Here’s the rub for “the work” that necessarily includes “commercialization.” Any license or assignment of an invention made in “the work” draws that licensee or assignee into “the work.” That licensee, to the extent that commercialization is a requirement of the license, is performing work supported in part (an earlier part) by the federal government. The license is the documentary evidence that the university is commissioning the licensee to participate in “the work.” If the university did not have a formal declaration that it sought to commercialize inventions it owns, including at least the one that’s subject to the license requiring commercialization, then the commercializing “work” might be in doubt. Similarly, a non-exclusive license need not expect commercialization, and thus does not necessarily come within the scope of “the work” of commercialization. And alternatively, if the university does not assert a claim of ownership over inventions, then when it otherwise obtains an invention and seeks to commercialize it, again, there may be a reasonable doubt that the “work” that was funded by the federal government includes the university’s licensing for commercialization, since there never was any link between the funded work and subsequent activity of the university (or any university licensee or assignee).
Why does this matter? Consider drug development. If a university has a policy of ownership of all inventions and asserts that it is a matter of public interest that the university seek to commercialize these inventions, then “the work” that the federal government supports “in part” includes the commercialization effort, no matter how the university does this work (itself or through contractors or through contractors acting as licensees or assignees). They all operate in part to achieve “the work.” Any inventions they make in “the work” are supported in part by the federal funding. Their efforts are all directed at achieving the purpose of “the work,” which is a commercial version of the molecule cum drug. Any inventions they make are licensed to the federal government to practice and have practiced. They are all part of the same contractual, documentary ecosystem that comprises “the work.” They have chosen this condition. It has not been forced upon them. They have not been tricked into it. This is no clever ruse. This is the baseline of what’s equitable. Any other outcome involves a clever ruse, incompetence, negligence, fraud, or some other moral failing.
As for “Bayh-Dole,” subcontracting and assignment (including instruments labeled exclusive license that also act as assignments) are expressly dealt with. The definition of a funding agreement includes assignments, subcontracts, and substitutions (35 USC 201(b):
Such term [“funding agreement”] includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.
The standard patent rights clause implements this expansion of definition by expressly requiring that subcontracts pass through the requirements of the funding agreement and expressly prohibit the contractor from taking an interest in the subcontractor’s inventions as a condition of the subcontract. Same for assignments–at least for nonprofits (37 CFR 401.14(a)(k)(1)):
Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions, provided that such assignee will be subject to the same provisions as the contractor;
The assignee becomes a party to the funding agreement. The funding agreement specifies that inventions made in work in part supported by the federal government are also subject inventions (when patentable, when owned by a contractor–which now includes the assignee, because the assignee is a party to the funding agreement, is a contractor, shares the common objective of “the work” of commercializing the invention). An exclusive license that transfers all substantial rights in an invention is an assignment. Such an exclusive licensee is also a party to the funding agreement–by definition of the funding agreement as a matter of federal patent law, by operation of the standard patent rights clause.
When a drug commercialized in this way comes to market, the federal government has a license to all inventions that have been made in performance of “the work” to create the commercial product if the federal government has supported “the work” at least in part. The government has a license to make, use, and sell, and to authorize others to make, use, and sell, for any purpose that the government has the authority to undertake. That’s a broad license, and has nothing to do with march-in. The government license is conditioned only on the contractor’s election of rights. Elect rights, grant the license.
This is how it should be, for all parties to a funding agreement, all parties participating in “the work” that the federal government sponsors at least in part. This is the equitable outcome. This is the outcome that justifies the federal government providing public funds for a non-federal effort–because the outcome of that effort will be made available freely to the federal government, even if not directly to the general public. The march-in provisions address how those involved deal with not making the outcomes available to the public or other regulatory or governmental concerns that have to do with the non-federal market. But the government also may act on its own authority to do whatever it will, regardless of how the non-government market behaves, needing march-in or not. March-in, we might say, has to do with whether there is “practical application” and “free competition and enterprise” in the private, non-federal marketplace. The government license, by contrast, has to do with the federal government doing whatever it may with the inventive outcomes of what it has supported at least in part, however far along toward practical application or commercialization the effort has gone among non-federal parties to the funding agreement.
