Elemental Economics

Economics of Biotechnology Home Page



3.0 Conduct

© Harry Hillman Chartrand

Compiler Press, 200


3.0  Conduct

3.1                    Advertising & Marketing

3.2                    Bioprospecting & Piracy

3.3                    IPRs & Legal Tactics

3.3.1 Contemporary ‘Rationalization’

3.3.2 The Problematic Matrix & Its Bundle of Rights

3.3.3 Types

Copyright & Trademarks

Patents & Industrial Design

‘Know-How’ & Trade Secrets

Sui Generis Rights

3.3.4 The Panda’s Thumb

Statutory vs. Case Law

Natural vs. Legal Person

Predatory Practices

3.3.5 An Appropriate National Strategy

3.4                    Multilateral Codes of Conduct

3.5                    Research & Innovation


3.0 Conduct

In Industrial Organization firms in a given industry tend to follow identifiable patterns of Conduct or behavior in adapting and adjusting to a changing and evolving marketplace.  Key mainstream variables include pricing, advertising and product differentiation, capacity, legal tactics, quality of output as well as research & innovation.  In policy terms, Conduct constitutes the strategy of the firm.

Pricing strategy includes the choice between short- or long-run profit maximization as well as between single and tied goods, e.g., selling printers cheap but ink at a high price.  Advertising is intended to persuade consumers – final or intermediary – to buy a particular brand.  Sometimes brands are technically similarly but advertising can differentiate them in the minds of consumers. Capacity refers to the ratio of actual to potential output expressed as a percentage, e.g., 80-85% capacity is generally considered ‘full’ capacity allowing downtime for maintenance and ‘recreation’ of workers.   Legal tactics includes the tendency to litigate or use other legal means rather than the market to settle or foreclose disputes with consumers, suppliers and competitors, e.g., the EULA software agreement that limits liability, e.g., downtime suffered by users .  Quality, among other things, refers to whether the target market is upscale or downscale, e.g., tailor products to each customer or sell mass produced goods & services.   Research & innovation refers to whether firms tend to rely on the continual production and application of new knowledge or on ‘traditional’ ‘tried-and-true’ methods and products.


3.1 Advertising & Marketing

As previously noted, advertising is designed to persuade consumers – final or intermediate – to buy a particular brand.  Some brands are technically similar but advertising can differentiate them in the consumer’s mind, e.g., Tide vs. Cheer, effectively splitting off part of the industry demand curve as its ‘owned’ share.  In the Standard Model of economics only factual product information qualifies as a legitimate expense.  Attempting to ‘persuade’ or influence consumer taste is ‘allocatively inefficient’ (see 4.0 Performance) betraying the principle of ‘consumer sovereignty’, i.e., human wants, needs and desires is the root of the economic process.

This mainstream view connects with consumer behaviour research which calls this approach the ‘information processing’ model.  A consumer has a problem, a producer has the solution and the advertiser brings them together.  It is a calculatory process.  An alternative consumer behavior school of thought, ‘hedonics’ argues that people buy products to fulfill fantasy, e.g., people do not buy a Rolls Royce for transportation but rather for show (Holbrook & Hirschman 1982; Holbrook 1987).  Thus product placement, i.e., placing a product in a socially desirable context, enhances sales (McCracken 1988).  In this regard the proximity of Broadway and especially off- and off-off-Broadway (the centre of live theatre) and Madison Ave. (the centre of the advertising world) in New York City is no coincidence.  Marketeers search the artistic imagination for the latest ‘cool  thing’, 'style', ‘wave’, etc.  Such pattern recognition is embodied in the new professional ‘cool hunter’ (Gibson 2003).   In fact peer-to-peer brand approval is an artifact of the age.

The ‘advertising & marketing’ of GM products, specifically food (Green) vs. medicine (Red), highlights these divergent approaches.   In reaching out to the final consumer GM food advertising and marketing generally takes the form of well researched and well meaning ‘risk assessments’.  Such cost-benefit analyses are presented to a public that generally finds calculatory rationalism distasteful and the concept of probability unintelligible, e.g., everyone knows the odds of winning the lottery yet people keep on buying tickets.  It would appear that the chances of winning are over-rated.  By contrast the even lower probability of losing the GM ‘cancer’ sweepstakes are similarly over-rated.  Attempts have been made to place this question within the context of known/unknown contingencies such as GM food safety within Kuhn’s ‘normal science’ (Khatchatourians 2002).   The labeling debate also illustrates the ‘information processing’ view.  At a minimum it would require all GM food products to be labeled as such.  At a maximum it would require that all GM food products be traceable back to the actual field from which they grew. 

While attempts have been made to highlight the health and safety of GM foods little has been done to demonstrate that they ‘taste’ better.  This may be the final hurdle, maybe not.  Observers have noted, however, that the GM agrifood industry has been rather inept in its ‘communication’ with the general public (Katz 2001).  For whatever reasons, to this point in the industry’s development, GM foods appear to feed nightmares, a.k.a., Frankenfood, not fantasies in the mind of the final consumer.   

By contrast the ‘advertising & marketing’ of medical GM products and services has fed the fantasies of millions with the hope for cures to previously untreatable diseases and the extension of life itself.   Failed experiments do not diminish these hopes.   Even religious reservations appear more about tactics, e.g., the use of embryonic or adult stem cells, rather than the strategy of using stem cells to cure disease and extend life. 

