World Development Vol. 38, No. 8, pp.

1082–1093, 2010
Ó 2010 Elsevier Ltd. All rights reserved
0305-750X/$ - see front matter
www.elsevier.com/locate/worlddev
doi:10.1016/j.worlddev.2009.12.013

Patent Incentives, Technology Markets, and Public–Private

Bio-Medical Innovation Networks in Brazil
MICHAEL P. RYAN *
The George Washington University Law School, DC, USA
Summary. — Contested is whether patent laws promote indigenous technology invention and innovation in developing countries. Brazil
reformed its patent laws in 1996 to permit pharmaceutical product patents. Study of five post-patent law reform bio-medical technology
invention and innovation projects in the state of Sao Paulo supports the propositions that patents provide incentives to Brazilian
bio-medical technology entrepreneurs to make risky investments into innovation and that patents facilitate technology markets among
public–private technology innovation networks, both Brazilian collaborations and North–South collaborations. Brazil enacted a tech-
nology law in 2005 that encourages public–private technology innovation through patent incentives and patent-facilitated technology
markets.
Ó 2010 Elsevier Ltd. All rights reserved.

Key words — technology innovation, technology networks, patents, intellectual property rights, bio-medical technology, Brazil

1. INTRODUCTION This is a study of invention and innovation in national tech-

The 1994 World Trade Organization Agreement regarding
Trade-Related Intellectual Property Rights obliges all WTO
members to meet certain minimum standards of intellectual
property law and enforcement and this means that scores of
developing countries must provide higher levels of protection
than has been their policy and practice in the past. Contested
is whether patent laws promote indigenous technology innova-
tion in developing countries. Runge (2006) rejects enclosure
through intellectual property protections to promote technol-
ogy progress in the North and says that the countries of the
South have even more to lose from patent-based enclosure.
Evans (2005) calls for an open science model for technology
progress in developing countries. The development model
should be non-proprietary and non-intellectual property-ori-
ented. A developing country-based scholar says that stronger
intellectual property rights in countries such as her Colombia
will inhibit scientific research (Forero-Pineda, 2006). She ar-
gues that developing country scientists should participate in
international professional networks to achieve science and
technology advancement.
Though these scholars do not provide empirical evidence to
support their arguments, they do ask important questions for
development studies. Research universities, scholarly journals,
and science conferences are the institutions that drive scientific
progress (Pyenson & Sheets-Pyenson, 1999), but are these
institutions sufficient to drive national technology innovation
in developing countries (or developed countries, for that mat-
ter)? Technology innovation drives long-run national eco-
nomic growth (Romer, 1986, 1990). Technology stasis leads
to national economic stagnation; technology progress leads
to national economic growth (Grossman & Helpman, 1991),
so it is important to identify the institutional frameworks that
best promote national technological innovation in developing
countries. Do patent laws provide incentives to entrepreneurs
in developing countries to make risky investments into tech-
nology innovation? Do patent laws facilitate the development
of technology markets among public–private technology inno-
vation networks? Do patent laws facilitate North–South tech-
nology innovation collaborations?
1082
nology development.
“Invention is the first occurrence of an idea for a new product or pro-
cess, while innovation is the first attempt to carry it out into practice.
. . . While inventions may be carried out anywhere, for example in uni-
versities, innovations occur mostly in firms, though they may also oc-
cur in other types of organizations, such as public hospitals. To be able
to turn an invention into an innovation, a firm normally needs to com-
bine several different types of knowledge, capabilities, skills, and re-
sources” (Fagerberg, 2005, p. 4).
Post-patent law reform bio-medical technology invention
and innovation in Brazil is studied here. Brazil has a long-
established pharmaceutical industry, but Brazilian bio-medical
R&D traditionally meant that their public and private drug-
makers reverse-engineered international pharmaceuticals so
that they could manufacture and market medicines and vac-
cines innovated in the North to the Brazilian marketplace.
Brazilian pharmaceutical makers were at liberty to reverse-
engineer, manufacture, and market products under patent in
the United States and Europe because pharmaceutical compo-
sitions were not patentable subject matter in Brazil. But, in
1996 the Cardoso administration led the Brazilian congress
to amend the patent laws with Law No. 9,279 to allow for
the patentability of pharmaceutical product patents so that,
subject to procedural processes and some restrictions, only
patent-holders or their licensees would be permitted to market
under-patent medicines.
Bio-medical technology invention and innovation in the state
of Sao Paulo is the focus of study. The state of Sao Paulo is the
wealthiest state of Brazil, representing some 40% of the gross
domestic product of the country, and is the main scientific and
business center of the country. Federal research support and
“the strong support by the state government makes the state
* The author gratefully acknowledges, without responsibility for argu-
ments, University of Sao Paulo Center for Science and Technology Policy
director Professor Ary Plonski and PhD student Juliano Froehner, this
journal’s thoughtful reviewers, and George Washington University rese-
arch assistant Thomas Lee. Final revision accepted: December 7, 2009.
 PATENT INCENTIVES, TECHNOLOGY MARKETS, AND PUBLIC–PRIVATE BIO-MEDICAL INNOVATION NETWORKS
of Sao Paulo the second largest investor in R&D in Latin Amer-
ica, ahead of Mexico and Argentina” (Brito Cruz & de Mello,
2006, p. 6) and behind only the federal government of Brazil.
The state of Sao Paulo has invested in basic life sciences research
at its universities and governmental research centers for decades
through its Fundacao de Amparao a Pequisa do Estado de Sao
Paulo (FAPESP), the State of Sao Paulo Research Foundation.
It is thus a good laboratory to explore bio-medical technology
invention and innovation in a developing country.
Interviews were carried out in Sao Paulo, Brazil, over the per-
iod 2005–08 with presidents and research directors from local
pharmaceutical companies, leading scientists and administra-
tors from the public bio-medical research institutes and univer-
sities, and federal and state science and technology support
institutions. Interviewees were asked about bio-medical technol-
ogy invention and innovation-directed R&D in their state, who
was doing it, how it was being done, and what issues—patent
laws and policies, bio-medical technology regulations, institu-
tional and human capacities, business strategies and prac-
tices—encouraged and discouraged their efforts and why.
Through this process, five cases of bio-medical technology
R&D organizations were identified and are presented here.
These five cases during the study period of 2005–08 were likely
one case short of the universe in Sao Paulo. There are several
other invention and innovation-directed bio-medical technology
initiatives in other parts of Brazil (Rezaie et al., 2008), but these
projects are not studied here. The case study research was de-
signed according to the method of structured, focused compar-
ison (George & Bennett, 2005; see also Mohr, 1985; King,
Keohane, & Verba, 1994). The comparative research questions
were designed to test the propositions suggested by theory and
empirical research findings concerning the institutional econom-
ics of patent incentives and the strategic management of tech-
nology markets and technology innovation networks.
Case information is provided from five Sao Paulo bio-medical
technology invention and innovation-directed R&D projects. In
summary, Ache Laboratorios Farmaceuticos is a long-estab-
lished Brazilian maker of generic pharmaceuticals. Ache man-
agers waited some 15 years, until after the 1996 patent
reforms, to organize an innovation process with some 100 uni-
versity specialists so that they could patent a biodiversity-based
anti-inflammatory technology. Acheflan is the first example of a
successful Brazilian bio-medical technology innovation intro-
duced to their marketplace and is the subject of safety and effi-
cacy trials in the United States with the goal of securing
American market approval as well. The Institute Butantan Cen-
ter for Applied Toxinology and the COINFAR consortium
established public–private bio-medical technology innovation
collaboration. COINFAR was originally composed of Brazilian
generic pharmaceutical companies Biolab, Biosintetica, and
Uniao Quimica, but Biolab and Uniao Quimica share the same
owners and Biolab between the two takes the invention and
innovation lead. Ache later acquired Biosintetica and, thus,
took over the position in the COINFAR consortium. They filed
for patent protection on their biodiversity-based analgesic so
that they could put the technology into safety and efficacy trials
in the United States, but Institute Butantan disputes ownership
of the patent rights. The planned clinical research studies will
not start until the patent dispute is settled. Thus, patents facili-
tate the local Brazilian bio-medical technology innovation net-
works organized by Ache; dispute over patent rights brought the
CAT/COINFAR public-private R&D collaboration to a stand-
still. After completion of safety and efficacy product develop-
ment in the United States by Ache and the CAT/COINFAR
consortium, patents are planned to facilitate manufacture and
distribution agreements for the American and European mar-
1083
kets. During the research period there was one other known
Sao Paulo-based bio-medical technology invention and innova-
tion-directed organization—Eurofarma. Eurofarma is, like
Ache and Biolab, a big generic manufacturer and, also like Ache
and Biolab, has initiated biodiversity-based technology inven-
tion, but it is not studied here.
