We are working through a student account of Bayh-Dole posted at a Rice University entrepreneurship center. The post is helpful in repeating commonly accepted claims about Bayh-Dole. Our interest is not so much in arguing the limitations of the post as using it as a springboard to look more closely at the claims made for Bayh-Dole, and thus, also, to look more closely at Bayh-Dole itself. Here’s another claim made by our student author, Catherine Kirby:
The Bayh-Dole Act was intended to improve the commercialization of federally funded research.
No doubt there were some who intended just this. But commercialization is not an obvious stated policy or objective of Bayh-Dole. We might say, “The Bayh-Dole Act was intended by university licensing officers and patent brokers to improve the commercialization of federally funded research.” In the Act itself (35 USC 200), all we get is “use the patent system to promote the utilization of inventions arising from federally funded research or development.” Utilization is practical application, which is defined by Bayh-Dole to mean established use with benefits available to the public on reasonable terms. Ah, but there’s also this objective buried in the list:
to promote the commercialization and public availability of inventions made in the United States by United States industry and labor
Read it slowly. It doesn’t say “improve the commercialization” of inventions–but to promote “commercialization and public availability.” There are two objectives, stated in parallel and given equal weight by that happy little coordinating conjunction and. The objective of Bayh-Dole here is to promote both commercialization and public availability. But the focus of the objective is not commercialization or public availability–it is the use of US industry and labor.
inventions made in the United States by United States industry and labor
That is, the policy and objective of Congress is to promote this [made in the United States by United States industry and labor when there’s commercialization and public availability of inventions]. That is, the focus of the clause is the restrictive portion–the US-made part. When there is commercialization and public availability, Congress intends to promote the role of US industry and labor in the making of inventions. And that’s just what Bayh-Dole does with its requirement for exclusive licenses to sell (commercialization) and to use (public availability) at 35 USC 203–exclusive licenses to sell or use in the U.S. must require products to be made in the U.S.
We are not dealing here recombinations such as “public availability through commercialization” or “public availability is a natural part of commercialization and is mentioned here by way of illustration to round out the idea of commercialization.” We might especially rule out that Congress intended for commercialization efforts to withhold inventions from public availability or that commercialization should be dominate public availability or that commercialization means monopoly control and monopoly prices. Commercialization and public availability are distinct elements, both of which Congress intends to benefit from US manufacturing.
If a contractor does the using and selling itself, then it can have the invention made anywhere it wishes–so, China or Brazil. But if the contractor licenses exclusively in the U.S. market the right to use or to sell, then the contractor must also require the product to be made “substantially” in the U.S. That is, to understand this objective, one has to read the clause in a different order:
When there is commercialization or public availability of inventions in the United States, it is the policy and objective of Congress to promote the use of United States industry and labor.
That is, Congress intends Bayh-Dole to promote the role of U.S. industry and labor to both make available and to commercialize (both, not just one, and not just one as the only way to the other) inventions that have been made in the U.S. If there’s a mandate in there to commercialize, it isn’t with the nonprofits that step in to take ownership of subject inventions. And if there is a mandate for U.S. industry, it is to both commercialize and make available the inventions in the U.S. One might see in such a mandate a requirement that universities license to the U.S. industry the right to make–not just to a single company. Here’s the implementing text in the standard patent rights clause:
(i) Preference for United States Industry
Notwithstanding any other provision of this clause, the contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject inventions in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States.
University administrators love to misread this provision. It means, they chirp, that any exclusive license must require substantial U.S. manufacturing. But that’s not what the words say at all. Exclusive licensing is carefully limited to “to use or sell.” “Make” is not part of the exclusive license. If all three substantial rights–make, use, and sell–are licensed exclusively, then we have ourselves an assignment, and nonprofits agree not to assign unless they also require the assignee to accept the nonprofit’s requirements (not to assign, to share royalties with inventors, to recover only expenses related to subject inventions, and to use any balance for scientific research or education–so much for happy profits and executive slushies). For this provision to work as written, universities have to license the “make” right non-exclusively. Anyone qualified may make, even if using or selling is restricted by an exclusive license.
But wait, there’s more. The focus of the Bayh-Dole objective is on inventions, not on “federally funded research” as our author would have it. Bayh-Dole has nothing to say about research findings in general–not data, software, ideas, protocols, test results, recommendations, publications. Bayh-Dole’s interest is only patentable inventions and only then when owned by a party to a federal funding agreement for research. Everything else (copyrights, data, tangible property, intangible property) is covered, for universities, by 2 CFR 200–the regulations that implement the standard funding agreement for grants with universities. There, the primary thing is the property trust relationship–universities are to act as “trustees” of intangible property acquired or improved with federal funds and use those intangible properties for the beneficiaries of the funded project. The “positive economic beneficiaries” of federal research aren’t the patent attorneys, licensing officials, university administrators swimming in slush, speculative monopolists trading on patent monopolies, or companies reasonably charging monopoly prices for monopoly-backed products–the beneficiaries are out there in the public, generally. Is this too difficult an idea to find popular expression?
