NA project on: Intellectual Property Rights in a Knowledge-Based Economy

[James Love <love@cptech.org>]

INFO-POLICY-NOTES
(list management at http://www.cptech.org/lists.html)


The following is a description of a project on Intellectual
Property Rights in a Knowledge-Based Economy, by the
National Academies' Board of Science, Technology and
Economic Policy (STEP).  The project has apparently
already lead to some evaluations of intellectual
property issues by the Clinton Administration.  It proposes
an important and far reaching empirical review of core
issues in national policy regarding intellectual property
policy. 

  Jamie Love <love@cptech.org>


http://www4.nas.edu/pd/step.nsf/8525648b0070c170852562cb0073ff22/371702b9c0c250a38525674d0061f3a6



        BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY
                                
    Intellectual Property Rights in a Knowledge-Based Economy
                                

Summary of Project

Background
                    
     Policy Context
     Analytical Context

Summary

In advanced industrial economies where, increasingly,
intellectual assets are the principal source of value,
productivity, and growth, strong intellectual property rights
(IPRs)-conferred by patents, copyrights, and penalties for
misappropriation of trade secrets-are an important inducement to
invention and investment. For this reason, the extension and
strengthening of IPRs in the United States and elsewhere in the
past 25 years were appropriate and probably necessary. It may be
that in some respects those processes should proceed further. On
the other hand, there is growing friction over the assertion and
exercise of some IPRs and claims that in some circumstances they
may be discouraging research, its communication, and use. The
question arises whether in some respects IPR strengthening and
extension have proceeded too far. 

To provide answers to guide IPR policy over the next decade and
beyond, the Science, Technology and Economic Policy Board (STEP)
of the National Research Council (NRC) proposes to undertake a
33-month project in two phases. In the first 15 months, the Board
will organize a major conference to review the purposes of the
IPR legal framework and assess how well those purposes are being
served. The Board will identify whether there are now or emerging
problems of inadequate or over-protection of IPRs that need
attention. In a second phase of approximately 18 months the Board
will form an expert committee to analyze and propose solutions to
particular issues selected from the earlier deliberations.


Background

Policy Context. For purposes of this proposal, intellectual
property rights (IPRs) refer to patents (governed by federal law
and administration), copyrights (governed by federal law and
administration since 1976), and trade secrets or know-how
(governed by state law until 1996). It does not include
trademarks and tradenames. From about mid-1800s to the mid-1970s,
federal government IPR policies were relatively stable and
politically unimportant. In the past 20 years, beginning with the
Copyright Act of 1976, federal legislative and diplomatic
activities have increased and several notable judicial decisions
have been rendered, most of them in the direction of increasing
the scope and private value (sometimes called the "strength") of
IPRs:

-    the 1976 Copyright Act leading to copyrights for computer
     software;

-    the 1980 Bayh-Dole Act, enabling small business, university,
     and other nonprofit federal contractors and grantees to
     obtain exclusive rights to their inventions (gradually
     extended to most contractors);

-    the Supreme Court's 1980 decision in Diamond v. Chakrabarty,
     establishing the patentability of genetically engineered
     organisms;

-    the creation in 1982 of the Federal Circuit Court of Appeals
     (FCCA), frequently perceived as strengthening the position
     of patent holders in infringement litigation;

-    the Semiconductor Chip Protection Act of 1984, creating a
     new federally enforceable right to prevent copying of
     semiconductor designs;

-    the 1984 Hatch-Waxman Act extending the patent terms on
     regulated pharmaceuticals;

-    the 1988 Process Patent Amendments Act, blocking the import
     to the United States of foreign products produced by methods
     infringing U.S. process patents;

-    the 1994 Uruguay Round Agreement on Trade-Related Aspects of
     Intellectual Property Protection (TRIPS) and various
     bilateral agreements, ostensibly strengthening foreign IPR
     protection and harmonizing national standards;

-    the Economic Espionage Act of 1996 creating, for the first
     time, federal criminal and civil penalties for theft of
     trade secrets by foreign agents or U.S. citizens; 

-    the Digital Millennium Copyright Act of 1998; and

-    the 1998 FCCA decision upholding the patentability of
     business application software patents.

Not all legislative activity resulted in greater IPR protection.
The term of a patent was changed so that in some instances the
patent has a shorter or less predictable term and therefore a
lesser expected value. Judicial decisions, too, sometimes limited
the scope of protection. The net effect of the international
"harmonization" efforts is unclear.

