University Patent Policy for Effective Technology Transfer, 3: Yale patent policy on exclusive licensing

University patent policies do not address exclusive licensing, and yet exclusive licensing is at the core of much current university patent practice. Exclusive licensing is the key thing that Bayh-Dole enabled. And Bayh-Dole, in its federal agency licensing authorization, pees all over itself trying to provide a rationale for federal agency exclusive licensing, creating stains having to do with authorization, enforcement, necessity, required plans, required clauses, public notice, and secrecy. Stinks but they got it done. Meanwhile, university patent policy remains entirely indifferent to this central feature of patent practice.

We will work through a university patent policy for its licensing guidance. I’ve chosen Yale as an instance. There are plenty of others, but we have to start somewhere.

Here’s Yale patent policy on licensing:

1. If the University decides to participate in the patenting or licensing of an invention, the Office of Cooperative Research will seek to enter into appropriate licensing arrangements to commercialize the invention.

Policy requires “appropriate” arrangements. Bland to the point of useless. But it’s clear that the policy restricts licensing to commercialization–so much for licensing for use, or for standards, or to support open access. If the idea is that only inventions that are suitable to commercialization are within scope of the policy, then we would expect that the policy would sort inventions in this way and concern itself only with those determined to be suitable for commercialization. The burden of policy, then, with regard to exclusivity, would be one of identifying those conditions under which the university would decide specially against allowing non-exclusive access–for use, for making, and even for selling.

There’s a fundamental institutional conflict of interest built into this decision. By denying general access to an invention  that people could use and want to use (where access would benefit the public with use and many people making and selling and varying and improving) a university stands to make more money. People will pay for the right to suppress general access in favor of a future product they wish to sell. Any present demand for access runs up the price the company anticipates it may sell product for, and therefore runs up the fees that the university may charge for selling the right to suppress access and agreeing to assist in suppressing access (for “granting an exclusive license”).

You see the conflict? Public access does not necessarily “generate” licensing income. Suppressing public access might generate even more licensing income than would be the case if public access was not suppressed (i.e., a non-exclusive license to sell). Or, more particularly, some licensees would be willing to pay more upfront for an exclusive license–they would cover the patenting costs and pay cash immediately for the license if it includes suppression of all other access to the invention. The university covers its costs and makes money then even if there’s no product ever “commercialized.” The company gets good value from the suppression of the invention–suppression of uses competitive with future products as well as suppression of anyone who might compete to create products based on the invention (even if different products from the ones envisioned by the exclusive licensee in its negotiations with Yale).

If the goal is making money for Yale, then there’s incentive to accept payment to suppress general access to an invention. Taking that payment conflicts with providing open access–which would be the way that the public most benefits. Here, watch:

The objective of the University is to assure the development of its technology in furtherance of its own educational mission and for the benefit of society in general.

This part restates a fundamental conflict of interest and treats it as a virtue, as if “and” can cover for how an educational mission has anything to do with commercialization–just authorized in the previous sentence–or how an educational mission squares with whatever benefit society in general will have from a focus on commercialization rather than access and use.

Therefore, as a general policy, the University will set the terms of its licenses so as to further the achievement of this objective.

So those last two sentences were premises, and here’s the conclusion–the university sets the terms of licenses to “further” this objective. The use of further here is just weird. It’s that bureaucratic use of a word suggesting movement for something that the bureaucrats have already announced as perfect and successful and right. It’s like NIST announcing that Bayh-Dole is wildly successful and clear and then in the next breath talking about enhancing that success by fixing a bunch of crap NIST purports not to understand. It is nice to have a policy that requires the university to set terms of licenses. It would even be nicer if the policy anticipated that terms of licenses might be negotiated, and that a licensee might expect to have a say in what terms end up in a deal. But perhaps “take-it-or-leave-it” is Yale’s licensing position. It would be expectable, even if stupid.

