A Bayh-Dole FAQ with One Question Only and Multiple Answers

Q. Has Bayh-Dole been successful?

A. Yes! It’s the legacy of important people. How can anyone call it a disaster? To do so is to smirch the reputations of decent people who have done a heroic thing with the best interests of the American public and industry at heart. Only ignorant and deviant people would call Bayh-Dole unsuccessful. Don’t you dare be one of them, or you will be called all sorts of names, too, or worse. Capiche?

A. No! Bayh-Dole states as its objective to use the patent system to promote the use of inventions made with federal support, so that benefits of that use are available to the public on reasonable terms. On this standard, Bayh-Dole has been a failure. Bayh-Dole makes it easy for people to take inventions away from their inventors, to withhold inventions from public use, and to trade on speculation that one day a patent on an invention will become valuable–doesn’t much matter how: use of the underlying invention, speculation on the value of such inventions, used to attract investment to a company that then makes something else, or suing anyone who happens to use the invention without a license. Much of this other activity is included in claims that Bayh-Dole has been successful. But as for practical application, the numbers aren’t pretty. Only 1 in 200 university inventions appears to become a commercial product. The rest are sequestered behind university ownership claims and go unlicensed or if licensed are tied up with companies that fail to develop them or simply fail. On its own terms, Bayh-Dole has failed.

A. Yes! Bayh-Dole was passed to give university administrators a financial incentive to build technology transfer offices and employ patent brokers and attorneys to seek financial returns from licensing inventions, especially exclusively. Although Bayh-Dole does not mandate university ownership of inventions or require technology licensing offices or efforts, clearly as a result of Bayh-Dole, many universities have invested in patenting and licensing activities. Many such offices lose money, but justify the expense as a public service. Given the widespread adoption of university patent licensing offices, Bayh-Dole has been a wonderful success. Ask any patent law firm doing business with a university. Ask any AUTM official. Bayh-Dole has greatly benefited the livelihoods of these folks.

A. No! A premise of Bayh-Dole was that non-federal ownership of inventions made with federal support could do a better job than the federal government in getting those inventions used by industry. Proponents of Bayh-Dole claimed there were 28,000 federal patents and fewer than 5% of these patents resulted in commercial products. Bayh-Dole proponents argued that universities and invention management organizations could do much better, where there would be dedicated advocates for inventions working closely with inventors and with industry to secure licenses that motivated industry to use and develop inventions for public benefit.

It all sounds good. Except those 28,000 federal patents were mostly ones that the contractors could have owned but chose not to, and many were for defense or space systems for which there was no domestic market, and for the 300+ biomedical patents owned by the government 23% had been commercialized–as good as any university foundation’s rate. Anyway, historically only about 5% of issued patents are ever used commercially, and moreover, the universities’ own ten-year record of attempting to license federally supported inventions indicated just under 5% of inventions became products.

The federal government generally dedicated inventions to the public domain or made them available under a non-exclusive license. By contrast, universities patent inventions and withhold them from public use, hoping to attract monopolist speculators willing to share their upside. What’s not licensed is generally unavailable for general use. In this way, universities have done much worse than the federal government, by not immediately making new discoveries and inventions available for general use. Bayh-Dole has delayed uses of new discoveries and inventions by 20 years and caused the collaborative infrastructure based on such early adoption to collapse.

A. No! Bayh-Dole’s purpose was to promote the use of inventions made with federal support. Because most university-claimed inventions go unlicensed, and many of those that are licensed go undeveloped, most university inventions are not used as anticipated. Patents, rather than being used to promote use, are used indifferently to prevent use. Bayh-Dole thus has created disincentives for industry to monitor university publications–why should they when the inventions will be behind a paywall and not available other than to a company that commits exclusively to produce commercial product? Everyone else who may just want to use the invention is excluded. Bayh-Dole has also created incentives to design around federally supported research–to make its use unnecessary or obsolete. Thus, rather than promoting the use of federally supported inventions, university patent licensing practices instead promote the disuse and irrelevance of such inventions. This is more than just the opposite of Bayh-Dole’s goal–it undermines much of the rationale for the federal government to support university research. It’s not just that university research is often disconnected from the needs industry has, but university patent management pushes industry to deepen the disconnects. In this regard, Bayh-Dole has been a disaster.

