Exceptional Circumstances in Bayh-Dole, 10

We have been circling around the central problem of “exceptional circumstances” in Bayh-Dole. The law works to allow organizations to make decisions about patent monopolies that preempt other statutes–ones that “require a disposition of rights inconsistent” with Bayh-Dole’s arbitrary preemption of all public purposes in favor of what nonfederal invention owners decide–with the expectation in practice that these nonfederal invention owners will have wrested ownership away from individual inventors in the name of the public good (or in the name of the law). Bayh-Dole’s arbitrary premise is that the default public good must be whatever organizations that gain ownership of inventions do.

These organizations’ decisions can be all over the place–from self-interest to non-interest, seeking profit or declining any financial interest, competent to incompetent, sharing to monopolist. Nothing about the organizations’ decisions, once they come to own any invention made in a project deemed worthy of public support, is uniform–or even reported. Bayh-Dole associates this arbitrary default with a list of policy objectives that on the face of it have nothing to do with whether an inventor, an organization, the federal government, or no one owns any patentable invention. One has to supply a weird logic for each, with absolutely no indication that any organization’s patent administrators–or the companies they deal with–will accept or follow that same weird logic. There is absolutely no connection between allowing organizations to gain ownership of inventions made with federal support and the policy and objective stated by Bayh-Dole. Whatever private ownership of patent monopolies might do, the only difference between having bureaucrats own and inventors own is that inventor ownership is established federal law and public policy, and bureaucrats owning is not.

Again: the standing policy that Bayh-Dole preempts is that the federal government should own inventions made with its funding except when the contractor is a company with an established commercial position in a non-governmental market. The federal government can relax its claims for specific contracts and on a case-by-case basis once an invention has been made and reported. The standard of review is what will best serve the public interest. When the federal government takes ownership, it is expected to dedicate the invention to the public–not use the patent system, or if it does use the patent system, to license in the US royalty-free, nonexclusively. That is, don’t play favorites. Don’t exploit monopolies for money. Don’t encourage others to do so on behalf of the federal government. Don’t set up to sue citizens for practicing what citizens have supported. If contractors and investigators don’t like this deal, then don’t seek out federal support for projects. 

The primary purpose of Bayh-Dole’s preemption is to prevent the federal government from making federally supported research results (inventions, a result of primary importance because patents can block all independent development, all use of functional equivalents) available to the public for their use. When someone parrots statistics about government-owned patents, they don’t point out that the government owned those patents to use the patent system to *publish* the invention, not to secure for itself the right to monopolize the invention or to pass that monopoly on to a favored company friend. This is the import of 35 USC 207–which asserts as a matter of law that no federal agency must provide only non-exclusive licenses. This part of Bayh-Dole is just as damaging to the public interest than anything on the contractor ownership side.

Take the patent monopoly part out for a moment and consider the use of the patent system only as a form of national publication, reviewed critically to determine that what is published is indeed new, useful, and nonobvious, and the account has been written so that one with ordinary skill in the art may practice the invention without undue experimentation. If that’s the use of the patent system that ought to follow federally supported research inventions, then in any non-federal person taking a patent position would have to argue that they could do a better job making a given invention available than could the federal government. That’s possible. Perhaps the person will offer greater support. Perhaps the person has important ancillary technology or data. Perhaps the person will go out and rally people to the use of the invention and not merely publish via the patent system. Perhaps the person will write a patent application that is much more readable and helpful, since it does not have to be focused on setting up claims interpretation for infringement litigation and to puff up the prospects for a lucrative monopoly. All this is possible. But then our discussion is miles away from that of what a patent monopoly might do.

You can see by this thought experiment that Bayh-Dole’s policy and objective is utterly disconnected from the disposition of ownership. One could place inventions in the public domain to accomplish exactly the same list–utilization, maximum participation in development, collaboration, free competition, American manufacturing, rights for government, lower administrative costs. If owning and not owning plausibly accomplish the same thing–same for inventor ownership and institutional ownership, and federal ownership and non-federal ownership–then invention ownership has no connection to Bayh-Dole’s stated objectives.

Whether an invention is owned or not, whether if owned the owner is the inventor or an institution or the federal government, whether a patent is used or not, whether a patent monopoly is exploited or not is entirely disconnected from Bayh-Dole’s stated policy and objective. The only connection is grammatical (35 USC 202(a)):

The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter.

“Other provisions” include 35 USC 200–Policy and objective. The policy and objective are buried by Bayh-Dole rather than used.

