Federal agency patent enforcement: Gilead, 3

If you turn off all logic, then Bayh-Dole is whatever it is. But with logic on, the compelling public interest reason for the federal government to claim inventions made by federal employees (or even by the employees of federal contractors) is to do something with those inventions other than what the ordinary patent system would permit inventors (or contractors taking assignment from their inventors) to do with patent rights in those inventions.

That “something other” in the public interest was “dedication” of the invention to the public, whether by using the patent system or just fully publishing the invention. The effect of this approach was clear: regardless of the opportunities to exploit the patent system to exclude all others from the use of an invention made in work judged by the federal government to be in the public interest and thus publicly funded, inventions made in such work should be freely available, even if patented. Such an invention must be published–not held as a trade secret, not unpublished through indifference or some inappropriate pressure to conceal. Such an invention may be patented–use of the patent system is not itself the issue. But in the hands of the federal government, any such patent is not to be used as an ordinary patent holder might use it–to exclude all others or to sell or license the claimed invention to another who would exclude all others.

But here’s Bayh-Dole saying just the opposite. Federal agencies are expressly authorized to convey an invention out of the hands of the government to permit someone else to exclude all others. The force of the implied argument is that it is in the public interest for the federal government, with regard to any particular invention made in work worthy of public support, to choose who is authorized to exclude all others. Implied: the company the federal government chooses will better serve the public interest in excluding all others than would the federal government in excluding all others. Further: that such a company will better serve the public interest in excluding all others than would any federal employee inventor or contractor. Also implied: the public is better served by someone excluding all others, chosen by the government and on secret terms, than in everyone having access to the invention.

This is a very strange argument for the public interest. The federal government must intervene to do better by the public by first taking inventions from inventors (and from contractors) but only to patent the inventions so that the federal government can contract on secret terms with companies of its choosing so that each of them can exclude all others in their exploitation of those patents the federal government issues to itself. It’s not just that the public must “pay twice” for inventions–for the research and then the added bit of a royalty to a patent owner. It’s that the public does not necessarily get even the opportunity to pay any second time–the invention behind a private patent paywall may never be used, may never be produced in the form of a product, and if produced in product form may be priced at monopoly rates or put in forms not useful to most or held back in quantities that create scarcity or bound up with other exclusive rights so that paying a second time starts to sound really good–if the product existed, was available on reasonable terms, and was in a form that was usable.

The basis for federal claims on inventions made in work worthy of federal support is that the patent system’s potential for excluding all from the practice of such inventions is not in the public interest. If we resist that basis, then we are back to Dublilier–that the patent system is on the face of it in the public interest and federal employment does not change that, at least wherever a federal employee has not been hired to invent. Such inventions should be left with inventors. Let them decide how to exploit the patent system, if at all, subject to a government shop right. Bayh-Dole ignores all this and authorizes the federal government to take inventions to deal the inventions to private parties other than inventors. It’s an ugly response to Dubilier–an inventor cannot own–the federal government must own and then–in the public interest–gets to choose some company (on secret terms) to own and exclude all others (but for the government).

If we look at 35 USC 209, we find a bunch of conditions on exclusive licensing and on any license–but what won’t be obvious there is that those conditions don’t amount to much, have no oversight mechanism, have limited right of public appeal–and no right of appeal based on the proposed terms of any such license–and there is no enforcement requirement for the actual terms and conditions of any given exclusive license. It is all for show–or at least, “all for show” is one of the allowable pathways enabled by Bayh-Dole.

But first, let’s finish with 35 USC 207(a). There’s more.

(3) undertake all other suitable and necessary steps to protect and administer rights to federally owned inventions on behalf of the Federal Government either directly or through contract, including acquiring rights for and administering royalties to the Federal Government in any invention, but only to the extent the party from whom the rights are acquired voluntarily enters into the transaction, to facilitate the licensing of a federally owned invention; and

The third authorization under 207(a) cites “protect and administer rights.” What does it mean to “protect” rights? If Congress had wanted federal agencies to enforce federal patents, Congress surely could have popped out with exactly that, as it did just the paragraph before.

These are “other suitable and necessary steps”–which are–here comes garble:

acquiring rights for and administering royalties to the Federal Government in any invention

How does one “administer” royalties to the Federal Government? Does one serve royalties up in a big pot, or do they enter the federal government by a hypodermic needle in its bureaucratic nether regions? Dunno. Makes no sense here.

