Bayh-Dole precludes enforcement of federal patents

An argument regarding enforcement of federally owned inventions. Bluntly:

the federal government lacks the authority to enforce patents, and

the federal government should not enforce patents, and

federal dealing in patent monopolies does not work.

Let’s expand the argument to show what we are dealing with:

(i) the federal government may own inventions

(ii) the federal government may use the patent system to obtain patents

but

(iii) the federal government does not have authority to enforce patents

and that’s relieving, because

(iv) it is bad public policy with bad outcomes for the federal government

to attempt to enforce federal patents or

to assign patents it owns to non-federal entities to be enforced

and

(v) the very limited situations in which enforcement of federal patents might benefit the public may be addressed through other means.

Let’s work through these points.

(i) The federal government may own inventions. According to federal patent law, patents have the attributes of personal property (35 USC 261). The federal government may own such property, and may receive such property through such transactions as purchase, contract, donation, or bequest. With regard to copyright, in some ways a similar right, established by the same Constitutional clause, federal law makes express (17 USC 105) that the federal government may receive copyrights “by assignment, bequest, or otherwise.”

The federal government has a long history of using executive branch patent policy and federal statute to make claim to inventions. Executive Order 10096, codified at 37 CFR 501, establishes federal claims in inventions made by federal employees. Various federal statutes–notably, the Atomic Energy Act, the Space Act, but there are more–provide for federal ownership of inventions made within the scope of such laws.

Executive branch patent policy from 1963 to 1981 required federal agencies to contract for assignment of inventions in four specified areas of federal contracting and when the contractor was a nonprofit or otherwise lacked a nongovernmental market. Contractors could request ownership in these areas–but the default was federal ownership with the inventions made available to the public by “dedication or licensing.”

The Bayh-Dole Act establishes federal claim in inventions made in work receiving federal support and which have been acquired by a contractor and the contractor has failed to disclose the invention, chosen not to retain ownership, or failed to apply for a patent or prosecute the patent application or maintain and defend an issued patent.

When the federal government asserts ownership of an invention, it also then controls whether it will use the patent system to apply for a patent, and if so, what scope of claims it will seek. In the alternative, the federal government might publish the invention and allow it to enter the public domain, or might place the invention under a protective order and suppress public knowledge of the invention altogether.

(ii) The federal government may use the patent system to obtain patents. The federal government has a long history of issuing patents to itself. Bayh-Dole expressly authorizes the federal government to use the patent system (35 USC 207(a)):

Each Federal agency is authorized to—
(1) apply for, obtain, and maintain patents or other forms of protection in the United States and in foreign countries on inventions in which the Federal Government owns a right, title, or interest

That is, federal agencies may have the federal government issue patents to itself on behalf of various federal agencies. Seems pretty direct.

(iii) The federal government does not have authority to enforce patents. This is the bitch. The Constitution provides the federal government with enumerated powers. The patent system is based on Article 1, Section 8, Clause 8:

The Congress shall have Power

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

This authority granted to Congress provides for inventors to have exclusive rights in their inventions. To establish any such exclusive right, an inventor necessarily must specify just what a claimed invention is, and that specification when made public disseminates the invention while putting others on notice of the inventor’s scope of claim. But this right is an enumerated right–as the Tenth Amendment makes clear, any right not expressly granted to the federal government is reserved to the states and the people:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Constitution does not give the federal government the right to enforce patents on inventions it owns. It provides that inventors may be granted an exclusive right in their inventions for limited times. Bayh-Dole, which represents an effort to provide uniform treatment of inventions made in federally supported work does not include the right for federal agencies to enforce patents at exactly the point at which Bayh-Dole lays out what federal agencies may do. It is clear that Congress contemplated enforcement of federal patents because in the next paragraph–35 USC 207(a)(2), we see this:

