That special special case 4: Making it general

The special special case was turned into a general case, the only case, the best practice case. According to this new general case, inventions generally require private risk capital to become useful. Institutions must take on the responsibility to find that risk capital, because they will do better at finding risk capital than can either the federal government or inventors. Institutions will use monopoly patent rights as incentives to recruit companies to create commercial products. Making money is fair game for both the institution and the company. Inventors are attracted to the scheme because they too will receive a share of what the institution receives–and thus it is important for the scheme that it makes money, so there is money to share with inventors, so inventors will participate. Dealing in monopoly rights also comes with the territory. If an invention isn’t developed, then the federal research investment has been wasted. If the institution represents the best possible effort to attract companies with the offer of monopoly positions, any failure to create a commercial product is a failure of risk capital or a failure of the invention–not a failure of the institution or the scheme by which the general case circumvents the patent system. This is the scheme that Bayh-Dole enables.

Let’s look then at some uses of the special special case in its general form. This is where Bayh-Dole becomes arbitrary and disastrous. Again, the special special case is that of compounds that might become prescription drugs, for which the pharmaceutical industry (including biotech backed by venture capital, aiming to sell out to the pharmaceutical industry) insists on patent monopolies. But Bayh-Dole provides cover for generalizing the special special case to all inventions, all uses of patents, all methods of commercial application.

Thus, rather than looking for places where a patent monopoly is necessary, and then limiting the scope of the monopoly only to that necessity, and even then limiting the duration of the monopoly to the time needed to develop a product and recover one’s investment with some profit (a reasonable incentive), instead patent administrators look for places where a patent monopoly is desired.

For instance, consider an invention that does not require substantial investment to use or develop–but an investor in the patent can derive value by preventing all others from practicing or developing the invention (that is, any variation on the invention claimed in the patent). Thus, to the investor, a patent is desirable and the investor is willing to pay to acquire the monopoly. The incentive is not simply that the investor will recover its investment with some profit and then compete for sales with other manufacturers, relying on its head start. No, the incentive is that the investor pays *much less* for the asset than it is worth as a monopoly. That is, the price charged for the patent monopoly does not reflect the value of the monopoly. Of course, a royalty of 1% (typical for pharmaceutical patents licensed by universities) means that 99% of the value (more if one considers gross income and the related value of brand) stays with the licensee/assignee.

This sort of situation is perfectly fine according to ordinary patent system exploitation. An inventor can use a patent to prevent practice of any patented invention, even ones that are easy to make into commercial products. Indeed, one might say that it is the clever invention that’s obvious and simple in hindsight that most requires a patent to keep imitators at bay. But should that same patent practice be expected of inventors who make their inventions using federal money? That is, if the patent does not provide a necessary incentive for investment in developing an invention that otherwise wouldn’t be developed and therefore not used, should there even be a patent? You might answer–sure, patents are patents, and clever inventors, even ones that would publish anyway because they work at a university and receive public money for their work, ought to get whatever financial reward they can for their cleverness. And that would be a decent answer–others might disagree, but it’s a decent answer.

Go one step further. Should university administrators, who claim to own all such inventions, cleverly obvious or otherwise, use patents on the cleverly obvious ones to prevent all use and commercial development but for a favored company licensee? That is, even if an inventor ought to play the patent system any way he or she can, should a university also do this? Again, any number of university patent administrators, by their actions, answer, “Yes, of course.” But here’s where the answer may not be so decent, because it runs afoul of even Bayh-Dole’s statement of federal patent policy.

