Let’s say that companies have diverse views about patenting, as the Harbridge House report documented, and some companies might decline to participate in federal research because they can’t get title to inventions and won’t settle for a mere license. We might argue, then, that these companies might miss out on federal funding opportunities. What is the policy demand that they be included, if that means changing federal patent policy for all other companies? The one class of companies that would be willing to sue to keep others from practicing an invention appears to be the class of companies that Bayh-Dole was built to serve–to the exclusion of all the others. But that’s just the suspect arrangement, not the bogus one.
University patent brokers take this argument about what some companies in some industries might require, if they are to “participate” in federal research, and turn it into an argument that universities have a hard time if they “mix” funding from the government and from these same patent-fussy category 5B companies. Here’s the Bayh-Dole policy statement:
to promote collaboration between commercial concerns and nonprofit organizations, including universities
In the abstract, this sounds pleasant. Who is against collaboration? But really, that’s not the issue. The issue is the special special case, in which pharmaceutical firms offer to screen drug candidates discovered at universities in federal research–so long as the pharmaceutical company gets an exclusive license (=assignment) to anything interesting. That’s the “collaboration” that matters–everything else is rhetorical abstraction. The public interest to address matters of public health through university research becomes, in effect, a subsidy for pharmaceutical companies. Perhaps that is a legitimate government policy position–but then why not out and make the case for it rather than bury it in such a stultifyingly convoluted statute as Bayh-Dole?
“Collaboration” might come in a variety of forms. Research collaboration. Sharing of technical information and personnel. Access to results (even licenses and cross-licenses). Standards formation. These are all general categories. Here’s Bayh-Dole’s implementing regulations, worrying scope (37 CFR 401.1):
(a) Traditionally there have been no conditions imposed by the government on research performers while using private facilities which would preclude them from accepting research funding from other sources to expand, to aid in completing or to conduct separate investigations closely related to research activities sponsored by the government.
This opening sentence says, the government has not insisted that only government funds be used to complete a government project. One can mix funds, “traditionally.”
Notwithstanding the right of research organizations to accept supplemental funding from other sources for the purpose of expediting or more comprehensively accomplishing the research objectives of the government sponsored project, it is clear that the ownership provisions of these regulations would remain applicable in any invention “conceived or first actually reduced to practice in performance” of the project.
But Bayh-Dole still applies if a contractor obtains title to an invention “conceived or first actually reduced to practice” as specified in the government-funded project. The wording comes from the definition of “made” in Bayh-Dole (a definition not even used in the definition of subject invention–go figure), and the concern for scope has to do with the meaning of “in the performance of work under a funding agreement.”
Separate accounting for the two funds used to support the project in this case is not a determining factor.
That is, the issue in mixing funds is not one of accounting. In the general case, one might think about a company receiving federal support and also supplying its own funding or funding from a strategic partner. But really we are looking at universities receiving funding and wanting to farm inventions out to companies who are willing to do some work for free or supply funding for university personnel to do work outside the federal grant.
The implementing regulations distinguish two cases. Here’s the first:
(1) To the extent that a non-government sponsor established a project which, although closely related, falls outside the planned and committed activities of a government-funded project and does not diminish or distract from the performance of such activities, inventions made in performance of the non-government sponsored project would not be subject to the conditions of these regulations.
In the special special case, if a university project proposes to investigate an area of medicinal chemistry but does not propose to screen compounds for activity, then if the invention is made in screening compounds–discovering which ones are active for a particular purpose–then those inventions are not “subject to the conditions of these regulations.” That is, cannot be subject inventions. That’s enough, right there, to circumvent the PHS policy of taking title and making inventions available to all.
An example that’s not really an example.
An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology.
This is an example by abstraction. The specific instance is PHS research to discover new classes of compounds in medicinal chemistry and a pharmaceutical company interested in turning compounds into medicines with a patent monopoly. But the specific case is presented as a generic case. You would have to already know the problem area to know how this language deals with it without identifying it. Clever.
The effect of the example is to make the simple statement: if a project does not specify the application of new knowledge to develop a new product, then anything that invents while applying new knowledge is not “made in the performance” of the project unless project resources are diverted such that the project does not do all the work that has been proposed in the time allotted. If the project does all it proposed to do, and on time, then it cannot be shown that anything was diminished or distracted.
There follows the usual Bayh-Dole walkback of claims–time separation doesn’t matter; if an agency challenges a contractor’s claim that an invention is out of scope, the contractor can appeal the challenge.
