Incentives and Competition in Innovation Markets: A Study of the FAA UAS Test Sites Competition

Guest Blogger

Robert Heverly

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

The (commercial) drones are coming. Amazon wants to deliver packages with them, as does Google, and utilities want to monitor their infrastructure with them. Known more properly as Unmanned Aircraft Systems (UAS), the Federal Aviation Administration has proposed new rules to regulate commercial drone use, and states have passed laws in an attempt to protect privacy and prevent alleged misuse of the drones (for example, preventing hunting by UAS).

In 2012, Congress passed the Federal Aviation Administration Modernization and Reform Act (FMRA), in which it directed the Federal Aviation Administration (FAA) to begin integrating Unmanned Aircraft Systems (UAS, or drones) into the national airspace. Section 332(c) required the FAA to designate six UAS national test ranges to allow testing to begin at those sites (without this authority, UAS cannot be used for commercial purposes without specific FAA authority). No funding was included in the test range designation; instead, UAS could fly at the ranges pursuant to a local, streamlined approval process, avoiding the otherwise relatively lengthy existing FAA procedure). Fifty applicants initially sought FAA authority to open test ranges, a number the FAA first reduced to 24 and finally to the six awardees (the FAA has since issued proposed rules for more general commercial UAS use, and even more recently approved use of certain UAS below 200 feet without significant restrictions).

The UAS industry is an innovative industry. We can contrast UAS with industries, such as manufacturing or even gambling facilities, that states may seek to entice to locate within their borders for purposes of encouraging economic development. Silicon Valley was not built by luring employers into the region. It was built – and succeeds – because of the benefits that innovation bring to the region (and it is so successful that there are now various “Silicon” and “Valley” themed regions throughout the world as others attempt to recreate Silicon Valley’s success).


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Labels: Beyond IP

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IP and Other Regulations

Guest Blogger

Mark A. Lemley [1]

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


Intellectual property (IP) is a form of regulation. As I have argued elsewhere, [3] IP laws are deliberate government interventions in the market to try to shape how people participate in that market, encouraging new creation by rewarding it with above-market returns and discouraging imitation by imposing damages or even barring it altogether.

Once we understand IP laws as government social policies that seek to alter market outcomes, we can start to think of those laws as part of a broader tapestry of government rules that affect innovation in a complex variety of ways. Daniel Hemel and Lisa Ouellette have already situated IP regimes among a variety of other government policy levers designed to affirmatively encourage innovation and market entry, including prizes, grants, and tax incentives. [4]
 
But the potential role of regulation in encouraging market entry is not limited to offering various forms of government-sponsored largess to innovators. More traditional forms of regulation restrict market entry. Doing so offers supracompetitive returns to market incumbents who benefit from the entry barriers regulations impose. Taxi drivers benefit – or did until quite recently – from the absence of a truly competitive market, propped up by government limits on market entry. So too do the learned professions, which limit entry into their fields, sometimes in quite blatantly anticompetitive ways. [5] Pharmaceutical companies benefit from the limits the FDA puts on generic entry, over and above – and sometimes regardless of – the existence of patents. [6]

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Labels: Beyond IP

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Innovation Law Beyond IP 2: Bringing the State Back In

Guest Blogger

Amy Kapczynski

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

I’m looking forward to welcoming a superb group here to Yale this weekend for our second annual “Innovation Law Beyond IP” conference. I’m particularly excited about the main theme of our gathering this year: bringing the state back in.

I’ve puzzled for many years about the reflexive pessimism about the state that prevails in the field of IP.  The dominant justification for IP law, in fact, relies at its core on a particular view of the state.  As Kenneth Arrow noted long ago, IP rights create necessary inefficiencies, and these make the state a plausible competitor to the market on efficiency grounds.  Why, then, should we use IP rather than the state?  Because, as one of the leading IP law casebooks tells us:

Intellectual property rights have the advantage of limiting the government’s role in allocating resources to a finite set of decentralized decisions: whether particular inventions are worthy of a fixed period of protection. The market then serves as the principal engine of progress. Decentralized consumers generate demand for products and competing decentralized sellers produce them. By contrast, most other incentive systems, especially large-scale research funding, require central planning on a mass scale. (Merges, Menell & Lemley, 18)

This image of the state casts a long shadow in the field.  So long, in fact, that it reaches deep into the “beyond IP” literature.  Larry Lessig, for example, argues that “[I]f the twentieth century taught us one lesson, it is the dominance of private over state ordering.” (Future of Ideas, 12).  We should rebel against IP law in part, Lessig says, because we should “limit the government’s role in choosing the future of creativity.” (Id. at xvi).


