[I have expanded the first section to fill out the difference between acquiring the federal government’s right of ownership in subject inventions and the federal government giving up on having an ownership interest in subject inventions–muddling this distinction is at the heart of the cleverness of Bayh-Dole.]
If a university administrates inventions on behalf of the federal government and the federal government has no profit motive in the administration of its inventions, then the university also should administrate those inventions without a profit motive. This is a very difficult idea for most university patent administrators to wrap their minds around.
Let’s take it slowly. The federal government, in managing inventions, focuses on public welfare, not profits. The federal government needs no financial “incentive” to do the right thing, or to manage public affairs, or to put the welfare of others ahead of its own desire for money. The federal government, if it wants for money has other ways to get it. Licensing patents for profit or suing for infringement are not high on the list.
The federal government, in contracting with universities for research services, can stipulate that any inventions made with its funding be assigned to the federal government. This is simply the freedom to contract that anyone has–the government can make a condition of its funding that patentable inventions made with that funding are deliverables.
Once the government has acquired such an invention, it then may manage that invention in the public interest. Profit for itself is not one of its needs. Making the invention available for use is–dedicate the invention to the public domain (don’t file a patent application), or license the invention (if the federal government obtains a patent from itself). And if the government licenses the invention, why not license generally for anyone to use? Licensing exclusively would be indicated only if substantial private investment must be made and no one with any money is willing to share that investment with anyone else. Even then, the government might stipulate that the investor develop the invention and make it available on terms less than those that a monopoly would enjoy–reasonable pricing, for instance, or exclusively for less than the full term of the patent, or covering only those products that the investor creates and all other rights revert to the government or go non-exclusive.
Now the government may offer a university the opportunity to acquire the federal government’s interest in the inventions made with the government’s support. This is how the Institutional Patent Agreements operated. The university or other nonprofit contractor was provided with an option to acquire the government’s interest in a subject invention. The university didn’t have any clear way to obtain an interest any other way: the government paid the salaries and expenses of those doing the research, and paid the university for the use of its facilities and administration of the research funding. The university paid nothing. The university commissioned nothing. The university expected to receive nothing. All the deliverables were directed at the public or the federal government. The university had no equitable interest in any invention made with federal funding.
But the federal government clearly did have an equitable interest in inventions made with its support–not only by funding the research but also by contracting to obtain the rights to patentable inventions made with its funding. If the university acquires the government’s interest, then it does have a basis to require assignment of inventions made with federal support. But in acquiring the federal government’s interest, a university gains more than just an ordinary patent right. The university also acquires the federal government’s purpose in managing inventions–that is, a purpose lacking a profit motive, focused on public interest, not institutional self-interest.
Do you see where the institutional conflict of interest arises for a university? If a university declares that it manages the inventions it acquires to generate income for its research programs, then it operates on a profit motive and treats inventions as ordinary inventions, and can go out and sue folks for infringement or demand royalty-bearing licenses, or offer an exclusive license to someone happy to charge monopoly prices at the maximum the “market” will bear–all this, of course, being “in the public interest” according to the weird rationalization of ordinary patent management. That’s the university side.
But if the university acquires the federal government’s interest in an invention, and agrees to administer that invention on behalf of the government, then all those ordinary things are off the table, and the university must adopt the federal government’s approach to administering inventions–without a profit motive. Sure, the university might seek to recover its expenses in undertaking the administration of the invention, but other than that, the purpose of the management is to see that the invention is available, gets used, and gets developed to its full potential. Whether the university makes any money is entirely secondary. In a strange way–this is deeply strange, my friends–a university makes money beyond its costs in this activity because those it is working with want it to make money–they want the university to offer the service of administrating patents in the public interest. They want the university to advocate that it should acquire the government’s interest in these inventions. They pay more because they want to pay more. This is beyond the understanding of folks conditioned to obtain money only under threat.
The institutional conflict of interest then runs between an institutional declaration of an interest in profits from patents and an institutional commitment to the federal government to administrate subject inventions as the federal government would, only more effectively (because the university is closer to the inventors, and hires people motivated to advocate for each invention, and can better find companies willing to develop and use each invention–these were the arguments, at least).
