A recent paper argues that there’s a hole in Bayh-Dole’s treatment of assignments. I thought that for a while, but then I went and read the law and the implementing regulations and realized that there was no hole.
In Stanford v. Roche, the Supreme Court took a very “textualism” approach and refused to read the text of the Bayh-Dole Act guaranteeing ownership of federally funded inventions for contractors of the federal government through an automatic transfer from the contractors‟ employees. This interpretation effectively eliminated the federal government‟s rights under the Act in federally funded inventions if its contractors fail to secure ownership of invention from their employees because these rights are provided through the contractors’ ownership of such inventions.
This is an excellent example of how easy it is to fail to understand how Bayh-Dole operates. (Sorry, Toshiko–I hope you’ll modify your paper–I have always respected your insights).
For those new to this blog, I’ll reprise the way the law works. You will find this account to be at some odds with how the retrenchment folks depict things. That’s the whole point. There has been a thirty-year misinformation campaign. It should have ended last June with the Supreme Court decision, but it didn’t. It just swept on as if the Supreme Court didn’t exist. If you aren’t sure–read the law, read the implementing regulations, look at university policies and practices, ask yourself what should the scope of federal powers be, and how should a government deal with the relationship of faculty to university administrator-as-employer? Much is riding on folks taking the time to work past the disinformation and the retrenchment crowd and seeing things for themselves.
Bayh-Dole applies to federal agencies, not universities. It makes uniform federal agency protocols for government interest in inventions made with federal support. Bayh-Dole authorizes the Department of Commerce (35 USC 206) to create regulations and standard patent rights clauses for this purpose. The standard patent rights clauses are set out in the implementing regulations at 37 CFR 401.14. These standard patent rights clauses are inserted in all funding agreements with universities and may be modified only in limited ways. The obligations of the patent rights clauses flow to universities as part of funding agreements–that is, by means of federal contracts, not statutory requirements. For federal grants to universities, the standard patent rights clause is required by 2 CFR 215.36(b).
What people miss is that the Bayh-Dole Act does not control universities. This is not a serious flaw–it is one of Bayh-Dole’s most profound strengths. The Act controls federal agencies. It dictates how patent rights clauses enter agency funding agreements. It is the standard patent rights clause that controls the obligations universities have in a funding agreement, and also controls the obligations of investigators making use of federal funds. Universities agree under section (f)(2) of the standard patent rights clause to require their research employees to make a written agreement to protect the government’s interests:
(f) Contractor Action to Protect the Government’s Interest
(2)The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c), above, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions. This disclosure format should require, as a minimum, the information required by (c)(1), above. The contractor shall instruct such employees through employee agreements or other suitable educational programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars.
This (f)(2) provision does not appear in Bayh-Dole. It is not part of the Act. It is part of the funding agreements authorized by the Act. Anyone reading just the “law” will never see it, and won’t see how it operates to address the problem of how the government gets its rights. And they will come to wrong conclusions and offer bad advice, all the worse because they will use footnotes and an authoritative register. That’s a big problem for legal commentators who mistake the law for the practice, and fail to look beyond the practice to its effects, and as well fail to follow the law through to its implementation in federal funding agreements.
This (f)(2) agreement is also a federal agreement. It is not an agreement between employees and employers, between faculty who in some strange twist do not represent the university and administrators who somehow do. The (f)(2) agreement is made by research personnel on behalf of the government. It appears in a section titled “Contractor Action to Protect the Government’s Interest”. The contractor is not required to obtain title from employees. It’s not a serious flaw.
What is the effect of the employer agreeing to (f)(2)? That’s the core of it. The question is not, What should an employer do, having ignored the requirements of the funding agreement, to exploit what’s left for institutional self-interest?
First, when the contractor agrees to (f)(2), the contractor-as-employer displaces any other requirements it might make on employees that would conflict with (f)(2). The contractor can’t agree to one thing and demand another. The federal agreement controls.
