Universities Help to Make the Problem
Universities created the federal contracting mess for basic research by insisting that the federal government not concentrate contracting authority in a single agency set up specifically for providing grants under the most liberal patent policy short of outright donation of funds. Instead, their advocacy for funding from all directions led to various agencies adopting different requirements suited to their particular purposes and assessment of the “public interest.” There is little doubt that contracting was a mess. The aerospace industry complained about the situation in 1963, for instance. So did big pharma. So did universities.
But the variations with regard to invention administration were not particularly problematic, other than that some federal agencies took a long time to decide whether to allow a private monopoly in any given case. As one commentator put it (in 1964):
Experience has taught that contracting officers are loath to process requests for deviations and when they do the requests mire in administrative procedure, are generally opposed by interested departments and are so time consuming that contract performance may have been completed before the almost inevitable denial is received.
But universities deal with many sponsors of research–companies and foundations, each with its own expectations, requirements, and practices regarding inventions, data, reporting, publication, payment, and termination. Even if all federal contracts were exactly alike, there’s no way that all other sponsors will also agree to use the same form–even if a university sends out its preferred template research agreement. The reality is that a university must deal with diverse terms if it expects to take on research from many different sources of funding. When it comes to patent rights, however, when university administrators insist on owning all inventions, they actually make management of research contracts much more difficult, as such ownership creates a huge, growing inventory of background rights that must be navigated for each new contract with IP commitments for deliverables. The problem of deliverables (such as licenses to practice sponsored results) is not solved with comprehensive ownership–it is made much, much worse.
For their part, federal agencies were hard pressed to differentiate contracts and grants, or purchase and support. Even with federal laws that permitted grants for basic research and defined the terms, practice still varied. The Kennedy patent policy established rules for uniform practice, but did so from a decidedly procurement perspective, one in which government requirement to owner inventions was presumed, but with exceptions. Nothing like this shows up in Bush’s discussion for basic research. Bush was adamant that government ownership of inventions would work against the success of basic research.
The IPA approach permitted one agency, HEW (and later, ironically, the NSF), to create a procurement instrument that allowed university and nonprofit contractors to acquire ownership of inventions made with agency support. But it did so by using the government’s own procurement policies against it. It also created a pathway–marked as special and with the appearance of difficulty but actually not–for how a university could come to license exclusively. In practice, license exclusively was pretty much all universities did.
The IPA was a little monopoly-creating machine, under which universities and biomedical companies might divide up the spoils of monopoly control of inventions directed at public health–99% company, 1% university (and the university could pass through no more than 0.15% to inventors). The IPA relied entirely on the idea of federal procurement, but stipulated that the patent rights that otherwise would be claimed by the federal agency could be released–not in general–but only to the contractor, just as if the contractor had been a commercial concern and not a university acting on behalf of faculty investigators.
The Effect of a Uniform Patent Policy
The sequence then was contract for a research project. Kennedy’s patent policy section (1)(c) applies, as the contract does not have an established commercial position. The government’s interest in patentable inventions then must be on a case-by-case basis. The government can release its ownership interest in deliverable inventions if the contractor has an interest in developing an invention to the point of commercial application (since the contractor does not have a commercial position to start with). Throw in the condition in (a)(4) that the purpose of a monopoly position (“principal or exclusive rights”) is a “necessary incentive to call forth private risk capital and expense to bring the invention to the point of practical application” and we have the basic operation of Latker’s template IPA.
While the IPA may have worked for HEW for a time (HEW terminated the program in 1977 over an exclusive license granted to a commercial concern), there was resistance to extending the program to all government agencies as a matter of procurement regulations. Agencies could create such programs anyway, under their existing authority, just as HEW had done. And there were good reasons to deal with the creation of private monopolies around research activities differently as various agencies’ assessments of the public interest indicated.
Latker, in developing the rationale for the IPA program at HEW, argued that the program was, essentially, an invention mining program. In arguing against a policy alternative that would require case-by-case review of inventions for possible contractor control, Latker focuses on the growth of private patent services (26):
That is, the most important factor in preserving the IPA program was the “incentive” for university administrators to “extract” invention reports, file patent applications, and create private monopolies to commercialize inventions made with federal support. Latker argues that without certainty with regard to patent ownership, there is no incentive for university administrators to do much extracting. That much may well be true. But what Latker does not take up is the idea that for most inventions made with HEW support, there is no need for anyone to hold a private monopoly in order to practice–either because there is no economic advantage in such a monopoly, or because it is not necessary for use, or because there is no interest whatsoever in creating commercial product, regardless of whether there is a monopoly available or not.
If the majority of such inventions are patented anyway, one might see how readily a program based on a premise that an exclusive license was necessary to “call forth risk capital” might slip the “necessary” part to simply “attract” risk capital, and from there it is an easy slide to using patent rights to create monopoly positions that speculate on future value of patents on a premise of possible commercial interest later. That is, the risk capital may be called forth, but not because it is necessary to create a product, but because it is interested in exploiting the patent position. That could exploitation could be, for instance, to charge companies a toll for having developed the invention to the point of practical application anyway, without an exclusive position at all.
