On Purple Pills, Stem Cells and Other Market Failures: A Case for a Limited Compulsory Licensing Scheme for Patent Property
27 Pages Posted: 26 Apr 2003
Date Written: April 2003
In an effort to balance the constitutional incentive of granting exclusive rights for "limited times" to inventors against the goal of furthering innovation and providing fair access to technology and knowledge, this paper explores options that provide greater leverage to accessing patented technology in a timely manner in situations where traditional licensing arrangements are an economic impossibility. The best illustrations of licensing bottlenecks are found in the areas of pharmaceutical/biotechnology and operations software. Here, patentees often stand to gain extraordinary profits from monopolizing the technology and little incentive to seek socially beneficial agreements in times of national crisis. With operations software, the patentee with the dominant system may delay licensing its technology and resist efforts that would result in opening the network to the entire marketplace, despite the fact that such activity would stimulate technological innovation and benefit consumers.
Fair Use provisions, although attractive on the surface, lead to increased erosion of inventor incentives. This is particularly true in the area of biotechnology where start-up and research and development may become cost-prohibitive. However, the reverse doctrine of equivalents allows for infringing acts which produce radically pioneering inventions. Instead of attempting to mirror the Copyright Act's Fair Use Provisions, I advocate implementing some type of compulsory licensing scheme which can be triggered for public health, national emergency, or market failure situations.
I posit that for pioneering inventions and certain types of basic research, such as stem cells, the transaction costs for negotiating and enforcing patent licenses becomes prohibitive and the incentive to abuse market pricing power is great. Overvaluing or undervaluing the market, market uncertainty, the desire to retain monopoly profits and differing goals of academic and corporate research are just a few of the scenarios which increase the costs of negotiating licenses and/or marketing patented inventions. Excessive transaction costs negate the Coasean "commons" theory that in the ideal universe of private property, minimal transaction costs will motivate parties to negotiate and share exclusive rights in a manner which leads to the most economically efficient use of resources. Instead, market failures often trigger monopoly pricing and/or an inability to negotiate traditional patent licenses. This creates a "bottle-neck" in natural free market competition, thereby preventing the true "progress and promotion" of the useful arts and science.
Keywords: Intellectual Property, Patents, Fair Use, Patent Licensing
JEL Classification: K29
Suggested Citation: Suggested Citation