India to enact Bayh-Dole type legislation [India]

India is on the way to getting its very own version of the Bayh-Dole Act, the US legislation passed at the beginning of the 1980s which introduced IP certainty to the R&D work done at American universities and helped to kick-start the high-tech explosion that cemented the US as the world’s innovation powerhouse. According to an article in the Business Standard, the issue is currently being discussed by the Indian Cabinet and could soon be put before the country’s parliament.

Business Line, meanwhile, is reporting that the proposed legislation is suggesting inventors get 30% of the revenue from any commercial project based on the patents in question, while the institution involved would get 10%. Of course, Bayh-Dole does not set out how revenues should be allocated and instead leaves it to individual institutions to develop their own schemes.

India would not be the first country to try to imitate the success fo Bayh-Dole. At the end of 2007, for instance, the Chinese passed a law that allows scientists, institutions and universities to own the patents that are created by publicly-funded research which they carry out. However, experience also shows that legislation is not enough if the scientists and institutions at which it is aimed are not willing or able to exploit it. Many academics, for example, are just not suited to building businesses, or regard the idea of doing so anathema; while setting up a technology transfer operation requires significant upfront investment from the institution that is doing it, with no guarantees that anything created will be of interest to anyone.

In India there are also other worries. For example, the Indian Patent Office is chronically understaffed, so there have to be real questions as to whether it could cope with a surge in applications from a new source. In any case, the level of patenting among Indians remains very low – around 80% of patents granted in the country go to foreign concerns. Away from IP, the wide investment hinterland that has allowed start-ups and spin-outs to thrive in places such as the US and the UK just does not exist in India at the moment – something that raises real doubts about how many patents granted can be successfully commercialised. For any Bayh-Dole style legislation to have an impact, therefore, the Indian government will surely have to deal with a whole host of other issues as well. That said, there is no doubting the skill base that exists in India. The problem is that many of the country’s most gifted scientists feel they have to leave in order to make the most of the talents they have.

March-In Rights, Domestic Manufacture, and Inventor Royalties under Bayh-Dole

According to Stephen P. Rothman in "Investing in university spin-out companies," the U.S. Bayh-Dole Act allows a federal agency that funded an invention to require the patent holder to grant a license to a responsible applicant on reasonable terms. If the patent holder refuses, then the federal agency can grant a license itself under what are referred to as "march-in rights." However, "march-in rights have never been exercised and appear unlikely to be exercised in any realistic scenario,"writes Rothman, partly because the law directs federal agencies not to exercise march-in rights unless the action is necessary:

• "Because the patent holder is not taking effective steps to achieve practical application of the invention,
• "To alleviate health or safety needs which are not reasonably satisfied by the patent holder,
• "To meet requirements for public use specified by federal regulations not reasonably satisfied by the patent holder; or
• "Because an exclusive licensee has failed to give preference to U.S. manufacturing where that would be required."

Rothman goes on to concisely summarize several written decisions of the NIH that he says "display a keen awareness that exercise of march-in rights could disrupt the incentive for commercialization of federally funded research, and thereby undermine attainment of the principal purpose of the Bayh-Dole Act."

His artcle also sheds light on the law's preference for exclusive licensees to manufacture in the United States:

An exception applies if domestic manufacture is not commercially feasible, or if the university tried unsuccessfully to find a licensee that was likely to manufacture in the U.S. To take advantage of one of these exceptions, a waiver must be obtained from the agency that funded the research.

. . . There is some difference between the federal agencies, with NIH having a reputation for a streamlined waiver process, and a willingness to grant waivers fairly freely, particularly if there is reason to believe that foreign manufacturing will allow a medical product to be made available to patients at a lower cost. The Department of Defense, not surprisingly, may be somewhat less quick to agree to foreign manufacture, particularly for a sensitive military product.

. . . One could take the position that this is not an exclusive license, though the issue is not free from doubt. Another approach involves interpretation of the requirement to manufacture "substantially in the United States." There is no clear percentage requirement, nor is there guidance from the Department of Commerce or other sources on what "substantially" means. . . . [However, t]he two approaches described above leave some risk of challenge . . . .

Bayh-Dole further requires patent owners to share a portion of any royalty payments with the inventor or inventors. "The amount of the inventor's share is not set by law, and varies from one institution to the next." But Rothman cautions, "If the inventor is an officer of the spin-out company, there is a potential conflict between the interests of the inventor and the investors that needs to be managed."

Finally, Rothman gives his insight as to why universities typically will not agree to trade secret license terms that would prohibit publication of research findings:
A typical university license or joint development agreement provides a limited delay of publication (30 - 60 days) during which the licensee can determine whether to file for patent protection. Even if universities were willing to adopt restrictions on information flow (which they are not), university laboratories are generally not set up with the kind of procedures that commercial enterprises routinely use to establish trade secret status, such as: preparing and following a written trade secret protection policy; limiting access to the portion of the facility where trade secrets are stored; requiring visitors to sign in and out; requiring all participants to sign confidentiality agreements, etc.