We are working through the NIH’s most recent misrepresentation of the Bayh-Dole Act. In the first part of this effort, we looked at the NIH’s bungling of the basic premise of Bayh-Dole and the concept of practical application. Bayh-Dole’s first stated policy objective is the use of inventions. When a funding recipient gains ownership of an invention made in work supported with federal funding, Bayh-Dole then applies. Failure to achieve practical application is the standard upon which a federal agency may, but never has to, compel the owner of a subject invention to grant licenses on reasonable terms.
Now to untangle. Bayh-Dole deals not only with contractor owned inventions–subject inventions–but also with federally owned inventions, including those that the federal government obtains through the operation of Bayh-Dole when a contractor fails to disclose, or does not elect to retain title that the contractor already has gone to the bother to obtain, and the like. For federally owned inventions, Bayh-Dole authorizes federal agencies to grant licenses, including exclusive licenses and exclusive licenses that are in fact assignments, 35 USC 207:
grant nonexclusive, exclusive, or partially exclusive licenses under federally owned inventions, royalty-free or for royalties or other consideration, and on such terms and conditions, including the grant to the licensee of the right of enforcement pursuant to the provisions of chapter 29 as determined appropriate in the public interest;
The implementing regulations for sections 207 and 209 make it clear that federal policy for federally owned inventions is utilization:
It is the policy and objective of this subpart to use the patent system to promote the utilization of inventions arising from federally supported research or development.
Skip all that stuff in Bayh-Dole 35 USC 200 about free competition and enterprise, for instance. Yes, Bayh-Dole still references that stuff (35 USC 209(a)(4), (b), and (c)), but the CFR treats these like an afterthought, not as the fulfillment of a broad statutory policy.
An exclusive license that conveys the right of enforcement means that the invention has been assigned–the owner of an invention has the right of enforcement. That’s pretty well established in the courts. Bayh-Dole then slips in that federal agencies have the right to assign inventions–but cannot actually use the term “assign” and so we get exclusive license with right to enforce–which amounts to the same thing. See–section 207 is directed to federally owned inventions–not to federally owned patents, and not to subject inventions.
Section 209 then sets out the requirements under which a federal agency can offer an exclusive license. An exclusive license preserves the monopoly rights of a patent on an invention. In effect, Bayh-Dole authorizes the federal government to re-issue, as it were, patents. First the federal government obtains the invention from inventors or contractors, and then the federal government gets to decide who should have the benefit of a patent monopoly on the invention. Without any objective standard–such as who was first to file a patent application–the federal government is authorized to play favorites. This is the very behavior that the drafters of the Constitution aimed to eliminate with respect to patents by restricting them to a right reserved to inventors. The government works that system by forcing the inventors to give up their Constitution-authorized rights to the federal government and then the federal government goes its merry way as if it had issued the patents to itself and could do whatever it wanted with them. Free favors to hand out as it wishes, calling do so “in the public interest.”
It’s just that the thought was among those setting up this new system that the public wasn’t ready for it yet. Thus, Bayh-Dole takes some pains to establish an apparatus to protect the “public interest” that should attend exclusive licensing by the federal government. Among the various requirements is this:
A Federal agency may grant an exclusive or partially exclusive license on a federally owned invention under section 207(a)(2) only if—
(1) granting the license is a reasonable and necessary incentive to—
(A) call forth the investment capital and expenditures needed to bring the invention to practical application; or(B) otherwise promote the invention’s utilization by the public;
In this first requirement, a federal agency may grant an exclusive license only if the license is an “incentive” to “call forth” (that’s the 1963 Kennedy patent policy language) private money for practical application–use with benefits available to the public on reasonable terms–or without private money or practical application if by exclusivity the invention will be promoted for use by the public.
Let’s only briefly pause to note the logic–a federal agency can grant an exclusive license if exclusivity is a “reasonable and necessary incentive” to get private money invested in developing an invention for public benefit on reasonable terms. If no private money is needed, or if private money would be invested without exclusivity, then it is neither reasonable nor necessary for the federal government to deal in monopoly patent rights. But that’s just prong (A). Prong (B) says that even if it is not reasonable and not necessary to grant an exclusive license with regard to private money, the federal government can still grant an exclusive license for some other reasonable and necessary incentive. Wow. What would that incentive be, if it does not involve money and does involve preservation of the monopoly right to exclude? One might imagine the federal government granting an exclusive license to a standards organization on the condition that the standards organization grant non-discriminatory royalty-free non-exclusive licenses–but then why not simply release the invention on those terms directly? What is reasonable or necessary about an exclusive license in such a case? And what else is there besides money and exclusivity that would make it necessary for any exclusive license at all to be granted so that “otherwise” the public would have the benefit of utilization of the invention?
Yeah, it’s a crock of a provision. But the purpose all along was to enable federal dealing in patent monopolies, and the basis for that was a misuse of the findings of the 1968 Harbridge House report which documented the pharmaceutical industry boycott of federally supported research in medicinal chemistry because the companies in the industry refused to develop any invention for which they did not control exclusive rights–not just to cover the drug they might develop, but to exclude all others from developing any of the hundreds or thousands of compounds that were typically caught up in any patent in medicinal chemistry. See the comments on the Nixon revisions to the Kennedy executive branch patent policy, describing “health inventions” considered by the Federal Council for Science and Technology:
The Federal Council believed that the results of the Harbridge House Study demonstrate that, under certain circumstances, this type of invention will not be used commercially, and will, therefore, be unavailable to the public, unless some form of exclusivity can be granted. . . . where the head of the agency determines that such action is a necessary incentive to call forth private risk capital to commercialize the invention.
