The special special case arose in the Kennedy patent policy in 1963. Look at the parameters. Here is the premise:
A. The government expends large sums for the conduct of research and development which results in a considerable number of inventions and discoveries.
The government does so by procurement contract to purchase the products of commercial firms; by procurement contract to acquire the results of work performed by contract research organizations, who freely give up all rights in exchange for research work; and by subvention, as grants-in-aid to expand scientific knowledge.
B. The inventions in scientific and technological fields resulting from work performed under government contracts constitute a valuable national resource.
Inventions are singled out and claimed as a “national resource.” That’s an interesting move. “National” can mean either “held by inventors in our nation” or “nationalized be reason of public support.” Notice as well the conflation of the three forms of research contract–to buy products, to obtain research services, and subvention. Nothing here, however, about data being a national resource, or trained scientific workers, or technical reports of work.
C. The use and practice of these inventions and discoveries should stimulate inventors, meet the needs of the government, recognize the equities of the contractor, and serve the public interest.
Four key issues to address in the policy. This summary sets up what is to follow.
Inventors should be “stimulated.” Inventor stimulation is very different from the purpose set out for the patent system generally. The patent system is created to “promote the progress of the useful arts”–that is, to stimulate the dissemination of useful arts by means of the publication of the technical details of inventions that otherwise would be held as trade secrets or held indifferently. An inventor might be stimulated by the attraction of this exchange, and so invent to obtain the monopoly for a limited time. But the patent system itself is about the progress of the useful arts; the limited monopoly represented by the patent is the public payment for the invention. How might inventors be “stimulated” and what should the result of that stimulation be? More inventive work? Better inventive work? Participation in the management of inventions for patenting? Efforts to assist in the use and practice of their inventions by others? There’s much there, and not much guidance.
Meet the needs of government. For procurement, the “need of government” is to have the right to practice the invention for government purposes. A sale of patented product does that–exhausts the rights of the patent owner. But here the issue will be deeper–access to the patent right itself so that the government can practice the invention without having to purchase product made under the authority of the patent owner. And the issue will be yet deeper, that the need of government extends to how the patent owner manages the patent in both the government market (as a weapon to prevent competition for federal research dollars) and the private market (as a monopoly that prevents public use and benefit of the invention in favor of less beneficial products that may still be profitable). Thus, needs of government has multiple forms to be considered–acquisition, freedom to practice, and a public covenant on private use, with a government right to intervene.
Recognize the equities of the contractor. There are two elements at play here. First, the interplay between a contractor and its inventors. Does the contractor have an equitable interest in the work of its employees, even if there is federal money supporting the work? Certainly, if the contractor also is supplying funding and has invested in assembling a workforce and training it and directing it to create products. But in the case of contract research organizations, which routinely give up all rights to inventions made under contract, there’s no equities of the contractor to consider, because the contractor willingly sells those equities as deliverables and requires inventors to comply as a condition of employment. Finally, we reach the equities of a university contractor, which receives federal money on behalf of faculty investigators, is compensated for both direct and indirect expenses in releasing its employees to work on the federal project, and thus on the face of it never had any equities in inventions made with federal support. Whatever equities there are in a subvention project are between the inventors and the federal government, the sponsor.
Serve the public interest. What is the “public interest”? That’s the core question. We might start by observing that it must not be the personal interest of an inventor. Nor is it merely the operation of the patent system, which itself is intended to serve the public interest in the form of promoting the progress of the useful arts. It may be that the public interest rests in the “use and practice” of inventions, or the more rapid use and practice of inventions than would be the case if the patent system operated without intervention. But here, public interest means something closer to “what the government decides is in the public interest” or “what the government decides to do” or more to the point “what a director of a federal agency decides to do, within the scope of authority of his or her position.” We might observe, then, that not only is public interest not at all clear, but also who is to decide the public interest, and what it means to then “serve” that interest by means of the disposition of patents on inventions made with federal support.
The public interest, then, involves when and how to use the patent system when federal money is involved and the government may stipulate the terms and conditions of that funding. At the heart of it, the argument goes, the patent system on its own is not sufficient to address what should happen when the federal government supports the research. Should the government issue patents to itself? And then what? Should the government exclude all such inventions from the use of the patent system, pushing them to the public domain? Should the government allow patents but split up the patent right so both the government and the patent owner have rights (or, so the patent owner can never sue the government for infringement or for “taking” private property rights)? Or should the government allow private patent ownership, but intervene in the disposition of patents beyond the interventions of antitrust law (for instance, intervening if a patent owner refuses to practice a beneficial invention and refuses to allow others to practice it, even for a reasonable royalty)?
The complexity here is necessary to show that “public interest” is no easy thing. In the abstract, “public interest” is just a rhetorical device. In practice, it may flow through many channels. Which ones get chosen is a matter of rhetoric, accident, malfeasance, and even choice. We might observe that there’s no particular virtue in “public interest” other than the assertion that the federal government asserts a right to intervene in the patent system as a condition of its funding. Bayh-Dole, despite its fluffy “public interest” apparatus, is designed to repudiate government intervention in the patent system, while endorsing the two circumventions of the patent system involving institutional not inventor ownership and required payment on monopoly terms, with monopoly pricing, for patent re-issue.
