What the NIH says about Bayh-Dole, 3

Now we arrive at the source of the NIH’s conflation in its most recent “background” misrepresentation of Bayh-Dole. We are deep into the federally owned invention side of Bayh-Dole, section 209(a), in a list of the requirements that must be met before a federal agency can grant an exclusive license. It’s here that we start to find requirements that an exclusive licensee must commit to “pursue” practical application:

(3) the applicant makes a commitment to achieve practical application of the invention within a reasonable time, which time may be extended by the agency upon the applicant’s request and the applicant’s demonstration that the refusal of such extension would be unreasonable;

This is the bit in which an exclusive licensee must agree to achieve practical application–and within a “reasonable” time, whatever that is. In the Kennedy patent policy, it was three years from the date of patent issue. In the Latker-drafted NIH IPA program, circumventing the Kennedy patent policy, it was the shorter of three years from the date of first commercial sale or eight years from the date of the exclusive license, with a limited right of appeal by the patent owner. In the original version of the Latker-drafted Bayh-Dole, it was a limit only for nonprofit exclusive licenses to large companies and then the sooner of five years from the date of first first commercial sale or eight years from the date of the exclusive license, with the opportunity to extend the time of exclusivity on appeal by the invention owner. That provision was amended away three years after Bayh-Dole passed–before it could ever come into operation. On the federal side, “reasonable” is left indeterminate–whatever someone at the NIH, say, thinks is reasonable.

The implementing regulations at 37 CFR 404.5(a) for this section of Bayh-Dole are no help:

The license shall require the licensee to carry out the plan for development or marketing of the invention, or both, to bring the invention to practical application within a reasonable time as specified in the license, and continue to make the benefits of the invention reasonably accessible to the public.

Whatever the federal agency specifies is apparently a reasonable time. Note, too, that the implementing regulations here do not even follow the definition of practical application in Bayh-Dole, but instead revert to the definition of practical application in the federal procurement regulations that Bayh-Dole preempts (see 41 CFR 1-9.107-5(a)(a)(5)):

“To the point of practical application” means to manufacture in the case of a composition or product, to practice in the case of a process, or to operate in the case of a machine and under such conditions as to establish that the invention is being worked and that its benefits are reasonably accessible to the public.

Bayh-Dole’s definition is “available to the public on reasonable terms”–clearly Bayh-Dole was stitched together from the body parts of prior regulations, the IPA program, and gases escaping from the drafters’ minds. Sure, “reasonably accessible” contains some sense of “reasonable terms” but access and terms are also distinct. It’s at the minimum gross inattention to swap one for the other. But it also appears that there is an effort to prevent “reasonable terms” to include price, though price would have to be among the most important of terms, along with nondiscrimination and no tying, for any such transaction in which a product manufacturer had the benefit of a monopoly right to exclude competition.

Thus, the NIH in its background information helpfully conflates the obligations of federal contractors with the requirements imposed on federal agencies for the exclusive licensing/assignment of inventions that are not subject inventions–but rather are inventions owned by the federal government. Federal agencies must require exclusive licensees/assignees to “commit to achieve practical application”–but can then extend the time to actually do so, so there may never be practical application, or there will be practical application only when the licensee/assignee is good and ready for it, and even then it doesn’t much matter if it’s just commercial exploitation or whether there are benefits available to the public on reasonable terms because, you see, there’s this “otherwise” prong that does not depend on practical application at all, regardless of all the huffing and puffing of Bayh-Dole’s apparatus.

The point is, not only is the NIH putting out an utterly confused account of Bayh-Dole–contractors have no obligation to pursue practical application and certainly there’s no penalty for failing to achieve practical application–and it’s not just that the NIH cannot sort out contractors–funding recipients–from its own assignees of federally owned not subject inventions; rather, deep breath, it is that there is, in fact, no statutory obligation for anyone holding patent monopoly rights on any invention arising in federally supported research or development to pursue practical application or achieve it. All one has is an incentive to say the right things to make it appear that one intends practical application, and the rest is up to a federal agency to waive whatever requirements that do get put into words. It’s a sham, a crock–or, a clever apparatus created by the NIH to pipeline patent monopolies to pharma companies.

Instead of march-in, for federally granted licenses, Bayh-Dole stipulates instead the threat to terminate the license. Each license must include “provisions” . . .

