Government Interest Patent Activity 1976 to 2016, Part 3

With this context, let’s return to our patent activity graphs. University and nonprofit patents with a government interest have grown from 10% of all patents citing a government interest to over 50%. This level of activity leveled off around 1998 and has stayed around the 50% level since.

Despite Bayh-Dole being expanded by executive order to all companies, it appears that for-profit companies are doing *less* patenting, comparatively, of federally funded inventions than universities and other nonprofits. Why might that be? Is it an artifact of the way we are looking at the data? Should we normalize for the amount of federal research funding directed at universities compared with the funding going to companies? Perhaps. Or maybe it is the case that companies, having a view toward their own products and future commercial activity, are more selective in what inventions to patent, while universities, having no products or commercial activity, have to work harder to be selective. So long as the cost to file a patent application is less than the cost to sit on a patent for years without licensing it, universities will file patent applications “just in case” something turns out later to be “valuable” (most likely meaning that someone might make money threatening infringement).

Similarly, government interest patents have become an increasingly large share of overall university and nonprofit patent activity. Here’s a chart that shows university and nonprofit patents with government interest as compared to university and nonprofit patents without a government interest:

From 1976 until about 1992, the ratio of government interest to no government interest patents at universities and nonprofits was about 20%. After 1992, the ratio has climbed to nearly 100%–that is, nearly half of all university and nonprofit patents issue with a government interest statement. That’s a 5x increase in share. It’s interesting to think about how a university with a patent policy set up for ordinary patents gets affected when it also has to deal with patents on federally funded inventions–patents that are not at all ordinary.

A university does not have to change its patent policy to comply with the standard patent rights clause authorized by Bayh-Dole. That clause is self-implementing. Most university patent or research policies provide that a contract accepted by the university takes precedence over any policy to the contrary. All a university need do is to designate personnel responsible for patent matters, instruct employees in the importance of disclosing inventions timely if made in the performance of a federally funded project, require potential inventors to make a written agreement to protect the government’s interest in such inventions, and then report all inventions disclosed and waive an interest in them. None of that requires a policy change. Just additional practices to educate, report, and delegate authority for dealing with the government over rights.

In the post-IPA world–which existed for only 1979 to mid-1981–government agencies decided, based on executive branch patent policy (codified at 41 CFR 9-1), whether to assert a claim in inventions made with their support. Many of these inventions were simply not of interest to university patent brokers. It wasn’t so much “title uncertainty” as it was that the inventions themselves, plus any conditions on the licensing of those inventions, were not suited to offering licenses to industry with an expectation of significant royalties.

At its roots, both in Research Corporation and in the Wisconsin Alumni Research Foundation and the mushroom research foundations that sprang up at most every research university campus in the 1950s, the agent model of managing university research inventions was built on the idea of being selective in seeking royalties in exchange for useful, enabling inventions. The idea of promoting standards, or pushing back against monopoly interests with open technology, or defending research directions across multiple institutions from speculators aiming to block that research or hold it hostage for financial ransom–all that was worry for a different mindset, not that of the university patent broker.

In the early years of university involvement in patenting, that mindset was mostly to be found in medical schools, which had a strong anti-patent orientation. Patents weren’t to be taken out to disrupt medical practice or to drive up the price of drugs or devices or to create monopolies so that any single company could dictate the nature of a given product or method without alternatives. Times and minds have, of course, changed.

But for university patent policy, consider too what’s changed. Original patent policies separated commercial activity of patenting from a university’s reasons for owning patents in its own name. Commercial patent involvement was referred to external agents, who pursued licensing to make inventions available to industry, often non-exclusively. That non-exclusive approach was active up through the Cohen-Boyer and Axel patents–around the time Bayh-Dole came into effect. The few universities that took licensing in-house (especially the University of California) set up patent offices that were aloof from faculty, were based on voluntary (at first) disclosure and decision to pursue patenting, and kept the distinction between institutional patent ownership for defensive measures and the activities of a technology licensing office, which existed to shop inventions to industry to generate royalty revenue for research. The royalty revenue for research was the gateway drug rationalization that justified whatever a university licensing operation might then do with its patents–license, litigate, letharge.

