The Turning Point in Federal Patent Policy


Here’s where things started to go bad. In 1963, President Kennedy issued a memorandum setting forth executive branch patent policy. When the federal government acquired inventions, the policy stipulated that patents would be made available “through dedication or licensing”–that is, open access. The 1947 Attorney General’s report on federal patent policy had argued that while the government technically had the right to enforce patents that it held, there were compelling public policy reasons that the government not do so.

Here’s the AG’s first finding (p. 114, my emphasis):

The public interest will best be served by opening Government-owned inventions to general public use without discrimination or favoritism among users.

Here’s the AG’s first recommendation (p. 130, my emphasis):

As a basic policy, all Government-owned inventions should be made fully, freely and unconditionally available to industry, science and the public. This should be done either by offering royalty-free, nonexclusive licenses to all applicants, or by public dedication of the invention.

There was an argument that federal exclusive licensing required an act of Congress. In effect, then, government licensing was non-exclusive. The Kennedy patent policy then picked up the language of the AG’s report (more of my emphasis):

Government-owned patents shall be made available and the technological advances covered thereby brought into being in the shortest time possible through dedication or licensing and shall be listed in official government publications or otherwise.

It’s clear that the licensing involved is that royalty-free, unconditional, non-exclusive sort of licensing. Kennedy also stipulates a time element to government access programs. Bayh-Dole entirely drops rapidity of utilization as an objective for federal licensing–see 35 USC 209.

It was against this body of legal opinion, policy, and practice that Norman Latker, patent counsel at the NIH, and others, worked to establish exclusive patent licensing as a normal activity for federal agencies. The first step in this process was in 1968 to re-implement the Institutional Patent Agreement program to circumvent the Kennedy policy for contractors, especially those with personnel making inventions directed at public health.

Latker cited the Harbridge House report (also 1968) on federal patent policy as his justification. Latker’s use of the Harbridge House report, however, was spin rather than substance. The report did include a chapter specific to the problems of pharmaceutical company “participation” in federal research. The companies boycotted federal funding and inventions with a federal interest, according to Harbridge House, because they feared public interest “contamination” with their own efforts to create paying products in the same areas of public health being addressed by federally supported research. The problem Harbride House identified was control of the scope of public claims, not a need for exclusivity–which would have nothing to do with whether an invention or its “development” carried with it public interest claims.

With the IPA program, federal contractors entered into a master patent rights agreement with the NIH under which they agreed to take ownership of any invention made in IPA-covered work that they chose to patent. The contractor then could develop and use the invention itself, or license the invention non-exclusively or exclusively.

The important bits of IPA circumvention were (i) to use the invention itself and suppress all other use but for the federal government; (ii) license the. invention exclusively; and (iii) impose payment of royalties and other conditions on licensees. All three of these bits are things that the AG’s report argued that the federal government should not do. So instead of licensing exclusively as a form of favoritism, instead the NIH could play favorites for how it awarded funding, leaving it to the contractor to exploit the patent rights the NIH arranged for the contractor to hold. If a contractor could then use its patent rights to suppress all other use (bit (i)), that is the equivalent of the government granting the contractor an exclusive license–but avoids the government having first to take ownership of the invention, which would run afoul of the AG’s recommendations. If the contractor acts as a middleman and licenses exclusively (bit ii), then the federal government has gone one step further and allowed for speculation on the value of the patent rights–where now the contractor also has an obligation to participate in the suppression of use by all others (but for government), and has a financial interest to do so (but not so clearly a public interest in doing so). As for bit (iii), the IPA program permitted contractors to impose conditions on licensees, something that the AG’s report argued was not appropriate for the federal government to do. If there were a need for conditions, the AG’s report reasoned, then those were better handled by legislation and regulation, not as a condition of a patent license.