To use the patent system without a profit motive is a distinctive use of the patent system–the patent owner must find other reasons to act.
If, on the other hand, the federal government cedes its ownership interest in inventions made with federal support and requests instead only a royalty-free non-exclusive license to such inventions, then the university might then acquire subject inventions and exploit them according to the university’s own patent policies. Then whatever institutional conflict of interest a university might have runs between its claim to work in the public interest and its policy claim to make money for itself. These easily conflate in the administrative mind to something sort of like (the administrative mind is happy to remain murky on the point) “any money we make is in the public interest; therefore, whatever we do with our patents is in the public interest.” The institutional conflict, however, remains between encouraging use of inventions (the “practical application” in the Kennedy patent policy through to Bayh-Dole) and making money from the exploitation of patent rights in those inventions (which money may be made without there ever being practical application).
One would think (reasonably, I know, not realistically) that a university would adopt a patent policy based serving the public interest, not its own. The desire to develop inventions might be expressed in a variety of ways–training people in the use of the inventions, building industry consortia to share costs and create standards, and recruiting foundations and donors to support further work, where government funding stops. And, of course, considering exclusive licensing when a single private company (with resources, with capability, with the desire to develop) steps forward, but only then on the condition that pricing is reasonable and exclusivity lasts only so long as needed for the licensee to recover its investment and a reasonable profit.
To get at this institutional conflict of interest, consider the distinction between using an invention and developing an invention for commercial sale. These two purposes are often miles apart. Capable users–technologists, visionaries, companies with technical resources–can use an invention without waiting for a commercial product. Their “development” of the invention means learning how to use it and adapt it to their purposes. They do not worry about the needs of a generalized customer in a target market demographic. They do not need to consider scale up of production or after-market support. They do not have to advertise, train, take returns, or worry about product liability. Development for use ignores most of the bother that development for commercial sale has to deal with.
A company that can build boats can build the boat it wants without having to wait for someone to sell it a boat–and that boat for sale may not be the boat it wants anyway, especially if the company that can build boats is really good at what it does. It might know more about boats than the folks with an invention that claims to improve boats. A lab medicine clinic that has the capability to do advanced disease assays can implement a new one from the published literature without having to wait for someone to sell it a commercial kit–which may not be as specific or effective as the clinic’s own version of the assay. A computer manufacturer with world-class engineers can implement most any algorithm that is published without the need for a commercial version of the algorithm or a license to “transfer the technology” in some legalistic way.
If no one can practice an invention without significant further development for a commercial-scale product, then there is no public interest reason to exclude such practice in any license focused on creating a commercial version of an invention. That is, even where development is required, there is still a material distinction in strategy between developing for common use (and from that common use, potentially, competing commercial versions) and licensing all rights exclusively in the hope that a product will be produced and sold to “meet the needs” of both common users and specialty users. The crux is whether common uses should ever be excluded in a university exclusive license in which the primary social (and financial) outcome depends on commercial sale of product based on the invention. The answer–for a university at least–ought to be “never.” Common uses should never be excluded in an exclusive deal for invention development that depends on sale of product. If risk capital refuses such a deal, then it is likely one is talking to the wrong risk capital. At that point, the patent–as a social means to stimulate development and use–ceases to be meaningful. University patent administrators generally do not want to contemplate such an outcome and develop their practices to preserve the value of their patents at all cost–even at the cost of public use of the inventions they claim to own.
A patent, of course, remains meaningful to university administrators as a financial weapon, but not as a social tool to stimulate innovation. As a financial weapon, a patent’s purpose is not to stimulate innovation, but to tax it. People would choose to adopt the invention, but for the demand for payment, the nasty licensing terms, the delays, the invasion into private activity. In this use as a financial weapon, a patent stimulates others to avoid and isolate the invention, to design around it, to render it obsolete and useless. The patent no longer serves any role in promoting use. Any commercial development done under an exclusive license has to work against such “market” conditions. The exclusive license itself creates an adversarial environment in which all other potential users–companies and researchers and the general public–work to undermine the opportunity created by the exclusive license. This condition makes exclusive licenses ever the more difficult to secure, as companies looking at exclusivity have to consider as well the response by industry to a deal in which there can be no independent use, no cross-licensing, no standards–by the terms of the exclusive deal.