If the point of allowing institutions to hold patent rights is to call forth private capital necessary to the development of an invention so the public might benefit, then there’s no good reason why a university in obtaining a patent under such a policy ought to use it to prevent easy use and widespread development of an invention, just because it is patentable. One might argue that such inventions are not the special case that requires a patent to fend off free riders or there will be no risk capital, no development, no public benefit. Thus, this argument goes, the public covenant that runs with federal research contracts (now, via Bayh-Dole) should preclude such institutional trade in patent monopolies. After all, Bayh-Dole’s fundamental policy, burned into federal patent law to cover subject inventions, is to “use the patent system to promote the utilization of inventions.” How can preventing most uses of an invention promote “utilization” or “practical application”? How does trading on a patent monopoly promote use when most anyone could use and develop the invention, and would, if there were no patent monopoly or if that patent monopoly were broken up through non-exclusive licensing that controlled only for quality and safety?

Now Vannevar Bush argued, with regard to basic university research supported by federal funds, that the only public covenant that should run with patents on such inventions should be a royalty-free government license. The inventor should not be free to sue the sponsor his research for practicing what the inventor discovers and reports. But then when Bush made this argument (in Science the Endless Frontier), universities generally did not take an interest in patents and instead referred inventors to invention management organizations. And of course, Bush lost his argument on the matter, and some federal agencies (notably what became the Public Health Service) asserted that inventions were deliverables unless the PHS decided otherwise. When the PHS did eventually broaden their management of inventions to allow non-profit contractors to own inventions made with federal support, they included the strong public covenant required by the Kennedy patent policy (watered down and walked back later by the IPA program).

We might ask, then, whether institutional ownership of inventions based on a federal policy with a strong public covenant should end up looking like any ordinary exploitation of patents, to make money by disrupting the adoption of research inventions and discoveries–and in the process licensing very few inventions at all and so keeping most university inventions from all use and development.

There’s a second point, less difficult. If a university patent management program blocks most uses of inventions made in that university’s research enterprise, then at some point might folks just get fed up with the university and stop funding it? Companies might walk away, industry scientists might stop reading publications from their labs, the general public might shrug their shoulders and agree to reduce or even end subsidies for such research. If a university can play any old patent exploit, and hold patents hoping to attract people who value those exploits, then why should the public fund the research that the university seeks to profit from? I suppose the answer is–university administrators will worry this point if they are ever caught out on it.

At times, industry signals directions that it wants to go, especially for standards and common technology platforms. University researchers working in such an area with federal money might be expected to contribute to those platforms and standards, to speed industry’s development of new products and services. But if universities step in and take ownership of all inventions, and then dedicate those inventions to a path in which a single investor takes control of a monopoly on the advance, the university is in effect selling out the commons in favor of a blocking monopoly–industry must then pass through a patent choke point in order to maintain its progress on a common technology road map.

Again, any clever inventor can anticipate where companies are heading with a line of technology and try to get there first, obtain patents, and create a pay point. But what purpose is served by the federal government subsidizing such efforts? What turned such cleverness into a class worthy of public subsidy? And what difference does it make that university administrators think they can do a better job with such disruption than can any individual academic inventor who aspires to such practices? Why should the federal government subsidize this version of patent trolling out ahead of an industry roadmap?

Essentially, that’s what Stanford attempted to do with Cetus/Roche. The company was working on applications of its PCR technology for evaluating the effectiveness of drugs in AIDS cases. Stanford goes and gets federal funds to do roughly the same thing, “invents” and takes out a patent position that would block Cetus/Roche, and then seeks to hold up Roche for a third of a billion dollars. Implicit in Stanford’s argument that Bayh-Dole vested ownership of federally supported inventions in Stanford is the claim that it’s good federal patent policy to subsidize the creation of industry choke points to prevent the use of federally supported inventions until a favorite company has been granted a monopoly and that company pays. We might ask: is that really good federal patent policy?

In the special case, of course, there can be no use of an invention without substantial private investment, and once that investment has been made and a commercial product developed, then the product is easy and inexpensive to copy, cutting into the original investor’s profits. But in the general case, there can be all sorts of use and development of an invention, but for the existence of a patent that prevents that use until someone–some paying monopolist–agrees to take over control of the patent. Where federal policy might endorse the special case, it’s hard to believe that federal policy should endorse the general case as if all cases are special cases.

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