gms disclosure strategy-08!08!06

8/14/2019 GMS Disclosure Strategy-08!08!06

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The Social Accumulation of Knowledge

The mere production of knowledge does not guarantee that otherswill be able to exploit that knowledge (Polanyi; Mokyr)

Tacit Knowledge

Trade Secrecy

Intriguingly, the ability to provide private incentives to produceknowledge that can be exploited by others is a the heart of moderntheories of endogenous growth (Romer)

Open Science and Patenting are two institutional arrangementsthat require the disclosure of knowledge (Dasgupta and David)

By and large, the spheres of knowledge governed by Open Scienceand Patenting are assumed to be relatively independent



The Duality of Knowledge

Immediate usefulness

Low High

Scientific

Merit

Low

High

Adapted from Stokes (1996)



Disclosure of Perfume“Anyone who cracks the code to know just how molecules of a certainformation produce a certain smell is liable, not only to advance basic humanknowledge, but also to gain a great deal of money.” (Turin, 2003 )

• Knowledge of perfume highly scientific - grounded in a complex mix of

organic chemistry, studies of the olfactory system but also useful -however two distinct disclosure strategies exist in parallel.

• Three Nobel Prizes for “perfume” in the last century• Wallach, 1910 - essential oils, including terpenes, were previously a mysterious field now

presented clearly in experimental as well as in theoretical respects, “must be regarded asone of the greatest triumphs which chemical science has celebrated”

• Ruzicka, 1939 – for the investigation of very large number of important polyterpenes

which included many “ odora ” occurring in musk and civet, muscone and civetone.• Noyori, 2001 - concerns molecules that occur in two forms that are mirror images of each

other - two forms often have totally different effects on cells e.g. the receptors in ournose. One form of the substance limonene smells like lemons, while its mirror imagesmells like oranges.



Nobels vs. NosesHigh levels of disclosure grounded in patents and

publicationsKnowledge of perfume highly scientific - grounded in organicchemistry, studies of the olfactory system etc.

In 1887, German scientist, Albert Bauer accidentally discovered

the organic molecule for musk & patented it. He also went on tosynthesize derivatives – musk xylene, musk ketone etc. (in ChanelNo. 5).

Scientists began to elucidate rules linking structures to smell: e.g.to smell musky macro-cycle ring must have 14-18 members. Bothnew molecules and synthetic pathways are patented & published.

Japanese scientist, Ryoji Noyori (academic & industry scientist),shared the 2001 Nobel Prize in chemistry for the “asymmetric”synthesis of new molecules such as menthol (> 400 publications &> 100 patents)

At the Takasago plant for ( – )-menthol synthesis(February, 1984). K.Tani, H. Takaya, R. Noyori, S. Otsuka, S. Akutagawa,and H. Kumobayashi.



Secrecy also widespreadHigh levels of secrecy with very limited disclosure,

strongly fought secrecy and mythical status of knowledge

Highly formalized training e.g. InternationalSuperior Institute of Perfume, Cosmetics and

Food Aromas, Paris.Individual “noses” who create the perfume“recipes” are highly paid but secretive(although their claim on royalties is subject tolegal challenge – so credit is complex)

Tacit learning – often family links among

“noses”Also scientific – 2004 Nobel Prize fordescribing how odor-sensing proteins in thenose translate specific tastes and smells intoinformation in the brain

A lab the perfume institute in Versailles, New York Times



The Disclosure of Knowledge in Pasteur‟s Quadrant

A given piece of new knowledge may simultaneously have potential as agreat scientific discovery and as an important source of commercialreturns

Multiple potential disclosure outcomesNo systematic disclosures (Secrecy)

Patenting (Commercial Science)

Scientific Publication (Open Science)

Both Patenting and Scientific Publication (Patent-Paper Pairs)

A disclosure strategy is the choice among these disclosure choices, and will be grounded in the microeconomic, strategic, and institutional environment in which knowledge is funded, developed and diffused



How often are scientific research publicationspart of patent-paper pairs?

# papers# paired

withpatents

% pairedpublications

Publications by public sector

funded researchers235 106 45%

Publications by public and privatesector funded researchers

70 41 59%

Publications by private sectorfunded researchers

36 24 67%

Starting with publications : From a sample of 341 research publications (all theresearch articles from the leading life science journal Nature Biotechnologybetween 1997 and 1999). Examine which publications are also disclosed inpatents. (Murray and Stern 2007)



How often are patents part of apatent-paper pairs?

