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Professors lose their appetite for innovation after rights reform

Norway’s move to take intellectual property rights from researchers and give them to universities was hugely counterproductive, say Hans Hvide and Benjamin Jones.

The Bayh-Dole act is one of the most significant landmarks in the history of innovation policy. Passed in the United States in 1980, it transferred the rights to inventions produced in universities from the government to the institutions, boosting universities’ incentives to commercialise research. 

Europe’s universities are widely seen as less entrepreneurial than their US counterparts. In a bid to catch up, several European countries, including Germany, have also shifted intellectual property rights to universities. Unlike in the US, however, the rights didn’t rest with government in the first place; instead, they were transferred to institutions from researchers.

Under the old regime—known as the professor’s privilege—researchers in several European countries had blanket rights to their inventions. In Norway, we have found that ending this arrangement has had the opposite effect to that intended.

The professor’s privilege ended in all Norwegian public higher education institutions on 1 January 2003, following a unanimous parliamentary vote. Formal ownership rights to the commercialisation of research, including startups and patents, passed to Norwegian universities, each of which established a technology transfer office. The motivation behind the reform was to stimulate innovation.

Researchers retained a third of the net income from commercialisation. In effect, then, the change reduced an inventor’s expected pre-tax income by two-thirds. This represents a substantial increase in the effective tax rate on researchers’ ventures and patentable inventions. 

This shock to income rights might be expected to reduce researchers’ incentive to invent. For universities, however, there was a corresponding increase in incentive for facilitating commercialisation. From this, then, it is not clear whether the reform would lead to less or more innovation.

In reality, the year after the transfer of rights, Norwegian researchers founded half as many companies and filed half as many patents as in the last year of the professor’s privilege. In contrast, the number of start-ups and patents produced by inventors and entrepreneurs outside universities remained approximately the same.

One reason for the crash in commercialisation could be that researchers got more selective; quantity went down but quality went up. The data, however, suggest that quality also went south: after the reform, university start-ups have had lower survival and growth rates, and university patents have received fewer citations. 

Thus, not only has the amount of commercialisation fallen, several quality measures have also declined.

One could imagine that universities’ newly instated technology transfer offices would initially be relatively unskilled but would improve with experience. If this has been the case, however, it has not affected researchers’ behaviour. For start-ups, there was no sign of recovery five years on, the latest point for which we have data. For patents, we can follow university researchers until 2010 and the same picture emerges: there is no bounce back.

The commercialisation of research depends on investment by both the researcher and the university. Incentives aimed at promoting university investment may matter especially if researchers cannot easily replicate the contribution of their institutions. This perspective might be thought to justify a royalty-sharing regime that balances rights across parties, rather than giving everything to one party, as under the professor’s privilege.

On the other hand, some previous analyses have argued that university resources contribute little to innovation relative to researchers’ efforts, and that rights regimes that create incentive conflicts between parties will have a chilling effect on innovation. Such analyses argue for curtailing the role of technology transfer offices and increasing researchers’ rights.

Our analysis is broadly consistent with this. Perhaps the likeliest cause is the very large decline in income rights to researchers. If university researchers are the crucial engines of innovation, then substantially weakening their financial incentives may naturally cause the researchers to innovate a lot less.

Little is known about the best legislative environment to spur commercialisation. These stark findings suggest that the Norwegian reform was highly counterproductive. They also raise questions about other European countries that have eliminated the professor’s privilege. If the Norwegian pattern holds, one would imagine that increasing researchers’ rights to the fruits of their work would increase the rate of start-ups and patenting.

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Hans Hvide is professor of economics and finance at the University of Bergen, Norway. Benjamin Jones is professor of entrepreneurship and strategy at the Kellogg School of Management, Northwestern University, United States. Their working paper is titled University Innovation and the Professor’s Privilege.

This article also appeared in Research Europe