Commercialization of University Research Threatened by Proposed State Legislation 

By Chris Gallagher
November 29, 2016

“The US patent system adds the fuel of interest to the fire of genius in the discovery and production of new and useful things.”

Running towards a carrot tied to a Pinocchio nose, falling off a cliffAbraham Lincoln’s famous description of our patent system’s merger of invention’s “fire” with “thefuel of interest” poetically describes commercialization, our innovation ecosystem’s prosaic journey from patent-to-product. The patent system protects innovation’s early stage development and promotes technological progress by publicizing patents’ content. It carefully balances exclusivity with technological progress. Because the system’s tendency is to tilt too far towards patent holder protection then not far enough, patent law’s history of congressional and judicial tinkering has repeatedly tried to adjust and readjust that  balance. Conflicts about the proper placement of the see-sawed fulcrum between patent holder protection and promoting progress often pits patent intellectual property’s strength against the efficient advancement of knowledge. Beneath this see-sawed surface, this conflict also reflects opposing views about excessive market capitalism verses nanny-state socialism. Recurring outbreaks of patent system warfare pitting patent protection against access to patented products are often really about conflicting views regarding government’s role addressing growth, economic justice, human rights, and fairness.

Captured by a coalition of deep-pocketed special interests and social activists, today’s patent system’s tilt away from patent reliability toward broader access is deterring technological progress. Patents have become less reliable. Their enforcement is restricted to the rich. Investment in the development of patented technology has become more risky. Our patent system is institutionalizing incumbency instead of enhancing the progress of disruptive innovation. Private sector “fuel of interest” capital isn’t flowing towards Lincoln’s “ fire of genius”. Promising results of research universities are more frequently stranded on researcher shelves because developmental support is less frequently committed to Bayh-Dole-based public/private partnerships. SCOTUS, AIA and USPTO regulations and interpretations have undermined investability by increasing ROI uncertainty, especially after its costs are sunk and expensive development has been successfully completed. While Lincoln’s “fuel of interest” flow is slowing, newly proposed model state level legislation threatens to shut it down completely unless a DC lobby’s preferences are accommodated. And unless pro-patent forces defeat this bold initiative, shriveled by uncertainty, Bayh-Dole investment flow may dry up .

Public/private sector partnerships begin with our national innovation ecosystem’s annual congressional investment of $130 + billion dollars in otherwise un-investable scientific research. These innovation pump-priming funds pass though federal grant agencies and are distributed to support scientific research initiated in national labs and research universities. Basic research seeks scientific truth. Its commercial utility is too remote to attract prudent private-sector investment. Funding critical basic science thus requires government support. But when commercially promising results emerge from such research, private investment risk is lowered, discoveries are patented, then transferred by license to the private sector. Commercialization of these inventions and discoveries makes then available for public use, justifying Congress’ original appropriations while leveraging private development expense at levels dwarfing by comparison the original federal grant. Significant implementation cost savings are achieved through the virtuous cycle of such decentralized initiatives. US government research funding grant agencies like NSA, DOD and NIH rely on the Bayh-Dole Act to convert their congressional funding into public benefit. Bayh-Dole’s market-based public private partnerships do not always attract private investment. Sometimes target markets are too small or too crowded to recoup the costs of a patented product’s development and adequately reward the investor’s risk.  But it works often enough to have moved the U.S. economy to its global leadership.

Touting the efficient flow of knowledge, left-leaning anti-exclusivity enthusiasts believe Bayh-Dole’s public private partnerships are over-used. They want Congress to weaken patent reliability. They want to deny patent holders access to patent enforcement. Distrusting markets, they want central government to financially provide all of commercialization’s “fuel of interest“ regardless of its added cost and distributed creative initiatives that our system now enables. Occasionally aided by the political tailwinds of unmet health care needs, product pricing abuse, or simply by their belief in socialism, some propose increased  open-source licensing and dividends, predetermined prizes or other exclusivity-free commercialization mechanisms that would trade broadened access to patented technology for future loss of technological progress. The recently released Report of the UN High Level Panel on Access to Medicines would cripple Bayh-Dole-based commercialization by replacing its attraction of profit-driven incentives with centrally selected government rewards financed by more taxes. Similar anti-market programs are repeatedly promoted by intellectual luminaries like Lawrence Lessig and Joseph Stiglitz. Political activists like Jamie Love at KEI and other socialist activists promote “delinkage,” their term for separating research and development costs from biopharma product pricing. Supported by dues and ad hoc “contributions”, other DC enterprises like the Electronic Frontier Foundation (EFF)) urge the adoption of fully funded government-managed commercialization in service to select constituencies.

