Technological Capture
The dominant corporations in many sectors are the driving engines of technological change in the context of important technological path-dependency; this underscores the importance of categorically identifying technological capture. Core companies often compete to establish technological standards in their sector, or to develop patent portfolios to increase their bargaining capacity against competitors.
In order to understand the dynamics of technological capture, the work of Alfred D. Chandler (Chandler 2005) is particularly helpful. Chandler’s basic idea is that the competitive strength of industrial firms in market economies rests on learned organizational capabilities. In a new industrial sector, for example, the first movers are the first enterprises to develop an integrated set of capabilities essential to commercialize the new products in volume for national or world markets. They benefit from their integrated capabilities, which become their learning bases to develop their control of the networks of production and distribution, to improve existing products and processes, or to adapt to new conditions, such as those of war or depression. This way, the first movers, and those who in some way managed to catch up for their late arrival in the industry, become core companies, or dominant firms, that set the technological direction in which the whole industry evolves (Chandler 2005):
The concentrated power of technical, often proprietary, and functional knowledge embedded in the first movers’ integrated learning bases is such that a relatively small number of enterprises define the evolving paths of learning in which the products of new technical knowledge are commercialized for widespread public consumption. The barriers to entry thus prevent startups from creating effective integrated learning bases essential to compete in the industry.
These dynamics are evident in the pharmaceutical sector, in which most start-up companies cannot even consider competing with core companies and exist only in the hopes of being acquired by a core company.
Furthermore, because patents make technical knowledge proprietary, developing technical capacity often takes the form of “kicking away the ladder” for smaller companies who would like to enter a market. This has fostered a race for strategic patenting, a strategy consisting of patenting as many elements as possible in their broadest scope, in order to provide patent holders greater potential rights over future innovations. Such patent portfolios allow the construction of “patent thickets”, or “patent gridlocks” (Heller and Eisenberg 1998), which are barriers to entry based on the threat of patent litigations against any new competitors. As such, patents are used in business sectors as a barrier to entry and as a restraint on competition rather than an incentive to innovate.
Instead of providing an incentive to innovate, the multiplication of patents has been so problematic that potential innovators are hesitant to finance research. For example, in the case of pharmaceuticals, while patents can increase revenues for specific companies, they can also stifle innovation as a whole. Peter Ringrose, former chief science officer at Bristol-Myers Squibb, claimed that his company would not investigate some 50 potential cancer-causing proteins, because patent holders would either decline to cooperate or demand large royalties (quoted in Heller 2008). Two Nobel laureates, Joseph Stiglitz and John Sulston, have concluded that, because of the intellectual property regime, medical research is “hindered by out-of-date laws,” and that obstructive patents on genes and medical techniques can in fact increase litigation costs and “impede innovation, lead to monopolization, and unduly restrict access to the benefits of knowledge” (quoted in Jenkins and Henderson 2008). For Heller (2008), if everyone invests in the litigation process, innovation is tossed aside, gridlock sets in, and many lose out, except the dominant patent holders restraining innovation. In fact, alternative models of “open science” are now touted as being more innovative than patented biomedical research (Stilgoe 2016).
These dynamics were particularly visible during the Covid-19 pandemic and the issue of patent ownership of mRNA vaccines. For example, no private investor money was invested by Moderna to develop its Covid-19 mRNA vaccine, but the company, who benefited from large public subsidies and from compulsory licenses imposed by the US government, has been fighting tooth and nails to maintain patent ownership over the vaccine (Berinato 2022; Zaitchik 2022).
Technological capture is reinforced by the dynamics of start-up acquisition by dominant companies. For example, more than 80% of the drugs sold by Pfizer and Johnson and Johnson were discovered and developed by third parties (Jung, Engelberg and Kesselheim 2019). In fact, the development of new molecules is often financed through public basic research. Once a molecule is considered promising, it is often transferred to a start-up company that will start developing the molecule into a medication (often benefiting from generous tax credits) only to be acquired by a larger company. In the end, while the patent system is intended to provide financial incentive for research and development, the public sometimes often ends up paying twice for the cost of innovation by paying for the research and by paying for the high price of patented drugs (Roy and King 2016).
Beyond proprietary ownership of the technology, it should be noted that technological path dependency can be possible through ways of material agency where the collation of data and the shaping of policy is set by the existing technology implemented by dominant firms, conducing to specific idiosyncrasies between dominant technologies and regulation (Finch, Geiger, and Reid 2017).
References
Berinato, S. (2022, September 16). Moderna v. Pfizer: What the Patent Infringement Suit Means for Biotech. Harvard Business Review. https://hbr.org/2022/09/moderna-v-pfizer-what-the-patent-infringement-suit-means-for-biotech
Chandler, A. D. (2005). Shaping the industrial century the remarkable story of the modern chemical and pharmaceutical industries. Harvard University Press. https://doi.org/10.4159/9780674029378
Finch, J., Geiger, S., & Reid, E. (2017). Captured by technology? How material agency sustains interaction between regulators and industry actors. Research Policy, 46(1), 160–170. https://doi.org/10.1016/j.respol.2016.08.002
Heller, M. A., & Eisenberg, R. S. (1998). Can Patents Deter Innovation? The Anticommons in Biomedical Research. Science (American Association for the Advancement of Science), 280(5364), 698–701. https://doi.org/10.1126/science.280.5364.698
Zaitchik, A. (2022). Owning the Sun. Counterpoint. https://www.penguinrandomhouse.ca/books/691699/owning-the-sun-by-alexander-zaitchik/9781640095069