The FDA really did approve federally supported drugs before Bayh-Dole

Posted on October 30, 2016 by Gerald Barnett

Joe Allen, the political coordinator behind the Bayh-Dole Act, is seen by some as an expert on the law, because, well, he helped assemble the sausage. Me, I have become something of an expert on Bayh-Dole because I have had to work under its benefits and burdens for two decades and decided I ought to get to the know the law if I was going to live that long in its house. Joe, political pundit. Me, licensing guru. Take your pick of perspectives.

I have already grumped about Joe Allen’s op/ed piece defending monopoly prices for drugs developed from compounds and methods that received federal support. I will follow some of the same ground again, but elaborate a bit with some discussion of the past history of federal patent policy and Cisplatin. Allen’s argument amounts to something rather simple and brazen–any exploitation for profit of a patent on a matter of public welfare is a public good. The exploitation is a “commercial product.” The profit motive necessarily produced it. No other motives could possibly produce something to save lives. But without a monopoly, the profit motive would not be quite enough and we would have nothing. Money would move into other things–sports betting, mortgages, technology stocks. No health-related commercial products. No therapies at all. No drugs but street drugs. We would all shrivel and die (but we’d go down with some mighty hallucinations). He doesn’t out and say this. He’s way smarter than that. But that’s where the argument heads.

Put it another way. The highest and most defensible public good is when the public good consumes itself for the wealth that can be wrung out of the public. Continue reading →

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Use Bayh-Dole 35 USC 202(a)(ii) to deal with (future) drug prices

Posted on October 29, 2016 by Gerald Barnett

The Washington Monthly has a new article out by Alicia Mundy on high drug prices and Bayh-Dole. Mundy reports on efforts to use march-in procedures under Bayh-Dole to force lower the price of drugs that were developed with federal support. There’s substance to the argument. James Love has a well documented petition to the DHHS that makes a strong case, too.

Perhaps. But it will take more than an executive order that changes federal agency policy for march-in, since the basis for march-in is hardwired into 35 USC 203. Furthermore, the awful (and university patent broker influenced) implementing regulations for march-in (37 CFR 401.6) are so bad that even if an agency tried to march-in–with a legitimate cause–an offending contractor (or licensee) could stall the process for years.

An executive order might require federal agencies to use march-in whenever there appeared to be reason (such as for all the subject inventions that have never been licensed–free the 99%, at least!). But it is difficult to see how march-in criteria, as they are written, can reach to high drug prices where there is widespread availability. The criterion that folks want to use is this:

action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

Read carefully: the action must be (a) necessary (not discretionary); (b) must alleviate needs (not wants–cf. Mick’s comment); that are (c) not reasonably satisfied by the private patent owner and crew.

Is a need “reasonably satisfied” if something is available–Xtandi, say–for $120K a year when it could be sold profitably for $5K? There’s a lot riding on “reasonably” here, especially if drug companies argue that it costs hundreds of millions of dollars (billon!) to do the clinical and formulation work to develop a new drug (and get to bill the costs of all the failed compounds against the winners as well). In the case of Xtandi, it appears the total cost of development was under $500m. In the first three years of sales, the drug has paid off its development cost many times over. Nice.  Continue reading →

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Bazooka or Squirt Gun?: Working through 35 USC 200

Posted on October 29, 2016 by Gerald Barnett

Bayh-Dole gets at monopoly pricing through patent law, not licensing restrictions.

Bayh-Dole is a part of federal patent law, not federal procurement regulations. This was a big change from the prior practice, including the Institutional Patent Agreement program. Unlike the IPA program, which operated under an executive branch policy to govern what federal agencies should require or allow with regard to inventions in any funding agreement, Bayh-Dole moved things to Congress. The IPAs were under a Presidential procurement policy that attaches to federal agency contracting. Bayh-Dole is under a Congressional policy that defines the property rights that attach to patents on subject inventions–in addition to placing requirements on federal agency contracting.

I’ll repeat. The former executive branch policy concerned rights under contract. Patents on subject inventions were ordinary patents with contractual liens on their use. The new legislative branch policy is embedded in patent law itself and concerns both the scope of property rights in patents on subject inventions and contractual liens on their use.  Continue reading →

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Research Monopolies and Development Monopolies

Posted on October 28, 2016 by Gerald Barnett

Here is one thing that I don’t understand about the standard distinction between research and development and how all this fits into ideas about commercialization.

Let’s say that research produces a result that is immediately useful. Isn’t the research then development? And consider development. Let’s say I have got an invention–new, useful, and non-obvious, patentable subject matter, and all that. It’s already useful, but it’s not in product form yet. So am I doing “development” to make it into a product?

