The use of the patent system for federal research results, 5: Possibilities of patent use

We are working through and around FSA order 110-1, the first major federal executive branch policy regarding inventions made in federally funded work, issued in 1952. The Supreme Court in its 1933 decision in Dubilier said the it was up to Congress, not the executive branch, to decide on any special requirements on the ownership of inventions made by federal employees. One would think, then, that it would also be up to Congress, not the executive branch to stipulate ownership of inventions for inventors who work for federal contractors and may not be either federal employees or contractor employees. But one would then think wrong. In a sense, then, Bayh-Dole completes–planned and pushed through by executive branch officials and lawyers, however wretchedly–the task assigned to Congress by Dubilier.

It’s worth looking at this policy for how it reflects a prevailing thought that federally supported work in health ought to be made openly available and for that patents don’t have much of a role but to disrupt and delay and embitter and exclude. Even so, the FSA policy also leaves open a role for patents. And the opening sets the stage for executive branch patent lawyers to work to change the default, eventually, so that patenting becomes the norm and not patenting or declining to enforce a patent or otherwise exploit its exclusivity comes to be depicted as a waste, a suppression of use, and abuse of the public. In Bayh-Dole policy talk–though no one will come out and say it–the public desires itself to be abused with unreasonable conditions and unreasonable royalties and pricing because to have any medicines at all is so much more important than anything that a monopoly on those medicines might involve. “Abuse us with monopoly pricing and limitations on function rather than abuse us by giving us open access but refusing to make the medicine at all.”

It’s a tough dichotomy, if those are the only two options one is willing to consider.

The Bayh-Dole definition of “practical application” carries much of the original FSA 110-1 policy, via the Kennedy patent policy and Latker’s reimplementation of the the NIH’s Institutional Patent Agreement program. Here’s Bayh-Dole on the standard for retaining exclusive patent rights (35 USC 201(f)):

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.

Compare the Kennedy policy:

unless the contractor, his licensee, or his assignee has taken effective steps within three years after a patent issues on the invention to bring the invention to the point of practical application or has made the invention available for licensing royalty fee or on terms that are reasonable in the circumstances

where “point of practical application” is defined in the Kennedy policy as

that the invention is being worked and that its benefits are reasonably accessible to the public.

Again–the same two requirements–reasonable conditions and reasonable requirements for payment.

But there’s a difference between the FSA requirements and those of the Kennedy patent policy and Bayh-Dole. In the FSA, the requirements are directed at the “grantee” and its policies and procedures, where the expectation was that the grantee would be a university or other nonprofit, unlike Kennedy and Bayh-Dole, which include for-profit contractors within their policy scope and so cannot assume that the primary mechanism by which an invention is made available by means of a first getting a patent right and then licensing that patent right.

Even here, none of the policies directed at nonprofits are express about their purpose. If we start with the FSA 110-1 default that the federal government should obtain rights to inventions and dedicate those rights, patent or no, to the American public, to the inventors (sans the right to exclude all others but with recognition for priority), and to American companies (foreign patents left as a matter for foreign policy), then in allowing nonprofits to pre-empt that federal default, exactly what ought to happen?

Possibility 1 (nonprofit open access): nonprofits may in some situations be better able to transfer an invention, open access, than might a federal agency. Nonprofits that obtain patent rights, generally, also are close to the inventing team (at least until they leave), and so perhaps can influence those people to assist in the transfer of what they have done–to their colleagues, to companies, and the like. The patent right is free; transfer and follow-on research services might be contracted for.

Possibility 2 (nonprofit curatorial access): nonprofits in patenting distribute rights by licensing non-exclusively, and set public conditions on access to new inventions, to control quality of products made under license, to regulate advertising to eliminate misleading claims, and to ensure that pricing is fair, given the medical purpose of the products, the public–charitable–purpose of the nonprofit research, and the role of federal–public–funding in supporting that work. Patent rights may not be free, but they are made available on a fair, reasonable, non-discriminatory basis. You know, like how Stanford managed Cohen-Boyer–price the license lower, say, than the cost of asking attorneys to get involved in the negotiation. The value of a neutral, fair control over an emerging foundational platform for research and development is well worth paying somewhat less than the cost to flinch one’s passel of lawyers.

