The Influence Of Patent Rights On Academic Entrepreneurship

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The Influence of Patent Rights onAcademic EntrepreneurshipAndrew A. TooleEconomic Research Service, USDACoauthors:Dirk Czarnitzki, KU Leuven & ZEW MannheimThorsten Doherr, ZEW MannheimKatrin Hussinger, U LuxembourgPaula Schliessler, ZEW MannheimEconomics of Entrepreneurship ConferenceNational Academy of SciencesJune 29, 2015The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Background Policy makers in the U.S. and abroad generally believe thatuniversity research findings and inventions contribute toinnovation and economic growth. This has led to new legal structures intended to stimulateacademic entrepreneurship (broadly defined). U.S. Bayh-Dole Act of 1980 granted ownership rights to patentableinventions discovered using Federal funds (from the government)to universities, not individual inventors. This policy is considered asuccess by many. For other countries, university ownership has evolved into “model”of how to spur university invention and technology transfer. Germany, Denmark, Japan, China, and others implemented similar policies.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

What’s the issue? In the economics and policy literatures: Little systematicevidence supporting a university-ownership (UO) model overother alternatives. One prominent alternative is inventor-ownership. Inventor-ownership: University researchers retain the patent rights to theirdiscoveries and choose the commercialization path. Main Question: How do the university-ownership and inventor-ownership models compare interms stimulating academic entrepreneurship by university scientists?The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Contributions of this research We have a fortuitous empirical context – a "natural"experiment based on a law change in Germany frominventor-ownership to university-ownership.– The German Federal law change was exogenous toindividual scientists– The institutional structure of the German researchsystem creates a natural “treatment” group and“control” group for evaluating the effect of patent rights Use scientist-level data and difference-in-differencemethods to evaluate changes in academicentrepreneurship due to the shift to a UO model.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

