Whistling all the way to the bank, revisited 2

The “Whistling” article struggles with the problem of the standard patent rights clause language about “electing to retain title.” I’ve wondered over this wording for years. It appears to be at the heart of the “cleverly crafted scheme” to intercept invention deliverables from the government to universities, where private patent brokers could serve as a conduit to convey the inventions to the pharmaceutical industry and to speculative investors (usually hoping to sell later to the pharmaceutical industry). This may seem to be a strange concept, so I’ll repeat it, slowly.

The government sponsors research and asserts a right to inventions as deliverables. This is a basic situation in any contract research situation–the sponsor of the work sets the terms on which the money is available. There are two areas to address–the scope of inventions that the sponsor has an interest in, and the rights the sponsor gets to those inventions.

As for the scope of inventions, a contract has to specify whether the inventions of interest include inventions the contractor already has that will be involved in the work or necessary to use the results (“background IP”), inventions that the contractor may make but which are not directed at the research deliverables the sponsor desires (such as research tools or discoveries that are otherwise unrelated to the research but happen to have arisen while conducting the research specified by the contract).

As for scope of rights, a sponsor may expect title (that is, ownership of the invention and the right to control patenting) or may be satisfied with a license (exclusive, perhaps, which may amount to ownership but without the full right to control patenting; or non-exclusive).

Again, there are two essential elements of scope: what inventions? with what rights?

Now consider an additional complication. The government contracts with a university or nonprofit research foundation fronting for a university to gain access to inventions made by investigators in the funded research–and perhaps also to inventions that they have made prior to the research and incorporate into the research. A contract with an organization does not reach through to the investigators themselves. When an investigator invents, common law holds that the inventor owns the invention. The inventor may convey the ownership of the invention to another by means of an assignment. The problem, then, is how the sponsor reaches through to the individual inventors, to secure the invention rights bargained for.

The government can make it a condition of the funding contract that the university requires its inventors to assign their inventions to the government, if that’s what the contract stipulates will happen. There are two obvious pathways. The university can require inventors to promise to assign to the government, or the university can require the inventors to assign to the university, which then assigns the invention to the government. Clearly, it’s more direct for inventors to assign to the government, as it saves the extra paperwork and delays involved in making multiple assignments. But a university could have an agreement with each potential inventor that they promise to assign to whomever the university designates, and when the government requests delivery of an invention, the university instructs the inventor to assign to the government. Follow so far?

The sponsor can require direct agreements with inventors, or can require the contractor to obtain assignments and then assign to the sponsor, or can require the contractor to have an agreement with inventors to direct them to assign to the sponsor. And if the scope of rights is not full title to a given invention, then of course for “assign” we would use “license.”

Finally, the sponsor has to know that an invention has been made to see that it has received the benefit of the bargain–so there has to be a reporting requirement. Neither the sponsor nor the contracting organization will know what has been invented unless the investigators report the invention. Thus, there has to be a reporting requirement that will run parallel with the assignment requirement. If inventors agree to assign directly to the government, then they ought to report their new inventions directly to the government as well, perhaps with a cc to their employer.

We have then for most any research contract:

  • scope of claim to inventions
  • scope of rights in those inventions
  • an agreement on rights that reaches to inventors
  • reporting on inventions that reaches to inventors

Now, when the government gets an invention, it’s not like ordinary patent management times. The government is not going to sue for infringement, is not looking to profit from patent, has no reason to withhold the invention from general use (at least not these inventions–they aren’t classified stuff). Historically–before Bayh-Dole at least–when the government received ownership of inventions, it either dedicated the invention to the public domain and didn’t file a patent application, or it file a patent application and issued, in effect, a patent to itself. When that happened, the government generally granted non-exclusive, royalty-free licenses to the invention.

Why bother? Some reasons: 1) to control the quality of produced goods, so that product was not defective, corners were not cut, advertising was not misleading; 2) to protect the domestic market from foreign manufacturers swamping out US opportunities to produce and sell product; 3) to establish a common standard for others to build on–the license ensures those practicing the invention to also practice the standard, creating opportunities for interoperable products and interchangeable parts and standard interfaces.

Now there was a big fuss over whether the government should claim title to inventions in the research it supported, or whether a non-exclusive license was good enough. If only a license, really the fuss was over whether the federal government should pay compensation for the use of inventions that public money had supported. It made sense that the government should not have to pay out for the use of inventions it had sponsored–other than perhaps to folks who wanted to extract value from patents would be glad to have the government to pay. The license, however, was not about giving the government access to the invention–the government cannot be sued for infringement, only for compensation for its use (see 28 USC 1498). Holding a royalty-free license means that the government cannot be sued for compensation for using an invention. Of course, if the government owns title to the invention (and subsequent patents that issue on the invention), then there’s no problem with the government paying for use of the invention.

So, should the government take title or just a license? There are three situations to discuss. First, government procurement of research services. This is what is often called contract research. This is the stuff done by federal labs and by companies that exist to do research or analysis for others. The contractors don’t have any reason to hang on to patents on the stuff they do–it’s all for others, so it is easy to include all inventions as deliverables. Done.

