The University as Bayh-Dole Privateer

Why would a nation-state seek to claim ownership of inventions made by its citizens?  That is, what uses would a nation-state put its patent system to, beyond those that one might expect of an individual inventor, entrepreneur, investor, company, university, or local government?   Put another way, why does the Bayh-Dole Act insist on the use of the patent system to promote the use of federally supported inventions and discoveries?   Why not allow such inventions to enter the public domain or be dealt with by their (mostly) faculty inventors?

We might divide possible reasons into ones directed at domestic activity–innovation, prosperity, competition–and ones directed at international activity–the relationship between nations affecting military technology, trade, and economic advantage.  (In all of these, of course, there is money, fame, power, altruism, envy, and lulz but considering these will be for another time.)

A patent by its nature is a government-granted right to permit a patent owner to exclude others from practicing an invention.   In a strong form, a patent may be perpetual rather than time-limited and may allow the exclusion of all practice and equivalent practices, with a strong presumption in favor of whatever a patent owner asserts comes within the scope of the patent.  In a weak form, a patent may be for a limited time, may not prevent research or humanitarian practice of the invention, and may be subject to a working requirement that if the invention is not developed and used by the patent holder, then the patent may be challenged.   Here, of course, “strong” does not mean “better” and “weak” does not mean “poorer” forms of patent.

In the United States, the stated purpose of authorizing federal patent law is to “promote the progress of the useful arts.”   The stated purpose is not to advance the money-interests of speculators, or to allow minor state bureaucrats to exercise power and receive compensation disproportionate to their positions.  Undoubtedly, however, such interests will be present, like mosquitoes at a camp-out.  The puzzle, of course, is just how patents do promote progress in the useful arts–and what is this thing “progress” anyway, and can the useful arts “progress” without mosquitoes–er–speculators and minor bureaucrats?  This is a big puzzle with lots of good discussion, which I would rather not review here.  But I want to raise the point to set a context for some broad comments on state uses of the patent system.

Let’s take the international bit first.  A government can take an interest in military-related inventions to prevent advances in weapons systems from becoming public, or if allowed to be public to be developed into privately sold products, which then could be exported to other countries.  A government might not want such a thing to happen, if it had the means to prevent it.   Taking title to inventions is one way to limit such a thing.  But then why allow a patent to issue–a document which teaches how to make and use the invention?  Why not just hit the invention with a secrecy order and be done with it?   By filing a patent, the government chooses to allow the information pertaining to the invention to be made public but intends to use the patent as a tool to control the exploitation of the invention–its practice, and trade associated with the results of that practice.

By filing a patent, a government also avails itself of patent cooperation treaties–the government can also then file patent applications in other countries.  One wonders the response if, say, the Chinese government begins to obtain thousands of patents in the US, and comes to dominate particular areas of industry such that US companies cannot operate in the area.   One might expect that there would be revisions to domestic patent law and associated treaties to limit the ability of another government to dictate control of domestic industry.  So government interest in patents in foreign jurisdictions is not merely a matter of economics or defense, but also of diplomacy.

One rationale that has been put forward for government involvement in research outside of the military is “national competitiveness”.   The idea goes that a government can intensify research, leading to industrial innovation, by adding substantial support for research.  If the results of such government supported research merely go to the public domain, then other nations can simply “ride the coattails” of this funding and take advantage of the inventions and discoveries without ever having to share the costs of the research that has produced them.  This argument follows something of the “free rider” line of reasoning–that those sharing in a benefit ought to also pay their fair share in the effort to create the benefit in the first place.  There are other arguments, of course, as the invention at hand has to do with a cure for a disease, say, and one wonders why the benefit should be tied to payments rather than presented as an international gift to others.

