Think of it this way, at least simplistically. You are patent counsel for the NIH in 1968. You have no control over how the NIH allocates funding, and the NIH chooses to fund lots of research and declines to fund much development, unlike other federal agencies which do fund developmeny (such as the Department of Agriculture, the Department of the Interior, Atomic Energy Commission, and the military departments). If you then ignore the fact that the development of medicines has a long history of work by physicians, pharmacists, hospitals, universities, and non-profit organizations–most working without the requirement of profit-seeking or a precondition at the outset for commercial mass production–then you might create a dichotomy in which either the federal government funds development or development must be done by industry. It would be a false dichotomy, or a politically clever one, but it would ignore the broad non-commercial history of medicine development.
Pause on this dichotomy: it is a policy choice made by a patent attorney working for the NIH to use patent rights to favor industry with a particular operating model (monopoly power over medicines for commercial exploitation) over the other people and organizations with a range of substantially different operating models (such as open collaboration, local DIY production, partnership with companies providing contract services) that have produced new medicines–drugs, vaccines, and the like. Now, once you accept this policy choice to favor industry, then if industry demands patent monopolies in order to allocate funding for new possible medicines, then, obviously, the necessary thing is to enable a pipeline of patent monopolies on compounds, methods, and instruments made in federally supported work, no matter whether those patents are pushed through federal research contractors or handled directly by federal agencies.
This reasoning appears to be how one gets to the NIH’s Institutional Patent Agreement program as revived by Norman Latker in 1968. Under the IPA program, university administrators (and other nonprofits) contracted ahead of time with the NIH to be obligated by the NIH to take title to inventions made in federal work whenever the administrators chose to file patent applications. In practice the IPA program operated as a patent monopoly pipeline from NIH (and later NSF) funding through nonprofits to pharma. Almost all of what little licensing there was was exclusive licensing.
The effect of the IPA program was not so much to create an money incentive for university faculty to work harder to discover compounds and methods that might create commercially valuable medicines as it was to create disincentives for anyone at universities to do anything other than to route patentable discoveries to the pharmaceutical industry as patent monopolies, each patent representing potentially scores if not thousands (or more) variations on a given chemical structure, all of which, along with functional equivalents, are excluded from public use (including from use by other nonprofits, by other potential inventors and developers) by means of patents.
One has to see–not so simplistically–that the IPA program, and then Bayh-Dole (also drafted by Latker, a year after his IPA program was shut down as ineffective and contrary to public policy) operate to suppress the medicine discovery and development infrastructure that operated independent of corporate medical product development. It is difficult not to see such suppression as a deliberate, sustained effort to destroy the open, collaborative, free-form effort to discover and develop new medicines without reliance on patent monopolies.
Not all university-affiliated patent administrators demanded exclusive licenses. Even as late as Stanford’s management of the Cohen-Boyer gene splicing methods, non-exclusive licensing was still seen as viable. But from the IPA program on into Bayh-Dole, it appears that the idea of exclusive licensing as the primary purpose for nonprofit holding of patents came to dominate university thinking–both the patent administrators and the other administrators and faculty who were persuaded by them. And their argument appears to have been–coarsely–that companies won’t take non-exclusive licenses, that non-exclusive licenses, even if companies would take them, are “just a tax” and therefore provide no justifiable social benefit.
Left unsaid in such a coarse argument is that while perhaps some companies and speculative investors would not accept non-exclusive licenses, others clearly would–as shown by the Cohen-Boyer, Axel, and Hall patent licensing programs in the early 1980s. The coarse argument reduces to: “The companies we are determined to license patents to tell us they want exclusive licenses.” Similarly, non-exclusive licenses do not have to be “just a tax.” They can, for instance, be offered royalty-free, as they might to participate in a standard. In such dealings, a patent holder might benefit from serving as a manager of the standard, or contracting to assist companies in adopting and adapting inventions within the standard, or coordinating the evolution of the standard–any such services might be a source of income, even lucrative income (if that’s the goal of a nonprofit with a public mission). If held by an inventor, a patent might be licensed on fair, reasonable, non-discriminatory terms and represent a proper financial recognition of the inventor’s activity.
In such a case, to call non-exclusive licensing “just a tax” argues that most of the patent system is “just a tax” mechanism. Certainly, if a federal or state government charged a royalty for non-exclusive patent licenses, that could be construed as a tax. That, too, would be the case regardless of the form of the license–even an exclusive license, if it required royalty payments, would be “just a tax” relative to the public purpose. Things cut two ways. First, if the government demands payment, then that payment cuts into the company’s incentive to offer product at a lower cost. The royalty tax raises the cost of product by the amount of the royalty–maybe 1% or 2% or 4%. Cut a second way, the royalty tax takes incentive away from a company to invest its own money and develop products that may involve some risk. The government licensor does not take a financial risk–it just profits when a company taking an exclusive license succeeds. And so the license with a royalty demand acts as a general disincentive. If a non-exclusive license royalty is “just a tax,” so is an exclusive license royalty.
