Patents and the Common Good

A delicate balance between innovation and the public interest is at risk.
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The drug company Moderna created its Covid-19 vaccine with the help of taxpayer dollars. Who gets the patents? And so who gets to decide who manufactures the drug and what it costs? If Moderna gets the patents, then we might worry about its profit incentives getting in the way of serving public health — of providing widespread access at low cost. But if the government gets the patents and sets the price low, then we might worry about drug companies having little incentive to create anything with federal funding, thus harming the government’s ability to direct research for the public good.

An important piece of legislation from 1980 — known as the Bayh–Dole Act — has provided the United States with a framework for balancing these competing interests: Moderna gets the patents, thus spurring private industry to transform scientific research into useful products it can profit from, but the government retains certain rights to help ensure the public interest is served.

The law is often criticized for the generous deals it allows for private companies. As Wisconsin Senator Gaylord Nelson put it before the law was passed, “The government ends up not only playing Santa Claus all year round. It also plays the Tooth Fairy, the Candy Man, and Guardian Angel to these giant corporations.” Proponents, on the other hand, have hailed the law as the bedrock of the modern research and development economy, with The Economist writing in 2002 that the Bayh–Dole Act might be “the most inspired piece of legislation to be enacted in America over the past half-century.” The controversy is ongoing, but has not prevented the legislation from becoming a fixture of American policy, and increasingly of worldwide policy as other nations adopt its framework.

But the technological and political landscapes have changed considerably over the four decades since the law’s passage. These changes — including shifting rules on what may be patented, a ballooning patent industry, and a growing concern among policymakers that innovation policy needs to better advance the public interest — present new challenges to the basic model of discovery and technological development that underpins the law.

Though perhaps easy to overlook as a dry, scholarly debate, the pandemic throws into vivid relief why America needs to maintain a strong legal framework that both incentivizes new innovations like the vaccines and also makes those innovations widely available for the public good. These are the stakes of the ongoing debate over the Bayh–Dole Act — and whether policymakers can address the new challenges to it will determine the law’s success in the years ahead. And although it has recently come under fire for its provisions to allow the federal government to “march in” and claim certain rights in the inventions it helps to fund, those provisions — even if poorly defined and thus far not exercised — remain essential for putting pressure on private industry to serve the public interest.

From Idea to Product

The Bayh–Dole Act — pronounced “bye dole,” and named for its Senate sponsors, Birch Bayh (D–Ind.) and Bob Dole (R–Kan.) — standardized the rules for universities and small businesses who obtain patents for research conducted with government funding. Under the law, a university or small business that receives federal funding may generally obtain patents on inventions developed in the course of that research, while the federal government reserves some rights in those patents. The funding recipient may then sell or license rights to private firms who wish to use the invention. In particular, the recipient may give an “exclusive license” to a single firm, denying anyone else the ability to use the invention for the duration of the patents, about twenty years.

Why should private businesses and universities be able to obtain patents that deny the public use of inventions for two decades, when it was the public who paid taxes to fund the research behind those inventions? The answer, and the driving force behind the passage of the law, is “commercialization.” Useful goods and services do not spring fully formed from the minds of researchers. Rather, companies must expend resources to turn inventions into marketable commercial products. Without the exclusivity of patent protection, competitors could copy those companies’ commercialization work without penalty — which would undermine the incentive for companies to ever commercialize their work in the first place. Senator Bayh worried that the lack of exclusive patent rights on the fruits of publicly funded research meant that “many promising inventions are left to gather dust on the shelves of our agencies.”

The Bayh–Dole Act was designed to overcome this impasse by allowing federal grant recipients to obtain patents, and then transfer those patents to outside firms. Prior to the law, a federal grant recipient’s ability to obtain patents on the results of government-funded research was an ad hoc contractual matter between the grantee and the government agency. Some agencies were more flexible with patent rights, while others were more restrictive. In some cases, where industry argued that exclusive patent licenses were necessary for commercialization, agencies still prohibited them. The Bayh–Dole Act standardized the rules, guaranteeing in most cases that university, nonprofit, and small-business federal grant recipients could obtain patents and sell exclusive licenses to those patents.

