Xtandi demonstrates how Bayh-Dole is a do WTF you want law, 1

There is a big divide regarding what Bayh-Dole was supposed to accomplish with regard to the use of patents on publicly funded research. On one side is the view that publicly supported research should be freely or otherwise reasonably available to all, with exclusivity used only to “call forth private capital” that otherwise would not be made available or where a contractor already has an established commercial position and capability and it would be inequitable to require the contractor to give up that position simply because it undertook research for the government. Bayh-Dole codified these goals and protections for all federal agencies.

On the other side is the idea that the goal of public support for research is the development of commercial products, and that essential to that development is the freedom of patent owners on inventions made with federal support to exploit their patents however they choose, so long as products based on federally supported inventions are available for sale to the public. In this view, the incentive to secure monopoly prices is one of the primary features of the Bayh-Dole Act, which by law limited how the federal government could interfere with the private exploitation of patent rights.

The debate has taken focus around the idea that Bayh-Dole march-in procedures can be used to regulate the price of drugs that were discovered with federal support. Perhaps. Jamie Love at Knowledge Ecology International requested that NIH and DoD “march-in” to deal with the high cost of the drug Xtandi, which was “invented” with federal support, patented by UCLA, and licensed exclusively (in fact, assigned) to a company set up to prospect for new drugs, which eventually sold itself and the UCLA license to Pfizer.But there’s little in the text of Bayh-Dole that would support such a march-in. While the definition of “practical application” does require that the “benefits” of a subject invention be made “available to the public on reasonable terms,” there’s nothing in the law to define what’s reasonable, nor is there anything in the march-in procedures regarding price. Certainly it is clear that “reasonable” must be something other than “whatever a patent owner decides to do to exploit the patent monopoly.” If “reasonable” just meant “whatever,” there would be no need to include “reasonable” in the definition of “practical application” because “reasonable terms” would mean merely “any terms short of antitrust.” No–“reasonable” does mean something else–and therefore acts as a limitation on the patent property right of an owner of a patent on a subject invention. Jamie Love has a point there.

The problem, however, is that Bayh-Dole fails to make an express linkage between its statement of patent policy (35 USC 200), which requires “utilization,” and the definition of practical application (35 USC 201(f)), which focuses on use, with public benefits on reasonable terms, and march-in (35 USC 203), which limits the causes for federal intervention, which for nonuse has to do with lack of foreseeable effective steps and for inventions directed at public health has to do needs being “reasonably satisfied” and not with “reasonable terms” and not, apparently then, with price–and makes it clear that federal agencies do not have to march-in at all. WTF.

The march-in triggers at 35 USC 203 have to do with (a) a “reasonable” time for development; (b) public needs are “reasonably satisfied” by the contractor; (c) “reasonably satisfied” federal requirements; and (d) a failure to substantially manufacture in the U.S. That is, while the law specifies “reasonable terms,” the march-in provisions merrily ignore the terms and focus on other reasonable things, such as time and meeting needs. Those associated with drafting of Bayh-Dole insist that this mis-match was intentional, that the march-in procedures were drafted with the expectation they would not involve price. Those associated with Bayh-Dole might also go ahead and point out the more general objective–that the march-in procedures were drafted to be so loathsome they would never operate. Of course, then, price would be one of many causes that would never trigger march-in. Nothing triggers march-in. Price is a member of the nothing set.

One would think that price would be a fundamental concern of “reasonable” terms. But perhaps not to patent attorneys drafting to create private monopolies from publicly supported research. And certainly not if Bayh-Dole is drafted so there is a disconnect between public policy, a policy definition, and government action to protect the public.

Bayh-Dole does not set up for direct federal price controls as a matter of march-in procedures. But Bayh-Dole does set up for competition, and competition in its way does have something to do with price. That, however, is done in 35 USC 200–the Congressional statement of policy and objectives made a part of federal patent law that sets the boundaries for the property right available for patents on subject inventions. In the Congressional statement, patents on subject inventions must promote use, not exclude use. These patents must promote “free competition and enterprise”–something difficult to do with a monopoly unless it is brokered into non-exclusive licenses or into narrowly drawn exclusive licenses (for a term shorter than that of the patent, for a product that permits other, competing products using different approaches, and the like).

Bayh-Dole backs these requirements up for nonprofit organizations by prohibiting the assignment of subject inventions. Nonprofits may assign subject inventions only to an invention management organization, and only then if the invention management organization takes on the same obligations as the nonprofit, including a restriction on using patent income after costs only for scientific research or education. Otherwise, a nonprofit must get the federal government’s approval for the assignment, and even then, the nonprofit obligations must go with the assignment.

Now it is important to recognize that an exclusive license, if improperly done, may function as an assignment. Courts have looked specifically at university exclusive patent licenses and found them to be, in fact, assignments. An exclusive grant for substantially all commercial rights, with the right to sublicense and to sue for infringement, appears to meet the court determination of an assignment, even if there are reservations of rights for research, for government use, and for other territories. It is a canon of interpretation that a legal document is determined not by how it is labeled but by what it does. If a written instrument assigns a patent, then it does not matter that the instrument is labeled “exclusive license.”

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