The difference is that the non-exclusive license royalty does not create a patent monopoly and income scales with competitive adoption–the more companies taking a non-exclusive license on FRAND terms, the more money comes to the licensor–while an exclusive license royalty scales with sales and depends–unless special steps are taken–upon the patent monopoly. In a FRAND non-exclusive licensing program, the licensor has an interest in widespread adoption and therefore in lowering the costs of adoption. In a monopoly exclusive licensing program, the licensor takes an interest in monopoly pricing and excluding others from adopting or competing. One might go so far to argue that, unless special requirements are accepted by any exclusive licensee, so that neither the nonprofit nor the exclusive licensee expect to make money beyond their reasonable costs for the development as a commercial product of any given invention dealt by the nonprofit, nonprofits that deal in patent monopolies should lose their nonprofit status. The public interest apparatus in Bayh-Dole might be seen as that gesture toward the special requirements to be placed by nonprofits on exclusive licensees–especially 35 USC 202(c)(7)(A), which requires a provision under which any assignment by a nonprofit subject invention must also require that the assignee comply with the nonprofit’s patent rights clause. That provision alone forces the assignee company to adopt the nonprofit’s designation of income earned with respect to a subject invention for specified charitable purposes. It’s just that this provision, like all of the public interest provisions in Bayh-Dole, are not complied with and not enforced.
The IPA approach (which Bayh-Dole also exploits) also significantly altered the idea of university-industry collaboration. When, a century ago, the University of Toronto acquired the patents for insulin from its researchers, in addition to contracting with its own subsidiary–Connaught Antitoxin Laboratory–to work on producing insulin, Toronto accepted Eli Lilly & Co’s offer to do production work. Efforts to produce insulin then were made in a number of countries by what we might call the non-commercial medical community. This was not a community that disavowed income–but rather was one that refused to base that income on the exclusion of others in the medical community or companies working with the medical community. Companies partnered with the non-commercial medical community to provide resources and expertise to solve problems of production and distribution–quality assurance, manufacture at scale sufficient to meet need, storage, lowering overall costs. These were mostly collaborative efforts, and do not depend on companies taking exclusive positions and demanding that one company do all the work alone or else no one will be allowed to do any work.
You might see how such collaboration might be transformed by a federal policy from one in which industry assists in a general nonprofit effort to develop new medicines to one in which nonprofits were limited to discovery and industry–in the form of single companies for each discovery opportunity–was given sole control over development. A federal policy such as the NIH’s IPA or, immediately after, Bayh-Dole rejects a public”war on disease” declaration and necessity for cooperation and substitutes instead the suppression of public efforts in favor of private and largely unaccoutable exploitation of public needs. It is like allowing a single mercenary organization to defend a community, but not requiring that organization to have to actually defend much at all, while paying higher and higher fees to retain its services.
If a single company holding exclusive rights did not develop a medicine from a given set of hundreds to thousands of compounds, then no one could do so for the 17 years (plus whatever time in prosecution for continuations and the like) of the patents that covered those compounds and the methods to make and use them.
The effort to turn university faculty into “entrepreneurs” based on Bayh-Dole and to change the university research “culture” to one that delights in identifying patentable inventions to attempt to license exclusively to the pharma industry (and its precursors, such as biomedical venture capital) is very much an effort to suppress the once-widespread and innovative nonprofit medical development infrastructure. That infrastructure was not utterly disinterested in money, was not selflessly altruistic, was not a paragon of communist workers dedicated to community–it is just that this infrastructure was not entirely dependent on the pharmaceutical industry for discovery or development of medicines. This medical infrastructure also was not fixated on exclusive control of discoveries, monopolistic positioning, mass production or nothing, nor determined to exploit patent monopolies to drive up prices and profits, playing on the helplessness of patients with acute conditions and lack of alternatives to monopoly-priced commercially suited medical products. For that matter, neither were many companies in the nascent pharmaceutical industry.
The IPA program, and then Bayh-Dole, destroyed the medical development infrastructure–or, rather, that infrastructure was starved out of existence by university policies (patent, research, consulting, conflict of interest) and practices (taking ownership, patenting, exclusive licensing to industry or not licensing at all). And the IPA program, and then Bayh-Dole, also enabled the hardening of the pharmaceutical companies into the patent-centric business models they now have. While in other industries, patents play limited roles or are used to manage standards, the pharmaceutical industry does not use standards to manage competitive access, interoperability, and the like. Patents in pharma prevent the formation of standards. Instead, one has “generics” that emulate a drug once its patents have expired–and that may be two or more decades after the drug has been introduced, depending on how one plays one’s patenting strategies on improvements and the like.
