Per Bayh-Dole, universities should not create “gray” areas in which nonprofits allow exclusive licensees the rights that only an assignee should have. If universities do so, they are required at the same time to transfer to those exclusive licensees/assignees the public covenant required by section (k) of the standard patent rights clause, in addition to the limitations on patent property rights on subject inventions in 2 CFR 200.316 and 35 USC 200. That is, even if there were a gray area in the law regarding exclusive licenses and assignments, it is not and should not be a gray area for universities managing subject inventions. There, if the area is gray through the action of the university, the university has already failed to comply with Bayh-Dole and to consider the public interest.
License templates such as Washington University’s–and WU is hardly alone on this–should not give any right to enforce the licensed patent. Doing so creates a “gray area” that’s not appropriate to Bayh-Dole, and not allowed by the standard patent rights clause. Similarly, license templates should grant no greater exclusive rights than to make and use or make and sell or use and sell–but never the full package of rights, unless those rights are divided for fields of use that have meaningful commercial application. The court in Sharplan found that a noncommercial reservation of rights by the university for research and educational purposes did not amount to a substantial interest. The rule might be as simple as this: grant no exclusive license with a scope so great that there can be no commercial value to a second licensee of the patent.
The alternative, of course, is to go ahead and grant substantial rights, confirm the licensee’s right to enforce the patent–and require the licensee to accept the nonprofit requirements of the standard patent rights clause. Manage the patent in the public interest, not on behalf of the self-interest of the organization holding substantially all the commercial rights. This is a difficult pill to swallow. But it is the flip side of the IPA requirement that nonprofits start with non-exclusive licensing, limit the term of any exclusive license–get product on the market, and then allow competition again–and revert to non-exclusive licensing if after a time no exclusive license deal has been done. This is also the flip side of the original Bayh-Dole Act, which still had IPA-like limitations on exclusive licensing for nonprofit organizations. While those restrictions on the term of exclusive licensing are gone from Bayh-Dole now–as are the IPA gestures toward non-exclusive licensing and royalty-free licensing and as well the Kennedy and Nixon executive branch patent policies with their expectations of federal government control of inventions made with federal support, to be dedicated to the public or licensed in the public interest–Bayh-Dole still operates in the ruins of those policies, and with apparatus in place to protect the public interest, still expecting compliance long after the surrounding express text has been eliminated.
The public policy is still there, at the heart of Bayh-Dole. Nonprofits have no authorization to create gray zones around exclusive licenses that act as assignments, to grant to licensees the right to enforce patents on subject inventions, to threaten to exclude all other use of an invention to serve their own financial interest–including research uses. The soul of Bayh-Dole, misshapen as Bayh-Dole’s body has become, is still that of the Kennedy patent policy, still that of public interest, but altered to authorize the use of the patent system to enable private rent-seeking monopolies on inventions directed at public health, inventions created in research supported by public money, justified on the principle that the results were in the public interest. The spark of the Kennedy patent policy has been buried and blocked and altered, but not extinguished.
Any number of university-affiliated lawyers will disagree with me here, and with my reasoning, the evidence, with the court cases. Let’s say that we might find them disagreeable. They can create gray zones and hand wave all they want–just like they did with Stanford v Roche, when they discovered they were wrong–professionally and legally wrong. And their response? Oh, the case was wrongly decided, or we can use the case to screw over inventors and companies even better, if we make our policies even more demanding. Has even one repented publicly? I haven’t heard.
There are folks who refuse to be persuaded. They won’t change their practice. They have attorneys who have told them their exclusive licenses are all good, not assignments. It’s okay to let their business partners sue for infringement or have the right to threaten to sue. Creating gray areas is fine, so long as one isn’t caught. As long as the university makes money, it’s all a success. And it’s a success whether there’s practical application or not. Just having a patent and a license is enough, even though, under Bayh-Dole, at its soul, patents and licensing are never, ever enough. Practical application, with public benefits on reasonable terms–perhaps non-exclusive terms, or terms no more extensive than an exclusive license, for a limited field, for limited rights, for a limited term. That’s what counts. That’s what counted all along from the start, back to Vannevar Bush’s patent policy in Science the Endless Frontier and the expectation of dedication to the public under the Kennedy patent policy. Like ticks bit deep into the neck of policy, they will suck forever if they can.