Possibility 3 (nonprofit flip with public conditions): nonprofits acquire patent rights and reserve those rights to flip exclusively to a company but with public conditions, so that the company is recruited into a public project alongside the nonprofit and the federal government, to produce and distribute product to the public as if it were competing with other companies, as if it contracted only for manufacturing and sale, and any expenditures on testing and productization were as it were a contribution to the public.

Possibility 4 (nonprofit flip without public conditions): nonprofits acquire patent rights and reserve those rights to flip exclusively to a company which then may deploy those rights however it wishes, unconstrained by the public gestures of the nonprofit, public health needs, or public funding of the work.

There are two further possibilities, as if these aren’t enough and you are already cognitively depleted:

Possibility 5 (nonprofit fails to flip): nonprofits acquire patent rights and reserve those rights to flip exclusively to a company, but then fail timely to secure a deal with any company and refuse to release the rights open access in the hope that such a company will one day show up. Despite stated intentions and purposes, then, a nonprofit might take patent positions and do nothing with the rights, which in practice means that everyone–companies, research institutions, even the inventors if they leave the nonprofit that holds the rights–must avoid using the invention. The effect of failed licensing practice is then not only suppression of possible uses but also active avoidance of the invention–design around, block, undermine, exclude, obsolesce. In this possibility, if inventions are not licensed immediately–and used– they are in fact suppressed as a matter of practice. And if policy tolerates such practice, those outcomes are necessarily endorsed by the policy.

Possibility 6 (inventors control and nonprofits stay out of it): nonprofits do not acquire patent rights and leave the disposition of inventions to the inventors. Just to remind you what then might happen: inventors may offer open access, or they may license non-exclusively to distribute rights, or assign their inventions to organizations that will license non-exclusively. Or inventors may assign, or exclusively license, or sell the invention rights to a company, or to an organization that will assign, exclusively license, or sell the rights. Or inventors may use and develop their inventions themselves, or start companies to do so, or assign to companies that they then join in leadership roles to exploit their inventions. Or inventors may, through ineptitude or laziness or desire for control or getting paid to do so, suppress all other use of their inventions by patenting and not licensing. Or they may troll industry to gain royalties after companies infringe, having done nothing to help companies learn to use their inventions, or inventors may sell to companies that will troll industry.

Nonprofits, if not constrained in some way, might do any of the things listed for inventors in Possibility 6, too. Indeed, there’s an implicit argument in many university patent policies that universities can do any of these things better than can mere individual inventors, and so are justified in demanding that inventors assign their inventions to the university.

We might then ask, just what of these possibilities did the FSA intend in providing an opening for contractors to hold patent rights in inventions made in FSA-funded public health work? And if the FSA took ownership of those inventions, just what possibilities did the FSA intend for itself? Could the FSA try to make money from its exclusive positions? Or license preferentially to companies that promised to make as much money as possible, for a share of that possible upside? Could the FSA license exclusively? Or assign the patents it acquired to companies, and if so, on what basis, with what recourse if the company failed to produce product?

In a way, there’s nothing at all mapped out in the FSA’s 110-1 order. It’s just administrative gestures, justified by a claim about public interest. It all sounds nice, but.

The FSA order, however, also took into account company contractors. A company contractor might produce and sell product itself, without any need for licensing, while a university or other nonprofit might never produce or sell product itself and would have to use licensing to the extent that it chose to assert a property right in any given invention. Thus, in the Kennedy policy, “reasonably accessible to the public” generally has to do with sales and distribution, and available for licensing has to do with how a patent right is deployed.

The FSA provides no assistance with “unreasonable” restrictions and “excessive” royalties. “Unreasonable” restrictions might include ties to other products or services that would constitute patent misuse–but why call such restrictions out in policy when there is already a body of law that addresses such misuse? We might then think that “unreasonable” restrictions would be restrictions that a “reasonable” person would consider unreasonable, even if the restrictions were not illegal. What “reasonable” person would this be? A reasonable university administrator? A reasonable business person? A reasonable person seeking a license? A reasonable member of the public with a need for the benefit on offer from use of the invention? A reasonable member of the public but without such a need? One might even posit that “reasonable” restrictions would be ones that don’t directly involve patents, such as requirements pertaining to use of the university’s name in any marketing or conducting product testing for efficacy and safety before offering product to the public. As for “excessive” royalties, would the standard be what royalties are normally charged? But what if there’s nothing to compare the invention to? A patentable invention is supposed to be new and non-obvious, after all.

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