The loss of public information in Bayh-Dole’s allocation of principal rights, 2

The effort to deal with government favoritism in handing out patent monopolies in areas of public welfare of direct interest to government requires a socially acceptable rationale. That rationale takes the form of a public covenant that runs with the private management of the patent monopoly. While an ordinary patent may be used to troll industry, prevent all practice of the invention (such as in favor of another product), charge monopoly prices, or to create false scarcity to run up the price, these are practices that the government has sought to preclude, especially in areas of public welfare where the patent monopoly has been created in the service of the government.

The public covenant that was originally adopted insisted that a private monopoly, properly limited, could serve government interests if it had the characteristics outlined above, with regard to a request for a determination of greater rights:

(i) an invention would be developed for public benfit

(ii) faster than if the government allowed everyone to have access

(iii) and made available to everyone who wanted access

(iv) and on terms (including price) that were reasonable

(v) and after the company had recovered its investment, the invention would be made available to all, as the government originally intended.

None of these things, by the way, is featured in any account of the wild success of Bayh-Dole. Yes, rarely an invention is developed, but it’s a big jump from “developed for corporate benefit” or “developed for speculator benefit” to “developed for public benefit” unless the public benefit that’s desired is for corporations and speculators to benefit, and public subsidies for research and public policies to separate researchers from the practice of their inventions are crucial to that goal. It’s all pretty keen if one is a corporate “investor” needing public help to be “successful.”

This pattern is, essentially, the idea of the toll road applied to inventions. A toll road can be operated as a monopoly, can be built with private funds, can provide access to all who need it (and therefore must be built large and at some great expense to anticipate maximum capacity), and can be subject to government oversight with regard to tolls. Once the road has paid for itself and earned a reasonable profit for its investors, it can be made public, and maintenance returned to the government. If no one could charge a fee to use the road, why would any company volunteer to build it? That’s the rhetorical question that is intended to end this line of discussion. There are multiple forms of response.

  1. One company would build the road anyway, without external incentives, if the road was necessary for a company purpose. Thus, roads to mine entrances and roads to provide access to logging areas might be built by a company intent on mining or logging, on the condition the road met safety standards and that the public was allowed to travel the road, also. In this response, the road is a means to a company end, and the company finds sufficient value in that end to build the road, without requiring a monopoly on the road or to recover its costs in charging the public fees for the use of the road.
  2. Where one company might not build the road, multiple companies may well find good reason to do so, where all companies might travel that road. This is the case with technology standards, for instance, where following a standard provides companies with interoperability of products, consistent interfaces, simplified training expenses, and competitive access to talent that knows the standard.
  3. Companies do not need to build the road at all. A community that desires the road may pitch in to make the road. That’s how trails were blazed, how roads replaced trails. It wasn’t the work of companies, for the most part. Company work comes later. The work might not happen so quickly, or at a high standard, but if there’s a road where there was none, that might be all that’s needed–low cost to build and maintain, good enough to supply the desired service. Open source software and open innovation in general follows this path, one that Steven Johnson calls the networked, non-market approach, and for which he provides many examples.

These responses make clear that the original rhetorical question is mis-stated. The question makes it appear that only companies can build roads, and only when they can extract a maximum profit for doing so, and only one company can be given the opportunity to enjoy that profit. This is nonsense. Or, another way, this is an argument made by a company well positioned to exploit such a monopoly, even built exactly for such opportunities. It is fine to have such arguments presented. It is much less fine to have such arguments repeated mindlessly by others, especially those in government or in nonprofit organizations, as if such arguments were on their face true and the only arguments that might be made. If Jane Jacobs is right, that the purpose of economic life is us, then responding to whether our government should dispense favors in the form of monopolies is also a response to whether we consider ourselves better off and well served by these government favors taking the form of private monopolies. And even if we, collectively, find ourselves desiring these private monopolies, will we expect these monopolies to be limited and supervised, or do we offer ourselves for the full advantage of exploiting our health, safety, and welfare?

The consistent federal answer to this last question is that private patent monopolies permitted by the federal government, based on work supported by the federal government, must be limited, must be supervised. This gesture is seen in the Attorney General’s Report (1947), in Kennedy’s executive branch patent policy (1963), the revived IPA program (1968), Nixon’s revisions (1971), revised patent regulations pertaining to federal contracting (1975), and in Bayh-Dole (1980). In each case, the effort is to rationalize the federal government’s creation of private patent toll roads by imposing restrictions on the use of the patent system that permits the creation of these monopolies. In practice, nothing has worked as it is depicted. The nonprofits almost always license exclusively, the exclusive licenses run for the term of the patent (and generally involve the assignment of the underlying invention), and the public covenant requirements are hardly ever enforced, even when they show up as requirements in the license agreements. The gesture of private toll roads to technological innovation, subsidized by the federal government, and managed for fast development on reasonable terms simply hasn’t happened. The patents on inventions made with federal support turn out to be managed just like they were ordinary patents carrying no public covenant.

The efforts to circumvent the public covenant have been built into the regulatory framework. The NIH circumvented the public covenant with its IPA program, which it attempted to make government-wide, only to have it reviewed and shut down. The NIH then drafted the Bayh-Dole Act and pushed that through on a political claim that allowing private patent monopolies on inventions made with federal support would help the U.S. compete internationally. No one bothers, now, even to check that promise. No one cares. It was empty political rhetoric from the start. Bayh-Dole and its implementing regulations create waivers for nearly every substantive element of public covenant required as a provision in the standard patent rights clause. The provisions have to be included (unless an agency can navigate the convoluted procedures to require something else) but the federal agencies can waive them or decline to enforce them. Very clever.

