The FPR criteria for invention ownership–1

In June 1973, The Executive Subcommittee of the Federal Council for Science and Technology’s Committee on Government Patent Policy at the U.S. Department of Commerce, tasked with the codification of the patent policy established by President Nixon, made the following explanation of that policy and with it the rationale for the Federal Procurement Regulations that it proposed. The FPR codification of the Nixon patent policy was finalized in 1975, just four years before Bayh-Dole was drafted with the intent of replacing the FPR by elevating it to the status of statute and preempting most other statutes concerning the disposition of inventions made in federally supported research.

Working through the rationale helps to put into context what Bayh-Dole has been all about.

On August 23, 1971, the President issued a Statement of Government Patent Policy (36 F.R. 16887, August 26, 1971) applicable to all executive departments and agencies, revising a prior Statement of Policy (28 F.R. 10943, October 12, 1963).

Nixon’s patent policy statement is substantially the same as Kennedy’s statement, with a couple of important changes. Nixon’s policy makes clear that federal agencies may grant exclusive licenses and requires that the policy be codified.

Essentially, the goals of this Statement are to provide criteria for determining the allocation of rights in inventions resulting from federally sponsored research and development contracts, to promote their expeditious development so that the public can benefit from early civilian use of the inventions and to assure their continued availability.

Here we get three goals with regard to inventions resulting from federally funded research and development contracts:

(1) criteria for determining the allocation of rights

(2) promote expeditious development of inventions for public benefit

(3) assure continued availability of what has been developed

If we consider these goals with regard to Bayh-Dole we see the following:

(1) criteria for determining the allocation of rights

The contractor gains ownership of a federally supported invention, discloses the invention, and gives notice that it will keep ownership. No criteria at all–just an assertion of ownership plus a description of what is owned. The public interest is served by preempting any consideration of the public interest.

(2) promote expeditious development of inventions for public benefit

Bayh-Dole eliminates “expeditious” and “public benefit” and backs off government intervention unless there is an expectation that a contractor is unlikely to take effective steps to develop an invention. The public benefit is, apparently, that the contractor and its allies obtain the maximum profits they can from the exploitation of patent monopolies. Thus, advocates for Bayh-Dole talk about how financially successful the life sciences industries have become and attribute this “success” to Bayh-Dole.

(3) assure continued availability of what has been developed

Bayh-Dole includes two interventions for failures of availability as march-in conditions, but Bayh-Dole’s march-in procedures were designed never to operate–Bremer bragged about it later, and a key government lawyer in Congressional testimony argued march-in had never been used and wasn’t needed. And Bayh-Dole march-in has never been used. “Availability” does not mean “at scale” or “on reasonable terms” or “in a manner affordable to the general public.”

Despite our progressive Bayh-Dole view of criteria for ownership–there should be none–establishing criteria for ownership of inventions made in projects worthy of federal support is a gesture toward requiring decisions to based on objective reasoning about the public interest rather than on, say, whim, favoritism, prejudice, indifference, or wildly differing rationalizations among federal agencies or even within any given federal agency. In a bureaucracy, of course, expecting objective reasoning also presumes that formal criteria that must be used fully capture in advance the circumstances and rules upon which any decision ought to be made, and that federal agency officials properly apply the criteria.

In the area of innovation–utterly new, unanticipated things–objective criteria easily become arbitrary and an excuse for not acting on one’s best judgment in the circumstances. One is held to a superficial standard of consistency and precedent for inventions–things that are by their very definition unprecedented. We might say, then, that in the matter of policy regarding how things unanticipatedly new might benefit the public, it is difficult to state anything in advance, without context, without specifics. “Give someone a patent monopoly” is no less informed than “Force it to the public domain” or “Try to make as much money as possible” or “Make a commercial product but sell it at nonprofit prices if not at a loss.”

The idea, then, is that rather than being arbitrary and playing the know-it-all before any specifics can be had, the idea is to help the less gifted federal official work through a checklist of considerations with regard to what to do about ownership of inventions. Should the inventor be allowed to continue to own the invention? Should the inventor be protected from employer demands for ownership? Should the employer be permitted to own the invention? Should the employer be required to take ownership of the invention? Should the government take ownership of the invention? Should the invention enter the public domain? Should the government compel transfer of the invention to some other party that it chooses? Should the government take ownership only to convey that ownership to some other party that it chooses? These are a set of alternatives. Bayh-Dole picks one as an arbitrary default and dares federal agencies to propose anything else.

