Circumventing Bayh-Dole, Fitt the Third

We have been discussing circumventions of Bayh-Dole. The first set of circumventions are decidedly un-legal but universities do them anyway. Those of the second set, done with attention to detail, are allowed by Bayh-Dole and free university patent licensing practice from the public covenant of subject inventions and most of the fussy administrative overhead of Bayh-Dole’s standard patent rights clause. Now let’s look at circumventions to the faux Bayh-Dole Act–to the practices that university patent brokers say Bayh-Dole is supposed to be used for, but which Bayh-Dole doesn’t bother to come out and authorize, so the patent brokers have to act as Speakers for the Dead, as it were, and bring into the open these unstated purposes of Bayh-Dole. You know, like Bayh-Dole is a vesting statute, that it mandates commercialization, that it exists for exclusive licenses, and that universities can use royalties for most anything they want because anything they do is “education” in some sense.

Let’s use Bayh-Dole–entirely compliantly–to do things that the faux Bayh-Dole advocates want to suppress. Let’s circumvent the circumventions!

3) circumvention by practice to upset the premises of Bayh-Dole while complying with the terms of the standard patent rights clause.

Circumventing the Circumventions

Bayh-Dole is a part of federal patent law that creates a new category of invention (the “subject” invention) and dictates how federal agencies can contract for rights in this new category of invention when they support research via funding agreements. In a way, Bayh-Dole is set up itself to be a circumvention of public policy, especially the idea that research undertaken in the public interest, at institutions with public purposes (such as universities), for which government support was justified as a grant-in-aid, or subvention rather than procurement, should be managed first and foremost in the public interest and not for the particular gain of any organization.

For nonprofits, this expectation of public policy is expressed in government grant regulations as a “property trust relationship” (2 CFR 200.316) specific to intangible property (including patent applications and patents) acquired or improved with federal support. Bayh-Dole’s statement of policy and objective (35 USC 200) makes a similar gesture, using different wording. Both provisions construct a public covenant that runs with POSI–patent on a subject invention–property rights. The public covenant places the public interest ahead of the full spectrum of advantages offered by a patent to the patent owner. The advantage is to be the public’s, with the patent owner recovering its reasonable costs of stepping in and managing the patent, and with those involved with the patent owner recovering a reasonable (but not outlandish) return on the investment of “private risk capital.” Public policy, then on POSIs, has been consistently that the patent may be a tool used by an entity acting in the public interest, but only some portions of that tool’s properties may then be used. It is not in the public interest, generally, to prevent all use of an invention, or to suppress use when that use is discovered, unless the invention underlying that use is evil and the use harms the public, not the patent owner’s financial interest, especially beyond the patent owner’s cost recovery for obtaining the patent.

This view of a public covenant is what the university patent brokers hate about Bayh-Dole. They like the idea of patent ownership, but they have worked tirelessly to remove anything in Bayh-Dole or its implementing regulations or standard patent rights clause that would restrict their use of patents, prevent them from pursuing their best financial position, hold them accountable to the government or the public, or dictate how they are to use income related to subject inventions. Here, the income use is particularly important. In the public covenant version of patent management, there need not be any income.

That’s how the federal government went about patents (and got roundly criticized for it by folks that thought that first folks should have a chance to make as much money as they could from patent positions–you know, grow fat, so you can give some fat to the poor later, perhaps, er if required in a final action beyond which no further appeal is possible). And if a non-government organization obtains licensing (or other) income related to a subject invention, how that income is used is material to an assessment of public benefit. No matter whether the organization receiving the income is nonprofit or for-profit–the issue is whether the organization has placed its own advantage (however moralized) ahead of the public’s advantage. This is the stuff that gets suppressed by Bayh-Dole’s altered secrecy provisions. Even if the federal government asked for an accounting of the use of royalties and other income from subject inventions, those reports would (arguably) be held as government secrets.