“Knowledge Creates Markets” In Feb 2002, the German Federal governmentlaunched “knowledge creates markets”– a new comprehensive program to promote technologycommercialization from German universities It addressed a number of areas such as:– Ownership of university-based inventions– Creation of Patent Valorization Agencies (PVAs) tosupport invention evaluation, licensee search, andfaculty startups– Similar subsidies to university TTOsThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Aspects related to invention ownership Until early 2002, university researchers owned the rights to theirinventions, called “professor privilege” (PP)– This only applied to university professors. Other academic researchers inpublic research organizations (like Max Planck) were not affected. Theseinstitutions already followed a Bayh-Dole type ownership model In 2002, the German Federal Government abolished professor privilege From 2002 onwards university researchers had to disclose theirinventions to the university.– If the university decides not to claim the invention, the IP right istransferred back to the researcher.– The university pays all expenses related to patent process and will searchfor potential licensees.– If the invention is licensed by the university, the researcher (inventor) willreceive a 30% royalty on gross revenues.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Existing Literature (theory) Hellmann (2007): A search model to examine the ex postrationale for patenting scientific inventions:– Results depend on the relative search efficiency of the TTO versusthe researcher. If researcher is more efficient, UO is suboptimaland produces less commercialization (fewer matches). Kenney and Patton (2009): Provide a conceptual comparison ofuniversity invention ownership models:– Argue that UO model is plagued by ineffective incentives,information asymmetries, and contradictory motivations.– Conclude: PP model is more effective for promotingcommercialization than the UO model.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Existing Literature (theory) Damsgaard & Thursby (2013): Used expected utility andrevenue models to examine the mode and success ofcommercialization across IP ownership systems:– They emphasize that the UO model creates an agencyproblem as inventor effort is critical for commercialization– If established firms have some commercializationadvantage, UO system less conducive for faculty startupsthan PP (TTO prefers established firms).– If TTO has a search advantage, UO has fewer facultystartups relative to PP (more licensing to established firms).The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Existing Literature (empirical) Schmoch (2007): Empirical investigation of German law change:– The number and share of university-owned patent applicationsincreased; private and firm-owned decreased– Change in mix: Active patenting faculty inventors discouraged,non-patenting inventors encouraged Von Proff et al (2012):– After the law change, the number of university-invented patentsincreases. First time-patenting professors contributed more tothis total than those with prior patenting experienceThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Existing Literature (emprical) Lissoni et al. (2009), Lissoni (2013), and more – Danish case: (1) patenting activity has moved from professors touniversities; (2) bulk are inventions owned by business companies(both before and after)– Special issue: I&I on academic patenting in Europe Kenney and Patton (2011): Res. Policy Special Issue 2011– Compare the number and type of spin-offs across 6 universities,one with PP (Waterloo in Canada)– Observed that university with PP model generated more spin-offsThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Existing Literature (emprical) Czarnitzki et al. (2015)– Used this “natural” experiment to examine how thechange from PP to UO influenced the volume of patents(nothing about faculty startups or patent ownership).– Showed differential impact on patent volume across“high” and “low” cost faculty inventors– Due to the pre-policy mix, the shift to UO decreased theoverall volume of patented inventions by universityprofessorsThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Hypothesis 1: Direct Effect Direct effect of the shift from PP to UO on facultystartups is ambiguous.– The new German PVAs and subsidies to TTOs suggestlower costs to faculty for startups increase startups– Kenney and Patton suggest fewer faculty startups forreasons of TTO inefficiency– Within Damsgaard & Thursby model, fewer facultystartups if TTO has search cost advantage and/orestablished firms have commercialization advantage (TTOwants established firm)The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Hypothesis 2: Indirect Effect Indirect effect of the shift from PP to UO on facultystartups acts through patents.– From prior work, faculty patents are postively associatedwith faculty startups. But, Czarnitzki et al. show the shift to UO reducedfaculty patents and Schmoch and others suggestchanges in patent ownership due shift to UO.– Indirect effect depends on available patents.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Data Collection Study population: All academic inventors in Germany (university and publicresearch organizations like Max Planck) who have at least one patent at theGerman or European Patent Office between 1978 and 2008. Treatment group: University researchers– Identification of professors by “Prof. Dr.” title in inventor field of patents Control Group: Non-university public research institutions– E.g. Max-Planck Society, Helmholtz Society, Fraunhofer Society, Leibniz Society andother PROs– Identified all patents with PRO applicants– Obtained lists of inventors. Matched Thomson Reuters Web of Science publication data Variables obtained: yearly patent and publication count, career age as measuredas time elapsed since first publication/patent, previous patenting experience,previous patenting with industryThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Link to faculty startups Sample of (all) academic inventors linked to“Mannheim Foundation Panel” Data on all firm foundations in Germany since 1990. Includes complete records on founder names andother individual as well as corporate/institutionalstakeholders Match panel of inventor names to names of firmfounders by text-field search engine Note: not all inventors could be matched because ofname homonyms.– Smaller sample than in Czarnitzki et al. 2015The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Final sample Panel database of researchers over time Excludes people that switch between (or areemployed at both) treatment and control group(1,800 researchers) Panel: 1996-2008– 3,265 professors (treatment group)– 6,558 PRO researchers (control group)The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

