Key Concept 5: Public Covenant

Posted on July 10, 2017 by Gerald Barnett

A Limitation on a Patent Property 

A patent public covenant is a restriction or obligation that runs with a patent property, creating requirements not arising otherwise from federal patent law. The expectation of such a covenant is that the restriction or obligation better shapes a patent property to achieve desired effects–faster use of an invention, or development of an invention, or availability of an invention.

Similar to a restrictive covenant in real estate, a public covenant may restrict the ownership rights of a patent owner and may as well create positive obligations for that patent owner. A public covenant on a patent is a requirement imposed by a government or other organization that limits what a patent owner may do with the patent right.

According to federal patent law (35 USC 261), a patent has the “attributes of personal property” but those attributes are “subject to the provisions of this title”–that is, of federal patent law. A public covenant places restrictions on the property rights of the patent owner. A public covenant placed in federal patent law restricts the patent property right directly, creating a new category of patent. A public covenant placed in an agreement with anyone coming to own an invention or having exclusive rights in an invention shapes by federal or private contract the rights of the patent owner or any assignee or exclusive licensee.

A public covenant may be established by the federal government or by a patent owner by policy. The covenant may be placed in law or in a research agreement or in a license. Once the covenant is placed, it follows the ownership of the underlying invention, including the patent on that invention. Continue reading →

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“Protecting” university inventions

Posted on July 9, 2017 by Gerald Barnett

I answered a question on Quora a bit ago: How can I protect my invention after applying for a patent?

In the context of the question, my answer has to do with what an individual might do to “protect” an invention. But think about “protecting” inventions in the context of university research. Things get strange. Many university IP management folk talk about “protecting” inventions, as if “protection” is just an obvious thing, needing no explanation or justification. When pressed, they might state (again, as if a general fact) that without “protection,” inventions will never get developed or used, the public won’t benefit, federal “investment” in research will be wasted, and the U.S. economy will slide into decline.

At a university, what invention needs “protection”? If the academic idea is to publish discoveries and inventions when they are made for the public benefit of having new knowledge, then why does anything need to be “protected.” Oh, I can see assertion of copyright to preserve authorial versions of scholarship. But as for inventions, what does protection mean? If the point is that new knowledge ought to be used, then someone “stealing” a discovery to use it is just a twisted way of saying that someone was excited to make use of what university-based researchers have reported. We might say, twisting IP talk, in general, with regards to the results of university research infringement is success. Continue reading →

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The Special Case Keeps Giving

Posted on July 8, 2017 by Gerald Barnett

Here is the special case university research invention. I have expanded it to show the logic. A special case invention is one that

  • cannot be used without “development” and
  • the “development” involves substantial effort at private expense and
  • the “development” itself is not patentable or readily protected by trade secret and thus
  • the “development” can be copied relatively easily once it has been done and thus
  • the patent on the invention is the only “protection” for the “investment” in
    the “development” and
  • the “development” must be undertaken by a single, private “investor”
  • the “investment” must have a prospect for upside return as good or better than other “investments” competing for the “investor’s” attention.

University administrators and Bayh-Dole advocates claim this special case is the general case for inventions made at universities. What can we say? These people are clueless. But it’s worse. They are intentionally clueless. They are passionately clueless. It is malpractice. If what they did actually mattered, they would be run out of town for incompetence and worse. But luckily, the economic impact and public benefit of university “technology transfer” rounds to about zero–even with the preposterous, unfounded claims treated as fact, produced from a half-arsed, unvalidated economic “model” that takes irrelevant information as inputs, makes unfounded assumptions, and produces a big number. That big number, in the context of the nation’s economy rounds to about zero. Even their attempts at deception round to zero. Otherwise, we would be hosed. Oh, wait–perhaps we are hosed anyway, except the bureaucratic strangulation of new ideas requires a generation of investigators to be disenfranchised from the responsibility for the care of their research results before we see what’s been done.

We can consider each element of the special case. No one needs to, really, here’s the documentary trail, since you won’t find many university licensing operations or law firms hanging on to them mapping this stuff out. Their livelihoods depend on the deception, not on the reality.  Continue reading →

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What Universities Don’t Report Under Bayh-Dole, But Ought To

Posted on July 7, 2017 by Gerald Barnett

Here’s the reporting requirement in Stevenson-Wydler for federal agencies operating technology transfer programs under Bayh-Dole (35 USC 207, 209). I’ll make some comments in between portions of the text:

(A) an explanation of the agency’s technology transfer
program for the preceding fiscal year and the agency’s
plans for conducting its technology transfer function, including its plans for securing intellectual property rights in laboratory innovations with commercial promise and plans for managing its intellectual property so as to advance the agency’s mission and benefit the competitiveness of United States industry; and

Each year, an explanation of the program activities for the past year–not mission statements, not aspirations and intentions, but what the program did. Explain what you did do.  Then, each year, produce a plan for the next year–how to secure IP and how to manage that IP. Seems reasonable enough.  Continue reading →

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What should the federal government do with patents it issues to itself? Part 4

Posted on July 6, 2017 by Gerald Barnett

The question of who ought to control inventions made by independent investigators is at the root of Bayh-Dole. Without federal funding, such investigators would give up rights in inventions only according to their own interests. They would be free of institutional claims. Even universities back in 1945 didn’t make claims on inventions–other than that medical faculty argued there should not be any patents on medical inventions. If a university did agree to take ownership of an invention, it was to see that the patent right was broken up. But Bayh-Dole makes it appear that institutions should own inventions made by independent researchers. Independent researchers should not be independent. They should serve whatever institution manages the federal funding on their behalf. They should not get to decide what is inventive, what is worth patenting, or how patents might be used. They must be forced to publish through the patent literature and they should be forced to take a back seat with regard to whether a patent is licensed, on what terms, and with what payment and enforcement of terms.

