Orphan Business Models: Toward a New Form of Intellectual Property

Michael Abramowicz, George Washington University

Abstract

Drug companies will often have insufficient incentives to undertake clinical testing on drugs ineligible for patent protection. The Orphan Drug Act combats this by providing a limited term of exclusivity to companies willing to shepherd a drug through FDA approval. This is a form of intellectual property protection that might be applied in many contexts beyond drugs, but the literature has not previously addressed the design and potential scope of such protection. Sometimes, no company will pursue a risky business model even when experimentation with that business model would increase expected social welfare, because other companies would free-ride on information from the experiment. The Supreme Court’s recent holding in Bilski v. Kappos may provide a basis for incorporating such concerns into patent law, but targeted exclusivity rights for orphan business models may provide a better tailored solution. Such rights should be awarded to the company that agrees to the shortest exclusivity term, and a decentralized bonding mechanism can further reduce the risk of unnecessary protection. The Article identifies a number of contexts in which orphan business model protections might be offered and also considers the possibility of using exclusive rights to foster legal experimentation.