To disguise the NIH circumvention of federal open access for inventions directed to public health, Latker pushed to get the IPA program adopted by other agencies–the NSF and the Department of Commerce both set up IPA programs on the NIH model. But in 1978 Latker failed to get the IPA approach adopted for general use throughout the federal government when expansion was blocked by Congressional oversight and the IPA programs shut down as ineffective and contrary to public policy.

Meanwhile, Latker worked to change the Kennedy patent policy for the disposition of federally owned patents. He served on the committee that modified Kennedy, resulting in the Nixon patent policy in 1971. The changes, as text, were not many, but they were bureaucratically effective to provide the NIH room for its IPA program and to pursue exclusive licensing of inventions acquired by the NIH.

Here are the changes from Kennedy in the Nixon patent policy:

Under regulations prescribed by the Administrator of General Services, Government-owned patents shall be made available and the technological advances covered thereby brought into being in the shortest time possible through dedication or licensing, either exclusive or nonexclusive, and shall be listed in official Government publications or otherwise.

The authority for interpreting the Nixon version of Kennedy is pushed to a central government office–thus, individual federal agency personnel are deplatformed, as it were, from objecting to IPA-like practices and have much less room to interpret the presidential patent policy directly. All interpretation goes through the GSA and takes the form of CFR codification. Latker then moves over to the committees dealing with codification, which produces the Federal Procurement Regulation in 1975, on which Bayh-Dole and its implementing regulations are based, all the way down to having a central agency (now the Department of Commerce) control the regulatory codification and the use of standard patent rights clauses (even copying the awkward (a)(a) notational system until NIST in its dullness edited away in 2018).

The second important change was to include an express reference to exclusive licensing. Under Nixon, then, federal agencies–and especially the NIH–could, apparently, grant exclusive patent licenses. This was huge. The explanatory text that accompanied this change also cites the Harbridge House report:

Section 2 has been amended to insure that the licensing recommended in this section is interpreted as being broad enough to include some form of exclusive as well as nonexclusive rights. The Harbridge House Study clearly showed that there are circumstances under which some degree of exclusivity will be necessary in order to achieve commercial utilization of some inventions. A provision has been added for the Administrator of General Services to issue Government-wide comprehensive patent licensing regulations for essential uniformity of policies, procedures, and practices by Federal agencies.

This comment is disingenuous at best. The Harbridge House treatment showed nothing “clearly” on the matter. There’s no discussion there of “some degree” of exclusivity–it’s just posited as perhaps needed in some situations. The concern is with private investment in commercialization, not commercialization itself. And uniformity runs directly against the Harbridge House findings for patent rights in contracting. More so: the federal policy of open access was entirely uniform. Introducing federal exclusive licensing, against the findings and recommendations of the AG’s report, runs afoul of all the concerns expressed in that report for federal agency favoritism, policing licenses, suppressing public use, taking a financial interest, placing conditions, playing favorites, declining to develop directly in the public interest, and generally screwing things up.

Notice, too, that the justification of exclusive licensing is directed at commercial utilization, not utilization generally. There is a difference. Inventions can be used without any commercial activity–in DIY settings, or use by professionals who specify what they want and someone builds it for them, or inventions may form standards that shape use, including commercial use. One would think–if one thought at all–that “some degree” of exclusivity would then

(i) stop short of assigning all rights to another–a license to sell might need to be exclusive, but there need no limitations on licenses to make, have made, or used;

(ii) apply only where such a license must be exclusive–to attract significant development funding and effort only when significant development funding and effort are necessary to achieve any utilization, and that development funding and effort will not come from the government, or nonprofits, or from collaboration among a number of potential users, or from wealthy donors. Exhaust all other possibilities, and perhaps you are looking at a necessary exclusive license;

(iii) be indicated only if the development work itself does not anticipate any further inventive work that would form the basis for suppression of others attempting to do the same thing–if there is further inventive work required to use a given invention, then there’s clearly no point in an exclusive license to the base invention. Any suppression of use can be handled by patents on the inventive developments. Put another way, if more invention is necessary before an invention can be used at all, then really the first invention is only a half-invention of the thing that’s desired. A piece of invention of a bigger invention that is the invention that actually matters. Anything exclusive in the piece in effect suppresses development of the other bits of invention that matter.