Pele Nova Biotecnologia, Genoa Biotecnologia, and Recep-
ta Biopharma are start-up enterprises with extensive university
ties. Pele Nova, co-founded by Brazilian professors, patented
a biodiversity-based tissue regeneration technology with multi-
ple surgical, health, and cosmetology products under develop-
ment. Patents facilitated their first technology innovation
collaboration with a French company and they intend for their
patents to facilitate other collaborations. The Genoa project,
also co-founded by Brazilian professors, seeks to develop
innovative cancer and HIV/AIDS vaccines based on patented
technology independently developed by the researchers com-
bined with patented technology licensed from the United
States. The Recepta project organizes some 40 Brazilian uni-
versity scientists to develop breast and ovarian cancer thera-
pies based on exclusive rights to patented technology
licensed from the United States. The Lula administration led
the Brazilian congress in 2005 to enact a technology innova-
tion law that encourages public–private technology innovation
through patent incentives and technology market facilitation.
2. INSTITUTIONAL ECONOMICS AND STRATEGIC
MANAGEMENT OF PATENT INCENTIVES
(a) Technology development strategy of Brazilian patent law
reform
An international relations scholar recalls that developing
countries, including Brazil, were calling in the United Nations
in the 1980s for lower, not higher, patent law standards of intel-
lectual property protection as part of their New International
Economic Order agenda; points out that Brazil in particular
pursued vigorous diplomacy during the 1980s within the World
Trade Organization against a TRIPS agreement; contends that
intellectual property reforms that did take place in developing
countries such as Brazil during the 1990s owed to coercion from
the United States (Sell,1995, 1998). The US government was, to
be sure, in the late 1980s and early 1990s—the TRIPS negotia-
tion period—harassing and threatening developing countries,
including Brazil, for weak intellectual property laws and poor
enforcement. Brazil’s ambassador in Washington recalls bit-
terly that “notwithstanding Brazil’s solid legal position, retalia-
tions were imposed in the second half of 1988 on products from
Brazil in two areas—pulp and paper and electronic appliances—
whose potential for expansion in the US market is considerable
due to our relative competitive advantages in those sectors”
(Moreira, 1990, p. 258). Ambassador Moreira (1990, pp. 259–
260) explained that “a peculiarly perverse convergence” in the
1980s of the second oil shock, extraordinarily high international
interest rates, global recession, and non-oil commodity price
collapses” had a “devastating effect” on his country’s economy,
so the “threats, crowbars, and sanctions” carried out by the US
government did “not square with respect for the symmetry of
rights, fairness in trade, and the spirit of multilateralism” and
called it a “matter of regret.”
Brazilian diplomats in Geneva, to be sure, opposed placing
intellectual property on to the Uruguay Round multilateral
trade negotiation agenda and consistently opposed a TRIPS
agreement during the trade negotiations (Ryan, 1995). The
Brazilian government nevertheless reformed its patent laws
1084 WORLD DEVELOPMENT
in 1996 despite that the TRIPS agreement obligated develop-
ing countries such as Brazil to implement reforms within five
years from a starting date of 1995. The 1996 patent law re-
forms were carried out not in the Brazilian crisis atmosphere
of the 1980s but in the Brazilian reform era of the mid-1990s.
Import substitution industrialization under President Getu-
lio Vargas and a succession of military governments from the
pre-war years to the 1970s created high economic growth in
Brazil. But, by the 1980s trade, foreign direct investment,
and portfolio investment restrictions within a world economy
buffeted by oil shock, high interest rates, and recession, cumu-
lated to produce hyper-inflation that de-legitimized military
governance and challenged their civilian leader–successors to
defeat. Fernando Henrique Cardoso, first as finance minister
under President Itamar Franco then as president himself, suc-
ceeded with his Real Plan stabilization strategy when previous
attempts failed, explains a comparative political economist
(Treisman, 2004, p. 406): “What made the Real Plan different
was not more effective fiscal adjustment or stricter monetary
policy, but rather a more credible political strategy. This strat-
egy involved tactics for co-opting or neutralizing each of the
main stakeholders [public sector employees, congressional pol-
iticians, state governors, and the business community].”
Macroeconomic stabilization, achieved in 1993, however,
was only the beginning for President Cardoso and other
Brazilian opinion leaders; they wanted nothing less than a
new economic development model. A comparative political
economist (Kingstone, 2001, p. 1001) explains,
The growing debate about future development within and among the
business community, the bureaucracy, and the political system led to a
widely held belief that commercial liberalization represented an impor-
tant element in that “new model.” . . . Leading industrialists and techno-
crats expressed similar concerns about the need to reduce the role of the
state and to integrate the Brazilian economy with the global economy on
a competitive basis. Both groups were aware that changes in technology,
and in the character of production and global competition were causing
Brazil to fall further behind the developing world.
Brazilian technocrats in science and technology funding agen-
cies and research universities recall that in the 1990s they real-
ized that Brazil had great science but little technology
innovation. A World Bank study of Brazil in the early 1990s ex-
plained that the country had been one of the fastest growing
economies in the world in the 1970s but faltered thereafter not
only because of macroeconomic instability but because of debil-
itating problems with its technology innovation system (Dahl-
man & Frischtak, 1993, p. 414). They identified public sector
commitment to investment into university and public labora-
tory research as the key strength of the Brazilian system. How-
ever, they explained that the lack of private sector R&D
capability and investment and lack of public–private linkages
prevented technology from becoming commercialized into the
marketplace. Thus, they focused on the nature of the technology
institutions and thereby identified why the Brazilians were
poised for technological take-off but were not actually doing
it. Brazilian technocrats were aware that Professor Douglass
North of the United States had co-won the Nobel Prize in Eco-
nomic Science in 1993 and familiar with his arguments, in par-
ticular regarding institutions, technology innovation, and
economic growth. They sought to place science and technology
commercialization at the core of the Brazilian development
strategy.
(b) Patent incentives
A founder of institutional economics, North (1981, pp. 8,
10) argues that “the profitability of investing in new knowl-
edge and developing new techniques requires some degree of
property rights over ideas and innovation. In their absence
the new technology may not be forthcoming.” Patent rights,
according to this theory of how laws and economic interact,
provide incentives to innovators to invest their know-how,
time, and money into the creation of inventions under circum-
stances of the knowledge appropriability problem associated
with intangible assets (Dam, 1994). Without marketplace
intervention by the government through patent law, the invest-
ment into knowledge-based innovation may be unjustifiable
because the risk is great that a competitor will appropriate
the invention with less risky investment. However, just like
prospectors staking real property claims when searching for
gold, inventors stake their intellectual property claims with
no guarantee that gold will be their reward (Kitch, 1977).
