Orphan Business Models: Toward a New Form of Intellectual Property

Innovation and Economic Growth, Intellectual Property and Patents

Article Snapshot

Author(s)

Michael B. Abramowicz

Source

Harvard Law Review, Vol. 124, No. 6, pp. 1362-1421, 2011

Summary

Firms may avoid pioneering a new business method without some protection from competitors, who could imitate successes without risk. The recognition of an intellectual property right (IPR) for “orphan” business models could help.

Policy Relevance

Giving firms a short term of protection from imitators could encourage innovations.

Main Points

  • “Orphan” drugs are ineligible for patent protection, so drug companies have little incentive to bear the expense of testing the drug to get FDA approval.
     
  • The Orphan Drug Act gives firms willing to test such drugs an exclusive right to sell the drug.
     
    • The Orphan Drug Act has encouraged testing of new drugs.
       
    • The Act sometimes restricts competition unnecessarily.
       
    • The Act sometimes provides too short a term of protection.
       
  • Firms hesitate to try risky business models, because others could imitate their success without bearing any cost or risk; the result is abandoned or “orphan” business models.
     
  • Business methods can be patented, but patents protect ideas even if the ideas are not tested or commercialized; protecting commercialization and experimentation could be more beneficial.
     
  • One new kind of IPR for orphan business models or drugs could grant exclusive rights to the firm that agrees to the shortest term of exclusivity in an auction.
     
  • Software could benefit from orphan business model protection rather than patents; patent protection provides a term of protection too long for software.
     
  • A bonding mechanism would reduce the risk of unnecessarily restricting competition.
     
    • The applicant for exclusive rights puts up a bond to back up the claim that the business model will not be attempted without protection.
       
    • If others could put up a bond to back up the opposite claim, the applicant is denied.
       
    • The bonds are paid to the party that turns out to be correct.
       

 

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