Illusions of Bayh-Dole: the bathos of university practice, 1

In 2013, David Schwartz wrote an article posted at Tech Transfer Central’s “Technology Transfer University Reporter” about the “substantially manufactured” requirement in Bayh-Dole (35 USC 204). Schwartz reports advice offered by a workshop panel on handling NIH waiver requests, but his sources don’t do so well with Bayh-Dole. Here we will attempt to straighten things out.

The “substantially manufactured” requirement is part of what, by its own assertion of precedence, is the most important provision in federal patent policy. Thus, we might expect commentaries on the provision to be directed at how to build up American manufacturing capabilities when licensing exclusively, but this is not the case with the discussion presented in Schwartz’s article. Instead, the focus is on how to get that waiver and so avoid the obligation by engaging the NIH bureaucracy.

We have discussed section 204 recently. While set out as important, it turns out that the actual provision is designed to be hopelessly weak, to the point of being useless in developing American industry. At exactly those points where it might be strong, it wilts. It makes big fuss over an implausibly narrow demand on licensing behavior, and within that demand it sets out an ambiguous standard, and then authorizes federal agencies to waive the requirement at will, with necessary fussing over paperwork, while placing enforcement in the unworkable march-in provisions, where the logic of compelling non-exclusive licenses defeats the premise of the provision. Continue reading

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Illusions of Bayh-Dole: “manufactured substantially” 3

The start of this article is here.

We have looked at the first sentence of section 204 of the Bayh-Dole Act, which purports to dedicate subject inventions to American industry for manufacturing, but actually does almost nothing for American industry while making a big flourish about it. Section 204 lays out a narrow framework for requiring American manufacture of products based on subject inventions–only a limited form of exclusive license, to use or to sell, is involved, and even then, there are qualifications and ambiguities. But for all that, the whole restriction can be waived by the federal agency that funds the research if a patent owner “shows” that they tried and failed or that they decided it wasn’t worth trying. Of course, section 203 was drafted by lawyers, so they couldn’t use plain language like that. Let’s take a look at their work.

The Second Part: Waiver

Now for the major walk-back in section 204. For all that–the prohibition on exclusive licenses in the United States, with the walk-back that yes, one can grant exclusive licenses in the United States but only if the licensee agrees to an ambiguously worded tie on the domestic manufacture of products–section 204 also authorizes federal agencies to waive the requirement altogether, but to do so the agency must meet at least one of two requirements. Here’s the start of the waiver in 204:

However, in individual cases, the requirement for such an agreement may be waived by the Federal agency under whose funding agreement the invention was made

With a procedure involving “a showing”:

upon a showing by the small business firm, nonprofit organization, or assignee

Of either of two conditions. First, “we tried”:

that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or

Second, “we didn’t bother trying because”:

that under the circumstances domestic manufacture is not commercially feasible.

These conditions are remarkably odd. Continue reading

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Illusions of Bayh-Dole: “manufactured substantially” 2

The start of this article is here.

We are taking apart section 204 of the Bayh-Dole Act, the “Preference for United States manufacturing” that ends up being almost useless for its purpose. But to get there, we have to go step by step to demonstrate just how empty 204 is a gesture. I’m sorry that it takes time to work through professional-grade awfulness, but that’s in the nature of Bayh-Dole.

We are dealing with just the first sentence of the two that make up section 204. We have dealt with precedence, scope, and the fundamental restriction. Now let’s look at how section 204 puts its emphasis on licensing, and not just any licensing, but a rather useless sort of exclusive licensing.

Licensing, Not Ownership

Now consider the licensing element. There is no restriction for US manufacture on the owner of the subject invention (or on patent rights to the invention). 204 does not restrict the owner of a subject invention from using a subject invention or selling product–even exclusively, and only the march-in provisions in Bayh-Dole (35 USC 203) might require an owner of a subject invention to grant licenses–and march-in has never been used in the history of Bayh-Dole. A small business can contract with a foreign supplier for product to use and sell in the United States, and can even make that supplier exclusive, so long as the small business is doing the selling in the United States–or, more broadly, so long as the small business does not grant an exclusive license to anyone else to sell in the United States. Since Bayh-Dole was expanded to all companies by presidential executive order, everywhere I use “small company” you can understand “most any company.” Section 204’s focus on a preference for United States industry in exclusive licensing to use or sell, then, is very limited and very strange.

