Bayh-Dole stripped of contingencies, for universities, reduces to this:
Use the patent system to promote the practical application of inventions.
A federal agency is an agency, department, corporation, or other entity of the federal government. A contractor is any party to a funding agreement. A funding agreement is any grant, contract, or cooperative agreement for research, development, or experimental work, including any subcontract, substitution of parties, or assignment. A subject invention is a patentable invention owned by contractor.
Each funding agreement with a contractor shall contain provisions that
requires the contractor to disclose subject inventions to the federal agency within a reasonable time.
permits the federal government to receive title to any subject invention not disclosed to it within a reasonable time.
requires the funding agreement requirements to be flowed down in any subcontract.
The federal agency may, after consultation with the contractor, permit inventors to retain title to their inventions, subject to the regulations authorized by this Act.
Federal agencies are authorized to withhold for a reasonable time from public disclosure reports of subject inventions to allow patent applications to be filed.
That’s about it for universities. I’ve left out the federal invention side of the law, of course. But most everything else arises when inventors assign title. From this account, you can see that Bayh-Dole is actually about dealing with the contingencies of inventor choices. It’s not a vesting statute at all. It’s not even Congress’s little gift to subsidize the livelihood of patent brokers. Rather, Bayh-Dole limits federal agencies in their contracting for research from interfering with inventors making a choice to assign their inventions to a contractor. Agencies may still interfere, but it takes a declaration of “exceptional circumstances.” As with oversight for compliance, the government’s broad license to “practice and have practiced,” right to acquire inventions upon failure of the contractor, and march-in rights, federal agencies also don’t declare exceptional circumstances–almost nothing in Bayh-Dole declared as rights of the federal government gets exercised. Rights not used are waste, are empty, are worthless. The problem with all the government’s rights under the contracting required by Bayh-Dole is that they are merely for show. In practice, they are a mere administrative burden. In political terms, they were there to sweeten the pill down the throat of Congress. But otherwise, they are inoperative.
If one gets right down to it, this is Bayh-Dole:
Federal agencies must use a funding agreement that allows inventors to assign their inventions to any contractor. If an inventor does not assign to a contractor, then a federal agency may permit the inventor to continue to own the invention, but first must consult with the inventor’s employer.
Federal agencies must not interfere with an inventor’s assignment of an invention to the inventor’s employer or with how the inventor’s employer manages patent rights in any invention so assigned.
I expect you have not seen Bayh-Dole described in this way before. There’s not even anything in Bayh-Dole that requires federal agencies to require assignment of inventions if an inventor does not assign to a contractor. Think about that. There’s no guidance in Bayh-Dole or in the implementing regulations that requires inventors to assign to the federal government, other than for a failure to timely report inventions. Even our friend the (f)(2) clause only blocks contractors from making demands on inventors that would conflict with the patent rights clause. Inventors are required (by a contractor) to agree to protect the government’s interest in inventions, but even here, the clause stops short of requiring inventors to assign inventions if requested to do so by the federal government–other than if they don’t report timely their inventions. Otherwise, there would have to be some other clause in the patent rights clause under which a federal agency has the contractual right to require delivery of title if an inventor does not assign an invention to a contractor. But there is no such clause. Maybe it exists as a “presumption”–but if so it is a ghost not a contractual requirement.
That’s how messed up Bayh-Dole is. Perhaps being drafted in quasi-secret took its toll on the law. Or maybe the folks doing the drafting just weren’t up to the task. Or maybe things were screwed up in all the machinations to get something through Congress. In any event, Bayh-Dole strips federal agencies of their control of research contracting in the name of uniform (i.e., arbitrary) requirements, takes precedence over any other statute, but oddly does not expressly pre-empt executive branch patent policies–where federal agencies are required to contract for federal ownership of inventions made in research agreements except for the exceptions.
