Making Licensing Harder Doesn’t Boost U.S. Manufacturing

“We should do everything we can to build our domestic manufacturing capability. But penalizing those driving our innovation system for something outside their control is counterproductive.”

ManufacturingWhile it’s appropriate to lament the lack of bipartisan cooperation in Washington, just because something’s bipartisan doesn’t mean it’s a good idea. Exhibit A could be Senator Tammy Baldwin (D-WI) and Senator J.D. Vance’s (R-OH) “Invent It Here, Make It Here” bill. Despite the name and its good intentions, it condemns promising federally funded inventions to waste away without doing a thing to build our domestic manufacturing base. It’s scheduled to be considered this Thursday in the Senate Commerce, Science and Transportation Committee.

The Senators seek to address a serious national problem—too many times it’s not possible to find a domestic manufacturer to make a product incorporating a federally funded invention. Unfortunately, the Baldwin/ Vance proposal makes the problem worse by defining domestic manufacturing in a way that makes it even harder while introducing more bureaucracy into the process.

Don’t Penalize the Victims

The Bayh-Dole Act of 1980 was one of the first to emphasize domestic manufacturing. It stipulates that whenever a federally funded invention is being exclusively licensed in the U.S. market it should be “substantially manufactured” here, if at all possible. When that’s not possible, the patent owner (typically an academic institution) can file a waiver with the agency funding the research showing that good faith efforts have been made but were unsuccessful.

In crafting the law it was felt that it was better to have a product made abroad if that was the only feasible option, than to not make it at all. That way the product could be used by the public and economic benefits go to the licensee from making sales and the university from royalties that fund more research.

When globalization was in vogue, this provision was considered nationalistic and little effort was made to shore up our manufacturing base. Now that our loss of manufacturing capability is raising alarms, policymakers are reversing course.

But in this case, rather than addressing the underlying problem, the bill penalizes the victims—the universities and small companies desperately seeking domestic manufacturing partners with no help from Washington. The federal agencies have found a tactic to avoid facing the issue as well—when waivers are filed because domestic manufacturers can’t be found, they’re ignored.

The Baldwin-Vance Bill Would Burden Small Companies

Enter the Baldwin-Vance approach. It seeks to amend Bayh-Dole, expanding the domestic manufacturing requirement to any exclusive license, foreign or domestic. It defines manufactured substantially in the U.S to include “all articles, materials or supplies mined (emphasis added), produced or manufactured in the United States.”  When that can’t be done, universities are subjected a new, harder waiver process. As about 70% of academic patent licenses go to small companies, the burden of the Baldwin/Vance bill falls on their shoulders.

This provision doesn’t only apply to academic inventions, it also applies to inventions small companies make under federal grants and contracts, including the Small Business Innovation Research (SBIR) program.

Suppose a small company in Ohio makes such an invention and has the chance to license it for sale in Thailand, a market that otherwise it could never reach. The potential exclusive licensee must find a U.S. manufacturer who can make it cheap enough that it can be shipped and sold competitively. That’s hard enough without worrying about where the materials are mined. If a domestic manufacturer can’t be found, the small business is condemned to filing a waiver and hoping the bureaucracy will deign to respond.

Of course, the domestic manufacturing problem isn’t limited to federally funded inventions. The Wall Street Journal recently ran an article about the struggles of the Department of Defense to revive magnet making in the U.S. Despite “doling out hundreds of millions in grants and tax credits” there is only one company that can meet their requirements. “We’re not going to be able to simply flip a switch and get where we need to be” one expert commented.

Unlike DOD, universities and small companies can’t dole out hundreds of millions of dollars to create a manufacturing base. Putting an even greater burden on them with no help from Washington just means that more federally funded inventions will waste away on the shelves. And who benefits from that (except for our foreign rivals)?

This is Not the Commerce Committee’s Jurisdiction

One final point. When we drafted the Bayh-Dole Act it was consciously written to stay away from the Senate Commerce Committee. Bayh-Dole amends Title 35 of the U.S. Code, the patent section, that is exclusively the domain of the Senate Judiciary Committee where Senators Birch Bayh and Bob Dole proudly served.

Buried in the Baldwin- Vance bill is a sneak attack on that jurisdiction. It seeks to amend the domestic manufacturing provisions of Bayh-Dole that is the province of another committee. Adding insult to injury, it requires every federal agency that receives a waiver request to report to the Senate Commerce, Science and Transportation Committee.

A More Constructive Proposal

If the Committee wants to do something helpful that’s actually under their jurisdiction, how about this. The Department of Commerce hosts the Manufacturing Extension Partnership, described as “a public-private partnership with Centers in all 50 states and Puerto Rico dedicated to serving small and medium-sized manufacturers.” Rather than sending academic institutions and small businesses out on a wild goose chase, what if the Department of Commerce developed a comprehensive database of U.S. manufacturing capabilities.

Prospective exclusive licensees could use the database to find a match. If good faith efforts are made but no match is found, a waiver request could be filed with the funding agency documenting their attempt. The agency would have 60 days to make a decision. If the bureaucracy fails to reply, the waiver is automatically granted. And the agencies that fail to respond should be held accountable.

The public and private sector R&D partnerships made possible by the Bayh-Dole Act are essential in maintaining our technological lead in an increasingly competitive world. We should do everything we can to build our domestic manufacturing capability. But penalizing those driving our innovation system for something outside their control is counterproductive.

Before Bayh-Dole, most federally funded inventions wasted away on the shelves of the bureaucracy. We can’t afford to go down that road again.

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  • [Avatar for Pro Say]
    Pro Say
    May 13, 2024 05:40 pm

    Great points all. And how ’bout this great idea:

    Restore the U.S. patent system to the gold standard it was back before 2010.

    You know; back when American innovators could use their patents to protect their innovations from foreign infringing predators . . . so they could safely manufacture their products here in the U.S.

    How ’bout THAT idea? What say you, Congress?

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