Strangely, the objectives announced here for licensing run skew from the announced purpose of the patent policy itself:

The purposes of this University Patent Policy are (1) to help assure, in the public interest, that the patentability (or other means of exploitation) and practicality of inventions will be evaluated by qualified persons,

The “help assure” construction is sweet, as if the public has assurances, and needs assurances, that patentability, other means of exploitation, and practicality of inventions will be evaluated by qualified persons. Nothing here about commercialization, or public benefit, or development. The public benefit, apparently, is that the public has been helped in its assurance that qualified people will evaluate each invention. One cannot help but think this is a swipe at Yale faculty–if not specifically at Professor Fenn–who might have come to think that Yale patent personnel are not particularly “qualified” to evaluate much of anything. Policy, here, helps those folks out, assuring them that there are really qualified people to do the evaluating, not mere faculty inventors.

Even more strangely is the parenthetical “or other means of exploitation” to extend the idea of patentability. What do we make of that? Is it that the patent policy includes using non-patent exploitation? If an invention isn’t patentable, is it, under the Yale patent policy, even within scope? And if an invention isn’t patentable, what point is there in calling whatever-it-is an invention, at least in a patent policy. The suggestion here in policy, the dangled nuance wrapped in parentheses, is that those qualified persons will look beyond patentability to trade secret, copyright, trademark, or whatever else might come within exploitation.

And what then do you make of “exploitation” as a general term that encompasses “patentability”? What does the patentability of an invention have to do with exploitation? Does exploitation have to do with obtaining a proprietary position? Does exploitation have to do with how a proprietary position is used? Or does exploitation have to do with the use or development of the invention itself? It’s difficult not to see this usage as sloppy, if not merely bureaucratic ramble vocabulary introduced for a sort of Valley Girl ambiance.

The “practicality” part of the qualified person evaluation may figure in a licensing determination of the way that appears to the Office to most effectively develop an invention to the point that the public benefits, so it’s worth taking note that “practicality”–whatever might be meant by the term–has some relationship to “effective development.” There’s not much more we can do with practicality. If an invention is “practical” or has “practicality” does it then not need “development”? Or is practicality a proxy for “useful”–but then “useful” is part of the patentability review, so it can’t be that. Or is an invention “practical” when it appears that by spending money on development, one can produce a product people will buy, and if one uses a patent to suppress all making, using, and selling other than of the product, then people will have to buy the product if they want to benefit from the invention, and “practical” means that qualified persons see a way to make money?

The policy states a second purpose in addition to assurance of evaluation by qualified persons, not faculty inventors:

and that the income from inventions will be used to support further research or other desirable University activities; and (2) to define remuneration to the inventor or inventors (hereinafter the “Inventor”) and the University as long as the invention is productive of royalties.

Two parts here. First part. Money will be used to support desirable activities, not the other, undesirable activities. That’s a big wow for a policy to linger over. Second part. As long as a license to the invention is making money, the policy determines how much of that money Yale will pay to the inventors. Implicit in these two matters of money is that the Yale policy anticipates that money will be made from licensing, and not only that but apart from qualified evaluation of inventions, using and dividing up money is the only purpose of the patent policy. And we are back to seeing how the patent policy creates the institutional conflict of interest between money for the university and public benefit.

Only using a screwy definition of public benefit to mean, really, Yale benefit or “furtherance of its own educational mission” can you navigate this conflict. Even then, all you would have done is establish that the patent policy ignores the institutional conflict of interest inherent in exclusive licensing right at the point that policy should disclose the conflict and provide a means for managing it, if it indeed can be managed. Core elements of conflict of interest management–disclosure and recusal. Here, we get neither. We get denial or blissful ignorance.

There we have it. The stated purposes of the policy are “help assurance” that inventions are evaluated by qualified persons, and that money is used for desirable activities by Yale, with some specified portion paid to inventors. Nothing here in the purposes of the policy has to do with placing bounds on commercialization as a means of exploiting an invention or a patent on an invention. Nothing here  about the importance of development of inventions when inventions are evaluated to need development (that is, not impractical but also not so practical as to be useful as-is, so that special kind of invention that is just practical only if developed to be practical). Nothing about the tension between making money for the university and public benefit. It’s a patent policy given that the purpose of patenting is to make money for the university and the things that matter is that the money get properly divided with inventors and Yale’s portion not be used for undesirable activities, with no guidance whatsoever on who determines what’s undesirable.

Exclusive licenses will be granted if it appears to the Office of Cooperative Research that this is the most effective way of ensuring development to the point that the public will benefit.

