The loss of public information in Bayh-Dole’s allocation of principal rights, 1

Under the Kennedy and then Nixon executive branch patent policies, contractors engaged in federally supported research or development–and which did not meet the ordinary conditions under which a contractor was allowed to retain ownership of inventions made with federal support–could request a determination of greater rights when they wanted to own patents on inventions made in that work. The request for determination of greater rights required a contractor to disclose a range of information regarding the use of, development of, and public access to inventions made with federal support.

Other than under the NIH (and later, NSF) Institutional Patent Agreement program, nonprofit “contractors” also had to request a determination of greater rights. Why? Because under the Kennedy/Nixon executive branch policy, such contractors lacked the standing to expect to receive “principal rights.” Here is the full paragraph (c):

In other situations, where the purpose of the contract is to build upon existing knowledge or technology to develop information, products, processes, or methods for use by the government, and the work called for by the contract is in a field of technology in which the contractor has acquired technical competence (demonstrated by such factors such as know-how, experience, and patent position) directly related to an area in which the contractor has an established non-governmental commercial position, the contractor shall normally acquire the principal or exclusive rights throughout the world in and to any resulting inventions, subject to the government acquiring at least an irrevocable non-exclusive royalty free license throughout the world for governmental purposes.

Let’s break it down: contractors get principal rights when

(1) the purpose the contract is to build on existing things to develop new things for use by the government and

(2) the contractor has technical competence directly related to the work and

(3) the contractor has an established non-governmental commercial position.

Universities and especially their research foundations will fail this test. They might get past (1) and (2), but they won’t have much chance with (3). When the Harbridge House report looked at two years of commercialization of government owned patents, it found that the best outcomes were achieved when a company owned the invention and had experience in the field of the invention. The worst outcomes were, conversely, where the owner of the invention lacked experience and the commercial development was done under license. That is–the worst outcomes were when a university or research foundation owned the invention and insisted on licensing rights. The present university approach–own and exclusively license–now dominant, is among the worst possible approaches. Why would anyone think it a great idea to make this worst approach the default?

The executive branch patent policy before Bayh-Dole, then, got it right, or at least much closer to better. Contractors with experience and commercial activity (other than selling to the government) ought to own their inventions (if they want to). Everyone else should have to make a case for ownership. It was this request for a determination of greater rights for a contractor that had the delays and uncertainties that university-affiliated patent brokers so hated. The “title uncertainty” had to do with whether a university (or much more often an affiliated research foundation) could persuade the federal government that there was a basis for getting the right to own and exploit patents on a given invention. The easy answer to the delays would be just to say “no” most of the time–“No, you haven’t made a case for obtaining greater rights–take you non-exclusive rights and do something with them.” But alas, easy answers weren’t on the menu.

Let’s look then on what the government expected from a contractor (such as a university) that wanted to own (have a determination of greater rights) an invention made with federal support. For nonprofits operating under 41 CFR 1-9.107-6, at the time of disclosure of a Subject Invention, the nonprofit must also submit a request for determination of greater rights if the nonprofit felt it had a need or right for such rights.

The request shall contain the following information:

(i) The prime contract number and subcontract number, if applicable, under which the invention was made and an identification of the agency’s contracting office;

This much is easy.

(ii) A brief description of the invention or a copy of the invention disclosure;

This is easy, too.

(iii) The nature and extent of the rights desired;

Not much to this–typically it would be the principal rights. Now for the harder stuff:

(iv) A description of the development, risk capital and expense, and time required to bring the invention to the point of practical application;

University administrators might have absolutely no clue what development is needed, and at what cost, and for how long. To get this information, they would have to consult with people in industry or finance with experience in such things. We might observe that there’s not likely to be any single accounting–the time, cost, and development required will be pathway dependent. What product will be made? With what features? How capable are the companies involved? Do they already have the infrastructure and experience to make the product, or do those companies have to start from scratch? Things here can vary wildly. There is no single, objective answer. Any answer to this question requires a specific intention, specific product, specific producers. And the question itself implies that the work will be carried forward by exploiting the right to exclude in the patent monopoly rather than exploiting the right to grant non-exclusive access.

Now a two-part requirement–universities will mostly tumble into part (B):

(v) A statement of the contractor’s plans and intentions to bring the invention to the point of practical application including:

(A) If further development and marketing are to be conducted by the contractor, a description of the facilities, personnel, and marketing outlets available for that purpose, and the extent to which such development is to be undertaken by the contractor or others on his behalf and/or;

(B) If licensing of the invention is intended, a brief description of the contractor’s licensing program; and

Here, there’s not much for a university to do–describe its licensing program. Finally, if the invention

(vi) A statement, where the invention falls within §1-9.107-3(a), of the contractor’s contribution when the contention is made that the Government’s contribution to the invention is small compared to his contribution.

