What should the federal government do with patents it issues to itself? Part 3

Here is one of the most provocative parts of Vannevar Bush’s Science the Endless Frontier:

Science Is a Proper Concern of Government

It has been basic United States policy that Government should foster the opening of new frontiers. It opened the seas to clipper ships and furnished land for pioneers. Although these frontiers have more or less disappeared, the frontier of science remains. It is in keeping with the American tradition – one which has made the United States great – that new frontiers shall be made accessible for development by all American citizens.

The problem is not so much with the metaphor–that somehow discovery in science is like discovery in geography–but rather with the idea that comes after is that the federal government should fund “basic science,” especially in the “war against disease”:

There are areas of science in which the public interest is acute but which are likely to be cultivated inadequately if left without more support than will come from private sources. These areas – such as research on military problems, agriculture, housing, public health, certain medical research, and research involving expensive capital facilities beyond the capacity of private institutions – should be advanced by active Government support.

This, then, is the logic: government should be mindful of science; science represents a frontier that may be developed; private sources of funding are inadequate to “cultivate” all areas of this scientific frontier. The federal government should provide funding to advance basic science.

Bush went on to describe a specific means for providing government support. He recognized the problems in how the government might use the power of its funding to dictate the priorities of what should be studied, with what outcomes. He acknowledged that industry had its research and the government had its research, but these forms of research were not what he was concerned with. Bush argued that the frontier of science was not adequately cultivated by either of these existing efforts. What was needed was independent inquiry, free from the direction and focus of company or governmental needs, free from the priorities and problems of professional consensus. Bush wanted institutional funds to enable “the free play of free intellects” to expand scientific frontiers not adequately cultivated by existing funding, so that the results–and these are the fighting words–shall be made accessible for development by all American citizens. Continue reading

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AAU Fools with Words, 3

We are working through the AAU fantasy about invention commercialization. In AAU usage,  to “develop” an invention may mean to “suppress” the invention but also may include to design around an invention–as in, invent what is actually needed to create a meaningful product. The university’s patent gets used to suppress interest by others in any part of the licensed invention. But the university’s invention may not be used at all, or if used, only in a little bit. The patent serves to suppress all the unused parts of the invention. When a university assigns the invention to the company, it gives the company to litigate to suppress the use of all the unused bits of the patent, too. Or, if companies use some of those unused bits anyway, to litigate to extract payment from those companies–to troll them. If the company doesn’t, so the typical university license goes, then the university can do so. If the company builds its new product relying on “B” inventions, then it can terminate the licensing agreement with the university (especially if the university is paying attention and demands development), having spent only the upfront fees to buy time to develop its own version of the technology. No royalties paid. No technology from the university actually “transferred” despite the license.

AAU folks would like you to believe with them that such things never happen. My experience in licensing argues that this sort of thing happens all the time. Companies develop outside the scope of the licensed patent, companies use the fact of the license to raise money and then develop whatever they want, and often the companies sell out before any product reaches the market. Yes, there was a license, and even money paid or an equity position converted later to cash–but there was no technology transfer, no product based on the licensed invention. The patent gets used, the patent may even earn some money, but the transaction activity has nothing to do with the practical application of the licensed invention.

Even when a company stays within the licensed patents, as may happen with the special special case of pharmaceutical inventions, the patent typically claims hundreds to thousands of compounds as a class, and whatever gets developed into a commercial product represents a tiny, tiny “A” bit, with the rest of the compounds suppressed.

So now what do you make of AAU’s use of “develop and commercialize”? What are the “necessary rights”? Rather than think of “necessary” to mean “only those limited exclusive rights necessary to justify the use of substantial private risk capital,” we might think instead “the exclusive rights necessary to suppress most if not all of a university’s invention in favor of something else.” We might then ask, “Is this sort of development what Bayh-Dole enabled? Was this development what Congress intended?”

I know this is the long way round to responding to the AAU’s thought that companies needed exclusive licenses from university bureaucrats in order to develop and commercialize research inventions. There are shorter ways. For instance, that the AAU’s fantasy system has never been shown to operate as claimed. It’s fantasy until demonstrated, and it has never been demonstrated as a general case. No university publishes its data to show what inventions claimed by bureaucrats have actually ended up “developed and commercialized” into “practical application” and what inventions have not. Here’s the AAU attempt at demonstration. First, a broad claim:

The system of public-private technology transfer that was established under the Bayh-Dole Act has been extraordinarily successful in moving university discoveries from research laboratories to the marketplace. Technology transfer has provided a rich return on public funding for basic research in the form of countless innovative products that benefit consumers, create jobs, and contribute to U.S. economic competitiveness and technological leadership internationally.

The system we have was not “established under the Bayh-Dole Act.” It may have been established to take advantage of ignorance and indifference to Bayh-Dole. But it has not been “extraordinarily successful” or provided a “rich return” with “countless innovative products.” Look at the data AAU produces to support its claims:

The most recent survey by the Association of University Technology Managers (AUTM) shows that U.S. universities executed 5790 licenses agreements and options with companies and were issued 5163 U.S. patents in 2013. This represents 59 percent more license agreements and options executed and 55 percent more patents issued to universities than just 10 years earlier.

License agreements do not mean there are products in “the marketplace.” Notice that “options” are thrown in to the count, too, as if licenses do not rise to an adequate amount of extraordinariness. Keep in mind, too, that AUTM does not report subject inventions separately from other inventions (about half of patents issued to universities recite federal funding) and further, AUTM counts software licenses, material transfer agreements, most anything that grosses at least $1,000 in the transaction as a “license” agreement. There may be no invention, no patent, no development or commercialization for a license to get pushed into the AUTM count. One bit of software might be licensed 100 times, while most patents sit. Patents and licenses, too, are not related in the same year. The patents that issued in a year are generally not the ones licensed in that same year.

But look where the claim then goes–not to actual use or products, but rather to the growth of the activities over a decade. Every new patent means, absent further information, more technology excluded from general use. Every exclusive license for a patent, absent further information, means a technology excluded from all use but for the use the exclusive licensee makes of the patent, the license, or the invention, or bits of the invention. Nothing here demonstrates extraordinary success. The figures point to the opposite. But there’s more:

During the same period research performed at universities led to the formation of nearly 750 new start-up companies, more than doubling the number of university based start-ups created compared to 2003.

Same thing. No information on use of inventions in any sort. There’s not even a clear connection between research and startups. The University of Washington was faking its start up metrics in 2013. How many other universities were counting any new or recent company as a startup, regardless of whether that company started around a licensed patent arising in research? We don’t know. Further, AUTM takes reports from universities without auditing these reports for accuracy or redundancy. A start company may take licenses from two or more universities. Each reports the startup as “its” startup. Thus, one cannot simply add the number of startups reported by each university and arrive at a total number of startups. AUTM’s numbers are necessarily and conveniently overstated. But even at 750 startups as an upper limit, consider that 629,000 new businesses formed in the U.S. in 2013. Even as an unreliable, bloated figure, AAU claims as “extraordinary” the formation of 0.1% of the company startups in the country. I don’t know how this figure matters, economically. And remember, we have nothing here that says anything about licenses to the startups, use of inventions licensed by the startups, or commercial products introduced by these startups. Nada.

