Bayh-Dole Basics, 8: Reasonable Terms Comments-9

We can now–finally–oh gawd this is painful–turn to the place of “reasonable terms” in all of this mess of Bayh-Dole march-in. Simply, Bayh-Dole march in concerns itself with benefits of use available to the public on reasonable terms, not licenses that allow private use available on reasonable terms. Surprise! Bayh-Dole authorizes march in to terminate non-exclusive licenses.

In Kennedy and Nixon patent policies, the standard for march in is either:

(i) a failure to bring an invention to the point of practical application within three years from patent issuance, where practical application is defined as establishing that the invention is being “worked” and the benefits of the invention being worked are “reasonably accessible to the public.”

As an alternative, the owner of principal rights in a federally supported invention could make the invention “available for licensing royalty-free or on terms that are reasonable in the circumstances.” The terms of such licensing clearly and primarily involve the financial consideration–the price of the license


(ii) a public use regulatory requirement, a health need, or a public purpose stipulated in the contract.

Here in (ii), there is no concern for practical application. It’s a policy matter, having nothing to do with what a contractor may have done with regard to producing commercial product or making benefits of an invention’s use reasonably accessible to the public.

Under Kennedy and Nixon patent policies, the holder of the principal rights can make the benefits of using an invention reasonably accessible to the public or can offer rights to the invention non-exclusively–to the public–on terms that are reasonable under the circumstances. We might add that reasonable terms for a non-exclusive license offered generally are necessarily public terms and that within a given field of use or territory, reasonable terms are non-discriminatory. That is, the price for a license is not negotiated from one non-exclusive licensee to the next. Everyone knows what is on offer and what variations are allowed (such as, say, a discount for multi-year payment). There’s nothing to be kept secret about such reasonable terms.

Bayh-Dole, however, does not use “worked” and “benefits are reasonably accessible to the public.” Instead, 35 USC 203(a)(1) uses the definition of practical application from 35 USC 201(f): “the invention is being utilized and that its benefits are . . . available to the public on reasonable terms.” “Available on reasonable terms” is not the “reasonably satisfied” needs of 203(a)(2) and (3). If it were, the law would have used the same language and would have linked both (2) [health, safety] and (3) [regulations] to practical application. But that link has never been in executive branch patent policy–not in Kennedy, not in Nixon, not in the FPR, not here. “Reasonably satisfied” does not concern practical application.

In Bayh-Dole, then, a federal agency has a cause of action to march in if a contractor (et al.) has failed to achieve practical application–and in the end, the crux of practical application, is that the benefits of use of a subject invention are available to the public on reasonable terms. Reasonable terms offered to the public clearly must include price and must include non-discriminatory treatment–it’s the public that gets the offer, not selected and hidden groups drawn from the public. Reasonable terms therefore also must necessarily include a public accounting of price. This 203(a)(1) march in has nothing to do with federal assessment of health or safety needs or regulatory requirements. The issue is entirely whether the benefits of using a subject invention have been made available to the public on reasonable terms.

To make a benefit “available to the public” is to put it–the benefit–on offer to all. That the offer requires “reasonable terms” means that the terms themselves must be public–to make a benefit available to the public, the public must have access to the terms of availability including, for instance, the price–and the price must be non-discriminatory (or it reasonably fails the reasonableness test), and the price itself must be “reasonable” with regard to the public–affordable, but covering the cost of manufacturing, but not demanding a profit on each transaction that makes the benefit unavailable to some or many or most of the public.

If a patent holder of a subject invention does not provide the price in advertisements (advertisements are necessarily public) of the availability of product based on or using the subject invention, then the patent holder has failed to make the benefits of the use of the subject invention available to the public on reasonable terms. It’s not that the federal government must require price information in such advertisements, it’s that if that price information is not there, that’s a clear, objective sign that the standard of “on reasonable terms” has not been met. It’s not only the price itself that must be reasonable–it’s also the price information that must be available to the public for the terms to be “reasonable.”

A federal agency also has a different cause of action to march in based on its assessment of health or safety needs. Here, a federal agency must determine that the contractor (et al.) has not reasonably satisfied these needs. This march in is very different. Here, there’s no stipulation of “public” needs or terms. Here, price is not front and center. There’s not even a mandate to meet all needs–just that needs have been “reasonably satisfied.” Here, “reasonably” can mean “at least so much as to not warrant breaking up the patent monopoly to permit competition and innovation by others.” In other words, the “reasonably” here is not directed to the terms on which a given product is offered but rather the assessment of the federal agency that there’s no need to break up the patent monopoly.

