WIPIP: Innovation policy

Michael Burstein, The Law of the Direction of Innovation

Foundational texts: NBER Rate and Direction of Inventive Activity, and revisited. But we need to ask: what innovation should we prioritize? What innovation, by whom, and for whom? These are contestable subjects of political choice. Health law scholars have started to ask why so many me too drugs instead of novel therapeutics; trying to generalize from these questions.

Positing two axioms representing conventional wisdom in law & business: (1) entrepreneurial activity, mediated by price signals and supplemented by exclusive rights, is the best way to establish the direction of innovation. (2) private ordering of innovation policy takes place largely in the absence of legal structure; law’s role is only to ensure that IP facilitates adequate price signaling.

This is wrong in a few ways. Startups direct innovative efforts towards funders’ interests—structured by VC incentives. Incumbent firms are influenced by corporate rules. Covenants not to compete matters. That’s all not just price. Even if was just price, IP doesn’t mediate price in a vacuum; IP makes choices. Market demand also doesn’t equal social demand/value of innovation. Gov’t funding remains an important tool of innovation policy.

How do we get an innovation ecosystem w/striking disparities in investment/development of tech that we see today? VC investment is mostly in IT and consumer-oriented stuff. Silicon Valley has become optimized to produce those kinds of innovations. Crypto, but not encryption from same underlying tech base. Crypto has low capital requirements, low barriers to entry. Encryption is deep tech, w/long and uncertain regulatory cycle/demand, but potentially much greater social value.

We’ve had different innovation systems over time—Bell Labs, corporate R&D.

One goal: challenge notion that innovation is part of market alone and not part of legal choice.

Gaps in literature to fill: economic literature has some useful modeling, but doesn’t explain mechanisms by which economic incentives actually arise. Innovation ecosystems may be described, but each part of ecosystem is molded by various laws, private law and public law. In law, we tend not to see the ecosystem as deserving of integrated study—we tend to atomize each piece.

Law influences direction by structuring relationships among firms, individuals, and markets (VC contracts are an example: generally applicable law rather than innovation specific); by delineating entitlements (creation/enforcement of legal rights or creating space for nonmarket innovation); creating or limiting markets—shaping demand (export controls that limit the addressable market for certain tech); subsidizing investments, generally through gov’t spending or the equivalent (gov’t grants).

Harder cases: corporate governance—that shapes both individual firms/people as well as markets as a whole. R&D tax credits; gov’t procurement—both a subsidy and market-making. Regulation—can prohibit and can structure what people can do, and direction of innovation responds in kind. IP may operate across modes. Delineating entitlements and subsidizing investments by overcoming public goods problems, but also shapes market, e.g. by identifying what’s protectable and unprotectable and by shaping licensing law.

Sapna Kumar: how does the model handle goods that more closely resemble public goods than private goods, like new antibiotics and vaccines for infectious diseases less common in the US now (but might be in the future). Infrastructural goods might be different.

A: the market paradigm tells us the underproduction problem is bigger with such goods, so it wouldn’t surprise him if things like regulation/gov’t procurement play a bigger role there.

Rosenblatt: people are uncomfortable with value judgments: which technologies are value-promoting and which aren’t.

Kumar, Scientific and Technical Expertise after Loper Bright

Her impression: majority fundamentally misunderstood intertwining of sci/tech expertise w/statutory interpretation. Lessons we can learn from patent litigation about how judges acquire needed knowledge about technical issues. Proposal: funding neutral experts for appellate courts for complex administrative law cases.

Loper Bright: Judges must independently interpret statutes. Judges must exercise independent judgment when they interpret ambiguous statutes; adopted very narrow version of Skidmore deference—can’t defer to agencies but can look for persuasiveness, doesn’t seem different from being persuaded by a party or amicus. Claimed holding based on APA, but framed decision w/in Art. III arguments—invoked Marbury twice.

Many prominent scholars claim lots of deference is left, but her own view is that lots has changed. Courts are forbidden from deferring. LB might exacerbate politicization for judges. Some judges may try to improperly defer. But what about judges who try to faithfully follow LB—what is a deference-free system of interpretation?

Patent has some lessons! District judges struggle to understand complex sci/tech, which contributes to patent cases being time-consuming. They cope by relying heavily on expert tech tutorials, technically trained clerks, tech-trained magistrate judges, and neutral experts for complex cases, sometimes special master or technical adviser. How does the CAFC cope? Expertise of the judges themselves, and technically trained law clerks.

We don’t have any of that for APA situations. No means for parties providing tech tutorials; appellate courts have few technically trained clerks; page limits on briefs and non-tech trained lawyers make it hard for judges to learn what they need; no means for hiring neutral experts at appellate level.

Neutral expert proposal has been floating around for a bit: Breyer & Leventhal, JJ, both proposed. Common in other countries, EU and England. Best of both worlds—independent judgment of judges & access to reputable info on sci/tech.

Implementation: Congress could fund it up front (unlikely); appellate courts could do this on their own and bill parties for cost (is this allowed?). Experts would explain background sci/tech, not opine in law. Give teachings in written form, subject to party response. Goal to prevent overreliance and opacity, while preserving adversarial system. Patent system suggests that this can work. This isn’t a substitute for Chevron, but it’s something.

RT: Could an appellate ct send to dct for this purpose?

A: would take amending the APA.

Burstein: can appellate courts appoint special masters?

A: seen conflicting things—need more research into their inherent authority.

Jacob Sherkow: there are original APA actions in the dct—those could have experts.

Q: generalist judges are always coming into situations they don’t know anything about—music, reinsurance markets, complex family situations, how do ski resorts work. That doesn’t mean anything you said is wrong. But why is science special?

A: dct often plays a filtering role.

Q: problem where you can’t find an expert who isn’t in one camp or another—an interest in advancing (or not) large hadron collider projects. Maybe you need to hire 2-3 with different ways of looking at the same thing.

A: that’s true.