At the most recent cabinet meeting, the Secretary of Commerce said some words about university patents to the effect that the billions of dollars of federal research sent to universities has resulted in universities owning a bunch of patents and they have made piles of money from private exploitation of inventions arising in that research, and this was no good because the federal government was not getting a share of those money piles, and this should change.
The good news is that the Department of Commerce is finally taking a look at the Bayh-Dole Act and how universities have performed under it. That’s the end of the good news, at least for now.
Let’s work through the bad news, but quickly this time without all the documentation, to sketch the outline of the bad.
Here’s the short form.
- Commerce should not seek a share of university patent income. It’s bad policy and it will drive bad behaviors–especially, it will add to the lack of enforcement of the Bayh-Dole Act, and encourage Commerce to promote university patent monopolies that are abusing the public and disrupting industry.
- Universities have misled the public and government for decades regarding their “commercialization” activity. They obtain patents and do nothing with most of them–keeping the “protected” inventions from being used. It’s awful, worse than awful. Commerce should hold universities accountable. There are tools to do that in Bayh-Dole. Doing so would free up a huge amount of research that is presently locked down for no good reason.
- Universities have misrepresented Bayh-Dole, and especially have forced university inventors to assign their inventions to the university “under the color of law.” Really, it’s a felony (inventors having exclusive rights to their inventions is a Constitutional right), and there’s no excuse for it after Stanford v Roche (2011).
- There’s not that much money for the federal government to collect from university licensing of inventions made in federally supported work. There will be lots of bureaucracy and not much to be gained.
- Commerce should focus on what Bayh-Dole states as its objectives–including encouraging use of inventions, public availability on reasonable terms, and free competition. From such activities, the government can expect to benefit from reduced costs and tax income from economic growth.
Universities have got themselves a boggling number of patents. A broad search at the USPTO puts universities (and colleges, institutes, and their foundations) in the U.S. holding about 96,000 U.S. patents issued since 1982, with nearly 47,000 of those patents citing federal funding. A U.S. patent costs (very roughly) about $10,000–often more, sometimes less. We are talking about universities spending a billion dollars or so over 40 years to obtain these patents–and that’s money not coming from the federal government, at least not directly. Ever wonder where that money does come from? Yes, wonder. Try tuition paid for by students having to take out loans for some of it.
So universities have got a billion dollars’ worth of patents. It absolutely not the case that universities are doing a great job licensing these patents out, getting inventions into use, or achieving “practical application” as defined by Bayh-Dole. Maybe 10% of their inventions are licensed (these numbers are not public, so I’m making an experienced guess), and most of those licensed have not resulted in commercial activity. The University of California estimated maybe 2% of their patents showed significant commercial activity. At Stanford, the figure is 53 out of 6,400 inventions over 36 years–less than 1%–generated over $1m in license income (and that’s not even getting at whether those payments reflected royalties on sales or just an annual $50,000 license maintenance fee for the life of the patent). So, almost no commercial activity from those 96,000 U.S. patents held by universities.
And don’t bother with AUTM publications about technology transfer successes, especially ones promoting Bayh-Dole. Most of these “successes” are not Bayh-Dole, and many of them are not “successes,” most didn’t require patenting, and many of the (few) Bayh-Dole “successes” don’t comply with Bayh-Dole. It’s mostly deceit all the way down. Commerce should hold universities receiving federal research support accountable for their public representations, including representations made through their front organizations. Audit them. That would be a good start. Audit against their public statements, reports, and reports on “utilization” submitted to federal agencies. It will be stinker time. Universities would hate it, no doubt, but they have been repeat offenders for years.
Worse for universities, “practical application” in Bayh-Dole is a defined term. The term has a history that goes back at least to the Kennedy patent policy of 1963, from which NIH patent counsel Norman Latker pulled the term when drafting Bayh-Dole. In Bayh-Dole, “practical application” is defined as
(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.
Practical application means to practice an invention in a manner to (i) establish [that is, to show, to document] (ii) that the invention is being used and (iii) that the benefits of the invention-being-used are (iv) available to the public (v) on reasonable terms. Each element of the definition matters. It’s not just that inventions should be used, but that the benefits of that use should be available to the public, and on reasonable terms, including reasonable prices and reasonable access, where “reasonable” means, in Bayh-Dole, “what would reasonably be expected if the invention were available to multiple manufacturers or users or sellers, even if a patent is used to permit only a single manufacturer or seller.” Free competition, or at least pricing and availability as if there were free competition.
One big problem for universities dealing in patents with federal interest is that most of the universities’ really big money winners (again, really *very* few–less than 1%) do not meet the requirements of this statutory definition. Take Xtandi, a prostate cancer drug based on a compound (actually multiple series of compounds) identified with federal support at UCLA. UCLA takes ownership of the inventions, patents and licenses one series of compounds to a drug development speculator who outsources development operations, and does indeed bring a prostate cancer drug to market. But the speculator sells out to a division of Pfizer (for millions), while UCLA sells its future royalty stream to a pharma royalty aggregator (for millions). The drug is available to prostate cancer patients for something like $80 a pill. But a generic drug manufacturer has asserted that it could profitably sell the drug at $3 a pill. The mark up is in the UCLA/Bayh-Dole/private enrichment patent monopoly. But Bayh-Dole does not permit such a thing, because “reasonable terms” means, in Bayh-Dole, the terms one would reasonably expect if the drug were available as a generic (that is, non-exclusively licensed to promote competition).
