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 245
Although mostly factors at this level are seen as constraints on
formal rule change, formal rules can play a role in altering the
context of innovation. Patents might alter not only the production
of scientific discoveries, for example, but also the way in
which science is understood. 153 Patents might also have a
transformative effect.
3. Institutional Environment (Formal Rules)
This level includes both the evolution and application of
patent rights and other formal rules relevant to innovation.
The patent policy opportunities at this level involve making
changes to patent rights to achieve desired objectives in light of
the existing transactional structures of innovation. 154 Much of
the NIE patent literature starts here, with questions about the
roles of patent “property” rights in creating possibilities for exchange.
155 These branches of the literature have roots in
Coase’s work on the importance of property rights in the presence
of externalities, 156 with much of the work centering on the
definition and enforcement of patent rights, and their intersection
with contract laws. 157 Using the transaction as the basic
153. See, e.g., Peter Lee, Note, Patents, Paradigm Shifts, and Progress in
Biomedical Science, 114 YALE L.J. 659, 662 (2004) (Examines the contribution
of patents to the advancement of scientific theory—”the scientific community’s
conceptual understanding of the basic structure and properties of natural
phenomena.”).
154. This framework shares Williamson’s assumption that while recognizing
that legal constructs such as the patent system are the product of evolutionary
processes and “constrained by the shadow of the past,” the legal system
nevertheless provides design opportunities. Williamson, supra note 75, at
598.
155. See, e.g., MERGES, Institutions for Intellectual Property Transaction:
The Case of Patent Pools, in INTELLECTUAL PRODUCTS: NOVEL CLAIMS TO
PROTECTION AND THEIR BOUNDARIES 5 (2001) (“Property rights are important
because they necessitate and structure transactions.”); John F. Duffy, Rethinking
the Prospect Theory of Patents, 71 U. CHI. L. REV. 439 (2004). Merges examines
the intersection of property rights and contract and suggests two major
contributions that property rights make to real world contracting—precontractual
liability and enforcement flexibility. See also Merges, supra note
15.
156. See R. H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1 (1960)
(explaining the importance of property rights in the presence of transaction
costs); Armen A. Alchian & Harold Demsetz, Production, Information Costs,
and Economic Organization, 62 AM. ECON. REV. 777, 783–85 (1972) (explaining
the emergence of the firm in terms of information costs and looking at the
impact of alternative allocations of property rights on problems inherent in
team production).
157. See Williamson, supra note 75.