Bayh-Dole preempts NIH policy on improper financial gain

Here’s a passage from the NIH Grants Policy Statement (Part I, Chapter 4):

NIH grants are subject to requirements intended to ensure that recipient organizations handle their Federal awards responsibly. Recipients are required to adopt and enforce policies that minimize the opportunity for improper financial gain on the part of the organization, its employees, and organizations and individuals whom they may collaborate, and that limit the potential for research results to be tainted by possible financial or other gain. In addition, NIH recipients are expected to provide safe and healthful working conditions for their employees and foster work environments conducive to high-quality research.

Now consider the application of Bayh-Dole. Bayh-Dole applies to subject inventions. A subject invention is an invention owned by a federal contractor that  is or may be patentable and was made in performance of work in a federally supported project. When a contractor acquires an invention and by doing so makes it a subject invention, then Bayh-Dole preempts all other statutes that would require any handling of inventions at odds with Bayh-Dole (35 USC 210):

This chapter shall take precedence over any other Act which would require a disposition of rights in subject inventions of  small business firms or nonprofit organizations contractors in a manner that is inconsistent with this chapter . . .

It is very fine for the NIH to make policy regarding “improper financial gain” and “tainted by possible financial or other gain” (whether improper or not), but Bayh-Dole makes such policy mere handwaving by preempting any requirements that would limit ownership rights in an invention. Patentable inventions are not the only things that arise in research, of course–there’s data, software, collected materials, know-how, experimental setups, protocols, checklists, know-how, findings, documentation, ideas. But patentable inventions are a key sort of research result–one that makes it possible to both publish and exclude all independent practice of the result. We might say that patentable inventions and discoveries lie at the core of any research activity, even if they are depicted as unexpected and infrequent.

Universities, however, routinely expand their definitions of “invention” to include nearly random laundry lists of all sorts of things–things that are not patentable and things that aren’t inventions–with a claim of university ownership of all such research laundry. The typical university patent policy then asserts some positive intent on the part of the university administration to commercialize everything that can be commercialized through every theory of ownership available to the university, including for the sake of inclusiveness theories of ownership that don’t actually involve ownership. One might wonder whether NIH policies with regard to conflict of interest might also apply to this expansive claim on research assets that aren’t subject inventions, since Bayh-Dole does not preempt federal statutes and regulations for such laundry.

Bayh-Dole lays out a basic right for small businesses and nonprofits in federal research contracting (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 . . .

A federal research contractor, if it acquires an invention, has no obligation to assign the invention to the federal government provided that the contractor (i) discloses the invention and (ii) notifies the government that it chooses to retain ownership.

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.

Paragraph (c) then imposes whatever limitations there might be on the contractor’s ownership (“rights”) in subject inventions. Since Bayh-Dole is part of federal patent law, “rights” here must include patent rights. Indeed, patent law specifies the scope of property rights in patents (35 USC 261):

Subject to the provisions of this title, patents shall have the attributes of personal property. . . .

Clearly, 35 USC 202(c) is a “provision” of “this title.” Patents on subject inventions (POSIs) have the attributes of personal property as set forth in paragraph (c) and “other provisions of this chapter,” along with the other attributes set forth elsewhere in patent law.

When a university acquires title to an invention–making it a subject invention if all other requirements are met–then Bayh-Dole preempts NIH regulations regarding the disposition of rights and substitutes those of paragraph (c) and the rest of Bayh-Dole–in particular, 35 USC 200 (policy and objective) and 35 USC 201 (definitions). There are eight sections in paragraph (c). We will skip through them without nuance–

  1. disclose
  2. elect to retain title
  3. file a patent application
  4. grant the government a license
  5. report as requested
  6. recite government funding and rights
  7. nonprofit requirements
  8. march-in rights (203) and preference for US manufacture (204)

The disposition of ownership under paragraph (c) ends up being to grant the government a license. Nonprofits have more restrictions, however–under section 7:

  • A. nonprofit patent rights clause must follow assignment of subject inventions
  • B. share royalties with inventor (but not other income with respect to subject inventions)
  • C. use income after allowable expenses for scientific research or education
  • D. prefer licensing to small businesses
  • E. for government-owned, contractor-operated facilities, use income after allowable expenses and up to a limit for scientific research or education or development, within the mission of the facility, and after the limit 15% goes to the US Treasury.

There is nothing here about “improper financial gain” or actions that might “taint research results by possible financial or other gain.” For the form of research result that most readily might be exploited for financial gain–improperly or otherwise–Bayh-Dole preempts any institutional controls. Rather, Bayh-Dole mandates for nonprofits–where one would expect the greatest concern that financial gain does not take precedence over public mission–Bayh-Dole requires the nonprofit to share royalties with inventors–that is, the inventors are required to be “tainted” by “possible financial gain” as a matter of federal policy the moment a federal award is granted to a nonprofit. Perhaps in some federal bureaucrat’s brain “tainting” inventors with the prospect of financial gain from exploiting a lucrative patent cannot possibly taint research results–but for anyone unaddled one would expect that tainting researchers taints the results. Results cannot be tainted on their own. It takes a researcher to do the tainting, and that requires a tainted researcher. Follow? Of course you do.

These sorts of requirements on inventions made with federal support have been in federal policy since at least 1963, with Kennedy’s executive branch patent policy. In 1979, a federal attorney who helped to draft that policy testified before a Senate committee that such apparatus to protect the public had never been used. And that’s the case today–the public protection apparatus of Bayh-Dole has also never been used. No march-in for failure to meet the standard of practical application–use with benefits to the public on reasonable terms. No enforcement of requirements on the use of royalties. No enforcement of the requirements on assignment of inventions by nonprofits. None of it happens. The public protection apparatus is there for appearances, not for use.

