Things universities can do with patents

A patent has many uses.  A patent can be used to:

  • exclude others from using an invention the patent owner is using
  • prevent others from using an invention the patent owner is not using
  • extract payments from users or companies wanting to market products
  • leverage access to the technology of others
  • create a common platform or standard
  • create a patent pool
  • charge a higher price for a product than if there were competition
  • appear better to investors and customers
  • justify the development of a product that is expensive to create

Within these uses are all sorts of variations, too. Deter research uses of the invention that might lead to work-arounds or blocking improvements. Block access to improvements based on the invention desired by other companies for their products or operations. Cross-license to eliminate competition based on rights. Establish industry roadmaps that give advantages to the company’s investments and products. Limit other companies’ ability to compete for government contracts. Justify the development of a product that is expensive to create but easy to copy. Justify the development of a product that is easy to copy, regardless of the expense. You get the point–there are many ways in which a company can use patents.

Now consider a faculty investigator working at a university. He (or she) invents. It’s a patentable invention, at that. Of course, all those company practices are available to him (or her) as well. But what of those practices are appropriate for an inventor who is working at a university? Two stand out:

  • create a standard or standard platform
  • justify the development of a product that is easy to copy

Why just these two? Let’s compare an independent inventor and an inventor working at a university–doing work in the university, not on the side at home. We could argue that there’s no difference whatsoever–both human, both inventive, both having a will to power, both having ownership of their inventions under federal law. Are we done yet? No, not hardly. We must also consider the differences created by social context, agreements, and expectations.

A university represents itself as existing for the public good. It attracts talent to teach and conduct research and provides that talent with resources. In exchange for a nice stipend and lots of toys, faculty and those who assist them publish what they discover and teach what they think is best practice and sound knowledge. A university subordinates its own opportunities to make money or beat up its “competitor” universities to its commitment to the overall public good. Money is important, of course, but it’s not the primary goal or the proxy for an excellent university. Or that’s the theory, and in this case, that’s the expectation that gets mapped into all sorts of policies, laws, and special treatment. In turn, a university expects its faculty and their support staff to subordinate their own self-interests to the broader good (not just the good of the university, but that, too)–to create opportunities for others (students, the public–companies, even) without demanding extra pay for doing so. In this way, faculty are not employees of the university (though HR may call them that)–they are the reason a university exists, and without them, it wouldn’t be a university. It would be just a contract research organization that ran a teaching business on the side to make enough money to backfill the losses on its research contracting.

Think of faculty as explorers, asked to open up new territory, but not to claim it personally and not to fill it with land mines and not to attack the settlers who follow. Think of faculty as first responders, coming to help and expected not to then gouge or exploit the difficulties and pain that those in need of help experience. The firefighter is willing to risk his life to save the life of others, to protect the personal property of others. The pay does not begin to compensate the risk. Think of faculty as legislators of knowledge. They are asked to represent areas of knowledge, not to stake these areas out for personal gain. They should listen to their constituents, but not exploit their positions with pay to play or to be bought out by wealthy lobbies. Think of faculty as guardians. They are entrusted with the care of others, and expected not to quietly appropriate the possessions of those they care for to their own personal gain or advantage. Think of faculty as warriors, out fighting battles to protect the public from ignorance, lies, stupidity, and the unknown–and from needlessly repeating mistakes of the past. Faculty are expected not to turn on the public and threaten it or demand extra payment from it or exploit their position of trust. The soldier’s pay does not begin to compensate the risk. Even the medals for bravery are insufficient inducement to fight. Something else has to contribute to the commitment. Same for faculty. Toys, pay, and something else.

In any of these scenarios, personal interest takes a back seat to public purpose. It’s not that there is no personal interest. It’s just that we expect that interest to stay true to values, to the good of others, and not exploit a position of trust for personal gain. Call it conflict of commitment. If the moment there’s an opportunity, the faculty inventor rushes to exploit it, then there wasn’t any commitment to the public purpose over personal interest. If the argument becomes, oh but the faculty inventor’s personal interest is that commitment to the public, then there had better be something about the exploitation that benefits the public more than the inventor.