Second, the written agreement required under (f)(2) assures the government of its rights, independent of any arrangements the contractor may have with its employees. Given that patent agreements in employment relationships vary a great deal, the (f)(2) arrangement makes a lot of sense. It makes even more sense when one realizes that universities at the time of Bayh-Dole generally did not have policies that required ownership of inventions as a condition of employment. It makes more sense when it is realized that the SBIR program didn’t kick in until a couple of years after Bayh-Dole was passed. The primary targets of the implementing regulations were the universities, their affiliated research foundations, and the patent management firms (such as Research Corporation) that they contracted with for invention management services. The (f)(2) arrangement protects the government’s interest without dictating how universities deal with their faculty over invention ownership.
Third, the (f)(2) agreement makes the contractor’s employees who make the written agreement conditional parties to the funding agreement. The (f)(2) required agreement is another federal agreement that extends the patent rights clause to employees who invent. Consider the definitions at 37 CFR 401.2 (or 35 USC 201):
The term funding agreement means any contract, grant, or cooperative agreement entered into between any Federal agency, other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal government. This term also includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as defined in the first sentence of this paragraph. The term contractor means any person, small business firm or nonprofit organization which is a party to a funding agreement.
Now consider what happens when there is an invention in the course of federally funded research. The invention rights are with the inventors. If the inventors do not assign their rights to any other organization, then the federal agency may allow the inventors to retain title to their invention. If so, then the implementing regulations (at 37 CFR 401.9) require agencies to treat the inventors as if they were small business contractors:
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(a).
Again, the treatment as small business contractors does not show up in the Bayh-Dole Act. It is part of the implementing regulations, and forms a shortened standard patent rights clause between the government and the inventors, again as expressly authorized by Bayh-Dole at 35 USC 202(d). The implementation of Bayh-Dole requires contractors to make their research employees parties to the funding agreement with regard to invention rights, and therefore also contractors within the definition of “contractor”. If inventors end up with rights, they contractors like small business contractors, but with greater freedoms than either small business contractors or university contractors. In fact, under 37 CFR 401.9, inventors retaining their invention rights have the greatest freedom under Bayh-Dole’s patent rights clauses.
From this discussion it should be clear what the serious flaw is in Professor Takena’s opening argument above. The law does not require assignment of inventions to the employer because it has no reason to do so. The law does require something else: that the contractor will require the (f)(2) agreement of its research employees. If the contractor fails to require this agreement, yes the government loses its contractual rights to an invention. But this is a risk inherent in any contract, that a party to the agreement fails to comply and results in damage to the interests of the other party.
This interpretation effectively eliminated the federal government‟s rights under the Act in federally funded inventions if its contractors fail to secure ownership of invention from their employees because these rights are provided through the contractors’ ownership of such inventions.
As can be seen, the implementing regulations under Bayh-Dole, and the federal funding agreements that incorporate the standard patent rights clause, clearly provide for the federal government’s rights to subject inventions. Those rights flow to the government through operation of the (f)(2) agreement. If the inventors assign title to the contractor, then the contractor is responsible for establishing the government’s rights directly. If the inventors do not assign, or the contractor fails to act to secure title properly, or the inventors separate from the university prior to a formal assignment of title, then the government may still rely on the (f)(2) agreement with inventors.
Thus, it is not the case that the only way the government gets rights is through the contractors. One might reach such a conclusion by reading only Bayh-Dole, or reading “educational” statements from a bunch of university technology transfer officers. But if one reads the implementing regulations, sees that these establish contract clauses, and that it is these clauses that operate with universities, and through these clauses that the government reaches to potential inventors to secure the commitments that will ensure it has the rights that it desires. There is no requirement that contractors must obtain title to inventions in order to comply with Bayh-Dole or provide the government with rights.
The remaining arguments of the paper, about the complexities of universities obtaining ownership of all employee inventions, whatever else one might want to say about them, fail to the extent that the problem is not Bayh-Dole, but the failure of universities to implement the (f)(2) agreement, which is not difficult to do. In fact it is dirt easy to do. The question is, why have university administrators refused to do so?
