Orphan Business Models: Toward a New Form of Intellectual Property

CONTENTS I. RESPONSES WITHIN PATENT LAW: BUSINESS METHODS AND 1371 RELATED DOCTRINES A. Market Experimentation After Bilski 1373 1. Abstractness and Suitability for Experimentation 1373 2. Other Patent Doctrines 1378 B. Problems with Incorporating Market Experimentation 1379 Concerns II. SUBJECT-SPECIFIC RESPONSES: THE CASE OF 1381 PHARMACEUTICALS A. Statutory Regimes 1383 1. Orphan Drug Act 1384 2. Protection from Generic Competition 1388 3. Encouragement of Generic Competition 1389 B. Potential Reform Paths 1392 1. Longer Protection Term 1392 2. Ceilings on Exclusivity Based on Inputs or Success 1393 3. Administrative Discretion 1395 III. NEW APPROACHES TO INTELLECTUAL PROPERTY PROTECTION FOR ORPHAN BUSINESS MODELS 1396 A. Term Competition 1396 1. The General Mechanism 1396 2. The Unconventionality of the Mechanism 1400 3. Extensions 1401 (a) Nonappropriable Network Effects 1402 (b) Long Time Horizons 1404 (c) Deregulation and Reregulation Incentives 1405 (d) Industry-Specific Statutory Compromises 1406 B. A Bonding Mechanism 1408 1. First Step Scenario: A Bonding Mechanism 1409 2. Potential Improvements to the Bonding Mechanism. 1415 3. Further Applications: Beyond Conventional Business 1416 Models (a) Scientific Research 1417 (b) Legal Innovation 1419 IV. CONCLUSION 1421 Harold Demsetz famously observed that property rights will tend to emerge when the value from recognizing them is sufficiently great to make their transaction costs bearable. (1) Demsetz's theory is descriptive, (2) but when the tradeoffs inherent in particular property rights are nearly in balance, normative debate about the desirability of those rights is likely to be lively. (3) The business method patents controversy underlying the Supreme Court's decision in Bilski v. Kappos (4) might thus be seen as an epiphenomenon of the broader sweep of Demsetzian institutional evolution. The immediate policy question is whether the costs inherent in a regime of patents on business methods (including patents on business models) (5) outweigh the benefits. (6) Over the long run, (7) however, if Demsetz's core insight is correct, we should expect evolving legal institutions to find some means of protecting business methods at least in those cases where such protection is most critical and can be accomplished most cheaply. The form of protection that ultimately emerges, however, might be quite different from patent protection for business methods as under-stood today. Perhaps the Patent and Trademark Office (PTO) and courts will develop more effective doctrines for avoiding issuing un-necessary patents--for example by toughening the nonobviousness test. (8) At least as importantly, the subject matter of business method protection--not necessarily business method patent protection--could change. Business method patents protect ideas for new business methods (9) because of the longstanding rule that inventions need not be reduced to practice (10) or commercialized (11) to be entitled to patent protection. …