Experiencias internacionales comparables

Trade secrets are details about a product, production or business strategy that are not disclosed to the public. This is the intellectual property of a company that is protected by means other than formal IPRs. Secrecy is the main form of protecting trade secrets. There are numerous strategies for dealing with trade secrets, but currently it is only necessary to know what a trade secret is and where its limitations lie (Cetindamar et al., 2010).

A trade secret is only protected as long as it remains a secret. Many com- panies that aim to protect trade secrets have policies in place that restrict any photography on the premises, for example. Being in possession of trade secrets of another company is not illegal, but the method of obtaining the information can be illegal. For example, re-engineering a product and discovering trade se- crets is legal, therefore, companies must reduce the number of trade secrets that competitors can find in their products. Corporate espionage, on the other hand, is illegal and if information is obtained in this way - if it is proven - can result in serious repercussions (Cetindamar et al., 2010).

Appendix B

Commercial Incentives to Innovate

If innovation is assumed to be process innovation, innovation can be further divided into subcategories, namely: a drastic process innovation or a non- drastic process innovation. A drastic process innovation is an improvement on the current process to such an extent that the innovator can behave as the monopolist without being constrained by competition within the industry. Non-drastic innovation is an innovation that allows the innovator to gain a competitive advantage over its own competitors, but the rivals are still legally allowed to compete within the market (Arrow, 1962).

Figure B.1 shows what the impact of a drastic and non-drastic innovation has on a company. This figure represents a market for a homogeneous product, with profit located on the y-axis (p), and the quantity of products produced is located on the x-axis (Q) (Belleflamme and Peitz, 2010; Arrow, 1962).

At pm all companies are currently in perfect competition, which signifies

that the cost of manufacturing is the same for all companies producing the same product, and all companies involved are selling their products at cost price, with no profit. The products are produced at a constant marginal cost (C0). The demand in the market is based on the cost of the product. The

higher the cost, the less the demand for the product - as can be seen in the demand curve (D). The Marginal Revenue Curve (MR) is the additional rev- enue that will be generated by an increase in product sales (Belleflamme and Peitz, 2010; Arrow, 1962).

Figure B.1: Drastic vs Non-drastic Process innovations (adapted from Belleflamme and Peitz (2010) and Arrow (1962)

When a drastic process innovation takes place, the marginal cost of pro- ducing the product (Cd) is reduced to such an extent that the monopoly price

for the product (pm) falls below the constant marginal cost point (c0). This

means the company with the drastic innovation will become the monopolist, because it can saturate the market, and do so at a lower cost than its com- petitors. This will essentially cause its competitors to either stop producing the product, or produce it at a loss (Belleflamme and Peitz, 2010; Arrow, 1962). In a case where a non-drastic process innovation is acquired by a company, the marginal cost of producing a product (Cnd) is reduced, but not to such an

extent that the company can fix the monopoly price. The company will still face competition, since they do not control enough of the market to fix their price. They will still produce the products at a reduced cost, so as to increase profits (Belleflamme and Peitz, 2010; Arrow, 1962).

Figure B.1 is a simple model displaying incentives to innovate. However, this is in a controlled environment where there is perfect competition and the cost of the innovation is not taken into account. The most crucial element that this model is missing is that it cannot determine how much a company is willing to invest in an innovation.

Arrow (1962) created the first model that draws a comparison between companies that would be more willing to invest in different market structures. The Arrow Model assumes that a non-drastic process innovation has been placed in the market, that the companies all have the same opportunity to

buy the innovation, and that they are informed as to what exactly the in- novation does and the impact it will have on their process. This simulates an exclusive licensing that is auctioned off to the highest bidder. This model also assumes that there are no financial constraints. Companies will spend the money on the innovation until their return on investment reaches zero, at which point they will stop bidding. The model also assumes that there is no threat of entry for a new firm into the market.

