Public sector research - activities and outcomes - knowledge markets

 

 

What are knowledge markets?

Knowledge markets (KM) are various types of arrangements that govern the transfer of knowledge for commercial purposes. They can be research alliances (markets for the production of new knowledge) or markets for intellectual property rights (IPR), where existing knowledge is traded. The concerned IPR are most often patents in the context of innovation, but they can also be data (notably for drugs), trade secrets (often know how) or copyrighted material (e.g. software).

 

The trade can involve either a right to use the invention under certain conditions (a license), or the transfer of ownership, or the anticipated sale of the IP rights on a possible future invention (“futures” or contingent trade). A number of mechanisms allow these trades, such as: patent brokers (specialised intermediaries), patent marketplaces (usually internet-based), patent funds (aggregators of IP) or Technology Transfer Offices (for research universities and PRIs).


KM enable the circulation of IP rights, turning “exclusive” rights into “inclusive” ones. Hence they facilitate the diffusion of technology, enhancing the rate of return on inventions (which find more customers) and the social return as well (possibly generating more knowledge externalities).


KM are still at an early stage of development and few big actors or mechanisms are currently operating. KM are most often found in technology fields and sectors that require much knowledge or IPR transfers, notably:

  • In standards-based sectors like ICT, as standards require each actor to use IPR from other actors;
  • When the final products require a variety of technologies that are beyond the reach of any single company, hence requiring the purchase of others’ technology;
  • When producers of knowledge do not have their own manufacturing and marketing facilities (as it is the case for universities, PRIs or a number of businesses doing only R&D) and need to find industry developers for their inventions.


The increasing prevalence of standards, the complexification of products and the rising division of labour in the production of new knowledge explain the emergence of KM as a set of mechanisms that facilitate the coordination of increasingly distributed inventive activities. Furthermore, in the context of global value chains, KM are themselves getting global, involving a number of cross-border transactions.

 

On measuring the scale and scope of KM, they are made of transactions of a private nature (licensing, patent transfers etc.), which do not lead in general to any administrative record. In addition, businesses tend to consider such transactions as “commercial secrets” and are reluctant to disclose them, e.g. in business surveys. Consequently there is a paucity of data on KM. Some companies publish the volume of their licensing activity but it is difficult to gross up these patchy figures. Some studies are investigating changes of ownership in patents. International transactions can be partly tracked through technology balance of payments statistics. Some surveys have attempted to assess and describe the licensing activity of businesses.

 

PUBLIC SECTOR RESEARCH


How do knowledge markets enable public sector research to contribute to innovation performance?

In the context of research universities and PRIs, KM are used for commercialising inventions and for raising funding. Universities and PRIs can sell their patents or file licenses, and they can contract upon future inventions with external investors. A first pre-requisite for universities and PRIs to use KM is that they file patents for the inventions they wish to commercialise. A second pre-requisite is that they know the market well enough for identifying the actors in the best position to realise value from the invention.

 

The use of KM by universities and PRIs started to grow in the 1980s in the US after the Bayh-Dole Act (which grants them ownership of inventions) was passed. In view of the success of the US in emerging technologies (biotech, ICT) where universities and PRIs play a key role, most OECD countries passed similar laws in the 1990s.

 

Governments have a variety of expectations of KM from the perspective of public research:

  • To boost the commercialisation of public sector research inventions through both the development of industrial applications (downstream R&D) and their diffusion among users. This is the first motivation mentioned by most governments, which want to have more university and PRI inventions becoming directly useful to the economy and society.
  • To strengthen the incentives for universities and PRIs to do research with more industrial applications (as they can keep part of the revenue generated from KM).
  • Sometimes to raise significant funding from KM in order to reduce their own contribution. However this motive is not central and it has proved disappointing as TTOs themselves rarely break even (without even including the cost of research).