To pound this all down, this outcome for the federal government as a sponsor is entirely consistent with what any company sponsor of university research should also expect (and contract to confirm). This is the equitable outcome, the moral (if you will) outcome. Anything else is clever, or the result of negligence or foolishness. Again, consider the workarounds. A company sponsors a project at a university, and the university investigators switch funding for an inventive portion of work to a different account (and the university administratively endorses the move). Now the sponsor doesn’t get the benefit of the invention–because the investigators and university could choose which account they spend from and use that as the basis for denying the sponsor access to inventive results. Similarly, if the university has a standing policy to commercialize inventions, then it is not simply a matter of the university forcing the sponsor to be that commercialization partner, or getting nothing at all. It is a matter that the sponsor should get the benefit of the university’s commercialization effort, regardless of who the university chooses to undertake that work through a subcontract, exclusive license, or assignment. The sponsor should have a license to any invention made in that ecosystem of “the work.” That is the equitable result. Anything else is bait-and-switch, shakedown, inequitable.
Even if a university refuses to offer such an expansive license, and even if a company sponsor gives up and for whatever strange reason accepts less than they are due, the expansive license is the equitable outcome. The expansive license is consistent with public purpose, with invitations to sponsors to support “the work” declared to be in the public interest, and responsive to the university’s own insistence on not allowing sponsors to control the work or even limit collaborations, or mixing of funds to do the work. Anything else is inequitable. It’s just that the clear, equitable outcome is buried under tons of technical details in contracting, in misrepresentations, in moralizing about public benefit, in convenient confusions, in unmanageable and unmanaged institutional conflicts of interest. The people who should be the guardians of what is equitable are the very ones who believe they have incentives not to do so–for the financial good of the university, or its reputation, or to save their jobs, or whatever nonsense by which they rationalize their refusal to guard the equitable for all involved.
University administrators choose to make commercialization a formal and necessary part of every effort that produces an invention. University administrators choose to define invention much more broadly than “is or may be patentable.” University administrators choose to claim ownership of all such inventions up front, without any formality other than the assertion of ownership in policy statements that include an assertion of assignment even for inventions that have not yet been conceived (“and hereby do assign”). University administrators turn small projects into big commercialization projects as a matter of policy. The equitable outcome is that sponsors who fund these small projects should have access, as does the federal government, to the results of the big projects that are invoked to justify the sponsors’ participation, to justify the use of public resources, to justify the worthiness of each sponsored portion of “the work.”
It does not have to be this way, of course. A university could decline to join commercialization to every project. It could decline to demand ownership of every invention. It could decline to define invention randomly and broadly. If it declined in these ways, commercialization would not be a necessary, formal part of every small project. A company sponsor would not be faced with a stunning shakedown–commercialize any inventive finding or face losing rights. Worse–you may get a license to what we invent now, with your funding, but not a license to what you support as we build on what you have supported, unless you continue to fund all of what we do (and we can choose at any time to do things without you). Worse, even if we grant you a non-exclusive license to your little bit, unless you improve faster than our “commercialization partner” improves, you will still get locked out of being able to practice the invention in any meaningful way–haw, har, har, heh, heh. Any of these positions–all regularly taken by university research and IP officers–is inequitable. No wonder company negotiators just cannot figure out how to explain it nicely to their university counterparts–you guys suck bigly.
Consider the difference between a university and a contract research organization. The CRO makes no pretense to commercialization. All inventions are deliverables to the commissioning party. The CRO has no independent commitment to pursue anything independently of a commissioning party. Any competitor commissioning work with the CRO has to commission work outside the scope of patents obtained by prior commissioning parties (or get licenses). Compare with the typical university, that does make a pretense to commercialization, does try to withhold inventions as deliverables (a first right to negotiate, an option on an exclusive license, a grudging non-exclusive license at a higher indirect cost rate), does claim the right to independent development, does hold background rights that it may refuse to release, even if it invents within the scope of those background rights, does purport to pursue further work even in competition with the sponsor, even if that further work undermines the benefit the sponsor anticipates receiving.