From the federal government’s public policy perspective, if the government does not need the research for a particular purpose, then the reason to provide funding to a nonprofit organization on behalf of specific research proposals put forward as being in the public interest is that, in the government’s view, the public would benefit from the research. If, however, the funding is merely to reduce the expense so that a for-profit company benefits, with the nonprofit acting as a convenient front to make the deal on its surface appear to be publicly spirited, it is not at all clear why the government should be handing out the money in the first place. If the nonprofit already had a standing arrangement to assign patent rights to a partnered for-profit, before any research had been done, then the federal government would, in funding that research, be subsidizing the interests of and taking the risk for the for-profit partner.

The circumvention of public policy worked by university administrators is to push back formalizing any exclusive commercial partnership until after the federal government has funded the research. One might argue, then, with good reason, that most university exclusive licenses (ones that rise to the form of assignment) for POSIs represent a circumvention of federal policy and undermine the reasons for the government to fund nonprofit research in the first place. If the federal money is just a big welfare check for shareholders of a for-profit, with a portion kicked back to the university patent brokers who fronted the deal, then the government has a mandate to shut down the funding to universities that do such deals.

Tangled up in all of this is the claim that the public benefits when company shareholders benefit. If you think about it at all, it becomes a cognitive illusion. If the public benefits because company shareholders benefit, then why not just give public money away directly to every company? Why use the subterfuge of making a show of funding nonprofit research? If the public benefits because some new product is on the market, explain why it is that shareholders need a public subsidy to produce it. If the benefit is that unremarkable, is it really so important that the public ensure shareholders get a profit? Is the product so important that the shareholders get the benefit of twenty years’ of monopoly pricing? And if it is really that important, why not allow anyone to make and sell the product? Why not allow anyone to use the product? And if the motivation actually involves specific products that are judged to be of public importance, why not review new inventions on that basis, and not merely on whether there’s a patentable invention that can create a monopoly position?

There’s nothing at all in the idea that the federal government should fund university research so that companies can benefit from monopoly positions on research results. The university role as broker for such monopolies is just another form of corruption, cast in the broken reasoning that the university (more so than the inventor) should be entitled to choose who should have any given monopoly on a research finding. But this corruption is the premise for Bayh-Dole: to end-run those that argued that the justification for federal funding of research hosted by universities was that the results would be broadly available, not monopolized by any given company. No doubt the very assertion that publicly funded research should be available to all on an equal basis created a value proposition for anyone willing to defy that assertion and offer monopoly access “under the table” as it were. “Hey buddy, I have to make these results available to everyone–unless I find someone willing to pay me to make the results available as a monopoly, heh.” Bayh-Dole, at least in its faux version, claims that these transactions don’t have to be under the table deals–according to faux Bayh-Dole, creating monopolies is the driving force behind technology change and social progress. Bayh-Dole is seen as rescuing potential monopolies from the fate of being made available to all, which critics of any sort of public covenant depict, against actuality, as inventions gathering dust on a shelf.

The folks that most wanted the end-run were the pharmaceutical companies and the patent brokers who were ready and willing to take inventions from faculty (who might otherwise simply publish) and license–always exclusively, always amounting to an assignment–to a pharmaceutical company. Thus, the purpose of Bayh-Dole was to circumvent public policy. Since the law was so ineptly drafted, it has been necessary to circumvent even Bayh-Dole to clear it of any “politically expedient” restrictions that gave the appearance of protecting the public interest in the form of a public covenant on inventions made with federal support.

Bayh-Dole is used, then, as a circumvention of public policy to create speculative monopolies around federally supported inventions. University administrators in their effort to make money on their patent positions are more than happy to circumvent Bayh-Dole to ensure that Bayh-Dole’s circumvention repudiates the idea of a public covenant (and that repudiation in turn repudiates the purpose for federal funding of university research–there should be no subvention, just procurement, and if procurement, then universities should have no right to own inventions made with federal support).

