Invention is not a thing, 12: Licensing practices that recognize inventions aren’t things

We have spent a great deal of time working through federal policy on research inventions to show how the idea that an invention is not a thing plays out–less well than one would like. Despite ambiguities, it would appear that the fundamental argument is that a federal contractor should keep its exclusive control over only those instances of a patented subject invention for which it has met the standard of practical application–gotten the invention out of an invention hole and made the benefits of using the invention available to the public on reasonable terms–that is, a contractor should retain exclusive rights for only those instances of an invention that it has successfully worked within a reasonable time, and only then for only so long as the contractor is able to meet public demand.

In effect, Bayh-Dole’s statement of policy and objective, combined with the march-in provisions, creates within federal patent law a working requirement for subject inventions. It is not express price controls that Bayh-Dole authorizes–it may be accurate that senators Bayh and Dole did not intend price controls. But surely they intended the policy statement and march-in requirements. They intended, then, the working requirement. And the working requirement in turn requires benefits available to the public on reasonable terms. The working requirement means that if the terms are not reasonable, the federal government can break up the patent monopoly and create competition. It is the competition that manages price. The government does not have to dictate price (though it could demand a reasonable price provision in any march-in license). Under Bayh-Dole, a contractor’s patent rights in any subject invention are an expressly conditional property right. The contractor is steward, not owner, of the property. Has title, but the title carries a federal lien and a covenant set out by Bayh-Dole.

The upshot for inventions not being things is that Bayh-Dole’s federal lien and covenant–amazingly but reasonably broad–applies to each instance of an invention independently of the others. A contractor may claim everything it possibly can when it looks through an inventive door of opportunity–instances ready to use and instances in deep holes in need of “development”–but the contractor is allowed to keep exclusive control only for those instances for which the contractor achieves practical application and meets public demand. All the rest are to be released, either by contractor action (non-exclusive licensing on reasonable terms) or by federal agency march-in.

Again, keep in mind all this is fantasy because federal contractors don’t comply with the standard patent rights clause, federal agencies don’t comply with the requirements regarding patent rights clauses and don’t enforce them, and federal agencies don’t use the rights to practice and have practiced made available by the standard patent rights clause. And, in particular, federal agencies have refused to protect the public from the nonuse or unreasonable use of inventions arising in federally supported research or development.

But even with fantasy (hey, most of physics is fantasy–counterfactuals such as perfect spheres and frictionless planes) there’s stuff to learn about practice.

Even though federal agencies don’t enforce Bayh-Dole, there is nothing preventing federal contractors from acting consistent with Bayh-Dole and more importantly in directing their patent licensing practice toward the promotion of invention use. This is particularly the case for universities and medical centers, which in general claim a public mission mandate. The inventions involved don’t even have to come within the broad scope of Bayh-Dole. And doing so points to ways a university licensing practice might even do a better job of making money–if making money really is the secret lust of university administrators.

University patent licensing programs could promote the use of any given invention with the knowledge that an invention is not a thing but rather a collection of instances, some obvious, some described, some theoretical, some easy to use and others that are difficult, requiring substantial “development” from reduction to practice to practical application.

License an invention non-exclusively

Allow access by everyone to all instances of a claimed invention, whether easy or difficult. In this approach, access could be royalty-free or for a nominal fee–there may be real costs associated with delivery of specifications, instruction necessary to use inventive stuff effectively, and the like. Access could take the form of entirely open or access could have reciprocity requirements, such as anything invented based on or using the open invention would also be made open, or if a licensee asserts patent rights against anyone practicing the open invention, then the licensee loses its license to the open invention. In a commons approach, where multiple parties contribute inventions, an asserting licensee then could lose licenses to all inventions in the commons. If one attacks an ad hoc standard, one can expect to be excluded from the benefits of participating in that standard.

Thus, non-exclusive licensing neither means giving everything away nor being just a tax nor not making any money. Only dull witted licensing managers would think such thoughts. Anyone with half a brain would see that non-exclusive licensing can open up an area of opportunity for development. Like the companies that grew wealthy selling picks and clothing to prospectors, a university does not have to own (and police) an entire territory in order to find its monetary reward. A university could license an invention non-exclusively and make money from all the licenses (over $250m in the case of Stanford’s non-exclusive licensing of a research and production method for gene-splicing). And a university could make money providing tools to support inventive methods (as Washington has done with its genomic software). And a university could make money providing coordinating support (as universities do when running cooperative research centers).

Companies will readily pay $5,000 to support their scientists attending a conference or seminar at which an inventive technology is taught and will balk at paying the same amount for a non-exclusive license. So, why charge for a license when companies are ready to pay for what universities are known for doing–instruction? Twenty companies paying $5,000 for instruction brings in $100,000. Book that in the same transaction as the royalty-free license and one has a better selling point than if one led with the patent license and offered maybe free technical help.

And if a university becomes known for managing a de facto standard, as in the case of UC Berkeley’s Spice software for circuit design or MIT for X Windows, the money comes in from grants and donations, and the institution becomes a magnet for talent and problems worth working on.

