Cultivating the Genetic Commons: Imperfect Patent Protection and the Network Model of Innovation

Abstract

The debate concerning the extension of patent protection to the "genetic commons" generally divides into opposition to any form of patent protection and support for vigorous forms of patent protection. Actual practice in the biopharmaceutical sector suggests that the desired policy solution probably consists of an intermediate option: imperfect patent protection, which is understood to mean patent protection that generally covers only a small portion of an innovation's technological yield and therefore leaves substantial knowledge spillovers exposed to third-party competitors. Contrary to standard expectations, imperfect patent protection may preserve or even enhance incentives to invest in the high-spillover innovations characteristic of the biotechnology sector by facilitating the formation of interfirm ventures that substantially internalize knowledge spillovers and spread among multiple participants the high development costs of fundamental innovations. While introducing nontrivial property-rights protection enables innovators to more easily reveal private information to potential partners (and enables potential partners to more easily assess the value of an innovator's technological assets), limiting the scope of available protection drives market participants to enter into a variety of collaborative relationships in order to capture a greater portion of otherwise unprotected innovation proceeds. This thesis finds substantial support in the network structure of the biotechnology market, where patent protection is generally imperfect (in the sense described above) and products are often developed, manufactured and distributed by small "upstream" research-oriented companies working in conjunction with large "downstream" pharmaceutical companies. Subject to appropriate antitrust enforcement to impede the consolidation of broad patent portfolios among a limited number of competitors, imperfect patent protection may successfully induce investment in fundamental innovations while mitigating the danger of innovation bottlenecks likely to arise if available patent protection were less limited in scope.

Keywords: Patents, intellectual property, biotechnology

JEL Classification: K39