While these start-up companies provide economic benefits to the nation, they are especially important to the regions and states in which research universities are located; more than three-quarters of these new start-up companies had their primary place of business in the licensing institution’s home state.

Meaningless information. Nothing showing that any of the startups have provided any “economic benefits.” And whether a startup has its place of business in a state is meaningless as well. Startups move. Startups locate their manufacturing wherever. Startups sell where there’s market. AAU might have noted that most of the University of Utah’s startups over five years had their primary place of business as a university address. And that’s stretching “business.”

AUTM also reports that in 2013 there was over $22 billion in sales of products based on academic research with more than 700 new commercial products created.

And now we drift. AUTM doesn’t track product sales. Generally, the method used to estimate product sales is to multiply licensing income by an arbitrary royalty rate to estimate a royalty base and then assume that base is sales (rather than milestone payments, patent cost recovery, sublicensing fees, whatever). Even then, one cannot add the “estimated sales” from one university to that of another, because both universities may have licensed to the same company, and so both receive income that’s part of the same royalty base. And we have drifted from royalties paid on the sales of products made under a university patent license that called forth risk capital to “products based on academic research.” The figure claimed lies largely outside the system that has been so extraordinarily successful.

But even if we take the $22 billion as a fantastical upper bound, then what do we make of the report that in 2013, retail sales in the U.S. were $4.5 trillion. Yeah, sales of all products ever licensed by universities over the past 35 years amounts to 0.5% of the total retail sales in 2013. The economic impact of the claimed, overstated university licensing effort is approximately 0. As for the 700 new commercial products created. Despite the prospect of overstating the number by not checking for redundant counting of products and including products that have no patented significance, we are looking at 700 new products reported this year from the development of nearly 100,000 patented inventions issued to universities over the past 20 years. That’s a production rate of 0.7%, as a coarse upper bound to the idea of “extraordinary” success. Compare with the 25% claimed by universities prior to Bayh-Dole. Or the 23% by the Public Health Service before Bayh-Dole. Or even the 5% for universities licensing under the IPA program.

Worse, we are not even considering the economic impact of university bureaucrats withholding 99.5% of research inventions, that never get licensed (80% or so) or get licensed exclusively and don’t become products (19.5%). Nothing here that indicates that the university patent licensing system has been extraordinary in any positive, impressive way.

A recent Biotechnology Industry Organization (BIO) study estimates that between 1996 and 2010, patents commercialized from university and nonprofit organizations (supported mainly by federal R&D dollars) contributed as much as: $836 billion to the US gross domestic output; $388 billion to the US gross domestic product; and supported a cumulative total of 3 million person years of employment.

Here we have estimates based on an economic model that makes a bunch of unsupported assumptions and produces apparently big numbers. The model expands beyond to universities to include other “nonprofit organizations”–hospitals, especially. And we get the “as much as”–so, only the upper limit of an estimate without the lower limit. Look at the GDP figure of $388 billion. That’s over 15 years. The U.S. GDP over that time was $706.6 trillion. Do the math: 0.055%. That’s 55/1000s of a percent. That’s the contribution claimed by the upper bound of an estimate based on an iffy economic model. Maybe making a vanishing small contribution to the GDP is a worthy thing. And maybe research management has nothing much at all to do with the GDP. But apparently BIO, AUTM, and the AAU think people making policy decisions about Bayh-Dole and university patent practices are clueless. Or maybe their target is the general public–clearly with the same idea that the public is clueless and will be easily deceived by estimated numbers treated as fact and presented out of context.

To ensure that universities are good stewards of discoveries and intellectual property developed from research supported by federal funding, many universities have developed and implemented policies and procedures drawn from key recommendations made in 2010 by a National Research Council (NRC) committee, chaired by Washington University in St. Louis Chancellor Mark Wrighton, and principles articulated in a 2007 white paper developed by a small subset of research universities along with the Association of American Medical Colleges entitled, NinePoints to Consider in Licensing University Technology.

More nonsense. I don’t know of any universities that “developed and implemented policies” based on the NRC recommendations. Those NRC recommendations reprised the practices endorsed by the university participants on the committee. The NRC proposed keeping things as they were. As for the Nine Points document, I was there for that. No university to my knowledge has made any changes in its patent policies or licensing practices as a result of the Nine Points document. The few universities that were doing non-exclusive licensing as a viable alternative to a monopoly trade in patents didn’t need the Nine Points document, and the rest have ignored the Nine Points, other than to cite it with approval.

Instead, university administrators have doubled down on demands to own all inventions, broadened the definition of invention to include non-patentable inventions and stuff that’s not even inventive; they have become even more unselective in their patenting; and they still don’t report publicly the performance of their “system” of patent management. Again, the AAU presents an aspiration as fact. It’s just that if pressed, it is unlikely that they could produce any evidence to support their claim. What is true is the assumption implicit in the “good steward” claim–that universities will demand ownership of inventions, and that being “good” means trading in patent rights for a share of monopoly profits enabled by their trade.

And thus we arrive at the AAU task force’s recommendations. These have to do with wordsmithing mission statements for management of intellectual property. That is–no change in the underlying claim to own, just a better statement of the “vision” for such ownership. Affirm commitments, make procedures public, avoid “so-called patent trolls” (but it’s okay to be one or allow your failed startup to become one), and find a way to evaluate technology transfer that isn’t based on “measuring revenue generation.” And so we return to the problem raised by the unnamed critics–that universities focused too much on maximizing licensing revenue. This last bit is too funny. Here’s the 2015 AUTM annual licensing survey report comment on the matter:

AUTM disclaims the idea of “maximizing income” as “the core driver” but then turns around and uses income as proxy for the success of the prevailing university technology transfer “system.” Left unstated is the implied equation “licensing income is success.” That is, whatever the wordsmithed intentions for university IP management, the standard of evaluation, as far as AUTM is concerned, is still licensing income.

Thus AUTM fails AAU. That much is obvious. We can take it further. The idea that prevails in all of these materials is that the measure of the impact of university research is IP licensing income. This is a rotten idea. There’s nothing in it to account for the open dissemination of research findings, so that the impact would come by other measures than IP licensing income. There’s nothing to account for royalty-free patent licensing, standards licensing, cross-licensing, or any other method of exploiting inventions that does not involve payment to relieve one of the threat of patent litigation. There’s nothing, even, to account for income from other sources as a result of open IP management practices–from donations, from sponsored research, from consulting, from workshops, from tuition.

In the fantasy world articulated by the AAU task force, the aspiration to be a “good steward” of intellectual property means that universities must adopt the special special case as the general case. That nothing can be considered that would interfere with a university’s assertion of ownership of inventions, of a university’s determination to secure patents on these inventions, and then to trade on these patents for a share of money from the exploitation of the monopoly rights reserved for the “commercialization partner.” If critics complain that universities focus too much on revenue, then the thing to do is to change policy and vision statements to make it appear that revenue doesn’t matter so much–but keep the same practice. Make universities a bastion of opposition to ideas of open innovation, of contributing to the public domain, of using patents to ensure quality and safety of developed inventions.

