Restricting experimental use.

AuthorDevlin, Alan
PositionIn patent licensing

Denying patent holders extensive control over experimental use of their technologies has been widely lauded as an essential facilitative component of the innovative process, one that is to be enthusiastically embraced and expanded. If one posits the cumulative nature of innovation, the possibility of irrational holdout, and the view that patents are awarded in return for the disclosure of valuable information, widespread support for an expansive construction of the doctrine is unsurprising. The position flows naturally from a liability-based conception of intellectual property.

Yet the Federal Circuit has taken a position diametrically opposed to the majority view, limiting the experimental use doctrine to a degree that essentially renders it inoperable. This Article considers the normative foundation of the Federal Circuit's restriction and, in contrast with the prevailing academic view, concludes that it is entirely desirable. Bestowing patent holders with exclusive rights over experimental use facilitates Coasian bargaining in what is likely to be a low transaction costs environment and, more important still, is likely to enhance dynamic efficiency. Scholarship expressing a contrary view tends to place unwarranted focus on an "incentive to disclose" theory of patent rights, a theory which this Article demonstrates is neither plausible nor justified.

To the extent that considerations such as information asymmetry, transaction costs, irrationality, and bargain failure provide conceivable grounds for imposing compulsory licenses in other contexts, they have limited applicability with regard to experimental use. To import unthinkingly such considerations from other contexts is to overlook the crucial facilitative mechanisms likely to be associated with a strong property rights regime. Even horizontal competitors, who may understandably be very hesitant to license technology to each other, may nevertheless reach an agreement through reciprocal licensing deals, patent pools, grant-back provisions, or simply a sufficiently high fee. The oft-cited prospect of "irrational" holdout is overstated and, to the extent it exists, is most likely simply a reflection of a proffered licensing fee that undercompensates the patentee. Recognizing the right to exclude that lies at the heart of the patent grant fuels the sole incentive that truly matters, namely, the incentive to innovate.

The folly of the expansive view of experimental use is magnified when one considers the substance of the right it advocates. Its proponents counsel a regime of zero compensation, a price recognized by economists as necessarily inefficient. Some scholars' assertion that a zero-compensation regime will have negligible impact on patentees' "incentive to invent" is unsupportable.

INTRODUCTION I. FRAMING THE ISSUE IN CONTEXT A. A Brief Overview of the Law B. The Property Rights Movement and the Liability Faction 1. Utilitarianism as the Exclusive Foundation for Intellectual Property 2. Informing the Consequentialist Inquiry II. RESTRICTING EXPERIMENTAL USE A. Patent Policy as an "Incentive to Disclose" B. Employing the Exemption to Avoid Harm to Ex Ante Incentives C. The Critical Importance of Cumulative Innovation D. The Optimal Exemption CONCLUSION INTRODUCTION

The degree to which information should be subject to private ownership poses one of the most hotly contested questions in contemporary academic discourse. (1) This Article covers a subset of the larger debate, considering the question of whether a patentee's right to exclude includes the authority to prevent others from experimenting on, or with, his invention. In doing so, it considers Judge Newman's argument that "[t]he right to conduct research to achieve ... knowledge need not, and should not, await expiration of the patent." (2) In contrast to prevailing academic opinion, the Article concludes, no such general right should exist.

The propertization of information flows from an economic conception of innovation. Valuable invention and expression display public good characteristics of non-excludability and non-rivalry in consumption, which cause private markets to undercompensate inventors, authors, and artists, and thus underproduce desirable goods. (3) Informed by economics, the intellectual property laws artificially bestow information goods with the defining trait of physical property--excludability-thereby creating a market. (4) But this facilitative mechanism also carries the negative effects of increasing the price of information beyond some consumers' reservation levels and, worse, possibly hindering the innovative process itself. (5) Progress in the sciences and arts depends critically on prior understanding. (6) Indeed, the overwhelming impetus for valuable discovery emanates not from individual genius or effort, but from antecedent knowledge. (7) Granting entities exclusive rights over their inventions and artistic expressions may deny others access to the information they need to engage in unquestionably valuable "cumulative innovation." (8)

