Congressional Intent and Bayh-Dole reasonable terms

We have looked at the idea of Congressional intent in the Bayh-Dole Act and contrasted this intent with the claims of enemies of Bayh-Dole who argue that they have secret inside knowledge of the true intent that should govern the interpretation of the law. That secret true intent only they know. That intent is not made apparent by the law, nor by the legislative history where the law is ambiguous, nor by reference to the common usage of words where words might be ambiguous. Instead, claim the happy enemies of Bayh-Dole, the true intent of Bayh-Dole is whatever they say it is, drawing from their secret reservoirs of intent. As the court in the Shaw v Regents of the University of California put it, with regard to a contract embedded in a government policy (which is pretty much what Bayh-Dole is, at the federal level):

Where contract language is clear and explicit and does not lead to absurd results, we ascertain intent from the written terms and go no further.

The true intent of a contracting party is irrelevant if it remains unexpressed.

The enemies of Bayh-Dole would turn all this on its head and argue that the true intent is whatever they say it is, and whatever the words of the law would seem to say, however not absurd, cannot possibly be the intent of Congress–the words must be interpreted to be consistent with their secret, unexpressed intent. Of course, they do express what they want “the intent of Bayh-Dole” to be–it’s just that this intent is not in the law. Very shoddy of these folks.

When we look at Congressional intent with regard to the government license to practice and have practiced, in which “practice” most reasonably means to “make, use, and sell,” we found that it was reasonable to expect Congress intended the government to receive a full disclosure of each subject invention so that the government could practice the invention or file a patent application (if the government obtained title) with the claims of its own choosing. By contrast, it is something of an absurd result if Congress intended a broad scope to its license (clearly stated as such) but did not intend for contractors to make a full disclosure of each subject invention, that Congress then intended a broad license but also that contractors could disclose as little as they liked, so the government would not be able to practice any given subject invention unless the government repeated the research and development that already been done in the project that the government had joined as a funder.

The enemies of Bayh-Dole, however, want NIST to go the other way and change the regulations to make authoritative their absurd reading of the law by redefining “practice” to mean, merely, “government use for non-commercial purposes.” At some point, Bayh-Dole gets morphed into something almost but not quite entirely unlike Bayh-Dole–because what got written does not, we are told, express the true intent of the law.

Let’s look at another part of Bayh-Dole. Again, we will be coarsely simple. Nothing for it.

Bayh-Dole follows the Kennedy patent policy in distinguishing between two “markets.” First, there’s a governmental market, in which the government has the right to make, use, and sell, and authorize others to do so, on its behalf and so for any governmental purpose. If the government otherwise has the authority to do something anyway, then it has the right to do that something with any subject invention. Second, there’s a non-governmental market. That’s the market that the government might regulate but generally stays out of. In Department of Defense contracting, this distinction is called “dual use.” Contractors build sonar systems for the Navy to use to detect submarines, and they also adapt that technology to build fish finders for fishing boats. A governmental market and a non-governmental market.

Bayh-Dole then sets forth two requirements to be placed into the patent rights clause of any federal funding agreement that parallel these two markets. For the governmental market, there’s the government license at 35 USC 202(c)(4). For the non-governmental market, there’s march-in at 35 USC 203. March-in addresses “nonuse and unreasonable use” of subject inventions, as provided by Bayh-Dole’s statement of policy and objective at 35 USC 200.

Bayh-Dole is part of federal patent law. The requirements Bayh-Dole places on subject inventions mean that patents on these inventions are not ordinary patents. Bayh-Dole creates a working requirement, for instance, that limits the rights of holders of patents on subject inventions to enforce their patents. That working requirement gets implemented through a cascade of policy statements, definitions, and requirements.

First, there’s 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

That’s a pretty clear statement of Congressional intent. The patent system can be used for all sorts of things–but here, for inventions within the scope of Bayh-Dole, there use of the patent system is to promote the “utilization” of inventions. Thus, while for an ordinary patent, a patent holder might enforce its patent to prevent others from using the claimed invention even if the patent holder is not itself using that invention, that’s not the case for Bayh-Dole inventions. Congress flat out states that the purpose of the patent system, for such inventions, is to promote use, not to suppress use–and suppression of use is an entirely allowable use of the patent system otherwise.

