Conference Papers available in a Special Issue of Michigan Telecommunications and Technology Law Review

Patents and Diversity in Innovation

The current debate over patent reform exposes critical differences in the way that patents are used and viewed in different sectors – especially in the difference between discrete product technologies (pharmaceuticals) and complex product technologies (IT) The present “unitary” patent system is limited in its ability to account for such differences.  Yet as the patent system expands in scope and significance, with many billions of dollars at stake, the assumption that one size fits all appears increasingly untenable and costly.  This international conference examines the differences among innovation environments, how they are currently addressed, implications of uniform vs. differentiated treatment, and options for optimizing the functioning of the patent system across fields and environments.

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Divergence in industry perspectives on the value and uses of patents has been documented by large-scale surveys of R&D managers conducted over several decades.1 The 2003 FTC report, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, draws strikingly different pictures of how four strategically important sectors use and experience the patent system.2  For example, the many patentable functions and high potential for inadvertent patent infringement in complex IT products predispose competitors to non-exclusive cross-licensing but also make the sector uniquely vulnerable to patent “trolls.”  By contrast, the small number of patents that may be needed to protect a product from competition in the pharmaceutical industry, combined with the substantial investments required, promotes use the patents for exclusivity. 

In the U.S., recent efforts to craft patent reform legislation reveal deep inter-industry divisions, with the information technology sector favoring a number of reform provisions adamantly opposed by the pharmaceutical and biotechnology industries.3  In Europe, there has been intense political controversy over whether and how to extend the scope of patentable subject matter to areas of innovation outside of traditional technologies.  The controversies that have arisen in the past few years over the operation and effects of the patent system have been framed differently in the U.S. and Europe, but they share a common need for expanded evidence-based answers and a deeper understanding of how the patent system can work to better foster innovation.

Diversity in innovation environments and patenting trends has become especially pronounced because the scope of patentable subject matter has expanded over the past two decades.  The principal areas of expansion – biotechnology, software, and business methods – are outliers in important respects.  Biotechnology is driven by basic science, and some express concern that patents may grant exclusivity to fundamental biological knowledge and materials.  Like the pharmaceutical industry, biotech requires enormous investments and risk-taking over a decade or more to produce a profitable product and associated patents.  Software is constructed on mathematics and logic.  A software patent can be generated by writing down an idea.  Although it may not ordinarily confer an exclusive market position, it may become extremely valuable if it becomes part of an industry standard.  ”Business method” patents bring economic and social processes and an array of non-technological disciplines within the ambit of patent system. 

The uses of patents have also diversified.  While few uses are completely novel, many have become more commonplace – for example, the use of patents to raise venture capital.  Reach-through licensing is often used for research tools in biotechnology.  Portfolio cross-licensing has spread widely in information and communication technologies.  Patent pools are not new, but variations on collectively managed standards have become uniquely widespread and strategically important in information and communication technologies. 

The variation in practice and effects among fields and sectors may depend on factors and circumstances such as:

 

In a world of radically increasing technological and economic diversity, how can the patent system respond to differences in innovation environments with sensitivity, transparency, and accountability?  How can a unitary patent system that is “open to new technologies,”4 address that diversity?

Some scholars argue that the decisions of the patent appeals court, the Court of Appeals for the Federal Circuit, already interpret and apply patent laws in ways that are “technology-specific.”5  Do these decisions provide needed flexibility in the application of the patent law?  Do they appropriately account for the nature of the innovation environments they address?

Drawing on a 2005 National Academy report, a recently introduced Senate resolution co-sponsored by 30 senators advocates patent reform legislation that “reduces barriers to innovation in specific industries with specialized patent needs.”  More recently, the Committee for Economic Development urged Congress to “reexamine the premise that today’s unitary system continues to serve all industrial sectors well, especially given the proliferation of problems regarding software patents.”6

With rising interest in the potential for optimizing innovation through changes to the patent system, the University of Michigan is hosting a two-day interdisciplinary conference.  It will examine the problem in terms of reconciling legal doctrine and economic analysis – as well as the institutional framework for ensuring that patent administration and litigation is informed by empirical research and emerging conditions and insights.

For further information and proposals concerning the conference program, please contact Brian Kahin, kahin@umich.edu.