The use of the patent system for federal research results, 10: the drivers that eventually produce Bayh-Dole

There’s the version of the theory of patent rights that asserts that exclusionary practice is at the heart of the value of a patent, and any practice that declines to assert a patent wastes that value. This theory of exclusionary value requires that the holder of the patent have no other alternative to gain value from a patent, or from an invention, or from the results of research, or for what has been learned or realized from doing the research, or even from doing research at all. If one is determined to extract maximum value from a patent, then (so the theory goes) all other potential ways of gaining value are necessary worth less. For this theory of patent rights, excluding all others to dominate the claims of a given invention is the maximum value possible.

If, however, a given inventor has other potential ways of realizing value from an invention (or research results, or research, etc.), then exclusionary value is the best value, if not the only value, an invention might bring becomes something more of a demand than a statement of fact. For instance, an inventor might find in the value of patent something to contribute to a standard, and so gain a seat at the table, as it were, in discussions of a technology roadmap in which the invention is sure to be used. If use is the inventor’s goal, from which might arise intangible assets such as reputation and access to talent, attempting to make money by excluding all others would appear uninteresting, if not counterproductive. By excluding all others, a patent holder provides motivation for all those others to avoid the invention, design around it, block its application, exclude it from platforms, libraries, and standards, and undermine it. Or they go ahead and infringe, meaning that a court will decide what a reasonable royalty should be, given that the patent holder refuses to license or fails to offer reasonable terms.

As Joseph Gabriel has pointed out in Medical Monopoly, his history of patenting in the growth of the pharmaceutical industry, many early patentees of medicines (at least stuff claimed to be medicinal) did so to gain the appearance of kingly or federal approval. They didn’t use patent rights to exclude. They used patents to add luster. In much the same way, tech-based startups use patents to demonstrate that they do have distinctive technology, at least according to a PTO review, and that’s useful in investors’ due diligence. As Guy Kawasaki has it, use the “p” word once in your pitch–“patent applications have been filed.” But don’t think for a moment that your company will survive because it can start suing everyone for profit, or that by excluding all other practice for twenty years the startup will come to dominate the field. The value of the patent to many inventors involved in startups is that the patent helps to gain investment, and it’s the investment, not the patent, that permits a startup to ramp up to meet demand. The value of the startup becomes the primary consideration. The existence of a patent may be enough to serve its purpose. Indeed, opening up one’s patents may gain a startup access to needed technology through cross-licensing that otherwise it could not afford. In this context, attempting to focus all value in a patent’s exclusionary potential all but dooms the startup and its future value.

While the theory that the key to a patent is the threat to exclude sounds attractive in the abstract, it makes practice sense only to patent speculators–folks for whom the only opportunity to profit is that threat. These folks have no alternatives. And this is the case with invention management firms such as Research Corporation and the Wisconsin Alumni Research Foundation. (Well, technically, WARF used patent licensing royalties to invest in the stock market, and made its real money from stocks.) Their business was making money from the assertion of patent rights. Their business model requires value to move through a patent license or litigation for infringement. For them, it is marketing to argue for the central role of patents to exclude. That’s how they get clients. That’s what they are known for. It’s what they do.

But it’s an assertion, not a fact, and it works as an assertion only if a patent holder has no good alternatives. Consider then universities. For much of the twentieth century, universities stayed out of the patent owning and patent licensing and patent suing business. They had alternatives. They could bring in research funding from industry. But if they took a patent and threatened that industry, then they might get funding from one company–an exclusive licensee/assignee, perhaps–but they would have chased off all the rest. Until recently, university administrators did not see such a thing as a good thing. But as federal funding moved toward 60% of a university’s extramural research budget and nonprofits and state governments provided much of the rest, and industry funding slipped below 10% at most universities, some university administrators were heard to say “I don’t care about industry funding–it would be better if it all just went away.”

The administrators accepted the invention management firm marketing pitch that it was better to put the value of an invention into a patent with the threat to exclude all others to maximize (in theory) what anyone has to pay to gain access, and in doing so, they acted on the idea that industry funding for research was a bother–which, if one became fixated on patents on inventions and fought to prevent company sponsors from research from having any meaningful rights in inventions arising in work they had sponsored, if not proposed, it is easy to see how administrative fussing over industry sponsored research terms would become just that bother.

