Bayh-Dole’s Fair Licensing Requirements


There aren’t any fair licensing requirements in Bayh-Dole.

Let’s go looking. Bayh-Dole does a number of things:

(1) Bayh-Dole defines a new category of patentable invention, called a “subject invention” and establishes in federal patent law a policy statement governing subject inventions;

(2) Bayh-Dole establishes provisions that must be in a default standard patent licensing clause and the procedures to be used to vary from the default;

(3) Bayh-Dole establishes ownership and licensing requirements for federally owned inventions, in particular enabling exclusive licensing to the point of assignment;

(4) Bayh-Dole takes precedence over any other “Act” that conflicts with Bayh-Dole, except for Stevenson-Wydler and any later act that expressly takes precedence over Bayh-Dole.

If we are going to go looking for “fair” licensing requirements, we might look in the policy governing subject inventions. That would be 35 USC 200. Here are some statements of policy that might apply:

use the patent system to promote the utilization of inventions arising from federally supported research or development

One might think, then, that this policy requirement stipulates that inventions have to be used or licensed by the owner of a patent on a subject invention. Thus, if a patent owner is not using its subject invention, it is fair that it license that invention. But on what terms?

promote collaboration between commercial concerns and nonprofit organizations, including universities

“Collaboration” is broad enough that it ought to include licensing. The focus of this policy statement, though, is the “collaboration” between investigators in the area of medicinal chemistry and the pharmaceutical companies that offered free screening of compounds in exchange for an exclusive option in anything that they found of interest. The idea behind this policy statement in Bayh-Dole is that federal patent policy should not interfere with such arrangements by stipulating government ownership or non-exclusive licensing or dedication to the public of any such invention.

ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery

Here we have some dissonance–the phrase we’d expect is “patents acquired” rather than “inventions made.” Inventions are not made by organizations; they are made by inventors. So we have at the outset a bit of garble–there is plenty more to come.

How might inventions be used to “promote free competition and enterprise”? That’s a tough one. It is easy to see how patents might be so used–license the rights non-exclusively so multiple parties can compete, and license rights openly for “research and discovery” so there’s nothing blocking those activities. But how might one use inventions to do such a thing? How could using an invention ever “encumber future research”? No, it’s garble, unless by “using an invention” one means, “use an invention to get a patent, and then use the patent in some way.” Anyway, there’s nothing here about what’s fair–other than it would appear that non-exclusive licensing might be implied in this objective.

promote the commercialization and public availability of inventions made in the United States by United States industry and labor

This one is reasonably clear, given 35 USC 204–for exclusive licenses in the U.S. to use or sell, require also that the invention or products derived from the invention be made in the U.S. as well. So a “fair” license here would be one that requires U.S. manufacture if it grants an exclusive right to use or sell.

ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions

The federal government also gets a license (“to practice and have practiced” royalty-free and non-exclusively–those are the fair terms for the government’s license) to meet its needs and–here’s the potentially fair part–“to protect the public against nonuse or unreasonable use.” Now if the unreasonable use is a matter of antitrust, then there’s a separate body of law for that–and even Bayh-Dole goes out of its way to make that clear (see 35 USC 211). Thus, “unreasonable” uses are uses that violate federal patent policy on subject inventions–the very requirements we are working through here. What uses of a subject invention (other than enforced nonuse, which is treated as a separate issue) might be unreasonable? What licensing terms might be unreasonable? There’s not much guidance–and thus, we are left with a popular definition of “unreasonable”–lacking meritable reasons. That’s harsh, in a way. Anyone can come up with rationales for their use of inventions–but having reasons that aren’t “unreasonable”? And we are talking the use of inventions, not the use of patents, so it is difficult to see how “fair licensing terms” comes into it.

Protecting the public from “nonuse” is interesting, since an ordinary patent gives the owner the right to prevent all use of an invention–that’s one of the privileges of an ordinary patent: in exchange for publishing an invention’s details, the owner of the patent has no obligation to work the invention. For subject inventions, however, it’s different, or there would be no reason to protect the public from nonuse. Subject inventions are different.

Thus, for 35 USC 200, there’s not much help with regard to licensing terms. There are arguments to make, but they will be expensive, rather like trying Jedi mind tricks on lower life forms that don’t have the sorts of minds you might be hoping for.

We might then look at the apparatus that Bayh-Dole presents for owners of patents on subject inventions. The pickings are slim and indirect. We might start with the definition of practical application (35 USC 201(f)):

(f) The term “practical application” 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.

But the parts I have highlighted don’t have to do with licensing, but rather that the benefits of using an invention are “available to the public on reasonable terms.” One could try to argue that licensing terms must also be “reasonable.” That would have been a good argument with inventions covered by the old IPA program, since there we find:

The Grantee shall administer those subject inventions to which it elects to retain title in the public interest

But there’s nothing like this in Bayh-Dole. And also:

and shall, except as provided in paragraph (d) below [that is, exclusive licensing], make them available through licensing on a nonexclusive, royalty-free or reasonable royalty basis to qualified applicants.

Royalty-free or “reasonable royalty.” There’s no reason to call out a “reasonable” royalty if any royalty that a patent owner might charge legally is “reasonable.” So a “reasonable” royalty might be something less than whatever a legal monopoly might otherwise support. But again, that’s the IPA. Nothing in Bayh-Dole about reasonable royalties.

