The HEW IPA Program
These distinctions become important as the NIH, led by Norman Latker, pushed in 1978 for the adoption of a template IPA agreement on a federal government-wide basis by the Government Services Administration. This effort was rebuffed by the U.S. Senate. Lester Fettig, testifying on behalf of the Office of Management and Budget, noted the distinctions in the FGCAA and commented:
Federal research and development involves both procurement and assistance and it is important to consider the type of transaction when we consider patent policy.
Senator Gaylord Nelson noted that the proposed IPA arrangement had been pushed through without public notice in a process “dominated” by “universities and other insiders.” Sen. Nelson noted that nowhere in the template IPA does it define “public interest” and yet it expects the contractor to make that determination.
Sen. Nelson then observes that the IPA states a default for non-exclusive licensing but allows exclusive licensing when a university determines that “(A) it is necessary as an incentive for development of the invention” OR “(B) market conditions … require licensing on an exclusive basis in order to bring the invention to the point of practical application.” Sen. Nelson then observes that exclusive licensing turns out to be “the rule and not the exception”–“government by exception,” as one witness from the NSF called it. Sen. Nelson argued that both steps–(A) AND (B) should have to be true for an exclusive license to be offered. Sen. Nelson worried that if the template IPA was mandated for all federal agencies, then exclusive licensing would become the defacto federal policy, all without any public input. Sen. Nelson concluded:
Instead of an government-wide IPA, we got instead Bayh-Dole in 1980. And with it came even fewer restrictions on exclusive licenses, and some of those restrictions were repealed by later amendments to the law.
The IPA approach was built early on. It stems from the concept of the “basic agreement,” which was built into the Army procurement regulations (ASPR 3-410.1) in 1947:
By definition a basic agreement is a written instrument of understanding executed between a Department or procuring activity and a contractor which sets forth the negotiated contract clauses which shall be applicable to future procurements entered into between the parties during the term of the basic agreement.
The idea behind the basic agreement is that it would be used to manage various standard terms, which then could be incorporated by reference into any particular contracting arrangement. The IPA in this form was used by the NIH from 1953 to 1958, when 17 universities and one nonprofit negotiated what amounted to basic agreements with regard to patent rights. Over 30 other organizations wanted to join the IPA program, but their applications were rather like crossing The Bridge of Sighs–it was taking a long time. When Norman Latker arrived at the NIH from the Air Force, he revived the IPA program. To do so, he had to navigate the 1963 Kennedy Statement of Government Patent Policy (and its various revisions under Nixon and Carter).
Kennedy Patent Policy
The Kennedy Statement functions as a government-wide patent policy. It does not distinguish between procurement and grant. However, it does lay out situations in which the federal government should require assignment of inventions and when the federal government should allow the contractor to own. The provisions of the Kennedy patent policy make good sense. I’ll paraphrase for clarity. Read the full text here.
The government should acquire when “a principal purpose” is
(a)(1) to create products for use by the general public or required for such use by regulations
(a)(2) to explore fields that directly concern public health or welfare
or when
(a)(3) the contract is in a field for which there is little experience outside the government or has been developed by primarily by the government AND allowing the contractor to have exclusive rights at the time of contracting might “confer on the contractor a preferred or dominant position”
(a)(4) a contractor operates a government-owned research lab or coordinates the work of others.
A contractor should be allowed to “acquire principal or exclusive rights” when
(1)(b) the purpose of the contract is
(i) to build on existing knowledge or technology
(ii) to create deliverables for use by the government
and the contractor
(iii) has technical competence directly related to “an area in which the contractor has established a non-governmental commercial position.”
Under the Kennedy patent policy, the government was not to create private monopolies when it contracted for things to be made for public use, especially when regulations required their use. Similarly, the government would not create private monopolies in areas that directly affected public health or welfare. Think surgery techniques or cures for disease. This policy ran deeply against the interest of commercial concerns who intended to create a profitable market in public health and welfare. The fundamental question–for which (I suggest) there is no general or uniform answer available in the abstract–is “how can technology directed to public health or welfare best be developed for public use?” There have been, however, plenty of efforts to provide an answer. The IPA was one. Bayh-Dole is another.
