The consequences of Bayh-Dole non-disclosure of inventions, 3

Posted on October 23, 2019 by Gerald Barnett

Finally, we reach a non-empty consequence of an invention becoming a subject invention, even if not disclosed to the federal agency. This consequence has to do specifically with subject inventions made under the nonprofit patent rights clause. Bayh-Dole stipulates that each federal funding agreement will contain a standard patent rights clause. But there are three versions of this clause–one version for nonprofits, another version for small business contractors, and a third version for inventors treated as small business contractors. NIST has created a fourth version, taking up Reagan’s extension of Bayh-Dole practices to large company contractors–but botches this version because Reagan’s executive order cannot preempt federal law nor can it use Bayh-Dole to preempt federal law for contractors that are beyond the scope of Bayh-Dole.

Anyway, the general idea in Bayh-Dole is that contractors operate under the version of the standard patent rights clause that is appropriate to them. Thus, nonprofits have 37 CFR 401.14(a) thru (l), small business contractors have 37 CFR 401.14(a) thru (l) but not (k), and inventors as small business contractors have a subset of the small business contractor clause as set out at 37 CFR 401.9. The implementing regulations for Bayh-Dole stipulate that when a contractor adds parties to a funding agreement by subcontract, the subcontract’s patent rights clause takes the form appropriate to the status of the subcontractor. If the prime contractor is a for-profit and a subcontractor is a nonprofit, then the nonprofit subcontractor operates under the nonprofit version of the standard patent rights clause even though the for-profit operates under the for-profit version.

However, this is not the case when a nonprofit prime contractor adds parties to the funding agreement by assignment. Here Bayh-Dole is express that in this situation, the assignee must operate under the nonprofit’s patent rights clause. Once a subject invention is acquired by a nonprofit contractor, the nonprofit patent rights clause–and in particular paragraph (k)–applies to any assignee (35 USC 202(c)(7)(A)): Continue reading →

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The consequences of Bayh-Dole non-disclosure of inventions, 2

Posted on October 22, 2019 by Gerald Barnett

We are looking at the consequences of a contractor not disclosing a subject invention to the federal agency that funded work in which the invention was made. One consequence is that the federal agency “may receive title” to such an undisclosed invention, provided that the federal agency finds out that an invention has not been disclosed and then is able to define that invention with sufficient clarity (i.e., obtains disclosure) so that it can properly require the contractor to convey title in that invention. Logically and practically, this requirement is a mess. How do federal agencies find out that there’s a subject invention out there–if the invention has not been disclosed? And what public good is served by the federal government taking ownership of such an invention? No, this way leads to economic mayhem, not to any particular public advantage.

One might say, then, that disclosure is the necessary step to enable Bayh-Dole preemption of other federal statutes and regulations pertaining to ownership. But that’s the case only with regard to the disposition of ownership of subject inventions as between a contractor and the laws under which that federal agency contracts for research other than under the Bayh-Dole standard patent rights clause. Whether or not a federal agency has the right to require assignment of a subject invention is distinct from the other requirements imposed on subject inventions by Bayh-Dole. Continue reading →

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The consequences of Bayh-Dole non-disclosure of inventions, 1

Posted on October 21, 2019 by Gerald Barnett

If the federal government had the courage to enforce any one thing in Bayh-Dole, it would be the nonprofit assignment and accounting requirements at 35 USC 202(c)(7). The federal government taking title to non-disclosed subject inventions is mostly useless. Let me explain. Continue reading →

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Invention is not a thing, 14

Posted on October 18, 2019 by Gerald Barnett

Bayh-Dole’s public protection apparatus, even unused as it is, makes it clear that the federal invention economic system is intended to be different from that of private exploitation of patents for financial gain. In the federal economic system, patents are to be used to promote use, not suppress use, of all instances of any given invention. This is dramatically different than the idea of simply expanding private speculation on patents to include inventions that have been made in publicly directed projects, as if patent speculators don’t have enough opportunities to speculate and need a federal welfare program in the form of research grants and contracts to help them in their struggle for huge, lottery-style upsides.