The rest of the objectives in Bayh-Dole, and the maze of technical requirements, involve what happens when an inventor does assign to a contractor. Nothing in Bayh-Dole requires contractors to obtain such title. The Supreme Court was clear on that point. So, most of Bayh-Dole is about the contingency when an inventor does assign to a contractor. Same for the rights the government needs to protect the public–under Bayh-Dole, if inventors retain their invention ownership, then Bayh-Dole does not stipulate even that the government must get a non-exclusive license. It’s left up to the implementing regulations, and as those stand, a non-exclusive government license is *not* in the list of requirements at 37 CFR 401.9. An agency might add a non-exclusive license to its funding agreement in the event that an inventor does not assign to a contractor, but there’s nothing in Bayh-Dole that expressly authorizes such a clause. It would be, apparently, an “exceptional circumstance” under 35 USC 202(a)(ii):
(ii) in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter
Note here that “the right to retain title” is not restricted to a contractor. Since inventors also may “retain title” (though they have no right to do so–but they also have no obligation to give up title, other than if they fail to report inventions–and even that is a doubtful obligation unless they have made the (f)(2) agreement, since without (f)(2), they are not contractors and their inventions are not subject inventions and they have no obligation, technically, to report them to either the government or to a contractor. One would think that federal agencies would insist on an exceptional circumstance: “if in the exceptional case that an inventor does not assign an invention made with federal support to a contractor, then the inventor shall, upon written request by the federal agency, such request to be made no later than sixty days from being informed by the inventor of the inventor’s retention of title, to assign the invention to the federal government.”
Everything else in Bayh-Dole, most of sections 200, 201, 202, and 203 is contingency–if an invention becomes a subject invention, if a contractor acquires an invention, if a contractor fails to comply, if a contractor assigns, if a contractor licenses, if a contractor subcontracts, if a contractor makes money, if a contractor is asked to report, if the contractor is a nonprofit . . . .
The Inventor Rights Clause
There still will be an apparatus to deal with what happens when a contractor gets ahold of an invention, but that’s different. There also may be a “standard patent rights clause” for inventors–just as there is presently–but it might be even simpler than we have now, since the only issue in a stripped down Bayh-Dole is what happens if the inventor messes up with management of the invention. As it stands, the patent rights clause specific to inventors in the implementing regulations (37 CFR 401.9) is more favorable to inventors than even to small businesses–
inventors must include a federal funding statement in patent applications (f)(4);
inventors must require U.S. manufacturing for any exclusive U.S. license (i);
agencies may request assignment for patent rights in countries inventors don’t secure and maintain patents (d)(3);
agencies may request reporting on invention use (h);
agencies may march-in (j).
Pretty simple stuff. I’ve left off (d)(1) because once we get to this clause we are already past failures to report inventions–and for all that, neither reporting or assigning are required by Bayh-Dole, so a standard patent rights clause does not need to worry these things either. But what’s odd is that 37 CFR 401.9 is not a contract with inventors. It’s something that happens after the fact of invention, reporting, and inventors not assigning to a contractor, and a contractor being consulted by the federal agency.
If Bayh-Dole were built to be functional and not a bunch of hand-waving and moralizing about public benefit and the like, then we’d have an (f)(2) clause that expressly referenced 37 CFR 401.9. It would have a clause that said, in effect, contractor will require inventors to make a written agreement to comply with 37 CFR 401.9 in the event that the inventors do not assign their inventions to a contractor. And the contractor would have to actually see that this agreement got made for it to have effect. As it is, it appears that 37 CFR 401.9 is simply imposed on inventors, as if it is a discretionary law, to be thumped down whenever a federal agency wants to. In which case, why not treat the rest of 37 CFR 400 this way–why all the fuss about contractors granting non-exclusive licenses to the government? Why make it a standard patent rights clause to be incorporated into funding agreements? Why not impose it, regardless of the funding agreement? It’s hard to be rational around such goofiness.
If there’s a kind of contract represented by 37 CFR 401.9, then it involves some ghostly idea that the federal government has a right to require assignment and in exchange for not doing so, an inventor will happily agree to the few requirements proposed. But again, there is no such requirement to assign in Bayh-Dole, other than for a failure to timely report inventions. And even that report is based on an invention being a subject invention. There’s no requirement on inventions that aren’t subject inventions. And no invention is a subject invention unless an inventor assigns to a contractor or becomes a contractor by making the (f)(2) agreement. What a mess! What an awful way to manage the inventive output of $40b of annual federal support for university research. A dunderheaded hack job all the way down.
Yeah. Go look. There’s no requirement that inventors report anything in Bayh-Dole. Only that contractors report subject inventions to the federal government. And inventors aren’t contractors unless (f)(2) is complied with. And there’s no requirement that inventors assign inventions to anyone, either. Certainly not to their employers. Not even to the federal government. There’s only the generic penalty clause that must be included in any funding agreement that if a subject invention isn’t reported timely, then a federal agency may obtain assignment. So if a contractor owns an invention and doesn’t report it, then the federal agency can take title. Otherwise, Bayh-Dole is silent on the matter. Folks just make things up as they go. You know, because Bayh-Dole isn’t a clear statement on the matter.
