More Discussion of “Reasonable Terms” Nonsense

Or, why certain Bayh-Dole pundits are wrong and how federal march-in might be something that companies might really want!

There is absolutely no way that “reasonable terms” as a standard for march-in means “licensing terms” and does not concern “price.”

In Bayh-Dole, the standard for march-in under 35 USC 203(a)(1) is a determination that a contractor has not achieved practical application and is not expected to do so. Practical application is, essentially, use of a subject invention so that the benefits of that use are available to the public on reasonable terms.

This has nothing to do with licensing terms unless the licensing is to the public, such as a royalty-free non-exclusive license available to anyone, resulting in public use.

Exclusive licensing by a university to a company has nothing to do with practical application. A license is not an “effective step” toward practical application. It doesn’t even change who is on the hook to achieve practical application. An assignment of the subject invention does change who is on the hook–but starts the effective steps issue all over again.

Offering terms that are claimed to be “reasonable” for a license also has nothing to do with practical application. Offering license terms cannot possibly even be considered taking an “effective step” to achieve practical application. Continue reading

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Department of Education Open Licensing and Bayh-Dole Goofiness

We have looked at fresh worthlessness of Bayh-Dole march-in in the context of Bayh-Dole’s defaults on required background invention licensing when a contractor licenses a foreground subject invention. We noted that 35 USC 202(f) provides for federal agencies to include a requirement to grant licenses to background invention rights–but only, apparently, before the agency has formed a contract, any research has been done, and no inventions made and disclosed–so how would anyone know whether to include the background invention licensing requirement except where it was obvious that the work amounted to “hired to invent” for the federal government’s use and the government should not have to pay royalties on the background rights as well as to fund the inventive research work to get what it needs.

Thus, in most cases the background invention right requirement should be in the default patent rights clause. But it is not. We have to assume that’s by design. As a result, any march-in action that involves contractor background invention rights is doomed to failure. And contractors are free to deal in subject inventions for the money without bothering with practical application–wait for people to use the invention, and then sue them. Why be proactive about it when one can play the pig?

Let’s look at one example of how federal agencies refuse to use the government and public interest rights available in Bayh-Dole. Continue reading

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Contractor Background Rights and March-in

Bayh-Dole’s march-in provisions (35 USC 203) are worthless. They were designed to be worthless, except for creating a show of public oversight and intervention that allowed Bayh-Dole to get through Congress and be signed into law. Bremer bragged about how he had to step in and make sure the march-in procedures wouldn’t operate by making them so ungainly and difficult that no federal agency would dare to use them. Which is just how things have turned out. But just how worthless is march-in?

Consider background inventions. Under Bayh-Dole (35 USC 202(f)), a funding agreement cannot require a contractor to license any invention that’s not a subject invention unless that requirement has been approved by the head of the federal agency along with a written justification. Furthermore, even if a funding agreement adds such a provision, a federal agency still cannot use that provision without determining that

the use of the invention by others is necessary for the practice of a subject invention or

for the use of a work object of the funding agreement and

that such action is necessary to achieve the practical application of the subject invention or work object.

This is all so strange. Let’s work through it. Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-9

We can now–finally–oh gawd this is painful–turn to the place of “reasonable terms” in all of this mess of Bayh-Dole march-in. Simply, Bayh-Dole march in concerns itself with benefits of use available to the public on reasonable terms, not licenses that allow private use available on reasonable terms. Surprise! Bayh-Dole authorizes march in to terminate non-exclusive licenses.

In Kennedy and Nixon patent policies, the standard for march in is either:

(i) a failure to bring an invention to the point of practical application within three years from patent issuance, where practical application is defined as establishing that the invention is being “worked” and the benefits of the invention being worked are “reasonably accessible to the public.”

As an alternative, the owner of principal rights in a federally supported invention could make the invention “available for licensing royalty-free or on terms that are reasonable in the circumstances.” The terms of such licensing clearly and primarily involve the financial consideration–the price of the license

or:

(ii) a public use regulatory requirement, a health need, or a public purpose stipulated in the contract.