With the patent right, government confers to an inventor the
exclusive right to make, manufacture, distribute, and license to
distribute the invention. To receive a patent the invention
must be new or novel or show an inventive step, must not
be obvious to one skilled in the art, and must have utility in
the marketplace, decisions made through a formal examina-
tion process conducted by public administrators. The patent
right term of protection, according to the obligation of Article
33 of the WTO TRIPS agreement, “shall not end before the
expiration of a period of 20 years counted from the filing
date.” Douglass North, who identified the knowledge-asset
incentive and appropriability problem by studying the pre-
modern to modern history of the Western economies, argues
that the same institutional economic logic should apply to
developing countries in the contemporary era, but he does
not provide evidence to support his conclusion (North, 1989).
Strategic management scholars take great interest in patent
laws. Firm managers make their investment and business
strategy decisions within particular knowledge appropriability
regimes governed in large measure by intellectual property
laws and their relative enforcement (Teece, 1987). The knowl-
edge appropriability regime ranges from “tight” or “strong” to
“loose” or “weak” with implications for firm decisions about
how to manage their intellectual capital: “[Intangible] assets
can be the source of competitive advantage only if they are
supported by a regime of strong appropriability or are non-
tradeable or ‘sticky’” (Teece, 2000, p. 20). That is, either the
strong appropriability regime protects the firm’s intellectual
capital or the firm figures out some business strategy of protec-
tion, such as a software program customized to the needs of a
particular customer, or they do not take the technology into
that marketplace at all. The knowledge appropriability logic
explains the finding by industrial organization economists
(Mansfield, 1986) that patent protection matters a great deal
to decision-making in certain industry sectors, especially phar-
maceuticals, fine chemicals, and information technology prod-
ucts, but matters comparatively less to decision-making in
technology sectors such as automobiles, machine tools, and
customized software.
The US Trade Representative (USTR), who works for the
President and holds cabinet rank, designated Brazil a “priority
foreign country” in 1993 and initiated an investigation of Bra-
zil’s intellectual property laws (USTR, 1995). However, USTR
revoked the “priority” status and terminated the investigation
a year later because its bilateral discussions with the Cardoso
government showed that they had submitted to their congress
computer software intellectual property reform law and that
they were drafting legislative reforms regarding patent law.
In its 1996 annual report, which appears early in the year,
USTR (1996, pp. 2, 12) praised the Brazilian government for
enacting patent law reforms that permit pharmaceutical
 PATENT INCENTIVES, TECHNOLOGY MARKETS, AND PUBLIC–PRIVATE BIO-MEDICAL INNOVATION NETWORKS
product patents. However, later that year the Cardoso admin-
istration and Brazilian congress also took countervailing pat-
ent law action with respect to AIDS medicines. President
Cardoso (2006, p. 215) recalls in his memoirs: “In 1996, we
passed a new law guaranteeing Brazilians free access to anti-
retroviral AIDS drugs. . . . This was truly a revolutionary ini-
tiative, the first of its kind in any developing country. We
would have to deal with enormously complex issues of cost,
ethics, and trade and business practices. Doing so meant a
confrontation with foreign pharmaceutical companies and
governments, notably the United States.” He says that the
US government complained to the World Trade Organization
that the Brazilian policy violated its TRIPS obligations. Pres-
ident Cardoso (2006, p. 216) recalls,
With regard to the issue of patents, I simply believed that the unique
magnitude of the AIDS crisis justified our actions. Human lives took
precedence over profits. It was clear that the free-market system would
not be able to provide a solution by itself, so the government was
needed as a mediator. We tried to reach a compromise, offering to
pay the foreign companies what we could. It was less than they wanted,
but it was better than nothing—which is what they would have re-
ceived if there had been no program at all. In one sense we were cre-
ating customers rather than taking them away.
Thus, President Cardoso, showing again the deft hand of a
shrewd politician-policymaker, passed in the same year patent
legislation that removed a major trade policy dispute with the
United States, placed his country into compliance with a key
WTO TRIPS obligation, and provided patent incentives to po-
tential domestic bio-medical technology entrepreneurs, yet
dramatically declared that patent law would not stand in the
way of AIDS public health policy, winning him domestic sup-
port and international acclaim. He took a step in the direction
of a technology development strategy while maintaining com-
mitment to an enduring principle of Brazilian health policy.
In short, theory from institutional economics and strategic
management suggests the following possible economic out-
come in post-1996 patent law reform Brazil:
Proposition 1. Patent incentives encourage Brazilian entrepre-
neurs to make risky investments into bio-medical technology
invention and innovation.
(c) The biodiversity-based bio-medical technology pioneer
The plant cordia verbenacea is endemic to Brazil. It grows to
2 m in height and is found along most of the coast of Brazil,
but especially thrives in the areas between the states of Santa
Catarina and São Paulo. Local fishermen in the coastal cities
of Ubatuba and Caraguatatuba, in the state of São Paulo,
had long ago mashed the plant into an oil rub and used it di-
rectly on sprains and cuts as an anti-inflammatory and an anti-
scarring medicine to aid healing. People in the region passed
the practice down from generation-to-generation. Managers
at Ache Laboratorios Farmaceuticos, established in 1966
and the biggest local manufacturer and marketer of branded
generics in Brazil, came to know of the medicinal potential
for the plant in the early 1980s. In order to attempt to develop
a product from the plant, Ache managers recall that they
would need to isolate the active ingredient and take it through
laboratory toxicology studies, animal testing, and human clin-
ical trials to demonstrate safety and efficacy in order to intro-
duce the innovation to the marketplace. But, Brazilian patent
law forbade pharmaceutical product patents and, thus, Ache
would only be permitted to file for a process patent regarding
the method of manufacture of the medicine. Should the prod-
uct prove popular, Ache’s competitors would be free to reverse
1085
engineer and sell the medicine themselves despite that they had
not made the investment into the product discovery, refine-
ment, and safety and efficacy testing. Thus, Ache did some
exploratory research into the active ingredient but did not pur-
sue the project further.
When the Brazilian government reformed the patent law in
1996, permitting patents on pharmaceutical products, Ache
managers took up the project again. The implication of the
patent law reform for Ache managers was that they could fi-
nally invest in innovative medicinal product development,
such as the cordia anti-inflammatory project, because of the
intellectual property ownership rights incentives provided by
the new patent law. In 1998, lacking the internal capacity to
conduct the research, Ache established a research partnership
with a professor at one of the universities to re-new study of
the plant and its chemistry. The agreement with the local uni-
versity was difficult to negotiate, in the words of an Ache se-
nior manager, because there is “no patent culture” in Brazil.
Neither the researchers nor their university administrators at
the university were familiar with patent rights, license agree-
ments, or royalty rates.
When isolation of the active chemical was achieved, lacking
internal capacity, Ache hired an outside research organization
to design and carry out the toxicology, safety, and efficacy
studies in order to gain market-release approval from Brazil-
ian pharmaceutical regulators. Ache managers estimate that
some 100 university agronomists, biochemists, pharmacolo-
gists, and medical doctors at a number of universities partici-
pated in the 1998–2004 product development process.
Agreements regarding intellectual property rights, confidenti-
ality, and compensation were negotiated with all these outside
specialists. They report that these agreements proved difficult
to negotiate because of university inexperience with intellec-
tual property rights. Nevertheless, the issues were resolved
and the investment with all this Brazilian S&T talent paid-
off, for cream-form Acheflan was introduced as a prescription
medicine in summer 2005. Acheflan is the first medicine to be
innovated and introduced into the marketplace by Brazilians.
By 2006 Acheflan achieved a 30% share of the anti-inflamma-
tory market and by the end of 2007 its market share exceeded
40%, despite that its competitors included products from
Aventis, Novartis, and Pfizer. The company initiated develop-
ment of a cream-form Acheflan for the American and Euro-
pean marketplaces, development of an aerosol-form Acheflan
for Brazilian and international markets, and development of
an oral-form Acheflan for Brazilian and international markets.
