Dan Burk on Perverse Innovation

Innovation is the focus of IP law, but innovation is rarely viewed as an end in and of itself—rather, it is desirable because it often leads to economic growth, development, human flourishing, etc. So when might innovation not be desirable? In a new forthcoming article, Perverse Innovation, Professor Dan Burk considers innovations that are purely directed toward exploiting regulatory and legal loopholes. For example:

• Mutagenic chemical or radiation treatments have been used to circumvent the EU's limits on genetically modified crops, even though most scientists would call mutagenic crops "genetically modified" and might think they raise greater concerns than crops created through more controlled recombinant DNA techniques.
• Chrysler's PT Cruiser was created with an innovative "footprint" that allowed it to be regulated under the EPA's rules for "light trucks" rather than "passenger cars."
• Grokster was created to avoid the copyright liability that befell Napster; Aereo's "Rube Goldberg" antennae system was created to fit through a copyright loophole. (Neither attempt was ultimately successful.)

Regulatory circumvention can be concerning not only because these innovations may thwart the regulatory aims, but also because the resources directed toward these innovations might have been better spent elsewhere. Burk argues, however, that some perverse innovation "may prove to be unexpectedly beneficial," and that "[r]ather than try to close the formalist loopholes that prompt perverse innovation, which would likely become an ongoing exercise in futility, regulators might intentionally design loopholes so as to purposefully, rather than haphazardly, promote innovative responses."

Burk explains why these loopholes must be designed such that innovating is "the least costly alternative, with literal compliance, lobbying, and non-compliance following in increasing cost order," and that preventing socially wasteful innovations that serve duplicative ends is best accomplished through "some enforcement rule similar to the patent Doctrine of Equivalents." Of course, Burk acknowledges that designing such loopholes is not easy—and it may end up being as much an exercise in futility as trying to close them in the first place. But it is a tremendously important problem, and I'm glad Burk is shining light on it.