A Bayh-Dole Quicker Read Made Much Longer!

Here’s an even shorter version of Bayh-Dole, with some paraphrasing

[now made much longer with comments to show why these quick things matter.]

Use the patent system to promote the use of inventions.

[This is a restriction. The Constitutional mandate is to promote the progress of the useful arts, where “progress” means “dissemination.” To restrict the use of patents to promote utilization of inventions is oddly interesting, given that the basic right of a patent holder is to suppress the practice of an invention. Think on the Congressional intent here. The restriction also works within federal patent law, of which Bayh-Dole was made a part, now Chapter 18 of Title 35. The patent law at 35 USC 261 stipulates that

Subject to the provisions of this title, patents shall have the attributes of personal property.

Bolding added. Bayh-Dole is among the provisions of “this title.” Bayh-Dole places restrictions on the use of the patent system. Those restrictions then follow through to the “attributes” of patents on inventions subject to Bayh-Dole, and restrict the personal property rights in those patents. See? Get it? Yes, of course!]

A nonprofit or small business firm may elect to retain title to any subject invention.

[The contractor has got to acquire an invention before it meets Bayh-Dole’s definition of a subject invention. Only subject inventions must be disclosed under Bayh-Dole. If a contractor does not acquire title, the invention is not a subject invention, not covered by Bayh-Dole. If a contractor wants all inventions made under a federal funding agreement to be subject inventions, then the contractor must make inventor employees parties to the funding agreement, which Bayh-Dole allows (see 35 USC 201(b)). But then those employee inventors have standing under Bayh-Dole as contractors, independent of their employer. That’s just how it was under the short-lived Federal Procurement Regulation, codifying the Nixon version of the Kennedy executive branch patent policy. There’s a bit in the Bayh-Dole standard patent rights clause for organizations that addresses this issue–not addressed in Bayh-Dole–requiring organizational contractors to require employees to make written agreements to establish the government’s rights, but this provision is ignored by universities and federal agencies alike.]

A subject invention is a patentable invention the contractor has acquired and that has been made under a funding agreement.

[This is the heart of the SCOTUS Stanford v Roche decision. Bayh-Dole does not vest invention title with the employer, nor mandate an employer take title, nor give the employer any special privilege to take title or prevent an employee from obligating title to a third party.]

Federal agencies have a nonexclusive license to practice or have practiced any subject invention.

[This language is lifted from the Kennedy patent policy via the NIH IPA master agreement. In the Kennedy patent policy, “practice” is expressly defined to mean “to make, to use, and to sell.” “Have practiced” is given a similar definition. Granting this right to practice and have practiced means that there are two distinct markets, a governmental market and a non-governmental market. This was express in the Kennedy policy and Bayh-Dole adopts the same language and implicitly, then, the same distinction. Where the federal government has a license to practice and have practiced, it has equal right with the patent holder to authorize use, manufacture, and sale of products based on subject inventions–just that this right is non-exclusive. Strangeness results if the federal government were to agree not to exercise its right to practice and have practiced, and abandon a matter of government concern that justified providing research or development funding in the first place. Consider how antitrust law might apply, or federal agency conflict of interest.]

Federal agencies may require reporting on utilization, but any such information shall be treated as privileged and confidential and will not be disclosed to the public.

[Federal agencies don’t have to require reporting, however, so can turn a blind eye, even though they are delegated responsibility for enforcing the patent rights clauses. Bayh-Dole originally stipulated that only information that was confidential or privileged was exempt from FOIA, but a 1984 amendment changed “may” to “shall” and made it appear that all information received by a federal agency must be treated as confidential or privileged–even if it is not. It would appear that Bayh-Dole does not comply with FOIA, or has implicitly amended FOIA. The result is that contractors and federal agencies can do secret patent deals and there’s no possibility for public inspection or oversight. Thus, too, there’s no public information on the results of Bayh-Dole practice. Universities have claimed more than 50,000 patents on subject inventions, but you won’t find out what has happened to them. Hint: mostly nothing–most never used, sitting behind university patent paywalls waiting for wealthy licensees to show up seeking monopoly profits, for a share of same, but wealthy folks seeking such profits rarely show up at university licensing offices. But you won’t know this, because it is kept secret. Remember this next time you read about how wildly successful Bayh-Dole has been. Fake.]

Nonprofits cannot assign subject inventions without federal agency approval except to an organization that manages inventions and is subject to the same provisions as the nonprofit contractor.