Bayh-Dole’s fundamental statement of policy is that the patent system is to be used to promote the utilization of inventions arising in federally supported research, but Bayh-Dole leaves it entirely open how such patents might be exploited. One could use patents to create the situations involving investment capital and innovation diversity, as Gordon Lister has it; one could use patents to trade on the value of patents, without working any invention; or one could use patents to break up the patent monopoly while doing other things to promote the use of the underlying inventions. Bayh-Dole authorizes any and all of this–so long as Bayh-Dole’s statement of policy is taken as surplusage and not as a substantive limitation in federal patent law on the use of patent properties with regard to subject inventions.  Continue reading →

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What should the federal government do with patents it issues to itself? Part 3

Posted on July 5, 2017 by Gerald Barnett

Here is one of the most provocative parts of Vannevar Bush’s Science the Endless Frontier:

Science Is a Proper Concern of Government

It has been basic United States policy that Government should foster the opening of new frontiers. It opened the seas to clipper ships and furnished land for pioneers. Although these frontiers have more or less disappeared, the frontier of science remains. It is in keeping with the American tradition – one which has made the United States great – that new frontiers shall be made accessible for development by all American citizens.

The problem is not so much with the metaphor–that somehow discovery in science is like discovery in geography–but rather with the idea that comes after is that the federal government should fund “basic science,” especially in the “war against disease”:

There are areas of science in which the public interest is acute but which are likely to be cultivated inadequately if left without more support than will come from private sources. These areas – such as research on military problems, agriculture, housing, public health, certain medical research, and research involving expensive capital facilities beyond the capacity of private institutions – should be advanced by active Government support.

This, then, is the logic: government should be mindful of science; science represents a frontier that may be developed; private sources of funding are inadequate to “cultivate” all areas of this scientific frontier. The federal government should provide funding to advance basic science.

Bush went on to describe a specific means for providing government support. He recognized the problems in how the government might use the power of its funding to dictate the priorities of what should be studied, with what outcomes. He acknowledged that industry had its research and the government had its research, but these forms of research were not what he was concerned with. Bush argued that the frontier of science was not adequately cultivated by either of these existing efforts. What was needed was independent inquiry, free from the direction and focus of company or governmental needs, free from the priorities and problems of professional consensus. Bush wanted institutional funds to enable “the free play of free intellects” to expand scientific frontiers not adequately cultivated by existing funding, so that the results–and these are the fighting words–shall be made accessible for development by all American citizens. Continue reading →

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AAU Fools with Words, 3

Posted on July 4, 2017 by Gerald Barnett

We are working through the AAU fantasy about invention commercialization. In AAU usage,  to “develop” an invention may mean to “suppress” the invention but also may include to design around an invention–as in, invent what is actually needed to create a meaningful product. The university’s patent gets used to suppress interest by others in any part of the licensed invention. But the university’s invention may not be used at all, or if used, only in a little bit. The patent serves to suppress all the unused parts of the invention. When a university assigns the invention to the company, it gives the company to litigate to suppress the use of all the unused bits of the patent, too. Or, if companies use some of those unused bits anyway, to litigate to extract payment from those companies–to troll them. If the company doesn’t, so the typical university license goes, then the university can do so. If the company builds its new product relying on “B” inventions, then it can terminate the licensing agreement with the university (especially if the university is paying attention and demands development), having spent only the upfront fees to buy time to develop its own version of the technology. No royalties paid. No technology from the university actually “transferred” despite the license.

AAU folks would like you to believe with them that such things never happen. Continue reading →

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AAU Fools with Words, 2

Posted on July 3, 2017 by Gerald Barnett

Let’s look then at the AAU statement produced by the task force charged with–if we read the preamble correctly–finding better words to declare that university technology transfer operations are to advance the public interest.

AAU starts with fake history:

Before Bayh-Dole was enacted, the federal government retained ownership of federally funded discoveries,

Before Bayh-Dole, there was the IPA program, under which scores of universities and nonprofits could secure ownership of inventions made with federal support. Both the NIH and the NSF had IPA programs. Other federal agencies, such as the Department of Defense, allowed contractors to own inventions made under federal contracts. It’s nonsense.

But it’s worser nonsense. Where the federal government sought ownership of inventions, it did so by requiring assignment, not by “retaining” ownership. The government did not have any ownership of patentable inventions to retain. Here, the AAU task force shows that it is clueless with regard to history–or relying on the same faux historians of Bayh-Dole that populate the country rather than doing their own research, which in the course of a half an hour would show how inexpert (or deliberately deceptive–take your pick) the faux historians are. The government obtained inventions the way anyone must–by assignment. For instance, the DoD could, if a contractor declined an interest in an invention, require (as a contract condition) that inventors assign their inventions to the government.

In two areas the federal government made claims to inventions that precluded private patent ownership–for atomic and nuclear energy and for space technologies. In these cases, special statutes gave the government ownership of inventions outright, and the government could file patent applications without the need for an inventor’s assignment by including an affidavit citing the funding, the area of the invention, and the law. Even now, the federal government can suppress patent applications for national security purposes. No, I can’t talk about it.

What the AAU task force might be referring to without having the courage (or is it awareness) to do so was the Public Health Service policy, consistent with the Kennedy patent policy, of requiring assignment of inventions in areas of public health such as medicinal chemistry where the invention should (in the judgment of the Public Health Service) be made available to the public and not turned into a monopoly. That’s a debatable position, but it was not a government-wide position. It was a special, special case–special: inventions that can only be developed for use with private investment; special special: special inventions directed at matters of public health. And even in the special special case, until 1978, universities could acquire invention rights ahead of the government’s claim and attempt to license special special case inventions to the pharmaceutical industry for “development.” We might say there was a huge policy dispute between the PHS and the pharmaceutical industry over the area of research called medicinal chemistry (and now all sorts of things–genomics, proteomics, biochemistry, nanotechnology, bioinformatics–anything but “medicinal chemistry”).

but the government often neglected to license those discoveries to the private sector for further development.

