The FPR criteria for invention ownership–2

We are talking the proposed goals for federal policy on the disposition of inventions made in projects worthy of federal support, circa 1973, by way of a Department of Commerce committee report. The report recommended as goals for deciding ownership objective criteria, expeditious development of inventions made with federal support to the point of practical application, and maintaining the availability of such developed inventions for public use and benefit.

Let’s pause and build a concrete analogy to help our imagination of the role of any public interest apparatus–including march-in–attached to a policy regarding the non-federal ownership of inventions made with federal support.

In the simplistic terms of the monopoly meme, we might put things this way. Publicly funded research envisions a bridge across a river. If just anyone could build such a bridge, then we might get ten different groups building bridges in competition, but only one bridge is really needed. So there is a great deal of wasted effort. Furthermore, it may be that only one bridge can be properly maintained, and the other bridges even if completed will not be used, will fail. Now most bright people can see this, so no one will build any bridge at all with private money unless they are assured that there won’t be any other bridges built for twenty years.  That’s the shape of the argument, at least.

The FPR march-in accepts the monopoly meme as a possible circumstance–there should be provision for exclusive licensing of government supported inventions by contractors and by the federal government.

The concern then becomes what happens (1) if the point of practical application is not reached–the bridge has not been completed–or there’s little indication that it will be built, let alone expeditiously; (2) the bridge is completed, but the toll on the bridge is so high that only the wealthy can afford it or otherwise only the desperate will use it; and (3) what happens if the bridge’s owner plays the slumlord and fails to continue to develop it or maintain it?

For (1), the monopoly meme has no good guidance. If development is taking a long while–forever, say–the monopoly cannot fathom that the monopoly itself is to blame. It cannot be that the reason an invention is not used is because a patent has been used to exclude all others from using the invention in favor of the patent holder–and the patent holder has failed to use the invention, too. According to the monopoly meme, invention development to create commercial product is always difficult. That’s the implication of making the case for patent monopolies in the abstract.

But in the particular case–which the monopoly meme ignores–development might be difficult only for the organization that holds the monopoly. It may be that the wrong organization obtained the exclusive right to build the bridge. The government permitted the wrong organization–an unqualified, unstable, untrustworthy, mismanaged, or grasping organization–to retain the bridge franchise.

Or it may be that it was wrong to give a single organization control of the bridge. Building a bridge may have been much less difficult for a number of organizations working together. Or it may be that development may be difficult for an organization with a monopoly because it must design around proprietary rights of other organizations that have no access to the bridge and whose livelihoods are threatened by being denied access to it.

Or it may be that it was wrong to insist on only a single bridge–if the cost of the bridge is low and the public might be served by multiple bridges–one for cars, another for rail, a third for pedestrians, and maybe one for wildlife, too–then while it might be right to have only a single bridge for cars, it is not at all right to hand over a monopoly for rail, pedestrians, and wildlife at the same time, so only cars get served, if even that.

Or it may be that it is unnecessary to hand to a company the bridge franchise as a matter of investment and return on investment. The government could build the bridge, hiring contractors to perform specific functions at their normal rates, without any speculative interest in profiting from the use of the bridge as well as the construction of the bridge. Or, if the bridge was not so important to the public that the government is willing to allocate money to build the bridge, but still important to the public, then the government might provide a franchise to a nonprofit organization to raise the money to build the bridge, again using contractors as necessary to do the work. If the development money comes first–and is dedicated to a public purpose–then there’s no need to place a toll on the bridge at all, or if one does place a toll, it is for maintenance of the bridge, not to provide a maximal return to the funding sources as if they were financial speculators rather than donors.

In the general case constructed from the various possible–and plausible–specific cases, the monopoly meme fails to account for many ways that construction of the bridge–“development” of an invention to the point of practical application–might succeed. And the monopoly meme never proposes that it is the monopoly itself that may cause the failure to build the bridge, or to build the bridge expeditiously, or inexpensively, or to enable the public use of the bridge on “reasonable” terms–reasonable rather than the terms required of speculative investors exploiting their “right” in a monopoly enabled by the government.

