What Universities Don’t Report Under Bayh-Dole, But Ought To

Here’s the reporting requirement in Stevenson-Wydler for federal agencies operating technology transfer programs under Bayh-Dole (35 USC 207, 209). I’ll make some comments in between portions of the text:

(A) an explanation of the agency’s technology transfer
program for the preceding fiscal year and the agency’s
plans for conducting its technology transfer function, including its plans for securing intellectual property rights in laboratory innovations with commercial promise and plans for managing its intellectual property so as to advance the agency’s mission and benefit the competitiveness of United States industry; and

Each year, an explanation of the program activities for the past year–not mission statements, not aspirations and intentions, but what the program did. Explain what you did do.  Then, each year, produce a plan for the next year–how to secure IP and how to manage that IP. Seems reasonable enough. 

(B) information on technology transfer activities for
the preceding fiscal year, including—

(i) the number of patent applications filed;

(ii) the number of patents received;

(iii) the number of fully-executed licenses which
received royalty income in the preceding fiscal year, categorized by whether they are exclusive, partially exclusive, or non-exclusive, and the time elapsed from the date on which the license was requested by the licensee in writing to the date the license was executed;

Missing: fully executed licenses that didn’t receive royalty income. That is, royalty-free licenses are ignored. So are royalty-bearing licenses that didn’t bear anything. No distinction between payments and royalty income. No report of the time from report of invention to first fully executed license. No report of the time from first fully executed license to first commercial sale or use.

If we define “royalty” as any consideration for a patent license, then upfront payments, milestone payments, and the like all trigger a report. But if royalties are only those earned from sales of actual product in a market place, then the figure here has to do with what inventions have actually made it to a market via a license that requires a royalty on sales.

Once we have what inventions have made it to market, then we can look at the means by which this path was made–exclusive, “partially exclusive” (whatever the heck that is), or non-exclusive. We might then see what the transaction space looks like for each federal agency.

And the negotiation time for a license. This is a measure of program efficiency. But it’s really not as important as time from invention report to first commercial sale or use–this latter is a measure of program effectiveness. One can be really efficient at useless stuff. Just like bureaucrats to measure something mostly useless and outside their control. One can’t force a license down a company’s gullet. Consider: a company doesn’t need to take a license quickly if it is waiting to see what claims are allowed–it just wants to tie up the licensor in negotiations so the licensor won’t license exclusively to someone else. It the patent doesn’t issue or the key claims aren’t allowed–then there’s no need for a license, certainly not a paying one. Similarly, a potential licensee can delay the license to see if there are design-arounds or better alternative technologies to acquire. Delays in licensing are often strategic, not a matter of bureaucratic lack of diligence.

(iv) the total earned royalty income including such
statistical information as the total earned royalty income,
of the top 1 percent, 5 percent, and 20 percent
of the licenses, the range of royalty income, and the
median, except where disclosure of such information
would reveal the amount of royalty income associated
with an individual license or licensee;

These figures provide structure to the licensed portfolio’s financial performance. Is there one big hit and nothing else? Or are there multiple licenses each providing some income? But even here, there’s the problem of the royalty-free license–which won’t produce any royalty income but may be the most effective. Strange. But one sees the assumptions at play in the legislation–federal agencies will aim to get as much money as they can from licensing. That is, they are enabled to deal in patent monopolies. There’s not even an effort to related royalty income to working an invention–a company could pay a large sum to gain a monopoly interest in a class of inventions, and not develop any of them into commercial products. Is that payment an “earned royalty income”? Or is it just a payment in lieu of an earned royalty, or a buy-down of that royalty? Same for royalties paid in the form of equity–stock in the licensee may become valuable without any commercial product based on a federally licensed invention. What of that?

(v) what disposition was made of the income described in clause (iv);

This is really interesting. If there’s a return to the government on licensing, how is that money used? Does it matter, really, that the government has a profit motive in licensing patents if, after the cost of doing so, there’s nothing worth talking about?

(vi) the number of licenses terminated for cause;

Which might be a proxy measure for whether a federal agency enforces the diligence terms of its licenses.

(vii) any other parameters or discussion that the
agency deems relevant or unique to its practice of
technology transfer.

This report is intended for public release:

PUBLIC AVAILABILITY.—Each Federal agency reporting
under this subsection is also strongly encouraged to make the information contained in such report available to the public through Internet sites or other electronic means.