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Labels: Beyond IP

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The Innovation State: "No Country" for Old Rules, only Experimental Ones?

Guest Blogger

Sofia Ranchordás

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

We love the word innovation. We pronounce it endlessly and, very often, meaninglessly. It seems like everything can be qualified as an innovation these days, and hence escape the legal control and the heavy hand of the state. Law and innovation are often presented in the popular media---and a portion of the literature---as two realities that shouldn’t mix. While innovation is an intangible, evolving, and trial-and-error process, law is made of stable and predictable rules.

Regulators seem to aim at a form of legal certainty which is not compatible with the inherent uncertainty that characterizes innovation. Therefore, whenever law tries to regulate innovative products and services, it often ends up stifling innovation by applying rigid and obsolete rules that constrain the freedom of innovators. As I have explained in my previous work on sharing economy, we have witnessed this problem with the prohibition of Uber in Europe, where the ‘old rules’ designed for taxi regulation have been used to prohibit this innovative form of peer-to-peer economy.

However, is this tension between law and innovation truly due to the inherent uncertainty of innovation, or to the normative uncertainty that confronts regulators? In other words, in many cases, clinical trials and ex ante evaluations may already provide regulators with sufficient information as to the potential risks and benefits of an innovation, but this may still not say much about the rules to be enacted in a concrete case, or the timing of such rules.


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Labels: Beyond IP

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Property Rules and Liability Rules for Genetic Data

Guest Blogger

Jorge L. Contreras

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

In 2009, the Texas Department of Health agreed to destroy a research biobank containing approximately 5.3 million infant blood samples. The samples, stored on index cards as dried blood spots, were collected over an eight-year period as part of a state program to screen newborns for genetic disorders and birth defects.  The parents of each infant consented to the blood draw and the testing.  Nevertheless, when four Texas parents discovered that the state retained the infant blood spots for future research, they sued (Beleno v. Lakey (W.D. Tex. 2009)).  Andrea Beleno and the other parents alleged that the state’s use of infant blood spots for research purposes without their express consent violated their right to privacy under the Fourteenth Amendment, among other things. To settle the litigation, the state agreed to destroy its entire repository of more than five million infant blood spots, an invaluable and irreplaceable resource for biomedical research. 

The result in Beleno is not unique.  Individuals have been asserting the right to control the use of biological samples and data with increasing frequency. In a highly-publicized case involving the Havasupai tribe, Arizona State University agreed to return DNA samples and discontinue several lines of research following objections from tribe members (Havasupai Tribe v. Ariz. Bd. of Regents, 220 Ariz. 214, 217 (2008)). They argued that, although they may have consented to the use of their DNA for diabetes research, they did not consent to other uses, including research on schizophrenia and ancient human migration.  After the tribe brought suit seeking $50 million in damages, the university settled, notwithstanding the fact that tribe members signed broad consent forms potentially authorizing the research.

It is axiomatic under U.S. law that there is no property interest in mere facts. Nevertheless, as these cases show, with respect to human genetic data, a de facto property regime has emerged in all but name. This regime has enabled individuals to exert strong proprietary rights over the use of data obtained from them, leading to instances in which research has been hindered or stopped, and in which valuable resources have been destroyed.  The mechanism by which individuals have been able to assert control over “their” data is informed consent.

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Labels: Beyond IP

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Creative Production Without Intellectual Property

Guest Blogger

Kate Klonick

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

The problem of the commons has existed as long as humans have formed communities: how do you protect against overfishing in an ocean no one owns, but everyone uses? How do you prevent pollution in a sky that belongs to no one, but everyone breathes?

In talking about more traditional natural resource-based commons problems, economists and lawyers have largely debated the relative merits of two approaches to solving the commons problem:

1. letting the state resolve the problem (through laws); or
2. letting the market resolve the problem (through privatization).