The EFF is a huge DC trade association. It advocates for “digital freedom”. As digitization spreads, EFF spreads with it. Its comprehensive but argumentative website is persuasive.  One of its current targets is “Software Patent Busting“. And its preferred commercialization methodology is open-source licensing. Recently EFF became riled-up about research university Bayh-Dole based commercialization. They claim that universities are weaponizing patent trolls by licensing them to sue unsuspecting users of infringing technology. We don’t know why they are so angry at universities, but we know that Mark Lemley (Big IT Tech’s “man behind the curtain“ in the Oz-like fantastical world of patent troll predation) sits on EFF’s Advisory Board. When Big IT Tech rolled out its troll campaign in order to reform our “broken” patent system, EFF declared “me too!” joining the fight to enact HR 9 and S 1137, big IT Tech “efficient infringement” litigation damages insurance. These patent litigation measures are a bit remote, even for EFF’s overstuffed portfolio of congressional causes. More significantly however, EFF has involved itself in state level troll-curbing “demand letter” laws. First enacted in Vermont, these measures have now been enacted in 32 states.  EFF’s Capitol Hill objectives still include enacting HR 9, S.1137 and their counterparts to come.

Having partnered with state anti-troll interests so recently, EFF is credibly immersed in its continuity. Its earlier alliance with Main Street small business and its high-powered digital resources will provide formidable state firepower to their anti-troll objectives. Significantly, EFF’s earlier demand letter alliance with the influential National Council of State Legislatures also will hold it in similar good stead. see, P 31.)  EFF’s Reclaim Invention Act, Draft Model Statute  may seem an odd approach to folks in DC but when lined up with a state-level lobby of IP-uninformed and angry local businesses lobby, state legislators will be impressed. So notwithstanding EFF’s effectiveness on the Hill weakened by its issue multitasking, it will have stronger standing in state legislatures. Its research university troll-targeted sanctions proposal therefor must not be taken lightly. Beyond the law’s ironic fiscal resemblance to patent troll “do what I say or pay”  troll conduct, the Model Law’s enactment will add even more uncertainty to private sector investment in early stage innovation. Worse, because of its open-man-hole patent nullification mechanism stationed at costly commercialization’s successful endpoint, pure licensing firms like Qualcomm, and research universities will be exposed to expanded freeloader accessibility as another nail of uncertainty is pounded into the coffin of patent exclusivity.

Aping laws that punish drug users instead of drug dealers, EFF now wants to weaponize state deficit hawks by more cuts to state support for universities. It also wants to provide “patent busters” additional means to competitively nullify patents after their subject matter has become marketable. The Model Act amends  Bayh Dole to aid Big IT Tech’s troll campaign objectives . It chops back state fiscal support for universities that commercialize their intellectual property in partnerships with EFF-defined patent trolls, whom they define as, “ any entity whose primary business model is based on patent assertion or otherwise using patents to obtain licensing fees from practicing companies.” Keep in mind that DC policymakers have been unable to define trolls for a decade and after studying the issue for more than a decade,the Federal Trade Commission has deemed lobbyist use of troll terminology “unhelpful” see conclusion recently reached by the Federal Trade Commission. They base their case on the following conclusion:

Research universities represent one of the primary recipients of federal government funding for science. Many of those universities routinely file patents on technologies they develop, and unfortunately, many of those patents end up in the hands of trolls. They are both public and private, with standing agreements to sell patents to patent assertion entities. When patent trolls’ intentions are so often at odds with the mission of research benefiting the world, it’s worth asking: why do universities sell to them?

Describing the Act itself EFF states:

“The Reclaim Invention Act is a model state law to help ensure that state-funded universities don’t sell their inventions to patent trolls. The bill would do two things: Require state-funded universities to adopt a policy not to license or sell patents to trolls and void the sale of any university patent to a troll.”

EFF earlier tried pressuring universities to sign a petition along the lines of the new law they had drafted. It attracted about 2000 signatures.

The Reclaim Invention Act states, in relevant part:

(b) In order to be eligible to receive student financial assistance or state research funding, [State-funded university system(s)] must-

(1) adopt a policy relating to inventions, patents, patent assertion, and technology transfer that demonstrates that the university is committed to ensuring that patent assets are managed in a way that serves the public interest. To further this goal, the policy must require the university to:

(A) determine whether a patent is the most effective way to bring a new invention to a broad user base before filing for a patent that covers that invention;

(B) research the past practices of potential patent buyers or licensees;

(C) prioritize technology transfer that develops its inventions and scales their potential user base;

(D) endeavor to nurture startups that will create new jobs, products, and services;

(E) endeavor to assign and license patents only to entities that require such licenses for active commercialization efforts or further research and development;

(F) foster agreements and relationships that include the sharing of know-how and practical experience to maximize the value of the assignment or license of the corresponding patents; and

(G) prioritize the public interest in all patent assertions and patent transactions.

(2) not assign or exclusively license any Patent to any Patent Assertion Entity; and

(3) any assignment of a Patent from [State-funded university system] to a Patent Assertion Entity shall be considered void and unenforceable.

Acting through AUTM, research universities’ nationwide tech transfer trade organization AUTM, universities have not been unmindful of the PAE licensing issue issue. More than 100 universities have signed on to a Public Interest Statement that addresses these and other concerns.

