A Glimmer of an Idea on an Experimental Use Exemption

By Kevin E. Noonan --

One of the most powerful, visceral arguments made by the American Civil Liberties Union in Assoc. Molecular Pathol. v. Myriad Genetics, 689 F. 3d 1303 (2013), was that permitting Myriad and the University of Utah to have patent rights to isolated human DNA inhibited basic research.  Indeed, the meme that patents can interfere with free access to the "building blocks" of science and technology can be found in Supreme Court dicta from Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948), to Myriad and Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S.Ct. 1289 (2012).  Similarly, opponents of the Bayh-Dole Act (codified at 35 U.S.C. §§ 200-212), which permits universities to patent inventions made using Federal funding, base some of their arguments on the inequity visited on the public in allowing these inventions to be protected by patent and thus (at least technically) making scientific and research use an act of infringement.

These concerns were exacerbated by the Federal Circuit decision in Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002), where the Court agreed that the practice of a patented invention by Duke University researchers was not protected by an "experimental use" exemption.  In doing so, the Court recharacterized the nature of such scientific use by universities, ostensibly based on the "commercial" nature of modern university practice:

In short, regardless of whether a particular institution or entity is engaged in an endeavor for commercial gain, so long as the act is in furtherance of the alleged infringer's legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense.  Moreover, the profit or non-profit status of the user is not determinative.

This decision cabined the (common law) experimental use exemption to activities akin to the Victorian practice of observing with crude microscopes rotifers in a drop of pond water as an after-dinner amusement amongst gentlemen.  The Court's reasoning was set forth as follows:

Our precedent clearly does not immunize use that is in any way commercial in nature.  Similarly, our precedent does not immunize any conduct that is in keeping with the alleged infringer's legitimate business, regardless of commercial implications.  For example, major research universities, such as Duke, often sanction and fund research projects with arguably no commercial application whatsoever.  However, these projects unmistakably further the institution's legitimate business objectives, including educating and enlightening students and faculty participating in these projects.  These projects also serve, for example, to increase the status of the institution and lure lucrative research grants, students and faculty.

Regardless of the practicality of these distinctions, there the law has rested ever since, and it is generally recognized that there is no effective experimental use exemption under U.S. patent law.

There are, of course, exemptions to infringement liability in the statute; for example, 35 U.S.C. § 287(c) provides:

(1) With respect to a medical practitioner's performance of a medical activity that constitutes an infringement under section 271(a) or (b), the provisions of sections 281, 283, 284, and 285 shall not apply against the medical practitioner or against a related health care entity with respect to such medical activity.

where

"medical activity" means the performance of a medical or surgical procedure on a body, but shall not include (i) the use of a patented machine, manufacture, or composition of matter in violation of such patent, (ii) the practice of a patented use of a composition of matter in violation of such patent, or (iii) the practice of a process in violation of a biotechnology patent.

"medical practitioner" means any natural person who is licensed by a State to provide the medical activity described in subsection (c)(1) or who is acting under the direction of such person in the performance of the medical activity.

"body" shall mean a human body, organ or cadaver, or a nonhuman animal used in medical research or instruction directly relating to the treatment of humans.

And the exemption does not apply to activities directly related to "commercial development, manufacture, sale, importation, or distribution of a machine, manufacture, or composition of matter or the provision of pharmacy or clinical laboratory services (other than clinical laboratory services provided in a physician's office)," and "regulated under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, or the Clinical Laboratories Improvement Act."

Since the Madey decision there has been no traction for expanding the statutory exemption beyond the scope of § 287(c), but the Court's Madey decision itself provides a possible hint at a path forward.  In footnote 6 of the opinion, the Court states (citing footnote 3 in the District Court's opinion):

In a footnote, the district court cites to a section from the Bayh-Dole Act to support its reasoning that the government has a license to have patents practiced on its behalf when the government contributed to the funding of such patents.  Id. at 16 n. 3 (citing 35 U.S.C. § 202(c)(4) (2000)).  The relevant section is set forth below.

