Here are three approaches to get at abuse of Bayh-Dole by patent brokers.
1. Invoke the non-use march-in condition. 35 USC 203(a)(1)
Demand federal march-in for nonuse (35 USC 203(a)(1)) for all subject inventions claimed by universities that do not meet the definition of “practical application” within three years of patent issuance.
The non-use march-in hits all subject inventions that universities have not licensed or have licensed exclusively but which have not been developed. This also hits all subject inventions that have become a commercial product, but that product fails to meet the statutory definition of “practical application.” Hit university patent practice everywhere, not just in a special interest. We are talking about 99% of subject inventions. We are talking thousands of subject inventions that have never been “commercialized.” Send the universities scrambling until it really hurts.
Bayh-Dole defines “practical application” (35 USC 201(f)) to mean (1) use of an invention (2) that can be established (3) with benefits (4) available to the public (5) on reasonable terms. For Bayh-Dole’s policy and objectives to be met, a subject invention must meet the definition of practical application.
Bayh-Dole identifies four conditions under which a federal agency can intervene in the university management of patents on subject inventions. Most attention has been directed at the march-in procedures directed at availability. But that’s the most protected direction. Consider then nonuse.
An invention that fails any of the required elements of “practical application” has not achieved “practical application.” The march-in threshold requires that an agency find that the contractor or assignee (but not an exclusive licensee, bizarrely) “has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use.” It is an agency’s discretion with regard to expecting “effective steps,” but whether such steps have already been taken is a matter of fact. Either there’s practical application or there’s not. If it has been three years–or maybe at the most eight years–from the date of patent issuance and there’s no practical application, then the “reasonable time” condition has failed.
How does this get at monopoly drug prices for inventions that were supposed to be made available to the public on reasonable terms? If the price is not “reasonable,” then the law’s objective of “practical application” has not been met. What’s reasonable? A price that arises as a result of complying with Bayh-Dole’s requirements for policy and objective–and in particular a price that is based on free competition and that does not encumber future research.
If a university has failed to license to promote free competition (by licensing exclusively without opportunities for research use or competing development or for the full term of the patent), then on the face of it, the university has failed to use “effective steps” to achieve the “reasonable terms” element of “practical application.” Hit them on that point, not on the issue of whether the “availability” is “reasonable.”
Practical application is not met merely by an effort to license. Practical application is not merely selling product. Practical application is a statutory matter that requires benefits to the public on reasonable terms. While that requirement does not speak directly to price controls, it does speak to competition, and absent competition, there is a basis for march-in for unreasonable pricing. Unreasonable pricing clearly fails what the public regards as “reasonable terms.”
That is, even if a drug is broadly “available” under the second march-in condition, that does not mean that it has met the standard of practical application under the first march-in provision, which requires practical application–that is, reasonable terms. A failure to achieve practical application is nonuse. The burden in Bayh-Dole is on the contractor or assignee to establish that there is use that meets the definition of practical application.
Base march-in on nonuse, then, not on availability. Reasonable terms might then include a price based on competition–whether or not there is actual competition. A generic drug manufacturer says it could produce Xtandi for $3 a pill, not the $88 that UCLA’s exclusive licensee is charging. A reasonable price would be around $3. Or even the $12 price in Canada.
2. Declare exceptional circumstances for all research concerning compounds with possible therapeutic effect. 35 USC 202(a)(ii)
Bayh-Dole was set up to be a work-around to HEW’s policies making inventions made with its support broadly available. The ground zero of Bayh-Dole was NIH’s medicinal chemistry program–even though for political reasons Bayh-Dole was cast as bringing “uniformity” to federal patent policy and the starting point was a DOE invention, not a therapeutic compound.
While the general case might start with contractor ownership, therapeutics were and are still an exceptional case, not a standard one. Therapeutics address public health, and may involve life-or-death decisions. Monopolies on such therapeutics may be exploited to play on the desperation of those that suffer. There’s nothing about therapeutics that isn’t an exceptional circumstance to the generic case that a university ought to have priority in choosing licensees for inventions made with federal support. If there is any single standing requirement in executive branch policy for exceptional circumstances, it is for therapeutics.