Bayh-Dole gives inventors a choice. Without them, the issue is simply between a federal agency and an inventor. Will the federal government take title or not? As 37 CFR 401.9 makes evident, whether a federal agency requests ownership of an invention is a matter of agency policy and throwing its weight around, not the standard patent rights clause nor Bayh-Dole.
Bayh-Dole does not require a federal agency to acquire title to an invention any more than it requires university contractors to acquire title, or inventors to assign title to university contractors. It is up to each agency to decide whether to request title from inventors. Same as it ever was. No uniform treatment. No “title certainty” for the inventor until the federal agency decides. It’s still up to the policy and determination of each federal agency, case by case. So Bayh-Dole makes things “uniform” for contractors–and especially for patent brokers made into contractors by assignment or substitution of parties–and leaves things a mess for inventors. I guess that’s the result of universities and patent brokers writing the law and boohoohoo for inventors missing out. Funny how patent brokers figured out how to pencil themselves in as the primary agents of innovation for American federal research. Clever, if not also morally bankrupt. Certainly the results have been a disaster, regardless.
If a federal agency has a policy under which it may request title to inventions from inventors (and somehow implements that policy so that it applies to inventors, despite the indifference of Bayh-Dole), it is up to the inventor to make a case for retaining title: “I’ll do a good job with the patent rights, to promote the use of the invention, and to make it publicly available on reasonable terms, and maybe even call forth private capital to develop the invention, and if I license, I’ll make sure that exclusivity is short-lived and exclusive U.S. licenses will require making stuff in the U.S., too.” That sort of thing, or whatever will make federal agency officials happy. Official happiness ought to be a primary element of federal innovation policy, after all. The burden is on the inventor to please.
Of course, none of this ever happens, because university administrators refuse to permit it. But their decisions are not based on the core of Bayh-Dole, but on exploiting Bayh-Dole’s contingencies, ambiguities, and lapses.
Add Back the Contingencies
Now let’s add back in those contingencies. According to Bayh-Dole, an inventor may also assign to a contractor–such as the organization that hosts the research or to an organization designated by the research host or to an organization that has as a primary function the management of inventions, or really any organization at all (just as small businesses under Bayh-Dole have no restrictions on assignment), just so long as the assignee is a contractor (and assignment is one of the ways a party becomes party to a funding agreement). It’s just that the inventor is exposed at all points to a federal agency’s request for assignment (if only for lack of timely reporting). So inventors’ actions to assign carry with them an uncertainty with regard to federal government interest in title to inventions, unless the assignments meet the conditions for retention of assigned title. If (f)(2) is used, then inventors are contractors–i.e., parties to a funding agreement–and any assignment they make makes the assignee a party to the funding agreement if the assignee is not a party already.
Geez–imagine what would have happened if Stanford had complied with (f)(2) when they brought their post doc into the federally funded research. Then, when the post doc’s assignment to Cetus/Roche became effective, Roche would have become a contractor, subject to the nonprofit requirements that applied to Stanford. Roche would still have won the court case on Bayh-Dole vesting, but it would have felt the desire to burp up the rights in a jiffy when it discovered it was constrained to use the proceeds from the use of the invention only for scientific research or education (after recovering costs for subject inventions and sharing its proceeds with the inventors–not with Stanford). I expect Roche would have been more than happy to pay something to Stanford, too, in order to launder its own proceeds to be used in whatever way Roche wanted.
Here’s how Bayh-Dole sets the contingent things up, then for inventor choice:
If the inventor assigns to a contractor–a party to the funding agreement under which the invention was made–then the invention becomes a subject invention and a bunch of things kick in. First, the contractor may elect to retain title, and if so, then the federal agency cannot request assignment unless the contractor fails to comply with invention management requirements in the standard patent rights clause. Second, the contractor has to deal with the requirements of the standard patent rights clause. There’s a version for small businesses, and another version for nonprofits. The nonprofit version has more restrictions. Bayh-Dole trusts the nonprofits less than the small businesses.
