Last year (March 2016), Joe Allen gave a talk at the University of Pittsburgh, “Patent Ownership Under Bayh-Dole, reported in the University Times. Called “a key architect of the Bayh-Dole Act,” Allen manages to fill a talk summary with mostly nonsense–but nonsense not so much silly as it is damaging, as this sort of thing harms inventors and university licensing practices otherwise built on solid foundations.
“If you’re taking federal funding, you have obligations: one of which under Bayh-Dole is you will report the invention, and you will assign the invention to the University, the contractor. And if the University doesn’t want the invention and the federal government doesn’t want it, then the inventor can get it back,” said Joe Allen.
Now, I don’t know if the quote is accurate or not, but whatever, the information isn’t true. There is no requirement that inventors assign to contractors in Bayh-Dole. The Supreme Court in Stanford v Roche make that absolutely clear. For all that, Bayh-Dole doesn’t apply to inventors or even to universities. It applies to federal agencies, requiring agencies to use a standard patent rights clause (SPRC, 37 CFR 401.14) as a default, what must be in that patent rights clause, and the procedures for varying from that clause or intervening if a university is not complying with that clause. The standard patent rights clause is authorized by Bayh-Dole but isn’t in Bayh-Dole at all.
Even under the standard patent rights clause, inventors have no obligation to report inventions or assign them to the university that hosts their work. It’s just not there. Universities have an obligation to report subject inventions (SPRC (c)(1)). But inventors don’t. Subject inventions are inventions owned by a contractor. A university doesn’t own inventions under Bayh-Dole, and they do not become subject inventions until the university does own them.
There is a way that the standard patent rights clause reaches to inventors, but it requires an action by universities to do it. Under the standard patent rights clause (SPRC (f)(2)), a university must require its potential inventors to make a written agreement to protect the government’s interest. That agreement includes an obligation to report inventions to the university so that it may report inventions to the government. Once that agreement is made, potential inventors become parties to the funding agreement and thus also are contractors, and their inventions are then subject inventions that must be reported. But the inventions are owned by the inventor-contractors, not the university-contractors.
And (f)(2) does not require inventors to assign their inventions to the university that hosts their work. NIST is working to change that–but there’s no authority in Bayh-Dole for such a change. With (f)(2) in place, universities necessarily displace their own patent policies and employment agreements by requiring potential inventors to make the (f)(2) agreement–they can’t both require (f)(2) and require anything that conflicts with (f)(2). If anything, (f)(2) limits the obligation of inventors to assign to their host university. And (f)(2), as a federal agreement, takes precedence over agreements made under state law.
Ah, but no university complies with (f)(2). That would be something to point out in a talk about patent ownership under Bayh-Dole.
Bayh-Dole provided incentives for commercializing federally funded research by streamlining federal agencies’ patent policies and enabling universities and small companies, rather than the government, to own the inventions that are created.
Companies and universities could own inventions made with federal support before Bayh-Dole. The Department of Defense allowed contractors to take ownership of patents, and a great deal of federal research went through DoD. The NIH used the Institutional Patent Agreement to permit nonprofits to own inventions made with federal funding. From 1955 to 1962, 18 universities were in the program, and from 1968 to 1978, many more universities and nonprofits were added. For the vast majority of federal funding, companies and universities could own inventions before Bayh-Dole. Allen tells a fake history that sounds good, and figures no one will check.
And as for universities, most didn’t take ownership of inventions anyway. Their patent policies designated one or more invention management organizations to work with university inventors. Bayh-Dole hardly “streamlines” anything–it’s a tangle of apparatus, inconsistent, full of gaps, and for most any contractor obligation there’s a walk back or a convoluted procedure designed to fail.
In the decades following World War II, the U.S. government became the chief funder of most basic research in the world, Allen said. However, because patent policies gave ownership of the ensuing innovations to the government, very little was being commercialized.
