Drexel’s Bogus Description of Bayh-Dole, 1

Drexel University’s Office of Research and Innovation has a discussion of the Bayh-Dole Act posted at their web site. They get almost everything wrong about Bayh-Dole–but one thing perfectly right! Let’s work through their bogus badness, and in the process learn something about Bayh-Dole.

Here’s the opening:

The Bayh-Dole Act, formerly known as the Patent and Trademark Act Amendments, is a federal law enacted in 1980 that enables universities, nonprofit research institutions and small businesses to own, patent and commercialize inventions developed under federally funded research programs within their organizations.

I’ve highlighted some words. I do think the word they were looking for was “formally” not “formerly.” The statute’s formal name has not changed. The law was enacted in 1980 and became effective July 1, 1981. So far, so good. The law, however, did not “enable” federal contractors to own inventions. Instead, Bayh-Dole directs federal agencies to use a default patent rights clause (unless they have a reason not to) that limits ownership claims that federal agencies may make on inventions made in federally supported work that a federal contractor–such as a university–has acquired. Nothing in Bayh-Dole “enables” a university to own anything. Bluntly, Bayh-Dole “enables” a university that has got ownership to conditionally keep that ownership. Yes, there’s nuance there, but it is a huge nuance. And it wouldn’t be a nuance if Drexel and other universities didn’t chronically misrepresent the law in the first place. We will come back around to this idea of “enables.” It’s not that in some roundabout way, “enables” gets at an aspect of Bayh-Dole; rather, it’s that “enables” misrepresents what the law does. Drexel makes it appear that federal law gives it a special right to take ownership of inventions made in federally funded work, and that’s not true.

Drexel also claims that Bayh-Dole “enables” universities to “commercialize” inventions. Yes, in a thin way. But the thick part about it is that this whole idea is mostly wrong. Bayh-Dole does not mandate commercialization, so it’s a weird thing to attribute to the law. Bayh-Dole’s standard is “utilization” of inventions. A working requirement. There’s nothing in the law (gawd, I’m going to use this construction a bunch) that dictates, or enables, or even incentivizes “commercialization.” We will get into why I’ve got “commercialization” in quotes later. Hint: it’s a term like “enables.” Not only does Bayh-Dole not mandate commercialization but also Drexel’s usage here makes it appear that for each invention, in the general case, the invention will get “commercialized.” In actual practice, these inventions get claimed by the university (by policy–another can of worms) and the university (in this case, Drexel Applied Innovation) may file patent applications. From there, however, it is a big step to “commercialization” of any invention. Maybe two inventions in ten get licensed. Maybe one invention in two hundred results in a commercial product.

Drexel doesn’t publish annual reports of its licensing activities (at least not in any obvious place), but we can make some estimates using public sources. In the forty-year span of 1982 to 2021, the USPTO lists 495 patents issued to Drexel (about 9% are jointly owned by other entities). Of these 495 patents, 249 cite US government funding, so right at 50%. Drexel’s Office of Research and Innovation claims that Drexel receives “more than 100 invention disclosures” annually. Probably more now and fewer forty years ago, but let’s say 100 is a good average. That suggests somewhere around 4,000 inventions over 40 years. Again, we are looking at 495 issued US patents in that time. There will be a shift of three or four years–it takes that long to get from disclosure to issued US patent, but again we are making an estimate. So Drexel obtains US patents on about 12% of the inventions that it receives. How many are licensed? How many of those licensed ever result in a commercial product? We don’t have that information. But you get the drift. Most inventions at Drexel never get a patent, and the number of patented inventions licensed is going to be even less than that. While Bayh-Dole may have “enabled” Drexel to “commercialize” inventions, it is not at all clear that Drexel has “commercialized” all that many. A candid statement, then, might be that Bayh-Dole enabled Drexel to hold patents on inventions, some few of which  might be eventually “commercialized.”

That’s a lot of fuss to work over a single sentence. But it’s so worth it to begin to see how Drexel glosses over practice and misrepresents Bayh-Dole.

This law created a uniform patent policy among the federal agencies that fund research. Congress perceived the need for reliable technology transfer mechanisms and for a uniform set of federal rules to make the process work. The act ultimately has motivated more and more universities, including Drexel, to become actively involved in the transfer of technology from the lab to market. It allows Drexel to retain title to and actively license these technologies.