(3) empowering the Federal agency to terminate the license in whole or in part if the agency determines that–

(A) the licensee is not executing its commitment to achieve practical application of the invention, including commitments contained in any plan submitted in support of its request for a license, and the licensee cannot otherwise demonstrate to the satisfaction of the Federal agency that it has taken, or can be expected to take within a reasonable time, effective steps to achieve practical application of the invention

The provisions here at 35 USC 209(d)(3) are roughly parallel to march-in–it’s just that rather than the federal government reducing the exclusive license to non-exclusive or better not granting an exclusive license in the first place but rather granting a sole license–a non-exclusive license done once, unless further licensing is necessary–Bayh-Dole makes it all or nothing. Terminate or let be. From experience, I can say that a terminated exclusive license is pretty much death for whatever technology involved. There are all sorts of collateral damage involved and it is not as easy as starting over–one now has to deal with any ancillary inventions that are required or that may have been made (and patented). Consider, a pharmaceutical company obtains an exclusive license to develop a class of compounds. To do this development, the company acquires patents from a third company (or maybe acquires the company entirely). Now it fails to develop the licensed class of compounds and the federal government terminates the license. What then? Who is going to acquire that third company that held the key additional patents needed to develop a product based on the licensed invention?

Luckily, the implementing procedures allow federal agencies to agree to changes in a company’s plans (see 37 CFR 404.5(a)(9) or (10)–(9) or (10)–the provision repeats, no doubt for emphasis), so one doesn’t hear of federal agencies terminating exclusive licenses. Funny that.

The great public policy move in Bayh-Dole is to allow federal contractors to preempt public policy whenever they manage to acquire ownership of inventions made in projects receiving public support. Thus, Bayh-Dole’s big deal is whether a contractor gets to decide who to favor with an assignment of a subject invention or whether a federal agency takes back the monopoly rights and decides who to favor with an assignment of a federally owned invention. Here by “favor” I mean something along the lines of “allow to screw over the public.” It really cannot be a virtue for university administrators to get a financial kickback (a royalty) from their participation in such screwball practices.

Now we get to the really deeply pernicious parts of NIH’s “background” on Bayh-Dole:

. . . such as by licensing the invention under reasonable terms for the benefit of public health . . . 

Again, the NIH is talking here about “funding recipients” and their obligations under Bayh-Dole. There’s nothing in Bayh-Dole requiring funding recipients to license on reasonable terms until a federal agency marches in and compels such licensing.

But the NIH is doing something particularly nasty here. Bayh-Dole’s standard of practical application covers owners of subject inventions, assignees (the new owners), and exclusive licensees (even if not owners). If any of these fail to make benefits of an invention available to the public on reasonable terms, there can be march-in compulsory licensing (though there never has been march-in). But the “reasonable terms” of practical application have to do with availability of benefits of use to the public. These are not the terms under which funding recipients might license patent rights to companies–these are terms upon which the public gains the benefit of invention use.

You must see the difference. The NIH aims with this background description to make it appear that the practical application standard is met if a university, say, licenses exclusively (that is, assigns) an invention on reasonable terms. If the university and the pharma company or biotech company aiming to sell out some day to a pharma company both agree the terms are reasonable, then so the NIH goes, there’s no basis ever for march-in. But that’s a perversion of the definition of practical application. Just because an invention’s ownership is shifted from a nonprofit to a for-profit company on “reasonable” terms does not have anything to do with the reasonableness of the terms by which the public gains the benefits of the use of the invention. The public gains no benefit on reasonable terms when an invention is assigned by a university to a pharma company. It’s the pharma company that benefits. May as well call “reasonable terms” a “sweetheart deal”–“reasonable” will be what the licensee calls the terms. The NIH would have you believe that this is what Bayh-Dole provides.

More NIH creepy nonsense:

whether the invention is patented or treated as an unpatented biological material or research tool.

Bayh-Dole applies when a party to a funding agreement (or the federal government) acquires an invention which is or may be patentable arising in federally supported research or development.

If the contractor-owner of a subject invention fails to file a patent application or prosecute the application, then the federal agency has the right to acquire title. If the federal agency fails to do so, then the invention passes the bar for patenting and the invention is no longer a subject invention–it is most definitely not patentable. Whatever the contractor is left “owning,” it does not include patent rights. There’s nothing under federal patent law for the “owner” to license, other than chattels (a bailment of materials or apparatus) or trade secret (preventing the public from generally knowing about the invention that isn’t patentable and gaining the cooperation of the federal government not to publish that information).