35 USC 202(a)(ii) allows federal agencies to determine that restricting or eliminating a contractor’s right to “retain title” to a subject invention would better “promote the policies and objectives” of Bayh-Dole–that is, 35 USC 200. 35 USC 202(b) requires a determination, a filing of the determination (within 30 days of the agreement) with the Secretary of Commerce, an analysis to support the determination, and subject to the “belief” of the Secretary of Commerce.
The entirety of Bayh-Dole, then, is in a way focused on the beliefs of the Secretary of Commerce. A federal agency might propose anything–and so long as the agency follows the procedure and the Secretary of Commerce believes, the law can be otherwise ignored. On the one hand, this is a fatal flaw in the law–there is no rule of law here. On the other, this is a place to attack monopolist practices, at least for future funding.
Advocate for a presidential executive order that makes an up-front determination and analysis (start with the Department of Justice report on high drug prices) that funding agreements with a purpose to identify compounds for possible use in therapeutics involve exceptional circumstances and university licensing rights must be restricted. Require non-exclusive licensing, or require exclusive licenses to be for a term substantially less than the term of the patent, or require exclusive licenses to require product to be offered for a price reasonably close to the price that would be set if there were competition.
Demand that federal agencies have a positive obligation to identify and act upon exceptional circumstances. Failure to do so violates the law. Federal agencies cannot remain indifferent to exceptional circumstances. If they do, then reform or repeal Bayh-Dole. The Kennedy patent policy is also a uniform patent policy–and it’s not all that bad. The problem was federal agency practices under the Kennedy patent policy, and there the primary problem was with–of all things–the NIH in its relationships with the drug industry. There is a need to work out that relationship–are we in the business of using research to create private monopolies to exploit our suffering, at 10x the return to private speculators than that which a reasonable profit would produce?
3. Audit all university exclusive licenses for subject inventions that involve therapeutics. 35 USC 202(c)(7)(A)
Bayh-Dole prohibits nonprofits from assigning subject inventions, except to an invention management organization, or with federal approval.
(A) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions (provided that such assignee shall be subject to the same provisions as the contractor)
It is important to recognize that in any assignment, the assignee must accept the provisions of Bayh-Dole that pertain to nonprofits. Those provisions include using royalties after the costs of managing subject inventions for scientific research or education, not for drug marketing or as profits for shareholders or to boost the pay of company officials.
Why does this matter? An instrument is not what it is labeled, but what it does. Courts have ruled that exclusive patent licenses are in fact assignments if they convey all substantial rights in an invention. Territory restrictions don’t matter. Reservations of rights for nonprofit research don’t matter. Reservation of rights for government purposes don’t matter. Here’s the basic test. If an exclusive patent license includes:
(i) a grant to make, use, and sell
(ii) the right to sublicense
(iii) the right to sue for infringement
(iv) to collect damages
(v) to settle claims by granting a sublicense
Then it is very likely an assignment. Many university exclusive licenses meet this standard. The UCLA-Medivation exclusive license for the compound behind Xtandi meets this standard. If an exclusive license is indeed an assignment, then it is either void (lacking federal agency approval) or must be restructured to be a simple exclusive license (limited exclusivity–no right to sublicense, no right to sue for infringement, rights limited to the claims selected for practice) or the assignee must accept the conditions Bayh-Dole’s standard patent rights clause imposes on nonprofits–any profits must be used for scientific research or education. Either the license is restructured to be less than an assignment or the results of the license–the income–must be dedicated to a Bayh-Dole-designated public purpose.
Of course, if Bayh-Dole really is a do WTF you want sort of law, letting patent brokers do anything they want with near total federal agency indifference (or excuses not to act), then Bayh-Dole offers no guidance at all with regard to the public interest. It is a law that demands that every invention or discovery made with federal support at universities and other nonprofits be held for possible monopoly pricing so that investors and companies can clean up at the expense of the public and the government. What a strange law, if that is what it is.