Arrow (1962) used the model shown in Figure B.1 to propose his theories. With his models, he tried to predict who would be willing to pay more for a non-drastic innovation in two types of market structures. The first market structure was a perfectly competitive market, and the second was in the mar- ket as a monopolist. His conclusions were that firms in a perfect competition market structure have the most incentive to innovate. A monopolist has less incentive to invest in a non-drastic innovation than in a company in a perfectly competitive market structure, because of the replacement effect.

The model is based on the assumption that the monopolist is already earn- ing a positive profit, in which a competitive company just recuperates its costs. When a competitive company purchases a non-drastic innovation, all the ad- ditional profits generated by the innovation are additional income. In the case of the monopolist, it is already making a profit before the innovation is imple- mented. Only part of the addition income that is generated by an innovation. The replacement effect is the reason why some companies, that are the monopolist in their current market structure, would attempt to become active or relevant in other market trends. Microsoft is an example of this with their launch of the X-box. They have the largest lead as the monopolist in the mar- ket of operating systems, and other software, that R&D in the other direction will produce a higher return on investment - especially in more competitive markets (Tirole, 1988).

The second model that will be discussed is the Gilbert/Newbery’s Auction model, which attempts to model whether a monopolist, under threat of a new entry or a competitive company, will pay more for an innovation. The innova- tion being a non-drastic innovation.

In the monopolist case, there are two possible outcomes for the model. First, the incumbent purchases the innovation, and remains the monopolist. In the second, the challenger purchases the innovation and enters the market. Upon entering the market, the monopolist will lose its position and have to share it with the new entry, forming a duopoly. In the competitive market, the highest bidder becomes the new monopolist.

With the occurrence of a drastic process innovation, the holder of the new innovation will be the new monopolist. Both, the incumbent and the chal- lenger will bid exactly the same for the innovation. The incentive to innovate for the incumbent is the difference between being the monopolist, and having a duopoly. In this case, it is opposite to the Arrow model, in that, the mo- nopolist has a higher incentive to innovate than a competitive company. This is due to the the "efficiency effect": the fear of losing the monopoly position (Belleflamme and Peitz, 2010).

In the Gilbert/Newbery’s model, the assumption is made that the company with the highest bid will certainly receive the patent, but this is not the case in reality. During the R&D phase of innovation, a company has no guarantee that the research will result in a technology that can be used, no matter how much money is invested.

The patent race model simulates a research project that is started in dif- ferent companies attempting to produce the same technology. This model introduces time and uncertainty to the Gilbert/Newbery model. The patent race model portrays replacement effects return, and the challenger has a higher incentive to innovate than the monopolist. This leads to creative destruction, which was suggested in Schumpeter’s main hypothesis (Czarnitzki and Kraft, 2004).

Appendix C

Case Studies

C.1

Overview of Stellenbosch University

C.1.1

South Africa Background

Over the past century, even though it has faced challenges, South Africa has been one of the most thriving economies in Africa. South Africa is a country with a rich endowment of natural resources, including gold, diamonds and plat- inum. This has given South Africa a unique advantage in growing its economy. However, the need for South Africa to diversify and continually develop other industries and capabilities has been highlighted by academia and underlined by government. The ability to continually produce higher complexity goods also supports continued income growth.

Knowledge has become the most valuable asset in today’s economy. The countries with the largest economies are all knowledge-based countries. A knowledge-based economy is an economy in which knowledge is the basic form of currency, and where innovation drives economic growth (Alessandrini et al., 2013). South Africa has identified this and is working towards having a more knowledge-based economy. A ten year plan for innovations has been estab- lished, starting in 2008 and ending in 2018. This is considered in more detain in Section C.1.1.2.

C.1.1.1 Universities’ Openness to Collaboration

South African universities are very open to collaboration with industries, espe- cially the higher ranked universities, which includes: Stellenbosch University, the University of Cape Town, and the University of Witwatersrand. The Uni- versity of Stellenbosch and the University of Cape Town have been building their TTOs since 1999, encouraging collaboration with industries. All this time, they have been building a relationship with industry, and the TTOs

have grown substantially (Alessandrini et al., 2013).