And there’s this bit later in 35 USC 200:

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;

Here we see the division of “markets”–the government gets the rights it needs to meet its needs–and the non-governmental market, which concerns how the public gets treated. In this non-governmental market, Bayh-Dole’s focus on utilization is repeated–it’s not merely that an invention is used by a patent holder, but that that use must also be “reasonable.” Now, “reasonable” is a bothersome term, and can go all sorts of ways. But coarsely, simply, it’s clear that “unreasonable use” has got to be something that is between no use at all and illegal use. If the purpose of the law was merely to deal with Bayh-Dole inventions as if they were ordinary inventions, then there would be no need for Bayh-Dole to give the government any special rights in these inventions. The government would already have all the rights that it needs to enforce whatever laws are already present to constrain the behavior of a patent holder. While “reasonable” has issues, coarsely and simply those issues have to do with what limitations are placed on a patent holder that aren’t at the outer bounds of “sole discretion” for which the government needs rights that it does not already have?

Coarsely, “unreasonable use” has to do with uses that mistreat the public based on the fact of federal support for the work in which any given invention has arisen. That work–the overall thing that is attempting to be accomplished–has been presented to the government for funding as being undertaken in the public interest. The public ought to get some benefit for participating in such a work, by its funding, and that benefit, reasonably, ought to be something better than whatever a patent holder would do if the work had not invited the participation of government.

Bayh-Dole helps us out with a definition, of “practical application.” This definition, too, comes from the Kennedy patent policy (though transmogrified a bit–the “to the point of” has been dropped, for instance–but, hey, let’s be simple). Here’s 35 USC 201(f):

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

The middle part of the definition runs through things that a patented invention might do, and there’s some additional fiddling, but if we simplify (and ignore the qualifications for now) we get:

The term “practical application” means to establish that the invention is being utilized and that its benefits are available to the public on reasonable terms.

Add back in the qualifications and one sees that “utilized” does not mean merely diddling around with an invention, but that there’s been development so that the invention is being manufactured, practiced, or operated, and–another qualification–the benefits of this being utilized not diddled with are available to the public on reasonable terms–unless law or regulations prevent such availability.

Each bit of the definition matters–use, benefits, available, to the public, on reasonable terms. “Practical application” presents the flip side to “unreasonable” use. A use without benefits is not reasonable. A beneficial use, but not with those benefits available is not reasonable. Benefits available, but not to the public, but rather to some coterie of favorites, is not reasonable. And if what’s available to the public is not offered on reasonable terms, that, too is not reasonable. So far, this is simple stuff, no?

Again, all this has to do with non-governmental markets. In governmental markets, the government has the right to do its own making, using, and selling, so it can decide what’s reasonable in its offers to sell and the offers to sell by those it authorize to do things on behalf of the government. For the other market, Bayh-Dole creates “march-in” at 35 USC 203.

Bayh-Dole identifies march-in generally and then sets out four conditions on which the government may march-in. Simply, march-in means that the government can require a patent holder (or anyone in an ownership chain started by the patent holder–assignees, exclusive licensees) to grant licenses to subject inventions if their use is not reasonable or there’s no use at all. If the patent holder refuses, then the government can grant the licenses itself. What’s the difference? If the patent holder grants the required licenses, then it is in line to receive compensation from the new licensees. If the patent holder refuses, then it also declines that compensation. This is one way that march-in differs from eminent domain takings–the patent holder is compensated by the new licensees for its grant of rights, unless the patent holder declines to be compensated. The point, then, is not that the poor patent holder has been put upon by the bullying government, but that the patent holder has failed to meet the working requirement established by Bayh-Dole for subject inventions, and the government’s remedy is to authorize others to attempt to meet that working requirement instead.

Put another way–in government march-in, a patent holder has nothing to get taken from it because the patent holder has not meet its non-ordinary obligation in the non-governmental market where it has a mandate to use the patent system to promote the utilization–the practical application, no less–of each subject invention that it acquires and keeps. A patent holder then has nothing of value in a patent on an invention that the patent holder has failed to work, failed to use reasonably. There is no future speculative value of such patents. There is no future speculative value from trolling independent use for rents. There’s no value in clutching patent pearls.

There are four conditions for march-in: nonuse, unmet needs in public health, unmet needs with regard to regulatory requirements, and failure to obtain a commitment for U.S. manufacture. Each of these has their fussy qualifications, but we are coarse and simple, riding on hiccups as it were. Nonuse, 35 USC 203(a)(1), depends on the definition of practical application:

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use

Simply, if a patent holder has not been reasonable in its use of exclusive patent rights in any non-governmental market, then the government can require the patent right to be broken up and made available to others who will be reasonable. Another way, if an invention has not been worked, then it is reasonable to break it up the patent so that others have permission to practice the claimed invention. The patent isn’t voided, isn’t taken away–rather, the patent holder is faced with a choice of whether to accept reasonable compensation from licensees or not.

