of the scientist who discovered it.

Merton was first to see this: “I propose the seeming paradox that in

science, private property is established by having its substance freely given to others who might want to make use of it.”

“Only when scientists have published their work and made it generally accessible, preferably in the public print of articles, monographs, and books that enter the archives, does it become legitimately established as more or less securely theirs.”

Black And White? Important to realize that research world is not

black and white—that research is either made publicly available for use by all or research results are disclosed in a patent that bestows certain monopoly rights on the holder

Researchers—to quote Rebecca Eisenberg—can have their cake and eat it too—don’t give everything away Publish and gain reputation but also withhold key

pieces of information

Having Your Cake and Eating It, Too

Facilitated by tacit nature of much of knowledge Engineering of transgenic mice a case in point—could

not learn how to do it by reading articles. Also facilitated by important role that materials play in

research And money complicates the equation

Walsh et al. found 19% of material requests made by scientists in their sample were denied. Competition among researchers played major role in refusal, as did cost of providing material. Whether the material in question was a drug or whether the potential supplier had a history of commercial activity were also relevant factors in refusal.

Considerable amount of research—both in U.S. and in Europe-- that shows that funding from industry comes with strings attached in terms of delays in publication or withholding of information

Extreme measures

Some take extreme measures to keep competitors at bay. Scientists have been known to collect class notes from students

in an effort to stave off competition Or, in the case of mathematicians, to leave out key points of a

proof. Or, in rare cases, to intentionally make a mistake: In the two

papers Paul Chu and Maw-Kuen Wu submitted to Physical Review Letters, describing their discovery of superconductivity above 77 Kelvin, the symbol Yb (ytterbium) was substituted for Y (yttrium). Chu claimed this was a “typographical error.” Others claimed it was a deliberate effort on Chu’s part to throw off the competition. Chu corrected the proofs in the final days that corrections could be made to the manuscript.

Patenting Priority not only form of property rights in

science Scientists also patent Patent bestows ownership in exchange for

“disclosing” Not as new a phenomena as some would have

one think Scientists in academe have been patenting for over

100 years—witness Lord Kelvin But in recent years patenting among academics

has increased both in U.S. and in Europe

Patenting by faculty: US: 13.7% if we ask all faculty across all

disciplines; differs by field; Walsh and coauthors find that 43% of

biomedical faculty have applied for a patent in last 2 years in US

Similar to percent in Japan of biomed faculty at top institutions in Japan who have applied for a patent in last 2 years.

Francesco can supply European perspective

Patents awarded and gross royaltiesU.S. Universities

Source: National Science Board 2004 & 200819

9119

9319

9519

9719

9920

0120

0320

050

5001,000

1,500

2,0002,500

3,0003,500

4,000

PatentsGross royalties ($mn)

1991 2005

Why Increase? Nature of research is changing—a line of

research can produce both fundamental insights but also lead to practical solutions, or the possibility of practical solutions, to a specific problem: Pasteur’s Quadrant

Susan Linquist’s work at MIT on protein folding as an example She first applied for a patent in 1994; since

then she has received 21patents and has published over 143 papers.

Why Increase continued Change in legal system—in U.S., for example, one

can patent life forms Bayh Dole—which gave US universities intellectual

property control over inventions resulting from research funded by federal government

Increased support of academic research from industry—both in U.S. and in many European countries

Increased interest among governments and universities in “getting” something from public research—both in terms of revenues and solutions to problems.

Why Academics Patent Generally assumed that scientists patent

because of monetary incentives Survey of TTO officers consistent with this in US

Asked about perceived importance to faculty of five outcomes (license revenue, license agreements executed, inventions commercialized, sponsored research, and patents), TTO officers listed license revenue as the second most important outcome, taking second place to sponsored (industry supported) research. (Jensen and Thursby 2001)

And there are examples of extraordinary returns

Northwestern University Example

Received $700 million cash in 2007 for a portion of royalty interest in drug Lyria (registered trademark).

Faculty involved receive 25% of that.

Emory Example July 2005 Gilead Sciences, Inc. and Royalty

Pharma bought Emory’s royalty interest in emtricitabine, also known as Emtriva® used in treatment of HIV

Emory received $525 million in cash Prior to deal, Emory had been receiving royalty

income since licensing the drug in 1996 Three Emory scientists involved: Dr. Dennis C.

Liotta, Dr. Raymond Schinazi and Dr. Woo-Baeg Choi

Emory’s intellectual property policy in effect at the time awards something like 40% of the amount to the three inventors.

U.S. Case Patent belongs to university; faculty share

royalties derived from patent. Average share faculty receive is: 41% but

considerable variance. Considerable skew in amount received: most

patents pay virtually nothing; a few pay extremely large amounts; number of faculty sharing in large amounts is limited Estimate that 400 faculty shared approximately $650

million in royalties from mega patents in 2007. For every one of these, there were 30 times as many

faculty who had applied for at least one patent.

