The Social Accumulation of Knowledge

  The mere production of knowledge does not guarantee that others

will be able to exploit that knowledge (Polanyi; Mokyr)
  Tacit Knowledge
  Trade Secrecy

  Intriguingly, the ability to provide private incentives to produce

knowledge that can be exploited by others is a the heart of
modern theories of endogenous growth (Romer)

  Open Science and Patenting are two institutional arrangements

that require the disclosure of knowledge (Dasgupta and David)
  By and large, the spheres of knowledge governed by Open Science
and Patenting are assumed to be relatively independent
 The Duality of Knowledge
Adapted from Stokes (1996)
Immediate usefulness

Low High

Low

Scientific
Merit

High
 Human Genome Project
  The Human Genome draft was published in early 2001,
providing almost-comprehensive location and sequence
information for more than 20,000 individual genes
  “Without a doubt, this is the most important, most wondrous map
ever produced by humankind.” (Bill Clinton, 2000)

  Two principal routes for documenting further explorations of

individual genes
  Scientific publications -- kudos & naming rights
  Patent disclosures – protection of discoveries and licensing rights

  What do we know today about the Human Genome? How has

that information been disclosed?
 Chromosome 10:
Multiple disclosure outcomes
over similar types of knowledge
Gene
Patent

Yes
 126
 40


No
 424
 669


No
 Yes


Gene
Publication


Both public and private researchers observed in each of the three disclosure regimes, though
private researchers more likely to be associated with patents or PP Pairs – overall, ~25% of
the Human Genome is protected by formal IP rights (Murray and Jensen)
 Chromosome 10:
Multiple disclosure outcomes
over similar types of knowledge
Gene
Patent

Yes
 10%
 4%


No
 34%
 52%


No
 Yes


Gene
Publication


Both public and private researchers observed in each of the three disclosure regimes, though
private researchers more likely to be associated with patents or PP Pairs – overall, ~25% of
the Human Genome is protected by formal IP rights (Murray and Jensen)
 The BLNK gene
  “We describe here the identification of a novel B cell linker protein,
termed BLNK, that interfaces the B cell receptor-associated Syk tyrosine
kinase with PLCgamma, the Vav guanine nucleotide exchange factor, and
the Grb2 and Nck adapter proteins” (Fu et al, Immunity, 1999).

  “the discovery of molecules which interact with either Grb2 or PLC-γ …

play a role in the regulation of … signaling pathways are desired.
Accordingly, it is an object of the present invention to provide such
molecules, termed ‘BLNK’ proteins, and to provide methods of using such
molecules in screening assays”. (USPTO patent 5994522)

  While the patent and paper disclose essentially the same information in
this congruent patent-paper pair, other publications go beyond the patent
disclosure to offer a landscape for future research or enable imitation
above and beyond the patent disclosure
 Research Questions
  What are the key factors shaping the disclosure of
knowledge in the form of scientific research publications,
patents, or both?
  A Theory of Patent-Paper Pairs

  How does disclosure strategy depend on the disclosure

environment?
  Patentability Requirements?
  Public versus Private Funding?
  The Potential for Licensing in the Market for Ideas?
  The Impact of Scientific and Market Competition?
 Scientific Researchers and
Private Research Investors
  Regardless of potential commercial returns, scientific researchers realize
benefits from knowledge disclosure through scientific publications
  Intrinsic preferences for kudos
  Signaling to both private and public employers
  Regardless of potential impact on the scientific community, private
research investors realize benefits through the protection of ideas
  Formal intellectual property rights (patents)
  Trade secrecy and inimitability
  Researcher preferences for scientific disclosure may conflict with the
commercial objectives of research funders
  May be willing to trade of wages for ability to publish in the scientific
literature

  Disclosure strategy results from the contract between researchers and

research funders when bargaining over compensation
 The Model
  Single researcher is hired by a single firm in order to produce
knowledge that potentially has significant scientific value and/or
commercial returns
  The firm’s expected return from the innovation depends on their
ability to limit potential competition
  Relative to secrecy, a patent grant increases the fixed cost of entry (λ) but
only a imperfect chance of blocking entry (ρ)
  However, disclosures through patenting (dPAT) or publication (d) reduce the
fixed cost of entry
  The researcher cares about their monetary compensation (w) and
their ability to earn “kudos” through publication (bs)
Under what conditions does the firm and researcher
choose each of the following disclosure regimes?
Publication disclosure (d)
0 1
Commercial Patent-Paper
1
Science Pairs
Patent
(i)
0 Secrecy Open Science
 Preferences
  Scientist

  Firm/Private Funder
  Monopoly profit: Π – w
  Competitive profit: π – w
  Expected profit of the private funder:
Π− k − w − Pr(entry(d,id PAT ,iλ ,iρ )(Π − π )
capital cost

  While researchers care about scientific disclosure, investors

care about the impact of disclosures on potential competition
 Disclosures Jointly Impact on Entry
  Consider a potential entrant who faces the following profit
function
(
(1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d) )
  λ and ρ are the strength of patent protection
  α is the degree of fidelity between disclosure paths
  bE is the reduced marginal cost of entry due to
disclosures d and dPAT
  θ is distributed uniformly on [0,1]
  π + bE < 1 (entry always uncertain)

  The potential for entry is increasing in both patenting and publication

disclosure, while the cost of entry is increasing in the receipt of a patent
 Complete Overlap
  Suppose that the knowledge disclosed in a patent and
publication were exactly the same.