It is strange to see the AAU exploited in such a manner. Perhaps no one at the AAU cares. Or perhaps they are clueless to what’s going on. The “technology transfer system” attributed to Bayh-Dole is a dismal failure over pre-Bayh-Dole practice. Universities are advised to make more statements to sound like “good stewards” even while they actively change their practices to work the other way, broadening claims to institutional ownership and insisting on a fixation with monopoly trade in patents as the only way by which to “advance the public interest” with research discoveries.

When will their scam end?

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AAU Fools with Words, 2

Let’s look then at the AAU statement produced by the task force charged with–if we read the preamble correctly–finding better words to declare that university technology transfer operations are to advance the public interest.

AAU starts with fake history:

Before Bayh-Dole was enacted, the federal government retained ownership of federally funded discoveries,

Before Bayh-Dole, there was the IPA program, under which scores of universities and nonprofits could secure ownership of inventions made with federal support. Both the NIH and the NSF had IPA programs. Other federal agencies, such as the Department of Defense, allowed contractors to own inventions made under federal contracts. It’s nonsense.

But it’s worser nonsense. Where the federal government sought ownership of inventions, it did so by requiring assignment, not by “retaining” ownership. The government did not have any ownership of patentable inventions to retain. Here, the AAU task force shows that it is clueless with regard to history–or relying on the same faux historians of Bayh-Dole that populate the country rather than doing their own research, which in the course of a half an hour would show how inexpert (or deliberately deceptive–take your pick) the faux historians are. The government obtained inventions the way anyone must–by assignment. For instance, the DoD could, if a contractor declined an interest in an invention, require (as a contract condition) that inventors assign their inventions to the government.

In two areas the federal government made claims to inventions that precluded private patent ownership–for atomic and nuclear energy and for space technologies. In these cases, special statutes gave the government ownership of inventions outright, and the government could file patent applications without the need for an inventor’s assignment by including an affidavit citing the funding, the area of the invention, and the law. Even now, the federal government can suppress patent applications for national security purposes. No, I can’t talk about it.

What the AAU task force might be referring to without having the courage (or is it awareness) to do so was the Public Health Service policy, consistent with the Kennedy patent policy, of requiring assignment of inventions in areas of public health such as medicinal chemistry where the invention should (in the judgment of the Public Health Service) be made available to the public and not turned into a monopoly. That’s a debatable position, but it was not a government-wide position. It was a special, special case–special: inventions that can only be developed for use with private investment; special special: special inventions directed at matters of public health. And even in the special special case, until 1978, universities could acquire invention rights ahead of the government’s claim and attempt to license special special case inventions to the pharmaceutical industry for “development.” We might say there was a huge policy dispute between the PHS and the pharmaceutical industry over the area of research called medicinal chemistry (and now all sorts of things–genomics, proteomics, biochemistry, nanotechnology, bioinformatics–anything but “medicinal chemistry”).

but the government often neglected to license those discoveries to the private sector for further development.

More made up stuff, starting with “often neglected to license.” The Kennedy patent policy made clear that when the government obtained ownership of inventions, it should “dedicate or license” the inventions for broad public use. Dedicate–don’t patent at all. License–license non exclusively, royalty free, but perhaps control for quality and safety and accurate claims.

Most of the 28,000 patents held by the U.S. government by 1978 were of this sort–ones that a defense contractor did not want to pursue and which the DoD might want to hold to 1) recognize technical merit; 2) introduce the invention into the patent literature to raise the bar to further patenting; 3) control to level the field for competitive bidding; 4) to regulate foreign competition with U.S. vendors; 5) to permit broad use without the bother of formal licensing. None of such purposes requires “commercialization” by means of a monopoly. Where the government did hold patents in medical inventions, its licensing record for commercial development was comparable with the best rates at universities–and nearly 5x better than the university patent agent rates for inventions handled under the IPA program.

Bayh-Dole sparked technology transfer by creating an incentive for universities to secure patent protection for inventions resulting from federally funded research;

Technology transfer was sparked long before Bayh-Dole. It was sparked by Cottrell’s creation of the Research Corporation in 1912, and in a different way by the formation of the Wisconsin Alumni Research Foundation and scores of similar university-affiliated research foundations. It was sparked by the University of California’s decision in 1960 to operate its own patent licensing program, followed by MIT and Stanford. It was sparked by the Public Health Service IPA program, which from the mid 1950s to 1978 allowed universities to selectively divert patentable inventions for agent or university management. So more fake history.

Where, too, is “the incentive” for universities to “secure patent protection”? There is nothing about an incentive for universities in Bayh-Dole’s statement of policy and objective. There is nothing about “incentive” in the provisions that must be included in the standard patent rights clause. The closest one might come to an incentive is that if a university manages to obtain assignment of an invention made with federal support, the university has the means to “retain” that ownership, provided it jump through a bunch of administrative hoops. Even in the use of royalty and other income from exploiting an invention, Bayh-Dole creates restrictions for universities and other nonprofits. They can use such income only to pay inventors, to recover costs of managing subject inventions (not other inventions, not non-inventions, not administrative slush), and to use any balance for “scientific research or education”–not for, say, public service or humanities research. No incentive there–encumbered money.

Perhaps the AAU means by “incentive” an “incentive to make money by dealing in patents.” If so, then we have a dilemma–how can the federal government by law give universities “an incentive” to make money from patents on federally supported inventions and then have critics complain about this incentive? Otherwise, just what “incentive” is there that the AAU argues is in Bayh-Dole? Or, perhaps here the AAU is just making up something fake that sounds good–there is no incentive in Bayh-Dole, but it sounds good to say there is an incentive to explain why university administrators are so enraptured with being in the patenting business. If the incentive offered by Bayh-Dole is that universities can be in the patent business to make money, then surely (so the AAU reasoning must go) it advances the public interest when universities make money.

this, in turn, allowed businesses to gain the necessary rights to develop and commercialize those research discoveries.

The “this” points backwards indifferently–it could point to “Bayh-Dole” or to “incentive” or to “technology transfer” or to “patent protection” or to the whole complex of creating, sparking, and securing, or to the assertion that the depiction of the whole complex is accurate. Perhaps at this point the AAU task force thinks its work is done and it can write indifferently. But whatever the “this” refers to, somehow it was this “this” that “allowed businesses to gain the necessary rights.” Let’s parse that claim. It gets interesting.

The assumption AAU starts with is that universities gain ownership of discoveries made with federal support. According to the AAU, it’s Bayh-Dole that gives universities a mysterious incentive to take ownership of inventions, for which they then come, also mysteriously, to have a responsibility to be “good stewards.” Now, however, we find out that universities gain ownership of inventions so that they can allow businesses to “gain the necessary rights.”

