FNEGE 2010
Corbel, P. « La propriété intellectuelle face aux enjeux de société : les apports d’une approche managériale », deuxièmes états généraux du management de la FNEGE, Paris, October 2010
Communication translated text:
The debates surrounding intellectual property are probably as old as intellectual property itself. As an exception to the usual rules of competition, it naturally gives rise to questions that can be roughly summed up by the following question: do the benefits of IP in terms of innovation outweigh the costs it generates as a result of the temporary monopoly situations it legitimises? When IP rights are not in themselves called into question, this leads to debates about their duration and optimal scope.
There has been a resurgence in these debates in recent years. Several factors may explain this phenomenon:
• Patent applications rose sharply from the 1990s onwards, particularly in the United States, leading to the emergence in some sectors of what some call "patent thickets", which can make it difficult to bring certain innovations to market.
• Ethical questions are raised when, for example, patents prevent drug manufacturers from offering certain drugs at low prices in countries where only a small minority of the population has the means to buy drugs developed in the richest countries.
• The two are sometimes combined, leading to fears that the marketing of biotechnology-based treatments or tests will become difficult because of the multitude of patents relating in particular to the therapeutic applications of human genome sequences, a situation that Heller and Eisenberg (1998) have described as the "tragedy of the anticommons" [1].
• Finally, the emergence of a free software community has led to renewed reflection on the potential effectiveness of alternative models. It shows that it is possible to create high-quality products on a radically different basis from the exclusivity incentive model that underpins intellectual property rights. Moreover, intellectual property rights - particularly software patents - are often presented as threats to this system.
One thing is striking when you follow the discussions around these issues. Management specialists are largely absent. Generally speaking, work on intellectual property has long been the preserve of a few specialists, usually lawyers or economists [2]. This is no longer the case: a number of management researchers, particularly in strategy, are interested in the subject. The aim of this paper is to show that their work presents certain specificities which are likely to bring genuinely new elements to public debates on intellectual property.
The increasing complexity of patent perception and the contribution of management research
The perception of intellectual property rights (and in particular patents, which remain by far the most studied right) in academic work has changed significantly over the last two decades. It has increasingly come to be seen as a complex instrument that cannot be confined to its primary role of protecting innovations. This increase in the complexity of the patent as an object of study has attracted management researchers, who have in turn contributed to its development. In keeping with the tradition of a discipline that is fundamentally rooted in practice, managerial approaches to intellectual property are closer to the actual uses made of these rights by companies.
Most of the studies carried out by economists in this field have taken the form of quantitative studies using data available in patent databases (as well as questions relating to intellectual property in major national or European studies on innovation). There are, of course, a few exceptions, including the seminal work by Grandstrand (1999) (who, incidentally, entitled his book "The Economics and Management of Intellectual Property") but, for the most part, we only knew about companies' intellectual property strategies through a few key indicators (number of patents, citations, number of claims, etc.). This explains why economic research on the subject has mainly focused on the most directly visible and measurable functions of patents, in particular protection and the possibility of granting licences.
However, a number of converging studies have shown that patents actually have multiple roles: blocking technological avenues not used by the company, preserving freedom of exploitation (particularly through technology exchange), signalling skills, particularly for start-ups, etc. This makes the subject much more interesting for management specialists, who can study the way in which these strategies are implemented in practice, how they relate to the company's general strategy, and how they are reflected in terms of organisation or resource allocation.
Indeed, the work carried out by researchers in strategic management is largely complementary to that carried out in economics:
• They have studied certain roles of the patent in greater depth, such as offensive or defensive blocking strategies (Le Bas and Mothe, 2009), the management of legal risks (Corbel et Raytcheva, 2008) or the impact on motivation in R&D departments (Corbel et Chevreuil, 2009). By combining this work with that recently carried out by economists on other roles, we have a more refined picture of the actual use of patents in companies. And, as is often the case in management, it also highlights the contingent nature of this use, which obviously makes assessing the societal impact of these rights all the more complex.
• They have looked at a priori paradoxical strategies, consisting in particular of granting a large number of licences at a low rate, or even free of charge, on certain protected technologies, particularly in the context of standards battles - see our own work on this subject, but also, for example, that of Demil and Lecocq (2006) on the American role-playing games market. More generally, they have helped to place intellectual property strategies in the broader context of corporate strategy.
