Increasing benefits of corporate innovation from government research.

To some extent, innovation has always relied on government support. But a recent study shows that public funding could be even more efficient than it seems.

"Quick a third of US patents rely on work specifically supported by the government," said Dennis A. Yao, Lawrence E. Fouraker, Business Administration Professor and co-head of the Harvard Business School Strategy Group.

Remember that Uncle Sam's R&D (R&D) spending rose 5 fold from less than $20 billion in over $100 billion a year between the 1950s and the 1980s, equal to business R&D expenses.

IF MORE INVENTIONS ARE BUILDING ON FEDERAL GRANTS, IT SUGGESTS THAT SUPPORT IS BECOMING MORE IMPORTANT TO RESEARCH GENERALLY.

Since then, business spending has continued to grow, although government funding has decreased. In 2016, companies accounted for 69 percent of all R&D spending, while according to the Congressional Research Service, the US government provided just 22.5 percent. The remaining 10 percent referred to higher education, non-profit organizations, and non-federal governments.

"The obvious question is: ' What is the government's role in promoting innovation in this changing environment?" Yao says. Yao says.

According to new research by Yao and several colleagues, its function remains important. Given the relatively small budget, the government funds innovations that really matter to the US economy.

The research, published in the journal Science in June, was headed by the University of California, Berkeley, engineering and business professor Lee Fleming and included Professor Hillary Greene of Law, University of Connecticut and Berkeley Guan-Cheng Li as well as Matt Marx, Professor of Strategy of Boston University.

Who’s funding patents?

The researchers have used new patent data from the US Patent and Trademark Office, which recently started to include patent filer recognitions in their database, to learn how government funding fuels innovation. These admissions generally cite sources of funding that helped researchers to identify patents sponsored by government agencies such as the National Science Foundation or the National Health Institutes (NIH).

"It was previously possible to determine what patents came directly from government research laboratories," says Yao. "Now we can see which patents also originated indirectly from support from the government." These include patents supported by federal grants and patents based on previous patents or publications funded, directly or indirectly, by the Government. By examining the database of all patents filed since 1926, the team determined that the percentage of patents involving government support increased steadily. While government R&D expenditure as a percentage of Gross Domestic Product has declined since the mid-1980s, the percentage of government-supported patients increased from 12% in 1980 to high 30% by 2011, down from then to 28%.

"When more inventions build on federal grants, it suggests that research support is becoming increasingly important," says Yao.

Yao and his collaborators have reviewed previous patent applications to see how prior developments had affected future technologies. Among patents granted to companies in 2010, those which, on average over the next 5 years, benefitted by federal largesse, directly or indirectly, were cited 6.33 times, compared to 4.42 patent citations that received no government aid.

Even if scholars compared discoveries involving similar technologies, the results were reported around the same time or had similar inventors. In these cases, 3.39 more citations were earned for government-funded inventions than those without, on average.

"This result indicates that patents funded by the government are more important, which reinforces the concept of government-funded innovation as an economic driver," Yao said.

Who benefits from government funding?

Companies that filed the vast majority of the patients studied by Yao and colleagues obtained most from state money, not from lone inventors or academic institutions. In reality, companies were dependent on government-funded research and relied on federally funded grants for nearly 35% of all patents they filed.

While the paper does not specifically analyze why government-funded patents are so relevant, Yao speculates that government institutions tend to fund broader science initiatives, compared to companies, that lead to more new discoveries.

Government funding is paying off

Taken as a whole, the paper gives the government a strong reason to continue – if not increase – its level of investment in science research.

"In political contexts, research funding is often an objective in the context of cuts," said Yao, noting that voters are more likely than long-term benefits of research spending, whose results may be years away, to feel the immediate consequences of shrinking human services. "Voters don't get so upset with such cuts." Science can not predict what will happen if US government drastically slashes expenditures. Yet the analysis indicates that government funding, dollar by dollar, at least for now fuel imagination more effectively than non-government expenditure.

"The data certainly suggests that the government's current rate of research funding is paying off," says Yao. "Perhaps we could benefit even more if we invested more."

Thank You.