An exclusive license to all the instances of a given invention, by contrast, sends the clear message to all other companies that they are excluded. To the extent other companies care at all, they then have the incentive to design around the invention rather that use any instances of it, undermine the invention, exclude the invention from their cumulative technology or emerging standards, and patent around the invention to block the development or application of instances. Why would anyone at a university then choose exclusive licensing as a default unless they disrespected the public mission of the institution and lacked a nose for making money through scaling relationships.

License all “easy” instances non-exclusively, reserving exclusive licensing only for those instances that require substantial “development” 

A university patenting practice could also separate the instances of an invention into easy instances and difficult instances. Easy instances are ones that can be used with only so much work as most anyone can afford and do. Anyone could be any small companies or any professionals or the general public, depending on the nature of the instances. Easy instances include, for instances, research uses (nonprofit and in industry). If an invention has been made involving a research tool, then even if the claimed invention involves not only the tool but commercial versions of the tool and applications that use the tool in production or in products, the research instances of the tool can be made available non-exclusively. The same is the case for methods that can be implemented based on a documentation without much added effort. If you can use this invention immediately, with only a nominal effort to implement, then why should we deploy a patent to stop you from doing so?

Bayh-Dole’s statement of policy at 35 USC 200 is more emphatic: “use the patent system to promote the utilization of inventions.” What’s implied and left out is “and not to suppress the utilization of inventions.” Or, recognizing that inventions are not things, “and not to suppress the utilization of all instances of inventions that do not require private risk capital to achieve practical application.”

In this practice variation, a university allows research uses and internal uses on a non-exclusive basis and offers an exclusive license for the difficult instances that require risk capital. Even here, one could differentiate between risk capital provided in the form of donations, consortia, and development commons on the one hand, and risk capital in the form of a company or investor expenditure on the other. How to decide? If an exclusive licensee wants to buy out the university’s interest in supporting the research, internal use, and commons commons use and development of an invention, decline such a deal, even if the exclusive licensee proposes sublicensing for those uses. Those sublicenses steal from the university its opportunity to build relationships and support open development and cannot possibly be worth whatever money the university might make by relying on an exclusive licensee. Indeed, pushing an invention entirely to an exclusive licensee pretty much forecloses the movement of any instances of the invention into a standard. We might observe the lack of open standards in the pharmaceutical industry for therapeutic products. We might then also observe that university patent licensing has played a role in suppressing the development of standards, which in turn open up a self-regulated competition to implement the standard.

License exclusively only for specific difficult instances–others would then be able to license other instances–easy or difficult–either exclusively or non-exclusively

In this approach, once the instances of an invention are mapped out (such as, by the claims of a patent application), then a prospective exclusive licensee is allowed to choose a specific instance or cluster of instances to license exclusively for a given application. Other instances, even functional equivalents, would then be available for others to license. If one is worried about “free riders” waiting until the first company has proven that its instances have achieved practical application before seeking their licenses (and “developing” these instances with less uncertainty and perhaps then less expense), then make the period of availability for additional exclusive licenses extend only until some one company achieves practical application with its cluster of instances. If the monopoly meme is true (it isn’t, but play along), then once there’s an exclusive license for any one instance of an invention, no one will even seek a license for any other instance until all the development work has been done for the first instance. Only then would anyone seek to create “knockoffs” and “copies” in an attempt to steal some portion of the market from the first mover.

In one thought exercise involving the monopoly meme, we talk ourselves into granting a single exclusive license to all the instances of an invention. If what’s available to all will be used or developed by none, because no one dares go through the development process–the effort from reduction to practice to practical application, from inventing to working the invention–then no one will license any other instances of an invention once one company has started the effort to “develop” the invention. By contrast, we could also talk ourselves into not granting any exclusive license at all–or rather, grant the exclusive license to a commons or standard, so that everyone who wants the benefits of use contributes to the development of the essential elements of the technology that will provide those benefits. If enough contribute, then an invention can get out of a development hole faster and with less expense (overall and to any one organization) than if a single company controls all the rights to all the instances.

In the general case, then, under this practice, any cluster of difficult instances could be made available for exclusive licensing–but the licensee for any given difficult cluster could be a single company (or other organization) or a commons (a standard, a pool, a consortium, a loose non-exclusively cross-licensing collaborative, an open innovation reciprocity program–and the like). This approach denigrates the importance of speculative investors who demand control of an entire invention for the opportunity to develop any one instance of the invention. If such investors won’t participate, and others will, it is no great loss. If only speculative investors demanding control of all the instances of an invention to suppress all uses–easy and difficult–in favor of whatever they may choose to seek to profit from (“a return on their investment,” a “monetization of the patent”), then one might take stock of exactly what sort of invention one has got and whether the speculative investors are in fact buying out the right to suppress easy implementations–where they identify value–under the guise of committing to develop some difficult instance to practical application.

One would think that a standard principle of university licensing would be never to permit anyone to buy out easy instances of any given invention and by doing so suppress the use of those instances, even if doing so is depicted as necessary for an investor to gain the return on investment necessary for that investor’s participation. Screw that investor, at least within university licensing practice. Let them find their opportunities without public subsidies and without shopping at a storefront set up to serve the public interest–everyone in research, everyone involved in the craft or trade or technology, everyone seeking to create beneficial commercial products.