For governments that hold patents on inventions, whether federally supported or not, these issues are magnified. State governments, unlike private parties, have obligations to serve the public welfare. Even Bayh-Dole makes this distinction (though like much of Bayh-Dole largely unenforced). Contractors have one public protection apparatus, in the form of 35 USC 202-204; 206 and  37 CFR 401 requirements. Federal agencies have a different public protection apparatus, in the form of 35 USC 207-209 and 37 CFR 404. The striking difference concerns exclusive licensing.

On the contractor side, contractors may license exclusively with few controls–an easily circumvented and regularly waived requirement for a narrow set of exclusive licenses to require U.S. manufacturing. If an exclusive license functions as an assignment of the invention, then nonprofits are required to pass through with the license the nonprofit’s patent rights clause to the assignee. And the federal government may march-in and void an exclusive license for nonuse, failure to meet demand, or failure to comply with the empty U.S. manufacturing requirement.

On the federal side, however, there is a vast apparatus that purports to control exclusive licensing. The government is authorized to grant exclusive licenses, even to the point of assignment of the invention (35 USC 207, finally addressing the statutory gap made clear by the Supreme Court way back in 1933 with its Dubilier decision). 35 USC 209 then lays out criteria under which an exclusive license may be granted.

It’s an involved list of criteria. We will use a broad brush. Continue reading →

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Invention is not a thing, 13

Posted on October 17, 2019 by Gerald Barnett

There are two things that might prompt a university dealing in patents to adopt a policy default of non-exclusive licensing. One involves Bayh-Dole. The other involves a general argument directed at patenting’s public purpose–especially when a patent is held by an organization dedicated to public purposes–and loosely around antitrust law protections. Neither of these things is currently an issue. No one talks about Bayh-Dole’s non-exclusive preferences. And talking antitrust is barking at the moon. People do it on occasion, but only to disturb the peace. Both Bayh-Dole and antitrust should be real issues, and should come up in discussions having to do with research enterprise, such as the relation between patents held by universities and prescription drug prices.

An exclusive license to all substantial rights in an invention is in effect an assignment of the invention. Thus, wherever Bayh-Dole refers to exclusive license, it could mean “an exclusive license to some but not all substantial rights” or it could mean “an assignment of the invention by means of an instrument labeled exclusive license.” If an exclusive license performs an assignment of a subject invention, the assignee becomes a party to the federal funding agreement–a contractor–and any inventions that the assignee makes responsive to the “work” of the funding agreement are also, when the assignee acquires them, subject inventions. If the original institutional owner of a subject invention is a nonprofit, then the assignee is required to comply with the nonprofit’s patent rights clause (see 35 USC 202(c)(7)(A)). That means, in turn, that the assignee is restricted in how it can use income arising from the subject invention–it can deduct its expenses in administrating subject inventions (but not other inventions) but must use the remaining balance to support “scientific research or education.” It’s not that a pharmaceutical company could reinvest some portion of its profits from a drug made under a Bayh-Dole exclusive license–it is that Bayh-Dole requires that it reinvest all its net income, less its subject invention administrative costs, in scientific research or education.

That’s enough for companies seeking exclusive rights in subject inventions from nonprofits to insist on deals involving less than all substantial rights–non-exclusive, or exclusive only with regard to specific instances within the claims of a patent, or exclusive only for a limited time–before the company has any actual income earned with respect to the invention. Continue reading →

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Invention is not a thing, 12

Posted on October 16, 2019 by Gerald Barnett

We have spent a great deal of time working through federal policy on research inventions to show how the idea that an invention is not a thing plays out–less well than one would like. Despite ambiguities, it would appear that the fundamental argument is that a federal contractor should keep its exclusive control over only those instances of a patented subject invention for which it has met the standard of practical application–gotten the invention out of an invention hole and made the benefits of using the invention available to the public on reasonable terms–that is, a contractor should retain exclusive rights for only those instances of an invention that it has successfully worked within a reasonable time, and only then for only so long as the contractor is able to meet public demand.

