WARF, Vitamin D, and the Public Interest, 3

The appeals court in Vitamin Technologists sets up the case for compulsory licensing of inventions owned by public universities as instruments of state governments. That is, the appeals court establishes the basis for public march-in when a state owns a patent on an invention relating to public health and refuses to license that invention generally and instead uses the patent monopoly to create an advantage for a preferred industry, even an industry that has influence with state government or that could be construed as providing a benefit to people in the state. That industry’s benefit is not the only public benefit in play.

The benefit of the use of the invention by the public takes priority over the financial advantage for a company or industry created by suppressing other use by the public. In the case of Vitamin Technologists, the industry was the dairy industry. Today, it could be the pharma industry.

When a public university takes ownership of an invention “in the public interest,” the university necessarily invokes this principle. The principle derives from the reality that the university is itself an interest of the state. Things like Bayh-Dole and federal patent law don’t change the obligations that a state has to its public. Whatever public university administrators do with the invention, and whoever comes later to own the invention by way of assignment or exclusive license from the state, must answer to the principle that public benefit from invention use comes ahead of any financial benefit by suppressing use.

This principle drives first at the monopoly meme. The benefits that may arise by excluding use or by excluding competition do not outweigh the public’s beneficial access to the invention, once an instrument of government–of the public–takes ownership of the invention. The monopoly meme is just that–an assertion. In practice it does not hold generally true, and a better characterization is that it is *rarely* true. But this principle drives even deeper. When a public university insists that it has a right of ownership of such an invention–especially one directed at public health–then the university’s has no authority to assert a property “right” by which to suppress public benefit from the invention by partnering for a financial stake in the “upside” of such suppression.

The monopoly meme replies: buh, buh, buh, we have to suppress public benefit or no one will develop any invention into a commercial product that can be used. The retort is “nonsense.” In matters of our health, for instance, we don’t have an absolute need for commercial products, and when there is an interest incommercial products people have developed such products, and will continue to develop such products even if there’s competition. If there are problems, we use standards and cross-licensing to resolve adversarial IP positions.

Before a new drug based on publicly claimed inventions is seen as a “proprietary” product, it should be reviewed as a standard. Anyone who wants access to the standard should contribute to the scientific and regulatory effort to establish the safety and efficacy and dosage and delivery of a proposed therapeutic standard. Then, once there’s an established standard, companies can compete all they want on manufacturing efficiencies, quality, training, and marketing to get their versions of the standard into public use. It is medical interventions as public standards that the pharma industry–still the old patent medicine industry–seeks to prevent.

We can then rephrase the “public interest” demanded of public university presidents when they take ownership of inventions directed at public health: the purpose of public ownership of such inventions is to create new standards of medical treatment or to contribute to existing standards (think: approved generics) with improvements. It doesn’t matter what patent law provides for the abstract owner of an invention. It doesn’t matter what a federal agency says to a nonprofit about retaining ownership of an invention. What matters is the principle that a state government has an obligation to act with regard to a patent right it owns in the public interest, and that means that the patent property cannot be used to suppress benefits to the public. The use of the patent property right must be limited to opening up those benefits, and never to suppress a beneficial use.

In the case of vitamin D, there was a great deal of interest in using the invention. Here’s Dr. Apple:

Only a few months after publication of his early work, in 1924, Steenbock was approached by pharmaceutical houses such as Eli Lilly and Abbott Laboratories. Despite the companies’ great interest, the biochemist felt that talk of the development
of vitamin-D supplements was then premature. By 1928, however, he had concluded that several pharmaceutical houses were probably using his irradiation process without license or control.

