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Federal Agency Return on Investment in Foreign Patenting NIST GCR 20-025 Federal Agency Return on Investment in Foreign Patenting David P. Leech Economic Analysis & Evaluation, LLC John T. Scott, Ph.D. Dartmouth College This publication is available free of charge from: https://doi.org/10.6028/NIST.GCR.20-025 NIST GCR 20-025 Federal Agency Return on Investment in Foreign Patenting Prepared for U.S. Department of Commerce Technology Partnerships Office National Institute of Standards and Technology Gaithersburg, MD 20899 By David P. Leech Economic Analysis & Evaluation, LLC John T. Scott, Ph.D. Dartmouth College This publication is available free of charge from: https://doi.org/10.6028/NIST.GCR.20-025 April 2021 U.S. Department of Commerce Gina M. Raimondo, Secretary National Institute of Standards and Technology James K. Olthoff, Performing the Non-Exclusive Functions and Duties of the Under Secretary of Commerce for Standards and Technology & Director, National Institute of Standards and Technology Disclaimer This publication was produced as part of contract 1333ND19FNB405279 with the National Institute of Standards and Technology. The contents of this publication do not necessarily reflect the views or policies of the National Institute of Standards and Technology or the US Government. Preface This report documents the U.S. federal agencies’ use of foreign patents and provides evidence about the costs and benefits of acquiring foreign as well as U.S. patents to protect the intellectual property for inventions created in their laboratories. In the six months following the completion of this report, we assembled additional data. The new data about the patent portfolios of the U.S. federal agencies extends back in time four decades from the present. With the additional data, we estimated two new models to complement the work in This publication is available free of charge from: this report. First, we estimated a distributed lag function showing the effects on license revenue of an agency’s history of patent applications for inventions granted U.S. patents. The estimation shows that those effects depend on whether the agency also obtained foreign patent protection for its inventions. Second, with the additional data, we were able to re- estimate the dynamic panel data model presented in this report by using a far simpler instrumental variables regression estimator. The results are essentially the same as those obtained with the more sophisticated Arellano-Bond model as reported in this report. The results for the distributed lag model and for the dynamic panel data model tell the same story. When an agency protects its inventions with foreign patents in addition to its U.S. patents, the agency’s invention-license revenues are far greater than if the agency does not obtain the foreign patent protection. The two new estimated models are available in our paper, David P. Leech and John T. Scott, “Foreign Patents for the Technology Transfer from Laboratories of U.S. Federal Agencies,” Journal of Technology Transfer, forthcoming. The results using the new models in the forthcoming paper complement those in this report. For the eight agencies with sufficient foreign patents to estimate their impact, adding a U.S.-patented invention increases a federal agency’s annual invention-license revenue if the invention is https://doi.org also protected with foreign patents. If the invention does not have foreign patent protection, the change in the agency’s annual license revenue is considerably less for the eight agencies, and it is significantly negative for three of them. The forthcoming paper also provides a formal explanation of the observed instances of negative marginal revenue—namely, without /10.6028/NIST. foreign patent protection, potential licensees’ demand for invention licenses is inelastic because commercialized products using the inventions will be less profitable. For this report we wish to acknowledge, first and foremost, the help and advice provided by Karen Rogers and Steven Ferguson of the NIH Office of Technology Transfer. They GCR provided comprehensive licensing cost information without which constructing the statistical models at the heart of this report would have been exceedingly more difficult and perhaps . 20 less reliable. They also provided deep insights into the mechanics and challenges of the - 025 federal laboratory licensing process. To the extent that the findings and analysis of this report are helpful to the federal laboratory technology transfer community, considerable thanks is due to them. Geert Boedt of the European Patent Office provided essential guidance for the work with the worldwide patent database PATSTAT. The insights gained from the two case studies included in the report would not have been possible without the assistance of Robert Danziger (Professor of Medicine, Pharmacology, Physiology and Biophysics, University of Illinois at Chicago), Mark Miller (CEO, Biosynthetic Technologies), and Trevor Gauntlett (Trevor Gauntlett Consulting). Finally, we acknowledge the guidance provided by our NIST project manager, Nicole Gingrich, and the comments of readers at NIST. i Abstract This report documents the U.S. federal agencies’ use of foreign patents, in addition to U.S. patents, to protect the intellectual property for inventions created in their laboratories. The report describes the extent of U.S. and foreign patents in the patent portfolios of the U.S. federal agencies, and it describes the process of licensing of the agencies’ patented inventions. A dynamic panel data model is estimated for each agency’s invention-license This publication is available free of charge from: revenues as a function of the history of its applications and granted patents. The evidence supports the view that an agency that obtains U.S. patents for its inventions but does not obtain foreign patent protection may reduce the value of licenses to use the technologies. Value for the licensee may be reduced because the corporations that license the agency’s technologies may face international competition from firms that copy those technologies and compete with lower costs because they do not incur full development costs or pay royalties for licensing the technologies. The report estimates the agencies’ benefits, in terms of licensing revenues, and costs for obtaining foreign-patent protection for their U.S.-patented inventions. The report provides detailed case studies of the licensing and commercialization of two federal-agency technologies. Key words Commercialization; Domestic patents; Federal laboratories; Federal agencies; Foreign https://doi.org patents; Invention licenses; Invention valuation; Lab-to-Market; Patents; PATSTAT Worldwide Patent Database; Technology transfer. /10.6028/NIST. GCR . 20 - 025 ii Table of Contents Study Objective and Introduction .................................................................................. 1 1.1. Study Objective ............................................................................................................ 1 1.2. Introduction .................................................................................................................. 1 Patenting & Licensing ...................................................................................................... 2 Federal Agencies’ Patent Portfolios ............................................................................. 17 This publication is available free of charge from: Benefits and Costs of Foreign Patent Protection for U.S. Federal Agencies’ Technologies ........................................................................................................................... 20 4.1. An Estimated Model of Invention-Licensing Revenues and the Effect of Additional Foreign Patents .................................................................................................................... 20 4.2. Estimated Agency-specific Invention-licensing Revenue Functions ......................... 22 4.3. Interpretation of the Estimated Coefficients for the Explanatory Variables Describing the History of Patent Applications and Grants .................................................. 34 4.4. Estimated Costs of Foreign vs. Domestic Patent Protection for Federal Agencies with Large and Small Patent Portfolios ............................................................................... 39 4.5. Agency-Specific Return on Investment in Foreign Patents ....................................... 46 Summary Report Conclusion ........................................................................................ 51 Appendix A. Review of Foreign Patent Filings by Federal Agencies (Task 1 Report) ... 53 https://doi.org Appendix B. Benefits and Costs of Foreign Patent Protection for U.S. Federal Agencies’ Technologies with U.S. Patents (Task 2 Report) ................................................................ 70 Appendix C. Case Studies Showing ROI to Federal Agency Foreign Patenting (Task 3 Report) .................................................................................................................................. 121 /10.6028/NIST. Estolide Base Oils and Lubricants Case Study: USDA’s Invention and Transfer of a Commercially Valuable Fatty Acid Molecule ................................................................... 121 The Drug-Eluting Coronary Stent: the National Institute of Aging (NIA) within the National Institutes of Health (NIH) Invention and Technology Transfer of Taxol GCR (Paclitaxel) Coated Coronary Stents .................................................................................
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