Learning from Latker’s 1984 “Federal Initiatives for Innovation” Talk, 2

Let’s return to Norman Latker’s talk from 1984, “Federal Initiatives for Innovation.” Keep in mind, Latker drafted the IPA master agreement, the Bayh-Dole Act, Reagan’s 1983 memorandum that displaced the Kennedy and Nixon patent policies, the 1984 amendments to Bayh-Dole (after S. 2171 failed), among other policy instruments. Latker is not peripheral to federal invention policy–he is central to it, he is the focus. When Senators Bayh and Dole argue for what they did or didn’t intend with Bayh-Dole, they argue for what they understand Latker intended.

Latker argues that the federal government funds much of the research going on in the U.S., and that Japan objected to the “Dole Bill” (S. 2171) on the grounds that it would deny Japan easy access to inventions arising in U.S.-funded work. Latker followed this up–to a lot of laughter, apparently–with the claim that denying foreign access to inventions made in federally supported work was indeed the intent of the Dole Bill, and by implication, Bayh-Dole as well.

If this is the case, then we might think of Bayh-Dole first and foremost as a law regarding foreign policy pertaining to inventions that might be exported, as it were, for use in other countries. Damp down such invention export, so the argument goes, and the federal government will be able to deny citizens of other countries the benefits of federally supported research, returning the U.S. to a position of technology domination, with all the economic benefits that must go with such a position.

This, too, makes no sense, except as fantasy. Advocates of Bayh-Dole have gone around the world aiming to inspire copy-cat laws in other countries, often with an odd degree of success. I say “odd” because the copy-cat laws that have emerged aren’t exactly that of Bayh-Dole but rather more along the line of the misrepresentation of Bayh-Dole that Latker wished he had drafted but didn’t. It’s also “odd” because if Bayh-Dole is a foreign policy law, denying the world easy access to U.S. inventions made in federally funded work, and other countries adopt roughly the same foreign policy, then U.S. citizens and companies are denied access to a bunch of inventions made in those other countries. Unlike the Japanese companies that happily would slurp up new inventive results from American research without any need for a patent position, apparently in Latker’s world, American companies would never do such a thing with inventions arising in Japan. That’s odd–to be able to hold these claims in a single mind and not have it melt into mush.

Latker:

S. 2171 is intended to create an owner, whom the Japanese will have to deal with and receive a license from.

Thus, very odd. Under the executive branch patent policy in 1983–prior to Latker’s Reagan Memorandum that blew everything up–contractors with non-governmental markets could choose to own inventions made in research funded by the federal government, except for health care research, where they and nonprofits and for-profit contract research organizations all had to make a case that their exclusive control of such inventions would better serve the public interest than would federal open access. Furthermore, if federal agencies make inventions they acquire “freely available,” that was a function of agency choice not any federal law that prevented a federal agency from imposing licensing conditions.

The idea of federal invention ownership then raises the problem of what to do about foreign governments and companies using inventions made in U.S. government supported work. If the federal government does not acquire patents in foreign jurisdictions, then the effect of any U.S. patents is to gate access to the claimed inventions in the U.S. while the rest of the world has unconstrained access, but for making, using, and/or selling product in the U.S. A U.S. government patent position with any conditions on it–requiring licensing–then can only interfere with U.S. access to what the rest of the world has freely from the U.S. If, however, the federal government does take out patents in foreign countries, that becomes an act of state–a kind of technology dominance, using foreign patent laws to tax foreign governments, companies, and citizens for access to U.S. invented stuff.

An idea behind S. 2171 then would have been that companies and nonprofits both could better shake down foreign entities, if they obtained foreign patents, for a royalty (or to suppress all practice in favor of some other product for sale in those jurisdictions), and if no foreign patents, to suppress foreign practice in the U.S. market or at least take a royalty for the right to practice. All this runs implicit in Bayh-Dole and S. 2171–though Latker makes clear that these concerns are what he intends S. 2171 to address, as if S. 2171 is his bill, not Dole’s–and it may well be that this was the case.

