There are two things that might prompt a university dealing in patents to adopt a policy default of non-exclusive licensing. One involves Bayh-Dole. The other involves a general argument directed at patenting’s public purpose–especially when a patent is held by an organization dedicated to public purposes–and loosely around antitrust law protections. Neither of these things is currently an issue. No one talks about Bayh-Dole’s non-exclusive preferences. And talking antitrust is barking at the moon. People do it on occasion, but only to disturb the peace. Both Bayh-Dole and antitrust should be real issues, and should come up in discussions having to do with research enterprise, such as the relation between patents held by universities and prescription drug prices.
An exclusive license to all substantial rights in an invention is in effect an assignment of the invention. Thus, wherever Bayh-Dole refers to exclusive license, it could mean “an exclusive license to some but not all substantial rights” or it could mean “an assignment of the invention by means of an instrument labeled exclusive license.” If an exclusive license performs an assignment of a subject invention, the assignee becomes a party to the federal funding agreement–a contractor–and any inventions that the assignee makes responsive to the “work” of the funding agreement are also, when the assignee acquires them, subject inventions. If the original institutional owner of a subject invention is a nonprofit, then the assignee is required to comply with the nonprofit’s patent rights clause (see 35 USC 202(c)(7)(A)). That means, in turn, that the assignee is restricted in how it can use income arising from the subject invention–it can deduct its expenses in administrating subject inventions (but not other inventions) but must use the remaining balance to support “scientific research or education.” It’s not that a pharmaceutical company could reinvest some portion of its profits from a drug made under a Bayh-Dole exclusive license–it is that Bayh-Dole requires that it reinvest all its net income, less its subject invention administrative costs, in scientific research or education.
That’s enough for companies seeking exclusive rights in subject inventions from nonprofits to insist on deals involving less than all substantial rights–non-exclusive, or exclusive only with regard to specific instances within the claims of a patent, or exclusive only for a limited time–before the company has any actual income earned with respect to the invention.
Under Bayh-Dole, were universities to comply with the standard patent rights clause and federal agencies enforce the clause, companies would demand less than all substantial rights in any subject invention. They would demand approaches to licensing such as the ones outlined above. Even if universities offered all rights to an entire invention–as their patent licensing templates uniformly do–companies would bargain for fewer rights to avoid an assignment that carries the nonprofit patent rights clause and status as a federal contractor under the nonprofit’s federal funding agreement.
That would be a compelling case, if Bayh-Dole were an actual federal statute and not some plaything for people to make up practice for as it suits their conveniences and covers for non-compliant past practices.
The second thing involves the proper use of patents to advance the public welfare. This is especially important for state universities, which operate as instruments of state government, which have such a mandate even if one might argue that private holders of patents do not (they do–but folks are free to argue otherwise). With this status, state universities are in much the same condition as does the federal government, which is governed by Bayh-Dole’s sections on federal licensing (35 USC 207-209). It’s just that states generally do not bother to impose any limitations on their licensing practices–even though they should (to best serve the public interest, for governance, to avoid conflicts of interest, as well as for financial reasons). Yes, I will argue along with views presented in The Moral Background that when a state’s licensing practices are ethical, they also result in the most effective business.
For this, we need to revisit the Wisconsin Alumni Research Foundation antitrust case involving vitamin D licensing, Vitamin Technologists v Wisconsin Alumni Research Foundation. [See WARF, Vitamin D, and the Public Interest for a fuller account.] In this case, WARF, a research foundation closely connected to the University of Wisconsin, granted licenses to select companies using its patented method that used radiation to create vitamin D in dairy products, but refused to grant licenses so that the method could be used to create vitamin D in margarine products. The idea was to give advantages to the Wisconsin dairy industry by preventing lower cost margarine products from having the same health enhancement. The effect, then, was to deny the benefit of use of the invention to a broad segment of the public that could not afford butter but could afford margarine. All this in a time when rickets–a vitamin D deficiency disease–was rampant. Or, in terms of invention is not a thing, WARF licensed one instance of its invention for use in dairy products but refused to license other instances for use in margarine–in effect, suppressed the use of its invention for margarine.
This case matters for Bayh-Dole. The vitamin D invention was WARF’s first big money-making invention. It was the basis for the founding of WARF, which emulated the formation of Research Corporation a decade earlier. WARF’s invention also was the first breakthrough, profitable health-directed invention for university licensing programs. WARF in the early 1960s faced further antitrust claims when it attempted to license exclusively a class of anti-cancer compounds (“5-FU”) to a pharmaceutical company. And WARF’s patent counsel, Howard Bremer, was instrumental in creating the NIH’s Institutional Patent Agreement program in 1968 and the implementation of the Bayh-Dole Act in the 1980s. What happened to WARF in 1945 and the early 1960s ends up getting baked into both the IPA program and from thence into Bayh-Dole.
