Or, why certain Bayh-Dole pundits are wrong and how federal march-in might be something that companies might really want!
There is absolutely no way that “reasonable terms” as a standard for march-in means “licensing terms” and does not concern “price.”
In Bayh-Dole, the standard for march-in under 35 USC 203(a)(1) is a determination that a contractor has not achieved practical application and is not expected to do so. Practical application is, essentially, use of a subject invention so that the benefits of that use are available to the public on reasonable terms.
This has nothing to do with licensing terms unless the licensing is to the public, such as a royalty-free non-exclusive license available to anyone, resulting in public use.
Exclusive licensing by a university to a company has nothing to do with practical application. A license is not an “effective step” toward practical application. It doesn’t even change who is on the hook to achieve practical application. An assignment of the subject invention does change who is on the hook–but starts the effective steps issue all over again.
Offering terms that are claimed to be “reasonable” for a license also has nothing to do with practical application. Offering license terms cannot possibly even be considered taking an “effective step” to achieve practical application.
In a “benefit available to the public on reasonable terms,” one of the essential terms is the price of that benefit. Has to be.
Other reasonable terms might be non-discrimination, or permitting the public to modify or vary the product for their own best purposes.
If price is not an element of “reasonable terms” on which a benefit of using a subject invention is made available to the public, exactly what other terms of such availability are those reasonable terms? Yeah, think it through. It would appear folks argue that any availability is “reasonable.” The “reasonable term” is “you can have it if you can afford it.” Not just nuts, corrupt.
If a benefit does not meet every point of the definition of practical application, it fails the definition:
(i) the subject invention must be used
not some other invention, not a company that was started using the subject invention as an excuse, not something that’s not the subject invention.
(ii) the use must be established
the use cannot be secret, it must be clear to the public that the subject invention is being used–established does not mean asserted or assumed–established means “brought about or set up or accepted; especially long and widely accepted” or “widely or permanently accepted.”
(iii) there must be a benefit
the use must result in a benefit–“something promotes or enhances well-being; an advantage”; that is, not only use must be established but that the effect of the use also must be public.
(iv) the benefit must be available to the public
a benefit of using the subject invention must be available to the public–the offer must be general, to the public, not to a selected subset of the public, not to a single company, not to a nonprofit that obtains licensing income.
(v) on reasonable terms
the terms themselves have to be public–there cannot be any secret terms in transactions with the public–the terms have to be on offer up front, so that the public can see those terms and decide whether or not to take the offer; such terms necessarily include a published price.
This use of “reasonable terms” in practical application has nothing to do with the “terms reasonable under the circumstances” by which a federal agency can compel a contractor to grant licenses if the contractor has failed to achieve practical application unless the federal government compels a license to the public.
Otherwise, the terms under which the government compels a license in march-in has to do with forcing the contractor to extend the number of organizations that have access to the invention, so that there is a greater chance any one of these organizations might achieve practical application.
It’s just nonsense to argue that “reasonable terms” in the definition of practical application has anything to do with the terms under which a subject invention is licensed exclusively. Licensing exclusively utterly fails the definition of subject invention and has nothing to do with taking effective steps to achieve practical application.
If “reasonable terms” just meant that a university licensing office can assert it is being reasonable about the licensing terms it has on offer, then Bayh-Dole’s march-in for failure to achieve practical application is worthless.
Well, Bayh-Dole’s march-in provisions are worthless anyway. But if one thought they ought to have some worth, this would be the thing that spoils that thought.
If all a university licensing office has to do is offer subject inventions for license to defeat any possible march-in that would require an actual license, then there’s absolutely no point in having march-in. For all that, university licensing offices generally do not post their terms on offer for each invention they manage. They post a template and leave the royalty rate and other financials blank. Nor do they post the license terms for each invention that they do negotiate, for the few inventions they do actually license.
There is no mandate in Bayh-Dole that anyone license anything, short of march-in.
Companies don’t have to license. Nonprofits don’t have to license. The mandate in Bayh-Dole is to use subject inventions–and make benefits of that use available to the public on reasonable terms or face federal agency intervention. No one has to license anything to accomplish that.
For all that, a contractor could file a patent application and then let everyone infringe, without a license. Infringement requires *use*. “No license needed” surely is one version of “reasonable” terms. If no license is needed (and no payment or red tape) and there’s use, then there’s your practical application. No exclusion of use (=reasonable term), no payment required (=reasonable term), no license required (=really reasonable term).
(Of course–perhaps no license at all, or even a royalty-free non-exclusive license is not sufficient, for some given subject invention, to convey to a potential user of a subject invention all that’s needed for that use to take place.
Perhaps, then, a contractor has an obligation to provide more than just a promise not to sue for infringement in working to achieve practical application by others–the contractor then might need to make its technical personnel available to assist, and to supply data or prototypes, or offer a test environment that permits others to examine the invention and have the resources to learn to use it. Or even to license its background rights necessary to use the subject invention. In that case, “terms reasonable under the circumstances” for march-in licensing would include not only price, but under the circumstances also the delivery of such other things as are reasonable to assist others in using the subject invention.
