Almost anyone who has applied for a patent has probably been asked by their attorney if they received any government funding for the development of their invention. Most inventors and companies simply provide a list of grant or contract numbers without a second thought.
The inquisitive few who ask what the information is for are generally told that it must be disclosed or their entire patent may revert to the government. Such consequences have a way of preventing any resistance to disclosure. The list of grants is afterwards usually ignored in all but rare instances, even after it makes its way onto the face of the patent.
However, this list may become an object might have an effect on a company's rights in a patent and its value. Under the 1980 Bayh-Dole Act, nonprofit institutions and small businesses were allowed to own property developed with government funding. This solved problems of lack of resources and market responsiveness and provided a boost to the infant biotechnology (and other) industry.
The Act is codified in the Patent Statute at 35 USC §§200 through 212 and contains various provisions outlining some restrictions on a patent owner's normal rights to advance government goals. Most of these restrictions never come into play for a small business using the technology they develop. Others, such as restrictions on foreign licensing, are applicable to non-profit institutions such as universities that receive government grants.
Until now, the biggest effect on small businesses was the ability of the government to use the technology in its own labs via its nonexclusive license granted by law. Even these uses are rare in genomics areas and tend not to conflict with the small business' plans.
Today, with the increased risk of terrorism, and especially bioterrorism, this relationship may soon change. One largely ignored provision of the Bayh-Dole Act, now 35 USC §203, provides "march-in rights" for government funded inventions owned by small businesses or nonprofit organizations.
Rather than grant the government full access to the patented' technology, march-in rights allow it to request the patent owner or exclusive licensee to grant an appropriate license to another. If the request is refused, the funding agency may even issue its own license.
The agency has the capacity to determine the type of license to be granted and the field within it is intended to be used with no restrictions based on the patent owner's actual use. Thus, the agency can even grant a license under the patent to a direct competitor.
As one might expect, march-in rights only apply under extreme circumstances such as a threat to public health that cannot be alleviated by the patent owner's use alone. An agency's judgment on this matter, as well as on the reasonable scope of license and its terms, is reviewable. However, a specific bioterrorism threat that an invention may help allay would arguably qualify as an appropriate public health concern.
Fortunately, the law does specify that the license must be "upon terms that are reasonable under the circumstances," so presumably some royalties would be required. However, small businesses relying on technology developed using government funds should give serious consideration to whether march-in rights might be applied to their technology, and how to either avoid assertion of such rights or to place themselves in the best position if march-in rights are exercised.
In assessing whether march-in rights are a possibility, first think about the issue from the side of the government by identifying likely forms and agents for bioterrorism and consider how your technology could be used in combating those threats. At the same time you might also want to consider if your technology can be used to create threats and take appropriate action to avoid this.
Next, take a step back and think about how likely it is that a particular form of bioterrorism will emerge and how useful your invention will be. This is a difficult prediction, but if there seems to be a real chance that your invention might play a role, further consideration is warranted.
If your anticipated uses of the technology are not likely to be applicable to bioterrorism, you might consider revising your business plan to tackle that problem, perhaps with additional federal funding. You might also consider finding your own licensees who could develop your technology in the counter-bioterrorism field before the government finds some for you. Otherwise, you can simply wait and see what happens and hope for royalties if the government does exercise march-in rights.
Savvy investors may well have questions if you follow this last course of action, so be prepared to explain to them why your core business will not be affected. You should also have a clear argument in mind as to why the government does not need to exercise march-in rights for the fields you are developing, lest an inappropriate license including those fields be granted to a competitor.
If your business plan follows a line that might lead to counter-bioterrorism applications, the situation is more complicated. If at all possible, you should position yourself to meet the public safety demands and think of arguments as to why your use of the technology is sufficient.
This may entail strategic partnering with other companies who also stand to be subject to march-in rights absent more strenuous development efforts. The possibility of march-in rights on their patents may actually induce some parties who may otherwise be uninterested in your company to consider partnerships and vice versa.
While remote, the possibility that march-in rights may be exercised requires small businesses to be proactive. It requires additional work to address the possibility, may require changes in business plans to keep full control of a technology, and could decrease the value of certain patents in which march-in is more likely.
Because the government has not used its march-in rights, how and to what extent they will be applied is extremely uncertain. The parties probably will differ as to whether use of march-in rights is warranted. The best ways to avoid march-in problems are to think and plan ahead and develop partnerships or shift funding as necessary and to have arguments in place to support your positions. This should allow you to do your part in combating bioterrorism without being forced to shoulder an unequal and unbearable part of the burden.
Rochelle K. Seide is a partner at the law firm of Baker Botts. She is experienced in biotechnology, intellectual property, and patent issues, and also has a Ph.D. in human genetics. Michelle LeCointe is an associate at Baker Botts and a registered patent agent. They can be reached at[email protected]and [email protected]
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