This general statement of prohibition in 204 makes Bayh-Dole appear to strongly support American industry and that any variation from this support is exceptional. But once the initial shape of 204 is made apparent, it is clear that 204 does very little and is easily worked around in most cases. It is a pebble thrown into a stream, but with a wonderful flourish. The stream does not change, but we are left with the memory of the flourish, not the inconsequential result. Continue reading

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Illusions of Bayh-Dole: “manufactured substantially” 1

Let me show you how empty the Bayh-Dole provision on “Preference for United States Industry” (35 USC 204) is. According to its terms, this provision is the single most important piece of federal patent policy. For convenience, here’s the provision:

Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States.

However, in individual cases, the requirement for such an agreement may be waived by the Federal agency under whose funding agreement the invention was made upon a showing by the small business firm, nonprofit organization, or assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.

I have divided it into its two sentences. We will take it apart further in a few minutes. The main points:

  • Section 204 establishes itself as the most important provision of federal patent policy.
  • Section 204 as drafted is weak, ambiguous, and easily circumvented.
  • There’s little “preference” for United States industry actually required by section 204.
  • Section 204 is used for political show and bureaucratic nonsense.

In a nutshell, section 204 reflects the characteristics of Bayh-Dole in general. Bayh-Dole exists to permit the federal government to subsidize the patent medicine industry by means of patent monopolies on publicly funded research.  Continue reading

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Illusions of Bayh-Dole: Bayh and Dole argue for unreasonable drug pricing

Here’s an article by Birch Bayh and Bob Dole published in the Topeka Capital-Journal in 2002 with the headline “Bayh, Dole: Drug price controls hurt, and weren’t intended.” In the article, the co-sponsors of Bayh-Dole aim to rebut Peter Arno and Michael Davis, who propose that Bayh-Dole supports price controls on prescription drugs made with government-supported inventions. After the usual unsupportable praise for the success of the law, we hit the nub:

The purpose of the Bayh-Dole Act was to spur the interaction between publicly funded research and privately funded medical research. Our hope was that patients would receive the benefits of innovative science sooner, and that is just what the law has done.

We have argued here at Research Enterprise that the purpose of Bayh-Dole is to push monopolies on publicly funded research to the pharmaceutical industry. In their article, Bayh and Dole admit as much. In their Senate speeches on the introduction of S. 414, which laid the foundation for Bayh-Dole, both senators called out biomedical inventions as a focus. Before that, Norman Latker, the NIH patent lawyer who surrepetitiously drafted Bayh-Dole, used the Harbridge House report’s discussion of the pharmaceutical industry’s objection to the Public Health Service’s policies on inventions as the basis to restart the Institutional Patent Agreement program, which provided an end-run around executive branch patent policies, funneling patent monopolies to pharmaceutical companies using universities and their nonprofit foundations as the cover. Bayh-Dole was conceived when the IPA program was shut down when Congressional reviews showed it was doing sweetheart deals with pharma and wasn’t doing that well even at that.  Continue reading

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Illusions of Bayh-Dole: patent blockages and incentives

In 1979, when S. 414 was introduced by Senators Bayh and Dole–later much of the language of S. 414 would form the core of the Bayh-Dole Act–Senator Bayh made the following claim:

Some 30,000 government-owned patents are piled up awaiting takers. To that extent, the national economy is not being enriched and utilization is forestalled. It is a baffling situation until one realizes that the blockage occurs largely in the government’s patent policy.

Senator Bayh’s argument here is problematic. Most of those patents, it turns out, were for inventions made by defense contractors who had declined to take ownership of the inventions. Furthermore, the patents on these inventions by the government did not need “takers.” The federal government generally did not need to grant licenses–it was indifferent to the license as a means to generate revenue, and it was not prepared to sue as infringers American citizens and companies who were using these inventions anyway. The reality was, the federal government did not “forestall” the national economy by taking up all these inventions and patenting them.

For that matter, the 30,000 patents (28,000, really) represented only a tiny portion of the total number of patents issued. Take 1978, for instance. The USPTO issued about 66,000 utility patents. The federal government received 1,225 of them–just under 2% of the total. But this 2% we are to believe, “forestalls” the national economy.

