A New Guide to Bayh-Dole–Outline Version

Here’s an alternative guide to Bayh-Dole. There’s a whole book in here, but I’ve left out the chapter and verse documentation and the historical evidence and interviews and the like. This is not the version of Bayh-Dole you will read in university technology licensing office brochures. But how much do you believe of anything written by institutional administrators in a brochure?

The Purpose of Bayh-Dole

The purpose of the Bayh-Dole Act was and still is to enable pharmaceutical companies to gain monopoly control over discoveries in medicinal chemistry made at universities and supported by federal government grants.

An Inside Job

Bayh-Dole was an inside job within the NIH, with the help of university patent brokers, especially WARF. To give pharmaceutical companies such monopolies, the NIH and WARF had to disable PHS patent policy and the executive branch patent policy on which the PHS policy was based. They had to put their changes out of reach of the PHS. So they drafted Bayh-Dole to supersede executive branch patent policy by federal statute. Norman Latker at the NIH had someone else type the final draft of the bill to prevent it from being traced to his own typewriter.

An Arbitrary Patent Policy

Bayh-Dole replaces a uniform executive branch patent policy with an arbitrary one, making a single approach to research inventions general across all federal agencies, all forms of research contracting, all contractors (but for large companies), all industries, and all approaches to the use of patents.

Universities as a Front

Universities are used as a front because they appear to be acting in the public interest and (it was argued, against the evidence) will do a better job than the federal government in promoting the use of inventions made with federal support. Continue reading

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The bogus argument for “mixing” research funds, 5

Let’s say that companies have diverse views about patenting, as the Harbridge House report documented, and some companies might decline to participate in federal research because they can’t get title to inventions and won’t settle for a mere license. We might argue, then, that these companies might miss out on federal funding opportunities. What is the policy demand that they be included, if that means changing federal patent policy for all other companies? The one class of companies that would be willing to sue to keep others from practicing an invention appears to be the class of companies that Bayh-Dole was built to serve–to the exclusion of all the others. But that’s just the suspect arrangement, not the bogus one.

University patent brokers take this argument about what some companies in some industries might require, if they are to “participate” in federal research, and turn it into an argument that universities have a hard time if they “mix” funding from the government and from these same patent-fussy category 5B companies. Here’s the Bayh-Dole policy statement:

to promote collaboration between commercial concerns and nonprofit organizations, including universities

In the abstract, this sounds pleasant. Who is against collaboration? But really, that’s not the issue. The issue is the special special case, in which pharmaceutical firms offer to screen drug candidates discovered at universities in federal research–so long as the pharmaceutical company gets an exclusive license (=assignment) to anything interesting. That’s the “collaboration” that matters–everything else is rhetorical abstraction. The public interest to address matters of public health through university research becomes, in effect, a subsidy for pharmaceutical companies. Perhaps that is a legitimate government policy position–but then why not out and make the case for it rather than bury it in such a stultifyingly convoluted statute as Bayh-Dole? Continue reading

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The bogus argument for “mixing” research funds, 4

The origins of the argument for “mixing” government and private research funds can be found in the 1968 Harbridge House report. The report identifies six industry attitudes toward patenting, ranging from indifference to defensive positions to critical to business. The special special case selects this last attitude, taken from the pharmaceutical industry and directed at benefits to public health, and demands that it be applied to all industries. The bogus argument for mixing does much the same thing. Here are the five industry attitudes (six, really), with Harbridge House’s comment (with minor editing):

(1) Patents have no importance

When these firms obtain patents under government contracts, their sole purpose is recognition of technical competence within the company.

(2) Patents are of little value, compared with technical know-how

Using a new idea to enhance product performance is regarded as more important than assuring that the company owns the exclusive right to it.

Continue reading

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Sublicensing in Bayh-Dole

Let’s look at sublicensing of inventions made with federal support. Here’s the summary:

Contractors can distribute rights in subject inventions in advance by assignment, substitution, and subcontracting.

A contractor can grant sublicenses if it loses title to the government, provided that it did not fail to report the invention and that the sublicenses were obligated at the time of the funding agreement.

Exclusive sublicenses may be assignments, and if made under an exclusive license/assignment by a nonprofit may require federal agency approval and require flow down of the nonprofit’s standard patent rights clause.

A sublicensee–even nonexclusive–may be required to report on the use of a subject invention.

An exclusive sublicensee in a chain of exclusive licensing and exclusive sublicensing may be exposed to the effects of a march-in procedure. But since there’s never been a completed march-in procedure, this is like saying that exclusive licensees may be exposed to the shadows of flying pigs.