One begins to wonder just what these inventions are–the ones that have been made and are not being used through a want of patent exclusivity. No one says. One begins to wonder if these inventions are just a fantasy that motivates exclusive licensing, but don’t exist in practice until the opportunity for exclusive licensing presents as a possibility. That opportunity itself brings into existence a class of inventions that would not exist otherwise. if a nonprofit might license exclusively, and conducts its patenting affairs anticipating doing so, then that very condition may create the disincentives for anyone to come along seeking a non-exclusive license–and certainly creates a disincentive for the nonprofit to offer a public non-exclusive license upfront, first thing, once an invention has been made. The opportunity to deal in patent exclusivities dries up the opportunity to engage others non-exclusively on fair, reasonable, non-discriminatory terms.

The Harbridge House report has this to say about inventions made at educational institutions and at research organizations that view patents as a source of revenue:

. . . the inventions must frequently arise from basic research and require substantial private development before reaching the stage where they are commercially useful. Some measure exclusive rights appears necessary motivate licensees invest in the work necessary to commercialize these inventions.

But this is in reference to how the nonprofits manage the disposition of their rights–nothing to do with federal agencies. The inventions called out are “basic” and patent rights are held by organizations that themselves lack the means or motivation to “develop” the inventions for public use, as commercial products or otherwise. Harbridge House takes up nonprofit institution inventions in a separate section of the report, calling such inventions “isolated” and the patents on them “bare bones,” and:

inventions from nonprofit concerns are grains of sand about which a pearl may be formed only if industrial development is undertaken.

There’s nothing but survey responses to back up this colorful claim. In practice, nonprofit inventions are anything but isolated–often they are parts of cumulative technology platforms, pieces of improvements to existing processes and devices. Look at the hundreds of nonprofit patents on every bit of carbon nanotubes. None of that work was “isolated.” More:

A university invention . . . is a one-shot patent. Even if the patent specification discloses an ingenious invention, the patent claims which define the scope of the monopoly are likely to be narrowly drawn. Whereas industry will add to its patent arsenal as a product is improved, a university patent, if it is to be licensed at all, must be licensed on the initial effort.

This, then, is the fantasy presented to Harbridge House by university patent officials in their survey responses. There’s nothing to indicate that university patent claims are narrowly drawn. Nothing to show that university inventions are isolated. Nothing to indicate that the only licensing to be had is the “initial” effort. Perhaps if a university is fixated on exclusive licensing (despite the historical evidence that non-exclusive had done very well), and the patent itself does the isolating, then adding a university-side requirement to deal only with organizations that demand exclusivity would also turn the “initial effort” to license into a single “shot.” But this fantasy depiction, placed into the Harbridge House report by survey respondents, in turn provided the rationale for Latker and other federal officials to set aside the AG’s report findings. Survey responses packed into a contracted report form the basis to overturn the legal findings of the AG’s report and the Kennedy patent policy that implemented it.

More broadly, there is no compelling reason for health-related products to become only or first commercial products before they can be used. There are all sorts of methods, devices, and compounds that can use used without first being placed into mass production. The pharmaceutical industry, for instance, was built on providing formulations of medicines made to a physician’s specification. The prescription was a request for made-to-order treatments, not merely specification of a stock product to pull from one shelf or another. The pharmaceutical industry used patents to take control of the pharmacy service, first by suppressing local production and second by displacing natural products with synthetic variants. The role for commercialization was in mass production when there was a widespread public need that conventional methods of production (as at pharmacies, or university or at public health organization production facilities) could not meet. But under pressure from what might be described as patent fantasy, commercialization was abstracted into the only way the public might benefit from any invention made in work receiving federal support.