Since previously, according to the AAU’s fake history, the federal government owned inventions made with federal support, we might think that the “necessary rights” were any form of permission to use these inventions. But no. These are “necessary rights” not “sufficient rights.” A sufficient right would be a non-exclusive license, or an invention that entered the public domain. In the AAU’s fantasy regarding innovation, no company is willing to use an invention that isn’t subject to a monopoly claim. But also in the AAU’s fantasy–and it is fantasy–no company thinks of merely using an invention. An invention must be “developed” and “commercialized”; that is, become a commercial product. For this activity to take place, the license must be, apparently, exclusive.

What does it mean to “develop” an invention? What is the distinction between “research” and “development” in play here? We might observe that it’s quite possible there is no meaningful distinction between research and development in terms of behaviors–people study, observe, document, test, change, and repeat in both activities. Perhaps they don’t even differ in their intentions between research and development. It may be that the only differences are in the expectations of people who watch or hire or direct people involved in research or development.

R&D Magazine a couple of years ago ran an article by Bradford L. Goldense about research and development (whoa!) and lays out the typical linear model scenario of basic research, applied research, advanced development, and product development–setting aside “skunk works” (and thus, the Vannevar Bush innovation engine and alternatives to the linear model). Goldense’s point is that this conventional approach is being replaced by “any organization can launch a product.” According to Goldense, basic research enables possibilities, applied research tosses what’s impossible and impractical, and then we get “advanced development”:

Advanced Development generally takes these possible and likely feasible solutions and further reduces the risk in hopes of culling out the best alternatives to deliver to an expressed target for a capability or feature to incorporate into products. Downstream manufactured cost considerations start to come into play as a culling consideration.

In this usage, “development” means “ruling out” with an eye toward market and production. An invention gets developed by ruling out a bunch of variations of the invention. In terms of invention and claimed invention, “development” means deciding not to use or allow the use of swaths of what has been claimed in a patent as “the” invention. In this sense, “development” means deciding not to use versions of an invention. A patent allows the patent owner to enforce this decision on the rest of the country, so that only what “advanced development” has chosen may be considered for use and commercial product.

This gets interesting, then. When a university takes over an invention made with federal support, it must be that a “necessary” right in play is that of preventing any others from making, using, or selling those parts of a claimed invention that a company decides must be suppressed. “Develop” must mean, here, “suppress.” Contrast this usage to Bayh-Dole’s happy statement of policy: “use the patent system to promote the utilization of inventions.” A university, in licensing necessary rights, agrees to collaborate with the licensee to prevent the use of all portions of a claimed invention that the company chooses to suppress. Such suppression prevents competition with the company’s technical and marketing decisions. It’s not as if a university says, “Company, you get first dibs–define your product from the claimed invention and we will give you an exclusive license to exactly those portions of the claimed invention that you choose. Everything else we’ll offer to your competition.” Thus, for the compound sequence licensed by UCLA to Medivation, the company might choose compound 169′–and that would be the scope of Medivation’s license, with UCLA offering all other compounds within the claimed invention to others. But that of course is not how things work. University exclusive licenses–usually made to function as assignments–form an agreement to permit the licensee/assignee to enforce the patent rights without reference to defending a commercial product from copying–the defense is general, extending to all those elements of the licensed invention that the company has suppressed.

It takes some work to get past euphemisms like “develop” to begin to see what is in play.

There’s more. Let’s look at Goldense has to say about product development:

Finally, Product Development invents what’s needed and necessary “now” and packages both the form and function of all feasible and risk-reduced features and/or capabilities into products planned for release to the marketplace.

It’s that word “invents” that should stop you in your reading tracks. Product development “invents what’s needed and necessary ‘now’.” In this usage, development starts with the narrowed possibilities and invents the implementations to create products. That is, whatever the purpose of the original patent licensed by a university, when a company comes to “develop” a product, it will (in general) do more inventing. Consider–the new inventing may lie within the scope of the university’s patent, or the new inventing may be outside the scope of the university’s patent. The product itself may even lie outside the university’s patent. It’s entirely possible that a company will be motivated to “develop” a licensed invention so that the resulting product is outside the scope of the license.

Here’s an illustration.

Imagine a university patenting office as a UPO hovering over a strange planet, such as Earth, shining a patent beam down on an area of technology. In this patent beam, nothing can grow but for the grace of the UPO operator. The patent beam is the scope of the claimed invention–all the claims map out what the patent owner can exclude or suppress. But with development, a company might use only the little bit labeled “A.” That little bit is still within the scope of the UPO’s patent beam, so the license matters, and if a product is created, the company will pay royalties.


But the company might also develop the product around a different little bit, labeled “B.” For that part, the company might have its own patent positions–and actually B could be part of a big area of claimed invention. Furthermore, B could represent improvements to A that anyone hoping to practice A would have to also use to make something that works for a given application, with satisfactory function, reliability, safety, and cost. The company could rely on the licensed patent and merely select bit A. Or the company could invent a new bit B and practice both A and B. Or the company could drop A and rely only on B.

University licensing folks actually fear the B. They write their exclusive licenses to require diligence in “developing” the licensed invention. But they cannot prevent a company from also developing its own inventions that lie outside of the scope of the patent claims in the licensed invention. A company might, then, take an exclusive license from the UPO while developing its own bit B. The UPO license prevents the UPO from finding anyone else to develop the invention. That is, no research competition. Even with a diligence clause, a university will find it difficult to punish a company for developing a product outside the scope of the license–as long as the company makes a show of also attempting to create a product within the scope of the license, it will be next to impossible to prove short of lengthy discovery in litigation, that the company had no intention of ever building a product within the scope of the licensed patent.

No company I know willingly builds product within the scope of a licensed patent when they can build equivalent or better product outside that scope. Universities protect themselves against this outcome in various ways–one way is to charge a big up front fee, perhaps payable in stages. Even if the company fails to build a product within the scope of the license, the university makes some money. Another way is to take an equity position in the company, so that what matters is not whether the company builds a product using the licensed invention but rather whether the company’s value increases over time. In taking an equity position, a university all but announces that the use of the licensed invention doesn’t much matter.



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AAU Fools with Words, 1

Recently the Association of American Universities published a fakographic about Bayh-Dole. From the AAU perspective, of course, it was all true stuff, because, well, they believe whatever they are doing is right, so whatever they say about something that’s right must be right, too. Even if something isn’t quite right, it’s there as an emblem about what would be right if it were true. Thus, even if touch screens weren’t invented in university research, they could well have been invented at a university, and thus it’s perfectly fine to claim something that’s close, that someone who had invented something that later led to a touch screen once also did research at a university. It’s just a matter of technical details or a difference of opinion about the role of the university in all of it. People who value university work will argue that universities play a big role in innovation, and dull, ignorant people will argue against that value, tearing down all the good work that’s been done to build university “technology transfer” into a globe-leading IP system.

Well now. There’s nothing like speaking the brass truth of the real world, even if the golden truth of fantasy sounds so much better.

