Institutional Theory: A Management Science Perspective to the Great Patent Debate

Nada Basir is a PhD candidate at the Schulich School of Business at York University in the area of Strategic Management and Policy.

The increased use of patents has sparked a critical debate not only at the legal level, but also across the science, management and policy literature. Whereas IP studies were once for the law academics, they have started to interrogate a vast array of disciplines. It is for this reason that calls for more interdisciplinary studies of IP, such as Graham Dutfield’s recent IPilogue piece “A plea for disciplinary disloyalty in intellectual property studies” are timely and much needed.

The management literature, although a relatively new field of research, pulls together different disciplines including economics, sociology and psychology. It is this expansive nature of management that allows it to be accepting of new perspectives from other disciplines while also being able to provide unique outlooks to bring forward to other fields. In the past, economic based management research has been used to explore a number of questions surrounding IP management including transaction costs and the role of patents in strategic alliances.

A common discussion point in both the law and management literature is the ongoing debate on the relationship between innovation and patents. On the one hand, a significant amount of research has highlighted the benefits of patents. Empirical studies have shown that patents may facilitate the creation of ideas, encourage further investment in ideas with commercial potential, and mitigate disincentives to disclose and exchange knowledge that may otherwise have remained secret. However, recent work, such as that of the European Commission, and that of the International Expert Group on Biotechnology, Innovation and Intellectual Property present a competing perspective arguing that the expansion of intellectual property rights is “privatizing” the scientific commons and limiting scientific progress.

This paradox is not apparent to just the academics. A study by the National Institute of Health (NIH) found that there was a widely-shared perception that “negotiations over the transfer of proprietary research tools present a considerable and growing obstacle to progress in biomedical research and product development”. Private biotechnology and pharmaceutical firms, and public institutes such as universities report the growing frustration with the burden of renegotiating the terms of agreements for the transfer of basic research tools needed for upstream research.

A number of industries have attempted to find cooperative means, such as the use of patent pools in the electronic and communication industry, to help resolve the difficulties posed by overlapping patent holdings. However, the biotechnology industry, which could highly benefit from cooperative strategies, has yet to come on board. While economic and legal perspectives may provide us with key arguments as to why these strategies have yet to be fully adapted, other approaches could prove to be insightful in gaining an even deeper understanding and new perspectives.

Institutional theory is one such approach that has gained a great deal of influence in recent years in economics, management science, political science, and sociology. Although it has yet to be used to understand patenting strategies, it can potentially help us understand why patent management practices differ from industry to industry. More specifically, it may provide answers to why do some practices continue even though outcomes have not been historically favourable? Institutional theory focuses on norms, values, expectations, and external limits to rationality. In short, it tells us that industry environments significantly shape how decisions are made and that firms are constrained by competitive dynamics and cultural norms. It is based on the argument that over time, normative pressures contribute to the emergence of common organizational practices over time. These organizations develop unquestioned and preconscious patterns and operating procedures that may not be useful or even efficient for the organization and can be strongly endorsed without questioning the appropriateness or rationality. What institutional factors play a role in patenting decisions in the biotechnology industry have yet to be explored. Factors such as the industries history with patents such as the influential Bayh-Dole Act or the issue of legitimacy and the role patent citations have played in attracting investors may be possible avenues to explore.

For those of us used to more economic arguments behind patenting, an institutional theory approach may sound far-fetched and somewhat fluffy.  The theory has gained its respect in the management literature and has become a dominant theory across the various management disciplines and is perhaps a step towards a cross-disciplinary approach to a cross-disciplinary problem.