Patent System and Public Covenants
If the patent system is good as it is, and does not require a public covenant to run with inventions made in federally supported research, then why should federal policy endorse the two circumventions of patent law–that institutions somehow should own inventions, not inventors; and that institutions should issue private patents (labeled as exclusive license agreements) out of favoritism and for the money and not based on some objective standard of merit? If the patent system is to be used, then why circumvent it? Why not leave ownership with inventors until they voluntarily decide otherwise? What’s the point of pushing invention ownership to institutions when that’s not federal patent law?
There are other financial plays with patents that don’t involve making any commercial product at all. A patent can allow for speculation on the future value of an area of practice. Think of it like fantasy baseball, except rather than drafting players into a fantasy team, one drafts patents into portfolio. One can then trade from that portfolio or sell off assets, all the while keeping the patent monopoly together. One can assign a patent, for instance, for money to a new speculative investor who wants the opportunity and is willing to pay. Or one can license the patent exclusively to a company and then the company is acquired (and with it the patent rights). And once one has a patent under “exclusive license,” one can exclusively sublicense the patent–kicking the monopoly further down the road, and making money for doing it.
It’s like those bottles of wine in warehouses in Hong Kong that investors trade back and forth. The bottles never move–they just get traded. People make money, others lose money, but the wine never gets consumed. A similar thing can happen in music publishing. Someone signs up a bunch of bands to recording contracts, and then sells the portfolio (or some portion) to another music publisher, who pays based on the future value of the purchased contracts–all without anyone every producing an actual recording for sale. Same with trade on research patents.
Such things happen, and can happen with patents. Patent trolling is just a variation that derives value from the threat of litigation for infringement. The value of the patent license is at least the cost of defending a suit for infringement. The value of the patent is the sum of all such possible payments to settle threats of infringement. Nothing in such an exploitation of a monopoly right has anything to do with calling forth risk capital to develop something that otherwise will not be used or benefit the public. Quite the opposite–the monopoly right in a troll situation has to do with tracking down users and making them pay for their use. Does Bayh-Dole preclude trolling behaviors or other exploitation of a patent’s monopoly right that does not involve working the underlying invention? Research Enterprise argues that Bayh-Dole does preclude such behaviors, but that the law and the standard patent rights clause are ignored by universities and companies, not enforced by the federal government, and there’s no mechanism in the law that allows for inventors, third parties, or the general public to enforce the law. To the extent that it’s then federal policy to encourage such private institutional behaviors that exploit the monopoly value of a patent rather than benefit from the productive use of the underlying invention, we might think that Bayh-Dole actually establishes the private right of universities to tax industry at a rate based on the cost of defending and/or settling infringement actions. Bayh-Dole: taxation without representation. Folks in Boston got all up about that some while ago, dumping a cargo of tea. Now, apparently, meh.
Invention and Claimed Invention
There’s one more variation on this theme to examine. It has to do with the difference between an invention conceived in research and the invention as a claimed invention in a patent. This is an important point, but you might feel it is obscure, so let’s take it slow. Obscure stuff may be the operative stuff. May as well take it into account.
An invention, when conceived, represents some realization of useful function that previously wasn’t known and wasn’t obvious from what is known. Usually there’s an initial formulation–a prototype device, a compound, a process. See, it works! Way cool! But as we move to a claimed invention in a patent application, the invention is transformed into a classes of devices or compounds or processes and their functional equivalents. That is, the claimed invention may include hundreds or thousands of variations and combinations that have never been tried, tested. Some may have different properties or side effects; some may be easier to make, or safer to use, or fit for a particular purpose because smaller or faster or more powerful. The patent redefines the invention as all of these possible variations.
The first variation discovered may be a relatively cruddy one. Warfarin wasn’t the first compound in the series, nor was Xtandi. I have encountered situations in which the invention that was the basis for the patent turned out not to work as claimed, but the claimed invention included variations that did work. Thus, all one needs to control the class of variations is one cruddy, plausible-sounding instance.
