37 CFR 401.9

There’s something interesting about 37 CFR 401.9.  Okay, so you don’t have Bayh-Dole memorized.  37 CFR 401.9 is the provision that implements, among other things, 35 USC 202 (d), which is the part of the Act that allows inventors to deal directly with funding agencies to retain their patent rights.

Sec. 401.9 Retention of rights by contractor employee inventor. Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at Sec. 401.14.

My bold above. Here is 35 USC 202(d):

(d) If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.

If the university waives its right under the standard patent clause to retain title (37 CFR 401.14(c)(2)), then Bayh-Dole authorizes the agency to consider requests from inventors to retain title. [To be clear, 35 USC 202(d) applies only *after* a university has acquired ownership of an invention made with federal support–the university’s acquisition is what makes an invention a subject invention.] The inventors don’t have to ask to retain title, and the agency may request title from the inventors or may refuse to allow the inventors to assert title [if Bayh-Dole does not preempt the agency from doing so], effectively placing the invention into the public domain.

The wording, though, in 401.9 is rather odd.  It makes reference to an employee/inventor. This suggests a broader reading. How would this work? 401.9 presents two alternatives. One, we have just discussed, is where a university waives its interest in title, the inventors request to retain title (since they have title until they assign it), and the agency agrees. The second alternative, however, permits the university, even at the outset of the research award, to waive its interest in title, allowing the employees who are involved in the research to request title to inventions even before they have become inventors.  That is, 401.9 permits university employees to be responsible for their own inventions.

There is further support for this in 401.9. If inventors are permitted to retain title, the agency is required to impose at a minimum a subset of Bayh-Dole requirements, including 37 CFR 401.14(d)(1). Now (d)(1) is the clause that permits the government to take title to subject inventions if the contractor fails to disclose the invention, fails to elect to retain title in a timely manner, or chooses to waive retention of title. If we had only the first alternative, requiring (d)(1) would be meaningless. In the first alternative, the invention has already been reported, the university has already waived an interest in retaining title, and the inventors have asked to retain title. So (d)(1) is meaningless. It might make more sense to require (d)(2), which has to do the government obtaining title to patent rights in countries the university (or inventors) don’t file in. But it’s not (d)(2), it’s (d)(1) that’s required.

And it makes a lot of sense if 401.9 has been drafted to include both alternatives—that inventors request to retain title as the last in line, so to speak, but also they could request to retain title as the *first in line*, on the condition that they take on the minimal obligations to protect the government’s interest as if a small business, such as a sole proprietorship holding patent rights.

Why is this interesting? For one thing, it suggests that universities could delegate a great deal of control to research personnel under Bayh-Dole and not be required to be in the business of trying to claim and market all inventions. For instance, in areas such as engineering and computer science, where universities have generally done little business with their biotech-inspired patent licensing model, a university could waive its interest in retaining title up front simultaneous with agency permission for employee/inventors to retain title to patent rights, subject to those minimal Bayh-Dole requirements. The employee/inventors could always still assign those rights to the university if they later desired to have the university TLO involved, or could work out a revenue-sharing model without making an assignment at all, in order to obtain access to research facilities for further research following the end of the federal award.

For another thing, this reading highlights the difference in treatment between when the university as claimant of title under Bayh-Dole and when that title remaining with the employee/inventors. While there are substantial obligations on the university in its role as steward of the government’s interest, there are much fewer obligations placed on inventors. Why? I don’t know the historical intentions of those drafting 401.9, but here’s my take: Bayh-Dole is not the law of co-option that some university patent administrators have made it out to be. It is a law that looks out not only for the public’s interests but also the university inventors’ interests.

The university as steward has obligations not only to the public in various ways as set out in the Act, but also to the inventors. We see this in the added requirements on universities in the standard patent clause at (k), and especially in the obligation to share royalties with inventors at (k)(2), and in the placement of that royalty share in the costs incidental to managing subject inventions at (k)(3). That is, the royalty sharing under Bayh-Dole is not a split after costs but rather it *is* an expense. The university could share a portion of licensing revenue with inventors, pay its costs with a portion of what’s left, and then allocate all the remaining revenue to the inventors!

There is no requirement in Bayh-Dole that the university have any money left over after expenses. The entire revenue stream from subject inventions is available to fund the technology transfer program’s management of subject inventions and its inventors. They are *part* of the technology transfer program under Bayh-Dole. University policies that treat the inventors as customers or clients outside of the program totally miss the point. The issue is not how much the inventors’ share should cut into remaining revenue to be spent by administrators after shorting the technology transfer budget, but rather whether there ought to be anything left over after paying the costs of running a high value invention management program. Thus, universities would do well to have a separate royalty sharing policy for subject inventions under Bayh-Dole. The costs of the program for managing subject inventions—not all university inventions—are those that can be recovered from patent licensing royalties. It is these royalties that inventors should be able to draw on for their costs, including what they are owed for inventing. That’s where there should be a negotiation, within the technology transfer program, over how much, if anything, for a given subject invention, should remain after the costs in the program.  That’s what our reading of 401.9 sets up.

It is in the government’s interest that the university respect its research employees / inventors. The university, if it does elect to retain title, on behalf of the government also must then take on this role of steward of inventors’ rights. Doing so, and doing it authentically, and doing it in compliance with Bayh-Dole, would be a welcome way of stimulating, if not revitalizing, US university technology transfer programs.

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