(Here’s Latker’s account, from his resume circa 1984 listing Sen. Dole as a reference:

During both the 97th and 98th Congresses, Senator Dole requested Mr. Latker’s ‘assistance in developing legislation that would remove some exceptions in 96-517 and extend the principle of contractor ownership of inventions to all who perform federally- funded research and development.)

It’s here that we get to a fundamental contradiction, and this contradiction points out the deeper problem.

And here’s the contradiction. If exclusionary patent rights are necessary to the development of commercial product, then why would Japanese companies complain that S. 2171 would deny them access? Clearly, according to Latker’s logic, Japanese companies ought to have the same distaste for open access new technology that American companies, in Latker’s view, have. If American companies won’t adopt stuff that’s open access, why would companies based anywhere else?

One witness before Representative Thornton’s (deep breath) Subcommittee on Domestic and International Scientific Planning and Analysis of the Committee on Science and Technology–Howard Forman, a federal attorney–argued that federal open access amounted to the suppression of inventions, that without an exclusive owner of an invention, the invention was as good as destroyed.

I hold that the U.S. Government, by acquiring 28,000 patents and not seeing to their utilization for the public good, is also guilty of suppression of patents. It amounts to the same thing as the charge made against corporations that acquire many patents and don’t use them. When the Government says it will license any body who wants it and nobody comes and takes a license, that is negative suppression. It is suppression just as much as if they refused to grant a license, or refused to exploit the patented invention.

Latker appears to argue much the same way. But if a lack of owner ruins an invention, then why would any foreign company not get this message and ignore the results of U.S. government-funded work?

Clearly, other countries and their companies were happy to pick up results arising from U.S. government-funded research. Why not American companies?

But it may be that Latker had no information on American companies and had his eye on something else. Look:

This kind of management capability is of fundamental importance, not only as an incentive to the originating organization’s continued involvement in further development of technology, but also because without a clear right to manage, the results cannot be used as the nucleus of a research and development limited partnership.

To the extent that a federal contractor or a federal laboratory is precluded in establishing an exclusive position in inventive results which they can manage and transfer, they cannot use a research and development partnership to attract the capital necessary to continue its development.

The Department of Commerce proposes creating “research and development limited partnerships” to finance new technology development. If these quasi-private investors are to have a selection of new technology to invest in, then it’s they, apparently, who have to have patent exclusionary rights. Push it. For these RDLPs to have a clear market advantage, they ought to be able to exclude all others–American, Japanese, whomever–by means of patent rights rather than to move more expeditiously with their funds to develop new technologies and arrive on the market ahead of others.

In 1947, the Attorney General recommended that for those research inventions made in federally supported work that were of importance to governmental missions, the federal government should pay for the development work needed–to “bring the invention to the point of practical application” as the Kennedy patent policy would put it 26 years later. But by the early 1970s, the Department of Commerce had developed the position that the federal government should not be involved in funding development–development of inventions, even inventions central to governmental missions such as public health, should be privately directed and funded. From 1976 on the Department of Commerce pushes a succession of bills to make “uniform” federal invention policy–meaning, to make it nigh impossible for federal agencies to fund development of government-central inventions made in federally funded work.

Do you see the logic then? “Technology transfer” as an administrative concept becomes central in the mid 1960s. There, it has to do with the problem of creating dual uses for inventions made in federal research work, especially in defense work. There, the federal government did pay for development of the inventions it wanted. But Vannevar Bush had argued in Science the Endless Frontier for opening up defense inventions for civilian use. But companies were not rushing to develop dual uses. Defense contractors by the hundreds declined to file patents on inventions that might have dual uses. The federal government then took ownership and made the inventions open access, whether filing patent applications or not. That’s where the 28,000 patents meme comes from–mostly defense, space, and atomic technologies, open access, condition-free, payment-free licensing. There was no information available on how these inventions were being used–or not–but the lack of licensing information could be used to claim that the inventions weren’t being licensed, and thus–because not licensed–must be “sitting on the shelf” in laboratories.