It’s worth noting that Bayh-Dole does not create a uniform patent policy. It creates a default patent rights clause but allows agencies to change the defaults. Furthermore, Bayh-Dole does not require enforcement of the patent rights clause, so federal agencies vary in their enforcement, other than for the barest administrative paperwork. Things are not “uniform” if they just aren’t. Still furthermore, Bayh-Dole treats nonprofits and small companies differently, and treats inventors differently from both nonprofits and small companies. That’s not uniform. And federal agencies have found all sorts of workarounds for their research funding. If an agency doesn’t call a research contract a “contract,” then that’s an “Other Transaction” and not within the scope of the definition of “funding agreement” in Bayh-Dole. Same for “investment” and “procurement”–not (technically, according to the agencies) research funding, so not Bayh-Dole. Not uniform at all. We go one more furthermore. Norman Latker, the former NIH patent counsel who drafted Bayh-Dole, also drafted Reagan’s 1983 Memorandum that overturned the Kennedy/Nixon patent policy and its 1975 codification as the Federal Procurement Regulation. The Reagan Memorandum extends Bayh-Dole to all contractors, but does not require federal agencies to follow Bayh-Dole if they decide not to. Very not uniform. “Uniform” was political spin.

There’s more to think about if you want to think. Why on earth would anyone want a “uniform” federal patent policy? “Uniform” like “consistency” is the hobgoblin of a bureaucratic mind. No inventor shows up begging for a uniform federal policy, so that whatever applies to some inventor across the continent in 1994 must apply as well to his or her invention today. In 1968, Harbridge House published a carefully researched report of federal government patent practices. Harbridge House conducted extensive interviews with companies, universities, and federal agencies and came to the conclusion that a uniform federal patent policy would poorly serve nearly everyone. Even among companies, attitudes toward patenting varied widely–even companies in the same industry. Among federal agencies, those that funded development of inventions to the point of practical application and then released the developed technology platform open access had a 100% commercialization rate. Of the various ways that an invention made with federal support might be developed as commercial product, the best way involved research contracts with companies that were active in non-governmental markets. When these companies owned inventions made with federal support, they were highly successful in achieving practical application, often within three years of a patent issuing. The worst ways, in contrast, were when a contractor lacked any commercial capability or the invention had to be licensed in order to be developed and used.

In the Bayh-Dole quagmire, only government officials and the university-affiliated patent administrators that had been rallied to beg for “uniform” policy wanted a “uniform” policy. What they meant by “uniform” apparently was “to avoid having to make a case that their exploitation of patent monopolies would better serve the public than would federal open access.” “Uniform” here is a purely bureaucratic virtue used as political spin. Nothing about something new to the world, such as an invention made in university research, cries out to be treated like just anything else, under a single procedure. It is a management fantasy to think that the consideration of new things can be reduced to a single process. But that’s what has happened, and that “uniform” mindset has been imposed by universities on their inventors as a matter of policy while leaving university administrators free to do whatever they want with the inventions claimed by policy–again, hardly uniform. In practice, however, there is a rather banal uniformity anyway. Unless a university is required to grant exclusive licenses (such as with certain NSF cooperative research center grants–also not consistent with Bayh-Dole, but so what?), most university technology licensing offices offer an exclusive license or refuse to license at all. Even Drexel’s patent policy assumes that licensing will be exclusive, even where it otherwise makes reference to non-exclusive licenses. The idea, then, is that only a few inventions need be licensed.

Here, look at this bit from Drexel’s “Technology Transfer Process” document.

Once the right licensee has been identified and makes a decision to obtain a license, your licensing manager will negotiate the details of an agreement with the interested company.

See–just one. Exclusive. If the license were non-exclusive, there would be an entirely different “negotiation.” The terms of the non-exclusive would already be established, and would be on offer to everyone. Any particular company that was interested might want clarification of the terms or some special consideration, but the agreement to be negotiated would not start from scratch. More:

Licensing negotiations deal with commercial matters, and at this point the inventor normally is not involved.

It may be true that Drexel excludes inventors from license negotiations, but a license does not merely deal with “commercial matters.” A license also defines the scope of the assets that are licensed, and those matters may be of critical importance not only to university inventors but also to other researchers at the university–and to other researchers at other institutions, even companies, as well. In a blunt way, it is stupid to exclude inventors from the construction of licensing terms, and it is stupider still to represent licensing of research assets as merely “commercial” matters. And it is, well, just plain thick to represent licensing as exclusive or nothing.

The experience of Drexel Applied Innovation has been that even if we finalize an agreement with a reluctant licensee, problems with payment delays and other matters make the license marginal at best. Sometimes Drexel Applied Innovation is forced to move on to another potential licensee rather than continue with a difficult candidate.