The IPA program and Bayh-Dole are not the only drivers of the present situation. The federal decision not to fund development of medicines plays a big role as well. Also, nothing in the IPA program or Bayh-Dole or even NIH refusal to fund development forces university administrators, lawyers, and faculty to abandon the non-corporate medicine development infrastructure. But they have, other than those faculty that defy their own administrations and publish rather than patent, or release tools under public licenses, and the like. The IPA program and Bayh-Dole were just enough to be used to turn university medical research into a subsidy for the corporate side of medicine development. The tools to do so were university ownership of inventions, administrative fixation on exclusive licensing, and a moralizing about how federal policy all but required “commercialization” and attracting “private investment” to speculate on the future value of mass producing some new medicine.
Once you are caught up in this vocabulary of patent, profit, and public welfare, it’s darned hard to escape. The career models for those involved depend (in their minds) on patents, exclusive licenses, and a financial interest in monopoly-based pricing of licensed product. It is not merely that somehow the corporate interests involved must be told to lower their prices. That does not address the suppression of the alternative, historically attested non-corporate medical development infrastructure–it just makes the corporate medical development activity less profitable. As the advocates for the status quo policy would have it–less profit means less throughput and therefore less public benefit. And in a way, they are exactly right, if one assumes that the only possible approach is to leave medical development to corporations acting with exclusivity.
If one drops the assumption that medicines must be an exclusive property of a company for two decades before anyone else has the opportunity to make and sell them–and more grave yet–for those two decades no one else has an opportunity to use, make, or sell any medicine based on any of the thousands of variations within the patented claimed inventions–then there’s a whole *old* world of craft development available to be revived and retooled for public work. In this nonprofit medical infrastructure, companies still have an important role, just as they do in, say, weapons system development and space exploration. But those companies do not rule the roost. They do not dictate what will and won’t become available as medicines. They provide support, they collaborate on public projects rather than dictate what projects the public may have the benefit of.
In this, then, you might see that when the federal government declared war on disease, it not only horned in on the territory staked out by the corporate pharmaceutical industry but it also then worked to suppress the non-corporate infrastructure that developed pharmaceuticals, and in doing so shifted development from that infrastructure to be under the control of corporations and speculative investors hoping to sell to those corporations or create new corporations within the industry. Government by policy and withholding of funds for development in favor of “research” horned in on the territory already in use by the non-corporate pharmaceutical industry–the nonprofit (with some profits expected) medical infrastructure of physicians, faculty, hospitals, universities, nonprofits, and governments that worked together to find cures, develop medicines, and deliver care.
Enforcing Bayh-Dole might go some way to reversing the federal policy of suppressing faculty inventors. Enforcing Bayh-Dole’s standard patent rights clauses would require companies involved to dedicate their income from assigned nonprofit-owned inventions (even assigned under the cover of a comprehensive exclusive license) to scientific research or education. That would do something, at least, to address pricing–is it worth bankrupting patients in order to have a few % more dollars for scientific research or education? At least there’s an ethical choice to be made. Even then, the money from exploiting patents on Bayh-Dole inventions cannot, per Bayh-Dole, be used for development of new medicines.
Similarly, enforcing Bayh-Dole’s march-in provisions against the standard of practical application–use of a subject invention so that the benefits of use are available to the public on reasonable terms–should mean that federal agencies march-in timely and often on all aspects of any claimed subject invention that are not promptly developed into medical products to benefit the public on reasonable terms. If a patent claims a thousand compounds and only one is under development, then the federal agency must march-in to release the other 999 compounds under a non-exclusive public license. If a company holding exclusive rights has not taken any steps to develop those 999 other compounds, then there’s not even a financial argument that the company should expect to make any income from its licensing. It gets first pick, but does not get to prevent others from choosing as well.
And for that matter, the federal government should not license the inventions it owns so that a company has the right to exclude all others for all variations claimed by a given patent that the government has, in effect, issued to itself. Bayh-Dole sets up an apparatus to govern government exclusive licenses, but does not bother to address the scope of government licenses or the government’s obligation to enforce the terms of its licenses, or to march-in on its own licenses when it is clear that a company is not going to develop every instance of a licensed claimed invention.
But any change in Bayh-Dole–from enforcing the law to the government acting on the rights reserved by the law for the public welfare to public reporting on the use of subject invention to the government’s own licensing practices–is met by the claim that any such change would have a chilling effect on companies, on investment, on development, on research itself. We would never get new medicines if corporations and speculators do not continue to control the “market” for development–if federal funding would become anything other than a subsidy for these now entrenched interests.
Enforcing Bayh-Dole is unlikely. Bayh-Dole has virtually no enforcement mechanisms, and NIST, the federal agency delegated to enforce, gives no evidence it even understands the law. Repealing Bayh-Dole and Regan’s executive order and the FAR requirements would at least get us back to the Nixon patent policy and the Federal Procurement Regulation. But even then, we still have not grappled with whether the federal government has really declared war on disease, and if so, how corporations and the federal government are to act in participating in the development of medicines for the public welfare.