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Government Patenting and Technology Transfer
Paul W. Heisey, John L. King, Kelly Day Rubenstein,
and Robbin Shoemaker
Economic Research Report No. (ERR15), March 2006
Intellectual property rights—patents, copyrights, and
trade secrets, for example—protect new creations from
imitation and competition. Patents provide an incentive for
invention by granting a proprietary right to generate income
from the invention—temporarily limiting the number of
suppliers in a market. In granting patents, short-term market
efficiency is sacrificed for long-term economic gains. Society
in return gets new products and services, as well as voluntary
disclosure of the technology needed to create them, which is
made public upon grant of the patents. Major legislative and
other developments in U.S. intellectual property rights (IPR)
policy over the past 25 years have resulted directly or indirectly
in greater use of patents by the public as well as the private
sector. These measures have generated considerable analysis
of IPR policy. The private sector depends on clearly defined
and enforceable property rights for markets to function. Patents
exist to restrict the use, sale, and manufacture of inventions
and thereby to stimulate private sector investment in research
and development. The Federal Government also holds numerous
patents on inventions and discoveries from successful public
research.
What Is the Issue?
Why does the government need to patent at all? Patent rights
are a means not only of capturing revenue but also of providing
a mechanism through which publicly owned laboratories and other
government research facilities can widely distribute a technology
they have developed. Patent rights on Federal research are typically
licensed to corporate partners, providing incentives for further
development into commercial products—from prototype to
near-market readiness. Awarding patents to government entities
also can raise awareness of public research results; patents
can also be employed defensively to promote wider use of a research
tool if it seems likely that another entity might patent a similar
technology in order to restrict access.
If a primary public policy objective behind government patents
is to widely distribute the benefits, how well is that objective
being achieved? Little analysis has been done on patenting as
a means of technology transfer from Federal laboratories. This
report examines government patenting behavior by focusing on
patenting and licensing by USDA's Agricultural Research Service
(ARS) as a means of technology transfer.
What Did the Study Find?
Patenting and licensing can be consistent with the objective
of widespread distribution of the benefits of ARS research.
A technology that reaches society through private sector development
of ARS research provides more net social benefits than a technology
that is not developed at all because no private firm commercializes
it—provided technology transfer activities do not withdraw
too many resources from ARS’s most important missions.
This conclusion is likely applicable to other Federal research
agencies.
ARS has been patenting and licensing innovations primarily
as a means of technology transfer, not as a means of generating
revenue to finance research. ARS licensing revenue only partially
funds the operations of its Office of Technology Transfer (OTT),
and only makes up 0.3 percent of the ARS total budget. An important
factor in the ARS patent-application process is the likelihood
of finding an acceptable partner for commercialization of the
technology. Increased patenting and licensing by ARS has not
reduced the number of traditional instruments of technology
transfer, such as scientific publications. From 1990 through
2003, as ARS patenting and licensing—and other newer means
of technology transfer—increased, scientific publication
counts for ARS remained relatively stable.
The ARS Office of Technology Transfer is often compared with
university OTTs. Although both are nonprofit institutions, they
have different objectives. Protocols for technology transfer
through licensing are more restrictive for the Federal Government
than for universities. The Federal Government follows specific
guidelines to ensure transparency and fairness in its licensing
arrangements. All other things equal, first preference for federally
licensed technologies is given to smaller firms (typically fewer
than 500 employees).
Determining the success of licensing terms and practices is
very difficult—the success of a license depends on market
size, market characteristics, and technology characteristics,
and is subject to both “technology risk” and “appropriation
risk.” “Technology risk” refers to the probability
that a technology can be improved and developed into a feasible
commercial product or process that is an improvement over available
alternatives. “Appropriation risk” is the likelihood
that a company will be able to earn profits from the new technology
and not have them captured almost entirely by competitors. Potential
market and technology parameters (e.g., size and characteristics)
are often not known in detail when licenses are negotiated.
ARS does retain some flexibility in renegotiating license terms.
The relevant market size and characteristics may become clearer
over time. Similarly, different characteristics of a particular
technology may turn out to have greater market potential than
initially envisioned. Ex post flexibility can correct ex ante
mistakes in predicting technology success or failure.
Also, licensing to more than one firm is more likely to be
successful if the market is segmented geographically or by stages
in a production process than if all firms are competing for
the same market niche. Co-exclusive licensing when licensees
are direct competitors for the same market niche can reduce
collaborative efforts with ARS inventors in product development.
Federal research agencies differ in size of research budget,
markets for possible commercial applications of their research,
and management structure. Further research would be needed to
determine how this report's specific findings might apply to
practices in other agencies.
How Was the Study Conducted?
The study relied on two principal areas of analysis. The first
was four case studies of technologies developed, patented, and
licensed by ARS. The case studies were selected through consultation
with the ARS's Office of Technology Transfer (OTT). The authors
interviewed scientists responsible for the inventions, ARS patent
advisors who helped to determine patentability, and representatives
of the eventual licensees. Secondly, the study drew on information
from an earlier Economic Research Service (ERS) study that examined
licenses of ARS technologies by research area and by characteristics
of the technologies' social benefits.
The authors compared data on technology transfer, including
data on patenting and licensing by ARS, with data from other
institutions such as private firms, U.S. universities, and other
Federal laboratories. This was accomplished through a review
of the literature on the use of patenting and licensing by these
different types of institutions, and analysis of data from the
U.S. Patent and Trademark Office, the Department of Commerce,
and ERS’s Agricultural Biotechnology Intellectual Property
database, available at: http://www.ers.usda.gov/Data/AgBiotechIP.
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