When the feds fund academic research, the resulting inventions are supposed to be made in America. But that requirement has been all but forgotten.
China is not manipulating its currency to our detriment, and NAFTA is a good thing for the U.S. economy. But Donald Trump has been right in his basic observation — as both candidate and president — that we need to do more to address our country’s trade deficit, how other countries “game” international trade, and how American jobs move offshore. Trump may not realize it but he could advance his “Buy American and Hire American” goals by activating a policy tool already buried in U.S. patent law.
Year in and year out, the federal government has spent tens of billions of dollars supporting scientific and technological research — for example, more than $131 billion in 2015 alone. Before 1980, federal agencies had different policies on inventions resulting from this federally funded research, with most of them reserving any patent rights to the federal government. That meant there was a vast trove of inventions collecting dust in government files: As of 1980, there were 28,000 patents held by the government this way — and fewer than 4% had been licensed for commercial use. While many of those were patents on military technology — and shouldn’t be licensed — there was clearly underutilization of a vast technological portfolio.
Named after its bipartisan Senate sponsors, the 1980 Bayh-Dole Act reversed all this, establishing a governmentwide policy that gave the patent rights to the university or non-profit receiving the research grant. The idea was that putting the rights with a university that would have a financial incentive for licensing — and closer to the inventor who understands the invention’s potential — would lead to greater commercialization of government-funded inventions.
There is practically no question that the technology transfer triggered by this new system has been a boon to the U.S. economy. According to one survey, university-licensed products in the past 20 years have generated up to 4 million jobs and contributed somewhere up to $600 billion to gross domestic product.
It’s easy to look back on Bayh-Dole as a cool, calculated policy decision. But it was also a reaction to concerns over industrial decline. As The Economist later described the environment at the time, “Japan was busy snuffing out Pittsburgh’s steel mills, driving Detroit off the road, and beginning its assault on Silicon Valley.”
Given that context, it’s no surprise that Bayh-Dole has a very explicit “make it in America” provision. Section 204 of the law says no recipient of federal research monies — and that would be all or most research at some universities — may sell or license an invention to anyone “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.”
This requirement may be waived by the federal government only upon a showing that there were “reasonable but unsuccessful efforts” to find American manufacturers who could make the product and make a profit on it.
Yet this provision of the law has been all but forgotten. Commentaries on Bayh-Dole almost never mention it. When an issue concerning the Bayh-Dole Act finally reached the Supreme Court in 2010, the briefs before the court described the law’s many requirements but effectively ignored the “make it in America” provision.
Truth is, we don’t know how many of the private licensees of federally funded technology are complying with this provision. While in general terms, we know that Bayh-Dole has been an economic success, the federal government has failed to monitor the system carefully. As a 2010 report from the National Academies of Sciences concluded, “Although effective in its primary purpose, the Bayh-Dole Act’s authors and implementers failed to establish a stable, effective framework for government oversight.”
What would happen if a systemwide audit showed that universities have largely failed to include this “make it in America” provision in their license agreements with private industry? The bottom line is that the federal government has “march-in rights.” There is no ambiguity: You either are meeting the make-it-in-America requirement, you obtained a waiver from it, or the government can “march in” and license a different company. Yet over the decades, the march-in has never been used.
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In keeping with his “Buy American and Hire American” executive order, Trump’s trade team should imagine how the Bayh-Dole Act can be used. First, we need a comprehensive audit of all the Bayh-Dole assignments and licenses. We need to find out how many federally funded inventions have been “off-shored.” Then, the administration’s message should be simple: If you moved (or are considering moving) manufacturing that uses federally funded technology out of America, we will “march-in” and license the technology to someone who will produce in America.
And all this is possible because of a bipartisan law from a time when NAFTA didn’t exist and “twitter” meant the chirping of birds.
Justin Hughes teaches international trade and intellectual property courses at Loyola Law School, Los Angeles. In 2009-13, he served as senior adviser to the undersecretary of Commerce for intellectual property.
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