The aerosol version was released in 2007 in Brazil and clinical
research is being carried out in Europe and the United States
on both forms of Acheflan so that regulatory authorities will
approve Acheflan for market entry. Ache plans to license dis-
tribution rights to American and European pharmaceutical
marketers.
Ache’s attorneys submitted patent applications to the Bra-
zilian National Institute of Industrial Property (INPI) that
indicated the inventiveness of the product and indicated how
their anti-inflammatory would contribute a valuable new ther-
apy to the betterment of the Brazilian health system. Their
attorneys also submitted patent applications for Acheflan,
both the cream form and the aerosol form, to the Patent
Cooperation Treaty administrative unit of the World Intellec-
tual Property Organization in Geneva in order to seek patent
protections in the United States and Europe and some other
countries.
The Ache story supports the proposition of institutional
economics and strategic management about the utility of pat-
ent incentives to solve the bio-medical technology appropri-
1086 WORLD DEVELOPMENT
ability problem. Ache organized and compensated a hundred
scientists to refine, test, demonstrate safety and efficacy, and
manufacture to scale their innovative product, but, absent
pharmaceutical product patents, potential competitors would
reverse-engineer, manufacture, and market a competing prod-
uct with considerably less investment and risk. However, the
case study also introduces the extensive and decisive role of
university researchers to the success of the project. Ache man-
agers found it necessary to establish a public–private bio-med-
ical technology innovation network to take Acheflan to
market.
3. STRATEGIC MANAGEMENT OF PUBLIC–PRIVATE
INNOVATION NETWORKS
(a) Technology markets
The economics of technological innovation are a lot like
gambling or a lottery because most inventions are of modest
value or even worthless—and that applies to many patents—
and that economic reality has some big implications for inno-
vators and policy-makers (Scherer & Harhoff, 2000). Ideally,
some success, even great success, emerges from technology
innovation efforts. However, prospective technology entrepre-
neurs and their policymakers must accept the fact that tech-
nology innovation is fraught with the risk of failure. The
obvious risk is that the new technology product may not be
embraced by the marketplace. As it turned out, Ache inno-
vated a product that people in Brazil wanted. Another risk
is that a product that might be valued in the marketplace never
reaches the marketplace because the entrepreneur may not
manage the process of technology innovation. Ache managers
did manage the process of technology innovation successfully;
Ache managers organized a considerable range of people with
diverse know-how and skill sets—and most of the people were
outside their organization.
Successful technology commercialization entails product/
service invention, production, and marketing. A useful inven-
tion prototype should be the yield from such investments, but
it must also be manufactured at a quality level and cost appro-
priate to the marketplace and must be marketed and distrib-
uted to customers and against competitors. The
technological innovator, however, need not possess all these
capabilities—complementary assets—within the organization.
Some of the essential questions of strategic management of
technology concern which capabilities to possess, which to ac-
quire, or which to build inside the organization and which
capabilities to leave to a partner. When these capabilities
can be gained through partnership, then strategic management
studies explain that efficient technology markets play vital
facilitating roles (Arora, Fosfuri, & Gambardella, 2001).
Sufficiently strong appropriability regimes establish the
institutional conditions for technology markets (Arora, 1995,
1996, 1997). From a managerial perspective, technology leak-
age should be minimized. Technology holders should be able
to share technology with a partner or partners with the expec-
tation that the appropriability regime encourages the partner
to protect the technology from third parties. That is, suffi-
ciently strong appropriability regimes facilitate licensing and
cross-licensing business partnerships. The parties to a licensing
or cross-licensing of technology relationship look to patent
rights so that the nature of the knowledge to be transferred
and the terms of its use can be specified through contract
(Grindley & Teece, 1997). A weak appropriability regime
means that the technology holder would attempt to negotiate
with a trade secret and that much information asymmetry typ-
ically is not conducive to finding a partner. Thus, a weak
appropriability regime means weak technology markets and
that means that in practice technology innovators have either
to possess, acquire, or build the complementary assets them-
selves—or fail in the marketplace with the new technology.
The transactional rationale for the law of patents and intellec-
tual property rights supplements the knowledge appropriabil-
ity problem rationale and has become ever more conceptually
important to the analysis of contemporary technology innova-
tion and competition (Merges, 2005).
Study of contemporary industrial technology innovation
finds that stronger patent rights matter more to smaller enter-
prises than to bigger enterprises, a finding the authors describe
as “sensible, even obvious” but unexplored empirically (Arora,
Ceccagnoli, & Cohen, 2007, p. 392). Economic historians find
that 19th century US technology innovation was characterized
by the presence of technology markets involving lone inventors
who licensed their patents to enterprises that would then man-
ufacture it or integrate it into their systems (Lamoreaux &
Sokoloff, 1999). There is some evidence, then, that if it is true
that “the most successful economies are those that have a mix
of innovative entrepreneurs and larger, more established
firms. . . that refine and mass produce the innovations that
entrepreneurs. . . bring to market” (Baumol, Litan, & Sch-
ramm, 2007, p. 4), then patent rights may be especially impor-
tant for the efficient technology markets that enable
entrepreneurship. This finding about small firms and their pat-
ents may apply to some or even all the Sao Paulo firms studied
here, for three are small start-up enterprises while two are “big”
Brazilian companies that are not so big in global market terms.
Thus, in short, strategic management studies propose the
following proposition:
Proposition 2. Brazilian bio-medical technology inventors will
partner with outside organizations to achieve complementary
assets for technology innovation through patent-facilitated
technology markets.
(b) Public–private technology innovation networks
Ache managers had the vision for a final product, a capacity
to produce it, and the marketing and distribution capabilities
to sell it to Brazilian customers, but their organization lacked
the internal capacities to actually invent and innovate Ache-
flan. Ache managers looked to their university community
for partners who could bring their know-how and skills to
the Acheflan R&D project and a network of some 100 univer-
sity specialists ultimately participated in the project. Strategic
management studies increasingly focus on R&D networks
among public research organizations and private pharmaceu-
tical development enterprises as the key organizational mech-
anisms of innovation in pharmaceuticals, biotechnology, and
the life sciences (Powell, Doput, & Smith-Doerr, 1996).
R&D networks characterized by dense “knowledge integra-
tion” appear to substantially explain the trend for some two
decades of growing American preeminence in pharmaceutical
innovation in all therapeutic categories, as measured by R&D
expenditures, patents, production, and ratio of exports to
imports, so explains a huge European research project
(McKelvey, Orsenigo, & Pammolli, 2004; Montobbio, 2004).
Universities in Europe “transfer” life sciences knowledge to
big private sector pharmaceutical firms through arms-length
relationships; universities in the United States “integrate” life
sciences knowledge through the hosting of research seminars
 PATENT INCENTIVES, TECHNOLOGY MARKETS, AND PUBLIC–PRIVATE BIO-MEDICAL INNOVATION NETWORKS
on their campuses to discuss “works-in-progress” that turn
into close-working technology innovation collaborations and
professor-led or professor-participating start-up enterprises
(Owen-Smith, Riccaboni, Pammolli, & Powell, 2002). Thus,
Brazilian bio-medical technology innovation aspirants should
be studied for how they organize their efforts.
Universities in the United States have become important
participants in technology markets (Branscomb, Kodama, &
Florida, 1999). The traditional means used by universities to
disseminate their knowledge has included presentations at
scholarly research conferences attended by specialists in par-
ticular disciplines and fields; publication in peer-reviewed
scholarly research journals; and helping their students find
jobs in academic, government, and industry research settings.
Some American policymakers came to believe in the late 1970s
that this generally effective research system was nevertheless
not as effective as it could be at encouraging the commercial-
ization of research findings with potential market applications:
Too many promising technologies remained shelved rather
than commercialized.
