Intellectual Property Rights and Innovation: Evidence from the Human Genome

Innovation and Economic Growth, Patents and Intellectual Property

Article Snapshot

Author(s)

Heidi Williams

Source

American Economic Review, January 2019, Vol. 109, No. 1, pp. 203-236

Summary

Intellectual property (IP) is intended to encourage innovation. For two years, Celera held exclusive IP rights to data about some human genes. During this time, other firms reduced research and development (R&D) related to these genes from 20-30%. These effects persisted for years after.

Policy Relevance

IP rights could discourage cumulative innovation, which builds on earlier R&D. Keeping the costs of licensing IP low could encourage innovation.

Main Points

  • The Human Genome Project (HGP), a public effort to sequence the human genome, began in 1990; HGP participants were required to contribute all data to the public domain shortly after discovery.
     
  • Celera began sequencing the human genome in 1999; in 2001, Celera and HGP jointly released an incomplete draft of the genome.
     
  • From 2001-2003, Celera used contract law to create IP rights to data about genes that had been sequenced by Celera but not HGP.
     
    • Celera’s data was free to academic researchers who agreed not to redistribute the data.
       
    • Celera sold data to institutions such as pharmaceutical companies to develop commercial products.
       
  • Celera-protected data entered the public domain as the HGP continued throughout 2002 and finished in 2003.
     
  • This study shows that Celera’s IP rights, though of limited duration, discouraged companies like Pfizer from developing products relying on the data.
     
  • 5.4% of public domain genes were used in diagnostic tests by 2009, but only 3% of Celera genes.
     
  • Some Celera-protected genes had less commercial potential to begin with. To adjust for this, this study investigated whether research into Celera-protected genes increased when protection ended.
     
    • Removal of IP protection increased innovation later.
       
    • IP protected genes attracted from 20-30% less R&D.
       
  • Celera’s IP might have done more good than harm, by speeding up genetic research, but mechanisms for making IP available to innovators are important; more innovation will occur if the costs of licensing IP are low.
     
  • Innovators will benefit if licensing negotiations occur ex ante, before the innovator sinks money into product development, or would risk revealing her technology in the negotiations. Most negotiations for Celera’s data were ex post, giving Celera an advantage and adding to the innovator’s risks.
     

 

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