WARF, Vitamin D, and the Public Interest, 1

In the 1940s, WARF was basking in the income from licensing its flagship patents–on a way to irradiate food products to produce in them vitamin D. (For an interesting account with lots of details, see Rima D. Apple (a University of Wisconsin historian who mostly ignores the lawsuit discussed  here and provides a soothing alternative explanation that Steenbock had decided on his ownsome to grant licenses for margarine) “Patenting University Research: Harry Steenbock and the Wisconsin Alumni Research Foundation.”  The University of Wisconsin had introduced the concept of “vitamins” into the popular imagination, and vitamin D was one of the elixir compounds that prevented a “vitamin deficiency disease”–rickets. But things weren’t quite right. WARF refused to license its patents for introducing vitamin D into margarine. A company, Vitamin Technologists, sued, and the case ended up as a matter of antitrust, with WARF losing on appeal in 1945.

In essence, Vitamin Technologists used a form of “march-in” to break the monopoly of a patent that was not being licensed in the public interest. The court decision is worth the read. The decision gets even more interesting if we consider what Bayh-Dole is up to with its version of “march-in” (35 USC 203), preemption of all other federal statutes but for Stevenson-Wydler (35 USC 210), and disclaimer with regard to antitrust (35 USC 211). Keep firmly in mind that Howard Bremer from WARF worked closely with Norman Latker at the NIH first on the IPA program–the University of Wisconsin got the first revived IPA deal in 1968–and then to draft Bayh-Dole and its implementing regulations. Bremer more than anything would be mindful of what happened to WARF in 1945 (and again in 1965, with 5-FU). This is not some random bounce through a law case. We are at ground zero for the revenge of WARF via Bayh-Dole on federal agency action to promote the public interest with regard to inventions made in federally funded research.

WARF had appealed an earlier ruling. Part of WARF’s appeal included a version of the monopoly meme:

Appellee [WARF] contends that all the claims obtain support from the commercial success of the monopoly granted.

That is, WARF argued that it was somehow necessary to block all use of the irradiation process in margarine so that there could be such tremendous success with milk and butter. WARF’s argument then skipped to the benefits of the invention rather than the denial of the benefit of the invention to those who cannot afford butter:

It describes the great number of children suffering from malformation of their bodies due to the defective bone metabolism. The record contains pathetic pictures of such malformations and statistics of the large numbers of such unfortunates. Other maturer sufferers are described, all proving the great numbers of afflicted who, ex necessitate if they are to use such a boon to humanity, have been customers of the licensees of appellee. From the appellee’s business manager it appears that it was largely from need of the poor that the business was supported.

And this “need of the poor” ends up being the downfall of the WARF patent monopolies. If you are thinking in parallel, then you’d have jumped to the high cost of prescription drugs for a potentially analogous situation. Hold that thought. Emphasis on “we” supplied by the court:

“Q. Do any of your licensees in this country irradiate or fortify oleomargarine under your process? A. No, no, in general, we  have been unsympathetic with those developments.” (Emphasis supplied.)

That is, WARF and the University of Wisconsin used their patents to prevent the use of the invention in the “fortification” of margarine products. In the monopoly meme, exclusion of use is not only a critical property right of any patent holder, it is also essential to the creation of commercial products. How could one be successful in commercializing irradiation of dairy products if one were permitting the irradiation of non-dairy products that compete with dairy products? Yes, that’s the shape of the logic. Choose it as you feel you must.

The court notes the substantial royalties earned by WARF from its patent licensing scheme and observes that WARF has created a “profit-controlled monopoly barrier” between “the afflicted and their potent remedy” (my emphasis):

We agree that it has been shown that the monopoly on this aid or cure of the rachitic has been a commercial success which well warrants the consideration of the court. Apart from its legal implications, the large financial returns from such a profit-controlled monopoly barrier between the great numbers of the afflicted and their potent remedy is an interesting episode in the history of the law of patents.

The court will then make use of this observation to make the law of patents even more interesting.

However, we do not agree that such commercial success overcomes either the unclean hands and laches or the invalidity of the first two patents, later discussed.

We will focus on the “unclean hands” part of the court’s discussion. It is more interesting than just WARF’s refusal to license its inventions for margarine. The court then considers WARF’s contention that it should prevail because Vitamin Technologists assert is wrong that WARF uses its patents against the public interest. Here’s the court’s opening move:

It is now well established that a patentee may not put his property in the patent to a use contra to the public interest.