The United States congress with the 1980 Bayh–Dole Act
gave universities and government research laboratories the
authority to apply for patents for research findings that re-
sulted from public funding so that rights to the research could
be formally licensed to the private sector for further develop-
ment and commercialization (Scherer, 2009). The 1980 Steven-
son-Wydler Act required key government research agencies to
set up technology transfer offices. The 1986 Cooperative Re-
search and Development Act (CRADA) permitted public–pri-
vate cooperative R&D agreements in which the industry
partner retained the patent rights, though with royalty obliga-
tions to the government laboratory. The policy rationale was
that property rights would provide incentives to individual
university researchers to consider market applications in their
research, to the administrators at universities to organize for
technology exchange, and to private industry to invest in fur-
ther commercial development of basic technologies (Mowery,
2007).
These policy reforms were controversial at the time and have
become perhaps more controversial as the number of patents
earned by universities has increased. The effects of Bayh–Dole
on university research include the establishment of technology
transfer offices at many research universities, a substantial in-
crease in the number of patents earned by universities and
their researchers, yet only a few examples of universities with
substantial royalty revenues (Mowery, Nelson, Sampat, & Zie-
donis, 1999; Mowery, Sampat, & Ziedonis, 2002). Critics of
the Bayh–Dole public–private technology innovation system
wonder whether all the time and financial expense of patents
is worth it, especially given the big cost of mission conflict:
Is the mission of the university to create and disseminate
knowledge and, if so, why establish barriers to access (Sampat,
2006)? “[I]f the findings of publicly-funded university research
are placed in the public domain, or are inexpensively licensed
to anyone who wants to use them, competition alone may
stimulate their widespread application” says one critic (Mow-
ery et al., 1999, p. 268). According to this perspective, patents
and tech transfer offices divert university resources away from
the primary mission of basic research and public dissemination
of research; open dissemination of science and technology best
facilitates not just scientific progress but technology innova-
tion, contends a legal scholar (Eisenberg, 1987, 1989, 1996).
The Bayh–Dole critics inspired some in strategic manage-
ment studies to gather evidence and assess the merits of the cri-
tique. Study of MIT’s TTO, an operation that long pre-dates
the Bayh–Dole Act, shows, even at a university famous for the
1087
number of patents earned, the number of technologies that get
to the marketplace, and the number of students and faculty
who start-up enterprises, patenting still represents a very small
percentage of research activity at the university (Agarwal &
Henderson, 2002). Most patents do not contribute much if
any royalty revenues; only a few patents bring home substan-
tial royalties and only one or two patents prove to be block-
busters (Feldman, Feller, Bercovitz, & Burton, 2002). The
economics of university patenting, hence, look like the eco-
nomics of technology innovation more generally—i.e., most
inventions do not reach the marketplace as successful
innovations. These findings say to the Bayh–Dole critics that
university patents are a big waste of time. To adherents of
the patent-technology market thesis, these findings say that
university technology transfer offices are challenged to manage
their (typically modest) resources with shrewdness and pru-
dence: Many technologies do not merit the expense of the pat-
ent process; those that do depend on technology transfer
officers who identify the appropriate licensee(s) and that is
not an easy thing to do (Mowery et al., 2002).
Adherents of the patent-technology market thesis point to
an industry survey carried out with the assistance of the Asso-
ciation of University Technology Managers that finds that
85% of university research still needs more development re-
search to be useful and that 45% of university research needs
a great deal more development research to be useful (Thursby
& Thursby, 2002). Bayh–Dole proponents argue that private
sector licensees of university research prefer exclusive intellec-
tual property rights because they expect to put take on sub-
stantial additional R&D costs and risks. A strategic
management scholar (Schane, 2002) asks, when a university
(MIT) does patent, does it more often lead to commercializa-
tion success? Yes, for he finds that “inventions are more likely
to be licensed when patents are an effective mechanism for
appropriating the returns to innovation because the patent
system reduces the transaction costs of technology transfer.”
Effective university patents allow “commercialization to be
undertaken by economic actors who possess a comparative
advantage in that activity” (Schane, 2002, p. 133). When the
patents are ineffective, the technology is either developed by
the inventor him or herself, often unsuccessfully, or goes
undeveloped. He explains, “Technology commercialization in-
volves a set of skills—including identifying customer needs,
developing product concepts, designing products and pro-
cesses, prototyping, and manufacturing—that university
inventors rarely possess” (Schane, 2002, p. 123). This finding
suggests that, though perhaps many university patents prove
not to be worth much, some university patents may be decisive
to successful technology innovation.
Thus, in short, some scholars doubt the utility of patents to
facilitate university-private R&D collaboration, but some stra-
tegic management scholars propose the following:
Proposition 3. Brazilian public–private bio-medical technology
innovation networks are facilitated by patent rights-based
agreements.
(c) The public–private biodiversity-based bio-medical technology
collaboration
Studies of university–industry linkages in Asia find that they
are informal in Japan and weak in India, Korea, Singapore,
and Thailand but proliferating toward a US model in Taiwan
and China (Hershberg, Nabeshima, & Yusuf, 2007, p. 935).
Technology commercialization in Asia remains a private sec-
tor-dominated activity (Yusuf & Nabeshima, 2007). A recent
1088 WORLD DEVELOPMENT
study of science and technology in Brazil (Rodriguez, Dahl-
man, & Salmi, 2008, p. 5), by contrast, explains that the situ-
ation there is exactly the opposite of that common in Asia:
“Two factors—a bias toward overly ‘theoretical’ research in
publicly funded universities and significant under-investment
[in R&D and human resource capacities] by a shielded private
sector that is spared the need to compete—lie at the heart of
Brazil’s current relative under-performance in innovation.”
The Ache case illustrates their second generalization, but also
suggests that the know-how for technology innovation exists
in Brazilian universities.
The state of Sao Paulo, especially through its Fundacao de
Amparao a Pequisa do Estado de Sao Paulo (FAPESP), the
State of Sao Paulo Research Foundation, has led public
investment into basic science and technology. For some 50
years FAPESP has funded basic scientific research and gradu-
ate education at universities in the State of Sao Paulo, such as
the University of Sao Paulo, the University of Campinas, and
Paulista State University. In addition to the universities, the
bio-medical research base in Sao Paulo includes the publicly-
supported Institute Bhutantan. Institute Butantan is a re-
search institute of the Ministry of Health and thus has been
organized to create bio-medical S&T capacity and pharmaceu-
tical medicine and vaccine production capability. The S&T
capacity long focused on reverse-engineering of international
medicines, especially vaccines, and, thus, Brazilian govern-
ment facilities produce some 200 different drugs and vaccines.
The research institute, however, traditionally did not carry out
research aimed at new pharmaceutical innovation, either
through independent efforts or through public–private part-
nership.
Leaders at FAPESP say that they believe that technology
commercialization opportunities created by their public
investments into basic S&T had largely gone unrealized in
the marketplace because, in general, their private sector invests
little into R&D. Two-thirds of R&D spending is invested by
the government; only one-third is invested by the private sec-
tor. Seventy-five percent of scientists and technologists work
in the universities; only 18% of scientists and technologists
work in the private sector (FAPESP, 2005). Most industrial
R&D carried out in the Brazilian private sector is conducted
in the agriculture, aircraft, and energy sectors. Pharmaceutical
companies do not themselves possess research laboratories or-
ganized for the purpose of new product invention and innova-
tion. There were thus few private sector jobs for bio-medical
graduates and thus modest incentives to pursue higher educa-
tion in the bio-medical sciences in Brazil for any reason other
than university and public institute employment.
For these reasons, during the Cardoso reform era, FAPESP
initiated a number of institutional innovations in how it went
about supporting S&T in the state of Sao Paulo. In 1994 FA-
PESP’s Governing Board reformed its mission to include “the
transformation of knowledge into wealth” (FAPESP, 2005, p.
