Circumventing Bayh-Dole, Fitt the Fourth

We have been discussing contractor-side practices to circumvent Bayh-Dole. We can finish with yet another:

4) circumvention by regulatory procedure, by which federal agencies may reduce the attraction of contractor-side exploits that don’t end up serving the public interest.

Circumvention by Regulatory Procedure

Bayh-Dole doesn’t actually dictate the patent terms of federal funding agreements. Actually, it is more of an administrative bottleneck, requiring default terms but leaving it to federal regulations to set out the actual terms for standard patent rights clauses. In fact, there are four such standard patent rights clauses (one for nonprofits, one for small businesses, one for inventors, and one for use in funding agreements involving certain weapons systems). There could be even more. Bayh-Dole permits agencies to vary from these defaults, but stipulates procedures for such changes. Thus, in a way, Bayh-Dole does absolutely nothing to assure “uniformity” or “certainty of title.” All Bayh-Dole does is to state defaults to be used in standard patent rights clauses and then make it a bother to try to change them. The regulations go further this way than does the statute, adding bother upon bother to the prospect of change, whether to the basic rights proposition or to march-in.

Oddly, Bayh-Dole has no enforcement requirements for the government side of the patent rights clauses. While Bayh-Dole makes it difficult for federal agencies to change the terms they put in a patent rights clause, Bayh-Dole makes it easy for federal agencies to then ignore any of the default terms having to do with federal–public–interest in the patent rights clause. The government does not have to require title in cases of contractor default or mis-doing, does not have to exercise its rights under its non-exclusive license to practice and have practiced, does not have to march-in, does not have to be bothered by exclusive licenses that are assignments, does not have to be bothered by exclusive licenses in the US that don’t require US manufacturing, does not have to worry about preferences for small business, does not have to watch how nonprofits spend licensing income, does not have to require reports on the use of subject inventions. Really, doesn’t have to do a darn thing.

Thus, the basic federal circumvention of Bayh-Dole is already happening–federal agencies just ignore the federal rights and obligations on the executive branch side of federal funding agreements. Oh, yes, they ask for subject invention reports, and they demand federal funding statements in patent applications, and they may even want a paper copy of their non-exclusive license to practice and have practiced. And some agencies do ask for reports of use, and do take title to inventions when a university chooses not to retain title. But even there, they typically do not follow up. They don’t challenge whether the inventions reported are really subject inventions (most universities over-report and over-claim); they don’t question whether federal funding statements in patent applications, then, are accurate–only that they are there; and they never use their non-exclusive licenses. So the circumvention of Bayh-Dole on the executive branch side is nearly complete as it is.

But federal agencies could circumvent Bayh-Dole in more useful ways. One would be to work their opportunities for “exceptional circumstances.” An exceptional circumstance is not necessarily a rare circumstance–it is just one not addressed by the defaults. Federal agencies then could develop standard practices for situations that are not in the defaults. These standard practices then would be agency-level changes to the default standard patent rights clauses.

The requirement for changing the default is set out in 37 CFR 401.3–when the changes

will better promote the policy and objectives of Chapter 18 of Title 35 of the United States Code

That is, when the changes will do a better job than the default does in meeting Bayh-Dole’s statement of “policy and objectives” at 35 USC 200. Given that virtually nothing in that statement of policy and objectives is being met now, there are plenty of places to better

Changes are limited, however to

restriction or elimination of the right to retain title

But “restriction” here is a versatile word. One can place almost any condition on the contractor’s retention of title and get what one wants. It is important to point out that “restriction of the right to retain title” is in fact the fundamental gesture of the public covenant that runs with subject inventions. Subject inventions are not ordinary inventions. POSIs–patents on subject inventions–are not ordinary patents. They carry a public covenant. By default that public covenant has to do with promoting use (not preventing use), requiring US manufacture for US exclusive licenses to make or to sell, and permitting compulsory licensing in certain circumstances; for nonprofits, the public covenant includes preferring small companies as licensees, not assigning inventions without also assigning nonprofit requirements, and limits on the use of licensing income. Of course, nothing in the public covenant is actually required to be enforced by the federal agencies–it is there for show, for spectacle. That’s the genius of the law, to give the appearance of public interest, but at each point at which a public interest might be requested, the law breaks and nothing has to happen.