# patents# paired withpublications

% pairedpatents

Patents by public sector fundedresearchers

1308 1099 84%

Patents by public and private sectorfunded researchers

187 164 88%

Patents by private sector fundedresearchers

2775 1347 49%

Starting with patents : From the full population of human gene patents (US patentsidentified using bioinformatics methods that disclose and claim a human gene sequenceor fragment (Jensen and Murray 2005), we examine which patents are also disclosed inpublications. (Huang and Murray 2008 ).



Research QuestionsWhat 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 disclosureenvironment?

Patentability Requirements?

Public versus Private Funding?The Potential for Licensing in the Market for Ideas?

The Impact of Scientific and Market Competition?



Scientific Researchers andPrivate Research Investors

Regardless of potential commercial returns, scientific researchers realizebenefits from knowledge disclosure through scientific publications

Intrinsic preferences for kudosSignaling to both private and public employers

Regardless of potential impact on the scientific community, privateresearch investors realize benefits through the protection of ideasFormal intellectual property rights (patents)Trade secrecy and inimitability

Researcher preferences for scientific disclosure may conflict with the

commercial objectives of research fundersMay be willing to trade of wages for ability to publish in the scientificliterature

Disclosure strategy results from the contract between researchers and research funders when bargaining over compensation



The ModelSingle researcher is hired by a single firm in order to produceknowledge that potentially has significant scientific value and/orcommercial returnsThe 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 ( l) However, disclosures through patenting ( d PAT ) or publication ( d ) reduce thefixed cost of entry

The researcher cares about their monetary compensation ( w) andtheir ability to earn “kudos” through publication ( bs)The disclosures requires for patenting and publication may beindependent of one another (low-fidelity) or completelyoverlapping (high-fidelity)



Under what conditions does the firm and researcherchoose each of the following disclosure regimes?

Publication disclosure ( d )

0 1

Patent

(i)

1 CommercialScience

Patent-PaperPairs

0 Secrecy Open Science



PreferencesScientist

Firm/Private FunderMonopoly profit: P – w

Competitive profit: p – wExpected profit of the private funder:

While researchers care about scientific disclosure, investorscare about the impact of disclosures on potential competition

wage kudos

SU w b d

capital costPr(entry ( , , )( )P A T k w d id i l p P P



Disclosures Jointly Impact on Entry

Consider a potential entrant who faces the following profitfunction

l is the strength of patent protectionb E is the reduced marginal cost of entry due todisclosures d and d PAT

q is distributed uniformly on [0,1]p + b

E < 1 (entry always uncertain)

The potential for entry is increasing in both patenting andpublication disclosure, while the cost of entry is increasingin the receipt of a patent

( ) E P A T P A T i b d id id d p l q



NegotiationsScientist and firm negotiations over disclosure regime:

) ), ,m ax ( ( ))( )w i d S E P P A T A T w b d k w i ib d d id d p l p P P

Unconstrained wage : w > 0• Relative commercial return high• Choose ( i, d ) to maximise joint

surplus• So long as

)( )*

(1 )( )

E P A T

S E P A T

k i b id

b b id d d

p l p

p

P P

P

)* 12m ax 0, ( ( ))( )P AP A T ST E

w k i b d id id d b d p l p P P

Constrained wage : w = 0• Relative commercial return low• Use d to transfer utility between

firm and scientist ( d > d )• Choose ( i, d ) to maximise NTU

Nash objective

( )( )*

2 (1 )( ) E P AT

E P A T

k i b id

i b id d

p l p

p

P P P



Two key expressions shape the decision of whether to allowscientific disclosure, patenting, or produce patent- paper pairs…

Consider the choices that maximise surplus

Scientific disclosure? … consider the ratio of the marginal

benefit versus marginal cost of scientific disclosures.Choose no disclosure if

Patent?… consider the ratio of the marginal benefit to themarginal cost of publication…choose to patent if

( ) 1S

E

b

d P A T bid

p P

( )( )

( ) 1 E P AT k b d

i E P A T k b d

p l p

p p l P P

P P

( ( ))( )S E P A T b d k i b d id p l p P P



Complementarity: when patents and publications are partiallyoverlapping in terms of disclosure, the patent-paper regime expands

when the strength of intellectual property protection increases…

1

1

Secrecy

CommercialScience

Patent-PaperPairs

OpenScience

d

i



Stronger IP Protection

Increasing l More likely to take out a patent

If there is publication, negotiate more disclosure

Increasing d PAT

Less likely to take out a patent

If there is a publication, reduces disclosure

( )( )*

2 (1 )( ) E PA T

E P AT

k i b id

i b id d

p l p

p

P P P

Stronger IP protection (higher l and lower d PAT ) stimulatesopenness in science



Strategic OverlapSuppose that the knowledge published could be chosen andrelated to the knowledge disclosed through patenting.

