The use of the patent system for federal research results, 2: Why universities patent

For an account that covers reasonably well the context for universities getting involved in patenting, see Elizabeth Popp Berman’s 2006 paper “Why Do Universities Patent? The Role of the Federal Government in Creating Modern Technology Transfer Practice” (draft here). What Popp Berman doesn’t notice also matters–the NIH IPA program was not “successful” despite Latker’s claim that it was, and the defense departments and the DOE did not adopt the IPA because they did not need it–they already had in the Kennedy patent policy authorization to allow contractors to retain rights to inventions, and most of the federally owned patents were on inventions made in DoD or DOE work where the contractors had declined to own, and the agencies used the patent system to document and publicize inventions, not to attempt to “commercialize” them by means of patent monopoly inducements. The industry that created these inventions chose not to fragment their cumulative technology by company ownership setting up to sue all others, and there was no purpose served in a federal agency withholding access to inventions in that industry by shopping patent rights exclusively to what amounts to predatory speculators on that industry, happy to deal in exclusive control of fragmented big Invention rights.

As for the Department of Agriculture and Department of the Interior, they had programs under which they undertook the development–new fertilizers, tomato picking machines, water desalination–and then released the developed products for commercial production. Harbridge House found nearly 100% placement rate when these agencies funded the development to the point of practical application. There would be no good reason for the Department of Agriculture to contract with five universities to help develop some new thing and then leave it to each to patent their little bits of the whole–blocking the other universities and handing over their invention interests to speculators. Even if each of the five universities were successful in their effort to license exclusively their bit of the whole to a company, the companies then would have to work things out–cross-license, say–before anyone could use or sell the completed tomato picker or whatever. And of course if the universities moved to non-exclusive licensing, how would that be any better than federal open access? And even if the universities all licensed exclusively to a single company, they would still have work out the patent stack–they can’t all have their 5% royalty, so such deals will, to each of them, look deeply unattractive–only 20% of the potential “return” of a deal done with a company that doesn’t have to acquire four other patents before it can make and sell product.

Past the university administrative verbal flapping about exclusive licensing, there’s simply no substance to their claims that they can transfer technology better with exclusive licensing than can federal agencies with open access. Their claims may sound good, but only if you have no experience in technology transfer or don’t bother to work through how things happen in the real world rather than the fantasy world that university administrations feel the need to present to the public and to policy makers.

Most federal agencies had no need for the IPA program developed by Latker at the NIH. The IPA program was, in its fundamental design, a horrible thing for any agency spreading work around in a given area, where multiple nonprofits might then invent as part of what ought to be collaborative work to contribute to a cumulative technology base, or platform, or library of methods and materials, or ad hoc standard. It’s nothing that Latker’s IPA program was blocked as the default. It should have been blocked. It was stupid, just as Bayh-Dole is stupid. It’s just that no one can out and say this in the university community. Instead, they put on airs, and make their aspirations (that something stupid will work given enough time and money) appear to be facts. If anyone wants to know why there’s so little “innovation” from the billions of dollars spent on university each year, one reason is that key outcomes–inventions–are controlled by sincere, diligent but often dishonest (oh, it’s just politics for them) and badly informed university administrators.

Under the 1963 Kennedy executive branch patent policy, any contractor with a non-governmental market and capability could retain ownership of inventions made in federally funded work. For companies, especially large companies, this was mostly perfectly fine. The problem for the big companies was whether they wanted to expose their trade secret work to federal contracting provisions that might require them to grant a license to the federal government. But that was largely navigable. And even if the government accepted title (because a contractor didn’t want the bother of patenting), the government granted everyone a royalty-free, mostly condition-free license, or let the invention enter the public domain, amounting to much the same outcome–everyone, including the inventors and their companies, had open access.

The federal technology transfer agenda, circa 1965, was not moving inventions made in federal work into use in the same industry in which the inventions were made, but rather in following through on Vannevar Bush’s idea that inventions made in defense (and related DOE and NASA work) ought to be moved into private use for other purposes. Sonar developed to detect submarines and torpedoes could be repurposed–dual use–to detect fish and dangerous rocks. That was transfer of technology that *already had been developed for one use, a government use* to another use, a non-governmental use in a non-governmental market.