That is, the pharma industry did not need no stinkin’ monopoly to develop the invention for their commercial purposes. So Steenbock via WARF grants licenses to five pharmaceutical companies–but no others. Thus, WARF plays at picking favorites and limiting competition to major companies. Pharma companies were not the only ones interestd:

In addition, a multitude of food manufacturers were anxious to irradiate their products. Interested firms ranged from Anheuser Busch, the beer manufacturer, and Fleischmann’s, producer of yeast, to C. E. Wheelock, manufacturer of jams and jellies, and Bottled Beverages, Inc., of Cleveland, Ohio, who in 1929 were
“working on a chocolate drink with the idea of introducing Vitamine ‘D’ thru irradiated argosterol [sic]. This, of course, will make a chocolate drink worthwhile to sell to the public school children and other kiddies thruout the land.” Most of the many, many letters of inquiry met with rejection.

There’s absolutely no vestige of the monopoly meme here. None of the companies–even the pharmas–are quipping that they must have a monopoly or they aren’t interested. Well, perhaps Quaker Oats made that pitch, since they got an exclusive license for cereal products. For the vast majority of companies, however, there was no need for an exclusive license–they were going to add vitamin D to their foods one way or another, and Steenbock’s invention was an attractive method.

Steenbock explained that WARF issued licenses only to “the most important food products such as milk, cereal, fats, and the like”; thus researchers could “ascertain the reaction of the public” and “have available exact data on the physiological effect of the product on human nutrition.” Nonetheless, several companies were able to work out satisfactory licensing contracts with WARF.

Steenbock’s rationale was not the necessity of monopoly but the role of the patent in controlling for quality and true claims made for a given application of the invention. Would companies use the irradiation process correctly? Would they make claims about the resulting foods that were true, scientifically demonstrable? In the absence of a strong government program of regulation for food safety and nutritional value, Steenbock saw a patent right as a means of asserting that control. In a market that lacks regulatory oversight and industry standards, it makes some sense to use a patent right combined with licensing requirements to look out for public welfare. But that use of a patent has nothing to do with the monopoly meme.

If we push further–that the WARF patent was in fact a patent controlled by state government through the agency of the president of the University of Wisconsin–then we see that WARF had an obligation to act as an extension of the state. The use of a patent then could not be to suppress one industry in favor of another–just as it would not have been acceptable to suppress all uses of the irradiation process in foods so that one or even five pharmaceutical companies could do a better job selling vitamin D pills. Why “enrich” food when one can “supplement” one’s diet with the necessary chemicals? The public covenant that runs with publicly owned inventions–and patents on those inventions–demands that a state make the invention available to all industries, to all public uses, while exercising  an appropriate level of regulatory control through licenses in the absence of other regulatory standards and procedures. The license–fair, reasonable, and non-discriminatory–stands in as a standard for oversight, truth in advertising, compliance with safety and quality requirements, and free competition relative to “essential claims” of any subsequent patents necessary to practice within the scope of the standard license requirements. 

If you want to see the diluted analogue of this requirement in Bayh-Dole, it’s the third march-in condition at 35 USC 203(a):

action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees;

You see that “licensees” in the plural at the end–the expectation is that when there’s a regulatory requirement for use, then there ought to be multiple licensees, and if they aren’t doing the job, then the contractor-owner-assignee should not have the right to deny additional licensees to practice the invention so that the regulations may be “reasonably satisfied.” In the Kennedy patent policy, by contrast, there’s much less need for march-in because the government should own inventions for the purpose of dedicating them to the public (even through an open standard) when it funds research that directly concerns the “public health or welfare” or which is intended to create a product or method that will be required for use by the general public to comply with governmental regulations. In the Kennedy approach–which codified the approaches already used by federal agencies–march-in was reserved only for those situations in which a federal agency allows a contractor to retain ownership–either companies with an established commercial position or nonprofits and others without any such commercial position but which make a persuasive case that their ownership of an invention will serve the public interest. If those owners fail in their purpose, then the federal government may march-in.

It’s all rather direct. First, any owner of an invention made with federal support has three years to take effective steps to achieve practical application or to make the invention available for licensing. If the contractor fails to do one or the other, and cannot make a persuasive case for holding a monopoly longer, then

the government shall have the right to require the granting of a license to an applicant on a non-exclusive royalty-free basis.