Besides paragraph (c), Bayh-Dole makes a contractor’s rights in a POSI subject to sections 200 and 201. Everyone ignores these, even though Bayh-Dole includes them. Section 200 sets out policy and objective. This is more than merely the purposes of Bayh-Dole–the use of “policy” stands to replace the patent policy of the executive branch. Furthermore, section 200 is not limited to subject inventions–it applies as well to federally owned inventions, which may not be subject inventions (since such inventions are not owned by a contractor, they fall outside Bayh-Dole’s definition).

Again, without nuance, here are the policy and objectives of section 200:

To use the patent system to:

  • (i) promote use of inventions
  • (ii) encourage maximum participation by small businesses
  • (iii) promote collaboration between for-profits and nonprofits
  • (iv) promote free competition and enterprise
  • (v) promote commercialization and public availability of inventions by United States industry and labor
  • (vi) ensure the government has sufficient rights for its use and to protect the public
  • (vii) minimize administrative costs

These policy elements carry substantial implications for the owner of a patent on a subject invention. An ordinary U.S. patent does not have a working requirement–but promoting the use of inventions is a working requirement. For instance, Bayh-Dole permits a federal agency to compel licensing for nonuse of an invention (203(a)(1)). Similarly, there’s no requirement for ordinary patents that they be used to promote free competition. The patent system has an uneasy relationship to competition generally, but there’s no point in calling out “free competition” with regard to inventions arising in federally supported work if one is merely calling attention to what the use of the patent system does anyway. No, here something else must be intended–that, say, a patent monopoly must be broken up in some way, such as through non-exclusive licensing or dedication to a standard. But there’s no guidance elsewhere in the law on how the owner of a POSI might comply with this aspect of the patent property right.

Perhaps then it is for the best that everyone ignores section 200 and at best treats the text here as fluffy Congressional surplusage, except for the word “commercialization”–which everyone repeats out of context, as if Bayh-Dole were mandating commercialization rather than that whatever commercialization and public availability comes about (that is, utilization–what Bayh-Dole defines as practical application) be done by American industry and labor.

The larger point here is that nothing in Section 200 has anything to do with financial gain. There’s not even a policy statement that Congress intends universities to attempt to use the patent system to profit from the exploitation patent monopolies. While it might be assumed that a for-profit company obtains a patent to improve its prospects for profit (however misguided such patenting may be), there’s no reason whatsoever to assume that a nonprofit obtains a patent purely on the prospect of seeking profit. We might, actually, prefer to assume the opposite–that a nonprofit obtains a patent to do something other than seek profit–such as ensuring broad access, limiting the ability of companies to block common development, trading licenses for access to otherwise proprietary technology, monitoring quality and compliance, contributing to open standards, improving interoperability, speeding development by distributing the costs–that sort of thing.

However one wants to look at it, Bayh-Dole ignores profit-seeking based on patent monopolies held by nonprofits. The deal is simply that if a nonprofit acquires an invention made in work with federal support, the nonprofit can keep that invention, subject to administrative fussiness, but without regard to how patent rights in the invention are exploited for financial gain. Thus, Bayh-Dole preempts the NIH policy requirements on improper financial gain or tainting of research results with the possibility of financial gain–at least for any subject invention, the stuff that would have the greatest possibility for things improper and tainting.

If the NIH were serious about improper and tainting financial gains, it would use Bayh-Dole’s procedures to determine exceptional circumstances (35 USC 202(a)(ii) and 202(b)) for inventions made in its research programs and directed toward matters of public health. Then the NIH’s conflict of interest requirements would apply to university licensing programs for POSIs. But even there, the NIH would have to show how conflict of interest requirements pertaining to financial gains that might be improper or tainting has anything at all to do with use of the patent system–it’s not enough to accuse someone of inventing a new therapeutic drug only because there was the prospect of millions of dollars in royalties, as if that incentive provided by the patent system somehow “tainted” the research result and, um, everything that follows is bad. Bayh-Dole requires that any determination of exceptional circumstances must show that any modified conditions of ownership or other disposition of a subject invention “will better promote the policy and objectives of this chapter”–that is, Section 200 “Policy and Objective” of Chapter 18 of Title 35.

NIH policy on conflict of interest in research focuses on personal conflicts, not organizational ones. But in either case, Bayh-Dole preempts even conflict of interest requirements that would affect the disposition (and therefore the exploitation) of patents when a nonprofit owns an invention made in NIH supported research. The nonprofit and the researcher-inventors involved can try to make as much money as they can, however they wish, short of violating antitrust law (35 USC 211).

For the NIH to show it is serious about improper financial gain and tainting of research results by nonprofits exploiting patent rights for financial gain, the NIH would have to show how there’s a prospect for better use of inventions, more access for small businesses, greater collaboration with companies, free competition, and more opportunities for U.S. industry and labor. Perhaps the NIH has people who would be up to this challenge. I am not so sure. The NIH seems much happier with making a show of public virtues than it does doing the things necessary to manage those public virtues within the statutory apparatus of Bayh-Dole.

In this way, Bayh-Dole turns what appears to be a fundamental policy established by the NIH to protect the integrity of sponsored research in areas of public health into an “exceptional circumstance.” Ah, the cognitive dissonance. And the NIH does not bother to re-assert such an important policy as an exceptional circumstance. You see, it’s really not that important that we worry about improper financial gains or tainting research results with the possibility of financial or other gain, at least if there’s a patentable invention that offers the prospect of lucrative returns from a company or investor hoping to “monetize” the right to exclude all others from access to something that might benefit people’s health.


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