More made up stuff, starting with “often neglected to license.” The Kennedy patent policy made clear that when the government obtained ownership of inventions, it should “dedicate or license” the inventions for broad public use. Dedicate–don’t patent at all. License–license non exclusively, royalty free, but perhaps control for quality and safety and accurate claims.

Most of the 28,000 patents held by the U.S. government by 1978 were of this sort–ones that a defense contractor did not want to pursue and which the DoD might want to hold to 1) recognize technical merit; 2) introduce the invention into the patent literature to raise the bar to further patenting; 3) control to level the field for competitive bidding; 4) to regulate foreign competition with U.S. vendors; 5) to permit broad use without the bother of formal licensing. None of such purposes requires “commercialization” by means of a monopoly. Where the government did hold patents in medical inventions, its licensing record for commercial development was comparable with the best rates at universities–and nearly 5x better than the university patent agent rates for inventions handled under the IPA program.

Bayh-Dole sparked technology transfer by creating an incentive for universities to secure patent protection for inventions resulting from federally funded research;

Technology transfer was sparked long before Bayh-Dole. It was sparked by Cottrell’s creation of the Research Corporation in 1912, and in a different way by the formation of the Wisconsin Alumni Research Foundation and scores of similar university-affiliated research foundations. It was sparked by the University of California’s decision in 1960 to operate its own patent licensing program, followed by MIT and Stanford. It was sparked by the Public Health Service IPA program, which from the mid 1950s to 1978 allowed universities to selectively divert patentable inventions for agent or university management. So more fake history.

Where, too, is “the incentive” for universities to “secure patent protection”? There is nothing about an incentive for universities in Bayh-Dole’s statement of policy and objective. There is nothing about “incentive” in the provisions that must be included in the standard patent rights clause. The closest one might come to an incentive is that if a university manages to obtain assignment of an invention made with federal support, the university has the means to “retain” that ownership, provided it jump through a bunch of administrative hoops. Even in the use of royalty and other income from exploiting an invention, Bayh-Dole creates restrictions for universities and other nonprofits. They can use such income only to pay inventors, to recover costs of managing subject inventions (not other inventions, not non-inventions, not administrative slush), and to use any balance for “scientific research or education”–not for, say, public service or humanities research. No incentive there–encumbered money.

Perhaps the AAU means by “incentive” an “incentive to make money by dealing in patents.” If so, then we have a dilemma–how can the federal government by law give universities “an incentive” to make money from patents on federally supported inventions and then have critics complain about this incentive? Otherwise, just what “incentive” is there that the AAU argues is in Bayh-Dole? Or, perhaps here the AAU is just making up something fake that sounds good–there is no incentive in Bayh-Dole, but it sounds good to say there is an incentive to explain why university administrators are so enraptured with being in the patenting business. If the incentive offered by Bayh-Dole is that universities can be in the patent business to make money, then surely (so the AAU reasoning must go) it advances the public interest when universities make money.

this, in turn, allowed businesses to gain the necessary rights to develop and commercialize those research discoveries.

The “this” points backwards indifferently–it could point to “Bayh-Dole” or to “incentive” or to “technology transfer” or to “patent protection” or to the whole complex of creating, sparking, and securing, or to the assertion that the depiction of the whole complex is accurate. Perhaps at this point the AAU task force thinks its work is done and it can write indifferently. But whatever the “this” refers to, somehow it was this “this” that “allowed businesses to gain the necessary rights.” Let’s parse that claim. It gets interesting.

The assumption AAU starts with is that universities gain ownership of discoveries made with federal support. According to the AAU, it’s Bayh-Dole that gives universities a mysterious incentive to take ownership of inventions, for which they then come, also mysteriously, to have a responsibility to be “good stewards.” Now, however, we find out that universities gain ownership of inventions so that they can allow businesses to “gain the necessary rights.”

Since previously, according to the AAU’s fake history, the federal government owned inventions made with federal support, we might think that the “necessary rights” were any form of permission to use these inventions. But no. These are “necessary rights” not “sufficient rights.” A sufficient right would be a non-exclusive license, or an invention that entered the public domain. In the AAU’s fantasy regarding innovation, no company is willing to use an invention that isn’t subject to a monopoly claim. But also in the AAU’s fantasy–and it is fantasy–no company thinks of merely using an invention. An invention must be “developed” and “commercialized”; that is, become a commercial product. For this activity to take place, the license must be, apparently, exclusive.

What does it mean to “develop” an invention? What is the distinction between “research” and “development” in play here? We might observe that it’s quite possible there is no meaningful distinction between research and development in terms of behaviors–people study, observe, document, test, change, and repeat in both activities. Perhaps they don’t even differ in their intentions between research and development. It may be that the only differences are in the expectations of people who watch or hire or direct people involved in research or development.

R&D Magazine a couple of years ago ran an article by Bradford L. Goldense about research and development (whoa!) and lays out the typical linear model scenario of basic research, applied research, advanced development, and product development–setting aside “skunk works” (and thus, the Vannevar Bush innovation engine and alternatives to the linear model). Goldense’s point is that this conventional approach is being replaced by “any organization can launch a product.” According to Goldense, basic research enables possibilities, applied research tosses what’s impossible and impractical, and then we get “advanced development”:

Advanced Development generally takes these possible and likely feasible solutions and further reduces the risk in hopes of culling out the best alternatives to deliver to an expressed target for a capability or feature to incorporate into products. Downstream manufactured cost considerations start to come into play as a culling consideration.