And once there is any owner of an invention made in a project receiving federal support, that owner can do whatever the owner wants. The federal government can patent or not patent, can (35 USC 207):

grant nonexclusive, exclusive, or partially exclusive licenses under federally owned inventions, royalty-free or for royalties or other consideration, and on such terms and conditions, including the grant to the licensee of the right of enforcement pursuant to the provisions of chapter 29 as determined appropriate in the public interest

The boldfaced part means, in practice, *assign the invention* to a private party to exploit a patent monopoly, including by trolling industry. (If Bayh-Dole didn’t intend to include such trolling, then the law–it is part of federal patent law–would have added an exclusion in chapter 29–no right to enforce a patent by an owner of a subject invention that has not first achieved practical application. Otherwise, universities could sit on their bureaucratic haunches for years, and then sue anyone who practices a patented invention. Urp, like Stanford did with Roche. Or Caltech has done with Apple and Broadcom. Or Cornell with HP. Or Illinois and Harvard have done with Micron. Or Washington with GE. (List goes on and on).

Inventors can patent or not patent (37 CFR 401.9). If they patent, they have the benefit of small businesses, and can assign however they wish, license or not, license exclusively or non-exclusively, ask for money, or offer everything freely–as university faculty have been known to do, and as Salk did with his vaccine).

Nonprofits, too, can do anything they want (though they are constrained, unlike inventors or the federal government) to file patent applications. Beyond that, however, they can use or not, license or not, license exclusively or not, assign or not–with the only caveat being that any assignment by a nonprofit must include the nonprofit requirements on how any income with respect to a subject invention is used and a fussy walked-back preference in licensing for small businesses.

Once an invention passes through the sphincter of Bayh-Dole ownership, anything can happen. Anyone can do pretty much anything. How again does ownership then have anything to do with Bayh-Dole’s policy and objective. If the policy is that private ownership may preempt any public purpose, and the objective is a random list of things that don’t have anything to do with ownership but rather have to do with practices, then there simply is no connection.

Ah, you might say–the policy and objective stated by Bayh-Dole in 35 USC 200 establishes a public covenant that runs with every invention arising in federally supported research or development and constrains the property rights of patent owners in these inventions–regardless of the particulars set forth in 35 USC 202(c) pertaining to research contracts and regardless of whatever additional silliness gets folded into a standard patent rights clause by NIST. Of course, in saying that, one has to believe that such a public covenant will be enforced. In the history of such policy apparatus, going back to the Kennedy patent policy of 1963, the apparatus has never been used. Not in the IPA program. Not in Bayh-Dole. If we eliminate the portions of Bayh-Dole that have not been used along with the bureaucratic paperwork portions that do get used but are meaningless for achieving Bayh-Dole’s stated objectives, we end up with something starkly simple:

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention.

That’s it. The government license doesn’t matter. March-in doesn’t matter. The US manufacturing doesn’t matter–because it is narrow and useless and can be waived and is waived. Nonprofit requirements are ignored. The (f)(2) requirements of the standard patent rights clause are ignored and replaced by “interpretations” that substitute whatever universities wish the clause required. All the disclosure and notices and reporting don’t matter. (/snark Oh, innovation will happen faster and better because, um, bureaucrats fill out forms, and bureaucrats process forms, and bureaucrats design new forms, and bureaucrats create procedures for the uniform management of forms, for the record retention schedules for forms, for the database specifications for forms, for the data security that attends the information in forms, for the audit of the use of the forms, for training in the proper management of forms, for dispute resolution with respect to incomplete or inaccurate forms–yes, with such bureaucratic sophistication, inventions will be made available to the public faster and better. /end snark)

Stripped of pretense and apparatus that doesn’t operate, Bayh-Dole states that no matter what a federal agency may seek to accomplish, no matter how a federal agency justifies funding research projects, if a nonprofit gets a hold of an invention, then it can do whatever it wants. The nonprofit’s objectives preempt the federal government’s objectives, faculty investigators’ objectives, the project’s beneficiaries’ objectives. Because there is no connection other than grammatical between this ownership requirement and Bayh-Dole’s policy and objective, the nonprofit owner of a subject invention is not obligated to meet any of Bayh-Dole’s policy and objective. Bayh-Dole does not track most of the list of objectives–it does not require reports of collaboration for each subject invention, or how the owner of a subject invention has maximized the participation of small businesses in research and development of that subject invention; nor does Bayh-Dole ask for reports on how the patent system has been used to promote free competition and enterprise or making commercialization and public availability come about through American industry and labor. Bayh-Dole creates a reporting right for federal agencies specific to utilization–but even here makes the reporting optional. Federal agencies don’t have to require any reports. And Bayh-Dole makes the reports a federal secret, probably in violation of the FOIA statute. Not only does the public interest apparatus in Bayh-Dole not operate, and not only is that apparatus designed not to operate, but also any reporting requested by federal agencies is kept secret.