• They have also studied in greater depth the organisation of IP departments (Ayerbe and Mitkova, 2005) and its links with strategy (Ayerbe and Mitkova, 2008). Strategic management of intellectual property can therefore be viewed in a comprehensive way, including the associated organisational arrangements.
What contribution does this work make to the societal debate on the subject? They contribute [3] to proposing a much richer vision of the patent. The patent becomes a tool at the service of a more global strategy, involving the implementation of appropriate financial, organisational and human resources. Yet debates often focus solely on the function of protection. Taking into account the multiple facets of this now strategic instrument means that some of the debates surrounding intellectual property rights need to be put in different terms.
Limiting the perverse effects of intellectual property rights: from a pure legal approach to a mixed legal and strategic approach?
Patents in biotechnology can certainly make innovation more complex in certain areas, but they also provide the basis for a new division of labour between start-ups and large pharmaceutical companies (see, for example, Rothaermel, 2001). It is therefore important to be cautious before making too sudden changes to a system which, by its very nature, seeks to strike a balance between contradictory requirements, a balance which is highly unlikely to be stable over time and from one sector to another. And as it is difficult in practice to establish a specific law for each sector and as maintaining a minimum of legal certainty for the players requires a certain stability, care must be taken not to unbalance the whole system by decisions aimed at resolving a specific problem. The difficulty is compounded by the need to take account of international competition. Decisions in this area often have a structuring effect: it is unlikely that a strong biotechnology industry will develop in a country that limits the protection of technologies used in this field, but, conversely, a very successful generic drug industry has been able to develop in India, a country that has only recently recognised the validity of patents on medicines.
Of course, our argument is not that there should be complete immobility, but simply that the multiple dimensions of IP rights should be taken into account in any legislative or regulatory change. And also that we need to explore avenues other than regulatory change to achieve certain results. This is another area where a strategic approach can be a useful complement to a legal approach.
Let's take an example borrowed from Grindley and Teece (1997). Shortly after the First World War, the radio sector was faced with a situation quite similar to the one we see emerging in genomics. A large number of patents had been filed by several companies in the sector (GE, Westinghouse, Marconi, etc.), each one hindering the marketing of a product by the other companies. To put an end to this situation, the US government left patent law untouched. It created a company, Radio Corporation of America, which signed licensing agreements with all these players. This company acted as a patent pool, giving each of the players access to all the key technologies.
In countries where the State plays a major role in the reimbursement of drugs via the social security system, it may well have enough influence to encourage private companies to adopt this type of solution (there are also fairly advanced discussions about a pool of patents of this type for AIDS drugs). This is all the more true given that many of these governments - notably France - have a means of influence that is rarely used in this way today: patents registered by universities and public research bodies. (Corbel et al., 2007).
In the majority of cases, private companies manage to overcome blockages of this type. But this requires the implementation of specific strategies. In general, this leads them to file massive numbers of patents, enabling them to enter into negotiations on advantageous terms. However, the patent filing strategies of research organisations (and this is even truer for universities) do not allow them to have a significant influence on situations of this type. Universities generally have very limited budgets and seek to exploit their patents very quickly. Large research organisations have more room for manoeuvre, but the indicators used to assess their performance in this area also encourage them to see patents as nothing more than a means of enabling an industrialist who takes out a licence to secure a period of exclusivity on the product or process resulting from the protected invention. Paradoxically, public organisations have a vision of patents that is more strictly focused on protection than private companies. While some industrialists will clearly indicate that they file patents to preserve their freedom of exploitation, the use of patents in public organisations is almost exclusively focused on the financial valuation of their portfolio.
At the very least, a strategic approach to IP rights on the part of the public authorities should lead them to put in place the structures and skills needed to have an overall view of the portfolio held by the organisations they oversee, thus enabling them to intervene effectively, on a case-by-case basis, in blocking situations that are embarrassing for the public interest, without mobilising compulsory licences that are sometimes difficult to impose in this type of situation.
But it is also conceivable that these public organisations could take their thinking further and include the maintenance of areas of freedom in certain fields covered by a large number of patents at the top of the hierarchy of aims of their intellectual property strategy. It should be noted that this could sometimes have paradoxical implications. These organisations often undertake to follow an ethical approach in this area, and therefore to avoid behaviour of certain private players that is considered abusive . For example, INRA's intellectual property charter states:
"INRA will only register patents covering genetic sequences where their biological function has been demonstrated experimentally. In this respect, INRA is guided by the opinions of Comepra and its Scientific Council. Product patents on genes will be drafted in such a way that the protected sequence will only be used for a given application, corresponding to the demonstrated function. In addition, INRA's claims will be limited to concrete, identified applications that fall within its specific remit. Furthermore, in its subsequent negotiation and exploitation practices, INRA will apply in its fields the general principles on which ex officio licensing decisions are based, as provided for human genes and their applications in human health".