Here’s the Ninth Circuit Court’s reasoning:
We agree that it has been shown that the monopoly on this aid or cure of the rachitic has been a commercial success which well warrants the consideration of the court.
That is, just because an instance of a patented invention has been commercially successful–even if that success is attributed to the use of a patent monopoly–that’s not a sufficient defense:
Apart from its legal implications, the large financial returns from such a profit-controlled monopoly barrier between the great numbers of the afflicted and their potent remedy is an interesting episode in the history of the law of patents.
The court then lays out an argument as a template for other cases–even though it will not rely on this argument itself in ruling that the patents are invalid. The point of ruling the patents are invalid in this case turns out to be the chosen way to respond to the suppression of use of other instances of the invention–despite the instances of commercial success.
It is now well established that a patentee may not put his property in the patent to a use contra to the public interest.
[quoting from case law] “The patent is a privilege. But it is a privilege which is conditioned by a public purpose.”
This raises the question, not argued, whether the effect on the public health of refusing to the users of oleomargarine, the butter of the poor, the right to have such a food irradiated by the patented process is against the public interest.
The implicit answer is that yes, refusing access is against the public interest.
As seen, the general business manager of the Wisconsin corporation testified that it is the poor people suffering with rickets who constitute the principal market for appellee’s monopolized processes and products. The evidence and appellee’s briefs are replete with well verified statements of the great boon to humanity of Dr. Steenbock’s scientific discoveries for the prevention and cure of rickets. The truth of such statements make the stronger the contention that it is a public offense to withhold such processes from any of the principal foods of the rachitic poor, or, indeed, from those of any such sufferers.
The court appears to have great affinity with the idea that it is a public offense to withhold a health remedy from anyone. If we replace “withhold” with “not make the benefits available to the public on reasonable terms” we arrive at Bayh-Dole’s formulation of this same concern.
This line of reasoning runs to the concern in Bayh-Dole for protecting the public from “nonuse or unreasonable use” of an invention arising from federally supported research or development. People knew what happened with WARF, and if Bayh-Dole was to have any chance of passing, it would have to disavow WARF’s licensing practices with vitamin D. The court continues, finding that other courts have not foreclosed the argument that suppressing use of an invention in matters of public health may be a violation of antitrust law:
Suppression of the use of the property in a patent has often been held the right of the holder of the patent monopoly, but the question has not been raised in connection with the public interest in restoring the health of the afflicted.
The court then moves to find the patents invalid rather than worry the antitrust issue further. The line of reasoning, however, is clear, and nailed home with an express statement:
We now have before us from the Wisconsin corporation what, if the case be resubmitted, it will prove as excusing the refusal of the irradiation of oleomargarine. Upon consideration of the proffered evidence all three judges now conclude the refusal unwarranted and against the public interest and deny the motion to remand for proof of these facts. We further hold that such refusal to permit such irradiation warrants the refusal of the equitable injunctive and accounting relief sought by the corporation, though we hold the public interest is served better by our decision that the patents are invalid.
We can see here that the commercial success of one instance of the vitamin D invention was not sufficient to support the case for withholding other instances of the same invention from public use. We can arrive at the following formulation:
The exercise of patent rights in such a way as to exclude the practice of any instances of an invention directed at public health is against the public interest.
The only basis on which a patent holder covering an invention directed at a public health need might hold exclusive rights, as a government-granted privilege, is that the patent holder provide the benefit of use of that invention to the public on reasonable terms. If a patent holder succeeds in doing so with one instance of such an invention, that is no argument for suppressing all other such potential uses–even if that suppression, it is argued, contributes to the financial success of the licensing of the instances that are used.
We may draw from this line of reasoning some important points.
First, there is no justification for the argument that it is necessary to withhold a medical treatment from patients because doing so is necessary to extract value from a patent that covers that treatment. The same is true for any variants–such as that it is necessary to use a patent to withhold a medical treatment so that a company can produce a commercial product based on the invention. Whatever beneficial roles a patent may have in matters of public health, withholding treatment is simply not one of them.
Second, commercial success with regard to one instance of a medical invention is no justification for suppressing the use of other instances of that medical invention. The “success” of some drug in the marketplace points to an instance. That “success” cannot come at the expense of all the other instances. The faculty inventor of cisplatin, Barnett Rosenberg, an early cancer drug, complained much later that there was so little progress in developing new drugs based on his invention:
“For years I’ve been saying this is the first platinum-based drug we discovered,” he said. “It can’t possibly be the best one. It’s disappointing that the scientific community has not been able to find better ones.”
Rosenberg apparently could not grasp that the patent controls placed on his invention, combined with exclusive licensing and the financial success of just a few instances of his invention (and those replete with terrible side effects) all but guaranteed that no one else would develop other instances of his invention from their inventive holes.