What is academic entrepreneurship? Grimaldi et al. (2011) define academic entrepreneurship asefforts to commercialize innovations developed by academicscientists.– Includes: startups, patenting, licensing, university-industrypartnerships We observe two forms of academic entrepreneurship:– New firms with the academic scientist as a founder (not only throughTTO)– Academic patenting patents with the academic scientist as one ofthe inventorsThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Key Explanatory Variables New policy dummy variable splitting time into 1996-2001(prior to policy change) and 2002-2008 (post policy change)period Professor dummy variable indicating treatment group versuscontrol group– Interaction between Professor dummy and New policy shows thetreatment effect of the policy change on the treated researchers (theprofessors) Patents by ownership type: categorize patents as owned byfirms, academic institutions, or personal– Interaction between Professor dummy and New policy and Patenttype shows the treatment effect of the policy change on the treatedresearchers‘ patent ownership typesThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Descriptive statisticsVariableNew FirmsPatentsFirm PatentsEmployer PatentsPersonal Patents3yr avg. publicationsCareer ageln(DE-invented tech.)University researchersprior to law change (N 9,180)after law change (N 8,237)Mean Std. Dev.MinMaxMean Std. riableNew FirmsPatentsFirm PatentsEmployer PatentsPersonal Patents3yr avg. publicationsCareer ageln(DE-invented tech.)PRO researchersprior to law change (N 15,507)after law change (N 19,846)Mean Std. Dev.MinMaxMean Std. .605.538.727.740.536.02Max4262617463.67358.96The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Regression Methods Fixed effects count data models:– Firm Foundation f(patents, law change, X)– Patents f(law change, X, Z)– 𝐸[𝐹𝐹𝑖𝑡 𝑋] exp [ 𝛽1 𝑃𝑟𝑜𝑓𝑖 𝑁𝑒𝑤𝑃𝑜𝑙𝑖𝑐𝑦𝑡 𝑃𝐴𝑇𝑖𝑗𝑡 𝛽2 𝑃𝐴𝑇𝑖𝑗𝑡 𝛽3 𝑃𝑟𝑜𝑓𝑖 𝑁𝑒𝑤𝑃𝑜𝑙𝑖𝑐𝑦𝑡 𝛿𝑖 𝛾𝑡 ]– 𝐸[𝑃𝐴𝑇𝑖𝑗𝑡 𝑋] exp [𝛽1 𝑃𝑟𝑜𝑓𝑖 𝑁𝑒𝑤𝑃𝑜𝑙𝑖𝑐𝑦𝑡 𝛽2 𝑧𝑖𝑡 𝛿𝑖 𝛾𝑡 ]The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Faculty Startups: Fixed Effects MPLOYER*POL CHG*PROFPERS*POL CHG*PROFCareer 0,0170,0130,0160,013Observations6035Career age26035Significance: * p 0.1, ** p 0.05, *** p 0.01.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.6035

Patents by Ownership Type 6,498 individuals (1,947 profs; 4,551 PRO researcher) In total, these people are involved in 830 firmfoundations between 1990 and 2008PatentsBefore 2002After 2002Firm0.4678%0.2368%Personal0.1412%0.0412%Publ. Science Emp.0.023%0.1029%Total0.59100%0.34100%Note: numbers do not add up to total because of co-applicationsThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Patent Ownership: Fixed Effects Poissonall patentsfirm patentsCoef. Std. ErrorCoef. Std. ErrorPROF*POL.CHG-0,208**0,081-0,685***Career ,042***Tech. Opp.0,370***Observations52777Career agepersonal patents0,11Coef. Std. Erroremployer patentsCoef.Std. Error-0,2910,2011,586***0,1380,034 199607Significance: * p 0.1, ** p 0.05, *** p 0.01.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.39406

Econometric remark Researcher may patent because he/she intends to start abusiness!– Eqs. can only be estimated separately if we assume that errorterms are not correlated– How to test? IV approach. Need candidates for Z– At the moment: technological opportunities– Take all DE-invented patents per year per 35-Fraunhofer techfield category in t-2– Wooldridge test for Poisson models (like Rivers and Vuong 1988)– Result: Instrument is strong, but no endogeneity is found.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Conclusions The shift from PP to UO reduced academicentrepreneurship in Germany!– Faculty startups did not increase due to policyshift (direct effect is insignificant).– Patents associated with startups increased, butonly slightly.– Patents associated with university-industryacademic entrepreneurship decreased strongly. Results are consistent with Kenney and Pattonperspective.The views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Thank youThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.

Academic vs. All DE-invented patents1.801.60Average Patents per Researcher(relative to RO researcher2000200120022003Univ researcherThe views expressed are those of the author(s) and should not be attributed to the Economic Research Service or USDA.20042005All DE-invented200620072008

Grimaldi et al. (2011) define academic entrepreneurship as efforts to commercialize innovations developed by academic scientists. –Includes: startups, patenting, licensing, university-industry partnerships We observe two forms of academic entrepreneurship: –New firms with the academic scientist as a founder (not only through TTO)

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