Biomedical research is undergoing a paradigm shift from gene-centric
biology to genome-centric biology that changes the way we think
about biological innovation, genetic information, and the way biologists
do their work. The shift to genomic-centric biology is creating
a hybrid model of discovery and innovation in which the creation
of new ideas and products remains the dominant strand but the supply
of new inputs such as databases and software are becoming increasingly
important to the process of innovation.
A genome is the complete set of an organism's genetic material,
found in the nucleus of each cell. It contains the master blueprint
for all cellular structures and activities for that organism. Whereas
until recently, biomedical research was limited to examining single
genes, technology is now allowing scientists to study entire genomes.
The Human Genome Project, which aims to map and sequence the entire
human genome by 2003, is one example of how the genomic revolution
is accelerating the pace and redirecting the nature of biomedical
The genetic information being derived from research on the human
genome and the genomes of other organisms is extremely valuable,
both for basic research and for commercial purposes, even if few
commercial products have resulted. This information is critical
for cost-effectively creating accurate diagnostics for many inherited
diseases, for developing animal models for human disease research,
and for facilitating our understanding of gene function in health
Thus, the core business of an increasing number of new market entrants
in genomics is information, not the sale of drugs or diagnostics.
The business model of many genomics companies starkly contrasts
with those of integrated pharmaceutical firms or first generation
biotechnology companies. The entrance of a host of gene information
firms, such as Human Genome Sciences, Incyte, and Sequana, along
with new entrants in other parts of the discovery pipeline, has
shifted the market structure and upset many of the traditional economic
assumptions about innovation in new drugs. These new entrants are
less capital intensive, exhibit much faster time to market, and
offer different risk-reward models for investors.
The growing intersection of this new genomics framework with intellectual
property rights already is profoundly reshaping the balance struck
among the interests of biomedical research, private sector market
participants, and the public good. The policy challenges presented
by a genomic-centered approach to biology in which information rather
than a tangible commodity is the crown jewel greatly complicate
the debate about the related questions of who owns what information,
and who can access it on what terms. This trend blurs further the
faint, erratic dividing line between the public domain and proprietary
The application of advanced computing power to genomic data and
information is becoming a driving force in both biomedical research
and the development of new genomic products and services. New information
technologies have created tools and methods that are transforming
the research enterprise and becoming central to the process of innovation.
Bioinformatics and combinatorial chemistry are revolutionizing what
constitutes genetic research and how innovation takes place. Most
significantly, genomic information and research tools based on information
technologies -- not only the products derived from their use --
have themselves become marketable.
The first big problem, therefore, is assuring a sufficient supply
of genomic information through research. Here a dilemma arises.
On the one hand, intellectual property rights provide a necessary
incentive to innovate. On the other hand, economists have found
that excessive protection early in the innovation process can impede
innovation at later stages. Under such circumstances, increasing
or expanding intellectual property protection does not necessarily
lead to greater amounts of socially beneficial innovation. In other
words, without legal protection not enough information will be produced
but with legal protection not enough of the information will be
The second overarching problem, often overshadowed by the initial
issue of producing enough genomics knowledge, involves the diffusion
or distribution of genomic information. A state of the world in
which the innovations that result from genomic incentives are not
widely disseminated may be less socially beneficial than one where
there are fewer innovations but they are distributed more broadly.
The problem manifests itself most acutely in trying to allocate
fair compensation to the creators of valuable information assets,
including databases, while assuring that other stakeholders have
access to information, as the intellectual property incentives also
have been designed to provide.
Intellectual property rights do not operate in a vacuum. They influence
and are influenced by the character of the technology and the structure
of scientific research and innovation in that sector. Below, I highlight
a few context conditions that need to be considered in assessing
the likely effects, positive and negative, of strengthening intellectual
property protection for genomic information.
Genomics is a "cumulative systems
Genomic research is a "cumulative systems technology"
marked by an interactive and cumulative process of discovery and
innovation that builds on an accumulated stock of genetic knowledge
developed from numerous sources. The manipulation and recombination
of existing knowledge by multiple researchers constitutes an essential
part of genomics today. Knowledge creation is not only more interactive
than in the past, but also more collective. Like multimedia, it
builds on a broad range of research and interacts with multiple
innovations to create an entirely new technology. Many of these
follow-on creations generate social benefits comparable to or surpassing
the initial discovery.
Genomic innovation is also characterized by its growing divergence
from either the single inventor/absolute novelty approach to innovation
that continues to dominate patent law or the individual author/original
expression model that continues to guide copyright. Many of the
traditional presumptions underlying the discrete invention or expression
models do not apply to cumulative systems technology such as genomics.
Innovation is more dependent on the timely and efficient distribution
of information than ever before. The initial discovery usually is
only the starting point because it often opens up a broad range
of follow-on improvements, many of which are not immediately foreseeable.