[Courts have consistently held that an exclusive license to all substantial rights (make, use, sell, for the life of the patent, with right to enforce) transfers ownership of the invention–that is, acts as an assignment. It’s not what a written instrument is labeled (“exclusive license”) but what it does that matters. Thus, when a university grants an exclusive license to make, use, and sell for the life of a patent with the right to enforce, it has assigned the invention, and the nonprofit provisions of patent rights clause follow the assignment/exclusive license to the licensee. The assignee/exclusive licensee becomes, effectively, another party to the funding agreement. See 35 USC 201(b) again–or for the first time if you didn’t bother last time it was mentioned. The biggest upshot of this provision is that companies that take assignment of subject inventions from nonprofits must behave as nonprofits and direct all income earned with respect to the subject invention, less only the costs to administrate subject inventions, to scientific research or education. Big-hearted companies will do this. Others won’t comply. Federal agencies turn a blind eye. A recurring theme of Bayh-Dole, that the public protections at the heart of the law–all those things that modify the patent system to be compatible with public funding for research and development–are ignored. Study Question: Did Congress intend this outcome?]

Nonprofits must use any royalties and income earned with respect to subject inventions for scientific research or education.

[Less costs to administrate subject inventions. But not to administrate other inventions. So a university licensing operation that carves out, say, 15% of license income to run their shop breaches the standard patent rights clause. But again, federal agencies turn a blind eye. Oddly, too, universities never report what they have done with this money constrained by Bayh-Dole, even though it would appear to be subject to federal audit. What research did the money support? What education? Ah, yes, no-one cares. Should they?]

Federal agencies may grant exclusive licenses, including for royalties, and including granting the right to enforce patents.

[This provision, 35 USC 207(a), overturns the recommendations of the 1947 AG report authored by David Lloyd Kreeger, and which controlled federal patent administration until 1981 when Bayh-Dole came into effect. In its way, authorizing federal agencies to deal in exclusive patent licensing (to the point of assignment), and to do so for money, and in secret is the biggest earthquake of all in Bayh-Dole. Federal agencies end up with huge conflicts of interest, lose more of what public trust they had, and the government plays favorites with industry, which in some circles is the beginning of bad things starting with f. Contractors could hold patents on inventions made in federal work for a long time–DoD routinely, NIH and NSF under their IPA programs to end-run the Kennedy and then Nixon patent policies. But federal agencies did not deal in exclusive licenses, or for money. This change was profound, and should be distressing. It’s almost like this bit was tipped in behind the scenes and was the biggest goal Latker had in drafting Bayh-Dole. A friend of mine once wrote an entire medieval play, including a procession of saints at the end, so we could play a prank on one of our professors, who we induced to play the last saint, so I could interrupt the play at just this point, posing as the Green Knight, returned to finish our head-chopping game, begun a year previous. So, yeah, there’s some good reasoning for you. But learn about Latker before huffing off into economic or innovation theory land, k?]

A federal agency cannot grant a license unless it has received a plan for development or marketing of the invention.

[A stupid bit, given that the requirement extends to non-exclusive licenses, too. A federal agency cannot just release an invention it has acquired (whether under EO 10096/CFR 501 or Bayh-Dole)–it has to demand a marketing or development plan–even if all the licensee wants to do is mess with the invention to see if it works. Of course, then, the government gets to harvest all these plans, keep them secret, and who knows what the government does with the information. Perhaps a plan is useful for assessing competing candidates for an exclusive license, as if deciding based on who can write the most happy-sounding plan should win the favor of government. For a comment on this posturing, see King Lear. Yeah, Shakespeare and IP.]

Federal agencies may require licensing of a subject invention or grant the license themselves if a subject invention has not achieved timely practical application or is not reasonably satisfying health or safety needs.

[This is what’s called “march-in.” The basis is that if a contractor, exploiting the patent right to suppress practice of a subject invention, fails to satisfy public health or safety needs, or fails to achieve practical application of the invention–so that the benefits of using the invention are available to the public on reasonable terms–35 USC 201(f), cited by 35 USC 203, or the contractor has failed to get US manufacture in some cases–then the federal government can require the contractor (or its ilk) to grant more licenses, adding competition. The implied theory is that competition without collusion (i.e. antitrust 35 USC 211) will address both availability and pricing (and other terms).