An alternative approach, developed by Elinor Ostrom — and which won her a Nobel Prize in Economics in 2009 — escapes this binary, and suggests that a voluntary self-governing citizenry will create its own institutions and solutions to commons problems. Ostrom created a framework for analyzing and studying these institutions, as a means of creating societal preconditions to support their development.

But protecting and allocating natural resources like fish or air or land is slightly different than allocating culture and knowledge.  “Knowledge commons” — as Brett Frischmann, Michael Madison, and Katherine Strandburg explain in Governing Knowledge Commons — are created by humans and are both intellectual and cultural. In natural resources, the problem of the commons stems from the self-interest individuals have in depleting a common resource; but in intellectual and cultural resources, the problem of the commons stems from the challenge of incentivizing the ongoing creation of these resources, while also recognizing that such contributions are public goods.

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Labels: Beyond IP

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Centralization, Fragmentation, and Replication in the Genomic Data Commons

Guest Blogger

Peter Lee

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

Genomics—the study of organisms’ entire genomes—holds great promise to advance biological knowledge and facilitate the development of new diagnostics and therapeutics. Genomics research has benefited greatly from various policies requiring the rapid disclosure of nucleotide sequence data in public databases. The result is a genomic data commons, a widely-accessible repository of information from which all members of the scientific community can draw. Notably, this intensely productive space operates almost completely outside of formal intellectual property law through a combination of public funding, agency policy, and communal norms.

The genomic data commons has attracted significant scholarly interest both because of its great potential to advance biomedical research as well as its broader lessons about the nature of commons-based productivity. For instance, Jorge Contreras has charted the evolution of the genomic data commons from a system that essentially disseminates information into the public domain into a more complex, “polycentric” governance institution for managing knowledge resources. This paper, which grows out of Brett Frischmann, Michael Madison, and Kathy Strandburg’s project to study commons governance, explores less appreciated but highly significant complexities of managing genomic information. In so doing, it seeks to shed greater light on the nature of commons in general.

In particular, this paper focuses on the governance challenges of correcting, updating, and annotating vast amounts of sequence data in the commons. Most legal accounts of the genomic data commons focus on researchers’ initial provisioning of data and access to such data by other scientists. Delving into the science of genome sequencing, assembly, and annotation, however, this paper highlights the indeterminate nature of sequence data and related information. Quite simply, the genomic data commons is full of errors and incompleteness. Accordingly, this paper examines four approaches for correcting, completing, and updating existing data: contributor-centric data management, third-party biocuration, community-based wikification, and specialized databases and genome browsers. It argues that these approaches reveal deep tensions between centralization and fragmentation of control within the genomic data commons, a tension that can be mitigated through a strategy of replication.

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Labels: Beyond IP

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The Hidden Wisdom of Architectural Copyright Before the AWCPA

Guest Blogger

Kevin Emerson Collins

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

My project follows through on an intuition about the value of architectural copyright that dates from my days as an architect before I went to law school. When I was an architect, I believed that copyright would be valuable to me not because it prevented other architects from borrowing from my designs but rather because it gave me more bargaining power in relation to the building owners who were my clients. More specifically, my current project identifies the hidden wisdom of architectural copyright before the adoption of the Architectural Works Copyright Protection Act (AWCPA) of 1990—an odd copyright regime that, to date, no one has sought to justify. Formalizing my old intuition, I argue that the primary benefit of pre-AWCPA copyright was not an augmented incentive to create but rather the resolution of a variant of Arrow’s information paradox. That is, pre-AWCPA architectural copyright was a well-engineered copyright regime because it allowed strangers to free ride on design information while it prevented building owners who were contractually related to architects from opportunistically appropriating disclosed information without full payment.

Before the AWCPA, copying original expression from an architectural drawing amounted to infringement, but copying the exact same original expression from a constructed building did not. Economically speaking, pre-AWCPA architectural copyright was therefore a defeasible right because it lost much of its economic value upon the construction of a building. Pre-AWCPA copyright was a facially odd copyright without an analog in any other copyrightable subject matter. Imagine protecting the drawings used to design useful articles, but not the conceptually separable aspects of the useful articles themselves. Alternatively, imagine protecting the sketches made in preparation for large-scale murals or mosaics, but not the completed murals or mosaics.

