Intended Consequences and Bayh-Dole: A Capitol Hill Event
Monday, November 28, 2016
LES participated in a Capitol Hill Policy Briefing, “How the Bayh-Dole Act Promotes Progress in Science and Useful Arts,” hosted by the Eagle Forum Education and Legal Defense Fund on November 28th, in the Rayburn House Office Building. The Briefing was moderated by James Edwards, patent policy advisor to the Eagle Forum, and featured panelists: Joseph P. Allen, Former U.S. Senate Judiciary Counsel for Sen. Birch Bayh; Stephen J. Susalka, Executive Director, Assn. of University Technology Managers, and Brian P. O'Shaughnessy, President, Licensing Executives Society. Herewith, as an installment of a three-part series, are the remarks of James Edwards and Joseph Allen.
By James Edwards
A book came out a few years ago entitled “That’s Not What We Meant to Do.” It details the whopping unintended consequences of several major reform bills enacted in the 20th century.
The Bayh-Dole Act is not among the contents of that book. On the contrary, this law has achieved what its authors intended. In fact, Bayh-Dole has been wildly successful.
However, most of the young congressional staffers and many of the federal lawmakers in the U.S. Senate and House of Representatives aren’t familiar with Bayh-Dole and the intended consequences of its authors. They aren’t aware that the act itself says, “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 or development.” They have little understanding of how Bayh-Dole’s securing of intellectual property rights facilitates the commercialization of discoveries originating from federally funded research.
Eagle Forum Education & Legal Defense Fund, a conservative policy organization that has long been involved in intellectual property issues, sponsored a policy briefing in Washington to help educate Congress and the public about this important law.
We assembled top experts to explore the Bayh-Dole Act, its history, and its record of commercialization success, both for universities and the private sector. Panelists included Joseph Allen, who served as Judiciary Committee counsel to U.S. Sen. Birch Bayh, D-Ind., and who helped Bayh craft this landmark legislation (Insights, Bayh-Dole briefing, Part IB); Stephen Susalka, executive director of the Association of University Technology Managers (Insights, Part II); and Brian O’Shaughnessy, president and chair of the board, Licensing Executives Society (USA & Canada) (Insights, Part III).
Eagle Forum sought to explain how Bayh-Dole applies the founding principle, expressed in Article I Section 8 of the U.S. Constitution, of strong property rights to achieve the founding goal of practical progress — the type that advances our society and benefits the American people.
The panel illuminated the intentional role of patents and IP in sparking Bayh-Dole’s success. Allen, Susalka, and O’Shaughnessy also discussed how putting the certainty and exclusivity of patent property rights into question could have adverse effects on future commercialization.
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James Edwards, patent policy advisor to Eagle Forum, is a consultant on intellectual property and health policy.
The Little Known Law That Drives US Innovation
By Joseph P. Allen
A law passed in a time much like this one with bitter partisan divides and fears that America had seen her best days helped transform the U.S. economy. It did so by restoring the incentives of the patent system for inventions made with government support, allowing universities and small companies to own the discoveries they make. The law didn't create any new bureaucracy and didn't add to the deficit. Its contribution has largely gone unnoticed. When the law is mentioned in the media it’s usually as part of an attack on the patent system. Perhaps its adoption by other nations in order to challenge our lead in technology development is the best testament to its effectiveness.
The law in question is the Bayh-Dole Act. Here’s how the Economist Technology Quarterly (http://www.economist.com/node/1476653) characterized it:
Possibly the most inspired piece of legislation to be enacted in America over the past half century was the Bayh-Dole Act of 1980… More than anything, this simple policy helped to reverse America’s precipitous slide into industrial irrelevance.
When the law passed, many predicted that the future belonged to the Japanese and Germans who had eclipsed our lead in automobiles, electronics and steel and seemed poised to continue their march to industrial dominance. However, as the Economist pointed out, we avoided that dire fate by integrating our world class research universities into the economy. While we still enjoy a considerable lead in virtually every field of technology, our competitors have studied our model and are aggressively adopting it. If we forget the hard learned lessons of the past, we could find ourselves falling behind once again. That's entirely up to us.
The federal government is the prime supporter of academic research, spending approximately $40B annually. This is where most of the basic research in the U.S. is performed and where breakthrough technologies creating new industries are most likely to occur. But the government does not fund commercial development of the resulting inventions, which are usually embryonic, more like ideas than products. Developing them costs many times what the government spent on the initial research, frequently requiring 5-7 years of hard work. Even then there's a high probability of failure. Commercializing a new drug is even more daunting. They often cost billions of dollars and more than a decade of effort. For every 10,000 compounds about 250 make it to preclinical testing, five go on to clinical trials, and one enters the marketplace. Of these just 20% turn a profit– and they must pay for all those which died in the pipeline (http://www.ipwatchdog.com/2014/06/22/fumbling-away-the-future/id=50149/).
