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The R&D Tax Credit and Other Technology Policy Issues, Edwin Mansfield, AEA Papers and Proceedings (May 1986), pp. 190-193.

This and the following two articles came as parts of a special report on patents, in the cited publica- tion. Their listing here will focus only on the find- ings of the individual pieces of research.

Mansfield addressed the issue of whether R&D tax credits, increasingly used by countries large and small for stimulating increased expenditures on R&D, have been effective. He studied the U.S., Canada, and Sweden, via a mail survey of 205 firms, representing a sizeable percentage of total R&D performed in the subject countries. The key variable was a judgment by executives in the surveyed firms-percentage increase in R&D spending that was caused by the tax credit.

The results for all three countries were similar: the tax credits yielded an increase in R&D of slightly over 1%. Further, the increased R&D dollars were about a third of the revenue loss by government. Unfortunately, the existence of the tax credit program caused a redefinition of R&D in many firms, such that total budgets appear to have increased about 13 to 14%.

To test the survey results, the author did some econometric analyses on available data, and al- though the method in this case was rather rough, the outcome was substantially the same. In con- clusion, the author recommended that the U.S. government remove the tax credit and spend the $1.5 billion on its own R&D. The other two coun- tries have either removed the credit or substan- tially altered how it is calculated.

Longer Patents for Lower Imitation Barriers: The 1984 Drug Act, Henry Grabowski and John Vernon, AEA Papers and Proceedings (May 1986), pp. 195-198.

In 1984, the U.S. patent law was changed so that the drug industry could start the 17-year patent clock later than customarily required. This delay reflected the long years spent in technical and clinical development, running on average about half of the 17 years. Under the new law it was expected that the average useful market life of the patent might be increased to as much as 11 years,

and could legally go to a maximum of 14 years. Simultaneously, drug approval law was changed such that producers of generic products could make use of the safety and efficacy data of the inventor (such data had previously been deemed trade secrets). Supposedly these changes would increase rewards to innovators during the life of the patent, but would bring competition into the market much faster once the patents ran out.

There is now evidence that the removal of safety and efficacy data requirements will have a big effect. Already, scattered data show more rapid generic entries very shortly after patent ex- pirations, and forecasts are that such entries will follow almost all patented specialties; in the past many specialties had such onerous safety and effi- cacy data requirements during development that generics never did enter against them.

We cannot say yet what the patent law change will bring, but early evidence and some financial simulation analysis suggests that if a pharmaceu- tical firm gets an extension of 3 years on patent start-up time, the trade off with quicker loss to generics will be about even.

A New Look at the Patent System, Richard C. Levin, AEA Papers and Proceedings (May 1986), pp. 199-202.

This research was undertaken in an attempt to clarify the outcry for patent reform. The author (and others) knew that the patent situation in in- dustry was heterogenous, causing any step of re- form to have strong advocates and active antago- nists. The action taken was a survey of 650 R&D executives in 130 different industries.

Among many other questions, respondents were asked to rate patents as a tool in “capturing and protecting the competitive advantages of new and improved products.” (The study also dealt with new processes, but they are omitted here.) Seven methods were offered: patents, secrecy, lead time, moving quickly down the experience curve, licensing, sales efforts, and service efforts.

Only in the drug industry did respondents rate patents as the best of the seven methods. In three other industries, organic chemicals, plastic mate- rials, and steel mill products, patents tied with another method. In general, the study showed that patents are regarded as especially effective

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only in industries with chemical-based technolo- gies. In most industries they are not considered effective, and only in industries where the barrier is real are there cost penalties put on imitators.

Respondents were asked why they sought pat- ents, if patents were of such little value in pro- tecting inventive rights. Their answers included use of patents to measure performance of R&D employees, gaining strategic advantage in inter- firm negotiations or litigation, and obtaining ac- cess to foreign markets where licensing to a host country is a condition of entry.

The author used these findings to argue against (1) lengthening patent life in nonchemical indus- tries, (2) careless generalizations about the role of patents in the economic analysis of different in- dustries, and (3) forcing our foreign trading part- ners to adopt, and enforce, stronger patent laws in industries other than those that are chemical- based.

How Managers Express Their Creativity, Herbert A. Simon, Across the Board (March 1986), pp. 11-19.

This article, excerpted from a forthcoming book edited by Robert Kuhn, addressed the question “What is creativity, and especially, what is crea- tivity in management?” First, one should know that creativity is not a spark of genius, or some- thing shrouded in mystery. It is a problem-solving process, and it can be identified, taught, and prac- ticed.

Creativity is first identified by its products, and for this the author uses the patent law criteria of novelty, value, and unobviousness. People who produce things that are truly new, are of social or economic value, and are not obvious, are crea- tive.

Second, creative people have a large bundle of expertness, over 10 years of experience in the case of world-class artists and chess-masters. The brain holds some 50,000 chunks of knowl- edge of one category, but which can be applied to other fields. An experienced biologist, for exam- ple, has depth of knowledge that can be applied to genetics.

Third, the creative person works hard, is per- sistent, and is willing to gamble. There is a con- trarian streak, the willingness to act on a belief, and a conviction that a superior position must be

found and taken advantage of. The objectives of any activity set or situation are known and kept in mind. This is a demanding work credo.

Fourth, because of the importance of serendip- ity, the creative person must be sensitive to acci- dents and ready to respond to them. This means that decisions are often made on instinct (not un- founded, however) with reliance on intuition. There is desire to have less than ideal exploitation of opportunity rather than missed opportunity.

One can see that creative people of the type presented here probably accomplish a great deal, and some of their accomplishments will be novel, worthwhile, and unobvious.

However, the author then addresses the ques- tion of creativity in management. Since man- agers, by definition, work through other persons, can they be creative, and are the criteria the same? The author’s response is a solid yes. They too produce worthwhile new things, they work in a hard, persistent, purposeful and risk-accepting mode. They have valuable experience in manage- ment, usually within one industry. They are quite willing to make decisions quickly and partly on a well-honed instinct.

Yet, the author says there is one key differ- ence. Unless the creative act produces a new mode of management, the manager, through pro- pensity or through learning, must receive satis- faction indirectly from the creations of others. This is not only true of entities in business; it is equally true today in major research centers and artistic centers. Musical directors of great or- chestras may not often actively conduct them, and leaders of large-scale, multidisciplinary re- search teams may be far from a bench.

This all concludes that creativity is problem- solving, not magic, and is the direct by-product of training and experience. The most interesting as- pect perhaps is that a manager, though not per- sonally doing the work of the unit being managed, nevertheless is creatively a part of the process.

Matrix Management: More Than a Fad, David H. Gobeli and Erik W. Larson, Engineering Management International (1986, n. 4), pp. 71-76.

Matrix management, so widely ballyhooed 10 to 15 years ago, has recently been criticized by man- agerial observers. Peters and Waterman (Zn