A federal agency, then, could circumvent Bayh-Dole’s deliberately weak design and enforce the standard patent rights clause as it is written–require everything in the public covenant. March-in for non-use. Make the nonprofits pay to fight five hundred march-ins, not just one. They will spend to exhaustion, and then give up, and then we would start seeing the benefits of Bayh-Dole, and not just this wholesale looting of the public interest by private, often petty, speculative monopoly interests.

But the more powerful circumvention is to develop a more robust public covenant around subject inventions by placing better “restrictions” on the right to retain title. “Restriction” sounds bad–but actually what is a restriction for private monopoly interests is a “freedom” for the public commons. An easy restriction to add is one that was in the original Bayh-Dole, the almost decent Bayh-Dole: place a time limit on exclusive licenses granted by nonprofits to non-small companies: no more than five years from the date of first commercial sale or use, or eight years from the date of the exclusive license, whichever comes first.

Or consider the time limit from the Kennedy patent policy–three years from the date of patent issue to take effective steps or make the invention available non-exclusively royalty free (or for a reasonable royalty), or make a persuasive case for more time. A standard exceptional circumstances patent rights clause outside biotech compounds and devices could use the Kennedy approach–that would be great for methods, for instance, and software algorithms, and research tools. Use it or lose it. The original Bayh-Dole term of 5/8 would be fine for most everything else, with acknowledgement for regulatory approvals–but not so much that folks can drag out the approvals to time when a new drug comes on the market.

But one can do better even than these–after all, it was the Kennedy patent policy that Latker’s Institutional Patent Agreement program aimed to end-run (and did until it was shut down in 1978). Funny, isn’t it, that the IPA program was the program that broke the executive branch uniform policy, creating the argument that there wasn’t uniform federal policy, and thus there was a need for Bayh-Dole to put an end to all those agencies complying with the executive branch policy. Funny how things turn out. More funny-strange than funny-funny, but you get the idea. So the IPA program aimed to do better than uniform executive branch patent policy, and Bayh-Dole aimed to do better than the IPA program. Non-compliant Bayh-Dole aims to do better than compliant Bayh-Dole. And Bayh-Dole permits federal agencies to aim to do better than the rest. So why not?

If the goal is to promote the use of subject inventions using the patent system, then a fundamental exceptional circumstance for nonprofits is to require that any subject invention be licensed non-exclusively for research purposes–evaluation of, research on, research with. That’s the scholarly circumstance. Perhaps tie that non-exclusive license to the prompt publication of research data. And perhaps tie that non-exclusive license to cancellation if the licensee alleges infringement against any member of a commons that holds the research license. This restriction (meaning public freedom) would encourage the development of commons and mitigate some forms of bad patent behavior.

One could go further and add a restriction for nonprofits (remember, that’s the term in Bayh-Dole for public freedom) that requires them to license subject inventions for general use–a make/use commons that does not depend at all on research uses. Anyone can use–the exclusive rights of the POSI owner would be the rights to sell and import. Those are still valuable rights, and there might be even more interest in selling or importing something that everyone is already using DIY. This requirement would be great for methods, for environmental remediation, for public safety, for preventative medicine, for disease assays and other diagnostics–anywhere anyone reasonably capable could make and use the invention without having to wait for a commercial product. Since the Bayh-Dole policy and objective is the use of the patent system to promote use–not commercial sales, not private profits from monopoly positions–this exceptional circumstance restriction (meaning, again, public freedom) would be much better at meeting Bayh-Dole’s objective. Maybe 20% of subject inventions would get used. Maybe 5% would also become commercial products. That would be a 10x improvement right there.

Exceptional circumstances (that is, ones not directly addressed by Bayh-Dole’s defaults) could then be made uniform across government by the creation of additional standard patent rights clauses. These additional patent rights clause would then be available for any federal agency to use.