In so doing, the law helped establish two key premises into American science and technology policy. First, it made the commercialization pipeline the American government’s official doctrine for science policy. According to this view, federal grants fund basic research that produces incomplete inventions, which are further developed by private companies into marketable products and services. While this may seem like common sense today, it was far from the conventional view at the time the law was debated.

The idea that profitable commercial products should be the motivating end for scientific research runs directly counter to the idea that scientific researchers should be motivated by discovering truth, not by profit, and that findings should be shared, not guarded — the norms that Robert K. Merton, in his classic sociology of science, identified as disinterestedness and communality. Debate over the commercialization pipeline also played a part in the celebrated Bush–Kilgore debates over the government’s role in directing scientific research toward useful products. President Franklin D. Roosevelt’s science advisor Vannevar Bush, keeping with his preference for undirected basic science, favored patent rights for federally-funded researchers so as to encourage commercialization, while allowing for the possibility that in some cases the public interest may be best served if the funding agency retains the rights instead. By contrast, Senator Harley M. Kilgore would have vested all such rights in a federal agency. The Bayh–Dole Act, by focusing on the problem of inventions sitting on a shelf waiting to be commercialized, essentially chose the side of Bush, but it also established the expectation that federal research should be driven by the promise of downstream commercial products.

Patenting the Whole Pipeline

The second premise the Bayh–Dole Act helped to establish was a new basic justification for patent protection. Traditionally, patents have been understood as an incentive to conduct research and experimentation that lead to inventions. Profits made under a patent are a “reward for inventions,” as the Supreme Court wrote in 1944 — they are meant to reward the people who do the work of inventing new patentable ideas and products, and to incentivize the creation of more ideas and products. By contrast, the commercialization idea that underlies Bayh–Dole treats the work that happens after an invention is made as the motivation for patent protection. On this idea, patents guarantee that firms can do the work of taking a good idea and making it into an actually sellable product without the interference of competition, an idea called commercialization theory.

These two theories of patent protection are closely related, since in either case, they are concerned with offering rewards and incentives to those who hold patents. But the reward theory aims to increase the total number of inventions by rewarding inventors, while the commercialization theory starts from the premise that there is already a supply of unused inventions “on the shelf,” held by research-sponsoring institutions like federal science-funding agencies. Because such patent-holders are sometimes not well-suited to the kind of work required to bring new products to market, allowing the patents to be transferred to private firms enables the development and marketing work necessary to turn inventions into useful products and services.

Commercialization theory was a contested view when the bill was under consideration. Law professor Edmund Kitch’s “prospect theory” of patents — essentially commercialization theory — was considered novel when he published on it in 1977, and law professor Rebecca Eisenberg described Kitch’s idea as a “minority view among patent scholars” as late as 1996. Importantly, as Eisenberg explains, proponents of the Bayh–Dole Act not only had to endorse commercialization theory but also had to downplay the traditional incentive theory of patents: that the profit from the patented invention itself is the incentive for invention. The federal grant of dollars incentivizes — indeed obligates — scientists to complete their research, so the grant of patents as a second incentive for research appeared duplicative, even gratuitous. The act’s proponents thus needed to focus on a different, unfunded aspect of the research pipeline, and commercialization theory fit the bill — what needed incentivizing wasn’t the research that was already being rewarded with dollars, but the work of turning the research into a marketable product. Their arguments allowed commercialization theory to be widely accepted today: A 2018 report by the National Institute of Standards and Technology, for example, describes patents as “necessary to achieve” the transfer of inventions “from the laboratory to the marketplace…. by establishing partnerships with industry for commercial adoption.”

