An Organizational Approach to the Design of Patent Law

6 VERTINSKY FINAL_JAD (DO NOT DELETE) 2/27/2012 2:20 PM
2012] AN ORGANIZATIONAL APPROACH 241
B. FRAMEWORK FOR CHARACTERIZING THE INSTITUTIONAL
ENVIRONMENT
According to the organizational approach, patents are one
of many institutions that, together with governance structures,
characterize the institutional environment within which transactions
take place. 134 The institutional environment consists of
five interconnected levels of social analysis which constrain behavior.
These levels are: (1) “cognition,” or individual patterns
of decision making under uncertainty, (2) “informal rules,” or
“embedded institutions,” including the formation and effect of
norms, values and conventions that shape the context of innovation,
such as those governing the “production” of science and
technological advance, and those influencing and constraining
the evolution and effects of patent laws; (3) “formal rules,” or
the “institutional environment,” the direct constraints on decision
making, including patent rights and other formal rules
relevant to processes of innovation; (4) “governance structures,”
or “institutional arrangements,” such as firms, different market
structures, government, and hybrid forms of collaboration; and
(5) “institutions of resource allocation,” such as marginal
changes in activity levels in response to stronger or weaker patent
rights. 135 Opportunities for policy intervention occur at different
levels of the framework. Interaction occurs between the
different levels. 136 In some cases the interactions may strengthen
the effectiveness of a policy change, but in other cases they
may inhibit it. The framework provides a way of structuring
the analysis that a policy maker would engage in when choosing
between alternative patent laws, such as presumptive versus
limited availability of injunctions against patent infringers,
based on likelihood of achieving desired innovation objectives.
134. Williamson provides an analytical framework for examining changes
in economic behavior that emphasizes the interaction between four levels of
social analysis and the differential rates of change at different levels, and I
adapt this framework to the needs of patent law. Williamson, The New Institutional
Economics: Taking Stock, Looking Ahead, supra note 75, at 595–600;
Williamson, Human Actors and Economic Organization, supra note 82, at 1–4,
34–35.
135. See Williamson, supra note 75, at 595–600.
136. These five layers of analysis are adapted from Williamson’s four levels
of social analysis to fit the needs of patent law. Williamson’s four levels of
analysis are embeddedness, the institutional environment, governance, and
resource allocation. See id.