According to the monopoly meme, if the government were to intervene in monopoly-based development before the point of practical application has been met, why, that would create a huge disincentive for anyone to put their private speculative capital at risk to attempt such development in the first place. Now bright people can see this–so the monopoly meme asserts–and so any form of march-in–if it were really possible–would be just like making the bridge development available to all without anyone having the ability to recover financially their “investment” in the the work they performed to build the bridge. Beneficial use of the bridge–or benefits that flow from others using the bridge–cannot possibly be sufficient incentive to collaborate on the building of the bridge, at least according to the monopoly meme. Communities will not–and therefore cannot be allowed to–come together to do anything of public value if speculative investors also have an interest in doing this same thing of public value.

The upshot of the monopoly meme in the abstract, then, is that speculative investors must have the first opportunity–and the only opportunity for two decades without the threat of government intervention–to build the bridge with a government-provided monopoly, regardless of whether the bridge could be built any other way, with any other approach to managing purpose, design, costs, and the price to use if and when the bridge has been constructed.

If once a speculative investor gains what it hopes is a monopoly right to build a bridge, and government officials get all huffy and let others try to build bridges, too, then no speculative investors will bother to try to build any bridges, ever. If a speculative investor tries to build a light rail bridge first, and that’s more difficult than a foot bridge, then the government by “marching-in” to permit others to build a foot bridge or a car bridge, or a conventional rail bridge, or a wildlife bridge deprives the speculative investor of its full property rights in the monopoly it has obtained for all bridges. The speculative investor would be damaged and the government should compensate the investor for the loss of the full value of the investor’s property.

That, at least, is how the monopoly meme puts it. It is just what one finds baked into the Bayh-Dole Act and its implementing regulations. Once a nonprofit has acquired an invention–a broad claim to a class of things–compounds, methods, devices–including a wide range of applications and for each many functional equivalents–then according to Bayh-Dole it would be a kind of “taking” for the federal government to limit in any way the exploitation by the nonprofit of its full monopoly over the invention, the “basic” or “fundamental” invention.  Once one has adopted the monopoly meme in the abstract, most everything else becomes a form of rationalizing why nothing should diminish the monopoly that has been granted.

It may be that we need only one bridge, and a bridge mostly for cars and trucks. It may be that bright people get this, and all bright people acknowledge that one organization ought to lead the construction. But then bright people might also insist–so things get done efficiently–that this one organization contract work to design firms, to structural engineering firms, to materials suppliers, to civil engineering firms to coordinate on route planning and access ramps. Various groups might provide money, so that no one source of funds controls and decisions must be worked out among all those involved. No one tries to take over the project and no one tries to create a competing bridge for cars and trucks, but everyone expects to have an opportunity to be included in the effort, and have opportunities later, if the bridge is built and used, to provide services responsive to the needs of the bridge. If bridges serving different purposes could be also be developed, then everyone–not just the first franchise holder– would have a chance to be considered to lead that development. There would be no need to leave the franchise with one firm for decades after the first bridge was complete–developed to the point of practical application–even if all the firms involved expected to recover their investments plus a normal profit from, say, bridge tolls for a period of time.

Even in this scenario, anchored in the public interest, there is no need for a speculative investor’s return on investment to be focused on a monopoly price for the use of the bridge, nor even for a discriminatory price (the wealthy should pay more, or the poor could apply for a discount). Otherwise, we arrive at the strange conclusion that it must be in the public interest for the public to be exploited by speculative investors seeking their own financial advantage at the expense of the public when those charged with promoting public welfare could use any number of other approaches that had just as good a chance of success but without the financial exploitation of the public for two decades as a necessary condition.

We might then distinguish “monopoly.” It’s one thing to have everyone involved agree that a first bridge should be built before other bridges are attempted. The public gets a first bridge that is the only bridge, at least for a time. There’s only one bridge–so there’s only a single bridge franchise. The price to use the bridge, however, even if that price must include recovery of the cost to build the bridge, does not have to be a monopoly price. That is, the cost to recover might be spread over the anticipated life of the bridge–five decades, ten decades–and not “recovered” in the first three or five or even ten years. And certainly any “upside” profit beyond recovery of private risk capital might be also spread over the life of the bridge. If construction contractors performing the actual work to build the bridge receive, say, a 10% profit for their services, why should sources of private risk capital expect to receive anything more than that? And why should the users of the bridge in our imagined community be told they must pay much, much more to cross the bridge so that the speculative investors can repeat this same process for other bridges in other communities? It makes no sense, except to speculative investors. (Go ahead, try to find an argument, any argument, that makes sense from any other perspective.)

