The Purpose of Bayh-Dole: Effects

Bayh-Dole re-establishes a pipeline of patent monopolies on federally supported inventions in public health running from federal agencies to the U.S. pharmaceutical industry.

This patent pipeline operates directly from federal agencies granting exclusive licenses (35 USC 207-209) and through nonprofit contractors such as universities, doing the same (35 USC 202-204). Universities, in turn, may work through patent speculators, using startups to attract investment capital before flipping any startups that survive to the pharma industry.

We can talk about restoring American technology leadership, commercializing inventions, giving incentives for universities to take an interest in inventions, and public benefits all we want, but none of this has to do with the driving force behind Bayh-Dole, and that’s re-establishing a patent monopoly pipeline. The driving force is to create patent monopolies and hand these patent monopolies arising from federally supported public health research to pharmaceutical firms, and otherwise to delay anyone else using such inventions.

There are multiple effects, all necessary to the scheme.

(1) Enable price gouging. The pharmaceutical industry gets the opportunity to monetize patents on public health inventions. While there all sorts of gestures in Bayh-Dole to deal with the consequences of private monopoly control over inventions made in federally supported research and development, Bayh-Dole conveniently provides no mechanism for enforcing any of these gestures. A private exclusive licensee may charge monopoly prices to extract maximum profit on public health inventions made in work receiving federal funding, permitting a patent holder to charge 10x to 100x a reasonable price. Bayh-Dole allows federal agencies may stand by and do nothing about it. Thus anything commercial in the area of public health that’s been produced within the Bayh-Dole regime has price gouged the public. This outcome is presented as the financial “success” of the U.S. pharmaceutical industry. Undoubtedly this outcome is true. In this view of things, price gouging is a feature not a fault. The public should be happy it has any new health products at all, and should be happy to be price gouged, and pleased with Bayh-Dole for making price gouging possible.

(2) Make federal health research funding a private subsidy. Bayh-Dole sets up the expectation that public health inventions made in federally supported work may be treated as inventions made by pharmaceutical companies themselves, but for a financial payment to a university or federal agency for the service of securing patent rights on behalf of the industry. The necessary consequence of exclusive control of the core results of federally supported research and development is that the research funding is a subsidy, not a subvention. That is, the money goes to the benefit of the investors in the companies that take the exclusive licenses and the investors in the companies that benefit from the suppression of all inventions that do not attract investors. By extension, federal funding for health research is a government subsidy for pharmaceutical companies and their investors. Just wait until someone figures out that such subsidies constitute unfair trade practices and appeal to the World Trade Organization.

(3) Encourage organizational corruption of purpose. By even the offer of an exclusive license to a public health invention, a federal agency announces that it intends to choose a favorite company to hold a patent monopoly position in that invention. The federal agency also then shares a financial interest in the private exploitation of that patent position and promises to sue or to support an eventual exclusive licensee’s suit against any other users of the public health invention. There’s a similar organizational conflict of interest for nonprofit organizations–choosing favorites, aligning with financial exploitation of patent monopoly positions, and a willingness to sue for infringement any others that might use such public health inventions. Federal agencies have successfully argued that the terms of their exclusive patent licenses must be kept secret. Bayh-Dole requires federal agencies to keep secret contractor reports of invention utilization (including licensing terms). Non-disclosure means the organizational conflicts of interest created by Bayh-Dole are not manageable. It is a recipe for organizational corruption. But it is pitched as offering a “new entrepreneurial culture” for universities and federal agencies.