 

The use of KM by public sector research is not without controversy. A key policy question is whether KM are more efficient than the public domain for diffusing university and PRI inventions? A number of observers have criticised the fact that universities and PRIs patent their inventions (Bayh-Dole Act type of laws). They note the paradox that making access to inventions conditional on payment increases their diffusion as compared with the alternative, availability in the public domain (non-IP knowledge). Tenants of this position prefer that inventions are simply publicised, hence made available for free to all users, including from industry. Counter arguments to this position are as follows:

  • Public domain does not equate to easy access, as many discoveries are hidden in various types of publications rarely accessed by non-academic communities. In this regard, universities and PRIs need further incentives to identify themselves those with a commercial potential and to promote them;
  • As they come out of university and PRI research, inventions still need much downstream R&D before they are really operational. Such R&D will be done only by companies who have some control on the invention (i.e. a license), otherwise their investment could be ruined by competition.


Who are the important actors in knowledge markets involving public sector research?

In the context of public sector research, the important actors are:

  • Technology Transfer Offices (TTOs): TTOs are bodies set up by universities and PRIs for leading and implementing their commercialisation activity, including (but not limited to) patenting and licensing. TTOs tasks usually include: inventorying invention disclosures, deciding on patents and handling the patenting procedure, looking for potential licensing and conducting the negotiations with them. TTOs must have good knowledge both of the university or PRI they are in and of technology markets.
  • Licensees from public sector research include start-ups and large firms. Start-ups are usually spin-offs from universities and PRIs, which obtain a license for the invention in exchange for shares (example: Google, a spin-off from Stanford University). Large firms are generally either from the pharmaceutical or the ICT industries.
  • KM operators: patent funds, brokers, platforms etc. Certain universities and PRIs have purchased stakes in patent funds and use them as vehicles to offer their patents on world markets.
  • Researchers: For commercialisation to work, the involvement of researchers is most often needed, for transferring the know-how to the user.

 

Which factors are important in shaping the engagement of public sector research in knowledge markets?

  • IPR regimes: IPR regimes are the set of interrelated institutions that shape the functioning of IPR and its connection with the economy. As patents and other rights are the core element of KM, IPR regimes have a direct influence on the working and performance of KM. The factors that influence more directly universities and PRIs include: the regulations for patenting by universities and PRIs (e.g. does the right to file patents go to the inventor, the research institute or the government? in what cases are universities and PRI entitled or not to file patents for their inventions?) and the regulations for licensing (e.g. obligations to grant non exclusive licenses in certain cases). In addition, certain broader components of IPR regimes can play a role, like the conditions for patenting in certain areas where universities and PRIs are particularly active (e.g. patenting in biotech, patenting in early stage inventions). For instance, the acceptance of patenting of genetic sequences in the 1990s triggered a wave of patenting by US universities.
  • Open innovation strategies of firms: over the past decade or so a number of firms have adopted strategies that allow them both to use more externally invented technology and to share more of their inventions with external parties. Innovation eco-systems are being born in certain sectors or regions, as a variety of actors, including businesses, universities and PRIs, are engaged into more or less permanent research co-operation. This open approach of businesses creates significant demand for universities and PRIs to commercialise their inventions, including through KM.
  • Status and expected roles of research universities and PRIs: for universities and PRIs to operate effectively on KM, they need leeway, as KM are highly complex and fast changing places. Hence governments have to let them operate with significant autonomy. Their degree of motivation also matters, and it can be influenced by their governance (the relative weight of various stakeholders). There are also economies of scale in these operations (due to learning by doing and to fixed costs) which require a critical size for the entity managing the university’s or PRI’s IP titles. Whether this size can be reached or not depends on the way universities and PRIs are structured.

 

What policies can be useful for enabling the engagement of public sector research in knowledge markets?

  • Providing guidelines for licensing to universities and PRIs (e.g. this recent UK report) and training TTOs staff.
  • Shaping the incentives of all actors and aligning them so that KM are best used: that includes financial incentives (fixing the share of licensing revenue that is kept by the university or PRI itself and the share that accrues to the researcher and his lab) and non financial incentives (how KM activities are integrated into the evaluation of universities and PRIs and of individual researchers).
  • Organising TTOs and resourcing them adequately so that they are effective in their patenting and in their licensing activities.

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