These trends make it increasingly difficult to separate the innovation
from earlier or parallel advances, to identify who really deserves
credit as the initial inventor or creator, and to gauge very precisely
which incentives have what effect.
These concerns are particularly acute in trying to decide whether
databases deserve additional protection. A major tension exists
in trying to reconcile the incentives needed to obtain the creation
and early release of these valuable works with those that will permit
and facilitate the creation of subsequent innovations through use
of the database and its contents.
Unlike many other innovative sectors, the nature of genomics innovation
requires "systematic access to the state of the art."(1)
There is a legitimate concern that strong protection of specific
discoveries too early in the evolution of genomics will retard the
pace of overall innovation, or redirect genetic research in less
beneficial directions. The semiconductor industry in its formative
years was marked by similar rapid, multidirectional progress in
both the underlying basic research and the cumulative technology
that grew out of it. This highly beneficial burst of scientific,
technological, and economic advancement with broad social consequences,
only partially glimpsed at the time, would not have been possible
in a legal regime that strongly protected intellectual property
rights in many of the early innovations.
Appropriating value from genomic innovation
With the shortening of innovation cycles and the increasing cost
of innovation, creating adequate incentives is essential for developing
the next generation of research, products, and services that will
ensure international competitiveness and economic growth. Basic
research and new technologies often fail to attract sufficient private
sector investment because the results are not subject to exclusive
ownership -- in other words, they have limited appropriability.
Market failure in databases, for example, occurs not because the
work is copied but because the cost of copying the information using
new digital technologies is less than the investment in developing
the database that the developer must recoup.
The race to patent or create a cognizable right also may have desirable
effects by accelerating the rate of innovation. Competition between
genomic information companies to identify and patent gene sequences,
by speeding up new discoveries, has created spillover benefits for
On the other hand, the creation of new ideas and products may be
retarded by stronger protection in certain industries for a number
of reasons. The promise of strong intellectual property protection
may result in redundant or duplicative research in the race to capture
the prize of monopoly rights.(2) It also may deter research if the
field is considered too crowded. Also, excessive incentives may
lead to the premature exploitation of new knowledge. Scientific
research can be analogized to fishing, where the property rights
go to the person who catches the fish.(3) A fisherman can wait for
the fish to grow larger but risks losing it if someone else catches
it first. This leads to too many little fish being caught. At the
moment genetic research is yielding many little fish.
The effects of transaction costs
The markets for genomic information are subject to a number of
significant transaction costs. This introduces another major consideration
in deciding whether the incentives created by strong intellectual
property rights for genomic information will produce additional
innovation at acceptable costs.
Without strong rights, groups that develop new innovations may
limit their dealings to a few customers with whom they have strong
contractual relations. Strong intellectual property protection makes
it possible to disseminate innovations more broadly. The intellectual
property right reduces the transaction costs of dealing with numerous
buyers on an individual basis through contracts and, therefore,
makes possible many more transactions in the information. The incentives
to innovate from strong protection facilitate the sale of rights
and thereby reduce the transition costs of licensing. Only by protecting
intellectual property rights can there be an efficient market for
trade in genomic information.
On the other hand, genomics information such as that compiled in
a complex database may not be able to be shared efficiently by contract
with all the users who wish to access it. Strong protection for
an expressed gene sequence or a database arguably may create such
high transaction costs that it impedes rapid diffusion of timely
information to both consumers and to researchers who could use the
information to improve on it, or fit it together with other information,
for significant follow-on discoveries and insights. Also, broad
rights covering research tools rather than marketable products are
likely to promote cross-licensing arrangements that can be used
to deter entry to the network by other users.(4)
From a legal perspective, granting private property rights to genomics
information may increase transaction costs because researchers and
others users confront the problem of determining who owns what,
how to secure rights in a timely and efficient way, and at what
price. Presumably, many of the transaction costs can be avoided
by the use of collectives similar to those used in other contexts
such as ASCAP and BMI in the recording and multimedia sectors.
In genomics, the licensing issues will be further complicated because
the industry is comprised of a changing collection of many different
industries and institutions, public and private, each of which has
its own informal norms and standards about licensing intellectual
property rights. The likelihood of finding common ground may prove
Litigation costs also are likely to impose significant transaction
costs in genomics. The courts and Congress will need years to settle
many of the incipient issues. Uncertainty about ownership rights
and access to genomic information during the period in which the
legal and political system tries to catch up to fast-moving and
novel technological changes in genomics also can have a chilling
effect on innovation. In the context of another dynamic cumulative
technology -- computer software -- the Office of Technology Assessment
concluded that: "[u]ncertainty about ownership of a component
or the scope of intellectual property rights could discourage the
development of programs composed of components from different sources."(5)
Some specific characteristics of the
The effects of intellectual property incentives on market behavior
depend on the specific characteristics of the genomics market and
its underlying technologies. Patents have proved to be a particularly
effective and necessary tool in encouraging innovation in the pharmaceutical
and first generation biotechnology industries. These sectors are
characterized by enormous costs in research and in obtaining regulatory
approvals, by unusually high degrees of risk and uncertainty in
bringing products to market, and by final products that can be imitated
at very low cost. Innovation in the drug industry frequently has
been found to be particularly dependent on strong patent rights
because it is the only effective way to permit firms to appropriate
sufficient returns from their investment. The benefits of research
are captured largely in its final use value by the firm responsible
for the development.