If the effect of a monopoly franchise on bridge development would be that the franchise holder might then dominate all future bridge development in the country, leaping from on franchise to the next, so that no one else would have opportunities to support or build bridges in the same area, then we might expect that the company holding such franchises might point to how successful it has become, and it might even attribute that success to laws that constrained governments from acting in any way that would deny the speculative investor of its first right to exclude all others. The “success” of the speculative investor would be quite real–but it comes at the expense of all the other ways in which a bridge might be built, and the financial success is a measure of the huge cost to the public to use each bridge.

One might add to this vision of the success of the speculative investor preying on public needs the portfolio model. If the speculative investor is financially successful in building only a few bridges, but holds the monopoly rights to many bridges, and then argues that the financial return from the use of the completed bridges must pay not only for the recovery of risk capital from each completed bridge, and not only for a substantial profit on the use of that risk capital, and not only to supply the speculative investor with the money to buy up more bridge franchises, but also to pay for the speculator’s sunk costs in bridges the speculator gains the rights to but never completes. The “success” of this speculative model then lies in its ability to make the public pay for all aspects of the speculator’s business, while relieving the speculator from the obligation to build each bridge for which it receives a monopoly position.

We can think about things in the abstract, but we cannot account for character in the particular. A bridge might be better constructed and maintained with a private owner that values great bridges and takes pride in keeping the effective, safe, beautiful, and inexpensive to use. But a bridge owner might also become a slumlord, and put only as much money into the bridge as necessary to avoid losing ownership while charging as much as possible for as long as possible, and keeping anyone from either improving the bridge or building a competing bridge that might be safer, more effective, and even prettier. And the owner in the franchise of building the bridge might become a preemptive slumlord–our situation (3) above–and bother to complete only a few bridges, and then charging luxury prices on the use of these completed bridges to recover its costs for all its failed bridges. But any move by the public or by government to “march-in” is construed by the speculator–slumlording or charging luxury prices for use–as a “taking” of the speculator’s personal property.

Here’s the problem for the government and for the public. How does one choose who to award a bridge franchise to? And for how long? And under what conditions? Too many requirements and too much oversight–may chase away both the best and the worst and leave the mediocre and the clever. Not enough requirements and too little oversight–may get the best but also may get the worst. The worst seems more likely for some reason. What policy would attract the best–both in capability and character?

We might observe, then, that march-in procedures show up when one has created a policy that does not attempt to attract the best. One would add march-in because one expects that speculative investors–ones demanding monopolies and working a portfolio system in which they have to be successful with only one out of ten or fifty or five hundred monopolies–will be attracted to what are considered matters fundamental to public welfare. If one is going to adopt a policy that, for publicly funded inventions, permits *anyone* to retain a monopoly in whatever that *anyone* is able to acquire, then march-in would have to be a necessary requirement, activity would have to be diligently monitored, and march-in would have to be used immediately and as often as indicated.

If the federal policy innovation claimed by Bayh-Dole is that *anyone* without any constraints but for obtaining ownership of a publicly supported research invention can keep that invention as if personal property without public oversight, then Bayh-Dole amounts to enabling speculators to use public funds to prey on identified public needs. In the case of medicinal chemistry, the federal government funds research directed at finding therapeutics. The bridge analogy is appropriate. We anticipate that a bridge is possible and will meet our need to alleviate suffering caused by disease or injury. Any invention–however unanticipated by way of design–is anticipated by way of purpose. Any therapeutic so discovered is anticipated, even if new, useful, and nonobvious in its specifics. It is new, useful, and intended in its justification for the use of public money.

If the policy innovation is that anyone, regardless of capability or character or financial practices, can own the results of publicly supported research, then a fully functional–and fully functioning–public interest apparatus is essential. If we don’t have such a fully functioning public interest apparatus, it is not that Bayh-Dole allows looting of public resources under the guise of administrative process–it is that Bayh-Dole, lacking a functioning public interest apparatus, enables monopolizing looting–the patent system gets used then to prevent for two decades anyone else from having access to use those looted results, except on the speculators’ terms. University administrators justify their involvement in monopolizing looting by asserting that if they make money, the public benefits. Or that it is economic development for the looters to make their money at public expense, and thus the public benefits from the taxes paid and jobs created by the looting even as the public is harmed by the failure to develop and the monopoly pricing on the few things that are developed to the point of commercial product. Or that it is a federal mandate that they use this approach, and so they do, without having to bother to think about it.

All the better, from their perspective, that Bayh-Dole makes all their reporting a government secret, provides no protections for public intervention, and no one holds them to account.

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