Another garbled account of Bayh-Dole

A new article considering Bayh-Dole asks whether it’s time to rewrite Bayh-Dole. That’s a legitimate question to ask. Unfortunately, the article gets wrong much about Bayh-Dole the way it is. But even a garbled article can prompt a discussion that helps us frame better research enterprise policy. If you want to self-delude about policy, then read stuff by AUTM, AUU, APLU, BIO, PhRMA, or IP Watchdog. If you want to understand Bayh-Dole and related federal law and build a framework for considering policy changes at the federal or university level, then you might read on.


The landmark Patent and Trademark Law Amendments of 1980 set the background for how federally funded research moves from laboratory to industry by granting inventors and their research institution the intellectual property rights.

Bayh-Dole does not grant anyone intellectual property rights. See Stanford v Roche. Bayh-Dole applies only after a party to a federal funding agreement has acquired ownership of a patentable invention made under that agreement.

Before that law was passed, the funding agency retained the patent rights.

Fake history. Before Bayh-Dole, some 70+ universities and nonprofits had signed master agreements under the NIH’s Institutional Patent Agreement program, which required universities to require investigators to agree to assign and invention to the university if university administrators decided to file a patent application. The universities then could “retain rights”–even when the Kennedy and Nixon patent policies required inventions in federally sponsored projects directed at matters of public health should be acquired by the federal government and made available to all.

The IPA program was shut down in 1978 as ineffective and for doing sweetheart deals with the pharma industry. The same person who created the revived IPA program also drafted Bayh-Dole and said that Bayh-Dole was largely based on the IPA program. How on earth could Bayh-Dole do much of anything other than what the IPA program had done–be ineffectual and do sweetheart deals?

Advocates for the law argued that useful inventions never reached industry,

Yes, this part is true. Advocates for the law did indeed argue this point–but they provided no evidence for their argument. It was political bluffing. Useful inventions did reach industry–they were published and the federal government never sued for infringement. Everyone had access to most such inventions. The advocates’ argument was more along the lines that what was owned by by all would be used by none. That argument is also empty as a general claim. History demonstrates it is not true. See Stephen Johnson’s Where Good Ideas Come From, for instance.

Really, the advocates’ argument was that no company would develop an invention unless the company was assured of a patent monopoly on resulting products. That argument is true only in the sense that some companies, indeed, may refuse to invest without a patent monopoly. But many companies don’t care about patent monopolies and some are willing to develop inventions even when threatened with infringement by patent owners–even university patent owners. The advocates were blowing political horse gas out their posterior cortices.

What the Bayh-Dole advocates were actually arguing was that pharmaceutical companies that did base their development decisions on patent monopoly positions (think, in a weird way, about “patent” medicines) had boycotted federally funded research because they refused to use their resources to assist in the screening or synthesis of promising drug candidates unless they got a patent monopoly on the entire class of compounds in which they were involved. The IPA program was designed to circumvent executive branch patent policy and especially HEW policies and create a patent monopoly pipeline with public money to pharma companies. Since HEW rules wouldn’t make it easy for the NIH to grant exclusive licenses directly, NIH pushed the research work to nonprofits who the NIH had contracted with under the IPA program to enable the pipeline, off the books, as it were.

All this got cloaked to push through the Bayh-Dole scheme in a general claim about how inventions don’t get used (or developed) unless there are patent monopolies to be had. This was nonsense at the time and still is.

harming US competitiveness at a time when industrial decline was a big political issue.

Again, it’s true that Senator Bayh opened his remarks introducing S. 414 with a claim about US competitiveness. Again, Senator Bayh presented no evidence to back his claim–it may have sounded good, but only to people who had no clue anyway. The amount of federal funding to university faculty for research was inconsequential to U.S. industry’s international competitiveness–and still is, in general.

Behind this claim, however, is something even more absurd about the argument. If patents are so important, why then is it that foreign companies are apparently more than willing to use U.S. research for which no patent claims are made? What is it about U.S. companies that prevents them from using or developing any research invention unless they can first have a patent monopoly? That’s the implicit claim behind using the patent system for U.S. international competitiveness. If the argument were at all valid, then the federal government would have been filing foreign patents on every research invention that it could–to suppress foreign industry use and development to give the advantage to U.S. companies. Same for Bayh-Dole–the focus would have been on giving inventors incentives to file for foreign patents and more incentives to enforce those patents by excluding use or development by foreign companies to prevent foreign competition. But there was nothing like this. It was more political out-gassing.