However, federal work at universities was not within this same default policy. Nonprofits had no right to retain title as they had, usually, no commercial capability, no established non-governmental markets. Under the Kennedy policy, they had to have a plan to introduce the invention into use and petition the federal agency to retain patent rights. The deciding factor, then, was whether a university using its plan to transfer the technology would be better for the public than federal open access. Make a good case for that, and a federal agency might agree. It’s just that this process could take time, especially as the number of inventions reported increased. And the process could take time if a university did not make a compelling case. And time matters if a university feels the need to file a patent application and so establish its priority as having the first inventors. So there were administrative delays in getting agency approvals.

That’s where the NIH and NSF Institutional Patent Agreement (IPA) programs came in, to by-pass the Kennedy patent policy administration by pushing the default ownership to the universities participating in the IPA program for any inventions that they chose to patent. (Technically, the IPA master agreement required the university to require inventors to assign their inventions to the university whenever the university chose to file a patent application.) The IPA program was a clever end-run around the Kennedy patent policy, all the while citing the policy as its authority. Just like bureaucrats to do that.

Furthermore, biomedical work was expressly called out in the Kennedy patent policy to be handled under a different default–federal agencies should own inventions made in public health research, and dedicate them (royalty-free licensing, public domain) to the public. This bit of policy affected companies as well as universities. Even here, the pharmaceutical industry was not especially concerned. Like the nonprofits, they could request to retain rights, and there was a reasonable profile for their being able to develop the inventions they retained for public use. It’s just that the health research components of what became the Department of Health, Education, and Welfare routinely declined to release the federal claim to ownership. Even that was not a huge deal, because federal open access meant that a company could still practice what it had invented, could invent improvements that it controlled exclusively, and use patents on those improvements to build its commercial position.

The problem for pharma came with the scope of the federal claim in inventions made in federal work. The Public Health Service position in contracts was that any work by a contractor responsive to the purposes of the federally funded work was to be licensed to the government as a deliverable. That’s even if the contractor’s work was not paid for by the federal government. It was, as it were, a private contribution to a public effort. Pharma saw it as a taking of private work, and property, for public purposes without compensation and without due process. Thus, in 1963, pharma boycotted the screening of compounds identified with federal funding. For a look into the federal reasoning, see Mine Safety Appliances v United States, a 1966 decision dealing with a 1946 Navy contract with the University of Southern California. See the discussion in the 1968 Harbridge House report on government patenting. The problem was “contamination” of company work done in parallel on the same or similar medical problem by accepting federally funding to do work in the same or related area. The problem was not government ownership of invention deliverables–but Latker and others figured no one would read, or read closely, and so they twisted the Harbridge House findings to their purpose.

Popp Berman also doesn’t take up the rhetorical methods of SUPA, which became AUTM. The primary message from this organization was that Bayh-Dole gave the universities title to inventions made in federal work. This was untrue. Maybe Latker intended this outcome and was clever in his drafting to leave that reading of the law open, even if the reading was unbearably contorted. The Supreme Court in 2011 (Stanford v Roche) worked through the contorted reading offered up by Stanford and scores of university attorneys and tossed it as nonsense. Universities patented because patent administrators were told that they owned all inventions made in federally supported work and if they didn’t file patent applications, they had to give the inventions over to the federal government and then they and their inventors would get no royalties if anyone made use of those inventions. Filing patent applications then was cast as a beneficent service to faculty, student, and staff inventors working with federal money. “We file so there’s a chance, however slim, that we can share royalties with our inventors.”