Back in 2014, the AAU convened a “task force” to respond to some unnamed “critics” of university technology transfer. The task force developed a “statement” that they published in 2015, “Managing University Technology Transfer in the Public Interest.” Let’s have a look. Here’s the opening preamble to the statement:

Universities have a responsibility to be good stewards of discoveries and intellectual property developed from research supported by federal funding.

This preamblulatory assertion alone is rife with strangeness. How have universities come to have a responsibility to be good stewards of discoveries and intellectual property developed from research supported by federal funding?

We can start with federal funding. The Bayh-Dole Act alters federal patent law, creating patent policy regarding subject inventions and also dictates what federal agencies can require with regard to inventions in a funding agreement for research at a university (or other contractor).

But nothing in Bayh-Dole gives universities any responsibility with regard to inventions. All Bayh-Dole does is require universities to behave in certain ways if they do come to own inventions made with federal support. Same for copyright or data–nothing in the standard grant terms that gives universities any responsibility for copyright or data.

The same is true for federal grant requirements pertaining to intangible property, which is expressly defined to include “patents and patent applications.” According to 2 CFR 200.316, intangible property that a “non-Federal entity” acquires or improves with federal funds

must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved.

A trustee operates something like a steward. But in the case of a trustee, it may own the property that it manages on behalf of another, while a steward manages the property or affairs of another, for that other’s benefit. It’s clear, however, that AAU expects universities to own discoveries and intellectual property, not merely manage discoveries and intellectual property owned by others, acting as their agents or stewards. But “trustee” carries a substantial obligation–what is best for the trustee? Of course, here in the AAU preamble, it’s not at all clear who the good steward is to serve. Is it the discoverers? the federal government? the “public”? industry? impoverished speculative investors who otherwise don’t have enough opportunity to grow wealthy betting in highly volatile marketplaces where they have a better chance of winning money from other bettors than by getting in on the upside of a patented invention that actually unexpectedly becomes a new product?

We might, in defiance of Ayn Rand, summarize the expectations of stewardship with this book cover on the subject: “choosing service over self-interest.” That would appear to be an easy thing for a university–one might think that a university would be all about “service,” especially service “to the public.” Yet, when it comes to the ownership and management of intellectual property, university administrators find themselves woefully conflicted between helping others and helping themselves. It’s a funny little problem that they typically solve by arguing that by helping themselves, they are helping others, because if the university gets money from licensing, it can use that money to do more research, creating even more inventions with the potential for more public benefit, and besides, all that money lessens the need for the public to fund university research–oops! not that! But it’s too late. They’ve already let that idea out into the wild.

Further, why should AAU restrict university responsibility to research supported by federal funding? Why not also include responsibility for the results of industry funding? foundation funding? donations from the public? state funding? It’s strange to restrict the “good stewards” role to federal funding. Why should funding have anything to do with it unless the source of that funding requires a university that hosts research to be a “good steward” of whatever results from that research. I have yet to see any sponsor of research put things that way. It just doesn’t happen that way.

The problem runs deeper than poor choice of restriction, however. If federal funding does not give universities a responsibility, then who or what does? It would appear that university administrators have decided that they have this responsibility, but what does this mean? Here, “responsibility” is the wrong word, a euphemism. What AAU means is that university administrators have asserted that the university should own what inventors and authors create, called “discoveries.” Until someone who owns an invention provides it to a university for management, the university has no responsibility to act as a steward for that invention. And if a university forces personnel to accept a deal under which university administrators assert that they must own all inventions, then the university isn’t acting as a steward at all–it is acting as master.

We then start to see the shape of the gesture. The university acts as a master with regard to those who discover and invent, but it takes ownership of these things to act as a good steward for some other person or cause–that is, it declares itself act in the interest of others, even though it has no apparent obligation to others to do so. “Stewardship” in the AAU usage is metaphorical, an emblem, a gesture that suggests that the university manages intellectual property for a good other than its own self-interest. But as we’ll see, the AAU task force cannot then manage to separate a university’s self-interest from service to the public. These are one and the same thing.

In recent years, however, some critics have asserted that universities’ technology transfer operations place too much emphasis on maximizing revenues and not enough on moving new ideas quickly into the marketplace, where they can advance the public good.

The criticism comes from the outside, from anonymous people. It’s rather interesting. When the IPA program was shut down in 1978, one criticism from Congress was that universities weren’t charging enough in their exclusive licensing deals with pharmaceutical companies. They were doing, it appeared, sweetheart deals, taking pennies on the dollar. Bayh-Dole, appearing two years later, re-established the sweetheart pathway with a new handwaving apparatus gesturing to the public interest–but in it all the focus was to authorize universities (and the federal government as well) to license inventions made with federal support exclusively to the pharmaceutical industry on whatever terms universities wanted–sweetheart deals were fine; the public shouldn’t expect universities to get rich in their licensing programs; if the price of a patent was too high, pharmaceutical companies would not take licenses and product would not be developed and commercialized, and the public would not see a benefit, and the entirety of federal funding for university research would be wasted.

You must see the logic in this last bit. If federal funding is wasted when inventions are not turned into commercial products for public benefit, then we have two obvious options: turn those inventions into products or shift federal funding to other work. You can see why university officials are so adamant that Bayh-Dole has been successful (even though it has been just the opposite). They fear the logic of their own argument. The stark reality is that even with the sweetheart deals to the pharmaceutical industry as the default, most university inventions made with federal support don’t become commercial products. This, despite the increasingly desperate and clever efforts by university licensing officials to make it appear otherwise. The aspiration is there: folks are trying. But their performance is so terrible they won’t even report it. They report their efforts–number of inventions reported, patent applications filed, patents issued, licenses granted, startups formed, even money made. But they won’t report the one datum that would confirm their logic–that their efforts result in inventions achieving commercial success and by this means benefit the public.

Even many of those inventions that achieve success appear to do so at the expense of the public. Think of the prescription drugs that are sold at monopoly prices, where the federal funding ends up being, after the fact, a subsidy for speculative investors. One wonders how the public’s interest comes first in this sort of monopoly thinking. Oh, wait, I get it–if the investors don’t make craploads of money at least once in a while, then they won’t invest, the pharmaceutical industry will fail, and no drugs whatsoever will ever again be developed. And so the public interest is rhetorically bound up in the wealth dreams of speculators.

If we return to AAU’s second sentence, we can see that it’s a false dichotomy between “maximizing revenues” and “moving new ideas quickly into the marketplace.” Whoever the nameless critics are with such influence that AAU has to mobilize a task force to deal with them, they are pretty dull witted critics. We might observe, then, that AAU chose a rather petty worry to address. That makes a task force’s task less difficult, no doubt. But even each dicha of the AAU dichotomy is messed up.