In effect, Bayh-Dole’s statement of policy and objective, combined with the march-in provisions, creates within federal patent law a working requirement for subject inventions. It is not express price controls that Bayh-Dole authorizes–it may be accurate that senators Bayh and Dole did not intend price controls. But surely they intended the policy statement and march-in requirements. They intended, then, the working requirement. And the working requirement in turn requires benefits available to the public on reasonable terms. The working requirement means that if the terms are not reasonable, the federal government can break up the patent monopoly and create competition. It is the competition that manages price. The government does not have to dictate price (though it could demand a reasonable price provision in any march-in license). Under Bayh-Dole, a contractor’s patent rights in any subject invention are an expressly conditional property right. The contractor is steward, not owner, of the property. Has title, but the title carries a federal lien and a covenant set out by Bayh-Dole.

The upshot for inventions not being things is that Bayh-Dole’s federal lien and covenant–amazingly but reasonably broad–applies to each instance of an invention independently of the others. A contractor may claim everything it possibly can when it looks through an inventive door of opportunity–instances ready to use and instances in deep holes in need of “development”–but the contractor is allowed to keep exclusive control only for those instances for which the contractor achieves practical application and meets public demand. All the rest are to be released, either by contractor action (non-exclusive licensing on reasonable terms) or by federal agency march-in. Continue reading →

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Invention is not a thing, 11

Posted on October 15, 2019 by Gerald Barnett

A similar analysis then can be done for the working requirement under Bayh-Dole for patents on subject inventions in other countries. Just because a contractor achieves practical application of an instance of a subject invention in the United States does not relieve the contractor of doing the same in all other countries in which it obtains a patent on the subject invention. It’s just that in those countries, “available on reasonable terms” might be different than what’s reasonable in the United States. Much depends on what a given public considers “reasonable.” In any case, one can see that a federal agency under Bayh-Dole has a mandate to march-in, not just on behalf of the United States public, but on behalf of the publics throughout the world that are subject to the patent use required by Bayh-Dole of institutional contractors who acquire ownership of inventions made in work receiving federal support.

Bayh-Dole’s statement of policy and objective is broad. It does not depend on inventions being utilized only in the United States (though there is a gesture for inventions being manufactured in the United States by United States labor). Nor is the policy and objective of promoting free competition and enterprise restricted to the United States. Nor is the policy and objective of providing the federal government with sufficient rights to protect the public from nonuse or unreasonable use of inventions.

Bayh-Dole’s scope of claim on inventions is also broad. It has to be as broad as the broadest federal statute that Bayh-Dole would preempt whenever a contractor acquires title to an invention arising in “the performance of work under a funding agreement.” Continue reading →

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Invention is not a thing, 10

Posted on October 14, 2019 by Gerald Barnett

We have worked through the idea of invention holes–that an invention generally consists of instances, and instances may be evaluated as “easy”–meaning they can be used immediately with little expense–and “difficult”–meaning they require substantial effort to move from reduction to practice to practical application, with benefits available to the public on reasonable terms, with some form of march-in available for inventions that are under exclusive control (i.e., patent) for those instances that are not worked or have not been got out of their development holes. Let’s see then how invention is not a thing plays out against federal and state invention licensing practices.

Given that an invention is not a thing but rather a set of instances–often a very large set–it matters hugely whether federal policy permits continued contractor ownership of the entire set even if a given contractor achieves practical application for only a single instance in that set. Bayh-Dole does not appear to care.