The second and third march-in conditions do not depend on whether there’s practical application or “reasonable terms” on offer to the public. Here they are:

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

(3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees;

If needs or requirements are not “reasonably satisfied,” then Bayh-Dole authorizes march-in. Nothing here about pricing or other terms on offer. Instead, the concern is over meeting needs and requirements. The nonuse here is failure to serve health needs or regulatory requirements. That could be through nonuse or unreasonable terms or lack of availability. To the extent that either (2) or (3) involves a governmental market, the government has no need to march-in, since it already has a license to practice and have practiced. The government can authorize others to make, use, and sell on its behalf. March-in involves the government stepping in to make a patent holder authorize others to make, use, and sell on behalf of the patent holder (with or without compensation).

For instance, the federal government could create a regulation under which anyone who desires a covid vaccine arising in work funded at least in part by the federal government must be able to get that vaccine within three months. Given that Bayh-Dole’s outlook is consistently global, such a regulation need not be restricted to U.S. citizens or U.S. residents, but can also be global. In such a case, it would be clear that the patent holders on such vaccines cannot meet the demand to be met by regulation, and march-in would be indicated.

Here, too, we hit a matter of Congressional intent. Is it reasonable for Congress to specify march-in licensing to address public health needs or regulatory requirements and at the same time not intend that the licensor will convey with that license all information necessary for the licensees to practice the invention and so meet those unmet needs and requirements? That would be absurd. As with the government license, it is reasonable that Congress intended that there would be “technology transfer” along with any required licensing, so that whoever gets a required license also has whatever information about the invention that the patent holder and its ilk have with regard to the practice of the invention. And it is not reasonable that Congress would go to such lengths to require licenses only to intend that contractors could withhold whatever information about any given subject invention that they wanted to, and so frustrate the capability of the government to act to address health needs or regulatory requirements.

Now we know from Howard Bremer, who worked closely with NIH patent counsel Norman Latker to draft Bayh-Dole and its regulations, that the march-in provisions were intended–by Bremer, and likely also by Latker–never to operate. Bremer was open on the point. But that Bremer, say, intended that march-in never operate has nothing to do with whether Congress intended march-in never to operate. Is it reasonable for Congress to put all this march-in apparatus into Bayh-Dole and intend that the apparatus never operate?

Now, we know from the testimony in 1979 by R. Tenney Johnson that the Kennedy march-in provisions were never used, and Johnson and Senator Schmitt traded comments about how march-in might be useful in getting the bill (a competing bill to Bayh-Dole) passed but otherwise not be used. Is that good enough to build a case that Congress as a whole–and for procedural reasons, the Bayh-Dole vote had to be unanimous–that Congress intended all that march-in apparatus not be used. That federal agencies, having identified nonuse or unreasonable use or unmet needs or unmet requirements, could just ignore all such things and continue on their merry way? Is it reasonable to construct this intent for Congress? That Congress enacted a law that expresses a concern for protecting the public  but intended those parts of the law that enable that protection to be only for show, and at that to be limited by regulation to silly, narrow things, and even then allow federal agencies to waive march-in and as it were slink-out?

No, that would be absurd: Congress intended that the things it said it intended and went out of its way to create an apparatus for it actually didn’t intend to operate. Simply and coarsely: Congress intended to make people think that it intended that federal agencies protect the public, but really Congress didn’t intend federal agencies to protect the public. Yeah, absurd.

We can come back around now to the issue of “reasonable terms” in the definition of “practical application” in the context of “unreasonable use” that the government should have sufficient rights under Bayh-Dole (because the government would not have the rights otherwise) to address.

When we consider terms under which something is offered to the public, we can run up quite a list. There’s price, of course, because that’s often the most obvious term. But there’s also disclaimers of liability that might be unreasonable, requirements that a purchaser indemnify the seller for anything bad that might happen. There might be discriminatory terms–one price for one purchaser and another price for another purchaser–and that too might be considered unreasonable. The seller might configure a product to work in only one way, or only in connection with certain other products or standards and not others. Depending on the circumstances, such configurations may also be unreasonable. Lots of things going on, but the common issue is who is it who gets to decide what is reasonable?

One standard that gets used is that of the “reasonable, disinterested person.” A fictional person who isn’t the seller and isn’t the purchaser. What would such a person think would be reasonable, given the circumstances. If the government–the public–has funded work in which an invention arises, and stipulates that contractors keeping rights to such inventions must work them and make benefits of use available to the public on reasonable terms, then what terms ought a contractor adopt with respect to the public?

One reading–let’s call it the enemy of Bayh-Dole reading–is that the patent holder’s terms should be whatever they want–sole discretion–and any such terms are “reasonable” in the sense of “commercially reasonable terms,” the terms that the patent holder decides make the best, reasonable sense in exploiting the value of the product. In this version of “reasonable,” anything a manufacturer decides is “reasonable” and public funding has nothing much to do with it. But if that’s the case, then there is no reason at all for Congress to mention reasonable terms. Any terms are reasonable as long as the patent holder or manufacturer says they are reasonable.