License exclusively an entire invention but only for a limited time to allow the licensee to identify the instances it chooses to develop and the rest of the difficult instances then are available for either exclusive or non-exclusive licensing

This is the approach adopted by the Kennedy patent policy and implemented in the original Bayh-Dole Act before being amended away in 1984. In the Kennedy version, a contractor had three years from the date of patent issuance to bring an invention to the point of practical application. Harbridge House in 1968 found that companies that invented and owned their inventions could develop those inventions to practical application almost always within three years of patent issuance. Three years from patent, then, made sense from a policy perspective. Even if development might usually take longer than three years, the public policy of less than such longer times responded to the idea that a company holding a exclusive rights to a publicly supported invention (one directed at public purposes, and with those involved having requested public funding) should use its best efforts, not just usual efforts, and get things done more quickly than usual. If the application was public health–especially critical diseases with pressing public health conditions, there is even more pressure that the development work be done quickly, not just in whatever fashion suits profit-making interests of whoever acquires those exclusive rights.

In Bayh-Dole, this approach was restricted to nonprofits and limited the duration of exclusive licenses to large companies to five years from the date of first commercial sale (which could be a long time) or eight years overall (which would be less than a long time). Here, an exclusive licensee holds exclusive rights in all instances of an invention, but has a limited time in which to suppress other practice of the invention while working to move an instance of the invention from its hole to practical application. In the 5/8 one can still sniff the Kennedy patent policy’s three years. If one achieves first commercial sale in three years, then one has five years of exclusivity in which to profit from being the only entrant in the market. After that, however, others can enter, not only for other instances of the invention but also with the same instance that has been developed under the exclusive licensee large company.

The difference, of course, is that under Kennedy, it appears that a contractor could continue to hold exclusive rights for an entire invention if it brought any instance of the invention to the point of practical application within three years of an issued patent, while under Bayh-Dole (originally), nonprofits exclusive licenses to large companies were restricted to the 5/8 arrangement, regardless of whether the exclusive licensee achieved practical application or not. Now, of course, exclusive licenses can be for the duration of the patent and it is up to each federal agency to decide what constitutes “effective steps” and “within a reasonable time” in order to march-in. And none of them has.

A university can adopt a similar exclusive licensing practice. In one version, it licenses an entire invention exclusively, but only for a short term–such as three years from patent issuance. During this time, the licensee must choose the instances it will develop and “take effective steps” to do so. The license can define effective steps–often using agree upon milestones–so it’s clear what has been agree upon. Anything that’s not chosen or that has been chosen but for which milestones have not been met goes non-exclusive or rights terminate, depending on how the conditionals in the license are designed. In another version, the first company in (often, in practice, the only company), gets a sole license to the invention–a non-exclusive license done once for a period of time–and that sole license converts to exclusive if the licensee establishes practical application before an agreed-upon date. In yet another version, a company takes an exclusive license to a set of instances and retains a non-exclusive license to other instances, upgradable to exclusive after a window of opportunity for others to acquire non-exclusive licenses.

There’s yet another approach, one that involves setting a price function for a sequence of non-exclusive licenses, with the expectation that early non-exclusive licenses involve the greatest risk for adoption and development and therefore ought to be the least expensive and easiest to acquire. In this approach, one might value the first non-exclusive license at no cost, make the next four require some nominal payment, such as $2K a year, and the next five $10K a year. A licensee then could buy up as many non-exclusive licenses as it desired–in essence, it would name its own price and at the same time make the next licensee pay at least a comparable value for acquiring rights. If the first licensee in wanted to make the next licensee in pay $10K a year, it would buy up the four non-exclusive licenses at $2K and pay $8K a year. These are tiny amounts as far as most patent licensing goes–but as Niels Reimers understood with Cohen-Boyer licensing, if one prices below the point at which most companies have to think about money, most everyone takes a license. I saw this as well in biotech licensing. We learned that if we priced at $5K or less, most any work group leader could acquire a license with discretionary spending authority without have to get a bunch of approvals or include the acquisition in the next year’s budget. At one point, in closing such a license deal in two hours, start to finish, the folks in the purchasing department at the company complained only that they wished the license had been for more money–they were recognized for how quickly they got deals done, and the more the deal was worth, the better they met their targets.

This approach proposes that taking on risk of development early ought to be rewarded. There are all sorts of ways to structure the price function, but universities don’t use this approach, though they could, and if they did, it would certainly be responsive to a desire for rapid adoption and development while providing university administrators with a source of lusty revenue.

Any university could adopt such licensing practices now. They could do it for everything but biotech inventions involving pharmaceuticals and biologics if they were fixated on playing to the exclusive control folks in those parts of biomedical innovation. But it’s likely that they won’t do so unless there is a policy that restricts them from breaking down and offering exclusive rights to an entire invention to whoever shows up first, and holding back any non-exclusive licensing (even for research purposes) in the expectation that someday some company might just show up for that exclusive license.

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