PUBLISHED:August 05, 2009

Fixing innovation policy

While it is well settled that technological innovation is vital to economic growth and human welfare — central to solving problems from climate change to health care cost control — federal agencies often overlook innovation or deal with in a haphazard, contradictory manner. So say Duke Law professors Stuart Benjamin and Arti Rai in “Fixing Innovation Policy: A Structural Perspective” recently published in The George Washington Law Review and summarized in a report sponsored by the non-partisan Information Technology and Innovation Foundation (ITIF). They propose the creation of an Office of Innovation Policy (OIP) within the executive branch in order to rectify the problem.

As envisioned by Benjamin and Rai, the OIP would be given authority to analyze proposed agency action through the lens of its effect on future innovation and also to offer regulatory suggestions. The OIP’s early involvement in any agency’s rule-making process would “introduce a new, trans-agency focus on innovation while drawing upon, and feeding into, existing executive branch processes that aim to rationalize the work of disparate federal agencies,” they write in “Fixing Innovation Policy.”

The OIP would lack veto power over agency decisions and rules, but its recommendations would merit the same “hard look” that agencies are obliged to take at the good arguments made against any regulations they promulgate, says Benjamin, the Douglas B. Maggs Professor of Law and an expert in telecommunications, administrative, and First Amendment law.

“If a court asks whether an agency thought seriously about OIP input and the agency says, ‘Yes we did, but we were not persuaded for these specific reasons,’ [the agency’s decision] will probably pass muster,” he notes. “We think that with that backstop of hard-look review agencies really will take the OIP seriously. My strong expectation is that it will change agency behavior.”

The standard they propose for the OIP analysis is straightforward, adds Benjamin. “‘Do you think there are ways you can achieve your regulatory goals that will be better — or at least less harmful — for innovation?’”

“Innovation shouldn’t trump all other agency goals,” says Rai, Duke’s Elvin R. Latty Professor of Law, a leading scholar of patent law, biopharmaceutical regulation, and administrative law. “Establishing the OIP would simply be a way of forcing innovation onto the table early in the administrative process, ideally at the regulation-formulation stage, in a way that it currently isn’t.”

It is rarely in the interest of industry incumbents to push innovation, says Benjamin. “If you’re an existing player, innovation just unsettles the playing field. You already know you’ve got your chunk of the market. Why would you want to put that at risk?”

Benjamin and Rai suggest giving innovation explicit consideration in regulation because it is frequently undermined through regulation.

“It’s easy for incumbents to use particular levers of regulation to beat down start-ups when their business models are threatened,” says Rai. By way of example she points to the recent patent battle between Vonage, a start-up company working in the area of Voice over Internet Protocol technology, and various telecommunications giants. “Vonage has been hammered mercilessly by a bunch of incumbents, including AT&T, Sprint, and Verizon, with patents that are probably pretty dubious, but it simply didn’t have the money to fight them to the end,” she explains. “Vonage had to settle for a huge amount of money and that has undermined its operating position.”

“It is a case of our patent policy undermining innovation policy. And entities that don’t yet exist, by definition, can’t be at the lobbying table,” observes Benjamin. “This is something that no particular interest group pushes for because it’s in nobody’s short-term interest,” adds Rai. “The results are going to be seen in the long term, and in some cases might directly cut against the short-term interests of some players.”

Benjamin and Rai pitched their idea directly to policymakers on June 24 at an ITIF event in Washington, D.C., where they unveiled their report. Members of the capacity audience quizzed them on the operational details in their proposal — a good sign, they say. The emergence of allied proposals relating to innovation, including a complementary idea from the ITIF to establish a “National Innovation Foundation” to coordinate innovation-related funding that’s now dispersed across various agencies, indicates that support for sound innovation policy is gaining traction, says Rai.

“At least the idea that innovation is key to our long-term future has already seeped in,” she says. “In terms of any societal goal, whether we want better health for our citizens, a better environment for our citizens, or just more money for our citizens, this is the way to do it. We’re suggesting a mechanism for really making it happen.”

» Read “Fixing Innovation Policy: A Structural Perspective,” 77 The George Washington Law Review 1-88 (2008).

» Read “Structuring U.S. Innovation Policy: Creating a White House Office of Innovation Policy,” report to the Information Technology & Innovation Foundation, June 2009.