D. The public interest in a dynamic and efficient economy requires that efforts be made to encourage the expeditious development and civilian use of these inventions. Both the need for incentives to draw forth private initiatives to this end, and the need to promote healthy competition in industry must be weighed in the disposition of patent rights under government contracts. Where exclusive rights are acquired by the contractor, he remains subject to the provisions of the antitrust laws.
Now we reach the turning point. The public interest is tied to “a dynamic and efficient economy.” Dynamic suggests “inventive, changing, competitive.” Efficient suggests “without waste, without needless wrangling, with management not random activity.” We might imagine public domain pitted against monopolies. We see these two poles then reflected in the next sentence: “incentives for private initiatives” (patent monopolies) weighed against “healthy competition in industry” (breaking up patent monopolies). Bayh-Dole does not so much take up this weighing but rather rejects the premise–there is only the assertion of the need for “incentives to draw forth private initiatives”–that is, the special special case. Promoting “healthy competition in industry,” though there is a policy statement in Bayh-Dole calling for promoting “free competition and enterprise” (see 35 USC 200) is ignored in practice.
The Kennedy patent policy premises go on to address foreign patent rights–a huge issue on its own and another thing rejected by Bayh-Dole. But let’s leave that issue for another time. The Kennedy patent policy establishes a number of situations in which the government should take title to inventions and either “dedicate” them to the public domain or “license” them, presumptively non-exclusively to invite competitive use by industry. Early on, keep in mind, a purpose of the non-exclusive patent license was to control quality and safety, and both of these issues could be seen as matters of “public interest,” especially in areas such as pharmaceuticals, where the industry had yet to be meaningfully regulated (and still, perhaps, isn’t). There are two situations in which the government might allow a contractor to retain “principal or exclusive rights” to an invention made with federal support (Section 1(b)):
In other situations, where the purpose of the contract is to build upon existing knowledge or technology to develop information, products, processes, methods for use by the government, and the work called for by the contract is in a field of technology in which the contractor has acquired technical competence (demonstrated by factors such as know-how, experience and patent position) directly related to an area in which the contractor has an established nongovemmental commercial position . . . .
In other words, where a contractor has background rights, and both competence and a commercial position in a market that is not dominated by government activity, then the contractor can hold the principal rights in inventions made with federal support. Put another way, a procurement contract with a company engaged in a private market should leave patent rights with the company (subject to a government license and certain march-in requirements). Contract research organizations don’t meet these criteria–and wouldn’t care, since their business is doing research. Research is their product, their deliverable. Even further away from these criteria are university contractors, who receive government funding as a subvention. Universities are not in business, have no trade, and have no commercial position. There’s no reason, on the face of it, under the Kennedy patent policy for the government to allow universities to own any inventions made with federal support.
It turns out that universities were able to break down this policy with the argument that “we can give things away better than the federal government can”–but that argument was just cover for the repudiation argument involving the special special case.
Here are the three situations that permit a contractor to hold “principal or exclusive rights” in an invention made with federally support.
In exceptional circumstances the contractor may acquire greater rights than a non-exclusive license at the time of contracting, where the head of the department or agency certifies that such action will best serve the public interest.
That is, where a contractor is working in areas of government activity or to produce a product for the government or which will be required by regulation to be used, a federal agency can still decide to allow the contractor to retain patent rights. But these are exceptional circumstances, not an entitlement. You can see how Bayh-Dole reverses this idea and makes the default at the time of contracting to be contractor ownership, even where the government intends to develop an invention to the point of practical application. This is the pernicious “certainty of title” argument.
Greater rights may also be acquired by the contractor after the invention has been identified, where the invention when made in the course of or under the contract is not the primary object of the contract, provided the acquisition of such greater rights is consistent with the intent of this Section 1(a) and is a necessary incentive to call forth private risk capital and expense to bring the invention the point of practical application.
Here we have three conditions under which a federal agency may release an invention to a contractor after the invention has been made. First, the invention must not be the primary object of the contract–that is, it is not a stated deliverable (think, “planned and committed activities” under Bayh-Dole’s implementing regulations 37 CFR 401.1). Second, the arrangement must be “consistent with the intent” of the section–something of a mystery, since there is no statement of intent for Section 1(a). The third condition, however, is the one we are after:
a necessary incentive to call forth private risk capital and expense to bring the invention to the point of practical application.
Here we find “incentive” that answers to “the need for incentives to draw forth private initiatives” in the policy preamble. Take things slowly.
First, the invention is not a primary object of the federal contract, so the government has not made a commitment to developing the invention itself (the general matter of Section 1(a)). Thus, whatever money is to develop the invention, it won’t be federal.
