Open Source Biotechnology

Incentives

 
 

Although the pro-competitive nature of open source licensing limits the direct income an innovator can derive from licence fees and royalties, there are many other ways to capture a return on investments in open source biotechnology.


Prospective contributors to open source biotechnology research and development may be motivated by the anticipation of


  1. process benefits;

  2. use benefits;

  3. non-monopolistic but potentially lucrative business opportunities; and/or

  4. a chance to restructure competition within a market.


Process benefits

Some research and development investments are motivated by benefits to be derived simply from engaging in the innovative process, irrespective of outcome.


In the software context, recognised process benefits include fun, learning and interaction with like-minded peers. While these incentives may seem less likely to motivate investment in biotechnology research and development, industry participants do sometimes engage in innovative activity for the sake of analogous benefits.


For example, some commercial biotech and pharmaceutical firms encourage staff to engage in discretionary collaborations in order to acquire and maintain skills, build professional reputations and connect with a community of peers. These are essentially the same factors that drive individual contributions to open source software development.  Such indirect investments help employers attract and retain high quality staff and contribute to their professional development. 


Larger-scale investments in open source biotechnology could involve seeding and maintaining a new project or making substantial monetary or in-kind contributions to existing projects. Potential benefits include:

  1. enhanced organisational learning;

  2. developing and maintaining active links with other organisations; and

  3. establishing a corporate reputation as a competent and trustworthy collaborator. 


Although indirect, such rewards are of real commercial significance in industries like biotechnology, where success depends on engaging in productive collaborations.


User benefits

Open source biotechnology challenges the assumption that biotech investments are driven solely or even primarily by the anticipated value of new technologies as objects of exchange in the marketplace. 


In fact, many investments in biotech R&D are motivated by the innovator’s own need for new or improved tools.


An open source approach permits prospective users to share the cost and risk of developing a new technology.  (Depending on the chosen licence terms, users may also gain free access to valuable additional downstream technologies.) 


Open source-style collaboration can also enhance the usefulness of a new or improved tool by expanding the number of people who can help eliminate design flaws and introduce new features.


Even in the absence of quality improvements, the mere fact of being accessible to more users sometimes enhances the use value of a tool. This is true for any technology whose use is subject to network effects (positive network externalities). 


In the software context, technical interoperability

Reasons to invest in open source biotechnology

is the main driver of network effects.  Although interoperability is also important for some biotechnologies, it is not the only possible source of network effects. Another is the need to comply with regulatory requirements, for example in clinical trials for new medicines or field trials for transgenic organisms.


Non-monopolistic business models

Mainstream business strategies in biotech and related fields are often monopolistic. That is, they rely on intellectual property rights as a means of excluding non-paying users from accessing or commercialising protected technology. 


Such strategies are inherently anti-competitive.  Why, then, are they tolerated in liberal market economies? The rationale is that monopoly rights are assumed to be needed as an incentive for private actors to engage in the risky business of innovation.  (Some would argue that this is not a true rationale, but a rationalisation - the real explanation having to do with the greater political influence of intellectual property owners compared with users.)


By contrast, non-monopolistic business strategies rely on gaining an edge in free competition by offering a better product or service to clients and customers. 


How could open source biotechnology help a company to create a competitive edge? By definition, the use, modification and redistribution of any open source technology is relatively unrestricted. As a result, open source technologies may be:


  1. cheaper;

  2. more readily available;

  3. better quality (for example, more reliable due to extensive peer review); and/or

  4. more transparent, and hence more adaptable to a user’s own needs.


The trick to making a profit is to couple the provision of open source technologies with other market-based transactions, thereby boosting the value of those transactions. In the software context, it appears that the most successful businesses are those that combine non-monopolistic strategies with other strategies as part of a mixed overall business model. 


Non-monopolistic strategies include:


  1. Service provision: a technology is distributed on open source terms in order to grow the market for services such as training, consulting, custom development, and after-sales support.  Examples could include plant breeding or genetic testing services.


  1. Market positioning: An open source product that itself generates little or no revenue helps build the firm’s overall brand and reputation and attract new customers. For example, a contract research organisation might choose to “open source” a novel technique in order to establish a broader reputation for creative problem solving. 


  1. Complementary products or services:  a technology business could “open source” an enabling or platform technology and then distribute complementary niche or application technologies under conventional licensing terms.  For example, a manufacturer of assay kits might make the protocol available on open source terms to increase the number of users, thereby boosting demand for its kits.


Non-monopolistic strategies are sometimes thought to be inherently less lucrative than monopoly-based strategies, but it depends on the context.  Both carry actual and opportunity costs that must be factored into any rational strategic decision-making process.


In software, IBM is one example of a commercial firm deriving great benefit from a business model that incorporates open source strategies. 

Open source as a competitive weapon


A further incentive to invest private resources in open source biotechnology is its potential to restructure markets in the investor’s favour.


Open source biotechnology is inherently pro-competitive.  And while it is true that commercial players generally prefer to protect themselves from competition wherever possible, they always want to ensure competition among their suppliers.


In the pharmaceutical context, for example, normally cutthroat rivals were prepared to collaborate in the creation of a public database of human genetic markers via the SNP Consortium, largely in order to ensure that the data did not fall under the proprietary control of smaller biotechnology firms.


Other ways that open source biotechnology might be used to restructure competition in an industry sector to contributors’ advantage include:

  1. creating the opportunity for several smaller firms to combine resources against a larger competitor; or

  2. attracting customers away from established technology providers.


In this context it is important to recognise that monopolistic uses of property rights always create both winners and losers.  Once a technology race is over, the winner will naturally favour a monopoly-based rule. But everyone else, from the immediate runner-up right down to the wooden spoon recipient, would do better to share both costs and benefits. 


If it is not clear beforehand who the winner will be, all competitors have something to gain from open source as an alternative to the higher-risk winner-takes-all outcome of a monopoly. 


Even after the outcome is known, everyone but the winner will have a common interest in inventing around or otherwise undermining the commercial value of the winner’s technology. Open source offers a way to collaborate in achieving this goal.


Public and non-profit sectors

Of course, for-profit actors are not the only major contributors to biotechnology R&D.


For public and non-profit organisations, private incentives to innovate exist alongside public interest missions supported by public subsidies, philanthropic grants and other sources of R&D funding.


Where investments are mainly motivated by public interest considerations, there is even less reason to shore up private incentives through monopoly control over key intellectual inputs. 


In addition, many of the private (but non-monopolistic) incentives just described also operate in non-commercial settings.


For example, a non-profit research organisation may fund itself via service provision, then use open source methods to invent around a privately owned research tool so as to facilitate public interest research and create opportunities for new market entrants.


The open source model differs from traditional publicly funded science in that it stresses the participation of commercial actors motivated by private incentives. But it also differs from

mainstream commercial practice in that open source business models are non-monopolistic.


This is the promise of open source biotechnology: that by incorporating both non-commercial and commercial contributions, it is possible to preserve both the benefits of commercial technology transfer and a robust science and technology commons that can sustain future rounds of innovation.