Harbridge House continues:

Where the institution has active promotional program and the government has none, commercial utilization would appear promoted more effectively permitting the institution retain exclusive rights. Where this not so, more individual analysis is needed to determine what allocation of rights would best foster utilization.

The Harbridge House argument has to do with wrapping a “promotional” program of advertising around inventions, and that as part of such promotion, for “basic” inventions that require “substantial private development” before they are “commercially useful” some “measure” of exclusive rights “appears necessary.”  This passage is clearly what’s alluded to in the comments to the Nixon policy changes. Again:

The Harbridge House Study clearly showed that there are circumstances under which some degree of exclusivity will be necessary in order to achieve commercial utilization of some inventions.

The Harbridge House report sent out survey forms and compiled the responses. The report organizes the responses. From universities, this is what they got. The report shows what university-affiliated patent administrators–most in research foundations, as there were few stand-alone university-based patent licensing programs in 1968–said they needed. For their promotional programs–such as they were–their past experience had been that non-exclusive licensing did quite well. But those doing the responding for the Harbridge House report apparently reported that their promotional programs for technology transfer did not operate well without an offer of exclusive rights, and with it all the problems of favoritism, institutional financial conflict of interest, suppression of rights, policing of contracts, and the like.

This brief passage in the Harbridge House report, then, is the hook on which the Kennedy patent policy is undermined, Latker can start a new IPA program requiring contractors to take exclusive rights, file patent applications, and in turn license exclusively, and Latker can overturn the AG’s arguments against federal government exclusive patent licensing.

The Harbridge House study goes on to point out that only a few firms “at one extreme” that would “hesitate to invest in an invention in which they could not obtain exclusive rights.” For most firms, according to Harbridge House, patents do not play such a significant role. For contractor-held rights, Harbridge House follows the Kennedy patent policy–only where the contractor has “commercial experience” and the invention is “not directly applicable commercial uses.” That is, “dual use” situations in which a contractor would have to move an invention from a “governmental market” to a “non-governmental market,” and doing so would involve significant private investment. Left unsaid is that the development would not take place if other companies also had access under federal open access policy, and that the development itself would unlikely result in any additional inventions upon which the developing company might create its exclusionary commercial position. It’s a strange bit, but it is logically possible–even if there might not be any inventions in the logical set. Apparently there is at least one class of such inventions–pharmaceutical compounds. But the Harbridge House discussion involves DoD, NASA, and the Atomic Energy Commission, not public health.

Harbridge House identies three other situations in which a contractor might retain exclusive rights and use them or convey them under an exclusive license:

(1) “the invention is commercially oriented but requires substantial private development to perfect it,”or

(2) “applies to a small market,” or

(3) “is in a field occupied by patent sensitive firms and its market potential is not alone sufficient to bring about utilization.”

If the government does not make the effort to develop such inventions, who will, if not for exclusive patent rights? That’s the logical question–but behind it is the assumption that but for these firms demanding exclusivity, there would be no other utilization, no development. This assumption is baked into the logic. Inventions might serve as common platforms for either collaborative or competitive development. Inventions that have use but not as commercial mass-produced product would be excluded, but for the commercial versions–that is, some version of the right to “sell” but not the rights to make or to use. Or, the invention is, as it were, mediocre and the only way anyone would care to use it is that someone holds the exclusive rights–again, deeply odd if one stops to consider it.

Left unstated is the free rider issue: an invention difficult to develop but once developed easy to copy. If under (1) above, an invention is difficult to develop, even after there’s a developed version, then anyone doing that same development would have to go through something of the same process, with the same costs. It’s not clear at all why the cost of development is itself not a sufficient barrier to entry. Why also a patent right, and based on publicly funded work? Free rider, in another formulation, is success–it is exactly of the form of effective technology transfer that catches on of its own accord, based on open access and free competition. It is as if the argument for exclusive patent rights runs against the policy desire for rapid technology transfer and effective “promotional” programs.