For individual inventors based at universities with this soon to be patent-based drunkenness, the question of patent value shaped somewhat differently. A patent might show priority and technical advance–and these were things that might matter to an academic or a student seeking to establish credentials. The patent functions like a certificate of real advance. That’s its purpose and its value to some inventors. Yes, there’s a pitch that the inventor might get more money by threatening to sue everyone if they don’t pay, but that pitch not only would dramatically alter the reputational value of the patent but in many cases proves to be untrue: most patents don’t end up in situations in which their right to exclude can be exploited to force payments. Most companies avoid such patented inventions, and so even the appearance of setting up to exclude all others destroys the opportunity to profit by doing so. A faculty inventor, too, could use the fact of a patent–released openly (to limit the management overhead and to prevent companies from taking flight)–to attract consulting work, which in turn would provide access to industry problems for further research, contact with talent and technical leadership, and income. Similarly, a faculty inventor might conduct seminars and courses for industry scientists and engineers as part of industry affiliates programs or university extension, and so make money and bring in funding for one’s department.

The problem for the patent management firms dealing with universities is that the universities did not demand ownership of faculty inventions. And faculty had alternatives to patenting, and to patenting to exclude all others. Quite lost in most discussions of federal patent policy is that university faculty are not forced to accept federal funding, or even university funding. They can work on their own. To invent, they don’t even have to do research. They can, as it were, given some problem or opportunity, just think. Call it Feynman style. So the patent management firms had to win over the university administrators by marketing their patent exclusionary services, and they had to get faculty to participate as well. At first, that took the form of marketing to faculty. Research Corporation got the idea of persuading university administrators to “walk the halls” to find inventions and get the inventors to report them to Research Corporation for possible handling. That is the origin of the “technology transfer” office in universities–the transfer was from the inventors to Research Corporation, and from there, for the 10% or 15% of inventions accepted for management, maybe a transfer to industry.

But university administrators were not content to beg faculty inventors to participate in the patent management firms’ patent exclusion programs. Instead, they got the idea to change their policies to force faculty to participate. Demand a report of all inventions, whether the inventors cared about patents or not. Research Corporation cared about patents. WARF or whatever affiliated research foundation a university had set up cared about patents. If those organizations said they could make money from patents, and faculty refused to report their patentable inventions, why, then the faculty were in essence robbing the university (and their colleagues, and the public) of the value of the patents on those inventions. Since faculty couldn’t be trusted to know what was patentable, university administrators got the idea of expanding the definition of invention to include “non-patentable” inventions. Think about it. If a patentable invention is new, useful, and non-obvious, then what’s a “non-patentable” invention? Yes, your mind goes to mush and you might think for a few moments like a university administrator. But pull out. University administrators claimed to own everything and demanded then that faculty inventors report everything–that the university already claimed to own.

In this, Bayh-Dole played a huge part. Bayh-Dole actually respects inventor rights–as the Supreme Court affirmed in its 2011 Stanford v Roche decision–but university administrators misrepresented the law to claim that it vested ownership of inventions made in federally funded work with the university, and only if a university did not want that ownership, and a federal agency did not want that ownership, might ownership float down onto the shoulders of the inventor. Senator Bayh wrote (or had written) an amicus brief that argued just this as his personal intent in sponsoring the bill. The Supreme Court rejected the argument. But for thirty years, university administrators, cheered on by the Association of University Technology Managers, claimed that Bayh-Dole vested invention ownership with universities that hosted federally supported work. The administrators then could argue not only that they really did own inventions made in federal work until they said they didn’t, but that inventors had to disclose all other inventions “just in case” these inventions, too, might have involved federal funding.

To make their claims on faculty inventions all the firmer, university administrators used policy to shut down faculty inventor alternatives to the patent-exclusion-for-maximum-value sales pitch. Faculty could not so readily consult. Faculty could not invent in consulting work and assign such inventions (or even license them) to their company clients–everything had to go through the university and its patent-value program. It was unethical, even, for faculty to fail to report inventions, or to downplay the importance of an invention, or decline to assist the university in attempting to gain maximum value from patent exclusion. Without alternatives (other than subversive non-compliance), the pitch started to look reasonable that the value of inventions was in patenting, and the maximum value of patenting was in exclusion of practice.

But in all of this, the exclusion of practice theory regarding maximizing the value of a patent is a sales pitch. It is an assertion that those armed with the sales pitch know more about what matters to an inventor than the inventor does, and thus, it only makes sense that those armed with the sales pitch (and recognizing that it is often a losing, untrue claim) enlist institutional power to destroy alternatives and force inventors to give up their ownership in their inventions and “participate” in the university’s technology transfer program. We might ask, is this what Congress intended in passing the Bayh-Dole Act? It would be odd, even for what we allow Congress might indeed intend.

What is interesting about the situation that developed around federal invention policy is that the driving argument for maximizing the value of patents through exclusion came from federal attorneys, who recruited university administrators to their cause. It did not come from industry. It did not come from university faculty.

