Recent empirical evidence from German policy changes proves that university ownership leads to massive drop in innovation

[Dirk, “Individual Versus Institutional Ownership of University-Discovered Inventions,” ZEW Discussion Paper No. 15-007, GDI-JCR]

We examine a fundamental change in German patent law that transferred ownership rights from the inventors to their employers. Prior to 2002, university professors and researchers had exclusive intellectual property rights to their inventions. This “Professor’s Privilege” allowed university researchers to decide whether or not to patent and how to commercialize their discoveries, even if the underlying research was supported by public funds. After 2002, universities were granted the intellectual property rights to all inventions made by their employees and this shifted the decision to patent from the researchers to the universities. The policy goal was to increase patenting of university-invented technologies which is often used as a surrogate indicator of successful university technology transfer. By changing the agent who makes the patenting decision, the abolishment of Professor’s Privilege caused a “regime shift” that substituted institutional benefit and cost schedules for those of the individual inventors. The net effect on the volume of patenting depends primarily on the relative costs between the regimes. To identify how the regime shift affected patenting, we exploit the researcher-level exogeneity of the 2002 abolishment of Professor’s Privilege along with the institutional structure of the German research system in which universities and other public research organizations (PRO) coexist. PRO researchers were not affected by the policy change and serve as a control group. We use a difference-in-difference methodology and control for the arrival of new patentable discoveries using publications and peer-to-peer matching. Our analysis shows that fewer university inventions were patented following the 2002 regime shift. For a given discovery, the schedule of benefits to institutional owners, who are the postchange patent decision makers, is lower because the university became an additional party in the negotiations over the split of expected revenues. This partly explains why fewer inventions qualified for patent protection following the regime shift. However, the effect on expected revenues can be offset if institutional costs (broadly conceived) are sufficiently lower than those faced by individual researchers. Our results show that institutional patenting costs were lower for the subset of university inventors who did not have relationships with industry partners prior to the policy change. For those individuals, patenting increased. But, the data also show that most German patenting professors had prior industry relationships. Post-change institutional costs were not low enough to offset the revenue effect for this group. While these findings reflect the medium-term effects of the law change, it could still be possible that the law change results in higher commercialization in the long-run, that is, when new faculty members who never experienced the old regime of inventor-ownership enter academe. However, trends in the number of patenting researchers until 2008 do not suggest more researchers patented after the law change. On the contrary, the number of patenting professors declined, at least through 2008.