(a) Each Federal agency is authorized to—

(2) grant nonexclusive, exclusive, or partially exclusive licenses under federally owned inventions, royalty-free or for royalties or other consideration, and on such terms and conditions, including the grant to the licensee of the right of enforcement pursuant to the provisions of chapter 29 as determined appropriate in the public interest;

Chapter 29 refers to 35 USC 181-199–the part of federal patent law dealing with remedies for infringement. Here, Bayh-Dole expressly authorizes federal agencies to grant the right to enforce patents. That right can only move with a license if that license amounts to an assignment of the invention. Bayh-Dole goes out of its way to make clear that if the federal government assigns a federally owned invention to a non-federal party, then that assignee may enforce patents on that invention.  Nowhere does Bayh-Dole make express that federal agencies may also enforce federally owned patents. Federal agencies do not have the authority to enforce federally owned patents. At best–and even this is questionable–a federal agency, having determined that enforcement of a federally owned patent is in the public interest, may assign the claimed invention to a non-federal entity and permit that entity to pursue remedies for infringement.

Now, it may be that the federal government has a history of enforcing patents against its citizens and companies, but I have yet to find it. Such actions are rare. HHS is presently suing Gilead for something like patent infringement. Maybe it is a first. But that’s apart from the argument that such federal enforcement is not authorized by the Constitution. And there’s another compelling argument against federal agencies enforcing patent rights:

(iv) It is bad public policy with bad outcomes for the federal government

to attempt to enforce federal patents or

to assign patents it owns to non-federal entities to be enforced.

Unlike any other “person,” the federal government also adjudicates federal laws. Thus, if a federal agency seeks to enforce a patent, it may bring the full power of the federal government to bear to do so. The federal agency has no business owners of its own to answer to, need have no business case for enforcement, has an unlimited budget to pursue enforcement, and can draw on top legal talent for its purposes. The fight is not close to a fair one–the federal government controls the court (even with separation of powers), has the money, and the talent, and the time to make life miserable for anyone using the federally claimed invention.

But fairness might not be an issue for some. There’s more. The federal government then is also set up to have the power to sue the States and any “instrumentality of a State” (see 35 USC 296) for infringement. Is there any foundation for an argument that such litigation promotes the progress of the useful arts? Is the federal government in any way damaged by states using federally owned inventions? Even if one argued it was good public policy for federal agencies to be out suing companies and private citizens to suppress invention use and/or collect damages for such use, perhaps one might agree that there’s no place for the federal government to be out suing states, state universities, and the individuals in those state “instrumentalities” that might happen to use a federally owned invention.

The idea that the federal government may sue for patent infringement has less overt effects on public policy. If a federal agency may enforce a patent, then it also has the discretion to decide who to sue. A federal agency may then play favorites among those using a given invention. While playing favorites may be all well and good for a private patent owner, as public policy goes, it is a bad deal for federal agencies. Federal agencies then compromise their regulatory powers and their funding decisions. An agency might deny a research grant to a company it suspects of infringing a federal patent or reward another company that has taken a federal license. Federal agencies, too, might draft regulations and public guidance toward areas in which those agencies hold patents, or toward areas in which those agencies have granted exclusive licenses to favored companies, or made research grants to organizations that stand to profit financially from patent positions on inventions made in that research. Such situations are not “public-private partnerships.” They are favoritism. They create unmanageable organizational conflicts of interest for the federal agencies involved. Federal enforcement of patents undermines public confidence in federal agencies. It is not a price that the public should be told it must pay so that federal agencies may deal in patents with their chosen companies.

It just doesn’t work for a federal agency to be able to threaten citizens and companies with infringement and at the same time draft regulations that force citizens and companies to use those same inventions–but only by taking a license (paying, mainly) or purchasing at monopoly prices from the federal agency’s designated favorite exclusively licensed company (on secret terms).

