Government Patenting and Technology Transfer
by Paul Heisey
, John King
, Kelly Day-Rubenstein
, and Robbin Shoemaker
Economic Research Report No. (ERR-15) 60 pp, 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
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
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
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
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.