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Optimal innovation policy and infrastructure (OIBI)

Research project TA/00/06 (Research action TA)


Persons :


Description :

Issues

Innovation is gradually shifting toward fully enclosed private property regimes. Under the older commons regime, much of scientific knowledge and innovative discovery was freely available in the public domain (open science). Given the public good nature of those discoveries and information, research was publicly funded. Today, much of that information is subjected to increased protection of intellectual property laws, which has served to gradually shift the balance toward the privatization of research (proprietary science). Research is frequently conducted on a competitive basis by research institutions and private firms. Whenever possible, the results of such research are generally patented, licensed or traded in the marketplace. This allows research firms and institutions to capture some of the value of their discoveries, with increased incentives for valuable research.

Despite the obvious incentives for technological and scientific innovation, there is growing concern that, by raising the costs of access, the increased numbers of patents on broad research may have the unintended side effect of slowing down the pace of scientific progress. The transition from commons to privatization, while beneficial in terms of the creation of private incentives for research, generates a gradual proliferation of exclusion rights into innovative discovery.

In particular, broad patents on fundamental inventions (upstream research) may discourage applied (downstream) research, such as the development of important medical products. Due to the complementary nature of innovation, downstream developers need to acquire upstream licenses from several upstream patent holders. When this bargaining process fails society incurs significant deadweight losses.

For instance, it has been argued that granting too many patent rights in biomedical research may delay the discovery and production of life-saving products. Product developers are often faced with a difficult decision. Before they can develop new products and bring them to the market, they frequently need to solicit licenses from various patent holders.


Hypotheses

This study will provide insight into concerns regarding the impact of negative effects of patents in cumulative technologies and foundational discoveries, i.e. that exclusive reliance on property rights limit the use of these discoveries in subsequent discovery and consequently reduce the pace of innovation Specifically, we will examine the conditions under which patents have the counterproductive effects on applied research and follow up innovation.
First, our research will empirically examine a number of sub-questions:

(1) Do patents stimulate particular types of research at the expense of slowing down other types of research. This research questions entails a number of empirical sub-elements:

a. What type of research is stimulated most strongly by the current legal environment (patent law, court decisions) and innovation policies (grants, institutional design)?
b. What type of obstacles do downstream developers face?

(2) How and to what extent do market actors manage these problems? Does proprietary innovation foster market concentration? Do firms engage in patent infringing activities; do they invent around patents?

Next, the proposed study will look into the proper role of the government in the development and encouragement of a knowledge-based economy in Belgium. This segment contains two sub-levels:

(3) What are the available policy options to realign research incentives?

(4) What is the relevant role of the government in supporting or supplanting market forces in innovation markets (public regulation or public-private partnerships, etc).   

Aims

This study will provide insight into the most important questions facing the development and encouragement of a knowledge-based economy in Belgium: To what extend are researcher encouraged to conduct innovate work? Is the market providing the right incentives or does proprietary research also create distortions? Is current research invention incentives sufficient or is government intervention required?
While answering these questions empirically and unveiling the existing institutional obstacles to research incentives, our study will offer suggestions as to the appropriate role of the government in encouraging innovation.

Methodology

The present study will combine scientific input from psychologists, economists and lawyers. An interdisciplinary approach is necessary because of the nature of research into innovation and incentives to innovate. The basic strategy underlying this project consists of a ‘double check’ of economic and psychological variables. On the one hand, the researchers will gather econometric data on transaction costs, strategic behavior, market structure and behavioral effects in order to get an accurate view on the impact of the parameters of innovation. On the other hand, they will ask respondents from the field to what extent they believe that these economic and legal parameters are indeed important and to what extent these values need to be optimized in order to ensure (upward and downward) innovation. A survey of field actors is important for a number of reasons. Input by relevant actors aids participation and involvment of the industry and heightens complience in later stages. It ensures completeness and allows us to test the realism of the innovation prediction model. Furthermore, it allows us to integrate subjective factors such as perception, cognition heurisitics, and beliefs - all of which are crucial psychological; factors that influence decision making.
Available economic data includes the presence of one or multiple patents covering different components of the project, the likelihood of successfully completing a project, the commercial value of the prospective end products, the transaction costs associated with gaining access to one or multiple patents, the exact nature of these patents, etc. On the basis of this data we model how these variables predict innovative behavior. On the basis of this innovation forecast model, we will draw policy implications (e.g. changes in the patent system, conditions in research grants, competition and innovation policy) and evaluate alternative options such as public-private partnerships.
The psychological data will be gathered by conducting anonymous surveys with all relevant market actors (i.e., biotech firms, technology transfer officers, intellectual property attorneys, government and trade association personnel, scientists, and managers from different pharmaceutical firms and biotech firms as well as university researchers). In the first wave, this survey will probe the subjective importance of each of the economic variables previously mentioned, as well as the optimal value of each of these variables for upward and downward innovation to occur and the appropriateness of various policy implications. In the second wave of the survey the same respondents will be invited to address the major conclusions drawn from our economic model.


Documentation :

Een Optimaal Innovatiebeleid en Infrastructuur : eindrapport    Brussel : Federale Wetenschapsbeleid, 2007 (SP2032)
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Een Optimaal Innovatiebeleid en Infrastructuur : bijlage    Brussel : Federale Wetenschapsbeleid, 2007 (SP2033)
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Een Optimaal Innovatiebeleid en Infrastructuur : samenvatting    Brussel : Federale Wetenschapsbeleid, 2007 (SP2034)
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Une politique optimale d'innovation et d'infrastructure : résumé    Bruxelles : Politique Scientifique fédérale, 2007 (SP2035)
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