Consider it this way. The defaults in Bayh-Dole arise as a result of a conflation of subvention (nonprofit, mostly) and procurement (small business, extended by executive order to all businesses). That Bayh-Dole could be directly extended to large businesses involved in procurement contracts shows that the Bayh-Dole defaults are indeed mostly procurement defaults, not subvention defaults. The effect of Bayh-Dole on nonprofits was to make it appear that subventions–grants-in-aid to faculty to take on work that the government decides is in the public interest–are in fact procurements. The implication that’s left hanging is that universities are then in the same condition as commercial contractors: they have an established commercial position and capability, and they exploit patents to further there profit-seeking in the markets in which they operate. That’s straight Kennedy patent policy treatment of commercial contractors. Bayh-Dole’s default, especially after the 1984 amendments, pushes universities to behave like commercial contractors–hence all the talk about “commercialization” and “commercial partners” and the like.

Lost, utterly, is the idea of subvention. A faculty member proposes a project at a university. The premise is that the project advances a public interest, not a commercial one. Sponsored projects offices resist proposed research that appears to have a commercial purpose–to develop a product for a company, say, or to make something to sell from the university. Clinical trials are tolerated on the argument that drug companies need a neutral (harf, harf) site that will conduct tests and assemble data. Research tools (compounds, mice, software) are tolerated because, well, there’s “research” in the description. The key point is that when a project is proposed at a university, it carries with it a premise of public purpose, not private purpose, not commercial purpose.

You can see how university “technology commercialization” talk casts a cloud of unknowing over all of this, making it appear that the actual public purpose, the purpose that is usually unstated but comes to dominate, is one of harvesting patent rights from the project to provide to paying monopoly interests. Whatever the little red hen does, get it before she can use it, and anything else, kill it before it grows. The claim–de facto–is that the public interest is best (first, only, primarily) expressed by monopoly private control and profit from inventions made in public projects. This is the horrifying bad claim–not only because it repudiates public purpose, but also because it is so awful even at creating private value or commercial products. It’s a speculative monopolist’s lust-dream, but not much more. It’s like slaughtering herds of bison for the vultures, rather than letting them run free, to be caught now and then by a cougar–not even for their skins or the meat.

If federal agencies wanted to restore the concept of subvention, then they would declare an exceptional circumstance for subvention and create a default patent rights clause specific to subvention funding–not directed at universities, nor nonprofits, nor size of company, but rather directed at whether the purpose of the federal funding was to procure or to assist. If assist, then whether the funding is proposed in the public interest or for a commercial interest that might have a public benefit (such as CRADAs, public-private partnerships, loan guarantees, and the like). If the funding is for a public interest, then the subvention patent rights clause should be used.

That clause might require the contractor to use the patent system to break up the monopoly created by the patent–license non-exclusively, license for research and make/use upfront, and dedicate profits (other than inventors’ share) for use outside the organization, beyond the control of the organization, with no strings attached other than public benefit. Subvention funding produces inventions that produce income that is dedicated after costs to subvention. Allow contractors to retain 20% of license revenue to develop a subvention invention management program, but remove the institutional profit motive from licensing. Or, redirect that profit motive: “we charge a modest fee for patent licenses and dedicate income after costs to the Orphans–resist paying at the peril of your immortal soul.”

Any exclusive licensing involving a subvention invention in this exceptional circumstance would have to permit research uses, any DIY make/use, and would have to address monopoly pricing–through time limits on the term of exclusivity, on limitations for exclusivity to exclude government markets, on requirements that monopoly (“market”) price excesses are dedicated to a subvention fund. Reasonable royalty, reasonable pricing–even for monopoly deals.

These are just a few of the ways that federal agencies, if they took public interest to heart–it’s been a long separation for some of them (Bayh-Dole suppresses such thinking)–would use the exceptional circumstance provision to better meet Bayh-Dole’s policy and objectives than the circumvented Bayh-Dole is doing now. When people ask me what could be better than the present Bayh-Dole practice and I’m at a loss for words–wwwhy almosst anything, anything at all. What could be better than shooting the bison for the fun of it–even as a livelihood–and making the public purpose out to be a benefit for the vultures? “A dead bison is an artificial reef that attracts wildlife”–yeah, like that! In a similar fashion, a dead invention (destroyed by a FOIL (fragmented ownership, institutionally licensed) patent position as it roamed its subvention project) is an artificial asset that attracts monopolist speculators, er, capital investors sharing an interest in creating beneficial products for the public, but satisfied if they create a financial rather than social return on their investment.”

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