Exceptional Circumstances in Bayh-Dole, 7

The 2013 version of the PHS Technology Transfer Manual 607.1 on exceptional circumstances lists a set of questions that ought to be considered by those in an NIH institute or center (IC) in preparing a determination of exceptional circumstances. These questions have been taken over pretty much unchanged from the 1999 version of the 607. I won’t go through all of them, but we can review a few to give the gist of the thinking. Again, this is the “technology transfer” folks at the NIH writing policy to rein in anyone else at NIH that might have thoughts of starting with the public interest and working down to invention ownership issues rather than starting with private interest in federally supported work and trying to explain how any other interest might possibly be a better public interest than that private interest. Sigh.

Here’s the first set of questions:

Why is a change to the standard Bayh-Dole invention rights essential to achieve programmatic objectives? What alternative means of achieving programmatic objectives have been considered?

The questions here lead to nonsense. The objectives that matter are Bayh-Dole’s objectives, not “programmatic” objectives–utilization, small companies, collaboration, free competition, United States industry and labor. Those objectives (and Bayh-Dole’s policy) matter in research contracting only when a contractor owns a patentable invention made within scope of a funding agreement. The PHS then has things reversed. Although Bayh-Dole states a default, that default is suited to commercial contractors with established commercial positions in non-governmental markets. The federal government contracts with them to obtain goods and services (and access to inventions along with) that the government wishes to acquire rather than make for itself. For grants to nonprofits, the purpose is to benefit the public–not specifically to benefit the investors in a given company holding a monopoly over key research results. Thus, the burden of the question must be reversed: why would it not always be an exceptional circumstance when the programmatic objective is to benefit the public–and including industry, and including the research community–and not just one organization or company?

In the Kennedy patent policy, the default for “exploration into fields which directly concern the public health” is that the government will own inventions and make them available to the public–by dedication (to the public domain) or by licensing (non-exclusively and royalty-free). In the Kennedy patent policy, the “exceptional circumstance” as it were would be any determination to place such research inventions directed at public health as a monopoly into the hands of a favored company. The patent rights would have to be narrow, the capability for others to develop the invention would have to be non-existent, there would be no uses for the invention in research, there would be no variations to the invention for applications in other areas, there would be no need for multiple sources for product versions of the invention, and there would be no prospect that a user community might develop the invention itself, without the need for corporate involvement or with corporate involvement without the need for any one company to hold a monopoly. Think of open source software, think of methods of research and research tools, think of standards development, think of disease diagnostic assays that any capable lab medicine clinic can perform.

We may ask, how could withholding access to any such invention behind a patent paywall in the hope of granting a monopoly patent license to produce a single commercial product based on the invention possibly address Bayh-Dole’s policy and objective of use, or collaboration, or involvement of small companies–not just a paper company started by a university licensing office to receive an exclusive license–or free competition and enterprise? No, one moves quickly to non-exclusive access. A patent then serves a purpose that does not involve exclusion of all others or suppression of use. The patent serves to control quality, to maintain a standard, to limit exploitations of improvements that block development, to limit imports that would undermine the development of American manufacturing capabilities. In this, the invention is made available non-exclusively. It may be that a contractor could do a better job with access and collaboration than could a federal agency. But in that case, the contractor commits to a program of non-exclusive licensing, with no assignment or exclusive license without federal agency approval. That would be the limitation on ownership indicated by the exceptional circumstance of granting money for research to benefit the public (including industry, not a single favored company; including research, not a single favored university; including professional users, not a single user) in an area of public health.

What alternative means of achieving programmatic objectives have been considered?

Again, the question here is meant to prevent a determination that the arbitrary default in Bayh-Dole is poorly suited to accomplishing Bayh-Dole’s policy and objectives. One can see that this happy design feature is built into the law:

will better promote the policy and objectives of this chapter

Ought to be

will better promote the public interest

Bayh-Dole should not merely assert that a federal agency may vary from the default of the law when doing so furthers the policy and objectives that justify the default. The law should instead provide that a federal agency must vary from the default of the law when the public interest is more important than the limited public objectives set forth in the law. Or put yet another way–any other public interest must take precedence over the specific bit of public interest that asserts that the only way to do a thing in the public interest is by granting a profit-producing monopoly in that thing to a private interest. In all of Bayh-Dole’s statement of policy and objective, one does not find a single express justification for allowing contractors to preempt the public justification for awarding grants to universities to support faculty-proposed research. That research is premised on serving the public interest. One tiny bit of that public interest might be served if a monopoly is the only way to get at it.