Given that intermediate rather than final demand currently feeds the biotechnology sector one must also consider what might be called ‘intermediate advertising & marketing’.  Such activities are conducted by trade associations and lobbyists.  The audience is not the consumer but rather decision makers in other industries and in government.  Such associations exist at both the national, e.g., BIOTECanada, and regional level, e.g., Ag.West Bio Inc.


3.2 Bioprospecting & Piracy

While advances in analysis and sequencing now allow researchers (and hence firms) to experiment with known genetic command codes to build new drugs, enzymes, pathways, proteins et al, the reality is that the raw material for biotechnology is life itself – everywhere and every when.  Nature is thus much older and more experienced in designing command codes under a wide range of environmental conditions than emergent biotechnology.   Accordingly Nature has become the object of search by the biotech industry for novel code.  This search is called ‘bioprospecting’ and takes two forms: ethnobiology and ‘original research’ which is self-explanatory.

Ethnobiology is the interdisciplinary study of how human societies use or have used flora and fauna to serve human purpose, e.g., for medical or nutritional purposes. Its principal sub-disciplines include ethnobotany, ethnomycology, ethnolichenology, ethnozoology, ethnoecology, paleoethnobotany, and zooarchaeology.  The Society of Ethnobiology publishes a journal documenting activities in these fields.

Ethnobiology draws heavily on the knowledge of historical, pre-modern and/or indigenous peoples of the Third and Fourth Worlds.    Such knowledge is generally called ‘traditional ecological knowledge’ or TEK.  With the 1991 Convention on Biological Diversity (CBD) the principles of compensated bioprospecting were established globally with the notable exception of the United States which is not a member of the Convention.  The convention recognizes ownership of biological forms like mineral deposits by the Nation-State in which they are found.  Efforts by the World Intellectual Property Organization and UNESCO to cede TEK rights to indigenous peoples themselves rather than the Nation-State in which they live have, so far, failed.

In 1995 with the founding of the World Trade Organization (WTO) and its Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) a conflict developed with the CBD.  Under Common Law and Civil Code intellectual property rights can only be granted to a Person – natural or legal – and only for a limited period of time.  The idea that such rights could reside in traditional knowledge that lasts forever and belong to a collective such as a tribe or indigenous nation is therefore rejected by TRIPS.  Similarly, to qualify for protection knowledge must be novel and not the documented subject of previous art.  Given that most TEK is oral in nature (or written in obscure ancient languages) this means that biotech firms can, for example, patent the active ingredients of traditional medicines as well as crops because there is no previous documented art.

The exploitation of TEK by biotech firms has led to charges of ‘biopiracy’ (Duffield 2002), i.e., stealing the work of others for one’s own profit.  Among the leading and most articulate critics is India-born Vandana Shiva (Shiva 1999).  In response Third World countries have increasing sought to protect their biological resources.  India, for example, is putting together a 30-million-page electronic encyclopedia of its traditional medical knowledge (as well as yoga positions).  Ancient texts in Arabic, Bengalis and Sanskrit are being translated into five global languages - English, French, German, Japanese and Spanish - in an effort to establish ‘previous art’ and prevent others from claiming intellectual property rights (Biswas 2005).  Brazil, on the other hand, is tightening enforcement of its CBD rights and has, for example, recently sentenced Marc van Roosmalen, a world-renowned primatologist, to 16 years in prison for ‘biopiracy’ (Rohter 2007).  Competition for novel genetic command codes is thus heating up.


3.3 IPRs & Legal Tactics

I will first outline the contemporary rationalization for intellectual property rights (IPRs) such as copyrights, patents, registered industrial designs and trademarks.  I will then demonstrate that this ‘rationalization’ cloaks the messy reality of the contemporary IPR regime.


3.3.1 Contemporary ‘Rationalization’

First, IPRs are created by the State as a protection of, and incentive to, creativity, a.k.a., new knowledge, which otherwise could be used freely by others.  Without legislated rights knowledge suffers from the ‘free-rider’ problem associated with all public goods – you can get something for nothing.  This problem is illustrated by the ‘L’-shaped average cost curve in all knowledge-based industries (2.1 Cost Structure).

Second, in return the State expects creators to make works available and that a market is created in which such work may be bought and sold. 

Third, while the State wishes to encourage creativity it does not want to foster harmful market power.  Accordingly it limits such rights - in time and space.  Rights are generally granted only for:

Fourth, all knowledge thus eventually enters ‘the public domain’ where it may be used by one and all without charge or limitation.  This ‘intellectual commons’ is different from the physical commons, e.g., the atmosphere and oceans, which suffer from overuse.  By nature and law, the public domain grows and increases with use.  Or, in Isaac Newton’s terms, ‘We all stand on the shoulders of giants’. 

In law, IPRs are justified as a means to increase the public domain or ‘learning’.  The public domain plus works still under protection constitute the national knowledge-base.  To paraphrase Rosenberg on science, the body of knowledge called the public domain consists of an immense pool to which small annual increments are made at the frontier.  The true significance of the public domain is diminished, rather than enhanced, by extreme emphasis on the importance of the most recent increment to that pool, e.g., IPRs (Rosenberg 1994, 143).

