Bayh-Dole in one simple diagram

Let’s put Bayh-Dole in simple, coarse terms. Here’s a diagram of how Bayh-Dole works:

Now here are two thousand words that say roughly the same thing, with the addition of a cesspool that I didn’t find a good way to draw. 

Bayh-Dole establishes as part of federal patent law a policy with regard to inventions arising in federally supported research or development. That policy is set out in an apparatus at 35 USC 200, 201, 206, 210, 211, and 212. The policy states that patents on inventions made with federal support are not ordinary patents. For these patents, a public covenant runs with each invention that limits the patent property rights of any patent owner and places certain obligations on these patent owners to use the patent system consistent with the policy objectives set forth by Bayh-Dole in patent law.

Bayh-Dole divides the administration of patents arising in federally supported research or development into two groups: (1) those made in the performance of work under a federal funding agreement (35 USC 202, 203, 204, 205), and (2) those owned by the federal government (35 USC 207, 208, 209).

Inventions made under federal funding agreements are controlled under Bayh-Dole when they become “subject inventions.” A subject invention is, coarsely, a patentable invention owned by a party to a funding agreement and made in work supported at least in part by that funding agreement. If a contractor does not own a given invention, it does not meet the definition of subject invention in Bayh-Dole–and isn’t a subject invention.

If an invention arising in federally supported work is not owned by a contractor or by the federal government, Bayh-Dole provides no guidance other than the general statement of policy at 35 USC 200.

Inventions owned by the federal government are not called subject inventions. They are referred to as inventions “in which the Federal government owns a right, title, or interest,” or “federally owned inventions.”

For each group of inventions, Bayh-Dole establishes requirements for use of the patent system.

For those inventions made in federal contracting, Bayh-Dole requires federal agencies to use a standard patent rights clause unless they can justify a different clause. Bayh-Dole then stipulates what must be in the standard patent rights clause but delegates the actual drafting of the clause to the Department of Commerce. There are four standard patent rights clauses–one for certain nuclear weapons systems, one for small businesses, one for inventors, and one for nonprofits. Inventors are treated as if they are small business contractors, but with fewer restrictions.

The standard patent rights clause requires the owner of a subject invention to file patent applications, give notice of federal funding, grant a license to the government, report on invention use, require US manufacturing for exclusive licenses in the US, and for nonprofits also to prefer small businesses in licensing, assign subject inventions with the nonprofit patent rights clause (and only to invention management organizations or with federal approval), share royalties with inventors, and use any royalties or income relating to subject inventions (after allowable cost recovery) for scientific research or education.

For inventions that the federal government owns, Bayh-Dole authorizes the federal government to grant licenses, and especially exclusive licenses. Exclusive licenses may be granted if a federal agency follows a substantial protocol that demonstrates that such a license is necessary.

If the owner of a subject invention fails to use the patent system to achieve the policy objectives of Bayh-Dole, then the federal government may act to acquire ownership of the invention or to compel the patent owner to grant licenses or the federal government may grant licenses itself. Thus, in our diagram above, there’s an arrow that moves from contracting to federal ownership.

The purpose of all this apparatus, however, is to enable nonprofits, small businesses, and the federal government to grant exclusive licenses–or even assign inventions–to the pharmaceutical industry.

Capturing federally supported inventions in medicinal chemistry by patents, and then conveying these inventions as patent monopolies to chosen pharmaceutical companies has been the goal of changing federal patent policy since the late 1950s. The Harbridge House report in 1968  highlighted the pharmaceutical industry boycott of federally supported inventions because they could not obtain monopoly rights for their products. That report gave the NIH leverage to restart its Institutional Patent Agreement program in 1968. Under the IPA program, universities and other nonprofits were allowed to own inventions made with federal support if they filed a patent application and agreed to various controls on their licensing activities. In practice, however, all the universities did was pass inventions as patent monopolies to the pharmaceutical industry–but at a much lower rate of activity than the federal government had been doing on its own.

The IPA program was shut down in 1978, and efforts were immediately started to create what was to become Bayh-Dole. Bayh-Dole does three things.

First, Bayh-Dole insists that the patent system be used, if not by contractors then by the federal government. A patent permits an exclusive ownership position to be established in an inventive research result, and creates an opportunity for institutions to take control of faculty research that otherwise might be published openly or might be exploited without first passing through institutional hands or into the hands of the pharmaceutical industry (such as, through a research commons or other nonprofit pathway of development).

Second, Bayh-Dole expands to government-wide this approach to patents in federal contracting. Thus, it is not merely the NIH that may allow universities to pass federally supported inventions as patent monopolies to the pharmaceutical industry–universities can capture inventions for this purpose made with the support of any federal agency.

Third, Bayh-Dole obscures the movement of patent monopolies to the pharmaceutical industry by making it appear that this approach is indicated for all inventions, for all industries, and that all industries must welcome the prospect of obtaining patent monopolies arising from federally supported research.

There are, of course, exploitation of Bayh-Dole’s approach. Venture investors use the approach to intercept patent monopolies of potential interest to the pharmaceutical industry and conduct initial development (to “add value”) in the hope of selling those patent monopolies that show promise to the pharmaceutical industry at a premium. In this case, universities assign inventions to startups, which then vie to be acquired by larger companies in the pharmaceutical industry.

In parallel, venture investors also are attracted to university-secured patent monopolies in areas other than pharma and biotech–again with the idea of reselling the patent monopoly along with the trappings of a company developing the invention. In the case of non-pharma inventions, however, often the purpose of acquisition is to get the company out of the way rather than to use its technology. Further, these companies, once they receive venture investment, often (about half the time, in my experience), develop a technology that does not depend on the licensed patent monopoly–so even if a non-pharma startup is acquired for its technology, often that technology does not represent the development of an “exclusively licensed” (in practice, assigned) federally supported subject invention.