Second, the time frame for development and persuasion steps are removed if the invention is

required for public use by government regulations or as may be necessary to fulfill health needs, or for other public purposes stipulated in the contract.

In those cases–ones in which a funding agreement stipulates public purposes, then the government (defined in the Kennedy patent policy and the Nixon revisions that followed to include state and municipal governments),

the government shall have the right to require the granting of a license to an applicant royalty free or on terms that are reasonable in the circumstances.

Where the government specifies a public purpose in the funding agreement, the owner of a resulting invention has the obligation to meet that public purpose with any patent right, and if not, the government has the right to do so. In essence, the owner of such an invention holds the invention as a trustee, or as an agent of the government. The ownership of a patent does not suddenly waive this obligation. It simply gives the owner the opportunity to perform work on behalf of the government. If it fails to do so, then the government can compel licensing–and even compel licensing that involves income to the patent owner. In other words, the government can require a fair, reasonable, and non-discriminatory licensing program where an owner of a patent on an invention fails to meet any public purpose stipulated in a funding agreement–such as failing to create on its own such a fair, reasonable, and non-discriminatory licensing program.

Bayh-Dole uses similar language but turns all this on its head. Where federal policy and a range of statutes require federal ownership of inventions for the purpose of dedicating their practice to the public–creating a robust public domain, technology commons, and standards–Bayh-Dole authorizes contractors to preempt that default anywhere a contractor gains ownership of an invention made in federal research, regardless of whatever public purposes may have been specified in the funding agreement. Bayh-Dole then makes it difficult–if not impossible–for the government to act to protect whatever public purposes it may have had in funding the research or subsequently in creating regulations or addressing matters of public welfare for which it is responsible or has an authorized interest.

In Bayh-Dole, the right to march-in is narrowed to the federal agency that awarded the funding. In the past policy, any part of “government” could march-in, including state or municipal governments. In Bayh-Dole, the right to march-in is construed as an encroachment on private property rights requiring due process. In the past policy, the right to own an invention was a delegation of a government interest to a servant-owner, and the government retained to require the servant to act as the government directs. In Bayh-Dole, the public purpose of research funding is reduced to the exploitation of patent property rights for whatever private interest. In the past policy, the public purpose of research funding and federal regulations and federal intervention takes priority over any other exploitation of a patent property right obtained on inventions made in work receiving federal support.

It is this last bit, the priority of public purpose over private exclusion that the Vitamin Technologists decision emphasizes. But it does this bit more. When the owner of a patent–any patent, not just one arising from federally supported work–is itself a public instrument, such as a public university–then the public interest in the practice of the invention must take priority over any right to exclude others for a monetary advantage or to the advantage of one industry over another or to create scarcity or to play favorites among companies. A public university, then, must license patents on a fair, reasonable, and non-discriminatory basis, regardless of who funded research. If the proper and best course of action is that a patent must be exploited for its monopoly value, then a public university cannot take ownership of the invention in the first place. It’s no good, even, taking ownership and then choosing some favorite company to suppress all other practice on behalf of the university and the state. It is one of those things that should never be, no matter how much one may desire it.

Thus, when a public university claims ownership of an invention and subsequently assigns that invention to a company (regardless of whether the assignment is express or takes the form of an exclusive license to all substantial rights in an invention), then a public cause of action arises whenever that assignee fails to make the invention available on fair, reasonable, and non-discriminatory terms for any matter of public health. It’s not merely the march-in of Bayh-Dole–weakened to a squabble about the meaning of benefits made available to the public “on reasonable terms.” It’s much more simple than that. If there’s not a public domain or commons or standard–no FRAND licensing–then the public has standing to demand that the government entity that holds ownership or the entity that holds ownership by assignment from the government comply with FRAND licensing.

That’s what Vitamin Technologists teaches us about about university ownership of patents, about Bayh-Dole, and about the public’s right to march-in when an invention concerns the public health.

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