The court then looks at how WARF has tied its patent licenses to sale of ancillary products and excluded use of its inventions for margarine, the “butter of the poor.”

This raises the question, not argued, whether the effect on the public health of refusing to the users of oleomargarine, the butter of the poor, the right to have such a food irradiated by the patented process is against the public interest.

A simple question–does the commercial success of WARF’s patent licensing scheme justify whatever denial of benefit comes about because the poor depend on margarine, not butter. Is it good enough that the poor can stay poor for another two decades because, as the Supreme Court reasoned in Dubilier (in 1933), a patent isn’t really a monopoly because a new invention does not deny people what they didn’t have already anyway. The Vitamin Technologists court continues its reasoning:

As seen, the general business manager of the Wisconsin corporation [WARF] testified that it is the poor people suffering with rickets who constitute the principal market for appellee’s monopolized processes and products. The evidence and appellee’s briefs are replete with well verified statements of the great boon to humanity of Dr. Steenbock’s scientific discoveries for the prevention and cure of rickets. The truth of such statements make the stronger the contention that it is a public offense to withhold such processes from any of the principal foods of the rachitic poor, or, indeed, from those of any such sufferers.

If the intervention is truly as good as the owner of the patents claims, then all the more reason why it is in the public interest that the benefits of the invention should not be withheld from those that might suffer from rickets.

Again, consider the monopoly meme argument in context. The monopoly meme in general states that a patent monopoly is necessary to stimulate the private development of commercial products or else the public won’t benefit at all from university research. Without both universities and companies having the profit motive provided by monopoly rights, the university research is wasted. But that’s the bloodless abstract version. Here we have the particular version–that the university and company profits are more important during the term of a patent than is the scope of the benefit of the invention to the public. “Wait until we nonprofits have got ours as fully as possible, and then in a couple of decades, you can get yours, if you are still around.” According to the monopoly meme, nonprofit patent income is a more important public good than the invention that has the immediate prospect of public good. Or, simply, patent income is more important than alleviating suffering.

The WARF patents on irradiated milk show once again the difference between an invention–irradiation of milk and butter to produce vitamin D–and the patent claims available to expand the scope of the invention to any food that might be irradiated to produce vitamin D. If WARF wanted to make its money licensing its process for milk and butter, fine–but WARF also aimed to prevent the use of the *claimed invention* in all other foods that might compete with milk and butter. If all WARF had was a monopoly in the use of the invention within the scope of what it did use the invention for, perhaps we would be done. But then, perhaps, we would see that WARF’s royalty requirements raise the price of beneficial milk and butter, making margarine all the more attractive as an alternative for the poor, and thus WARF prevents the use of the invention for margarine.

None of this would come about if WARF had licensed for every area that someone wanted to use the invention, including margarine. But WARF’s strategy included another thing that shows up in university technology transfer rhetoric–that of local economic development. WARF’s purpose in suppressing the use of the invention in margarine was to pump up the Wisconsin dairy industry. Thus, a kind of regionalism–regional economic “development” takes precedence over the public having the benefit of the invention in a variety of ways. A patent is a national grant of rights. But WARF has led university patent brokers in framing a case for patent monopolies to be used by universities to promote regional advantages. The form of the argument is, bluntly, that the public in a given state benefits from the financial advantage provided by a patent monopoly to nonprofits operating in the state, and that advantage is best when the public in other states is prevented from ready access to the benefits of the patented invention.

In a simple way of putting it, if a patent owner has the right to suppress all use of a given patented invention–so the Supreme Court has held (the “Paper Bag case”)–then so does a public university acting as an instrument of a state government. But our court wonders about this:

Suppression of the use of the property in a patent has often been held the right of the holder of the patent monopoly, but the question has not been raised in connection with the public interest in restoring the health of the afflicted.

