Bayh-Dole’s anti invention-flipping provision for nonprofits, or where’s that $250B?

Posted on October 1, 2021 by Gerald Barnett

Let’s look at Bayh-Dole’s anti-invention flipping protection of the public, aimed at nonprofits. Here’s the text, at 35 USC 202(c)(7)(A):

In the case of a nonprofit organization,

(A) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency,

except where such assignment is made to an organization which has as one of its primary functions the management of inventions

(provided that such assignee shall be subject to the same provisions as the contractor);

This provision has four elements, which I have marked out by introducing blank lines:

[1] directed at nonprofit contractors

[2] assignment of US rights requires federal agency approval

[3] except assignment to an invention management organization

[4] if the assignee complies with the nonprofit patent rights clause

Bayh-Dole requires federal agencies to use this clause in all funding agreements unless they can justify something else. The clause then shows up in the default patent rights clause at 37 CFR 401.14(k)(1):

If the contractor is a nonprofit organization, it agrees that:

(1) Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions, provided that such assignee will be subject to the same provisions as the contractor;

The CFR version is almost the same as the USC version, but replaces the use of parentheses with a comma–which makes one wonder whether anything substantive is going on. Continue reading →

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The use of the patent system for federal research results, 13: The failed middle ground

Posted on September 29, 2021 by Gerald Barnett

We’ve looked at the early Federal Security Administration policy on inventions made in federally contracted work–FSA order 110-1, issued in 1952. The government’s policy as set forth in David Lloyd Kreeger’s report for the Attorney General in 1947 was that inventions owned by the federal government should be made available condition-free and payment-free to all citizens, and that where “development” of an invention was needed to meet a public purpose, the government should fund that work. As for federal ownership of inventions made by federal employees, the Supreme Court in Dubilier in 1933 said that this was a matter for Congress. President Truman, however, used an executive order, 10096, in 1950, to establish executive branch patent policy for federal employees.

But where was the policy mandate for the government to acquire inventions made in federally contracted work? Should the government take title to such inventions and make them open access, following the Attorney General’s recommendation? Or is just a license enough? In Science the Endless Frontier (1945) Vannevar Bush devoted a chapter to patent policy for his proposed National Research Foundation, arguing that a government license was sufficient for inventions arising in federally supported work intended to advance the frontiers of science. But what about other work? What about work that asks a company to modify product it already has for a government-specified requirement? Why should the government obtain any inventions made in that work as deliverables, forcing open a line of development that the company might otherwise have done anyway and had rights to? Why would a company do anything for the federal government in such circumstances? Continue reading →

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The use of the patent system for federal research results, 12: Never again a Vannevar Bush

Posted on September 20, 2021 by Gerald Barnett

We have been working through FSA order 110-1, an early–pretty much the earliest–federal policy on inventions made in federally funded work. Why? The imp of this policy’s approach to inventions, rights, open access, and patent monopoly haunts subsequent policy discussions all the way through to Bayh-Dole. In a sense, 110-1 sets up the Bayh-Dole argument that patent monopolies without public protections are key to the development of inventions made in federally supported work into products that benefit the public. The Bayh-Dole argument is wrong–wrong in practice, wrong in reasoning, wrong in outcomes–but being wrong isn’t much of a big thing when it comes to the politics of “innovation.”

FSA order 110-1 on inventions made in federally funded work states a preference (open access), reserves the option to restrict access (to use patent exclusivity–but only when necessary for adequate commercial development and distribution, or if restricting access would be necessary for better development and widest distribution), but with a procedure and standards to guard against excessive royalties and unreasonable conditions. It’s just that the policy imagines a procedure without giving thought to the problem of whether any procedure is possible (of the form: procedure to win the lottery by purchasing the correct tickets) and the determination to restrict open access similarly lacks guidance. The overall effect of the design of “open access except when you go through bothersome procedures to do so” takes on the appearance of “really should restrict open access (nudge, nudge, wink, wink) except you have to go through bothersome procedures to do so.” Continue reading →

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Dr. Irene Till, Pharma Monopoly, and the Bayh-Dole Heist

Posted on September 1, 2021 by Gerald Barnett

In a recent Twitter post, Prof. Richard R. John at Columbia University (@RrjohnR) asks for suggestions for a bibliography of “scholarship on the history of anti-monopoly since 1945.” One respondent cites Elizabeth Popp Berman “Why Universities Patent” (well, Prof. Berman cites her own work, which is fair) and another respondent cites David Mowery (et al.) Ivory Tower and Industrial Innovation, along with a mention of Bayh-Dole. Both are useful works in their way. Mowery, especially, makes the case that Bayh-Dole was not the watershed that has been claimed for it, that universities were patenting (via their foundations and Research Corporation) before Bayh-Dole, and the growth of patenting did not quicken with the passage of Bayh-Dole.