That said, let’s discuss these objective criteria.

The outcome of applying these objective criteria is to be “expeditious development”–and not just any such development, but development “for public benefit.”

The “expeditious” and “for public benefit” would not need to be added if any development was good enough and any development would benefit the public. This aim, then, entails faster development than if left on its own–“laissez-faire” development, as it was called–and the development is to be undertaken for public benefit–suggesting that public benefit should take precedence in some way over private benefit, which in turn suggests something about the price, quality, and quantity of the invention and products based on the invention.

The implication is that whoever does the development of a publicly supported invention does so with some degree of altruism, of public-spiritedness–something of the form of “I see what you people are trying to do here, I am willing to help, just give me a chance to recover my costs and have the opportunity to stay involved in some way, providing my usual business services.” Compare with something more like: “I see what you people are trying to do here, I will step in and take over, but only on the condition that I control everything for the next twenty years, whether or not I actually develop anything, and if I do, I get to charge whatever I please, produce in whatever quantity I want, and your benefit is that you have something that you didn’t have before. It is no matter that you get it for twenty years on my terms or not at all. This is the price you must pay for anything new.”

One might expect that those developing inventions resulting from federally supported research or development would make inventions and products based on them available at something less than the price that a patent monopoly on the invention would allow, or would allow others also to make and use the inventions to produce other products or competing products on the argument that a bunch of ships ought to float on the same tide. That would, of course, be a publicly spirited argument–but it is just this public spiritedness that the Kennedy and Nixon patent policies’ use of “to the point of practical application” suggest. Bayh-Dole in altering the definition to “practical application” removes much of the idea of development, diminishes the idea that private risk capital is to be recruited to develop to a particularly crucial point–after which point other things might happen, such as competition.

The third aim is that once an invention has been developed for the public benefit, that it remains available to the public. Here, the issue is the opposite of cease and desist (stop and don’t start again)–it is, start and continue. Once an invention has been developed to the point of practical application, it ought to be made continuously available at a scale that meets public demand. If a given first manufacturer cannot or will not produce enough product, then others should be allowed to make up the difference. If a first manufacturer produces less than meets demand (to increase price and profit, say, or because scaling up is difficult or unwanted), then others should be allowed to enter the market to meet the demand (and even cut in on the first manufacturer’s market if they have a competitive product). Moreover, if a first manufacturer meets demand but produces a poor quality product or one useful in only one of many possible applications, then other manufacturers ought to be allowed to produce product in other versions, better versions. Why should having a monopoly on the low end of product quality–if that is how one has chosen to use one’s monopoly–also mean that one can exclude anyone from providing product at the middle or upper segments of the market?

The idea behind allowing patent ownership does not so obviously provide “If you gain control of any part of a market segment for a product based on a federally supported invention, then you have the right to prevent any product from being introduced into any other market segment based on that same invention.” Such a policy requirement would make no sense at all. We would not give any weight to a company that protests “Any product introduced in any other market segment will harm the monopoly I have established in the low end of the market, creating huge disincentives for any company to produce a low quality product and leading all investors to boycott all federally supported inventions.” Our response would not change if the company’s monopoly position was a product positioned at the high end of the market. Why should that company’s monopoly be used to preclude new products in other market segments? That would be using the patent system to limit innovation. The FPR policy goal is just the opposite.

We might argue, then, that once a company has established a market position for a product that depends on a federally supported invention, it necessarily must release all claims to any other market segment. Who then might have an opportunity in those other market segments? That’s another interesting policy question!

The apparatus for expeditious development applies not just once, to any one part of a broadly described invention, but to each part of that invention in turn. Expeditious development of any particular part of the invention does not relieve the contractor-owner from the expeditious development of other parts of the invention–for different market segments, for different uses with their own market segments.

The apparatus for continued availability manages not just the patent monopoly relative to an investment in developing an invention to the point of practical application but also then to how that developed invention is then made available for public use and benefit. Once one has made a product, it’s no good abandoning that product in favor of some other product–if the new product competes with the prior product, the contractor-manufacturer has an obligation to continue to make that prior product available or lose exclusive rights in that product.

These two conditions–expeditious development for public benefit and continued public availability–then form the basis for the government’s rights under the FPR to “march in” whenever a contractor fails to do one or the other. The big problem in all this policy arises if the march-in is made so difficult and slow that it never gets used rather than it is used routinely, all the time, with ease.

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