Abstract: President Obama announced the Precision Medicine Initiative in his 2015 State of the Union address, a research effort to find treatments that are tailored to specific genetic profiles and characteristics. This personalized and context-specific treatment approach will require big data analysis of patient outcomes and their genetic sequence, which must then be accessible and comprehensible to caregivers. The initiative must therefore be able to reconcile genetic data, demographic information, and health information, in the electronic health record. To achieve data interoperability, the organizations engaged in the initiative must confront questions of data privacy, standardize data exchange, and incentivize the adoption of data-sharing technology.
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We will be hosting our first event this coming Wednesday at 12:30 about Non-Traditional Uses of IP in Product Design.
Nicole Rizzo Smith, a lawyer at Ropes & Gray and a BC Law graduate, will join Andrea Rosen, Senior Corporate Counsel and Director of Business and Legal Affairs at PUMA North America, Inc. in Boston to discuss non-traditional uses of IP law used to protect product designs.
We’ll be talking about two recent cases in particular – a Second Circuit case that upheld Louboutin’s right to protect red-soled women’s shoes, and the now infamous Apple v. Samsung, where Apple sued Samsung for infringing its patent on, among other things, the design of its mobile devices. Professor Joe Liu will serve as moderator of the discussion.
Non-Traditional Uses of IP in Product Design
Wednesday, October 10
Time: 12:30 P.M.
Momenta v. Amphast (Fed. Cir. 2012) ruled that information gathered under another’s patent does not infringe that patent so long as the information is reasonably related to submission under the FFDCA. This includes not only information relevant to FDA approval, but also the maintenance of approval.
Let the size of a population n = 10 and define two sociological organizations characterized as follows. In the first the population is organized with an expansive division of labor, in the second labor is divided according to two discrete and autonomous subsets:
Economic theory has worked out that an increase in specialization leads to increased efficiency and higher wealth maximization potential. Designate the wealth flowing from figure 1 as WG and wealth from figure 2 as WL.
We assume that the relationship between global and local net wealth obtains: NG>NL because it is well established that WG>WL. However, when WG– CG < WL– CL then NG< NL . C is cost as defined below.
Following the capabilities approach of Nussbaum humans have certain standards. Applied to freedom humans require freedom of a certain level before detriment occurs – depression, repression, violence, revolution. Let WO equal the optimal measure of wealth for an individual to attain such freedom.
NG< NO < ND with NG= WG – CG where CG is the cost of attaining such wealth to freedom. All of this stands for the proposition that while wealth maximization may entail a global division of labor it may not entail wealth optimization, i.e. wealth attainment that does not infringe upon some standard level of freedom.
If a global division of labor infringes upon individual freedom, freedom may be increased through local divisions of labor which assigns higher cognizable responsibility upon the individual. As applied to technology, there is an optimal level of technological achievement, the further development of which causes a net loss at the margin.
An objector would respond that every investment decision is made at the margin for positive net appropriation. This stems from an assumption that a perceived net increase is met with a realized increase; that man knows what is best. In response I offer the possibility that man may consume past the point of optimal, i.e. zero marginal gain as hinted at in the behavioral econ and economics of uncertainty literature.
People don’t like patent trolls. As non-practicing entities they are seen as economically inefficient, as misappropriating value, and as costing the technology economy money. But the troll adheres to the patent laws, and is justified by the extent of the statutory and common law.
A patent is not a security, but begins to resemble one when it is bought, sold and traded on the public markets. A security is a financial instrument eligible to participate in the public financial markets. An instrument is a set of rights and duties conferred by one party upon another. An instrument is financial if, when it is issued or sold, it operates to transfer the savings of the purchaser to the investment uses of the issuer and does so in accordance with judgments by the market regarding the most productive allocation of those savings. (FitzGibbon 1980).
Unlike a security the issuer does not use another’s funds for production. Rather the issuer, who assigns patent rights to another party, is free to use the money at its discretion. This transaction is therefore more similar to a sale than a security issuance. However, like a security the sale of a patent is made in accordance with judgments of the market. These judgments are made explicit in security pricing, signaling proportionate value. This price signaling informs suppliers how to regulate inventories and consumers where to place consumption. Patent transactions serve a similar function.
The sale of a patent signals the value of the underlying technology. There is an unlikely chance that there is no surplus from the sale. The patent troll buys a patent with the belief that it can profit from those practicing without a license. The troll values the patent at a price higher than the owner. The troll signals that it believes it can make more money from holding the patent than the current holder believes it itself can.
The price the troll pays represents the net profit expected by the owner for holding the patent for some duration. The troll pays that price because it believes total revenues from holding the patent will be greater than the price. It derives its profits from, among other things, patent litigation. If the patent troll makes money from litigation, it is because the practicing firm values the technology enough to compensate the patent owner. If the firm is unable to pay there is strong support for the notion that the practicing entity should not be practicing.
