Bayh-Dole’s Public Covenant, 2

We are working through the four primary elements of Bayh-Dole’s public covenant, which runs with each invention made in federally supported research or development.


Bayh-Dole makes a gesture, at least, in its public covenant for using the patent system to do something other than assert patent monopolies for pay or to exclude all practice of a publicly supported invention. The patent monopoly may be used in various ways to select initial partners, to control quality, to support the development of cumulative technology. These functions are not only important to technological innovation–they can also be lucrative (if money is your objective). And for universities, such use of patent rights can advance the value of other university assets (and the value of assets at other universities)–its research capabilities, its role as a neutral participant in scientific development, its mission to teach all qualified companies.

We must consider as well “enterprise” (or perhaps it is “free enterprise,” if the adjective governs both elements of a compound object–free competition and enterprise). This is a federal statute, so we ought not assume that “competition” and “enterprise” mean the same thing, repeated for rhetorical effect. Here’s the Merriam-Webster definition:

1 a project or undertaking that is especially difficult, complicated, or risky
a a unit of economic organization or activity; especially a business organization
   b a systematic purposeful activity 
3readiness to engage in daring or difficult action initiative 


The gist of these accounts of common usage is “starting something.” In the context of Bayh-Dole, the thing that everyone said should get “started” was the development of inventions to the “point of practical application” using private risk capital. For that, all sorts of new initiatives might be possible–starting companies, starting new divisions of companies, developing industry standards, whatever was necessary to turn an invention made with federal support into a public benefit on reasonable terms. Almost all accounts of the role of the patent system for private inventions have emphasized the monopoly value of patents. According to this argument, it is the right to exclude all others that attracts private risk capital to an invention. Immediate need, or confidence in building a superior product, or confidence in entering a new market first, or expectation that the needed patent positions will arise during development–none of these arguments figure.

We can see, then, that Bayh-Dole posits two rather different policies: use the patent system to promote free competition–suggesting non-exclusive licensing for each invention–and use the patent system to promote enterprise–suggesting attracting private risk capital to develop each invention. The Kennedy patent policy navigated these two requirements by allowing capable contractors to own patent rights, but hold monopoly rights for only three years from patent issue date. Thus, private risk capital might enjoy a six-year head start (three while the patent was pending, three more after issuance–and keep in mind all the “submarine” techniques to keep a patent pending for a long time), but then the invention would be available to all. The initial developer would blaze the trail on behalf of the public, and then give up the monopoly to permit competition. Even the IPA program, built to end-run the Kennedy patent policy, retains this same policy strategy, but extends it to the sooner of five years from the date of first commercial sale or eight years from the date of the exclusive license (meaning that a nonprofit could sit on a patent for years without having to release rights non-exclusively).

Bayh-Dole retains the gesture of such a policy approach (“free competition and enterprise”), and in the original law, Bayh-Dole retained IPA program-style limitations on nonprofit exclusive licensing, but only with regard to “large” companies. No such limitation was placed on small businesses. This limitation was removed, however, in the 1984 amendments, leaving Bayh-Dole with the policy gesture but without specific guidance.

American Manufacturing

Now let’s look at the preference for American industry. The policy and objective of Bayh-Dole includes promoting commercialization and public availability in the United States of subject inventions “manufactured in America.” Again, this element of the Bayh-Dole public covenant is not merely wishful Congressional thinking–it is a statement of the federal patent policy that applies to the property right granted in patents on inventions made with federal support. It is a restriction in federal patent law on the property right of ordinary patents. It is both policy and objective.

Section 204 represents one manifestation of the policy–that in the extremely rare case that a patent owner grants an exclusive license to use or to sell in the United States and does not in the same transaction also grant a license to make the invention, the patent owner must grant someone the right to make the invention in the United States and must get an agreement from the exclusive licensee that the licensee will use or sell product manufactured “substantially” in the United States. This situation in practice is so totally rare that it defies understanding why Bayh-Dole should spend a second sentence in 204 setting up a waiver process for this tiny, limited situation, let alone add 204 enforcement to section 203’s march-in procedures, so cumbersome they have never been used. I guess these measures were an insurance policy in case some displaced American worker insisted that section 204 was supposed to mean something.

But the public covenant in section 200 is general. Section 204 is just one implementation. We might argue that section 200’s requirement that the patent system be used to promote American manufacturing of inventions arising in research with federal support requires a patent owner to use the patent in the United States to manufacture inventions or otherwise to make those inventions available to the public (“public availability”), or to grant licenses that permit others to do so. Either the patent owner manufactures and distributes products based on the invention in the United States or it licenses its patent so that others may do so. Section 204’s narrow (even silly) focus is on exclusive licenses to use or sell in the United States, but has nothing to say about a patent owner’s own efforts to make, use, or sell, nor on a patent owner’s importation of product manufactured outside the United States, nor on a patent owner’s export of product manufactured in the United States, nor on a patent owner’s refusal to grant licenses at all in the United States, non-exclusive or otherwise. In other words, section 204 ignores nearly all activities that might promote American-made products based on inventions made with American public money.

Despite the limitations of section 204, section 200’s statement of policy makes it clear that the patent property right in inventions made with federal support must be used to promote American manufacturing. The only way that can happen is if the patent owner manufactures in America (and then can use the patent right to exclude others, subject to government action for a failure to manufacture enough or sell on reasonable terms–“reasonable availability,” to use the march-in wording of section 203) or the patent owner grants one or more others the right to manufacture in America.

