Complexities of Designing a Research Exemption Arti K. Rai Professor, Duke Law School

Research exemption: Stage 1 (e.g., Eisenberg 1989) Non-commercial research use by those who are not ordinary users is exempt Non-commercial research use by those who are not ordinary users is exempt When research becomes commercial, no longer exempt When research becomes commercial, no longer exempt At point that research becomes commercial, have to seek license (discretionary or compulsory) At point that research becomes commercial, have to seek license (discretionary or compulsory)

Problems Have to draw line between what is commercial, what is non-commercial Have to draw line between what is commercial, what is non-commercial Hard to determine who is ordinary user Hard to determine who is ordinary user Could undermine private incentives for developing research tools (e.g. Dupont Oncomouse) Could undermine private incentives for developing research tools (e.g. Dupont Oncomouse)

Dreyfuss Response to Line-Drawing Anyone can invoke research exemption so long as they relinquish all proprietary rights in results of research Anyone can invoke research exemption so long as they relinquish all proprietary rights in results of research Ex: Entity that used receptor research tool would have no right to patent drug Ex: Entity that used receptor research tool would have no right to patent drug Would presumably publish results instead Would presumably publish results instead

University Publishes Results Re: Promising Drug Research tool owner gets no compensation Research tool owner gets no compensation Worse, publication may eliminate ability to patent drug Worse, publication may eliminate ability to patent drug If drug can not be patented, who will take it through FDA-mandated approval process? If drug can not be patented, who will take it through FDA-mandated approval process? Dreyfuss suggests buying back patent right (complex) Dreyfuss suggests buying back patent right (complex)

Research Exemption: Stage 2 (Mueller) Compulsory license for some research tools Compulsory license for some research tools If tool readily available at standard price, then not subject to compulsory license If tool readily available at standard price, then not subject to compulsory license But what if standard price is very high? But what if standard price is very high?

Madey v. Duke Makes clear that there is no exemption for non-profit universities Makes clear that there is no exemption for non-profit universities Suggests that even experimenting on patented invention might be infringement Suggests that even experimenting on patented invention might be infringement Latter assertion hard to square with idea that patents require disclosure Latter assertion hard to square with idea that patents require disclosure

Minimalist Proposals Post-Madey Experimenting on must be exempted (AIPLA) Experimenting on must be exempted (AIPLA) Government assumes liability for suits brought against federally funded researchers (National Academies) Government assumes liability for suits brought against federally funded researchers (National Academies) Norms and low damages are likely to limit suits?? Norms and low damages are likely to limit suits??

Other proposals post- Madey (Strandburg, 2004) Experimenting on is exempt Experimenting on is exempt For experimenting with, compulsory licensing after limited period of property rule regime For experimenting with, compulsory licensing after limited period of property rule regime

Difficulties with Compulsory Licensing Can government actors make valuation decisions? Can government actors make valuation decisions? But perhaps parties can bargain in the shadow of possible government action? But perhaps parties can bargain in the shadow of possible government action?

Royalty-free research exemption for federally funded research For such research, incentives to invent are not a concern For such research, incentives to invent are not a concern Proposal has some congruence with existing norms: universities reserve the right to make research uses for themselves (sometimes others) when they give commercial licenses Proposal has some congruence with existing norms: universities reserve the right to make research uses for themselves (sometimes others) when they give commercial licenses

Counter-arguments B-D sees secure patents, exclusive licensing as crucial for development by private sector B-D sees secure patents, exclusive licensing as crucial for development by private sector Research exemption may undermine development motivation of exclusive licensees Research exemption may undermine development motivation of exclusive licensees But B-D rationale does not apply to all research tools, e.g. widely enabling tools that can be the basis for downstream IPRs But B-D rationale does not apply to all research tools, e.g. widely enabling tools that can be the basis for downstream IPRs

Possible Structure of Exemption NIH has power to determine that particular publicly funded research will be subject to royalty-free research exemption for non-commercial research NIH has power to determine that particular publicly funded research will be subject to royalty-free research exemption for non-commercial research Still hard to draw boundary between commercial, non-commercial but need for accuracy is not as great Still hard to draw boundary between commercial, non-commercial but need for accuracy is not as great

Difficulties Limited in scope Limited in scope Will NIH be able to determine ex ante which projects should be subject to research exemption provision? Will NIH be able to determine ex ante which projects should be subject to research exemption provision? Will NIH become subject to political pressure, lobbying if it is given additional discretion? Will NIH become subject to political pressure, lobbying if it is given additional discretion? Will any statutory change be subject to rent-seeking? Will any statutory change be subject to rent-seeking?

Conclusion Difficult to design statutory research exemption Difficult to design statutory research exemption One of reasons it was better to have case- by-case approach/ambiguity of common law One of reasons it was better to have case- by-case approach/ambiguity of common law Post Madey, common law not an option Post Madey, common law not an option Limiting research exemption to publicly funded research may be useful Limiting research exemption to publicly funded research may be useful