Here in (ii), there is no concern for practical application. It’s a policy matter, having nothing to do with what a contractor may have done with regard to producing commercial product or making benefits of an invention’s use reasonably accessible to the public. Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-8

In Bayh-Dole the march-in for health or safety needs is drafted to prevent the government from breaking up private patent monopolies on supported inventions merely because there are health or safety needs. The default public policy in Bayh-Dole is that the patent holder should be allowed to keep the exclusive right to “alleviate” those health or safety needs so long as those needs are “reasonably satisfied.”

What might it mean to “reasonably satisfy” a “health need”? On what basis might the government determine that an individual’s need has been “reasonably satisfied”? Does the individual get any say about it? Would it be that a medicine doesn’t work very well or has unwanted side effects or costs so much that the individual must be bankrupt before it can be supplied? Or are all these things just reasonable adjuncts to alleviating that health need?

Now consider a bunch of people who all have roughly the same health need–they have a cancer, say. If a medicine out there sort of helps some of them and doesn’t help others, with the usual mix of potentially awful side effects, is that a “reasonable satisfaction” of the health need? Some folks sort of benefit and others don’t. Too bad, that’s reasonable? Or are we only talking about scarcity? That if there’s plenty of product for sale relative to the “demand,” then has the need been “reasonably satisfied” regardless of the price of the product, say, or the method of delivery, or the particular formulation? Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-7

Now let’s look at Bayh-Dole’s treatment of march-in (35 USC 203(a)) and “reasonable terms”:

. . . the Federal agency . . . shall have the right . . . to require the contractor . . . to grant a . . . license . . . upon terms that are reasonable under the circumstances . . . if the Federal agency determines that such —

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

This is the failure to achieve practical application prong one of Kennedy–the paragraph (f) of the Nixon patent policy–and the only reliance on the definition of practical application in Bayh-Dole. Bayh-Dole march-in adds that the march-in must be “necessary”–as if other march-in might be simply governmental whim. The point of Kennedy march-in was that if an invention was not promptly brought to the point of practical application–with benefits reasonably accessible to the public–then the government should march-in. The failure to work an invention or to make the benefits of working the invention reasonably accessible to the public was sufficient. There was no need to add a further determination of necessity to the action. Bayh-Dole also adds the “is not expected to take” language, which further distances the march-in determination from actual practical application–no expectation that a contractor (et al.) will soon start to take effective steps. At some point, adding qualifications ends up turning a requirement into vapor. Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-6

Now let’s look at the transmogrification of the definition of practical application from Kennedy to Bayh-Dole. In doing so, we also will see how the usage of “reasonable terms” arises, along with Bayh-Dole’s introduction of “reasonably satisfies.” This gets detailed. Anyone suffering from TL;DR syndrome with regard to complicated policy will have difficulty. But the Bayh-Dole tricks are in the details. If you want the outcome only, skip to the end of this installment, where I promise you, there’s a simple statement to slurp up.

Here’s the Kennedy definition of “to the point of practical application”:

To the point of practical application–means to manufacture in the case of a composition or product, to practice in the case of a process, or to operate in the case of a machine and under such conditions as to establish that the invention is being worked and that its benefits are reasonably accessible to the public.

Nixon retains this definition unchanged. The Federal Procurement Regulations then implement the Nixon patent policy in 1975, and parse the march-in with a significant variation–the FPR treatment (1-9.107-5) makes it clear that march in can take place for either a failure to achieve practical application or for public purposes. The wording is subtly screwed up.

With respect to each Subject Invention to which the Contractor retains principal or exclusive rights, the Contractor: . . .

Agrees to grant to responsible applicants, upon request of the Government, a license on terms that are reasonable under the circumstances:

(i) Unless the Contractor, his licensee, or his assignee demonstrates to the Government that effective steps have been taken within 3 years after a patent issues on such invention to bring the invention to the point of practical application, or that the invention has been made available for licensing royalty-free or on terms that are reasonable in the circumstances, or can show cause why the principal or exclusive rights should be retained for a further period of time; or

(ii) To the extent that the invention is required for public use by governmental regulations or as may be necessary to fulfill public health, safety or welfare needs, or for other public purposes stipulated in this contract; . . . .