To be sure, neither the idea of a research pipeline for inventions nor of the primacy of commercialization were original in 1980; the economist Joseph Schumpeter articulated nearly identical concepts in his 1911 Theory of Economic Development. But the Bayh–Dole Act began to make these ideas central to innovation policy when it was enacted into law.

The effect that many commentators ascribe to the Bayh–Dole Act — that it drove tremendous growth in university research, patenting, and commercial development — is somewhat debatable. Several studies of university patents, most notably the 2004 book Ivory Tower and Industrial Innovation, observe that patent counts and licensing did increase across the 1980s and 90s, but find that the trendlines were already headed in those directions in the 1970s, suggesting that the rise attributed to the Bayh–Dole Act might well have occurred even without it. It is perhaps unsurprising that the law’s measurable impact was limited, because it did not enable university patenting per se, but merely standardized it across federal agencies.

The Growth of the Patent Industry

In recent decades, the patent industry has ballooned. One might interpret this shift as a sign that the patent system, bolstered by the Bayh–Dole Act, is doing what it is supposed to do. That is, perhaps more patents are being issued simply because more things are being invented. But the less lofty reality is that much of this growth is the patent industry expanding inward, as it were, becoming far more effective at patenting whatever it can. And this may actually undermine the law’s relevance.

In 1980, over 66,000 U.S. patents were granted; by 2019, that number had multiplied almost sixfold, to over 391,000. The number of lawyers grew rapidly as well: The Patent Office issued about 380 registration numbers per year to patent attorneys and agents in the 1980s, compared to nearly 1,300 per year today.

Both a marker and a consequence of the patent industry’s expansion is the growth of the number of patents on any given technological product. Ordinarily, one might expect about one patent per invention and perhaps a few dozen patents in any technological field. The Wright brothers largely relied on a single patent for their airplane, as did Bell with the harmonic telegraph — indeed, Bell’s lawyers successfully strategized to confuse and manipulate the Patent Office by filing three applications for patents in the hope that one or two of them would cause a holdup in the application by Bell’s competitor while the third one would be granted. Thomas Edison infamously dominated the motion-picture industry for a decade with a mere sixteen patents. Even in the not-so-distant past, small numbers of patents were the norm: Bayer’s blockbuster drug Cipro was covered by a single patent, which became the topic of much controversy during the 2001 anthrax scare, as Cipro was believed to be the sole effective treatment.

Today, by contrast, the norm is “patent thickets” numbering in the dozens or hundreds for what we may think of as a single product. As of 2011, there were reportedly upwards of 250,000 patents covering smartphones — devices jam-packed with distinct technological components, to be sure, but not a quarter million of them. Pharmaceuticals like the insulin product Humira are covered by over 130 patents.

To some extent, this patent-thicket phenomenon can be attributed to actual technological advancement, as new innovations are more complex. But the explanation that gets us much further is the increased complexity of the patent system itself. The legal maneuvers available to procure the issuance of patents have increased over the years to the point that some legal scholars bemoan “the inability of the [Patent and Trademark Office] to reject a patent application with finality.” Combined with a growing cadre of patent professionals, it is unsurprising that thousands of patents are issued every week.

The growth of the patent industry is not obviously a good thing for the Bayh–Dole Act. Many of the patents in these thickets, especially in the biotechnology space, are “secondary patents” directed toward methods of manufacturing, dosage formulations, combinations with known materials, or other improvements. These are essentially patents on commercialization itself. This is different from what Bayh–Dole allowed, which was for firms to license the patent rights to the inventions themselves, protecting the firms against competition while they brought the products to market. But the growing practice of patenting the commercialization methods seems to make the incentives provided under Bayh–Dole redundant — and perhaps irrelevant.