4). FAPESP would henceforth devote substantial financial re-
sources to technology commercialization by funding public–
private R&D projects. Since 1995 FAPESP’s Partnership for
Technological Innovation Program has invested R$90 million
(about US$37.5 million) by funding 90-some specific projects
through peer-reviewed competitive bid processes. Since 1997
FAPESP’s Technological Innovation in Small Businesses pro-
gram has invested another R$71 million (about US$29.5 mil-
lion) to support R&D projects carried out by small enterprises.
The projects have concerned agriculture, health and life sci-
ences, engineering, and earth sciences. However, the two suc-
cessive scientific directors who managed this process both say
that they have used the peer-review model of the National Sci-
ence Foundation with these programs and, thus, FAPESP
does not carry out a “targeting” industrial policy. They fund
projects because proposals are submitted and reviewers deter-
mine them to have comparatively more merit than proposals
that go unfunded. They say that this public investment made
by FAPESP ameliorates the decisive problem of capital short-
age confronted by industrial R&D aspirants in Brazil. Years
of macro-economic instability and other factors have discour-
aged risk-taking capital markets.
In 1999 FAPESP articulated a strategy for R&D in their
state that set the introduction of technology innovations in
the marketplace as the goal. FAPESP announced a plan to
establish a number of research centers that would focus on ap-
plied R&D in partnership with the private sector. After field
research in the United States regarding the National Science
Foundation and national laboratory technology commerciali-
zation policies and practices, FAPESP called on university and
public research institutes to compete to establish ten centers
seeded with 11 years of funding of US$1 million per year. Pro-
posed centers could concern any field of S&T but had to in-
clude both a public research center and a private sector
collaborator. Institute Butantan and a consortium of pharma-
ceutical firms known as COINFAR jointly submitted a win-
ning proposal to FAPESP that resulted in the creation in
2000 of a center for research, innovation, and knowledge dis-
semination in toxinology—the Center for Applied Toxinology
(CAT).
CAT’s director, who left a university faculty position to lead
the new center, designed his laboratories to isolate, identify,
and synthesize the active compounds in the toxins from
snakes, frogs, and other fauna and flora. He went to the Uni-
ted States to seek medical science advice at MIT and technol-
ogy transfer advice at Cornell. What he learned was that he
had to provide “proof of concept” to the private sector to
maximize the likelihood of commercialization initiative. An
American patent attorney was invited to Sao Paulo during
the first months of the Center’s life in 2000 to give several days
of lectures to the scientists regarding patents, technology
transfer, trade secrets, and confidentiality agreements.
Previous research suggested to the CAT director that the ve-
nom of a rattlesnake, Crotalus terrificus, was an especially
good target for innovative medicines. The CAT-COINFAR
(i.e., essentially the two big Brazilian generic makers Ache
and Biolab) joint venture determined that the project regard-
ing rattlesnake venom appeared the most promising, so it
was the priority project. It was a scientifically complex task
that required new equipment, including a mass spectroscopy
facility, and new scientific skills about which he and his col-
leagues in toxinology research had previously been unfamiliar.
With the help of a Japanese chemist who worked with the
CAT team for three years on a scholarship from FAPESP
and COINFAR, the CAT research team identified a molecule
in late 2004. Animal tests showed effects similar to morphine,
but more potent and lasting, and apparently without the
dependency side effects of morphine. CAT and the COINFAR
team worked with attorneys to draft a patent application,
which they submitted to the patent offices in Brazil and the
United States in 2005.
But the CAT–COINFAR partnership faced some of the
same problems that Ache and its university partners faced.
Both the CAT and COINFAR principals agree that, when
they put their relationship together, neither side knew enough
about patents and intellectual property rights. What informa-
tion is kept secret as proprietary information? What informa-
tion is patented? What information is published and when?
Who, CAT or COINFAR, submits a patent application?
 PATENT INCENTIVES, TECHNOLOGY MARKETS, AND PUBLIC–PRIVATE BIO-MEDICAL INNOVATION NETWORKS
Who decides? Who pays for the legal fees and patent mainte-
nance fees over time? Who owns the intellectual property?
How are the intellectual property issues defined in the con-
tracts that govern the relations among all concerned? Who
controls the international development and marketing strat-
egy? If COINFAR owns the patents, how are royalties divided
among Institute Butantan, CAT, and individual researchers?
Regarding their potential analgesic, COINFAR member-
company managers decided that the lack of R&D capacity
regarding laboratory and clinical research, not only in their
companies, but also in Brazil at-large, the weak capacities of
their regulators regarding laboratory and clinical research
practices, and their concerns about the lack of innovation
incentives built into their national pharmaceutical price con-
trol system meant that this potential drug needed to go the
United States for development. So, the COINFAR consor-
tium hired an American patent attorney to study their 2005
US patent application. Their new attorney identified some
mistakes and re-filed their application. They expect to com-
plete the US laboratory and animal studies in 2008 and
planned to start Phase I clinical trials in the United States in
2009. However, Institute Butantan disputes ownership of the
patent rights. They learned clinical research studies say the
COINFAR partners will not start until the patent dispute is
settled.
(d) The university-private start-up biodiversity-based venture
A Brazilian surgeon and a Brazilian biochemist at a univer-
sity in the northwest of the state of Sao Paulo came upon a
natural rubber-based material that with which they experi-
mented in an esophageal tissue replacement in a dog. To their
astonishment, 10 days after the surgery, the dog processed
food normally and defecated the membrane remains. Three
years of subsequent study showed that the rubber membrane
stimulated the blood vessels to regenerate tissue significantly
faster than normal. In 1998 university testing was initiated
in humans with a variety of chronic wounds. In 2002 the pro-
ject was taken to the Brazilian Academy of Advanced Studies,
where a mix of public and private funding was secured
through angels and venture capital. An experienced business
leader was recruited to design a business plan to start-up a pri-
vate company, with the inventors as technology officers and
share-holders, and Pele Nova Biotecnologia S/A was estab-
lished in 2003.
Pele Nova seeks to develop products that assist skin and tis-
sue re-generation for uses ranging from repair of diabetic ul-
cers, surgical wounds, and skin burns to dermatological and
cosmetic applications. The several competing products, which
are produced by companies such as Johnson & Johnson and
Novartis, are synthetic, expensive, and used therapeutically
when the expense can be justified. The Pele Nova technology
is natural rather than synthetic and supplies of the natural
material in Brazil are plentiful and not expensive. Their busi-
ness strategy focuses on identifying for the technology as many
uses as possible, filing for patent protection on these many
applications, and developing products both in-house and
through license to R&D, manufacturing, and distribution col-
laborators. Pele Nova submitted patent applications in 2005
through the Patent Cooperation Treaty process of the World
Intellectual Property Organization in Geneva and received
notification from the European Patent Office in Munich in late
2007 that their patent applications were granted and applied in
60 countries around the world. Pele Nova managers subse-
quently negotiated a product R&D, marketing, and distribu-
tion collaboration agreement with a French innovation and
1089
distribution company. The Pele Nova strategy calls for addi-
tional such collaboration agreements directed toward medical
product applications, so patents are for the company’s manag-
ers and inventors both incentives for R&D and facilitators of
technology markets.
(e) The cancer and HIV/AIDS biotechnology innovation
ventures
The Genoa Biotecnologia and Recepta Biopharma pro-
jects fundamentally differ from the Ache, CAT–COINFAR,
and Pele Nova projects, for they both are biotechnology-
based rather than biodiversity-based pharmaceutical R&D
projects.
Genoa Biotecnologia is a private enterprise started up in
1999 by professors on the faculty of a medical school in Sao
Paulo. Genoa leaders have assembled a research team of spe-
cialists in molecular biology, genetics, and bioinformatics. The
venture seeks to develop vaccines for the treatment of cancers
and for HIV positive people who have not yet developed the
symptoms of AIDS. The Genoa vaccines apply a dendritic
cell-tumor cell fusion technique, which they invented, to stim-
ulate the defense cells to attack the tumor while sparing the
healthy tissue. Genoa is conducting animal and human trials
with an array of local university and hospital partners on can-
cer patients who suffer from renal cell melanoma, carcinoma,
pancreatic cancer, acute myeloid leukemia, and small-cell lym-
phoma. Genoa researchers are carrying out human and animal
trials with an array of local university and hospital partners.