Let’s look at two subtleties. Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-5

We are working through the prior federal regulations in an effort to understand the “reasonable terms” requirement in Bayh-Dole’s 35 USC 203(a)(1) march-in condition. In the Kennedy executive branch patent policy, contractors had two primary routes to retain ownership of inventions made with federal support:

achieve practical application in three years from patent issuance

make the invention available non-exclusively on reasonable terms

Other than that, a contractor might “show cause” why, despite failing at 1 or 2, it should still keep ownership. “To the point of practical application” in Kennedy was defined to mean working the invention so that the benefits of use are “reasonably accessible to the public.” Thus, there are two distinct standards–practical application or non-exclusive licensing, both requiring some version of reasonable terms. But the “reasonably accessible” is directed at the public, while the “terms reasonable under the circumstances” applies to non-exclusive licensing. Exclusive licensing and assignment just kick the contractor’s obligations down the road to the contractor’s business partners. There’s no requirement in Kennedy on the terms of exclusive licensing or assignment–because these terms don’t matter to the retention of principal rights by whomever holds them. Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-4

We are working through the details of prior treatments of what becomes “reasonable terms” in Bayh-Dole’s definition of “practical application.” This definition in turn becomes the threshold for federal agency march-in under 35 USC 203(a)(1)–the first of the four march-in conditions. One of the precursors to Bayh-Dole march-in (Latker said Bayh-Dole was based on it), is the Institutional Patent Agreement program revived (by Latker) in 1968. Using the IPA, the NIH could contract with nonprofits to circumvent Public Health Service policies on inventions and feed inventions to the pharmaceutical industry packaged as patent monopolies, using nonprofits as the intermediaries. Genius, if that is what one thinks ought to be done.

The IPA master agreement asserts that the nonprofit must administrate subject inventions in the public interest, should default to non-exclusive licensing, but then walks back that default with various easily adopted excuses, and then spends a great deal of effort on laying out the requirements for exclusive licensing–much like Bayh-Dole does for the exclusive licensing of federally owned inventions (and strangely what Bayh-Dole does not do for contractor-owned inventions).

Section (e) of the IPA master agreement deals with other terms of nonprofit licensing. Section (e), too, is strange:

(e) Any license granted by the Grantee to other than the Government of the United States under any patent application or patent on a subject invention shall include adequate safeguards against unreasonable royalty and repressive practices. Royalties shall not, in any event, be in excess of normal trade practice. Such license shall also provide that all sales to the U.S. Government shall be royalty free.

Why is this provision strange? Continue reading

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Bayh-Dole Basics, 8: Reasonable Terms Comments-3

We are working through the NIH’s Institutional Patent Agreement master template to establish the context for Bayh-Dole’s use of “reasonable terms” in its definition of practical application, which in turn establishes the march-in threshold for 35 USC 203(a)(1), one of the four Bayh-Dole march-in conditions. Since Bayh-Dole is based on the Nixon executive branch patent policy, the implementing regulations for Nixon in the Federal Procurement Regulations, and the IPA, it’s worth seeing how these various instruments dealt with “reasonable terms” and affiliated gestures. Section (d) of the IPA provides the framework for when a contractor, having obtained ownership of a subject invention (the definition of subject invention is not the same as Bayh-Dole), may offer the invention under an exclusive license. In usual fashion, the IPA makes the default to be non-exclusive licensing (section (c)) and then walks it back (section (d)), leaving one with a first impression of openness and burying actual practice in a lengthy treatment of exclusive licensing.

Section (d) continues with its walk-back on the limits on exclusivity:

provided that the licensee shall use all reasonable effort to effect introduction into the commercial market as soon as practicable, consistent with sound and reasonable business practices and judgment.

We will go on a roundabout here. It’s important. The basic gesture here in the section (d) walkback is that despite exclusivity, the exclusive license should require diligence–so that the invention gets used sooner rather than later. That’s the gesture of Kennedy’s prefatory statement of policy: “The public interest in a dynamic and efficient economy requires that efforts be made to encourage the expeditious development and civilian use of these inventions.” Kennedy’s gesture is directed at defense-related inventions and recognizes the “dual use” concern of the day–since the great majority of federally held inventions at the time were indeed defense related. Why would anyone need to “encourage” development “for civilian use” other than that contractors ought to be pushed to find civilian applications for technology developed for military use–so sonar for fish finders rather than to detect submarines.

The theme repeats in the Kennedy patent policy. Continue reading

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