In the 1960s, federal agencies tried all sorts of methods to bring dual use inventions to the attention of American industries–technical report publications, regional technology centers, mandates that federal labs transfer technology. Nothing much was working, it was claimed. In a little over 60 years, America went from the first powered airplane flight to putting astronauts on the moon, but somehow the technology transfer problem–dual use–weighed heavily on federal administrators. It is in this context that the Department of Commerce gets the idea that the problem is with patent rights, not with a mismatch between federal research and American markets, or with a different pathway by which federally trained or recruited expertise moves back into private technology development.

It appears that Latker’s goal for S. 2171, and for Bayh-Dole, is to set up federal programs to appear successful by diverting federal research results into ownership positions that then will be moved by license to prefer speculative investment. You can see that Latker’s scheme is a federal scheme to pull inventions made in federally supported work away from open access by setting up speculative investors to pay to acquire rights in these inventions from nonprofits. It is these licensing deals with speculative investors–“research and development partnerships”–that then fund technology development and in return ought to expect maximal returns on their investments, which then (in theory) might be used to acquire yet more inventions made in federal research and repeat the cycle, with ever more and more money available to make this engine go.

There’s a lingering problem with all of this. Bayh-Dole is focused on nonprofits, and in particular universities and their research foundations, which some used as a front for handling research contracts as well as licensing inventions. These are organizations that generally lack product development resources but nevertheless have had a long history of making products anyway–for research, as research tools, and for public health–such as local production of vaccines. What the universities and their nonprofits were not so good at was scaling up for mass production of products–that was the where large companies were good–if they wanted to do something on a massive scale, they usually could.

Latker expressed no doubts that his approach to exclusive patent licensing of federally supported inventions would not be successful. Latker adopted the position that the key element in any patent was the right to exclude others. Without this right to exclude, so the thought goes, a patent is useless (not true, but we follow the thought). And without exclusionary control provided by a patent, no one will use or develop any given invention (also not true, but sigh). Thus, federal use of the patent system to, say, publish an invention in a national forum, is a waste of the key value of a patent. Failure to obtain a patent when an invention is or may be patentable is just as wasteful, throwing away the value that might be obtained from exploiting the exclusionary right provided by a patent.

In Latker’s argument, federal ownership of inventions was equivalent to no owner–forcing inventions into open access. Latker does not explore whether open access might also be a source of uptake and use of inventions. He simply asserts that such uptake never happens. Nor does Latker consider that a patent holder might not develop a given invention into something the public could benefit from and merely sit on the patent waiting for someone else to be fool enough to infringe or desperate enough to pay to gain access. In such cases–Latker’s rhetoric insists such things never happen or happen so rarely that they are insignificant edge cases–the value of the patent lies in suppressing use rather than developing use, in extracting rents from those that do use the invention, and in playing on the future value of suppressing use or extracting rents. These are bread-and-butter practices for patent holders, but in the world of Latker’s rhetoric, such practices don’t exist. In this sense, Latker insists on a patent practice world that doesn’t exist. Nonprofits and small companies, Latker’s argument insists, won’t misuse any patents they obtain, and if the outcomes are dismal, that’s acceptable so long as the organizations involved have made a sincere effort to develop their inventions or find exclusive licensees to do the development for them.

In the end, Latker’s idea about how to use the patent system in federal research rests on a sketchy criticism of open access, a fantasy about patent practices, and a failure to recognize that his approach doesn’t scale when repeated over multiple federal agencies funding thousands of contractors every year in overlapping areas of research and development.

Thus, in Latker’s formulation, if federal inventions have no private, money-and-power- interested “owner,” then federal research funding is wasted. (And this formulation is just weird–federal research funding might be wasted anyway, and that potential waste is only obscured, not changed, by the claim that the real problem is a lack of patent owners who will demand rents or will suppress rapid use in favor of whatever “development” they might do in their own sweet time).

Latker argues that without such patent “owners” using every bit of the “incentives” of the patent system–money and power–none of the proposed federal initiatives are possible: private “research and development limited partnerships” won’t form to exploit federal inventions; companies won’t collaborate in consortia, even if permitted to do so by relaxed antitrust law; companies won’t lease space in state-run research parks. All of these initiatives, so Latker claims, depend on the ability of some private owner of an invention “to maintain an exclusive market or transfer exclusive rights in the invention to another organization.”

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