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

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.

Biopharmaceutical Innovation

There is also increasing frustration with the existing innovation model for biopharmaceuticals in the developing world. In order to justify the considerable expense of developing drugs, pharmaceutical firms require a customer with the ability to pay on a scale sufficient to justify the investment.

Thus the poor in developing countries or even individuals in rich countries with diseases such as Parkinson disease that do not afflict large numbers of people find that there is not a lot of innovation in treatments for diseases that afflict them.

Due to this dilemma, the open-source movement has been gaining impetus in the developing world as people struggle with restrictions to their ability to innovate and adapt existing technologies to address critical issues.

There are several ways in which an open-source model can facilitate innovation in biotech. Due to the time and financial expense involved in biotech innovation, companies are increasingly seeking means of defraying costs through distributed innovation mechanisms.

Clearly, the market must be incentivized such that it is in the best interests of firms to make these investments. However, the argument here is that a more structural impact upon the innovation process can be had by adapting the open-source model to empower healthcare providers and scientists across a global network and allow developing country entrepreneurs to make improvements upon existing technologies.

Specifically, this model entails:

  • having the results of government-funded research remain in the public domain and be freely available through the Internet so as to allow generic manufacturers to produce it,
  • greater government support for the bioinformatics and biological database tools that are essential to promoting global collaboration and reducing drug development costs by virtualizing the process,
  • creating an open-source license that allows users to patent what they create from their investments but does not restrict others from using the original shared information to make improvements and develop similar technologies, and
  • having the development of drugs from government-financed research be awarded to a firm based upon competitive bids.

Such a model would allow companies to continue to derive financial benefits from their investments but create incentives for further innovation and also make low-cost production part of the criteria for being able to license government-funded pre-commercial R&D.

It would also enhance social returns by empowering more people to participate in the innovation process—particularly users of pharmaceutical technology such as healthcare providers and patients themselves.


In the realm of bioinformatics, and especially in biological databases, open-source collaboration is essential to innovation. These tools are critical because as biomedical research becomes more dependent on managing and interpreting large quantities of genomic information and less centered on conducting physical experiments, computational science will be ever more valuable to biomedical science.

To the extent that restrictive property rights over scientific information would create inefficiently high transaction costs to follow up on innovations, free infrastructure is desirable.

Pharmaceutical companies of all sizes are likely to need information about many different single-base variations in order to tailor drugs to individual genotypes. The public availability of biological databases is also critical to supporting collaboration among academics by facilitating distributed annotation and reducing the transaction costs associated with improving the information product. 


Lastly, an open-source model in biotechnology is also appropriate for ethical reasons. In biomedical research, social returns must be measured not just in private profits but in the degree to which the health and well-being of society as a whole is improved.

More so than any other industry, biotechnology has a social obligation because its successes are dependent upon billions of dollars of precommercial R&D provided by the general public, and its failures have life and death consequences.

The economics of healthcare and biotechnology involves far more than just dollars; it also involves the overall welfare of society. Moreover, there are billions of poor and disease-stricken people who stand to benefit immensely from being able to adapt innovations in the biotechnology sphere to address socially debilitating crises such as AIDS, hunger, and malaria.

By inhibiting innovation, the status quo in biotechnology is not only hurting these people but also firms that are afflicted with skyrocketing research and development costs.

The purpose of patent policy is to enhance innovation. This has been warped so as to produce less innovation and greater rents for those able to manipulate the process. Removing patent restrictions on improvements to existing biotechnologies is not an abuse of intellectual property policy but rather would enhance innovation as the policy was originally intended to do.

Democratizing access to innovation through open-source modalities is increasingly critical for the general prosperity and well-being of societies.

Michael Sable, Ph.D. ([email protected]), is an MIT and Harvard trained urban planner whose work focuses on sustainable economic development and the dynamics of innovation. He is a National Science Foundation Graduate Research Fellow and Martin Fellow for Sustainability.

Previous articleCell Therapeutics to Appeal FDA Decision on Pixantrone NDA
Next articleFDA Clears Savient’s Gout Therapy for Patients Refractive to Xanthine Oxidase Inhibitors