How does one “maximize” revenue from discoveries? And maximize revenue for whom? Or is the concern maximizing revenue across a portfolio of discoveries and not just from each discovery on its own? Or is the concern that one should not get as much money as one can? One might make more money from patent positions by holding them until industry stumbles over them, and then go on a trolling expedition as Caltech has done recently. If that’s the case, then a moderating position might be to forgo making “maximum” revenue in this way by at least not letting patent trolling organizations have an opportunity to “maximize” revenues. One might maximize revenues, as well, by shifting income from license payments to research payments or donations or tuition–people might show up wanting to do business with a university because a discovery is quickly and widely and usefully available. That would be a different approach than holding out for a monopoly commercialization license for every discovery a university acquires rights to.

As for moving new ideas quickly “into the marketplace, where they can advance the public good,” we have more nonsense. Why must a new idea be moved “into the marketplace” at all? Reading Steven Johnson’s historical account of good ideas (Where Good Ideas Come From: The Natural History of Innovation), most good ideas move into a “networked, non-market” environment, in which they are tested, developed, altered, and emerge through any number of pathways to become important. Moving new ideas–“the discoveries” of the first sentence–into a “marketplace” would appear to be one of the worst things a university could do, in general. One would, instead, move new ideas into networked, non-market arenas. For that, a university might help to establish networks (pay for travel, invite visitors, hold workshops, and the like) and be disinterested in “market” issues. One might go so far as to argue that university administrators, in having such a fixation on commercial markets, work to forestall actual, operative innovation markets that do not depend on monopoly commercial investment:

to buy or contract for merchandise or provision on its way to market, with the intention of selling it again at a higher price; to dissuade persons from bringing their goods or provisions there; or to persuade them to enhance the price when there. This was an offense at law in England until 1844.

We might argue that university administrators arbitrarily and foolishly introduce market price (or “value”) too soon in the life of discovery or idea or invention. If a university were in the service, say, of innovation, then it might encourage academic discoverers, thinkers, and inventors to contribute their ideas to networks in which those ideas might develop.

The AAU tag about markets is telling: “where they can advance the public good.” Research ideas, apparently, cannot advance the public good unless they are secured for the “marketplace.” This is strange stuff, for “ideas” and even for “discoveries.” Even in the case of patentable inventions–which is what the AAU apparatus is actually about, though AAU folks can’t bring themselves to speak plainly on the point–even for patentable inventions made in university research, it is not at all clear that in general a patent is necessary or even a help, or that the purpose of a patent is to collar an invention and so pull it to some market (a market for patents, say). An invention might circulate as a research tool, for instance, and benefit the public by advancing research. Or an invention might be used DIY by industry, each company making its own implementation, without the need to wait for a commercial version, and especially without waiting passively for a commercial version sold as a monopoly to extract as much “value” as possible from the patent position. Heck, an invention might have more value to the public as a trade secret, not available for anyone other than those clever enough to figure it out on their own. There is no compelling reason to think that only by hustling “new ideas quickly into the marketplace” can they “advance the public good.” It’s just nonsense. It is nonsense written in an authoritative style, but it’s nonsense through and through.

In October 2014, the Association of American Universities (AAU) formed a working group on technology transfer and intellectual property with the task of reaffirming that the primary goal of university technology transfer operations is to advance the public interest.

So AAU creates a task force that must “reaffirm” the bland and obvious point that university technology transfer should “advance the public interest.” But even here, there’s a walkback–we aren’t talking about what technology transfer operations must do, but what the administrative “goal” of operations should be. And not only that, but that it’s only the “primary” goal that we are to worry–there can be other goals, too, that don’t have to do with advancing the public interest. “Our primary goal is to advance the public interest and our secondary goal is to make as much money as we can.” Or “Our primary goal is to advance the public interest and anything we do, however we do it, should be ascribed to our passion for that goal, and not to any other purpose.” Yeah, right. The task force is given the mandate to wordsmith the idea that whatever university technology transfer operations do, people should think kindly of them and not be so critical. The worrisome criticism–even if apparently goofball criticism–is the product of universities not having better wording in policy statements. Gosh, the AAU can help with that!

To challenge university administrators to undo their IP ownership policies, change their operations, alter their default licensing arrangements, to restore agent approaches, to reconsider equitable interest, to study and engage commons–these sorts of things are entirely outside AAU’s thinking.

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The NIH’s View of Bayh-Dole Compliance

In 2015, Ann Hammersla gave a talk at an NIH Regional Seminar that include Bayh-Dole. There are numerous problems with Hammersla’s treatment of Bayh-Dole, but we’ll leave most of those for the attentive reader to pick through.

Let’s look at just one slide, dealing with NIH compliance, mostly involving Bayh-Dole:

This slide is as close as Hammersla’s talk gets to general Bayh-Dole (patent rights clause) compliance. The title of slide and the list of bullet points don’t mesh. Some things are indeed reporting, but others are not–employee agreements, file patents, U.S. manufacturing. More importantly, look at what compliance means–administrative actions that don’t have much at all to do with “public benefit.”

Let’s work through the list and audit things against Bayh-Dole and the standard patent rights clause. It’s clear that the list is a shorthand–and there’s only so much detail one can fit onto a slide. That’s not the problem (although, given this is already a 58 slide deck, one might think that reporting could be separated from other responsibilities).

Implement Employee Agreements “as needed”

Bayh-Dole has nothing to say about employee agreements. It’s not there. Bayh-Dole does not stipulate that the standard patent rights clause have employee agreements (see 35 USC 202(c)). But the standard patent rights clause (37 CFR 401.14(a)) does require contractors to require certain employees to make a written agreement to protect the government’s interest. That’s the (f)(2) written agreement, and it is not contractor-optional. It’s required, not “as needed.” And (f)(2) is required not merely to provide a link directly between the federal government and individual inventors, but also to make those inventors parties to the funding agreement–thus, also contractors (see 35 USC 201(b) and (c)), and thus every invention they make in the performance of work under a funding agreement is a subject invention, owned by a contractor–by each inventor who has made the (f)(2) agreement. The “as needed” is simply wrong. Here, the NIH is all but saying, “you don’t have to comply with (f)(2).” For that to be the case, the NIH should have to declare “exceptional circumstances” and create their own standard patent rights clause.

Of course, if what Hammersla means by “as needed” is “as needed for the institutional contractor to require assignment of inventions from inventors, then the matter is one of just what inventions an institutional IP manager requires. Have employee agreements for those, advises Hammersla.

There’s an argument–a good one, even–that Bayh-Dole pre-empts nonprofit institutions operating with a policy of academic freedom from imposing assignment agreements as a condition of participating in work under a funding agreement. Bayh-Dole pre-empts federal patent policy and states as that policy the conditions that federal agencies must require in any funding agreement. Those are the conditions, then. When the standard patent rights clause then transmits these conditions to an institutional contractor for acceptance, the institutional contractor accepts these conditions in place of any conditions that the institutional contractor otherwise has or might seek. It’s just like the subcontracting requirement in the standard patent rights clause, also not in Bayh-Dole. The employee agreement that a nonprofit institution must have is one that protects the government interest. It cannot have one that at the same time prevents the (f)(2) agreement, the required agreement, from operating.

The “as needed” bit is simply wrong.

