Perverse Innovation

Guest Blogger

Dan Burk

For the Innovation Law Beyond IP 2 conference, March 28-29 at Yale Law School

Recombinant crops are unpopular in Europe.  Known as “GMOs,” an acronym for genetically modified organisms, crops that have been altered by recombinant DNA technologies have sparked public concern over potential safety and health risks.  While there is little scientific evidence to support such concerns, the possibility of unknown risks from such plants prompts European consumers to avoid foods derived from GMO crops, and both GMO plants and products are subject to strict and costly regulatory controls.  Prominent labeling is required for GMO derived products, and regulatory oversight for GMO planting is stringent.  In the past two decades, only one European Union application for planting GMO crops has been approved.

As a consequence, seed producers have moved away from recombinant DNA technology for producing new seed varieties in Europe.  Instead, they have adopted a different approach, producing new crops with desired characteristics, such as herbicide tolerance, through chemical or radiation treatments.  Mutagenic plant varieties may be produced by exposing seeds to nuclear radiation, which causes random changes in the plant genome.   Alternatively, seeds may be exposed to mutagenic chemicals, again causing random changes in their genes, some of which may be commercially beneficial.  Mutated plants with desirable traits are then selected from the altered seeds and propagated for sale.

These mutagenic crops are subjected to essentially no regulation, and unlike recombinantly modified crops can be readily grown and distributed in the EU.  There is little question that mutagenic crops have been “genetically modified” in any common or ordinary sense of that term.   There is no indication that they are any safer or healthier than GMO crops – indeed, unlike GMO crops, some mutagenic crops have had to be withdrawn from the market because of inadvertently increased levels of naturally occurring toxins, such as cyanide.

To the extent that uncertainty about possible harms is an issue, one might expect mutagenic crops to be a greater concern, as mutagenesis introduces multiple random and unpredictable changes into a plant’s genetic structure, rather than the targeted, controlled changes introduced by recombinant DNA techniques. However, because they were not modified via recombinant DNA technology, mutagenic crops do not meet the formal requirements for strict oversight under the EU regulatory scheme, and so escape the restrictions imposed on GMO plants. 

The innovation that has gone into exploiting a formal loophole in GMO regulation is in some senses perverse; seed companies avoid GMO regulation by producing seeds that may be a greater risk to public health than the products they replace.  Such technical workarounds ingenuously dodge the intended outcome of regulation, while formally adhering to the text of the regulation.  But one dimension of “bringing the state back in” to innovation incentives may be explicit recognition of, and purposeful reaction to, the perverse innovative outcomes that occur in response to imposition of state regulation.  Rather than try to close formalist loopholes, which is likely an ongoing exercise in futility, regulators might design them so as to purposefully, rather than haphazardly, promote innovative responses.

Of course, the state already does at times impose restrictive regulation specifically in order to prompt innovation---for example, federal and California state law served to effectively ban manufacture and sale of incandescent light bulbs, forcing development of compact fluorescent, LED, and halogen alternatives.  Similarly, federal or state environmental agencies have often imposed emissions standards in order to force innovations in control of pollutant discharge or in fuel efficiency.  But in many situations like the deployment of irradiated seeds, innovation, or at least creativity, is perversely directed toward avoiding the regulation, rather than toward expected compliance.

Perhaps surprisingly, directed perversity is familiar a familiar feature of the law most often associated with innovation incentives.  Patent law has long entailed an expectation that competitors to a patent holder will “invent around” the claims of the patent; this has been touted by the Federal Circuit as a benefit to the patent system.  The boundaries of the patent holder’s rights are defined by textual claims in the patent document.  Competitors to the patent holder may therefore invest in developing substitutes that fall outside the claims, which is to say in “inventing around” the obstacle of the patent right.  Patents are intended to encourage innovation, and are usually assumed to do so via the reward of exclusive rights in a meritorious invention, but the “inventing around” rationale suggests that they may also somewhat perversely spur innovation as others seek permissible alternatives to the legally encumbered technology.

The example of patent law “inventing around” raises the question as to whether, if perverse innovation is an inevitable outcome of formal regulation, it might become a calculated and desired outcome, as it is said to be in patent law.  As the literature on inventing around points out, this will depend on the extent to which ingenuity is simply directed toward avoiding a preferred regulatory outcome, or whether the ingenuity produces actual innovation.  The former outcome is likely to result in a net social cost, whereas the latter, like patent inventing around, could result in a net social benefit.

This calculus may be difficult to calibrate for the various environmental, health, safety, and other regulatory schemes that may produce perverse innovation.  It will likely be difficult to predict in advance where perverse innovation will occur and whether it is socially beneficial.  But patent law again provides some guidance; in patent law, the doctrine of equivalents penalizes non-innovative avoidance of claim language.  Under the Doctrine of Equivalents, known substitutions for elements of a patent’s claims are still considered infringing.  A similar standard of known substitution or triviality might be adopted in other areas where a goal of regulatory action is to spur collateral inventing around, in order to ensure that any technical strategy for designing around the regulation is in fact innovative, and not merely costly formal opportunism.

Dan Burk is Chancellor's Professor of Law at the University of California, Irvine. He can be reached at dburk at law.uci.edu.

Labels: Beyond IP

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