Patent rights follow-up: from the FPR to BD–1

Here’s some advice in the Federal Procurement Regulations (1975) with regard to the operation of the patent rights clause covering subject inventions. Bayh-Dole is built from the ruins of the IPA program and the FPR by the same folks who built and ruined the IPA program and the FPR. Their changes, then, are instructive.

1-9.109-1 Patent rights follow-up.

It is important that the Government and the contractor know and exercise their rights in inventions conceived or actually reduced to practice in the course of or under Government contracts . . .

This advice is sound, and applies to any federal invention policy. It is not only important that contractors know and exercise their rights, but that the federal government also know and exercise its rights. We may go so far as to argue that the contractor’s exercise of rights in inventions made in projects deemed worthy of federal support depends on the federal government exercising its rights in those same inventions. If the government fails to exercise its rights, then contractors will be encouraged not to exercise their rights–they may not be diligent in identifying inventions, using the patent system, developing inventions to the point of practical application, or making the benefits of those inventions reasonably accessible or on reasonable terms.

Worse, if the government does not exercise its rights, contractors may do things that they have no right to do–they may take inventions they have no right to take, they may do deals that they have no right to make, they may offer products to the public on terms they have no right to offer, they may prevent others from having access when they have no right to prevent that access. We might then argue that the fundamental public protection in federal invention policy is that the government exercise its rights. If the government fails to exercise its rights, then the rest of the public protection apparatus, whatever it might be, fails.

A major point, then, of a federal invention policy, regulation, or law is to set forth not only the contractor’s rights but also the federal government’s rights. The government’s rights are not a mere gesture, a show to make everyone feel comfortable granting contractors their rights. Rather, the government’s rights are announced and reserved because their exercise is expected, is necessary not merely optional. Consider: the federal government funds projects because those projects are deemed worthy of public support. The federal government does not even have to have an interest in what the project produces–though the regulation is titled “Federal Procurement Regulation,” the subject matter of the regulation–what motivates having the regulation at all–are the projects funded by federal grants.

In federal grant funded work, the deliverable is the conduct of the project itself. Those conducting the project, by seeking federal support, represent that the purpose of the project and its outcomes are directed at public welfare. The purpose of the project is not to make a pile of money for its principals nor for the organization that may host it or co-sponsor it. The purpose is to provide a benefit to the public, and to make that benefit reasonably accessible, on reasonable terms. Donation comes to mind as meeting the standard of both accessible and reasonable.

Consider. A contractor pitches a project for federal funding: “By studying this chemistry we hope to find a cure for cancer.” The chemistry that might cure for cancer–inventive or not–is part of the deliverable to the public, along with the study and the hope. If there’s an invention, that’s part of the deliverable to the public, as is any patent on that invention. If the contractor’s real motive were to make as much money as possible from speculators ready to buy up patent rights in inventions that offered some prospect of a cure for cancer, we might object that the purpose of the project was not appropriate for federal funding.

Even if the contractor’s pitch was put in an altruistic but complete form, we might not go for it: “By studying this chemistry we hope to find inventions we can patent and make exclusively available to a favorite company so it can make millions exploiting its monopoly position relative to the tremendous public need in this area of public health. We won’t take any royalty for signing over the invention to the company, but we likely will get a consulting contract or research contract with the company so that it has access to our next discovery in this area, too, so the process can repeat.” And yet that’s pretty much the argument that university officials (and some faculty working in research ostensibly directed at public health) claim.

Such “altruistic” claims come about because the federal government does not exercise its rights in inventions made in projects directed at public welfare, when those in charge of the projects request federal support for their work. The deliverables are not patents licensed to companies to make millions, but rather discoveries made reasonably accessible to the public, on reasonable, not monopolistic, terms. Donation comes to mind as meeting the standard of both reasonably accessible and on reasonable terms–especially if the federal government has paid the full cost of the research. It simply does not matter if subsequent expenditures to make the outcomes of such a project are great or little, or great or little compared with the expense of conducting the project proposed in the public interest. The point is that the purpose of the project, from start to finish, is to deliver something beneficial to the public as the primary objective. Anyone getting involved, and any money they bring to the effort, must answer to this primary objective.

There can be no bait and switch in which the public is enticed to provide support for a project only to find that the project is really about finding patentable inventions to convey to speculators aiming to exploit for financial gain the most pressing public health needs. It is quite empty for those involved in such a project to argue that only by making their publicly supported discoveries exclusively available for speculation, with speculators recovering not only their investment but a huge profit as well, that the public can hope to benefit from their research. What they mean, though perhaps they wish it weren’t so, is that the people they wish to deal with will deal only if they get patent monopolies and a free rein to do as they please with them. If these researchers and their organizations made their inventive discoveries available to non-speculators, the pathway to beneficial access would change.

Put another way: there are any number of ways of developing a research discovery so that it comes to be beneficial in matters of public health–a cure for cancer, say. When a speculator requiring a monopoly position takes control, that speculator must use its own money, hiring expertise as needed, to do all the work to develop the invention into a profitable product. The cost of that work goes up as a function of the lack of a clear pathway from invention to product–it is called “high risk” but what is meant is that the invention is placed in the hands of people with a robust “lack of understanding.” They may know with great sophistication how they do business, but they have no idea whatsoever whether the invention will perform as hoped, and thus the effort is called “high risk” (for them).