Before we get too far into this, we need to address two objections. The first involves that magical invisible hand. This objection argues that if each person pursues her (or his) self-interest, the best possible economy will develop on its own, as an emergent property of all those self-interests beating on each other. While it is entirely reasonable to argue that everyone pursuing their self-interests might result in an economy that differs from what any of them personally wants or might think they want, it’s not entirely reasonable to conclude that such an economy is one that most of them want or that is–in some rationale heaven of objectivity–better than other economies that might be possible. The alternative is not that planned economies are therefore better–planning can produce badness, too. The alternative might be that people pursuing their self-interest in the context of what they hold to be common interests might do better than those merely “in it for themselves.”

When Han Solo leaves with his reward, we think the less of him. When he returns to tip the balance of the Death-star attack, though he isn’t doing so for the money, we think much the better of him. Is that too difficult? The invisible hand would have argued that the destruction of the rebel base would, in the long run, form the better economy. The Dark Side seeks its self interest and things just magically work out. Or Mr. Solo returns because he decides doing so is in his best interest–so whatever we do, it all works out for the best, no matter our motivations. The businessman who puts melamine in powdered milk then used in infant formula that kills babies–that’s okay. It was in his self-interest. It will all work out fine. Take that a bit further and any evil today will all be for the greater good tomorrow, so long as those in power use their power however which way they might. No, something is wrong with a naive worship of the invisible hand.

Consider a second objection. This one comes by way of Ayn Rand, confused with anti-moralist arguments (like Callicles or Thrasymachus, say). In “The Virtue of Selfishness,” Rand argues for self-interest as a primary virtue. But Rand also demands that this self-interest make no compromises. That is, it is not a self-interest that aims to grub its way to the top, trading good faith for money or power. In The Fountainhead, Rand sets up multiple characters seeking power–Roark the uncompromisingly brilliant architect, Keating the architect who makes compromises to please and advance, Toohey the populist, Francon the daughter struggling to find anything that matches up to her will, Wynand the newspaper mogul who feasts on anything that will sell papers. It’s a novel, so its plot is determined by art, not history. But it is also a mirror on a reader’s choices. Who are you willing to be? Who will you commit to be? Who ought to shape the spaces in which we live? The Keatings and Tooheys sucking up to power to get the crumbs of power? Or Roarks, with a vision of something true, unwilling to compromise. Certainly Roark seeks his self-interest–but it is an odd self-interest, a committed self-interest that does not compromise on values. The self-interest that compromises also produces an economy, but it’s not the economy that’s possible, and it is not the society that’s worthy of desire.

We are working, then, on what patterns of self-interest ought we expect of those who have chosen to work at a university? Not just the faculty and staff, but also the administrators who are chosen to act for the university as an institution–or, rather, who are delegated to make the university, as an institution, act. These folks don’t have to work at a university, of course, but if they do, then they ought to feel the pressure of the expectations that come with the territory. If working at a university were no different from working for a profit-seeking corporation, then perhaps we would allow that most anything was fair with patents, so long as it was legal–no anti-trust stuff, for instance. Walton Hamilton made an interesting argument–now some seventy-five years ago–that patent law was intended for the individual, not the corporation (which hardly existed in America), and when corporations entered the mix, they abused the expectations of the patent system to their advantage, but not for the progress of the useful arts.

For instance, a corporation might create patent positions to prevent anyone from using an invention–especially if that invention posed a threat to the corporation’s core business but was outside the corporation’s own capabilities. How do patents used this way meet the Congressional mandate to promote the progress of the useful arts? Ah, it’s the invisible hand, I suppose. But really, it would seem that the basis for enforcing a patent would be that the underlying invention is being worked–diligently developed, available to the public, that sort of thing. But the U.S. patent system has no working requirement–just maintenance fees that increase over time. It’s a money thing–one can buy a pretty heavy commercial position with a patent for relatively cheap.