If we consider what Bayh-Dole has done with regard to the determination of greater rights provisions, however, we find that its primary effect has been to suppress all statements that would otherwise be made by a university or other nonprofit requesting a greater rights.

  • No account of the university’s licensing program is required
  • No plan has to be provided with regard to development of any invention
  • All reports of utilization are made a government secret
  • No statement with regard to the university’s contribution relative to the government’s

Furthermore, there’s no public reporting of any university compliance with the public covenant requirements for patents on subject inventions:

  • Nothing about promoting the use of subject inventions using patents
  • Nothing about promoting free competition and enterprise using patents
  • Nothing about promoting US manufacture when using exclusive licenses
  • Nothing about licensing preferences for small businesses
  • Nothing about meeting the standard of practical application in terms of:

use of each subject invention
the speed of development
the risk capital involved
the benefit available to the public
reasonable terms

Thus, one of the key features of Bayh-Dole is that it eliminates any public reporting having to do with the exploitation of patents on subject inventions. Under Bayh-Dole, a university or other nonprofit doesn’t have to have a licensing program, doesn’t have to achieve practical application faster and with more public benefit than would the federal government or allowing open access to the invention. And whatever the university does do, there is no public reporting expected, no compliance required.

In the context of the repeated claim (untrue, really) that Bayh-Dole changed the “presumption of title” for inventions made with federal support, the bigger change is that contractors are no longer accountable for their handling of subject inventions. Although Bayh-Dole makes a big fluff of public covenant requirements, in practice Bayh-Dole strips inventors and the public alike of statutory and contractual protections on predatory exploitation–by university administrations and their assignees–of inventions funded with public money, often directed at matters of public health, safety, and welfare.

Despite the appearances, the effect of Bayh-Dole has been to repudiate the public covenant that has run with inventions made with federal support since at least 1947. The apparatus set out by Bayh-Dole is for show. Nothing in that apparatus is reported or enforced with regard to the private exploitation of subject inventions using the patent system. What does get enforced is meaningless bureaucratic jumble about when inventions are reported, or how retaining title is “elected,” or how a notice of government rights ends up in patent applications and issued patents. None of that jumble has anything to do with innovation. But that’s the only bits that are reviewed and enforced. Federal agencies have express authority under Bayh-Dole to waive the US manufacture requirement for exclusive licenses to use or sell in the US and to waive the prohibition on assignment by nonprofits except to organizations having as a primary function the management of inventions. There’s virtually nothing a federal agency can do about non-compliance with the preference for small businesses except review “the program and recommend changes.” Nothing gets done about the use of licensing income by nonprofits.

So we might conclude that the primary purpose of Bayh-Dole is to make federally supported inventions just ordinary inventions, but ones subsidized with public money and set up to strip inventors of their interest in these inventions in favor of institutional administrators attempting to hand out private patent monopolies in exchange for a share of the monopoly pricing action and holding everything else behind a paywall. Bayh-Dole repudiates the public covenant that runs with public supported inventions, removes any public accounting for exploitation of such inventions, and allows federal agencies to acquiesce in the private patent monopolies that have been created. Through it all, university licensing offices along with political front groups such as AUTM, AAU, APLU, and COGR champion the success of Bayh-Dole by reciting bogus statistics. The only industry truly in love with Bayh-Dole is pharma, and that’s because Bayh-Dole is pharma’s love monster from the start, all the way back to at least 1968 and the re-establishment of the IPA program by the NIH to circumvent the Kennedy executive branch patent policy.

Perhaps the justification left is that Bayh-Dole “works” and so that’s enough for it to remain federal policy. It’s just that Bayh-Dole doesn’t work–unless handing a few hundred patent monopolies to pharmaceutical companies over 35 years while some 30,000 other inventions are held behind a university or foundation patent paywall is a really, really good thing. We might say, then, that Bayh-Dole authorizes public subsidies to assist pharmaceutical companies to create private patent monopolies and then charge monopoly prices to the public to gain access to drugs that for the most part are designed to make acute conditions chronic. And since doing this is so important, every other invention made with public support must also be handled in just this same way. It’s easy to see why the pharma industry loves Bayh-Dole. It’s also easy to see why university administrators love Bayh-Dole, too–if they believe that one lucrative monopoly deal per decade is success and a few thousand other inventions can be sacrificed for the opportunity for such luck.

For everyone else, Bayh-Dole represents just what the U.S. patent system was not supposed to do–allow the federal government to issue patents to itself with a monetary interest in creating private monopolies and to turn a blind eye to private exploitation of the patent system for inventions made with federal support and directed at public health, safety, and welfare. Bayh-Dole has encouraged a private market for publicly supported inventions without accountability and without protections for inventors or for the public.

If anyone wanted to modify Bayh-Dole, start with making subject to FOIA all nonprofit actions involving inventions made with public support. Then modify the (f)(2) written agreement requirement in the standard patent rights clause to make explicit that no nonprofit contractor may obtain any interest in any subject invention as a condition of the federal award (this provision is already present with regard to subcontracts–and (f)(2) amounts to a subcontract to future inventors). Third, require each federal agency to enforce the federal contract requirements and to act on the government licenses required by Bayh-Dole. Fourth, implement a new patent rights clause for “exceptional circumstances”–for use with nonprofits where a primary purpose of the contract is basic scientific or medical research, or otherwise directly affects public health, safety, or welfare. In that new patent rights clause, require non-exclusive licensing at three years from the date of issue of any patent.

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