Even when in force, however, there are exceptions to IPRs such as ‘fair use’, ‘free use’ and ‘fair dealing’ with respect to copyright.  With respect to patents, many national statutes and international conventions permit ‘research’ using patented products and processes by profit, nonprofit and public agents.  Governments also retain the right to waive all IPRs in “situations of national emergency or other circumstances of extreme urgency” (WTO/TRIPS 1994, Article 31b).  For example, following the anthrax terrorist attacks in 2001 the U.S. government threatened to revoke Bayer’s pharmaceutical patent on the drug Cipro (BBC News October 24, 2001).

One point needs to be amplified: why ideas are not protected but rather their fixation in a material matrix.  With respect to copyright, Justice Yates, in his dissenting opinion in the 1769 case of Millar v. Taylor, laid out the legal reasoning why ideas or knowledge are not protected.  He argued, drawing on the Institutes of Justinian (one of the sources of the European Civil Code), that ideas are not the object of property rights because they are like wild animals or ferae naturae. Once set free they belong to no one and everyone at the same time, i.e., they are in the public domain. It is only their expression fixed in material form – commonly known as a work – that qualifies for protection (Sedgwick 1879).


3.3.2 The Problematic Matrix & Its Bundle of Rights

I will now briefly outline the problematic nature and types of matrix in which new knowledge must be fixed to qualify for IPR protection (Chartrand July 2006).

First, as previously explained knowledge assumes three forms: personal & tacit, codified and tooled.  In brief, the first is protected by ‘know-how’ and ‘trade secrets’. The second is protected by copyright and trademarks. And the third is protected by patents and industrial design. Ultimately, however, as noted by Michael Polanyi ([1958] 1962), all knowledge is personal & tacit. It is the Natural Person who must decode; it is the Natural Person who must push the buttons. Without the intermediation of a Natural Person codified and tooled knowledge remain artifacts without meaning or function.

Second, what constitutes a matrix is problematic. For example, until 1988 under Canadian copyright recorded extemporaneous music, i.e., music improvised and simultaneously recorded, did not qualify for protection because it was not “reduced to writing or otherwise graphically produced or reproduced” (Keyes & Brunet 1977, 40). The recording itself did not qualify as a matrix. Similarly, computer programs did not qualify because they could not be ‘read’ by a human being. Furthermore, ephemeral displays on computer screens received no protection because they had no permanence (Keyes & Brunet 1977, 129).

The law, being inherently conservative, concluded that if the matrix was not perceptible by a human being then it was not possible to assess other requirements for protection, e.g., originality, non-obviousness, usefulness, etc. An electron might be a part of the physical world but if one could not see, touch or otherwise perceive it then it had no legal status.

Things changed. In effect, the evidence of tooled knowledge, i.e., machine instrumentation extending the human senses and grasp, was admitted by the Courts. The implication is that there is no longer any microscopic (or macroscopic) legal limit to intellectual property being fixed in a material matrix, only technical ones.

This trend is apparent in the case of genetic patents.  The U.S. Patent Office denied patents to living material including genes until 1980.  At that time the Supreme Court in Diamond v Chakrabarty reinterpreted existing law, i.e., there was no change in the law itself.  The case involved a patent for a genetically engineered microorganism that breaks down crude oil.  The Court observed that Congress had the power to limit such patents but by failing to legislate specifically about genetic patents it had, in effect, allowed gene patenting.  The Court’s rationale was based on the term ‘manufacture’ in Section 101 of the U.S. Patent Act: “the production of articles for use from raw materials prepared by giving to these materials new forms, qualities, properties, or combinations whether by hand labor or by machinery.”  Genes, the Court concluded, were material, i.e., they had tangible material form, even though invisible to the naked eye.

Third, a matrix comes in three types: utilitarian, non-utilitarian and/or a Person – Natural or Legal (see Exhibit 1 below). In the case of patents & industrial design tooled knowledge is fixed in a utilitarian matrix. For patents, a device or process has a function or purpose other than itself. Unlike a work of art appreciated for what it is, a patented work is appreciated for what it can do. Industrial design, on the other hand, involves the non-functional characteristics of a device such as its shape, size and colour, e.g., a coffee cup without a corporate logo or aesthetic design remains a coffee cup. The matrix carrying the design has a function independent of the design itself. It should be noted, however, that in the British legal tradition industrial design emerged out of copyright while in the American tradition it evolved out of patents.


  Exhibit 1

The Matrix

Matrix                   Knowledge                               IPR

Utilitarian                    Tooled                         Patents & Designs

Non-utilitarian           Codified                  Copyrights & Trademarks

Person                 Personal & Tacit    ‘Know-How’ & Trade Secrets


In the case of copyright and trademarks, codified knowledge is fixed in a non-utilitarian matrix. It carries semiotic or symbolic meaning from one human mind to another. This, however, excludes computer software which conveys operating instructions to a machine or, in genomic programming, operating instructions to molecules. I will have more to say about ‘human-readable’ and ‘machine-readable’ copyright but for now it is sufficient to say that the matrix for copyright and trademark is, in effect, a communications medium with no function other than to carry a message from one mind to another, e.g., a book may make a good read but is a second-rate door jam.  Put yet another way, a work of art, traditionally the exclusive subject of copyright, is valued in and of itself with no utilitarian purpose or function. Similarly, a trademark is protected no matter the matrix to which it is affixed – the side of a truck, a coffee cup, an integrated circuit or a cell wall. It symbolizes either a Person – Natural as in a silversmith’s mark or Legal as in a corporate logo – or a Place as in a mark of origin.

