Frank Cullen, writing at the “Council for Innovation Promotion” has posted a hand-wringing response to a letter from members of Congress to the Secretary of Health and Human Services requesting that the government use Bayh-Dole’s march-in provisions to address price gouging of the prostate cancer drug Xtandi. Cullen writes that march-in “would chill innovation and disincentivize the launch of new startups and inventions.” That’s nonsense–er, an unsupported claim–but if it were true, then it would be a chilling indictment of Bayh-Dole, since Bayh-Dole has march-in baked into its public bargain on retention by contractors of inventions they acquire made in federally funded work.
Cullen goes on to recite a fictitious account of Bayh-Dole and its effects, using this account as evidence for the chilling he predicts from march in. Let’s walk through this mess.
To understand why, just consider the status quo before Congress passed the Bayh-Dole Act in 1980.
Let’s do that. Before Bayh-Dole, the NIH, NSF, and Department of Commerce all operated Institutional Patent Agreement programs. Under an IPA, a nonprofit was required to take ownership of any invention made in agency-funded work that the nonprofit decided to patent. For other nonprofits not in an IPA program and for-profits without product-making capacity, such as contract research organizations, executive branch patent policy (Kennedy 1963, modified by Nixon 1971) allowed contractors to retain invention rights when they could show that their private exploitation of patent exclusivity would more likely serve the public interest than would open access to the invention by way of federal ownership. If they couldn’t show the public would be better off, then, well, what would be the point of letting them mess around with patents? The IPA programs were built by federal attorneys whose aim was to circumvent executive branch patent policy, making an exception (private exploitation of patents on inventions made in public-directed work) into their general rule.
Executive patent policy allowed companies with actual non-governmental markets and product-making capability to retain ownership of inventions made in government-funded work. Most federal funding pre-Bayh-Dole had been in defense-related work, NASA, and the AEC, later the DOE. Most of the patents held by the federal government were for inventions made work conducted by these agencies, and for which the contractors had passed on the opportunity to own, patent, and have at it. They were, as it were, leftover inventions, patented by the government to mark priority, contribute to the prior art, and provide a public notice of availability. The government used licensing only when necessary to address things like quality control and advertising claims. Following the 1947 Attorney General’s report, agencies when they did license, granted non-exclusive, royalty-free licenses.
Whether products were made based on these inventions was not generally tracked. However, for biomedical inventions, it appears that of the 300 or so patents (out of the 26,000 or so held by the federal government), the licensing rate was 23%–comparable to the best licensing rate for all inventions (not just biomedical) managed by the best of the university-affiliated licensing agents. In the NIH IPA program, the licensing rate was half that. For biomedical, it appears that if licensing is the standard (not a very good standard), then the federal government was outperforming the universities by a factor of 2.
Executive branch patent policy also made an exception for companies retaining ownership when the funded work was intended to be developed by a federal agency to the point of practical application and then released for anyone to use, and where there was no nongovernmental market for the invention or the government was the primary user of the technology, as was the case with nuclear power and space technology. For these areas, leaving patents on government-specific inventions in contractor hands just screwed around with bidding procedures and served no useful purpose. For inventions made in these areas, pretty much the only users would be the government and the contractors working for the government. Inventions had no other place to go. Sitting on the shelf was a viable option if an invention was of no use to the government and to anyone else. After all, historically, only about 5% of all patented inventions ever get “commercial” use.
But what’s really interesting is that the 1968 Harbridge House report on government patents found that in the two study years–1957 and 1961–federal agencies that held patent rights in inventions made by contractors working to develop an invention to the point of practical application had a 100% success rate in introducing commercial products. This result is consistent with the Attorney General’s recommendation that if an invention is made in federal work determined to be in the public interest, then it should also be in the public interest for the federal government to fund further work to move the invention to “the point of practical application.” In these cases, inventions did not “sit on the shelf” because they were not licensed exclusively to some one commercial concern (and thereby screwing over any of the other contractors who had worked to improve the invention)–the inventions were used, supported, and used some more.
But now biomedical. In executive branch patent policy, there was one major exception to the provision that for-profit companies could retain ownership of the inventions that were made in federally supported work. If the invention was made in work that directly concerned public health or public welfare, then the company would have to show that its exploitation of the right of a patent holder to exclude others from practicing the invention (again–an invention in a field concerning public health or welfare) would better serve the public than would open access to the invention via federal ownership. It’s just that in the mid-1970s, the General Counsel’s Office at what was then called the Department of Health, Education, and Welfare had suspended granting nonprofit requests to retain ownership of inventions pending a review of how these requests were dealt with.