Pre-AWCPA copyright has been widely criticized by critics who evaluate it under the incentives-access tradeoff that underpins conventional economic justifications of copyright. Aspiring to a maximalist regime, some copyright scholars criticize pre-AWCPA copyright directly, arguing that its defeasible rights are too paltry. Because free riding on constructed buildings is permitted, they posit that it does not generate meaningful incentives to invest in creative architectural design. Others, aspiring to a minimalist regime, argue in favor of thin—or perhaps even non-existent—copyright protection for architecture. However, they do not defend the defeasible nature of pre-AWCPA rights as a good way to limit an architect’s copyright rather than, say, a strictly administered substantial similarity test. In sum, pre-AWCPA architectural copyright was not only weak, but runtish as well. If the point of copyright is to generate incentives for creativity and tamping down on the most egregious free riding is the most palatable way of having copyright augment the incentive to create, pre-AWCPA copyright simply misses the mark.

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Labels: Beyond IP

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We Don’t Need No State! Wait. The State Funds That? Never Mind.

Guest Blogger

Deven Desai

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

The sub-theme for Innovation Law Beyond IP 2 is “Bringing the State Back In.” That theme prompted me to submit a proposal in part because I am not sure the state ever left. The assumption of bringing the state back in seems to be that it has been pushed out or ignored. Marianna Mazzacuto’s white paper on the state and innovation and her follow-up book, The Entrepreneurial State, on the topic offer another perspective: that society has under-valued the state’s role in innovation.

As I kicked around the conference theme, I thought about the number of times I had said the term. "Innovation" has been gutted of meaning. When I worked it Silicon Valley, I was constantly hearing that everything and everyone was "innovative." What do you want to be? Innovative. Why should we fund you? We are innovative. Why shouldn’t we tax you? We will stop innovating. It reached a point that I’d not be surprised if someone claimed to be innovative in the way they crossed a street. The ever-present invocation of innovation made me think: what exactly do we mean by innovation? And are some innovations more important than others? Furthermore, from where do innovations come?

Part of the problem is that the focus on innovation in general misses that any given innovation is part of a system, and it is the system that matters. If we think about systems that support innovation, it appears that there are three parts to such a system:

1. discovery
2. invention
3. innovation.

The state plays a role for each part. The problem today seems to be that as soon as one talks of the state being involved in anything, what Fred Block has called “market fundamentalism” rises to challenge and deny that the state has any role to play. In addition, the Schumpeterian idea of gales of creative destruction has been claimed by many sides of the innovation policy debate and confuses the debate further. As I read Schumpeter, I found that he recognized the differences between invention and innovation. He also recognized that not all innovations are equal.

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Labels: Beyond IP

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Ceci N’est Pas Un Taxi: Definitional Defiance as Innovation in the Platform Economy

Guest Blogger

Orly Lobel

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

Over 10,000 new platform companies have sprouted and mushroomed in less than a decade and they continue to pop up daily. The platform economy, while not easy to define or quantify, was valued in 2013 at $26 billion with predictions of an exponential growth to $110 billion in the next few years. A recent Price Waterhouse report predicts that globally, revenues from the platform sectors could hit $335 billion by 2025.

So what’s your business? You don’t need to open a restaurant to host cooking events; you don’t need to become a taxi driver to offer paid rides; you don’t need to open a hotel to be a lodging host; you don’t need to start a moving company to get paid for helping someone relocate. Platform businesses are challenging conventional industries in every realm, including hotels (Airbnb, Couchsurfing, Homeaway, VRBO), office space (Liquid Space, ShareDesk), parking spaces (ParkingPanda, Park Circa), transportation (Lyft, Sidecar, Uber), restaurants (Eatwith, Feastly, Blue Apron, Munchery), used clothing (ThredUp), household tools (Open Shed), outdoor gear (Gearcommons), capital (Zopa; Prosper, Kickstarter, Bitcoin), broadcasting (Aereo, FilmOn.com), co-developing (Quirkly, Etsy), legal services (Upcounsel), medical services (Healthtap), academic tutoring (Uguru), everyday errands such as grocery shopping and laundry (TaskRabbit, Instacart, Airtasker, Washio), and specialized errands, such as  flower delivery (BloomThat), dog-walking (DogVacay) and package delivery (Shyp).

