The National Patent Planning Commission argument for government-created private patent monopolies, 3

The National Patent Planning Commission quotes administration officials repeating this same argument. Here’s the Under Secretary of Agriculture (1941):

The commercial exploitation of new inventions requires, in many cases, the expenditure of large sums of money. In such a case, unless some protection or some advantage is given to enable a particular manufacturer to reap a reward as the result of the risk taken by him in investing capital in the new endeavor, he will usually refuse to enter a competitive field.

We can take apart this assertion as we have the others. Note the qualifications– “commercial exploitation,” “in many cases,” “some protection or some advantage,” “reap a reward as the result of the risk,” “usually refuse,” “competitive field.” Nothing here holds up. For some reason, the fixation is on mass production of product based on patentable inventions held by the government. If companies refuse to make product from these inventions, then, why, it must because the government hasn’t given them a monopoly, and the reason they must have a monopoly is because it’s not worth it otherwise. But if most anyone can use a given invention without having to wait for a commercial product version, then the purpose of the monopoly is to prevent all use that doesn’t involve the commercial product. The government-endorsed monopoly creates a “market” where there was no need for one. Is the motivation simply to make a big splash that justifies federal agencies having research programs to invent new products–you know, like mechanical tomato pickers to put field workers out of jobs and to create the need for a new, hardened, de-flavorized tomato?

As for the rest of the statement, it may be true that commercial exploitation requires large sums of money. But exploitation might not. If a field is competitive, it means that other companies are competing. That would suggest that if a product is worth large sums to develop, then multiple companies will be competing to develop their own versions of it. What company is it that refuses to compete with these competing companies, and instead wants the government to give it a monopoly to justify its entry into this competitive field, and thus prevent competition?

Furthermore, what are these large sums to develop an invention as a commercial product spent on? If more research and development, it must be to solve functional problems that the original invention does not resolve. That means that in development, there must be more inventive work, and hence more patents. Those inventions–improvements to the original inventions, ancillary technology upon which commercial production and exploitation depends–may also be patented. Any of those new development inventions might provide a manufacturer with an exclusive commercial position. Why, if large sums are required for development, does any manufacturer have to have a monopoly in the original government-owned invention? It doesn’t add up. It’s an empty claim. Furthermore, if the vast sums are spent on development work that’s not inventive–that is, whatever is done is old and obvious, not new and non-obvious, then is the vast sum expended because the company involved is just too stupid and inefficient to get things right? Is the company that is too stupid to know how to use an invention in a product and therefore must spend vast sums to figure it out really the right company to engage in the effort? Is it the stupid, inefficient, risk-averse, competition-hating company that ought to be the subject of federal pity and therefore in need of public subsidies in the form of a government-bestowed patent monopoly?

Go back to the argument for academic patenting based in protecting the public from a company racing to create an improvement and then monopolizing an invention. That argument is based in the exactly opposite argument, that inventions that are available to anyone will be taken up competitively by companies, who will race to create a monopoly on an essential improvement and thus deny the public access to the most useful form of an invention otherwise made to benefit the public generally. That is–the premise of such an argument is that if an invention is available to all, and that invention requires development, some malicious company will improve the invention, patent the improvement, and hold a monopoly right–and the role of the academic patent is to prevent such a thing from happening. And here’s the Under Secretary for Agriculture arguing just the opposite–that companies won’t enter a competitive field unless the government chooses one and gives it a monopoly against all others. Just what the academics claim a patent should be used to prevent.

The Commission then quotes Vannevar Bush:

It is not sufficient for a department merely to hold a patent and do nothing, or even to issue licenses freely to all comers; such action in effect often vitiates the intent of our fundamental patent law. A patent needs to be exercised in order to be effective, and many an invention cannot come into commercial use unless the protection thereby afforded makes possible the first hazardous investment which is needed to bring it into useful form.

No doubt it is true that a patent must be exercised to be effective. Who could disagree? The question, however, is exactly why a patent is necessary in the first place. True, too, is the claim that by issuing licenses to everyone “vitiates the intent” of patent law. But then where is it in patent law that the federal government should be acquiring inventions and issuing patents to itself? Where is that in federal patent law? The Constitution grants the federal government the authority to issue patents to inventors? How does it come about that the federal government then can hire inventors or give grants to support the work of inventors and demand that the inventors assign their inventions to the federal government, so the government can obtain monopoly positions on those inventions?

In Science the Endless Frontier, Vannevar Bush argued that for fundamental research supported by the government, the federal government needs only a royalty-free nonexclusive license, not invention ownership. We might then argue that Bush is right–government ownership of patents is not consistent with the intent of patent law–but the conclusion doesn’t follow, that the government must work its patents by issuing exclusive licenses, and that doing so is the only way that such inventions can “come into commercial use.” Yet that is the argument that has prevailed. It sounds good, especially when said with confidence and without any evidence. But it appears, after 35 years of the Bayh-Dole conjecture, to be mostly untrue.

The Commission further qualifies its endorsement of the idea that the federal government should be authorized to issue exclusive licenses or sell off patents it has obtained. First, keep in mind what happens. The government is authorized to issue patents to inventors. The government when it supports an invention requires the invention to be assigned to the government. The government then issues patents to itself. Now the government should be permitted, in essence, to re-issue the patent (assign, exclusively license) to someone other than the inventor. Even though the Commission endorses the general idea of non-exclusive licenses, the emphasis is on making a space for the government to deal in patent monopolies. The idea, however, is fraught with qualifications:

Sale of any patents must be conducted in such manner as to avoid any unfairness or discrimination, as, for example, to the highest bidder in open competition. However, monetary consideration should not necessarily control but proper weight should be given to obligations assumed by the purchaser to assure effective service and benefit to the public.

