Social innovation.

Author:Lee, Peter
Position:III. Accelerating Social Innovation through Conclusion, with footnotes, p. 42-71

    Turning from the descriptive to the prescriptive, this Part draws from the prior analysis to propose various strategies for accelerating social innovation. In so doing, it fills a gap in the innovation literature, which overwhelmingly focuses on promoting "traditional" technological innovation protectable by patents. Accordingly, this Part builds upon a rich body of scholarship comparing the relative merits of exclusive rights, public funding, prizes, and other inducement mechanisms to promote innovation. (264) These analyses, moreover, provide a framework for selecting one or several of these mechanisms to promote particular kinds of social innovations within particular contexts. While this Part argues against extending intellectual property rights to social innovations, it argues that selective provision of public and private funding, prizes, social capital markets, and infrastructure, as well as insights from the theory of the firm, user innovation, and commons-based peer production, can all accelerate social innovation.

    1. The Inappropriateness of Exclusive Rights

      Of course, one obvious candidate for accelerating social innovation is to extend exclusive rights over such creations, much like the patent system grants exclusive rights over technologies. For a variety of reasons, however, this Article argues against such a potential policy intervention. Before addressing this question, however, it is worthwhile to consider the antecedent issue of whether most social innovations are even patentable.

      It is doubtful that many social innovations would satisfy the threshold requirements of patent eligibility. Patentable subject matter encompasses "any new and useful process, machine, manufacture, or composition of matter," (265) and courts have long construed these categories expansively. (266) Perhaps the most likely route to patenting many social innovations would be to claim them as business methods, which courts have held may comprise patentable subject matter. (267) For example, one could attempt to claim a process for increasing job opportunities by providing free voice mail to indigent individuals (268) as a business method. However, since, the high water mark of patent eligibility in the late 1990s, courts have recently construed patentable subject matter--including business methods--more narrowly. (269) For example, in Bilski v. Kappos, the Supreme Court reinvigorated the "abstract idea" exception to patentable subject matter in rejecting claims to a method of hedging risks in commodities trading. (270) These decisions cast some doubt on the patent eligibility of social innovations claimed as business methods, particularly if done so at a high level of abstraction. For instance, a claim to a process of providing loans to indigent individuals to fund revenue-generating activities would likely fail as impermissibly abstract. (271)

      Notwithstanding potential difficulties of patentable subject matter, other requirements of patentability, such as novelty and nonobviousness, would also represent formidable obstacles. As mentioned, many social innovations are not strictly new but represent extensions or adaptations of existing practices. (272) For example, an attempt to patent techniques related to micro finance may fail on novelty and nonobviousness grounds. Even an innovation that might technically be novel, such as Grameen Bank's process of group lending, (273) would likely face significant nonobviousness hurdles. (274) Similarly, an attempt to patent simple strategies for preventing MRSA infections, such as not wearing neckties or degowning into a glove, would also likely fail on nonobviousness grounds.

      Further complicating attempts to patent social innovations is the public, open nature of such creations. Within the United States' first-inventor-to-file system, if an inventor publicly discloses an invention more than a year before filing a patent application, he will destroy his own invention's novelty. (275) As previously mentioned, social entrepreneurs typically do not keep their innovations secret, and in fact they aim to publicize and disseminate them rapidly. (276) Unless this practice were coupled with a norm of quickly filing patent applications (which seems highly unlikely), it would tend to defeat attempts to patent social innovations.

      Even if social innovations were patentable, exclusive rights would not be a prudent policy instrument for promoting them. Patents (in theory) represent an intrinsic tradeoff: they enhance incentives to invent but at the cost of constraining access to existing creations. In the context of social innovations, the benefits of patent protection would be almost nonexistent and the costs would be highly deleterious. On the benefits side, patents resolve market failure by granting patentees a right to exclude others from using their inventions, thus shoring up incentives to invent. Although patents enable market incentives to motivate inventors to invent, they do not create market incentives; it is ultimately market demand that drives the generation of patented technologies. Here, the patent paradigm fails to translate to social innovations, for almost by definition, there is relatively little market demand for such innovations. That is, even assuming strict excludability (which is a dubious assumption), patenting a social innovation would be unlikely to generate significant revenues and thus incentives for creation. If Springwire attempted to charge patent-inflated prices for community voice mail, (277) homeless individuals would simply stop using the service, and no other organizations would likely license the patent.

      Additionally, even if exclusive rights provided significant financial remuneration (which they probably do not), such incentives are not particularly germane to most social innovations. As noted, the motivations underlying social innovations are generally altruistic, aimed at advancing the public interest rather than maximizing income. (278) In particular, for user-generated social innovations, the challenge of an individual confronting an everyday, real-world problem provides ample motivation to create an innovative solution. As such, profit motives would provide relatively little marginal incentive for creating social innovations.

      Furthermore, exclusive rights on social innovations are plagued by difficulties of monitoring and enforcement. As others have described, monitoring processes is much more difficult than monitoring the manufacture and sale of products. (279) Many social innovations, such as hand-washing protocols to prevent MRSA infections, are processes. If such innovations were subject to exclusive rights, patentees would face significant challenges in identifying infringement and bringing enforcement actions, which would further depress incentives to patent in the first place.

      Additionally, the perceived informational benefits of utilizing patents and markets to allocate resources for innovation would not apply to social innovations. A classic argument in favor of patents over public funding of technological development is that market exchanges create price signals that allocate resources for invention more efficiently than centralized planning. (280) As F.A. Hayek influentially described, the information needed to create an optimal economic order is widely dispersed throughout society and is very difficult to concentrate within a single entity, such as a government body. (281) For Hayek, the best system for dynamically exploiting such distributed information is the market. (282) By aggregating information from millions of actors, the price system ensures the most efficient allocation of resources in society. The information efficiency of markets is thus an underappreciated link that justifies a patent system over other approaches (such as broad public funding) to subsidize research and development. However, the perceived information advantage of prices does not hold in all contexts; in particular, patents "fare poorly when market signals are weak proxies for social value." (283) This is the case with many social innovations; there may be enormous social demand for strategies to reduce homelessness, but this is not translated into commensurate market demand because of the low purchasing power of the individuals who value this innovation. Because prices reflect market rather than social value, the perceived informational advantage of markets is largely inapposite to social innovations.

      While the benefits of patent protection would largely be absent for social innovations, the costs would be significant. At a fundamental level, the exclusivity of patents would defeat the purpose and character of most social innovations. Exclusive rights produce deadweight loss, (284) which is particularly deleterious for innovations aimed at low-income populations with very little purchasing power. Furthermore, extending patent rights to social innovations could "crowd out" more altruistic efforts, thus resulting in no net increase--and perhaps a decrease--in social innovations. (285) Additionally, it is possible that profit motives would change the nature of social innovations, perhaps for the worse. Along these lines, studies of blood donation reveal no increase in the overall supply of blood when it was available for purchase. (286) Furthermore, "sold" blood was of lower quality than donated blood. (287) Extrapolating from these studies, it appears that introducing profit motives in domains traditionally governed by altruism may actually undermine efforts to serve the public interest. For a variety of reasons, extending exclusive rights to social innovations would be ineffective and ill advised. (288)

    2. Funding

      1. Government Grants and Social Capital Markets

        Exclusive rights, however, are far from the exclusive mechanism for promoting innovation. (289) Several other approaches would bear significant fruit, and a...

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