Want a greater ROI for taxpayers? Restore the patent system, protect Bayh-Dole and cut the red tape strangling federal labs

By Joseph Allen
July 9, 2018

Left: Senator Birch Bayh (D-IN) and Right: Senator Robert Dole (R-KS). Dole Photograph Collection, University of Kansas

The National Institute of Standards and Technology issued a request for information seeking ideas for improving the public’s return on investment from federally supported R&D. Here’s my submission.

Thank you for providing an opportunity to make recommendations for increasing the commercialization of federally-funded R&D.  I was the Senate staffer involved in enacting the Bayh-Dole Act, oversaw its implementation and helped create the Federal Technology Transfer Act at the Department of Commerce, was Executive Director of Intellectual Property Owners, Inc., and served as President of the National Technology Transfer Center, created by Congress to assist in the development of inventions arising from government research.

Secretary of Commerce Ross hit the nail on the head while unveiling the Administration’s ROI Initiative when he said:

  • Intellectual property rights are the key to ensuring that we remain the most innovative country in the world;
  • Major studies … indicate that the innovations made by American researchers are being produced and exploited in other countries;
  • In recent years, the process of successfully transferring technology out of federal labs and into the private sector has stagnated;
  • University research is about 5 times more likely to result in a licensed patented technology and about 7 times more likely to result in an active patent license than federal laboratories;
  • How best to maximize the impact of our $150 billion annual investment in research and development… is a top priority for the Administration and the U.S. Department of Commerce.

The Administration and Department should be commended for launching this review. It’s long overdue.  Here are some thoughts on the points Sec. Ross raised.


Intellectual property rights are the key to our competitiveness– but we’ve allowed that key to rust

The Bayh-Dole Act and the Federal Technology Transfer Act are the lynchpins of our technology transfer system. They require strong, dependable patents to function. The first words of Bayh-Dole are: “It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research and development…”

Three events boosted our economic turnaround in the 1980’s: the passage of Bayh-Dole, which injected the incentives of patent ownership into the federal R&D system; the enactment of the Court of Appeals for the Federal Circuit, which insured the courts would apply the patent law consistently; and the Supreme Court’s ruling in Diamond v Chakraberty that living organisms could be patented. That decision stated that patents could “include anything under the sun that is made by man.” Today that quote is only ironic.

Many inventions are no longer patentable due to subsequent decisions. Inter partes reviews  are commonly termed “patent killing fields.”  Even when inventors prevail against infringers they are unable to secure injunctions halting unauthorized sales of their discoveries. While promised a grace period under the America Invents Act, universities saw that negated by the implementing regulations.

Innovation can only flourish when the rules of the game are clear and consistent. Our patent system is now anything but that. It is imperative that the Administration makes restoring confidence in the value of U.S. patents a top priority.

We must commercialize our discoveries before others do

No other country has anything like our public research facilities. The best and brightest from around the world come to our universities and federal laboratories where cutting edge R&D is performed. But it’s not guaranteed the resulting discoveries will be developed here. Other countries intend to challenge us by building on our research.

In Trade War Punctures China’s Pride in Its Technology Liu Yadong, editor of the government-run Science and Technology Daily said:

There is a big gap between the science and technology of China and those of the United States, as well as other Western developed countries.  This is common sense, not a problem.

He “sought to address the foreign foundation of many Chinese industries at a seminar on China’s reliance on critical technologies” declaring:

This house is built on other people’s foundation, but some insist that we have complete and permanent property rights… What’s troublesome is that people with those kind of opinions have fooled themselves…

We didn’t meet previous challenges with government led industrial policies.  We chose a different path: decentralizing the ownership of federally funded inventions from Washington to their creators, setting a few clear rules how they are to be managed and getting the bureaucracy out of the way. Here’s what The Economist Technology Quarterly said happened next :

Remember the technological malaise that befell America in the late 1970s? Japan was busy snuffing out Pittsburgh’s steel mills, driving Detroit off the road, and beginning its assault on Silicon Valley. Only a decade later, things were very different… Why the sudden reversal of fortunes? Across America, there had been a flowering of innovation unlike anything seen before.

Possibly the most inspired piece of legislation to be enacted in America over the past half-century was the Bayh-Dole Act of 1980… this unlocked all the inventions and discoveries that had been made in laboratories throughout the United States with the help of taxpayers’ money. More than anything, this single policy measure helped to reverse America’s precipitous slide into industrial irrelevance.

With the competition again breathing down our necks this is no time to neglect Bayh-Dole.