One might sense, then, that as the size of a government investment in research grows, the greater is the attraction of the argument against free-rider nations.   All the more so, as a given area of inquiry creates economic activity.  Look at biotech.  In the Columbia University patent policy c. 1924, we read:

While it is the policy of the Faculty of Medicine to discourage the patenting of any medical discovery or invention, and to forbid the patenting or exploitation of such discoveries by members of the staff, the right of staff members in other divisions of the University to secure patents on their inventions is well recognized.

These days, of course, following the “biotech revolution” all university licensing offices can think about is filing patents on biomedical inventions with the hope of big bucks.   Times change, and so does the relative weight of arguments, even when those arguments apparently have not been shown to be any less valid.  Once a government is funding research, and the research results in inventions that spring a new industry, then the patent system serves as a double barrier to entry–the patent owners can prevent foreign firms from entering the domestic market, or charge them a royalty for doing so (akin, in government terms, to an import duty, but privately assessed) and patent owners can file in foreign jurisdictions and exclude companies there from developing their own market for the inventions and instead must defer, at least for a time, to the control of the patent owners from the invention’s country of origin.   This is a clever use of the patent system, no?  It might be summarized as “use of the patent system to promote the progress of one country’s useful arts ahead of that of other countries.”   By pushing the effort to do so to private hands, a government can reduce the need for diplomacy and argue that any adverse effects on another country is the result of a “free market” in innovation, supported by a “strong” international patent system.

Given that patents tend to exclude even independent development, a foreign patent not only blocks exploitation of the published invention (for a time) but also effectively disables research efforts in that country to arrive at the same result.  Thus, a massive amount of government spending on research across all conceivable areas of useful progress ought to result in a pile of patents, which if cleverly deployed internationally, should disrupt the research efforts in those other countries as well as force payments on companies based in those countries.  Such a scheme is not quite warfare, but it also one of the cruder forms of “diplomacy”–taking whatever one can, when one can, because one can.  The expected response, as Henry Kissinger points out in Diplomacy, is for weaker states to form coalitions to defend themselves, to create a balancing of power to prevent hegemony.   In the world of research, invention, and economy, the fight becomes one over innovation and trade, and while the patent system may be thought of as helping to promote progress, it also becomes the tool to stymie progress in other jurisdictions.  That is, while progress represents an advance over past practice, the economic progress of a nation-state may simply be the margin of advantage it has over other countries–advantage, unlike useful arts (such as a cure for disease), is a matter of relation not absolutes and can be had by making one’s competitors weaker as well as working to make oneself stronger.

Of course, this sort of patent scheme–claiming patents on research inventions in order to exploit other countries’ situations within their own patent regimes doesn’t much work if the other countries don’t have patent regimes with sufficient ideological force to make the country follow its own rules to its own disadvantage.  Say, China, where it is to the country’s advantage to follow Shanzhai rules rather than agreeing to stay impoverished and technologically backwards and paying out to, say, the United States just because the United States threw a lot of money at research in areas that China needs.   Of course, this was also where the United States was with regard to Europe in, say, 1790, so things do seem to come around.

From this broad perspective, the Bayh-Dole Act accomplishes three things with regard to international patent scheming:  first, it moves the scheme from the federal government to non-federal hands; second, in doing so, it allows more aggressive international filing of patent applications; third, it encourages much more liberal licensing of inventions to foreign concerns than federal agencies might be willing to do.   Bayh-Dole clearly aims to connect the federal commitment of research funding with benefits for American “labor and industry.”  In the Act itself, this translates into a requirement that inventions licensed exclusively for sale in the United States be “substantially manufactured” in the United States, unless an exception is granted.  It would appear that Bayh-Dole aims to increase private patenting of federally supported research, constraining the public domain available to countries that also have patent systems, and encourages private patent owners to file foreign patent applications to extend their economic reach into these other countries, without direct involvement of the federal government.  One might almost imagine the creation of a kind of private economic militia, or to use an archaic term, privateers.  No wonder, then, that other countries might come to believe that they need a Bayh-Dole Act, too–either to gang up on countries that sponsor research and are fool enough to leave it in the public domain or timid enough not to assert it directly, or to counter the threat they see coming from countries such as the United States, which is able to devote a tremendous amount of government money to university research.

