What impact do government grants have on small tech firms?

Most academic writing on direct government spending as an innovation policy tool focuses on how this mechanism compares with other policies rather than on the policy choices within the "direct spending" box. For example, in Beyond the Patents–Prizes Debate, Daniel Hemel and I considered a single category of "government grants—a category that includes direct spending on government research laboratories and grants to nongovernment researchers"—with a focus on the similarities among these direct spending mechanisms, and what makes them all different from the other tools in our four-box framework (R&D tax incentives, patents, and inducement prizes).

But we noted that there is variation within each policy box, and that in practice the boxes form a spectrum rather than discrete choices. And it is certainly worth diving within each of the four boxes of our framework from Beyond to dissect these policy tools. There is of course an extensive literature already on optimizing within the "patent" mechanism, but legal innovation scholars pay far less attention to the other boxes, including grants.

Even if one focuses on the most typical grants to academic scientists, there is some interesting research on the effect of different ways of awarding this funding, such as this paper by Azoulay et al. on NIH vs. HHMI grants. But the federal government also provides many other types of direct finding: in 2013, almost one-quarter of federal R&D expenditures went to for-profit firms. How does the theory behind this substantial expenditure of taxpayer funding differ from that for academic research, and what impact does it have in practice?

A recent study from Aleksandar Giga, Andrea Belz, Richard Terrile, and Fernando Zapatero at USC and NASA's Jet Propulsion Lab at Caltech provides some data on the Small Business Innovation Research (SBIR) program as administered by NASA. They find that compared with firms that do not receive these grants, "microfirms" (1-5 employees) with SBIR grants are twice as likely to produce patents and generate twice as many patents. They argue that this is unlikely to be due to a selection effect. They also find that the program does not show the same effect for larger firms, and they suggest that the size limitations for the program should be reconsidered.

Giga et al.'s work focuses on just one corner of the extensive field of direct government science funding, but I hope legal scholars will incorporate empirical work like this to provide a richer understanding of this type of innovation policy.

Patenting Incentives in Universities

 Dirk Czarnitzki and four coauthors from a variety of institutions have posted Individual Versus Institutional Ownership of University-Discovered Inventions to SSRN. The abstract is short and to the point:

We examine how the ownership of intellectual property rights influences patenting of university-discovered inventions. In 2002, Germany transferred patent rights from faculty members to their universities. To identify the effect on the volume of patenting, we exploit the researcher-level exogeneity of the 2002 policy change using a novel researcher-level panel database that includes a control group not affected by the law change. For professors who had existing industry connections, the policy decreased patenting, but for those without prior industry connections, it increased patenting. Overall, fewer university inventions were patented following the shift from inventor to institutional ownership.

In other words, the authors have used a quasi-experimental event - a change in the law - to see what happens under different legal regimes. They have good data and use it to their benefit: actual patenting by individual researchers, a decent control group that did not experience a change in the law, and information about career and publications to correct for general productivity. I'll discuss the results a bit more after the jump.

McKenna on Sampat on Serendipity

A long running debate in the modeling of innovation is whether discoveries are sure to arise by targeted research investment or by unexpected moments of invention. Suzanne Scotchmer lays out the different models in her book Innovation and Incentives. (Side note: I think every patent scholar should read this book. I would put it on my list of classic patent scholarship, but it's not pre-2000.) I tend to fall in the middle, as I usually do - some advances can be targeted, and some must remain unexpected. I think it is hard to justify a fully path directed model or else, as Scotchmer noted, everything would have been invented one or two hundred years ago. Then again, sometimes things are invented and the world is just not ready for them.

This brings us to serendipity, or rather Serendipity. Serendipity, by Bhaven Sampat (Columbia School of Health) came across my SSRN feed this morning, and I was all ready to write about it when I saw that Mark McKenna (Notre Dame) beat me to it, at Jotwell.

Professor Sampat goes about testing the role of unexpected discovery in pharmaceutical advances. It's an impressive study with impressive results, finding that money spent targeting one disease may often lead to results for other diseases. It also shows that funding in basic science can lead to specific but unexpected results; that's good, because I'm a fan of funding basic science.

I'll say little else other than to point readers to Professor McKenna's summary and analysis, which is thorough and insightful. I only have one addition those remarks. The jotwell discussion focuses on government policy for grants - targeting, amount, gaming, and so forth. I would add that the findings, if we believe them truly to be about serendipity, hold up outside of grant funding and apply to general inventive efforts. So long as there is some incentive mechanism, patents, prizes, grants, etc. that gets people doing research then we might hope to see unexpected spillovers from those research efforts.