The practices that result from a federal right to enforce patents are a quiet disaster. Federal agencies not disclaiming the right to enforce necessarily limit the use of federal inventions. No one in their right mind would infringe. But more so, early adopters of new technology are put off–if they cannot have ready access because a federal agency is busy attempting to find an exclusive licensee to “commercialize” the invention, everyone else who does not need exclusivity or could not afford it or is not set up to exploit exclusivity is necessarily brushed aside. Everyone not in line to get an exclusive license to an invention from the federal agency that owns it necessarily has to look elsewhere for new technology, must avoid the federal invention, must work to establish working standards that exclude it.

The effect of federal exclusivity in such inventions is that the federal patents mark out what citizens must avoid, rather than what they are free to adopt. While favored companies might take exclusive licenses and exploit a federal invention as they might, everyone else must make do with other technology–at least for the time it takes a favored company to product workable product, which often means a decade or more delay from the time the invention has been made. Many inventions that might take a long time to be transformed into a commercial product might be used in non-commercial forms much more quickly–for research, for internal use, for studying how to vary and adapt them. The threat of federal patent enforcement, especially when combined with exclusive licensing, creates a huge disincentive for the public to use federal inventions.

Federal enforcement of patents, when linked to exclusive licensing, not only withholds inventions from public use just when those inventions might attract the attention of researchers and early adopters who do not need a productized or mass produced version of the invention but also federal licensing then attracts patent speculators. The value of a patent to a speculator lies in the future rents that the patent might extract from the public. If a federal agency withholds a given invention, using its patent right, to seek a “commercialization partner,” then the agency will attract principally companies that aim to exploit that patent. The offer becomes a self-fulfilling prophecy. If only exclusive rights are on offer, then companies and investors that rely on the value of patent monopolies will show up to take licenses. There’s no public policy justification for the idea that federal agencies ought to subsidize patent speculators by granting them exclusive licenses. And there’s no public policy justification for the parallel idea that federal agencies in granting such exclusive licenses should take a financial interest in the income made from exploiting either the claimed invention or the patent.

That leaves federal agencies with royalty-free exclusive licensing. And what is the public policy reason, then, for a federal agency to demand ownership of an invention from its inventor, but only to hand that invention to some favorite company–if the federal agency bothers to get around to finding that favorite company. One might almost think that the federal agency claim on the invention, in such a case, amounts to a repudiation of the patent system by refusing to secure to the inventor exclusive rights, taking those rights for the federal government, and then assigning those rights to some favored company. The argument becomes that a federal agency is better positioned to play favorites than is any given inventor. But that’s not federal patent law.

And we get to the bottom line. Federal exclusive licensing of inventions hasn’t worked. Federal exclusive licensing of inventions is so bad that federal agencies don’t bother to report it. None of the advocates for Bayh-Dole, in reporting on what they claim is the success of Bayh-Dole in promoting university dealing in exclusive patent licensing, report that federal agencies are having the same success. Indeed, one of the arguments used by Bayh-Dole advocates was that federal agencies were doing a terrible job at licensing and universities and their nonprofit patent management firms could do much better. Their argument was wrong on multiple points. The federal agencies were actually doing very well with invention management–comparable or better than the universities’ patenting organizations, and universities over the past forty years of Bayh-Dole practice have done remarkably badly at dealing in Bayh-Dole inventions.

The reality is, federal dealing in patent monopolies has brought the public very few “products,” and those few products have often carried monopoly pricing. This is not the public policy outcome we are looking for.

Now lets consider two special cases. Here’s the first. Bayh-Dole provides that federal agencies may license exclusively so that the licensee has the right to enforce the federally owned patent. That’s 35 USC 207(a)(2). But the only way such a license may provide the right to enforce is if the license is an exclusive license and that license grants all substantial rights in the invention. Bayh-Dole also regulates when a federal agency may grant an exclusive license. That’s 35 USC 209(a). The list of requirements at 209(a) is in its way bizarre, but the essence is that the exclusive license must be “reasonable and necessary” to promote the invention’s use by the public, including non-federal spending to make the benefits of using the invention available to the public on reasonable terms. Key in all this is that the

scope of exclusivity is not greater than reasonably necessary to provide the incentive for bringing the invention to practical application, as proposed by the applicant, or otherwise to promote the invention’s utilization by the public

The switch from “reasonable and necessary” to “reasonably necessary” is one little bit of bizarro in an otherwise bizarre sequence of requirements in a bizarre law. Broken down, the exclusivity of an exclusive license cannot be broader than what’s necessary to promote public use of the invention. Anything having to do with incentives to invest privately in making an invention usable by the public (on reasonable terms) is a subset of the overall goal.