Development often means, first, finding less cruddy instances of the claimed invention, ones suited to particular applications and meeting the manufacturing, safety, quality, and ease of use requirements for those applications. Often that development results in expansion of the invention (represented by continuations in part patent applications) and additions and other changes in the claims (continuation patent applications) and patent applications on variations, methods, and applications that were not covered in the original patent application. One ends up with a patent family, each patent with tens of claims, creating a “thicket” of claims, like the tentacles of a colony of stinging jellyfish, patenting man-o’-wars or something, ready to immobilize anyone who stumbles into their territory.
If there’s a patent or patent family, then all such development is excluded for anyone but the patent owner. There’s not even a “fair use” standard (or “research exception”) that allows others to mess around with the invention looking for better variations. The motivation for everyone who doesn’t have the patent and isn’t the company favored with an exclusive license is not to use the invention, to design around the claimed invention in all of its variations, to push industry roadmaps and standards in a different direction, to undermine the value of the invention and by extension to undermine the value of the federal research support that led to the invention–you know, the way cool one in the lab, before the invention became the claimed invention of the patent.
Some companies strategically file patent applications to block the path of development of someone’s newly published patent application in any direction that might affect the company or might give the company leverage in a deal to cross license patents rather than countersue for infringement. Such strategies in effect neutralize the patents for anyone who practices.
That’s why industry hates the patent trolls, the “non-practicing entities,” because the NPEs have nothing to worry about in their own use of technology and so there is nothing they might feel pressure to trade for. Universities are NPEs with the rest, willing to sue for infringement or commission a proxy to sue–even though the presumptive point of university ownership of inventions (according to Bayh-Dole) is to promote their use, not merely the financial exploitation of patent monopoly positions.
The university invention, then, serves as the starting point for a patent process that aims to expand the documented invention to the “claimed invention” of the patent, and from there to expand the scope of claims by additional patents. More federal research dollars, at that point, means that the government is subsidizing the university’s expansion of patent rights–more patent applications, broader scope, wider thicket of claims. In turn, university administrators (in the dominant practice) hold the patent rights on behalf of a future corporate assignee. Their transaction will aim to preserve the patent monopoly to be placed in the hands of this favored corporate assignee. They won’t willingly break up the patent monopoly, and they will contract with their favored company to make it difficult for the company to do that as well–no chance to dedicate the patent to a standard, to cross-license at no charge, or to grant royalty-free non-exclusive sublicenses.
If we trace the action from start to finish, then, we find that under Bayh-Dole, the federal government subsidizes universities trading on monopolies that are parasitic on industry, with the back up for failure to make product being playing the patent troll. The only difference between this practice and typical for-profit troll practice is that universities make a public show of attempting to license to a company that commits to making a commercial product. This is the flip side of the special special case–trolling is what happens when the commercialization doesn’t work out.
Flipping the Special Special Case
For candidate prescription drugs, according to the pharmaceutical industry, the odds of success are low and the time for development long. That means for the duration of the attempt, the claimed invention, the entire thicket of claims, is unavailable for any other use or user, whether commercial or otherwise. And for any special case, once the attempt fails (if there ever was one), the fall back is to troll industry and thus “monetize” the value of the patent–that is, break up the monopoly right by suing others for infringement and including a non-exclusive royalty-bearing license as part of the settlement.
Under past federal patent policy, the special special case was just that–an exception among exceptional circumstances. Most research inventions did not benefit from patent positions and therefore patenting was unnecessary. For most of these inventions, the public gained no benefit from patent positions, nor did industry. There was no point to exclude others based on a patent, and there was no point in using the patent as the premise for publishing because the publishing would happen anyway.
Under past federal patent policy, as well, a patent might be needed to protect the public from shoddy manufacture or misleading claims, but in the special case, the purpose of a patent was to call forth private capital to assist in development of an invention that otherwise could not be used to benefit the public, and in the special special case the inventions were in the area of public health in the form of potentially therapeutic compounds to be developed into prescription drugs.