If the contractor obtains a patent on the subject invention, of course, then the invention cannot be “treated as an unpatented” anything. And if the federal government acquires the invention because the contractor doesn’t disclose or doesn’t elect to retain title or fails in whatever way to preserve the patent rights in the invention, then the funding recipient is no longer in the picture and we are back to what the federal government might do with patent rights in inventions it owns. Funding recipients have nothing to do with the invention at that point.

If Bayh-Dole applies, then a funding recipient must treat the invention as something to be patented. The exception is that if a funding recipient makes its inventors parties to the funding agreement and does not claim (arguably, cannot claim) ownership of the inventors’ inventions, then Bayh-Dole’s implementing regulations specify a patent rights clause for those inventors as if they were special small business firms–that’s 37 CFR 401.9–and in the inventor patent rights clause, inventors are not forced to use the patent system–they don’t have to file patent applications and if there is no patent, then there’s nothing to license under federal patent law or under Bayh-Dole, which is a part of federal patent law.

The NIH here is just making things up. University administrators created this practice, largely because they are mostly clueless about software and biomaterials. They reason thus:

This software is called an invention under our university policy’s moronicly broad definition of invention and therefore we claim to own it.

Because the software arose in a federally funded project, we must disclose it to the federal government, and if we elect to retain title we have to file a patent application or the government can take title.

But we don’t want to spend money on a patent application. So we will make a deal with the NIH when we disclose the invention that we want to retain title but not file a patent application and the NIH won’t demand title.

In this way, we help (i.e., “screw over”) software developers because we can take title by claiming the software is an invention that “may be” patentable and federal patent law (Bayh-Dole) entitles us to ownership, and then we switch the meaning of title to drop the patentable invention part, and treat the software as “unpatented” stuff that we still control and will “license”–but now under a theory of copyright or trade secret (not Bayh-Dole, but as you can see, premised on Bayh-Dole). The NIH makes it appear that funding recipients can license the cat or the smile, the patented invention or the unpatented invention. But Bayh-Dole doesn’t do that.

The NIH doesn’t have a clue about Bayh-Dole, or perhaps it is that NIH’s DNA (as it were) is so thoroughly now contaminated with pharma DNA that no one there can write a thing that’s cogent about Bayh-Dole. If they did, they would have to out their agency’s complicit endorsement of the high drug prices they have helped pharma companies attain, or they would have to be crystal clear about the requirements by which pharma companies obtain exclusive rights or assignment from nonprofits–that is, under Bayh-Dole (35 USC 202(c)(7)(A) and (C), all income with respect to a subject invention must be allocated to specific public purposes, with deductions only for the expenses incidental to the administration of subject inventions. If the NIH enforced the law, pharma companies would be coughing up the hairballs of their exclusive licenses left and right rather than devote their billions of income (not just profits) only to scientific research or education.

We would be back to 1962 and the pharma boycott of federally supported inventions in medicinal chemistry. Federally supported research inventions would become, generally, open standards. There would still be a role for patents, just as there are in standards–patents can be used to ensure standards compliance and good behaviors with regard to the development and improvement of standards–just as there’s a role for copyright in open source licensing. But any patent monopoly to exclude competitors would come later, especially in matters of public health.

Broad patents on inventions made in university research settings ought to participate in ad hoc and formal standards, in platforms, libraries, commons, open innovation, libraries of materials and methods and technologies. That’s the primary opportunity presented for university IP management, especially in areas such as public health, environmental safety, and information technology utilities. Bayh-Dole takes a lot of abuse–and it was designed to withstand that abuse–so long as it preserves a patent monopoly pipeline to pharma companies.

The deep disappointment is not so much that clever patent attorneys were allowed to run amok in federal statutes–that happens all the time with politics–but that university administrators have so happily betrayed their public trust and their service to faculty and research alike to become complicit in the scheme.

The NIH, with such “background” misinformation signal to university administrators that all their wrong inclinations about Bayh-Dole are virtuous, and the NIH signals to the public that Bayh-Dole protects the public interest when in fact–and in practice–it exploits public suffering for financial returns enabled by a trade in patent monopolies, sometimes laundered through nonprofits and sometimes laundered through Bayh-Dole’s worthless but good-looking protocols for federal assignment of patentable inventions to favored companies.

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