In this usage, “development” means “ruling out” with an eye toward market and production. An invention gets developed by ruling out a bunch of variations of the invention. In terms of invention and claimed invention, “development” means deciding not to use or allow the use of swaths of what has been claimed in a patent as “the” invention. In this sense, “development” means deciding not to use versions of an invention. A patent allows the patent owner to enforce this decision on the rest of the country, so that only what “advanced development” has chosen may be considered for use and commercial product.

This gets interesting, then. When a university takes over an invention made with federal support, it must be that a “necessary” right in play is that of preventing any others from making, using, or selling those parts of a claimed invention that a company decides must be suppressed. “Develop” must mean, here, “suppress.” Contrast this usage to Bayh-Dole’s happy statement of policy: “use the patent system to promote the utilization of inventions.” A university, in licensing necessary rights, agrees to collaborate with the licensee to prevent the use of all portions of a claimed invention that the company chooses to suppress. Such suppression prevents competition with the company’s technical and marketing decisions. It’s not as if a university says, “Company, you get first dibs–define your product from the claimed invention and we will give you an exclusive license to exactly those portions of the claimed invention that you choose. Everything else we’ll offer to your competition.” Thus, for the compound sequence licensed by UCLA to Medivation, the company might choose compound 169′–and that would be the scope of Medivation’s license, with UCLA offering all other compounds within the claimed invention to others. But that of course is not how things work. University exclusive licenses–usually made to function as assignments–form an agreement to permit the licensee/assignee to enforce the patent rights without reference to defending a commercial product from copying–the defense is general, extending to all those elements of the licensed invention that the company has suppressed.

It takes some work to get past euphemisms like “develop” to begin to see what is in play.

There’s more. Let’s look at Goldense has to say about product development:

Finally, Product Development invents what’s needed and necessary “now” and packages both the form and function of all feasible and risk-reduced features and/or capabilities into products planned for release to the marketplace.

It’s that word “invents” that should stop you in your reading tracks. Product development “invents what’s needed and necessary ‘now’.” In this usage, development starts with the narrowed possibilities and invents the implementations to create products. That is, whatever the purpose of the original patent licensed by a university, when a company comes to “develop” a product, it will (in general) do more inventing. Consider–the new inventing may lie within the scope of the university’s patent, or the new inventing may be outside the scope of the university’s patent. The product itself may even lie outside the university’s patent. It’s entirely possible that a company will be motivated to “develop” a licensed invention so that the resulting product is outside the scope of the license.

Here’s an illustration.

Imagine a university patenting office as a UPO hovering over a strange planet, such as Earth, shining a patent beam down on an area of technology. In this patent beam, nothing can grow but for the grace of the UPO operator. The patent beam is the scope of the claimed invention–all the claims map out what the patent owner can exclude or suppress. But with development, a company might use only the little bit labeled “A.” That little bit is still within the scope of the UPO’s patent beam, so the license matters, and if a product is created, the company will pay royalties.

But the company might also develop the product around a different little bit, labeled “B.” For that part, the company might have its own patent positions–and actually B could be part of a big area of claimed invention. Furthermore, B could represent improvements to A that anyone hoping to practice A would have to also use to make something that works for a given application, with satisfactory function, reliability, safety, and cost. The company could rely on the licensed patent and merely select bit A. Or the company could invent a new bit B and practice both A and B. Or the company could drop A and rely only on B.

University licensing folks actually fear the B. They write their exclusive licenses to require diligence in “developing” the licensed invention. But they cannot prevent a company from also developing its own inventions that lie outside of the scope of the patent claims in the licensed invention. A company might, then, take an exclusive license from the UPO while developing its own bit B. The UPO license prevents the UPO from finding anyone else to develop the invention. That is, no research competition. Even with a diligence clause, a university will find it difficult to punish a company for developing a product outside the scope of the license–as long as the company makes a show of also attempting to create a product within the scope of the license, it will be next to impossible to prove short of lengthy discovery in litigation, that the company had no intention of ever building a product within the scope of the licensed patent.

No company I know willingly builds product within the scope of a licensed patent when they can build equivalent or better product outside that scope. Universities protect themselves against this outcome in various ways–one way is to charge a big up front fee, perhaps payable in stages. Even if the company fails to build a product within the scope of the license, the university makes some money. Another way is to take an equity position in the company, so that what matters is not whether the company builds a product using the licensed invention but rather whether the company’s value increases over time. In taking an equity position, a university all but announces that the use of the licensed invention doesn’t much matter.

Part 3 is next. 

 

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AAU Fools with Words, 1

Posted on July 2, 2017 by Gerald Barnett

Recently the Association of American Universities published a fakographic about Bayh-Dole. From the AAU perspective, of course, it was all true stuff, because, well, they believe whatever they are doing is right, so whatever they say about something that’s right must be right, too. Even if something isn’t quite right, it’s there as an emblem about what would be right if it were true. Thus, even if touch screens weren’t invented in university research, they could well have been invented at a university, and thus it’s perfectly fine to claim something that’s close, that someone who had invented something that later led to a touch screen once also did research at a university. It’s just a matter of technical details or a difference of opinion about the role of the university in all of it. People who value university work will argue that universities play a big role in innovation, and dull, ignorant people will argue against that value, tearing down all the good work that’s been done to build university “technology transfer” into a globe-leading IP system.

Well now. There’s nothing like speaking the brass truth of the real world, even if the golden truth of fantasy sounds so much better.

Back in 2014, the AAU convened a “task force” to respond to some unnamed “critics” of university technology transfer. The task force developed a “statement” that they published in 2015, “Managing University Technology Transfer in the Public Interest.” Let’s have a look. Here’s the opening preamble to the statement:

Universities have a responsibility to be good stewards of discoveries and intellectual property developed from research supported by federal funding.

This preamblulatory assertion alone is rife with strangeness. How have universities come to have a responsibility to be good stewards of discoveries and intellectual property developed from research supported by federal funding?