Finally, in the case of know-how and trade secrets, the matrix is a Person – Natural or Legal. Secrecy protects both because in most countries there is no formal statute. They are, however, implicitly recognized under the TRIPS Agreement. Trade secrets are also explicitly recognized under Article 1711 of NAFTA. Due diligence to protect ‘the knowledge’ is required by the Courts. When a Natural or Legal Person (including a government) discovers that know-how or a trade secret has been revealed by an agent or a third party without permission, legal recourse is available through the Courts for breach of contract, breaking and entering, trespass, et al.

One final aspect of the matrix needs to be highlighted.  When new knowledge is fixed in a matrix it is not a single but rather a bundle of rights that accrue.  Thus an IPR consists not of one but rather of a set of rights each of which is capable of earning royalties (Exhibit 2).

Exhibit 2

Intellectual Property as a "Bundle of Rights'

Adaptation, Assignment, Breadth, Duration, Eligibility, Licensing,

National Treatment, Scope, Subject Matter, Transfer, Translation, Other

The complexity of IPRs, including a sense of the bundle of rights involved, is captured in a February 8, 2007 blog posting by Neil Balthaser.  I have re-ordered his paragraphs but his words remain:

Patents are generally composed of an abstract, background of the invention, detailed description of the invention, various diagrams and figures, and the claim language.

All these parts of the Patent are important but the actual Patent itself is described and defined in its claim language. The claims are the legal description of what the patent covers. Therefore to understand the patent is to understand its claims.

Every patent affords a specific scope of protection unless it is found invalid or unenforceable. Scope is defined by the claims of the patent which are the numbered paragraphs at the end of the patent specification. They are the measure of exclusivity afforded by the patent.

Claim language is specific and has been carefully thought out by the inventor and the author and carefully reviewed and approved by a patent examiner. Each and every word in a claim has been specifically and carefully chosen to define the exact breadth and scope of that claim. This is why it is important to read a claim with no assumptions. (Balthaser 2007)

Among this bundle of rights the scope and breadth of  patents are major concerns in biotechnology:

Not only are patents enforced more strongly, but they themselves are more broad and they frequently cover basic research tools. This is particularly the case in biotechnology where, for example, patents have been issued on all transgenic cotton, on biological receptors important in research on a broad category of pharmaceuticals, and on concentrated human stem-cell compositions useful for basic research on the immune system. For this type of situation, and there may be parallels in the computer software area, a patent cannot be analyzed in terms of the monopoly it confers on a single product. Its scope is broader, and the antitrust analysis must reflect this fact. Moreover, the existence of these very broad patents leads to a pattern of cross-licensing among the leading firms of a particular sector -- and may be usable to prevent entry by others into that network. Again, there are significant, and novel, antitrust issues. (Barton 1995)


3.3.3 Types

Having established the contemporary rational for IPRs and the problematic nature of their matrix I will now summarize their major classes: Copyrights & Trademarks; Patents & Designs; ‘Know-How’ & Trade Secrets; and Sui Generis Rights.

Copyrights & Trademarks

Copyrights are rights traditionally granted to creators of artistic and literary works.  They have, however, been extended over time to include:

Copyrights are granted to natural and legal persons.  When granted to a natural person they endure for the life of the artist/creator plus a fixed number of years that varies between countries, e.g., in Canada for fifty years and in the United States for seventy years.  Copyrights granted to legal persons are for a fixed number of years that also varies between countries.  Furthermore, in the Civil Code tradition, natural persons including employees receive certain imprescriptable rights not available or transferable to legal persons, e.g., droit de suite or rights of following sales in the visual arts and moral rights. Some Civil Code rights introduced in Anglo-American countries but such rights remain transferable to legal persons extinguishing rights of the original creator.  This reflects the Common Law tradition of extending all rights available to natural to legal persons.  No formal registration is required.  Copyright adheres to a work on creation. Copyright cannot be renewed.

Indirectly, it is arguable that copyright adheres to genomic databases and other documentation - hard-copy, electronic or in any future matrix.   Directly, it is arguable that copyright adheres to gene segments themselves.  The question in law appears to be originality.  Naturally occurring sequences, according to some observers, are ‘facts of nature’ and hence copyright cannot adhere.  In the case of ‘original’ sequences, however, i.e., those created through human ingenuity, a.k.a., artificial, there appears no reason for copyright not to adhere as in software computer programs.

Trademarks (and marks of origin) are devices such as a word, logo or other mark pointing to the origin or ownership of a good or service that is reserved for the exclusive use of its owner as maker or seller.  Today, its application has, de facto, extended to ‘domain names’ on the internet or world-wide web.  The World Intellectual Property Organization (WIPO) has thus established dispute settlement mechanisms to resolve ‘cyber squatting’, i.e. registering a domain name using the name or trademark of an established business enterprise or celebrity, e.g. Julie Roberts, with the intention of selling that registration to its recognized trademark holder for a profit.  At the international level, however, only the Common Industrial Property Regime of the Andean Community of 2000 makes explicit reference to web domain names (Chartrand 2007). 