No cost to same disclosures as in patent, so CommercialScience does not arise.

If choose to publish and patent disclosure requirements arelow, then worthwhile patenting even if it would otherwiseencourage entry; so no Open Science

m in 1 ,1 Secrecy,

otherwise Patent-Paper Pairs

E P AT d b d l



Independent KnowledgeSuppose d and d PAT

revealed informationabout distinct knowledge

When d > 1, surplusmaximisation wouldinvolve 1 > d

Wages always zero (theoutside option) whenthere is publication

Decisions do not interact .

i

d

1

1

Secrecy

CommercialScience

Patent-PaperPairs

Open

Science



IP Protection Through DisclosuresBaseline model: IP protection increases entry costs

Suppose workaround not guaranteed to „work‟Entrant sinks costs, l , and generates probability, 1 – r , that

will still be excluded.Expected entrant profit:

Expected firm profit:

Marginal cost of publication falls when you have a patent

(1 ) E E P A T i i b d ib d r p l q

) )(1 ) (1 ) E E P A T k w i i i b d b id r r p l p P P

(1 ) ( ) E i b r p P



Another rationale for complementarity

1

1

Secrecy

CommercialScience

Patent-PaperPairs

OpenScience

d

(1 )((1 )

( ) E P AT k b d

i k

r r p l

p p

P P P

i



The Anti-Commons EffectFear that patent thickets will deter scientific research

Murray and Stern (2006) found that papers with patentsattached attracted fewer citations

Assume that patent protection alters scientific kudos:

where c (< 1) parameterises the anti-commons effect.

Only impacts on disclosures under Patent-Paper Pairs

(1 )Sb ic d



DynamicsSuppose that scientists and firms live two periods

Overlap with other generations

Past knowledge reduces future capital costs, k

Full transfer (under contracting): zero future costsPartial transfer (through publication): (1- d t -1)k

Firm owns patent and can license it to next generation

Disclosure, fee & wages now a 3-way negotiationUse Nash bargaining solution

Past publication gives future pair an easier work-around if there is no license – work-around possible (on same researchpath) with probability r .



License NegotiationsOutcomes

If no patent, t = 0

If patent but no publication, t = k /3

If patent but publication, t = k (1-(1- r )d t -1

)/3

Patent-Paper PairsFor d sufficiently high, patent-paper pairs can be anequilibrium

Presence of patent reduces incentives for publication and viceversa when r < 1

Increasing r causes more disclosure under patent-paper pairs



Substitutability

1

1

Secrecy

CommercialScience

Patent-PaperPairs

OpenScience

d

i



Other implicationsLook only at symmetric dynamic equilibria

Inter-temporal complementarityOnly worthwhile publishing if expect future scientific work to

be published (so can earn a citation)Therefore, always exists a commercial science or secrecyequilibrium.

Domain of open science is expanded as a result of substitutability

Key issue: who should own IP rights?



Key ExtensionsThe Marginal Impact of Public Funding

Scientific and Commercial Research Racing

The Potential for Kudos through Scientific Citation

Empirical: measure all 4 regimes (including secrecy) usingthe Human Genome Project

10 years

20,000 genes200,000 scientists

1/3 not disclosed. Why?



ConclusionsThe disclosure strategy of privately funded research is grounded in thedisclosure environment and is shaped by the bargaining over disclosurebetween 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 gainscientific credit, while investors (private or public) seek to retain theability to capture value from these “dual - purpose” discoveries

Interestingly, in most circumstances, increases in the strength of formalintellectual property protection enhances the scope for patent-paper

pairs.More generally, the model suggests that the key requirements forcumulative disclosure in the aggregate requires a careful evaluation of the strategic foundations of disclosure strategy.

gms disclosure strategy-08!08!06

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