A. Yes! You won’t find this in the law, and you won’t find it in any AUTM publication, and you won’t see it in the legislative history of the law, and you won’t find it on the happy university TLO web sites, but Bayh-Dole has a clear though unstated purpose, and that is to restore the university IPA program and expand it to be government-wide to better defend the idea behind the IPA program from attacks. The IPA program, in turn, gave pharmaceutical companies access on reasonable terms to federally supported inventions that were blocked from development by ineffective and inconsistent federal policies. The idea that chemistry research might lead to medicines was one of the realizations that Vannevar Bush understood, just as he proposed that computer science would change communications and access to scientific information. Bayh-Dole created the conditions to realize Bush’s vision in the area of medicine.

Federal funding for organic chemistry, in particular, showed promise to discover whole classes of new compounds with potentially beneficial effects. Warfarin, for instance, was on compound out of a hundred that had been identified. Universities, the government, and companies rushed to identify compounds, create scores of variations on these compounds, screen the compounds for biological effects, and develop those with the best effects and fewest dangers and side effects. Government patent policies disrupted this effort, just when it showed the greatest promise. With a great deal of effort, a coalition of federal employees, university administrators, and patent brokers created a new political reality that rolled back the federal government’s unworkable policies. The result has been the rapid growth of the biotech industry and scores of new drugs and therapies benefiting millions of people worldwide and providing the funding for more research, to bear more results.

Bayh-Dole has been a roaring success. It just does not get any better than this.

A. No! See above, but there’s a different side to the account. When it became evident that chemistry might be the source of all sorts of new compounds with therapeutic effects, the federal government rushed to put money into research programs that would find these new compounds. Cures could be just around the corner. The public would benefit. Companies would step in and develop products. Choice and competition would manage prices. But it was more than a gold rush for pharmaceutical companies. It was about survival of their operating model, which was based on monopoly rights–“patent medicines.” They had to scramble not to be out-researched by the universities and government, and out-flanked by startups that could develop the same compounds, but at less cost and more quickly and without the need for such huge profits. If these new companies were allowed to prosper, and generic medicines replaced patent medicines, then the pharmaceutical companies would lose their business models and much of their profits. Shareholders would abandon them. The industry would be ceded to a new generation of players. This could not be allowed to happen.

The pharmaceutical companies hated the federal government policy of dedicating newly discovered compounds and classes of compounds to the public domain. There might be a commercial market for such compounds–taxol, for instance–but without a monopoly, no one in the pharmaceutical industry could extract the profits they were seeing on the compounds they did have monopolies on. So pharma boycotted federally supported compounds and complained about it. The Harbridge House report devotes an entire section to the idea that federal patent policy in this area has resulted in industry complaints–all true. Other sections of the same report indicate that in other areas, things appear to be quite pleasant.

So patent counsel for the NIH restarts the Institutional Patent Agreement program, and builds it out with just enough slip and noncompliance with the Kennedy patent policy that it can end run federal policy of dedication to the public domain or non-exclusive licensing. Instead, universities will own the patents with authorization to license exclusively (with some hand-waving apparatus to make it look like exclusive licensing is a last resort, when it was always the first if not only resort). In fact, under the IPA program, most university licenses were exclusive. Pharma got what it wanted–monopoly rights–at the cost of paying 0.5% to 2% royalties on sales. Not as good as free, but an acceptable devil’s bargain with universities to break government policy. Hence the lasting fixation by university licensing personnel on exclusive licenses. They are part and parcel of the demon pact made with the pharmaceutical industry.

To cover their tracks, the IPA folks tried to make the IPA program government-wide, pitching the idea that contractor ownership of patents plus monopoly licensing to industry were good for innovation in general. By generalizing the program, they would take the focus away from the specific pathway by which pharma could buy up the rights to everything of interest invented at universities with federal support. But the IPA expansion effort was blocked in the Senate, and then when it became evident that its primary purpose was to route federally supported inventions exclusively to pharma, the Secretary of HEW shut the IPA program down. Bayh-Dole emerged two years later to impose the government-wide policy as a matter of law rather than executive branch discretion, doing what the IPA program expansion failed to do–give pharma monopoly access to federally supported research, with virtually no limitations on the commercial behaviors that followed–no limits on the term of exclusive licenses (after the 1984 amendments), no price limitations, no competition, no penalties for nonuse. And to distract everyone from these practices by claiming that such efforts applied to all inventions and all industries–even in industries in which such monopolies were seen as antagonistic to profitable positions and innovation.