Now compare these requirements with university reporting under Bayh-Dole. Agencies must use a clause that requires utilization reports–but only at agency request, no more than once a year, with no set requirements for what is to be reported, and whatever is reported is (according to various claims in Bayh-Dole and the standard patent rights clause and implementing regulations) to be kept a government secret and not reported to the public.

Universities don’t report the number of subject inventions they have claimed in a year, nor which of these they have licensed, nor whether for each subject invention licensed whether exclusive or otherwise, nor what they have been paid for each license or subject invention, nor the time from invention report to license, or from license to practical application, or from request for license to license. In short, nothing to show that the university has complied with Bayh-Dole’s fundamental policy to use the patent system to promote the utilization of subject inventions.

My question: why, if universities have been so successful with Bayh-Dole, doesn’t anyone report what they have done and thus provide us with the basis for approval? Instead of telling us what to think–we get that, that they want us to think well of them and of Bayh-Dole–show us what they have done. But they don’t. They show proxy metrics that measure effort, that show what happens when bureaucrats demand a role in innovation. But they don’t show practical application, they don’t show the structure of their licensing portfolio, and they don’t show the structure of their financial returns. In short, they don’t report anything that would provide a public basis for an assessment of their performance in the Bayh-Dole regime.

Matthew Herder published a discussion of the lost recoupment provisions in the Senate and House bills that became, eventually, Bayh-Dole. A number of things stand out, but one that is remarkable is that in 2000, when Senator Wyden attempted to add recoupment back to Bayh-Dole, the NIH claimed it could not easily find out what inventions it had funded that had become subject inventions. Utter nonsense, of course–in a political nonsense sort of way, meaning uncooperative federal bureaucracy nonsense. The NIH could have used its reporting provision to require each contractor to specify which inventions had achieved practical application, and with what product names or other identifiers. Furthermore, each product ought to be marked with a patent number (that would be good licensing practice, at least, to require such marking), and so a simple lookup of patents citing NIH funding would also indicate products that had met the practical application standard (in use such that the use can be established with benefits available to the public on reasonable terms). Of course, the mere presence of a commercial product citing a patent on a subject invention does not establish that the product provides benefits to the public on reasonable terms. But “reasonable” here is a statutory term, and cannot mean “just any terms that a patent owner permits or a licensee chooses”–otherwise there would be no purpose at all in including “on reasonable terms” in the statute.

But here’s the thing: when the NIH got around to figuring out what “blockbuster” drugs had been developed based on subject inventions–ones bringing in $500m/year in annual sales–of the 47 such drugs then on the market, only 4 were based on subject inventions. Now perhaps more NIH-supported drugs were making less than $500m/year, but it would appear that in the 19 years between Bayh-Dole going into effect and the year of the study, the output of Bayh-Dole licensing was rather sparse–especially given the huge federal investment in Taxol. Almost everything else about the effect of federal research was an estimate of indirect benefits based on assumptions and economic models. That is, “speculation,” as Herder calls it, rather than facts. But in good political fashion, speculation that is to be treated as fact, so that we might live in a fantasy world and make our decisions based on fantasy rather than fact. Nice, if you can endure it.

University administrators argued that a federal tax on licensing income would not change a drug’s price (true enough) and might increase prices (not true at all). They argued as well that (according to an NIH report):

such redirection of royalties would undermine the research enterprise, drain funds for academic development, and discourage faculty members from embarking in the technology transfer process. Moreover, there is concern that any movement to extract a direct financial return for the investment would dampen, if not destroy, industry’s
willingness to establish agreements with academic institutions . . . .

These arguments are laughable. A university does an exclusive license deal. That deal is at, say, 1% adjusted gross. If a quarter of that royalty stream goes to the federal government, there’s absolutely no effect on the company or the license deal. The university just writes a check each year. Further, consider the situation when a university must split royalties with another institution–jointly owned patents. Now income is split 50%, with the university writing a check. Does that undermine the research enterprise? drain funds? discourage faculty members? No. And how would the government’s share have anything to do with industry’s willingness to enter into monopoly deals? If that’s the case, then what the government provides truly is not an “investment”–it is something else, perhaps a donation or subsidy, but not an investment.



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