What Happens Here is Excluded Here

I was in Mexico recently as part of a 5 week training program for new technology transfer professionals. Our piece of the training was negotiation and licensing. The participants had brought with them real world examples from their own institutions–opportunities they were working to develop into commercial partnerships.

As Héctor and I reviewed the operating plan for these cases, each team had roughly the same strategy–file patents in Mexico and either the US or Europe, and try to find the most powerful company in the market, and do a deal. Sounds pretty reasonable. But wait.

Héctor was very good at looking at this. Why are you filing a patent in Mexico? he would ask.

–Porque estamos en México.

(We were working two languages at once, with a translator).

But Héctor would persist–

–So what? Why does it matter that you are in Mexico? What does it get you to file in Mexico if the market where you will make money is the US or Europe?

–Quermos fabricar en México.
–But do you need to manufacture in Mexico? How will filing here help you?

And in this way, Héctor revealed the awful truth of it. The patent law was being used, first, to sort out the local institutional ownership problem. Then folks turned toward the twin goals of major market (abroad) and manufacturing (local). Both of these offered the prospect of negotiated licenses, and then product would be made and sold, money would flow, royalties paid, jobs made, repeat.

The truth, however, was a different. By only filing in Europe and Mexico, the inventive work was entirely free to Japan, the US, Brazil–anyone else. The Mexican would-be manufacturer would be the one saddled with paying the added royalty with diligence clauses and threat of penalties for non-performance. The advantage goes to operations and markets *elsewhere*. In the desired scenario, the obvious one, the use of the patent system, unless you get to a deal *very quickly* and get first-in advantages, will necessarily work against the locals. The administrative overhead, the threat of infringement, the costs involved–these all work against the local transaction using a patent license, even if the intention is to create new manufacturing opportunities in Mexico. Instead, the intention and the practice outcomes are *mismatched*.

It’s all covered over, however, by a simple, even attractive, model of how things should work, without a sense of context. It is this simple model that is easy to teach. It is the simple model that seduces administrators with its studliness. It is the simple model that policy and compliance people try to implement and make more efficient by demanding formal processes that dictate what the model says must be done and exclude anything else. (A threat to efficiency, a threat to authority, a threat to management, and a confusion to people who have been told there is only one model!) And then, really talent people get fired if they can’t make the darn thing work.

The situation is not any different in the US, even if one thinks it is a major market. Take a situation in which a US university receives an invention disclosure and finds the foreign rights are already blown through early publication. All that’s left is the US rights with the 1 year grace period. So the university files and gets a patent in the US. But doesn’t close a license. Now there’s a patent in the US, but the technology is free to the rest of the world. The patent doesn’t protect the invention, it isolates it. If the US market is the only one that matters, or is the only place where manufacturing is possible, then there’s still some hope. That would appear to be the primary issue for whether to file at all. If there is any other possible market, the patent serves to make it harder to work on the invention in the US than to do it elsewhere. Why not develop the invention in Canada or Singapore and sell in Europe or Brazil? It may not be the biggest potential market, but it may be that any of these alternative markets serve well to get launched, prove the technology, and make money. We are seeing in areas such as cell phones and laptop computers that companies can do very well without bothering with the US market. To heck with it.

To generalize: if you don’t move your patent rights immediately, they shift from being an empowerment to being an obstacle. It may be that this shift takes place within the 60 months from first notice of invention. Perhaps by one or two years after the patent has issued, if it is not licensed, then it is an obstacle in the local market and for local manufacture. It isn’t the patent’s fault. It is the university’s fault. It is a fault in the practice model.

Look at it another way. Bayh-Dole says, use the patent system to promote use and create American jobs. Folks go, okay, file in the US and license US manufacturers and we are good. But then they go further, license suggests royalties, so we should get a “fair consideration” or the public should see a “return on investment”. Meaning: local companies should pay more for rights that foreign companies get for free. If one wanted to do this right, one would file a PCT and go into *other countries* and *not file in the US*. That is, create a US commons–any company in the US can make, use, sell, and import without obligation, and if they want assistance, well, then, come provide some support to the originating lab and if they feel chippy enough with the added funding, they will help you. Foreign companies have to deal with the patent licensing stuff, either with the university (to get rights to make, use, and sell in the rest of the world) or with companies in the US commons (where they can get a sublicense to import). Now the balance is tipped toward the local market.

In other words, in using the patent system to promote US jobs, US universities should not be filing US patents only unless the entire market for sales and manufacture is in the US. So, perhaps improvements in US footballs. Otherwise, skip the US and file in the countries where the competition is for global markets. China, India, Europe, Brazil, Indonesia, South Africa. Create export markets, create value outside US regulatory systems, but leave US companies free to compete. So grant exclusive make/use rights in foreign jurisdictions, but not exclusive sell or import rights. For sell, make it *sole* if one is going that way–only one license to a company in the jurisdiction but could be licenses to US firms to do the same thing. Nationalist-centered? Of course. But there it is. That would be promoting the patent system to encourage use (in the US) and make American jobs (by setting up export markets).

The university response might be: but then we don’t have the prospect of making a pile of money! Well, soooooo? Making a pile of money every time was *never* the objective of university research or of Bayh-Dole. It’s how universities are not like corporations. And it is why universities are so important to corporations, that they *don’t* operate like a business. And it’s why the simplistic public formulations of technology transfer as patent licensing for money and public benefit don’t hold up. It’s not that the intention is wrong. It’s just that *improving* the local outcomes by stockpiling more and more unlicensed US patents works *against* US innovation. Not everywhere is or can be Vegas. Time to stop pretending otherwise.