The Arizona Commerce Authority Guidance on Bayh-Dole, 4

We are dealing with Arizona Commerce Authority advice about Bayh-Dole and IP rights. Almost done. Or fed up. Or bored with such nonsense. But first, march-in. Then general gestures about IP.

The government’s march-in rights are one of the most challenging provisions in Bayh-Dole.

March-in has never been used. The procedures were designed not to operate. Howard Bremer, who had a hand in writing the implementing regulations, bragged about that later. March-is not challenging. It is a non-issue. It is hoodoos on the bayou. Fright time around the campfire. Nothing more.

It allows the funding agency, on its own initiative or at the request of a third party, to effectively ignore the exclusivity of a patent awarded under the act and grant additional licenses to other “reasonable applicants.”

Nothing in Bayh-Dole gives third parties the right to request march-in. The march-in trigger is that the agency receives information that warrants a determination. Third parties might provide such information, and they might request march-in, but they have no standing in Bayh-Dole to do so. The rest of the account is botched, too. The primary march-in compels the patent holder or assignee (of the invention) or the exclusive licensee (whomever holds the rights) to grant further licenses on reasonable terms to a responsible applicant or applicants (not “reasonable” applicants, as the Authority has it in its sloppy botched unedited way).

Bayh-Dole ignores the “exclusivity of a patent awarded” anyway, since it requires the owner of the subject invention to grant a license to the federal government–right there goes the “exclusivity” big time. And that’s a compulsory license, too. Or, it is the condition upon which the government is willing to fund a project in the public interest and allow the contractor to screw around with patenting. Folks get all this backwards and then can’t see where it is going. First, the government places special conditions on its funding projects with regard to inventions. When a contractor acquires an invention made in a project with federal funding, then various public protections apply, including the government license and march-in. A contractor never has exclusive rights to patent on a subject invention. The government does not ignore or take away any rights by marching in. The contractor never ever has those rights. Get it?

Federal patent law, 35 USC 261:

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

Bayh-Dole, part of federal patent law, 35 USC 200:

It is the policy and objective of the Congress

to use the patent system to promote the utilization of inventions arising from federally supported research or development;

to encourage maximum participation of small business firms in federally supported research and development efforts;

to promote collaboration between commercial concerns and nonprofit organizations, including universities;

to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery;

to promote the commercialization and public availability of inventions made in the United States by United States industry and labor;

to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions;

and to minimize the costs of administering policies in this area.

That’s a big gulp. But this is not just a preamble of the rationale for Bayh-Dole. It is a statement of federal patent policy–it is a statement of the attributes of personal property that are “subject to the provisions of this title” as they pertain to patents on inventions made in projects with federal funding. Those patents are not ordinary patents. Those patents do not have the same exclusive rights as other patents. The government does not ignore the exclusivity of patents on subject inventions–the patent holder never has that exclusivity. All the patent holder has is a conditional expectation of quiet possession provided the patent holder doesn’t screw up. March-in is for the screw ups. Of course, the federal government never marches in so march-in is just screwy nonsense.

This right is strictly limited and can only be exercised if the agency determines, following an investigation, that certain criteria are met.

Yes. And federal agencies have never made such a determination. They don’t care. Bayh-Dole was drafted by NIH patent counsel. He didn’t want march-in to operate. But he had to make a show of it to assure legislators that the public would be protected, even if they weren’t. Thus, march-in. Never used. Designed to get votes, but not operate. Got it?

The most important of these is a failure by the contractor to take “effective steps to achieve practical application of the subject invention” or a failure to satisfy “health and safety needs” of consumers.

This is opinion. Fine. It still misstates march-in. March-in is to “alleviate health or safety needs” that are not “reasonably satisfied” the contractor, assignee, or licensees. Nothing to do with “consumers.” And why is not march-in to meet federal regulations of any importance? And why, further, is a failure to comply with US manufacturing requirements–the most important bit of Bayh-Dole on its own account–not important? Oh, well, it’s just an opinion in a document laced with sloppiness, fake history, and fantasy, so why should we object now?

Though this right is, in theory, quite powerful, it has not proven to be so in terms of its practical application — to date, no federal agency has exercised its march-in rights. March-in petitions have been made to the National Institutes of Health, however. For example, pharmaceutical companies occasionally instruct their legal departments to evaluate the risk of march-in prior to negotiating licenses for drugs developed under Bayh-Dole coverage.

Finally, something practical. And what do those legal departments find? Nada. There is no risk. Pharmaceutical companies getting exclusive licenses from universities for inventions made with federal support is the purpose of Bayh-Dole. Why would anyone hesitate? The exposure, now, however, is that these pharma companies exploit their exclusive positions to price their drugs beyond what is “reasonable”–and therefore fail to meet the definition of “practical application,” which requires benefits available to the public on reasonable terms. If the price isn’t reasonable, then that’s a term that’s unreasonable, so far as the public is concerned. But no matter, Bayh-Dole is designed so that each federal agency decides whether to march-in. There’s no third party or public or inventor right or even other governmental agency right to initiate march-in. So if the NIH doesn’t want to march-in, then it doesn’t have to. Simple pimple.

The Arizona Commerce Authority now turns to a discussion of how important IP is to “SBIR/STTR” ventures. Some of these ventures may well involve nonprofits as well as small companies, but what does “your” refer to in the following:

This is important to SBIR/STTR ventures because your ownership of your IP is one of your most important and valuable assets.

For a university, say, is ownership of “your IP” one of its most valuable assets? Yeah, I know, it’s an opinion–but it’s stated as if it were a general fact. That’s a problem.

And even if ownership of IP in general were among those most important assets of a company, it is not necessarily the case that federally supported inventions are IP assets with loads of value. And if ownership of inventions were so very important, then why does Bayh-Dole make it easy for universities to own inventions rather than the small companies partnering with them? The value of an invention to a small company is that it can use that invention to make competitive product and services. But “value” of an invention to a university is that it can use the threat of a patent to “extract value” from companies–frp, your small company, for instance. These are very different uses of “value” all conflated in the ACA opinion about value.

And why does Bayh-Dole set up universities to license inventions rather than assign them to small companies? If ownership of inventions is so important, then the guidance for small businesses is “don’t get involved with SBIR/STTR.” And if access to inventions is way more important than ownership, then why doesn’t Bayh-Dole make it easy for contractors to release inventions into the public domain or (in the case of small companies, to pay for their patenting on the condition that they license on FRAND terms–fair, reasonable, non-discriminatory non-exclusive licenses? Because Bayh-Dole is a dismal stink of a law that attracts people writing botchjob advice about Bayh-Dole. Or something like that.

The future growth of your company likely hinges on your ability to raise money based on the valuation of your IP.

This is far-fetched. How would the ACA know anything about what might drive the growth of a small company having the oddness to end up at the Authority’s web site? Many commentators argue that valuation of a startup company’s patents is not relevant. “Only assholes get patents.” “Use patent once in your business plan, as in ‘patent applications have been filed.'” It is just as likely that patents are a waste of a small company’s money, and that investors who are most interested in valuing the patents are ones who will use the company to incubate their urge to troll industry. The company can die and the investors can then “monetize” the patent right by asserting infringement against all users. Those investors put money into the company for a reason that’s likely entirely off from the reason the small company is in business. Why attract those folks?

It is important to understand your rights, the extent of and contraints [sic] on those rights, and how to best protect your IP.

Sage advice. Too bad the ACA is so screwed up about it.

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