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September 15, 2010 (Vol. 30, No. 16)

Open-Source Model for Biotech

Current Patent Policies Stymie Innovation and Are Detrimental to the Well-Being of Societies

  • The hallmark of the new economy is innovation. Pressure to incentivize the economy to facilitate innovation has been a key driver of intellectual property (IP) law for generations.

    For years, there has been a consensus among economists that, although there are social welfare losses associated with the granting of IP rights because the owners of IP will generally restrict the use of their legally protected information so as to maximize private profits, the benefits to society in terms of the innovation produced will outweigh the costs. 

    Yet recently a debate has arisen over whether current policies are fostering innovation or allowing those with greater financial resources to hinder it to their individual benefit through such nefarious practices as establishing “patent thickets”—dense networks of patent claims designed to create plausible grounds for infringement suits across a wide field.

    In particular, the emergence of the open-source paradigm in software—and the attendant innovation that it has produced—is leading some to wonder if that model is applicable to other high-technology industries such as biotechnology.

    Increasingly, it is evident that the collaboration at the heart of the open-source movement is critical to the future of innovation in biotechnology.

    Through the technology licensed from its universities under the Bayh-Dole Act of 1980, the U.S. has become the world leader in the number and vitality of successful biotech firms established. This approach has a weakness, however, as the Bayh-Dole Act and related initiatives in U.S. science and technology policy are based on the premise that patents and exclusive licensure of the results of federally sponsored research are the best way to maximize the social returns to federal research and development investments. 

    This premise underestimates the effectiveness of publication and other, more open channels for information dissemination and access to enable society to benefit from publicly funded academic research.

    For example, a survey of firms in the manufacturing sectors indicated that the four most important channels through which firms benefit from university research are publications, conferences, informal information channels, and consulting. Likewise, innovation in the biopharmaceutical industry relies heavily upon these other nonpatent-related channels of knowledge dissemination. 

    The emphasis on patents and restrictive licensing is hampering innovation. The argument that patents and restrictive licensing are essential to motivate firms to invest in risky technologies with a significant time horizon is somewhat credible, but the process of innovation is being tainted by dubious practices such as the aforementioned patent thicketing.

    Owners of patent thickets can actually inhibit innovation by using the threat of lawsuits to discourage others from investing in areas of technical advance relevant to their products. These firms are also less likely to invest in R&D themselves as patent protection makes it easier to make a profit without innovating to defeat competitors.

    Moreover, patent law is so arranged that an owner of a patent is not granted the right to practice its invention but rather is only granted the right to exclude others from practicing it. Thus, further innovations—no matter how modest—upon an existing invention can be inhibited unless the two parties can agree upon licensing terms.

    This has tremendous implications for biotech, as patents are routinely allowed on small but important elements of larger research problems, and upstream research is increasingly likely to be private—which raises costs and slows innovation.

    Patent protection is also costly to obtain, which creates a built-in bias not for the best idea but for the entity that has the considerable financial and legal resources to patent a related idea. Thus, patent policy is not necessarily conducive to innovation in the biotech industry.

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