What then of the domestic aspect of a nation’s interest in patents?  If a government intervenes in domestic patterns of research and adds not just modest additional funds but rather substantial funds, so that it comes to dominate university research (at a typical American research university, 60% to 75% of extramural funding is federal, 5% to 20% is industry, with the remainder from foundations (once the primary source of university funding), and various state and municipal governments), then in taking ownership of resulting inventions and filing patents, the government decides what will go into the public domain and what will go into what we might call the federal commons–that set of patents held by the government on behalf of the public, generally.

It is this federal commons which was the subject of the attack by advocates of Bayh-Dole.  Private entities such as the Wisconsin Alumni Research Foundation were finding it difficult to negotiate arrangements with federal agencies to keep patent rights these entities had obtained from university inventors supported by federal funds.   The problem for a federal commons, however, is not how to put patent rights back into the hands of private speculators, but rather how to deploy the underlying inventions so that the benefits of the inventions are realized for the public at large.  Companies may play an important role in this effort, but the government is as good at recognizing this as anyone else, provided that profit-seeking and exclusivity are not the primary requirements of the relationship.

The great advantage of a federal commons is that the government may act as a domestic steward of industrial innovation.  By holding a substantial bundle of rights, the government can establish standards on behalf of an industry, prevent fundamental discoveries from fragmenting into many hands, making it next to impossible for anyone to practice the full range of rights necessary for there to be an industry at all–something that happened in America at the beginnings of the aircraft industry.  Further, the government can act as a steward of competition–allowing multiple companies to develop new product, across a set of government rights, competing not on the fact of ownership, but on quality of the build, the feature list, the availability of the product, price, and after-sale support.   One might argue that where a government chooses to intervene in research directions and divert attention and talent toward the areas the government chooses to focus on, the government has something of a responsibility to balance such an intervention with a comparable gesture to markets, so that it is not merely the buddies of government that get the advantage, but that there is equal access to such inventions by everyone, on fair and non-discriminatory terms.  In this, it might be apparent that granting exclusive licenses, and especially to do so “for the money” or “to please speculators” would be seen not as a positive metric of “success” but rather the opposite–of the degradation of the value of a federal commons, if not a corruption of the use of the research funds in the first place.

Thus, if the argument of Bayh-Dole advocates is that the federal government was not granting enough exclusive licenses, patent by patent, and that the non-federal sector could do a better job of fragmenting the federal commons, and make money at it, then the argument belies a fundamentally different set of assumptions about federal research:  that the federal government provides the agenda and the money but has no responsibility, even when it dominates research, to coordinate the disposition of ownership and access for inventions that might result from government interventions.   In this way, Bayh-Dole can be seen as a compromise, that the government gives up much of its federal commons and in exchange requires various sorts of diligence on the part of non-federal holders of these same patents.  Of course, one of the great failings of Bayh-Dole has been the utter lack of concern over these diligence provisions, as limited as they are.  There has been no successful “march-in” action.  There appears to be little reporting of utilization by universities and their assignees, and what reporting there is is protected from public disclosure by Bayh-Dole–at least in the form that the government holds reported information.  There has been little by way of audits for compliance.  For instance, universities do not comply with the (f)(2) requirement at 37 CFR 401.14(a), which requires them to bring their research personnel into the funding agreements with the standing of “contractors” for the purposes of the patent rights clause.  The universities instead aim to substitute private agreements to circumvent the rights and obligations that their research personnel would then have under the terms of the patent rights clause in the federal funding agreement.