New digital technologies are turning everything into an available resource: services, products, spaces, connections, and knowledge, all of which would otherwise be collecting dust. It’s been called the sharing economy, the disaggregated economy, the peer-to-peer economy (P2P), human-to-human (H2H), the community marketplace, the on-demand economy, the app economy, mesh economy, gig economy, and the "Uberization of everything."

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Labels: Beyond IP

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Publishing without Property

Guest Blogger

Lea Shaver

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

In "Copyright and Inequality," I explored the ways in which copyright protection often – perhaps inevitably – fails to incentivize books for certain audiences, because they are too poor, speak the “wrong” languages, or require niche content or formats. The project I will present at the Beyond IP 2 conference examines a possible solution to copyright’s inequality problem, one which holds the potential to finally bring books to billions of readers long neglected by the mainstream publishing industry.

In India, Pratham Books pursues the mission of “A book in every child’s hand,” producing more than 1000 titles in over 15 languages, and reaching 52 million children. The African Storybook Project distributes openly licensed stories on a digital platform that facilitates translation to help young children develop a love of reading. First Book provides low-cost new books to over 160,000 schools and community programs, and leverages its buying power to demand more diverse books.

Social publishers are defined by the centrality of a social mission rather than the pursuit of profit. For this reason, they often rely heavily on social subsidies and treat their product as a social good to be distributed free or at cost. Often, but not always, social publishers also engage in social production. These alternative content-production models leverage intrinsic motivations, social networks, and peer production enabled by digital platforms.

My project analyzes this emerging phenomenon to understand how law and policy can help social publishers reach their fullest potential, and to derive broader lessons from this example of intellectual production without IP.

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Labels: Beyond IP

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Governing Knowledge Commons

Guest Blogger

Michael Madison

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

Empirical investigation into different modalities of knowledge production, distribution, access, and preservation has accelerated in recent years.  Much of the energy behind that effort emerges from the intuition that formal intellectual property law frameworks are inadequate and/or incomplete to describe what one observes in the world when examining the governance of innovation.  “Peer production” frameworks, and frameworks simply “beyond intellectual property,” are likewise inadequate and/or incomplete; broad, simple labels cannot themselves correct for the errors and omissions of IP as such and cannot capture the significance of diverse ground-level details.

Yet policymaking cannot proceed effectively if it tries to align law with micro-level experience, or if researchers advance policy arguments based on isolated case studies of innovation “beyond intellectual property.”  What is needed is an empirical strategy for investigating the mechanics of innovation systems that encourages both micro-level and system-level inquiry and invites comparing and eventually synthesizing lessons across diverse innovation domains, accepting linkages among commons-based production, user-innovation, IP-based production, and state-sponsored production.  Commons-based production, sometimes in part referred to as “peer production,” is widespread and heavily theorized, yet commons governance is under-researched.  One-off studies and anecdotes have been collected without a strategy for using that data to build a larger model of knowledge and innovation governance.

My colleagues Brett Frischmann, Kathy Strandburg and I proposed the first part of such a strategy in our 2010 paper, Constructing Commons in the Cultural Environment, and we refine that strategy and demonstrate its potential in Governing Knowledge Commons, the edited collection that is the subject of my presentation at the Innovation Law Beyond IP 2 conference.

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Labels: Beyond IP

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Trademark Innovation to Support Open Collaboration

Guest Blogger

Stephen LaPorte and Yana Welinder

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

Next week, scholars from around the world will gather at Yale Law School to discuss different institutions that impact knowledge production at the Innovation Law Beyond IP 2 conference. One of the topics will be how legal rules and infrastructure can sustain or undermine commons-based peer-production. Trademark law is one such legal regime that is rarely discussed in this context. Unlike copyright law’s Creative Commons and open source licenses, trademark law has not generated new inventions to support collaborative production on the internet. Trademark law provides some support for collaborative projects like Wikipedia and Linux by protecting their brands from imposters and making the brands distinguishable so that the projects can use them to recruit new contributors. But brand protection can also impose restrictions that go against communities’ values and slow down their work. Over the past decade, communities and their lawyers have found different strategies to reconcile their novel forms of knowledge production with the stringent requirements of trademark law.