Thus, university patent policies focused on managing “commercial” involvement took an interest in inventions made with federal funds only when those inventions might prove immediately valuable to a commercial licensing program–typically when there was a company ready to take a monopoly license (which the government, if it were the holder of the patent, might not grant) or there were multiple companies that would pay for a non-exclusive license (on which the government would waste opportunity with a royalty-free non-exclusive license). Otherwise, the government’s patenting or not patenting did not much matter because from a university patent policy perspective that activity was “defensive” in nature, “in the public interest,” “ethical” (after the mindset of the medical faculty), and opposed to the creation of monopolies, government favorites, and unfair competitive advantages for further federal funding.

When Bayh-Dole came into effect in 1981, university patent brokers had a greater interest in selecting federally funded inventions for management on the “commercial” side of university patent policy. Bayh-Dole made it appear that, regardless of how permissive a university’s patent policy might be in allowing faculty inventors to own their inventions, the university had a right to own federally supported inventions. At least, this is how university patent brokers explained Bayh-Dole to university administrators and to faculty. While a university patent policy might waffle on whether the university had a right to own just any invention made by a member of its faculty, according to the spin patent brokers put on Bayh-Dole, the law gave university title to any invention made with federal support, and all the university had to do was disclose the invention to the government and notify the government that the university “elected” title. The Supreme Court in Stanford v Roche (2011) made clear that interpreting”elect to retain title” to mean “take by electing title” was not the law. But thirty years of “taking” had already taken place, and university patent brokers were not about to change their practice.

For those universities that had operated under the IPA program, nothing much changed between the IPA master agreement and Bayh-Dole–at least that’s what they asserted. For other universities, which had never obtained an IPA master agreement, they saw a new opportunity to “commercialize” inventions made with federal funding, not just work with inventions made with foundation or industry support, if funded extramurally at all. Again, in the early years, university patenting of federally supported inventions was only 1 out of every 5 patents they obtained. The majority of their patenting work did not require the special handling of a subject invention. But clearly even this load of new work was sufficient to motivate a change in university patent policies–since almost every university did change its patent policy to expand the scope of its claims, to insist that the reason to manage inventions was “commercialization,” and to repudiate the idea that a university acted as an agent on behalf of its inventors.

It was clear from the start that university administrators were uncomfortable with two patent policies, one for defensive “public interest” management that separated university-owned patents from those that might be “commercialized” by an external agent such as Research Corporation or an affiliated research foundation. There must, according to the policy pundits of the time, be a uniform university patent policy. What’s odd about that claim, however, is that the policy that was brought forward to a position of dominance was that of “commercialization”–but now placed squarely within university administration and not with an external, selective agent. Instead of a determination of what inventions were well suited to a “commercial” interest, selecting those few and leaving the rest for defensive purposes, mostly through dedication to the public domain via the university or the federal government (in the case of federally funded inventions), the new policies claimed that all inventions should be considered for “commercialization.”

The new patent policies aimed to cut off legacy public interest management of inventions–a legacy that created public domain or commons access where patenting was otherwise possible–and replace it with a claim that the only viable public interest management of inventions was to seek “commercialization”–that is, the formation of products for sale. The reality was suppressed that inventions might be used without a product form, or might be formed into products without a monopoly, or might generate commercial activity without paying anyone a royalty. Public interest management of inventions, then, was made to appear to run against the public interest to be found (or at least claimed) for commercialization. Faculty inventors that aimed to publish their inventions and so dedicate them to the public were characterized as ignorant and misdirected, and even as cheating “the public” from a “return on their investment” and denying other faculty of the prospect of research funding from royalties. Some were even accused of unethical behavior, because if they gave away their research inventions, they might enjoy greater opportunities for personal consulting while preventing the university from obtaining its “fair” share of the income, which otherwise would come in the form of a royalty on a patent license.

These are the machinations of a professional class making a nest for itself in a vulnerable policy framework. As Matthew Stewart describes it in The Management Myth, the procedure is called “eat the brain” of management by displacing those otherwise in charge. And that’s basically what the new breed of post-Bayh-Dole patent brokers did–they displaced the defensive patent policies within the university with ones that endorsed their version of “commercialization.” It was an easy step to then claim that Bayh-Dole mandated university ownership of inventions made with federal funding (so inventors had no way to opt out of university commercialization) and that Bayh-Dole furthermore mandated that commercialization, meaning the making of products for a profit (to be shared with the university, and generously shared with inventors as a perk for their compliance). There is no concept of dedication to the public that operates in this version of Bayh-Dole, even though in the Act itself these gestures were sprinkled throughout (but most were eliminated in subsequent amendments to the Act).