The remedy for a university’s insistence at independence is that all the outcomes that it controls are made available non-exclusively and in a timely manner. That is an alternative to the CRO model, that all rights show up in FRAND transactions–fair, reasonable, and non-discriminatory access–no difference between non-profit and for-profit, foreign and domestic, big company and small company, no matter the use. Such a policy would directly serve the development of cumulative technology (technology that builds on other technology, available for all), support platform development, libraries of tools, standards. These assets, too, are a tremendous source of both innovation and economic growth. These assets, too, might lead to additional research funding for universities (if that is the desire of administrators). But it is an approach that differs dramatically from that of the CRO in its willingness to assist a sponsor in the creation of a proprietary position.
Today’s American university is caught in between, being neither the CRO (even to the federal government, which would then release the technology for all domestic use on FRAND terms if not dedicating the technology to the public domain) nor the open repository of new knowledge, making its way by feeding the commons.
Indeed, it is public access rather than working as an expert servant for a proprietary master that sets apart university research. It’s what Vannevar Bush found attractive in the “free play of free intellects”–and just what institutionally bound science policy gurus and university patent brokers alike find so intolerable. The institutional claim to ownership of inventions combined with transactions in patent-based monopolies premised on commercialization prevents both the “free play of free intellects” and prevents sponsors from having access to the results of that free play, wherever there is an ownership theory that might put that access behind a paywall or block that access with a monopoly deal.
University policies claiming ownership of all inventions and mandating commercialization are like the sucker punches thrown below the belt once a sponsor has been attracted to the support of research permitted by the university in the public interest. But these same policies, taken seriously and at their word, should assure each sponsor of a license to all the inventions made in the performance of any such “work”–even if by commercialization partners, even if under an exclusive license or some other dodge.
If universities are to create big projects, then they must assure all those supporting those big projects of access. That means non-exclusive licensing for whatever purposes those sponsors want. Any other licensing takes place in the context of those licenses, just as it does for work supported in part by the federal government. This all would be evident if the federal government would ever act on its licenses. But it doesn’t, and by not acting, the federal government wastes the rights it has bargained for, turns its funding into a direct subsidy for private patent monopolies, and fails to create a baseline of competition (federal vs private) that would set the standard for “reasonable terms” offered by the private market to the public. The private market would have to be more efficient, or offer better quality, than those organizations authorized by the federal government to provide government-authorized product.
If universities took no ownership interest in inventions, including those supported by federal funds, then rights would remain with the inventors, subject to their agreements with any sponsors. Investigators would–as they once did–negotiate the IP terms of their research agreements. They could act as a CRO (all inventions are deliverables) or as a public-interest entity (all inventions will be made available on FRAND terms). They could decline to secure any patents. They could postpone the decision (if the sponsor acquiesced) or make the decision up front, and they could make their choice a condition of their participation in any other project, and a condition of anyone joining their project. Such a vision scares the bejeezus out of the ordinary university administrator who wants a “uniform” policy. But there is a uniform policy: the university does not interfere in the free play of free intellects. It assists in the compliance of its personnel with the promises they have made and the promises that have been made to them. That’s it.
Imagine a university with no background rights problem. No double licensing worry. No invention reporting compliance problem. No patent budget. No risk management hand-wringing. No fuss and delay in building industry collaborations. No sucker punches. No pissing off all other companies by granting an exclusive patent license to a favored buddy company. No bait-and-switch. No inequitable conduct. Imagine that. I wonder what sort of research would get done, what innovation, what public benefit. My thought is, it would be better in all respects. Of course, one can persist in the alternative, that all these complications, this bait-and-switch, the sucker punching, this inequitable treatment of sponsors is all necessary to serve the public interest. That alternative makes for a fascinating discussion of institutional morals.