The core tension between collaboration and trademark law is the requirement of quality control. The quality control requirement is based on the theory that a trademark should be a reliable indicator of a good’s origin. When trademark holders provide permission for someone to use their mark, they usually retain the right to inspect the quality of the goods that carry the mark and impose restrictions on how the mark may be used. Open source and free culture communities, on the other hand, thrive on openness and decentralization. These communities rely on technical tools and social norms to maintain the quality of their project.

In 2010, collaborative communities got a wake-up call with a Ninth Circuit ruling that the Freecycle Network had lost the legal rights in its logo due to non-traditional brand management. Freecycle had failed to enter into proper quality control provisions with affiliate organizations when they gave the organizations general permission to use the Freecycle logo without specific restrictions. The Court found this to be naked licensing, a form of trademark abandonment, that limited the Freecycle Network’s ability to enforce their trademark. This case served as a warning of the risk of naked licensing to collaborative communities that were too open. Since then, collaborative communities have been grappling with how to protect their marks in a manner that fits open source and free culture values.

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Labels: Beyond IP

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The Cost of Free and Paradoxes of Informational Capitalism

Guest Blogger

Guy Pessach

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

Among other aspects and dimensions, the frame “Beyond IP” summarizes two key complementary insights in contemporary politics of intellectual property. The first insight touches upon the limits, shortcomings and social costs that are associated with legal ordering of cultural/information production through intellectual property regimes. The second insight lists alternative structures, institutions and regulatory options for the promotion of innovation and ubiquitous cultural flourishing. Both insights reside upon concrete and persuasive arguments.

At least to some degree, the shift from an IP-centric approach to alternate methodologies that go beyond IP was stimulated by the emergence of digitization and networked communications platforms. New methods and reduced costs of producing, storing and distributing content/information provide fertile grounds and constant demonstration that there are enhanced schemes, beyond IP, for cultural and knowledge sustainability.

“Beyond IP” is not just a frame for mobilization but also a descriptive term that captures and summarizes contemporary information, creative and cultural activities, which rest upon concepts of free content, free access and openness as their building blocks.

Yet, it is at this juncture that another, less noticed, aspect of “Beyond IP” is being revealed: the political economy of certain “Beyond IP” realms, and particularly market-oriented realms, may be counterintuitive to the above-mentioned premises.

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Labels: Beyond IP

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Intellectual Property as Global Public Finance

Guest Blogger

Lisa Larrimore Ouellette

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

The conventional justification for IP is that information is a public good (i.e., it is non-rival and non-excludable), and making information excludable through IP allows it to be efficiently supplied by private markets. Both sides of this account have been questioned: not all information has the characteristics of a public good or can be made excludable through IP, and propertization is not the only way the state compensates public-goods providers. As Daniel Hemel and I analyzed in Beyond the Patents–Prizes Debate, the state also encourages information production through mechanisms such as tax incentives and direct spending. One challenge for domestic innovation policy is recognizing that, like conventional public finance mechanisms, IP facilitates a transfer from consumers to innovators, and that the off-budget nature of this IP “shadow” tax should not affect the innovation policy choice.

In our paper "Intellectual Property as Global Public Finance," Daniel and I examine information production at the global level, where conventional public finance mechanisms are lacking. Many information goods are global public (or quasi-public) goods, so under the conventional account, global coordination is needed to prevent countries from free-riding on each others' information production. Global IP treaties such as the TRIPS Agreement help solve this global coordination problem by requiring countries to contribute to the extent that they use the information produced under IP laws, with defection punished by trade sanctions. In the global context, the off-budget nature of IP laws may be an asset, as it facilitates creation of this stable Nash equilibrium in a way that maps onto very different national public finance regimes.

If this were the full story, one would expect to find little state investment in non-IP innovation mechanisms for which free-riding cannot be prevented. And yet governments at all levels do invest significant resources beyond IP in producing information goods. Daniel and I offer a number of hypotheses to explain these investments. For example, producing information goods has local production externalities, so nation-states may compete to attract innovative individuals and firms. Relatedly, rent-seeking may cause countries to use information subsidies to circumvent free-trade limits on industrial subsidies, and may cause industry interest groups to lobby for grants and tax credits to extract subsidies from the state. Non-pecuniary motivations such as altruism and the pursuit of prestige may supplement these incentives for high-profile goods.