We might think, even, that Bayh-Dole was a scheme to subsidize the U.S. pharmaceutical industry through research grants made to U.S. universities, framed as a general argument about inventions and patents, and presented as the normal operation of university technology transfer.

The law requires that, when a researcher discovers a potentially clinically useful molecule, they actively seek a deal with a pharma company.

Nonsense. There’s nothing like this in Bayh-Dole. There is no requirement for exclusive licensing. There’s not even a requirement to license. The standard in Bayh-Dole is “utilization” and in particular “practical application”–utilization with benefits available to the public on reasonable terms.” Here, our author offers up fantasy.

More than that, it’s rare that someone discovers a single molecule. They discover a class of compounds–often thousands. The patent claims the class of compounds, not merely a single molecule. Most any exclusive license to the invention (meaning, transfer of ownership) involves locking up all those thousands of compounds, from which the company assignee might (if things go right) choose one molecule to “develop” through clinical trials. The rest of the compounds in the claimed class are then excluded from any other use or development. The effect of the patent and exclusive license is that most of the research results–the claimed invention–are prevented from use and development.

Our author is correct in the sense that Bayh-Dole’s target was indeed to pipeline patent monopolies to the pharma industry. It’s just that it did so by creating the illusion that university administrators would control the shopping of patents to industry and researchers were disenfranchised. That’s how Bayh-Dole operates in practice, despite the Supreme Court being crystal clear that this is not the case.

Here let’s pause. If we wanted to revise Bayh-Dole but preserve the public subsidy of patent monopolies (nothing will be developed without patent monopolies) to U.S. pharmaceutical companies (international competitiveness), then we would do the following:

In matters of public health,

(1) no exclusive license can be granted to a non-US company, with no right to exclusive sublicense to any non-US company;

(2) if an exclusive licensee fails to “take effective steps” within one year of the effective date of the license to develop any molecule (or whatever), then the license must terminate (because there will be no development if the license converts to non-exclusive);

(3) if an exclusive licensee does “take effective steps” within one year, then for any compounds (or any other thing claimed by exclusively licensed patents) not being developed, the scope of the exclusive license must be restricted to exclude those compounds not being developed from the license (again, a non-exclusive license would mean that the compounds would never be developed);

(4) the federal government is required to march-in for any portion of any invention that is not subject to the standard of “effective steps” and grant an exclusive license to another U.S. company if the patent owner fails to do so, or fails to grant an exclusive license to a U.S. company that does so, within three years from the date of patent issue, and the federal government must then either grant an exclusive license itself or begin development at its own expense.

Again, these requirements  would apply only to inventions made in federally funded work directed at matters of public health. They represent acceptance of the arguments made by the advocates for Bayh-Dole–that patent monopolies are essential for biomedical inventions to ever be used or developed, and that these patent monopolies must be supplied to U.S. companies. There can be no waiver of these requirements (as the NIH makes a habit of doing now) without admitting that the arguments are political horse-puffery.

Of course, if patents and exclusive licenses are not necessary for either use or development of health-related inventions made in projects with federal support, then the rationale for Bayh-Dole falls apart and federal agencies ought to revert to the prior practice of taking ownership of such inventions and making them available to all, or otherwise require a patent owner to grant non-discriminatory non-exclusive licenses on terms that are fair and reasonable.

As for international competition to develop drugs that might benefit Americans, what does it matter who develops the drugs when those drugs are not subject to a monopoly arising from research? What is the public policy in seeking to suppress the initiative of foreign companies to develop drugs for the citizens of their countries–or for Americans, for that matter? It would appear to be a sad, strange, twisted sort of public policy.

More garble on Bayh-Dole:

The researcher must also disclose the discovery to the federal agency that supported the research, and this funder retains the licensing rights despite the scientist themselves owning the patent.