“Will be granted” goes full passive. More bureaucratic denial. The policy just announced that the university will set the terms to further commercialization. Now we find out that the an Office is authorized to use appearances to decide whether to include the key term–exclusivity. It’s not that exclusivity is “granted”–it’s that the university Office authorized to grant licenses decides to offer exclusivity. The standard is not that “development to the point that the public will benefit” but rather that exclusivity “appears” to the Office to be the “most effective way of ensuring” something. Talk about meal in the mouth. Consider an alternative:

“The university will offer each invention to the public on a royalty-free, non-exclusive license to make, use, and sell. There may be charges pertaining to delivery of materials or services requested by a licensee. If no one has requested and obtained a license in three years from the date of patent issue, then the university may offer an exclusive license to sell product covered by the university’s patent.”

Other than a very different licensing practice being authorized, the point here is that at least one can see just what will happen. In the Yale policy, it’s all handwaving about what appears to an Office as a way while chanting public benefit. Spookily like a shamanistic ritual, but less rational or disciplined.

Any exclusive license agreement will be so drawn as to protect against failure of the licensee to carry out effective development and marketing within a specified time period.

Here, the strange word is “protect.” How do licensing terms “protect” against failure? And why qualify development with “effective,” as if there can be ineffective development that somehow is development but must be differentiated from effective development. The usage here suggests that the Yale policy does not much care what development is, other than that the result of effective development is that “the public will benefit.” From what will the public benefit? The policy doesn’t say. We have “commercialization” and we have “development of technology” and we have “effective development” and we have “marketing” or maybe it is “effective marketing.” But how does the public benefit? Is it that the public gets to buy something? Or does the public benefit because Yale makes a pile of money every so often, such as suing its Nobel-winning inventors, and that’s good enough?

If the objective of exclusive licensing is worth this many sentences in a policy statement authorizing exclusivity dealings, don’t you think the policy could trot out just how the public is to benefit. At least Bayh-Dole sets out utilization of inventions as an objective. Here in the Yale policy, it appears that any effective development at some point benefits the public. There’s some miracle by which testing and adapting and configuring technology to become a commercial product benefits the public.

Lost in all of this is the idea that Yale might benefit the public by providing the public with open access to a given invention, and reserving exclusivity for situations in which the public declines to make or use an invention because for some reason no instance of the invention can be made or used without a bunch of effort to change the invention into some other form in which the public might use it. That is, the initial invention is only half an invention or part of an invention, technically “useful” but not yet “useful.” So a crap bean-counting invention that has to be passed off to someone else to be completed as if that someone else had done all the useful inventing itself but has to pay something to Yale for the right to suppress all other uses, of which there aren’t any until the someone has worked out or invented the useful parts.

Put another way, the Yale patent policy is oblivious to the problem of showing that denying the public access to an invention–exclusive license appearing as a visionary Way to an Office–somehow will result in public benefit. If no one can use without more inventing (“effective development”), then no exclusivity is needed. If there’s more inventing or testing needed for regulatory approval, then that inventing will provide whatever proprietary, anti-competitive position is necessary to recover one’s investment and profit wildly from a price point sustained as the sole source. No Yale Office exclusivity needed. If people can use the Yale invention without more inventing, then how does denying those people access in favor of more inventing and the like benefit those people or the public? Yeah, it doesn’t work out. Yale would be better off announcing that their Office can grant exclusive licenses whenever they find someone willing to pay to suppress public use so they can require the public to buy sole source what they could otherwise not have to buy sole source, so long as they pay Yale richly for their exclusivity. Yale policy might then insist that any exclusive license ensure that Yale gets paid richly. That would be clear. Would make sense. Folks might fuss about it, but that’s just appearances.

The Yale policy sets out the key elements of an exclusive license, then:

Exclusivity
Protects against failure
Within a specified time

Nothing about payment–unless payment is what’s meant by “furtherance of its own educational mission.” That would be far afield, but perhaps you begin to see how bureaucratic policy rhetoric works. Payment would further the educational mission.