(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: (4) With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world․  35 U.S.C. § 202(c)(4) (2000).

The district court stated that the "funding agreements for the inventions created under the ′994 and ′103 patents[-in-suit] expressly provide that the Government retained rights in those inventions."  Id.  Thus, the district court reasoned, in light of the Bayh-Dole Act, Duke's use of the patents that has been authorized by the government does not constitute patent infringement.  Finally, the district court noted that: "[a]lthough the parties have presented conflicting evidence as to the extent to which the patented devices have been used for a purpose consented to by the Government, because [Madey] has failed to create a genuine issue of material fact as to whether [Duke] has commercially benefited or intends to do so with respect to the patents at issue, the uses that have been made to date with respect to both patents are, at this point, exempt from infringement liability."  Id.

The Bayh-Dole Act itself expressly provides limits and direction on how technology patented and licensed by universities under its provisions should behave; for example, in 35 U.S.C. § 204:

Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States [subject to waiver under conditions where this proscription cannot be carried out].  (Added Pub. L. 96–517, § 6(a), Dec. 12, 1980, 94 Stat. 3023.)

This suggests a possible avenue to enact at least a partial experimental use exemption for the members of society most impacted by even technical liability for infringement (i.e., university researchers, where the overwhelming amount of such technical infringement occurs).  Specifically, Congress could amend the Bayh-Dole Act to provide that licenses of university technologies contain, and the universities themselves be bound to grant, non-exclusive licenses to use patented technology to university researchers for non-commercial purposes:

Any patent subject to the provisions of this title, and any license to any such patent granted to any commercial entity, shall be subject to a non-exclusive license to practice the patented invention for non-commercial research purposes by researchers of a U.S. university, non-profit organization, or other scientific research institute.

The statute would be limited to university patents and to university or other research institutes or organizations, but it is precisely these patents and these entities purportedly most negatively affected by the present existence of technical infringement liability (and were the entities involved in Madey v. Duke).  The proposed statutory change is not intended to be a panacea, but its existence could ameliorate the angst felt by lawmakers and the judiciary (as well as policymakers and pundits) by the possible chilling effect of patenting on innovation.  Make no mistake, the evidence is scant that there has been any such chill; after all, the poster child for the effects of this behavior, the Myriad gene patents, had tens of thousands of scientific papers published from grant to invalidation by the Supreme Court and Federal Circuit (see "In Defense of Patenting").  But to the extent that this is a genuine issue, actual or potential, having a statutory shield for any possible misbehavior by patentees (and their licensees) might influence policymakers to be less mindful of the rhetoric and more cognizant of the benefits of almost forty years of technology transfer under the Bayh-Dole Act.

Comments

[EG]

Hey Kevin,

I'm very leery of creating the research exemption you propose as I seen no data to support the need for such an exemption. I remember seeing during the Madey case (which I view more as a "spiteful" assertion by a disgruntled former university director/employee at Duke) that there was concern that, without such an exemption, research would be stifled, for example, biotech. But tens of thousands of biotech applications were being filed every year, so obviously biotech research was not being stifled. I've heard that same tired theory that patenting "can inhibit future research" by SCOTUS in Mayo but without any data to suggest that's true.

Frankly, patent owners are not going to assert their patents willy-nilly simply because someone engages in research that might arguably infringe unless there's a monetary reason to do so. So until I see a reliable study that says future research is truly inhibited by patents, it's all speculation. In fact, the anecdotal evidence suggests that the opposite happens as others develop competing technologies to avoid such infringement.

[Kevin E Noonan]

In many ways, EG, perception is everything. The legal academy has been touting the Swedish Alzheimer mouse model (and abuses of the patents therefor) as evidence of the propensity for university-derived patents to be abused. Rather than see this for what it is (the exception that probes the rule) they make it into the rule. And they are very persuasive to zealous legislative aides and judges of particular persuasions, who for their own political reasons believe universities shouldn't be patenting, regardless of the data that shows the societal benefits of Bayh-Dole. They are very fond of imagining a world without patents, where all of the benefits to innovation that have accrued in the world we actually inhabit would have also arisen in the patentees world.

