An invention is not a thing, 10: Broad patent rights and licensing practices

We have worked through the idea of invention holes–that an invention generally consists of instances, and instances may be evaluated as “easy”–meaning they can be used immediately with little expense–and “difficult”–meaning they require substantial effort to move from reduction to practice to practical application, with benefits available to the public on reasonable terms, with some form of march-in available for inventions that are under exclusive control (i.e., patent) for those instances that are not worked or have not been got out of their development holes. Let’s see then how invention is not a thing plays out against federal and state invention licensing practices.

Given that an invention is not a thing but rather a set of instances–often a very large set–it matters hugely whether federal policy permits continued contractor ownership of the entire set even if a given contractor achieves practical application for only a single instance in that set. Bayh-Dole does not appear to care.

Look at a related area of Bayh-Dole. If an institutional contractor does acquire an invention made under contract and does elect to retain title in that invention, then it is required to file a patent application “on” the subject invention within a year. But what does this “on” mean? There are two parts to a patent application, a specification part that teaches the invention beyond the existing “art,” and a claims part that lays out the extent of the invention. If a contractor files a patent application “on” a subject invention and does not claim all that could be claimed, has the contractor breached its obligation under 37 CFR 401.14(c)? There is no guidance. What about if a patent examiner rejects certain claims–does the contractor have an obligation to attempt to overcome that rejection or else the federal government could step in and take ownership of those claims and fight with itself (federal agency vs the Department of Commerce’s USPTO) over them? Again, no guidance.

In university practice, in my experience, there is an effort to get the broadest claims possible. I’ve had a patent attorney all but apologize for having a patent allowed on the first office action–the understanding being that the application had not made the claims broad enough so that the patent examiner was forced to determine the absolute edges of whatever legal claim to the invention might be allowed. For us, however, getting a patent with the core claims was all we needed to support a negotiation to get some code adopted–thus, the faster the patent issued, the better for us. “Broadest claims possible” means that one is gather in as much of what is viewed as possible beyond the door of opportunity presented by a given inventive realization.

University patent administrators frequently justify their refusal to assign an invention to a company or to allow an exclusive licensee to take control of patent prosecution with the argument that if they did so, the company might not make the broadest claims possible and therefore might do something devious like take the “exclusive license” (really a transfer of ownership) and then make a patent issue that was so narrow that the company could easily design around it. But oh-ho then the company would have paid for exclusive rights in an invention it did not need but had just spent potentially hundreds of thousands of dollars on only to set up a condition in which everyone had access to the invention’s instances that weren’t patented and somehow were the ones the company desired anyway. It’s a nonsense argument. But more so, it points out this problem of claiming in a patent application and the scope of the invention itself. The invention may have a much broader scope than the portion claimed in a patent application, but the patent cannot, necessarily, be broader than the invention.

Why would university patent administrators want to get the broadest claims possible for each patent if most of those claims were in invention holes so deep that no one could achieve practical application within a reasonable time? And why would they think to license all those claims exclusively to a company that had no chance to develop all of those claims to the point of practical application–and perhaps had little chance of achieving practical application for even one instance? University patent administrators reply that doing so is what is done in such “high risk, high reward” activity–as if a nonsense reply like that will cover for a lack of understanding about what is going on. They may as well say, it’s a matter of luck and by doing things this way, we increase the changes we will make a fortune. May as well sell them rabbit feet.

There’s a more concerning side to this discussion. Consider the situation in which a given invention has some instances immediately useful and others in invention holes. Such inventions happen all the time. A research tool, for instance–an algorithm, a biomarker, a franken mouse, a circuit, a process, an implement–may have immediate use in the research at hand and could be used by others without significant cost or delay, while creating a mass-produced commercial instance of the invention might take a great deal of work to figure out how to scale things up, deal with quality control, define a product with features attractive to customers, deal with training and post-sale support, and all the rest. Similarly, an invention might have instances that could be directed relatively easily to veterinary use while medical use in humans might take a great deal of time and money. Or, an invention that has an implementation in software might be ready to go–even if someone wanted to recode it–but putting that code into the form of an integrated circuit might take some specialized doing and expense.

Now consider a university patent administrator going out of the way to make sure that all instances and uses are covered by a patent’s claims, and then setting about to license exclusively the entire invention–all the instances–and making as the purpose of doing so the “commercialization of the invention.” It would appear that the administrative action is to seek a company that will “develop” an instance of the invention that’s in a hole deep enough that no one could implement that instance readily on their own–a company is needed, and one that has enough wealth to purchase the services, hardware, and inventiveness necessary to make a “commercial” product from that instance. For this purpose, the argument goes, it is necessary to grant to this target company all other instances as well–even the ones that could be readily used–in order to keep those from public use. Such general use, the reasoning goes, in theory would undermine the “market” for the commercial product instance.

This stuff looks very stupid, written out. If it were a straw man argument, I wouldn’t bother with it. But it’s out there, in the wild.

You might try the experiment. Pretend you are a company and call up a university licensing office regarding an invention where a patent hasn’t issued but that is available for licensing.

Ask if you take an exclusive license, can you can control the patent prosecution. The answer will be no. Ask for the reasons.

