Exceptional Circumstances in Bayh-Dole, 8

We  have looked at the NIH’s views on exceptional circumstances. We started with Dr. Thomas’s 2008 talk, with a discussion about how his talk fundamentally misrepresented Bayh-Dole. We then checked out the PHS Technology Transfer Manual’s statements of policy and procedures from 1999 and 2013 to see that the NIH has been consistent in misrepresenting Bayh-Dole, even after the Supreme Court decision in Stanford v Roche, which refuted the NIH account of Bayh-Dole.

The NIH views determinations of exceptional circumstances (DECs) to be rare events, made difficult to obtain, with the presumption that Bayh-Dole’s default disposition of rights is mostly spot-on. That’s an agency prerogative, of course–one more way that Bayh-Dole is not a “uniform” approach to most everything that Bayh-Dole’s policy is concerned with.

The only “uniform” part of Bayh-Dole is that if a university (or other non-federal entity) acquires a patentable invention made in a project with federal support, it can preempt the public purposes of the federal government, the faculty investigators, and the inventors. That’s the only uniform bit in the law. And even this uniform bit is only an arbitrary default. It’s the exceptional circumstances procedures of Bayh-Dole that allow federal agencies to vary from the default. That is, the exceptional circumstances procedures  in Bayh-Dole are the apparatus that permits federal agencies and nonprofit investigators to re-establish public purposes so that they will take precedence over whatever purposes that institutional patent policies permit university administrators to have instead.

Do you see how this works? It’s essential to understanding Bayh-Dole. Bayh-Dole’s arbitrary default is that any private purpose in exploiting a patent monopoly takes precedence over any public purpose in providing funding for research–so long as a private party gains ownership of a patentable invention made in that research. What a strange default.

Exceptional circumstances are not “exceptional” at all–they are the circumstances that ordinarily justify the use of public money for privately conducted research. Under Bayh-Dole, federal agencies (and university investigators) have to justify federal research funding twice–first to allocate the funding, and then to overcome the preemption of that justification by Bayh-Dole’s arbitrary default.

To call “exceptional circumstances “exceptional” is to engage in political doublespeak. It’s impossible to read such a text casually–just as one cannot listen to a liar and expect to get the truth. It’s just that in politics, if the liar believes that listeners should not expect the truth, then the liar considers everything to be a bluff, a political tool, all fair.

Bayh-Dole’s default preemption of public purpose is asserted in a context that is devoid of required circumstances. There are no ordinary circumstances–the circumstances of preemption are arbitrary. If a contractor obtains ownership of a patentable invention made in performance of work under a funding agreement, then if the contractor discloses that invention to the federal government, the contractor can retain title to the invention. There aren’t any circumstances to be had, ordinary or otherwise.

There are, then, no circumstances to start with other than the bare facts of federal funding, patentable invention, contractor acquisition, disclosure to the federal government. Nothing here has the remotest relationship to the idea that contractors should be able to preempt any public purpose for which federal funding has been justified and replace that public purpose with the private (or at least non-federal) exploitation of a patent monopoly. Nothing here connects Bayh-Dole’s statement of policy and objective to contractors having the right to preempt public objectives. How does institutional contractor ownership of a patentable invention lead to use with benefits to the public on reasonable terms? to collaboration? to maximum involvement of small businesses in development of the invention? to free competition and enterprise? to the use of United States industry and labor? There’s no connection at all in Bayh-Dole. An institution acquiring ownership of an invention, on the face of it, dramatically reduces the prospects for any of these objectives.

Once institutional ownership is claimed, anyone wanting to use or develop has to deal with an institutional bureaucracy, institutional demands, institutional contracts, institutional lawyers. Inventors are taken out of the picture. Public objectives are preempted. How does that increase the odds of succeeding at public objectives–even Bayh-Dole’s public objectives, such as collaboration?

An institution filing a patent application reduces the prospects of success even further. Now companies are at risk for claims of infringement if they read the scholarly literature and use what they learn–treble damages and attorneys fees if they happen to use or develop something from reading published accounts. Bayh-Dole effectively undermines the usefulness of academic publication–company scientists now must read that literature at some risk to their companies. If they read these articles at all, it is to learn what to avoid, what to design around.

An institutional fixation on exclusive licensing to the point of invention assignment reduces the prospects of success still further–now everyone not getting that exclusive license has an incentive to undermine the invention as a matter of competition, to make the invention obsolete before it is ever developed, to exclude it from emerging standards as improperly proprietary.