More fake history. Government patent policy (the Kennedy and then Nixon statements) directed federal agencies to contract to obtain assignment of inventions as deliverables, except in certain circumstances (such as companies with established commercial positions and contractors making a commitment to develop an invention to the point of practical or commercial application, as in the IPA program). According to the Harbridge House report, among federal public service agencies, including the Department of Agriculture, there is a list of inventions that were commercialized and notably none of them required exclusive rights. New fertilizers, potato flakes. Commercialized and plenty of incentive right there in something better to use.
Without patent protection, companies had no incentive to invest time and risk large sums of money to develop early-stage research into products. Likewise, there was little incentive for inventors or institutions to pursue their development.
Perhaps this isn’t what Joe Allen said. Anyway, the Harbridge House report demonstrated that most of industry had little interest in patents as an essential element in their decisions about products. There was one area where patents did matter, and that was medicinal chemistry. The pharmaceutical industry boycotted compounds discovered with Public Health Service funding because the PHS insisted on government ownership for the purpose of making the discoveries available to all companies. The history here makes it appear that the spat in medicinal chemistry and the substantial new regulatory requirements imposed on the pharmaceutical industry to deal with all the various forms of negligence and malfeasance possible in that industry represented all inventions in all industries. Just not so. Fake, misleading history.
Why universities would want to pursue “development” of inventions into commercial products is an open question, even now. In general, many university inventions are research tools–already useful without a product form. Others are methods–again, no need for a method to be turned into a product. It can be practiced by anyone capable of learning to use it. So why narrow all inventions into “products”? What a strange agenda!
“As early as the Kennedy administration, it became obvious these old patent policies were not taking new products to market because there was no incentive,” Allen said. The Kennedy administration devised a waiver policy under which an inventor could petition to keep the rights — but the process was slow and there was no guarantee that the waiver would be granted.
It’s true that Kennedy created the first uniform government patent policy. That policy was built on a set of default expectations with flexibility to address public needs. Plenty of new products reached the market–it’s just that they did so without the need for a private patent monopoly extracted from federally supported research.
But the bit about a “waiver policy” isn’t accurate at all. The Kennedy patent policy identified defaults when a federal agency should allow a contractor to hold “principal rights” in an invention made with federal support–when the contractor had an established commercial position and capability. Otherwise, contractors could request title on a case-by-case basis. There was no “waiver.” Perhaps what Allen means is the IPA program at the NIH, later including the NSF. That program was in place by 1953 and so pre-dates the Kennedy patent policy.
The IPA program was revived in 1968, primarily to address problems in medicinal chemistry. There, the IPA program operated as an end-run to the Kennedy patent policy. One might say it created bigger problems for everyone else than it solved for medicinal chemistry. The IPA program operated to convey to pharmaceutical companies exclusive rights in inventions made with NIH support, the universities taking a small (typically 1% or so) cut for playing the part of the broker.
More changes ensued in the Johnson administration, under which the National Institutes of Health (NIH) developed institutional patent agreements that awarded patent ownership to a small number of universities that had technology transfer capability, Allen said. “Almost immediately, technology started getting licensed,” he said.
More bad history. The NIH IPA program started in the 1950s. Efforts to restart the IPA program began under Johnson, in 1968, with the first new IPA program master agreement signed in December 1968 within a month of the end of Johnson’s administration. But the rest of the IPA program operated under Nixon and then Ford and Carter. But the expanded IPA program involved over 70 universities and nonprofits–pretty much anyone receiving significant funding from the NIH. So it wasn’t a “small number of universities”–it was most everyone. And the NSF program had its own IPA program.
There’s nothing to show that “almost immediately, technology started getting licensed.” Other than MIT, University of California, and Stanford, almost all universities pushed inventions to invention management organizations, and especially Research Corporation. The commercialization rate for non-federal inventions at these invention management organizations was reported at 25% or better. For biomedical inventions licensed by the PHS, the rate was 23%. For federally funded inventions under the IPA program, the commercialization rate was under 5% between 1968 and 1978.
