Patents and university-industry interactions in pharmaceutical research before 1962: an investigation of the historical justifications for Bayh-Dole.

• Author: Mazzoleni, Roberto

1. Introduction

   The relationship between academic research and research and development within the pharmaceutical industry has been the focus of recent debates over the justification for the Bayh-Dole Act. (1) This relationship served as a critical prism through which many scholars argued for federal patent policy reform. (2) Supporters and opponents of patent reform, ultimately codified in the Bayh-Dole Act, presented diametrically opposed views regarding the impact of the patent policies implemented by the Department of Health, Education, and Welfare (HEW) in the late 1960s. (3) The Bayh-Dole Act was the embodiment of arguments promulgated by patent reform promoters who asserted that citizens would ultimately lose the benefits of federal funding of biomedical research in the absence of policies facilitating collaboration between academic scientists and pharmaceutical firms. (4) This collaboration would only be possible if the government protected industrial companies' exclusive rights to any inventions resulting from federally funded research. (5)

   Private acquisition of rights in federally funded inventions received support from two reports on current patent policy released in the 1960s as well as the testimony of numerous scientists at congressional hearings. (6) Many scholars infer from these reports that the collaboration between universities and the biomedical research industry had been mutually beneficial until the 1960s. (7) However, knowledge of the history of collaborations between the National Institute of Health (NIH) grantees and industry referred to in such statements is currently very limited. Beginning in 1962, HEW started requiring that NIH grantees and third party laboratories solicited by the grantees (most often pharmaceutical companies and commercial testing laboratories), enter into formal patent agreements. (8) The terms of the agreements proved unacceptable to pharmaceutical companies, who consequently stopped screening compounds synthesized by academic scientists. (9) The terms of the HEW-mandated patent agreement did not substantially alter HEW's policy regarding exclusivity terms in the licensing of government-funded inventions. (10) However, the negative response by many researchers to the change in NIH policy underscored the pharmaceutical industry's need for exclusive rights in order to collaborate with NIH grantees in the development of their inventions. (11)

   Two fundamental questions emerge from a study of the critical events in the years leading up to the formulation and enactment of the Bayh-Dole Act. First, how extensively did pharmaceutical firms collaborate with NIH grantees before 1962, and what motivated them to do so? (12) Second, why did reactions to the 1962 patent agreement emphasize the pharmaceutical industry's need for a guaranteed exclusive license as a quid pro quo for collaborating with NIH grantees? (13)

   To address these questions, it is important to understand the different perspectives in the debate over federal government patent policy. (14) Additionally, it is critical to provide an historical account of the specific policies adopted by HEW and its predecessor, the Federal Security Agency (FSA). (15) As will become apparent, the formal policies left considerable discretion to the Surgeon General to promote the public interest through the disposition of government-sponsored inventions. (16) The reported collaborations between NIH grantees and industry, from which few patents resulted, combined with HEW's hostility to exclusive licenses on government-sponsored inventions, appear to contradict the pharmaceutical industry's claimed dependence on exclusive licensing arrangements. (17)

   This paper then presents a few approaches to the resolution of this apparent contradiction based on the available evidence. In particular, it will be noted that the large pharmaceutical firms demanded, with great vigor, exclusive rights to government-sponsored inventions after 1962. (18) This was a strategic response to significant changes occurring at that time in the industry's regulatory and competitive environment, and in the role of the government as a sponsor of academic medical research. (19)

2. History of the Patent Policy of the Department of Health, Education, and Welfare

   The Bayh-Dole Act's overhaul of the federal government's patent policy followed several decades of political wrangling over the proper disposition of intellectual property rights to inventions resulting from publicly funded research. (20) Advocates of the "title policy," most notably the HEW, urged the government to acquire full title to federally-funded inventions. (21) In contrast, the Department of Defense argued for a "license policy," whereby the government would limit itself to retaining a license to use the inventions resulting from government-sponsored research, while leaving the title in researcher. (22) The "license policy" came under growing criticism when federal government appropriations for health-related research began to rise during the mid-1950s. At least two studies conducted in the mid-1960s either focused on or criticized the current policies of the department with respect to intellectual property. (23) Both studies suggested that such policies were responsible for the absence of collaboration among industry and academic researchers, thereby negatively affecting the social benefits normally derived from federal support of biomedical research. (24) Paradoxically, these reports revealed that the "title policy," which dictates the results of federally funded research to the public domain, failed to promote the public interest. (25) In contrast, the "license policy" depended on the creation of sufficient incentives, including rights of exclusivity, for private pharmaceutical companies to commercially exploit the results of federally funded research. (26)

   The changes in the organization of the various government agencies, including the Public Health Service (PHS) to which the NIH belonged before becoming the umbrella organization as it exists today, necessarily affected the evolution of the NIH's patent policy. (27) When HEW was founded in 1953, it inherited the Public Health Services from the dissolution of the FSA. (28) This agency was created in 1939, as an amalgam of units concerned with education and health, and was previously affiliated to other agencies within the federal government. (29) The PHS in particular has been an administrative unit of the Department of the Treasury since 1912. (30)

   A 1925 Surgeon General memorandum sent to the Secretary of the Treasury describes the long standing PHS policy granting unfettered access to the public, without exception, "new processes in the field of public health developed by officers and employees...." (31) The Fourth Circuit further sanctioned this policy in Houghton v. United States, (32) stating that the PHS had no interest in establishing a monopoly over inventions discovered as a result of its funding of research efforts. (33) The court noted that the public has an interest in the products of government-sponsored research. (34) Further, the court stated that it was "unthinkable" that an employee of a publicly funded agency be allowed to monopolize an invention for private gain, notwithstanding "levy[ing] a tribute upon the public which has paid for its production [by] merely granting a nonexclusive license for its use to the governmental department in which they were employed." (35) This opinion established the government's right to assert ownership over inventions by employees during the scope of their employment. (36)

   In 1935, the PHS responded to Houghton by adopting regulations designed to promote public use of inventions discovered as a result of federal funding rather than restricting it. (37) Employees of PHS could request permission from the Surgeon General to apply for a patent on inventions discovered within the scope of employment; such permission, when granted, would be subject to terms providing the government and the public with non-exclusive, royalty-free, rights to use the invention. (38) Moreover, the regulations required research grantees to report any inventions to PHS for determination by the Surgeon General of whether to pursue a patent or publish the research, thereby dedicating the invention to the public. (39)

   Arguably, the PHS's commitment to the protection of the public interest lacked effective implementation and posed difficulty for grantee institutions and administrators. (40) The PHS's rights in any resulting inventions threatened research activities of grantees that received additional funding from nongovernmental sources. (41) In 1947, the Surgeon General advisory body made an informal recommendation that grantees be unrestricted in obtaining and administering patents on inventions, subject only to the reservation of a royalty-free license for government purposes. (42) This approach appeared to conflict, however, with the FSA's mandate to make publicly available information concerning federally-funded research and the practical applications thereof. (43)

   The need for a clearer policy by the FSA became more pressing during the 1940s, partly as a result of the growth in the research budget administered by the NIH. (44) Consequently, the FSA formed a committee charged with the task of formulating recommendations for a comprehensive patent policy. (45) These recommendations were implemented by Agency order 110 on July 10, 1950, which was partly revised by Agency Order 110-1 on September 15, 1952. (46) These orders affirmed the FSA's commitment to protecting the public's unfettered access to the fruits of research funded b y the FSA's units. (47) This commitment manifested itself in:

   1. the assertion of government rights in all inventions developed by employees of the Agency; (48)

   2. the use of patents only as a means to protect the public's access to such inventions; (49)

   3. the stated principle...