The question that hits at universities is whether any use of a patent is fair game. The answer for faculty inventors used to be no–either a patent was held to provide access for all on reasonable terms or was necessary to attract investment to develop an invention that otherwise would not be developed. Those were the two rationales, with bits of variation. The idea Cottrell had in starting Research Corporation was to create a foundation–a novel idea at the time–to manage these two options on behalf of faculty inventors. If a faculty inventor wanted to do anything else–troll industry for the cash, for instance, that was something best done after leaving the university.

The invention management agent system that developed around Cottrell’s idea–his was national, most of the imitations were provincial and eventually brought under the control of university administrators–was built to manage these two uses of the patent system. Any litigation that might come around had to do with protecting the efforts of the companies that were making and selling product under license–not to prevent companies from making and selling product, and certainly not to prevent other academics from using the invention in their research. There was, then, built into the independent invention agent system a public covenant that limited what the agent might do with patent rights obtained from faculty inventors.

That’s not the case now, of course, but things have changed. This is an important lesson in history. Things weren’t progressing from naive to the sophisticated approach we have today. Things were on a different course, with a different sophistication, which was dismantled by Bayh-Dole and a new naivety was started in its place. As university administrations got into the idea of licensing patents for the money–justified originally as necessary to raise money for research (these were the days before the huge ramp up in federal funding)–the idea slipped from money arising as an equitable share of commercial sales to money arising from just about anything someone willing to pay for rights might do with a patent, so long as there was some gesture toward developing the invention, at least at the start. If money was coming in, however, there was no reason to insist on development reaching the point of practical application.

Latker, one of the drafters of Bayh-Dole, went so far as to argue that a university had done its job just by licensing a patent on a subject invention. One might go further, looking at Latker’s handiwork, and argue that a university merely offering to license a patent on a subject invention eliminates one of the key march-in criteria from consideration (the other march-in criteria have to do with reasonable availability and failure to require U.S. manufacture for U.S. exclusive licenses).

Bayh-Dole is the reason we no longer have discussions about the public covenant that should run with patents on inventions arising in research conducted at universities–and that’s the broader case of what we should do about patents on inventions arising in research sponsored by the federal government at universities. Bayh-Dole is nit-picky about what a university must do when it gets ownership of an invention, but says nothing useful (at least overtly) about what a university must do with patents–gone are the requirements on term of exclusive license (originally there), gone is march-in for lack of timely practical development, gone is the burden on universities to justify continuing to hold rights exclusively. If a university’s obligation ends with licensing, then pretty much anything goes, including suing companies for not licensing, even when not licensing means that not only was the patent not necessary, but that a company went ahead and developed a product despite the patent. There is an argument that Bayh-Dole’s statement of Policy and Objective (35 USC 200) restricts the property rights in patents on subject inventions (Bayh-Dole is, after all, a part of federal patent law), but even if so, there’s still no guidance about how to manage licenses within those restricted property rights.

Between the faculty inventor, who has two options, and companies, which have many options for the use of patents, enter the broker. The original academic broker was Research Corporation. Its board included key people drawn from American industry. By getting an invention to Research Corporation, a faculty inventor put it to review by company folks. The fact that industry had a guiding hand in Research Corporation meant that rights would be offered non-exclusively or exclusively only if that’s what it took to justify a single company’s effort to develop an invention into a product after everyone else had passed on the idea. Any money after costs would go to the Smithsonian Institute to be disbursed nation-wide to support research (eventually Research Corporation did much of this research support itself).

But with the provincial research foundations–starting with WARF–the idea was that one made money for the university. The boards of these foundations might have business people on them, but not business people drawn from the leaders of American industry. They were more like “advisors” about how to do deals with industry. Money gets made and sent back to campus to be used by administrators. It’s easy to see how administrators didn’t like the idea of an invention made at their university creating an opportunity to support research at some other university. Even if a university received a share of what the inventor received to recognize any “equitable interest” the university deserved for its overt contributions to the invention’s development at the university, this amount was never enough for the administrators. Thus, the provincialism, which had its appeal–what was invented here so benefit financially only here. The IPA system played on the provincialism–a faculty inventor using federal funds was no longer able to choose a national agent to develop an invention, sharing the proceeds with faculty at all other universities. Under the IPA, university administrators decided who would benefit–and the answer was always “us” not “them.” Bayh-Dole plays on that provincialism all the more.