We can see, then, a rationale for universities to file increasingly more patent applications for inventions made with federal support, even if old-style principles of selectivity and agency did not support patenting. Bayh-Dole, so the story went, asked universities to try to commercialize each invention. And for that, the starting point (arguably) was a patent. And if industry adopted an invention without bothering to take a license, then Bayh-Dole authorized universities to litigate to defend the policy model of commercialization they found in Bayh-Dole. If you think Bayh-Dole really does expect university ownership and really does insist on commercialization, then patenting and litigating will appear to be reasonable–if not federally endorsed–behaviors.

If you read Bayh-Dole and the standard patent rights clause carefully, however, you will see that Bayh-Dole does not require university ownership [even with the NIST regulatory changes in 2018–which require contractors to require employees to make written agreements that include a promise to assign to the contractor any subject inventions–but subject inventions are inventions already owned by a contractor, and so the requirement is empty (if the contractor already owns) or inoperative (if the contractor has made the inventor a party to the funding agreement and also, therefore, a contractor)] and certainly does not require “commercialization.” The policy ascribed to Bayh-Dole is not in the law. It is a creation of patent brokers shifting from an external agent model to an internal portfolio model. In an agent model, if one fails to license, one loses work. In a portfolio model, one need license only one invention every two decades to be financially successful, so unlicensed, patented inventions are claimed to increase the odds that there will be at least one big hit deal every twenty years. The inventor who wishes to work outside this system is the one most likely to have a “valuable” invention and thus must be constrained to hand the invention over to the portfolio. Inventions flowing past the model–whether to be dedicated to the public or to be transacted privately into the hands of companies or standards organizations–decrease the odds that the portfolio will produce a big hit license deal.

The increase of university patents with government interest from a ratio of 1:5 to 1:1 indicates not so much the “success” of Bayh-Dole but rather the dominance of the shift by university patent brokers from an agent model to a portfolio model, and from the displacement of the “public interest” approach that valued “dedication” of inventions to the public by a competing “public interest” approach that valued “commercialization” of inventions through, primarily, exclusive licensing. In the IPA program, exclusive licensing was a secondary activity, after a university had shown non-exclusive licensing, even royalty-free, was not “feasible.” And even then, exclusive licensing carried a variety of limitations, especially on the term of the license. These limitations were carried over to the original version of Bayh-Dole, but were quickly eliminated in subsequent amendments, so that the present law retains the policy requirements (at 35 USC 200) for “free competition and enterprise” but lacks what once were specific requirements for achieving such free competition and enterprise. It’s not that the policy itself has been repudiated–rather, the law has been shorn of its specific guidance. The policy remains. It’s just that the traces of how that policy might be carried out have been effaced.

As the number of federally supported inventions increased relative to ordinary inventions in university management, university policies came under attack by the patent brokers for failing to “comply” with Bayh-Dole–meaning, failing to recite the patent brokers’ version of Bayh-Dole, especially the parts about vesting ownership with universities and mandating commercialization. Neither is in the law, but that did not stop the patent brokers from installing new patent policies that made their version of Bayh-Dole the dominant practice at universities. Even were it shown that they were wrong about Bayh-Dole (as the Supreme Court did for the vesting argument in Stanford v Roche), it does not much matter for altered university patent policies, which stand on their own, regardless.

Thus, in the graph above, showing the climb in patents on subject inventions in relation to patents on other inventions, we see the effect not so much of Bayh-Dole but of an idea about making a livelihood around patenting. Bayh-Dole’s mandate is practical application. Patenting is set out as a means to that end. The patent brokers turned that policy into one of patent ownership and a portfolio of trying to commercialize. As long as one tried, that was enough to prevent any federal march-in. We have only limited information on current actual “commercialization.” The numbers we find are on the order of 1 in 200 university inventions might become a commercial product. That’s close to two orders of magnitude poorer than the outcomes claimed for universities licensing their non-federally supported inventions, and one order of magnitude worse than university licensing outcomes under the IPA program from 1968-78.

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