A tale told by an, er, a patent broker

I’ve called Bayh-Dole a monster, a love monster, a dismal failure–and it is all these things. Bayh-Dole was created by patent brokers, not university inventors. The patent broker vision of the innovation world is a fairy tale. In this tale, the only way that federally funded research will benefit the public is if universities own discoveries and inventions, file patent applications, and turn these discoveries and inventions over to patent brokers to license as monopolies to their favorite companies. This is called “commercialization,” even if no licenses are granted or if granted no invention is used or product made, or even if used or made, no benefits are available to the public on reasonable terms. Without patents, and patent brokers, so this fairy tale goes, federal research dollars are wasted because everything would just “sit on the shelf” and never be used.

Here’s the deal that patent brokers offer. They will do the patenting work and university administrators (mostly) will try to license the patents. If a patent is licensed, then the licensee will pay back the patenting costs, and any extra will be shared out among inventors, technology licensing offices, and other university administrators. Anything left over can be used for research or education (in practice, it’s almost never used for education–education is just there to make the deal sound good to the uninformed). Most any law firm that wants university business recites this fairy tale, often with some stupidly wrong thing about Bayh-Dole. Same for most any university attorney. Over 70 of them went weeping to the Supreme Court with an amicus brief in Stanford v Roche only to be shown that they did know how to read the law. And of course there are the pundits who show up at AUTM events to whip up support for such happy trade in institutional patent monopolies.

Now, here’s how this deal plays out in practice. About 5 out of 100 reported inventions get licensed, and about 1 in 200 makes it to a commercial product. Commercial products that pay big royalties are even rarer–1 in 1,000 or maybe 1 invention per decade or two. This deal looks different to the different groups involved:

Patent brokers always get paid, so to them this looks like peaches and cream. I have yet to see any discussion of Bayh-Dole at a law firm web site that raises doubts regarding the law’s objectives, methods, or outcomes. It’s all rah-rah, all the time.

University licensing offices nearly always get paid, and often get paid more, when they license inventions for big money, so they make sure to cover their costs in license agreements–often with upfront payments that shift a little of the risk that anything will be developed to the licensee. But actually, an upfront license payment ensures that patent brokers are paid and the office has money to use for operations. Most of them love Bayh-Dole and the fairy tale because they think it gives them their livelihood. They can’t imagine working in a voluntary system where inventors come to them out of need or interest rather than duty and fear of discipline.

University administrators get money when there’s a royalty-bearing deal that pays off. This does not have to be a “big hit” deal. Just enough to earn a few million dollars over 20 years. 1 in 200 or 1 in 500. The administrators are interested in a portfolio approach to inventions. Get as many as possible, so that one or two every five years generates free money for administrative slush funds. They don’t care about alternatives to the fairy tale–they just like better versions of the same story, a story in which they get extra money from time to time without having to think about it.

Now for the inventors. 199 out of 200 don’t see a dime. They file invention reports, they meet with licensing officers, they review patent applications, they correct “non-confidential summaries,” they sign legal documents, they hand over all their industry contacts, they explain to everyone else in the lab what is going on and why they are inventors in line for a share of royalties and no one else is. They work out royalty sharing agreements among themselves if they are joint-inventors. But the vast majority get nothing for their efforts. Each year, a few inventors more inventors get a check as their share of royalties, and many more get nothing, not even a rock or a lump of coal.

Investigators and lab directors. These folks are not necessarily inventors–often, in fact, they are busy managing things and aren’t the ones that come up with the inventive work, even if they have set the direction for the research, written the grant proposals, and worked out all the collaborations necessary to get access to data, techniques, materials, and equipment. If they aren’t co-inventors, then they get next to nothing. Some portion of royalties coming back may be shared with their department, and they may make a pitch for some of that money, but it’s a matter of begging, mostly, and for the most part, there are better places to beg.

Researchers at other universities. Get nothing. And universities don’t grant licenses to other universities. What they do, instead, is *if ever* they negotiate an exclusive license, they reserve the right to license to universities. Sometimes they reserve the right to license for nonprofit use.

Researchers or other potential users in industry. Screwed. Universities don’t generally grant non-exclusive licenses for research use in industry or for general use in industry. They hold their patents for exclusive licenses, because, according to the patent broker fairy tale, exclusive licenses are necessary for “commercialization”–otherwise, inventions will just “sit on the shelf.” And that is exactly what most university-held inventions do. They must sit on the shelf until they are licensed, which for most inventions is never. So the fairy tale comes true, but for the reason that university administrators believe!

General public. Nothing. No, not exactly nothing. A few times a year, but at a monopoly price, for $40 billion of annual research expenditures of federal money. Bayh-Dole is like the Colorado river. By the time everyone upstream has made their money, the vast majority of the innovation stream vanishes into the ground before ever reaching the great public ocean. And no one upstream really gives a rat’s ass about that.

A simple summation is that Bayh-Dole is sold to inventors, governments, and the public as an agent-based scheme, but it operates as a portfolio-based scheme. Each invention is to be “commercialized,” but in reality inventions are held so that only a handful among thousands needs to be “commercialized.” Again, one lucrative patent every twenty years is enough to keep a university licensing office appearing to be financially successful. Patent brokers always make money, technology transfer offices always have their budgets, university administrators have slush funds, and 1 inventor of 1,000 gets a huge pay day. Better odds, perhaps, than a lottery, but at the expense of thousands of inventions per year across the country that have no life because they are held behind university bureaucratic paywalls, in the name of “commercialization.”

Bayh-Dole was not advocated for by university faculty. It is a creature of patent brokers making love to senior university administrators, creating a love monster. The form of invention management created by faculty is Research Corporation–operating with an industry board to present new inventions arising from faculty research to industry. Proceeds are shared with inventors based on the arrangements made on invention assignment, and the remainder after recovery of expenses supports research across the country.

Pity Bayh-Dole did not just follow the Research Corporation model and require that federal agencies 1) allow faculty inventors to assign their inventions to any invention management organization willing to a) grant the government a royalty-free license; b) use the patent only to promote use of the invention; c) promote competition through non-exclusive access; d) operate to ensure that the benefits of the invention are available to the public on reasonable terms; and 2) forbid nonprofit contractors that host federally funded research from making any claims on inventions made with federal support:

A simple law that would encourage a private network of invention management agents to grow and specialize by industry and region;

a law that would allow inventions to move quickly to the areas in which they might be most readily adopted, rather than being stuck in a database in Pullman or Ann Arbor or Ithaca or Austin or Merced;

a law that would ensure that federally funded subvention research–gift dollars to faculty at nonprofits–contributed to the commons rather than becoming the grist for speculative trade in patent monopolies.

But we didn’t get a realistic law that would get inventors excited or enhance research or move discoveries quickly to those who might use them. We got instead a fairy tale told by an, er, a patent broker, full of sound and fury, signifying nothing.

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