Thus, a federal agency, to grant all substantial rights in an invention and thus provide the licensee with the right to enforce a federally owned patent must “find” that doing so will promote the use of the invention by the public. “Promote” is loose talk. There’s an interpretation of “promote” that simply means “contributes to.” In that use, incentivizing spending that makes an invention that is otherwise not available for use by the public is tautologically a form of “contribution.” But that makes the whole provision redundant. It will always be the case that someone spending on developing an invention promotes that invention’s use, eventually, by the public–even if that use by the public happens after the patent expires.

No, the interpretation of “promote” here must mean something along the lines of “make available to public an invention that otherwise would not become available to the public because neither government nor nonprofit organizations or donors are willing to provide the funding–and on “reasonable terms,” i.e., reasonable price, non-discriminatory terms, full availability, configured in the forms the public wants.

In other words, a federal agency could not choose not to fund development of a federally owned invention if the federal agency had the authority to fund such development and use its own refusal to fund as the basis to provide an exclusive patent position to a company to do the funding. The more an invention grows in public importance, such as medical treatment to address a significant public health situation, the greater the mandate for the federal agency that took ownership of the invention to fund its development or make it available non-exclusively.

“Promote” an invention’s public use has to mean something on the form of augment over the uses that the public otherwise have available without any patent exclusivity. The scope of exclusivity would then have to be narrowed to address only this augmentation–a commercial product of a given sort, mass produced, say. But if the public might use the invention in a research form, or in the form of a standard, or for internal use without any need to mass produce, then the exclusive license allowable under 209(a) cannot involve all substantial rights, cannot function as an assignment, and cannot give a favored company the right to enforce the federal patent.

Thus, under Bayh-Dole, it is nearly impossible–call it exceedingly rare–for a federal agency to find circumstances that satisfy the conditions for granting an exclusive license that permits the licensee/assignee to enforce the federal patent. Unfortunately, Bayh-Dole also makes the terms of federal agency exclusive licenses secret, so the public cannot determine when a federal agency has violated the scope of Bayh-Dole’s authorization. Any invention that might be used for research, or in standards, or for internal productivity, or by professionals adapting the invention for their use cannot be the subject of federal exclusive licensing that grants the right of enforcement.

As a matter of public policy, then, can a federal agency withhold non-exclusive licenses from the public, and threaten infringement actions for public uses, so that the federal agency may then grant an exclusive license? That is, the reason for the lack of public use then lies with the federal agency’s own decision about enforcement of the patent. Such a result would do irreparable harm to Bayh-Dole. It would be as if the law authorized federal agencies to withhold the right for the public to use a given federally owned invention so that the federal agency could set up a company to continue that same practice, but now drawing value from suppressing public use of the invention until such time as a commercial product might be produced. Such practice would  run against the stated Congressional policy and objective of Bayh-Dole.

The countervailing public policy to this practice is that federal agencies cannot use a threat to enforce a patent as a basis to create incentives for granting an exclusive license to a federally owned invention. If they cannot use that threat to enforce, then they also cannot–in nearly all circumstances–meet the requirement to grant an exclusive license that gives a new, non-federal owner of the patent the right to enforce the patent.

One might observe that Bayh-Dole does not require federal agencies to grant non-exclusive licenses to the public on inventions that the public desires to use–on terms reasonable to the public. Just the opposite. Bayh-Dole requires federal agencies to require any licensee–even non-exclusive–to submit a marketing plan (35 USC 209(f)):

No Federal agency shall grant any license under a patent or patent application on a federally owned invention unless the person requesting the license has supplied the agency with a plan for development or marketing of the invention . . . .