The bit that does make some sense is that federal agencies are authorized to acquire other rights as needed to “facilitate the licensing of a federally owned invention.” That would be, for instance, acquiring “background” rights that might prevent the practice of an invention. But how does the federal government come to need such rights to “facilitate the licensing” of an invention? The licensee–especially exclusive–would be in a position to go license whatever background rights it needs. There is no obvious reason why the government should have to front for some licensee going out and getting whatever additional rights it needs to practice an invention licensed from the federal government.

There’s nothing that would be necessary to “facilitate the licensing” of the government’s rights in any given invention. Of course, almost anything that might “facilitate” licensing could be called necessary to that purpose. To facilitate here means something along the lines of to make easier, more efficient, more convenient, more attractive. What’s left out is whether obtaining background inventions is necessary to the licensing of the foreground invention. This whole supplied instance makes no sense in practice.

It would appear that 35 USC 207(a)(3) authorizes federal agencies to become patent trolls, acquiring patents  willy-nilly so long as the agencies can assert that doing so makes it more attractive to patent speculators to license federally owned inventions obtained under 35 USC 207(a)(1). “The federal government recognizes that private patent speculators will do a better job extracting rents from the public than will the federal government. Thus, the federal government is authorized to accumulate such patent portfolios from private parties as will make attractive these portfolios, when including already federally owned inventions, to patent speculators.” This, we are told, is great public policy.

Background rights or ancillary rights and the like are a function not of licensing–promising to enforce, or handing the right to enforce to some other–but of practice. But here, in 207(a)(3), federal agencies are authorized to acquire rights on behalf of whomever they license to, to facilitate (e.g., make attractive to, to do the work that the licensee would otherwise have to do, to get better terms–or any terms at all–using the leverage of the federal government than a licensee might get on its own). It is easy to see how this authorization could be used as a means for a company to use a federal agency as a front to sweep up rights to create an even greater exclusive position for the company when it emerges as the federal agency’s chosen exclusive licensee. The federal agency becomes an agent for a company–gather patent rights and permissions to “facilitate the licensing” of a given invention.

Finally, (4):

(4) transfer custody and administration, in whole or in part, to another Federal agency, of the right, title, or interest in any federally owned invention.

Here we have the equivalent of an assignment of an invention between federal agencies–the “custody and administration” of the “right, title, or interest.” Federal agencies are authorized to transfer inventions to other federal agencies. But they are not here authorized to transfer custody and administration of such inventions to non-federal parties.

In this list of four areas of authorization, the only thing about enforcement is that federal agencies may grant to a licensee the “right of enforcement.” Nothing authorizing federal agencies to enforce patents through litigation–through “civil action.”

We might then ask, does Bayh-Dole take precedence over any other Act with regard to the disposition of rights in federally owned inventions? Section 210 of Bayh-Dole is specific to precedence in funding agreements with small business and nonprofit contractors. Nothing there about federally-owned inventions–only “subject inventions”–and those are by definition inventions acquired by a contractor.

Why does Bayh-Dole go out of its way to authorize federal agency patenting and licensing? Patenting is already authorized in EO 10096. Executive branch patent policy from Kennedy (1963) on has authorized licensing. Nixon (1971) revised policy to allow for exclusive licensing. So what does Bayh-Dole do here? Does it displace all that prior federal policy? If so, does it preempt any other treatment or does it just add to it? If preemption, then federal agencies do not have standing to enforce patent rights. They have standing only to grant exclusive licensees the right to enforce patent rights. In essence, federal agencies must assign the invention if anyone is to enforce patent rights in that invention.

It follows that federal agencies, though they are authorized to grant licenses “royalty-free or for royalties or other consideration” as “appropriate in the public interest,” have no standing to enforce patents if they license non-exclusively. The effect of Bayh-Dole’s failure to authorize enforcement by federal agencies is that non-exclusive licenses offered by federal agencies must be royalty-free. There’s really no other way.

If we turn to 35 USC 209, we find Bayh-Dole’s requirements for exclusive licensing and for licensing in general–so, including non-exclusive licensing.

