Key Concept 5: Public Covenant (Addendum)

The Need for a Public Covenant

A public covenant attached to a patent property right reflects a determination that the federal patent system, on its own, is not adequate to a given governmental or private purpose. We might say, a public covenant reflects the judgment that the patent system is not perfect, at least not for all purposes. For instance, U.S. patent law does not have a working requirement–a patent owner can exclude all use of a patented invention for the life of the patent. Yet, if a governmental purpose is to support research for the purpose of making the results of that research available for public use, then private patents may be used to frustrate that purpose. Why should the federal government fund research to advance the science available to the public, only to have nonprofit organizations obtaining patents on these advances and refusing to license rights to anyone? A public covenant ensures that a patent will be used consistent with the objectives of the funding that supported the inventive activity.

The Kennedy patent policy stipulated that patents might be used by contractors to exclude others for three years only–in that time, the contractor must use or develop the invention for its own advantage. After that, the contractor must make the invention available to others by licensing. In the Kennedy public covenant, a contractor’s incentive was to develop a patented invention and then profit by using the developed invention before making it broadly available. The Harbridge House report in 1968 pointed out that, for experienced contractors, over 80% of federally supported inventions they claimed were in use by the time a patent issued; that is, within three years of the invention. By contrast, for contractors without commercial experience, fewer than 60% of inventions were in use by the time a patent issued. Similarly, experienced contractors licensed 10% of their inventions resulting in use by others, while inexperienced contractors (such as nonprofits) licensed only 5% of their inventions resulting in use by others.

For the Kennedy patent policy, then, proposing an additional three years of contractor exclusivity for patents on inventions made with federal support doubled the amount of time an experienced contractor typically needed to develop an invention to the point of practical application. The public covenant stipulated, in effect, that if a contractor could not develop an invention within this six year period from the date an invention was made, then it should not bother with a patent. The effect of the public covenant, then, was to give incentives for rapid development of an invention, with a limited period of exclusivity, with the idea that the contractor doing the developing then could benefit by making a complete product available for licensing and commercial sale by others–an OEM mindset, rather than a monopolist mindset.

What are the rates under Bayh-Dole for university licensing efforts? Are university inventions put in use quickly? What is the time lapse between invention and use? Between invention and license? Between exclusive license and first commercial sale? We have no idea, as use information is declared by Bayh-Dole to be a government secret. Perhaps Bayh-Dole’s secrecy is the foremost of its many failings–or clever tricks to prevent anyone from seeing how the law actually is used by patent brokers to exploit federal funding.

The Proxy Covenant Under Bayh-Dole

Under Bayh-Dole, the public covenant is all but ignored. In its place is a proxy covenant, represented as a mandate that universities take ownership of inventions made with federal funding and seek to commercialize these inventions through exclusive licenses. This proxy covenant then simply states that nonprofits should deal in patents to make as much money as they can in partnership with companies that share this same goal, using patent monopolies to exclude competition, maintain high prices, and secure as much return on each invention as possible. In the proxy covenant, a subject invention is an ordinary invention that a nonprofit organization has a right to own and exploit however it may, as if the patent property right was that of an ordinary patent, as if there were no public covenant.

Bayh-Dole is structured so that federal agencies do not have to enforce the standard patent rights clause provisions that implement aspects of the Bayh-Dole public covenant. Thus, U.S. manufacture may be waived, small business preferences may be ignored, assignments of subject inventions (often obscured as exclusive licenses) may be made without federal agency approval, and licenses may run for the entire term of a patent, ignoring requirements that the patent system should be used to promote free competition and enterprise.

The proxy covenant opens up the use of patents on subject inventions for any form of patent exploitation, including delaying the use of an invention, precluding public availability of inventions, and encouraging monopoly pricing (and thus gaining for the nonprofit a greater income from royalties on sales at monopoly prices). The proxy covenant is at odds with past public policy. Indeed, if patents on federally supported inventions are ordinary patents, then the public policy in play is simply that nonprofit organizations, not inventors, should own and exploit patents on inventions made with federal support. Nonprofits should decide what to patent, when to license (if ever) and on what terms, with no obligation to report their activity to the public. 

This proxy covenant runs counter to the Constitutional foundation of federal patent law, which authorizes Congress to grant to inventors exclusive rights in their inventions for limited times, in exchange for the publication of the invention. While the federal government might restrict a patent owner’s property rights, the federal government does not have the authority to decree that nonprofits (not even employers in many cases) should own inventors’ inventions. Bayh-Dole makes it appear, however, that this is indeed federal policy. If federal funds are involved, then inventors should have no rights in their inventions–not even to dedicate their inventions to the public or assign their inventions to the federal government with the expectation that the federal government will dedicate the inventions to the public.

Now, we can debate whether it’s inspired public policy to disenfranchise inventors of their Constitutional right to obtain patents on their inventions. There is a freedom component to the debate and an outcomes component. If nonprofit control of patents on subject inventions is demonstrably better (faster, with greater quality, with broader distribution, with greater public benefit on more reasonable terms) than permitting inventors to own their inventions and deciding on a course of action with regard to patents, then at least we would identify a preferred pathway for such inventions. It’s just there is nothing to indicate that nonprofit control of such inventions is resulting in much of anything–on the order of 1/10th the rate of use for licensed federal supported inventions in the 1960s. Bayh-Dole patent practice appears to be 10 times worse than past practice under the Kennedy patent covenant.

That leaves us with the freedom argument. A slave plantation or a sweat shop factory may well be more “efficient” than other methods of production of products “for the public benefit.” But we reject the methodology based on reason rather than merely on an assessment of outputs. Bayh-Dole appears to authorize nonprofits to act as invention plantations–taking the inventive output of investigators, obtaining patents on this output, and then dealing in monopolies with companies, splitting the upside. This, it is argued, is the best of all possible systems, and certainly much better than the past system under the Kennedy public covenant. But the argument fails–the nonprofit monopoly on patents fails the fundamental expectation that inventors should have the freedom to choose what they patent and how they deploy their patents. The nonprofit monopoly also fails the outcomes argument–the Bayh-Dole system is worse than past approaches.

Why then does the awful, non-statutory version of Bayh-Dole practice persist? Why do looters continue to break windows and take what they want? Why do drug addicts continue to shoot up? Why do drunks continue to drink? Perhaps because they can–because no one steps forward to restrain them. Perhaps because it is all they know and all they have the capacity to know. They cannot imagine anything else and lack the will and capability to do anything else. Bayh-Dole nudged university administrators to loot what ought to have been the rights of inventors, or by contract the rights of federal agencies, to make inventions available to the public, using the patent system for all the reasons other than to create twenty-year monopolies–to manage quality, to choose first partners, to develop standards, to cross-license improvements to open up access to cumulative technology, to develop inventions for use faster, at less overall cost, with opportunities for competition. The proxy covenant precludes all these things in favor of monopoly exploitation of patents, making it appear that doing so is the only, best, foremost use of the patent system, even in the context of subvention funding to advance the frontiers of science for public availability.

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