Descriptives: IncentivesShare of first 10k of net licensing income going to

inventor (# of universities on left axis)

0.2 0.3 0.4 0.5

0.600

0000

0000

0001

0.700

0000

0000

0001 0.8 0.9 1

0

20

40

60

80

100

share of net income

Do faculty do it for the money?

Sauermann et al. find no relationship between royalty percent that universities share with faculty and the propensity to patent

Faculty—even those who patent-- do not know university formula for sharing when interviewed

Little evidence that there is a relationship between financial motives and patenting among life scientists

But a relationship does exist in other fields

Patenting (0/1)All Lifesci=0 Lifesci=1

Imp. Salary 0.230* 0.456** 0.105Imp. Intellect. Challenge 0.281 0.497 0.1Imp. Advancement -0.028 -0.079 -0.058Imp. Contr. Society 0.336** 0.103 0.698**Share10 -0.707* -0.767 -1.059Share10 X Imp. Salary 2.064** 3.157** 1.106Lnpubs 0.288** 0.123 0.552**Controls Incl. Incl. Incl.Observations 2,356 1,476 880

* significant at 5%; ** significant at 1%

Logit (no patents=0 vs. any patents=1), clustered SE’s, exposure adjusted

Odds ratio: 1.26

1.39

If not for money, what? In life sciences strong relationship

between desire to help society and patenting

Those who place high value on helping society are 2 times more likely to have patented

Intuitively appealing because many patents in the life sciences are pharmaceutically related.

Back to Sue Lindquist: She sees patenting, and the company she started, as necessary activities for “her life’s work to make a difference.”

Money may play a role but The highly skewed nature of the rewards

makes receiving substantial sums extremely unlikely

The time horizon is very long Emory researchers who made millions

disclosed their research to the Emory TTO office almost twenty years earlier.

Anticommons Does increase in patenting on part of faculty

diminish the diffusion of public knowledge? Possible paths by which this could occur

Patenting could divert faculty away from basic research toward more applied research

Patenting could divert faculty away from publishing

Patents on materials and equipment could limit availability of research resources to other faculty and thus stifle research

Diversion from basic to applied? Study of faculty at 8 top US universities over time;

Know publication and disclosure history Classify publications as basic or applied depending on

journal Find absolutely no evidence that disclosure leads to a

decrease in amount of basic research performed. No evidence that faculty who place a higher

weight on monetary incentives, as measured by an interest in salary, are more likely to engage in applied research (Sauermann, Cohen, and Stephan 2010) compared to basic research.

Does patenting divert faculty from doing research that is published? Research shows that patenting and publishing go hand in hand:

Number of patents a faculty member has relates to number of articles the faculty member has published

Number of articles published relates to the number of patents. Relationship could result from unobserved characteristics among

researchers, but research is robust to controlling for such effects. One reason for high correlation is that patents are often a by-

product of a line of research that is published. The large number of patent-paper pairs that have been documented is consistent with this.

Another reason is that many faculty work in Pasteur’s Quadrant

Does Patenting affect use? Here answer is nuanced and depends upon

how property rights are managed Also depends upon access to highly

productive colleagues In a survey of researchers Walsh and

colleagues found that patenting was rarely given as a reason as to why a material or an instrument could not be shared. They interpret this as fact that patents are costly to enforce.

The Mouse that Roared OncoMouse --a transgenic mouse that carried

specific cancer-promoting genes and opened up new areas for cancer research Engineered by Philip Leder of Harvard Patented by Harvard in 1988 Licensed by Harvard exclusively to DuPont DuPont took aggressive stance regarding its patent

rights, initiating “reach through” rights meaning that DuPont owned a percentage share in any sales or proceeds from a product or process developed using the mouse, even if mouse were not incorporated in end product

Mouse continued Research community outraged NIH (and Harold Varmus, Director) drew

up a 1999 memorandum of understanding (MOU) with DuPont

Allowed nonprofit researchers access to the OncoMouse; only requirements being a material transfer agreement and a license

MOU Made a Difference Murray and coauthors count citations to

“original” mouse articles before and after MOU

Find that citations increase by 21%. Finding is consistent with earlier finding

of Murray and Scott Stern that knowledge embodied in both papers and patents—what are called patent-paper pairs—is cited less frequently once the patent has been issued.

Do Universities Impede Diffusion? Some argue that universities have become overly

aggressive in negotiations with industry, thus discouraging diffusion of knowledge (Thursby and Thursby 2006).

“Even if we come in with the ideas and the money, we are expected to pay a licensing fee for the product of research that we already paid for,” says Stanley Williams, a computer scientist at Hewlett-Packard Laboratories in Palo Alto, California. “Then we get into a negotiating dance that can take 2 years, by which time the idea is no longer viable” (Bhattacharjee 2006)

Universities fail to realize, according to Tyler Thompson, of the Dow Chemical Company, “that they are not the only game in town.”

Questions/Comments pstephan@gsu.edu