[Guest column] Patent Law, Meet RainforestPosted: July 11, 2012
We are pleased to feature a guest blogger today, Chris Gallagher of New Venture Advisors. Chris was actively involved in the Congressional debate over the America Invents Act, which reformed the patent system. Below, he offers some insights about what the new law means in the context of building broader innovation ecosystems. In short, how does the new patent law affect the Rainforest, and what can we do about it?
Rainforest Implementation: a welcome offset to AIA’s increased transaction costs
by Chris Gallagher
Patent reform, the America Invents Act (AIA) was enacted by Congress in 2011. It is fully effective in March of 2013. Among other radical changes in the present law, in order to more closely “harmonize” our patent award system with those of other countries, AIA will soon change our system of awarding patents from its present “first-to-invent” (FTI) format to “first-to-file” (FTF). AIA also significantly weakens existing IP grace period protections now provided to inventors who share patentable subject matter with collaborators and investors situated beyond institutional or contractually protected boundaries. These and other new burdens have added significant new transaction costs to early stage innovation that is not conceived and developed within the four walls of a single established enterprise. Independent inventors participating in innovation ecosystems must now pursue new and legally significant precautions to protect IP ownership and in some cases, to preserve patent eligibility. Accordingly, for investigators engaged in university scientific research, increased care must accompany implementation of the Rainforest Recipe. As depressing as this seems the good news is that Rainforest reductions in today’s transaction costs can offset AIA’s transition costs tomorrow. Rainforest implementation has thus become more important than ever. Allow me to explain.
When IP protection is desired during research collaboration or to enable later commercialization through private investment, AIA’s new requirements and pitfalls must be accounted for throughout the process. As we all know, the eventual outcomes of innovation are too uncertain to attract investment beyond traditional “fools, friends and family”. It is thus supported as a public good by Congress at the annual level of $145 Billion. Funding is mainly distributed through our nation’s research universities. The benefits of successful research are then returned to the public through university technology transfer, either by licensing to incumbent enterprise or through start-ups. In furtherance of this important economic cycle, federal granting agencies are now re-emphasizing the importance of distant, diverse and cross-disciplinary collaboration and commercialization through start-ups.
Our research university’s tripartite mission of student education, scientific research and public service through transfer of promising technology to the private sector has lately come under severe financial strain. Adding new transaction costs to research tech transfer is unwelcome to say the least. Preserving their mission-critical independent curiosity-driven research is forcing some universities into financial over-dependence on the sponsored research of established market incumbents, whose market-driven objectives naturally tend to be more incremental than fundamental or disruptive. Universities appreciate this financial boost but maintaining their educational mission also requires continued traditional curiosity-driven research, a public good that has brought such amazing benefits to the tax-paying public supporting it and to our nation’s global economic superiority. Preserving the availability of the start-up option has thus become a necessity.This requires that collaboration and commercialization costs be contained. Enter Rainforest…
As the book so elegantly articulates, in rain forests, the flow and volume of interaction promoting evolutionarily “fit” adaptations transpires in a unconsciously functioning biological interchange empowered by the combined energies of wind, sun and sexual plant activity. And although human innovational evolutionary interchange may be biologically identical to the unconscious evolutionary activity of flora and fauna, our unique human consciousness has a way of slowing the process. Matt Ridley appropriately describes human collaboration as “ideas having sex”, an intimate process that usually requires trust and familiarity. But since sexual consciousness underpins much of the developed world’s commerce and economic development it is highly unlikely to evolve away. Indeed human collaboration in all forms is evolutionarily necessary and is thus here to stay. Aided by the book and the upcoming GIS, our collective objective is to improve collaboration’s economic efficiency. That said, however helpful more efficient collaboration with familiar agents may be, it is not as conducive to productive innovation as is collaboration with more distant diverse and different agents …its genetically-evolved counter tendency.
Unlike its personal and real property cousins, intellectual property is “non rival” which means it can be simultaneously possessed by more than one claimant. It is easily borrowed, copied or stolen.Through cyber-hacking, its unauthorized use is increasing. Nevertheless technology cannot be transferred except by assuming the risk of sharing. This requires trust. Dan Dennett describes evolution as “good tricks for survival”. Transferring acquired knowledge is such a “trick” but fearing loss from whatever is unknown or unfamiliar successfully mutated its way into human DNA eons ago. To make it all work, trust evolved as a “good trick for survival”. As “Rain-foresters” the new “trick” we must learn is to extend collaborational trust beyond familiar boundaries. Genetic absence of such trust reveals itself in the form of frictions and other social barriers to efficient communication beyond our comfort level. Rainforest says we must be more “trusting. AIA requires that such trust be “verifiable”. Can these opposing forces also be reconciled ? In short they must.
Our constitutionally- created and congressionally codified US patent system has worked well for 200 years, surpassing in volume, flow and quality that of all other countries. This occurred in significant part because our unique FTI filing format has accommodated the serendipitous pace of scientific research and the varied resources of all innovators, allowing those who must share ideas to support their development to do so with relative IP safety. With its weakened grace period and first to file format however, AIA undoes much of that flexibility.This change adversely impacts independent early stage innovators operating in open ecosystems. Among other frictions, inventor collaboration and commercialization’s transaction costs have been increased. Because much of early stage innovation can ill afford such transaction cost increases, Rainforest transaction cost reductions can offset them .
Borrowing Coase’ transaction cost analysis , Rainforest suggests ways to reduce our genetically-implanted social barriers to efficient innovation which will reduce its transaction costs. This in turn will encourage the more diverse and distant collaboration and cross collaboration that will improve the volume, flow and quality of collaborative interchange. Through the well-known congressional phenomenon of “unintended consequences ” AIA has imposed new barriers to independent early stage innovation, particularly to university based scientific, curiosity-driven research. Rainforest implementation can reduce those overall costs and thus preserve scientific research and its benefits that otherwise would become “unfit” for survival.
AIA’s enactment has thus significantly elevated both the importance and urgency of the book and this Conference. AIA’s added transaction costs cannot be eliminated. Perhaps some can be avoided. But most must be offset by quickly adapting the conduct of scientific research to the new AIA landscape using Rainforest techniques.To be sure some scientific research continue through greater reliance on the sponsored financial support of market incumbents. Research university over-dependence on such incremental support however is not broad enough and indeed may lead to the loss of independence avoidable only by retaining the availability of the start-up option. And without question, such independence has been critical to our scientific progress, our economic growth and our global innovative standing. Indeed today’s market incumbents who benefit most from AIA are living proof of that.
Now that Rainforest implementation has become a more urgent imperative, it must be implemented as widely and as soon as possible. Despite having to fuse the arcanities of patent law and innovation dynamics, we must quickly figure out; how to adapt Rainforest to AIA, how to separate tolerable risks of collaborator “defection” from intolerable “infections” to patent eligibility and how to establish a reliable compliance verification regimen that will enable private capital to continue its keystone role in the complex adaptive ecosystem of our innovation economy.