On reasonable terms

Here is the definition of  to the point of practical application in the Federal Procurement Regulation, finalized in 1975, just five years before Bayh-Dole (41 CFR 1-9.107-5(a)(5)):

“To the point of practical application” means to manufacture in the case of a composition or product, to practice in the case of a process, or to operate in the case of a machine and under such conditions as to establish that the invention is being worked and that its benefits are reasonably accessible to the public.

Here is Bayh-Dole, 1980 (35 USC 201(f)):

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

Norman Latker, patent counsel at the NIH, was involved in drafting both the FPR codification of the Nixon patent policy–quoted above–and Bayh-Dole. In the FPR, a case might be made that “reasonably accessible” does not include price–it might be considered a matter of availability in sufficient quantity, for instance. But “reasonable terms” is without doubt concerned with price. When one considers “terms” in any sales situation, price is almost always central.

Why did Latker change “reasonably accessible” to “reasonable terms”? Surely there was some intent there. But does it matter? No, not really. Other than perhaps Latker was too clever and screwed up here as he did elsewhere.

We should note that “reasonably satisfied” (a variant of “reasonably accessible”) and “reasonable terms” show up in Bayh-Dole’s march-in provisions at 35 USC 203 (omitting a jumble of qualifiers):

With respect to any subject invention . . . the Federal agency . . .  shall have the right . . . to require the contractor . . . to grant a . . . license . . .  upon terms that are reasonable under the circumstances

Essentially, if a contractor fails in any of the enumerated ways (use, timely, benefits, available to the public, on reasonable terms) to achieve practical application of a given invention, the government can require the contractor to grant licenses on what the government determines are reasonable terms.

(1) Nonuse. If the contractor has not and is not expected to make the benefits of using an invention available to the public on reasonable terms, the federal agency may compel the contractor to grant a license (or licenses) on terms that are reasonable under the circumstances. In the Kennedy patent policy (1963) those terms were stipulated to be royalty-free and non-exclusive. Price–in the form of royalty payments–was expressly part of the idea of “reasonable” terms.

(2)  Alleviate health or safety needs. If a contractor has not “reasonably satisfied” needs that are necessary to be alleviated, the federal agency may compel the contractor to grant a license (or licenses) on terms that are reasonable under the circumstances. Here, “reasonably satisfied” does not require one to consider price, or certainly not whether the price is considered “high.” One might argue that a contractor who cannot fulfill all the orders for quantity might be required to license others to manufacture product as well. NIST folks apparently think of such situations as national “emergencies” such as war or epidemic. Nothing in the March-in provisions, however, qualifies the situation. Thus, NIST intends to legislate by regulation its preferred interpretation–or at least the interpretation preferred by whatever lobby NIST answers to.

(3) Requirements for public use. If federal regulations require public use, and a contractor has not “reasonably satisfied” those requirements, then the federal agency may compel the contractor to grant one or more licenses on terms that are reasonable under the circumstances. Here, availability is not the only concern. If a contractor cannot produce a product conforming to the federal regulation, then the federal government can compel one or more licenses to those who can produce compliant product. Not really anything here about price, unless the federal regulation includes price. That’s an interesting thing, then. If a federal regulation is established that requires the public to receive a certain medicine at at a specified price, then if a contractor does not comply, march-in is indicated. Vaccination laws, for instance, might serve as an example–with the addition of a price-not-to-exceed. There’s no price negotiation involved–either the contractor complies with the regulation or faces march-in. Simple enough, but for the political will of federal agencies to be done with screwing over the public on the price of medicines discovered with federal funding in projects proposed to be for the benefit of the public.

(4) US manufacture. If a contractor has granted an exclusive license to use or to sell in the United States and has breeched its obligation to obtain agreement that licensed product will be manufactured in the United States, then the federal government can compel licensing in the United States for this purpose. Nothing here about price–the issue is compliance with a requirement that’s silly-weak to start with and is easily circumvented by waiver, and the NIH appears to be the federal leader in making easy the waiver to the US manufacture requirement.

Thus, of these four conditions for march-in, one–the one dealing with health and therefore drugs and the like–has to do with “reasonably satisfying” needs. A federal agency–NIH, most often–may march-in if needs are not “reasonably satisfied.” There’s nothing here, really, that centers on price. We might even say that price is not part of the idea of “reasonably satisfied” if insurance companies or the federal government is willing to pay whatever price is on offer. Any discount programs offered by drug companies might offer further incentive for the NIH not to act to march-in.

But this “reasonably satisfying” needs condition is not the one concerned with practical application. The one that is is nonuse. I mislabeled it to distract your attention–it really should be labeled “failure to achieve practical application”–or, more specifically and accurately, “failure to make benefits of use available to the public on reasonable terms.” That’s where price matters, regardless of whether the subject invention has to do with health, and regardless of whether health needs are otherwise “reasonably satisfied.” If health needs are “reasonably satisfied” but not on “reasonable terms”–even though people are willing to accept those terms to stay alive–then the contractor has failed this first condition for march-in. Without reasonable terms–terms reasonable under the circumstances–the federal government can compel licenses that will enforce terms that are reasonable under the circumstances. Those terms clearly can include price. It does not matter whether some unexpressed intent existed in the minds of those that drafted Bayh-Dole. As the Shaw court put it so sweetly with regard to a contracting/policy situation:

Although the intent of the parties determines the meaning of the contract, the relevant intent is “objective”–that is, the objective intent as evidenced by the words of the instrument, not a party’s subjective intent. Nothing in the patent agreement hints at what the University now claims was its long-held desire that the Patent Policy’s inventor royalty provision not be incorporated into the patent agreement. The true intent of a contracting party is irrelevant if it remains unexpressed.