The lack of “reasonable terms” that shows a failure to achieve march-in has to do with the public access to benefits of an invention’s use. The “terms reasonable under the circumstances” has to do with putting one or more other organizations, by compulsory licensing, in a position that they can achieve practical application (benefits to the public on reasonable terms).
We might point out that apart from march-in, there is no obligation for contractors to license subject inventions on reasonable terms. Licensing terms can be unreasonable. A contractor might demand a royalty of 60%, say, for an exclusive license. And perhaps a licensee takes that deal (as, say, an invention management foundation affiliated with a university might actually do). Those unreasonable licensing terms have nothing to do with the licensee’s obligation to use the invention and provide benefits of that use to the public on reasonable terms. Those unreasonable licensing terms might make it harder for the licensee to achieve practical application, but that’s the licensee’s problem in accepting the unreasonable terms in the first place.
Further, a contractor can demand unreasonable terms and as a consequence never license a given subject invention. This happens all the time. For many research-based inventions made at universities, demanding an exclusive license is unreasonable. Demanding that a licensee commercialize is unreasonable. Demanding payment for the license is unreasonable. Even demanding reimbursement for legal costs of patenting is unreasonable. If a given subject invention is good only for, say, research uses–a research tool, say–then the attempt to prevent that use by licensing exclusively to a company is unreasonable, especially if the exclusive license penalizes the licensee for making the invention broadly available as a research tool at no charge or without formalities. If the subject invention could become a standard, then it is unreasonable for a university to demand that the invention become instead a product. If the value of the subject invention relative to the value of the products for which would be used is small, then it is unreasonable to demand that a company track that value through all its products and all its royalty stacks–what is 1/10th (royalty stack) of 1/50th (patents involved) of 2% (a royalty rate) of an adjusted gross income (a royalty base, itself subject to many calculations) attributable to the use of the subject invention (maybe 1/20th of the entire product, in the case of a new feature or improvement) with a right to audit and a 15% penalty for underpayment?–an unreasonable calculation and unreasonable intrusion into the licensee’s business. Rather than a royalty on sales, a reasonable licensing term would be in such a case to charge $200 for a $100m/yr product line. Oh wait, it costs somewhere around $200 for a university just to process a check for $200. So why bother?–it’s unreasonable *even within the university itself* to charge for the license!
Do you see how fundamentally unreasonable a university contractor’s licensing position can be? And all this has nothing to do with making the benefits of use of an invention available to the public on reasonable terms–that’s a problem for the licensee. If the licensee can’t do that, then the federal agency can march-in and require licensing to others on terms that are reasonable under the circumstances. Perhaps that means that the poor licensee ought to get *those same reasonable terms* and have its license restructured, too. At the minimum, if the licensee had a typical university exclusive commercialization license with an obligation to pay all of the university’s patenting costs in addition to a royalty on sales and a various fees characterized as advances on future royalty payments, then in any march-in compulsory licensing, that licensee should expect to see
reduction of its license to non-exclusive (has to be)
a rebate of cash payments (to account for the exclusive license being unreasonable in comparison to the new compulsory licenses)
a reduction in its royalty rate (license is now non-exclusive and reasonable)
removal of any milestones or conditions under which the license could be canceled
Really, if I were in a company that had the misfortune to obtain a university exclusive license to a subject invention, I might *really want* the government to march-in and compel the university to grant non-exclusive licenses. Instead of a 2% royalty, I’d have a 0.2% royalty. Instead of paying for all the patenting costs, I’d be paying for maybe 1/10th. Sure, there would be competition–but I would have a head start, I’d have additional IP of my own from that headstart that might block everyone else, and I may do very well on the profits. In business, no one *needs* a patent monopoly–what they want is an optimal commercial position–that might not mean, even, being the sole source for a product. Sometimes having competition is more profitable than having none (faster sales to infrastructure buyers, say, economies of scale to drive down suppliers costs, common cause with competitors to gain advantages over other competitors with legacy products, shared training and maintenance costs). An exclusive patent license is nothing compared to an optimal commercial position. To mistake these two is just naive.
The “reasonable terms” of benefits available to the public is not the “terms reasonable under the circumstances” of march-in compulsory licenses. Neither of these “terms” has anything to do with the terms under which a contractor on its own grants rights in a subject invention to anyone else–those terms can be as unreasonable as the contractor chooses. And a contractor can choose not to license at all–by refusing to offer terms or by making the terms on offer unreasonable.
It’s just nonsense to conflate terms having to do with benefits of use offered to the public with the terms a federal agency might require of a contractor in granting compulsory licenses to other organizations because the contractor (and whatever assignee) has not achieved practical application. Or, perhaps it is not so much nonsense as it is shills aiming to deceive the public and policy makers alike.