The study conducted by Alessandrini et al. (2013) included an interview with people responsible for technology transfer at thirteen universities in South Africa. They were all asked about their opinions on collaboration between higher education institutions. Five of the thirteen representatives responded that they were not open to collaborations with other universities, and three were still undecided.

C.1.1.2 Innovation in South Africa

All over the world, government subsidies to higher education institutions are being reduced. Universities are, therefore, searching for alternative sources of income. Since the goal of universities is to generate knowledge, selling intel- lectual property (IP) is in line with the ultimate goal of a university.

Through careful management (Mainly through TTOs), universities, can leverage their production of IP to generate income. Some universities might not have a dedicated office, but they still employ people to manage it. Some universities also do not have the initial start-up capital to start these initia- tives, resulting in under-resourced technology transfer activities (Alessandrini et al., 2013).

South Africa has set five key principles to guide the ten-year innovation plan (Depatment of Science and Technology, 2007). These principles will indicate the goals that the country aims to reach.

1. Strategic capacity: It is important for the government to make strategic choices regarding what to invest in. South Africa has failed to con- vert ideas into economic growth in the past, therefore, making strategic choices about how to invest will help steer the economy.

2. Competitive advantage: The government should invest in areas that have the highest social return.

3. Critical mass: Key research areas must be encouraged. This is referred to as the "Grand Challenges".

4. Sustainable capacity: The R&D scale-up must be consistent throughout the whole system, to have the absorptive capacity - with each element relying on the other for the system to work.

5. Life-cycle planning: The R&D infrastructure must be set up for the long term, to continuously improve the innovation. This includes support for depreciation, development of skills and information on the running cost.

In this list, the Grand Challenges were mentioned. These Grand Challenges are identified by the Depatment of Science and Technology (2007) as the most important areas. Special attention is given to increase innovation in these areas. These Grand Challenges are:

1. The farmer to pharma value chain. This is to strengthen the bio-economy and be able to provide better and cheaper medication to the population of South Africa.

2. Space science and technology. Research in space science and technology will increase the knowledge generation capacity.

3. Energy security: The world is focused on energy consumption and mov- ing towards cleaner energy generation. As South Africa’s main source of power is coal, research in energy is important.

4. Global-change science with a focus on climate change. Again, the coal power generation is a process that emits high levels of green house gases. South Africa has to do its part in this research.

5. Human and social dynamics: This is to increase the standard of living of the people living in the country.

C.1.2

South Africa as a Knowledge-Economy

South Africa’s law on what qualifies as a patentable invention is as follows (Reichelt, 2007): A patent or preliminary patent can be granted for a new, non-obvious invention that can be applied in trade, industry, or agriculture. An invention may be a new product, process, application or composition, or an improvement to any existing product, process, application or composition. A patent provides ownership rights for a period of 20 years from the date of submission, and a preliminary patent provides these rights for 12 months. As in most countries, the patent application and details about the invention are released to the public 18 months after the patent has been filed, regardless of whether the patent has been granted, refused or is still being examined.

Higher education institutions focus on the development of entrepreneurial activities, to encourage economic development, and increased attention to so- cial responsibility (Alessandrini et al., 2013). According to Schwab (2015), higher education institutions play a vital role in increasing global compet- itiveness by increasing human capacity and efficiency. There are, however, many challenges that hinder the R&D and innovation capacity of a country. These challenges include poor student enrolment at universities (14% stated by Alessandrini et al. (2013)), lack of availability of engineers, scientists and researchers, high cost of innovation and insufficient collaborative partnerships

for innovation and technology commercialization (Schwab, 2015).

To increase innovation in the country, venture capital funds are needed to help new, innovative firms start out. The most prominent of these funds avail- able in South Africa is the University Technology Fund. The universities that are partners in the fund are: Stellenbosch University, the University of the Witwatersrand, the University of Cape Town, the University of the Western Cape, the Nelson Mandela Metropolitan University, the University of Johan- nesburg and the Cape Peninsula University of Technology (Innovus, 2016).