What we have now, however, is 120,000+ U.S. utility patents held by universities and their proxies, 50,000+ of which cite federal funding, mostly unlicensed and of the relatively few that have been licensed (<20%), most of these have not resulted in “practical application” or commercial use, and of those relatively few that have, a number involve products not reasonably priced or universities and their proxies acting as patent trolls aiming to apply a private patent tax to use of inventions that did not have any need of patent exclusion to justify development and even took place in the presence of such patents and the implied threats by universities that they would sue.

Compare this situation of massive withholding of inventions made at universities with Howard Forman’s undocumented claim that the federal government held 26,000 patents. But those patents were made available to all. Only a few hundred were “licensed”–in situations in which the government imposed conditions to protect the public, as in the case of possible medical uses. Agencies did not keep records with regard to “commercialization” based on patents because commercialization wasn’t the goal for any given invention, and licensing (especially exclusively, to a single private agent) was not considered viable. As Admiral Rickover made clear, most of those 26,000 patents were for inventions that defense contractors had passed over, and the patents played a “defensive” role, making public the subject matter of the inventions, raising the bar in the prior art for future patenting, and creating a broader commons from which defense contractors could draw in competing for federal work.

But there’s another angle on Bayh-Dole and monopoly, that gets closer to home and more personal. Continue reading →

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What Bayh-Dole has stolen from us

Posted on August 30, 2021 by Gerald Barnett

In an article published August 29, 2021 in The Intercept, Alexander Zaitchik describes the passage of the Bayh-Dole Act as “The Great American Science Heist,” with the subtitle “How the Bayh-Dole Act Wrested Public Science From the People’s Hands.” He has a point. The premise behind Bayh-Dole–the work of government patent attorneys–is “we have to take rights away from the public (and from inventors) in order for the public to get anything ever at all from federally supported research.” Must be something taught in law school, because otherwise it doesn’t make any sense. (Oh, and if you don’t think that was the premise, then out with it–just what was the secret other premise?)

Early in his article Zaitchik writes about Admiral Rickover’s Congressional testimony regarding government interest in inventions made in federally supported work:

Speaking before the subcommittee, Rickover railed against the proposed policy changes. “Government contractors should not be given title to inventions developed at government expense,” he said. “These inventions are paid for by the public and therefore should be available for any citizen to use or not as he sees fit.”

A few sentences later:

It befuddled and angered him that the U.S. government would consider giving up its own shop rights to industries that would never do the same.

Let’s pause here and unwind this point. There’s actually a lot going on. Continue reading →

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The use of the patent system for federal research results, 11: Safeguards that don’t guard

Posted on August 18, 2021 by Gerald Barnett

We have been working through Federal Security Agency order 110-1, which in 1952 introduced an agency-wide policy for inventions made in public health research. The core of the policy was to prefer open access for all such inventions, but then the policy goes on to say that in some cases maybe exclusive rights might be better, so long as there are safeguards that go with those exclusive rights. Federal officials have been fighting about this fork ever since. Bayh-Dole happened when those opposed to open access as the default slipped something through.

FSA order 110-1 added two more features. First, it designated the unit heads to make decisions in those cases in which there was some doubt about whether exclusive rights might be better. That sounds good, but it’s like putting in place a procedure to pick the winning lottery ticket, designating unit heads to do the picking–all that’s needed is that they follow a procedure. Considered this way, it’s just dumb and would appear dumb if it weren’t wrapped in administrative rhetoric. It’s difficult enough to see the future and all the contingencies of intellectual property rights, but it’s not much possible when one asks a federal agency unit head to do the seeing. How would anyone know in advance whether allowing a private contractor–eventually, perhaps, a for-profit company–hold exclusive patent rights in a given invention will result in adequate commercial development and no other alternative will not (that’s the force of the necessary in 110-1’s way of putting things)?