There was another effect of this provincialism, however, and that was to create a huge institutional conflict of interest in how patents were deployed. With a national program such as Research Corporation, a university’s administration might be detached from an interest in patent licensing income. Their role was passive with regard to profit. The main thing was that an invention got out and got used, and the patent was needed to do that, and that any income over costs (costs of Research Corporation–the university had none) would go to support research nationally. The institution’s interest, then, in making sure Research Corporation did its job was focused on practical application, not the money. The university had a role to play to protect the public’s interest–use patents to promote invention use, or you don’t deserve to have them.

You can see how just a little change introduced by WARF and copied nationally by many universities moved administrative attention from practical application as the primary focus to the money, with practical application becoming a premise to get involved, but not supplying the primary motivation for the management of patents. Folks were in it for the money, and that was okay because the money would be used in research at the university. Even blood money is okay, apparently, if one thinks one’s own blood is better than anyone else’s. That’s what moral causes can do for a rationalization. Even if an invisible hand might guide the baker toward an efficient economy, one should pause to consider what happens when the institutions that frame society dive in and pursue their self-interest rather than the public interest. Jane Jacobs called such institutions “monstrous hybrids,” mixing guardian values of honor and trust with commercial values of willing to be bought out for the right price. Michael Sandel argued that there are some things that money should not be able to buy.

We don’t like the idea of judges selling not guilty verdicts or taking orders from those in power, nor state transportation agencies making the traffic worse to get more money for their budgets, nor doctors performing unnecessary tests and surgeries to collect more fees. Why would we accept, then, universities pursuing institutional self-interest ahead of public interest? In the administrative mind (one with a rock hard conscience), the public interest *is* the institution’s best interest. And that’s a fine starting point for corruption of a university’s public mission. Peter Drucker, in Managing the Nonprofit Organization, warns about treating a nonprofit as an end in itself:

Non-profits are prone to become inward-looking. People are so convinced that they are doing the right thing, and are so committed to their cause, that they see the institution as an end in itself. But that’s a bureaucracy. Soon people in the organization no longer ask” Does it service our mission? They ask: Does it fit our rules? And that not only inhibits performance, it destroys vision and dedication. (113)

The mission of university research is public benefit arising from the use of research findings–findings that include inventions. Patents get used to service the mission, not to service the university. It’s a fine line, but even university administrators with sufficient effort can see the difference.

While at one time making money from patent licensing for research had some plausibility around it, times have changed. Now the federal government provides on the order of 70% of a university’s extramural research budget and compared to the 1950s, universities are floating in funding. All the licensing income universities get–$2.6b reported in 2015–isn’t much at all (especially after deducting patenting costs, administrative costs, and (often) a third going to inventors–one’s left with effectively more like $1.5b for research, compared to the $50b or more from other sources–we’re talking a 3% contribution (not to mention that most of that $1.5b goes to a handful of universities… the rest see a contribution that’s 1% or–for about half–negative). That is, many universities subsidize their patent licensing operations in the hope that one day in the next two or three decades there will be a “big hit” patent deal that will pay back all those losses. That’s a thin, thin hope. In the meantime, the legitimate justification for operating a patent licensing shop at a university is the public benefit arising from the use of inventions. If the purpose is money–even secretly, discussed only when administrators meet at night to drink and unwind–the patent licensing operations at many universities should be shut down. If the purpose is use that benefits the public, then “commercialization” is a side issue, something that matters only rarely, not with regard to most every report of a new invention.