While I am no fan of state control of faculty scholarship, even in inventive forms (which often are the most important of useful forms), it is worth making the distinction between state control of inventions in the manner of steward, to ensure access for all, and state control to authorize privateers and SOTs to create a secondary betting market on the future asset value of such inventions, when placed in private hands.   Consider the steward role.  If a nation has a patent system, then it has a means of creating a private ownership position with regard to practical work that otherwise would be kept from practice only by secrecy and indifference.   Once there is an ownership position, then there can be speculation on the future worth of that position relative to others who might take an interest, or discover a necessity, in having access to the underlying invention.

In this way of thinking, a patent is a relatively cheap 20 year (used to be 17 year) bet that someone will have to take a license to the patent in order to practice.  The value of the patent then is a function of the degree of disruption it can cause later.   One doesn’t take a patent in order to develop an invention, but rather to make a bet that others will eventually–in less than 20 years–arrive at the same place, and then be desperate for a license.  In other words, the troll as a free rider that happens to luck out and arrive, by the fiction of legal rights, years ahead of those carrying all the load.  Not much in the way of “progress” about such behavior.

A government, in supporting a substantial amount of research, has then the challenge of dealing with a patent system in which private ownership claims, especially motivated by profit-seeking rather than development investment, can threaten the very industries the government hopes will arise from its intervention.   A federal commons serves as a buffer against such behaviors, allowing new work to be published, providing access to that work under government supervision, and seeking to preserve a competitive environment, or at least an environment in which the government funding does not inadvertently create sucker-punch monopolies–ones that would only exist because of the interests institutions and SOTs come to have by the assurance of continued high levels of government funding in any given area of practical work.   Thus, it is not ownership of faculty inventions by the government that is itself the big problem, but rather the failure of stable rules that makes that ownership take the form of public stewardship.  In a federal commons, one takes ownership to selectively disable ownership, and one disables that ownership so that the public has access without the need for the apparatus of contracting, payment, and obligations to, potentially, a multitude of private claims-holders of the territory covered by the federal program of research support.

Bayh-Dole, then, breaks up such government commons and allows the fragmentation of ownership across common research efforts (the government may fund scores of projects all in the same area, in need of complementary data and resources).  In doing so, Bayh-Dole also exposes university faculty to the demands of SOTs–the speculators who see in the private ownership of such patents the opportunity to extract payments from future users of the inventive technology.  As a result, university administrations have become the primary SOT brokers in the country.  The aim is not to develop inventions, but to make money from the transaction over rights in inventions.  Thus, universities do not report new products available for use, or first commercial sale, but rather patents, licenses, and money–the stuff that matters to SOTs, and as a rhetoric is used in the hope of attracting more SOTs rather than more developers.

A federal commons is a form of public domain, created because there is a patent system that should have limits when it comes to publicly supported research, especially where the government is diverting talent and expertise into government-chosen areas of study.   Bayh-Dole breaks up this commons, and in doing so, reduces the public domain in two ways.  One way is obvious, as it moves ownership claims to non-federal hands.  I use “non-federal” because ownership is not simply “private” (though it starts out that way and could stay that way).  Much of the federal funding of university research goes to public universities, which are instruments of state government, and are very much public, governmental agents.  One would expect that state governments would share in the concept of the commons, and while not necessarily dedicating state claims on faculty inventions back to the federal commons, the state governments might aim to create reciprocity so that they share the inventions in equitable forms rather than turning into tiny passive-aggressive states each holding white-knuckled to the rights that happen to have been invented in each of their jurisdictions, justified as “regional economic development.”