Even if one tried open access and there was not adequate commercial development to support widespread distribution, it’s still not necessarily the case that patent exclusivity is necessary so that there will be such development. One would still need to evaluate a range of alternatives, such as the federal government itself funding development for widespread distribution, as the Attorney General recommended in 1947. That was a reasonable recommendation given the arguments the Attorney General made against the federal government suing citizens for use of inventions, playing favorites with companies, policing license agreements, taking a financial interest in exploiting inventions made in work to address public needs, and putting the force of the federal government behind efforts to exclude all others from practice any such invention. If FSA 110-1 makes widespread distribution a purpose of the federal government, then what is it that prevents the government from also doing the development work? Continue reading →

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The use of the patent system for federal research results, 10: the drivers that eventually produce Bayh-Dole

Posted on August 13, 2021 by Gerald Barnett

There’s the version of the theory of patent rights that asserts that exclusionary practice is at the heart of the value of a patent, and any practice that declines to assert a patent wastes that value. This theory of exclusionary value requires that the holder of the patent have no other alternative to gain value from a patent, or from an invention, or from the results of research, or for what has been learned or realized from doing the research, or even from doing research at all. If one is determined to extract maximum value from a patent, then (so the theory goes) all other potential ways of gaining value are necessary worth less. For this theory of patent rights, excluding all others to dominate the claims of a given invention is the maximum value possible.

If, however, a given inventor has other potential ways of realizing value from an invention (or research results, or research, etc.), then exclusionary value is the best value, if not the only value, an invention might bring becomes something more of a demand than a statement of fact. For instance, an inventor might find in the value of patent something to contribute to a standard, and so gain a seat at the table, as it were, in discussions of a technology roadmap in which the invention is sure to be used. If use is the inventor’s goal, from which might arise intangible assets such as reputation and access to talent, attempting to make money by excluding all others would appear uninteresting, if not counterproductive. By excluding all others, a patent holder provides motivation for all those others to avoid the invention, design around it, block its application, exclude it from platforms, libraries, and standards, and undermine it. Or they go ahead and infringe, meaning that a court will decide what a reasonable royalty should be, given that the patent holder refuses to license or fails to offer reasonable terms. Continue reading →

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The use of the patent system for federal research results, 9: Exploiting the FSA policy safeguards

Posted on August 10, 2021 by Gerald Barnett

The earliest major federal patent policy, FSA policy 110-1–for public health research, no less–sets up a process by which the head of each “constituent unit” of the FSA is to make a determination in each case whether the use of the patent system is necessary to achieve “adequate commercial development” to make an invention in public health research widely available. The policy then elaborates that this determination is to decide if use of the patent system is necessary so that a single company may “more adequately and quickly” develop an invention for “widest use.” There’s a huge difference between the initial statement and the elaboration. The first standard depends on evidence–consider the invention, its status, its possible uses and by whom, what needs to be done to enable those possible uses (if anything), which for some reason the government chooses not to support, and why if multiple companies have an interest in doing some aspect of that development work (or might use the invention without the need for any development work), it still is *necessary* to use the patent system to exclude them in favor of–this is the theory part–a single company, not yet identified.

In this first standard, it is almost impossible to find that it is necessary to use the patent system–the government cannot support needed development, no companies are willing to do the development, but there’s still an unmet public health need that someone ought to address, using exactly this invention (and not some other thing), and once someone does start work, it would be unfair to that company for anyone else to also start work, or to benefit from that work once it has been done–and worse, that even that one company won’t ever start work unless it is assured that no other company will be permitted to work on any aspect of the claimed invention, even aspects that the first company in is not working on–a different health condition, a different formulation, a different means of delivery, and the like.

And that it is difficult makes a degree of sense–if there’s an unmet public need (a potential “market” if you will), and doctors, public health organizations, and your basic bustle of companies are not able to meet that need, and yet the need is not so compelling that government feels the need to step up and fund whatever development is needed, then perhaps, having exhausted all other approaches to recruit foundations, institutes, and companies to do the development, the FSA might then set about recruiting a single company to do the work, not with federal funding, but with a patent and the prospect of recovering the company’s expenditures from a monopoly position in that “market” for seventeen (now twenty) years. The issue would be, only, how the company behaves in that market as the sole player–can it exploit that public need to charge higher prices or to slow walk additional improvements or to limit availability to reduce its marginal costs to reach outliers and remote patients? Continue reading →

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The use of the patent system for federal research results, 8: Exploiting the use of the patent system

Posted on August 5, 2021 by Gerald Barnett

FSA policy 110, the first agency attempt at making a policy to deal with inventions made in federally supported public health research, tries to establish a middle ground for the use of patents. While clearly endorsing open access, including royalty-free licensing, as one possibility, 110-1 does not end there and goes on to open up the prospect for the disposition of inventions that does not involve open access, such as assignment of the invention or exclusive licensing which may also make an assignment). And 110-1 does not contemplate what might happen if an assigned invention then fails to be used or benefits made available to the public, or if made available, not on reasonable terms.