The second situation is procurement of commercial services. This is when the government supports research to create a product or configure a product for its use. Think of it as development more than research, though research may well be involved. Here, inventions that are made are reasonably those made by employees working on specific projects that may have commercial considerations in addition to delivery of product for the government’s use. It makes sense for the government to adopt a “license” approach, here, allowing the contractor to go its commercial way with its rights, so long as the government doesn’t have to pay anything additional to enjoy the use of the product that it requested to be developed.

But there are special situations, when the government is the only market for the product or where the government is paying multiple contractors for parts of a greater product or process and wants to have multiple suppliers, or even competing versions of a product, the government may not want any single company to hold exclusive rights to any particular bit of the development work. What good would it serve to fragment invention rights across multiple contractors, each of whom could then exclude anyone else from bidding on further work for the government involving that inventive bit. Worse, if the government wants to release the completed product–a new tomato picking machine, say–for any company to manufacture for a non-government market (not restricted to the government’s massive, secret tomato fields in the irrigated desert basins of Nevada), it makes no sense to deliberately allow the inventive rights to various components to fragment across all the contractors who happened to work on the some aspect of the product.

Thus, if the government is the only market, or the government is developing something for a future market, then it makes sense for the government to gather in all the inventions and release them back to everyone, so there’s a common technology platform available for competitive bidding for future government work, for manufacturing of public product, for encouraging multiple suppliers and development of competitive variations on a common core base.

Finally, we have public-interest research. This is the research that Vannevar Bush advocated for and took the form first of the National Science Foundation but was immediately expanded to most federal agencies. This is “basic research” conducted by universities and nonprofit foundations, supported by the government not because the government wants to procure anything but because the government determines it is in the public’s interest that the research get done sooner rather than later or not at all. The nonprofits don’t have a commercial position–in that they are like contract research organizations. But they also may have public mission ideas–that their research results ought to contribute to the local community or the regional economy–such as helping farmers with their crops or manufacturers with their equipment or processes.

So we have a third fuss–whether the government’s policy of making inventions available to all–to the university, to its investigators and inventors, to all other researchers, and to industry–wouldn’t it be better than the university or its research foundation doing the licensing, if the university were set up to do this with money for patenting and specialized talent to work with inventors, with regional industry, and with companies and investors nationally? After all, this is the model behind Research Corporation, which was started to serve university inventors in 1912 by a University of California faculty inventor, and by the Wisconsin Alumni Foundation, started a decade later and focused on inventions from the University of Wisconsin–and emulated by scores of other universities developing both faculty and contract research programs.

This fuss is what produced the programs that started with the NIH’s Institutional Patent Agreement program and when that program was shut down, resulted in the Bayh-Dole Act. The argument was that nonprofits would do a better job than the federal government–there wasn’t much evidence that this was true in practice (the IPA program had not produced the anticipated results) but the argument sure sounded great. The university was close to the inventor, where the federal agency wasn’t; the university was closer to the local practice community and was motivated to help, where the federal agency was often far afield; the university was motivated to create something of value and use its share of that value to fund more research in the public interest, where the federal agency could not afford to have such a motive. And mostly, the patent brokers wanted to do exclusive deals–that is, they wanted to shift the patent monopoly from the nonprofit to a selected for-profit company, where it could be exploited to its full extent to prevent competition and support high pricing. The argument was that exclusive licenses gave expression to the original intent of the patent system, which federal government ownership defeated. Without patent monopolies, all the public’s money for university research was wasted, because inventions would “sit on the shelf” and never be used or developed, and without commercial products, the public gained no benefit for their research investment. It’s enough right there to persuade most anyone–it’s sad that in practice it just doesn’t work out as it claims. Yeah, it is one of those sweet arguments that persuades but doesn’t deliver.

There was one more problem for universities. They had policies on academic freedom and freedom of research, their faculty were appointed but for research were not generally “employed” by the university, and when they did “extramural” research (“beyond the walls of the university”), they requested a release from their “official duties,” and university patent policies generally were drafted to make assigning inventions to the university or its patent management agent voluntary. Thus, patent administrators who wanted to gain access to many more inventions from university hosted federally supported research had to find a way to preempt the voluntary nature of faculty invention ownership. It was a difficult row to hoe to demand that universities change their patent or research policies–to do so would abrogate academic freedom, turn faculty into simple employees, and perhaps cause rebellion. But they already had an entry point that required faculty inventors to give up ownership–federal contract regulations. Their problem was how to use this federal requirement into a university ownership requirement.

Let’s put all this together to see how people who wanted to move inventions from the federal government to university invention management organizations had to solve the problem. Their schemes depended on the government allowing the university to stand in for the government. Instead of a university’s inventors assigning inventions to the federal government, the government permitted the university to take assignment in place of the federal government, subject to special conditions and federal agency oversight. The driver for these schemes depending on the government requiring title to inventions, and then assigning that title requirement to the university when the university requested it. Let’s see how it played out in the IPA program, and then how Bayh-Dole aimed to restore and improve on the IPA program and turned out to cock everything up.


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