Any other sublicensing is a matter of negotiation, implied rights, cleverness, and leverage positions, and doesn’t have much to do with Bayh-Dole, its regulations, or the standard patent rights clause.

A licensee might circumvent sublicensing restrictions by assigning the agreement.

However, the patent property rights defined by Bayh-Dole for subject inventions run with the patents on subject inventions regardless of ownership or licensing. A subject invention is not an ordinary invention. A patent on a subject invention is not an ordinary patent.

I’ll repeat the summary at the end. Perhaps then you’ll have a new appreciation for it. Continue reading

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That special special case 6: Bayh-Dole the enabler

The Benefits of the Special Special Case

There’s a good argument that the special special case has put more money into the pharmaceutical industry than would otherwise be there. The chase for such lucrative profits has in turn attracted speculators of all sorts willing to work the regulatory system to their advantage. We might imagine an environment in which federal patent policy was indifferent in the general case to the patent bubble created in biotech/pharma. In such an imagining, alternatives to monopoly control and development of research inventions might have had greater play–attacks as it were on the monopoly operating assumptions in pharma.

Research tools in biotech may have been developed with “open innovation” strategies, as similar tools have been developed in information technology. Research tools in nanotechnology may have been more broadly shared, stimulating development rather than retarding it. And development of inventions may have involved platform development prior to commercial development–that is, shared contributions from universities and industry prior to commercial competition–allow the technology to be explored, varied, characterized, and used before companies move to commercial, competitive development. For prescription drug candidates, the clinical testing might then have been an industry-wide activity rather than each test financed by (and the fate of the candidate compound determined by) a single monopoly interest.

For that matter, a different federal patent policy might have also diminished the need for the concept of the “prescription,” with all the regulatory significance that has been attached as a result of the inability of the pharmaceutical industry to establish for itself standards for quality, safety, efficacy, training, and advertising. The present alternatives to the pharmaceutical industry is a “generic” industry that deals in legacy compounds, off patent, and a “supplements” industry that attempts to avoid the regulatory requirements for drugs by limiting health claims for compounds.

Bayh-Dole’s role is to ensure that there will be no current-time competition for the development of compounds that address public health needs. Continue reading

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That special special case 5: From invention to patent to flip

Patent System and Public Covenants

If the patent system is good as it is, and does not require a public covenant to run with inventions made in federally supported research, then why should federal policy endorse the two circumventions of patent law–that institutions somehow should own inventions, not inventors; and that institutions should issue private patents (labeled as exclusive license agreements) out of favoritism and for the money and not based on some objective standard of merit? If the patent system is to be used, then why circumvent it? Why not leave ownership with inventors until they voluntarily decide otherwise? What’s the point of pushing invention ownership to institutions when that’s not federal patent law?

There are other financial plays with patents that don’t involve making any commercial product at all. A patent can allow for speculation on the future value of an area of practice. Think of it like fantasy baseball, except rather than drafting players into a fantasy team, one drafts patents into portfolio. One can then trade from that portfolio or sell off assets, all the while keeping the patent monopoly together. One can assign a patent, for instance, for money to a new speculative investor who wants the opportunity and is willing to pay. Or one can license the patent exclusively to a company and then the company is acquired (and with it the patent rights). And once one has a patent under “exclusive license,” one can exclusively sublicense the patent–kicking the monopoly further down the road, and making money for doing it.

It’s like those bottles of wine in warehouses in Hong Kong that investors trade back and forth. The bottles never move–they just get traded. People make money, others lose money, but the wine never gets consumed. A similar thing can happen in music publishing. Someone signs up a bunch of bands to recording contracts, and then sells the portfolio (or some portion) to another music publisher, who pays based on the future value of the purchased contracts–all without anyone every producing an actual recording for sale. Same with trade on research patents. Continue reading

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That special special case 4: Making it general

The special special case was turned into a general case, the only case, the best practice case. According to this new general case, inventions generally require private risk capital to become useful. Institutions must take on the responsibility to find that risk capital, because they will do better at finding risk capital than can either the federal government or inventors. Institutions will use monopoly patent rights as incentives to recruit companies to create commercial products. Making money is fair game for both the institution and the company. Inventors are attracted to the scheme because they too will receive a share of what the institution receives–and thus it is important for the scheme that it makes money, so there is money to share with inventors, so inventors will participate. Dealing in monopoly rights also comes with the territory. If an invention isn’t developed, then the federal research investment has been wasted. If the institution represents the best possible effort to attract companies with the offer of monopoly positions, any failure to create a commercial product is a failure of risk capital or a failure of the invention–not a failure of the institution or the scheme by which the general case circumvents the patent system. This is the scheme that Bayh-Dole enables.