Second case:
An invention which is made outside of the research activities of a government-funded project is not viewed as a “subject invention” since it cannot be shown to have been “conceived or first actually reduced to practice” in performance of the project.
This case rehashes the first case, but now the invention is made outside the project–it is not the application of new knowledge produced by the project but rather the project resources. Example:
An obvious example of this is a situation where an instrument purchased with government funds is later used, without interference with or cost to the government-funded project, in making an invention all expenses of which involve only non-government funds.
That is, use of equipment or data or materials created in a federal grant but outside the statement of work for such resources, or after the grant term is completed. Any invention made cannot be a subject invention because the burden must be to show that the invention was within scope, and by the premises of the example, the invention was not within scope, so it is–the conclusion contained in the premises–not a subject invention. The “obvious example” would be a better example if “later” was omitted–the equipment was used concurrently with a federally funded project but without interference (distraction) or cost (diminishment).
Again, “non-government funds” is general. Let’s say that a class of compounds discovered and synthesized in a federal contract are then made available to a pharmaceutical company for screening, and some of these are found to have activity against a particular cancer. The scoping statement here argues that the invention was not made in the performance of the federal project and the invention is not subject to Bayh-Dole or its standard patent rights clause.
What’s then really curious is that universities, rather than seeking to limit the scope of Bayh-Dole’s patent rights clause to just those inventions that met the definition instead broadened the scope to most anything–something the Supreme Court chided them for in Stanford v Roche. If an invention isn’t anticipated by the statement of work–and the burden is on the federal agency–then it’s not a subject invention, even if closely related, even if using the resources acquired or created in the federal research.
Why the expansion of scope? Most likely, because Bayh-Dole was represented to university administrators as a vesting statute–the university would own anything that came within scope. So why not broaden the scope, as that would be hard for federal agencies to argue against? Then represent to the faculty that university ownership was required to comply with the law, and make invention disclosure forms as broad as possible. Then use the exclusive licensing = assignment pathway in the standard patent rights clause to move patents to pharmaceutical companies, to biotech startups hoping to be acquired by pharmaceutical companies, and to biotech startups hoping to become pharmaceutical companies.
Why use the licensing apparatus within the standard patent rights clause when the implementing regulations offered a narrow scope for subject inventions? Most likely, because Bayh-Dole was represented to university administrators as all but requiring commercialization, and commercialization in turn was represented as requiring patent monopolies to attract the necessary “private risk capital.” Thus, handing patent rights to pharmaceutical companies and biotech companies was seen as a federal mandate, not a decision made in the public interest by university officials (or by principal investigators, or by inventors). The decision to operate in the public interest (however that idea might be construed) was disabled by Bayh-Dole, or rather made arbitrary and defined as conveying patent monopolies for speculative investment that might result in commercial products (but need not).
The two cases in Bayh-Dole’s implementing regulations are the expression of the “collaboration” between nonprofits and “commercial concerns.” Rather than permitting the broad mixing of funds, under which the government might give up its ownership claims under the principle of equity (as permitted by the Kennedy patent policy), the statement of scope simply limits the interest of Bayh-Dole in inventions. If the invention is not specified as a deliverable or otherwise anticipated in the grant proposal and budget, then it is not within scope.
This limitation on the scope of federal interest works directly against the PHS patent policy. That is not be accident or as an unintended side effect. The PHS patent policy expected the disclosure and federal ownership of “all inventions arising out of the activities assisted by Public Health Service grants.” It’s that “arising out of” language that is broad, compared with Bayh-Dole’s limitations on scope. The PHS language might appear even broader with the added requirement for annual invention reporting: “The statement should include all inventions which might possibly be construed in any manner to be Public Health Service grant supported or related” (my emphasis–but the original is set in italics for emphasis).
Bayh-Dole is the walkback on PHS patent policy, and in its way also payback. Bayh-Dole puts federal patent policy out of reach of federal agencies, and even beyond the executive branch (other than extending Bayh-Dole to large companies, which Reagan promptly did). Bayh-Dole makes the special special case the arbitrary government-wide default, and then makes it all but impossible to alter that default or even to enforce it or for the government to act to benefit from it.