Consider, then, circumventions of Bayh-Dole that don’t involve non-compliance and aren’t aiming to exploit holes in Bayh-Dole, but rather disrupt the implicit narrative in Bayh-Dole that private monopoly interests should take precedence over public interests, that somehow “secret, private monopolies–an only these–will provide.” That is, use Bayh-Dole to restore public covenant practices and undermine the efforts of university administrators and patent brokers with “hardened consciences” (to use Vannervar Bush’s term for their condition) to circumvent the public covenant that runs with federally funded inventions.

How do these publicly spirited circumventions work? Bayh-Dole requires federal agencies to use standard patent terms in funding agreements for research. Nothing in those terms requires a university to take assignment of inventions made with federal support. Invention management is a lot of bother for suspect returns. Even lucrative royalties can be suspect–money and lots of it sometimes disrupts and corrupts more than it helps.

Universities use windfall patent money to expand infrastructure–build buildings and like–and then that infrastructure has to be financed on a continuing basis by competing for regular funds, pinching out other programs (and that new infrastructure didn’t compete to get where it was, it had a sugar daddy patent windfall to get there). Universities use windfall patent money as slush funds, and so the money fills in for slack management, sloppy accounting, and pet projects that otherwise wouldn’t pass review.

Universities also use windfall patent money to fund people who are more attracted to competing for money because it’s there than they are curious about the world or are intent in getting something to work. This might seem an unfair criticism. Let me put it this way. Whenever there’s a competition for money, one has to ask “is what I am doing going to be competitive for what they will fund?” And someone else, ready to compete, is asking “what can I propose that is most competitive for what they will fund?” Who do you suppose is more likely to get funding? Unlike Giotto, not everyone is willing to hold their ground when it comes to competing for money.

I call this the King Lear problem. Ageing Lear, ready to divide his kingdom, asks his daughters, “Who loves me most?” That, in essence, is the implicit question in any call for research proposals. Cordelia, the loyal daughter, rejects the question and, unlike Giotto (who was rewarded with a commission), is disinherited, Lear goes mad, nature comes apart, fools speak wisdom, and Lear realizes his error as he dies. For research, the university in King Lear mode comes apart without the stage spectacle, and the death is of the imagination, of local curiosity domesticated to the habit of begging for the money that’s the most available. (For warnings about this, see Sagan’s Contact, or Eisenhower’s farewell address). It’s actually worse for the university, with things happening silently, because it’s next to impossible to get anyone to care, especially with university administrations working to promote an glossy image that research is popping out all over with public beneficial results–or the potential for those results, or at least a lot of publications about potential, or, er, stuff that twists national rankings, or, hey! look! a squirrel!

When there’s money to be handed out for research, the problem isn’t which proposals are “most competitive”–and it’s not even a matter of how proposals are ranked–the problem lies in the who it is that is making the decision to fund. Is that decision based on something quantified by a procedure, such as “scoring” proposals? Does the decision depend on who is making the proposal (now often seen as favoritism)? Does the decision depend on a quid pro quo (I’ll fund you and you do these things for me–sometimes seen as corrupt)? Or is the decision a gut-level thing, or random, or first-come first-served? Getting at the basis for the action to fund is utterly obscured by a competitive grants program. Have all the expert reviewers you want–but if they are ranking proposals and making recommendations, they are already so far off task that it’s amazing anything new gets funded. Giotto wouldn’t get considered, because his proposal would be non-compliant. Cordelia’s proposal would be scoffed at because she rejects the premise of the funding call and is thus disqualified as non-responsive. Lots of money–but no particular thought about how to allocate it.

And sometimes universities just put the money into savings–where it turns into money for investment, which in turn means that the university ties its fortunes to market valuations, speculation in commodities, and the like, where financial boffins make really good money and the university becomes the old money capitalist aiming to buy its way into the best deals rather than actually use its money to produce anything. As Piketty argues, why get a job when it’s much better paying to marry wealth?

