The Faster Cures FAQ on Bayh-Dole, 4

We are working through the Faster Cures FAQ on Bayh-Dole.

5. What are march-in rights, and what does Bayh-Dole say about them? Has the government ever exercised its march-in rights?

Bayh-Dole requires federal agencies to include a right to “march-in” and require a contractor to grant licenses in cases of nonuse, unreasonable use, or non-compliant licensing. Final question: No. The government has never used march-in, despite rampant nonuse and unreasonable use of subject inventions. Ho-hum for the public!

“March-in rights” refer to the rights granted under Bayh-Dole that allow the federal funding agency to grant additional licenses to a “responsible applicant” if the agency determines that one of four triggering circumstances has occurred.viii

There are no “rights” “granted” under Bayh-Dole. Bayh-Dole dictates default patent rights clauses. One clause permits a federal agency to require a contractor to grant additional licenses, and if the contractor cannot or will not do so, then the agency may do so. The granting of rights is not restricted to a single “applicant”: “responsible applicant or applicants.”

Specifically, the agency must determine whether action is necessary:

1. “because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;”
2. “to alleviate health or safety needs which are not reasonably satisfied” by the rights-holders;
3. “to meet requirements for public use specified by Federal regulations”; or
4. because the rights-holders have violated U.S. manufacturing preference rules, if applicable.

Those are mostly good quotes from 37 CFR 401.14(a)(j). What’s left out is how empty these conditions are. Consider nonuse: “Not expected to take…” by whom? “Within a reasonable time…” exactly when? what’s reasonable? to whom? “Effective steps…” and what makes a step effective? In other words, if a contractor gives the merest impression of being ready to make an effort, that satisfies the nonuse “trigger.” “We expect this contractor will in a reasonable time from now to begin to take steps that can be described as effective.” Lame. In practice, “reasonable time” means any time period shorter than the expected time for a federal agency to slog through the easy-to-draw-out march-in procedures. That is, a “reasonable time” is years.

The two requirements involving “not reasonably satisfied” (omitted from trigger 3, above) appear to be responsive to the “unreasonable” use in Bayh-Dole’s statement of policy and objective (35 USC 200). But here, the trigger is that the health or safety needs, or requirements for public use, are not “reasonably satisfied.” What guidance is there for “reasonably satisfied”? It’s just wording designed to lead to a dispute. And any dispute provides a contractor with an extended process to delay, contest, and appeal any march-in. As Howard Bremer bragged later, the march-in procedures were designed not to work.

The fourth trigger is a paraphrase rather than a quote. The U.S. manufacturing preference is limited to exclusive licenses to use or to sell. Compliance takes the form of a letter agreement regarding use of product made in the U.S., but an agency may waive compliance. The owner of a subject invention has no obligation to enforce the letter agreement. Presumably, it is the exclusive licensee that is exposed to the possibility of additional licensees–but only for the exclusive right to sell or to use. Furthermore, once a federal agency requires any additional licensing, the U.S. manufacturing preference no longer applies. Either way, the result is that the U.S. manufacturing preference has little chance to be enforced. Silly, mostly.

The National Institutes of Health (NIH) has been petitioned on five separate occasions to exercise its march-in rights and has declined to do so each time. ix

Yes. But then the NIH is at the heart of the Bayh-Dole strategy to create a pipeline of patent monopolies in inventions made with federal support to the pharmaceutical industry. Prior to Bayh-Dole, executive branch policy and in particular the Public Health Service implementation of that policy limited patent monopolies in matters of public health addressed with public funds. The NIH had used the IPA program to circumvent these regulations and supply the pharmaceutical industry with patent monopolies laundered through university patent licensing shops as “exclusive licenses.” The IPA program was shut down in 1978 for, among other things, being ineffective and doing sweetheart exclusive deals with pharmaceutical companies. The NIH created Bayh-Dole to allow universities to hand patent monopolies to pharmaceutical companies and to authorize federal agencies to do the same. Why would the NIH ever “march-in”? They designed march-in not to work. The whole point of Bayh-Dole is to allow companies to use public research as a subsidy to encourage the speculation of the value of patents on cures or at least chronic therapies. That’s the question for public debate–is this the appropriate public policy that should attend the public funding of research?

We might note that university patenting in general has been a dismal failure. Universities now hold more than 120,000 U.S. utility patents, over 50,000 of which recite government funding. Most of these patents have gone unlicensed. Of those that have been licensed exclusively, most have not achieved “practical application.” Universities rarely report what is going on, and Bayh-Dole is designed to exempt the reports that federal agencies ask for from FOIA disclosure (probably in violation of FOIA!). But it is evident that most federally supported inventions are not used, licensed or not, and federal agencies have never marched-in to protect the public from such nonuse. Dismal failure.

6. Does Bayh-Dole allow patenting of research tools and resources?

Yes, of course. Bayh-Dole is directed at patentable inventions owned by a contractor and made in performance of work under a funding agreement. Research tools and resources are fair game. If universities complied with the standard patent rights clause, however, research tools and resources would be generally available for all to make and use, even if the right to sell was exclusively licensed. But universities don’t comply, federal agencies don’t enforce, and Bayh-Dole is routinely misrepresented to cover it all up.

The legislation applies to any invention conceived or reduced to practice in research supported by federal funds.x Accordingly, Bayh-Dole places no restrictions on a university’s ability to patent and license research tools such as new DNA sequences, protein structures, and disease pathways. xi

Bayh-Dole’s nonprofit patent rights clause does not distinguish research tools from other patentable inventions.

