The Logic of Joint Research and Development

Data on the captive market, devices manufactured by a company for its own internal use, are not available.

See also, Peck Merton J. , “Joint R&D: The Case of Microelectronics and Computer Technology Corporation,” Research Policy, 15/5 (October 1986): 219–231.

Davenport Neil , “The United Kingdom Patent System, A Brief History,” (London: Kenneth Mason, 1983), p. 18.

Weber Max , “The Development of Caste,” in Bendix R. Lipset S. M. , eds., Class, Status, and Power, 2nd Edition (New York, NY: The Free Press, 1975), pp. 28–29.

See also Peck , op. cit., p. 223.

We make no attempt here to develop a taxonomy of technology or of any other type of knowledge. While an engineer may find it convenient to distinguish between “product specific” and “generic” technology, such a distinction is not critical to the present analysis. A “product specific” technology is private property to the extent that it is entirely appropriable. Similarly, “generic” property could be categorized as private property if it is appropriable, even though other firms may apply the generic knowledge to a broader family of uses, or even license the technology.

Scherer F.M. , Industrial Market Structure and Economic Performance, 2nd Edition (Boston, MA: Houghton Mifflin Co., 1980).

Schumpeter Joseph A. , Capitalism, Socialism, and Democracy (New York, NY: Harper, 1942); Nelson Richard R. , “Uncertainty, Learning and the Economics of Parallel Research and Development Efforts,” Review of Economics and Statistics, 43 (1961): 351–169; Dasgupta Partha Stiglitz Joseph , “Uncertainty, Industrial Structure, and the Speed of R&D,” Bell Journal of Economics (1980), pp. 1–19; Tandon Pankaj , “Rivalry and the Excessive Allocation of Resources to Research,” Bell Journal of Economics (1984), pp. 152–165.

Nelson Richard R. Winter Sydney G. , An Evolutionary Theory of Economic Change (Cambridge, MA: The Belknap Press, 1982).

Balbien Joel Wilde Louis , “A Dynamic Model of Research Contracting,” Bell Journal of Economics (1981), pp. 107–119.

Clarke Richard N. , “Collusion and the Incentives for Information Sharing,” Bell Journal of Economics (1984), pp. 383–394.

Mansfield Edwin Lorne Switzer , “Effects of Federal Support on Company-Financed R&D: The Case of Energy,” Management Science, 30 (1984): 562–571; Levy David M. Terleckyj Nestor E. , “Effects of Government R&D on Private R&D Investment and Productivity: A Macroeconomic Analysis,” Bell Journal of Economics (1983), pp. 551–561.

See, Arrow Kenneth , “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity (Princeton, NJ: Princeton University Press, 1962); Williamson Oliver E. , Markets and Hierarchies: Analysis and Antitrust Implications (New York, NY: The Free Press, 1975); Williamson Oliver E. , The Economic Institutions of Capitalism (New York, NY: New York Free Press, 1985); Von Hippel Eric , “Increasing Innovators' Returns from Innovation,” in Research on Technological Innovation, Management and Policy, Vol. 1 (Greenwich, CT: JAI Press, 1983), pp. 35–53; Teece David J. , “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy, 15 (1986): 285–305.

Mowery David C. Rosenberg Nathan , “Commercial Aircraft: Cooperation and Competition Between the U.S. and Japan,” California Management Review, 27/4 (Summer 1985): 70–92.

Mowery David C. , “The Relationship Between Intrafirm and Contractual Forms of Industrial Research in American Manufacturing, 1900–1940,” Explorations in Economic History, 20 (1983): 351–374; Richardson G.B. , “The Organization of Industry,” Economic Journal, 82 (1972): 883–896; Mariti P. Smiley R.H. , “Co-operative Agreements and the Organization of Industry,” The Journal of Industrial Economics, 31 (1983): 437–451; Peck , op. cit. Mowery (op. cit.) investigated whether independent research organizations (such as the Battelle Institute) in U.S. Industry were more likely to substitute for, or complement, in-house research, between 1900 and 1940. He concluded that 1) the complexity and uncertainty of the lengthy research and development process precludes effective performance of new product development by independent research organizations, but that 2) such organizations might be appropriate to conduct generic research complementing in-house R&D departments.

Bowers Joseph L. Rhenman Eric A. , “Benevolent Cartels,” Harvard Business Review (July/August 1985), pp. 124–132; Katz Michael L. , “The Analysis of Cooperative Research and Development”, Rand Journal of Economics, 4 (1986): 527–543.

Katz Michael Shapiro Carl , “On the Licensing of Innovations,” Rand Journal of Economics, 16 (1985): 504–520.

Williamson , op. cit., 1975, 1985.

Ouchi William G. , The M-Form Society (Reading, MA: Addison-Wesley, 1984), pp. 93–123.

For a complete list, see Ouchi William G. , “Information Sharing in High Technology Industry: A Survey,” limited circulation report to the Semiconductor Research Corporation, Graduate School of Management, UCLA, 1986.

Standards bodies have long been viewed in law as pro-competitive (rather than anticompetitive) as long as they do not deny the rest of the industry access to their standards. Cf., Thompson Martin J. , “Antitrust Considerations,” in Ouchi W. G. , “Information Sharing in High Technology Industry: A Survey,” limited circulation report to the Semiconductor Research Corporation, Graduate School of Management, UCLA, 1986.

Three membership categories exist: Regular Member: 1/8 vote, annual fee of $25,000. Research Member: ¼ vote, annual fee of $50,000 for first year; $25,000 for each year thereafter (for computer/communications companies with revenues of $25 million to $250 million). Senior Research Member: 1 vote, annual fee of $375,000 for first year; $175,000 for each year thereafter (for computer/communications companies with revenues over $250 million).