Bayh-Dole does not contemplate that a patentable invention–one that has been reduced to practice–might be useable without “development” or “marketing.” This 209(f) requirement is perhaps the most pernicious clause in Bayh-Dole–and there are many candidates. Roll back 209(f) so that no plan is necessary for any non-exclusive license, that such licenses may be granted without formalities (such as request, paperwork, signatures) as public licenses, and once any such license has been granted–any notice of use will do, at any time–then the federal agency has no way to meet the conditions of exclusive licensing under 209(a) that would permit the agency to grant the right to enforce the federal patent. And with that goes the federal authority to enforce federal patents through choosing a company favorite to assign the invention to.

Now for the second special condition:

(v) The very limited situations in which enforcement of federal patents might benefit the public may be addressed through other means.

Let’s say for a moment that federal agencies do have the right to enforce federal patents, but cannot do so merely to prevent public use or to take a financial interest in public use. Then what basis–what public basis–might a federal agency have to enforce a federal patent anyway?

Here are some examples. In the enforcement of standards, patent holders might use the threat of enforcement to ensure that any company claiming to have implemented the standard indeed does so. A misrepresentation that, say, a hardware device implements a given standard when it does not damages the standard as well as causing potential harm to other connected or related hardware or functions. If a federal agency were to contribute an invention to such a standard, then it might well serve the public interest that the federal agency enforce the patent with respect to the practice of the standard. But if that same federal element were in the public domain, a standards-setting organization could take action against any company that misrepresented its implementation or provided an defective implementation to force that company out of the standard. That’s a matter of contract and trademark enforcement, no patent enforcement necessary.

In the marketing of health products, companies often failed to test for safety and efficacy, and kept the composition of their products a trade secret. Patents were used as a means both to disclose the composition of new health products (at least a general disclosure of possibilities) and at the same time to prevent sloppy exploitation of these new compositions by companies playing fast and loose with formulation, dose, production, storage, and the like. Now, health products are so fully regulated that patent enforcement is unnecessary for such purposes. Patents are reduced in health products to suppressing competition, restricting research, preventing the use of non-competing elements of a given invention, and exploiting this broader patent monopoly to raise prices. There’s no public purpose served in federal agencies granting exclusive licenses with the right to enforce patents that serves only–in mattes of health products–to suppress uses and permit prices to be raised. And there’s no public purpose for federal agencies to use patents directly for this purpose, without a licensee, simple to extract “value” or to provide from the public a “return” on the public’s “investment.”

Perhaps there are other obscure examples of how a federal agency might enforce a federal patent in the public interest without suppressing use or engaging in financial exploitation of the monopoly on use provided by the patent. The assertion remains–whatever those uses, there are other ways to deal with them that don’t involve patents. In an environment of government regulation, even if there might be some use for private patents, the enforcement of federal patents is obsolete. 

The federal government lacks the power to enforce federal patents. It should not use such power even if it had that power. And where federal agencies have held patent rights in the hope of an exclusive license, or have granting all substantial rights and thus assigned a federal invention to permit an assignee to enforce the patent, the public interest has not been served.

Bayh-Dole is the legislation that controls federal administration of patents. Bayh-Dole authorizes federal agencies to obtain patents, to license patents, and to administrate patents. Bayh-Dole does not authorize federal agencies to enforce patents. Instead, Bayh-Dole authorizes federal agencies to grant exclusive licenses that permit non-federal entities to enforce federal patents, but then imposes such restrictions on those exclusive licenses to make it all but impossible for the circumstances to arise in which a federal agency could make such a grant of exclusive license.

Enforcement of federal patents is obsolete. It doesn’t work. It works against invention use and development. It fails the public. Bayh-Dole–bless its bizarre heart–precludes enforcement of federal patents. Not by federal agencies. Not by federal agency assignees.

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