As for Bayh-Dole march-in, the take away is that it does not matter that some instance of a given invention may be developed for commercial success–whether it meets the standard of practical application or meets public demand. That success and availability has nothing to do with other instances of the invention. Unless a contractor or exclusive licensee has taken effective steps with regard to all other instances, and meets public demand for them, the federal government must march in on those other instances if the contractor or exclusive licensee does not release them for public access and, if needed, development.
Again, this is the mandate of Bayh-Dole’s statement of policy and objective:
It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development
Use of one instance of an invention does not exhaust the obligation of the patent holder to use the patent system to promote the use of other instances of the invention. One does not obtain the right to suppress all other uses of instances of an invention in order to create a better market for some chosen invention. To do so, as the Ninth Circuit Court of Appeals argued in Vitamin Technologists, is to act against the public interest–is an “unreasonable” use of the patent, to use Bayh-Dole’s phrase. Bayh-Dole’s policy is that the government must acquire sufficient rights in inventions arising from federally supported research or development to “protect the public.” It is an empty gesture if the federal government then obtains these rights and does not ever use them. March-in is not a rare, exceptional situation made moot if a company achieves commercial success with one instance of a given invention–march-in, rather, is an all-the-time situation that involves every instance of a federally supported invention that is suppressed by the means of a patent.
Promoting the use of an invention cannot include suppressing the use of that same invention. It just doesn’t work that way.
This is doubly true when the invention is directed at public health. Prior to Bayh-Dole, executive branch patent policy was to dedicate public health inventions made in government work to the public–either placed in the public domain or patented and licensed royalty free, non-exclusively. The government might place an exclusive order for supplies of a drug, as in a time of epidemic or war, but there is no need to suppress the practice of the invention by all others to serve this purpose.
Under the Kennedy patent policy, government dedicated inventions to the public, and only where it contracted with a company that already had a commercial, non-governmental market and capability did the federal government acquiesce in receiving a non-exclusive license. Even here, government patent policy insisted that the contractor work the inventions it retained, or make them available on reasonable terms for others to work, or the government would make them available. For any other circumstance–for nonprofits and contract research organizations or state governments–the organization had to make a case for its private exploitation of a patent being better for the public than the federal government’s practice.
The Nixon patent policy introduced the idea that a federal agency could grant exclusive licenses for government-owned inventions. This change was represented as a minor thing, but it was actually a huge deal. The purpose of the change was apparently to cover for the NIH and NSF Institutional Patent Agreement programs–which under the guise of a research contract without any research (so, just the invention terms), required contractors to take ownership of any federally supported invention that they chose to patent. The effect, though, of the change was to create the impression that there was a competition between the federal government’s exclusive licensing and a non-federal contractor’s exclusive licensing. Thus, the 28,000 federal patents nonsense–how universities might license exclusively more effectively than the federal government, even though (i) the data at the time did not show that universities were doing any better; (ii) the federal patent holdings were largely in defense-related areas in which the contractors had passed on an option to own the inventions and use the patent system. Now, universities hold over 50,000 US utility patents acquired in the Bayh-Dole era that cite government funding (and over 120,000 total)–with most of these inventions unlicensed and most instances suppressed by means of the patent system for the minority of such inventions that have been exclusively licensed.
In this, it is simply sleight of hand to replace a discussion with what is better for the public with an argument that organizations without meaningful commercial capability or market could do a better job than the federal government in conveying patent rights exclusively to companies. Even if a company were to be successful with the commercialization of any one instance of a patented invention, that does not mean that the company’s success or the university or CRO’s receipt of royalties is better for the public. While it may be true on the face of it that a company’s success at producing a profitable product is good for the company, even that argument ignores all the failed efforts by companies to move an instance of an exclusively licensed invention from its invention hole–and there, failure on the face of it is not good for the public, nor is the suppression of all other working of the invention while the exclusive licensee fails.
In the big picture, it appears that Bayh-Dole has created an economic system in which the federal government subsidizes, with a small amount of “research” funding (~$35b/yr), an effort by private actors and state governments to extort–let’s use a ripe word rather than “rely on patent protection to achieve a return on the public’s investment that will invite further private investment”– substantial amounts in the form of payments (~$300b/yr) for public health goods and services. In the context of public health, the standard of success is that an invention (i) is used in as many of its instances as provide a benefit, (ii) the public has access to the benefits of this use (iii) on reasonable terms–including prices that reflect the effects of both competition and collaboration (neither of which is possible if a patent is used to suppress all other practice), even if for whatever reason there is no competition or collaboration. In this, a university receiving a huge payment for an exclusive patent license on a health-related invention represents a failure of public policy if instances of the invention are not available to the public at nominal prices–not the 100x markup typical of patented drugs.