We can start with federal funding. The Bayh-Dole Act alters federal patent law, creating patent policy regarding subject inventions and also dictates what federal agencies can require with regard to inventions in a funding agreement for research at a university (or other contractor).

But nothing in Bayh-Dole gives universities any responsibility with regard to inventions. All Bayh-Dole does is require universities to behave in certain ways if they do come to own inventions made with federal support. Same for copyright or data–nothing in the standard grant terms that gives universities any responsibility for copyright or data.

The same is true for federal grant requirements pertaining to intangible property, which is expressly defined to include “patents and patent applications.” According to 2 CFR 200.316, intangible property that a “non-Federal entity” acquires or improves with federal funds

must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved.

A trustee operates something like a steward. But in the case of a trustee, it may own the property that it manages on behalf of another, while a steward manages the property or affairs of another, for that other’s benefit. It’s clear, however, that AAU expects universities to own discoveries and intellectual property, not merely manage discoveries and intellectual property owned by others, acting as their agents or stewards. But “trustee” carries a substantial obligation–what is best for the trustee? Of course, here in the AAU preamble, it’s not at all clear who the good steward is to serve. Is it the discoverers? the federal government? the “public”? industry? impoverished speculative investors who otherwise don’t have enough opportunity to grow wealthy betting in highly volatile marketplaces where they have a better chance of winning money from other bettors than by getting in on the upside of a patented invention that actually unexpectedly becomes a new product?

We might, in defiance of Ayn Rand, summarize the expectations of stewardship with this book cover on the subject: “choosing service over self-interest.” That would appear to be an easy thing for a university–one might think that a university would be all about “service,” especially service “to the public.” Yet, when it comes to the ownership and management of intellectual property, university administrators find themselves woefully conflicted between helping others and helping themselves. It’s a funny little problem that they typically solve by arguing that by helping themselves, they are helping others, because if the university gets money from licensing, it can use that money to do more research, creating even more inventions with the potential for more public benefit, and besides, all that money lessens the need for the public to fund university research–oops! not that! But it’s too late. They’ve already let that idea out into the wild.

Further, why should AAU restrict university responsibility to research supported by federal funding? Why not also include responsibility for the results of industry funding? foundation funding? donations from the public? state funding? It’s strange to restrict the “good stewards” role to federal funding. Why should funding have anything to do with it unless the source of that funding requires a university that hosts research to be a “good steward” of whatever results from that research. I have yet to see any sponsor of research put things that way. It just doesn’t happen that way.

The problem runs deeper than poor choice of restriction, however. If federal funding does not give universities a responsibility, then who or what does? It would appear that university administrators have decided that they have this responsibility, but what does this mean? Here, “responsibility” is the wrong word, a euphemism. What AAU means is that university administrators have asserted that the university should own what inventors and authors create, called “discoveries.” Until someone who owns an invention provides it to a university for management, the university has no responsibility to act as a steward for that invention. And if a university forces personnel to accept a deal under which university administrators assert that they must own all inventions, then the university isn’t acting as a steward at all–it is acting as master.

We then start to see the shape of the gesture. The university acts as a master with regard to those who discover and invent, but it takes ownership of these things to act as a good steward for some other person or cause–that is, it declares itself act in the interest of others, even though it has no apparent obligation to others to do so. “Stewardship” in the AAU usage is metaphorical, an emblem, a gesture that suggests that the university manages intellectual property for a good other than its own self-interest. But as we’ll see, the AAU task force cannot then manage to separate a university’s self-interest from service to the public. These are one and the same thing.

In recent years, however, some critics have asserted that universities’ technology transfer operations place too much emphasis on maximizing revenues and not enough on moving new ideas quickly into the marketplace, where they can advance the public good.

The criticism comes from the outside, from anonymous people. It’s rather interesting. When the IPA program was shut down in 1978, one criticism from Congress was that universities weren’t charging enough in their exclusive licensing deals with pharmaceutical companies. They were doing, it appeared, sweetheart deals, taking pennies on the dollar. Bayh-Dole, appearing two years later, re-established the sweetheart pathway with a new handwaving apparatus gesturing to the public interest–but in it all the focus was to authorize universities (and the federal government as well) to license inventions made with federal support exclusively to the pharmaceutical industry on whatever terms universities wanted–sweetheart deals were fine; the public shouldn’t expect universities to get rich in their licensing programs; if the price of a patent was too high, pharmaceutical companies would not take licenses and product would not be developed and commercialized, and the public would not see a benefit, and the entirety of federal funding for university research would be wasted.

You must see the logic in this last bit. If federal funding is wasted when inventions are not turned into commercial products for public benefit, then we have two obvious options: turn those inventions into products or shift federal funding to other work. You can see why university officials are so adamant that Bayh-Dole has been successful (even though it has been just the opposite). They fear the logic of their own argument. The stark reality is that even with the sweetheart deals to the pharmaceutical industry as the default, most university inventions made with federal support don’t become commercial products. This, despite the increasingly desperate and clever efforts by university licensing officials to make it appear otherwise. The aspiration is there: folks are trying. But their performance is so terrible they won’t even report it. They report their efforts–number of inventions reported, patent applications filed, patents issued, licenses granted, startups formed, even money made. But they won’t report the one datum that would confirm their logic–that their efforts result in inventions achieving commercial success and by this means benefit the public.

Even many of those inventions that achieve success appear to do so at the expense of the public. Think of the prescription drugs that are sold at monopoly prices, where the federal funding ends up being, after the fact, a subsidy for speculative investors. One wonders how the public’s interest comes first in this sort of monopoly thinking. Oh, wait, I get it–if the investors don’t make craploads of money at least once in a while, then they won’t invest, the pharmaceutical industry will fail, and no drugs whatsoever will ever again be developed. And so the public interest is rhetorically bound up in the wealth dreams of speculators.