It’s a bureaucratic loser’s proposition to claim that this tiny bit of public interest must be served up as a default–that the only public benefit must be forced to pass through a private monopoly–for all inventions, and without public oversight or controls on the exploitation of the monopoly granted short of antitrust law. If any monopolist price is a reasonable price, if the charitable organizations that would otherwise guard the public interest are compromised by the offer of a kickback to enable the monopoly, and if the federal agencies that would otherwise guard the public interest believe it is more to their liking to take credit for enabling a commercial product on monopolistic terms rather than enabling the development of a cumulative technology on which such commercial products might be based, then we end up with the failed–but nicely polished with political bluffery–approach that we have now, led by the NIH and the pharmaceutical industry.

It’s the difference between understanding Bayh-Dole to mean:

the patent system must be used to produce monopolies to attract private exploiters of inventions made in publicly funded research to the exclusion of all other access, uses, or methods of development

rather than

if the patent system is used with inventions made in publicly funded research, patents must be used in an extraordinary way to ensure broad access for research, for professional use, and for use within industry, and any exploitation of a patent right to exclude others must be narrow, must timely produce a product available on reasonable rather than monopolistic terms, and if a product is not so produced, then the right to exclude others terminates.

Short form:

use patent monopolies any which way one can to make money


creatively break up patent monopolies to facilitate general access

The argument at Research Enterprise over these many years of close reading, historical accounts, considering practice, looking at the evidence, reasoning about things were the evidence has been suppressed has been that Bayh-Dole states that subject inventions are not ordinary inventions, that a public covenant runs with the patent property rights on these inventions, and that public covenant demands inventions be worked and that patent monopolies are broken up–the right to make and use is generally available; the right to sell is specific to products that are developed and not for the suppression of all equivalents, and any exclusive rights run only as long as necessary to timely produce commercial products. That’s the essence of Bayh-Dole’s public gesture.

But Bayh-Dole has been designed to make that gesture appear important while at each point undermining the gesture with waivers, lack of oversight, suppression of reporting, no public right of appeal, no mandate for enforcement, and federal agency indifference to exercising the rights reserved to the government by Bayh-Dole. In short, Bayh-Dole is a political bluff created by patent attorneys from a vocabulary of public interest to enable federal agencies and nonprofits to deal in patent monopolies to share in profits (kickbacks) from the companies awarded the monopolies. Attempt to strike that one thing and watch the screaming.

Bayh-Dole is precisely about creating patent monopolies based on federal funding for research in the public interest that disenfranchise faculty and other inventors in medicinal chemistry, and dealing these patent monopolies to pharmaceutical companies and to speculators aiming to sell companies to pharmaceutical companies. Bayh-Dole is then generalized to make it appear that this same approach is not only appropriate for all other areas of research, forms of invention, and industries, but that this creation of bureaucratically dealt patent monopolies is a public good and even inspired. In its own dismal way, it is. Who could have thought that patent attorneys could create a practice in patent monopolies that largely has never worked, and when it does work results in 10x higher prices for prescription drugs than otherwise, and pass this off as in the public interest, the only, the best way to do things? And get away with it for over fifty years!

Has the IC communicated the proposed use of a DEC with potentially interested parties, and how have their responses, if any, been taken into consideration?

Consider–the PHS here focuses on contracts, because as a matter of policy it asserts that there won’t be exceptional circumstances for grants and cooperative agreements. In terms of contracts, we might consider two sorts of”interested” parties. First, there are contract research organizations. These companies don’t care to retain patent rights. Their business and operating model is all about competing to conduct research. They have no interest in trying to “commercialize” anything. They may even be set up as nonprofits. Contract research organizations won’t care about exceptional circumstances. They won’t care about Bayh-Dole other than the bother of paperwork. Also in this class are a bunch of small businesses operating under the SBIR and STTR programs. They are configured to look like product-producing companies, but they exist to win SBIR and STTR awards, do the work, and move on to more such awards. It’s easier to live on research grants than it is to try to reconfigure patentable inventions into commercial products.

The second organizations are ones that produce products. They have established commercial positions and compete to keep those positions. They may choose to collaborate with other companies (such as on standards development or interoperability) or compete with those companies–and sometimes both collaborate and compete at the same time. Companies in this group may complain about a determination of exceptional circumstances or may be completely at home with it, depending on what the area of research is and how that relates to their business objectives. Typically, industry uses ad hoc standards, cross-licensing, open innovation agreements, and consortia to deal with patent rights in areas of mutual interest. If a federal agency restricts each company involved in a given area of research with regard to asserting patent rights, such a move may be well received by a number of companies.