Disclose Each Invention “within 60 days”

The requirement is directed to each subject invention. In the standard patent rights clause, it’s “two months” not “60 days” and the clock starts when the inventor discloses the subject invention to “contractor personnel responsible for patent matters.” In Bayh-Dole, the requirement is “within a reasonable time.”

Resolve Election or Waive [sic] of Title “within 2 years”

The statutory wording is “elect to retain title” not “election of title.” “Elect title” does also get used, but only in reference to the section in which “elect to retain title” is the formal requirement for the standard patent rights clause. There are plenty of conditionals on the timing of the elect to retain notice. The federal agency can extend the notice term. The notice term may be shortened by a federal agency if there’s a statutory bar created. (But of course, in typical Bayh-Dole fashion, how would an agency know if there’s a statutory bar unless the contractor properly reported each bar as it occurred, and even then the agency has to take an express action to shorten the term–administrative overhead designed not to operate).

File Patent “within 1 yr. of election”

Well, technically it’s file a patent application. In Bayh-Dole the filing is to be “prior to the expiration of the 1-year period referred to in section 102(b)” [102(b) has to do with exceptions to the loss of the right to a patent based on publication, public use, or available to the public before filing a patent application]. It’s not anchored to the election of title at all. The standard patent rights clause, making things up as it has a habit of doing, turns this requirement into “within one year of election of title, or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained” [with a list of some 102(b)-like conditions].

Provide License to the Govt. “upon title election”

Bayh-Dole provides that a federal agency “shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.” It does not say when this license is to be “provided” to the government–just that the government “shall have” it. This same language is repeated in the standard patent rights clause. The standard patent rights clause states that the contractor will “promptly deliver” “all instruments necessary to . . . establish or confirm the rights the Government has.”

Indicate Govt. Support on Patent “with patent appl.”

Yes. But the purpose of the statement is more than to indicate government support–it is also to announce that “the government has certain rights in the invention” (see 37 CFR 401.14(a)(f)(4)). In a sense, the government rights legend is equivalent to the government license. The “certain rights” include those of the government license (as well as the right to receive title in some circumstances).

Product Manufacturing in U.S. “required”

Not true in general. Manufacturing in the U.S. is required only for an exclusive license in the U.S. to “use or sell.” There is no requirement for U.S. manufacture for non-exclusive licenses. For instance, the non-exclusive license to the federal government does not require U.S. manufacturing. This is a common overstatement of the requirements–and one reason for the overstatement is that some people cannot imagine any institution using non-exclusive licensing strategies. Here, the NIH simply assumes licenses will be exclusive–in keeping with being the origin within the federal government of the circumvention of federal patent policy that expected non-exclusive licensing.

A subsequent slide highlights the exclusive license element. That same slide also highlights that a federal agency can waive the U.S. manufacturing requirement and provides a link to an NIH web site where there’s a form for requesting a waiver. One might consider that the NIH is eager to grant such waivers–one more indication that the public benefit apparatus of Bayh-Dole is there only for appearances.

Report on Invention Utilization “annually”

Well, for subject inventions, and no more frequently than annually, and only if requested by the federal agency. “The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the contractor or its licensees or assignees” (37 CFR 401.14(a)(h)). Perhaps the NIH always requests annual reports.

Final Invention Report “at award close out” 

This is a funding agreement requirement, but does not arise in Bayh-Dole or the standard patent rights clause. One might wonder if regulations pertaining to “final invention reports” are pre-empted by Bayh-Dole, which stipulates the invention reporting that federal agencies may require.

The impression then of working through this summary slide is that things are presented in a sloppy fashion. Perhaps in the talk itself Hammersla provided the necessary nuance. The things that stand out, however, are the things that are left out:

How does a contractor come to own inventions made with federal support? Apparently, by those “as needed” employee agreements. Not by complying with the (f)(2) written agreement requirement to protect the government’s interest.

Why should a contractor even be involved in dealing with inventions? That, apparently, was already answered by the poem about the high calling of institutional IP managers in the service of creativity and innovation.

What limitations are there on the property rights in patents on subject inventions? It would appear that such patents are ordinary patents, and that the policy statements for Bayh-Dole, placed in federal patent law, are surplusage.

But here’s the greatest emptiness in the slide–that the issues that matter are ones taken up with institutional ownership of subject inventions, what is necessary to comply and keep ownership. By contrast, the purpose of the “IP system” that Hammersla aspires to is “public benefit.” In that IP system, institutional ownership of patents is assumed–unlike the U.S. patent system, in which personal ownership of patents is assumed. Somehow, the Hammersla envisioned IP system is envisioned to be better than the U.S. patent system–that institutions are better than inventors in deploying their own work. It is this belief that lies at the heart of championing an aspirational IP system in place of the statutory framework we have.

In Bayh-Dole, that public benefit is established by Bayh-Dole’s statement of policy–“use the patent system to promote the utilization of inventions arising in federally supported research” and in Bayh-Dole’s definition of “practical application.” These elements create a working requirement in federal patent law for subject inventions and place limitations on the exploitation of patent property rights specific to subject inventions. The march-in provisions make evident some elements of the working requirement. The provisions on nonprofit exclusive licensing other than to small businesses–almost immediately removed from Bayh-Dole, in 1984–showed as well the working requirement. But none of this is evident in Hammersla’s talk. Yes, she cites the AAU statement on university licensing, but that’s just more administrative fluff about intention–universities should focus on efforts to “advance the public interest and public good.” Whatever does that mean? Universities should have “high-level policies” to align IP management with “public interest” and “core missions.” So, policy consistency in wording involving abstractions. Neat. Nothing in the list of points about actual practical application of subject inventions. It’s all about the administrative process of aligning administrative processes with administrative processes.

Bayh-Dole is an instrument designed to allow the pharmaceutical industry to gain monopoly access to inventions made with federal support. It operates by creating the conditions for university IP managers to take ownership of inventions, obtain patents, and pass these patents to companies as monopolies, sharing in their exploitation and passing some portion of their share to inventors, to make a show of the “reward” for participation.

The text for Bayh-Dole originated in the NIH, with help from WARF. It is a creature of IP brokers with a sure belief in the value of monopolies, and an even surer belief that monopolies in the area of public health have the potential to generate significant royalty income. And in these things, the IP brokers have been spot on. Monopolies do have value. IP brokers can make good money trading in patent monopolies. Monopolies where there is pain and suffering can be lucrative. And it may even be the case that institutions are a better front for squeezing monopoly value out of pain and suffering than any individual academic inventor, who might not have the stomach for the effort.

But in all of Hammarsla’s discussion of compliance with Bayh-Dole, she does not provide the definition of “practical application” nor that to meet this definition using the patent system, an institutional owner of a patent on a subject invention will have to do more than have aspirational policy statements or comply with petty requirements about how to keep ownership of patents on subject inventions.