Registration and the payment of fees are required.  A trademark is granted only for new marks so as not to confuse the public.  It is available to both natural and legal persons.  Unlike other forms of IPRs, however, trademarks can be renewed and can potentially be extended in perpetuity.

Indirectly the ‘living rings’ created for the Salt Lake City Olympics may be the precursor of a family of aesthetic, rather than functional, genomic applications including corporate logos.  Such logos could mark the growth, development and diversification of any institutional host.  Directly, it is arguable that ‘lines’ of patented genomic sequences will bear an invisible ‘housemark’ (Kayton 1984, 214n) that will serve as trademark, a mark of quality assurance; its absence or forgery a sign of copyright, design, patent and/or trademark infringement.


Patents &Designs

Patents are granted for new and useful compositions of matter (e.g., chemical compounds, foods, and medicinal products), machines, manufactured products and industrial processes as well as to improvements to existing ones.  In some jurisdictions, patents can also be granted to new plant and new animal forms developed through genetic engineering. 

Through case law and amendment, U.S. patents have, over time, extended to three basic types: patents of invention, design patents and plant patents.  In all cases, registration is required and fees must be paid.  To be patentable, an invention, design or plant must be novel, useful and, non-obvious “to one of ordinary skill in the art.”

A description of the invention must be deposited, in writing and drawings, sufficiently detailed to allow one of ordinary skill in the art to replicate the invention.  This insures that new knowledge enters the public domain while the rights of the inventor are protected.  In the case of microorganisms, description can take the form of a deposit of a sample with an authorized depository.  Patent protection is for a fixed period of time (in the U.S., currently 20 years from the date of filing) after which it enters the public domain.  It can be obtained by both natural and legal persons.  In general, these terms and conditions hold in all countries in the Anglo-American tradition.  Patents cannot be renewed.

With Diamond v. Chakrabarty in 1980 genomics became patentable.  Growth of the biotechnology industry since that decision indicates the effect of this ‘change in the rules’.  The financial incentive of a temporary monopoly was established.  It is important to recall until 1980 (the year of the first biotech patent), the federal government held all rights to to results of university research supported by federal funding; with passage of the Bayh-Dole Act, the university and its employees - the professoriate - retain such rights.

The question of how far up the chain of life patents extends remains problematic.  In the United States and the European Union, for example, a patent has been granted on the ‘Harvard mouse’; in Canada, by contrast, a patent was rejected by the Supreme Court. 

Indirectly, it can be argued that as genomics matures the equivalent of ‘business process patents’ will emerge similar to those granted by the USPTO.  Professional researchers can already call commercial labs and have specific sequences delivered to their door.  How such labs organize their future business processes may permit patenting.

Industrial design involves the arrangement of elements or details that contribute a distinctive aesthetic appearance rather than a function to a good or service.  In this sense there is a relationship between copyright protecting a work of art and industrial design.  Both involve aesthetics but in the case of a copyright the aesthetic element is fixed in a matrix that has no utilitarian value.  By contrast the aesthetic element of industrial design is fixed in a utilitarian matrix, e.g., a coffee cup without a design retains its function.  In addition, an original work of art tends to be unique while an industrial design is usually produced in large numbers.  Industrial design protection can be obtained by both natural and legal persons.  It is important to note, however, that industrial design evolved from copyright in the British Commonwealth but from patents in the United States. 

Design protection is granted for a fixed time period (for, example, 14 years in the United States) after which the design enters the public domain.  Registration and payment of fees are required.  Industrial design cannot be renewed. 

Genomics in industrial design is arguably just a matter of time.  One can anticipate ‘genomic boutiques’ selling the GM equivalent of the Chia planter.


Trade Secrets & Know-How

Trade secrets and know-how are the least protected form of intellectual property right.  Know-how refers literally to knowing how to do something, e.g., how to run a construction project.  It includes knowledge and experience of an administrative, commercial, financial or technical nature used in running a business or performing a profession.  It is experiential in nature, i.e., it is acquired through practice and experience.  It also tends to be ‘tacit’ rather than ‘codified’ (OECD 1996) and embodied in an individual rather than in an external matrix.  In most countries, know-how is protected by contract binding employees and other agents to confidentiality.  When a natural or legal person (including a government) discovers that know-how has been revealed by an agent without permission, legal recourse is available through breach of contract before the courts.  No registration is required.  Know-how can be protected without time limit. 

Trade secrets can be defined as information of a technical or commercial nature that is not in the public domain nor generally available.  It may be a formula, pattern, physical device, idea, process, compilation of information or other information that provides a competitive advantage in the marketplace.  It is generally protected by contract binding employees and other agents to confidentiality.  Normally the courts require that a trade secret be treated by its owner in such a manner that it can reasonably be expected to prevent the public or competitors from learning about it except by improper acquisition or theft.  In the case of electronic data this includes using encryption and “password” technologies.  The most famous trade secret is the formula for Coca-Cola.  A trade secret may be fixed in written or other codified form or it may be tacit.  No registration is required. There is no time limit on a trade secret as long as it remains secret. 