All this is a little essay on the idea that universities might be way better off saying no to Bayh-Dole. The minimum is easy to do. Educate inventors on the importance of timely invention reporting. Have them sign the (f)(2) written agreement. Send invention reports off to the feds with a note saying that the university won’t elect to retain title because it doesn’t have title. Then it’s a matter between the federal agency and the inventors. Let that fall where it will. Inventors can make their own case for ownership, or may be happy to have the federal government pay for all the patent work. If inventors want to retain their rights, and want university help, then the university can consider a financial stake in exchange for funding the patent work. But then if the university is going to be in the business of helping researchers create patent positions, why stop with university-affiliated research? Why not buy into the patent work of non-profits? small companies? big companies with off-product research inventions? There’s a market there, if one wants to explore it. But really, why should a university get involved with patents unless it has a plan that involves something other than windfall money for the university?

License non-exclusive, royalty-free. A contractor does not need to charge for promising not to sue for infringement, especially when the contractor is a university with a public mission. If the use of new inventions is the dominant purpose, then royalty-free, non-exclusive licensing may be just the thing. The non-exclusive part breaks up the patent monopoly created by POSIs–patents on subject inventions. The royalty-free part means that payment is not a pre-condition for access. If someone wants to pay, it is for some reason other than access, such as services (assistance, updates, coordination, data, testing, and the like). Even though Bayh-Dole aims to allow contractors to use the patent system, Bayh-Dole does not require that the patent system be used to create monopolies in private markets. A university as owner of a POSI can circumvent the patent monopoly Bayh-Dole narrative by immediately breaking up the patent monopoly, and using the patent right only to guard against behaviors that would attack a developing commons, research platform, or standard.

Draft patent applications for use. Patent applications are typically drafted for litigation (protect one’s rights) or licensing (get money for one’s rights). The language used aims to be the broadest possible, the most defensible, of a form that will make opposing patent counsel quake in fear and offer to settle. But this language, with its plurality of said linguistic properties, can be unreadable to anyone who doesn’t already know the technology. But patents were, originally, intended to teach an invention to ones with ordinary skill in the art–not just to experts and certainly not just for attorneys to walk judges through a rights argument. Universities can undermine the Bayh-Dole idea that the purpose of a patent is to establish a paying private monopoly by insisting that patent applications on subject inventions–PANSIs–be written as teaching documents, even if that means making litigation and exclusive licensing more difficult or narrowing the scope of claimed rights. A broad scope of rights might be happy for litigation, but if the primary purpose of the patent is to teach, then what matters is clarity rather than juridical abstraction. People might then want to read a university patent, as a teaching document made broadly available through the patent system. Enforcement of patent rights would be entirely secondary, for cases of very bad behavior that might hurt the public interest.

Make patent applications public immediately. Bayh-Dole makes reports of subject inventions and patent applications government secrets. But only for the government. There’s no regulatory reason why a university cannot publish patent applications immediately, along with any communications with the patent office, such as office actions. Stanford did as much with its Cohen-Boyer patent applications. The idea was: don’t surprise industry, and create a strong patent based on openness rather than secrecy. One might call such applications “open source PANSIs.” Publishing patent applications immediately carries “risks”–adversaries might produce prior art that would limit claims or even blow up an application. But then why is a university thinking in terms of adversaries? If a patent application has defects, why hide them behind secrecy? Why not get them out in the open? Yeah, why be covert to obtain a public right, intended to serve a public interest? Start things out on the right foot. Ignore Bayh-Dole’s worry about patent application secrecy.