Bayh-Dole works but it has to be enforced

The Bayh-Dole Act’s running like a finely tuned machine and doesn’t need any legislative tinkering. However, it must be maintained. The Department of Commerce is charged with overseeing the law so that it’s properly implemented.  Unfortunately, the Department’s been missing in action.

The law gives management of federally-funded inventions to non-profit institutions and small businesses with two exceptions.  Agencies can exempt research programs under the “exceptional circumstances” provision when it is determined that “restriction or elimination of the right to title to any subject invention will better promote the policy and objectives” of the law.  Recognizing that abuse of this provision eviscerates Bayh-Dole, Congress required that agencies must notify the Secretary of Commerce before using it. The Secretary has to agree that the action is justified.

Agencies have neglected to notify Commerce, using the provision when they want to discourage patenting, contrary to Bayh-Dole’s policy and objectives.  Most recently, the Department of Education required that educational software be placed in the public domain.  Since some software can be patented, this  should have triggered the exceptional circumstances procedure. But that was ignored, setting the precedent of an agency opting out of the law with no consequences.

The greatest challenge to the statute is the attempt by its critics to misuse the march in provision to impose price controls on successfully developed drugs. As Senators Bayh and Dole stated that is not how their law works. Bayh-Dole allows agencies to issue additional licenses if a university licensee is not making good faith efforts to develop an invention or if they cannot create enough products to meet a national emergency. Agencies have no authority to control prices for successfully commercialized inventions.

Nevertheless, tremendous pressures have been  brought against the National Institutes of Health to march in to control drug prices.  Similar pressures were applied to the Department of the Army.  So far the agencies have held out. But it’s not up to each department to interpret the law– that’s the responsibility of the lead agency.  Yet Commerce has sat out the debate.

The Department of Commerce must resume effective oversight of Bayh-Dole. That requires resolute leadership backed by the staff expertise needed to do the job.

The commercialization of federal lab inventions is unnecessarily difficult

Federal labs and universities receive approximately the same amount of government funding but as Sec. Ross pointed out the results are starkly different.  That’s not because statutory or policy guidance is lacking. The labs have adequate legal authorities together with Executive Orders, Presidential statements, agency pronouncements and a plethora of speeches, papers, etc. on the importance of tech transfer. The problem continues because it’s cultural.

After World War II the government maintained its support for research universities and government laboratories under a system whereby resulting discoveries were placed in the public domain. Think of it as a Marshall Plan of technology. It  later became apparent that while discouraging domestic development this policy benefitted our foreign competitors.  Congress passed Bayh-Dole to reverse course.

Universities successfully changed their culture through inspired leadership which showed that commercialization complimented rather than distracted from the mission of using their discoveries to benefit humanity.  Forty years later an entrepreneurial mindset is part and parcel of academic research.  That is not the case in the federal labs.

Commercialization remains a neglected step child in many agencies.  Government technology managers are often hamstrung from effectively making deals by bureaucratic procedures and second guessing from agency lawyers.  Many lab directors and middle managers see tech transfer as an unfunded mandate, taking time and resources away from their mission. What’s needed is a signal that business as usual is over.

Here’s a suggestion. Have the White House require that research agencies submit five years of data on their patents licensed and royalties received to the Office of Management and Budget as part of their annual budget request.  That data can be run through the methodology utilized in The Economic Impact of University/Nonprofit Inventions in the United States: 1996-2013 to calculate how their licensing contributed to GDP, jobs supported, etc– in other words, a tangible ROI to the American people. While this should not be the only metric of agency performance, it’s based on verifiable numbers which are hard to fudge.  Other metrics should have the same characteristic.

Making commercialization a factor in determining an agency’s budget elevates its importance, providing incentives for clearing the deadwood clogging the system.

Determine how much of the conflict of interest problem is agency created

The Stevenson-Wydler Act made tech transfer a part of each lab’s mission. The Federal Technology Transfer Act allows agencies and labs to retain royalties generated from patent licensing while requiring they be shared with government inventors.  This was done so the interests of each party are aligned to promote commercialization. Yet federal conflict of interest policies remain a barrier to tech transfer. The question then arises: is this imposed on the agencies by law or a problem created by their risk averse culture?  President Reagan had an effective way to investigate such quandaries.

When the Reagan Administration wanted an objective overview of the federal laboratories it created a panel of outside experts led by business executive David Packard. While delivering the report to the White House Packard stated: “Micromanagement, or excessive detailed direction to the laboratories, focusing on procedures rather than content, should be stopped.” He added:

The Panel has also made recommendations to relieve the constraints on Federal laboratories with regard to personnel administration … and to increase the collaboration of Federal laboratories with universities and industry. This last point is certainly not the least important. At a time when the nation’s economic and defense leadership is increasingly challenged, greater synergism between all our R&D institutions is a must.

