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Introduction

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Mechanisms to Enable Follow-On Innovation

Part of the book series: Munich Studies on Innovation and Competition ((MSIC,volume 15))

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Abstract

Innovation is inherently cumulative and complex technological products may be covered by thousands of patents. Nevertheless, follow-on innovations do not have a distinct legal status under the patent system, which is built under the “one-patent-per-product” presumption and with an aim to prevent purely imitative use of inventions. The book relies on economic analysis of the law and doctrinal legal method to explore whether a patent holder’s exercise of the right to exclude can, in some situations, create market failures that hinder follow-on innovation. It also evaluates whether these problems can be solved with open innovation i.e. voluntary licensing, or with compulsory liability rules. Besides legal, economic, and management literature on open approaches to innovation, the scope of the study covers the compulsory licensing mechanisms present in international, European, German, and US law.

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Notes

  1. 1.

    Isaac Newton, “Letter to Robert Hooke (February 5, 1675),” Historical Society of Pennsylvania, last modified n.d., accessed 25 December 2015 http://digitallibrary.hsp.org/index.php/Detail/Object/Show/object_id/9285.

  2. 2.

    Reto M. Hilty, “Economic, Legal and Social Impacts of Counterfeiting,” in Criminal Enforcement of Intellectual Property: A Handbook of Contemporary Research, ed. Christophe Geiger (Cheltenham: Edward Elgar Publishing, 2012), 16, in which the author employs the term “identical use”, with the same meaning. In contrast, he qualifies “imitating use” as “a product […] clearly inspired by the protected subject matter, but with some changes”.

  3. 3.

    Arts. 28 (1) and 44 of the General Agreement on Tariffs and Trade – Multilateral Trade Negotiations (The Uruguay Round): Agreement on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods, opened for signature 15 December 1993, 33 I.L.M 81 (entered into force 1 January 1995) [hereinafter TRIPS]; § 9 and § 139 (1) PatG.

  4. 4.

    Josef Drexl, “Intellectual Property in Competition : How to Promote Dynamic Competition as Goal,” in More Common Ground for International Competition Law, ed. Josef Drexl, et al. (Cheltenham: Edward Elgar Publishing, 2011), 210.

  5. 5.

    Hilty, “Economic, Legal and Social Impacts of Counterfeiting,” 16-17, referring to substituting use as a non-infringing form of “imitating use”.

  6. 6.

    Ibid, referring to reuse as infringing “imitating use”.

  7. 7.

    Matthias Lamping et al., “Declaration on Patent Protection - Regulatory Sovereignity under TRIPS,” IIC - International Review of Intellectual Property and Competition Law 45, no. 6 (2014): 679, 681, 683.

  8. 8.

    See, for example, Art. 31 (l) TRIPS.

  9. 9.

    Drexl, “Intellectual Property in Competition,” 211, who employs the concept of “one patent = one product”; similar view is expressed by Mark A. Lemley and Carl Shapiro, “Patent Holdup and Royalty Stacking,” Texas Law Review 85 (2007): 1992.

  10. 10.

    On the discussion of the legal status of a follow-on innovator, see Sect. 2.2.4.

  11. 11.

    See Sect. 2.3.1, discussing the fragmentation of patent landscape.

  12. 12.

    The term “patent holder” refers to the owner of a patent or an exclusive licensee. An exclusive licensee is entitled to seek a permanent injunction and, on the condition that the license is not personal, to grant non-exclusive licenses. Volker Ilzhöfer and Rainer Engels, Patent- Marken- und Urheberrecht : Leitfaden für Ausbildung und Praxis, 8th ed. (Munich: Verlag Franz Vahlen, 2010), at 1517.

  13. 13.

    Guido Calabresi and A Douglas Melamed, “Property Rules, Liability Rules, and Inalienability : One View of the Cathedral,” Harvard Law Review 85, no. 6 (1972): 1090. The basis for such a decision may rest on considerations such as the economic efficiency of resource allocation, the distributional goals of a society, and/or other justice-based reasons. Ibid, 1093-1105.

  14. 14.