  Then if decide to patent, there is no additional cost in

publishing and vice versa.

  Would only observe secrecy and patent-paper pairs.

 Negotiations
  Scientist and firm negotiations over disclosure regime:

( )( (
max w,i,d w + bS d Π − k − w − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d) (Π − π ) ) )
( (
w* = max ⎡0, 12 Π − k − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d ) (Π − π ) − bS d ⎤
⎣ ⎦ ) )
Unconstrained wage: w > 0 Constrained wage: w = 0
• Relative commercial return high • Relative commercial return low
• Choose (i, d) to maximise joint • Use d to transfer utility between
surplus firm and scientist (d > d)
• So long as • Choose (i, d) to maximise NTU
Nash objective
Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π ) Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π )
d* ≤ d = di* =
bS + bE (1 − iρ )(1 − α id PAT )(Π − π ) 2bE (1 − iρ )(1 − α id PAT )(Π − π )
 Two key expressions shape the decision of whether to allow
scientific disclosure, patenting, or produce patent-paper pairs…
  Consider the choices that maximise surplus
( )
bS d + Π − k − (1 − iρ ) (1 − iρ )π − iλ + bE (d + id PAT − α id PAT d) (Π − π )
  Scientific disclosure? … consider the ratio of the marginal
benefit versus marginal cost of scientific disclosures.
Choose no disclosure if
bS
Δd ≡ bE (Π− π )
≤ (1 − iρ )(1 − id PAT )
  Patent?… consider the ratio of the marginal benefit to the
marginal cost of publication…choose to patent if
Π− k −(1− ρ )((1− ρ ) π − λ + bE d PAT )(Π− π ) ρ (2− ρ )
Δi ≡ Π− k − π (Π− π )
≤ 1 ⇔ − λ + bE d PAT ≥ π 1− ρ
 Complementarity: when patents and publications are partially
overlapping in terms of disclosure, the patent-paper regime expands
when the strength of intellectual property protection increases…

Commercial Patent-Paper
Science Pairs

Open
Secrecy
Science

1 Δd
 Sources of Complementarity
  Fidelity (α): as a grows, this increases patent-paper pairs
relative to other 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 (ρ): 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 (ρ = 1), the
disclosures are not commercially harmful.
 Possibility of Zero Wages
  If publishing maximises joint surplus, w = 0
  Increase d until wage is constrained
  Beyond this point, d used as compensation.
Π − k − (1 − iρ )((1 − iρ )π − iλ + bE id PAT )(Π − π )
di* =
2bE (1 − iρ )(1 − α id PAT )(Π − π )

  Increasing λ
  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, reduces disclosure

Stronger IP protection (higher λ and lower dPAT) stimulates

openness in science
 Independent Knowledge
  Suppose d and dPAT revealed
information about distinct
knowledge (α = 0) Δi

  Suppose patent protection Commercial Patent-Paper

ineffective (ρ = 0) Science Pairs

  When Δd > 1, surplus 1

maximisation would involve
1>d
Secrecy Open
  Wages always zero (the Science
outside option) when there
is publication
  Decisions do not interact. 1 Δd
 Dynamics
  Suppose that scientists and firms live two periods
  Overlap with other generations
  Future kudos generated by citation

  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 ρ.
 License Negotiations
  Outcomes
  If no patent, τ = 0
  If patent but no publication, τ = k/3
  If patent but publication, τ = k(1-(1-ρ)dt-1)/3

  Patent-Paper Pairs
  For δ sufficiently high, patent-paper pairs can be an
equilibrium
  Presence of patent reduces incentives for publication and vice
versa when ρ < 1
  Increasing ρ causes more disclosure under patent-paper pairs
Substitutability
Commercial Patent-Paper
Science Pairs

Open
Secrecy Science

1 Δd
 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, always exists a commercial science or secrecy
equilibrium.

  Domain of open science is expanded as a result of

substitutability

  Key issue: who should own IP rights?

 Key Extensions
  Public funding: impact and restrictions
  Scientific and Commercial Research Racing
  Empirical: Human Genome Project
 Conclusions
  The disclosure strategy of privately funded research is grounded in the
disclosure environment and is shaped by the bargaining over disclosure
between scientific researchers and their funders
  Rather than an anomaly, patent-paper pairs emerge as an equilibrium
outcome in which scientific researchers trade off wages in order to gain
scientific credit, while investors (private or public) seek to retain the
ability to capture value from these “dual-purpose” discoveries
  Interestingly, in most circumstances, increases in the strength of formal
intellectual property protection enhances the scope for patent-paper
pairs.
  More generally, the model suggests that the key requirements for
cumulative disclosure in the aggregate requires a careful evaluation of
the strategic foundations of disclosure strategy.