Posi are not ordinary patents

Here’s a passage from Thomas Kasëberg’s Intellectual Property, Antitrust and Cumulative Innovation in the EU and the US:

In this passage Kasëberg lays out the standard argument that there is no working requirement in US patent law. As the Supreme Court has put it, “A patent owner “is not in the position of a quasi-trustee for the public…. He has no obligation either to use it or to grant its use to others.”

Now consider the effect of Bayh-Dole, its standard patent rights clause, and the grant requirements for intangible assets in federal subvention funding provided to universities to support faculty research. Here’s Bayh-Dole (35 USC 200):

It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development

Bayh-Dole expressly mandate a requirement to “promote the utilization” of inventions. Bayh-Dole fails in its principal purpose if an owner of a posi–a patent on a subject invention–refuses to use the subject invention or to grant licenses.

The standard patent rights clause permits the government to “march-in” and require an owner of a posi to grant licenses in the case of nonuse (37 CFR 401.14(a)(j)(1)):

Such action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use.

Where “practical application” is defined as (37 CFR 401.14(a)(a)(3)):

means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are, to the extent permitted by law or government regulations, available to the public on reasonable terms.

Now look at the requirements on research hosts that use federal funds to acquire or improve intangible assets, including but not limited to patents and patent applications and thus necessarily also the underlying inventions (2 CFR 200.316):

Real property, equipment, and intangible property, that are acquired or improved with a Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved.

It’s clear that for subject inventions, the Supreme Court’s general guidance regarding patents does not apply. Patent law–in the form of the definition of “subject invention” and the requirement placed on subject invention by 35 USC 200, to “promote the utilization” of subject inventions–does require use and does place the owner of a posi in a position of “quasi-trustee” for the public. Furthermore, federal funding agreements convey this requirement to posi owners. The standard patent rights clause makes clear that if a posi owner does not use or license a subject invention, then the federal government can compel the posi owner to grant licenses. Federal regulations that establish the requirements for nonprofit organization funding agreements stipulate expressly that the recipient of the grant, the “non-Federal entity” must serve as trustee for such assets.

We quickly reach the conclusion that posi–patents on subject inventions–are not ordinary patents, and that the patent property right specific to a posi does involve a public covenant that requires use of the invention with public benefits on reasonable terms, and if the owner of the posi does not achieve that use, then the owner must give up a monopoly position and license the posi to others–non-exclusively, but even exclusively–that is, the federal government can potentially compel the assignment of the subject invention in cases of nonuse.

University patent brokers have done most everything they can to efface the public trust nature of their ownership of posi. They do announce that it is in the public’s interest that institutions, not inventors or the federal government, own inventions made with federal support. They announce that their management of such inventions is in the public’s interest, too, regardless of what they do with these inventions. If they sue for infringement, that’s a matter of “recovering the public’s investment” in the research and patenting. If they grant an exclusive license that creates a monopoly with monopoly prices, the result is great because the institution has made a pile of money that will in theory reduce the public’s need to fund research and research infrastructure. If they don’t do a durn thing with a given invention, that’s also in the public interest because well they must be working hard on more important inventions and it would be a waste of public resources to work on less important things.

But university patent brokers refuse to acknowledge that posi carry any public covenant as a matter of patent property right or federal contract. Thus, university patent brokers behave as if they can exclude all use and never have to grant licenses. This behavior is itself a repudiation of the public interest apparatus present in Bayh-Dole, such as it is.

From the start, university patent brokers worked to disrupt the public interest apparatus of Bayh-Dole. Howard Bremer, one of the “three amigos” that led the effort to get Bayh-Dole passed, worked to make the march-in procedures in the implementing regulations so difficult that they would never be used–something that is now pitched as a notable success. Soon after Bayh-Dole as passed, the university patent brokers pushed through an amendment that removed the restrictions on the term of exclusive licenses and made all reports of invention utilization a government secret. And if one works through the text of Bayh-Dole and standard patent rights clause, one finds that almost every significant requirement provision of the standard patent rights clause may be waived or ignored by the federal government. Bayh-Dole is a do WTF you want law, when it comes to university patent brokers.