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Labels: Beyond IP

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Regulating Secrecy

Guest Blogger

Nicholson Price

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

Many inventors who wish to protect their inventions from imitators are faced with a choice: do they rely on trade secrecy or patents?  The literature has explored how inventors make this choice—when they are likely to choose trade secrecy, when they should choose trade secrecy from an individual perspective, when we as a society would prefer that they choose patents (or trade secrecy)—and how to shape incentives and the rules of trade secrecy and patentability to help drive that choice in socially optimal directions.  But trade secrecy and patent law do not operate in a vacuum, and one strong interaction that has been underexplored is how these incentives are affected by regulatory oversight, and how that oversight can change the incentives to choose between the two.  In particular, I argue that way regulation strengthens trade secrecy is complex and is overlooked in current policy debates, and that regulatory regimes should act deliberately to reduce secrecy in heavily regulated industries.

When I say “regulatory oversight,” I am thinking principally about heavily regulated industries, with strict oversight and, typically, a market gatekeeper (though I think the insights may also apply in other regulated contexts).  The paradigmatic example is the Food and Drug Administration’s oversight of new drugs: the FDA determines which drugs can be examined in clinical trials and allowed onto the market.  It also regulates when and how drugs are manufactured, how drugs are marketed, when they can be removed from the market, and when and how competitors can enter the market.  Other similarly regulated regimes include pesticides, medical devices, and biologics, and to a lesser degree, aerospace, nuclear energy, and military tech/procurement.

In these contexts, IP protection often becomes more powerful by its link to the regulatory benefit under three conditions:

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Labels: Beyond IP

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Cluster Competition

Guest Blogger

Camilla Hrdy

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

Governments across the globe have increasingly made it a core feature of their economic development policies to foster the growth of “innovation clusters” in their jurisdictions: regional economies made up of innovative firms, talent, and supporting institutions, which are thought to benefit from proximity to one another. The concept is elusive, and is often accompanied with references to examples of successful clusters, ranging from biotech in Boston, to information technology in Silicon Valley, to marine technologies in eastern North Carolina.

Now the U.S. federal government is getting involved. The most prominent example of the expanded federal role in growing clusters is the regional innovation program (RIP) created in the America Competes Act (2010) in order to encourage and support the development of “regional innovation strategies.” Administered by the Economic Development Administration (EDA) in coordination with agencies like the Department of Energy (DOE), the RIP’s flagship initiative is a multi-agency grant competition through which states, regional governments, and other stakeholders compete for federal grants and matching funds to design and implement strategies for growing innovation clusters or science and research parks. The largest cluster grant to date has gone to the Greater Philadelphia area, which received over $150 million in federal and matched funds to build an Efficient Energy Buildings hub focusing on developing ways to make buildings more energy-efficient.

The U.S. government’s decision to fund a national cluster competition is curious in light of the fact that there is already an intense competition to grow innovation clusters in the United States at the regional level. For decades, states, cities, and other subdivisions of states have put significant resources into programs to build innovation clusters, from spending on infrastructure, to investments in higher education and university research, to tax breaks, subsidies, and public venture capital for firms seeking to conduct or commercialize cutting-edge research.

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Labels: Beyond IP

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IP and Constitutional Equality

Guest Blogger

Jessica Silbey

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

Intellectual property reform most often questions the most effective levers for “promoting progress” by incentivizing creativity and innovation. However, substantial ambiguity exists as to what “progress” means, particularly in some of the most notable (and critiqued) court cases interpreting intellectual property statutes (e.g., Aereo, Golan, Eldred, Bowman). What is the content of “progress” towards which IP law reaches?

I have been thinking about this question from multiple levels, beyond the drafting and legislative history of the Constitution’s clause. If we think that it matters that those engaging in creative and innovative work perceive an alignment between IP protection and “progress” in their field or culture generally, presumably we would think it important to ask those people and qualitatively measure and analyze their answers. I have done that to some extent over several years in dozens of interviews with creative and innovative professionals and their business managers or lawyers. It may perhaps be unsurprising that many people who make, distribute and commercialize creative or innovative work otherwise protected by IP do not think that IP promotes “progress” as defined by facilitating more and better work. Perhaps less surprising, however, is that “progress” to them appears to resonate less with quantity and quality of work and more with equality and distributive justice regarding their practices and experiences of working.