The Kennedy patent policy tolerated a private monopoly when there already was one and or when doing so “will call forth private capital” to develop an invention for use. In “exceptional circumstances” when a contractor is operating a government-owned lab or coordinating the work of others, the government may allow a contractor to “acquire greater rights than a non-exclusive license at the time of contracting,
(i) where the head of the department or agency certifies that such action will best serve the public interest”
or when
(ii) after an invention has been identified, if the invention is not a “primary object of the contract” and greater rights “is a necessary incentive to call forth private risk capital and expense to bring the invention to the point of practical application.”
If the contractor does not have an established commercial position, then invention ownership should be handled on a case-by-case basis after an invention has been reported (1)(c):
“in a manner deemed most likely to serve the public interest as expressed in this policy statement”
“taking particularly into account” the intentions of the contractor to bring the invention to the point of commercial application.
In all situations, the government gets a non-exclusive license for government purposes, the contractor must report regularly, and express limits are placed on contractor patent monopolies. The federal government may intervene if the contractor has not “taken effective steps within three years after a patent issues on an invention to bring the invention to the point of practical application.” Otherwise, either the contractor must make the invention available non-exclusively or must justify why the contractor should have a monopoly at all. The government may intervene if a contractor cannot do one of these things. As well, the government may intervene if an invention is necessary for public purposes, required use under regulations, or for public health and welfare–the concerns of sections (1)(a).
The idea then is to allow limited monopolies where doing so does not distort government competitive procurement, does not interfere with public health or safety, and where contractors have established commercial positions. The monopolies are not for the full term of a patent–things have to happen within about six years of invention (three years from patent issue–but at the time, there were ways to keep a patent from issuing for a long while–the “submarine” approach).
This is where the revived IPA program found room to operate in creating a standard agreement on patents upfront with universities and nonprofit research organizations. The point here is that the IPA operated fully within the idea of procurement with exceptions for patent rather than in a grant approach in which the federal government leaves undisturbed the disposition of findings (including patentable inventions) but for a license for government purposes.
We can put together the idea of vesting of title in equipment purchased with federal funds (Public Law 85-934) then with the idea that “title” to inventions might also vest in inventions. The Kennedy patent policy does not use “vest,” however. It uses “acquired by the contractor.” And throughout, the Kennedy patent policy uses “principal or exclusive rights” rather than title. Norman Latker has an interesting footnote in his article on reasonable pricing and march-in rights in which he explains why. The Nixon version (little changed) of Kennedy’s patent policy, according to Latker:
Refers to principal or exclusive rights rather than ownership because of the required irrevocable paid-up license for government purposes throughout the world. (See note 13).
This is an odd explanation, especially in light of Latker’s own drafting of HEW’s template IPA, which deals with the “disposition of title” to inventions rather than “principal or exclusive rights” and requires universities to obtain assignment of inventions. In place of “principal or exclusive rights” the IPA uses the verb “administrate”–the university elects to file a patent application rather than elects to own or by electing comes to own. If a university decides to file a patent application, then it is required to obtain “all right, title and interest in and to” the subject invention.
Under Vannevar Bush’s proposed patent policy for what became the NSF, no such requirement was necessary. All that would have been required would be a requirement that the contractor require any inventor to grant to the federal government a non-exclusive license for government purposes.
In fact, this is exactly what the (f)(2) written agreement requirement does in the standard patent rights clause authorized by Bayh-Dole. It’s just that the (f)(2) agreement provision has never been enforced. Instead, it was replaced first by a claim that Bayh-Dole vested title in inventions directly with universities (Senator Bayh made the most eloquent restatement of the claim in 2010, which the Supreme Court rejected). When the vesting argument failed, universities substituted the claim that to comply with Bayh-Dole (rather than with the standard patent rights clause), they had to require assignment of all inventions upfront, before any were ever made. This, too, is not a requirement of federal law, or of any thing other than administrative will to power. The only reason that a present assignment is required is to cover up refusal to comply with the standard patent rights clause.