The folks drafting Bayh-Dole, including Norman Latker, NIH patent counsel and designer of the NIH IPA program relaunched in 1968, exploited this pause in HEW approvals for nonprofits not in the IPA program to retain ownership of inventions to make it appear that HEW never approved such requests, and that inventions throughout government “just sat”–and sat because patents giving the right to exclude all others were not handed exclusively to chosen companies. It just wasn’t that way, but in Washington D.C. illusion is a routine substitute for either truth or candor. If everyone ought to know everyone else is creating illusions, then no one can be accused of lying–it’s more like a party game, or an extended joke. You really are dumb to believe any of it as true rather than a spanking good deception. Or something like that.
Bayh-Dole was designed (by Latker) to eliminate the Kennedy-Nixon patent policy review of the public interest in patents on biomedical inventions. Everything else was distraction for appearances, or as Howard Bremer later called it, “for political expediency.” Sort of the same as an extended party game.
So, prior to Bayh-Dole, many nonprofits worked under the IPA program, which had better contractor benefits than does Bayh-Dole, and the licensing rates for those nonprofits was worse than the federal government’s rate by a factor of 2. The IPA programs were reviewed by a Congressional oversight committee and shut down in 1978 as ineffective and not serving the public interest. So Latker turned to legislation, failing a couple of times and then–what deal was done to flip Senator Long?–succeeded with Bayh-Dole in 1980.
That’s the background prior to Bayh-Dole. But here’s what Mr. Cullen has to say:
Prior to that landmark law, the government retained the patents on any discoveries made at university labs that received federal funding.
Well, we know that’s not true–IPA programs, to start. Opportunity to request a determination of greater rights for everyone not in an IPA program. And we know it’s inaccurate in the technical sense that the government retained rights to inventions, not merely “patents”–because the government did not patent everything it obtained ownership of. Okay, so it’s sloppy, but that’s also interesting.
But the government did a poor job of licensing out those patents to companies that were interested in further researching and developing them, and turning university researchers’ good ideas into tangible products.
Just that the government was doing twice as good a job in biomedical as were the university-affiliated licensing agents. And any company that was interested could get a license–non-exclusive, royalty-free–to the extent that anyone bothered with the need for a license. For most government-held patents, the companies that would be the most interested were the ones where the inventions had been made, and they were not interested in the patents. So who would it be who would be interested in exclusive rights? Would seem to be patent trolls, folks aiming to derive money from patents by interfering in the work of companies that had chosen not to bother with patenting. Just a guess. Can you think of anything better?
We might ask what it means to “develop” a patent, and we might wonder if research discoveries uniformly ought to be expected to form the basis for “tangible products.” The internet, for instance, comes from university research with federal support, and its key discoveries took the form of standards, not products–even though those standards created lots of demand for all sorts of products. That approach appears to have done okay. It’s naive (okay, it’s just deception, but still) to think that every research discovery that’s patentable should become a “tangible product.” From a practice point of view, it’s stupid, really. Just mind-numbing stupid to think this way. But from a political point of view, stupid can make spanking good illusion. So why not try?
As a result, taxpayer-funded ideas sat on the proverbial shelf, gathering dust.
The claim is: because the federal government did not let contractors in biomedical research exploit patent rights to suppress medical practice and deny patients with alternatives (free competition and all), no one ever used these inventions. Multiple studies have demonstrated that nearly all FDA-approved drugs have benefitted from published and not patented research advances supported by federal funding. Apparently patents were not so necessary for published findings to be used. So we know the shelf-sitting due to lack of patents is not true. The premise claim fails. The outcome claim fails. But it’s all good. Why not try?
The Bayh-Dole Act changed this by allowing universities, research institutions, and small businesses to retain the IP rights to any products they discovered using federal dollars.
Well, Bayh-Dole allows nonprofits and small businesses, if they obtain title to an invention arising in federally funded work to retain that title, subject to their granting the federal government an interest in each invention. The use of “IP” here is only so helpful as to mark out both invention rights (patents) and plant variety certificates (not under patent law, but then Bayh-Dole is sloppy that way). Really, we are talking about invention patent rights. You might notice, too, the shift from “university researchers” a few sentences earlier to now “universities” doing the discovery. And there’s the slop–the focus is invention rights, not “IP rights to any products they discovered.” It’s slop to say that researchers discover products. It’s slop to make it appear that Bayh-Dole covers more than just invention patent rights (and those plant variety certificates).
