The use of the patent system for federal research results, 7: Failure of FSA 110-1 to establish a middle ground

Let’s look more carefully at this second possibility beyond the possibility of open access–and where the “generally” in FSA 110-1 gets triggered to make at an attempted middle ground between always open access and full-on use of patents to exclude all others to maximize the financial return on holding a patent. The gist of 110-1’s provisions is that publicly funded work ought to be, in general, open access, but there might be “some cases” in which patenting is “necessary.” But in those cases, there ought to be some public protections so that the use of the patent system does not involve “unreasonable restrictions” or “excessive royalties.”

Here, even stating these conditions means that the conditions must be something other than what would be illegal and contestable under the law. These conditions are not about fraud on the patent office, illegal tying, price fixing, and the like. These conditions must be something else, addressing practices that are otherwise legal but are not appropriate in the context of inventions made in work receiving federal support. “Excessive royalties” then ought to involve patent holder demands for money that discriminate among licensees, or significantly raise the price that would otherwise be charged, or limit companies from taking a license, or permit an exclusive licensee from charging more than it would charge if there were multiple suppliers. That sort of thing.

“Unreasonable restrictions” then ought to include preventing licensees from making variations and improvements, preventing or poisoning sublicensing by an exclusive licensee, requiring grant backs of improvements and related assets, and even simply suppressing use or refusing to license or even suing for infringement merely because someone is making or using or selling something that practices some bit of the claimed invention. After all, the goal of the policy is use of inventions made in FSA-funded work. Infringement is use. It is an unreasonable restriction to stop use solely based on holding a patent right in an invention made in public work.

Think about it. If there is use of an invention, without the need for a patent, and even in the face of a patent held by a nonprofit, then that invention was not in the class of “in some cases” for which use of the patent system is “necessary.” It is a mistake patent. To obtain a patent then is a financial risk that a nonprofit begging to retain patent rights has to run. If the patent on a given invention turns out to be a mistake patent, then the nonprofit ought to do a better job assessing whether the use of the patent system is necessary. It is the nonprofit, after all, that must beg for the right to patent. The FSA policy does not force use of the patent system on contractors.

The “middle ground” of the FSA 110-1 policy then becomes clear. On the one side, open access–expected for most inventions. On the other side, private exploitation of patent rights in any legal way that a patent holder might choose, including suppression of all practice of the invention for the life of the patent. Almost perfectly legal, but for antitrust considerations. The middle ground is some use of the patent system, only when necessary to “foster an adequate commercial development” and then using only some of the rights available to patent holders. Patents on such FSA inventions then come with a public covenant, a kind of ground lease or conditions that run with title to the property that would not otherwise be present–a government license, no excessive royalties, no unreasonable terms. What’s missing in this middle ground? Procedures by which the FSA would enforce the policy and the contract provisions that implement the policy and the practices of FSA program officers with regard to decisions to audit, waive, exploit, or require compliance by contractors and by their licensees.

In a sense, then, the FSA defines with words a middle ground, but the words are descriptive rather than normative–what’s an “unreasonable restriction” and what’s an “excessive royalty”? And what does it matter, if there’s nothing in place to constrain FSA grants officers to monitor compliance, require compliance, and act when there’s not compliance? It’s a middle ground more like Poland, easy for armies to march through, and less like a balancing of needs to serve the public interest when nothing else will work–when patenting is necessary. The FSA middle ground then is technically a bother. The effort from 1952 to 1963 (Kennedy patent policy) to 1968 (pharma boycott over contamination of rights, Harbridge House report, IPA program restart) to 1976-78 (failed efforts to expand IPA program to all agencies, Thornton bill fails) to 1980 (Bayh-Dole) has been to use the bother–requests for determination of ownership, compliance worries, mostly useless administrative procedures and paperwork, lack of oversight–to get rid of this middle ground. These efforts have not come from industry. They have come from the executive branch–a fight among administrators–egged on by research university administrators with their own internal disagreements over patent rights that eventually have resolved in favor of anything that will make money for their patent licensing efforts.

The FSA with 110-1 aims for a middle ground. For some inventions, maybe the patent system helps, but only if property rights in patents on FSA inventions are restricted in scope compared to ordinary patents.

FSA 110-1 provides that if the agency unit head

finds that the invention will thereby be more adequately and quickly developed for widest use and that there are satisfactory safeguards against unreasonable royalties and repressive practices, the invention may be assigned to a competent organization for development and administration for the term of the patent or such lesser period as may be deemed necessary.

This part of the policy, then, opens itself to  two of the possibilities that we have previously identified: Possibilities 2 (curatorial) and 3 (flip with public conditions–such as flip to an organization that will be curatorial). The policy here anticipates the existing practice–that  nonprofit “grantees,” such as universities, and inventors (or universities) will assign inventions to Research Corporation or to a research foundation set up on the model of the Wisconsin Alumni Research Foundation–either of which might serve as the exemplar for the “competent organization” specified by the FSA policy. Put in direct wording, the policy statement would go something like this:

finds that the invention will be better developed than by federal open access and made available to the public, then the invention may be assigned to Research Corporation or to a similar nonprofit invention management organization

What’s left out is whether the invention management firm will attempt to license the invention to companies on fair, reasonable, non-discriminatory terms–Possibility 2 (curatorial control) or whether such firms are free to try other things–licensing to only one company, trolling industry having failed to license, or merely failing to license because other inventions are more important or there’s not sufficient resources to do a good job finding licensees, and the like. That is, the bother of unreasonable restrictions and excessive royalties.

There’s nothing in the FSA policy that precludes exclusive licensing of FSA inventions or a trade in passing around exclusive rights in a sort of speculative pyramid scheme–nonprofit acquires rights from inventor, management firm acquires from nonprofit, company or speculator acquires from management firm, another company or investor or patent troll acquires from the initial company, and so on. If there is any concern for exclusive licensing, it would be in a discussion of “an adequate commercial development to make a new invention widely available.” Not merely to “develop” a product, and not merely to suppress all other uses in favor of waiting for a product, and not merely dealing with a single company unless that is necessary to achieve making a developed invention widely available. But the FSA policy does not bound its middle ground and so leaves itself open for exploitation–by FSA officials and by nonprofits. Whatever eventually gets to industry largely lands in its lap without much lobbying. What lobbying there is ends up being to preserve the lap landings offered by university administrators and federal officials.

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