Using data from 1957 and 1962, Harbridge House found that inventions were commercialized at half the rate when the patent owner lacked commercial experience. That rate was half again when the invention was licensed by a patent owner lacking commercial experience. The shift from patents in industry to patents licensed to industry by universities dropped licensing rates from 22%-25% to 6.6% (See page I-13). If one wanted to create the worst possible pathway by which a patentable invention might get used, Harbridge House data argue you would choose to move the invention through a university licensing operation. But oddly, Joe Allen paints a history that describes just the opposite.
“If universities own the technology, as opposed to government, the record shows that actually things will be commercialized,” Allen said.
Sadly, there is no such record to inspect. Bayh-Dole makes invention use reports a government secret. AUTM conducts an annual licensing survey but does not break out subject inventions and does not consider “practical application” or whether an invention has been “commercialized”–all that’s reported is how many inventions are licensed, not for each claimed subject invention whether it has ever become a commercial product. It’s no doubt true that some federally funded inventions have become commercial products–it’s just that it is false that there’s any record to show it, or to show that Bayh-Dole’s effect has been significant or beneficial or better than practices prior to Bayh-Dole. It’s easy then to make claims based on a non-existent record.
As an example, he noted that much of the U.S. biotechnology industry arose from licensed university research or startup firms spun out from universities.
And he may have pointed out that we are faced with a crisis of high drug prices, that the biotech industry has had only a few years of actual profits and many years of losses, and that there is not a ready other example to come to mind of an industry that “arose” from university licensing of federally supported inventions. Arguably, university patents have screwed up the information technology and nanotechnology industries, and done little for environmental technologies–fragmenting ownership, forcing companies to deal with institutional licensing regimes.
Bayh-Dole was created to formalize the NIH end-run around public policy to give pharmaceutical companies monopoly rights in inventions made with federal support while disenfranchising inventors and turning the operation into an administrative activity. This was billed as efficiency and perhaps is what Allen was referring to with the use of “streamlined”–the regulatory apparatus wasn’t streamlined, but appropriating ownership of inventions from inventors was. Taking inventions from inventors for institutional management was the fundamental innovation of Bayh-Dole. Call it inventor loathing. AUTM made that idea a virtue of administrative practice.
“Universities are commercializing two new technologies and starting up two new companies a day … because of the Bayh-Dole Act,” he said. NIH estimates that between 1996 and 2013, academic patent licensing added $1.18 trillion to the economy and supported 4 million jobs, and that each additional $10 million in research funding leads to 3.1 new patents, he said.
Academic patent licensing generally is not the same as licensing subject inventions. A “technology” is not the same as a patentable invention made with federal support. “Commercializing” is ambiguous. Does Joe Allen mean “licensed” or “new product on the market”? And how does any of these come about by Bayh-Dole? University inventors were starting companies before Bayh-Dole, all the way back to Frederick Cottrell and Western Precipitation. University-affiliated foundations were licensing inventions for use. Bayh-Dole diverted this activity from inventors and foundations to university administrators. That’s the big accomplishment, to institutionalize and banalize what otherwise was diverse, independent, and flexible.
Oh, and on the $1.18 trillion figure spread over 18 years. The US Gross Domestic Product over that same period is 224.7 trillion. Thus, even taking an estimate for all university licensing as somehow attributable only to federally supported inventions, we have a 0.8% contribution to the national economy. Excuse me while a wonder just how this 0.8% contribution is significant. If we consider that only about half of university claimed patents are based on subject inventions, we might expect the contribution to drop to 0.4%. Consider how much of that activity would have moved through inventors and invention management organizations were it not for Bayh-Dole, and Bayh-Dole’s contribution rounds neatly to about 0. It’s a nice thought that the licensing of federally supported inventions is significant. And it may be. But not in terms of GDP. If Bayh-Dole is not a disaster, it’s only because it just doesn’t matter.