    Further analysis of the allocation of entitlement would entail asking “questions about patent duration, patent scope and what should be patentable”. Daniel Krauspenhaar, Liability Rules in Patent Law : A Legal and Economic Analysis (Heidelberg: Springer 2015), 20.

  15. 15.

    See Hanns Ullrich, “Mandatory Licensing under Patent Law and Competition Law : Different Concerns, Complementary Roles,” in Compulsory Licensing: Practical Experiences and Ways Forward, ed. Reto M. Hilty and Kung-Chung Liu (Heidelberg: Springer Verlag, 2015), 339.

  16. 16.

    Sect. 2.2.4. In contrast, collections of works are entitled to copyright protection. § 4 (1) Gesetz über Urheberrecht und verwandte Schutzrechte (Urheberrechtsgesetz) [UrhG] [Act on Copyright and Related Rights], 9 September 1965, Bundesgesetzblatt Teil I [BGBl I] 1273 as amended by Art. 1 Gesetz, 1 28. November 2018 BGBl I 2014, (Ger.), https://www.gesetze-im-internet.de/urhg/BJNR012730965.html.

  17. 17.

    Sect. 2.2.4.

  18. 18.

    Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1090, 1092.

  19. 19.

    Ibid, 1092.

  20. 20.

    Ibid, 1092-1093. On the limited significance of the inalienability rule in the context of patent law, see Krauspenhaar, Liability Rules in Patent Law, 14 and fn 20.

  21. 21.

    Patentgesetz [PatG] [Patent Act], 16 December 1980, Bundesgesetzblatt Teil I [BGBl 1981 I] 1, as amended by Art. 4 Gesetz, 8 October 2017, BGBl I 3546, translation at https://www.gesetze-im-internet.de/englisch_patg/englisch_patg.html (Ger.); Krauspenhaar, Liability Rules in Patent Law, 20-21.

  22. 22.

    For a discussion on market failures of overprotection see Sect. 2.3.2.

  23. 23.

    R. H. Coase, “Problem of Social Cost,” Journal of Law & Economics 3 (1960) 2, 5-6, 8, 12, 15; Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1094-1095, 1106.

  24. 24.

    Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1106-1110. Beyond efficiency, distributional goals, which may be difficult to address under the property rule, could also justify the employment of the liability rule. Ibid, 1110.

  25. 25.

    Robert P. Merges, “Contracting into Liability Rules : Intellectual Property Rights and Collective Rights Organizations,” California Law Review 84, no. 5 (1996): 1296-1297, 1391-1393.

  26. 26.

    Krauspenhaar, Liability Rules in Patent Law, 22. A liability rule is similarly defined by Merges as “a general rule of compensation applicable to all who take the right.” Merges, “Contracting into Liability Rules,” 1303.

  27. 27.

    Krauspenhaar, Liability Rules in Patent Law, 23-24.

  28. 28.

    See Merges, “Contracting into Liability Rules,” 1295, 1298, 1392-1393.

  29. 29.

    Ibid; Jonathan M. Barnett, “Property as Process : How Innovation Markets Select Innovation Regimes,” Yale Law Journal 119, no. 3 (2009); 431-433, 455-456. The umbrella term “market correction hypothesis” was employed by Mattioli to refer to this particular OAI. Michael Mattioli, “Communities of Innovation,” Northwestern University Law Review 106, no. 1 (2012): 108. For a discussion on market correction model, see Sect. 3.1.1.

  30. 30.

    For open innovation theory, see Henry Chesbrough, Open Innovation : The New Imperative for Creating and Profiting from Technology (Boston: Harvard Business School Press, 2003), 43-62; for user and open Collaborative Innovation, see generally Eric von Hippel, Democratizing Innovation (Cambridge, MA: MIT Press, 2005); Carliss Baldwin and Eric von Hippel, “Modeling a Paradigm Shift : From Producer Innovation to User and Open Collaborative Innovation,” Organization Science 22, no. 6 (2011).

  31. 31.

    See Chap. 3 for an analysis of the OAI.

  32. 32.