The court goes on:

We know of no case in the Supreme Court since the Paper Bag case, supra, which has considered the patentee’s refusal to license the use of its patent to protect the health of great numbers of the public such as are here shown to be suffering with rickets. It is strongly arguable that such a suppression of the patent’s use is vastly more against the public interest than its use for a mere control of prices . . . or the tieing of unpatented with patented material . . . [cases the court has previously discussed]

You can see the argument for compulsory march-in developing. If it’s a matter of public health, then a patent owner does not have the government’s sanction to refuse to license an invention that would protect the health of “great numbers of the public.” This is march-in writ large, without bureaucratic procedures to make the march-in cumbersome if not impossible. The court concludes (citation removed):

While recognizing the duty of the court, sua sponte, to protect the public interest, regardless of the contentions of the parties, this also falls within the functions of the Attorney General. The matters above considered are suggested to him.

That is, march-in based on the public interest is a matter for the Attorney General–Justice Department, not the Secretary of Commerce or the federal agency that provided the research funding.

You can start to see, too, what Bayh-Dole does. It interposes the jurisdiction of the federal agency awarding a research grant ahead of the Attorney General. It is the federal agency that gets to decide whether to march in, not the Attorney General, and the federal agency, to march-in, must follow an arcane set of procedures that make it next to impossible to march-in at all, even if a federal agency did determine to march-in. In part, this result comes about because Bayh-Dole sets the march-in as a remedy in the context of a federal contract–the standard patent rights clause.

Look at the clever scheme to exclude the Attorney General from enforcement. The law provides that when a contractor acquires an invention made in work with federal funding, all other “Acts” are preempted. In their place comes the standard patent rights clause, unless a federal agency following another arcane procedure finds a way to use a different clause. The standard patent rights clause, however, is part of a funding agreement, a federal contract. The government’s rights then are a matter of the contract–an agreement with the university or other contractor. March-in is not a matter of enforcing the law, or even of a remedy for breach of the contract (other than for breach of the US manufacturing clause, which is so limited it pretty much will never be breached). March-in becomes an administrative decision within the context of federal funding agreements, and the control of these agreements, including the right to waive provisions or decline to enforce them or decline to act on government rights, is given over to the federal agencies.

A contractor, if it acquires an invention, may keep that ownership subject to a set of conditions that don’t have to be conditions at all–depending on what each federal agency decides to require, waive, enforce, or act upon. Clever.

What’s left, then? Bayh-Dole’s statement of policy–35 USC 200–and the definitions–35 USC 201–which do not come within the standard patent rights conditions and so fall outside what Bayh-Dole delegates to federal agencies and the Department of Commerce. And this is where the Vitamin Technologists court heads–very pre-Bayh-Dole, of course, when WARF appeals the court yet again for a rehearing. Justice Denan then cites testimony of a WARF trustee:

At the time Dr. Steenbock assigned his rights in the inventions upon which the patents in suit were granted, the assignment was accepted by appellee upon condition that irradiation or Vitamin D fortification of oleomargarine would not be licensed without the consent of the president of the University of Wisconsin.

The assignment came with a condition that passes the decisions with regard to licensing through the University of Wisconsin.

Nevertheless, Scientist Steenbock gave to the presidents of the University of Wisconsin, dependent upon that legislature’s funds, the sole power to add to oleomargarine by irradiation the vitamin D which that scientist claims is so valuable, if not essential, in the cure of rickets of the children of the forty-eight states; and the Wisconsin corporation [WARF] accepted and administers the patents subject to such restraint on its beneficent use.

As stated, all these children of the whole Nation thus have been prevented from receiving the vitamin created by this process in the oleomargarine on the bread they eat or in the animal and vegetable foods which are cooked in that fat. At the hearing, on being questioned by one of the judges, the Wisconsin corporation admitted that children so fed oleomargarine on bread or foods so cooked would receive the antirachitic vitamin.

The President of the University of Wisconsin, then, is responsible for the decision to withhold the benefits of a university invention from a public that otherwise needs it for their health. WARF presented arguments that various regulations prevented WARF from licensing its inventions for use in margarine. The court was not impressed:

We now have before us from the Wisconsin corporation [WARF] what, if the case be resubmitted, it will prove as excusing the refusal of the irradiation of oleomargarine. Upon consideration of the proffered evidence all three judges now conclude the refusal unwarranted and against the public interest and deny the motion to remand for proof of these facts. We further hold that such refusal to permit such irradiation warrants the refusal of the equitable injunctive and accounting relief sought by the corporation, though we hold the public interest is served better by our decision that the patents are invalid.

That is, the patents are invalid anyway, but even if they were valid, WARF has not managed the patents in the public interest–and neither have the presidents of the University of Wisconsin.

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