Academic journal article Harvard Journal of Law & Technology

Innovation Prizes in Practice and Theory

Academic journal article Harvard Journal of Law & Technology

Innovation Prizes in Practice and Theory

Article excerpt

TABLE OF CONTENTS  I. INTRODUCTION II. ACTUAL VERSUS THEORETICAL INNOVATION PRIZES III. A CASE STUDY OF INNOVATION PRIZE GOVERNANCE    A. Overview of the Auto X Prize    B. Governance Challenges in the Auto X prize       1. Making the Rules       2. Changing the Rules       3. Implementing the Rules    C. Foundations of Prize Governance Challenges       1. Uncertainty       2. Information Asymmetry IV. INNOVATION PRIZES IN THE ADMINISTRATIVE STATE    A. Toward a Model of Innovation Prize Governance       1. Transparency and Collaboration       2. Iteration       3. Nested Decision-Making Structures    B. Evaluation of the Model V. RETHINKING GOVERNMENT CHOICE OF INNOVATION INCENTIVES    A. Efficacy    B. Sustainability VI. CONCLUSION 


Innovation prizes have long been used as a conceptual foil for the patent system. In recent years, especially, an academic cottage industry has sprung up to compare the relative social welfare benefits of patents, prizes, and to a lesser extent, grants. (1) But prizes are no longer just theoretical objects of academic fancy. Prizes are now actual tools of government innovation policy, thanks to the America COMPETES Reauthorization Act of 2010, (2) which empowered all federal agencies to offer prizes for new technologies. (3) In just five years following the grant of this new authority, thirty agencies conducted over one hundred prize competitions. (4) Yet actual innovation prizes are still not well understood.

The prizes implemented under the COMPETES Act are very different from their theoretical counterparts. Prizes in theory are offered after invention as compensation to inventors, who must place their inventions in the public domain. Prizes in practice are competitions in which the amount of the prize is set before any investments are made and inventors compete to be the first or best to implement a particular goal. This disparity between the scholarly literature and practice has left actual prizes under-studied and under-theorized, leaving policymakers with a range of implementation and governance challenges.

This Article begins to fill these gaps. We use a detailed case study of the Progressive Insurance Automotive X Prize ("Auto X Prize"), a $10 million prize offered for the invention of high fuel-efficiency cars, to develop a deeper understanding of how prizes marshal resources for and can implement governance approaches that overcome the uncertainty and information asymmetries that plague technological innovation. (5) This richer understanding of the role that prizes play as one of a range of programmatic and policy mechanisms in the innovation ecosystem in turn allows us to put forward a stronger theoretical justification for prizes. We argue that prizes are useful institutional mechanisms by which the government can achieve exogenously identified technology policy goals. And we articulate a novel framework for identifying when prizes or other mechanisms should be used to accomplish those goals.

Innovation prizes have a long historical pedigree. (6) Most famously, the English Parliament offered 20,000 [pounds sterling] in 1714 for the development of a method to calculate longitude at sea. (7) Although governments and private entities offered prizes extensively through the 18th and 19th centuries, (8) prizes fell largely by the wayside in the 20th and early 21st centuries, replaced by patents and procurement (in the form of research grants and contracts) as our principal means of incentivizing innovation. (9)

The contemporary renaissance in innovation prizes is often attributed to the X PRIZE Foundation, which in 2004 awarded a $10 million prize to the team that built SpaceShipOne, the first private reusable spacecraft to be launched and returned to Earth twice in two weeks. (10) That competition attracted twenty-six teams that collectively invested $100 million into commercial spaceflight research and arguably jump-started a new industry. …

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