Geez, folks, figure it out. Bayh-Dole’s purpose is high drug prices.

In 1992, Howard Bremer gave a talk to a Texas technology transfer group in which he recounted his involvement in the creation of the Bayh-Dole Act. Two comments stand out. First, Bremer made it clear that the federal government had to be prevented from creating effective march-in procedures (my emphasis):

As a consequence, much greater attention was given to the regulations by a university group which built into the regulations protection against both arbitrary exemptions to the law at agency discretion and to the exercise of march-in rights.

The regulations had to have “protection against . . . to the exercise of march-in rights.” Bremer’s grammar is twisted into a knot here, and there’s no way to parse the sentence, but the sense is pretty clear whether the worry was the “arbitrary” exercise of march-in rights or whether it was simply the exercise of march-in rights. The “arbitrary” makes sense with regard to exemptions from the law, but doesn’t with regard to march-in rights. Bayh-Dole makes clear (35 USC 203) both the conditions under which a federal agency may intervene, and a patent-holding contractor’s remedy–to bring an action in federal claims court. But Bremer and his university friends added an additional layer of regulations to march-in making the procedures all but impossible to undertake. 

Of course, the biggest problem of all is that Bayh-Dole does not *require* federal agencies to take action to protect the public interest. That’s a consequence of the structure of Bayh-Dole–it does not establish a law that federal agencies and contractors must follow. Instead, it creates a law that dictates what must be in the patent clause of a federal funding agreement. Just because Bayh-Dole insists that federal agencies must use a contract that reserves for the federal government certain rights does not mean that a federal agency must enforce those rights or act on them. Thus, even with march-in reserved as a right to federal agencies, there is no requirement that any federal agency ever make a determination to march-in, nor even to collect information that would lead to such a determination–federal agencies do not have to require contractors even to file usage reports for subject inventions.

Bremer, however, makes a second claim that’s even more interesting with regard to Bayh-Dole (PL 96-517):

Because of the salutary experience with PL 96-517, as reported by the comptroller general, and responsive to continuing efforts by the university sector, a subsequent bill was passed by Congress which became PL 98-620. That law removed many of the restrictions which had been built into PL 96-517 for the purpose of political expediency and gave the universities a much freer rein in conducting technology transfer.

Those “restrictions” included limiting the term of an exclusive license–no longer than eight years–and prohibiting assignment of subject inventions to organizations that may have a conflict of interest in managing subject inventions. The “much freer rein” referred to by Bremer is essentially the ability to create private patent monopolies that ignore Bayh-Dole’s statement of policy and objective regarding competition: “use the patent system to . . . promote free competition and enterprise.” That policy requirement is still there in the law–in federal patent law–but particular “restrictions” in the law have been removed. Their removal does not somehow invalidate the policy statement at 35 USC 200, but rather simply leaves the law without specific guidance about how to construct a standard patent rights clause to achieve free competition and enterprise using the patent system. Perhaps the heads at NIST will give some thought to adding in provisions to the standard patent rights clause that provide some guidance. Clearly, there is absolutely no point for Congress to state a policy position (not merely a purpose) in federal patent law with regard to “free competition” if what they meant merely was for contractors to use patents on subject inventions any which way they wanted to.

The restrictions that were placed in Bayh-Dole regarding exclusive licenses come directly from the Kennedy and Nixon executive branch patent policies and were implemented (though in a slippery way) in the Institutional Patent Agreement program (1968-1978). When advocates for Bayh-Dole say that the law implemented the IPA program as a uniform government policy or was based on the IPA program provisions, what they mean is the original form of Bayh-Dole was this way. Once the 1984 amendments (ominous in its way) stripped the law of the restrictions on exclusive licensing (among other things), Bayh-Dole is fundamentally unlike the core of the IPA program, which has at its heart the idea that a contractor holds patent rights in conjunction with the federal agency (“principal rights”), and is expected to license non-exclusively unless it can show good reason that non-exclusive licensing hasn’t worked or won’t work.

As Bremer’s comment regarding “political expediency” implies, the restrictions in the original Bayh-Dole were there to get the law passed. Then, four years later, those restrictions are stripped out. It is impossible in four years to determine that a law regarding contracting for patent rights has had any effect whatsoever. If the first funding agreements incorporating the new patent clause were awarded in the summer of 1981, even if university scientists invented immediately upon receipt of funds and filed patent applications the next day, it would still be the summer of 1984 before most of those patents would begin to issue. There was no way that there could be any assessment of practical application of subject inventions in 1984. It was all a political game to allow university patent brokers to create patent monopolies for the benefit of pharmaceutical companies. And the purpose of those patent monopolies was to be able to charge monopoly pricing for the full term of the patent, for which universities, for their role, expected to receive on the order of 1% of net sales. For a multi-billion dollar drug with a twenty-year run, those royalties could be on the order of $500m to $1,000m. And of course, a drug becomes a multi-billion dollar asset because it is backed by a monopoly created by universities, permitted by a rogue part of federal patent law that prevents federal agencies from contracting for research in a way that would protect the public interest in discoveries supported by public funds, for projects proposed by university faculty to serve the public interest.