Let’s say so. But what does that mean? If I have to mess around with variations–different materials, different designs, adapting it to manufacturing processes, making it easy for someone to use, making it safe, complying with regulations–then what happens? If all this messing around is not obvious, then am I doing research again? And if I figure something out that’s not obvious, then aren’t I on the borders of inventing all over again–this time more interesting stuff because it’s supposed to be even more useful than the first stuff?

And if the work before me is obvious–just a matter of doing–then what’s the big deal with development? It’s just standard stuff. Some tests and QA, but mostly just doing the obvious. Why does such development need funding–or a definition?

Consider then a common university patent administrator claim about exclusive licensing. Continue reading →

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Research and Development

Posted on October 27, 2016 by Gerald Barnett

In 2 CFR 215 (Circular A-110), we find definitions of research and development (dd):

Research and development means all research activities, both basic and applied, and all development activities that are supported at universities, colleges, and other non-profit institutions.

This first part seems just to gather in terms–basic and applied, development–and restrict them to federal support at nonprofits. But there’s a subtext–all research is lumped together. Frontier research is no different from a clinical trial, from testing, from mating mice. As such, that’s a bit of policy drama in itself. How far we have fallen from Vannevar Bush’s efforts to distinguish the environment for frontier research from that of other forms of activity. Now it just looks like a boring definition that doesn’t say much at all. Continue reading →

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Bayh-Dole, the love monster of patent attorneys and speculators

Posted on October 26, 2016 by Gerald Barnett

Joe Allen has written a new piece warning of the dangers of trying to use Bayh-Dole march-in procedures to control drug prices. And he has a point–the Bayh-Dole march-in procedures were not designed to deal with pricing. In fact, the march-in procedures were designed not to work at all! The distinction to be made is between what folks like Norman Latker and Howard Bremer intended when they designed the march-in procedures, and what we must determine Congress intended when it passed the bill. Premise: Congress did not intend what Latker designed. The march-in procedures end up being an apparatus with no purpose but to give the appearance of public oversight. They have never been used. It is almost impossible for a federal agency to use them. They likely never will be used. If Latker and Bremer designed march-in so that it would never be used for *anything*, then they designed march-in so that it would not be used for pricing. Does the logic get any more direct? and yet, isn’t this a strange use of logic?

The reality is that Bayh-Dole authorizes federal agencies to march-in to address unreasonable terms. Price is a term. If price is unreasonable–not “high” or “unaffordable” but rather higher than what one would expect if there were competition even if a patent is used to suppress competition–then march-in is authorized. Thus, it is clear that march-in can be used to address unreasonable pricing, and the alternatives introduced–competition, so the theory goes–will address unreasonable pricing. If it doesn’t, then take a look at price-fixing.

But Joe Allen makes a few other assertions along the way that are worth examining. I will be brusque.

Allen claims

Not a single new drug had been developed from NIH funded research under the patent destroying policies preceding Bayh-Dole.

This is not true. Instances: Methotrexate, Cisplatin, MOPP. The policies before Bayh-Dole were not patent destroying. At worst, those policies prevented the creation of private monopolies around inventions that were made in projects dedicated to the public welfare. It takes some balls to argue that the public welfare depends on the formation of massive private monopolies to jack earnings 10x over what they would be with competition.

Take it further. March-in does not destroy a patent–it changes how a patent holder is compensated for the patent. Instead of selling directly, or licensing to only a single company to make and sell, the patent holder must grant licenses, or more licenses. For each license Bayh-Dole provides that the patent holder should enjoy “terms reasonable under the circumstances”–that would include reasonable compensation for the use of the patent, just as one would find for unlicensed government use of patented inventions under 28 USC 1498. Only if a patent holder refuses to grant such licenses on reasonable terms may the federal government grant licenses itself, on whatever terms the government chooses (which might not involve any compensation to the patent holder). March-in, then, changes the patent holder’s strategy for exploiting its patent position. It does not destroy the patent, it does not mean that the patent holder cannot make any more money.

Allen claims

The successful integration of public research institutions into the economy is based on the Bayh-Dole Act, which inserted the incentives of patent ownership into the government R&D system.