If the inventor assigns to anyone else, then if the assignee (now a contractor) accepts the requirements of the funding agreement, may retain title to the invention. If the assignee does not accept the requirements of the funding agreement, then the assignee is exposed to the same federal agency claims that the inventor is exposed to–uncertainty of title until the federal agency decides, burden on the assignee to play nice and make federal officials happy. There’s gaps in all this–Bayh-Dole doesn’t technically do these things, but we can pretend this is sort of what the law may have been intended to do.
So there’s the situation. Inventors own inventions made with federal support like they do any other invention. If a federal agency requires assignment, then the inventor can choose instead to assign a contractor (employer, research host, any assignee accepting the patent rights clause terms of the funding agreement), and then the standard patent rights clause for the contractor-host kicks in. By assigning to a contractor, the inventor may avoid a federal agency’s request for assignment. Notice that while nonprofits are expressly limited in who they may assign subject inventions to, small businesses contractors and inventors are not. Another strike against Congressional trust of nonprofits in matters of invention management.
That’s the guts of Bayh-Dole–if an inventor assigns to a contractor, then the federal agency gets only a non-exclusive license and cannot require assignment unless the contractor messes up or backs out.
The (f)(2) Agreement
Now we must add in one more thing, the (f)(2) agreement requirement. This messes up everything in strange and wonderful ways. Keep in mind, Bayh-Dole does not stipulate the (f)(2) agreement expressly. The only clause that comes close is 35 USC 202(c)(1). But (f)(2) is there, so let’s deal with it.
One effect of (f)(2) is to make every inventor-employee into a contractor. It does this by requiring the contractor to require potential inventor-employees to make an agreement to protect the government’s interest under the funding agreement–and this requirement, set up as it is, functions to require the contractor to substitute parties or assign to potential inventor-employees certain responsibilities under the funding agreement–under the patent rights clause of the funding agreement: to report subject inventions, to sign papers for patent applications, to sign papers to establish the government’s rights.
A second effect: once an inventor-employee is a contractor, then every patentable invention made under the funding agreement is a subject invention, because the inventor-employee owns the invention outright when the invention is made, by common law. Thus, everything in the standard patent rights clause pertaining to subject inventions comes into play–reporting, assigning, and the like. It’s just that inventors are to be treated as small business contractors, even if they work for a nonprofit. So there’s some differences in what parts of the standard patent rights clause apply to them. At least what’s laid out in 37 CFR 401.9–but that’s only if the inventors are allowed to retain ownership–and we aren’t at that point yet–so the other aspects of the standard patent right are still in play.
A third effect: when a contractor requires the (f)(2) agreement, the contractor displaces any other requirement that involves the same subject matter–subject inventions. This is something perhaps unexpected, so consider it carefully. If a contractor requires employees to make a federal agreement as part of a federal agreement, then the contractor necessarily displaces anything otherwise that the contractor might require (by policy, employment, employment agreement, patent agreement). The new requirement displaces prior requirements. The new requirement involves a federal agreement that takes precedence over state contracts.
Thus, the fourth effect: the new requirement secures for inventors rights in their inventions until they make a decision on assignment, and if they refuse assignment to another contractor (which is their right under (f)(2)), then their ownership of invention is contingent on federal agency approval, per 35 USC 202(d) and the corresponding patent rights clause at 37 CFR 401.9.
The (f)(2) requirement is clever. It has an arguable standing under Bayh-Dole–more so than, say, the residual rights held by the contractor when the government takes title, which is nowhere in Bayh-Dole. If complied with, (f)(2) makes every inventor a contractor, makes the patent rights clause take precedence over any other contractor agreements, and gives inventor-contractors a choice between assignment to another contractor or take things up with a federal agency.
Again, nothing in Bayh-Dole compels inventors to assign to their employer. And (f)(2) compels employers to substitute the patent rights clause for whatever demands their policies and agreements and conditions might require. Inventors get a choice, then, between assigning to another contractor (employer, invention management agent, or otherwise) and dealing with the federal agency. Three possible outcomes: inventor assigns to contractor, inventor assigns to the federal government, agency allows inventor to retain ownership–and the inventor’s employer can’t do anything about it, having already delegated ownership via (f)(2). That is, the inventor’s employer can’t wait for the federal government to allow an inventor to retain title and then invoke policy or employment agreement or whatever to demand assignment of title. (f)(2) precludes that.