Ask if you can license exclusively only one instance of a given invention, within a single claim of the patent. You might be able to, but there will be hesitation and incredulity that you would want to do this. Ask why the worries. (Then think of this negotiating strategy–you negotiate first for the entire invention, with all 10,000 instances. Say the university wants $50,000 up front, 2% royalty, legal cost reimbursement, milestones at 3 years and 6 years of $50,000 and $100,000 respectively, creditable against future royalties. Okay–now reduce the offer to just one instance of those 10,000. That should reduce the compensation–not only by three or four orders of magnitude but also for moving from exclusive to non-exclusive–so $50 up front, 0.5% royalty, payments of $50 and $100 for milestones and 1/10th of the legal cost reimbursement.)

Ask if you can license exclusively the invention (all claims of the patent)–they will jump at this–and then ask if you can release royalty-free non-exclusively all instances of the invention, say but one. More hesitation–yes, that is possible so long as you pay to the university in cash the value of each such sublicense, even if you took no royalty for it. Look at any university template exclusive patent license out there on the web. This is how they are set up. That’s also how they generally work out in practice.

The general idea is that a broader patent somehow translates in to a more “valuable” patent to license. Getting claims allowed all the way to the edges of the land of opportunity beyond the inventive door somehow means that the university can stop all sorts of new initiatives to use instances of the invention for the benefit of some one company of its choosing that is willing to pay for exclusive rights to all instances of the invention, even if it will–perhaps–attempt to pull one instance out of its invention hole.

From a public policy perspective, there is no way that a company “commercializing” one instance of 10,000 covered by a given patent should then be free to prevent the practice of any of the other instances for two decades. In the ambiguously worded march-in choices–get exclusive rights to the instances that you bring to the point of practical application and get exclusive rights to all instances if you bring any one to the point of practical application, from a policy point of view, the choice is clear: you get exclusivity only for those instances that you have brought to the point of practical application within a reasonable time–such as three years from the issuance of a patent covering the instance.

Even this clear choice was limited by Bayh-Dole in the form in which it was signed into law. There, nonprofits were limited in duration of exclusive licenses granted to large companies to five years from the date of first commercial sale or eight years overall. Five years from the date of first commercial sale indicates the sale in product form of an instance of the invention. Now consider the ambiguity built into this construction. If a nonprofit were to license a subject invention exclusively to a large company, then eight years later, the nonprofit would necessarily have to offer non-exclusive licenses to everyone–for the entire invention, not just for some one instance that the large company may have “commercialized.”

March-in under Bayh-Dole has the same analysis, but is not restricted to nonprofit licensing. If a contractor licenses a subject invention exclusively and after a reasonable time (say, three years) the exclusive licensee has not achieved practical application, then the federal agency should march-in and require non-exclusive licensing. In actual practice, licensors often have a contractual remedy in their licenses to downgrade an exclusive license to non-exclusive upon failure of the exclusive licensee to meet milestones, such as first commercial sale. This, in lieu of terminating the license altogether. Thus, in a way, a federal march-in can amount to demanding that a contractor enforce its license terms. That’s not at all the same thing as the eminent domain taking that some commentators on march-in make it out to be.

Even if a “downgrade to non-exclusive” clause is not stipulated for exclusive licenses, the federal march-in provision makes it clear to both the licensor and to the exclusive licensee that there must be such a provision to deal with the contingency that necessarily exists in Bayh-Dole’s standard patent rights clause.

But more so: the march-in contingency is drawn to the entire invention. Failure to achieve practical application for any instance of the invention enables a federal agency’s march-in authority for that instance. Even if a licensee has achieved practical application with some instance of an invention, that has nothing to do with the practical application for any other instance. After a reasonable time, all those unworked instances of the invention should have to come available for non-exclusive licensing. Making one single instance out of, say, 10,000 into a commercial product does not promote the use of any of the other instances–rather, a broad patent and an equally broad exclusive license suppresses all those other instances. For those suppressed instances that do not have an invention hole to overcome, the patent and exclusive license suppress the prospect of widespread use–do it yourself use by companies, professionals, researchers, even the general public (as is the case, now, with some medicines). For those suppressed instances that do have an invention hole, it should not matter if there is open access, according to the monopoly meme. If everyone has access, according to the meme, then no one will use or develop the invention. All the more–why should anyone seek to compete with a product already on the market if they have no patent to “protect” their efforts?

There are objections, of course, to allowing others to work the instances of an invention that one hasn’t worked, but then we are talking here about public invention policy, not private invention policy. As public policy goes, a company working with an exclusive license has first pick of what instance of the invention to work–and if it works that invention to the point of practical application, gets to retain exclusive rights to that instance, provided it can meet demand. But what’s the reason to allow the contractor and its exclusive licensee to suppress the use and development of all other instances? No, the stated policy and objective of Bayh-Dole (35 USC 200) is to use the patent system to promote the utilization of inventions arising in federally supported research or development. If invention is not a thing, but a collection of instances, then the policy applies to each instance of each invention. The same goes for Bayh-Dole’s policy and objective to promote free competition and enterprise. That’s done by marching in on all invention instances that have not achieved practical application within a reasonable time.

The march-in procedures, however, were designed not to operate. A contractor can delay march-in for months if not years of procedural wrangling and appeals. A better approach, consistent with Bayh-Dole, is to use Bayh-Dole’s exceptional circumstances procedure to create an alternative patent rights clause that stipulates specific time frames for achieving practical application in specific areas of public concern, such as public health or safety.

in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter

Such a clause would stipulate that any instances of a given subject invention that have not achieved practical application in the specified time frame shall be made available royalty-free and non-exclusively by the federal government unless the contractor (and its ilk) have made those instances available non-exclusively and on fair, reasonable, and non-discriminatory terms. Such a new standard patent rights clause would “better promote the policy and objectives” of Bayh-Dole.

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