This is nonsense. Continue reading →

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Bayh-Dole and the Keys to the Gates of Heaven, Part 2

Posted on October 26, 2016 by Gerald Barnett

There are plenty of people who have not adopted the usual narrative regarding Bayh-Dole. They may not have heard of Bayh-Dole, and they might not know much about university research, other than that there sure seems to be a lot of it, and something ought to come of it that benefits us folk generally. And there are science policy experts who ought to be disciplined enough to stand apart from service to the status quo and question the usual narrative, if only to present alternatives and show the possibilities of choice. To some extent, that is what is happening with the present flurry of statements denouncing Vannevar Bush’s ideas about the role of “basic” research. My dispute with the pundits is not that Bush was infallible, but rather that they are getting wrong what he was trying to get at–and thus, their attacks tend to preserve the status quo rather than show an alternative to it–and one of those alternatives is what Bush proposed and did not see happen.

The important thing about science policy in a democracy is that it is a matter of public choice. This consternates some people who want science policy to be the domain of elites, or at least scientists, especially when it comes to the uses of science–the technology–which Feynman describes as one of three popular accounts of science (the other two are the methods of science and the knowledge produced by science). The problems of the use of science–of technology arising from the work of science–are not quite themselves science: Continue reading →

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Bayh-Dole and the Keys to the Gates of Heaven, Part 1

Posted on October 25, 2016 by Gerald Barnett

Overcoming a usual narrative is takes tremendous work. There are many arguments against doing so: the received view is true; working against best practices can create liability or distrust; challenging the status quo can hurt one’s career; refusing to accept the obvious is foolish or spiteful or stupid or unhelpful. Trying to develop any other view is seen as unhelpful, if not clueless or idealistic. Even if there are alternatives, so the argument goes, they are impractical and there’s no point in diverting any resources to them.

Stewart Kauffman discusses the problem of “local maxima” in a number of his books, including Investigations. Imagine any world of phenomena, where a given method or tool achieves some benefit. As we develop the method or tool, we work our way up a gradient toward the maximum benefit for that tool. Our knowledge becomes detailed and sophisticated. We strive to improve. But as we focus on our advantage, we also tend to ignore the possibility that there are other methods and tools with even greater advantage–other maxima that we haven’t tried and may not even have imagined. How do we get to these other peaks, once we are already some good way up the one we are on? Ah, we would have to go down, find a valley–find a deep valley in the solution space that might be at the base of other maxima–and try climbing again. Continue reading →

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Behind the Usual Narrative, Part V

Posted on October 24, 2016 by Gerald Barnett

Universities Help to Make the Problem

Universities created the federal contracting mess for basic research by insisting that the federal government not concentrate contracting authority in a single agency set up specifically for providing grants under the most liberal patent policy short of outright donation of funds. Instead, their advocacy for funding from all directions led to various agencies adopting different requirements suited to their particular purposes and assessment of the “public interest.” There is little doubt that contracting was a mess. The aerospace industry complained about the situation in 1963, for instance. So did big pharma. So did universities.

But the variations with regard to invention administration were not particularly problematic, other than that some federal agencies took a long time to decide whether to allow a private monopoly in any given case. As one commentator put it (in 1964):

Experience has taught that contracting officers are loath to process requests for deviations and when they do the requests mire in administrative procedure, are generally opposed by interested departments and are so time consuming that contract performance may have been completed before the almost inevitable denial is received.

But universities deal with many sponsors of research–companies and foundations, each with its own expectations, requirements, and practices regarding inventions, data, reporting, publication, payment, and termination. Even if all federal contracts were exactly alike, there’s no way that all other sponsors will also agree to use the same form–even if a university sends out its preferred template research agreement. Continue reading →

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Ordinary and subject patent monopolies

Posted on October 23, 2016 by Gerald Barnett

Here’s a diagram that might help discussions of patent rights made with federal funding. A general monopoly A operates without any constraints of law, and in particular without regard for anti-trust law. Thus, such a monopolist may exercise ranging power, including power through the courts to enforce contracts and property rights without limitation for public policy, market power, or scope of claim.

patumbs2

A patent monopoly P, by contrast, is constrained by the Constitution, by the provisions of federal patent law, and by anti-trust law. A patent monopoly concerns only certain subject matter, excludes other subject matter (laws of nature, surgery methods, perpetual motion machines, stuff that’s not new, useful, and non-obvious), and runs for a limited time (presently, 20 years from application date). A patent monopoly is further limited by various matters of public policy–restrictions on tying and price controls, for instance–and by anti-trust concerns having to do with competition and effects on markets.

A patent monopoly on a subject invention S–one made under a federal research contract and owned by a contractor–is more limited still. Bayh-Dole restricts assignment and licensing, and requires extra procedures to go through to secure ownership clear of government claims to title. And the government must have a non-exclusive right to practice the invention. So the government is exempt from any private monopoly practice. But there’s more to a subject invention monopoly. Continue reading →

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