Instead, those projects serve the monetary interests of the pharmaceutical firms that acquire the monopolies on the discovered compounds. Not only do those firms charge monopoly prices, they can also do so for the full term of the patent. Not only do firms not have to worry about march-in regarding any product they develop, they also don’t have to worry about march-in for all the products they don’t develop. For instance, there are over 300 compounds that UCLA licensed exclusively to Medivation (now part of Pfizer). Only 1 of those compounds became Xtandi. The rest are unused and unusable by anyone but the exclusive licensee.

There is no mechanism for the public to petition the federal government to intervene. March-in is purely a matter of federal agency discretion, bounded by four cleverly obtuse rationales for marching-in, and further limited by a cumbersome to the point of unworkable set of regulatory procedures that must be followed. And even if a university or its exclusive licensee breaches the standard patent rights clause, federal agencies are not required to enforce the funding agreement. It’s just a federal contract. There’s actually no obvious way that a university can violate Bayh-Dole directly (there are less than obvious ways, that are obvious when pointed out–such as the limitation on the scope of a patent property right on a subject invention as set forth by 35 USC 200 and 201–but there’s not even a consequence for such violations of federal patent law, so who cares?).

Thus, universities routinely assign subject inventions to companies rather than limit a company’s rights to no more than an exclusive license. Many university licensing folks are in denial about this. But the way to tell is to look at the sublicensing and enforcement provisions. Only a patent owner can enforce a patent. But a great number of those university “exclusive licensees” are granted the right to sue for infringement. In a transaction that involves the granting of exclusive licenses, the right to enforce the patent means that what’s been granted is a right in the ownership of the patent, not merely a promise that the patent owner will not sue the licensee for infringement. It’s an assignment, not an exclusive license. That’s what the courts find, when they look at these deals. Again, it doesn’t matter with Bayh-Dole, because the limitation on non-profit assignments is just a matter of federal contract, and it is up to each federal agency to decide whether to insist on university compliance with the federal contract, and for assignments, federal agencies apparently don’t give a rat’s ass what universities do.

The bad news for folks barking up the Bayh-Dole tree about high drug prices is that Bayh-Dole was designed to create patent monopolies that could charge high prices for drugs. Competition–as in the IPA program’s requirement for non-exclusive licensing first and limitations on the length of any exclusive license and easy methods of intervention by federal agencies when they determined the public interest was better served by disabling a university’s control of a patent position on an invention that had been developed in a project dedicated to the public interest–might bring down both the cost of developing a drug (through collaboration prior to competing, as in standards creation and sharing of data) and hold down costs because consumers–er, patients–would have choices. There are ways to frustrate even these ideas about competition, of course.

But we don’t have to go there so long as Bayh-Dole is in place. Bayh-Dole is a do WTF you want sort of law, when it comes to the creation of private monopolies on inventions made in research projects purportedly undertaken in the public interest. Bayh-Dole forces federal agencies to use a standard patent rights clause that appears to allow universities (and others) to create any sort of monopoly they please and call that a “success”–even if the universities are successful no more often than about once in every 200 inventions. Bayh-Dole then prevents federal agencies from intervening when a private monopoly ends up exploiting the public with high prices or limited function or crappy implementation. And Bayh-Dole advocates bank on the idea that federal agencies won’t enforce the government’s side  of the funding agreement. So far, Bayh-Dole’s advocates have been right–the federal government doesn’t care.

We might premise, then, that Bayh-Dole might be left alone but for federal funding of university research directed at medical advances. For such research, federal agencies should be directed (by executive order, say, or by statute) to declare “exceptional circumstances” without having to go through all the rigmarole to do so. Then the government could take ownership of such inventions, or place restrictions on university licensing of such inventions, and we could at least see whether we could push some medical discoveries through other pathways to public benefit that don’t involve private monopolies, or if they must involve such monopolies, those monopolies are for limited times (such as, no more than eight years), and otherwise those monopolies are publicly regulated, as are, say, water district monopolies.

And if university patent brokers don’t want faculty to accept money from the federal government for work in this area, then make faculty seek funding from other sources, such as private foundations that would be happy to see private monopolies formed or pharmaceutical companies, who apparently are happy with private monopolies, or venture capital firms, who often are pleased by private monopolies when those monopolies are companies they’ve invested in. It’s just that the federal government doesn’t have to egg on such private monopolies, and faculty researchers should at least have the option whether their work is for the public or is actually for private speculators hoping for patent monopolies. Remember, for these speculators–and for the university administrators who love them–a monopoly high drug price for twenty years is the goal, the grail, heaven, the reason Bayh-Dole exists.

Kill Bayh-Dole and you kill the goose that lays golden eggs for speculators on public needs. But if you can’t kill that beast, then at least hit it with a change to the declaration of “exceptional circumstances” for medical research and change what the goose is good for.

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