Let’s look then at some uses of the special special case in its general form. This is where Bayh-Dole becomes arbitrary and disastrous. Again, the special special case is that of compounds that might become prescription drugs, for which the pharmaceutical industry (including biotech backed by venture capital, aiming to sell out to the pharmaceutical industry) insists on patent monopolies. But Bayh-Dole provides cover for generalizing the special special case to all inventions, all uses of patents, all methods of commercial application.

Thus, rather than looking for places where a patent monopoly is necessary, and then limiting the scope of the monopoly only to that necessity, and even then limiting the duration of the monopoly to the time needed to develop a product and recover one’s investment with some profit (a reasonable incentive), instead patent administrators look for places where a patent monopoly is desired. Continue reading

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That special special case 3: The Kennedy patent policy

The special special case arose in the Kennedy patent policy in 1963. Look at the parameters. Here is the premise:

A. The government expends large sums for the conduct of research and development which results in a considerable number of inventions and discoveries.

The government does so by procurement contract to purchase the products of commercial firms; by procurement contract to acquire the results of work performed by contract research organizations, who freely give up all rights in exchange for research work; and by subvention, as grants-in-aid to expand scientific knowledge.

B. The inventions in scientific and technological fields resulting from work performed under government contracts constitute a valuable national resource.

Inventions are singled out and claimed as a “national resource.” That’s an interesting move. “National” can mean either “held by inventors in our nation” or “nationalized be reason of public support.” Notice as well the conflation of the three forms of research contract–to buy products, to obtain research services, and subvention. Nothing here, however, about data being a national resource, or trained scientific workers, or technical reports of work.

C. The use and practice of these inventions and discoveries should stimulate inventors, meet the needs of the government, recognize the equities of the contractor, and serve the public interest.

Four key issues to address in the policy. This summary sets up what is to follow. Continue reading

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That special special case 2: Circumventing the patent system

Here is the public policy agenda of Bayh-Dole. If one cuts through the apparatus and the happy-talk, Bayh-Dole stipulates that the patent system is to be used to create company monopolies on inventions made with private support, using private patent offices established for the purpose. Patents are to be re-issued based not on the merit of inventions (new, useful, non-obvious) but rather on the merit of the company seeking the monopoly right (plan, capability, payment). Bayh-Dole sets up a private system of patent offices that trade in re-issue of patent monopolies under a different vocabulary. Bayh-Dole uses the patent system to circumvent the purpose of the patent system.

Bayh-Dole endorses two key circumventions of the patent system. The first is that patents issue to institutions, not inventors. The second is that the institution is in it for payment, not publication of the technical details of the invention. These circumventions are both presented as virtues. It is proper and right that institutions, not inventors, obtain patents. It is proper and right for the institution, holding monopoly power, to grant the monopoly to any favored person in exchange for a share of the action.

This was the state of the patent franchise before the U.S. constitution restricted patents to inventors, based on the merit of their inventive work, in exchange for publication of the invention. A patent was any monopoly franchise created by a sovereign power as a favor, to generate income for the government, even to motivate others to produce income and so share it with the government (thus, miners of gold and silver in England paid a share of their ore to the Crown–a royalty). Bayh-Dole’s circumvention re-establishes payment as the basis for a patent monopoly, not merit. Or, rather, the merit is being able to pay. If the merit was in producing a product for public benefit, there would be no need to negotiate a royalty, would there? A nominal fee would do. $1. Continue reading

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That special special case 1: A bureaucratic urge

The special special case is special in a number of ways. That’s what makes it so special. Here’s the base form of the special case: a federally supported invention that:

(1) cannot be beneficially used except as a commercial product–DIY is not possible;

(2) requires substantial expense to develop–more than ordinary expense;

(3) is relatively cheap to copy or imitate–most anyone could do it once there’s a product;

(4) is readily ascertainable how to copy it;

and let’s add a fifth requirement:

(5) must be developed at private expense by a single entity–as an investment with an expected return based on the monopoly position.

Under these conditions, so the special case goes, a patent monopoly is essential or no company will make the required investment to produce the product–if it did, then others would step in and copy it, and the first company would not make all the profit that it otherwise would make.

The special special case is that of a prescription drug, a compound invented to prevent, mitigate, manage, heal, or cure a medical problem. If you want to think clearly about federal patent policy, the starting point to clear one’s head is to separate this special special case from everything else–even from any other special case. Until that’s done, you’ll remain in a fog of virtuous-sounding, brain numbing rhetoric. Not even patent loathing will provide the policy relief you crave. Continue reading

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