Getting at the truth about Bayh-Dole’s impact, Part 2

We are working through the opening paragraph of a student’s account of the Bayh-Dole Act. The account creates the opportunity for a discussion about the impact of Bayh-Dole and the strange spin that has become widely accepted about what Bayh-Dole has done. At times I find myself reading about Bayh-Dole as if it is some sort of whispering god of innovation and wealth rather than an odd law that makes a show about what federal agencies must include by way of patent rights in funding agreements but then don’t have to enforce.

Now consider our next sentence:

However, the act did help universities license patents, creating positive economic benefits especially in the biotechnology industry.

There’s much packed in here. It’s the standard story. How on earth did Bayh-Dole help universities license patents? Bayh-Dole places the greatest restrictions on nonprofit patent management. It’s difficult enough to license patents, especially exclusively–Bayh-Dole requires one to license patents with a fly on your forehead. Gack. How many times does a university licensing officer have to deal with questions about what “substantially manufactured in the U.S.” means, or what information might be demanded for federal reporting, or what the effect of march-in might be, or that non-exclusive license to the United States to “practice and have practiced”? Might such things somehow help the proposed transfer of a patent monopoly from a university to a company? Bayh-Dole is a total crap (a term of art, here) when it comes to “helping” license anything. There are no incentives for companies to license a posi–a patent on a subject invention. I have never, ever heard a company representative go, “Oh, good! It’s a federally funded invention–this is great news, as these licenses are always better than ordinary licenses.” I’m willing to bet nothing of the sort has ever been emitted from the negotiation-hole of any company officer, other than as sarcasm, perhaps aided by over- much alcohol.

If Kirby’s point is rather that “help” means “help themselves”–the act did help universities help themselves to patents to license–then there may be some true impact there. University administrators routinely claimed that Bayh-Dole vested ownership of inventions made with federal support outright with the institution that hosted the research (or, gave the institution first right to claim title, or the right of first refusal–the inventor had to offer the invention to the university). It was all made up rot, and the Supreme Court tossed the vesting claim in 2011 in Stanford v Roche. Not deterred in the slightest, university administrators immediately claimed that they now had to take ownership of all inventions upfront using present assignments of future inventions in order to comply with Bayh-Dole. That, too, is rot. What they had to do was comply with the standard patent rights clause–which they have *never* done. Not to be thwarted, however, there’s now a move to get NIST (which is designated to fiddle with Bayh-Dole’s implementing regulations and patent rights clauses) to change the standard patent rights clause to require universities to require potential inventors to assign inventions to the host university. It’s like Road Warrior–things get beaten back only to reappear upside down looking in the windscreen.

For all of this, it appears that once university administrators had made the case that federal law mandated university ownership of inventions made with federal support, it was an easy move to argue that to be fair and equitable, a university must own all inventions whatsoever. This is akin to arguing that if one is going to loot one store, one may as well–in the interest of fairness–loot all stores. “Help” must mean “help themselves.” Bayh-Dole incited looting of research findings to create monopoly positions where before there had been an expectation of general access. The monopoly positions then became the object of financial interest–licensing–rather than the use–practical application–of the underlying research finding. This trade (or attempted trade) in institutional patent monopolies, too, appears to have been an “impact” of Bayh-Dole.

Now about this claim of “positive economic benefits especially in the biotechnology industry.” Reading most anything from AUTM or BIO or PhRMA, one would have to agree. The patent brokers and the company trade organizations love Bayh-Dole as they love the patent monopolies that have been created under the influence of the Act. “Positive economic benefits” is about as redundantly abstract as one can get. I’m not sure what “negative economic benefits” might be, but here “positive” functions as an intensifier for the already abstract “economic benefits.” What might those “benefits” be? One benefit, clearly, is that health care products covered by patent monopolies can be offered at monopoly prices rather than reasonable prices. (Oh, yes, I know that it is reasonable to price at monopoly rates when one has a monopoly–but that’s not the usage of “reasonable” in Bayh-Dole.)

Another is that less diligent investors may be separated from their money more readily with the prospect of a monopoly on an invention made with federal support. For such inventions, the luster of the backing of the federal government mutes the risk that the invention is just another bamboozle (a competitive grant award, often for millions of dollars, at a university that aspires to excellence, doing work in an area of public interest where there is a pressing need).

In addition, we might consider who the benefits go to. Clearly, patent attorneys and licensing administrators routinely benefit from university patent and licensing work. That’s been the number one growth area for three decades. If there are more university patents, then more patent attorneys working with universities have got their livelihoods, whether anything is ever licensed. And if there are more university licenses, then university licensing officers have got their livelihoods, whether anything licensed is ever used or developed into a commercial product. And, of course, if once every decade or two there’s a modestly big hit license, then the university administrators swim in slush money falling from the dismal skies for a long, long time. I suppose those are “positive economic benefits.”

If we look at those “positive economic benefits” from a different perspective, they don’t seem to have the same appeal. Monopoly prices for patent medicines means that the government pays out billions of dollars that it should not have to pay, that insurance costs are higher than they ought to be, pricing some people out of insurance and leading insurance companies to complicate their offerings to extract what profit they can. And creating a scarcity of access to research findings makes companies duplicate their efforts, running up costs, and makes companies invest in designing around posi, also running up costs. Those costs, in turn, make medical innovation more expensive, keeping new companies (“free enterprise”) from readily participating in the biomedical marketplace–they have to have venture capital, they have to propose products with humongous market potential.

Thus, we don’t have work on “orphan” diseases–stuff too small for venture capitalists to bother with. We once had a dialysis invention that could greatly reduce the cost of dialysis. We figured the product’s potential income at about $80m. We even found a VC firm with a principal whose parent required dialysis. No luck. The firm wouldn’t consider deals for companies proposing less than $100m in income. So, yeah, the “positive economic benefit” is that Bayh-Dole creates new barriers to entry, so that the only things worth pursuing with “private risk capital” are the things with patent monopolies. Even if one can’t make a product, there’s still a good chance to “monetize” the patent by selling it off to someone else who hasn’t given up hope or sees the prospect of suing others if they let down their guard and use the invention without–the horrors–first dealing with a university bureaucrat.

I run through all of this just to show that the idea of “positive economic benefits” is not so simply a matter of everyone being happy about making money from patent monopolies. There are plenty of consequences that come along but aren’t called out by the abstractions.

Here is a link to Part 3.

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