Bayh-Dole requires that when a contractor retains title to a subject invention, the contractor must grant to the government a non-exclusive license. Here’s Bayh-Dole on that government license (35 USC 202(c)(4)):
(4) With respect to any invention in which the contractor elects rights, the 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
Let’s look at the boldfaced phrases. First, what does “practice or have practiced” mean? There’s no definition provided in Bayh-Dole, and “practice and have practiced” is not among the rights set out in federal patent law. But the phrase has a long history of use in federal patent policy. Here’s the Kennedy patent policy, defining “Governmental purpose” license:
The right of the Government of the United States (including any agency thereof, state, or domestic municipal government) to practice and have practiced (made or have made, used or have used, sold or have sold) throughout the world by or on behalf of the Government of the United States.
Note the scope given to “the Government of the United States”–all agencies, states, and municipal governments are included. That is, whatever market a contractor might have to exclude others, that market does not include federal, state, or local governments.
Here’s the Institutional Patent Agreement, current from 1968 to 1978 and drafted by Norman Latker (who also drafted Bayh-Dole):
The Grantee shall grant to the Government of the United States a nonexclusive, irrevocable, royalty-free license for governmental purposes . . .
The IPA provides a license template to be used by the Grantee to grant the Government its rights that repeats the scope as “governmental purposes”:
The Licensor, in consideration of the premises and other good and valuable consideration, hereby grants and conveys to the United States Government a royalty-free, nonexclusive and irrevocable license for governmental purposes . . under the aforesaid patent application, and any and all divisions or continuations, and in any and all patents or reissues which may be granted thereon during the full term or terms thereof.
The license template makes clear that the license to the invention is a license to any patent obtained on the invention. The template then defines “governmental purposes”:
As used herein, “governmental purpose” means the right of the Government of the United States (including any agency thereof, state or domestic municipal government) to practice and have practiced (made or have made, used or have used, sold or have sold) throughout the world by or on behalf of the Government of the United States.
The government purpose turns out to be any purpose that any entity included in the definition of the “Government” might be authorized to undertake–including, for instance, addressing matters of public welfare.
Yes, it’s the same definition used in the Kennedy patent policy—as it should be, since Latker’s version of the IPA was developed under the Kennedy patent policy. The Nixon patent policy retains most of the Kennedy patent policy, but with variations. “Governmental purpose” is dropped and instead the scope of rights is placed directly in the license requirement. “Practiced” is replaced with “make, use, and sell” and “have practiced” is dropped. The expansion of the “Government of the United States” is altered so that states and municipal governments are included in the scope of the required license but not apparently within the definition and scope of the “Government of the United States”:
Whenever the principal or exclusive rights in an invention remain in the contractor, the Government shall normally acquire, in addition to the rights set forth in Sections 1(e) [written reports], 1(f) [march-in for failure to achieve practical application], and 1(g) [march-in for regulatory or other public purposes],
(1) at least a nonexclusive, nontransferable, paid-up license to make, use, and sell the invention throughout the world by or on behalf of the Government of the United States (including any government agency) and States and domestic municipal governments, unless the agency head determines that it would not be in the public interest to acquire the license for the States and domestic municipal governments
It is clear that the government purpose license is in addition to march-in rights. Under its license, the government can do anything with a subject invention that it is otherwise authorized to do–at the very least the government may make, use, and sell the invention. Whether the government can have made, have used, and have sold is not addressed, nor is import nor offer for sale. Under march-in, the government can require the contractor to grant licenses to others to address situations that the government is not authorized to deal with directly or declines to deal with directly (such as, say, broadening the availability of product outside the government purpose market).
What do we learn about Bayh-Dole’s use of “practice and have practiced” from these instances?
- That “practice and have practiced” has meant “to make, use, and sell” and “to have made, have used, and have sold.”
- That the license may extend to any patents in the family of patents derived from any subject invention.
Look at the scope of the rights granted by “practice and have practiced.” It apparently includes “sold and have sold.” Under a government purpose license, the federal government agency can make and sell products based on a subject invention, and can commission companies to sell products on behalf of the government based on subject inventions–for any governmental purpose; that is, within the government purpose market. This right has nothing to do with march-in determinations. It’s a flat-out non-exclusive license in exchange for letting a contractor obtain title to a subject invention. The federal government and contractor share the government purpose market, and the contractor has sole control over the non-government market, but with federal march-in for nonuse and unreasonable use.