However, if the invention was made available to, say, the broad research community, including researchers at companies, then further work might be done to evaluate the published claims before anyone went off and attempted to make a commercial product, or even conduct randomized clinical trials–the “randomized” indicating that so little is known about whether a compound will work as hoped that companies are reduced to making a statistical argument for showing a statistically significant effect (with all the fallacies embedded in tests for statistical significance). If a patent on the original invention was used to select for researchers who shared in the public purpose of the original project–that they would share alike their own findings–then the public purpose of the project and its outcomes would be preserved.

If the federal government has a right to make, use, and sell, and have others do so on its behalf, for any invention made in a project receiving federal support, and the federal government has no mandate to seek to profit from the exercise of such rights but does have a mandate to exercise its rights, then the federal government should make available an invention that might cure cancer to the broader research community so that wherever new developments might be found, those developments, too may be combined to achieve the objectives of the original project. That is, there is federal government patent follow-up.

Now, given that the federal government’s license is stated in federal policy–and has been there since 1963 (Kennedy), reaffirmed 1971 (Nixon), codified 1975 (FPR), restated 1980 (Bayh-Dole)–every contractor seeking federal support for a project directed at the public welfare knows that the federal government will have this license–that the contractor will grant this license–and that the federal government will exercise its rights under this license. Knowing this, the way to preclude the need for the government to exercise its rights under the license is for the contractor to do what the government would do, and do it better: any deployment of an invention that might cure cancer would then involve licenses that don’t involve profit (since the federal government has no need to make a profit from exploiting public health) and don’t involve exclusivity (since the federal government does not have a mandate to play favorites or to sue its citizens for infringement). The contractor’s licenses don’t discriminate and don’t worry that licensees might compete with the contractor–if everyone shares and shares alike, then whatever competition there is to be first to develop a cure from the invention (or from any discovery) is great–that’s the point, to expeditiously develop a cure and make it accessible to the public on reasonable terms.

You see–if the government exercised its rights–and the non-exclusive license to make, use, and sell and have others do so on the government’s behalf is an outright license, conditioned only on the contractor holding rights that give it standing to grant the license–if the government exercised its rights, then contractors could grant their exclusive patent monopoly license but it would not have an effect on the overall research and development environment because the contractor and its assignee could not exclude others from working together to deliver a cure for cancer to the public.

An exclusive patent license between the contractor and a company has the effect of announcing that the contractor and company have chosen to leave the effort to benefit the public and now seek to benefit themselves at the public expense. Their somewhat perverse argument is that by benefiting themselves, they benefit the public. It’s like the quip about missionaries to Hawaii–they came to do good and did well. Contractors ought to be free to pull out of publicly spirited projects, to the extent that their charters permit–but only if the federal government has exercised its rights and therefore ensured that the contractor and company with their new alliance must compete with those that have open access and agree to share alike, spreading the expense of development and reducing the risk by involving talent and facilities that otherwise a speculator would have to assemble at some great expense and with not nearly the likelihood of success. Not all talent, and often not the very best talent, can be bought out, so easily as may a given contractor.

If the federal government were to always exercise its rights, then contractors would shape their practice with regard to patents on inventions accordingly. They could still deal *their* exclusive patent rights–but only in the context of the federal government dealing its rights in inventions as well, without a profit motive, without a mandate to sue citizens for using what the public has supported in discovery. And if an invention truly is important to public health and no one is willing to pay a dime to develop the invention for public use–a strange premise, to be sure–then the federal government surely has a mandate to fund that development itself, all the way through to the point of practical application.

It is a strange argument that if there’s a cure for cancer, no one will bother with it because no one of them can corner the market and exploit the public need for maximal profit. If that’s the argument, those making it aren’t the people that federal policy contemplates will get involved, will benefit from collaboration with others on projects directed at public health. It does not matter that these undesirables have the money to hire talent and build facilities–what matters is whether they are willing to exercise their rights while the federal government exercises its rights. Their undesirable involvement only works, to their thinking, if the federal government does not exercise its rights–and exercising its rights is fundamental to the federal policy. If the federal government does not exercise its rights, then the federal policy has failed, will be invariably gamed for bad purpose and with bad outcomes, and must be repealed. 

Thus, we get the consternating argument that Bayh-Dole “march-in” harms universities and limits further innovation. Yes, the argument is out there, in the wild. Such an argument can be made with a straight face by those who rely on the federal government not exercising its rights. Even the NISTwits and NIST have got far enough in listening to the undesirables that NIST proposes to restrict the government through regulation from exercising its statutory rights.

If the federal government does not exercise its rights, then the federal policy that secures those rights to the federal government has failed. We get in its place a covert shadow policy in which the federal government treats projects proposed in the public interest as fronts from passing patent monopolies to speculators for the purpose of pursuing as much profit as can be had at the public expense, in matters of public health. If that’s the federal policy–the one that comes about because the federal government chooses not to exercise its rights–then why don’t we revise Bayh-Dole to make it clear that this is just what Congress intends. Strip out the “public protections”–the government license, the disclosure of inventions, the federal funding statement in patents, the march-in, the US manufacturing, the small business preference, the nonprofit use of royalties and income for specified public purposes–get rid of all of it. Bayh-Dole reduces to this:

If you get ownership of an invention made in a project deemed worthy of public support, you try to make as much money as you can from the patents, so long as you don’t make the federal government look bad; and if we get ownership, then we will do the same thing, but probably not as well, and that’s why we give you first dibs.

That would be a nasty federal policy. Is that what the anonymous opinion writer at The Economist intended by calling Bayh-Dole “inspired” all those years ago? Even so, it’s a nasty federal policy and as far as I’ve heard anonymous opinions published decades ago in British magazines don’t control American federal invention policy.

Next up, we will take a look at the rest of the FPR’s advice on the matter.

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