While know-how and trade secrets are often used as synonyms they need not be so.  In the case of management and franchises, for example, know-how is usually accessible to third parties when being used.  Single elements may be kept secret but the overall concept cannot be. 

Indirectly, trade secrets and know-how are protected in genomics by private contract enforceable in the courts.  Where in a nation’s judicial hierarchy such cases will be heard, however, varies, e.g., in the United States it is at the State level.  Some international conventions, e.g., TRIPS and the Andean Pact Industrial Property Convention recognize infringement of both. In effect, when a senior executive moves from one ‘major’ in one country to one in another, an international form of ‘legal’ lobotomy is enforce; the executive and new employer may both be held liable.  In William Gibson's future world of Neuromancer, corporations protect their know-how and trade secrets by implanting genomically designed “neural bombs" (Gibson 1984).  If an employee’s loyalty slips, the bomb goes off killing or mentally maiming: the bottom line, the knowledge is protected. 

Directly, know-how or ‘lab bench knowledge’ and team work in genomics is similar to that in the Arts.  A group of highly talented and creative individuals generate what in economics are called ‘economies of team production’.  Division and specialization of labour combined with experience and growing trust generates know-how that leads to excellence.  Such excellence, in turn, becomes embodied in the trademark of the team or firm together with the financial goodwill associated with it.  In this sense, business goodwill is also a form of intellectual property (Commons 1924).


Sui Generis

Sui generis in Latin means “of its own kind”.   There are two internationally recognized types of sui generis genomic-related intellectual property rights.  These are:

·      breeders’ rights for ‘lines’ of plants and animals generated using pre-genomic ‘selective breeding’ technology; and,

·      a special depository right for microorganisms in lieu of traditional patent requirements of a written description and drawings.


3.3.4 The Panda’s Thumb

Behind the façade of the contemporary rationalization lays their twisted legal evolution of IPRs.  Historical, political and legal evolution is the source of the existing Anglosphere IPR regime, not rational planning and consideration (Chartrand 2006). They are rooted in Common Law precedent creating ‘path dependency’ as in techno-economic regimes. Once a standard is set all subsequent developments must conform.

Put another way, the intellectual property rights regime was not created “by any rational, consistent, social welfare-maximizing public agency” (David 1992).  Economist Paul David thus characterizes the existing regime as ‘a Panda’s thumb’, i.e., “a striking example of evolutionary improvisation yielding an appendage that is inelegant yet serviceable” (David 1992).

The costs of administering such an awkward and ungainly creature have, however, grown dramatically. In the case of copyright this is due to, among other things, introduction of digitalization as fixation and the internet as publication. Similarly, even due diligence by patent officials is insufficient to cope with the flood of new genomic, nanotech and software patent claims. It is thus problematic if the existing IPR regime continues to inspire new knowledge or inhibit its creation and entry into the public domain.

In what follows I will examine three aspects of the Panda’s Thumb: Statutory vs. Case Law; the Natural vs. the Legal Person; and, Predatory Practices.  All affect the biotechnology industry.


Statutory vs. Case Law

In the Anglosphere tradition IPRs are both statutory law enacted by a legislature and case law applying precedents set by judges.  In general terms Common Law is rooted in precedent while the Civil Code is rooted in principle, i.e., judges are guided by principle not precedent.  In this regard, the most important precedent in the development of copyright (and arguably all forms of intangible property including ‘good will’) was Justice Yates’ dissenting opinion in the 1769 case of Millar v. Taylor (Commons 1924).  He argued, drawing on the Institutes of Justinian (one of the sources of the European Civil Code), that ideas are not the object of property rights because they are like wild animals or ferae naturae. Once set free they belong to no one and everyone at the same time, i.e., they are in the public domain. It is only their expression fixed in material form – commonly known as a work – that qualifies for protection (Sedgwick 1879).

Precedents set in different Anglosphere jurisdictions, e.g., Australia, Canada, the U.K., the U.S., etc., can and do spill over, from time to time, into the courts and legislatures of other jurisdictions.  Thus genetic patents in the U.S. emerged from a 1980 Supreme Court decision in Diamond v Chakrabarty that reinterpreted existing law, i.e., there was no change in the statute.  Similarly, software patents in the U.S. emerged from a 1981 Supreme Court decision in Diamond v. Diehr.  Arguably, these U.S. decisions set the stage for changes in legislation in other Nation-States.  Similarly, the U.S. Digital Millennium Copyright Act served as a model and/or a warning for provisions proposed to amend the Canadian Copyright Act, Bill C-60, 2005 (Chartrand September 2006).  Of course, the growing body of Australian, Canadian and UK IPR case law may eventually also set precedents for other jurisdictions, e.g., the Supreme Court of Canada’s rejection of a patent for the ‘Harvard mouse’. 