Harbridge House also noted that where inventions did not require exclusive rights, there was a “clear need and market demand,” the government funded development, and the government promoted the developed inventions to industry. These findings are squarely within the recommendations of the AG’s report, which argues if there is a public need that justifies research funding, then there is a public need to justify federal support for development of the invention for public use.

The Harbridge House report’s examination of exclusivity is directed at retention of patent rights by contractors and, in the case of nonprofits especially, their licensing of inventions exclusively. It is only by implication that one can apply these survey findings to the federal government’s own licensing of inventions that it holds. In the case of DoD–those would be inventions that contractors had waived any interest in. In the case of nonprofits, the Harbridge House report showed that their licensing was the least effective in sparking utilization of inventions. The best spark was when a commercially competent contractor invented, and retained rights.

What then did the Harbridge House report show clearly? That some respondents to its survey argued that they wanted exclusive rights. For them, exclusive rights would appear to be necessary if they were to participate in federally supported research or the development of inventions made in federally supported work. But that finding does not translate into a policy recommendation that the federal government undertake exclusive licensing of the inventions that it acquires. Rather, the problem for such inventions is how far the government should go in imposing public interest conditions on anyone taking up inventions arising in publicly funded work.

Perhaps it is just bureaucratic. But here’s the thing. The “war on disease” is more than a metaphor for federal regulation. It states a conversion to public use of those tools necessary to fight disease. To undertake private development of those tools does not somehow remove them from the sphere of public control, regulation, and access. One response, then, to companies that seek to withhold medical treatments from public access (and from doctors, pharmacists, and hospitals) is that they cannot do so, any more than they can trade in body parts or conduct experiments on unsuspecting humans.

The other response, also bureaucratic, is to argue for a separation of public and private, as if the public part competes unfairly with the private development of anything useful, and even in the “war on disease” (now a metaphor) what really must take place is the government subsidy of profit-seeking ventures–perhaps, with conditions on the ventures to justify the use of public money. Those conditions, then, become everything. Without them, or without their active use, the justification for the public money evaporates. There might be other justifications–in expediency or willfulness or happier forms of favoritism, convenience, and quid pro quos–but not from the premise that the public is protected and therefore should feel comfortable using public funds to motivate private investment for mediocre or small market inventions that otherwise would not be developed as products or to motivate private investment where all industry players demand exclusive rights but on that condition are willing to do the public’s development (and the public is assured that resulting prices won’t be monopolistic and resulting products won’t be restricted by scarcity or refusal to develop alternative products with differing functionality or methods of use and the like. But if those public protections don’t operate, then the justification for the funding fails, but for the idea that monopoly-like profiteering, speculative trading on patent rights for inventions that are never worked, and suppression of all other practice in favor of these business opportunities is necessary for the public to have any benefit at all from federal research.

It is this necessary part that fails any uniform federal policy. With Bayh-Dole, however, we get the final destruction of the Kennedy patent policy and with it the shelving of the arguments made in the AG’s report against federal exclusive licensing and even federal conditional licensing or royalty-asserting licensing, and the AG’s recommendation that if work was worthy of federal funding for research, then any resulting invention worth federal attention is also worth federal funding for development. Instead, we have federal agencies doing all those things that the AG’s report worried. The conditions for public protection placed into Bayh-Dole, so the argument goes, must be ignored for the law to work “as intended.” But that way is not expediency. It is nonsense. Even with public protections ignored, Bayh-Dole has been unsuccessful. If anything, it is merely a honey pot to attract patent speculators. If we needed a welfare system for patent speculation to be parasitic on publicly funded work, then Bayh-Dole has been a huge success. Otherwise, it is a policy disaster, sparked by a little change in executive branch patent policy in 1971, based on a paragraph in a 1968 report that summarized nonprofit officials’ survey responses, turned into a clear argument for exclusive licensing by nonprofits and the federal government.

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