Kenney & Mowery: Public Universities and Regional Growth

I've received my new copy of Public Universities and Regional Growth: Insights from the University of California, edited by Martin Kenney and David Mowery. It is an excellent book, demonstrating the complex interactions between university, industry, and government that underlie the unmatched growth in certain sectors of the California region. The book contains numerous case studies of University of California campuses' involvement in major technological developments, including semiconductors and chip and software design at UC Berkeley, UCLA, and UC Santa Barbara, wireless at UC San Diego, and biotechnology at UCSD and UC San Francisco, and more. Each of these campuses became anchors for regional clusters that stimulated economic growth in their respective regions along with advancing science.

Lee: Patents and the University

How do universities treat patents, and how does patent law treat universities?

These are the main questions addressed by Peter Lee, Professor of Law at University of California, Davis, in his new article, "Patents and the University," forthcoming in the Duke Law Journal. Lee has written several articles on the effects of patents on university research and a more recent article examining the role of patents in university-industry technology transfer. Now Lee provides a comprehensive history of the relations between patents and universities, generally. In Lee's telling, this relationship is characterized by two parallel developments: increased use of patents by universities, on the one hand, and "internalization" of universities and university research into patent law, on the other.

When should universities patent?

I spoke today about university patenting to the Yale Student Science Diplomats, a group of science graduate students who are interested in science policy issues. It was great to have a chance to engage with scientists about why we allow universities to file patents on federally funded research (which they are permitted to do under the Bayh-Dole Act), and what those justifications tell us about when public-minded universities should be filing patents. As I discuss in my YLJ Comment, patents are not needed to motivate university researchers to innovate or to disclose their inventions—university researchers were innovating and publishing their results long before Bayh-Dole, primarily out of a desire for prestige (and the resulting tenure and prizes). The most compelling justification for Bayh-Dole patents is commercialization theory, the idea that exclusive patent rights are necessary to bring inventions to market. This theory is more convincing for inventions like pharmaceuticals with high regulatory barriers and low imitation costs, but it does not make sense when the exclusive patent right is unnecessary for commercialization—something that is very difficult to determine.

Rai & Sampat on Bayh-Dole Underreporting

I’m very interested in university patenting and licensing under the Bayh-Dole Act, so I enjoyed the new Nature Biotechnology piece by Arti Rai (Duke Law) and Bhaven Sampat (Columbia Public Health), in which they report that universities don’t meet reporting requirements when they patent the results of federally funded research.

Fighting Over Green Patents: How To Appease China & India Without Hurting U.S. Business

Tomorrow at the Yale Climate & Energy Congress Symposium, I will be presenting on a Comment I published in the Yale Law Journal last May: Addressing the Green Patent Global Deadlock Through Bayh-Dole Reform. (I also wrote a nontechnical version of this argument for Slate: License To Green: Can We Have Clean Energy and Patents, Too?) Rather than summarizing the whole argument here, I will just point out the three pieces that I think are novel contributions:

1. One way to address global concerns about green patents is by changing the way federally funded green technologies are patented and licensed. A number of articles had recognized that conflicts over IP are contributing to the deadlock in climate change negotiations, but none made the distinction between the patent incentives needed for public-sector and private-sector innovation. I examine the justifications for Bayh-Dole patents as applied to green technologies and conclude that in light of available evidence, patents will impede dissemination of most green technologies.
2. Market segmentation should be used for green technologies. The strategy of allowing strong patent protection in rich countries (to recoup development costs) while allowing broad access in poor countries has been made by scholars, advocates, and universities in the medical context (see, e.g., this policy statement from AUTM and many universities), but I'm not aware of anyone who had extended this argument to green engineering technologies. And market segmentation is even more compelling for green technologies because patent protection is less important for them than it is for pharmaceuticals.
3. Funding agencies should use their ex ante control over who receives federal grants to influence licensing policies. Several scholars, particularly Professor Arti Rai, have looked at the impact that funding agencies can have on Bayh-Dole reform, but their focus has been on the ex post influence of these agencies on technologies that have already been developed. I argue that agencies could influence university licensing more effectively through their ability to determine who receives federal grants in the first place. For example, the National Science Foundation's "broader impacts" criterion could be used to encompass access-promoting licensing policies.

I welcome feedback, either in the comments or by email. And for readers in New Haven, feel free to stop by the symposium!