Report publicly invention status and practical application. Bayh-Dole makes it appear that federal agencies must keep reports of invention use secret. But Bayh-Dole does not require contractors to do so, too. Universities, especially, should circumvent Bayh-Dole’s secrecy apparatus by routinely publishing the status of subject inventions–especially regarding practical application–is each invention being used? are the benefits of that use available to the public on reasonable terms? what are those reasonable terms–which must be somehow better than the terms one would expect for a private patent monopoly? If the status for each subject invention was routinely reported, then university IP practice might change its emphasis to focus on use rather than litigation, and even use rather than licensing. After all, public use = success. That’s the basic premise of Bayh-Dole, after all the apparatus is sorted through. Why not go right after use? Screw licensing. Screw litigation. Promote use of inventions. Use the patent system to do it. Geez, they ought to write a law with that as the first objective.

Dedicate income to beneficiaries. Bayh-Dole restricts how nonprofits can use income “earned with respect to” subject inventions. Costs that may be reimbursed from such income are limited to those “incidental to the management of subject inventions,” including payments to inventors. Any money remaining is to be used for “scientific research or education.” There is, however, absolutely no requirement that the contractor must spend that money on itself. Indeed, where the contractor is a university-affiliated patent management organization such as a “research foundation,” the only way that money can be used is by making it available for use by others. A university has no need for a profit motive in its licensing program. Sure, recover costs so the program pays its way and doesn’t dip into funds that have other uses, like keeping the cost of tuition down. But why even *think* to keep money above costs? Why not dedicate the remaining balance to the work of others?

For universities, the standard patent rights clause authorized by Bayh-Dole is embedded in funding agreements controlled by federal regulations on grants to nonprofits. These regulations are at 2 CFR 200. And there we find, at 2 CFR 200.316 the “property trust relationship.” Universities are to use intangible property acquired or developed with federal funds as a trustee acting on behalf of the “beneficiaries of the project” under which the intangible property was made. Bayh-Dole was designed deliberately to avoid mention of “public service” as a possible use for income earned with respect to subject inventions. But funding agreements mandate such use. So universities could dedicate their profits from licensing to organizations that support research on behalf of beneficiaries, or support education (such as, how to use new inventions and the like). Doing such things would circumvent the idea that Bayh-Dole endorses a profit motive as a necessary stimulant to university patent management. But universities don’t need no stinkin’ profit motive. They already have their public missions. That’s plenty. Further, by declaring all profits from subject inventions to go to others, universities lay the groundwork for an entirely different rationale to ask for licensing fees: not for themselves, but for others, for the Orphans, as it were.

Undermine non-circumventing universities. Presently most universities circumvent Bayh-Dole for convenience, aiming to create and profit from private monopolies, citing Bayh-Dole as their excuse. But these universities are a menace to early adoption of new technology, to the formation of commons, libraries of tools, and standards. Handing out free licenses rewards the private monopolists enjoying exclusive licenses (and assignments) from circumventing universities. That’s pansyism, and we can’t have that. Patent rights are to be used to promote use, not to promote private monopoly profit positions. First things first, then.

Enlightened universities with integrity can undermine the bad licensing behavior at other universities by attacking the royalty stack–aiming to take a share of what the monopoly-happy universities hope to gain through royalties on monopoly pricing. Deny licenses to companies that threaten commons based on their university exclusive licenses. License to companies that don’t threaten commons but have an exclusive licenses for a share of the royalties they have agreed to pay to the circumventing university. Dedicate that share, after costs, to the beneficiaries of the research, such as to a commons. Aim to halve the first university’s share of income as payback for defecting on research and the public in pursuit of a share of monopoly profits. Here, it’s worth being a hard ass. In the game theory analysis of the prisoner’s dilemma (where it is profitable to be the sole defector against community), the best strategy to neutralize the defector’s advantage is to defect back every other time. Given that the world is not all love and kindness, and given that university administrators have been more than ready to abandon their public mission in the quest for a share of monopoly profits, it’s then necessary to drive some fear and loathing into their business dealings until they figure out that defection is not all so profitable.

This entry was posted in Bayh-Dole. Bookmark the permalink.

Leave a Reply