Current federal patent policy represented by Bayh-Dole and the standard patent rights clause and by agency indifference to enforcement of the standard patent rights clause and agency indifference to using the government’s privileges under Bayh-Dole (to change the standard patent rights clause, to exercise rights under the government’s license, to intervene to enforce the public covenant) flips everything. The special special case is now the dominant case, generalized to apply to all federal agencies and to all inventions made by inventors working at or for contractors. All inventions must become commercial products. All commercial products must be created by single companies. Each favored company must invest on its own, and to justify that expense, must have a monopoly on the invention–all the claims of the claimed, patented invention–for the life of the last to expire patent.
The pharmaceutical industry, working with the NIH, has made its vision of research innovation become, by law, the vision for all industry, all research. Public benefit from federal research comes, by law, only as a result of institutionally created monopolies, each transferred to a favored company to exploit. This is the bizarre outcome of Bayh-Dole, made not only to seem virtuous, not only to appear to be the general nature of innovation, but also to be the only way that things can work–the only “successful” way. Bizarre.
In a sense, then, we can see how the claim that Bayh-Dole contributed to the growth of the biotechnology/pharmaceutical industry might be “true.” Not true in the sense that somehow without Bayh-Dole we would not have these industries, but rather that these industries, by capturing federal research funding as well as monopolies on the compounds and methods discovered in federally funded research, these industries were able to prevent any competition with their business practices–monopoly development, monopoly prices, requiring massive government regulation to protect the public from shoddy manufacturing, lousy science, dangerous and ineffective drugs, false claims, and poor training of physicians.
It may well be true that Bayh-Dole has permitted federal money and patent rights that otherwise would have been federal or public or private with a strong public covenant to be captured into this industry mindset and practice. The federal government, then, has endorsed this mindset and practice. High drug prices, patent monopolies, the high-risk/low-chance development–these are all results of federal patent policy, if the claim is true that Bayh-Dole has been wildly successful.
In most other areas of activity, outside of the biotech/pharma industrial complex, Bayh-Dole appears to have been a non-issue for industry in their contracting with the federal government and a net negative for collaborating with universities. Bayh-Dole made it clear that universities could mix federal funding with industry funding, own the inventive results and deliver these results exclusively to industry–there’s the “mixed funding” issue in its own special case–but Bayh-Dole also set the universities up to charge for the patent rights and to impose the special special case on all industry contracts.
If the government patent policy must be uniform (meaning, arbitrary), and university patent policies must be uniform (meaning, arbitrary), then so also must university patent licenses be uniform (meaning, arbitrary). The biotech/pharma exclusive license is thus also the information technology and nanotechnology and environmental technology exclusive license. Same default monopoly expectations–obtain a monopoly right, commit to making commercial product, exploit the patent monopoly for price and to eliminate competition, and pay a share of this good fortune back to the university. That’s the practice we have in most universities in the United States. There are some hold outs, but not many.
The odd thing is that outside of biotech/pharma and venture-capital backed deals, most companies don’t want the university special special case patent license deal on offer. They don’t want exclusive rights, they don’t want to pay royalties, they don’t want to accept diligence requirements, they don’t want to develop commercial product, they don’t want to threaten to sue others over what they receive, they don’t want to have to report sales or earnings, they don’t want to be audited, they don’t want to indemnify the university. These companies are often even willing to pay to avoid all these other pains–a one-time fee for a FRAND license, for instance.
Federal patent policy, as established by statute, however, makes it appear that all industries should be treated like the pharmaceutical industry–patents must be essential, must be kept as monopolies: “use the patent system to promote the utilization of inventions” comes to mean “you must require industry to deal in monopolies as a pre-condition to the use of any invention” rather than “if the patent system provides a necessary incentive for private development of an invention for public benefit, then you may use it.”