So if the Department of Commerce wanted a share of the patent licensing lucre made by universities, Commerce would be very sad. There is not much, and where there is lucre, much of it is from inventions that were not made in federally supported work, and where there is lucre and federal support, the point is not that the government should get a share of license income that has been made by not complying with Bayh-Dole, but rather Commerce should get its act together and require compliance. Otherwise, don’t you see, Commerce sets up to be complicit with non-compliance with federal law in order to get a piece of the non-complying activity. Would anyone think that Commerce would see that Bayh-Dole is enforced? Oh, wait, Commerce has never enforced anything but stupid paperwork requirements attached to Bayh-Dole. To give Commerce an interest in money exploitation of patents rather than the economic benefits of using inventions is a very bad thing, turning government on its citizens to get a share of price gouging its citizens with university patents, or just trading on the speculative future value of patents.
Back in 1947, the Attorney General issued a report on government patenting, edited by David Lloyd Kreeger, that argued (I say, cogently) that the federal government could own patents but as a matter of policy it should not enforce such patents against its citizens, nor set itself up to litigate on behalf of any exclusive licensee, nor to sue any licensee over royalties, nor for that matter to take a money interest in such patents. There are other roles for patents–documenting inventorship, contributing to the published art via a national repository, showing (in a way) the productivity of federally supported research. Commerce should re-study this 1947 report. It is still relevant, if not compelling. Commerce should not take a money interest in university patents. That’s bad in many ways. Instead, Commerce should enforce Bayh-Dole, something Commerce has not done since Bayh-Dole was just a small dopey bill snuck through a lame duck Congress. (There’s history there, as I’ve written about elsewhere on this blog.)
The public benefits to enforced Bayh-Dole are technology change, free competition, economic growth, and–yes–public availability of beneficial things. The government has plenty of ways of bringing in money on such things. It has no need to try to take a portion of the income made from university licensing. And in the details, it would end up being ham-handed, creating more bureaucracy and regulation, and in the end screwing up things even more than they are screwed up now.
Consider–if the government reaches in for university royalties, universities will suddenly find ways to avoid using federal funds in interesting research, or will claim that what’s got invented isn’t a subject invention (which actually they ought to be doing anyway–because as they handle invention policy, they don’t comply with Bayh-Dole’s regulations). So fewer inventions attributed to federal support. And universities can do things to make taking a share of royalties difficult–they can take in-kind or equity instead of cash. Is the government going to get an ownership share of every start up that trades equity for a license? If so, in what form, with what stock subscription agreement, what disclosures, what regulations, legal review, and the like? Oh, gawd it winds up.
First, universities have got themselves a huge number of patents. A coarse search at the USPTO puts universities in the U.S. holding about 96,000 U.S. patents issued since 1982, with nearly 47,000 of them citing federal funding. A U.S. patent costs very roughly about $10,000–often more, sometimes less. We are talking about universities spending a billion dollars or so to obtain these patents–and that’s money not coming from the federal government, at least not directly. Ever wonder where that money does come from? Yes, wonder.
Second, it absolutely not the case that universities are doing a great job licensing their patents out, or achieving “practical application” as defined by Bayh-Dole. Maybe 10% are licensed (these numbers are not public, so I’m making an experienced guess), and most of those licensed have not resulted in commercial activity. The University of California estimated maybe 2% of their patents showed significant commercial activity. At Stanford, the figure is 53 out of 6,400 inventions over 36 years–less than 1%–generated over $1m in license income (and that’s not even getting at whether those payments reflected royalties on sales or just an annual $50,000 license maintenance fee for the life of the patent). So, almost no commercial activity from those 96,000 U.S. patents held by universities.
Worse, “practical application” in Bayh-Dole is a defined term. The term has a history that goes back at least to the Kennedy patent policy of 1963, from which NIH patent counsel Norman Latker pulled the term when drafting Bayh-Dole. In Bayh-Dole, “practical application” is defined as
(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.
Short form: practical application means to practice an invention so that to
(i) establish [that is, be able to show, document] (ii) that the invention is being used and (iii) that the benefits of the invention-being-used are (iv) available to the public (v) on reasonable terms. Each element of the definition matters. It’s not just that inventions should be used, but that the benefits of that use should be available to the public on reasonable terms.
Here’s one big problem for universities dealing in patents with federal interest. Most of their really big money winners (again, really very few–less than 1%) do not meet the requirements of this statutory definition. Take Xtandi. Developed with federal support at UCLA. UCLA takes ownership of the inventions, patents and licenses to a drug development speculator who outsources its development operations, and does indeed bring a prostate cancer drug to market. But the speculator sells out to a division of Pfizer, while UCLA sells its future royalty stream to a pharma royalty aggregator. The drug is available to the public at something like $80 a pill. But a generic drug manufacturer has asserted that it could profitably sell the drug at $3 a pill. The mark up is in the patent monopoly. But Bayh-Dole does not permit such a thing, because “reasonable terms” means, in Bayh-Dole, the terms one would reasonably expect if the drug were available as a generic (that is, non-exclusively licensed to promote competition).