Follow? I know, it’s careful reading, not just reading the Spark Note version created by university patent administrators, the version in which they promote their own self interest and show how little they care for the law they venerate. Bayh-Dole is drafted to permit folks from ignoring what it leaves unstated. The 1984 amendments remove other conditions on exclusive licenses, making these conditions implicit in Bayh-Dole’s statement of policy and objective. But what’s implicit is not removed. All that’s removed is an express statement of what is required (among other things that may also comply). Here, what’s required is that, to avoid assigning an invention, universities must license the make right independently of the use and sell rights. A university might license the make right non-exclusively to U.S. companies–even if they can only supply the invention to the exclusive U.S. licensee for using or selling, or otherwise only use or sell the invention outside the United States.
I know, it’s awkward, but the problems come from the meaning of an exclusive license and the requirements on nonprofit assignments. If one doesn’t know Bayh-Dole, patent law, and licensing practice, then it’s easy to patch in explanatory paraphrases for what’s actually there. Repeat often and in print, and presto! a new law, full of self-serving gems of wisdom, emerges from the text.
Now look at the second sentence in the standard patent rights clause’s treatment of exclusive licenses:
However, in individual cases, the requirement for such an agreement may be waived by the Federal agency upon a showing by the contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.
What is this second sentence doing? First, it is making clear that federal agencies don’t have to enforce this provision in any funding agreement. That is, the placement of this clause in every funding agreement is for show, as a political expediency. The law doesn’t actually require U.S. manufacturing of subject inventions. It just makes a spectacle of requiring a contract provision about it. Federal agencies can do whatever they like. So much for favoring U.S. industry.
Second, this second sentence takes up the non-exclusive licensing of the “make” right. “to grant licenses“–not just to grant a license, an exclusive license. That confirms that the underlying issue in the first sentence is the matter of non-exclusively licensing the “make” right.
Third, the second sentence describes how the process for ignoring this clause works. The contractor must show that it tried to grant licenses (note that the standard chosen is “reasonable” not “best efforts”–not much diligence required), or that it didn’t even reasonably try but that it has made “a showing” that such making is not “commercially feasible.” All this amounts to a hill of fluff. Most anything can meet these requirements. Once there’s been a showing, then the federal agency can waive the clause. Of course, the federal agency could also march-in and require non-exclusive licensing, but that’s never happened. The march-in procedures are like pounding your agency fingers with a hammer. They are designed to hurt. They are designed never to operate. The key university patent broker involved gloated about that.
Fourth, however, this second sentence conflates the non-exclusive licensing of the “make” right with non-exclusive licensing of the “use” and “sell” rights. That is, one can also read this sentence to indicate that the contractor must have attempted to license the invention non-exclusively to companies that likely would manufacture in the U.S.–that is, without an express license requirement to manufacture in the U.S. Perhaps their manufacturing facilities are in the U.S. That might make U.S. manufacture likely even if they could also manufacture by contract elsewhere. This use of “likely” is fun, too, because it is consistent with the idea that this clause is just here for show and doesn’t actually implement the Congressional policy and objective of involving U.S. industry and labor.
You see, by the time it gets to the standard patent rights clause, it has been transmogrified into just a “preference” for U.S. industry. What it really is is a gap to permit a “preference” for a single monopoly company–not for “U.S. industry.” Really, the language here permits an attack on U.S. industry by any company (U.S. or otherwise) that is granted an exclusive license for the U.S. market. It’s just that Bayh-Dole doesn’t come out and say this. Instead it works around the notion by stating the opposite and then backing off that position in the details of the implementing regulations–can waive, a showing, merely reasonable effort, likely, preference.
Bayh-Dole was intended as a work-around to public policy that argued that inventions made with federal support in research hosted by nonprofits and intended to benefit the public should be made generally available to the public. Bayh-Dole constructs its work-around out of the pieces of that public policy, putting those pieces forward as a matter of political expediency as necessary to get the bill passed into law, and then withdrawing those pieces again in the implementing regulations, in the standard patent rights clause, and in what are put forward as amendments to improve the law.
So we might, then, revisit the claim that
The Bayh-Dole Act was intended to improve the commercialization of federally funded research.
What Bayh-Dole was intended to do, and which it has done admirably, is to improve monopoly access to publicly funded inventions so that the financial benefits of monopoly positions can accrue to companies willing to share a small portion of those benefits back with the patent brokers who use universities as their base of operations. Bayh-Dole was intended to improve the position of those companies when they “commercialized” subject inventions, and not hold anyone accountable when companies failed to commercialize inventions, or universities failed to license, or failed to attempt to license non-exclusively, or failed to do just about anything otherwise required (even if only half-assed required) by the standard patent rights clause authorized by Bayh-Dole. We can see that those doing the intending–patent brokers and their university administrator accomplices–aimed to improve the use of monopoly positions taken on research otherwise conducted and supported in the public interests. Call it the Big Intervention. It’s sort of like making kids pay a fee to use a public park by granting exclusive control of the baseball field to a private corporation. Why let the kids play for free when there’s good money in making them pay, or their families pay, or companies that want to be seen as kid-friendly pay? That’s what’s happened with Bayh-Dole for publicly-spirited research. Is that a good thing? Work it over in your mind.