Don’t Undermine Innovation Under the Guise of Boosting Domestic Manufacturing

“The problem is that many times it is very difficult to find a company that can produce products in the United States. But restoring the micro-management of our technology transfer system will not change anything. “

One would think that the last thing the president needs when his poll numbers fall is pressure to make a casual mistake that cripples U.S. innovation. Under the pretext of expanding production capacity in the US, some are making a production order that allows bureaucracy to micro-manage our technology transfer system. This has already happened in the Ministry of Energy (DOE), and the catastrophic consequences are only becoming apparent.

This is being sold as a way to increase domestic production capacity, which is rightly President Biden’s priority. But spreading the misconception to all research agencies undermines the partnership between public and private research and development that has restored our technological leadership without doing anything to expand our production base.

What Bai-Dol says

The Bai-Dola Act requires that any invention funded from federal funds that is exclusively licensed for the domestic market should be produced here whenever possible. When Washington promoted globalization as a wave of the future, it was seen as an awkward nationalist anachronism. Now it is not nationalistic enough.

Please note that under the law, if a domestic manufacturer cannot be found, the patent owner (usually an academic institution) may ask the financial agency to refuse to seek a licensee. The agency can unequivocally deny this request, so it is hardly a trivial requirement.

Pressed without input

The economy ministry says it needs to revise all licenses, exclusive or not, because at Bai-Dol, important technology is leaking in reverse. They do not offer any evidence to support this assertion. They also want to consider changes in the ownership of any company that owns or licenses an invention funded by the Ministry of Economy. The standard for refusal is if they are “contrary to national or economic security” – as determined by the bureaucracy. Efforts are continuing to extend this idea to all research agencies under the new regulation.

This is promoted without the involvement of stakeholders to be affected. No one has bothered to consider its impact on the willingness of venture capitalists to fund startups that drive our economy.

We already have laws on export control. In addition, the United States Foreign Investment Committee (CFIUS) is reviewing pending transactions for national security reasons. Recent Article by Wall Street Journal shows that CFIUS is now considering one where an American startup seeks to transfer its technology to China, which has invested heavily in the company. So why do we need every federal agency that draws up its own export control / ownership policy? You may think that such a radical change will have a broad record that justifies it, but you are wrong.

A grim poll

These unprecedented changes are particularly relevant to AUTM (a global non-profit association whose members focus on transferring research from the lab to the market). “While we understand what the DOE is trying to achieve, we are concerned that such an approach will significantly impede the commercialization of inventions funded by the Ministry of Economy,” said AUTM CEO Stephen J. Dryer.

To assess the impact of DOE’s actions, AUTM interviewed its members – and responses confirmed growing suspicions. You can see the full poll here. In short, the survey showed:

  • At Bai-Do, research organizations pay for patents and licensing out of pocket. About 72% of respondents said it was “definitely” or “likely” to reduce their willingness to invest their resources in patenting the resulting inventions. Another 24% said it was “possible” to reduce their willingness to invest the necessary funds. Thus, 96% said that the actions of the Ministry of Health were detrimental to investing their own money in an attempt to commercialize the inventions.
  • Asked whether DOE’s actions would “significantly affect your ability to secure a potential licensee,” 63% said they would. Another 24% said it was “likely” to hinder licensing, and 13% said it was possible. None of the respondents said that it would have no effect or positively affect the possibility of licensing inventions funded by the Ministry of Economy.
  • Asked how the actions of the Ministry of Economy “affect the interest of your local angel investors in financing a start-up company” based on an invention made at the expense of the Ministry of Economy, 44% said it would “definitely” hinder interest. Another 33% said it was “likely to stifle interest” and 22% said it was “possible” to stifle interest. None of the respondents said that it will not affect or will positively affect the provision of venture financing.

There were also a few anonymous comments that are noteworthy:

  • “We will not choose ownership of an invention covered by the DEC (Ministry of Health Declaration on Exceptional Circumstances).”
  • “Our office has completely stopped all efforts to protect or license IP that are affected by DOE DEC.”
  • “We are much less likely to choose ownership of any invention to which this Declaration of the Ministry of Health applies.”
  • “In our office, we would have given up investing in patent protection from the beginning and would have returned the inventions directly to the government.”
  • “DOE has a fundamental misunderstanding of how difficult it is to license technology at an early stage and attract investment.”
  • «This is a bad policy that creates more problems than it fixes. This will cool the transfer of technology to companies that can bring to market, which, ironically, will give the federal government fewer solutions to their problems».

Imagine what it would be like if the administration extended this policy to all departments. Our public-private partnerships that drive our economy, restore America’s technological leadership, and unite to produce much-needed vaccines and treatments to combat Covid may collapse.

Turn the law upside down

Last fall, the Ministry of Economy without explaining the reasons began to introduce its new requirements in the agreement on university funding. After a series of calls, the agency issued a background statement. When this emerged, the Department of Health argued that the Bay Dole internal preference provision “was largely ineffective because of these textual limitations that allow recipients to easily maneuver around it”. No evidence to support this claim was provided. However, the agency referred to Bayh-Dole’s provision on “exceptional circumstances” so it could revise all licenses and property rights of the company.

This turns the law upside down. Bai-Dol was taken to put an end to micromanagement licensing in Washington. The law decentralized patent ownership to universities and small companies that create inventions through government funding. The result was one of the greatest explosions of innovation in American history.

Congress believed that the exceptional circumstances of the law would be just that – exceptional and rare. Agencies are allowed to restrict patent ownership in universities or small businesses in unusual cases, such as when patent ownership incentives are not needed to bring a product to market. The Senate Judicial Committee report – which I wrote – shows what Congress meant. Examples include when an agency is developing a product to meet the needs of federal regulations, or when an “agency plans to fully fund and promote” a product to market. Despite this, the Senate Judiciary Committee added: “It is expected that the exclusion of” exceptional circumstances “will be used sparingly.”

Micromanagement will not create domestic production

Congress has never considered broad exceptions. However, he believed that if any agency misused exceptional circumstances, it would be the Ministry of Health. Aware of the agency’s antipathy to Bay Dole, Congress has included a oversight regulation that requires agencies seeking to use the exceptional circumstances provision to obtain approval from the trade minister in charge of protecting the statute. In addition, exceptional circumstances can be invoked only if they “better contribute to the political goals” of Bai-Dol. The main goal is to commercialize inventions funded by federal funds. The new policy of the Ministry of Health is doing the opposite. As stated in the introduction to the survey: “AUTM believes in this [DOE’s exception] in fact, it dramatically slows down the commercialization of innovation. ”

Of all the institutions, the Ministry of Health has the worst performance in micromanagement. Bai-Dol fought bitterly with him. He then tried to exclude from the law any technology that is on the export control list, which was denied by the Ministry of Trade. Unfortunately, now that this is very necessary, Commerce is out of action. Senators Bay and Doe are probably spinning in their graves.

The crux of the problem is that many times it is very difficult to find a company that can manufacture products in the United States. But restoring the micromanagement of our technology transfer system will not change anything.

Hopefully the White House will get the message. Much depends on the result. Wrong this will not help the presidential poll figures.

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The image of Joseph Allen

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