The implication of this provision (vi) is that if the contractor has made the greater contribution to the making of the invention, then the government should consider favorably the contractor’s request for greater rights. The idea here is that of “equity” of the parties, even in light of work supported by the government in matters of public purpose. Section 9.107-3(a) recites four conditions under which the government should obtain ownership of an invention made with federal support. Here’s a paraphrase:

a principal purpose of the contract is

(1) to create products for commercial use or

(2) for exploration into fields which directly concern public health, public safety, or public welfare;

or the contract is

(3) in a field of science or technology in which the retention of exclusive rights at the time of contracting might confer on the contractor a preferred or dominant position and

(i) where there has been little significant experience outside of work funded by the government or

(ii) where the government has been the principal developer of the field (that is, atomic and nuclear energy, weapons, and space technologies);

or the services are:

(4) for the operation of a government facility or for coordinating and directing the work of others.

It’s hard to argue with (1), (3), and (4). If the government is developing products for commercial use (think, new fertilizers! tomato picking machines!), then why should any one contractor expect to hold patent rights to its piece of the work? That just fragments the rights to the product among the various contractors. And if the government is the primary user or developer of the technology, then a contractor can gum up the bidding for further government contracts by excluding rivals–why would the government deliberately undermine its open competitive bidding process for contracts? No, never, stupidness. As for claiming inventions that arise from the work of others–screw that. The government contract should not be a basis for shaking down others.

That leaves us with (2)–stuff that directly concerns public health, safety, or welfare. These are things that are directly the interest of government. If government were a company, these would be the areas in which the government would develop products. But here, the products are goods and services that help us with our lives–like a court system or a vaccine or a weather service. Public welfare is also the area in which the government is more likely to involve nonprofits to do research. Nonprofits might share with the government a social purpose having to do with the outcomes of the research, not with the benefit for the nonprofit itself. A for–profit, by contrast, would be expected to be in a government contract for the profit available, or the prospect of a future profit based on the position afforded by the federally supported work.

It is this area (2) that is the heart of the debate over patent rights in federal research. To what extent should the expansion of federal support for research in areas that directly concern public health, safety, and welfare be used to create private patent monopolies? And should those private patent monopolies be exploited like any other patent monopolies? Is the purpose of federal support for research in areas directly relating to public health, safety, and welfare really just to subsidize profit-seeking exploitation of disease and injury, dangerous situations, and the down and out?

The executive branch patent policy gave a clear answer–no, the federal government should not be in the business of ceding its primary mission to private patent holders unless there was a clear public reason for doing so. Typically, that reason was that the contractor would develop the invention for public benefit, and do so faster than could the federal government, and at private expense and risk, and at a reasonable cost and availability for public benefit. Anything else was a non-starter. The federal government’s support of work in category (2) is not simply a cover to jump start monopolies to take advantage of what the government has dedicated itself to alleviate.

Put it bluntly: the government in expanding its research support must not set up private monopolies to exploit public needs–cures for disease and other medical interventions, transportation innovations that improve safety, and the like. If anyone proposes such monopolies, they should have to show they will do better than the federal government at what the federal government desires to achieve.

Now consider a nonprofit making a pitch for a determination of greater rights. The university–typically at the time a research foundation, often Research Corporation–would take ownership of an invention, file one or more patent applications to create a private monopoly, and then attempt to deal this monopoly to a company. Almost always, it was dealing with a single company, under an exclusive license.

Now consider. If there’s no public covenant that runs with a patent obtained by a non-profit, then the situation becomes the same as if the federal government merely subsidized private ventures to create monopolies to exploit these situations. The only difference is that the exploiting venture has to share a royalty with the non-profit–so both the venture and the nonprofit are bound up with the idea of making a profit from exploiting the public welfare, all subsidized by federal funding to help to create the monopoly. Why would a government do such a thing?

Think of it this way. If the federal government acquired the patents and then turned around and chose a favored company to exploit the public welfare with a patent monopoly, on the condition that the favored company shared some of the upside back with the government, we would be back to governments handing out monopoly favors as a way to generate revenue and put friends in positions of power. It can be done, of course, but the United States patent system was established to preclude just this sort of thing. Inventors were to have the benefit of exclusive rights on the merits of their inventions. The patent system was not set up to profit the federal government from revenues derived from handing out monopolies to favorites. No matter the effort to stipulate the conditions on which the government hands out such monopolies, beyond an inventor’s merit in inventing something new, useful, and non-obvious, everything else becomes a form of government favoritism.

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