Four things not to know about Bayh-Dole

PhRMA, a pharma front group, published a discussion of Bayh-Dole, “IP Explained: Four things to know about the Bayh-Dole Act.

Short form. This is nonsense. I’ll show you briefly.

Thanks in large part to strong intellectual property protections – including policies that incentivize public and private investments in research and development (R&D) – the United States is the global leader in biopharmaceutical innovation.

The link is to a claim from PhRMA that the U.S. pharma industry has been the leader for “over thirty years.” That would mean that it became the leader before a single Bayh-Dole pharma invention could have made it to the market.

we are going to take a closer look at the Bayh-Dole Act and how it laid the foundation for effective technology transfer that modernized the U.S. economy, set a global precedent and is helping patients today.

Bayh-Dole was based on the NIH IPA program, that did much the same thing. University patenting was growing before both the IPA program and Bayh-Dole. Problem was that university transfer of technology under the IPA program was 1/5th as effective as university transfer of non-federal inventions. The Harbridge House report of 1968 all but predicted that the method used by the IPA program would be the worst possible approach. Bayh-Dole has been as bad or worse than the IPA program.

Bayh-Dole has set a “global precedent” only because it has been misrepresented both as to how it operates and the metrics by which it is evaluated. The law is a mess, has never operated, is routinely ignored and its provisions not enforced or waived, based on fake history, fake metrics, and a fake account of how it operates.

Adopted by Congress in 1980, the bipartisan Bayh-Dole Act allows institutions and grant recipients, such as universities, to hold the title to patents on inventions stemming from government-funded research

Deceptive. Bayh-Dole allows nonprofit and small business contractors to keep ownership of inventions made under federal contract that these contractors acquire through normal processes. If such a contractor acquires an invention, the contractor must file a patent application or the federal government may take over ownership of the invention.

This is a sensitive point because universities insisted that Bayh-Dole gave them ownership of inventions made in federally supported work. The Supreme Court ruled otherwise in Stanford v Roche (2011). PhRMA makes it appear that Bayh-Dole allows universities to take invention title, as if the Supreme Court decision never happened.

and to license the rights to those inventions to private sector partners who further develop them for commercialization.

This is the theory, but it is not fact. Mostly, universities fail to license the inventions they claim–80% or more go unlicensed and therefore are kept from early adoption and use. Of the 20% or so of inventions that are licensed, most of those are not “developed” and do not become commercial products. “Commercialization” here means something more like “patent speculation on the future value of monetizing a monopoly position controlling the use of a medical procedure to treat an illness or injury.”

You can see how the waffle works in the next sentence:

These private sector partners, including biopharmaceutical companies, assume the full risk of developing and commercializing the technologies that may eventually prove to be viable products.

“Commercializing” does not mean “selling product”–it is a process that fusses with “technologies” and “eventually” might produce “viable products.” The only reason that a “private sector partner” would assume “the full risk” of development would be that it obtains an exclusive license to a given invention and refuses to allow collaborators or competitors to have access. In a research commons or in the formation of a working standard, participants share the risk of development. Nothing in Bayh-Dole forces universities to suppress the sharing of the risks of development. And Bayh-Dole pushes entirely the other way: Bayh-Dole’s stated policy and objective (35 USC 200) is to use the patent system to promote the use of inventions arising in federally supported research or development. Bayh-Dole’s standard is practical application–the use of those inventions made in federally supported work with benefits available to the public on reasonable terms. So merely futzing around to hold all rights in an invention and not accomplish anything just isn’t acceptable under Bayh-Dole. But apparently university patent administrators suppressing most inventions made in federally supported work has led to the “innovation leadership” of the U.S. pharma industry. That’s interesting.

This can generate royalties for the research institution, paid by the commercial developer, once a product is brought to market.