It is this “mixing” of funds that university patent brokers worried–that a pharmaceutical company would be forced to cede inventions to the government, even after a university agreed to allow the company to own inventions or gain an exclusive license (that all but granted ownership) in exchange for doing initial screening of compounds. Bayh-Dole covers the situation two ways: first by limiting the federal government’s scope of interest in inventions and second by creating an apparatus that permits exclusive licensing of inventions without limitations (such that even exclusive licenses that amount to assignments are permitted–or at least restrictions on such license-assignments are not enforced).
Prior to the restart of the IPA program in 1968, if a university accepted federal funds to do research in medicinal chemistry, then it could not easily accept pharmaceutical industry funding in the same area, or to do related work such as synthesizing or screening of compounds unless it did that work as a CRO–without an interest in patents, purely for the technical information or as a contract service (or, horrors, a public service). Pharmaceutical companies refused to work on such conditions. Either they got title (or the exclusive license-assignment equivalent of it) or they refused to participate in government contract opportunities. It is this specific case that has been turned into a general case regarding all inventions across federal agencies and their diverse patent policies, all industries and all company patent practices.
There are companies that prefer not to deal in patents. There are companies that deal in patents only to mark “technical competence.” There are companies fine operating under licenses–such as the FRAND licenses of industry standards. There are companies that use patents only as a defensive measure, against the assertion of patents that block their activity or other behaviors that are unfair or anti-competitive. For any of these companies, Bayh-Dole is a federal nightmare. Bayh-Dole plays to the companies that would assert patents to block activity of others, who do so because their investors expect such monopoly-enforcing behaviors. Universities grant exclusive licenses that demand such behaviors and prevent alternatives–such as cross-licensing or dedication to a standard or royalty-free non-exclusive licensing to all qualified companies (but controlling for, say, quality and safety).
The university argument for “mixing funds” is actually a patent broker’s assertion that institutional trade in patent monopolies should be the fundamental theme of all federal funding to universities. This assertion is an attack on a broad swath of industry that has no need for patent monopolies to justify commercial investment in products. Indeed, this assertion creates the need for companies to adopt patents as defensive measures against such monopoly trade. That trade can be mitigated when it is managed by companies practicing in the industry–through standards, cross-licenses, and as necessary settlements of suits and counter-suits.
But where the trade is initiated by non-practicing entities–especially universities and failed venture-backed startups where the investors want to “monetize” the licensed patents, industry has less effective methods of mitigation. One can’t take non-exclusive licenses because universities won’t offer them unless a company sponsors research in just that same area, at the same time as the federal funding. So companies form consortia not so much as to cooperate in technology development as to restrict a given university’s trade in monopoly patent positions–as well as each others’.
The “mixing” argument then turns out to be a “purity” argument. By mixing federal and private funds, a university can turn the federal funds into a private investment subsidy, and for the magic of doing so, can participate in the financial returns of the monopoly that has been created. One might think of the university situation as holding a preferred, dividend-producing stock, call it Series BD, issued on a specific class of products based on a patent monopoly conveyed by the university. As such, the exclusive license is actually a form of security, a private stock in the future financial value of the product covered by the licensed patent rights. In this case “mixing” doesn’t create a “mixture” but rather turns the federal subvention–a grant to a principal investigator, deemed to be in the public interest–into a subsidy for speculators, along with their other money.
It may be that such a federal policy is truly enlightened, creating a golden goose for speculative investors, because the subsidy comes at them to the tune of $40B a year, and it is all a university can do to patent everything it can to create a portfolio for investors to rummage through to find just the right subsidy product for their next scheme. But if the golden goose is somehow to be associated with outcomes, with inventions arising in federally supported research that are broadly used–by the public, by companies, and even developed into products–then Bayh-Dole has to be seen as failed federal policy. It’s arbitrary where we expect flexibility. It enables patent attacks on companies without providing means for those companies to defend themselves. It turns speculative investment relying on patent monopolies from a special case into the general case, the only case. That’s a bizarre federal policy.
Perhaps it doesn’t matter. That would be a relief because few people seem to care. But also, it may be that if so few people care, it is not because Bayh-Dole is a wild success but because federal funding for university research simply doesn’t much matter, other than to the university folk who see federal funding as an entitlement and virtue-signalling about hope for better lives through licensing patent monopolies. Despite the pitches by university vice presidents for research, it doesn’t much matter if federal dollars are reduced 10% or even 20%. University faculty have their salaries–they might have to teach, and that would put a bunch of part-time contingent folks out of work, and some graduate students would have to pay their way through science degrees rather than work as lab slaves–but despite that pain, innovation would not be affected in the slightest, since there’s not much room at 0.5% to drop it any lower.