- The Legal Workshop - http://legalworkshop.org -

Why Do Patent Holders Cooperate?

Posted By Michael Mattioli On July 13, 2012 @ 1:01 am In Law Review Article, Northwestern University Law Review | No Comments

This essay discusses the bold and intriguing theory that our patent system’s problems can be corrected through private cooperation. According to some commentators, cooperative efforts such as patent pools, research consortia, and similar licensing collectives are proof that market participants have the wisdom and the will to collectively disarm their patent arsenals in order to promote long-term innovation. If sound, this hypothesis could have a profound impact on patent policy, approaches to industrial organization, and innovation itself.

My recent article, Communities of Innovation, examines this emerging market-correction hypothesis through a set of ethnographic case studies. Drawing on first-hand interviews, press accounts, and historical documents, I present a new, empirically-based view of collective patent licensing. The episodes I examine span historical patent pools that formed during the Industrial Revolution through modern-day collectives in the fields of pharmaceuticals, software, and genomics. I ask why these institutions formed and what they tried to accomplish.

First, some background information: Today, many experts believe that our patent system generates costs that hinder innovation. This concern was famously articulated by Michael Heller and Rebecca Eisenberg in a landmark 1998 article in Science.1 Noting the great number of companies that own patents on research tools and methods, Heller and Eisenberg posited that researchers today face daunting transaction costs. Before even beginning to develop new technologies, they explained, researchers must identify, evaluate, and license “upstream” patents. Added to these transaction costs is the high risk that individual patent holders will strategically hold out for prohibitively high licensing fees. Heller and Eisenberg predicted that these costs and risks would lead some would-be innovators to abandon their research plans altogether—a result they termed, “the tragedy of the anticommons.”

Anticommons theory has had an enduring influence on patent scholarship, but some experts don’t believe the problem is quite so dire. In the past decade, several leading commentators have suggested that perhaps patent holders are able to cooperate around licensing costs by forming collective licensing organizations. These experts cite patent pools, research consortia, and similar efforts as proof that market participants are capable of reducing transaction costs and hold-out risks by voluntarily aggregating patents under unified licenses. Given the right conditions, they argue, cooperation and innovation will flourish.

No advocate of this alluring theory, however, believes that our faith in markets should be absolute. As Robert Merges and Richard Nelson wrote in 1990, “There is no reason to assume that when blockages arise industries will always turn to the deadlock-breaking solutions we have seen, patent pooling and cross licensing.”2 This presents an open and urgent question: Why do patent holders cooperate?

To examine this question, I identified a set of historical and contemporary patent licensing collectives, some of which were cited by market-correction supporters. Drawing on interviews and original research, I assembled ethnographic case studies of collective patent licensing.3 The results were surprising: In several cases, government policies were instrumental in motivating groups of patent holders to cooperate. This fact is in discord with the image of patent holders cooperating purely out of a sense of enlightened self-interest. In a sense, the government has often had its foot on both the accelerator and the brake of patent enforcement.

A recent high-profile example of this phenomenon is the Medicines Patent Pool—an organization aimed at facilitating the development of new pediatric HIV drugs. The group’s genesis can be traced to the mid-2000s, when individuals working in the European public sector discussed the feasibility of asking large pharmaceutical companies for royalty-free licenses for the specific purpose of furthering basic research. The idea gained support within the World Health Organization (an agency of the United Nations) and in the UK Parliament. In 2010, the Medicines Patent Pool was formed and administered by UNITAID, a non-profit organization largely funded by airline ticket taxes.

Since its inception, The Medicines Patent Pool has sought to convince pharmaceutical companies that the long-term benefits of cooperating could exceed the short-term gains of patent enforcement. In its first days of operation, the organization published open letters to thirteen large pharmaceutical firms explaining the group’s goals and requesting patent licenses on specific molecules. The response was lukewarm. The first donor to the group was not a private company, but instead a US federal agency: In the fall of 2010, the National Institutes of Health (NIH) licensed a patent on the drug, Darunavir.

This episode clearly does not agree with the Market Correction Hypothesis. Rather than cooperating to overcome transactional problems generated by the patent system, a reluctant industry has been prodded by a publicly-funded group to cooperate in the name of innovation.

An earlier case study reveals that cooperation sometimes has been encouraged indirectly. In the late 1990s, drug research companies became interested in studying large sets of human genetic variations known as single-nucleotide polymorphisms (SNPs). Experts at the time feared, however, that if SNPs could be patented, an anticommons would impede research. This concern spurred the formation of The SNP Consortium—a collaborative effort led by thirteen large pharmaceutical companies to depropertize the SNP landscape. The plan was simple: Each member of the group would identify SNPs and, through a special legal procedure, effectively donate those SNPs to the public. Proponents of the Market Correction Hypothesis have cited this example as proof that private companies can cooperate for the greater good.

Although the SNP Consortium is widely regarded as a success, it is not a story of pure market correction. Before the group’s formation, NIH scientists and officials were deeply concerned about the possibility of a SNP land-grab as well. In a 1997 article in Science, an NIH official commenting on this possibility suggested that the NIH and other federal agencies cooperate to place SNPs in the public domain. This idea blossomed into the dbSNP, a publicly-funded and government-led precursor to the SNP Consortium. An NIH official later stated that the private cooperative effort was “nicely complementary” to the government’s existing project.4

Like the Medicines Patent Pool, the SNP Consortium does not align with the market-correction hypothesis’s depiction of private actors wisely and independently correcting government propertization errors. To the contrary, the SNP Consortium emerged amidst public and private efforts aimed at the same goal of facilitating research. Both databases were eventually merged and made free to the public.

Communities of Innovation reveals that the realities of collective patent licensing are more complex than theory alone suggests. These stories of success, failure, cooperation, and conflict refine our understanding of the role of collective action in our patent system. Most importantly, the article explains how government efforts have often nudged patent holders into cooperation. This fact should encourage academics, policymakers, and the public to explore new ways to foster communities of innovation that will flourish and endure. Cooperation may well be the way forward, but there’s no reason to believe that it’s inevitable.

Acknowledgements:

Michael Mattioli, Associate Professor of Law, Indiana University Maurer School of Law (Bloomington).

This Editorial is based on the Article, Michael Mattioli, Communities of Innovation, 106 Nw. U. L. Rev. 103 (2012).

  1. Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 Sci. 698, 698-99 (1998).
  2. Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 Colum. L. Rev. 839, 896 (1990).
  3. My ethnographic approach was inspired by nobelist Elinor Ostrom, whose path-breaking studies of natural-resource-sharing collectives opened the door to a new understanding of collective action. See, e.g., Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (1990).
  4. Eliot Marshall, Drug Firms to Create Public Database of Gene Mutations, 284 Sci. 406, 407 (1999).

Article printed from The Legal Workshop: http://legalworkshop.org

URL to article: http://legalworkshop.org/2012/07/13/why-do-patent-holders-cooperate

Copyright © 2009 The Legal Workshop. All rights reserved.