No–the standard patent rights clause (37 CFR 401.14) requires federal contractors to require their investigators to make a written agreement to protect the government’s interest in subject inventions. As part of that agreement, the investigators agree to disclose the invention to the contractor, and the contractor, having previously acquired the invention, is required to pass that disclosure on to the federal agency that funded the project in which the invention has arisen. In this scenario, the “scientist” does not own either the patent or the invention–a subject invention is an “invention of the contractor”–an invention owned by the contractor. Unless the scientist is also a contractor, it simply cannot be the case that the scientist owns anything once Bayh-Dole applies.

(There is a way that the scientist can be a contractor, but that path is beyond the ken of the article we are discussing.)

If the researcher or industry partner fail to seek to commercialise, the funder’s license gives it the authority to “march in” . . .

Our article now confuses the government’s license under Bayh-Dole with the government’s right to “march-in.” These are entirely distinct matters. The basic exchange in Bayh-Dole is at 35 USC 202(a). A nonprofit or small business may, if it acquires ownership of an invention made in work that receives federal funding, choose to retain that ownership, subject to the requirements of the provisions set forth for the standard patent rights clause at 35 USC 202(c). Among those provisions is a royalty-free license for the government to practice and have practiced each subject invention–that is, make, use, and sell–for and on behalf of the United States.

Here’s the core text from 35 USC 202:

(a) Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention . . . . The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter.

(c)(4)With respect to any  invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.

(c)(8) The requirements of sections 203 and 204 of this chapter.

Section 203 is the march-in provision. It has nothing to do with the government’s license. March-in is something else entirely. The government’s license means that the federal government has no obligation to compensate a patent owner for any government practice of an invention that the government has supported. March-in has to do with how a patent owner manages its patent rights with regard to the non-governmental market, beyond the scope of the government’s license–that is, practice of the invention that is not for or on behalf of the United States.

and take possession of the invention.

No, absolutely not. March-in permits the federal agency to require the owner of the subject invention to grant licenses as directed by the federal agency, and if the owner will not do so, then the federal government may grant those licenses itself. The march-in provision provides its own special license to the federal government that extends the government’s authority to the non-governmental market. Any march-in is not for or on behalf of the United States but rather in the public interest with regard to non-governmental practice.

The government may take “possession” of a subject invention under the standard patent rights clause when the contractor fails to disclose an invention, does not timely elect to retain title, does not timely file a patent application, or does not maintain or defend an issued patent. Nothing in the standard patent rights clause permits the federal government to take ownership of an invention for nonuse or unreasonable use of an invention.

In the biopharma sphere, AUTM says 200 new drugs have been launched thanks to the patent ownership transfer authorised under the law, commonly called Bayh-Dole after its chief sponsors.

No, AUTM doesn’t say that. It says that 200 new drugs (and other such things–vaccines, new ‘”indications”) “were discovered through research carried out in public sector research institutions.” That is, AUTM’s claim is not specific to Bayh-Dole inventions–just that university and nonprofit research contributed to the drugs and whatnot.

Furthermore, and this is important–there is no ownership transfer under Bayh-Dole. That’s what Stanford v Roche was all about, and the Supreme Court ruled there was no ownership transfer, no special privilege for institutions to acquire inventions made under federal funding agreements.

Our article then turns to university finances:

But on average, universities and biomedical research institutions recoup only a small fraction of their research expenditures.

This, too, is nonsense. The federal funding pays for the research and compensates universities for their administrative and facilities expenses. Universities don’t have to recover their research expenditures from licensing royalties. That’s clueless. Our article goes on to compare research expenditures and licensing income reports the licensing income as a “recoupment” but not even taking into account the share of licensing income that goes to inventors and to recover legal and technology transfer costs–which are not included in research expenditures. So it’s a misguided analysis. For all that, it really doesn’t matter if a university recovers its research costs or even its technology transfer costs from licensing revenues if it is working in the public interest–those costs arise in the public interest and can be covered from other sources. A university could license inventions royalty-free and serve the public interest, with no money for the license.