Exclusive licensing may be done only if “reasonable and necessary incentive” to

(A) call forth the investment capital and expenditures needed to bring the invention to practical application; or

(B) otherwise promote the invention’s utilization by the public;

In the case of the CDC patents, neither prong is satisfied–people will use the method without any such “incentive” of an exclusive license. There follows a list of additional requirements on exclusive licenses–the public will be served by such a license based on an inspection of the candidate exclusive licensee’s plans, and that scope of exclusivity is limited to that which provides an incentive to bring the invention to practical application–thus, implicitly, any such invention would not have sufficient interest for anyone to spend money to develop it for public use. Almost anything involving public health would not meet this standard–except for companies that refuse to get involved unless there’s an offer of exclusivity. But there’s nothing in Bayh-Dole that mandates federal agencies to conduct their licensing to ensure that those companies get the first pick at exclusive licenses.

The rest of 35 USC 209 gets problematic. Consider the U.S. manufacturing requirement. On the contractor side, the U.S. manufacturing requirement is limited to exclusive licenses to use or to sell in the United States. But on the federal agency side, all licenses must “normally” require U.S. manufacturing. That’s a problem. Consider, for instance, a company that manufactures drugs outside the U.S. and there’s a federal patent on a method of combining those drugs to prevent a disease. Now the company must move its manufacturing to the U.S. to qualify for a license to the federal patent–even non-exclusively, even royalty-free. On the contractor side, the U.S. manufacturing requirement may be waived by a federal agency, or just ignored and not enforced. But there’s no such guidance on the federal agency side of Bayh-Dole. Just the word “normally.”

Section (d) of 35 USC 209 sets out terms and conditions for federal agency licenses. The first of these is problematic:

(1) retaining a nontransferable, irrevocable, paid-up license for any Federal agency to practice the invention or have the  invention practiced throughout the world by or on behalf of the Government of the United States;

If a license is non-exclusive, no such requirement is necessary. In non-exclusive licensing the government does not retain a “license” to practice the invention because it never gives up that right. The same is true for exclusive licenses–unless the “license” transfers all substantial rights in the invention, in which case the federal government’s right to practice (at least royalty-free) involves a grant-back license from the new owner. This detail substantiates the argument that 35 USC 207(a)(2) authorizes federal agencies to assign inventions under the guise of exclusive licenses.

Under paragraph (e), federal agencies must give 15 day public notice for exclusive licenses–but there’s nothing there that requires federal agencies to reveal the terms of the license on offer, so the only basis for a public objection would be that the offered license is exclusive. Without access to the terms of the deal, and a full account of the reasoning for how the proposed license meets the requirements of 35 USC 209(a), there’s hardly any basis for objection–other than that none of that information has been made public with sufficient time to form a meaningful objection.

And paragraph (f) requires every licensee–exclusive or not–to submit a secret plan for the “development or marketing” of the invention. Thus, in the case of Gilead, it is not enough for Gilead to accept a non-exclusive, royalty-bearing license. Gilead must also agree to manufacture in the United States to practice the PrEP method controlled by the CDC patents, and must submit a plan for “marketing” the invention, even though all the invention entails is the use of a two-drug regimen prior to exposure rather than just after exposure to HIV.

In 35 USC 207(a)(2), where Bayh-Dole has the right of enforcement in its maw, it does not address federal agency enforcement of patents. Instead, Bayh-Dole specifies only exclusive licensee cum assignee enforcement. The legally provided means for federal enforcement of patents on federally owned inventions, after Bayh-Dole, is for federal agencies to assign those inventions to private parties, and then only if the conditions to do so meet the federal requirements. An assignee under a properly transacted exclusive license then may enforce patents on the (once) federally owned invention, but subject to Bayh-Dole’s working requirement and march-in for public purposes, including nonuse, unreasonable use, and failure to achieve practical application (failure to make the benefits of use available to the public on reasonable terms). These restrictions in turn affect any assignee’s standing as patentee to enforce patents on such inventions. An assignee has rights to enforce that federal agencies do not have–but these rights are not ordinary rights of any ordinary patent owner. Not that anything about such limitations is ever enforced, leaving open just what sort of law Bayh-Dole is.

Gilead has countered that the CDC patents are invalid. Perhaps. But Gilead might also counter that HHS has no standing to enforce the CDC patents. It lacks authorization under Bayh-Dole. And there is no other statutory authority under which HHS has the right to act. Certainly not federal patent law itself. There, the CDC patents are subject to a working requirement under 35 USC 200. The unobvious reality is that HHS as patentee lacks standing to seek remedies for infringement under 35 USC 281.

This entry was posted in Bayh-Dole and tagged , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.