Appropriation and transfer of innovation benefit in the U.K. medical equipment industry

Empirical studies of the “functional locus” of innovation first studied by Peck (1962) categorise innovators in terms of the functional relationships by which they derive benefit from the innovations they create. To determine the functional locus of innovation in the 34 medical equipment innovations studied in this paper, the functional relationships are categorised as “User”, “Manufacturer” and “Intermediary”. The “users” are those who use the innovation equipment for clinical research, diagnosis and therapy; the “manufacturers” are those who benefit economically from manufacturing the innovation and the “intermediaries” are those who facilitate the transfer of “private” and “social” benefits to both the user and the manufacturer, but also retain some “social” benefit themselves. Von Hippel (1982) hypothesised that the differences in the “functional locus” of the innovation were dependent upon the differing abilities of innovators, holding these differing functional relationships to a given innovation, to appropriate benefit from the innovation. The author tested this hypothesis and found that it seemed to apply to his sample of medical equipment innovations. The three prime mechanisms used to achieve a quasi-monopoly position and hence benefit from an innovation are patents, trade secrets or knowhow, and response-time. Using these mechanisms, the author examined the ability of the medical equipment manufacturer to shift the balance of innovation benefit from social to private benefit and to allocate innovation-related costs to others in the innovation “group”. The prime characteristic of the process of developing medical equipment innovation is the multiple and continuous interaction between the user and the manufacturer, i.e., in 76 per cent of the sample, resulting in 65 per cent being successful. Because “state of the art” knowledge regarding clinical research and practice resides in the user, “basic” and “major” innovations which further this knowledge benefits the user. The manufacturer benefits from this user knowledge and from the increased market penetration achieved through user cooperation. He also benefits by transferring costs to users and intermediaries and through cooperating with intermediaries in developing innovation. The two mechanisms of user—manufacturer interaction and effective development of institutional (i.e., intermediaries) linkages can both be effected by government action and, therefore, methods of utilising and improving these mechanisms should be part of the government's health care policy.