Case law, unlike statutory law, is made not after detailed legislative debate and discussion of its implications by all affected parties but literally on a case by case basis.  Only the specifics of a case as argued by plaintiff and defendant are considered in light of judicial interpretation of existing law.  The result can have unexpected, unintended and unsettling consequences.  The most recent U.S. example is MGM vs. Grokster decided by the Supreme Court on June 23, 2005.  In effect, the Court “expanded the Copyright Act … to cover a form of liability it had never before recognized … — the wrong of providing technology that induces copyright infringement” (Lessing March 18, 2007).  The result, according to Lawrence Lessing, is to “Make Way for Copyright Chaos”.   For his part, Patterson similarly expresses concern about the use of the Courts by copyright proprietors to establish precedents in specific cases that are then used generally to restrict access to works under copyright and even those already in the public domain (Patterson 2001).  The same problem exists with respect to patents, designs and trademarks.

U.S. case law plays an unpredictable role in defining new rights.  It was a court decision that extended copyright protection to computer software and it was a court decision that granted patents on organisms.  Statutory law then caught up.  As new rights emerge the U.S. government strives to extend them extraterritorially through bilateral and multilateral relations.  Each activist court decision in the United States thus reverberates throughout the multilateral IPR regime.


Natural vs. Legal Person

Another characteristic of Anglosphere Common Law is use of ‘legal fictions’.  This is especially true in the ramshackle edifice called copyright (Patterson 2001).  One such fiction is ‘corporate legal personality’.  A Natural Person is a living human being; a Legal Person is a body corporate.  The vast bulk of productive assets are owned by fictitious Legal Persons such as corporations, companies, sociétés, Gesellschaften.  Such persons are birthed under incorporation statutes that allow them to engage in a wide variety of profit making and charitable activities.  In the Anglosphere tradition, however, Legal and Natural Persons increasingly enjoy the same rights (Nace 2005) while under Civil Code they enjoy different rights especially with respect to IPRs. 

It is important to note, however, that the treatment of Legal Persons under American law is historically problematic.   As Nace points out from Independence in 1776 until the late 1860s corporations were very tightly controlled and limited in their activities.  This reflected the bitter experience of the colonists with, for example, the practices of the East India Company that led to the Boston Tea Party (Nace 2005) and to the censorial practices of the Stationer’s Company of London.


Predatory Practices

Another implication of State-sponsored IPRs is their predatory rather than defensive use. Beyond the Mercantilist tendencies of some Nation-States this includes ‘patent wars’ and ‘copyright misuse’.

In the case of patents, some corporations spend enormous sums of money on research projects that fail for one reason or another. Nonetheless, everything that can be patented is patented. These patents may be retained or sold to a patent holding company of one form or another. If a rival or competitor emerges who subsequently succeeds in making the technology work then that competitor may be charged with patent infringement. Whether the charge is valid or not, the rival faces enormous legal costs defending itself or settling out of court. Both ways, competition is restrained and innovation inhibited.

Copyright misuse is a relatively new legal concept that emerged in the United States with the case of Lasercomb America v. Reynolds in 1990. The concept is based on the more developed doctrine of patent misuse. Copyright misuse occurs when a copyright owner, through a license for example, stops someone from making or using something that competes with the copyrighted work but does not involve use of the original itself. The leading case in the U.S. is the 2003 Video Pipeline, Inc. v. Buena Vista Home Entertainment.

While not successful due to legal technicalities:

The defense of copyright misuse was raised … because Disney licensed its movie trailers subject to license terms that prohibit the licensees from using the movie trailers in a way that is “derogatory to or critical of the entertainment industry or of” Disney. That is, Disney uses the exclusive rights conferred upon it by the Copyright Act, not only to obtain a return for its creative efforts (which is consistent with the purposes of copyright protection), but also to suppress criticism (which is contrary to the purposes of copyright protection). (Tech Law Journal Daily E-Mail Alert, 2003)


3.3.5 An Appropriate National Strategy

Given the critical role of IPRs in a knowledge-based economy what is an appropriate national strategy to enhance competitiveness?  Adam Smith’s policy paradigm of no government involvement cannot work because without Government there are no IPRs and without IPRs there is no knowledge-based economy.  A group of Smith’s contemporaries, however, offer a more appropriate strategy - the French Physiocrats.

Behind the Gallic façade of laissez faire and laissez passer, there were deeper policy implications, implications never realized because of the French Revolution.  First, unlike classical economists such as Smith and Ricardo, the Physiocrats accepted government as an active and productive agent in the economy.  Like Karl Polanyi’s self-regulating market, Smith’s market was spontaneous and autonomous; that of the Physiocrats became so, however, only after having been carefully and institutionally designed by government to direct resources towards attainment of national objectives (Samuels 1962, 159).

The nature of Physiocratic public intervention is radically different from Marxist ownership of the means of production and Keynesian management of aggregate demand.  Accepting that private property and self-interest were the drivers of economic growth and development, the Physiocrats reached beneath the surface of the laissez faire, laissez passer marketplace.  They reached down to the legal foundations of capitalism (Commons 1924) to manipulate the nature of property rights themselves.  For the Physiocrats, “the public interest is manifest in the continuing modification or reconstitution of the bundle of rights that comprise private property at any given time (Samuels 1962, 161).