If you don’t see any distinction between these two pathways to acquiring patent rights, then you aren’t alone. It’s easy enough to slip from an option to acquire the government’s interest in patentable inventions–an interest formed by a federal contract backed by government policy and regulation–to the government acquiescing in the university acquiring title to patent rights and doing whatever it wants with those rights, subject to some government oversight. In the first case, the university acts on behalf of the government. In the second, it acts from its own self-interest, on the sketchy premise that the self-interest of a nonprofit must necessarily be in the public interest. In the one case, the university has a right under contract–a right transferred to it from the federal government, the government’s own right, as it were. Under that right, the university does what the federal government would do, only better. In the other, the university obtains a patent right directly from inventors, clear of any government claim, to do with as the university wishes. The federal government’s job is to decide when to acquiesce and allow the university to take title (if that’s what it will do) and then leave well enough alone.
Federal funding to universities is provided primarily as grant or subvention, not as contract or procurement of work as if performed as a business with an eye for profit and competitive advantage. The university as federal contractor acts to coordinate research and make that research available, not to profit from it. At least that is one starting premise. Put it another way–in the world of patents, inventors may be expected to profit from patents–that is where patent rights vest, after all–and companies inventors work with and for may be expected to profit–that is an obvious return on the effort to make new products available under a limited monopoly. The federal government, however, has no such expectation or motive. How, then, does a university come to have a profit motive with regard to patents, when the inventions are supported by the federal government and made by inventors working at a nonprofit? How does serving the public interest transmogrify into also making money at the expense of the public?
This is the problem for people who argue that an invisible hand of self-interest guides even nonprofit universities, that as they seek their own financial benefit, they must (as if guided by the hand) find society’s best interest as well. Such an argument runs against other established social roles, such as that of the guardian or trustee or promoter of use.
The premise of federal government ownership of patents is that their management does not depend on a government profit motive. Whatever invisible hand might guide government, it does not involve making money from patents. If the federal government transfers this interest in patents to private parties, then when should those private parties adopt the administrative priorities of the federal government? Let’s say that if a party is a company, and that company is in the business of developing products in the area of the patent, then perhaps the company should be expected to keep doing just that. But if the company has no capability in developing such products, then it is not acceptable for the company to play the patent troll with a windfall from the federal government, taxing everyone who would use the invention rather than developing the invention and making it available. What’s the point in that? What “fuel of institutional interest” gets added to the “fire of genius” (to channel Lincoln) if a company simply takes control of a monopoly and exploits it against those that would otherwise do all the work? It’s one thing that an inventor be given exclusive rights that allow him (or her) to pursue development and use of an invention. I get that invisible hand bit. But how does that also become a university obtaining and exploiting a patent on the invention, not having invented anything, not having any capability to develop the invention, and not developing it)?
That argument reduces to something like, “Any private monopoly established to extract payments from anyone who might use a new invention–including the inventor herself (or himself), is a public good.” This is an argument for the presence of patent monopolies regardless of whether that monopoly exists to provide an advantage for an inventor to develop his (or her) invention. It is an argument, essentially, for an outright power to disrupt or tax innovation for private benefit. That’s the argument of a parasite, not an inventor fueled by the interest of a government grant of rights.
Now consider the situation when the party involved is a university–having not only no capability with the invention nor any means to develop the invention for commercial use (some inventions do not require such development; others do not warrant it) but also having no commercial position to consider. There are no shareholders to satisfy. There is no mandate to make money. There is no obvious reason for a university to use a patent right to make money, even as an ancillary benefit of administrating a patent right obtained because the federal government permits it. If the primary purpose of university administration of patents on inventions made with federal support is to promote use of the invention, then any money that the university receives must arise as a consequence of the primary purpose, not as a pre-condition of that purpose.
Put it simply. A university may receive money as a result of a patent license, but it cannot demand money before it will grant a license. This will twist in the brains of university patent administrators for years before it will settle. Of course, a university can demand money–universities demand money all the time for patent licenses. They argue they may do so because they hold a property right (a patent) and have the right to require whatever terms they want (short of patent misuse and violating anti-trust law). Freedom to contract and all that. But when a university obtains a patent property right under a requirement to use the property right to promote the use of the underlying property, then the money has to come afterward, not before. Otherwise, the requirement would appear to be to make money, with use becoming a secondary (and optional) side effect.