Now here’s the thing. As best I can tell from searching the USPTO data base, universities and related institutes and foundation now hold some 51,000 patents. Continue reading

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Bayh-Dole–six parts real, one part faux

Bayh-Dole is a law in six real parts and one faux part. There’s

  1. a policy part (35 USC 200, 201, 206, 210-212);
  2. requirements for contractor owned inventions (35 USC 202(a, b), 203, 204, 205);
  3. requirements for federally owned inventions (35 USC 207-09);
  4. requirements for standard patent rights clauses (35 USC 202(c));
  5. standard patent rights clauses (37 CFR 401.14(a, b), 37 CFR 401.9)
  6. implementing regulations (37 CFR 401)

Despite all this apparatus, there is also a seventh part to Bayh-Dole, the faux part. It’s the account of Bayh-Dole that’s fake and deceptive, the part that never gets implemented, complied with, never used. Faux Bayh-Dole dominates practice and dominates as well not only public accounts of Bayh-Dole but also academic articles–even ones critical of Bayh-Dole. There is significant cognitive dissonance involved in watching an academic argue that a faux practice under Bayh-Dole is the fault of Bayh-Dole and suggest some (generally silly) policy remedy. Continue reading

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Bayh-Dole’s only purpose is to exploit public suffering for profit

The Bayh-Dole Act was created to permit the pharmaceutical industry to gain patent monopolies over inventions in medicinal chemistry made with federal government support. I have been through the history. I have worked through law for a decade. I practiced for fifteen years under the standard patent license. I have listened to the shop talk of university licensing officials, having been one. I have listened to the talks at AUTM meetings and read the “guidance.” I dealt with these issues in the Stanford v Roche proceedings, helping to shape the amicus briefs that the Supreme Court followed in its decision. The outline of this conclusion is clear from the evidence.

Disregard the bluster about national competitiveness, the market failure of American innovation, or the mythic 28,000 unused government patents. Disregard the bluster about the cost to develop publicly supported inventions for public use, or that inventions available to all will be used by none, or that the government is ineffective at promoting use of the inventions it owns. Disregard the bluster about reversing a presumption of title, or implementing a uniform patent policy. Disregard the bluster that no drugs were developed from federally supported inventions before Bayh-Dole. Disregard the bluster about the wild success of Bayh-Dole. All of this bluster is demonstrable rot. Some of it is usual political posturing. Some is outright lies. Some of it is self-serving illusion. Some is theatrical hand-waving. All of it is intended to deceive.

There was and is only one purpose behind Bayh-Dole: to feed patent monopolies created with public subsidies to pharmaceutical companies who then exploit public suffering as a market using monopoly pricing on new prescription drugs.

The bluster is to rationalize this outcome, to distract from it, and to make it appear that there are public protections in place to limit any problems. To make it appear virtuous, desirable. But it is rot. Bayh-Dole is a dismal failure with regard to research progress, innovation, collaboration, competition, and public benefit. It has failed on its premise of practical application. Its side effects are even worse, blocking the use and development of many research discoveries behind incompetent or barely competent university-created patent paywalls.  Continue reading

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On Not Crossing Donner Pass

Turn anywhere in university technology transfer and you will find the “Valley of Death.” This Valley of Death, goes the argument, is the reason why it is so difficult to license patents to industry to create commercial products. There’s just not enough money (in the rhetoric, money = water, apparently, though in the Psalm, the valley is of the “shadow of death,” at least in the old King James translation, and one is accompanied by the Shepherd, who keeps one safe from evil).

There are numerous depictions of the Valley of Death. Here is an ugly simple one:

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Helge Holst’s 1963 Argument for Institutional Control of Government Inventions

In 1963, Helge Holst, an attorney for Arthur D. Little and member of the U.S. Chamber of Commerce’s National Defense Committee published a report titled “Government Patent Policy: Its Impact on Contractor Cooperation with the Government and Widespread Use of Government Sponsored Technology.” The report was republished in 1976 with other materials on patenting by a subcommittee of the House Committee on Science and Technology.

The report in its way repeats the most repeated claims about research, innovation, and government practices. It is a compendium of the vocabulary used by corporate pundits of the time–especially attorneys–to frame the discussion of government-sponsored inventions to address their interests. There’s really nothing in the report from inventors, or from the random general public, or from research scientists who might have inventors on their teams. The report is a missive of institutional concerns. We might expect as much, given the authorship. What’s lacking are statements from other angles. There appears to be little institutional representation of the interests of inventors, lab directors, members of various professions (doctors, engineers, mechanics), or members of the general public. Who is willing to make an argument for the benefit of anyone other than institutions? Perhaps that’s Research Enterprise’s role these days.

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