When do Universities and Firms Form RJVs? An IP Perspective
Andreas Panagopoulos (University of Bristol)

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--Summary by Andreas Panagopoulos

In the early 1980s, the Bayh-Dole Act made it easier for universities in the United States to patent their innovations. The law was intended to foster innovative activity, especially between firms and universities, at a time when fears were mounting that the United States was lagging behind Japan in technology. The law was successful in bridging barriers between firms and universities, leading them to form many more Research Joint Ventures (RJVs) than they had in the past. Partnerships increased not only between U.S. firms and U.S. universities, but between EU firms and U.S. universities, as well. However, this increase was not as high as one would have anticipated. Some authors, including Hall et al. (2000), have suggested that intellectual property (IP) protection could be to blame for the shortfall.

My research seeks to present a theoretical model that describes under what conditions firms are likely to form an RJV with a university, and when IP issues can raise barriers. Hall et al. argued that firms and universities that do research on ‘new-technologies’—technologies that are closer to science and evolve faster than well-developed and well-understood technologies—would find it easier to form such RJVs.

Specifically, the optimal policy for a firm or university that conducts research on a fast evolving and not well-understood technology is to share its findings by opting for a low degree of IP protection. This is because a ‘new-technology’, still in its early stages of development, can benefit from “knowledge spillovers” that will occur if the university shares its invention. When Bell Laboratories invented the transistor, a classic example of a ‘new-technology’, they licensed their patent to most competitors. Bell recognized that it should forgo some of its profits to benefit from the extended knowledge produced by contributions from their competitors. With mature technologies, such as automotive technology today, firms may have little incentive to license competitors.

When a firm or university chooses to form an RJV, it must also consider its opportunity cost, that is, the profits that it sacrifices on technology that is now to be shared with competitors. The greater this opportunity cost, the less likely a university or firm is to enter such a research partnership. As the above paradigm emphasizes, ‘mature’ technologies will generate greater profits, because the firm or university will generally opt not to share them. Thus, the opportunity cost for firms that already work on ‘mature’ technologies will be greater. Meanwhile, firms and universities that conduct research on new-technologies will incur a lower opportunity cost, making them much more likely to form an RJV. And much university research is concentrated on new technologies. This line of thinking suggests that a large firm, working on many different research projects at the same time and hence more likely to work on new-technologies, should find it easier to form an RJV, because it faces a lower opportunity cost. This argument is in line with empirical evidence, which shows that firms with revenues averaging over 1 billion Euros tend to cooperate with universities much more frequently.

References

Hall, B., Link, A., Scott, J., 2000. “Barriers inhibiting industry from partnering with universities: evidence from the advanced technology program,” University of California, Berkeley, Working Paper.

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