The big thing, though, is that the changes brought by Bayh-Dole were not about allowing universities and whatnot to retain title to inventions, but rather that Bayh-Dole removed the requirement that contractors make a case for how their private exploitation of patent exclusivity would better serve the public interest than would federal open access. That’s the fundamental issue–Bayh-Dole buries the possibility of public debate on the role of specific patents, especially and most directly, directly concerning public health. Such as Xtandi, discovered in a series of compounds at UCLA, licensed exclusively to a drug speculation outfit (no operations of its own, farmed development and testing out to contractors, running on venture capital), then sold out to a Pfizer subsidiary, while Royalty Pharma bought out UCLA’s interest in royalties.
Bayh-Dole also does not “reverse the presumption of ownership.” The Supreme Court in Stanford v Roche made clear that Bayh-Dole’s contracting provisions apply to inventions only after an invention becomes a subject invention–after an invention made in federal work has been acquired (in some conventional way) by a party to a federal funding agreement–by a contractor. Bayh-Dole makes it difficult for a federal agency to require assignment of any invention to the government–and so changes where the requirement to assign shows up in federal contracting. A federal agency has a right to request assignment only of subject inventions (ones a contractor has acquired), and only then if the contractor messes up on disclosure, election to retain title, and filing a patent application and maintaining any issued patents. If a contractor does not obtain ownership of an invention made in federal work, then it’s not a subject invention. It’s not within Bayh-Dole’s scope. And since Bayh-Dole displaces executive branch patent policy for nonprofits (and Reagan’s 1983 Memorandum does that for large companies), there’s no standing presumption that a federal agency will obtain title to inventions unless it decides otherwise.
The bargain made by Bayh-Dole at 35 USC 202(a) is that if a contractor obtains title to an invention, and the invention is within scope of Bayh-Dole, then the contractor can keep that title but must divide the interest in the invention with the federal government–that’s what 35 USC 202(c) is all about. Since Bayh-Dole is part of federal patent law, the rights a contractor grants to the federal government amount to a restriction on the patent rights the contractor holds. Patents on subject inventions are not ordinary patents. Patents on subject inventions are “restricted rights” patents, or “public interest rights patents.” They are very different from ordinary patents. The Bayh-Dole patent rights clauses (there are three of them, actually, though two are conflated–37 CFR 401.14 and 401.9) act as a technology administration agreement, dividing up rights in each subject invention.
The government’s rights under Bayh-Dole are contractor-granted invention rights, not new rights of authority to interfere with the quiet possession of ordinary patents held by contractors. The government gets the right to make, use, and sell (and authorize others to do so for or on behalf of the United States)–“practice and have practiced,” from the Kennedy patent policy via the NIH IPA master agreement. The contractor grants this right–the government does not take it. Same for what’s labeled “march-in.” Doing what’s required under the patent rights clause, a contractor grants to the federal government the right to request licensing if the contractor (and its ilk) fail to timely achieve practical application–which Bayh-Dole defines as utilization of a subject invention so that the benefits of use are available to the public on reasonable terms (see 35 USC 203(a)(1) and the definition at 201(f)). “Reasonable terms” is essential to the definition. Given that the remedy for unreasonable terms is licensing, the obvious standard for “reasonable” is terms that would be expected if there were free competition, as there would be if a patent were not used to suppress competition in a way that better serves the public interest than would that competition.
So universities get to retain title to subject inventions without having to explain how their suppression of the invention by all others better serves the public, but universities do have to grant to the government rights in the invention that allow the government, as an owner of interest (though not title) in each subject invention, to refuse to accept unreasonable invention rights practices. The government license is one–the contractor allows the government to authorize making, using, and selling of a subject invention for any government purpose–no further notice to the contractor required. March-in is another. The contractor gives the government a veto right over using a patent to suppress competition when the contractor or its assignee/exclusive licensee engage in price gouging or fail to design product to meet public needs or fail to supply sufficient product to meet public needs.
In effect, if the government objects to a contractor’s use of a patent to suppress free competition because the contractor has failed to meet the threshold requirements of practical application–and especially “reasonable terms” (and good gawd, price is a term)–the government has been given the right by the contractor to change how the contractor obtains compensation for holding the patent. Instead of licensing exclusively (and so share in patent monopoly price-gouging or be complicit in failure of product functions or availability, the contractor must grant licenses or allow the government to grant licenses. The patent is not confiscated. Any license the contractor has in place can stay in place. Any pricing in the market can stay as it is. What changes is that either the contractor grants additional licenses (FRAND) and is compensated from those licenses being used in a competitive market, or the contractor gets the benefit only of its existing, unreasonable, practice and the government grants additional licenses, creating competition.
