Proprietary Rights and Collective Action: The Case of Biotechnology Research with Low Commercial Value
25 Pages Posted: 26 Jul 2004
In areas of cumulative research such as biotechnology, broad patents on fundamental research tools have the potential to create impediments to follow-on research and development. Impediments to R&D may also be created by possible thickets of upstream rights. Whether such impediments actually arise in any given case is of course an empirical question. From an empirical standpoint, the net impact of recent increases in upstream biotechnology rights is far from clear. It is fair to say, however, that one standard market solution to rights thickets - the reduction of transaction costs through collective institutions that pool and exchange rights - has not emerged. Rather, in the commercial arena, significant transaction costs and licensing fees have simply become part of the cost of doing business. Although these costs may have reduced profits, foreseeable sales revenues have been sufficiently high that the profit incentive has not been eliminated.
In contrast, when follow-on research is conducted in the university context, or by non-profit institutions that target the developing world, foreseeable payoffs are either highly uncertain or are clearly small. In these contexts, large transaction and licensing costs may pose a more pressing problem. However, at least in the context of low-margin research that targets the developing world, there is reason to be optimistic that the standard solution of collective rights management will actually work. When the follow-on research in question is of demonstrably low commercial value, there is no reason for upstream rightsholders to fear that they are foregoing large downstream rents. Thus, even though conditions in the biotechnology sector may, as a general matter, work against collective action, low-margin research should be an exception. Non-profit institutions such as universities that are highly sensitive to reputational pressures should be the easiest players to enlist. Fortunately, in both agricultural and health-related biotechnology, non-profit institutions own a significant percentage of upstream patents.
JEL Classification: K00
Suggested Citation: Suggested Citation