Senator Nelson on the problem of “public interest” in federal patent policy, 1

The “public interest” plays an important role in federal invention policy. In 1963, President Kennedy announced a policy that permitted nonprofit organizations to request to retain title to inventions made in federally funded work, providing that

Where the commercial interests of the contractor are not sufficiently established to be covered by the criteria specified in Section 1(b), above, the determination of rights  shall be made by the agency after the invention has been identified, in a manner deemed most likely to serve the public interest as expressed in this policy statement . . .

There’s more, but first let’s look at what the policy statement has to say about public interest. Under “Basic Considerations,” after noting that the government spends “large sums” on research and development, producing inventions, and these inventions “constitute a valuable national resource,” the policy moves to a list of concerns:

The use and practice of these inventions and discoveries should stimulate inventors, meet the needs of the government, recognize the equities of the contractor, and serve the public interest.

Ah, there it is again. But there’s help in the next paragraph:

The public interest in a dynamic and efficient economy requires that efforts be made to encourage the expeditious development and civilian use of these inventions.

Developing inventions expeditiously for civilian use then is one element of the public interest. Statements that a contractor might make, then, to obtain greater rights, would be along the lines of “if we have exclusive rights, we will develop this invention faster than it would be developed if it were made available open access” and “if we develop this invention with exclusive rights to it, we will make new products available to the public on terms similar to those that we would offer if we did not have an exclusive patent position, as if there were direct competition, even if there is not.”

The policy statement makes a distinction between development and “expeditious” development–get things done faster, more efficiently, introducing change into this “dynamic” economy. And the policy statement makes a distinction between governmental markets and civilian markets. This is the “dual use” idea that is implicit in Vannever Bush’s Science the Endless Frontier, that the “lid should be lifted” on findings made in military research:

While most of the war research has involved the application of existing scientific knowledge to the problems of war, rather than basic research, there has been accumulated a vast amount of information relating to the application of science to particular problems. Much of this can be used by industry.

And with that argument, Bush set the stage for what would become the administrative concept of “technology transfer”–moving things from government labs, mostly involved in war science, to industry to be used and developed for civilian uses. Turn submarine detectors into fish finders. That sort of thing.

Kennedy’s policy statement on public interest continues:

Both the need for incentives to draw forth private initiatives to this end, and the need to promote healthy competition in industry must be weighed in the disposition of patent rights under government contracts.

So, there are competing interests. On the one hand, “incentives” for “private initiatives”–presumably in the form of exclusive patent positions but for a license for the government–on the other, healthy competition among companies, where, presumably, private initiatives are positioned to take up inventions made in federally supported work. Note here that the Kennedy policy uses “private initiatives” rather than “private risk capital.” No doubt risk capital might be one aspect of a private initiative, but there are other aspects as well, such as creating standards and enforcing quality control for a new product that otherwise might be ruined at the outset by competitors rushing poorly made, incompatible product into the market. And for some classes of inventions, such as research methods and equipment, not much “capital” may be needed at all. The methods and equipment are already developed for use, and have been used.

Where exclusive rights are acquired by the contractor, he remains subject to the provisions of the antitrust laws.

The role of antitrust is one of the great mysteries of the Bayh-Dole Act. On a most coarse level, if a federal contractor has a dominant market position, then obtaining exclusive patent rights from a federal research contract ought to carry with it a big fat antitrust concern. Indeed, in my experience working with major technology companies interested in acquiring research inventions, overwhelmingly the companies wanted only a non-exclusive license. Sometimes they would accept an option to an exclusive license at the time of contracting for research, but generally they saw antitrust issues if they took an exclusive license and then did not promptly develop the invention for public use. With a non-exclusive license, they could take their time and be relieved of the chance that they could be sued later for infringement if they happened to use what their funding had helped to invent as well as the chance that they could be sued by the university for not developing the invention to the point of commercial sales, all the while reducing their exposure to an antitrust claim (though if by taking a non-exclusive license a dominant company thereby suppresses interest by other companies in developing an invention, there would still appear to be an antitrust issue). Antitrust shows up in Bayh-Dole as 35 USC 211, but like much else in Bayh-Dole, the provision appears to do nothing. My sense is that it is there to appease the Department of Justice, which at times had been more aggressive toward considering the adverse effects of patents on work identified as in the public interest–but there’s that “public interest” again.

The Kennedy policy permits federal agencies to allow contractors who don’t have established non-governmental markets or technical capabilities to acquire and retain ownership of inventions made in federally supported work. But only if doing so would better serve the public interest than would open access. The policy indicates that the public interest includes expeditious development and healthy competition. Furthermore–and we continue here–agencies must in making a determination take

particularly into account the intentions of the contractor to bring the invention to the point of commercial application and the guidelines of Section 1(a) hereof,

If a nonprofit or otherwise product inept contractor has a plan for expeditious development that includes the prospect for healthy competition, then perhaps let the contractor hold exclusive rights for non-governmental markets.

But then there’s Section 1(a) that provides defaults government ownership and open access for inventions made in public health or welfare research, research supervised by contractors, research with a purpose of developing commercial product that would then be released for public use and commercial manufacture, and research dominated by government funding and use that would mess up competitive bidding if contractors each owned their bits resulting from distributed research contracts. These defaults then work against any easy finding of “public interest” just because, say, exclusive patent rights held by companies are unquestionably “good.”