Another version of “reasonable” is that the seller can give an account for how the terms were determined. In this version of “reasonable,” the key point is that there was some process by which each term has been established. “Reasonable” then would mean “by some orderly process.” In this usage, so long as the manufacturer or seller can explain, say, the price reasoning, the price is reasonable. It’s just that it seems odd that Congress in taking control of executive branch patent policy would spend its energy to protect the public from prices that a seller can’t justify. Congress intended that every contractor use an orderly process to arrive at a price for products based on inventions made in work receiving federal support, and federal agencies should act if ever they can determine that a price (or any other term) on offer was created in a disorderly process or, the horror, with no process at all. That, too, seems absurd.

There’s another version of “reasonable” and that is what appears reasonable to the public. After all, the benefits on offer are offered to the public. It is the terms on offer to the public that must be reasonable. It would seem that the public ought to figure in what then Congress intended by reasonable. We might then ask the public–“Here’s a cancer drug or a vaccine. It is based on an invention that arose in work funded by the federal government. A company that has a patent on the invention has priced product just as it would if there had been no federal funding. Is that reasonable?”

We might ask, too, if a company priced product based on an invention made in federal work as if the company did not have a patent, or as if it had licensed the invention to all and thereby created competition with its own products, or had indeed licensed the invention to all, would that be reasonable? Would it be unreasonable to ask, in some circumstances, the price to be at cost? A patent may allow one to exclude all others, but did Congress intend that a patent on an invention made in publicly funded work, directed at, say, matters of public health should be used to extract maximum payment from the public to receive the benefit of that invention? That’s what the enemies of Bayh-Dole claim. That Congress intended monopoly-based pricing in the sale of medicines based on inventions made in federally funded work. In this version of “reasonable” we are left pondering whether the monopoly pricing exploitation of need of the patent holder is unreasonable compared with the monopoly pricing exploitation of an independent, reasonable monopoly pricer. “If you were to exploit monopoly pricing in a reasonable way, would you do it like that federal contractor over there?”

Again, if 35 USC 200 had asserted that Congress intended the patent system be used to extract maximum value from excluding others from practicing an invention arising in federally supported research or development, then we could fuss over whether this monopoly pricing and exclusion of all others was “reasonable” or not. But that’s not what we have in 35 USC 200. Instead, we have it that Congress intends the use of the patent system to promote “utilization” and later this use is bundled up in “practical application” with its “reasonable terms.” We reach absurdity if we ignore the public and we ignore the limitations Congress says it intends to impose on patent property rights on inventions arising in federally funded work. “Congress intended not to enforce the requirements of the law it enacted.” “Congress intended that a coterie of folks that routinely ignore the words of law should dictate what Congress actually intended.” “Congress intended that ‘reasonable terms’ should not include ‘price,’ the most obvious term in anything on offer to the public.” Yes, there folks out there arguing that since Congress did not mention “price” in using “reasonable terms,” then price cannot possibly be considered as a “term.” Under this, er, logic since Congress did not bother to mention any particular “term,” then it must have intended that no terms could be considered unreasonable. Again, we reach absurdity.

To be coarse about it, since that’s the agenda here, Congress intended that the public get a product based on inventions made in federally funded work on terms and with the availability that would be on offer if an exclusive producer of that product did not have the patent positions it is permitted under Bayh-Dole to have. Reasonable terms means terms as if in the presence of competition, even if there is no competition because of the patent position that Congress has permitted the exclusive producer to hold. To find out what the public thinks, of course, we might go ask the public. My bet is that the public would respond overwhelmingly that reasonable terms include reasonable price, and that a reasonable price is one that would be charged if there were no patent (or, as if there were competition), and for medical stuff that would be pricing like generic equivalents.

Did Congress intend monopoly price exploitation of public health in enacting Bayh-Dole? If so, why all the apparatus pointing to limitations on such exploitation? Why mention public health at all in march-in? Why bother with “reasonable terms” in the definition of practical application? Why have a special category of unreasonable use lodged somewhere between patent misuse and antitrust, on the one hand, and any happy unregulated use whatsoever on the other?

No, it would appear Congress intended something by “reasonable terms” and that something has to do with what the public should–ahem–reasonably expect, and that would appear to be, for price, generic pricing; for availability, meeting all health needs and regulatory requirements via multiple producers and competition if an exclusive producer can’t do it, and working or allowing the working of all aspects of any claimed subject invention and not just some bit part of an invention (compound 131, say, but not compounds 1-130, 132-287). Is such an account of Congressional intent unreasonable?


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