In another way of thinking about this effect, if the contractor has nothing to offer but for a demand for a share of income derived from monopoly pricing, lack of function, or insufficient supply, then march in turns the contractor into a patent troll with no leverage by litigating. Anyone found infringing can expect a license from the government–a license that the contractor has already granted the government the right to do. March in then is a promise by the contractor not to engage in patent monopoly pricing schemes, not to acquiesce in unresponsive product design, not to accept failure to meet demand–and that promise gets sealed by Bayh-Dole. To oppose march in is to beg the government to let contractors break their promise to the public. I know, that’s no big deal in some parts of Washington DC but still it ought to rankle.
These entities can then license the IP to startups that turn the research into valuable products, ranging from firefighting drones to airport scanners that monitor for explosives.
Here Cullen links to a bogus list created by AUTM of “Bayh-Dole Innovations.” Most aren’t Bayh-Dole–many were made before Bayh-Dole or don’t involve Bayh-Dole. Even ones that did involve Bayh-Dole don’t show that Bayh-Dole helped in any way, or that contractors have complied with Bayh-Dole–or kept their promises about reasonable terms and the like.
Here’s the firefighting drones. It’s a startup, funded by state of Nebraska seed funding. Nice idea. Just that the University of Nebraska holds no patents on the technology and none of the founders of the company appear to have any issued patents. It’s a software system to control drones in firefighting. Nice. But it’s not Bayh-Dole. It does not appear to depend on patent-based exclusivity. It is running on state seed funding. It’s last press update on its web site was almost a year ago. Hope things work out there.
Here’s the airport scanners. That invention haas failed to make it to the market. The patents (seven of them) are all expired. The inventions were made by US Navy employees, and initial development funding came from the FAA. Licensed to Quantum Magnetics, a small company based in San Diego that got a number of SBIR grants in the 1990s. GE Security bought Quantum Magnetics in 2005. United Technologies, a big government contractor, bought GE Security in 2010. Apparently nothing has happened since. The patents may have had a role in the pricing of Quantum Magnetics, and that may have been a good deal for the principals and the inventors, but Bayh-Dole making ideas become tangible products? Not a good look.
It would be nice if Cullen could at least cite two examples where Bayh-Dole really does appear to have helped the technology transfer process to a successful tangible product. But no. Cullen does make this assertion, however:
The law has been a tremendous catalyst for innovation. It has helped launch over 15,000 startups, contributed over $1 trillion to the U.S. economy, and supported millions of jobs.
Cullen links to an infographic that was produced by AUTM. The information there is for “academic technology transfer.” Only about 1/3 of university “technologies” are subject to Bayh-Dole. I guess “helped” is a technical term for “having nothing to do with most of these things.” The startup count is likely 20% higher than actual figures, since AUTM does not audit its licensing survey data for multiple counts. If a startup involves an invention with joint inventors from multiple institutions–happens regularly–then each institution reports that startup as its own. Overcounts. But who is counting, hey? As for the “over $1 trillion” and “millions of jobs”–these are numbers from an economic model that’s never been verified, built on sketchy assumptions, takes big number inputs and produces even bigger number outputs. Well, that’s spanking nice. But it’s model output, not facts. Though you are asked to believe. Even then, we are talking $1 trillion over 40 years in an economy that’s now pushing $20 trillion a year. Maybe then $1 trillion in $500 trillion of activity, for $1 trillion in federal research funding. Well, that’s something.
What Cullen doesn’t point out in the infographic is that AUTM claims 480,000 inventions reported (also an overcount) and over 117,000 US patents (more like 120,000 with 55,000 of them citing federal funding). Think about that. Universities have captured 480,000 inventions, held back over 100,000 of them with patents–at $10K per patent, um, that’s $1 billion in patenting costs, as a low estimate, not counting PCT and national phase filings. But where is all that innovation, you know, what the government was doing so poorly at back in the pre-Bayh-Dole days? Even the stat about 200 drugs and vaccines hedges on Bayh-Dole–“developed through public-private partnerships since Bayh-Dole Act enacted in 1980.” And even that is wrong. The study on which the numbers are based (Stevens, et al.) starts in 1963, long before Bayh-Dole, and does not consider whether any given drug product is based on a patent that cites federal funding. The actual number they come up with is 153 drugs–with 206 new drug approvals.
