Fixing Innovation Policy: a Structural Perspective

Fixing Innovation Policy: A Structural Perspective Stuart Minor Benjamin and Arti K. Rai* Innovation is central to economic growth and human welfare. Government officials and commentators have recog- nized this reality and have called for a variety of different substantive incentives for stimulating innovation. But the question of how an innovation regulatorshould be structured has received little attention. Such consideration is important not only because of the significance of innovation but also because current government innovation policy is so haphazard. There is no government entity that looks at innovation broadly, and the narroweragencies that regulate aspects of innovation policy not only fail to pay systematic attention to innovation goals but often act at cross-purposes with each another. In this Article, ProfessorsBenjamin and Rai analyze how government policy on innovation should be structured. Drawing on existing theoretical and empirical work, as well as their own original empirical research, they propose the crea- tion of an entity in the executive branch that would both analyze pending agency action and offer regulatory suggestions of its own. This entity would introduce a new, trans-agency focus on innovation while drawing upon, and feeding into, existing executive branch processes that aim to rationalize the work of disparatefederal agencies. This approach, Professors Benjamin and Rai contend, offers a great improvement over existing government institutions while avoiding a costly (and politically infeasible) remaking of the administrative state. * Professors of Law, Duke University. School of Law. We thank Michael Abramowicz, Jamie Boyle, Lisa Bressman, Michael Carrier, Stacey Dogan, Rashmi Dyal-Chand, Brian Kahin, Tom Kalil, Joe Liu, Steve Merrill, Michael Meurer, Josh Sarnoff, Neil Siegel, Kevin Stack, Zephyr Teachout, Phil Weiser, Jonathan Wiener, and Fred Yen for useful conversations and comments. Earlier versions of this Article were presented at Duke Law School, Vanderbilt Law School, and the Boston Intellectual Property Legal Scholars Colloquium. We thank the partici- pants at those presentations for helpful discussions. Daniel Allender, Randy Clark, Jessica Neiterman, Jon Porter, and Reuben Stob provided exceptional research assistance. November 2008 Vol. 77 No. 1 The George Washington Law Review [Vol. 77:1 Introduction Both theory and empirics support the primacy of technological innovation in securing long-term economic growth and, ultimately, human welfare.' Innovation will also be central to addressing the challenges (for example, environmental challenges) that can accom- pany economic growth.2 Thus, questions of how to foster technological innovation are, quite properly, at the forefront of scholarly analysis. The great attention to innovation policy notwithstanding, the is- sue of which institution(s) should be making these decisions is a rela- tively underexamined area of the law. Commentators have discussed at length a variety of substantive innovation inputs and incentives- for example, patents, trade secrecy, government funding and procurement, availability of venture capital, ownership of innovation "platforms" and "infrastructure," science and engineering education and graduates, university technology transfer, competition, concentration, innovation prizes, open and/or collaborative strategies, or so-called liability rules.3 But these discussions have generally been divorced 1 As we discuss below, technological innovation has been shown to be the major impetus behind the productivity increases that produce long-term economic growth. See infra Part I.A. 2 See, e.g., Cass R. Sunstein, Of Montreal and Kyoto: A Tale of Two Protocols, 31 HARV. ENVTL. L. REV. 1, 4-5 (2007) (observing that countries have done a much better job of adhering to the Montreal Protocol on chlorofluorocarbons ("CFCs") than the Kyoto Protocol on greenhouse gases, in significant part because innovation has produced good substitutes for CFC-pro- ducing refrigerants but not for greenhouse-gas-generating fuels). 