    Paris Convention for the Protection of Industrial Property of March 20, 1883, as revised at Brussels on December 14, 1900, at Washington on June 2 1911, at The Hague on November 6, 1925, at London on June 2, 1934 at Lisbon on October 31, 1958, and at Stockholm on July 14 1967, adopted 14 July 1967, 828 U.N.T.S. 305 (entry into force 26 April 1970), [hereinafter PC].

  33. 33.

    Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, 2004 O.J. (L 157) 45 [hereinafter Enforcement Directive].

  34. 34.

    Agreement on a Unified Patent Court, 2013 O.J. (C 175) 1, [hereinafter UPCA].

  35. 35.

    eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837, 1839, 1841 (2006).

  36. 36.

    Consolidated version of the Treaty on the Functioning of the European Union. 2012 O.J. (C 326) 47, [hereinafter TFEU].

  37. 37.

    Council Regulation (EC) No 1/2003 on the Implementation of the Rules on Competition Laid Down in Articles 81 and 82 of the Treaty, 2003 O.J. No. (L 1) 1 [hereinafter Regulation 1/2003]. Art. 101 TFEU was the former Art. 81 of the Treaty establishing the European Community [hereinafter EC] and the former Art. 85 of the Treaty Establishing the European Economic Community, signed 25 March 1957 294 U.N.T.S 3 (entry into force 1 January 1958) [hereinafter EEC], whereas Art. 102 TFEU was formerly known as Art. 82 EC and, before that, as Art. 86 EEC.

  38. 38.

    Section 2 of the Sherman Antitrust Act (1890) is codified in 15 U.S.C. § 2 (2012).

  39. 39.

    Gesetz gegen Wettbewerbsbeschränkungen [GWB] [Act against Restraints of Competition], 26 June 2013, Bundesgesetzblatt Teil I [BGBl. I] 1750, 3245, as amended by Art. 10 Gesetz, 12 July 2018, BGBl I 1151, (Ger.) https://www.gesetze-im-internet.de/gwb/BJNR252110998.html.

  40. 40.

    For a discussion on topics in IP law that are suitable for research with the method of economic analysis of the law, see Stefan Bechtold, “Zur rechtsökonomischen Analyse im Immaterialgüterrecht,” Gewerblicher Rechtsschutz und Urheberrecht Internationaler Teil 57, no. 6 (2008): 485-488.

  41. 41.

    Richard A. Posner, Economic Analysis of Law, 8th ed. (New York: Aspen Publishers, 2011), 3-4. However, the presumption of rationality is called into question in behavioural economics and by game theory. See ibid, 22-27.

  42. 42.

    See Francesco Parisi, “Positive, Normative and Functional Schools in Law and Economics,” European Journal of Law and Economics 18, no. 3 (2004): 259, 262.

  43. 43.

    Eli M. Salzberger, Economic Analysis of the Law - the Dominant Methodology for Legal Research, Legal Studies Research Paper No. 1044382 (Haifa: University of Haifa - Faculty of Law, 2007), 14.

  44. 44.

    Ibid, 16; Posner, Economic Analysis of Law, 31.

  45. 45.

    Salzberger, Economic Analysis of the Law, 16.

  46. 46.

    For a description of the dynamic incentive theory, see Sects. 2.1.6–2.1.7.

  47. 47.

    Klaus Mathis, Efficiency Instead of Justice? Searching for the Philosophical Foundations of the Economic Analysis of Law (New York: Springer, 2009), 38-39 with the accompanying references.

  48. 48.

    Roger J. Van den Bergh and Peter D. Camesasca, European Competition Law and Economics : A Comparative Perspective, 2nd ed. (London: Sweet & Maxwell, 2006), 31.

  49. 49.

    See Parisi, “Positive, Normative and Functional Schools in Law and Economics,” 267, fn 7. See also Sect. 4.3.2 on compulsory licenses’ effect on patent holders’ incentives.

  50. 50.

    See Anne van Aaken, Opportunities for and Limits to an Economic Analysis of International Economic Law, Law & Economics Working Paper No. 2010-09 (University of St. Gallen, 2011), 1-3; Rob van Gestel and Hans-Wolfgang Micklitz, Revitalizing Doctrinal Legal Research in Europe : What About Methodology? EUI Working Paper Law No. 2011/05 (European University Institute, 2011), 1-11; Jan M. Smits, “Redefining Normative Legal Science : Towards an Argumentative Discipline,” in Methods of Human Rights Research, ed. F. Coomans, F. Grünfeld, and M. Kamminga (Antwerp Intersentia, 2009), 46-48.