In effect, the Physiocrats wanted to load the dice to raise the commanding heights of the national economy.  They wanted to consciously manipulate capitalist self-interest – accumulation of marketable property – to foster and promote the economic growth and development of the nation.  The Physiocrats thus viewed property rights as instruments of economic policy.  They also saw them as providing the foundation of the economy itself defining what is bought and sold, how and where.  Accordingly, the Physiocrats:

implicitly recognize that the basic economic institutions (the organization of economy) are legal in character; that law is an instrument for the attainment of economic objectives and that economy is an object of legal control (Samuels 1962, 162).

In summary, the Physiocratic policy paradigm is made up of an objective, strategy, tactics and logistics including:

(a) the objective being the competitiveness of the nation, absolutely and relatively, to rival states;

(b) the strategic choice of a core sector which contributes most to attainment of that objective;

(c) development of tactical instruments in the form of property rights and manipulation of the legal structure to direct individual and collective action in favour of the core sector; and,

(d) logistical deployment of these instruments into a free wheeling, private property, laissez faire, laissez passer marketplace.

Unlike other internationally traded goods and services subject to harmonization under the WTO, IPRs are subject to the milder constraint of ‘national treatment’.  This means a Nation-State must extend to foreigners the same rights it grants its own citizens but such rights need not be, and generally are not, the same, nation to nation.  This degree of freedom is a lever increasingly being used to enhance the competitiveness of nations.  Nation-States are actively engaged in reform and revision of their IPR regimes.  Each strives, formally and informally, to develop an optimal legal framework for the generation of new knowledge and its subsequent commercial exploitation - subject to the constraints of its history, custom and tradition.  This evolving legal structure is, in turn, part of a broader national innovation system (OECD 1997).  Given the degrees of freedom under national treatment, the Physiocratic policy paradigm offers a succinct national competitiveness strategy for a global knowledge-based economy.  It begins with the strategic choice of knowledge then tactical development of an IPR regime that directs individual and collective action to favour development of the national knowledge-base and finally logistical deployment of the resulting legal regime into a laissez faire, laissez passer marketplace. 


3.4 Multilateral Codes of Conduct

A national IPR strategy operates within a web of multinational agreements that began to be woven in 1883 with the Paris Convention covering patents, trademarks and registered industrial designs or more precisely 'industrial property' and in 1886 with the Berne Convention covering copyright or more specifically rights associated with  artistic and literary works.  To the degree that the economics of biotechnology is grounded in IPRs – copyrights, designs, patents and trademarks as well as ‘know-how- and ‘trade secrets – then to that degree it is exposed to the requirements set down by this web of multilateral obligations.   The language and terms of such agreements is provided in the attached Legal Lexicon.

The web is both global and regional in nature.  With respect to copyright I have identified and documented a set of 62 different agreements (Compiler Press March 2006).  In the case of trademarks and industrial designs I have identified and am in the process of documenting a set of 27 instruments.   There are similarly a large number of patent-related multilateral agreements which I have not, to date, identified and documented.  To the degree instruments reflect recognition of actual or potential ‘rights’ associated with biotechnology then to that degree they can generate revenue flow supporting its economics.

As noted traditional IPRs are, in general, subject to ‘national treatment’ rather than ‘harmonization’ under the multilateral IPR regime.  Most ‘global’ instruments are managed by the World Intellectual Property Organization (WIPO).  The TRIPS agreement, however, is managed by the World Trade Organization (WTO).  In effect TRIPS requires member states to recognize and enforce IPRs subject to national treatment.

Biotechnology, however, is also subject to other multilateral codes of conduct beyond IPRs.  These, in general, impose specific obligations rather than ‘national treatment’.  Excluding multilateral agreements with tangential implications for biotechnology (such as those covering the environment, e.g., Kyoto and the Law of the Seas, as well as health, e.g., communicable diseases), I have identified but not documented eight instruments that have direct impact on the conduct of the biotech industry.  These are:

International Convention for the Protection of New Varieties of Plants, 1961, revised 1972, 1978, 1991.

Biological and Toxin Weapons Convention, 1972

Convention on International Trade in Endangered Species of Wild Fauna and Flora, 1973.

Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure, 1977, amended 1980.

Rio Declaration on Environment and Development 1992

UN Convention on Biodiversity, 1992.

Cartagena Protocol on Biosafety, 2000.

International Treaty on Plant Genetic Resources for Food and Agriculture, 2001


3.5 Research & Innovation

Research & innovation refers to whether firms rely on the continual production and application of new knowledge or on ‘traditional’ ‘tried-and-true’ methods and products.  This distinction, however, is too general for our purposes.  A contrast needs to be drawn with ‘Research & Development’ or ‘R&D’.   The fact is that most firms, even in relatively ‘high tech’ industries, concentrate on the ‘D’ rather than the ‘R’ in R&D.  This means what passes off as R&D is generally ‘tinkering’ with existing products and production processes rather than generating new ones (Rosenberg 1994).   This may reflect their maturity as industries.   Biotech, however, is, relatively speaking, ‘an infant industry’ just getting started.   There are not a lot of products or processes with which to tinker.  Accordingly, everything is ‘new’ and one can define the conduct of biotech firms as ‘R&I’ rather than ‘R&D’.





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Tech Law Journal Daily E-Mail Alert, August 27, 2003



Elemental Economics

Economics of Biotechnology


Note that venture capitalization to be shifted to Basic Condition Supply Risk-taking