Bayh-Dole Basics, 8: Reasonable Terms

Bayh-Dole policy (35 USC 200) that the patent system is to be used “to promote the utilization of inventions arising in federally supported research or development.” That “utilization” is then set forth in the definition of “practical application” (35 USC 201(f)):

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

We can make this definition clear by removing the variations on forms of invention practice and various qualifications:

The term “practical application” means to [practice the invention] and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are . . .  available to the public on reasonable terms.

The definition of practical application then is used as the criterion for one basis for “march-in” (35 USC 203):

the Federal agency under whose funding agreement the subject invention was made shall have the right . . . to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use . . . .

There are two separate requirements involving reasonable terms. The first is the standard by which utilization is to be judged–that the benefits of use are available to the public on reasonable terms. Practical application depends on benefits available to the public. An exclusive license does not have anything to do with this definition. An exclusive license does not make anything “available to the public”–not the benefits of use, not the invention itself so that the public may use it. The “reasonable terms” on which benefits of use are available have nothing to do with the terms on which a subject invention is licensed. The obligation of any of owner (contractor–a subject invention is an invention “of the contractor” = “owned by the contractor” per Stanford v Roche), assignee, or exclusive licensee is to make the benefits of use available to the public on reasonable terms.

While the terms of a license may involve all sorts of considerations, the terms on which the public has access to benefits necessarily must include price–arguably non-discriminatory and non-exploitative pricing. Thus, pricing high and then offering discretionary discounts is still discriminatory pricing–not reasonable terms for the public, but rather discriminatory terms. When it comes to making something available to the public on reasonable terms, a non-discriminatory reasonable price is the primary consideration.

If an owner, assignee, or exclusive licensee fails to achieve practical application and is judged not likely to take effective steps to achieve practical application, then the federal agency may “march in” and require (after a potentially lengthy procedure) licensing of the subject invention “on terms that are reasonable under the circumstances.” This compulsory licensing requirement has nothing to do with the “reasonable terms” on which benefits of use are available to the public, other than that such compulsory licensing comes in response to a failure to provide benefits to the public on reasonable terms and is offered as a remedy for that situation. The “terms that are reasonable under the circumstances” are those of a licensing transaction and still do not have anything to do with how benefits of use are made available to the public. A license does not mean there is use–a license means that a patent holder promises not to exclude use, in exchange for consideration (obligations, including perhaps payment, and including perhaps price controls, that are reasonable under the circumstances).

Thus, when certain “advocates” of Bayh-Dole claim that “available to the public on reasonable terms” has to do with how a subject invention is licensed, they are wrong. “Available to the public on reasonable terms” has to do with the benefits of use, not a permission involving assignment or exclusive access.

The licensing requirement in Bayh-Dole’s march-in procedures, by contrast, has to do with a failure to provide the benefits of use of a subject invention to the public on reasonable terms. The licensing requirement then permits the federal agency to establish the terms of a compulsory license (or licenses) provided that those terms are “reasonable under the circumstances”–that is, the patent holder (or assignee or exclusive licensee) required to grant the licenses should expect to receive “reasonable” consideration for the license(s), even though the patent holder has otherwise failed to take effective steps to make benefits of use of the invention available to the public on reasonable terms. The patent holder (or assignee, exclusive licensee) might still receive payment for granting the compulsory licenses, and if the patent holder (etc) refuses, the government may grant the licenses and the patent holder (etc) gets nothing.

It’s a sign of sloppy disregard for the law (or brazen political bluffing) to conflate “benefits of use available to the public on reasonable terms) with the terms of any licensing of a subject invention. These are entirely distinct in Bayh-Dole. An exclusive licensee might agree to unreasonable terms in a license (there’s nothing direct in Bayh-Dole about that), but the licensee still has an obligation to  make the benefits of use of the exclusively licensed subject invention available to the public on reasonable terms or face march-in compulsory licensing (which has never happened, of course).

But now you see how it works. You can dismiss the folks who want you to be all confused about it.

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