Here’s the thing. If one holds a patent right with an express requirement that it may be used only to promote the use of an invention, then one clearly cannot do many of the things that patent owners ordinarily do. One cannot sue for infringement, for instance. And therefore others don’t have to request a license. Mull that for a minute. Why would anyone then want a license? And why would they want to pay? Now you have got the key questions–and problems–and things to hide–about the federal government’s involvement in patents arising from federally supported research. There are two answers, one easy and one hard. The easy one: federally supported research expands the public domain. What companies make of the public domain is not the federal government’s problem, any more than what individuals make of their lives. It’s freedom, stupid. Life, liberty, pursuit of happiness. Companies should pursue their happiness. If they don’t want to sell research results, they will get happy doing something else. The federal government doesn’t have to rub company noses in the invention messes left by research.
The hard one: companies pay because they want the license or they want to pay, or both. A patent reflects a special form of publication, one that lays out not only the prior art but also how the invention advances over that art. Furthermore, the patent lays out a best mode of practicing the invention–something that scholarly publications often do not do. Third, the patent teaches the invention to one of ordinary skill–not just an elite communicating to elites. A well-written patent, one intended to promote use rather than set up infringement litigation, would be worth paying for, as one would pay for an article or book on a subject one wanted to know more about. Companies might even pay for a technical report written the same way–review of the prior art, description of the advance, account of the best way to practice the invention, instruction in how to do it. Skip the patent application. It may be worth pointing out that it is rare that a company teaches what it knows about a technology. It is a distinctive service of a university to provide such teaching. But most university patent administrators would not think of such a thing.
Even if a patent is a document that might teach an invention in its technological context, that might not seem particularly compelling, and really it’s not. What about companies wanting to pay–something that sounds so alien to a patent administrator used to making threats (sometimes express, often implied) to obtain payment? Think of a patent license as a subscription or membership rather than as a defense that resolves a threat to shoot. If a company takes a subscription to an invention, then the university releases its research team to help the company. Companies that take subscriptions get priority over other companies. If your company wants priority access, wants direct assistance, wants updates and technical information, control data and experimental implementations, then your company wants a membership. It takes a license. It wants the extended work to continue. It wants the research team to be available. Your company wants to pay.
For either of these things–publication and assistance–one might argue then that a patent has no particular role. True enough. But a patent does have valuable roles, if not lucrative ones. First, a patent files an invention in a national inventory, available to all. That’s something. Well written to promote use, it’s a national resource. Second, a patent recognizes significant advances and draws attention to those who have made them. That’s also something. Third, as a social device to exclude the practice of others in favor of inventor’s own efforts to advance an invention, paying a university to acquire rights and administrate an invention for access by all is a matter of preferring technology held by a trustee rather than by a free agent who may exploit patent rights with a profit motive–as any inventor might do. Fourth, having patents to contribute allows one to create commons rather than simply dedicate things to the public domain. What’s the difference? A commons has owners, lairds, while the public domain does not. A commons carries with it conditions of access, while the public domain does not. A commons may exclude those that threaten the commons–you may not take from the commons if you threaten the commons.
One might not sue for infringement, but one might sue for misappropriation (taking without permission), for breach (of contract), for interference (in business relationships), for misrepresentation (as, say, of a standard), for misattribution (failure to acknowledge sources). Or, one might put it, infringement arising from damage caused to a collective effort to develop and use an invention (or cluster of inventions). In other words, once there’s an effort to develop and use an invention, a patent can be used to prevent unfair competition–not any and all competition, but the competition that would undermine competition. I did say this was the hard answer. Unfair competition takes without adding to the collective technology base that creates opportunity for everyone. Unfair competition blocks others in the path they would take even when one’s own efforts would not take that path. Unfair competition makes others pay for one’s own benefits. The limit of tolerance for self-interest is that there remains a reasonable environment that permits access to a market by all who are qualified to be at the market. A patent can be used to shape such access, just as it can be used to deny access. The question is not which use is more profitable. The question is which patent use promotes invention use.