The second way Bayh-Dole breaks up the federal commons is less obvious.  Bayh-Dole enables an institutional profit motive in patents that otherwise would be in the federal commons.   University faculty, of all people, are self-selected to carry a lower interest in personal profit from scholarship than are others.  It is an important role for scholars to play–as it allows competition for their ideas to take place in industry and other practice settings, without anyone getting all put out about it.  In university invention, use equals success.  But Bayh-Dole leaves faculty norms exposed to predatory institutional interests, and university administrations have been particularly vulnerable.   It only takes a few changes in university patent policies to construe “public benefit” to mean “make money for the public institution” and the reason for ownership to give administrative patent brokers business dealing with SOTs on a secondary market for patents arising in research.  In a way, Bayh-Dole has damaged, if not destroyed, the faculty norm of disinterest, which is a critical component of innovation.  In its place, for three decades, advocates of Bayh-Dole have championed the idea that faculty should be focused on “technology transfer” and “commercialization,” that they should want the university to get wealthy as they get wealthy, and that they should recognize in their own presumptive initial disinterest that the university has hired people who are more greedy about wealth from patents than are the faculty in generally.   Taken to its sad extreme, university administrators talk about “changing the culture” of the university, so that there will “be more Porsches” in the parking lots because faculty have benefited from the effective exercise of institutional greed in extracting payments because the institution claimed ownership of faculty scholarship and successfully sold it off to wealthy private concerns.

In other words, Bayh-Dole gave universities the opportunity to become domestic privateers at the expense of a federal commons.  This is the clever scheme that advocates of university licensing operations believe they created in advocating for the Bayh-Dole Act.  They assert that such privateering should be equated with innovation and economic well-being, but there is little evidence for that.  It may well be, rather, that a lot of privateers counter-indicates research productivity and leads to innovation stagnation.  Too many folks betting on the game, scalping tickets, negotiating television rights, and selling souvenirs for the game to itself to be all that important.  Or, the game is only important because of the opportunities for speculation that it provides.

Other outcomes of Bayh-Dole, which we can attribute to Bayh-Dole though they are not required by Bayh-Dole are that ownership of scholarship becomes a competitive asset of institutions, not individuals.  In fact, faculty cannot practice what they have invented once they leave the university at which they invented, if the university demands ownership of the invention.  Oh, yes, the inventors can negotiate a license and pay a fee like anyone else, but that’s not the same thing as expertise and training.

The transition of an invention from faculty to institution is not merely one of title.  The ownership position, and the intent to make something into a financial asset, also changes radically from the individual to the institution.   The compulsory transfer of title from individual to institution disenfranchises the original owner, and as well those with the greatest understanding of the invention, its context, alternatives and improvements, and likely also the applications.   The institution cannot deploy the invention, but only the right to the invention.  The inventor can do both.  The institution must contract to protect the institution’s liability–a much greater risk pool than that of the individual inventor, who may take risks the institution cannot afford to consider.  The institution must consider all the ramifications of granting an exclusive license with regard to all past and future considerations, while an individual inventor has little to be of concerned about such matters.  And worse, when an institution grants an exclusive license, it forcibly limits what anyone in the institution can do in the future in that same scope of work.   The exclusive deal has to be worth more than the damage it does to individual research practice.  University administrators rarely consider such damage, if they even allow that it might exist at all.  But it does happen, like the intentionally offensive verbal turn of phrase that leaves no visible mark but changes all the goodwill one might have had in a moment.

Because universities can afford to operate as privateers, they have adopted a speculative portfolio model.  They do not see in Bayh-Dole a requirement to manage each invention that they acquire on its own merits, but rather seek a “small subset” of “winners” to pay for the “losers”.   A few big hits to rule them all.  But in this approach, the universities betray the scholarship they have claimed, along with the inventors they have claimed it from.  The “winners” don’t pay anything to the “losers”–the winners cover the university’s cost in compelling the assignment of inventions from everyone.  The “losers” get nothing–not even just compensation for the future value of their work.  The university, of course, can argue that until the university finds a way to make money from a patent, it is worthless, and therefore nothing need be paid by way of compensation for taking the property in the first place.  Clever but not very ethical attorneys can be found to argue that the payment must have been in wages, or the largesse by which the university provided the faculty inventor with an office, or space for a laboratory.  Bayh-Dole has permitted the creation of this privateer model, at the expense of university faculty, their scholarly norms of exchange and publication, and the perception of the public of the value of an independent, somewhat disinterested, creative faculty as investigators of nature and the world.

