The Bluntly Essence of Bayh-Dole’s Contracting Provisions

Let’s be super bluntly. The essence of Bayh-Dole’s contracting provisions is:

Make new product available promptly, and at a competitive price.

That’s it. That’s what all the apparatus and fuss is about, and what federal agencies refuse to recognize or enforce. We can expand this requirement in various ways. Here’s a less memorable, broader restatement:

If you get a patent on an invention made in federally funded work, then you must promptly use that invention, and make the benefits of using that invention available to the public on reasonable terms, including reasonable, competitive price.

Or, to be clear about reasonable, competitive price:

Use the patent system to promote the use of inventions arising in federally funded research or development, but you must not charge prices higher than what would be expected if there were competition, even if you use your patent to suppress competition.

Or, yet another way:

If you charge prices higher than what would be expected if there were competition, keep in mind that you have granted the federal government the right to require you to grant licenses under your patent rights to create competition.

Or, in biomedical contexts:

Any new product you develop based on an invention made in federal work must be priced as if it were a generic.

Well, that bluntliness was fun! Now let’s show how this bluntliness is indeed the essence of Bayh-Dole. We will drill down into the text, and structure, of the statute. See for yourself.

Here’s the overview:

Bayh-Dole is part of federal patent law.

35 USC 261

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

Bayh-Dole’s provisions then apply to the patent property rights of subject inventions. Patents on subject inventions are not ordinary patents.

35 USC 202(a)

Bayh-Dole’s principal contracting provision.

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention . . .

The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter.

The patent rights here are expressly made subordinate to Bayh-Dole and to the patent rights clauses authorized by 35 USC 206.

35 USC 200

Bayh-Dole states its policy and objective. This is not fluffy wording to give context. This is stuff that displaces executive branch patent policy with restrictions on patent property rights.

It is the policy and objective of the Congress . . .

to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise . . .

to ensure that the Government obtains sufficient rights in federally supported inventions to . .. protect the public against nonuse or unreasonable use of inventions . . .

There’s more here, of course. But adding stuff just supports the essence even more, so for an outline this is good. Promoting free competition suggests non-exclusive licensing. Protecting the public from nonuse means, you have to do something if you decide to get a patent. Protecting the public from unreasonable use means you can’t do some things that the holder of an ordinary patent might legally do.

35 USC 203(a)

. . . the Federal agency under whose funding agreement the subject invention was made shall have the right . . . to require the contractor . . .  to grant a . . . license . . . upon terms that are reasonable under the circumstances . . . if the Federal agency determines that such—

This is the “march-in” provision to be included by federal agencies in any funding agreement. The first condition requires practical application:

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use

There’s the requirement of “prompt”–“within a reasonable time.” There’s much to say about what’s “reasonable” here–and there are other reasonables sprinkled around in Bayh-Dole, sort of a sign to say this law is intended to be a bear to enforce. But let’s say “prompt” gets at this point. You can’t dither (not effective steps) and you can’t just sit on the invention and do nothing. And you can’t just say we tried to raise money but didn’t.

But the key thing here is practical application. Here’s the definition:

35 USC 201(f)

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish 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.

Well, that’s long-winded. Let’s reduce it to its essence:

The term “practical application” means [to utilize the invention] . . . under such conditions as to establish that the invention is being utilized and that its benefits are . . . available to the public on reasonable terms.

There we have the reasonable pricing requirement, embedded in the broader requirement for “reasonable terms.” We might observe that in products offered to the public, the most essential term is price. Reasonable terms necessarily includes reasonable price. The worry here is not about a “high” price or an “unaffordable” price, but a reasonable price. For this reasonable, we have great guidance in Bayh-Dole. If a price is not reasonable, then a federal agency is authorized to require licensing. Licensing adds competition. Competition then addresses unreasonable price (and any other unreasonable term). If competition does not address price, then look to antitrust law:

35 USC 211

Nothing in this chapter shall be deemed to convey to any person immunity from civil or criminal liability, or to create any defenses to actions, under any antitrust law.

If you price unreasonably, and the remedy is licensing that creates competition with your pricing, then the essence of Bayh-Dole is that your pricing has to be what would be expected if there were competition, even if you use your nasty patent permitted under Bayh-Dole to suppress competition.

There’s all sorts of apparatus and other things that come into play, but this is the essence of Bayh-Dole. Achieve practical application or give others access. Or, to put some thump in practical application–sell product at a competitive price or allow competition.

It’s clear then that Bayh-Dole patents are not ordinary patents. You have to recognize this from the outset. It’s no good pretending that Bayh-Dole patents are just ordinary patents with some bureaucratic red tape having to do with when to disclose inventions and what to put in patent applications. No, the core of it is, Bayh-Dole has a working requirement–you have to use the invention (not a requirement for ordinary patents) and you have to price product as if there weren’t any patent, even though Bayh-Dole lets you get one.

There it is. That’s the bargain Congress made with the public. It’s just awful that federal agencies have rejected the deal and refuse to enforce Bayh-Dole’s patent rights clauses. While Bayh-Dole is based on a failed NIH policy (the IPA program), failure by federal agencies to enforce the public protections makes Bayh-Dole all that much worse.

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