Yes, it is an elaborate apparatus for the simple proposition that public money should subsidize the pharmaceutical industry’s efforts to maximize its profits from creating drugs in the area of public health (or, human suffering) by packaging research results as institutionally controlled patent monopolies. Thus the use of “early stage” to apply to such research funding and development. The entire mindset is one in which public money must be the risk-filled start of a private corporate monopoly on a product aimed, generally, at making an acute condition chronic, or less acute. Thus, too, the use of “funding gap” or “valley of death” to describe an “early stage” invention for which not enough has been done to attract a monopoly offer from a pharmaceutical firm. The absurdity then becomes one of getting state governments to provide the “seed funding” to improve the profile of “early stage” inventions so that they become attractive to the pharmaceutical companies or at least to speculative investors.

Universities profit, typically, from any transaction in the pathway after the initial assignment to a paper startup company. Any round of investment leads to the university recovering its patenting costs. Any significant equity investment or acquisition allows the university to cash out its royalty stream or equity–even if no product ever makes it to commercial production. The university reports the money received as if it were an earned royalty and a proxy for success (of the university’s licensing program, its research, and Bayh-Dole), even when there has not been, and often will never be, any product based on the licensed/assigned invention.

If you believe firmly that public money should subsidize patent monopolies for the pharmaceutical industry, then Bayh-Dole is a wild success. That’s exactly what it does. If you believe that what’s good for the goose is good for all other animals in the world, then again, Bayh-Dole is a wild success. If you believe that one deal every decade or three is sufficient to establish the legitimacy of this approach, while 99% of publicly funded research inventions remain sequestered by university administrators or are lost to failed startups or lost even to the handful of acquired startups that shifted to other technologies and products.

If you believe there’s no other way to approach research inventions, then, too Bayh-Dole is wonderful. If you believe that inventors are clueless and greedy and should be stripped immediately of their rights to inventions–including their right to dedicate an invention to the public, or to make it available to industry non-exclusively, or even to leave the university and start their own company and make a go of it–then of course Bayh-Dole is just the ticket. If you think your patenting and licensing career depends on Bayh-Dole, then of course Bayh-Dole must stand, at least until you retire.

If, however, you believe that conveying patent monopolies to the pharmaceutical industry is not the only way, or the best way, or the best way now, to manage public support for research in medicinal chemistry and related fields, then Bayh-Dole is a dismal failure. Bayh-Dole supports monopoly pricing. Bayh-Dole precludes cumulative technology and open innovation. Bayh-Dole fragments ownership rights across institutions–FOIL technology–fragmented ownership, institutionally licensed. Bayh-Dole makes use reports secret.

Bayh-Dole allows tens of thousands of research inventions to be tied up in institutional bureaucracies, where inventions go to die, but only after being processed and counted as proxy measures of the “innovative” research undertaken at each university, together with forward looking PR pieces designed to assure the public that cures and wonderful products are just around the corner, if only a few hundred more million per year can be dedicated to the university’s research programs in the form of new buildings and seed funds for “early stage” ventures to cross “the valley of death.”

In all, Bayh-Dole represents the capture of public research for the private speculative interests of the pharmaceutical industry and all those that hope to profit from dealing with the pharmaceutical industry. The great success of Bayh-Dole has been to use the cover of nonprofits to create private betting pools that use as their primary entertainment patents on inventions that would alleviate human suffering. Appealing to universities to license non-exclusively even royalty-free brings derisive laughter. Appealing to federal agencies, especially the NIH, to do so results only in stonewalling and bombast.

There is a role for a robust pharmaceutical industry. No question about that. The folks in pharma are, on the whole, good capable folk. But if they have so much money for development and the initial research is just a tiny first drop in the bucket, then they can afford to fund all their own “early stage” research and the federal government can pull out and do something else with public money. Or, alternatively, if the government has a reason to continue to fund, it must be something other than to provide welfare to the shareholders of pharmaceutical companies.

For that, the government would enforce and act on Bayh-Dole, and then:

–nonprofits could not assign subject inventions (exclusively license all substantive rights in inventions) to pharmaceutical companies unless those companies devoted all income relating to those inventions (after incidental expenses of patenting subject inventions) to “scientific research or education.” That would, of course, ruin the fun.

–nonprofits would have to report publicly annually on the use of each subject invention. A careful interpretation of FOIA would reveal that only those parts of the reports that were indeed “privileged and confidential” trade secrets, commercial information, and financial information could be withheld. We would all be shocked at the institutional death rate of otherwise important research results. Perhaps we would look to make changes!

–the federal government would exercise its government license for any pharmaceutical product based on a subject invention and the subject of an exclusive license to have made and have sold for all government purposes, including payments for the drug by the federal or any state government on behalf of its public health care programs.

And then, once things were enforced, we could repeal Bayh-Dole for everything but inventions in medicinal chemistry or otherwise directed at any physician-controlled therapy. Bayh-Dole was drafted at the NIH to benefit the pharmaceutical industry, with the help of university patent administrators looking to expand their access to faculty research. Even if people insist that Bayh-Dole is perfect for pharma, at least don’t force everyone else into what is for them an arbitrary, wasteful, ineffective policy. Enforce Bayh-Dole for pharma, and make those folks live in their cesspool of patent law and public policy, but don’t force that stuff on everyone else, for everything else.

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