Private exploitation of monopoly patent positions obtained on inventions made in work with federal support is the public policy position of Bayh-Dole.  Bayh-Dole caves all federal public purposes, all faculty public purposes, all project beneficiaries’ public purposes. There’s an argument that Bayh-Dole preempts the “property trust relationship” required of all federal grants with respect to intangible assets (see 2 CFR 200.316) as far as patentable inventions acquired or improved with federal support is concerned. If so, then by gaining ownership of an invention made with federal support, a nonprofit uses Bayh-Dole to *exempt* itself from the public, regulatory obligation of acting as a “trustee” holding assets for the “beneficiaries” of a federally supported project.

Bayh-Dole does provide a pathway around this preemption of all public objectives in favor of whatever objectives any owner of an invention made in publicly funded work might have. That’s where the exceptional circumstances provision comes into play. You can see why we have circled around it for awhile. First you have to see what Bayh-Dole’s ordinary circumstances are–and upon inspection, there are none. Instead, there’s a default. The apparatus that runs with the default doesn’t operate. Any circumstance is an exceptional circumstance. Any federal agency public objective is an exceptional circumstance. Any existing federal statute setting forth a public objective is an exceptional circumstance. Even the statutes authorizing the use of federal money for basic research–to the extent they create expectations of public access to the results–are exceptional circumstances. You can see what pernicity is created by Bayh-Dole’s use of “exceptional” for the circumstances that would otherwise be exactly those of public purposes expressly established by public laws.

In this weird game of political rhetoric, in which “exceptional” means “ordinary,” and “public interest” means “private interest,” a federal agency is required to re-justify its statutory mandate in Bayh-Dole’s terms of the default private exploitation of patents in inventions that contractors have decided to own. That’s what Bayh-Dole’s “exceptional circumstances” procedures are all about. Any circumstances–a federal agency’s founding legislation, a particular objective for funding research, a law specific to a particular public outcome that justifies funding research, a faculty investigator’s vision for the outcomes of a proposed research project–are exceptional circumstances. They are exceptions to an arbitrary default that has no circumstances. If it’s federally funded research–that is the circumstance, if you wish–then a contracting organization if it obtains ownership of a patentable invention can exploit a patent monopoly on that invention any way it pleases.

The exceptional circumstances provision of Bayh-Dole permits federal agencies to re-assert their statutory mandates, their contracting practices, and their public objectives. But to do so, the procedures require that a federal agency must reason away from Bayh-Dole’s arbitrary default of organizations keeping whatever they can get and in so reasoning must show what is impossible to show–how any deviation from the default better achieves Bayh-Dole’s arbitrary list of objectives, which have nothing to do with who happens to own any particular invention made in work receiving federal support.

Bayh-Dole, by making it difficult for federal agencies to re-assert their statutory mandates, their authorized objectives, their responsiveness to public needs, requires public interests to be subordinated to private interests. That, in a sense, is the recursion of Bayh-Dole–private exploitation of patent monopolies based on inventions made in publicly funded work is depicted as a public purpose. If that were actually true, then there would be no need for Bayh-Dole or even the pretense of federal “grant” funding. The government would just hand out subsidies to companies, based on what they proposed to do in their own general self-interest. That’s in fact what is happening under Bayh-Dole, but with the following differences:

(1) The federal subsidies are laundered through nonprofits.

(2) The nonprofits choose the companies to receive the patent monopolies.

(3) The nonprofits get only a very few companies willing to take  patent monopolies.

(4) Most inventions get withheld from access and most of the small number that are assigned do not become commercial products.

Exceptional circumstances, then, end up being any circumstances that require a change this dominant practice by which universities attempt to deal in patent monopolies on subject inventions. Anything that requires a patent monopoly to be broken up (non-exclusive licenses, shorter term of exclusivity than the patent term) is an exceptional circumstance. Anything that requires royalty-free access, such as for a standard or so that beneficiaries can have access to what was developed for them or so that anyone can bid to do work on future federal contracts is an exceptional circumstance. Anything that requires anything not already in paragraph (c) of 35 USC 202 is an exceptional circumstance. But none of these exceptional circumstances are allowed by Bayh-Dole unless it can be shown that any different disposition of ownership of an invention acquired by a nonprofit will better promote the objectives set out by Bayh-Dole. In general, it’s not possible to show that any disposition of ownership in inventions that a nonprofit (or other contractor) acquires will ever promote any of the objectives set out by Bayh-Dole. Only in bureaucratic dreams and the pretend world of the attorneys that are paid to attend on the dreamers.


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