Commercialization vs. the Public Interest

This conclusion is hasty. For the growth of the patent industry actually shows the renewed importance of the law’s less frequently invoked protections of the public interest. Large portfolios of patents can extend the lifetime of patent exclusivity on a given technology, denying the public access to the inventions that their tax dollars funded. Patent thickets also discourage patent litigation as legal costs increase with greater numbers of patents, leaving a vanishingly small number of private parties available to champion the public’s interests against the patent holders.

To help defend the public interest, the government retains some control over the patents it transfers to federally funded researchers: the ability to use the inventions for free, the ability to compel grant recipients to favor domestic manufacturing, and so-called “march-in rights” — thus far never exercised by the government — that force the patent owner to license the patent to another company to help bring the invention to market. These provisions give the government broad powers to use Bayh–Dole patents to address public health needs, expand access to essential technologies, and overcome anticompetitive practices.

While the public-interest provisions received less attention during the debates in Congress over the law itself, they are in the spotlight now. As the cost of health care and the Covid pandemic remain top-of-mind for politicians and the public, the law’s public-interest provisions look increasingly attractive. Consider the letter of 31 state attorneys general last August calling for the government to exercise its march-in rights to force licensing of Gilead’s antiviral drug remdesivir in order to lower the cost and increase the production. Or consider criticisms by consumer and patient advocates that Moderna, a Covid vaccine producer, concealed federal funding on its patent filings, thereby obfuscating the government’s rights in those patents.

Increased scrutiny of the law’s public-interest provisions puts pressure on the law in at least two ways. The first is definitional — many of the conditions for when those provisions apply are poorly defined. March-in rights depend on a determination of whether “health or safety needs” are “not reasonably satisfied” under the patent, but neither term has been defined in the law or interpreted in the courts. Without clarity in how Bayh–Dole’s public-interest provisions work, which could be accomplished by amending the statute or by judicial decision, debates over those provisions’ applicability will remain contentious and unresolved.

The second pressure point comes from the increased attention itself — from how insiders have responded to the new scrutiny on these provisions. Patent lawyers and industry experts who criticize the idea of using those provisions contend that any diminishment of patent rights would actually undermine the act, even though the act itself contains those provisions. Some have gone so far as to speculate that invoking march-in rights to increase drug affordability would “kill the golden goose” and that the law would not “survive its 40th birthday” should those rights be used.

But of course the provisions are actually integral to the intent of the Bayh–Dole Act. In recommending the bill for passage, the Senate Judiciary Committee described the march-in rights provision in particular as “a sufficient safeguard to protect public welfare requirements and prevent any undesirable economic concentration.” And the law in total was a product of compromise. It was based on a 1976 legislative proposal that would have allowed all federal grant recipients to obtain patents, but this proposal was denounced as a giveaway to big business — “playing Santa Claus all year round” to corporations, as Senator Gaylord Nelson put it. This opposition led Senators Birch Bayh and Bob Dole to limit their bill to small businesses and universities.

The Bayh–Dole Act, through its various limitations, thus represents a careful compromise among the interests of researchers, the government, and the public. But between forceful denouncements of the public-interest provisions as lethal to the law and federal grant recipients’ attempts to circumvent those provisions, the compromise is now at risk. To be sure, those provisions have rarely been invoked, but that does not make them irrelevant. Even when they are not actually used, the fact that the government has rights in an invention can give it powerful leverage against firms — as when it persuaded Bayer to ramp up production of patented anthrax antibiotics after the September 11 attacks, and Roche to allow generic manufacturing of Tamiflu during the 2005 avian flu pandemic. Obviously, powers like march-in rights must be used judiciously, but they are not deadly to the Bayh–Dole Act; they are vital to it.

That the Bayh–Dole Act remains influential after forty years suggests the ongoing importance of basic research in driving forward technological progress. But if the law is to be effective, lawmakers must find ways to adapt it to meet the new challenges.

Charles Duan, “Patents and the Common Good,” The New Atlantis, Number 64, Spring 2021, pp. 75–82.
Header image by Ars Electronica via Flickr

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