The expansion of institutional claims to ownership of inventions also has led to an increase in patents held by institutions.   For domestic markets, this is not a sign of innovation but of catastrophe, for everywhere there is an inaccessible, unworked patent, there is also a barrier to entry.  The proper metric of university patent licensing is not the number of inventions reported, or patents issued, licenses granted, or money made, but the number of unworked patents.  It is the wall that is being built that matters most.  In the privateering speculative portfolio model, the wall is a necessary consequence of the desperate search for money from licenses, and the equally desperate determination not to let anyone else prosper from faculty inventive work unless the institution shares in the deal.   Critical to it all is to prevent any individual, or any outside organization, appear to have more capability or a better sense of judgment about inventions made at the university than the university’s own administrators.  As the administrators are creative, the university has some prospect of success; and as the administrators hide behind procedures and the most banal of abstract language of “commercialization,”  the university suffocates.

It is difficult to believe that legislators in Congress anticipated such outcomes when they passed the Bayh-Dole Act.  Certainly that is not the claim made for Bayh-Dole now.  Everything one reads from the advocates is the great success in patenting and formation of university licensing offices, the huge royalties that arise (if only once every couple of decades per big university), and the public benefit that must be happening as a result of these successes.  Yet it appears that the institutional patent behaviors that Bayh-Dole has allowed and its advocates have encouraged have fundamentally undermined university scholarship, collaboration, and especially the creation of fundamental research commons in which competition is based on expertise, not ownership.

As long as there is significant government funding of university research and a robust patent system that holds that most anything can be the subject of a patent, there is going to be a problem for faculty research results.   The end of the discussion is not that faculty should own their own inventions–that is just the start of it.  In fact, faculty do own their own inventions, though many university administrators are determined that the university should own, and should profit-seek via patents.   Oddly, however, faculty do not think to own nearly as much as Bayh-Dole advocates would force on them:  they do not think of their work, often, as inventive, or if inventive in the form of priority of discovery rather than exclusion of others from practicing for twenty years.  Exclusion is not a power that many faculty willingly take up, nor is it immediately connected with the goals of their research, the advancement of their careers, or their public commitments.

To the extent that Bayh-Dole requires the use of the patent system, Bayh-Dole requires everyone to take up the ownership issue.   Prior to Bayh-Dole, the ownership issue was answered by the federal commons.  After Bayh-Dole, the ownership issue could have been a discussion between faculty investigators and their federal sponsors, on the one hand, and with their university administration, on the other.  Instead, the university administrators for the most part have aimed to prevent such discussions, taken the position of compulsory ownership, and abandoned any distinction between profit-seeking and stewardship, claiming the former as if it were a public virtue and disparaging the latter as meaningless archaic babble.  Yet it may be that commons–efficient, extensive, and voluntary–may be critical to national innovation.  If there is going to be national research, then there will have to be a national commons, if not an international commons.  The fabric of that commons has room for personal interests and benefits, and has room for host institutions such as universities to play a role, but the shared purpose–better lives through the results of investigation–has to be more important than the privateering adventures of university administrators.

University faculty have built the idea of using patents to advance the movement of research inventions into broader use.  They did so by creating institutions (such as research foundations) and by creating commons (such as the standards of the internet and open source software).  While nothing is certain, if faculty are restored their privilege of deciding the disposition of what they discover and invent, I fully expect that they will do  better than to recreate the privateer model that presently dominates institutional practice.  Perhaps they will adopt a variation on traditional knowledge, or on Shanzhai practice, creating an informal economy in technology, as they did in creating the web.  The first job is to limit the privateer model from operating as a compulsory condition of university employment, especially where federal funding is involved.  The next job is to provide forums for discussion and development to see how faculty take diverse pathways to manage inventions in the context of a robust patent system and the attractions of all the money that can distract one from primary purposes.


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