Empirical investigation has yet to determine conclusively whether bestowing information with the full attributes of physical property enhances social welfare by promoting dynamic efficiency, or restricts it by creating a perverse "anticommons" in which valuable information is not shared and technological development is frustrated by holdout. (9) Ultimately, economic-minded commentators agree that the optimal level of intellectual property protection is one that maximizes the difference between the benefits created by ex ante incentives to innovate, on the one hand, and the costs of allocative inefficiency and conceivable holdup of cumulative innovation, on the other. (10) Unfortunately, imperfect information precludes one from applying such a cost-benefit analysis in a determinative fashion. Accordingly, academics have differed sharply on the level of propertization that acts as an optimal heuristic, fiercely debating the extent to which patents and copyrights can be analogized to the law governing tangible property. (11)

Those advocating the adoption of a system similar to that for tangible property rights support the near-Blackstonian position (12) that a property owner's ability to exclude others should be almost inviolate. (13) They argue that strong property rights promote the efficient allocation of valuable information through contract, further facilitate post-grant commercialization, (14) and create optimal incentives by allowing patentees and copyright holders to extract the social value of their inventions. (15) Others reject a property-based perspective, instead favoring a liability approach that would grant third parties access to intellectual-property-protected information at a fee. Such commentators typically adopt a parsimonious view. They accept that patent or copyright is necessary to overcome the nature of information as a public good, but advocate a regime that still provides the minimum level of pecuniary compensation necessary to induce innovation. (16) A third camp considers the allocative-inefficiency and blunt-incentive characteristics of intellectual property to be good reasons for replacing the patent system with a reward structure. (17) Finally, there are those who doubt that intellectual property protection is necessary to induce desirable innovation at all, (18) touting the mantra that "information just wants to be free." (19) The normative justification for this agnostic position emphasizes above all the altruistic nature of much innovation, particularly in the copyright realm. (20)

The preceding divergence in academic opinion bears witness to the myriad disagreements in the realm of intellectual property. Within this larger framework, a particularly divisive point of contention has emerged concerning a third party's right to experiment on another's patented technology. Given the Byzantine nature of some technological discoveries, it may be difficult to re-create accurately or economically many inventions without some degree of experimentation. Should an intellectual property holder be able to demand a fee for such use or even enjoin it altogether? Should a patentee have any rights over such use at all?

There are, initially, many appealing reasons to think that he should not have any such rights. From a deontological perspective, one might argue that an inventor who gains the luxury of a twenty-year monopoly is contractually obligated to reveal in return precisely what his invention is and how it works. (21) Indeed, some scholars have drawn this inference solely from the statutory "enablement" requirement, (22) which demands that an inventor explain the functioning of the relevant technology in a manner that would allow one skilled in the art to reproduce it "without undue experimentation." (23) Many have also spoken of an "incentive to disclose" rationale for intellectual property protection. (24) This rationale is ostensibly reflected in the Patent Act, which requires that a prospective patentee both fully disclose the "best mode" for practicing his claim (25) and satisfy the enablement requirement. Certainly, an experimental use exemption for patents could hardly be called anomalous, for one is codified in the Copyright Act. (26)

Consistent with these considerations, the overwhelming weight of academic opinion supports an expanded experimental use exemption under patent law. (27) Their view is far from radical--indeed, several foreign countries have facilitated free experimental use by statute. (28)

In light of these strongly voiced opinions, and a judicial environment increasingly hostile to the property rights movement, (29) one would expect a broad exemption for experimental use. Yet in a series of recent cases, the Federal Circuit has curtailed the doctrine to a degree that essentially renders it defunct. (30) In Madey v. Duke University, the court went so far as to refuse to exempt the...

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