They are further developing the technology as a high-precision
diagnostic tool aimed at pharmaco-genetic tests capable of
evaluating the efficacy and toxicity of chemotherapy drugs
for particular patients prior to treatment.
Genoa is also developing the technology for use against the
HIV virus. In 2007 they entered into a collaborative research
agreement with an American company that had been started
up to develop technology based on science carried out at an
American university. The collaboration combines the Genoa
dendritic cell-tumor cell fusion technique with the American
company’s Lysosomal Membrane Associated Protein technol-
ogy and sets the terms for collaboration among the research-
ers. The goal is to produce a vaccine not to prevent HIV but
to prevent HIV from becoming AIDS. Thus, their vaccine
would substitute for the anti-retroviral therapies commonly
deployed to treat AIDS. Genoa researchers had submitted
11 patent applications, most related to cancer, to take effect
in the United States, Europe, and other countries and in Bra-
zil. Thus, patents are for Genoa an incentive to conduct vac-
cine and diagnostic tool development and also a source of
leverage for their HIV/AIDS vaccine development collabora-
tion with the American company.
Recepta Biopharma in Sao Paulo is developing new phar-
maceutical therapies for ovarian and breast cancers. Existing
pharmaceutical therapies for these cancers are effective only
in a small percentage of patients. Thus, if their R&D efforts
succeed, they will revolutionize medical treatment for women
afflicted with these cancers. A New York research center iden-
tified antibodies with potential, but wanted to conduct drug
development work in Brazil because the quality of Brazilian
science was known to them through a New York–Sao Paulo
bio-medical S&T network. In 2003 Recepta’s founding presi-
dent organized a network of some 40 scientists and clinical
researchers from universities and research hospitals in Sao
Paulo, Rio de Janeiro, and Belo Horizonte to carry out the re-
search. The team successfully carried out Phase I laboratory
tests for efficacy and safety of the candidate pharmaceutical
1090 WORLD DEVELOPMENT
therapies. Phase II study, which uses human patient and which
started in June 2008, will indicate to the team whether their
optimism owing to the laboratory research is warranted.
The patent strategy at Recepta starts with the risky nature
of cancer therapy development. Because, despite their best ef-
forts, they may not produce a pharmaceutical therapy that can
be approved by drug regulators for use with cancer patients,
Recepta obtained exclusive license rights to use the patents
of its New York collaborator. Recepta’s president explains
that their angel investors thereby know that, if their R&D ef-
forts do succeed and if their judgment about the unmet cancer
need is correct, they will be rewarded for their financial contri-
bution to making the R&D effort possible. However, because
of the inexperience with patents and lack of patent policies at
Brazilian research universities, Recepta is not conducting pat-
ent-oriented research in Brazil. Thus, patents facilitated inter-
national R&D collaborations between American inventors
and Brazilian developers in the Recepta as well as the Genoa
cases. Patents on Genoa’s new inventions are intended to facil-
itate future technology commercialization through license to a
private sector innovator.
(f) Brazilian technology innovation law of 2005
Brazilian generic pharmaceutical firms did not possess the
internal capacities for innovative R&D and all the Sao Paulo
bio-medical technology innovation cases illustrate the exam-
ples of public–private technology innovation networks rather
than go-it-alone private development enterprises, a finding
that is consistent with the prediction of strategic management
scholarship. The Sao Paulo bio-medical technology innova-
tion cases vividly illustrate patent-facilitated technology mar-
kets with external R&D networks. But these early projects
proved not so easy for the participants to negotiate. Leaders
at FAPESP, the research universities, and innovation-prospec-
tive firms identified problems and “the key elements of Brazil’s
innovation policy are spelled out in the 2002 White Book on
Innovation. The current policy framework, known as PITCE
(Politica Industrial, Tecnologica e de Comercio Exterior),
launched in late 2003, focuses on the promotion of R&D activ-
ities in the business sector aiming at better integrating innova-
tion into the government’s industrial and foreign trade
policies” (Brito Cruz & de Mello, 2006, p. 5). This Brazilian
technology innovation community encouraged the Lula
administration to lead the Brazilian congress to enact an intel-
lectual property-oriented technology law, Law No. 10,973, in
2005. The technology innovation law “introduces provisions
on incentives for innovation and scientific and technological
research in the production environment . . .” The law encour-
ages public–private R&D cooperation by stating explicitly
that
 public research institutes may agree to share their labora-
tory facilities with private-sector enterprises;
 public research institutes and private sector enterprises
may enter into capital relationships for the purpose of
R&D partnerships;
 the public and private partners may specify by contract
intellectual property rights ownership;
 the public research institute and its employees must pro-
tect trade secrets associated with their research;
 the public research institute may license a technology to a
private enterprise;
 individual researchers may share in the economic returns
associated with successful commercialization;
 public researchers may take leave from their public posi-
tion in order to work for a private enterprise;
 development agencies should provide financial and
human resource assistance in support of private sector
R&D.
This law shares some key features with the US Bayh–Dole and
CRADA laws of the 1980s, but Brazilians intend that the law
confronts their experience with institutional problems regard-
ing technology innovation incentives and technology markets.
4. RESEARCH CONTRIBUTION AND LIMITATIONS
There is a school of thought that says, while the logic of pat-
ents as incentives is basically sound, though arguments in sup-
port of the superiority of cash reward systems are made
(Shavell & Van Ypersele, 2001), the present global, especially
United States, patent system has established a bio-medical
anti-commons with too many patents in general and excessively
broad patents with respect to research tools in particular (Heller
& Eisenberg, 1998). Heller and Eisenberg did not offer an empir-
ical study or any real examples of the phenomena they imagine,
but their thesis has encouraged a good deal of theoretical and
empirical debate. Too many patents lead to patent litigation
that negatively impacts firm R&D investment decisions (Lerner,
1995), especially in pharmaceuticals, biotechnology, and the life
sciences because the economic stakes are high (Lanjouw &
Schankerman, 2001), and small firms may be especially at risk
(Lanjouw & Schankerman, 2004). Patent litigation has in the re-
cent years “exploded” so that the costs to litigants outweigh the
benefits of their patent rights (Bessen & Meurer, 2006) and
threaten the global technology innovation system (Bessen &
Meurer, 2008; Jaffe & Lerner, 2004).
Nevertheless, other scholars (Epstein & Kuhlik, 2004) reject
the Heller and Eisenberg thesis as inconsistent with both
economic theory and marketplace experience: Contesting
bio-medical patent holders “work through” their technology
business problems through licensing, cross-licensing, and
other business strategies (Walsh, Arora, & Cohen, 2003). A
survey of university and industry bio-medical technology man-
agers finds that pharmaceutical R&D projects stop 62% of the
time because of lack of funding, 60% of the time because of
lack of time, 29% of the time because of competition concerns,
and 1% of the time because of patent litigation threats (Cohen
& Walsh, 2007; Walsh, Cohen, & Cho, 2007).
Thus, there are two views about bio-medical patents and lit-
igation and there is evidence to support both views: Litigation
is expensive, time-consuming, and debilitating, especially for
small technology start-ups, but litigation often results in pat-
ent-licensing, cross-licensing, and strategic alliances among
competitors. In every case studied here the Brazilian bio-med-
ical innovator aims to invent a wholly new medicine. Brazilian
bio-medical innovators do not express concerns about the
existing bio-medical patents. Indeed, bio-medical innovator
firms in developing countries such as Brazil that are pursuing
bio-prospecting-based R&D strategies should not run afoul of
the existing product patents. It is conceivable that they could
become entangled in biotechnology research tool patents,
but they do not say that is a problem for them at this time.