Although many groups supported the principal policy changes on
the basis that they increased research incentives, others have
expressed concern that in some circumstances the assertion and
exercise of IPRs are discouraging or may discourage research, its
communication, and its commercial use. These issues can be
categorized by their potential effects:

1) on the performance and communication of academic research

-    concern that an international agreement favored by the
     European Union and the U.S. Patent and Trademark Office
     (PTO) to extend copyrights to scientific databases will
     inhibit research;

-    concern that expressed gene sequence (EST) and other
     biological material patents will make it prohibitively
     complicated and expensive to conduct research using these
     tools or, alternatively, expose research investigators
     to infringement suits;

-    concern that allowing federal grantees to obtain patents has
     altered their incentives to conduct basic versus applied
     research;

-    concern that universities', researchers', and sponsoring
     companies' financial interests in exploiting academic
     results (by IPRs and otherwise) are inhibiting open, timely
     scientific communication; and

-    concern that universities' and potential industry research
     sponsors' inability to resolve differences over IPRs will
     discourage corporate support of academic research.


2) on personnel mobility and informal technical communication
between rival companies

-    concern that enforcement of new federal trade secrecy laws,
     providing civil and criminal penalties for misappropriation,
     will have a chilling effect on mobility and informal
     know-how trading among firms.


3) on industry investment in R&D and innovation, both radical and
incremental, initial and subsequent innovation

-    concern about the uncertainty of the scope of IPRs;

-    concern that slow and secret patent administration processes
     reduce R&D incentives;

-    concern about high litigation uncertainties and costs, both
     financially and in terms of the time of scientists,
     engineers, and managers; and

-    concern about licensing terms barring probing the
     intellectual content of software or genomic material and
     making modifications and improvements (so-called
     "decompilation")


4) on industry competition and structure

-    concern about the use of patent portfolios to block
     competitors' entry or discourage related research; and

-    concern about the penalties for initial innovators (e.g.,
     business software developers) when IPR protection shifts
     from trade secrecy to patents.


Finally, while the U.S. policy thrust remains in the direction of
strengthening and extending IPRs and harmonizing national IPR
regimes at a high level of protection, it is also true that there
are unresolved and highly contentious policy issues. For example,
omnibus patent legislation remains stalemated in Congress by
disputes over provisions establishing the U.S. Patent and
Trademark Office as an independent corporation, requiring
publication of patent applications after 18 months, establishing
a prior use defense to allegations of infringement, and
broadening the participation of third parties in patent
reexamination proceedings. Further, reconciliation of the U.S.
first to invent patent principal with the first to file principal
predominant abroad is not on the table for discussion because it
would be too controversial, raising basic questions about what
patent law should encourage. 

Analytical Context. It is well known that the use of, reliance
upon, and effects of intellectual property rights protections
vary across industries and technologies, but until recently there
has been remarkably little empirical research, other than opinion
survey research, documenting these differences. This is beginning
to change, and the effects of some of the policy changes in the
1980s and 1990s are beginning to be investigated. For example,
the creation of the Federal Circuit Court of Appeals was
associated with an increase in patenting that continues and in
recent years has accelerated. This suggests that the effort to
strengthen patent rights has indeed increased their importance
and may have contributed to the growth of industrial R&D funding.
On the other hand, these trends contrast with recent survey
evidence suggesting that U.S. manufacturing firms in most
industries rely more heavily on trade secrecy, lead time, and
technological protections (e.g., encryption) to recoup their R&D
investments than they do on legal mechanisms such as patents and
that, if anything, the effectiveness of patents as a means of
appropriating R&D returns has declined since the early 1980s.
There is very little evidence about the importance of patents as
a means of disseminating technical information, although this is
one of the principal rationales for the patent system and appears
to be an important function of patents in Japan.

In short, the effects of IPR changes on innovation and technical
advance are highly uncertain -- with respect to either the
incentive provided to the innovator to capture the benefits of
his invention, investment, and effort or the encouragement to the
innovator to provide the information to others who might improve
upon it. The project will attempt to synthesize the results of
recent research and resolve differences or propose additional
research to help resolve the differences in findings.

>From both the policy and analytical points of view, a broad
reassessment of IPR policies is therefore very timely. What have
been the costs and benefits of the actions taken in the last
several years? The unintended as well intended consequences? What
should be the direction of IPR policies in the next decade of two
decades? The Academy has addressed some of these issues but
mainly from two points of view-the impact of expanding IPRs on
university research and the technological aspects of protecting
information on the Internet.


-- 
James Love, Director, Consumer Project on Technology
I can be reached at love@cptech.org, by telephone 202.387.8030,
by fax at 202.234.5176. CPT web page is http://www.cptech.org