The disassociation of patent licensing from public mission created by research foundations was greatly augmented with Bayh-Dole and the claim that universities owned subject inventions outright and had a mandate to “commercialize” them. Affiliated research foundations gave way to university-run licensing operations, many built on the model of Stanford and MIT–get out there and move patents as products. As one MIT licensing professional used to put it (I paraphrase)–“How many faculty inventors did you talk to today? Oh, really? Waste of time. Inventors don’t license patents.” He had a point, of course, but the idea behind it was that university administration of patents was a sales operation. Close the deals, make the money, move along. Could be. But it doesn’t have to be–and can be effective while focusing on the university’s primary mission, which isn’t to make money for itself selling patent rights. It’s also not the case that it’s okay that the primary mission of the patent licensing organization is to sell patent rights, so long as some other part of the university stays focused on the mission. At that point, we are beyond mission creep and deep into institutional conflict of interest.

The first generation of invention management organizations adopted, generally, the university public covenant with regard to inventions–license for everyone’s use or license exclusively only when needed “to call forth private risk capital” (to use the wording of Kennedy’s Statement on government patent policy). The second generation of invention management organizations quietly adopted making money for the university as the primary goal, with public benefit from commercialization as the excuse. The third generation of brokers is less overt–the speculators who back shell startups and claim that economic development is the goal, and by that they mean speculating on the future value of research claims licensed exclusively to startups. That valuation includes patent uses that would have been unacceptable to the first generation of invention management organizations, but with which patent “trolls” are perfectly at home:

  • disrupt competition from practicing an invention the company is not using
  • extract payments from users or other companies

In this third generation of invention management organization (including the internal licensing operations at many universities), it is perfectly fine to use a patent to prevent the use of an invention that would be easy to adopt and use, so that a company can exclude those users and instead extract a monopoly price for the use or for products based on the company’s exclusive rights. This use of a patent is perfectly legal from the point of view of present patent law–the patent makes the invention more valuable by preventing anyone else from making and using it. But from the point of view of encouraging practical application, this use of a patent runs opposite to a university mandate (or, later, a federal mandate) to promote the use of the invention.

Excluding others to make them pay, and splitting that income with a proxy monopolist, has nothing to do with the covenant on patent use that the public should expect of universities and of faculty. Using a patent to prevent use when that use is easy, and when there is no need to “call forth private capital” because that capital is ready without the need for the call of a patent, runs against the purpose of conducting research at a university. A university becomes nothing but a money grubber, a disrupter, a troll and deserves no special standing–not in tax treatment, not in freedom to avoid claims of infringement, not in where the federal government places its research support, not in public trust. There is nothing about “protecting the public” involved in licensing exclusively an invention that’s easy to implement and that companies are ready to do so, nor is there any public value in suing companies that implement such inventions without first seeking license–especially if a university licensing operation makes it clear that they must first find an exclusive licensee to extract rents from the industry–all the better if everyone wants the invention.

There’s a difference between the legal right to prevent use and a university’s commitment to enable use. That’s the basic conflict of interest that universities cannot manage when they slip from using the patent system to promote use of inventions to using the patent system to generate money from any use of the patent.

Consider these three uses of a patent:

  1. Use the patent to create a monopoly to get a better price for a product
  2. Use the patent to attract investment to fund the development of other products
  3. Use the patent to prevent use or drive up the cost of that use

In the first use, the patent prevents competition, which means the patent owner can charge whatever the owner chooses to charge. A high price that only the wealthy or the desperate can afford. A carefully calculated price (MBAs needed here) to maximize profits. Whatever–the price without competition can be higher than the price with competition. And without competition–for up to two decades–there’s no hurry in making improvements (other than to invent and patent them before the competition).

In the second use, the patent gets used to attract investment in a company, to create a vision of the company as inventive, as the business partner of a research university, as having a vision of holding monopolies on key technology. This use of a patent does not have much of anything to do with making and selling a product covered by the claims of the patent–it has to do with the patent itself, taken as a token for potential future dealings. The company, once it gets investment, may go off and make product that has nothing to do with the patent. And the company could just sue everyone for infringement of the patent later, regardless of whether the products it does make turn out to be successful. In this second use, the value of the patent comes from a speculation on the future of the holder of exclusive rights, not on the value of product sold under the authority of the patent.