Given all this, and my fussiness above having had to work through yet another license agreement, let’s look again at the Bayh-Dole provision in the WU license template:
2.4 Licensee agrees and acknowledges that: (a) in accordance with Public Laws 96- 517, 97-256, and 98-620, codified at 35 U.S.C. §§ 200-212, the United States government retains certain rights to inventions arising from federally supported research or business; (b) under such laws and implementing regulations, the government may impose requirements on such inventions; (c) Licensed Products embodying inventions subject to such laws and regulations sold in the United States must be substantially manufactured in the United States; and (d) the license rights granted in this Agreement are expressly made subject to such laws and regulations as amended from time to time. Licensee agrees to abide by all such laws and regulations.
We have seen this text already, and I put it here for easy reference. For starters, Bayh-Dole isn’t the only thing involved here. While 35 USC 200 might change patent law by placing limits on the property rights in subject inventions, and while 35 USC 201 might create a new category of invention in patent law called a “subject” invention, the obligations on any licensee come not from the statute but from the standard patent rights clause. It is the university that must require these things, by contract; the statute does not impose these things on the licensee, and not even on the university–the law creates obligations for federal agencies.
Thus, it is absurd in its way for WU to make it appear that the licensee has to comply with Bayh-Dole. It doesn’t–but for perhaps 35 USC 200, which restricts patent property rights rather than creating any obligation. Rather, the licensee must accept the conditions that the university has agreed to require. Thus, the operative regulatory citation should be 37 CFR 401.14(a), the standard patent rights clause. That’s what the university has agreed to. That’s the authority for what the university must pass on to any assignee or exclusive licensee.
It is the university’s problem to state in the license agreement what the licensee is obligated to do. It’s thus more than absurd–it’s ineffective to make it appear that the licensee is somehow bound by a law that doesn’t apply to it, and rather applies to federal agencies, and creates a patent rights clause that the university has agreed to, and the university must require some things of the licensee, but can’t be bothered to state expressly what these are–the government purpose license (to practice and have practiced), the reporting requirement, march-in rights, and government rights in the event that the university fails to disclose to the government or elect to retain title or not file in foreign countries; and if the transaction involves assignment, requirements for U.S. manufacture for exclusive licenses, and the non-profit restrictions in (k) regarding assignments, use of income from patents, and preference for licensing to small businesses.
But WU doesn’t do this. Instead we get a bare summary, with only one thing mentioned expressly, and that’s the U.S. manufacturing requirement, and even that is misstated. The language of 37 CFR 401.14(a)(j) is “use or sell”–WU’s template has only “sold” and thus fails to state the full conditions of the patent rights clause. Silly, but a sign of poor drafting and lack of attention to detail.
The WU restatement of Bayh-Dole ends with the assertion that the licensee must comply with any changes in the law and regulations. This is nuts, of course. Pure bonkers. The licensee will have to comply with whatever laws are in force, to be sure, but not as a result of the WU licensing agreement. As for the requirements conveyed to the licensee under the WU agreement, these are not subject to revision at the whim of WU nor of the federal government, any more than the federal government can retroactively change the requirements of the standard patent rights clause as implemented in any given funding agreement. The government can change the law and the regulations and the standard patent rights clause–but these changes do not affect funding agreements already in place. That’s the nice thing about agreements, even federal ones. They are not subject to change on a whim, even by the federal government. But WU’s template license agreement makes it appear otherwise. That’s why it’s pure bonkers at this point.
Similarly, the government does not “retain” rights under Bayh-Dole:
United States government retains certain rights to inventions
This simply is not true. The federal government under the standard patent rights clause negotiates (offers, and universities accept) to receive a license from the contractor, and a commitment from inventor-employees (also contractors, then) that they will establish the government’s rights. These are agreements that involve the conveyance of rights (license, assignment), not a “retention” of rights by the federal government. The wording is more than sloppy or careless. It’s just wrong. It implies that WU folks don’t have the slightest clue what’s going on, or if they have a clue, don’t care–which would be worse.
