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The value of an open source dividend

James Love, one of Managing IP’s 2014 most influential people in IP, explains why paying innovators to share knowledge, data and technology makes sense for business and society


Beginning in the 1980s, a series of legislative acts, executive acts and court decisions expanded the scope of intellectual property right protections for patent, copyrights, designs, test data for drug registration, and the drugs that treat rare diseases, and created a new trade agenda focused on spreading these new norms around the world. Among these measures were the December 12 1980 passage of the Bayh-Dole Act in the US, and the subsequent amendments that enabled and expanded the ability of private parties to patent and hold exclusive rights to inventions developed with federal funds.

The changes in patent law were accompanied by increases in the numbers of patents filed and granted by the USPTO. The number of patents granted to universities increased at an even higher rate. From 1980 to 1990, there was a 46% increase in all utility patent grants, and a 263% increase in utility patents with an assignment to a university. From 1990 to 2013, the number of utility patents granted increased by 207%. The rate of increase for patents with university in the assignment was 673%.

The changes in domestic and foreign laws relating to IP rights are designed to induce investments in the commercialisation of inventions and, to some extent, this occurs. However, the proliferation of patents, trade secrets and the restrictive licensing of patents, materials, data, know-how and knowledge in general also has negative effects. For example, Gilead recently told KEI that its development efforts for new treatments for hepatitis C were delayed for years by the patent thickets on the hepatitis C virus, a concern predicted by Baruch Blumberg in 1996 in litigation over the overly broad scope of patents on the virus.

Sir John Sulston, a joint winner of the 2002 Nobel Prize in Physiology or Medicine, once told KEI that research that is open to everyone is at least nine times more valuable to society than research that is closed. At present, there are very significant financial incentives to make research closed and proprietary, and the asymmetry of incentives leads to an under supply of open research. The bias toward closed research, either due to secrecy or restrictive licensing of intellectual property rights, is not only a drag on the advancement of science, but it raises the costs to businesses of acquiring the rights in knowledge-based goods and services that they need to create and sell new products.

In 2007, during work by MSF on a new innovation inducement prize for low-cost point-of-care diagnostics for tuberculosis, concerns about the negative impact of inducement prizes on secrecy were addressed by a proposal for an open source dividend (OSD). The initial proposal was for a percentage of inducement prize money to be allocated to persons who openly shared knowledge, data, materials and technology that was considered significant and useful in the development of the winning diagnostic test. This proposal was later incorporated in a series of legislative proposals by Senator Bernie Sanders for innovation inducement prize funds, and in several developing country and NGO proposals for delinking R&D costs from product price at the WHO. More recently the US Senate and the National Academies have expressed interest in further evaluating the OSD idea.

The concept of the OSD has more general application than innovation inducement prizes. One could implement the OSD as part of more traditional business models for drug or software development. For example, if even 1% of patented drug sales in the United States were set aside into a fund for the OSD, there would be about $2.5 billion each year in rewards to persons who openly shared knowledge, data, materials and technology to drug developers. At 2% of sales, it would be almost $5 billion each year. The availability of the OSD would revolutionize university licensing policies, and also the policies of businesses that were holding as secrets research that was no longer under development. It would become a business decision to go open or closed.

The new OSD market incentives to share knowledge could easily be extended to software development, with even small fees on the sale of licensing of proprietary software, or devices that used software, such as computers or mobile computer devices.

The companies that sold drugs or mobile computing devices would arguably benefit the most, if the OSD induced more royalty-free sharing of inventions, data, materials and source code for software. This is because it would lower the costs of licensing these inputs, and also because the overall products would improve at a faster rate, creating more valuable products for end users.

The US Congress should fund the request by the National Academies to study the feasibility and benefits of implementing the OSD in drug development, and possibly expand the study to consider the implementation in other fields, such as the development of new energy storage technologies, software, and medical diagnostic devices.

The OSD is a long-overdue mechanism to reconcile the value society places on open source research, and the lack of pecuniary incentives to make research open source.

James Love is director of Knowledge Ecology International (KEI). Subscribers can read a longer profile of him in here.

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