Essentially (f)(2) does for inventors what a parallel requirement in the standard patent rights clause does for subcontractors (a requirement also not in Bayh-Dole): contractors are prohibited from having an interest in subject inventions made by subcontractors. An inventor becomes, in effect, a subcontractor, not as an independent party (since inventors subject to (f)(2) must also be employees, per (f)(2)) but rather as a substituted party.
When Everyone Knows the Options Everyone Else Has
This discussion is sort of like working through a family tree. Fathers, mothers, sons, and daughters are easy. Aunts and uncles and cousins and grandparents are okay. But if we go a bit further, things tend to get murky–great uncles, cousins twice removed–even if we accept that the relationships are there. For subject inventions, the next step out is to consider how folks might behave if they know the options available to everyone else.
First, if inventors know they own, subject to a promise to assign to the federal government on request, then they can use that position to negotiate with their employer and any other contractor. The employer, having delegated via (f)(2) the responsibility for and ownership of subject inventions to the inventors, must negotiate to acquire rights back. This negotiation sets up the opportunity for the inventor–the employer (or any other organization that will accept the patent rights clause the employer accepted) must make a case to the inventor that’s better than assigning to the federal government or retaining title (with federal government approval). If the inventor knows that the federal government will require assignment, or that the federal government won’t require assignment, then the decision is even simpler.
Similarly, if the federal agency knows that an inventor can assign to another contractor, then the agency has to make a case if it wants title. If the inventor does not want to assign to the government, then the inventor is free to assign to another contractor. The federal government, then, can change the inventor’s bargaining power with other contractors by deciding on whether the agency will request title. That’s the interesting thing.
Bayh-Dole has no protections for inventors or third parties, as the Supreme Court noted. But the standard patent rights clause does–for subcontractors (g) and inventors (f)(2). It’s just that no university implements the (f)(2) provision–deliberate non-compliance–and even federal agencies (like NIST, apparently) believe the widespread misrepresentation that (f)(2) is supposed to be a requirement that inventors must assign subject inventions to their employers.
The Supreme Court made clear that Bayh-Dole does not require assignment of subject inventions to employers. And the Supreme Court also made clear that an invention is not a subject invention until it is “of the contractor”–meaning owned by a contractor. Without (f)(2), no invention made in the performance of a funding agreement is a subject invention until it is owned by a contractor. Without (f)(2), inventors have no obligation under the funding agreement to report their inventions, nor to assign to the federal government. Fascinating. University administrators can scramble to fix the problem in strange, draconic, and non-compliant ways (such as requiring present assignment agreements), but federal agencies have a responsibility to enforce the (f)(2) provision as it stands, the only provision in the whole complex of law and regulation that protects inventors and provides a check on contractors’ patent policies and practices.
If NIST wants to “clarify” (f)(2), they should “clarify” that non-compliance is not an option. They should “clarify” that (f)(2) creates a substitution of parties and that inventors become contractors. They should “clarify” that (f)(2) takes precedence over any other contractor claims to subject inventions. It’s there to protect inventors from the predatory practices of other contractors. Bayh-Dole’s contingencies should remain contingencies–If a contractor obtains title (by assignment), then these are the conditions under which the contractor-assignee may retain that title.
So here’s the standard sequence, once everyone is clear on everyone else’s contingencies:
(f)(2) agreement (by inventors; become contractors).
Invention is made.
Inventor reports, per (f)(2), via another contractor, to the federal agency.
Employer has no claim per (f)(2) delegation to inventor.
Inventor asks agency whether agency will allow inventor ownership.
In parallel, the inventor may negotiate assignment with employer with regard to the terms of the assignment.
If the employer has a take-it-or-leave it patent policy (called a “uniform” approach), then the inventor may consider any other alternative, provided the federal agency does not demand ownership.
Agency consults with employer (a contractor).
If the agency indicates it will claim, then inventor decides whether to assign to government or to a contractor.
If the agency does not claim, then inventor decides whether to retain ownership or assign to anyone without restriction–not limited to employer or contractor– other than the requirements of 37 CFR 401.9.
This sequence, as far as I know, also never happens, even though it tracks the law, the regulations, the standard patent rights clause, and the inventor’s rights clause. Instead, we have rampant predatory institutional behaviors, really amazingly awful licensing practices and performance outcomes, monopoly-happy drug prices, and very happy patent brokers.