It is the “words of the instrument” that matter, not what someone drafting the instrument might have privately thought that they were accomplishing. At best, we might look to the legislative history, which for Bayh-Dole is nearly lacking because of the weird way in which the bill ultimately was passed as a rider to a House bill after the bill had previously failed. Even if the advocates of Bayh-Dole claim that it has been their “long-held desire” that march-in not consider price, that’s not what the objective intent evidenced by the words of the statute indicate. Whatever the “true intent” of those drafting Bayh-Dole might have been, that intent is irrelevant if it “remains unexpressed” in the law.

We can take this all one step further. “Reasonable” is one of the most difficult words one can use in a contract. We can start with the general principle that words in a law are not superfluous. That “reasonable” means something in “reasonable terms.” Not just any terms that a patent holder might assert, and not any terms that a patent holder might rationalize as “reasonable to the patent holder”–but rather reasonable as the public might understand the term “reasonable.” After all, Bayh-Dole requires an agreement with regard to inventions between a contractor and the federal government acting on behalf of the public. In a sense, Bayh-Dole requires federal agencies to use contracting rather than statutory authority to manage how contractors exploit subject inventions that they are allowed to retain, having acquired the inventions.

Here is a helpful brief discussion of “reasonable” as used in a contracting situation:

The most obvious example of vagueness is the word reasonable. It introduces an objective standard in the contract. The term reasonable places a limit on discretionary power or the effect of overly strict obligations. Where it limits the exercise of discretionary power, it requires that a party is able to explain its performance (or failure to perform as expected). Where the term reasonable is included with the aim of reducing the ‘harshness’ of strict contract clause, it introduces a common sense approach to the interpretation of what may normally be expected from a party’s performance. The standard of ‘reasonableness’ is one that is usually determined by reference to a well-informed third party with the same expertise acting under the same circumstances.

Thus, if a contractor is required to make the benefits of subject invention available to the public on reasonable terms, one might attempt to deflect the notion of price to that of a limitation on the discretionary power of the contractor–that is, the price cannot be subject to the discretion of the contractor alone, or that the price charged cannot vary with the discretion of the contractor–such as by country or by how much wealth a given patient needing medicine might have. Presently, for many medicines, happily rich people in Canada pay much less than do the poor in the United States. Are those “reasonable” terms, then? It would appear that “reasonable” ought to constrain contractors from such discriminatory pricing–even if the price in the United States is set “high”–then so should the price in Canada and elsewhere. If it is acceptable to deprive all but the wealthy and the desperate from access for the term of a patent monopoly–that’s a different policy question that runs back to the Supreme Court’s Dubilier decision–then “reasonable” terms means high prices for everyone. If US citizens must wait twenty years for lower prices, then so must everyone else in the world. If that’s the policy, then stick with it everywhere. It cannot be that a contractor is allowed to be “compassionate” with regard to non-US citizens but argue that federal policy never contemplated that the contractor must be “compassionate” with regards to US citizens. “Reasonable” terms removes discriminatory compassion.

Given that the public’s only performance under “reasonable terms” is to purchase medicine, it would appear that there is nothing in “reasonable terms” that has anything to do with anything other than price. In this meaning of “reasonable” terms–the purchasing public should be freed from strict enforcement of pricing. Of course, drug companies may argue that’s exactly what they do with programs to provide discounts for those that cannot pay. But those discount programs are discriminatory–based on the ability to pay–and are subject to the contractor’s determination of what constitutes “ability to pay” and how many people may benefit from the discount program. “Reasonable” terms, then, must mean that the price is reasonably applied–even if the price is set “high,” it must be reasonably applied. We might then argue that the discount programs themselves are unreasonable, subject to the contractor’s whim rather than objectively limiting the contractor’s power to charge discriminatory prices–regardless of the rationalization the contractor may put forward for doing so. Bayh-Dole establishes a march-in criterion for failure to be “reasonable” on terms–a failure to self-limit by an invention owner for price–as price is the only term on which the public might act.

So why did Latker change “reasonably accessible” to “reasonable terms” in the definition of practical application? And why did he drop “to the point of” from “practical application”? In a way, it doesn’t matter–other than that we might understand that Bayh-Dole intends something different from the codification of the Nixon patent policy. When Bayh-Dole preempts the Nixon patent policy (now, the Reagan patent policy and all that crock up), “reasonably accessible” is replaced with “reasonable terms.” Reasonable terms, in turn, limits contractors with respect to how they set price, since it is only price by which the public may perform on their end of the federal contract established by Bayh-Dole. Even if those drafting Bayh-Dole did not intend march-in to target what are considered high prices, Bayh-Dole clearly does provide a mandate for the federal government to intervene whenever a contractor fails to manage “price” “reasonably”–that is, for instance, without discrimination.

Of course, this is all technical nonsense. It’s clear that those arguing against the use of march-in want to maintain exploitative, immorally high prices for drugs discovered in projects conducted for a public purpose, with public funding. They don’t have to fool us about it–they just have to give those in government a basis not to  act to protect the public.

This entry was posted in Bayh-Dole and tagged , , . Bookmark the permalink.