  51. 51.

    Parisi, “Positive, Normative and Functional Schools in Law and Economics,” 261; Martijn Hesselink, “European Legal Method? On European Private Law and Scientific Method,” European Law Journal 15, no. 1 (2009): 22-28, 30, 44; van Aaken, Economic Analysis of International Economic Law, 28-29.

  52. 52.

    See Hesselink, “European Legal Method?,” 20-25, 30.

  53. 53.

    Ibid, 15, 30-31, 45.

  54. 54.

    Lamping et al., “Declaration on Patent Protection,” 680.

  55. 55.

    See van Aaken, Economic Analysis of International Economic Law, 20-31, who views teleological interpretation and the principle of proportionality as means by which economic arguments can be introduced into international economic law. For implementation of this approach, see Sect. 9.4.1.

  56. 56.

    See John Rawls, Theory of Justice. Revised Edition (Cambridge, MA: Belknap Press of Harvard University Press, 1999), 3; Mathis, Efficiency Instead of Justice?, 123; van Aaken, Economic Analysis of International Economic Law, 30.

  57. 57.

    Charter of Fundamental Rights of the European Union. 2012 O.J. (C326) 391 [hereinafter CFR]; Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signatures 4 November 1950, E.T.S. No. 5 (entry into force 3 September 1953) [The European Convention of Human Rights, hereinafter ECHR].

  58. 58.

    Art. 17 (2) CFR and Art. 16 CFR. Furthermore, the human, fundamental, and basic rights that affect the protection of IPRs and their interpretation are not isolated from the overarching debates concerning the optimal scope of patent protection. For discussion on this topic see Sects. 5.6, 8.8.1.4 and 9.4.3.2.

  59. 59.

    Alexander Peukert, “Fundamental Right to (Intellectual) Property and the Discretion of Legislature,” in Research Handbook on Human Rights and Intellectual Property, ed. Christophe Geiger (Cheltenham: Edward Elgar Publishing, 2015), 172. Cf. Christophe Geiger, “‘Constitutionalising’ Intellectual Property Law? The Influence of Fundamental Rights on Intellectual Property in the European Union,” IIC - International Review of Intellectual Property and Competition Law 37, no. 4 (2006): 371, which he argues in favour of human rights as a means to alleviate overprotection problems in IP.

  60. 60.

    Peukert, “Fundamental Right to (Intellectual) Property,” 172.

  61. 61.

    On limits of empirical assessment and the effects-based approach in competition law see Sect. 8.8.1.4.

  62. 62.

    On PAEs, see Sect. 2.3.1.2.

  63. 63.

    See, for example, WTO, Ministerial Conference, Fourth Session, Doha, 9-14 November 2001, Declaration on the TRIPS Agreement and Public Health, 20 November 2001, WT/MIN(01)/DEC/2 [hereinafter Doha Declaration]; WTO, General Council Decision, Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, 1 September 2003, WT/L/540 and Corr.1 [hereinafter Implementation of Paragraph 6 Doha Declaration]; Regulation (EC) No 816/2006 of the European Parliament and of the Council of 17 May 2006 on the Compulsory Licensing of Patents Relating to the Manufacture of Pharmaceutical Products for Export to Countries with Public Health Problems, 2006 O.J. (L 157) 1 [hereinafter Regulation 816/2006].; WTO, General Council Decision, Amendment of the TRIPS Agreement, 8 December 2005, WT/L/641.

  64. 64.

    See Carlos M. Correa, “Investment Protection in Bilateral and Free Trade Agreements : Implications for the Granting of Compulsory Licenses,” Michigan Journal of International Law 26, no. 1 (2004): 349-350.

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    Alina Wernick

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Wernick, A. (2021). Introduction. In: Mechanisms to Enable Follow-On Innovation. Munich Studies on Innovation and Competition, vol 15. Springer, Cham. https://doi.org/10.1007/978-3-030-72257-9_1

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