This theory of maximizing patent value through exclusion was Howard Forman’s contention. Forman went further, and argued that a failure to exploit patent value for exclusion amounted to the active suppression of inventions, and that in turn ran against the public interest in supporting research at all. Without patent speculation–those holding patent rights having no other viable alternatives–public research funding was wasted.

If we return to our list of possibilities, this argument follows Possibility 4 (flip without public conditions) placed in a context to look like Possibility 3 (flip with public conditions). The maximum value of a patent lies in its ability to exclude all others. That exclusion attracts the most motivated people, who will pay for the opportunity but who will not get involved if there’s anyone else involved. Therefore, to attract these highly motivated people fixated on the value of patents, all alternatives to gaining value from research, from inventions, from licensing must be suppressed in favor of patent-exclusion practice. But since there’s federal funding, there has to be the appearance of public safeguards–something that will assure the public that even though the most motivated exploiters of patent rights are to be attracted in favor of all others, these patent exploiters will not also exploit the public or interfere with public research. The trick was to include safeguards, but make them limited and weak, and make them almost impossible to enforce in practice. And that’s where we are.

This version goes beyond the idea that an inventor might decide whether to obtain a patent or not, and if so, whether to assert the right to exclude all others, and insists that an invention is too important as an asset to leave to the whims of mere inventors. Inventions should be placed in the hands of people ready and willing to realize the value of patents by asserting the right to exclude, to demand payment, to place conditions on access and use, and using these rights to attract the venture capital that may be needed to develop, mass produce, and sell profitable products based on such inventions. In this version, the proper use of the patent system depends on the assertion of the exclusionary right as a means to attract capital that requires that exclusionary right. The patent system, in this version, is a sandbox specially built for speculative investors to place their money, and in return for their taking risks with their money expecting to receive the benefit of monopoly pricing and market control.

This version of the use of the patent system proposes that there is a competition for the ownership of inventions made in work receiving federal support: inventors, their universities, the universities’ research foundations, companies, speculative investors, nonprofit organizations, governments, standards, the public domain. Since speculative investors–so this version goes–are the most motivated to extract value for the exclusionary power of the patent system, the development of any invention will happen the best if they are given first access to the invention. This argument is not based on actual practice. It is based on an abstraction of speculative investors. Ignored altogether is the real practice that speculative investors might extract their profit from trading in patent rights and never using or developing a given invention, much as there are warehouses of bottles of wine in Hong Kong where wine is bought and sold on speculation and the bottles never leave the warehouse, and the wine is never used as wine–it is more valuable as an asset to hold and to trade.

It is important to recognize that the tensions in FSA 110-1 are not ones between government and industry, but rather between FSA officials with different views of the role of the patent system. The middle ground in the policy is a compromise among administrators that leaves open the possibility that patents might be used to exclude all others and in doing so be “better” than federal open access or nonprofit curatorial access, with whatever public “safeguards” in place to ensure that “better” is really “better.” In its way, Bayh-Dole switches the preferred default of the FSA 110-1 policy from open access to patent monopoly, and then works to prevent the safeguards from being applied–if safeguards were enforced, so the argument goes, then that one company would not show up to take an exclusive license, and (logically totally failing but for politically minded administrators) then there would be no one left to develop the invention at all and all the research funding would be wasted and the value of the patent unrealized.

Lost in all of this is that the use of the patent system to support exclusivity might itself be a major problem, and even if open access on its own does not foster use and development, something else might foster that use and development–government support, offers by inventive team to assist other users, assistance to physicians treating patients who might benefit from interventions based on the invention, consortia formed to collaborate on a new platform for treatments. These alternatives become all the more attractive–if not outright necessary–when multiple federal agencies begin spreading hundreds of millions of dollars in federal research funding for overlapping areas of research to hundreds of nonprofit and company contractors. Inventions in such work don’t arise in isolation–they generally relate to one another, and to use any one of them in a meaningful way, as part of a product, say–one has to have the freedom to practice five or ten inventions, or fifty of them. If every one of those inventions carries a patent held by an organization without alternatives to the exclusion-for-value theory, then the field is fragmented into tiny exclusionary domains, and no one has freedom to practice for twenty or thirty years–until federal funding leaves the area alone and inventive work may take place without further fragmented institutional exclusionary patenting.

There are many possibilities in practice, once one has got unfixated on the idea that inventions drive adoption of public health research and without patents that adoption goes worse, and that the only, best, primary role of the patent system is to exclude others on the prospect of a monopoly and its profits, status, and control over all the claims of the claimed invention, for public health purposes. Unfix from that, and there’s lots of room at the top for alternatives.

This entry was posted in Bayh-Dole, History, Policy, Technology Transfer and tagged , , , . Bookmark the permalink.