If we return to AAU’s second sentence, we can see that it’s a false dichotomy between “maximizing revenues” and “moving new ideas quickly into the marketplace.” Whoever the nameless critics are with such influence that AAU has to mobilize a task force to deal with them, they are pretty dull witted critics. We might observe, then, that AAU chose a rather petty worry to address. That makes a task force’s task less difficult, no doubt. But even each dicha of the AAU dichotomy is messed up.

How does one “maximize” revenue from discoveries? And maximize revenue for whom? Or is the concern maximizing revenue across a portfolio of discoveries and not just from each discovery on its own? Or is the concern that one should not get as much money as one can? One might make more money from patent positions by holding them until industry stumbles over them, and then go on a trolling expedition as Caltech has done recently. If that’s the case, then a moderating position might be to forgo making “maximum” revenue in this way by at least not letting patent trolling organizations have an opportunity to “maximize” revenues. One might maximize revenues, as well, by shifting income from license payments to research payments or donations or tuition–people might show up wanting to do business with a university because a discovery is quickly and widely and usefully available. That would be a different approach than holding out for a monopoly commercialization license for every discovery a university acquires rights to.

As for moving new ideas quickly “into the marketplace, where they can advance the public good,” we have more nonsense. Why must a new idea be moved “into the marketplace” at all? Reading Steven Johnson’s historical account of good ideas (Where Good Ideas Come From: The Natural History of Innovation), most good ideas move into a “networked, non-market” environment, in which they are tested, developed, altered, and emerge through any number of pathways to become important. Moving new ideas–“the discoveries” of the first sentence–into a “marketplace” would appear to be one of the worst things a university could do, in general. One would, instead, move new ideas into networked, non-market arenas. For that, a university might help to establish networks (pay for travel, invite visitors, hold workshops, and the like) and be disinterested in “market” issues. One might go so far as to argue that university administrators, in having such a fixation on commercial markets, work to forestall actual, operative innovation markets that do not depend on monopoly commercial investment:

to buy or contract for merchandise or provision on its way to market, with the intention of selling it again at a higher price; to dissuade persons from bringing their goods or provisions there; or to persuade them to enhance the price when there. This was an offense at law in England until 1844.

We might argue that university administrators arbitrarily and foolishly introduce market price (or “value”) too soon in the life of discovery or idea or invention. If a university were in the service, say, of innovation, then it might encourage academic discoverers, thinkers, and inventors to contribute their ideas to networks in which those ideas might develop.

The AAU tag about markets is telling: “where they can advance the public good.” Research ideas, apparently, cannot advance the public good unless they are secured for the “marketplace.” This is strange stuff, for “ideas” and even for “discoveries.” Even in the case of patentable inventions–which is what the AAU apparatus is actually about, though AAU folks can’t bring themselves to speak plainly on the point–even for patentable inventions made in university research, it is not at all clear that in general a patent is necessary or even a help, or that the purpose of a patent is to collar an invention and so pull it to some market (a market for patents, say). An invention might circulate as a research tool, for instance, and benefit the public by advancing research. Or an invention might be used DIY by industry, each company making its own implementation, without the need to wait for a commercial version, and especially without waiting passively for a commercial version sold as a monopoly to extract as much “value” as possible from the patent position. Heck, an invention might have more value to the public as a trade secret, not available for anyone other than those clever enough to figure it out on their own. There is no compelling reason to think that only by hustling “new ideas quickly into the marketplace” can they “advance the public good.” It’s just nonsense. It is nonsense written in an authoritative style, but it’s nonsense through and through.

In October 2014, the Association of American Universities (AAU) formed a working group on technology transfer and intellectual property with the task of reaffirming that the primary goal of university technology transfer operations is to advance the public interest.

So AAU creates a task force that must “reaffirm” the bland and obvious point that university technology transfer should “advance the public interest.” But even here, there’s a walkback–we aren’t talking about what technology transfer operations must do, but what the administrative “goal” of operations should be. And not only that, but that it’s only the “primary” goal that we are to worry–there can be other goals, too, that don’t have to do with advancing the public interest. “Our primary goal is to advance the public interest and our secondary goal is to make as much money as we can.” Or “Our primary goal is to advance the public interest and anything we do, however we do it, should be ascribed to our passion for that goal, and not to any other purpose.” Yeah, right. The task force is given the mandate to wordsmith the idea that whatever university technology transfer operations do, people should think kindly of them and not be so critical. The worrisome criticism–even if apparently goofball criticism–is the product of universities not having better wording in policy statements. Gosh, the AAU can help with that!

To challenge university administrators to undo their IP ownership policies, change their operations, alter their default licensing arrangements, to restore agent approaches, to reconsider equitable interest, to study and engage commons–these sorts of things are entirely outside AAU’s thinking.

Part 2 is here.

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The NIH’s View of Bayh-Dole Compliance

Posted on July 1, 2017 by Gerald Barnett

In 2015, Ann Hammersla gave a talk at an NIH Regional Seminar that includes a discussion of Bayh-Dole. There are numerous problems with Hammersla’s treatment of Bayh-Dole, but we’ll leave most of those for the attentive reader to pick through.

Let’s look at just one slide, dealing with NIH compliance, mostly involving Bayh-Dole:

Yes, this is just one slide with abbreviated bullet points, but almost every bullet point here is off–and it is not just due to simplifications required by space limitations.

Bayh-Dole does not require employee agreements. Not there. And the written agreement that appears in the standard patent rights clause (37 CFR 401.14(f)(2)) is not an employee agreement–it is a compulsory subcontract.

Only subject inventions must be disclosed–inventions “of the contractor”–patentable inventions made under contract that a university contractor has acquired.

A university must give notice to elect to retain title, not “election of title” and not “waive of title.” The difference here is huge, especially for people who don’t know enough to see how wrong the slide is.

