Don’t sacrifice patent rights for politics

If you want to reverse an American success story, then allow demagogues to abuse “march-in” rights for commercialized inventions that trace back to federal research dollars.

Before the Bayh-Dole Act, federal research funding was your tax dollars only partially at work. Federal funds went into research — advancing our understanding and producing discoveries — but the government kept the practical application of this new knowledge bottled up.

{mosads}This 1980 bipartisan law, along with legislative amendment in 1984 and President Reagan’s executive orders expanding Bayh-Dole’s availability, enabled federally funded basic research discoveries to be put to practical use.

Its cornerstone is guaranteeing universities, nonprofits and small businesses secure, reliable rights to the intellectual property created under federal funding.

Government-run R&D didn’t work out so well prior to Bayh-Dole.  Taxpayer dollars funded basic research, but there was no uniform federal policy about ownership or licensing of IP rights, and the U.S. government often retained them.  As a result, hardly anybody did anything with the discoveries.

Federally funded research before the Bayh-Dole era led to the U.S. government owning 28,000 patents from research it funded.

But commercial entities used only 5 percent of those inventions, including discoveries with the potential to produce tremendous economic benefit, because the government retained and controlled the property rights.  This included owning the patent on an inventor’s discovery if his or her inspiration and perspiration were supported by a federal research grant.

Before this law, federal agencies had 26 different sets of rules controlling commercial use of federally owned IP.

Grantees had to negotiate a waiver to take title to any discoveries. They obtained title on a case-by-case basis.

The government only allowed nonexclusive licenses to its patents. 

Lack of a solid property interest in these discoveries meant uncertainty.  Private-sector developers and investors couldn’t afford that kind of risk. Thus, commercialization of these discoveries rarely materialized.

As National Academy of Sciences researchers put it, before Bayh-Dole, “[T]he incentives to pursue further development and commercialization were severely attenuated and the capacity to do so severely limited. Government agencies, in particular, had no incentive and negligible capacity.”

In other words, the problem Congress solved with Bayh-Dole was the government telling the private sector:  Yes, you may use this discovery for commercial purposes, but you don’t own it, your competitors may also get a license to it and years from now the feds may unhand your meager hold on whatever you do with this invention with your own investments.

Today, having certainty and exclusivity over the IP facilitates moving such discoveries to commercial product — of vital importance in R&D-oriented, capital-intensive, technologically sophisticated sectors such as life sciences.

Bayh-Dole uses America’s property rights-based patent system “to promote the utilization of inventions arising from federally-supported research or development,” the statute reads.

The Bayh-Dole Act, as Congress amended and President Reagan expanded, has established a social contract. Its intellectual property rights foundation makes for a win-win for taxpayers, academia, small businesses, inventors, investors, established companies engaged in commercialization, the government, and American society at large.

As a result, it’s estimated that the United States has enjoyed nearly 4 million jobs created, more than half a trillion dollars’ worth of GDP growth, thousands of start-ups, thousands of university patents, proliferation of public-private patent licensing, academic-small business collaboration, cutting-edge products that save and improve lives and raise our quality of life, and creation of new IP-based industry sectors like biotech. These achievements can be attributed to Bayh-Dole.

Bayh-Dole has also contributed to expansion of the tax base and faster progress in America’s technological advancement.  All this hinges on secure IP rights, regardless of a discovery’s connection to federal research funds at the earliest stages, well before the long, hard, uncertain, expensive commercialization phase began.

Which brings us back to march-in rights. Bayh-Dole provides a contingency under intentionally exceptional circumstances, such as failing to attempt to commercialize the exclusively licensed IP. In biopharmaceutical research, the National Institutes of Health has never exercised this option.

Political opportunists have pressured the NIH to misuse “march-in” against certain expensive biopharmaceuticals.  Years and serious dollars and variations that didn’t pan out ago, the drugs targeted for march-in derived from some federal funding.

Thankfully, NIH has so far declined such demands.  NIH explains that “the extraordinary remedy of march-in is not an appropriate means of controlling prices of drugs broadly available to physicians and patients.”

March-in for political point-scoring, well outside its very narrow statutory exceptions, would jerk out the cornerstone of the commercialization ecosystem that Bayh-Dole’s IP guarantee has fostered.

March-in would cause a crisis in confidence for use of any IP connected to federal funds. The effect would reach far beyond the pharmaceutical sector. It would set a dangerous precedent.

Further, such abuse of patent property rights would act like government price controls or government-rationed health care.  The march-in approach would dampen the private sector’s appetite for developing new IP-based products.

The aftereffects of march-in would include distrust toward licensing or patenting wherever federal research is concerned.  This will cause investors to back away. It will diminish technological advances in areas that are most significant.

The U.S. government and the American people would suffer the consequences of abusing march-in. Such action would decrease new and better goods; productivity and quality gains; associated economic growth; tax revenues from newly created jobs, sales, and profits; and the societal benefits of applying new knowledge in practical ways.

James Edwards advises Eagle Forum on patent policy. The views expressed here are his own.