The deal then becomes simply one of a university and a speculator sharing the benefits of the private monopoly. It is this situation that Sen. Nelson was concerned about and it is this situation that Bayh-Dole effectively endorsed as a matter of federal patent law. There is a means to deal with it under Bayh-Dole, but that means is not so obvious–and certainly not to be found in the “march-in” provisions, which were drafted to be next to impossible to use.
When the IPA program was terminated for the over 70 universities and research institutions that had negotiated an IPA with HEW, the university patent administrators’ focus turned to getting a law passed that forced HEW’s hand–and that was Bayh-Dole. While there were legitimate concerns regarding the federal government’s handling of inventions made at universities with federal support, the problem was and is deeper than procurement strategies.
The problem, rather, is rooted in the problem that Vannevar Bush saw, but federal officials and university administrators side-stepped–how to provide government support for faculty research without ending up in grandiose projects and mediocre performance. For that, Bush wanted the focus to be on supporting talent, creativity, and letting these folks follow their intellects. But Bush’s approach requires the ability to judge talent and creativity. While that might have been done in a single federal agency dedicated to the purpose (even that sounds difficult), it was impossible for just any federal agency. So projects became the standard, and with them a presumption of outputs as deliverables, and grants and contracts became largely similar forms of procurement, and so did patent rights. The issue left to resolve is whether the federal government should get more than a non-exclusive license.
Bayh-Dole’s answer was–only if a university doesn’t want monopoly rights. Buried in that answer was the remnants of the effort to use executive branch procurement requirements to shift ownership of inventions from a claim made by the government to a claim made by the university. But Bayh-Dole was federal patent law, not an executive order regarding when the government should contract for patent rights and when not. So Bayh-Dole could not operate in the same manner as the IPA. It could dictate the form of federal procurement–and leave that for a patent rights clause. But instead of setting requirements for exclusive licenses or federal intervention, Bayh-Dole in the least obvious way possible restricted the property rights that ran with patents on subject inventions.
The odd thing is that neither the standard patent rights clause nor the restrictions on patent property rights has ever been enforced. Not a single march-in. Not a single challenge to an exclusive license. Not a single question about nonuse, unreasonable use, or unduly encumbering future research, or promoting free competition or enterprise. Senator Nelson’s question–Will the government abdicate its policy-making role and allow universities to define “the public interest” in terms of their own perceptions and interests?–has its answer–Yes. And those perceptions and interests are not ones of the faculty, but of patent administrators, who see Bayh-Dole as a law that establishes for them a franchise to deal in patents on all inventions made with federal support, whether or not those inventions require monopolies created by patents “to call forth private risk capital.”
Lost are the fundamental questions. How does basic research expand the frontiers of science? How might patents help or hinder the activities of such frontier research? What role, if any, should a university have in dealing in patents on the discoveries of frontier research?
Technological change has taken place for many centuries without patents. The patent offers two innovations. The first aims to compete with trade secret: publish your invention for all to learn in exchange for a limited time of exclusivity. The second offers an incentive to exploit one’s own invention: make as much money as you can–or do whatever else you wish–during your period of exclusivity. The federal policy aims to promote the “progress” or diffusion of new technology. The problem, however, is that patents can be used to prevent use, and therefore can delay the progress of new technology as readily as they might promote progress.
Federal patent policy for seventy-five years has worried that private monopolies on the findings of basic research are not consistent with the public interest. While the patent system itself obviously is consistent in some large way with the public interest, federal policy has sought to constrain its use in public research settings. Bayh-Dole does not lift the constraints but rather exploits them. As Howard Bremer, another of the key players in the creation of Bayh-Dole put it in a 1998 article:
However, of all of the considerations attendant upon the establishment of a governmental patent policy only one consideration should be paramount:In whose hands will the vestiture of primary rights to inventions serve to transfer the inventive technology most quickly to the public for its use and benefit?
I have no doubt that this question indeed is the one that patent attorneys–including Bremer and Latker–might consider the most important. For the rest of us, however, the question that matters much, much more is what role, if any, should patents have in shaping basic research at the scientific frontier when funding is provided by the federal government?
There is nothing particularly special about university management of patent rights these days, other than an incessant claim of public interest. In terms of actions, universities file patent applications that are as obtuse and scheming as any other patent owner’s. They litigate, they license, they sit and wait, they expect money, they prefer monopolies. The simple answer remains Bush’s: leave it to the researchers and their institutions. But that can no longer be the full answer, because the institutions have become predatory on inventors and complicit in monopoly making with big companies and with speculators.
While federal funding for research is not generally “grant-in-aid” or “handouts” for the personal happiness of just anyone, the premise that universities work in the public interest and not for financial self-interest no longer holds for patents. Clearly, without an intervention to restrain the exploitation of patents permitted by Bayh-Dole, there is no argument for universities to have any distinctive privilege in receiving federal research funds based on their nonprofit status. Indeed, as Bayh-Dole has been expanded to all companies by executive order, there no longer is any evidence in its contracting that the federal government values the identification of scientific talent, the fostering of creative environments, or the “free play of free intellects.” Bayh-Dole displaces such thoughts and makes the purpose of research to be patent mining for an industry of monopoly brokers.