The royalties come because the university demands them. A university could license royalty-free and non-exclusive. It would make its money from research and instructional services related to the invention, not from royalties tied to a right to suppress use and sales. “This” points off into netherness. The apparent antecedent is “risk”–that somehow companies assuming “the full risk” can “generate royalties.” A royalty is any consideration for a patent license. Universities have worked out ways to be compensated for licenses that don’t depend on sales. They demand repayment for their patenting costs ($20K to $100K or more). Upfront licensing fees. Milestone payments. Annual license maintenance payments. Stock. Payments indexed to the value of stock. Share of sublicensing income. None of this involves sales of product. The university practice is to cover the out of pocket costs up front, make some money from the fact of granting the license, and then if there ever is a product, hit it big. The scheme is set up betting that the “private sector partner” will never make a product–everyone (university salaries, patent attorneys, speculators) make their money in the middle game of passing around patent rights–and that’s what they have named “commercialization.”

The Bayh-Dole Act has been a tremendous success.

There is no support for this claim. It is not true. It is a statement that you are asked to believe. Watch:

Between 1996 and 2015, the licensing activity spurred by the Bayh-Dole Act contributed close to $591 billion to U.S. gross domestic product and supported an estimated 4.2 million jobs in the U.S.

This is mealy mouthed. “Licensing activity spurred by the Bayh-Dole Act” is nonsense. What PhRMA is doing is conflating Bayh-Dole-based licensing with all university licensing. Bayh-Dole deals in patentable inventions made in federally supported work. Federal funding is about 60% of university research funding but only about 40% of university patents are covered by Bayh-Dole. Furthermore, universities license all sorts of stuff besides patented inventions–they license copyrights, data, software, biomaterials, prototypes, know-how. This PhRMA article is supposed to be about Bayh-Dole, but now it has slipped to everything that universities do, as if Bayh-Dole “spurred” it. Nonsense.

PhRMA conflates things in this way because of what comes next. They cite output of an economic model of university licensing activity as if it were fact. The model itself is a vanity effort funded by pharma and AUTM, a front group for university patent administrators. The model is not validated, even bogus in its assumptions, and basically takes in numbers and spits out bigger numbers. PhRMA takes the high end of the model output and treats it as fact. “Close to $591B” is “close to the high end of a model range.” Even then, $591B–less than $30B a year–in an annual economy of $1T to $2T is nothing. Absolutely nothing. The high end of a bogus model output, even if it were fact, is a big-sounding number that means nothing. You are expected to self-deceive.

In 2016 alone, more than 1,000 start-up companies were formed and nearly 800 commercial products stemming from university research were introduced to patients.

Here the link goes to an AUTM licensing survey that’s behind a paywall, for members and customers only. Again, it is a conflation of Bayh-Dole with all university activity. The AUTM survey is itself unaudited. AUTM encourages its members to “estimate” where they don’t have good numbers. In effect, make things up that sound right. There’s nothing at the link that anyone could use to verify PhRMA’s claim. AUTM does not even track Bayh-Dole activity as a separate data set. Those 1,000 startup companies are mostly shell companies universities create to pad their numbers–University of Utah and University of Washington have exploited such fakery to create an impression of innovation that then attracts more state funding to them that ought to go to small business support elsewhere n the state. The technical term for this is institutional capture of resources. The 800 commercial products are made to appear to be linked somehow with the startups, but that isn’t the case. Startups in a given year don’t generally have products, especially in regulated biomedical environments.

The 800 products–whatever they are–then, are pulled from PhRMA’s posterior cortex and involve anything that might be said to “stem” from “university research.” The folks who make up these sorts of claims look at issued patents tied to commercial products. In those patents, there are often lists of publications that form the “prior art”–those things that the patented invention *are not* and *are not obvious in light of*. These folks then claim that the invention depends on these publications–stems as it were from them. Thus, many products “stem” from “university research.” But it’s all backassward. Inventions citing university research articles are expressly making the claim that they do not rely on that research, do not stem from it but rather obsolesce it. Think about that.

Over the past 39 years, the Bayh Dole Act has successfully fostered early basic research and helped ensure such findings are translated into new medical innovations.

