Price controls in Bayh-Dole

Here’s the primary price control in Bayh-Dole:

If an organization has the right to enforce patent rights on a subject invention obtained from a nonprofit, then any income earned with respect to the subject invention, after payment of expenses incidental to the administration of subject inventions, must be used for the support of scientific research or education.

See 35 USC 202(c)(7):

(A) requires the nonprofit patent rights clause to follow any assignment of a subject invention.

(B) requires royalties (but not other income) to be shared with inventors. 37 CFR 401.14(k)(3) construes this sharing as an administrative expense incidental to the administration of subject inventions.

(C) requires income after administrative expenses specific to subject inventions to support scientific research or education.

The definition of funding agreement at 35 USC 201(b) provides that contractors may add parties to the funding agreement by “any assignment, substitution of parties, or subcontract of any type.” Assignees of subject inventions become parties to the funding agreement, become per 35 USC 201(c), “contractors.”

Courts have repeatedly ruled that an exclusive license to all substantial rights in an invention (i.e., to make, use, and sell) assigns that invention.

Universities routinely use exclusive licenses that convey all substantial rights in subject inventions. They insist such broad licenses are necessary for “commercialization.” Those licenses are also assignments. The companies accepting those assignments become contractors. They must operate under the nonprofit patent rights clause. Income they receive with respect to the assigned invention must go to scientific research or education.

You see how the price control works, yes? Price high = income goes to scientific research or education. (Public benefit). Price low = no income, low cost to public. (Public benefit).

The nonprofit public bargain is that the nonprofit decides which public benefit matters most–research or education on the one hand or low cost to the public on the other.

March-in is a second price control. March-in controls for when a subject invention is not made available to the public on reasonable terms. Public reasonable terms necessarily includes price–but also includes non-discrimination, ready availability, no tying to other products, and the like. Even if a nonprofit brags about how much money it has made from a license on a subject invention, it cannot justify price gouging (i.e., unreasonable terms to the public) on the basis of the public purpose it has for the money it receives. The price to the public (among other factors) must still be reasonable.

Anyone complaining about a company making billions of dollars from the sale of a product based on a subject invention is complaining about the wrong thing.

If that company has an exclusive license from a nonprofit (almost always), and that license involves all substantial rights in the subject invention (almost always), then those billions of dollars must go to support scientific research or education (never happens). Those billions must be dedicated to public purposes. That’s what Bayh-Dole requires. That’s the essence of Bayh-Dole.

If someone argues that Bayh-Dole doesn’t do that, or shouldn’t, then they repudiate Bayh-Dole as we have it. Their version reduces to contractors can do whatever they want with inventions they acquire made in federally supported work. In that case, get rid of all the administrative waste and gesturing–it has nothing to do with innovation or public benefit or protection of the public from the intrusion of private patent speculation into publicly directed work.

The whole point of Bayh-Dole allowing nonprofit contractors–universities and their research foundations–to keep ownership of the inventions that they acquire and which arise in federally supported research or development is caught up in this downstream requirement that any assignee of such subject inventions, regardless of whether that assignee is a nonprofit or a for-profit, must dedicate income earned after administrative costs specific to subject inventions to the specified public purposes.

If a company does not want to dedicate its earnings to the specified public purposes, then it cannot accept an exclusive license that functions as an assignment. It cannot accept the right to enforce the patent. It cannot accept an exclusive position over all substantial rights in the subject invention.

This, then, identifies a third price control–limited exclusive licensing and non-exclusive licensing. The nonprofit decides on further licensing, not a for-profit exclusive licensee using “sublicensing.” The nonprofit decides on how to settle infringement, not any for-profit. Any income from such a settlement then also goes to support scientific research or education.

Bayh-Dole’s funding agreement extends to cover development work made by parties to the funding agreement. The scope of interest in Bayh-Dole is any invention made in work supported even in part by federal funds and acquired by a federal contractor. When a university assigns a subject invention to a company under the rubric of an exclusive license to all substantial rights, it makes the company into a contractor. Broadly, any inventions made by the company contractor in the development of the subject invention are, when the company acquires them, also subject inventions under Bayh-Dole’s nonprofit patent rights clause and must be disclosed timely or the federal government may take ownership of them at any time. And, of course, any income earned with respect to these subject inventions must be used to support scientific research or education.

Bayh-Dole’s implementing regulations are consistent on this point. Since federal funds need support only part of a broader project, separate accounting of funds is not determinative of scope. Otherwise, it would be all too easy to swap in private funds for federal funding whenever a contractor smelled the possibility of an invention, like USC did way back in work for the Navy, resulting in the Mine Safety Appliances decision. Similarly, chronology is not determinative. A broad project may take place across years with multiple contractors, and the federal funding for one part (say, at a university) may end before another part of the project is undertaken by another contractor (say, a company agreeing to become a party to the funding agreement and doing development work).

If a company does not want its inventions made in development to be encumbered in this manner, then the company must refuse to accept an exclusive license from the university.

The most obvious thing is that when a company achieves practical application for a given instance of a subject invention, it gains at that time an exclusive license covering only that instance and any functional equivalents, for the specified application. The exclusivity comes with the achievement of practical application for a specific instance of the invention, for a specific use, not upfront covering rights in the the entire invention. Companies may get options to exclusivity to cover what they do develop and make available to the public on reasonable terms. Everything else is open to all, and thus no company takes assignment of the invention, no company has the right to enforce the patent, no company is subject to the nonprofit patent rights clause, and thus no company must dedicate its income earned with respect to the subject invention to scientific research or education.

Bayh-Dole requires free competition and enterprise or whoever holds the patent monopoly must work on behalf of scientific research or education whenever they obtain income from a subject invention. Again, you see how the choice in Bayh-Dole operates. Bayh-Dole shifts the choice of which public benefit to pursue–competition or research/education.


Audit all university exclusive licenses involving subject inventions.

Start with Emory and UCLA.

This ought to be a matter for a whistleblower. Hmm.

There are billions at stake.

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