Bayh-Dole operates using the echoes of past concerns about basic research, the public interest, competition, and the commitment of universities and nonprofits to public benefit over institutional self-interest. The federal government would limit the right to create private monopolies in the area of basic research, but Bayh-Dole precludes such thinking. These old concepts are treated as “idealistic” or “unworkable” or “simply foolish.” Yet in them lies a starkly different approach to research and to the role of patents–one that few patent attorneys working for universities appear ready to consider. Perhaps that’s because that alternate role offers such a stinging rebuke to present practice that those involved fear for their careers as university administrators and contractors. And just that fear–I posit it exists–is one more evidence of the universities’ abdication of their role as trustees of the public interest.
Public Interest in Patentable Inventions
Interestingly, the idea of how a university acquires ownership of inventions is not addressed in Bayh-Dole. While Bayh-Dole displaces a range of statutes having to do with how federal agencies acquire rights in inventions, Bayh-Dole does not displace regulations regarding what happens when universities use federal funds to acquire inventions. Those regulations are found in 2 CFR 200, which used to be 2 CFR 215, and what used to be known as OMB Circular A-110. The Office for Management and Budget is authorized by Public Law 95-224 (41 USC 508) to provide interpretive guidelines for use in grants, contracts, and cooperative agreements:
The Director of the Office of Management and Budget is authorized to issue supplementary interpretative guidelines to promote consistent and efficient use of contract, grants agreement, and cooperative agreements as defined in this Act.
At 2 CFR 200 is a provision that establishes a university obligation to act in the public interest for any intangible asset that it acquires with federal funds:
§ 200.316 Property trust relationship. Real property, equipment, and intangible property, that are acquired or improved with a Federal award 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.
Intangible property is a defined term (2 CFR 200.59):
Intangible property means property having no physical existence, such as trademarks, copyrights, patents and patent applications and property, such as loans, notes and other debt instruments, lease agreements, stock and other instruments of property ownership (whether the property is tangible or intangible).
Thus, if rights in patentable inventions are acquired or “improved” by universities as a condition of the use of federal funds and are not purchased by the universities’ own funds, then the property trust relationship applies. Certainly “trustee for the beneficiaries” of federally supported research has something to do with public interest–at least to the extent that the university must place the interest of beneficiaries ahead of its own financial interests.
Bayh-Dole makes it a matter of federal patent law and contract that a university must share royalties from invention licensing with inventors. Since that sharing is a requirement imposed on universities, it cannot also be consideration for the acquisition of title to patent rights in those same inventions. Similarly, since the federal government pays the salaries of university personnel when they work on a federal project, wages also cannot be proper consideration for assignment. Under the Kennedy patent policy, inventors were required to assign to the government as a condition of university research policy that required them to comply with the terms of external research contracts. Such provisions do not reach to inventors under Bayh-Dole, which is a part of patent law and makes no claims on inventors. Strange as it may seem, inventors have no obligation to comply with the standard patent rights clause until the university requires them to agree to protect the government’s interest–and then their obligations are restricted to that agreement and to the requirements of the patent rights clause at 37 CFR 401.9–the one that applies to inventors, not to universities.
While Bayh-Dole dictates a uniform policy with regard to federal agency claims on title to patentable inventions, 2 CFR 200.316’s property trust relationship deals with the use of federal funds by the university to acquire rights–something that Bayh-Dole does not address. It may well be that 2 CFR 200.316 is the controlling federal regulation for the manner in which universities license patent rights exclusively, including issues of reasonable pricing and the length of exclusivity.
It may well be that the combination of
37 CFR 401.14(a)(f)(2)–requiring universities to delegate to their personnel the duty and right to protect the government’s interest
37 CFR 401.14(a)(k)(1)–limiting university assignment of patent rights without federal agency approval (universities often mislabel assignments as exclusive licenses to circumvent this requirement)
2 CFR 200.316–requiring universities to serve as trustees for any patent applications or patents they acquire or improve using federal funds
35 USC 200–setting limits on the property rights in patents on subject inventions (those made in the planned and committed activities under a federal funding agreement)
and
35 USC 202(d)/37 CFR 401.9–establishing a limited set of requirements for inventor management of subject inventions
comes as close as anything to the approach that Vannevar Bush envisioned. The pieces are all there, but they aren’t enforced. If a university must negotiate an acquisition price with its inventors apart from federal funding or royalties required by federal funding agreement, then perhaps it will not be so predatory. If patents acquired with the use of federal funds require the university to serve as a trustee, then perhaps it will not be so ready to offer monopolies to whatever company or speculator shows up. If the monopolies it can offer turn out to be limited, then the prospects for competition open up. If fewer patent applications are filed, then much more of a university’s research findings reach the public domain for immediate use.
The present situation is barely satisfactory. We can adapt to most any insult that administrators and regulators throw at discovery research. But there are foundations from which to have the discussion about what is possible that university patent administrators have suppressed for nearly forty years and which has been left inadequately addressed in the seventy odd years since the federal government agreed that it should support–and not merely procure–basic research at universities.