Biden’s Patent Proposal Carries Devastating Costs, No Real Benefits

It’s rare that a federal policy inspires fierce opposition from both sides of the aisle. But the Biden administration’s recent proposal to gut the Bayh-Dole Act is doing exactly that.

Bayh-Dole is a pivotal and successful bipartisan law, but Biden’s proposal would effectively allow federal agencies to tear up patent licensing agreements signed between federally funded universities and private businesses.

The economic consequences would be dire. Individuals from across the political spectrum, including former Obama administration officials, have warned the proposal would threaten America’s small businesses and inventors.

President Biden should take those criticisms to heart. The proposal would inflict unprecedented damage on the nation’s innovation engine, setting back technological progress for generations, while delivering no offsetting benefits to consumers or taxpayers.

We Don’t Want to Go Back to Before

Before the Bayh-Dole Act, the government retained the patent and licensing rights on all discoveries stemming from federal grants. Private companies had little incentive to commercialize those university discoveries, since they had no way of exclusively licensing the underlying patents — and thus no way to prevent competitors from using the technology.

The Bayh-Dole Act addressed this disincentive by developing an ingenious “technology transfer” system that has facilitated a wave of private-sector innovation, venture investment, and economic growth. Between 1996 and 2020 alone, Bayh-Dole contributed roughly $1 trillion to the gross domestic product. The law has also led to the formation of more than 17,000 startups and supports some 6.5 million jobs.

Now the Biden administration wants to reverse this progress, by misapplying an obscure technical provision that was considered settled long ago.

Gross Distortion

The law’s “march-in” provision empowers the federal government to re-license patents in the rare event that a university or research lab is making no effort to license a patented discovery, or the licensee is making no effort to turn the good idea into a real-world product. March-in rights have never been used in the law’s 44-year history.

But in a move that ignores the plain text of the law, the Biden administration now wants federal agencies to consider the price of patented products when determining whether to exercise its march-in rights. Should federal officials determine that a product’s price is “unreasonable,” they would be free to re-license the patents stemming from federal grants to firms willing to sell the product for less.

There are any number of serious problems with this approach. To begin with, march-in was never conceived as a tool for lowering prices. Using the law as a vehicle for price controls represents a gross distortion of Bayh-Dole’s purpose.

More troubling, however, is the danger this policy poses to the nation’s innovation economy. Commercializing a new technology is an expensive, high-risk proposition that often results in failure. The only thing that startups and investors can count on is that, should they create a successful product, their licenses and patents will give them a fighting chance to recoup their investments and earn a return.

If the Biden administration moves forward with its march-in framework, that guarantee will no longer exist. As a result, many venture capitalists will stop investing in efforts to commercialize federally funded technologies.

To understand just how much is at stake in this debate, my organization, the Alliance of U.S. Startups & Inventors for Jobs, recently asked a major venture capital firm to conduct a straw poll of its portfolio companies to determine how many startups are parties to university licenses — and how many are licenses of patents that carry a federal-funding notice. The firm invests in both health care and technology startups, with a current portfolio of more than 400 companies and over 40 years’ experience. Our informal survey found that 56% of the firm’s healthcare investments involve university licenses — and that 39% of the firm’s companies have licenses that carry federal-funding notices. These startups have an aggregate value of over $5 billion and the threat of “march in” could pose a major threat to their future success and similarly situated startups may not be funded at all in the future.

This is just one of several thousand VC firms — and illustrates what is at stake if this proposal moves forward. Any company relying on a patent that carries a federal-funding notice would find it difficult — if not impossible — to attract investors.

Indeed, the mere existence of the framework is already chilling investment.

At a recent event on Capitol Hill, former U.S. Patent and Trademark Office (USPTO) Director David Kappos noted that he’s already seen companies shy away from commercializing federally funded inventions because the guidelines “have made federally funded inventions toxic.”

To make matters worse, the USPTO just released a request for comment seeking “input on what more the Agency can do to accelerate and incentivize commercialization of innovation.” However, the USPTO explicitly stated that Bayh-Dole is “beyond the scope of this request for comment.” If the administration were really interested in incentivizing innovation, they’d focus on bolstering the law that is the backbone of America’s tech transfer system: The Bayh-Dole Act. And they certainly wouldn’t preclude citizens from critiquing the government’s proposals to dismantle it.

The Biden administration’s march-in framework would undermine the successful Bayh-Dole system. The only responsible path forward is to withdraw this proposal before it can inflict any more harm than it already has.

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Author: garagestock
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