But even in its broker state, Bayh-Dole still retains the requirement that a posi is no ordinary patent and the owner of a posi accepts a public covenant with regard to the utilization of the underlying subject invention. Bayh-Dole does not say:

It is in the public interest for university patent brokers to acquire, create, and exploit patent monopolies for whatever value they may extract from them.

That’s the faux version of the law, the substitute that university patent brokers have put up to cover their work. A restatement of Bayh-Dole is this:

It is in the public interest for university patent brokers, if they come to acquire a patent on a subject invention, to break up the patent monopoly to promote use and competition, so that the benefits of use are available to the public on reasonable terms.

Even if a patent broker achieves practical application of a posi and refuses to license the invention to others, Bayh-Dole’s standard patent rights clause still stipulates that the benefits of that use must be available to the public on reasonable terms. If the patent broker–a university, for instance–does not meet this standard, then the federal government may break up the broker’s patent monopoly using Bayh-Dole’s booby-trapped march-in procedures. Of course, the federal government could also, for the federal-side market, skip march-in and exploit the government’s outright non-exclusive license to “practice and have practiced” the subject invention. That might cut a slice out of the patent broker’s monopoly and in turn drive down prices or force competitive improvements in function, quality, and availability in the private-side market for the invention.

Posi are not ordinary patents. They carry a public covenant as a matter of federal patent law (Bayh-Dole is part of federal patent law) and federal contract (including Bayh-Dole’s standard patent rights clause and, for universities, the federal funding requirements at 2 CFR 200). It’s just that most university patent brokers have repudiated the public covenant and in its place created a different one, in which they are mandated to exploit patents however they might–to make money, to teach industry a lesson about respecting patent positions, to teach inventors a lesson about administrative authority, to partner with speculators, to help big pharma extend monopoly positions, to share in the upside of speculative investments, to share in the upside of monopoly prices.

For an ordinary patent, pretty much anything goes short of antitrust behaviors and patent misuse. But there is a public covenant for patents on subject inventions, and those requirements follow every posi.

The great sadness, then, is that the federal government, and especially the NIH and NSF, are unwilling to require universities to comply with the public covenant. And of course, Bayh-Dole in its clever, inspired way, provides no protection most anyone other than patent brokers:

  • no protection for inventors
  • no protection for companies affected by university patent and licensing practices
  • no requirement to enforce the public covenant
  • secrecy with regard to use of subject inventions

These are fatal defects in Bayh-Dole.

Intellectual property by its nature is intangible. It is like a meteor shower. You only know it’s there if you get up in the night to go and look, watching patiently until you see a silent streak here, or there, and eventually can trace enough trails back to find the radiant. Bayh-Dole is a law pertaining to human caused meteor showers. If you don’t look carefully, you won’t know it is there, won’t see how it operates, won’t see what it actually does. Bayh-Dole is a silent killer of personal opportunity and repudiator of public interest in inventions made with federal support, all the while making a show about public protections and good intentions. It’s just that for each public protection or good intention, there is a walk back or a complicated blocking procedure or a shift in the burden from private to public or a shift from a key requirement to a related use of the same word or a grammatical disjunction or simply an absence where there should be language present.

University patent practice can do most anything it wants. There is no requirement in Bayh-Dole that universities must participate in Bayh-Dole’s patent owning and licensing. A university can comply with the standard patent rights clause by doing no more than (i) reporting inventions, (ii) instructing employees on the importance of reporting inventions, (iii) designating personnel responsible for patent matters, (iv) requiring inventors to make a written agreement to protect the government’s interest, and (v) declining to take title to any invention made with federal support. That’s it. There’s no mandate in Bayh-Dole for a university own anything or to license anything exclusively or to try to make money or to enforce patents against companies and individuals who might unfortunately find themselves using inventions made with federal support. There’s no mandate to create monopolies or partner with monopolists.