C.1.3

Technology Transfer Offices

Reichelt (2007) states that South Africa identified key weaknesses that prevent research and development that needs to be addressed if innovation is to proceed unhindered. The weaknesses include: inadequate funding of national systems of innovation, declining research and development in the private sector, and challenges faced by intellectual property in new and emerging technologies.

According to international standards, South Africa has a very robust in- tellectual property system, and it has conformed to the requirements placed on countries by international communities. South Africa is part of the Paris Convention, the Patent Co-operation Treaty and the World Trade Organisa- tion’s Agreement on Trade Related Aspects of Intellectual Property (TRIP’s) (Reichelt, 2007).

Even though South African universities are fairly open, TTO is fairly lim- ited. In 2004, it was reported that only three institutions had full-time staff working at TTOs, with the two oldest TTOs being founded in 1999. These TTOs are considered young, since the Bayh-Dole act - as was discussed in Section ?? - was founded in 1980, and some TTOs have been running before 1977. The Bayh-Dole act was specific to the United States, but most countries followed suit and allowed the universities to keep the intellectual property they generate from public funds.

South African TTOs are new; pooling resources will help growth at all par- ticipating institutions, but most institutions are not open to this (Alessandrini et al., 2013). Reichelt (2007) states that universities feel this contradicts their traditional roles of generating new, widely available knowledge. South Africa is, however, adjusting its policies to become more research orientated and to allow greater flexibility for publicly-funded research institutions to collaborate with the private sector. This is done to stimulate innovation and boost the economy (Reichelt, 2007).

South African TTOs are having trouble identifying IP that has the po- tential for commercialisation, due to the lack of sufficient capacity (Garduño, 2004). Trust between the inventor and the technology transfer professionals is the key in a successful technology transfer process (Sibanda, 2009). This trust takes time and effort to build, since it is based on the ability of the TTO to engage the inventor and emphasise the challenges that the inventor faces. This in addition to pro-actively assisting the inventor with extracting maxi- mum value from their research.

There is an urgent need in to employ technically skilled personnel in South African TTOs. They can: promote the benefits of technology transfer to both the institution and the inventor, effectively identify potential commerciable inventions in the early stages, and monitor and persist in delivering a commer- cialised product. South Africa has increased its invention disclosures. Despite this, the IP that has the potential to become patentable and commercialise products remains small in comparison with the case in developed countries (Alessandrini et al., 2013). Alessandrini et al. (2013) states that this is be- cause of a combination of under-resourced TTOs and low levels of awareness. Most research done at these universities might also not be done with commer- cialisation in mind.

The government has committed to enhancing the innovation potential from higher education institutions, as can be seen in the Intellectual Property Rights from Publicly Financed Research and Development (IPR-PFRD) Act, released in 2010, and the founding of the National Intellectual Property Management Office (Alessandrini et al., 2013).

South African higher educational institutions can form their own policies regarding IPR developed, since there is no national framework for publicly- funded research institutions with regard to intellectual property. This is a major advantage, since universities can tailor their policies to fit their needs. Higher education institutions who do not focus on the licensing of IPR would prefer a national framework, because in that case they would not have to spend time developing their own (Reichelt, 2007).

C.1.4

University of Stellenbosch

The University of Stellenbosch is a public institution classified as a large uni- versity with over 28 000 enrolled students. The University consists of 64% undergraduate students and 36% post-graduate students of which about 2500 are international student (Quacquaelli Symonds, 2016).

C.1.4.1 Local, Regional and International Ranking

University rankings are always an important indicator when comparing univer- sities to international standards. Two rankings are considered at to determine where Stellenbosch University is ranked. The first is the Times Higher Educa- tion (2016) World University Rankings and the second is Quacquaelli Symonds (2016) QS World University Rankings.

Times Higher Education (2016) uses Teaching, International Outlook, In- dustry Income, Research and Citations as its indicators to determine the rank-