Our article returns to AUTM’s chief propagandist:

AUTM’s Mr Susalka, however, argues that Bayh-Dole was never intended to impose price controls on drugs, and indeed, the authors of the law, Sens. Birch Bayh and Bob Dole, wrote a letter to the Washington Post making this point.

It really doesn’t matter what Senators Bayh and Dole might have claimed about the law that carries their names. What matters is the policy and objectives set out for the law, the legislative history of the law (for which there is virtually no discussion as a result of the clever way in which Bayh-Dole was passed), administrative interpretations, and judicial guidance (such as Stanford v Roche). Already, in Stanford v Roche, the Supreme Court rejected the claims Senator Bayh made in his amicus brief in that case. Senator Bayh did not comprehend the law he fronted. 

KEI has a good argument that Bayh-Dole permits march-in for failure for a patent owner of a subject invention to achieve practical application–which means that benefits must be available to the public “on reasonable terms.” That does not mean that Bayh-Dole imposes price controls–or that it was intended to impose price controls–that’s pure straw man distraction. The point of Bayh-Dole, across its statement of policy and carried through its standard patent rights clause, is that patent monopolies on subject inventions are not ordinary patent monopolies but rather ones that carry a public covenant. “On reasonable terms” are not “whatever terms a patent owner decides are reasonable.” There would be no purpose for including “on reasonable terms” in Bayh-Dole’s definition of “practical application” if a patent owner was free to decide what was reasonable. Thus, while Bayh-dole does not impose price controls, it does set up requirements for “free competition and enterprise” and for non-exclusive licensing for nonuse or failure to provide “reasonable” availability. Price potentially enters into all of these elements of the “reasonable terms.” It is not something imposed by the law, but arises as a consequence of compliance with the law and its standard patent rights clause.

The reality is that Bayh-Dole and the substantive elements of the standard patent rights clause are not enforced. AUTM’s argument about price controls amounts to an argument that Bayh-Dole should not be enforced, and that’s why Bayh-Dole must be so wildly successful.

“Ideally you would like that drug available freely to everybody in the entire world,” Mr Susalka says. “In reality you’ve got some hurdles.”

Such horsegas from AUTM–again, the issue is not free drugs for everyone. That is not the “ideal.” The issue is why it is that drugs invented with public money must be placed into patent monopolies that recover for favored speculators and companies many times more than the cost to develop commercial product versions of a tiny portion of the overall invention that has been excluded from public access or use? What was wrong with the original Bayh-Dole restriction on nonprofit exclusive licensing to large companies–no exclusivity longer than the sooner of 8 years from the date of the license or five years from the date of first commercial sale? The “ideal” then is just what KEI points out with regard to Xtandi–that it is unethical for a drug that a generic company can make for a profit for $3 a pill should sell in the United States for something like $88 a pill–long after Medivation, the company originally acquiring an exclusive license from UCLA had recovered its development cost (which appears to have been under $300 million, almost all of the work outsourced).

Ideally, we might expect drugs based on inventions made with federal support to move quickly to generic manufacture, and if universities complied with Bayh-Dole’s standard patent rights clause, drugs would be developed and move directly to multiple generic manufacturers. The patent monopoly would be used to manage collaborative development rather than exclude collaboration in favor of acquisition by a sole speculator. Where a single investor fronts the development cost, drugs would move to generic after the investor had recovered its investment and stood to earn a “reasonable” royalty rather than a monopoly upside.

Why would any investor participate in such things? Perhaps to provide a service to its customers, to the public–the basis for many profit-seeking companies. Is that too much “ideal” for AUTM or university officials to swallow? Apparently. Public benefit means, first, speculator benefit and university benefit. Nothing in Bayh-Dole asserts such a thing as an objective. We might say, then, in imitation of Senators Bayh and Dole, that Bayh-Dole was not intended to make universities and their speculative favorites wealthy at the expense of the public suffering from disease and injury.

The author of our article struggles to show that universities are not getting wealthy from their patent licensing. But it appears that the universities’ licensing favorites have been doing well enough to be strong advocates for continuing the Bayh-Dole patent monopoly pipeline. In other words, Bayh-Dole enables the same pipeline that the IPA program built is generally ineffective, but for a handful of sweetheart deals.

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