An invention gets made in federally supported research. Common law kicks in, and the inventor owns the invention. Now the inventor’s (f)(2) commitment kicks in, so the inventor reports the invention to personnel designated by the university for patent matters. The university reports the invention to the federal government. The rights are with the inventor. If the inventor assigns the invention to the university, then rights are with the university. For the federal government to “retain” rights, the inventor would have to assign to the federal government, and the federal government would then have to license (or assign, depending on whether the government purpose license amounts to substantial rights–the Sharplan court didn’t think so) the invention to the university, while “retaining” its rights. But that’s not how it works at all. Folks have got all fixated on the word “retain”; they should use it with “water” or “counsel.”
And now for the zinger.
(d) the license rights granted in this Agreement are expressly made subject to such laws and regulations as amended from time to time. Licensee agrees to abide by all such laws and regulations.
Let’s say that this clause in the Agreement has an effect. That the Agreement is a different agreement if this clause is not there. Then this section (d) is not merely a notice of information provided as a courtesy–it does something. Now, if the WU exclusive license is indeed an assignment, then this (d) is the operative language that makes the licensee subject to the “laws and regulations” of Bayh-Dole. Let’s call the standard patent rights clause a regulation–it sort of is. Then the (k) provisions are regulation, and if the WU license is an assignment, then the Licensee here agrees to “abide by” the (k) provisions–namely sharing royalties with inventors, restricting use of income from patents, and giving preferences to small businesses in any sublicensing. We can see why Licensee would not like that outcome at all, and even might not understand just what might be involved in compliance. Of course WU does not bother to lay things out, so it’s all rather nudge-nudge wink-wink. But transactions involving subject inventions are a matter of public interest–Bayh-Dole makes them so, and the standard patent rights clause in its awkward way carries the public interest to universities and other nonprofits.
A university capable of such meticulous citation of laws and regulations surely must know what those laws require with at least the same level of meticulous care. So should any Licensee put on notice by these same citations. One might argue that the public, then, has an interest in seeing that Bayh-Dole is enforced all the way through to the standard patent rights clause, to the (k) provisions for nonprofits, to the (k)(1) stipulation on assignments, which carries the (k) provision to Licensee, who accepts the broader rights–the substantial rights of the patent–to manage in the public interest, not in its own interest.
If Licensee wants to focus on its own interest, then it should refuse such a broad conveyance of rights and insist instead–negotiate for–a narrower agreement, for exclusive rights only, so WU is responsible for enforcing the patent, not Licensee. Yes, Licensee is exposed to WU’s reticence, perhaps, to litigate, and Licensee is exposed to WU granting additional licenses, for other fields, or for rights that Licensee accepts only non-exclusively. So be it. That’s the consequence of taking up the use of an invention made in a project intended to serve the public interest.
Everyone involved–principal investigator, inventor, university, and Licensee participate in that public interest activity, and play their roles, and accept that public interest ahead of their own purposes, whether those purposes are financial, competitive, or otherwise. It may not be what people want, and it’s certainly not what a bunch of university attorneys capable of drafting or approving things as flippant as WU’s paragraph 2.4 on Bayh-Dole might opine as their considered professional judgment, but that’s what the language of the law leads us to. And, really, that makes some sense–if we justify pushing $40b or so of public money each year to universities on behalf of projects proposed by faculty and the only reason to fund these projects is to advance the public interest, then why shouldn’t the outputs of that research–and especially the patentable bits–be subject to a public covenant that limits monopolies and promotes use and expects public benefits on reasonable terms? Yeah. Why not?
Even if the law allowed fiddle and gave space to the university IP counsel who can’t figure much of anything out straight, why wouldn’t university administrators choose the public interest path anyway? Why do so many administrators accept as a default monopoly thinking and practice, even when that thinking and practice loses huge amounts of money, ties up inventions in worthless knots, and doesn’t result in all that much public benefit for all the hoopla involved? Why do WU administrators permit such things as the WU exclusive license template to be their public default on the matter? That’s what rankles, more than the actual practice, careless as it is. The actual practice–to happily create gray zones and exploit them for monopoly profits, despite the public interest conditions that are there in the law and in the social premises of the federal funding–that’s the crappy part of all this. That mercenary university lawyers haven’t the courage to lead the way makes it all the worse. It’s a good living, I suppose, regardless. But why not promote the public interest, rather than something self-serving for the institution that turns out to be not even be all that good for the institution?