Bayh-Dole has had no involvement in “fostering early basic research.” That’s not in Bayh-Dole’s statement of policy and objective. It has nothing to do with the mechanisms by which Bayh-Dole works. Only in some weird way in which faculty investigators might choose to avoid federal funding where something really interesting might be discovered might there be a Bayh-Dole effect. No fostering. Nothing “successful” about that fostering. No metrics kept with regard to such fostering. Just hot air blather here. Same for “helped ensure.” “Help ensure” is almost unparsable. Given that the overall university translation rate of “findings” to “new medical innovations” appears to be somewhere between 1 in 200 and 1 in 1,000, “ensure” is meaningless. Nothing is ensured. The translation rate under the NIH IPA program was about 4%. It would appear that if anything, Bayh-Dole has suppressed translation, mostly by creating conditions under which universities non-selectively patent–over patent–and hold out for exclusive licensing deals that mostly never happen. The best estimates out there are that university inventions show up in about 7% of FDA approved drugs. The Bayh-Dole share of approved drugs is going to be even lower. That’s for a trillion dollars of federal money directed to universities for research, much of that for biomedical research. “Ensure”–yeah, self-deceive yourself into believing this stuff.

Before the Bayh-Dole Act, no drugs had been created from federally funded inventions.

5-fluorouricil. Cisplatin. Vaccines for flu, polio. An untruth.

But we can put it another way–virtually no drugs had been created from university research, period, including in the NIH’s IPA program on which Bayh-Dole is based. Even another way–at some point, federal funding interests appear to have shifted from basic medical science directed at cures and prevention to synthetic drugs that treat symptoms, delay disease progression, and otherwise make acute conditions chronic. There is big money in such synthetic drugs–why cure or prevent a disease when one can make more profit with a drug someone must take for the rest of their lives? And all the more profit if one can hold a monopoly position not only on the drug product but on thousands of related compounds, methods of making, formulations, delivery methods, and applications, effectively suppressing all other use of these aspects of the patented invention while the profit-taking goes on?

In contrast, after its enactment in 1980, more than 200 new drugs and vaccines have been developed through public-private partnerships facilitated in part by the Bayh-Dole Act.

More weaseling. Bayh-Dole went into effect in June 1981. That’s when the first research awards would have been made. The research would have to be conducted before any inventions would be made. Anything invented within a Bayh-Dole scoped research project would take–according to the pharma industry–on average a decade to go from invention to screening to clinical trials to regulatory approval. See the slip–PhRMA picks an impossibly early date for any Bayh-Dole effect (really, there is none) and then conflates Bayh-Dole invention licensing with all “public-private partnerships” and waters even that down with “facilitated by” Bayh-Dole–no wait, “facilitated in part by” Bayh-Dole. That’s about as distant as one can get from anything Bayh-Dole practice has actually done. Again, you are invited to deceive yourself into believing that Bayh-Dole has been tremendously successful without any actual data to show it. No honest reporting. Nothing but political spin without a regard for the truth. Bluffing, as Albert Carr put it.

As the Economist notes, the Bayh-Dole Act “unlocked all the inventions and discoveries that had been made in laboratories throughout the United States with the help of taxpayers’ money.”

This anonymous quote has floated for years. The Economist soon walked back its endorsement of Bayh-Dole, but quotes live on. And the claim quoted just isn’t true. Nothing was “locked” in university laboratories. Federal agencies allowed nonprofits to request ownership of inventions–all they had to do was make a case that holding patent rights to exclude all others better served the public interest than open access. When the federal government took ownership, it released the inventions for public use. It did not take a financial interest in the inventions. It did not threaten to use the power of government to sue its citizens for that use, or to protect the financial interests of its favorite companies. Inventions were, in general, *unlocked* before Bayh-Dole. Company contractors did not even have to request ownership of inventions, except where there were special circumstances, such as no public market or the federal government was going to do the developing using contractors and then release everyone’s work once something was ready for use.