It’s what’s left out of Hammersla’s discussion of Bayh-Dole compliance that’s telling. Even in the utilization reports–government secrets as they are–the point is that a contractor should report the date of first commercial sale or use. It’s not that the contractor file the report annually that matters, but that there’s actual performance, subject inventions actually being used in commercial settings. That’s the express interest of Bayh-Dole. In the law as originally passed, the date of first commercial sale or use mattered, as it started a time limitation on the duration of an exclusive license from a nonprofit to any non-small business.

a prohibition against the granting of exclusive licenses under United States Patents or Patent Applications in a subject invention by the contractor to persons
other than small business firms for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the date of the exclusive license

But that prohibition was quickly removed by amendment. Removing the prohibition, however, did not change Bayh-Dole’s general policy requirements on patent properties pertaining to subject inventions. Except, of course, if the representatives for federal agencies choose not to bother with practical application.




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The Poetry of Aspirational IP Systems

In 2015, Ann Hammersla, once a senior university licensing officer and now working for the NIH, gave a talk at an NIH Regional Seminar on Program Funding and Grants Administration–“Inventions, Data Sharing, Reports to NIH, and other Intellectual Property Considerations.” Much of the talk concerns the complexities of university technology transfer and compliance with federal regulations. Given that Hammersla now represents the NIH on the matter, it is interesting to see how she imports the faux-Bayh-Dole approach prevalent in universities into her government position.

Hammarsla defines “Intellectual property” as “creations of the mind”–so, basically anything that a mind might create. That’s rather expansive, when compared with, say, statutory intellectual property (patent, copyright, trademark), even extended to include trade secrets. That’s a worrisome direction.

According to Hammersla, here’s the purpose of an “IP system”:

This is a very strange depiction of things. Continue reading

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Key Concept 4: Ad Hoc Patent Office

Ad Hoc Patent Office

Institutions create ad hoc patent offices by compelling the assignment of patentable inventions, obtaining patents on those inventions issued to the institution, and then re-issuing the patents as private monopolies. Such ad hoc patent offices forestall the market for inventions by intercepting them, seeking to raise their value, and then reselling them as monopolies. Inventors are required to assign their inventions to the office, which then has U.S. patents issued to it. The office then re-issues those patents on its own terms. Key characteristics that differentiate an ad hoc patent office from a market for patents are 1) assignment of inventions to the office is mandatory; 2) the office has patents issued in its name–it does not act as an agent for the inventor; 3) the office trades in patents using conditional assignments that convey a patent monopoly to a private party in exchange for a financial share in the private exploitation of the patent.

Federal government agencies operate ad hoc patent offices when they require inventors to assign inventions to the federal government, and then issue patents to themselves, to be managed by the federal agencies. Under Bayh-Dole a federal agency may issue exclusive licenses, with express authorization to include the right for an exclusive licensee to enforce the patent–essentially making an exclusive license into an assignment. The patent is re-issued, as it were, to the exclusive licensee, who holds the patent (other than with regard to the information at the USPTO) as its own, subject to those requirements in the license that the federal agency is willing to enforce–which may mean, other than submission of reports and an initial payment, there is no enforcement at all.

When a university compels inventors to assign their inventions, acquires patents on those inventions, and then offers to assign or exclusively license the inventions, preserving the patent monopoly for the new acquirer, an ad hoc patent office comes into existence. The university ad hoc patent office then re-issues the patents under terms that different from those of the patent system. When the university is a public university, an instrument of state government, then a state government compels inventors to assign inventions to the state so that it has standing to direct that the federal government issue patents to the state government, to be exploited for financial value as monopoly assets. Continue reading

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Key Concept 3: FOIL Technology

FOIL Technology

FOIL is an acronym that stands for “Fragmented Ownership Institutionally Licensed.” Technology that is FOIL is fragmented across institutional owners that then seek to license their portion of the technology for development as a commercial product. FOIL is a crucial concept because the analysis of a “national system of innovation” cannot be conducted by reasoning from any single institution’s purposes and practices in isolation from all the others. If one person runs through an open door, it’s high drama. But if fifty people all try to run through the same door at once, it is either tragedy or slapstick–or both. FOIL is the result of three hundred universities all trying to do the same thing with bits of the same research platforms, but justifying their operations as if each is the only one in the world doing it.

Example: Nanotubes

Consider carbon nanotubes. A search at the USPTO for abstracts in issued patents with “nanotube” and assignee of “university,” “institute,” or “foundation” yields 1227 patents. In the last three years alone, there are 127 more patent applications from universities, institutes, and foundations. We might expect that there on the order of 60 more patent applications by these organizations that have been filed but not yet published.

As a result of all this patenting activity, just about anything relating to a carbon nanotube is subject to one or more patent claims, each controlled by a nonprofit institution that seeks to grant a royalty-bearing exclusive license to create commercial product based on the claimed invention.

In isolation, such an effort sounds reasonable–this is technology transfer using a patent as the incentive to attract needed private risk capital. But in aggregate, the situation is impossible to navigate. Any one company to have sufficient rights, must seek licenses from multiple nonprofit institutions, but each institution has a default of licensing exclusively and demands a royalty. Many institutions in fact now prefer to license exclusively to a closely affiliated startup company. Such licensing means that a company seeking to exploit carbon nanotubes will find the complete package of rights necessary to operate without infringement unavailable. Continue reading

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Key Concept 2: Substantial rights

Substantial Rights

Substantial rights is a concept used by courts in considering whether an invention has been licensed or assigned. The substantial rights in an invention are the rights to make, use, and sell. If these rights are licensed exclusively, then the substantial rights in the invention are said to pass to the licensee, and the invention has been, in fact, assigned for the duration of the license contract.

Inventions and Patents

Substantial rights concerns an invention. We may distinguish title to a patent on the invention. When an inventor invents, federal common law provides that the inventor is the owner of the invention. An inventor may make, use, and sell the invention, subject only to various laws that may regulate the production of goods and trade. An inventor, then, may also choose to give up these rights–to agree not to make, use, and sell his or her invention in favor of someone else having these rights. Of course, without a patent, the only benefit that a recipient of the invention gains is the promise of the inventor not to make, use, or sell the invention. Anyone else who learns of the invention and its manner of operation may also make, use, or sell the invention.  Continue reading

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Key Concepts 1: Dual Monopoly

Dual Monopoly

A dual monopoly approach to innovation management involves both a comprehensive institutional demand for ownership of inventive work and an institutional determination to convey monopolies in that work for private exploitation. The first monopoly is an institutional one. The second monopoly is a market one, created by transferring a monopoly right to a speculator or company for development as a commercial product. The combination of these two monopolies creates the impression of an institutional system to create commercial products from university research. In practice, the dual monopoly approach is among the worst possible choices for university technology transfer.

In the dual monopoly approach, a university creates monopolies (by acquiring inventions from its personnel and seeking patents) and then transacts these monopolies (typically, by exclusive licenses that are assignments). Thus, the approach to innovation is to move monopolies into the hands of investors in those monopolies, and in exchange taking a share of the investors’ returns from their exploitation of the monopoly right (typically, one or more patents). Thus, the dual monopoly approach diverts inventive work from broad circulation preferentially into the hands of those speculative investors who insist on monopoly control to justify their investments. Continue reading

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