(4) Suppress non-commercial and pre-commercial adoption and use of public health inventions. Federal agencies and nonprofit contractors, by obtaining patents on all significant findings in federally supported public health research, suppress the development of other approaches to medical interventions. No one can use these inventions for research, for professional work, to form standards, to develop alternative formulations or methods of delivery, to develop the often many aspects of these inventions left unworked by an exclusive licensee, if there ever is one, which is rare. As a result, most public health inventions are not used, not developed, and even when exclusively licensed do not become products. Any company or organization that is not in line to obtain an exclusive license on offer to a given invention necessarily must avoid that invention in all of its claimed versions. That is, the company or organization cannot adopt and use the invention, even in ways that the exclusive licensee (if there ever is one) will not ever get around to exploiting. Companies and organizations, then, must work around these inventions, must attempt to make them obsolete, worthless. While federal agencies and contractors are out seeking to place patent monopolies with favorite companies, everyone else must necessarily shun the public health inventions covered by such patents.

(5) Establish federal agencies and pharmaceutical companies as the playmakers. Bayh-Dole, by authorizing federal agencies to grant exclusive licenses, sets up pharmaceutical companies and federal agencies as the playmakers for what medical interventions will and won’t become a subject for development and access by the public. By removing such inventions from the public domain, and making these inventions all but unavailable for use within a commons, or as a standard, or even as broadly available research resources, Bayh-Dole shifts control over new initiatives to work behind patent barriers controlled, effectively, by pharma industry companies and speculators on the future value of patents on public health inventions to these companies. In its fundamental bargain, Bayh-Dole as practiced requires nonprofits to acquire ownership of public health inventions and to exploit patent monopolies on those inventions or the federal government will do so. The patent pipeline to pharma operates regardless of whether contractors or federal agencies hold the patents. Bayh-Dole permits federal agencies to take title to contractor-held inventions of a contractor fails to disclose timely an invention, or fails to choose to keep title, or fails to apply for a patent. Bayh-Dole authorizes the federal agency then to license those inventions exclusively. A contractor’s incentive to file a patent application is to prevent the federal government from denying the contractor future access to the invention and cutting the contractor and its inventors from any royalties when the federal agency does its exclusive deal with a favored pharmaceutical company.

(6) Suppress independent initiative in matters of public health. The university research environment was one of the last remaining arenas in which independent initiative could be pursued to advance the frontiers of science. The free play of free intellects was considered an important tool in the exploration of what’s unknown, and especially important to work at things other than what companies, government agencies, and professions might set out as their objects of study and development. Bayh-Dole led universities to take institutional control over university doctor, scientist, and engineer inventions in public health and offer these inventions, by means of patents, to the pharmaceutical industry or to speculators hoping to engage the pharmaceutical industry. As a result, inventors are denied access to their inventions. Researchers in the field are denied access. Entrepreneurs are denied access. University research becomes a proxy for an alliance of corporate and government agency interests in controlling public health technology and medical intervention. As Senator Bayh put it (wrongly it turns out), Bayh-Dole intends for inventors to be last in line in the use of their inventions, after contractors and the federal government–both of which are expect to grant exclusive licenses to pharmaceutical companies.

(7) Allow no public appeal or public accountability. Bayh-Dole provides no basis for public appeal of federal agency practices or contractor exploitation of patents on inventions directed at public health. The Supreme Court found such a lack “deeply troubling” and saved the law by finding that it applied only as to priority of ownership claims between contractors and federal agencies only after contractors had acquired inventions–including public health inventions–with a federal interest through conventional means. Even where Bayh-Dole provides for a government license to practice and have practiced (make, use, and sell, and authorize others to do so) and to require licensing on reasonable terms for any failure to make the benefits of using an invention in any given field available to the public on reasonable terms, Bayh-Dole provides no requirement that federal agencies act on their rights. And there’s no right for any member of the public–not companies, not inventors, not public health advocates–to appeal to initiate an audit, a review, a march-in, or the federal practice of a public health invention caught up in Bayh-Dole’s pipeline. The lack of public oversight–everything secret, no right of appeal–preserves the pipeline, invites speculation and public organization corruption of purpose, and suppresses early adoption and use of public health inventions so that the pharmaceutical industry can control the direction of development, the timing of effort, and the profit-making to be had from patent positions.

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