The remedy for failing to use the patent system to promote utilization of an invention so that it meets a minimum public threshold is that the patent should be licensed further–non-exclusively, say. The contractor still may realize the “value” of the patent through these new licenses–provided the terms are reasonable–so it’s not like the government abrogates the patent or takes it on a whim; rather, the contractor (or assignee or other ilk) must get that value by providing the invention to a broader set of companies, who may then compete (or collaborate) to meet public needs and the expectations of the law (and Congress, say). This is a hard point–a patent may have value because the patent holder excludes all others and makes people buy what the patent holder. produces. Or the patent has value because the patent holder assigns/exclusively licenses it to a company, which pays for the privilege. Perhaps it pays up front and never does anything with the invention. Or perhaps it pays a royalty based on sales–and never does anything (and boy does that rankle, but it is the clever way). Or perhaps the assignee/exclusive licensee never does anything with the invention but gets bought at some premium price anyway and the patent holder was smart enough to take an equity interest in the assignee/licensee and so doesn’t much care if the invention was ever used–even if Bayh-Dole says that’s what is supposed to be the objective. Or perhaps the patent holder licenses the subject invention non-exclusively, on fair, reasonable, non-discriminatory terms–and gets hundreds of licensees each paying fair, reasonable amounts.

Bayh-Dole says–if you try one of the exclusive versions, and you don’t get to use, or don’t meet public needs, or don’t offer reasonable (i.e., as if there were competition and collaboration) terms, then you have to go with non-exclusive methods to work your patent (or, in the rare alternative, because Bayh-Dole is written to permit it–a *different* exclusive deal). If the patent holder objects to such things, then the government can grant the license(s) itself and the patent holder can go take a swirly and not receive any further compensation. Of course, none of this operates. Federal agencies turn their blind eye. So it’s just dancing on the head of a pin, and those aren’t even angels.]

Practical application means an invention is being used and its benefits are available to the public on reasonable terms.

[See the definition at 35 USC 201(f). To satisfy the definition, each element must be met–invention being utilized, benefits available to the public (not just to favorite folks–this is a public thing, expressly), and on reasonable terms (price being often the most important term for something on offer to the public). In this, offering “discounts” to some segments of the public would appear to run against Bayh-Dole’s requirement, unless the price before the discounts was also reasonable, such as one might find when a product is put on “sale.” But if the price for a drug behind a patent monopoly is $80 a pill and companies are willing to produce a generic version at a profit for $3 a pill, then the $80 price isn’t reasonable, and discounting that price for some and not others doesn’t change the situation. Did Congress intend that patent monopoly pricing was *the* key “incentive” by which Bayh-Dole must operate to promote “utilization” of subject inventions leading to “practical application”–benefits available to the public on reasonable terms? If so, then why all this public protection apparatus that appears to restrict the use of the patent system for inventions made in federally supported work? The basic issue is whether Congress intended Bayh-Dole, which is part of federal patent law, to tailor the patent system for inventions made in publicly funded work, or not. If so, then Congress did intend that the apparatus–including restrictions on nonprofit assignment, US manufacturing, and march-in for failure to satisfy public health or safety needs or failure to offer product to the public on reasonable terms–should operate.

Federal agencies should not turn a blind eye. If they cannot invoke the apparatus, then enforcement should go to an agency that will, such as the Department of Justice–but the DOJ apparently already turned down enforcement back when Latker was drafting Bayh-Dole. Maybe time for that to be revisited. Or, just repeal the whole thing and revert to the Kennedy patent policy, which had its faults but was way more workable than Bayh-Dole has been. In the much bigger picture, it is just strange that somehow any invention made in federal work should have to *be used.* In the big wide world, only about 5% of patented inventions ever see commercial use–why should anyone expect that inventions made in work already identified as within a governmental purpose should fare any better, or fare better if those inventions receive patents, even if the government issues patents to itself, or, beyond this, why if people are allowed to exploit these patents for their speculative value–trading on extracting money for public needs identified by the government as important and so funded–would anyone think that the underlying inventions would get more use than otherwise? It doesn’t make much sense, which is why perhaps this bit is not discussed much.

My sense: federal agencies were desperate to show that what they funded by way of research really amounted to something and so Congress would give them more money for their empire building based on “research.” Look at the debates at federal agencies in the mid-1960s to see how this went down. Or read Shaping Biology by Toby Appel to focus especially on the NSF in its competition with the NIH. Charles Kidd’s American Universities and Federal Research (1959) is also a good read, if you can find a copy. Bayh-Dole is an effort to make federal agency research produce public benefits, or at least make a show of putting in place a “system” for “innovation.” And now people caught up in Bayh-Dole cannot think any other thoughts. So in that sense, Bayh-Dole has done what Latker wanted.]

Almost now a quick read.

[Har, har, not really, now! But maybe quick isn’t as interesting.]

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