Bayh-Dole was all about biomedical innovation through the exploitation of patent exclusivity. And somewhere fewer than 153 drugs is what we’ve got, under 10% of the approved drugs in the FDA Orange Book. And even then we don’t have any idea how many of these are under Bayh-Dole, and how many of those are compliant with Bayh-Dole. We do know one drug–Xtandi–and it’s not compliant with Bayh-Dole, as it is priced over 10x a reasonable, competitive price.
Bayh-Dole does include a “march-in” provision — which allows the government to relicense patents that resulted from federally-funded research, but only in limited circumstances, such as when a patent licensee fails to make a good faith effort to bring a product to market.
Bayh-Dole’s march-in provision is at 35 USC 203. The contractor grants to the government the right to request licensing of inventions (not merely patents) if the contractor fails to meet any of the stated conditions. Sadly, what Cullen claims is a condition is not one of them. there is no “limited circumstances.” The circumstances are rather broad–nonuse and unreasonable use of 35 USC 200’s statement of policy and objective. There is no “licensee fails to make a good faith effort.” It’s just not there. Good faith is not “effective steps” and is not “practical application.” “Trying” does not get you a free pass to break your commitment and screw over the public. The trying must be effective, and must result in benefits available on reasonable, competitive terms, and must result in product design to serve public needs–not just some selected need with no further expeditious (as if there were competition) extension and improvement–and in sufficient quantity to meet (“reasonably satisfy”) public needs.
The two chief architects of the bill, the late Senators Birch Bayh (D-IN) and Bob Dole (R-KS), made clear in a 2002 letter to the Washington Post that they “did not intend that government set prices on resulting products.”
What the former senators say they did not intend has no bearing on the construction of the march-in provision. Senator Bayh tried that same thing with regard to invention ownership, filing an amicus brief with the Supreme Court where he explained that he intended inventors to be last in line for ownership of their inventions, after contractors and federal agencies had picked over their work, and the Supreme Court ignored him, as his intentions had nothing to do with the legal issue–which was the intention of Congress.
Bayh-Dole does not authorize setting prices. That much is true. But Bayh-Dole cares about prices being reasonable, and handles price-setting by competition not on government requirements about price.
But now, policymakers want Secretary Becerra to ignore the plain intent of the law and invoke the march-in provision to relicense Xtandi’s patents to generic drug companies, which could presumably make the medicine and sell it far below its current cost.
Yes. Exactly. That is what Bayh-Dole plainly expects. The plain intent of the law is that holders of patents on subject inventions will offer product to the public at competitive prices, at prices that would be reasonably expected if there were “free competition” even if–and especially if–patents are used to suppress that competition. That is, the plain intent of Bayh-Dole is that contractors will offer products at generic prices from the get-go. That is the bargain in Bayh-Dole, and it would be a damn good one if university patent administrators weren’t banally led into a cruel form of administrative disregard for Bayh-Dole compliance.
An objective of Bayh-Dole is utilization of inventions. That’s a restriction on ordinary patents–there’s no working requirement in ordinary patent law. Another objective is free competition. To use a patent to promote free competition takes a degree of mental effort and will that’s lacking in most university licensing operations. A third objective is to protect the public from nonuse and unreasonable use. What Cullen argues is that if the government protects the public–contractors grant the government this right in the inventions they acquire–then “the entire innovation ecosystem will be at risk.”
Well, yes, an entire innovation ecosystem built around cruelly screwing over the public with price-gouging and lackadaisical (not as if competing) product improvement certainly would be at risk–and yes, that’s what Bayh-Dole intends.
Private companies will not spend millions of their own capital to license and commercialize patents that benefited from government research grants if those licenses can be arbitrarily taken away.
There is no need for private companies to spend millions. The government has the money. It could fully fund development of new medicines and have billions of dollars left over. See the estimates by economist Dean Baker. Solo companies trying to go it alone with development makes the cost of development all that greater and slower. Companies working together, establishing technology platforms and standards, sharing clinical data to get to practical application makes a lot of sense for medicine. Bayh-Dole does not authorize arbitrary “taking away” of anything. The conditions are right there–nonuse, unreasonable use, non-competitive terms, non-competitive development, non-competitive supply. If the private companies that presently participate in federally sponsored technology transfer are only speculative patent trolls who will not invest unless they are assured of the right to price gouge the sick, then Bayh-Dole has clearly failed to attract the right sort of collaborators for public-private partnerships.
Medicine will not fail if the public is not screwed over by unreasonable terms. Some screwers might fail, but why not try?