Harbridge House documented that the pharma industry boycotted federally supported inventions if they could not secure patent monopolies. Pharma companies refused to provide initial screens for potential therapeutic activity for classes of compounds identified in federal research if they could not then take out patents that claimed those classes of compounds when they did find compounds with interesting biological effects. Whatever the Federal Council believed about the Harbridge House study, the policy issue was whether public health inventions made in publicly funded research should be the subject of private patent monopolies or whether those inventions should be treated as open standards. If this was to be a war on disease, as Vannevar Bush proposed, then should every platoon that figures out a new weapon have a monopoly on that weapon for as long as it is profitable to them, or should each “platoon” share its findings for use across all those involved in the “war.” And if a “platoon” refuses to fight unless it has monopolies on weapons, should we let it have any further role in our fighting disease?
The Nixon revisions to Kennedy’s patent policy then make room for a special, special circumstance–where an invention, to benefit the public at all, must be made suitable as a commercial product and no government funding or public charity funding is available to that effort of development and no one with private capital will participate in the development of the invention without a patent monopoly, and then the federal government should allow an exclusive license rather than leave the invention to languish in the public domain forever.
We might observe, just by way of sanity, that if a health-directed invention is all that important, people have found a way to profitably develop and make it. Insulin, say. Polio vaccines. Even when there is a substantial expense in formulating and testing a given compound, there’s nothing other than the intransigent practices of the patent medicine industry that prevents companies or investors from working together to share the costs of development. There’s nothing inherent in the development of new medicines that requires patent monopoly behaviors. For that matter, as an article in The Economist points out, citing a study by Dean Baker, the federal government could fully replace all pharmaceutical research and development with its own funding, release manufacturing-ready drugs for commercial exploitation, and save more than $100 billion.
America’s health systems, he noted, spent $210 billion on prescription drugs that year. Based on how much cheaper generic drugs were than patented ones, Mr Baker calculated that a competitive patent-free market might have provided the same drugs for no more than $50 billion. That represented a saving of $160 billion.
The drug companies reckoned at the time that they were spending $25 billion on R&D; the government was spending $30 billion on basic medical research. The money it would have been able to save buying drugs for Medicare and Medicaid in a patent-free world have allowed the government to double that research spending, more than replacing industry’s R&D, while still leaving $130 billion in public benefit.
That would be $130 billion not available as profits, and not available as dividends for retirement plans invested in pharmaceutical companies, and the like. But it would free that money up for other uses–you know, whatever uses that you or I might have. What a thought! In the forward to a recent (October 2018) paper, Baker follows up his contention that intellectual property in health related fields results in much higher costs:
Perhaps the most notable example is prescription drugs where we will spend over $420 billion in 2018 in the United States for drugs that would almost certainly cost less than $105 billion in a free market. The difference is $315 billion annually or 1.6 percent of GDP.
That’s enough money that it is worth considering at least how NIH and NSF funding directed at matters of public health might contribute to a free market–or at least a market based on open standards. Instead, both the NIH and university administrators make it out to the public that it is a virtue that they have contributed to the profitability of the pharmaceutical industry using the results of publicly financed research. How utterly strange. It’s like having an old west gang ride into town, brag about its train and bank robberies, and expect accolades from the townspeople.
The explanation for the crock logic of Bayh-Dole in section 209(a)(1) is that the fundamental, though largely unstated directly, theme of federal research patent policy has been to enable the pharma industry to receive patent monopolies on federally supported research. We could have gone other direction–we could have told the patent medicine industry to go its own way, and then we could have developed new capabilities to develop medicines based on open standards and open data–like we did with, say, the digital computer and the internet. Or we could have pressured the patent medicine industry until it agreed to contribute resources for reasonable profits rather than atrocious profits. But alas, no, the virtue was to be found in dedicating public funding to prop up the patent medicine industry–complicated thing, only a select few patent administrators are capable of understanding how to make such a system work without getting the public utterly enraged at the looting of the opportunities their money has enabled and exploitation then of their health needs. Basura!
By the second requirement of section 209(a), Bayh-Dole continues to walks back the first requirement’s distinction between practical application based on private money incentives and the “otherwise” with incentives that don’t involve private money (these requirements will all be connected by an eventual “and”):
(2) the Federal agency finds that the public will be served by the granting of the license,
Soylent Green service, no doubt. But the “public served” stands in distinction to the service to the public that is already implied by the reasonable and necessary incentive to attract private money to develop an invention for benefits available on reasonable terms. The effect of the law here is to vest the federal agency with the power to to decide–it gets to “find” that the public is served by whatever it decides to do. The public does not get much say in the “finding”:
Look how this develops:
as indicated by the applicant’s intentions, plans, and ability to bring the invention to practical application or otherwise promote the invention’s utilization by the public,
Applicants are like lovers, apparently–so long as they look nice and say the right things, it’s okay to get into an exclusive relationship. In the Kennedy patent policy, by way of contrast, when a contractor kept ownership of an invention, the contractor had three years to achieve practical application or license non-exclusively on reasonable terms or screw it all. Here, in Bayh-Dole written by an attorney at the NIH looking for ways to funnel patent monopolies to pharma companies, the exclusive license is based on what a company says and by its “ability”–so, small companies need not apply unless their “ability” matches a big company’s “ability.” You start to see how this all works.
and that the proposed scope of exclusivity is not greater than reasonably necessary to provide the incentive for bringing the invention to practical application, as proposed by the applicant, or otherwise to promote the invention’s utilization by the public
So it’s really not practical application that drives the authority for a federal agency to grant exclusive licenses–it’s a necessary incentive to attract private money or otherwise. Necessary incentive to attract private money committing to provide benefits of using to the public on reasonable terms (not patent monopoly terms) OR otherwise if the federal agency finds that otherwise serves the public. It’s just a walk back made to look like a statutory requirement.