Second, the incentive must be necessary, not discretionary. Without the incentive, there will be no private risk capital to develop the invention. Any invention that might be developed without the necessary incentive of a private patent monopoly is excluded. Private risk capital is “called forth” with a patent incentive only after it is clear that the risk capital is not called forth by any other means–such as the utility of the invention or the potential profitability weighed against the cost, competitive risk, and size of the market.
Third, the risk capital has a task–to bring the invention to “the point of practical application.” This is a defined phrase in the policy, from which Bayh-Dole gets its definition of “practical application.” The definition specifies that the invention is manufactured, practiced, or operated
under such conditions as to establish that the invention is being worked and that its benefits are reasonably accessible to the public.
(Compare Bayh-Dole at 35 USC 201(f):
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.
The red text shows that “utilized” replaces “worked”–US patent law does not have a working requirement, but an executive patent policy may include such a requirement, just at it may impose any other form of public covenant on inventions made with federal support. “Working” requirements in the past have been, for U.S. patent law, a source of controversy. Instead, U.S. law now has escalating “maintenance fees” to keep a patent in force. Presumably, if the invention isn’t worked, then at some point paying the maintenance fee isn’t worth it. The logic, though, doesn’t work out. One can, for instance, work a patent (by licensing it, say) and never work the underlying invention; or one can make money by keeping anyone from working the inventions (because it would compete with another source of income).
In any event, Bayh-Dole replaces “worked” with “utilized”–reflecting the policy statement at 35 USC 200–“to promote the utilization of inventions.” The pink text is the usual Bayh-Dole walkback (and specifically walkback for the special special case of patented prescription drugs that cannot be made available to the public as commercial products without government approval). The blue text retains “reasonable” but changes the target from “accessibilty” to “terms”–that is, under Kennedy, the standard is that the public has reasonable access to the benefits; under Bayh-Dole, the benefits are available to the public on reasonable terms. There is a gulf between these two formulations. One can offer benefits to the public on reasonable terms and not make those benefits accessible. But if the benefits are reasonably accessible, they are both reasonably available and also available on reasonable terms.
In the Kennedy policy, “the point of practical application” has to do with whether a contractor that otherwise has no commercial position should be permitted to hold patent rights in a non-primary invention. The purpose of the patent is to provide a necessary incentive to call forth private risk capital to develop an invention to the point of practical application. That’s the plan. That’s the criterion. That’s the scope of the incentive. It’s not to make as much money as possible for the contractor or the investors. It’s not to trade on the potential future value of the patent right by selling it from owner to owner, making money but not developing anything. It’s not to wait until the invention is in use by others and then suing them for infringement, especially when the patent was never offered on fair, reasonable, non-discriminatory, non-exclusive terms. The “calling forth private risk capital” serves a specific purpose in the Kennedy patent policy. Certainly it is a special case among all inventions, and certainly for medicinal chemistry it is a special special case at that.
There’s a third possible place in the Kennedy patent policy for contractor ownership of inventions made with federal support:
(c) Where the commercial interests of the contractor are not sufficiently established to be covered by the criteria specified in Section 1(b) [i.e., procurement from capable companies with commercial positions], above, the determination of rights shall be made by the agency after the invention has been identified, in a manner deemed most likely to serve the public interest as expressed in this policy statement, taking particularly into account the intentions of the contractor to bring the invention to the point of commercial application and the guidelines Section 1(a) hereof, provided that the agency may prescribe by regulation special situations where the public interest in the availability of the inventions would best be served by permitting the contractor to acquire at the time of contracting greater rights than a non-exclusive license.
This is the catch-all. Federal agencies can allow contractors that aren’t capable at the time of the contract to hold patent rights if that is “most likely to serve the public interest”–i.e., perhaps the policy’s preamble if not Kennedy’s introductory statement–with special emphasis on the contractor’s intention to “bring the invention to the point of commercial application”–not quite “practical application” but rather that the incapable contractor has to find a way to enable a Section 1(b) situation, either by becoming a capable company or finding one or more capable companies to partner with. For this, a federal agency can set things up either after an invention is made or at the time of contracting. This provision is the source of everything fussy that triggers the pharmaceutical industry boycott of Public Health Service supported inventions in medicinal chemistry, the revived Institutional Patent Agreement program at the NIH to undermine PHS patent policy, and finally Bayh-Dole, to decree by statute the NIH’s undermining and so make it difficult for the PHS to restore its regulations.
The problem for this policy statement 1(c) is that merely stipulates that an agency must make the decision that’s best for the public interest with regard to commercial application (not practical application). Here, the special case argument comes into full play: the government isn’t good at commercial application, and dedication to the public domain doesn’t necessarily call forth risk capital. Without risk capital, then, there won’t be commercial application (or even practical application), and the invention will be caught in limbo forever. As we’ve argued, this is a special case for inventions–many inventions can and are used and developed as commercial products without the need for a monopoly right. While the special case is true as a special case, it is false as a general case. That’s where the lies (or self-delusion or bluffing or whatever one wants to call it) come into play–making a special special case appear to be merely a special case, and then happily construing the special case as if it were the general case.