But generally–here’s a hypothesis–companies don’t have much time or interest in complaining about proposed federal grant patent rights clauses. If the proposed clause isn’t to their liking, they move on. They often don’t need federal research contracts and it’s not necessarily a good sign if they are so desperate for funding that they cannot tolerate not holding a monopoly on every invention their employees make and assign over. Either the level of the funding has to be significant enough to affect the direction an industry will take or has to be directly targeting (in a market destructive way) what a company has been working on or developed before the company will bother to respond to announcements in government publications about changes to Bayh-Dole’s default on invention ownership.

Thus, public request for comment generally draws in the desperate and the put-upon, not necessarily companies that don’t care or companies that can’t be bothered. The PHS creates its own echo chamber and attracts the companies that feed off its flow of funding.

In my experience, the organizations that complain the loudest about exceptional circumstances are universities–not faculty at universities but rather university administrators and their patent broker partners. PHS policy is never to cross these people with a determination of exceptional circumstances, even though it is exactly here that exceptional circumstances should prevail all the time.

Where appropriate, does the proposed DEC provide for the funding recipient(s) to retain or request rights to research uses of Subject Inventions (in their entirety or by fields of use) that are within the scope of the DEC?

This is already addressed by Bayh-Dole’s standard patent rights clause at 37 CFR 401.14(e)(1). A federal agency has to expressly revoke a contractor’s royalty-free license to practice each subject invention–again, the PHS has the law backwards and writes questions to make it difficult for anyone to understand what has to be done. “You will invent for us, and you will not have any right to practice the inventions you acquire. We will patent those inventions, and we will not release the inventions for general use, including yours.” Look at the logic of that–it’s “we at a federal agency intend to favor a company of our choosing with monopoly rights in your invention rather than allowing you, a company that hosted the research leading to the invention, to enjoy those rights as otherwise provided by Bayh-Dole’s default.” That scenario only works for contract research organizations, which generally don’t have a business model that requires them to care about dealing in patents. They deal in research. For everyone else, the PHS here constructs a question that implies a scenario that runs entirely opposite to Bayh-Dole’s default premise and regulatory implementation. The “where appropriate” of course utterly obfuscates the basis for the question. A PHS DEC ought to require documentation for precluding a contractor from having access to an invention that must be conveyed to the government. For that, the government may argue that the intended inventions would be dangerous to the public if practiced or that the government intends to license the invention exclusively to a company other than the company that hosted the inventing. Otherwise–not dangerous, non-exclusive–there’s no point to the questions here. Needless complication. Bureaucratic exercises in producing paperwork that no one cares about.

How do the proposed changes to the Funding Agreement ensure that the obligations to take effective steps to achieve practical application of Subject Inventions and to report on their utilization (and efforts at obtaining utilization) will continue to be satisfied?

If a contractor is not allowed to own a subject invention, then the contractor has no obligation to “take effective steps.” If a contractor holds only non-exclusive rights, then there’s no point in an agency worrying about “march-in” procedures, because the federal agency already has the right to grant other non-exclusive licenses–and can even revoke a contractor’s non-exclusive license by following a nasty procedure. If the federal government acquires a subject invention, then the federal government has a stripped down Bayh-Dole policy to follow–37 CFR 404.2–just “utilization”–not all the other things, such as collaboration, small companies, and free competition and enterprise–though the implementing regulations gesture at some of these anyway by way of procedures.

Formally, there is no obligation to “take effective steps” in Bayh-Dole. A failure to take effective steps might result in a march-in. But the NIH, at least, has never marched-in. The march-in procedures were designed not to operate. No march-in procedure since march-ins were introduced into executive branch patent policy in 1963 has ever operated. Why then should anyone in the PHS bother with addressing how limiting or eliminating a contractor’s outright right to elect to retain title might affect the contractor’s efforts to use an invention? It’s wasted administrative effort–one might argue that it runs against the express policy of Bayh-Dole to reduce the cost of administering such things and runs against the apparent desire in Bayh-Dole that regulations should be uniform. How can any one agency then produce something like the PHS Manual 607.1–each agency then has its own added bureaucracy to deal with determinations of exceptional circumstances. How can a poor contractor know what to expect, from agency to agency? An exceptional circumstance there mixed with funding that lacks such conditions here–we are right back to the pre-Bayh-Dole days where the NIH created confusion for everyone and then used that confusion to argue that the confusion would go away if the NIH’s approach–repudiating public interest in favor of pharma interest–was adopted by all other federal agencies. What a concept! Inspired!

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