Patent disclosure requirements for gene patents create open access and incentivize better research outcomes – the alternative is companies hide data as trade secrets

However, viewed through an alternative lens—what one might call the “disclosure” lens—this contrast is less surprising and perhaps even expected. The patent system requires inventors to disclose the claimed invention. Although theoretical models of intellectual property have tended to pay relatively little attention to the disclosure requirement, in our view this is a critical contrast between Celera’s intellectual property and gene patents. For gene patent applications, the patent system’s disclosure requirement induced explicit reporting of the claimed DNA sequence in a way that enabled open access to the sequence data underlying both accepted and rejected applications for all prospective follow-on users. In contrast, as detailed above Celera’s data were disclosed in a much more restrictive way.

Both the institutional details of our context and a growing academic literature suggest that this difference in disclosure may plausibly account for the different observed effects of Celera’s intellectual property and gene patents on follow-on innovation outcomes.50 Over the time period of our study, all DNA sequences claimed in patent applications submitted to the USPTO were disclosed in the main open-access databases (e.g., GenBank) used by researchers.51 In contrast, the no-redistribution restriction on Celera’s sequenced data meant that their data were not added to the key open-access databases that were widely used by researchers. A natural hypothesis is that this lack of open disclosure led to fewer scientific researchers analyzing Celera’s data, and that this in turn led to fewer commercializable discoveries. Consistent with this hypothesis, both the theoretical work of Aghion, Dewatripont, and Stein (2008) and other sources of empirical evidence (Furman and Stern 2011, Murray et al. 2016) suggest that limiting access to research materials may discourage follow-on research. Also consistent with this hypothesis, and with our empirical results, Galasso and Schankerman (2015) find no evidence that patent invalidations—which should induce a change in licensing requirements but no change in disclosure—increase patent citations (their measure of follow-on innovation) in the technology field that includes most of our gene patents.52

Our findings provide indirect support for the idea that gene patents effectively disclose information. More precisely, our findings indirectly support the idea that gene patent applications—both accepted and rejected, over the time period of our study—effectively disclose information. One limitation of our analysis is that we cannot speak to whether the effect of a gene patent application being accepted versus rejected may have been different for patent applications filed before November 29, 2000, when rejected applications were not required to be publicly disclosed. Under that earlier regime, patent applicants had the option—if their applications were rejected—of pursuing alternative forms of intellectual property protection on their inventions. In the case of Celera, when their patent applications were rejected and not required to be disclosed, the firm chose to rely on an alternative form of intellectual property, which, taken at face value, resulted in both lower private returns and lower social returns to their research investment. That is, the lower levels of follow-on innovation on Celera’s genes suggest that both Celera and the social planner may have preferred to have granted Celera’s gene patent applications rather than rejecting them.

Importantly, this disclosure interpretation reinforces one important reason why our estimates may not generalize beyond the case of human gene patents: the USPTO’s specific (and more stringent) requirements for the disclosure of sequenced genetic data may have made the disclosure function particularly effective in our context. While the USPTO requires that all patent applicants satisfy the disclosure requirement (35 USC. §112), it is generally not in patent applicants’ interest to disclose details about their invention, as disclosure increases the risk of imitation. For example, Fromer (2009) argues that it is in patentees’ interest to disclose as little information as possible in their patent application.53 Patent attorneys, working on patentees’ behalf, arguably have a legal responsibility to minimize disclosure subject to what the USPTO requires. Roin (2005) summarizes the effects of these incentives: “the written descriptions are often drafted in ways that make them tedious or difficult for engineers to understand” (p. 2024), “… the goals of clarity and brevity take a back seat to drafting strategies meant to ensure that patents are interpreted broadly by the courts” (p. 2025). While recent survey evidence paints a somewhat more optimistic view (Ouellette, 2012, 2017),54 our basic point stands: the USPTO’s disclosure requirements for gene patents were much more stringent than is usually the case, providing an important reason why our estimates may not generalize beyond the case of human gene patents.

From a policy perspective, these findings point to a potential unintended consequence of the US Supreme Court’s rulings that human genes as well as several other types of technologies—such as business methods and diagnostic tests—are no longer eligible for patent protection. These rulings seem to be based on the idea that if these inventions are not patented, they will be placed in the public domain. However, the alternative to patent protection may instead be non-patent intellectual property that could generate worse outcomes than allowing patent protection. As a concrete example, in response to the Mayo v. Prometheus ruling which rendered many medical diagnostic methods unpatentable, the law firm Goodwin Proctor issued an “alert” arguing that the ruling called for “a renewed look at trade secret law for protection of diagnostics innovations as an alternative to patents.”55 This type of behavioral response would be critical to assessing the potential welfare implications of the US Supreme Court’s decisions on many types of technologies which have recently been declared to be unpatentable.