The NIH and NSF IPA programs were where stuff got locked down, patented, left mostly unlicensed. The IPA programs were ineffective. The worst performance at the time. Bayh-Dole repeats the same approach, but with even worse outcomes.

Despite the Bayh-Dole Act’s tremendous success, petitioners have demanded that the U.S. government exercise “march-in” authority to drive down drug prices.

The petitions have nothing to do with Bayh-Dole’s “success.” It’s bad enough that Bayh-Dole keeps all invention use information a government secret and provides no means for public appeal. There’s nothing in Bayh-Dole that requires federal agencies to enforce the required patent rights clauses, and so no way to make federal agencies “march-in.” Howard Bremer, who worked with Norman Latker on the implementing regulations, bragged later that he designed the march-in procedures so they would not operate. That much has proven successful.

“March-in” authority is specific to the Bayh-Dole Act and was included to ensure that inventions developed with government support were effectively commercialized – it was never intended as a blunt tool to regulate prices and has never been used.

This is bluster. March-in has never been used because the NIH in particular has refused to use it. NIH attorney Latker created the IPA program and when that program was shut down drafted Bayh-Dole. The NIH has been behind the effort to create a pipeline of patent monopolies from federal research to pharma since at least 1968. Why would anyone expect them to change their ways with their latest regulatory nightmare, Bayh-Dole, now?

But Bayh-Dole does indeed have price controls throughout. The most obvious is in the definition of practical application–use of an invention with benefits available to the public on reasonable terms. Public reasonable terms necessarily includes price. There is no basis to claim that Bayh-Dole was not intended to “regulate prices.” It’s clear–if a Bayh-Dole scoped product is not made available to the public on reasonable terms, the government should march-in and require licensing of the invention. That licensing in turn can produce competition–including new uses of the parts of a patent monopoly that have been suppressed, as well as products that compete directly. That licensing can even be exclusive–taking the rights from a price-gouging company and handing them to another company that agrees not to price gouge. Competition does not necessarily “regulate” prices, but it is a known method to pushing prices down when they are 100x over a reasonable cost to produce, recover development, and take a profit.

In fact, according to a recent report, “Using ‘march-in’ rights to control prices could undermine the U.S. life-sciences innovation ecosystem and reduce the pace of American biopharmaceutical innovation, resulting in fewer drugs.”

A “fear-porn” assertion. “Could” does not mean “will.” Apparently, PhRMA’s position is that price-gouging is necessary for university investigators working on projects worthy of federal funding to discover anything, and for anyone to get involved in developing discoveries as medicines. If the “innovation ecosystem” depends on price-gouging, then why is it that the public should support it. Less than 7% of FDA-approved drugs have anything to do with Bayh-Dole. There’s no way that reducing price gouging for these drugs will affect the overall price-gouging life-sciences ecosystem. And given that the few bits of incentive to increase the pace of “innovation” were almost immediately removed from Bayh-Dole, there’s no evidence at all that Bayh-Dole practices speed the pace of life-sciences innovation. One might think that open access, non-profit development might offer competition to a proprietary, speculative, horribly expensive, price-gouging, misdirected toward chronic conditions innovation system, and perhaps it would be good for that innovation system to feel some pressure–as well as for the public.

Today, the Bayh-Dole Act’s technology transfer policy is fundamental to the U.S. biomedical R&D ecosystem and has been highly successful in fostering the development of innovative therapies that have revolutionized patients’ lives.

More nonsense. Bayh-Dole’s technology transfer policy is ignored, unenforced, and NIST pretends not to know what it is. Even the spurious, non-compliant practices that have been normalized as if they were Bayh-Dole are not fundamental to the U.S. “R&D ecosystem.” They are at best a marginal contributor, and there’s good reason for the public to question even that involvement. The rest of the claim is just aspirational bureaucratic rhetoric that lacks support. There’s reason to believe that anything that has been developed as a product has happened despite Bayh-Dole, or using practices in breach of Bayh-Dole. Believe what you want–of course. If you value evidence and reason, though, you will set aside PhRMA as a guide.

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