And there’s a bit more-

provided that the agency may prescribe by regulation special situations where the public interest in the availability of the invention would best be served by permitting the contractor to acquire at the time of contracting greater rights than a non-exclusive license.

The Kennedy policy thus provided for federal agencies to grant rights to inventions up front where policy would default otherwise–taking into account all those defaults and not worrying a contractor’s plan for a given invention (because the invention had not been made yet and the contractor had not gone to the trouble to plan for what wasn’t anticipated). For such situations–and the policy here is concerned with universities, nonprofits, and contract research organizations–there would have to be some other basis for dealing with these “special” situations. What would they be? One might be that a university or its nonprofit affiliates might propose that they could make inventions available non0-exclusively more effectively than might a federal agency using open access, and for that holding the patent would draw attention to the point of university control over licensing. But there might be others.

Norman Latker, patent counsel for the NIH, figured a way to exploit this provision in the Kennedy patent policy, using a revised form of what was called the Institutional Patent Agreement. The IPA required participating nonprofit contractors to take ownership of inventions made in HEW-funded research whenever the contractor chose to file a patent application on a given invention.

To get into the IPA program, a candidate nonprofit had to submit a policy that met HEW approval. Here’s a bit from the opening recitals of the IPA master agreement:

WHEREAS, the Assistant Secretary (Health and Scientific Affairs) has reviewed the patent policy of the Grantee a set forth in _____________________________________
and its practices thereunder and has found them to be acceptable, subject to the provisions of this Agreement, and that said policy provides for administration by the Grantee of patents in the public interest and is consistent with the stated objectives of the President’s Statement and Memorandum of Government patent policy, issued October 10, 1963;

The determination up front of “special situations” gets addressed, then, by a review of a contractor’s patent policy for “public interest.” As long as we all know what the public interest is, this all makes at least some sense. But as for the special situation, it appears to be nothing more than that the contractor is a nonprofit and has a patent policy that states its interest in serving the public interest. It is difficult to believe that this was the sort of thing that the Kennedy patent policy was directed to. But this is politics, after all, so we might have to suspend our disbelief and read it all like poetry.

The IPA master agreement has this to say about the obligations of contractors (called Grantees) that file patent applications on inventions made in HEW-funding:

The Grantee shall administer those subject inventions to which it elects to retain title in the public interest and shall, except as provided in paragraph (d) below, make them available through licensing on a nonexclusive, royalty-free or reasonable royalty basis to qualified applicants.

Yes, it is a rabbit hole. Paragraph (d) permits exclusive licensing if a contractor “determines that nonexclusive licensing will not be effective in bringing such inventions to the commercial market in a satisfactory manner.” What does that mean, other than that a contractor–a nonprofit holding patent rights that excludes all industry until the nonprofit grants any license–has broad discretion about what constitutes “a satisfactory manner.” The term of the exclusive license was limited to three years from first commercial sale or eight years from the date of the exclusive license–this term is longer than that provided by the Kennedy patent policy–and there’s a deeper rabbit hole, since the HEW reserves the right to grant extensions to the term of exclusivity. At the bottom of the hole, a nonprofit contractor gets a free pass to deal in patent exclusivities, subject to covering its activities with administrative paperwork.

After a decade of using the IPA workaround to the Kennedy patent policy defaults, and having expanded the IPA to the NSF in 1974, Latker aimed to make the IPA program government-wide. His effort was blocked by Senator Gaylord Nelson in 1978. One of the core issues for Senator Nelson was this “public interest.”

The Government-wide IPA provides, “The Institution shall administer those Subject Inventions to which it elects to retain title in the public interest . . . ,” but it does not define the phrase.

Sen. Nelson continues:

What does the phrase mean? It cannot be left to each institution holding an IPA to define “the public interest.” Each institution wanting to negotiate an IPA will have to provide the agency with a copy of its “established patent policy, together with the date and manner of its adoption.” Will the Government abdicate its policy-making role and allow universities to define “the public interest” in terms of their own perceptions and interests?

Nelson quotes the NSF’s opinion:

. . . the legal propriety of the IPA mechanism depends ultimately on a determination of where the public interest lies. That, of course, comes down to a policy judgment for policymakers–which is, again, as we think it should be.

The IPA program, then, not only pushed invention rights from public access via federal ownership–payment-free, mostly condition-free (all but about 5% of 28,000 federal patents, mostly defense-related)–to institutional control (not even inventor control, the default of federal patent law), but also pushed public policy decisions from the federal government to those same institutions. Put another way, the IPA program delegated federal policymaking with regard to federal research and development from the federal government to whomever federal agencies chose to contract with. The only condition for IPA participation was that the federal agency had reviewed an organization’s patent policy and technology transfer program and found them “acceptable”–whatever that might mean.

Latker claimed that Bayh-Dole was a codification of the IPA program, and despite significant differences, as for federal policy and the public interest, Bayh-Dole does much the same thing as the IPA program, with a more elaborate apparatus to “protect” the public that is wired to not operate. The apparatus is for show, an administrative spectacle that federal agencies could hardly use even if they wanted to.

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