That led to the Federal Technology Transfer Act.

Here’s an idea: the Office of Science and Technology Policy should create a  panel of  prominent entrepreneurs and outside experts to review the laws and agency regulations on conflict of interest. Then report on  which restrictions are statutory and which are imposed by overly cautious government lawyers. We may find that willpower is the missing ingredient required to cut this Gordian knot.

The opportunity to change the federal R&D system is a rare event. What’s needed is bold, decisive leadership.  Carpe diem– seize the day while you can. Opportunity doesn’t hang around very long.

The Author

Joseph Allen

Joseph Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

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 6 Comments comments. Join the discussion.

  1. John Fraser July 9, 2018 6:45 pm

    Joe. Very well stated and with suggestions at a level that busy politician and senior administrators can understand and do something about.

    I particularly like the reporting on metrics and the external advisory task force of people who have benefited from a license

  2. Chris Gallagher July 10, 2018 10:49 am

    Well said, Joe. Once again you have demonstrated Bayh Dole’s continuing relevance by placing present commentary within the framework of its original objectives. They clearly are more important today than when Bayh Dole law was enacted.

  3. Titus Corleone July 10, 2018 11:56 am

    ROI… Great little acronym. I think thousands of patent holders would agree with me that another “ROI” enhancement would be a substantial reduction (or elimination) of the “Patent Maintenance Fee” which is simply another way to bleed patent holders to the betterment of government institutions who can’t tell the difference between a web server and a web page.

    Actually, allow me to advance a better analogy… Government agencies are the one-inch long mosquitos that hatch on the Alaskan tundra and drain Cariboo calves of all their blood in an hour. Of course, patent owners are the calf…

    Honestly, web servers and web pages are analogous to Patents on the USPTO document server. They sit on a hard drive in the form of 1’s and 0 until you access them.

    So, what is the justification for the $1,200.00 Maintenance fee? Didn’t I already pony up thousands of dollars to let some examiner look at it who probably hadn’t a clue what they were examining anyway?

    If you add up the cost of spinning up one hard drive for 10 minutes every 5 years or so, HOW DO THEY JUSTIFY $1,200.00 EVERY 4 YEARS???

    This is highway robbery. Usury. Extortion!! And I wonder if there hasn’t been a larger outcry because many attorneys get a handsome little cut for processing that extortion… Excuse me… “Maintenance Fee…”

    Speaking of ROI for the Small Guy, why don’t we expose this U.S. Government Highway Robbery?

    Titus Corleone

  4. David Boundy July 11, 2018 7:20 pm

    Titus —

    Youre lacking a few facts. The PTO’s cost of examination is about 4000 per app. Filing fees and issue fees are about 3000 (large entity) or 1500 (small entity) Tbe whole system is designed to make it easy to file, to get speculative inventions into the system. The only way to make that work is a cross-subsidy from somewhere. In this case, its a cross-subsidy from patent owners that have realized enough worth from their patents to make it worth paying a mainteneace fee. Congress stated that its intent was to have front-end fees and back-end fees be about even (the PTO’s recent departure from Congress’ directive is illegal.)

    This also has the advantage of pruning low-value patents into the public domain.

    Congress requires the PTO to set fees to cover costs — no more, no less (the “reserve fund” is also illegal). There’s no reward to bureacrats, just a subsidy to incentivize filing.

  5. Anon July 12, 2018 7:36 am

    Excellent reply Mr. Boundy.

    One question though: where was it that Congress indicated that the front loaded and back loaded fees were to be about even?

    As I recall, the AIA actually went away from Congress controlling the allocation of funding and provided to the Office increased discretion to set particular fees at the Office-designated levels (with the remaining caveat that the fees ‘even out’ in the aggregate. I have remarked upon this over the years as the Office set (and reset) fees that this newly granted fee-setting discretion still contained that “in the aggregate” limitation (for example, within the past year, there was a discussion of the Office decision to ‘switch’ money from examination expenses to PTAB expenses – I posted a reminder at that time about the aggregate caveat, but I was not aware of the “balance” situation as you allude to).

  6. ijaz August 16, 2018 6:00 am

    Actually, allow me to advance a better analogy… Government agencies are the one-inch long mosquitos that hatch on the Alaskan tundra and drain Cariboo calves of all their blood in an hour. Of course, patent owners are the calf..

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