For a complete listing, see Ouchi , op. cit., 1986.

The formation of ICOT followed three years of informal discussions in Japan, after which MITI announced that a ten-year project (1981–1990) would be funded two-thirds by member companies and one-third by the Japanese government. A total budget of $1.35 billion would fund the ten-year project. ICOT's goal is impressive: “The fifth generation computer will be able to understand not only numbers, but words as well, with a vocabulary of 10,000 words and 2,000 grammatical rules, and a 99 percent accuracy in syntactic analysis. The Fifth Generation computer will be able to understand spoken language by multiple speakers at three times the normal rate of speech.” Ouchi , op. cit., 1984, p. 119. Thus, the project's concept is so difficult and advanced that no one company alone may achieve this task. However, it is realistic to expect that working together, the best scientists may conquer the technology.

MCC sets wages for its scientists by calculating the mean wage at the 20 to 25 best U.S. industrial research laboratories and setting its mean wages at each rank seven to ten percent above those levels. In addition, every MCC scientist is eligible to receive a lump sum, all cash bonus on January 15 of each year. This amounts to a major fraction of base pay, conditional upon the judgment of the Board of Directors that his or her performance was outstanding. Finally, every MCC scientist will share in any royalty income which may result from an intellectual property which they helped to create.

In 1984, during Inman's second year with MCC, the staff grew from 17 to 250. During 1985, it rose to 400, and is expected to stabilize at about 600 by the end of 1987.

Protection granted to NCRA registered R&D collaboratives specifically requires that joint effort extend from basic research through prototype development. Collaboration for the purpose of joint manufacture in commercial scale facilities was not envisioned by either the makers of the law, or by DOJ.

Cf., Ouchi , op. cit., 1986.

The 1961 Act in Japan is the most important in a series of special laws which have been enacted for the purpose of providing a flexible legal environment within which the new electronics industries could flourish. It is apparent that the government of Japan has felt that existing anti-trust law should be preserved but that special laws are necessary from time to time to recognize the needs of industry. Without such flexibility, they feel, new industries will be disadvantaged by existing laws which were enacted for other purposes at other times. For example, the “Provisional Act for Development of the Electronics Industry” was enacted in 1956 to provide financial assistance for R&D in these new industries. The “Information Processing Industry Development Act” was passed in 1970 to assist the software industry. In 1972, the “Computer Development Promotion Subsidy System” was established to fund a 50 percent subsidy for each of three groups to pursue development of a new series of computer which could compete against the 3.5 generation of the IBM 370. (The three groups were: Fujitsu-Hitachi, NEC-Toshiba, and Mitsubishi-Oki. Each of the three groups formed an association under the 1961 Act.) Additional information on Japanese technology research associations may be obtained from the authors.

Cf., Ouchi , op. cit., 1986.

Haklisch Carmela S. , “Technical Alliances in the Semiconductor Industry,” NYU Center for Science and Technology Policy, February 1986; Borrus Michael Millstein James Zysman John , “U.S.-Japanese Competition in the Semiconductor Industry: A Study in International Trade and Technological Development,” Institute of International Studies, University of California, Berkeley, 1982.

An exception concerns the 1938 formation of the Catalytic Research Associates by Kellogg, IG Farben, Indian Standard, Jersey Standards, and Alter Shell, Anglo-Iranian, Texaco, and UOP. Collaboration among these U.S. competitors in the oil-refining industry arose as each member recognized their common interest in leapfrogging the German industry-standard Houdry process for high-pressure catalytic processing (fluid catalytic-cracking). This collaborative R&D effort occurred between 1938 and 1942, and it is considered to be the largest single joint research undertaking preceding development of the atom bomb. Kellogg, a process design and construction company, took the lead in stimulating the research association by convening a first meeting of participants, in London. Ultimately, the group commanded the resources of R&D facilities employing nearly 1,000 people. Total costs expended were approximately $30 million, and the project was extremely successful for its participants. For the details of patent and royalty distributions, see Freeman Christopher , The Economics of Industrial Innovation, 2nd Edition (Cambridge, MA: The M.I.T. Press, 1982).

Haklisch Carmela S. Fusfeld Herbert I. Levenson Alan , “Trends in Collective Industrial Research,” NYU Center for Technology Policy, December 1984.

Fusfeld Herbert I. Haklisch Carmela S. , “Cooperative R&D for Competitors,” Harvard Business Review (November/December 1985), pp. 4–11.

In their survey of collective industrial research in the U.S., Haklisch and Fusfeld collected data from a representative—but not exhaustive—sample of 59 associations providing information about 19 industry sectors. Their Information Processing/Semiconductor category showed technical budgets which significantly exceeded all other nonregulated industries. See Haklisch Carmela S. Fusfeld Herbert I. Levenson Alan , “Trends in Technical Budgets by Industry Groupings,” NYU Center for Technology Policy, December 1984, pp. 38–41, Figure 2.7.

Ouchi , op. cit., 1986.

The registration process required under the Act is a nominal procedure which can be completed in less than 60 days. A formal letter of “intention not to prosecute” from the DOJ, however, typically requires that more detailed information be submitted—some of which is highly proprietary—and thus is a more costly, lengthy process. While the shorter, NCRA requirements were intended to ease the paperwork burden, most of the collaboratives visited fulfilled both sets of requirements, ensuring greater protection from antitrust action.

Mowery , op. cit.