“Be mindful of the implications of working with patent aggregators  Without delving more deeply into the very real issues of patent misuse and bad-faith dealing by such aggregators, suffice it to say that universities would better serve the public interest by ensuring appropriate use of their technology by requiring their licensees to operate under a business model that encourages commercialization and does not rely primarily on threats of infringement litigation to generate revenue”.

EFF’s has now concluded  that AUTM’s PAE efforts were not enough; charging that some who signed the Statement have licensed patented technologies to entities it concludes are PAE’s .

Challenging EFF’s Model Act after its enactment will be costly and time-consuming. Even if such challenges are successful they will add more uncertainty to already wobbly Bayh-Dole commercialization. Whether State laws nullifying patents while dictating statutory commercialization procedure will be preempted under federal law is typically unconcerning to state legislators who prefer to act politically and leave the law to be sorted out later by the courts. Their judicial unravelling will take time and considerable expense.

Can the EFF’s Reclaim Invention Model Acts become state law? There are many factors characteristic of state legislative activity that say the Model bill may be accepted and enacted by state legislatures.

  1. It could easily be buried in end-of-session “must pass” budget bills.
  2. It concerns state budget issues clearly within state prerogatives.
  3. Fear of budgetary retaliation, of contending with Main Street businesses, or of appearing to be too commercial,  universities may mute their opposition.

We believe that EFF’s initiatives must be taken seriously and strongly resisted by universities in every state before Abraham Lincoln’s poetry becomes innovation’s epitaph.

The Author

Chris Gallagher

Chris Gallagher is President of IP Strategic.com and a perennial selection to The Best Lawyers in America. Having spent years as one of the most influential and highly regarded advocates in the New Hampshire Legislature and state administrative agencies, Chris is now focused primarily on federal policies in Washington, DC. Chris has been involved in nearly every substantial New Hampshire economic regulatory initiative over the last 25 years. He has served as general counsel for the New Hampshire Bankers Association and has represented New Hampshire utilities, hospitals, insurers, aggregate manufacturers and numerous other entities. This experience provides him with a uniquely respected voice on Capitol Hill, enabling him to communicate effectively with members whose federal decision-making must reflect and respect the complexities of their home-state constituents.

A frequent speaker and commentator in local and national media on policy issues, regarding financial services, privacy, business and government, Chris has testified on financial services issues before U.S. House and Senate Committees and has been a panelist in Capitol Hill briefings on intellectual property issues. He can be reached at chris@ipstrategic.com

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 4 Comments comments.

  1. EG November 29, 2016 7:41 am

    Hey Chris,

    I’m well aware of this utterly misguided legislation proposed by the anti-patent “I want technology and pay for nothing it” EFF organization. IP Frontline has literally become their “captured blog” for this message.

  2. Chris Gallagher November 29, 2016 9:03 am

    Glad to hear it EG. Early engagement is needed because this is a potential budget item, not necessarily a separate bill. Waiting to react is dangerous. Usually state budget bills are the last item on a Session’s agenda. They contain multiple widely-supported compromises and leave no time to effectively counter a single provision especially when few state legislators actually read huge budget bill’s fine print and even if they do, even less will understand what is really going on except that like last year in 32 states anti-troll bills passed with strong support from local business.Once included in such a huge package affecting multiple supportive interests, it may by then be too late !

  3. Logician November 29, 2016 10:57 am

    As I was reading this excellent piece today, I was thinking about the Left’s ignorant ideas about property rights and the “commons.” The notions of “commons” and “anti-commons” and of “public interest” undermine their arguments. They view public interest like a socialist (which they are) of giving things to the public. This naïve notion completely ignores capitalism and competition. But, more importantly, this view of “public interest” is not what judges view either. In the patent law sense, a strong patent system is in the public interest since it encourages invention and provides critical incentives to inventors to solve hard problems. In other words, EFF has turned the concept on its head. The idea of a “commons” in which everyone has access to others’ property sounds like a utopian idea (that went terribly wrong in Venezuela or Cuba). In actuality, the property right view of IP provides a critical “exclusivity” to the inventor or patent holder; like any real property, the owner has an incentive to maximize their value; this is the incentive to invent.

    You are correct that EFF seeks to completely eviscerate the patent system with their naïve and dangerous proposals, which would completely negate Bayh-Dole and virtually destroy the $130B+ in U.S. tech investments like in the 1970s.

    One interesting thing missing from the EFF analysis involves business and the nature of industrial competition and stratification. With most industries configured as oligopolies, most start-ups have no chance of success. And with efficient infringement, incumbents tend to willfully ignore all patents, which force enforcement if investors in technology wish to get paid.

    It would be a contradiction for red states — ironically, the main focus of EFF’s efforts — to accept these naïve proposals since they should believe in strong property rights.

  4. Eric Berend November 30, 2016 6:12 am

    The pitchforks-and-torches crowd has now nearly taken over the whole innovation show in Western countries, these days. Having overwhelmed the asylum; fattened on the educational surfeit of the ‘nanny-state’; they stream over the (rhetorical) countryside, seeing nothing but nails for “problems” in their ‘Weltanschauung’, in which they are the collectivist, communitarian, socialist, totalitarian hammer.