It really doesn’t much matter what the specific guidance might be in section 204. The reality is that if the patent owner isn’t manufacturing product in the United States and hasn’t licensed others to manufacture in the United States, the patent owner doesn’t have a property right under section 200 to litigate infringement of the “make” right in the United States. The patent system must be used to promote American manufacturing, not to exclude it or to tie it up in claims of infringement. Yes, it is certainly possible that a U.S.-based manufacturer could refuse to take a license and willfully infringe, and that might prompt litigation. But if the patent owner has a positive obligation to manufacture or grant licenses to manufacture–an obligation that the owner of an ordinary patent does not have–and the terms of that license must be “reasonable” under the circumstances, then the patent owner cannot go around insisting that the only deal on offer is for one manufacturer to take an exclusive license, when no one is willing to take that offer. The offer becomes unreasonable simply because no one will take it.

Reasonable Terms

And this is a fundamental lesson. “Reasonable” terms are ones that most anyone would take, not terms so outlandish that no one will accept them, or even that only the most foolish or desperate would consider them. Reasonable terms are not those that a patent owner fantasizes about–they are terms that anyone can see are worth accepting. The university patent administrator fixation on exclusive licenses, encouraged by the advocates of Bayh-Dole, is in general a fantasy about unreasonable terms: exclusivity, for all its apparent justification to call forth private risk capital, is itself unreasonable for nearly all inventions made with federal support (and, we might add, for nearly all inventions in general). It is not that the patent system is unreasonable–patents have their place, especially when the alternative might be trade secret or a failure to bother to publish something invented and useful. It is the use of the system by institutional patent owners that is unreasonable. It is the idea that the only purpose of a patent monopoly is to attract speculators to an idea. It is even more unreasonable that the idea is one that was pursued with the claim that its working out would be in the public interest, only to find that but no the idea really was intended for the benefit of speculators hoping to corner the market for a cure, or better, a drug that makes an acute condition chronic for the life of the patient.

Since Bayh-Dole is not enforced in any of its substantive elements, including these elements of its public covenant, it may seem silly to consider how its policy objectives might be met by owners of patents on subject inventions. It is no doubt even sillier to offer advice to nonprofit institutional owners of such patents, as we all know that these institutions exist to serve the public interest and therefore anything they do to their own self-advantage must be in the public interest. Okay, let’s be as silly as possible.

If owners of patents on a subject inventions intend to work within the policy set out in patent law (35 USC 200), they will acknowledge that their patents are not ordinary patents and the property rights in those patents are limited by a public covenant that runs with the invention. The fact that these inventions warranted federal support based on a perceived public need further tempers any thought that the patent monopoly in these inventions may be exploited in the same manner as any ordinary patent. A patent on a subject invention is not more special because it is owned by a nonprofit, nor because the nonprofit claims a public purpose, nor because money made by exploiting the patent might be used to expand the nonprofit’s research enterprise (or some other virtuous-sounding thing). Such patents are more special because their property right is substantially restricted and the purpose of their monopoly is to encourage behaviors that put a public benefit ahead of institutional or corporate profits. In the words of Piers Plowman, a “measurable hire”–yes; a “measureless upside”–no.

Thus, the first principle of working within 35 USC 200 is that the institutional return cannot be valued as a share of participation in a monopoly that runs for the life of a patent.

A nonprofit will not license exclusively all substantive rights in a subject invention. Such an exclusive license assigns the invention. The public covenant runs with such assignment, as does the standard patent rights clause specific to nonprofits. If a nonprofit assigns a subject invention, it should give up all rights, including financial interest, in that invention. The public interest in such an assignment is protected by 35 USC 200 and the standard patent rights clause, both of which run with the assignment. It is the job of these provisions to protect the public from nonuse and unreasonable use. They do not need the help of “extra” protection from nonprofits as former owners of these inventions–that, indeed, would be a protection racket.

To meet the Bayh-Dole policy to promote the utilization of subject inventions, to promote free competition and enterprise, and to promote American manufacturing, a nonprofit will offer non-exclusive licenses on FRAND terms–no distinction between for profit and nonprofit access. The goal is to add to the technology available to all, for research, for internal use, for development, and even for manufacturing commercial product. The goal is not to hold all such inventions on behalf of speculators who would find value by withholding access to these inventions, even with a stated purpose of attracting even more speculative money to make a commercial product protected by a two-decade patent monopoly.

Non-exclusive licensing assures access, controls quality, suppresses simple gaming of improvements, extends the public domain, reduces the overhead of transactions, retains the nonprofit’s position as providing service to all, and participates in the development of standards. While it is possible that on rare occasions–once a year, say–a nonprofit might find it necessary to offer an exclusive license (because no one will accept a FRAND non-exclusive license to make, even royalty-free, and so such terms are on the face of it unreasonable), the nonprofit will offer that exclusive license only for a limited duration (such as three years or five years) and will limit that license to less than all substantial rights in the invention, such as only offering the exclusive right to sell, while reserving for all the non-exclusive rights to make and use.

The patent system serves to publish each invention, and the monopoly grant permits the nonprofit to choose qualified partners, to decide on the timing of those relationships, to control quality, and to assist those obtaining licenses with the use and improvement of the inventions under their watch. Non-exclusive licensing breaks up patent monopolies, defeats speculators who would otherwise seek profit ahead of access, and respects the distinctive position of university-based research.

Such non-exclusive licensing is presently done in research consortia, in research agreements with major sponsors who want only a non-exclusive license, and in open source software development. And even in these contexts, nonprofits handle the work poorly. They could up their game.

This entry was posted in Bayh-Dole. Bookmark the permalink.

Leave a Reply