The problem is that an overly restrictive approach to patenting compared with private players in the sector does not put public research institutions in a favourable negotiating position. Here again, our comments should not be interpreted in a simplistic way. It is not a question of saying that public research players should adopt the same behaviour of filing massive numbers of patents with a view to future negotiations as certain private companies. But it is at least a question of including this possibility in the range of potential instruments for action by public authorities. It is also a question of integrating it with an awareness of the organisational implications of such an orientation. Broadening the aims of the intellectual property strategies of public research bodies in this way would in fact imply an in-depth rethink of the structure:
• Technology transfer structures should be more thematic, which would imply both stronger cooperation between organisations (and universities) at the level of technology transfer and segmented portfolio management in generalist large research institutions.
• Performance indicators should include this objective, even though it may be difficult to measure (it can be approximated by the number of patents covered by cross-licensing agreements and by participation in patent pools). The current system values the filing itself and the (generally exclusive) licence agreements signed with industrialists.
We can see that a managerial approach to intellectual property rights leads to a richer vision and opens up certain options that were not even considered within the framework of a more traditional vision. However, these are only the first avenues opened up by the work already carried out in this area. Many other avenues of research remain to be explored.
A few pointers to go further
The potential contribution of management sciences to a societal debate depends, of course, on the level of maturity they themselves have reached in this area. The field of strategic management of intellectual property rights is still in its infancy. It is true that researchers in this field can fortunately draw on the rich body of economic research on the subject. But to fully exploit the specificities of a managerial approach, much work remains to be done.
How, for example, can we not link this issue to that of corporate social responsibility? Intellectual property rights are fundamentally a right to prohibit. As a result, they can pose very delicate ethical dilemmas. This the case, for example, to protected pharmaceuticals used to treat diseases that are widespread in developing countries. These are complex issues. As a matter of principle, companies in the sector are very reluctant to relinquish their rights, even partially. Their business model is based on patents. These margins cover not only the R&D costs of the drug in question, but also those of the hundreds of projects that will never reach the market. Giving up these rights in certain particularly poor countries certainly does not have a major direct impact, since few patients have access to these medicines at their monopoly price. But it does entail a risk of parallel reimportation. And it allows generic manufacturers to accumulate experience before the patent expires. However, a number of major pharmaceutical companies, after adopting a fairly intransigent attitude towards certain countries, have reversed their position and adopted strategies that are at least more conciliatory and sometimes even more active (setting up a distribution network, funding research into diseases specific to poor countries, etc.). It is difficult to oppose a right such as a patent when thousands of lives are at stake.
And even leaving aside any humanistic considerations, it is difficult for companies to avoid reflecting on the ethical dimension of their intellectual property strategy. While patents were created to ensure that the innovator was not deprived of the benefits associated with his innovation by imitators who would have assumed neither the costs nor the risks, they can also be used for more ethically questionable purposes. This is particularly true of patents on unused technologies, filed and maintained solely to hinder competitors. They can also be used as a threat or as a means of putting a competitor who does not have the same resources in a difficult position. Potentially, an SME would find it very difficult to defend itself against a large group waging a legal war against it using intellectual property, whereas the reverse is not true. An infringement lawsuit can be devastating for a company, especially if it has limited resources: legal costs, management attention, customer distrust can strangle it even before the outcome of the lawsuit. Even if, in the end, the company is not found guilty of counterfeiting. Fortunately, large companies rarely abuse this possibility. Some of the practitioners we met during our research even made it clear that they do not systematically enforce their rights against SMEs because of the risks to their image.