The pharmaceutical and biotechnology industries also have depended
almost exclusively on the discovery of new knowledge and the development
of completely new products. As a result, patents tended to correspond
to only one product. Until now, this innovation model contrasted
sharply with most sectors where innovation focuses more on incremental
product improvements or advances in system design.
Technologies, such as genomics, that are heavily dependent on basic
research have a set of characteristics that strongly affect the
nature and type of protection that should be provided. They tend
to have multiple researchers with the same base of knowledge who
tend to perceive the same opportunities and, therefore, are more
inclined to race -- whether it is a race to patent or to publish,
or both. In the next few years, biomedical advances and new drug
products will depend as much on incremental, ongoing improvements
in databases or redesigns of existing software systems as on blockbuster
breakthroughs. Also, innovation will depend to an unprecedented
degree on new relationships to genomic information that are dynamic
and not static or fixed like most information we are accustomed
to dealing with.
Another important force affecting the role of intellectual property
rights in genomics information is the need to attract private investment
capital. Strong intellectual property rights attract investment
capital that start-ups need to enter and compete. This is particularly
the case with genomic companies which have uncertain market prospects
and often unproven management teams led by former academic stars
with no substantial business background. The only tangible assets
that venture capitalists or early-stage institutional investors
can use to value their potential investments in companies are the
economic returns made possible by the company's potential intellectual
Finally, a broad consensus exists that intellectual property rights
are most effective in creating the right incentives as new product
developments near the market.(6) Conversely, rights granted on basic
research at precompetitive stages are problematical. Depending on
the circumstances, they can provide the basis for the orderly development
of the full range of possibilities or they can preempt broad areas
of future research, or direct it to less beneficial areas of inquiry.
As a result, there are concerns about granting patents or other
rights to discoveries or creations which occur relatively early
in the research process long before a market exists for a product
Moreover, the line separating precompetitive and commercial development
in genomics has blurred with the compression of time and the changing
nature of the innovation process. It becomes progressively more
difficult to agree on what constitutes precompetitive research as
opposed to commercial development. The various phases of research
and development no longer fall into tidy logical and highly ordered
sequences, nor do they necessarily proceed in any linear fashion.
The traditional bifurcations along which the production and ownership
of genetic research have divided basic /applied research,
academia/industry, and public/private sector -- are blurring in
the field of genetic research. The Human Genome Project has evolved
into a joint public and private effort, academics are coordinating
their efforts with commercial genomic firms, and government routinely
collaborates with the private sector. As genetic research progresses
and information is produced in new ways, new legal issues arise,
the most fundamental of which is: Can the intellectual property
system continue to maintain a delicate balance between information
production and dis-semination? Can the legal system create reasonably
clear, bright-line tests determining whether the results of genetic
research are subject to private rights of protection? In the absence
of bright line rules, how will the scientific community strike the
Shifts in U.S. science and technology policy reflect the powerful
effects attributable to the globalization of technology and markets.
The United States' biggest successes in international markets have
come in those products and services in which U.S. firms have been
vigorous technological innovators. American pharmaceutical, biotech-
nology, and information service firms are three of those world leaders.
Looking forward, the most successful economies will be those that
can best harness their brain power to generate economic growth.
*Clarisa Long is a Research Fellow at Harvard University, the
Abramson Fellow at the American Enterprise Institute for Public
Policy Research in Washington, D.C., and a Vice Chairman of the
Federalist Society Intellectual Property Practice Group.
- Organization for Economic Cooperation and Development,
Production and Distribution of Knowledge in the New Systems of
Innovation: The Role of Intellectual Property Rights (1996).
- See Patha Dasgupta &
Joseph Stiglitz, "Uncertainty, Industrial Structure and the
Speed of R&D," 11 Bell J. Econ. 1 (1980).
- See Patha Dasgupta &
Yoram Barzel, "Optimal Timing of Innovations," 50 Rev.
Econ. & Stat. 348 (1968).
- John Barton, "Patent
Scope in Biotechnology," 26 ITC 605 (1995).
- Office of Technology
Assessment, Pharmaceutical R&D: Costs, Risks and Rewards 154
- Rebecca Eisenberg, "Proprietary Rights
and the Norms of Science in Biotechnology Research." 97 Yale
L.J. 177 (1987).