It may be that US patent law could be modified to deal better with the relationship between employers and employee inventors. However, before that discussion happens in the context of American university research, people must consider whether it is appropriate–or good for American innovation–that faculty become mere employees of administrative university corporations. Yes, it will look just like the Germans, then, but what of it? Is US federal research policy advanced by imitating the Germans and turning American university faculty, so prized by Vannevar Bush for their independence, into worker ants serving administrators? As a veteran of university IP management, I don’t think so, but I can see how having the discussion could be useful, if for no other reason than to draw out any sense from advocates of institutionalizing federally supported inventions how doing so could possibly be good for scholarship, academic freedom, research, collaboration, economic development, or innovation. It just doesn’t work. It has never worked. As Matt Ridley would have it in The Rational Optimist:
Good rules reward exchange and specialisation; bad rules reward confiscation and politicking.
Strong governments are, by definition, monopolies and monopolies always grow complacent, stagnant and self-serving. Monarchs love monopolies because where they cannot keep them to themselves, they can sell them, grant them to favourites and tax them. They also fall for the perpetual fallacy that they can make business work more efficiently if they plan it rather than allow and encourage it to evolve.
This same argument goes for the university administrators, lawyers, and technology transfer officers that love authority and order more than the excitement of personal freedom, choice, and engagement, for those who desire process and efficiency over bewilderment and judgment, for those who think it’s enough to say aspirational things about transformative innovation while all the while stamping all the joy, excitement, and opportunity out of creative activity, all to ensure that institutional forces can be arrayed to own, contract, and profit from the discoveries made by talented investigators who otherwise would be free.
I don’t get it. As between order and freedom, I choose freedom. I say this as a technology “manager” who disavows the title, that somehow an institution can impose “management” on research creativity and personal collaborations. It is good enough to be privileged to become part of a creative activity, to be invited in and asked to take on specialized tasks, and to do them well. And yet the great outpouring from the university administrative community, tech transfer officials and lawyers especially, is for autocracy, monopoly, tight-fisted policies of ownership, present assignments, federal laws–anything to move anything creative to institutional control–and for what? for the money? for the love of control? for some misplaced belief that bureaucrats will be uniformly better at disseminating discovery than the people who make those discoveries, or any other people that the discoverers might choose to rely upon.
It just doesn’t work. The retrenchment doesn’t work, hasn’t worked, won’t work. The legal analyses that prop it up don’t work either. Folks apparently can’t read the law, don’t care about innovation, get a whiff of uncertainty, and advocate for a monoculture of institutional control. That’s the shape of the age, the institutional majority view of innovation. No wonder there’s stagnation. No wonder you don’t see outputs just everywhere from that $60 billion a year of government money going to university research. Yes, you see little set-piece “success stories”. But you don’t see anything vital, extensive, organic. You don’t see the repression of goodwill and opportunity that has made those set-piece “successes” pretty much the only things going.
The Stanford v Roche decision offers a chance to back off the authoritarian path. Universities of all places ought to recognize the opportunity. At least university faculty ought to see it as a chance to argue for their role as independent investigators, filling a crucial gap that corporate employees for all their talent cannot fill, because they cannot speak out, form relationships independent of institutional “experts”, and pursue the evolution of technology and commerce. Companies, too, should see the advantages of universities getting their bureaucrats out of the way, the importance of university research unfettered by uniform institutional claims on every bit of IP that could possibly be “monetized”.
Those of you who find yourselves advocating for retrenchment, or for authoritarian control (whether federal law or institutional policy), under whatever guise of public benefit or institutional or personal profit–I ask you to think about it. Is that really where you believe federally supported university-hosted research should be? If not, then get out of the trenches, and open up the discussion of how we can contribute to a world that’s more open, less controlling, and ready to discover. There is plenty of work for anyone with experience with intellectual property and licensing, along with those who can start companies, and those who can capture the imagination by making their work openly available to all. Freedom will not doom American technology transfer. It will be its greatest stimulus.