Look at a related area of Bayh-Dole. If an institutional contractor does acquire an invention made under contract and does elect to retain title in that invention, then it is required to file a patent application “on” the subject invention within a year. But what does this “on” mean? There are two parts to a patent application, a specification part that teaches the invention beyond the existing “art,” and a claims part that lays out the extent of the invention. If a contractor files a patent application “on” a subject invention and does not claim all that could be claimed, has the contractor breached its obligation under 37 CFR 401.14(c)? There is no guidance. What about if a patent examiner rejects certain claims–does the contractor have an obligation to attempt to overcome that rejection or else the federal government could step in and take ownership of those claims and fight with itself (federal agency vs the Department of Commerce’s USPTO) over them? Again, no guidance. Continue reading →

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An invention is not a thing, 9

Posted on October 12, 2019 by Gerald Barnett

The public policy idea around Bayh-Dole march-in would appear to be straightforward. It was so in the Kennedy patent policy: make the benefits of using an invention accessible to the public in three years from the date of a patent issuing or license to all on reasonable terms or make your case for holding onto exclusive rights even though you’ve failed at the other bits, or the government will step in and require licenses on royalty-free terms.

It was this straightforwardness that the Bayh-Dole drafting party needed to disrupt. Bremer was clear that he saw march-in as a threat to university patent dealings. Why? Perhaps because universities, unlike companies, lacked a whole lot of resource and mandate to make products from inventions–the university patent managers wanted to deal in exclusive rights to federally funded inventions and didn’t want federal agencies to simply take away their exclusivity if the university managers couldn’t transact patent licenses quickly enough or if they licensed exclusively to companies that did not move quickly enough to meet the standard of practical application. Thus, the Bayh-Dole drafting party did four things: (1) they changed the definition of practical application; (2) they made the march-in procedure so difficult that it would not work for its stated purpose; (3) they delegated the decision to march-in to the agency that funded the work  (so they could control NIH-funded inventions to feed their preferred patent monopoly pipeline to pharma); and (4) they weakened the march-in criteria. Here, look: Continue reading →

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An invention is not a thing, 8

Posted on October 11, 2019 by Gerald Barnett

The question to ask is not what was intended by Bayh-Dole but rather what ought to be federal policy regarding inventions made in work for which those involved have gone out of their way to apply for federal funding. As an opening, it would appear more favorable to the public that a contractor retain exclusive rights only for those instances of an invention that have been brought to the point of practical application within a reasonable time of a patent issuing (say, three years), and then only in the areas of application in which those instances operate. If you create a patent monopoly in an actual market, you can keep your patent monopoly in that market, provided that your pricing and other terms are reasonable–that is, comparable to what they would be in a market with competition. “Reasonable” terms  in this context are not “whatever you can extract by way of payment based on your being the sole source.”

Put it another way: the research was proposed to the federal government as being in the public interest. Any invention is a door of opportunity, opening up a new frontier. A patent provides a map to the new territory as far as an inventor can document that frontier at the time of filing a patent application–any reasonable variations on the theme can be constructively reduced to practice by describing them in sufficient detail to persuade a patent examiner that they, too, are new, non-obvious, and useful. That’s the start of a map to a new frontier. The inventor gets first dibs on the frontier, but as others arrive, the inventor’s right to exclude others is temporary–the inventor gets to retain exclusive control only for those instances that the inventor uses to provide a reasonably accessible benefit to others. Anything else should go public–either with a reasonable royalty to the inventor or if the inventor can’t be reasonable, then royalty-free.

In this development of the idea, the door of opportunity is created on behalf of the public, using public resources. The bargain, then, is that the inventor gets a period of time–three years, say–of exclusivity to use instances of the invention to provide a benefit to the public. The door of opportunity is public, the map of the new area is public, the opportunities themselves are public. Even any invention holes are public. After three years, whatever the inventor has managed to use or, if needed, to bring to the point of practical application, stays under the control of the inventor. Everything else is returned to the public, either as public domain or as a commons (i.e., non-exclusive licenses on reasonable terms).

There are consequences to a government getting into the business of supporting research. Continue reading →

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