Isn’t interesting that (a)(2)–addressing health needs, the heart of the effort to get Bayh-Dole, drafted as it was in the NIH, seeking to recover the IPA program that was shut down as ineffective and contrary to public policy, would omit the “public” from the needs to be satisfied and therefore radically alter the basis for a march-in determination? Instead of basing the determination on a public health need, (a)(2) leaves it as any old need, an unspecified need–it could be that “reasonably satisfied” means then that if there’s sufficient supply to meet demand, “reasonably” has been met, even if the price is outrageous or innovative alternatives are suppressed, and the like. Very different.

This same reasoning applies to 203(a)(3) [regulations]. In (a)(3), “reasonably satisfied” is again directed to the federal agency’s assessment of whether a single organization should hold a patent monopoly created and maintained only by permission of the federal government in an invention that regulation requires public use. Here, we have “public”–which is not in (a)(2) [health, safety]. Thus, “reasonably satisfied” does not concern “reasonable terms”–it concerns an agency’s assessment of adequacy. A need might be reasonably satisfied on terms that at least for some are unreasonable–that is, terms that fail the test of “available to the public.” For health and safety, perhaps Congress intended that fulfilling needs satisfactorily for some and not for others is an acceptable standard. But how does that work for regulations? If the public is required to comply with a regulation, and to do so requires permission of a patent monopoly holder, then how can any public need be “reasonably satisfied”? The public need can only be fully satisfied, or some members of the public are left by private action in breach of the regulation. Here, “reasonably satisfied” ought to mean “royalty free, non-exclusive.” Otherwise, Bayh-Dole provides an invitation for a federal agency to adopt regulations that push business to its favorite companies–such as ones to which it has granted exclusive patent licenses (and perhaps even in doing so assigned the underlying invention).

Bayh-Dole omits the non-exclusive licensing alternative in paragraph (f) of the Nixon patent policy. Under Nixon, a holder of principal rights could maintain control of those rights even without practical application by making the invention available for non-exclusive license under terms that are “royalty free or on terms that reasonable in the circumstances.” Nothing of the sort is addressed in Bayh-Dole. In 203(a)(1), the condition for march-in is the failure (to create the expectation at a federal agency that there will be within a reasonable time in the future effective steps taken) to achieve practical application–that is, use of the invention resulting in benefits of that use available to the public on reasonable terms.

Non-exclusive licensing on reasonable terms is not a defense to 203(a)(1) march-in as non-exclusive licensing does not mean that anyone is actually using the invention or that in using the invention benefits of that use have been made available to the public.

One might argue that the only non-exclusive license on reasonable terms that would clearly meet the 203(a)(1) threshold would be a royalty-free public license. Then the public would have the freedom to use and benefit from the use of the invention–something that is entirely possible across a range of inventions involving methods, compositions of matter, and devices.

Public access matters. Not everything invented is “high tech” and “utterly specialized complexity” even in an era that advertises itself as “high tech.” Even in drug product development, much of the expense and complexity is not in manufacturing a compound but in testing it and creating a single formulation that “works” across an acceptable range of “patients,” creating a “market” for the drug product instead of, for instance, relying on pharmacists to fill prescriptions according to a standard formulary or a doctor’s specific instructions regarding what to prepare. In a patent-heavy world of medicine development, doctors have no legal right to specify a formulation of a drug that varies from what the patent holder has authorized–even if doctors might have an ethical obligation to do so. While restricting by patent what doctors can do for their patients may be just what pharmaceutical companies and university patent administrators desire, there’s no particular reason why federal policy should work overtime to help them achieve this level of control.

Here, the monopoly meme reduces to “unless we suppress what doctors can do for their patients, no one who seeks maximum profits will produce a commercial medical product because they cannot expect to receive the additional profit that arises because doctors are prevented from specifying what they need to treat their patients.” One might observe that doctors have mostly given up on specifying the formulation of medicines for their patients–a lost part of their training and practice brought about by the use of patents to control medicinal products. (Compare physical therapy, where there is hardly any patent control of the activities that might be specified to treat each individual with each particular need. But this observation does not mean that we have it better with doctors playing the role of dealers for pharmaceutical products rather than serving as care providers and specifiers of treatment.


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