Broadly, if the troll is not viable we need not worry about whether it promotes efficiency in the economy. If the troll is viable its willingness to purchase a patent – in order to benefit solely from payments for the right to practice – benefits the economy and is not a detriment. It would be a detriment only if we do not agree with the patent system. But 20 year exclusion has been extensively justified.
The benefit of the troll is as a signaling agent. If a troll invests in a patent it is signaling that that patent is being or will be practiced. This signaling, like price signaling of a security, should help the economy balance its production and consumption. Applied to technologies, it should signal which technologies to invest in for follow-on and other applications.
Abstract: The licensing or assignment of complex technological rights involves high transaction costs. The following derives a model of when investment in reducing these costs should be undertaken by the assignor.
Equity agreements allow the transferring organization to appropriate the value of knowledge transferred and diffused within the organization, and commercially realized through auxiliary implementation. As such, equity arrangements are economically preferable to royally agreements when:
reVc > rlVp
Where re is the equality stake as a percentage, Vc is the value of the company, rl is the royalty rate and Vp is the commercial value of the product. Now suppose that both the equity stake and royalty rate coefficients accurately represent the transferring organization’s relative contribution to commercial success of the firm or product, respectively. This may be accomplished, in theory, as the rates may be adjusted such that ex post revenues to the transferring organization are equal.
Only with an equity agreement, however, is the inventing institution capable of capturing the full value of the total – i.e. non-patented – knowledge transferred. An equity stake in the licensee’s company will allow the inventing institution to appropriate the value of its investment in fundamental research broadly, as compared to a royalty reimbursement structure which appropriates value only from a patent, when either insights from fundamental research are retooled into auxiliary commercial implementations, or when the company invents around the patent to avoid royalty payments. In these cases the transferring institution may avoid under-appropriating the value of its knowledge by taking equity, rather than royalties, from its licensee. Equity agreements become useful, therefore, when patent claims are weak.
Royalty agreements may be represented by:
Equity agreements may be represented by:
Traditional indifference curves and the utility function are undefined except relative to an endowment. Kahneman explains that at any point of endowment the endowment-dependent utility function is convex for decreases in income and concave for increases. This represents the risk function of the individual with respect to its current endowment. Put differently, an individual may be more risk averse for loss than for gain. That is, the absolute value of a marginal income increase is less highly valued than a loss of that same value. (SSRN).
This risk understanding was developed by Kahnemn and Tversky as the so-called modern theory of behavioral economics. Such thinking represents a paradigm shift away from the standard rational choice modes of modern economic theory towards a psychological relativism.
Precompetitive collaboration usually takes place between either a public and private institution or within a consortium.
For example, the NIH is working to identify systematic bottlenecks in the drug approval process. Specifically, the NIH is working to develop a clinical toxicology biochip that mimics human cells to test new drugs against. Such a biochip is expected to reduce phase II failure, which is characterized by safety but inefficacy and improve target validation. An even more pronounced example of precompetitive collaboration are information networks over which to share bio-pathway knowledge for drug discovery.
Both increasing the rapidity of target validation and information sharing are example of precompetitive collaboration, in so far as the technologies, in theory, benefit all of the competitors in a given sector.
The FDA, too, is working on improved predictive and evaluative tools, using bioinformatics to develop a product development infrastructure. Such an infrastructure would decrease duplicative investment in clinical trials by standardizing and sharing e.g., drug failure data.
Such an information network would also assist researchers in identifying the heterogeneous indications of disease, shifting the so-called “knowledge curve” to the left. Termed systems pharmacology, information networks would be particularly beneficial in the growing field of regenerative medicine where the knowledge curve is steep.
While a bio-information infrastructure would help spread risk among competitors, it also raises IP and antitrust issues. Antitrust issues are specifically raised when the procompetitive efficiency gains from collaboration work to quell market forces by excluding certain competitors. For example, information systems may benefit those with the capital to take part and foreclose competition from smaller companies.
Typically, this would be chalked up to barriers to market entry. But if the big players in the industry comes together to agree to use these expensive networks, the public may become concerned about conspiracy to keep drug development from the people. While this is a concern, it will likely be a private company that devises such a platform. Agreement that something would be beneficial is not an antitrust violation.
Invest if r(t) – k > P’
where r(t) is expected revenue from royalties (sales*royalty rate) as a function of time, k is capital, and P’ the threshold of profitability below which investment is not worthwhile.
Invest if ∫r(p) – ∫c(p) > P’
where r, c and p represent revenue, cost, and the likelihood those values come to pass.
In the absence of market equivalents, r(p) and c(p) are uncertain but continuously approximated in incremental financing rounds.