3 See generally, e.g., Wesley Cohen, Richard Nelson & John Walsh, Protecting Their Intel- lectual Assets: Appropriability Conditions and Why Manufacturing Firms Patent (or Not) (Nat'l Bureau of Econ. Research, Working Paper No. 7752, 2000) (patents and trade secrecy); Stephen Maurer & Suzanne Scotchmer, Procuring Knowledge, in 15 INTELLECTUAL PROPERTY AND EN- TREPRENEURSHIP: ADVANCES IN THE STUDY OF ENTREPRENEURSHIP, INNOVATION AND GROWTH 1 (Gary Libecap ed., 2004); Kenneth Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609 (Richard Nelson ed., 1962) (government funding and procurement); Robert Merges & Richard Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839 (1990) (ownership of platforms and infrastructure); Samuel Kortum & Joshua Lerner, Does Venture Capital Spur Innovation? (Nat'l Bureau of Econ. Research, Working Paper No. 6856, 1998) (venture capital); JOSEPH SCHUMPETER, CAPITALISM, SOCIALISM, AND DEMOCRACY 81-86 (1942) (competition versus concentration); Steven Shavell & Tanguy van Ypersele, Re- wards Versus Intellectual Property Rights, 44 J.L. & ECON. 525 (2001) (innovation prizes); Arti K. Rai, "Open and Collaborative" Research: A New Model for Biomedicine, in INTELLECTUAL PROPERTY RIGHTS IN FRONTIER INDUSTRIES: SOFTWARE AND BIOTECHNOLOGY 131 (Robert W. Hahn ed., 2005); James Boyle, The Second Enclosure Movement and the Construction of the Public Domain, 66 LAW & CONTEMP. PROBS. 33, 49-52 (2003) (open access); Yochai Benkler, Coase's Penguin, or, Linux and the Nature of the Firm, 112 YALE L.J. 369 (2002) (open collabo- ration); J.H. Reichman, Saving the Patent Law from Itself, in PERSPECTIVES ON PROPERTIES OF THE HUMAN GENOME PROJECT 289 (F. Scott Kieff ed., 2004) (liability rules). For an interesting 2008] Fixing Innovation Policy from the specifics of regulatory implementation. 4 By the same token, discussions of specific regulatory systems (e.g., the patent system or telecommunications regulation) tend to focus rather narrowly on the particular tools that might be available to agencies and courts that operate within that system.5 And the more general literature on regulatory reform, while addressing in-depth such questions as capture and cost-benefit analysis, has tended to ignore the central role of innovation in addressing the majority of regulatory challenges. 6 A broad examination of the relationship between regulatory institutions and innovation highlights certain well-established pathologies of the regulatory state. Specifically, the relative absence of innovation from the agenda of Congress, the courts, and many rele- vant agencies-as well as interagency processes such as the central- ized cost-benefit review performed by the Office of Management and Budget's ("OMB") Office of Information and Regulatory Affairs ("OIRA")-arguably manifests the confluence of two regulatory pathologies: first, the tendency of political actors to focus on short- term goals and consequences; and second, their reluctance to threaten the existing business models of powerful incumbent actors.7 Addi- tionally, even when Congress, courts, or agencies do think about innovation, they often do so in ways that are contradictory and confused. Consider the patent system. Article I, Section 8, Clause 8 is unique among the Constitution's grants of power in articulating a purpose, and that purpose sounds in innovation ("To promote the Pro- gress of ... the useful Arts").8 So one might imagine that Congress would have created an entity with substantial expertise that would focus on how patents could best promote innovation. But that is not the case. Currently, neither the Patent and Trademark Office ("PTO") nor the United States Court of Appeals for the Federal Circuit (which hears all patent appeals) has the capacity to promulgate such policy. The PTO lacks social science expertise, while the Federal Circuit not taxonomy of "innovation elements," see Alliance for Science & Technology Research in America, Periodic Table of Innovation Elements (on file with authors). 4 A notable exception is Michael Abramowicz, who examines in detail how an administrative agency would implement a prize scheme. See generally Michael Abramowicz, Perfecting Patent Prizes, 56 VAND. L. REV. 115 (2003). However, as the title suggests, Abramowicz's analysis is narrowly focused on a particular patent proposal. 5 See generally, e.g., Stuart Minor Benjamin & Arti K. Rai, Who's Afraid of the APA? What the Patent System Can Learn from Administrative Law, 95 GEo. L.J. 269 (2007). 6 See infra Part II.C. 7 On this tendency, see infra Part II.B. 8 U.S. CONsT. art. I, § 8, cl. 8. The George Washington Law Review [Vol. 77:1 only lacks such expertise but typically disavows any role in articulating policy. 9 Some agencies with social science expertise do better-for example, the 1995 guidelines on intellectual property licensing promulgated by the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") are considered well thought out, even by those who may disagree with them.10 As Professors Michael Katz and Howard Shelanski have recently pointed out, however, even these "antitrust agencies" do not model uncertainty well when they engage in merger review, with the result that mergers with pro-innovation possibilities could be blocked and mergers with anti-innovation possibilities

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