Under our system, the considerable risk and expense of taking a publicly funded invention from the lab into the marketplace falls on the private sector. Before passage of the Bayh-Dole Act that was rarely done.
The reason is simple. Previous policies dictated that inventions made with federal dollars were taken from the creating organization by the government. They were offered to any and all under non-exclusive licenses. There was no incentive for the inventor to remain engaged in development, and little ability for a company to protect its investment if it found a discovery it wanted to commercialize. President Lincoln rightly said that the patent system "adds the fuel of interest to the fires of genius." Because these incentives were destroyed, that fuel was missing for federally funded inventions. The government amassed 28,000 patents largely wasting away on the shelves, benefitting no one.
Senators Birch Bayh (D-IN) and Bob Dole (R-KS) didn’t agree on much, but they did agree that such a colossal waste of taxpayer dollars should end. They discovered that not a single new drug had ever been commercialized when the government took the invention away from a university. Just as bad, industry was rightly afraid to collaborate with academia because if the government funded even a small percentage of the research it could take any resulting inventions.
The remarkable partnership of Senators Bayh and Dole and the compelling story they had to tell led to the enactment of their bill. It allows universities and companies to own inventions they make with federal funding. The university can license the invention for commercial development and must use resulting royalties to reward their inventors, to perform more research, or to offset its technology transfer expenses. Preferences must be given to licensing small companies and those who will manufacture resulting products in the U.S. The federal government retains the right to use these discoveries for its own purposes. Bayh-Dole removed the government as a barrier to university/industry partnerships. The impact was immediate and dramatic.
University research spurred the creation of our biotechnology industry. Spin out companies formed and the U.S. took the lead in the new discipline which it's never relinquished. Biotechnology companies still cluster around our research universities.
While no drugs were developed under previous policies, today we have 200 new drugs and vaccines combating the ravages of disease world-wide because of Bayh-Dole. A recent study (http://www.nature.com/nbt/journal/v32/n1/full/nbt.2785.html) found that federally funded inventions were more likely to be classified for “high priority reviews” by the Food and Drug Administration because of their greater potential for treating disease than new drug applications from any other source.
A study on the economic impact of academic patent licensing (https://www.bio.org/sites/default/files/BIO_Eco_Impact_of_Uni_Lic_PolicyBrief.pdf) sponsored by the Biotechnology Innovation Organization (BIO) found that between 1996- 2013 academic inventions increased U.S. gross industry output by $1.18 trillion while supporting 3,824,000 U.S. jobs. In an economy where more than 90 million Americans are out of the labor force (http://data.bls.gov/timeseries/LNS15000000) and many new jobs pay low wages with few benefits, the value of Bayh-Dole should be evident.
If not, consider this chart from the BIO study:
University patent licenses create more than two new companies and two new commercial products every day of the year (http://www.autm.net/fy2015-survey/). That's particularly impressive in our stagnant economy.
There's another factor in this story which shouldn't be ignored. Shortly after the enactment of Bayh-Dole, Congress created the Court of Appeals for the Federal Circuit to restore confidence in the patent system. Prior to that, federal courts had developed inconsistent standards of patent enforcement, leading many to question the value of a U.S. patent, depressing innovation. The combination of Bayh-Dole and restoration of trust in the patent system launched one of the greatest periods of innovation in human history, pulling the United States out of the economic doldrums of the 1970's.
This is a good time to reflect on how far we have come, how we got here and to recognize current threats to Bayh-Dole. Determined efforts have been made to misinterpret the law to allow the government to regulate the prices of resulting products, particularly new drugs. Senator Bayh repeatedly stated that this is not authorized by the statute. Fortunately, these efforts have been repeatedly rebuffed by the National Institutes of Health. However, that does not stop the critics, who vow to try again when the new Administration takes office (http://www.ipwatchdog.com/2016/06/27/nih-director-collins-march-in-mob/id=70391/).
The oversight function of Bayh-Dole, designed to insure that it's applied uniformly by all agencies has been allowed to wither away. Another area of concern is the feeling that recent changes in the law have undermined confidence in the patent system. These are issues to watch because our system can quickly unravel if we neglect to protect the foundations it rests upon.
Under Bayh-Dole universities are stewards for the interests of the American taxpayer. They have done a remarkable job and deserve recognition. But the real heroes are the entrepreneurs who put their time and treasure on the line turning early stage inventions into new products improving lives around the globe. Thanks to the Bayh-Dole Act our investment in public R&D allows the U.S. to remain the most innovative country in the world. That should not go unappreciated-- or taken for granted.