However, as acknowledged in the NIH Research Tools Policy, “[t]he right of Recipients to retain title to inventions made with NIH funds comes with the corresponding obligations to promote utilization, commercialization, and public availability of these inventions.” xii

It is a nice sentiment, expressed as well in Bayh-Dole’s statement of policy, which is a part of federal patent law. It is a public covenant that runs with patent property rights in subject inventions and applies regardless of who owns those patent property rights. However, “utilization, commercialization, and public availability” conflates the public covenant and misses the point. Bayh-Dole’s policy requires the patent system to be used to promote utilization. That’s the point of the definition of “practical application”–use with benefits available to the public on reasonable terms. Bayh-Dole’s policy statement refers to commercialization and public availability together in its statement of preference for U.S. industry and labor–that if inventions are going to be commercialized or made publicly available in the U.S., then U.S. industry and labor should have the opportunity. Except Bayh-Dole walks back this policy requirement in all sorts of ways.

The Bayh-Dole policy missing here is that of using the patent system to “promote free competition and enterprise without unduly encumbering future research and discovery.” That’s the part that the NIH ought to recite, but doesn’t. And Faster Cures doesn’t call it out. How can exclusive commercialization licenses promote “free competition and enterprise”? How can excluding research making and using do anything other than encumber future research and discovery? But to get at the free competition policy, the NIH would have to enforce the nonprofit assignment clause at 37 CFR 401.14(a)(k)(1). Any nonprofit granting an exclusive license to all substantial rights in a subject invention necessarily also conveys the public covenant–the nonprofit patent rights clause, including the requirement that all income earned with respect to a subject invention be used to support scientific research or education. That means companies holding assignments of subject inventions must act financially in the public interest. Otherwise, they must give up some of the substantial rights–such as the right to make and use.

It is important that the rights to make and use be made available for both research and for non-product uses. Call this the make-use commons. Consider disease diagnostic assays, which can and have been patented by universities and licensed exclusively (i.e., assigned). Any laboratory medicine operation can make and use these diagnostic assays based on the published literature without the need for a commercial product, and often can tailor the assays for better specificity than can a mass-produced commercial product. But the university patenting and licensing behavior excludes such use. Commercialization is not necessary for use, but Bayh-Dole is exploited to prevent use and therefore increase the apparent value of the patent rather than to use the patent system to promote use. If the NIH wanted to trigger much more non-exclusive licensing, it would audit university exclusive licenses and insist that those licenses that assign the underlying subject invention also conform to the requirement in (k)(3) with regard to the use of income earned with respect to the assigned subject invention. That would support the NIH’s tools program, but it would also undermine the NIH-created pipeline of patent monopolies from federal funding to pharmaceutical companies.

The NIH Research Tools Policy goes on to explain: “The Bayh-Dole Act encourages Recipients to patent and license subject inventions as one means of fulfilling these obligations.

Bayh-Dole nowhere encourages universities to patent and license subject inventions. Bayh-Dole’s emphasis is on utilization, free competition, American manufacturing, and the rights of the federal government for use and to protect the public from nonuse and unreasonable use.

However, the use of patents and exclusive licenses is not the only, nor in some cases the most appropriate, means of implementing the Act.

This is gibberish. Bayh-Dole is implemented via the patent rights clauses authorized by Bayh-Dole. “Recipients” don’t “implement” Bayh-Dole. Furthermore, Bayh-Dole is only about patents. It is a part of federal patent law. The ownership of subject inventions by nonprofits and small businesses requires the use of the patent system (inventors are not required to use the patent system under the inventor patent rights clause). It makes no sense to argue that an Act requiring use of the patent system would be more “appropriately” implemented by not using the patent system.

For all that, the NIH makes an empty gesture. The NIH has the authority under Bayh-Dole to declare exceptional circumstances and require a different invention ownership policy than the default specified by Bayh-Dole. “Exceptional” does not mean “rare”; it means “not within the specified default.” If the specified default is not, in the NIH’s opinion, “appropriate,” then the NIH can craft a new default patent rights clause that better meets public needs, just as the Department of Energy has done with its patent rights clause for naval nuclear propulsion and weapons. Apparently nuclear propulsion is more important than public health, since the DOE has got things done and the NIH just dithers.

Where the subject invention is useful primarily as a research tool, inappropriate licensing practices are likely to thwart rather than promote utilization, commercialization and public availability of the invention.”

The NIH conjures up the concept of “inappropriate licensing practices” but takes no action to establish a patent rights clause that establishes what appropriate licensing practices should be and does not enforce the nonprofit patent rights clause that would greatly limit the use of exclusive licenses that convey all substantial rights in subject inventions and therefore act as assignments and tie up all research and industry uses of subject inventions in speculation chasing monopolies on commercial products.

Issued in 1999, this policy represents an effort to ensure better balance between commercial interests and public interests, “to provide NIH funding recipients with guidance concerning appropriate terms for disseminating and acquiring unique research resources developed with federal funds, and … assist recipients in complying with their obligations under the Bayh-Dole Act.” xiii

No, it’s just handwaving opinion standing in place of NIH action to enforce compliance with the standard nonprofit patent rights clause and crafting of exceptional clauses that better serve the public interest as it is understood by the NIH. The NIH can provide funding recipients with all the “guidance” it wants, but until the NIH bases future funding to any given university on the outcomes of its licensing practices with regard to NIH-funded subject inventions, that guidance is nothing more than handwaving.


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