So if something like what I proposed would help ameliorate this particular siren song regarding patenting it would be worth it, even if (or perhaps especially if) it doesn't actually change anything.

Thanks for the comment.

[Atari Man]

"inequity visited", or did you mean to write "iniquity visited"?

[Kevin E Noonan]

Could be either, I suppose but I meant "inequity" (could have been "inequities" but didn't want to overstate it.

Thanks for the comment

[Kevin E Noonan]

Two other thoughts. First, I wonder whether this could be accomplished by rule under Bayh-Dole, i.e., whether an administrative agency (HHS for NIH research grants, for example) could make this license happen by regulation? That would comport with the District Court's footnote. But it would run the risk of Justice Gorsuch's ire regarding overreach of the judiciary.

Second, if Congress enacted such a provision could it amount to a taking to be recompensed? Would in some instances be problematical but unversities wouild have standing on the question I think.

[Warren Woessner]

University researchers who, for example, experiment on a patented drug to improve its activity (as by making derivatives) would be shielded from liability by the safe harbor of 271(e)(1). They would be using the patented drug "solely for uses reasonably related to the development and submission [of an NDA, to the FFDA]. I think that such activities would fall within the safe harbor even if the university researcher did not have support by a commercial entity.

[Kevin E Noonan]

Sorry, I meant to say "overreach of the administrative state" above.

[Martin H Snyder]

Methods that result in new and useful information need an eligibility check. If the utility and infringing acts arise from the information being consumed by persons, the method should not be eligible.

That's how we protect research and the passing of an economic culture from hand to hand.

Information consumed by non-humans cannot be abstract. No human mind, no abstraction. Information used to help machines work are machine parts.

35 U.S.C. § 204 seems about as clear as can be that researchers should have access to the government's license- certainly for activities that are not directly commercial.

[EG]

Hey Kevin,

Those who "believe universities shouldn't be patenting, regardless of the data that shows the societal benefits of Bayh-Dole" are living in a utopian "dream world" untethered to any sort of reality. It's well documented that, prior to Bayh-Dole, failure to allow universities to retain patent rights in government-sponsored research resulted in little, if any commercialization of the technology created by such research. Or put differently, expecting altruism to motivate others to commercialize university research which is unpatented is a "pipe dream."

[Skeptical]

I cannot agree with this characterization:

"This decision cabined the (common law) experimental use exemption to activities akin to the Victorian practice of observing with crude microscopes rotifers in a drop of pond water as an after-dinner amusement amongst gentlemen."

I think this avoids the recognition that modern day universities may NOT be performing activities that PROPERLY earn the experimental exception label. Cozying with industry does not -- and should not -- obtain the research exception on any type of "per se" notion. As to the "label" of non-profit or for profit, that label really has little to do with money-making activities of the type for which the research exception simply should not apply.

I "get" that the GENERAL BUSINESS MODEL has morphed from corporations having their own think tanks and product development experimentation set-ups to basically "out-sourcing" this TO universities. But a rose by any other name still is a rose, and what the "pure research" aspect that had earned the research exception had to do with simply evaporates with the morphed business model.

[Kevin E Noonan]

Martin: I think 35 U.S.C. § 204 just says there can be no exclusive license granted on university technology "unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States." I don't read a grant back license provision in that part of the statute.

[Kevin E Noonan]

Skeptical: of course commercial activities should not be exempt. I read the Madey decision as saying that the normal research activities of a university - devoid of any frank commercial partnership or license - is itself commercial activity:

"major research universities, such as Duke, often sanction and fund research projects with arguably no commercial application whatsoever. However, these projects unmistakably further the institution's legitimate business objectives, including educating and enlightening students and faculty participating in these projects."

So I think when the Court goes on to say

" so long as the act is in furtherance of the alleged infringer's legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense"

it is in that context, hence the rotifer analogy.