One files a patent application, not a patent. Slop. And anyway, Bayh-Dole was changed in 2011–four years before Hammarsla’s talk–so that a contractor must file a patent application before the end of the statutory grace period following disclosure or other statutory bar, not within one year from electing to retain title to a subject invention.

Provide license to the government–yes, this one is right!

Indicate government support on patent–well, this one is not in Bayh-Dole but is in the standard patent rights clause, so okay. [What was I thinking?]

Product manufacturing in the U.S. is not generally required by Bayh-Dole–not for owners of subject inventions but only in exclusive licenses in the U.S. to use or to sell, and can be waived, and the NIH has a web site devoted to expediting waivers.

Report on invention utilization–yes, the NIH requires this (Bayh-Dole reserves the right for agencies to require such periodic reporting and the standard patent rights clause restricts this to no more frequently than annually).

Final invention report–okay, but not in Bayh-Dole. The requirement is an option in the implementing regulations at 37 CFR 401.5(f).

This slide is as close as Hammersla’s talk gets to general Bayh-Dole (patent rights clause) compliance. The title of slide and the list of bullet points don’t mesh. Some things are indeed reporting, but others are not–employee agreements, file patents, U.S. manufacturing. More importantly, look at what compliance means–administrative actions that don’t have much at all to do with “public benefit.”

Let’s work through the list and audit things against Bayh-Dole and the standard patent rights clause. It’s clear that the list is a shorthand–and there’s only so much detail one can fit onto a slide. That’s not the problem (although, given this is already a 58 slide deck, one might think that reporting could be separated from other responsibilities).

Implement Employee Agreements “as needed”

Bayh-Dole has nothing to say about employee agreements. It’s not there. Bayh-Dole does not stipulate that the standard patent rights clause have employee agreements (see 35 USC 202(c)). But the standard patent rights clause (37 CFR 401.14) does require contractors to require certain employees to make a written agreement to protect the government’s interest. That’s the (f)(2) written agreement, and it is not contractor-optional. It’s required, not “as needed.” And (f)(2) is required not merely to provide a link directly between the federal government and individual inventors, but also to make those inventors parties to the funding agreement–thus, also contractors (see 35 USC 201(b) and (c)), and thus every invention they make in the performance of work under a funding agreement is a subject invention, owned by a contractor–by each inventor who has made the (f)(2) agreement. The “as needed” is simply wrong. Here, the NIH is all but saying, “you don’t have to comply with (f)(2).” For that to be the case, the NIH should have to declare “exceptional circumstances” and create their own standard patent rights clause.

Of course, if what Hammersla means by “as needed” is “as needed for the institutional contractor to require assignment of inventions from inventors,” then the matter is one of just what inventions an institutional IP manager requires. Have employee agreements for those, advises Hammersla. But that’s not at all a matter of compliance with Bayh-Dole or with NIH requirements. At best, it’s a matter of exploitation of an opportunity, and even there, it is only the opportunity of “if you can find a way to take an invention from your inventors, then Bayh-Dole limits the NIH’s ability to take it away from you.” To make this rather strange opportunity appear to be a regulatory requirement is also rather strange. Perhaps that’s why “as needed” settles folks’ administrative consciences.

There’s an argument–a good one, even–that Bayh-Dole pre-empts nonprofit institutions operating with a policy of academic freedom from imposing assignment agreements as a condition of participating in work under a funding agreement. Bayh-Dole pre-empts federal patent policy and states as that policy the conditions that federal agencies must require in any funding agreement. Those are the conditions, then. When the standard patent rights clause then transmits these conditions to an institutional contractor for acceptance, the institutional contractor accepts these conditions in place of any conditions that the institutional contractor otherwise has or might seek. It’s just like the subcontracting requirement in the standard patent rights clause, also not in Bayh-Dole. The employee agreement that a nonprofit institution must have is one that protects the government interest. It cannot have one that at the same time prevents the (f)(2) agreement, the required agreement, from operating.

The “as needed” bit is simply wrong.

Disclose Each Invention “within 60 days”

The requirement is directed to each subject invention. In the standard patent rights clause, it’s “two months” not “60 days” and the clock starts when the inventor discloses the subject invention to “contractor personnel responsible for patent matters.” In Bayh-Dole, the requirement is “within a reasonable time.”

Resolve Election or Waive [sic] of Title “within 2 years”

The statutory wording is “elect to retain title” not “election of title.” “Elect title” does also get used, but only in reference to the section in which “elect to retain title” is the formal requirement for the standard patent rights clause. There are plenty of conditionals on the timing of the elect to retain notice. The federal agency can extend the notice term. The notice term may be shortened by a federal agency if there’s a statutory bar created. (But of course, in typical Bayh-Dole fashion, how would an agency know if there’s a statutory bar unless the contractor properly reported each bar as it occurred? And even then the agency has to take an express action to shorten the term–administrative overhead designed not to operate).

File Patent “within 1 yr. of election”

Well, technically it’s file a patent application. In Bayh-Dole the filing is to be “prior to the expiration of the 1-year period referred to in section 102(b)” [102(b) has to do with exceptions to the loss of the right to a patent based on publication, public use, or available to the public before filing a patent application]. It’s not anchored to the election of title at all. The standard patent rights clause, making things up as it has a habit of doing, turns this requirement into “within one year of election of title, or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained” [with a list of some 102(b)-like conditions].

Provide License to the Govt. “upon title election”

Bayh-Dole provides that a federal agency “shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.” It does not say when this license is to be “provided” to the government–just that the government “shall have” it. This same language is repeated in the standard patent rights clause. The standard patent rights clause states that the contractor will “promptly deliver” “all instruments necessary to . . . establish or confirm the rights the Government has.”

Indicate Govt. Support on Patent “with patent appl.”