In the provisions required for a standard patent rights clause (35 USC 202), there’s nothing close to a requirement for fair licensing terms. Nonprofits are required to give preference to small businesses:

a requirement that, except where it is determined to be infeasible following a reasonable inquiry, a preference in the licensing of subject inventions shall be given to small business firms;

But that’s walked back not only right there in 202(c)(7)(D) but even more so in the implementing regulations. In the original Bayh-Dole, nonprofits exclusive licenses to other than small companies were limited to no longer than eight years. But that restriction was removed in 1984. Universities “comply” with this requirement by setting up shell companies and then licensing exclusively to those companies, in the hope that they will turn into monsters (“the next Google”) or be acquired by a monster, or at least acquired by some fool with money who expects to “monetize” the patent right if the commercialization effort fails (which is almost certain). See–the universities do prefer small businesses, but only ones that the universities create or have created to take an exclusive license. “Screw existing small businesses”–may as well have put it that way.

In the context of creating a non-exclusive licensing program one would consider fair licensing terms. For such terms to give preference to small companies–existing ones, created for something other than brown-nosing university patent administrators–those terms have to be scaled to what small companies can readily accept. Thus, start with use rather than commercialization, but with an option to commercialize (develop, sell), and on terms without a steep upfront payment or huge royalty on sales (if any). One could develop a fair license for small companies that looked like a site license for large companies. A large company would then appear as a cluster of sites or work groups. (We used this approach for a decade at the University of Washington–a number of those projects are still going.) One could, then, develop fair terms that gave a preference to small companies. But few universities do that. Instead, they game the system and make a virtue of it. Anything to look good; anything for a buck–call it “in the public interest” and you are fine.

What about the march-in provisions (35 USC 204)? The march-in provisions operate only in four narrowly defined situations–mostly when an invention is not being used or developed for use or the federal agency doesn’t think that there’s a prospect for that development, or when an invention is used but not “reasonably available.” If one can get to march-in, then the federal government can require the patent owner to license an invention:

upon terms that are reasonable under the circumstances

There’s nothing here to indicate who finds the terms “reasonable”–the government? the patent owner? the licensee? a gallery of deplorables drawn from the general public? That use of “reasonable” is fightin’ wording, even if limited to “under the circumstances.” Nothing here about what makes for “fair” terms in licensing.

Much of the Bayh-Dole apparatus is directed at enabling exclusive licensing by universities and their proxy invention management foundations and firms. Here, at one point, fair terms included limitations on the duration of an exclusive license to any large company–but that requirement was quickly eliminated by amendment. For exclusive licensing, “fair” would appear to mean “whatever a patent owner and an exclusive partner agree is fair.” That’s basic to the freedom to contract, so one might think that’s as good as one gets.

For licensing by federal agencies, there’s something akin to the IPA requirement:

grant nonexclusive, exclusive, or partially exclusive licenses under federally owned inventions, royalty-free or for royalties or other consideration, and on such terms and conditions, including the grant to the licensee of the right of enforcement pursuant to the provisions of chapter 29 as determined appropriate in the public interest;

Whatever the federal agency “determines appropriate.” Well, that rather moves away from “fair” and towards “fair is what the government determines is fair, citing ‘the public interest’.” That doesn’t appear to give any private party looking for “fair” terms much room to work–it would appear just the opposite, that the law does not permit “fair” to be negotiated as a matter between the government and a private party. It’s whatever the government decides, so put up and shut up. (When a statute is this ambiguous and mealy-mouthed, why not require it be written in colloquial style–no precision is lost, just the snarking legal-looking authority:

grant whatever the hell licenses in federally owned inventions that the federal agency wants to–including assigning inventions to favored companies which then can run amok, suing for infringement if they botch commercial development, so long as they say whatever they do is done in the “public interest.” )

As for federally granted exclusive licenses, there are a bunch of requirements, none of which is directed at what a licensee might consider fair. At best, the license should offer “reasonable and necessary incentive” to “call forth private investment capital” to develop an invention–or, otherwise (catch-all) “promote the invention’s utilization by the public” (whatever that might mean in the context of an exclusive license). The rest of the provision lists all the barriers to a negotiated exclusive license that a federal agency and licensee must beat their way through–plans for commercialization, limited scope of exclusivity, avoid lessening competition (har, har), time limit for achieving practical application, and the like. Read it all for yourself and weep. Nothing about fair terms.

In the long of it, there’s nothing in Bayh-Dole that addresses fair licensing terms. If Bayh-Dole stipulated non-exclusive licensing, even as a default, then one might expect, either in Bayh-Dole or in the standard patent rights clause, a requirement that non-exclusive licenses be granted on “fair, reasonable, and non-discriminatory” (FRAND) terms. But there’s nothing like that in Bayh-Dole or its apparatus. Bayh-Dole was not designed to enable FRAND non-exclusive licensing; it was designed in opposition to FRAND licensing, to enable exclusive licensing on the form of assignment, so that both universities and federal agencies could circumvent the public policy expectation that publicly funded research inventions ought to be made available to all unless special circumstances indicated that a patent monopoly was necessary to make an invention beneficial to the public. Instead, Bayh-Dole flips all this around and enables the idea that the primary, first, best, only way to make inventions beneficial to the public is to create a private patent monopoly and exploit that monopoly for whatever value it may have, whether by nonuse, or litigation, or speculation through a succession of acquisitions, or a monopoly commercial position that commands monopoly prices–whatever WTF you might do, short of egregiously embarrassing and pissing off a federal agency. I could put this in more discreet terms, but why?

In the short of it, hahahaha–there are no fair licensing provisions in Bayh-Dole. It’s a do WTF you want law. “Fair” is whatever you can negotiate, if you are lucky enough or fool enough to be negotiating.


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