Look as hard as you can but you will not find a connection between institutional ownership of inventions made in projects receiving federal support, on the one hand, and the accomplishment of Bayh-Dole’s stated policy and objective–all that utilization, maximum participation of small companies in research and development, collaboration between universities and industry, free competition and enterprise, use of American industry and labor. Put another way, institutional ownership of inventions does not in any way mean that inventions will be used, small companies will have access to each invention, companies will collaborate with each institutional owner over each invention, that there will be free competition around those inventions, and that American companies and labor will be able to make these inventions.

Institutional ownership does not show any advantage over federal government ownership, once Bayh-Dole has made it a matter of statute that the federal government may grant exclusive licenses to inventions it owns. The arguments at the time (made by people such as Norman Latker) were that institutions were “closer to the inventors” and therefore could do a better job transferring a given invention, and because institutions would be motivated by money, they would be more diligent in trying to get development deals. But things have changed–now it is relatively easy for inventors to communicate or travel anywhere they need to be. But more so, the logic of “closer to inventors” never made sense. It’s pretty clear that inventions must be developed proximate to the companies that will use the invention–and startup companies in Pullman, Washington or Statesboro, Georgia will have to move to where the investment capital and industry activity are–or sell out to interests already located in those areas of activity.

Further, the idea that money should be the motivator of nonprofit institutions in their management of inventions in the public interest runs against much of what we expect from nonprofits. While a nonprofit might value sources of “revenue” to maintain its operations, we expect nonprofits to place service to the community ahead of their own financial “success”–that there’s something amiss if a nonprofit aligns itself with a commercial monopoly as its means to gain revenue. We would say that it has “sold out” or become “a front” for the commercial monopoly. We might doubt the judgment of administrators whose salaries were linked to payments received from the commercial monopoly.

Bayh-Dole’s working premise is that it is in the public interest for nonprofits to “sell out” in this way by aligning themselves with private for-profit patent monopolies that they have helped to create. In this, Bayh-Dole makes a claim then about nonprofits–that it is in the public interest that each nonprofit conducting research supported by the federal government should attempt to align itself financially with a single company to which it supplies a patent monopoly, especially one in the area of public health. That’s a strange new idea about nonprofits–it is almost as if the aim of Bayh-Dole advocates is to turn nonprofits into “fronts” for private investment.

But these are just accounts of expectations, and no doubt there are a wide range of expectations of nonprofits. Clearly many university patent brokers–members of AUTM–believe that a nonprofit without a lucrative patent deal with a pharmaceutical company is an unsuccessful nonprofit. For such people, it could not possibly be in the public interest that a nonprofit engaged in licensing of inventions without a profit motive or that a nonprofit refrained altogether from owning and dealing in patent monopolies. By contrast, many contract research organizations–nonprofit or for-profit–would consider their business model destroyed if they sought to own and deal in patents based on the contract research they performed for clients.

Bayh-Dole’s default regarding institutional ownership, however, is devoid of circumstances. To state any circumstances at all must be exceptional to the default. Everything that appears to be public interest apparatus in Bayh-Dole functions to put people at ease over the lack of circumstances. According to the design of Bayh-Dole, there can be an arbitrary default without circumstances if federal agencies have available various standard requirements that they may invoke or waive as necessary to correct for whatever problems might arise as nonprofits exploit patent monopolies. It’s just that this apparatus is not used by the federal agencies. They don’t enforce the standard patent rights clause; they don’t act on the broad government license to practice and have practiced; they don’t march in for nonuse or unreasonable use or for unreasonable terms of public benefit; they don’t use or act on or audit reports of utilization (which they must keep secret); and they rarely use the exceptional circumstances provisions to state any circumstances at all that might require something other than nonprofits dealing in patent monopolies without public constraints or oversight or intervention.

The public interest apparatus in Bayh-Dole does not operate. The arbitrary default becomes the public purpose: nonprofit acquisition of inventions preempts all public objectives in providing federal support to non-federal research projects–and even preempts all university claimed public objectives in receiving federal funding on behalf of faculty-proposed projects. The federal government and (with much less influence, university faculty investigators) must overcome Bayh-Dole’s arbitrary default with added administrative effort even to pursue the statutory missions on which the agencies have been established.

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