The tag of “within a specified time period” raises its own interesting questions. What is this time period? Is it the term of the patent? That would be meaningless as a matter of policy. So, less than the term of the patent? The old IPA agreements limited nonprofit exclusive licenses to the shorter of three years from the date of first commercial sale or eight years from the date of the exclusive license. So is the “time period” like eight years? One third of the term of the patent–after which we get open access? Or does an exclusive licensee get full term exclusivity if it achieves effective development to the point that the public benefits within that specified time period? There’s no guidance whatsoever here in policy with regard to what the specified time period is, or what happens after that time period ends. At best, specified time period is an empty gesture. All it does is add the appearance of diligence and complexity.

There’s a second bit of Yale policy on licensing. Two sentences. We will take them one at a time. The first sentence of paragraph 2 is incoherent:

2. In research grants or contracts sponsored by industrial companies there will typically be a section covering patents on future inventions, if any, as in all government grants.

Grants and contracts aren’t sponsored. Work is sponsored. Grants and contracts are instruments by which money or other resources are provided to assist the work. Industrial companies aren’t the only companies that sponsor work. “Typically be” is bureaucratic passive. Why not just insist that all grants and contracts for sponsored work include a patent rights clause? Yale sets the terms of sponsored research agreements. There’s no need for “typically be” unless Yale wants to indicate that its research contracting folk are hit-or-miss. If “typically be” controls, then there will be other instances in which there is no patent rights clause, and then what happens? And not only should we expect a patent rights clause pertaining to “future inventions” but also pertaining to existing inventions that Yale personnel might introduce into their work for the industrial company sponsor. We would also expect to deal with background and future rights that don’t involve patents–you know, that “other means of exploitation.”

The last element of the sentence borders on incomprehensible–at least the sentence is consistent:

there will typically be a section covering patents on future inventions, if any, as in all government grants.

Perhaps the idea is that all government research grants have a patent rights clause. The syntax of the sentence, however, makes the “as in” modify “a section,” making it appear that industry company grants and contracts typically have a patent rights clause like the patent rights clause in government grants. But that’s not the case, and silly nonsense.

Second sentence:

When deemed appropriate, the sponsor may be granted a license to any inventions developed during the term of the grant or contract in accordance with the policies outlined in 1) above.

There is no “1) above.” There is a “1.” that marks the first section under paragraph 3, “License Agreement” and there’s another “1.” that marks the first main paragraph “Encouragement of Patents.” It’s like a pointer to nowhere. Text that won’t execute when compiled.

“When deemed appropriate” is bureaucratic passive. There’s no indication who is authorized to do the deeming. Perhaps it is the Office to which ways appear. But here we are dealing with inventions that have not been made, and the Office–full of qualified persons–apparently comes into play when there has been an invention that may be evaluated. Now we find out that deeming about what’s appropriate may be done without any evaluation of an invention at all, even though that deeming is to be done in accordance with policies that don’t have anything to do with inventions that have not been made and an outline (not a policy, really, at all, just a sketch of the policy, apparently) provided in a place labeled “1)” which is above, though nothing in the policy above is labeled “1)”.

The substance of this second sentence, however, is that Yale may grant company sponsors of research an exclusive license to inventions not yet made in sponsored work. The provision is written in bland bureaucratic style. But the implications of granting company sponsors upfront an exclusive license to unmade inventions is fraught with liability and requires institution-wide controls on all other research and inventions. This provision is not a harmless rabbit. It is the single most consequential thing the policy could authorize, and yet the only guidance for it is a reference, apparently, to stuff that has already been invented and evaluated by qualified persons. Madness. It’s hiring arsonists to do your fire security and calling them qualified and letting them write policy.

Exclusive licensing does not have to be the core or default of university patent practice, and should not be. Certainly not for effective technology transfer. If a university has adopted exclusive licensing as its default practice, then it cannot possibly be operating an effective technology transfer program unless no one participates in the patent licensing program when they have an important research idea or finding. Yes–a university can have a default practice of exclusive licensing so long as the university is incredibly incompetent in enforcing any compulsory assignment requirements!

In general, if a university does not immediately offer an invention that it has acquired on non-exclusive, non-discriminatory, public terms, then you can bet the university runs a crappy technology transfer program. It may have a licensing program that makes a lot of money, but it isn’t an effective technology transfer program. Nothing personal, folks. Just how it is. Own it.

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