To enable this middle ground beyond open access, 110-1 requires FSA officials to “find” something out–make a determination (based on evidence and reasoning, say)–that some non-open approach will be “better” than an open approach. How does such “finding” come about? How does one look into the future and determine, “whoa, in this case, open won’t work as well as allowing an inventor or contractor to hold exclusive rights via the patent system.” On the face of it, such a determination is difficult, and for federal agency officials, we might say nigh unto impossible. But the words of the policy make it sound straightforward, official, a matter of procedure. That’s typical of bureaucratic policy drafting style.

Sure–one could release open access, on the condition that if no one is making an effort to scale up for adequate commercial development for widespread distribution (slowly: there’s an unmet public demand, that demand is widespread, and it is not the government’s responsibility to meet that public demand, even though it is in an area of public health), then the FSA might allow a contractor, even though the contractor also (necessarily, given the premise) has not made an effort, to use the patent system to exclude others that would then scale up commercial development to copy what the contractor aims to do. Even this is a mess. If the contractor has not scaled up under open access, then why should the contractor be the one getting the benefit of patent exclusion? Why not make it a matter of public bids to do the work? If the contractor is deliberately holding out for the right to excludes others by patent before scaling up, then perhaps the contractor is souring everyone else’s interest in working under open access–not publishing data and know how, not responding to inquiries, not allowing others to inspect lab set ups and materials. In such a case, a contractor would appear to have an organizational conflict of interest in supporting open access work, in the hope of getting authorized to use the patent system to exclude all those others. Continue reading →

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The use of the patent system for federal research results, 7: Failure of FSA 110-1 to establish a middle ground

Posted on August 4, 2021 by Gerald Barnett

Let’s look more carefully at this second possibility beyond the possibility of open access–and where the “generally” in FSA 110-1 gets triggered to make at an attempted middle ground between always open access and full-on use of patents to exclude all others to maximize the financial return on holding a patent. The gist of 110-1’s provisions is that publicly funded work ought to be, in general, open access, but there might be “some cases” in which patenting is “necessary.” But in those cases, there ought to be some public protections so that the use of the patent system does not involve “unreasonable restrictions” or “excessive royalties.”

Here, even stating these conditions means that the conditions must be something other than what would be illegal and contestable under the law. These conditions are not about fraud on the patent office, illegal tying, price fixing, and the like. These conditions must be something else, addressing practices that are otherwise legal but are not appropriate in the context of inventions made in work receiving federal support. “Excessive royalties” then ought to involve patent holder demands for money that discriminate among licensees, or significantly raise the price that would otherwise be charged, or limit companies from taking a license, or permit an exclusive licensee from charging more than it would charge if there were multiple suppliers. That sort of thing.

“Unreasonable restrictions” then ought to include preventing licensees from making variations and improvements, preventing or poisoning sublicensing by an exclusive licensee, requiring grant backs of improvements and related assets, and even simply suppressing use or refusing to license or even suing for infringement merely because someone is making or using or selling something that practices some bit of the claimed invention. After all, the goal of the policy is use of inventions made in FSA-funded work. Infringement is use. It is an unreasonable restriction to stop use solely based on holding a patent right in an invention made in public work.

Think about it. If there is use of an invention, without the need for a patent, and even in the face of a patent held by a nonprofit, then that invention was not in the class of “in some cases” for which use of the patent system is “necessary.” It is a mistake patent. To obtain a patent then is a financial risk that a nonprofit begging to retain patent rights has to run. If the patent on a given invention turns out to be a mistake patent, then the nonprofit ought to do a better job assessing whether the use of the patent system is necessary. It is the nonprofit, after all, that must beg for the right to patent. The FSA policy does not force use of the patent system on contractors. Continue reading →

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