Intellectual Property as the Foundation of Innovation

Supportive public policy is needed in order for innovation to flourish.
Dec 02, 2010
Volume 34, Issue 12

James C. Greenwood
With the protracted global recession resulting in millions of lost jobs, it may seem as though the 21st century has gotten off to a weak start. It is during times such as these that human ingenuity and creativity are most needed, with the biotechnology industry leading the way.

The world is looking to the biotechnology sector to help alleviate the challenges of a planet that will hold 38% more people by 2050, an aging population in the developed world, the plague of disease, dwindling supplies of traditional energy, an environment facing unprecedented stress, and a need to maximize food production. We can successfully overcome these challenges through innovation, and innovation can reach its full potential only with supportive public policy including strong intellectual property (IP) protection.

IP is often the main asset of start-up companies. To raise the significant amount of investment they require for research and development (R&D), companies must be able to assure investors that their patent portfolios are secure.

Prior to 1980, industry confidence in the value of patents was low because various federal appeals courts seemingly developed their own standards of patentability. The federal government was supporting 50% of all US research but didn't permit those conducting the research to protect their inventions and transfer IP rights to the private sector for commercial development. As a result, private investment in innovation lagged, and more than 28,000 government-funded inventions languished, undeveloped, on laboratory shelves.

A turning point for the biotech industry came when Ananda Chakrabarty developed a modified bacterium that could break down spilled oil. When his employer filed for a patent, the application was denied by the Patent and Trademark Office. The subsequent appeal was taken all the way to the Supreme Court. In the landmark ruling, Diamond vs. Chakrabarty, the Court affirmed that it was the intent of the patent laws to cover "anything under the sun that is made by man." This decision opened the door to the growth of the biotechnology industry by assuring investors that patent protection would be available for a wide range of inventions derived from nature.

At the same time, Congress was looking into why taxpayers were not receiving greater returns from the billions of dollars invested each year in research universities, teaching hospitals, and federal laboratories. Congress could not find one instance where a new drug was developed when the federal government owned the patent rights to the invention.

Most government and university inventions are more ideas than products, requiring years of development before they can become usable and valuable to the public. This development is almost entirely funded by private industry. To address this problem, Senators Birch Bayh (D-IN) and Bob Dole (R-KS) shepherded into law what came to be known as the Bayh–Dole Act of 1980, which allowed universities and small companies to own and manage inventions discovered with government support.

The Chakrabarty decision and the Bayh-Dole Act set the stage for an explosion of innovation in the United States that continues today. The nascent biotechnology industry formed around research universities, which became wellsprings for innovative start-up companies.

Public-private collaborations encouraged by the Bayh-Dole Act continue to show impressive results. Last year, 658 new commercial products were introduced based on academic inventions. And although the climate for launching new companies has rarely been worse, universities successfully spun out 596 new companies in 2009.

The effect of university technology transfer on the economy was demonstrated by a recent study conducted by independent researchers and supported by the Biotechnology Industry Organization (BIO). Using conservative methodologies, the report found that between 1996 and 2007, university licensing contributed $187 billion to the US gross national product. It also found that university licensing contributed as much as $457 billion to US gross industry output and the direct creation of at least 279,000 new jobs.

The impact of university patent licensing on the biotechnology industry was underscored by a survey of BIO members last year. We found that 50% of these companies were founded on in-licensed technologies, 76% have licensed university inventions, and the ability to obtain exclusive licenses is "extremely important."

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