In the third use, the patent prevents use. A company may find that use by others interferes with its business–creates competition, develops products that the company itself does not care to develop, creates improvements that might block the company’s own line of development scheduled for later. So the company uses the patent to prevent use, to reserve for itself a future opportunity. The effect of the patent, then, is to prevent use. The value of the patent is realized not in a royalty on sales of a product that benefits the public, but in the value of preventing such a product from being sold.

It’s fine to say any of these three uses are legal. It is even possible to argue that these uses are within the definition of “commercialization”–meaning something like “to derive value from the exploitation of a patent in profit-seeking settings.” But these uses are not at all what is set up in Bayh-Dole, for instance, with its focus on using the patent system to promote the practical application of subject inventions. In Bayh-Dole, the mandate is to use a patent when it promotes use of inventions made with federal support, not when it prevents use of those inventions. There’s no authority in Bayh-Dole to slip from practical application to “commercialization” and mean anything other than the development of commercial products where private capital is required or nothing will get used.

More broadly, universities would have to change their patent policies and their broader claims to public benefit arising from research discovery to make it clear that when they acquire patents, they intend to make money with them any which way they can. If that means preventing people from using inventions, so be it. If it means applauding a speculative monopolist partner for running up the price on a life-saving drug, all the better. If it means delaying the use of an invention just in spite because no one will take an exclusive license, fine and dandy. If it means trolling industry to take a share of their profits, or to force them to raise prices, because companies have adopted the invention anyway, without the need for exclusive rights, then sue their socks off. Put that in policy. Make it express. Don’t lead people down some path about public interest so that they think the university aims to create opportunities for everyone when what’s intended is that the university’s focus is on creating opportunities for clever speculative monopolists and somewhere is a buried argument that claims that the secret to public benefit arising from faculty research is that university bureaucrats exclusively seek maximum profit using patents to create opportunities for speculative monopolists to produce income however they can.

It doesn’t work. The argument fails. But it is still there. Until a university disavows in policy this argument and the practices that it rationalizes, then assume that a university avows it. I called up a major research university once over a patent on a 3d printing technique.

Can our lab use this technique, I asked?

No, came the answer.

Are you saying that you would sue us if we did?

I can’t say we wouldn’t.

The result. We worked against the use of the invention. Screw them and their technique, their patent, their apparently exclusive license which is really an assignment to a moribund startup. Screw them when it comes time to recommend speakers for a conference. Screw them when it comes time to choose collaborators on the next grant. Screw them when anyone asks if their technique is any good. Screw them when it comes time to figure out how to do something similar. Of course a National Academy of Sciences committee, in considering whether university patenting was affecting research, amazingly (incompetently? self-servingly?) couldn’t come up with anything.

If a university has any commitment to the public interest, then the deployment of patents has to be about practical application of inventions so that there’s a demonstrable public benefit on reasonable terms–not monopoly terms, but on terms that would be *reasonable* in the absence of a monopoly. The basics are these:

  1. the university’s ownership of patents is voluntary–faculty and others don’t have to assign and the university does not have to accept assignment
  2. the university’s policy announces two forms of patent use by the university, both directed at practical application
    1. default–create a commons, library, consortium, standard, or other access
    2. otherwise, offer an exclusive license when no commons forms or could form
      1. the exclusive license does not extend to making and using
      2. the exclusive license is for a limited term
      3. there is no right to sublicense unless the university has the right to license
      4. but only when private investment is necessary for practical application
  3. other management referred to an agent (startup, sponsor of research, broker)
    1. university gets a shop right
    2. university gets an equitable share of inventor’s income based on circumstances
    3. agent commits to make the invention available for practical application
    4. always a research commons
    5. no trolling industry if practical application not achieved
  4. faculty governing body may place other limits on inventor exploitation of patents
This entry was posted in Commons, IP, Policy, Social Science. Bookmark the permalink.