Moreover, the system can sometimes backfire on the very companies that influenced its introduction. In this respect, the example of the United States is quite interesting. Faced with stiff competition from Japanese companies, which were perceived as often reworking inventions that were originally American, the major high-tech companies had largely succeeded in convincing the government that their rights were not being sufficiently respected. This led to a reform of the American judicial circuit in patent infringement cases. A single, specialised Federal Court of Appeal was created. Since then, case law has been much more favourable to patent holders, both in terms of the probability of winning a case and in terms of the damages awarded (up to almost 900 million dollars in the Polaroid vs Kodak case in 1991). As the American system has a number of other features that increase the risks associated with an infringement suit (possibility of temporarily suspending marketing before the final outcome of the case, high level of legal fees), certain players have emerged, trying to take advantage of these specific features (despite some attempts to export the model, these companies are mostly concentrated in the United States). These companies, which have no industrial activity, acquire sizeable patent portfolios, in particular from universities, private individuals or even bankrupt companies. They then sue manufacturers on the basis of these patents, threatening to suspend the marketing of some of their products if they do not pay large sums. The first victims of these patent trolls are American high-tech companies. A number of them (Google, eBay, Apple, Dell, HP, Intel, etc.) have formed a coalition, the Coalition for Patent Fairness, with the aim of influencing current discussions on the Patent Reform Act, which is likely to call into question some of the special features of the American system.
This brings us to another possible bridge between societal debates on intellectual property and the potential contributions of management research. This example also illustrates the fact that, in an area where law and management intersect, there are necessarily influence strategies at work. It would be interesting to study these lobbying strategies in greater depth to understand how companies manage to influence public decisions in this area. This is of course important for companies insofar as a given regulation can put them in a (dis)favourable position compared with their competitors. But it is also important for public authorities insofar as there is a real risk of taking a decision only by considering the consequences put forward by active stakeholders. As Boyle (2008) points out, while it was relatively relevant to rely on the viewpoints of the various industrial stakeholders to deal with issues which, after all, only concerned relations between them, this is becoming increasingly problematic as intellectual property issues penetrate our personal lives. The photocopier, the audio cassette and the video recorder had already created opportunities for decentralised reproduction at the level of the individual. The Internet has brought individuals right into the world of intellectual property. The recent debates surrounding the HADOPI law in France illustrate this change in the dimension of intellectual property rights.
Conditions for the contributions of management research to be taken into account
As we can see, the potential contributions of work carried out by management researchers are real: taking into account the complexity and contingency of the use of these tools, far from over-simplifying models; integrating new possibilities for action, such as using the rights portfolios of public research bodies to unblock certain situations of the 'tragedy of the anti-commons'; taking into account the ethical aspects of companies' decisions on intellectual property; understanding the relationships of mutual influence between public authorities and companies in this field... However, the fact is that management researchers are very rarely involved in these debates and that, when these aspects are taken into account, it is because economists, lawyers or political science specialists have taken them on. What conditions would have to be met for their work to be taken into greater account?
The first condition is undoubtedly the maturity of the research carried out in this field. To date, the specific contributions made by management researchers have tended to be in the form of additions or nuances to the models proposed by economists, sometimes even calling them into question, rather than providing other models based on an approach that is closer to reality but sufficiently synthetic to help decision-making. From this point of view, it could be a very useful intermediate step to arrive at configurations linking the company's (or business unit's) strategy, the aims of its intellectual property strategy, its action plan and the resources allocated to this activity.
The second is integration with research in other disciplines. Despite the particularities of strategic management approaches - or precisely because of these particularities - it is worth trying to integrate the results of our work with that of other disciplines. Without this form of decompartmentalisation, the work of management researchers will be little known to colleagues in other disciplines, who will therefore not integrate their results.
The third is undoubtedly willpower. There is probably (it's difficult to measure) a form of collective self-censorship among management researchers when it comes to societal issues. Our discipline sometimes seems to restrict us in the study of how to make organisations (and especially companies) more efficient and possibly more effective, according to criteria that are not set by us. The emergence of themes such as corporate social responsibility has already led us to qualify this situation. But the angle adopted remains that of companies. The next step is undoubtedly to focus our reflections on certain social debates themselves, where we can contribute specific elements precisely because of our expertise in the way organisations work. And there are many of them, given the importance of management issues in our societies today. We hope that we have shown that there is a real interest for researchers in management, and particularly in strategic management, to participate in the debates on intellectual property.
Notes
[1] The tragedy of the commons is generally used to justify the central role of private property in our societies. The commons tend to be over-exploited and under-maintained. Heller and Enseinberg use this title to highlight the risks associated with an excess of fragmented private property.
[2] We have set aside the work carried out in marketing on the brand because it focuses more on the set of attributes that make it possible to identify the specific features of a product, a range or a company ("brand") than on the associated IP right ("trademark").
[3] Some work by economists also takes these dimensions into account. See, for example, Pénin (2005).
References
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