The public covenant in Bayh-Dole, even if reduced to a damp spark by university and federal agency bureaucrats, requires university patent brokers to break up the patent monopoly if they are going to own that patent monopoly. University patent brokers should be breaking up patent monopolies anyway. That ought to be their default practice. They don’t need any federal legislation to do so. Bayh-Dole doesn’t outright prevent them from breaking patent monopolies they acquire. What it does do is create the illusion that institutionally owned patents are a good thing, and the further illusion that private monopolies on publicly supported research are a good thing, and the still further illusion that such monopolies are the driving force for innovation and public benefit–which is the illusion that unless speculative investors get the first–and only–crack at exploiting such monopolies, nothing good will happen. In this, Bayh-Dole creates the illusion that federal research exists to provide a public subsidy to support the livelihood of speculative patent monopolists.

Now maybe speculative patent monopolists are the unrecognized life force of technology change. And perhaps Bayh-Dole’s purpose is to provide a subsidy to those speculative patent monopolists who, because they are willing to deal in iffy federally supported research inventions and still share a portion of their spoils with nonprofit institutions, are at a competitive disadvantage with regard to their less generous and more astute investment colleagues. Perhaps. We could have this discussion. Perhaps this is the bit that is so inspired in Bayh-Dole–that university patent brokers are offered the illusion of uncontested access to federally supported inventions to help these sharing speculators to compete to create valuable monopoly positions from patents on these inventions.

I rather think not. But the damage has been done. University patent policy and practice has changed, university administrators try to claim ownership of everything they can, insist on exclusive licenses, refuse to hand back what they can’t develop even after they have ruined it, refuse to comply with Bayh-Dole’s standard patent rights clause at crucial places, keep information about their performance secret, and treat POSIs as ordinary patents, to be exploited in whatever money-making ways they want to. Other than that, things are hunky-dory.

It would be simple to say Bayh-Dole is the problem. Certainly, Bayh-Dole is problem–it’s a drafting mess and it creates the illusion of public interest by using vocabulary and gestures drawn from prior policies that aimed to protect the public interest from the broader range of patent rights available to any patent owner. But Bayh-Dole is not the only problem and it is not the major problem. The major problem is that university senior leadership and faculty have sold out to the patent brokers that embrace the illusion created by Bayh-Dole. Patent brokers have announced what amounts to a social prophecy, which they attribute to Bayh-Dole, that their work in creating and dealing in patent monopolies will, as they pursue their self-interest, result in amazing public benefits and economic vitality. Even UFOs from the planet Clarion itself will not induce these folks to back down on this prophecy. It is their livelihood, their public identity. Reasoning won’t change their belief structure. Facts won’t change their belief structure. Repealing Bayh-Dole won’t do it either. Making federal agencies enforce the standard patent rights clause might improve things a bit, but who is going to make federal agencies do any enforcing?

Typically when things go bad in a university licensing office, they change the director. If that isn’t enough, they also change the mission statement and the office name. If that’s not enough, then they futz around with the organizational structure. None of this matters. What mattes is a change in policy that reflects fundamental commitments research conducted in the public interest. If university officials want to set a new course, they might:

  • renounce the patent business and let investigators and inventors handle things outside the university;
  • make university invention management voluntary, so that patent practices not consistent with academic purposes do not have to cohabit with those that are;
  • establish a default expectation that university invention management involves “dedication and non-exclusive licensing” and if inventors want to pursue private patent monopolies, they should work with outside agents of their own choosing, subject to whatever requirements a federal agency may place on their efforts.

Or we can wait around for a replacement for Bayh-Dole, in the unlikely chance that new federal law can restore what Bayh-Dole has done a wonderful job to destroy.

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