Here the Commission puts together incompatible demands–a sale cannot be unfair, must involve competitive bidding, but how much is paid is not so important as what a bidder offers by way of social gesture–“obligations … to assure effective service and benefit to the public.” Sounds good. But how does one “fairly” give “proper weight” to assurances? It becomes a matter of federal favoritism–what company makes the most assurances, rather than offering the most money. But why wouldn’t the obligations for effective service be part of the conditions for any bidding? It’s all mostly unworkable.

Then there is the Commission’s take on exclusive licensing:

A license could be made exclusive for a specified period of time only, so that other licenses could be granted on the expiration of the term or it could be made exclusive for a certain geographical area only.

Thus, a company might be induced to spend a huge sum of money to develop a commercial version of a product, create a market for it, and then be happy to admit competition a few years later. Of course, if by developing the invention with huge sums, the company creates its own patent positions in improvements, then what’s the point of granting additional licenses? And if the huge sums are spent on things that don’t involve patentable improvements, then the market will be fragmented anyway, and all the company gets for its efforts is briefly delayed competition. How is that so much more attractive that it is necessary to motivate companies to spend money?

A similar observation can be made about geographical restrictions. A restriction limits the market–how does that make a monopoly necessary or attractive, if the monopoly ends up being substantially less than one’s entire market? We will license you exclusive rights for Idaho, for eight years. Wow! Companies will jump at that over a non-exclusive license without restrictions?

An exclusive license or a sale could be conditioned upon the prompt and proper commercialization of the invention, in default of which the license, or the exclusive nature of the license, would be forfeited, or the ownership of the patent would revert to the Government. The conditions should be such as to insure early use and commercialization of the invention and satisfaction of the public demand at reasonable prices.

Again, consider the qualifications: “prompt and proper,” insure early use,” “satisfaction of public demand,” “reasonable” prices. The effort here is to find a way to justify offering a government monopoly by imposing a working requirement and making it easier to terminate the monopoly right–these elements might make the patent monopoly sound socially justified, but surely they also make adopting and using the invention all the more unattractive relative to other possible choices for new products. Why, if huge sums are needed to develop an invention, would a company also take on a license from the government that imposed a working requirement and made it easy for the government to end the license or at least the exclusivity if things did not develop fast enough for the government? And who decides what is “prompt” or “proper”? What constitutes “default”? How about “satisfaction” of public demand? Does that mean quantity or features or availability? And what makes a price “reasonable” when one has a monopoly? Who decides what “reasonable” means? This is all nice sounding, but it is impossible. And yet, this is the language that has won out. It’s what Bayh-Dole implements, but without much in the way of a public covenant.

Things get even more silly as the Commission contemplates profits:

Further, the licensee should be enabled to sue in its own name without joining the United States as the owner of the legal title.

Thus, the licensee must be the owner of the invention–the United States would have to give up the right to enforce the patent. The patent owner might then be able to sue others to prevent them from practicing the invention even as the patent owner fails in its own efforts to create a mass production product based on the invention. Nice. Government-created patent trolls.

A license might also be exclusive for a specified period only, or it might be limited so that, at such time as it shall be shown that the licensee, in addition to realizing a reasonable profit from his manufacturing operations, has in fact or in effect fully amortized his investment, the exclusive license may be terminated and nonexclusive licenses made available to the general public.

You realize of course how invasive such determinations would be–a licensee would be subject to regular auditing by the federal government. Who decides what a reasonable profit is? When has an investment (which surely would be on-going) be “fully amortized”? What incentive would a company have to make a profit quickly and so bring an end to that all-necessary patent monopoly? It is all so silly sweet. But it is also silly unworkable. Nothing about these sorts of conditions could possibly sound attractive to a company. “Hey, we can get a monopoly, but only so we can make a ‘reasonable’ profit, and we get audited each year by the federal government, and as soon as they decide we have made enough, they hand all our work to our competition. This is so very nice!” Right.

The Commission qualifies their suggestions with this walk back:

These recommendations with respect to the granting of exclusive licenses and the sale of patents are made not with the view that these practices should become commonplace, but, on the contrary, that they should be followed only in exceptional cases as the last resorts to be considered.

The Commission backs into a trade in government-created patent monopolies. This same trade is laid out anew in part three of the Bayh-Dole Act, dealing with federally owned inventions.

The idea that government-owned patents can be dealt as monopolies to companies to attract the huge sums needed to develop commercial products but with requirements that undermine the private use of patents is silly beyond words. There is nothing substantive behind the argument–it presents as raw assertions, even from people in positions of power, but without anything behind it. When studies are done, their assertions are contradicted by the evidence. When reports are made, it turns out that the government agencies and universities use exclusive licensing as the default, not as the last resorts, and that for all the public spirited conditions that should run with such government-created monopolies, none are enforced.

Government trade in patent monopolies, running a shadow patent system, is made to sound fine, but in practice it creates conditions that are even less attractive than leaving things in the public domain from the start for all but a few inventions–mainly those of interest to the pharmaceutical industry. But the pharmaceutical argument has carried the day. That alone is fascinating.

What was it about government patenting that held such attraction–that the government should issue patents to itself and then hand these to favored companies (“with the proper weight”) but burdened with conditions that run against the full range of rights enjoyed by the owner of an ordinary patent? The federal government embarks on an effort to build a shadow patent system for federally supported inventions, under which companies might acquire patent monopolies from the federal government or from nonprofit institutional proxies for the government, but saddled with conditions used to rationalize to the public the trade in government patent monopolies. It is clear how the pharmaceutical industry wanted this benefit of federal funding. It is not at all clear how anyone could possibly accept the generalization of the pharma industry’s desire to all government inventions, all government patents.

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