A. No! Bayh-Dole has created a new class of patent monopoly. The purpose of the U.S. patent system is to promote the progress of the useful arts. The patent system does this by trading publication of new inventions by inventors for a monopoly for a limited time in which an inventor can exclude others from practicing an invention. The patent system, then, is a publication system that offers an incentive for people who would otherwise not reveal the secrets of their craft and experimentation.

But university researchers already have motivation to publish. For them, the patent system is superfluous and expensive compared to other means of disclosing discoveries–teaching, demonstration, scholarly conference, academic publication, consulting with industry. Bayh-Dole creates incentives that work against incentives that already exist. In that it produces perverse incentives that undermine existing commitments and create new objects of potential desire, such as disrupting research competitors and seeking payment in exchange for releasing rights to use an invention or discovery.

Faculty members and inventors are not the ones most motivated by Bayh-Dole’s perverse incentives–that would be university administrators and speculators seeking to get themselves between university administrators and potential users of inventions. These folks have realized a great opportunity to build out their own demon bargain, to raise the price that companies and eventually the public must pay to gain access to federally funded research results. The upshot–higher prices, less competition, lots of nonuse, and a diminishing of the value of publication and teaching. Why bother teaching what someone can’t use without paying for a patent license that isn’t generally available anyway?

A. No! Instead of patents issuing to inventors, who then might be motivated to act on their discoveries, Bayh-Dole creates the illusion that patents should be taken immediately from inventors and managed by institutions. The institutions, in effect, act as a second tier of patent offices, re-issuing the patents to almost anyone other than inventors, and on whatever terms they choose. By using exclusive licenses (often, these are assignments but mislabeled to avoid concerns about non-compliance with Bayh-Dole), the institutions preserve the patent monopoly, but in reissuing the patents they add their own sets of requirements that otherwise are not part of the federal patent system and are not the ones that executive branch patent policy endorsed as a matter of public interest. While Bayh-Dole may have made federal patent policy uniform (or arbitrary), it did nothing for the terms under which universities (many of the instruments of state government) re-issued the patents.

There is no uniform practice for such patent re-issue, even if the terms of agreements are similar from institution to institution. Payment requirements, matters of litigation, sublicensing rights, dispute resolution, venue, and the like–all may vary and be incompatible from one agreement to the next. In one university, an agreement could not be used twice to license different inventions to the same company because the first agreement represented an exception to policy and to repeat that same exception a second time would amount to changing the policy. The second agreement could have a different exception to policy, but could not rely on the first exception to policy. Try to live with that mindset, and now repeat it across a hundred universities.

This is the darkened world of Bayh-Dole. Sauron looks out over the steaming wrack of Mordor and thinks it looks pretty good, given that everywhere reflects submission to his power and nothing grows on its own free will but for its being summoned to a greater purpose in the service of a controlling power. Yeah. Bayh-Dole has been a success if you’re Sauron. It’s more than a failure otherwise–it’s the evil that would destroy discovery in favor of institutional control. Bayh-Dole is a law for a Moloch state. It restores to states the granting of patent rights by taking rights from inventors and handing those rights to whatever favorite company or speculator shows up offering money.

Where the federal patent system was developed to reward publication, forgo federal government financial interest in the use of patents, and to offer monopoly rights only to inventors of new and useful things, Bayh-Dole re-establishes a state and private monopoly system that focuses on money and favorites, is wildly inconsistent, and has a particular emphasis on disenfranchising inventors and investigators from the results of their work. Bayh-Dole creates a private, shadow patent system, one that operates without federal oversight, public accountability, and without regard for the objectives of either researchers or inventors. Bayh-Dole reflects all the abuses of monopolies that led to banning the government use of patents but for inventions, and for inventors. Bayh-Dole undoes these public policies. It is the equivalent of re-infecting a population with a serious disease that took a generation to eliminate. In this sense, Bayh-Dole has the appearance of an epidemic. Morticians and grave diggers–and folks offering “patent” medicine in the form of “technology licensing offices”–may rejoice.



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