Yes. But the purpose of the statement is more than to indicate government support–it is also to announce that “the government has certain rights in the invention” (see 37 CFR 401.14(f)(4)). In a sense, the government rights legend is equivalent to the government license. The “certain rights” include those of the government license (as well as the right to receive title in some circumstances and the right to march-in for nonuse or unreasonable use).

Product Manufacturing in U.S. “required”

Not true in general. Manufacturing in the U.S. is required only for an exclusive license in the U.S. to “use or sell.” There is no requirement for U.S. manufacture for non-exclusive licenses, and no requirement that a patent owner itself manufacture in the United States the product it uses or sells. Even the non-exclusive license to the federal government does not require U.S. manufacturing. We have here a common overstatement of the requirements–and one reason for the overstatement is that some people cannot imagine any institution using non-exclusive licensing strategies. The NIH apparently assumes licenses will be exclusive–in keeping with being the origin within the federal government of the circumvention of federal patent policy that expected non-exclusive licensing.

A subsequent slide highlights the exclusive license element. That same slide also highlights that a federal agency can waive the U.S. manufacturing requirement and provides a link to an NIH web site where there’s a form for requesting a waiver. One might consider that the NIH is eager to grant such waivers–one more indication that the public benefit apparatus of Bayh-Dole is there only for appearances.

Report on Invention Utilization “annually”

Well, for subject inventions, and no more frequently than annually, and only if requested by the federal agency. No doubt the NIH makes it a practice of requesting such reports. “The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the contractor or its licensees or assignees” (37 CFR 401.14(h)).

The impression then of working through this summary slide is that things are presented in a sloppy fashion. Perhaps in the talk itself Hammersla provided the necessary nuance. The things that stand out, however, are the things that are left out:

How does a contractor come to own inventions made with federal support? Apparently, by those “as needed” employee agreements. Not by complying with the (f)(2) written agreement requirement to protect the government’s interest.

Why should a contractor even be involved in dealing with inventions? That, apparently, was already answered by the poem about the high calling of institutional IP managers in the service of creativity and innovation.

What limitations are there on the property rights in patents on subject inventions? It would appear that such patents are ordinary patents, and that the policy statements for Bayh-Dole, placed in federal patent law, are surplusage.

But here’s the greatest emptiness in the slide–that the issues that apparently matter most to the NIH are ones taken up with institutional ownership of subject inventions, what is necessary to comply and keep ownership. By contrast, the purpose of the “IP system” that Hammersla aspires to is “public benefit.” In that IP system, institutional ownership of patents is assumed–unlike the U.S. patent system, in which personal ownership of patents is assumed. Somehow, the Hammersla IP system is envisioned to be better than the U.S. patent system–that institutions are better than inventors in deploying their own work. It is this belief that lies at the heart of championing an aspirational IP system in place of the statutory framework we have.

In Bayh-Dole, that public benefit is established by Bayh-Dole’s statement of policy–“use the patent system to promote the utilization of inventions arising in federally supported research” and in Bayh-Dole’s definition of “practical application.” These elements create a working requirement in federal patent law for subject inventions and place limitations on the exploitation of patent property rights specific to subject inventions. The march-in provisions make evident some elements of the working requirement. The provisions on nonprofit exclusive licensing other than to small businesses–almost immediately removed from Bayh-Dole, in 1984–showed as well the working requirement. But none of this is evident in Hammersla’s talk. Yes, she cites the AAU statement on university licensing, but that’s just more administrative fluff about intention–universities should focus on efforts to “advance the public interest and public good.” Whatever does that mean? Universities should have “high-level policies” to align IP management with “public interest” and “core missions.” So, policy consistency in wording involving abstractions. Neat. Nothing in the list of points about actual practical application of subject inventions. It’s all about the administrative process of aligning administrative processes with administrative processes.

Bayh-Dole is an instrument designed to allow the pharmaceutical industry to gain monopoly access to inventions made with federal support. It operates by creating the conditions for university IP managers to take ownership of inventions, obtain patents, and pass these patents to companies as monopolies, sharing in their exploitation and passing some portion of their share to inventors, to make a show of the “reward” for participation.

The text for Bayh-Dole originated in the NIH, with help from WARF. It is a creature of IP brokers with a sure belief in the value of monopolies, and an even surer belief that monopolies in the area of public health have the potential to generate significant royalty income. And in these things, the IP brokers have been spot on. Monopolies do have value. IP brokers can make good money trading in patent monopolies. Monopolies where there is pain and suffering can be lucrative. And it may even be the case that institutions are a better front for squeezing monopoly value out of pain and suffering than any individual academic inventor, who might not have the stomach for the effort.

But in all of Hammarsla’s discussion of compliance with Bayh-Dole, she does not provide the definition of “practical application” nor that to meet this definition using the patent system, an institutional owner of a patent on a subject invention will have to do more than have aspirational policy statements or comply with petty requirements about how to keep ownership of patents on subject inventions.

It’s what’s left out of Hammersla’s discussion of Bayh-Dole compliance that’s telling. Even in the utilization reports–government secrets as they are–the point is that a contractor should report the date of first commercial sale or use. It’s not that the contractor file the report annually that matters, but that there’s actual performance, subject inventions actually being used in commercial settings. That’s the express interest of Bayh-Dole. In the law as originally passed, the date of first commercial sale or use mattered, as it started a time limitation on the duration of an exclusive license from a nonprofit to any non-small business.

a prohibition against the granting of exclusive licenses under United States Patents or Patent Applications in a subject invention by the contractor to persons
other than small business firms for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the date of the exclusive license

But that prohibition was quickly removed by amendment. Removing the prohibition, however, did not change Bayh-Dole’s general policy requirements on patent properties pertaining to subject inventions. Except, of course, if the representatives for federal agencies choose not to bother with practical application.

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