So if the Department of Commerce wanted a share of the lucre made by universities, it would be very sad. There is not much, and where there is lucre, much of it is not federally supported, and where there is federal support, the point is not that the government should get a share of license income that has been made not complying with Bayh-Dole, but rather Commerce should get its act together and require compliance. Otherwise, don’t you see, Commerce sets up to be complicit with non-compliance with federal law in order to get a piece of the non-complying activity by not doing its job to see that Bayh-Dole is enforced. That’s just a bad thing, turning government on its citizens to get a share of price gouging its citizens with university patents.
Back in 1947, the Attorney General issued a report on government patenting, edited by David Lloyd Kreeger, that argued (I say, cogently) that the federal government could own patents but as a matter of policy it should not enforce such patents against its citizens, nor set itself up to litigate on behalf of any exclusive licensee, nor to sue any licensee over royalties, nor for that matter to take a money interest in such patents. There are other roles for patents–documenting inventorship, contributing to the published art via a national repository, showing (in a way) the productivity of federally supported research. Commerce should re-study this 1947 report. It is still relevant, if not compelling. Commerce should not take a money interest in university patents. That’s bad in many ways. Instead, Commerce should enforce Bayh-Dole, something Commerce has not done since Bayh-Dole was just a small dopey bill snuck through a lame duck Congress. (There’s history there, as I’ve written about elsewhere on this blog.)
The public benefits to enforced Bayh-Dole is technology change, free competition, economic growth, and–yes–public availability of beneficial things. The government has plenty of ways of bringing in money on such things. It has no need to try to take a portion of the income made from university licensing. And in the details, it would end up being ham-handed, creating more bureaucracy and regulation, and in the end screwing up things even more than they are screwed up now.
Consider–if the government reaches in for university royalties, universities will suddenly find ways to avoid using federal funds in interesting research, or will claim that what’s got invented isn’t a subject invention (which actually they ought to be doing anyway–because as they handle invention policy, they don’t comply with Bayh-Dole’s regulations). So fewer inventions attributed to federal support. And universities can do things to make taking a share of royalties difficult–they can take in-kind or equity instead of cash. Is the government going to get an ownership share of every start up that trades equity for a license? If so, in what form, with what stock subscription agreement, what disclosures, what regulations, legal review, and the like? Oh, gawd it winds up.
There’s much to do to get universities out of the patent monopoly business, which attacks industry, denies researchers access to new technology, disrupts the development of “the art,” which is the basis for platforms, libraries of technology tools, commons in which information is shared rather than withheld, formation of standards, and interoperability. It is these forms of non-IP intangible assets (NIPIA) that drive technology change, much more so than monopoly patent shenanigans. Research forms commons, commons drive platforms, platforms permit interoperability and the formation of standards. The internet protocols by which you are reading this article are just such things. The internet itself is just such a thing. University patent practices work against shared development, platform formation, and competitive development. If Commerce enforced Bayh-Dole (and repealed a bunch of stupid regulations introduced by NIST), we would see a lot more university inventions used to build platforms, create working relationships with many companies, and a radical change in how universities use patents.
So, it’s good that Commerce is looking at university patent practices. Those practices stink. Universities are failures at patent ownership, even when they make a lot of money, which is rare–but one good license can earn income for twenty years and make it look like there’s a lot of deals when there isn’t. But it’s not good that Commerce thinks that there’s money to extract from university licensing for the federal government. Universities have misrepresented their “success.” And universities have misrepresented Bayh-Dole. And universities have screwed over their own inventors, the public, and American industry with their patent monopoly first strategies. Commerce should stay out of the patent money and patent enforcement and instead hold universities accountable for the goals and requirements set out in Bayh-Dole–use of inventions, benefits available to the public, on reasonable terms, free competition, made in the U.S. if a patent is licensed exclusively to use or to sell.
The bigger problem is federal project-based research funding. In my experience, federal funding counter-indicates company use. Technology transfer was pretty much invented by federal agencies trying to justify all their research funding that no one cared to use. Federal agencies have tried all sorts of things to “transfer” the technology, but mostly things go nowhere, or if they do, it takes two decades for everyone to dig out from the university patent thickets–90,000 patents means over a million claims. University patent practice means that American industry is motivated to avoid, to exclude, to design around, to wait out patents on inventions made in federal research. Meanwhile, because most universities don’t file foreign patents (unless they have a patent monopolist paying), the federal research is still a free gift to the rest of the world, other than private patent exclusions on importing products based on those inventions back into the U.S. Right–those university patents deny American access to what the universities have donated to the rest of the world. It’s all very nice for the world, but it’s stupid for America, stupid for Commerce to ignore Bayh-Dole enforcement.