If a federal agency has a problem with a patented drug based on a subject invention priced exorbitantly, the agency can contract with any company it wishes to make the drug and sell it to the federal government’s beneficiaries at whatever price the government and the company agree upon.
Consider then pricing of a product in the government market. If the price in that market exceeds the cost at which the government can commission a company to provide the product on behalf of the government, then it makes sense for the government to “practice and have practiced” the invention under its government purpose license. Not to do so is in essence granting the contractor greater rights than federal law allows and results in the government willfully spending more than it needs to provide a service–one might call that waste or might call it funneling tax dollars to company shareholders. If that’s the real purpose (or primary effect) of Bayh-Dole–to subsidize the profits of corporations for the benefit of shareholders–then Bayh-Dole ought to be repealed immediately. If the purpose is otherwise, then the government should use its license when prices in the government market exceed the cost of producing product directly or by commissioning the production of the product for the government market.
One more question, then, to address. In the Kennedy patent policy, the license is to the “Government of the United States” “for governmental purposes.” The license for governmental purposes is expressly scoped to include “any agency thereof, state, or domestic municipal government.” The required license includes state governments and county and city governments.
Bayh-Dole uses different language. It’s another of the drafting flaws strategies in Bayh-Dole that it cannot get these things right or clear. Instead of the “Government of the United States” (with an expansion of the meaning), the Bayh-Dole government license is directed to “the Federal agency”—the agency on the other end of the funding agreement under which the subject invention was made. Bayh-Dole provides a definition for “Federal agency” which in turn relies on two additional statutory definitions, which in turn invoke multiple other definitions–resulting in a list of agencies, departments, government-controlled or owned corporations (Amtrak–but also perhaps for a while GM), and independent entities. But the listings expand what entities must contract using Bayh-Dole’s standard patent rights clause; they don’t necessarily expand the scope of any government license to subject inventions.
Bayh-Dole drops “governmental purpose” as well. Instead of “the Government of the United States,” Bayh-Dole uses just “the United States.” The use of “Federal agency” is narrower than that of the Kennedy patent policy, but the use of “the United States” rather than “the Government of the United States” appears to specify the states of the United States–those United States. One might read the Bayh-Dole language here to grant a federal agency a license to practice and have practiced on behalf of the States. That’s what the wording provides. The folks drafting Bayh-Dole’s standard patent rights clause (led by Latker, again) had to deal with this same wording.
Let’s look now at Bayh-Dole’s implementing regulations and the standard patent rights clause. Here’s 37 CFR 401.14(a)(b):
With respect to any subject invention in which the Contractor retains title, the Federal government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.
Almost but not quite the same language we find in Bayh-Dole—practice and have practiced, for or on behalf of the United States. But the license is directed not to the “Federal agency” but to the “Federal government.” Thus, we have the apparent equivalence of “Federal agency” and “Federal government.” There’s good reason to argue that the government license under Bayh-Dole is essentially the same license it was under the Kennedy patent policy and the IPA program. Clearly, “practice and have practiced” is broad. Clearly the license is to the federal government but on behalf of “the United States”—not merely “the federal government of the United States.” Clearly, there’s no such restriction in the wording of the Bayh-Dole license—it’s “the United States” not “the Government of the United States.”
The government purpose license under Bayh-Dole is nearly as broad as that under the Kennedy patent policy and the IPA program. Only domestic municipal governments are not expressly included. “Practice and have practiced” is broad—including the right to sell and have sold.
If the federal government is concerned with the high price of drugs based on compounds developed with federal funding, the federal government has the right to make and sell these same drugs, and to have others make and sell these drugs for the federal government. It would appear that the states have these same rights. If the federal government does not act on its license, then perhaps it is because the federal government has decided that it wants to funnel money to the pharmaceutical industry—that high drug prices are an objective of federal policy.
There’s no actual need for the federal government to negotiate drug prices for drugs based on compounds developed with federal support. There’s no need for march-in, either, since march-in concerns non-government markets. It’s just a matter of using the rights the government already has to address pricing in the federal government’s market–that is, in providing drugs as a matter of government purpose, “for or on behalf of” the “United States.” A failure by the federal government to use the government’s license is, in essence, a structural failure of Bayh-Dole and of the federal government to protect the public from unreasonable use of inventions made with federal support.
Perhaps the nonuse of subject inventions by the federal government under its required license should be reported to the federal whistlblower for waste. Surely the waste runs to billions of dollars per year.