These are baffling statements. The first sentence makes it sound as if Drexel Applied Innovation seeks out a company and attempts to pressure it into taking a license. The image presented is of a pro-active technology licensing operation identifying companies and moving from one to another, seeking a licensee that’s not “reluctant” to accept the new technology on offer. Yes, there’s a kind of evangelical technology transfer that might do this, but I’ve not seen it in practice at university TLOs. More often, the TLO prepares a description of each invention and posts it on its web site and perhaps also in a database that aggregates inventions from participating institutions. Companies with an interest are then invited to approach the university patent owner for a license. Almost always, the university expects to negotiate an exclusive license. Try showing up asking for a non-exclusive license and see what happens. Better, ask for terms of an exclusive license first, and having set a baseline, ask for the terms to a non-exclusive–you should get the costs divided by the number of companies that would be expected to take the non-exclusive, so maybe 1/10th to 1/100th of the exclusive license terms. You will then see a “reluctant” TLO.

Drexel describes a deal with a reluctant licensee as “marginal.” The description does not communicate anything. It’s TLO gibberish. Perhaps the idea is that if you have forced a license on a company, then it will work to limit its exposure to the license’s requirements. But how does that make the license “marginal”? What does marginality have to do with the transfer of technology? Here, we might note that if Drexel offered as its default a non-exclusive license, with financial terms that were very favorable, and sweetened the offer with access to the inventors to help implement, Drexel would not have to bother with “reluctant” licensees.

The practice of forcing licenses on companies is common among patent trolls. A potential licensee is “reluctant” in such a case because it does not believe it is infringing or would rather risk getting sued than negotiate with Drexel. At this point, Drexel signals to company readers of its guidance documents that Drexel does think like a patent troll. That would be sufficient warning for any prudent company to be “reluctant.”

Drexel ends this account with the idea that Drexel Applied Innovation may be “forced” (by what?) to find a less “difficult” company to work with. Again, this is very strange. It appears that negotiation is somehow equated with a property of a company rather than a give and take over organizational advantages, valuations, and requirements. The image that is left is of Drexel seeking out a passive exclusive licensee willing to accept Drexel’s terms. Talk about narrowing the scope of possible companies ready to adopt a Drexel technology. Drexel makes it appear that there really are multiple prospective licensees–this is rarely the case for exclusive licensing. It is rarely the case that a university has even one prospective licensee when seeking an exclusive license. Often that prospective licensee is in practice the university’s own inventors having set up a company to beg back what the university has taken from them. Licensing back an invention to the inventors is not really technology transfer now, is it? It’s just a way for the university to count beans–another license, another startup–and make it appear that the TLO is wildly effective, when it is just the opposite–an administrative bottleneck.

Bayh-Dole, however, does not require exclusive licensing, and on the federally owned invention side of the law, goes out of its way to limit exclusive licensing by federal agencies–see 35 USC 209(a). There’s little material difference between a federal agency dealing in patent monopolies and federal nonprofit contractors doing so. Bayh-Dole stipulates (35 USC 200) the patent system be used to promote the utilization of inventions arising in federally supported research or development–whether in a federal agency or by a federal contractor. Bayh-Dole also requires that the patent system be used to promote free competition and enterprise. Neither utilization nor free competition appears to benefit from widespread exclusive licensing, or worse, a default offer of an exclusive license or no licensing at all.

If the provisions at 209(a) apply expressly to the licensing of federally owned inventions, then the policy statements at 200 apply as well, necessarily, to the licensing of contractor-owned inventions. The restrictions on exclusive licensing at 209(a) reflect long-standing executive branch policy established by the Attorney General in 1947 that executive branch agencies should not deal in patent monopolies–should not grant exclusive licenses and should not enforce patent rights on its citizens. Bayh-Dole suspends that policy and expressly authorizes federal agencies to deal in patent monopolies (35 USC 207(a)(2)), but Bayh-Dole also states a controlling policy, as a matter of federal patent law, that covers all inventions made in any federally supported research or development. Combine the 209(a) restrictions for federally owned with the 200 restrictions for all inventions and you see that 209(a) principles apply as well to contractor-owned inventions. The upshot is that under Bayh-Dole, a nonprofit contractor is expected to break up any patent monopoly. It is the creativity and diligence of a federal agency or federal contractor in breaking up a patent monopoly to promote utilization and free competition that forms the policy and statutory basis for Bayh-Dole. Non-exclusive licenses are compliant. It takes real effort to justify an exclusive license–especially one that acts as an assignment of invention–to meet this same standard.

Bayh-Dole then might be said to allow Drexel to “actively license” non-exclusively and place limits on exclusive licensing and invention assignment by exclusive licensing. But that would run against the narrative that Drexel’s account of Bayh-Dole aims to portray. The impression left by Drexel’s statement is that Bayh-Dole gives Drexel free rein to do as it may, skipping from one reluctant or difficult company to the next until it finds a fluffy, friendly company happy to share its product income if there ever is any. (Or, more likely, happy to pay to keep a new technology out of the hands of others that might compete with it some day.)

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