To be sure, mining the empirical data set for substantive and narrative themes about how IP helps or hinders “progress” of science and art reveals a diversity of “progress” values. This presents an opportunity and perhaps several puzzles. Insofar as the mandate to Congress is to “promote progress of science and useful arts” through certain exclusive rights, if the kind of progress that creative and innovators care about and toward which they strive is better known, it may be easier to tailor regulation to achieve those goals. Similarly, urging a more specific articulation of what “progress” might mean for congressional legislation aimed at it, would also be an improvement in government transparency.

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Labels: Beyond IP

Posted 9:30 AM by Guest Blogger [link]

The Success of "Access to Error"

Guest Blogger

Lea Shaver

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

Michal Shur-Ofry’s article, "Access to Error," is a thoroughly enjoyable read, outstanding in both concept and execution. Hers is one of those arguments that makes you think, “How did we miss that?” And, “Now what do we do about it?"

Here’s the foundational insight, in brief: patents provide an incentive to disclose workable technologies. Failures are the blind spot of the patent incentive structure. But there is actually an enormous value in knowing what doesn’t work. As the author points out, the commercial value of knowing what doesn’t work makes this knowledge eligible for trade secret protection. But that is the opposite of incentivizing its disclosure, where it can do the most good.

In the health sector, other scholars have pointed out the problems associated with allowing companies with a financial stake in pharmaceutical research to selectively release their research results. This literature has been closely tied to the context of pharmaceutical research and assumes that the need for access to unsuccessful trial results is unique to that context.

This article takes that concern to a different level, with relevance to all areas of science and technology, business models and social innovation. IP facilitates a market for invention at the end-stage, when you have a successful technology. But the secrecy along the way is counter-productive to speeding innovation.

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Labels: Beyond IP

Posted 9:00 AM by Guest Blogger [link]

Access to Error

Guest Blogger

Michal Shur-Ofry

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

What are your immediate associations to the word "innovation"? The responses I received while running this question through friends and acquaintances ranged from the general ("progress", "future", "modernization", "technology", "patents", "curiosity", "thinking outside the box", "fresh", and "intriguing") to the specific ("artificial intelligence", "spaceships", "cherry tomatoes", "Einstein", "Da Vinci" and "Apple"). No one, however, mentioned errors, failures or negative findings.

This is hardly surprising—we tend to associate innovation with success (or other positive things) and errors with defeat. But errors and innovation are actually tightly linked. My purpose in this project is to focus on errors as drivers of innovation. I argue that the current incentive structure in our innovation ecosystem, both within and beyond IP, does not provide sufficient incentives for the dissemination of errors and other negative information. I further hope to start a conversation about access-to-error as an important (and largely overlooked) goal for innovation policy.

First, what do errors have to do with innovation? To clarify, I use "errors" here in a very broad sense, that includes mistakes, failures, falsifications, blind-alleys, negative findings and additional types of negative information. The main answer is almost obvious, and was suggested by philosophers of science long ago: errors provide us with important negative knowledge, the knowledge of what doesn't work, which brings us closer to understanding what does. In the words of Karl Popper: "we learn from our mistakes."

But there is more to it: errors are especially important for triggering paradigm shifts---a particular type of innovation that opens up new fields of research and can completely change scientific domains. Thomas Kuhn in his influential work about scientific revolutions recognized that paradigm shifts are often preceded by detecting mistakes and inconsistencies under existing paradigms. Indeed, actual shifts in physics, life-sciences and even behavioral economics provide ample examples for the power of errors to push innovation beyond the state of the art. More recent research in the field of complexity highlights another angle: due to the networked and inter-dependent nature of many innovation ecosystems small errors that accumulate undetected can eventually cause large-scale catastrophes---famous failures of aircraft, buildings and nuclear plants provide powerful examples. The detection of errors in complex innovation ecosystems may therefore be especially significant. Finally, although my focus is on the scientific and technological domains, errors and mistakes are also drivers of artistic creativity.

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Labels: Beyond IP

Posted 3:52 PM by Guest Blogger [link]