There was a second motivation in university patenting. As more federal research money came to universities, and to more universities (spread around–Kilgore’s idea, in the end), Research Corporation, the primary patent agent for most universities and their research foundations, could not handle the increased volume of invention disclosures and continued their policy of being highly selective in the inventions that they took under management–inventions suited, in their judgment, to the use of the patent system. Research Corporation accepted 10% to 15% of the inventions submitted. That might be fine if there are only 100 submissions per year, but it becomes a problem when there are 1,000 or 5,000. Many inventions then were not accepted by Research Corporation, and many of those accepted did not get the full-on dedicated attention that would be necessary to place them promptly in industry. University technology transfer offices then were faced each with scores to hundreds of inventions per year that were not being managed. About half of these, the university would have to offer to the federal government (no royalties, then) and the other half, offer back to the inventors. It was this latter prospect that rankled the patent administrators. If they offered rights back, then they enabled a competing, inventor-directed technology transfer activity. The administrators then suspected that inventors would not reveal the entire truth about the value of their inventions, and would go off and successfully license (or sell) their inventions, cheating the university out of licensing revenue and making the technology transfer program look stupid for not discovering the value of these inventions, and not being able to realize that value. It was better, so the administrators partly reasoned, to suppress inventor-directed activity, even if that meant also suppressing public access and private development, than to allow competition with the university’s formal licensing program.

I was there. I lived in this. I was at the AUTM meetings. I talked with university licensing officers, directors, attorneys. I read the patent policies and watched the administrators work to rewrite the policies to mandate what the administrators believed and were already doing. If you were new to university technology transfer, and given the hiring binge that universities went on, most of us were new, it was difficult to challenge the introductory training one received–that Bayh-Dole vested inventions with universities. Given the situation with inventions made in federally funded inventions, the administrators argued they must have the same policy for inventions not made in federally funded work, or not made with any external or university funding. It would be unfair, so the argument went, to the inventors in federally funded work if inventors in other work did not have to use the university’s licensing office. It was about as twisted as logic could get, but since university administrators don’t largely work with logic on a regular basis, twisted was fine.

Finally, the reason universities filed patent applications comes down to an argument that patents in aggregate form the potential for making lots of money on one or two over the course of twenty years. Given that it is difficult for an administrator to guess which patents might be valuable some years in the future, university administrators shifted from the established procedure of sending out “non-confidential summaries” of inventions to prospective companies and filing patent applications only when one or more companies indicate that they will take a license (and pay their share of the university’s patenting costs) to one of filing patent applications upfront, on prospect, so-called “speculative” filings. File first, and then try to recover costs from any patent in the “portfolio.” One big licensing deal then could fund many more patent filings for up to twenty years, as was the case at, for instance, Stanford and the University of Washington.

If you had lots of licensing income, then you could switch to speculative patenting. If you saw that the University of Washington was filing lots of patent applications and had lots of licensing income (even if from only one or two patent deals), then it was easy to divide income by patents and make it look like more patents would result in more income and pitch a speculative patent fund to university leadership, leaving out the bit about how only one big deal every twenty years would fund the whole operation. It’s more like compulsive gambling than it is the idea that each invention ought to be managed to get used in industry to benefit the public and make money for inventors. In the university patent portfolio model, “winners pay for losers” and most inventions are, in this approach, losers–meaning, they don’t get licensed, don’t get used, and in practice are suppressed and with the threat of university claims of infringement and refusal of universities to license non-exclusively, even royalty free, the “loser” portfolio inventions end up being avoided, undermined, blocked, excluded, and in some cases infringed by industry.

Universities then filed patent applications to prevent inventors from developing alternative, competing transfer methods, to build up their patent portfolio and keep inventions from going “out the back door” and benefiting others without the opportunity for the university to get a share of any upside, and in good administrative fashion to make more work for the office so that it could justify hiring more people and building itself into a serious, permanent part of the university administration.

While Popp Berman is spot on with much of her account, and along with David Mowrey and Rebecca Eisenberg, is among the best academic commentators on the situation, there’s more to it (isn’t there always?–so much for primitive narratives in which by assembling all the artifacts one thinks to arrive at a single necessary truth). Universities patented because they persuaded themselves they had to (thanks to AUTM’s misrepresentation of Bayh-Dole), and should try to make money (for the inventors and for themselves), and to prevent university-based inventors working out effective transfer methods on their own and in competition with official technology transfer, and because they had licensing money to spend or had made the case that filing patents would eventually lead to a big patent deal to pay for it all and more, and would at least bolster the reputation of the university as a place of “innovation.” There, try that as an explanation for why universities patent.

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