The Stanford v. Roche decision made a distinction between an immediate assignment of rights and a prospective assignment in determining IP rights in the case of a Stanford researcher who conceived intellectual property under a visiting research agreement with a company, Cetus, which later was acquired by Roche. The IP was reduced to practice in conjunction with other researchers at Stanford. “The courts ruled it was a jointly owned invention,” he said.
The Supreme Court’s decision in Stanford v Roche had nothing to do with making a distinction between “an immediate assignment of rights and a prospective assignment.” The Supreme Court addressed whether Bayh-Dole vested ownership of federally supported inventions in the university that hosted the research. It had nothing to do with assignments–just the opposite, the Court dealt with Stanford’s contention that Bayh-Dole had changed federal common law of invention ownership so that inventors didn’t own the inventions they made with federal support. The Supreme Court rejected that argument. Bayh-Dole has to do only with the priority of claims to inventions between universities and federal agencies. Here’s the Supreme Court on the matter:
The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.
Perhaps what Joe Allen meant was that the Supreme Court let stand a portion of the CAFC decision, which held that a promise to assign rights in the future did not have the same effect as an assignment of future rights. A dissenting opinion in Stanford v Roche argued that these forms of assignment should not have such a difference, leaving it arguable that universities had no reason to change their patent policies on the matter.
For all that, had the lower courts understood what the Supreme Court ruled with regard to Bayh-Dole, they would have recognized that there was no issue at all with regard to Stanford’s assignment practice. Stanford required assignment of inventions only when Stanford was itself required to take assignment. Bayh-Dole did not require Stanford to take assignment and did not vest title with Stanford. The courts didn’t rule that the invention was reduced to practice at Stanford. It was reduced to practice at Cetus/Roche–Roche was selling product. Stanford wasn’t. The courts also did not rule that the invention was jointly owned. They ruled that Stanford did not have standing to sue Roche for infringement. Joe Allen’s account is neither accurate nor helpful.
“What makes it confusing is the courts basically said it’s a jump ball between Cetus and Stanford,” Allen said. “And Cetus got there first because it had an immediate assignment.” That decision prompted many universities to ensure their assignment agreements were immediate, rather than prospective.
Nothing confusing about the decision at all. The courts said Stanford had no argument about vesting. Cetus got there first because Stanford never had a contractual claim on the invention that the researcher made while at Cetus. When Stanford got around to obtaining assignments from its inventors–after having filed a patent application–the assignment to Cetus had already taken effect. It did not take precedence over any earlier promise to assign. There was no earlier promise to assign that applied to the invention. And once the assignment to Cetus had been made, the inventor had no rights remaining to assign to Stanford. There’s nothing confusing at all, other than when folks go around the country spouting confusion.
Either way, Allen said in response to questions from faculty in the audience, the IP did not belong to the researcher.
“Bayh-Dole says the subject invention will be owned by the contractor,” which is the institution that received the grant, Allen said.
“If you’re taking federal funding, there’s the agreement that you will assign it to the university.”
Total nonsense. In Stanford v Roche, the whole point of the argument was that the invention did belong to the researcher, and he assigned his rights in the invention to Cetus/Roche. There’s nothing in Bayh-Dole that says subject inventions will be owned by the contractor. Subject inventions are defined as inventions “of a contractor.” The definition does not vest inventions with the contractor. When an invention is acquired by a contractor, then it becomes a subject invention. Whatever agreement there is to assign inventions to a university hosting federal funding, it is not a matter of Bayh-Dole.
NIST might change the assignment situation soon, but even then it won’t be a matter of Bayh-Dole, which authorizes no such thing and the Supreme Court packed that down. NIST will just pull the idea of assignment out of its bureaucratic posterior cortext, perhaps after listening to another talk by Joe Allen and getting an idea about where to get its ideas about Bayh-Dole.