In short, there is no evidence of bio-medical technology patent
anti-commons for Brazilians. However, their radical innova-
tion strategies may not make their experiences the best tests
for the issue. For better tests of the anti-commons thesis,
incremental pharmaceutical innovators in Brazil or some-
where else in the developing world should be examined.
None of the scholars who contribute papers to Intellectual
Property, Trade, and Development (Gervais, 2007) provides
any evidence regarding indigenous technology innovation in a
 PATENT INCENTIVES, TECHNOLOGY MARKETS, AND PUBLIC–PRIVATE BIO-MEDICAL INNOVATION NETWORKS
developing country. In that volume Argentine legal scholar Cor-
rea (2007, p. 258) says, “In Latin America the relationship be-
tween intellectual property and development remains as
nebulous as elsewhere.” Four papers contributed to Interna-
tional Public Goods and Transfer of Technology Under a Global-
ized Intellectual Property Regime (Maskus & Reichman, 2005)
appear in the section “Stimulating Local Innovation” but,
though all the papers speculate about intellectual property
and developing country indigenous technology innovation, only
one paper provides evidence and the evidence comes from Japan
(Branstetter, 2005). In the World Bank collection Intellectual
Property and Development: Lessons from Recent Economic Re-
search (Fink & Maskus, 2005) only one paper (Maskus, 2005)
takes up the question of what the domestic economic impacts
might be to the strengthening of intellectual property rights in
a developing country (Lebanon), but provides static analysis
predicting increased royalty payments, employment losses,
and firm exits in the pharmaceutical, software, and creative
industries. Two economists who do provide evidence do so by
studying developing country-based patents to the US Patent
and Trademark Office from 1985 to 1995 (Chen & Puttitanun,
2005). They find that local innovation effect dominates local imi-
tation effect, i.e., the possible trade-off between innovation and
imitation, as development level rises, beginning at about $850
per capita. Research findings here in comparatively rich state
of Sao Paulo are consistent with their aggregate analysis.
Some scholars who doubt the value of patents and intellectual
property rights to bio-medical technology innovation often
point to a study that addressed the incentive role of patents by
studying the effect of patent reform in the early 1980s on phar-
maceutical R&D and innovation in Italy, a country with no his-
torical record as a pharmaceutical innovator. They found that
the effect of patent reform for pharmaceutical innovation had
been modest (Scherer & Weisburst, 1995). But, the investigators
cautioned that the Italian government had enforced the most
stringent pharmaceutical price controls in Europe during the
post-reform era, which may have “overwhelmed the stimulative
incentive effects of drug product patent protection” (Scherer &
Weisburst, 1995, p. 1023). Specific to developing country phar-
maceutical R&D, Forero-Pineda (2006) refers to a Mexican
study that finds no evidence of local bio-medical technology
innovation after their 1994 patent reforms. However, both Mex-
ico and Brazil pursue aggressive pharmaceutical price control
health policies and managerial economists have identified Euro-
pean and global price controls as significant factors with respect
to pharmaceutical innovation (Grabowski & Vernon, 1990;
Grabowski & Vernon, 2002; Lichtenberg, 2006) and global
pharmaceutical market entry decisions (Danzon, Wang, and
Wang; 2005; Kyle, 2007). Brazilian interviewees in this study
say that Brazilian price controls strongly negatively influence
their innovation decision-making and their behavior—patent
protection and clinical research in the United States and Eur-
ope—as documented here supports their words. Regulatory
environments regarding laboratory, clinical, and ethical prac-
tices, safety and efficacy, and prices and demand strongly influ-
ence bio-medical technology innovation in the United States
and Europe (McKelvey et al., 2004). Technology innovation
promotion policy is often trumped by health cost containment
policy, so future research in Brazil should focus on the regula-
tory environment for bio-medical technology innovation. These
value and policy conflicts may be especially acute in developing
countries. President Cardoso’s 1996 policy decisions to grant
pharmaceutical product patents yet threaten AIDS drug com-
pulsory licenses are cases in point.
The study findings from the state of Sao Paulo, the largest
science center in Latin America, are significant for their rich-
1091
ness with respect to the behavior of bio-medical technology
innovation entrepreneurs in a developing country setting. Bra-
zilian generic pharmaceutical reverse-engineering R&D had a
long tradition in both the private sector and government labo-
ratories, but bio-medical invention and innovation had been nil
before the 1996 patent law reforms. Nevertheless, Brazil’s ac-
tive generic pharmaceutical companies and a deep bio-medical
science research base in universities and public research insti-
tutes created potential inventors and innovators. A study of
biotechnologists in the United States finds that “star” scien-
tists, measured by journal articles, produce more patented
inventions and contribute to better firm performance (Zucker,
Darby, & Armstrong, 2002), a finding that prompts the
question here: What are the characteristics of these Brazilian
innovation leaders? Ache had been led for decades by a law-
yer-by-training who rolled up his sleeves and got into the labo-
ratory because he loved pharmaceutical science. Success with
Acheflan proved the promise of his vision to develop Brazil’s
flora and fauna into new medicines, so he recruited a Brazilian
bio-chemist who was teaching biodiversity-based pharmaceuti-
cal technology innovation at a Swiss university to return to
Brazilia to lead Ache’s biodiversity technology innovation pro-
gram. He is leading projects with university collaborators in
therapeutic areas such as antifungals, anxiety, cognitive dys-
function, diabetes, and metabolic dysfunction. Biolab’s re-
search director has two decades of experience working in the
United States for pharmaceutical innovators and he is passion-
ate about turning his company into an innovator. The director
of the Center for Applied Toxinology is a university scientist
who is similarly passionately pursuing the goal of new drug
development. The three entrepreneurial ventures were all
started up by scientists, though in one case they lured the leg-
endary founder of the only globally competitive Brazilian tech-
nology company (commercial aircraft) out of retirement to lead
their company. The scientists are all very much aware that they
are breaking new ground in their country; the one who did
break new ground in his country contends that getting people
to believe that they could innovate commercial aircraft at
world-class levels was the biggest challenge of all in building
the company. The characteristics of risk-taking technology
innovation leaders in developing countries merit more study.
Early private-sector entrants discovered that their reverse-
engineering skills did not help them with new product invention
and innovation, so they sought partnerships with university sci-
entists. The State of Sao Paulo Research Foundation spurred
public–private bio-medical technology invention and innova-
tion initiative by issuing a competitive request-for-proposal pro-
cess and funding the CAT–COINFAR consortium, bringing
together a major public research center and private generic-ma-
ker pharmaceutical companies. Three private start-ups emerged
from the university and public research community. It is thus
not argued here that patent reforms alone are sufficient condi-
tions for biodiversity-based and/or biotechnology-based inno-
vation to happen in a developing country. Other necessary
institutional and competitive conditions exist in Brazil and
likely must exist or be built in other developing country settings.
Nevertheless, Brazilian bio-medical technology entrepreneurs
knew intimately the reverse-engineering capacities within their
generic industry, so the 1996 patent law reform fundamentally
changed the knowledge appropriability regime. Further study
of the incentive and technology market effects of patent reforms
is needed for their interactions with institutional and competi-
tive environments in other developing country settings, espe-
cially with respect not only to innovation in bio-medical
technology, but also in innovative fields such as agricultural
technology, information technology, and green technologies.
1092 WORLD DEVELOPMENT
Developing countries played little role in bio-medical tech-
nology innovation during the 20th century. But, the need for
bio-medical innovations to meet the global health burden
grows and the opportunities for developing countries owing
to biodiversity and biotechnology are considerable, so how
people in developing countries can best design the institutions
for successful bio-medical technology innovation challenge
development studies. Rich case studies of Sao Paulo bio-med-
ical innovation projects put propositions of institutional eco-
nomics and strategic management to test and support the
propositions that patent incentives and technology markets
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