Five Defects in Persistent Readings of Bayh-Dole

I read a couple of recent papers that involved Bayh-Dole, oh boy.  One was a new law review article on Stanford v Roche.  In what has come to be expected fashion, the authors mishandle Bayh-Dole.  Rather than spending time pointing out their problems in detail, I made this list of serious defects in characterizations of Bayh-Dole in the academic and popular press.  Why do these persist?  It must be that there are folks who really want to promote defective readings of the law.  Maybe it is the spirit of the age, one that desires institutional control to take care of all our needs.  Dunno.  Anyway, here is the list:

1) Bayh-Dole gives ownership of federally supported inventions to universities.

This is repeated so often that it has become gospel, but it’s not true.  Never was.  Stanford v Roche makes clear.  Bayh-Dole does not vest ownership with universities, does not require universities to take ownership to comply with the law, does not encourage university ownership, and does not even actually apply to universities directly.  Read the Bayh-Dole Act.  Read the CFR.   It’s simply not there.  Instead, we get a proxy secret fingers crossed version of the law that asserts that vesting was intended.  Well, maybe by some folks it was, and maybe even in the oft-cited House Report, but the law never made it through the Senate that way, and the intent of the law, as distinct from the agendas of some of those involved in drafting and debating the law, concerns the law as it was passed, and as it reads now.   Anyone who includes in an article that Bayh-Dole gives ownership of inventions to universities does not know what they are talking about, or worse does know, and is being deceitful.

2)  Bayh-Dole applies to universities.

This also is simply assumed.  You will find it in nearly every restatement about Bayh-Dole.  It, too, is not accurate and leads to erroneous expectations.  Bayh-Dole applies to federal agencies, not to universities and others.  Bayh-Dole directs the Department of Commerce to create standard patent rights clauses to be included in funding agreements.  It is by means of these standard patent rights clauses, which may be modified according to CFR protocols, along with the funding agreements themselves, which transmit requirements to universities that accept the funding.  The Bayh-Dole Act addresses what agencies can require by way of rights, and what any private agent must do in order to be pre-approved by the government to retain ownership.

The requirements of the Act are transmitted to research personnel working with federal funding by means of a provision in the standard patent rights clause that is not in the Bayh-Dole Act, but is authorized by the Act.  That’s the clause at 37 CFR 401.14(a)(f)(2) that requires universities (and other contractors) to require of their research employees a written agreement to protect the government’s interest in inventions.  Not the universities’ interests.  Not an employer’s interest.  The government’s interest including assignment by the inventors to the government.

The (f)(2) agreement, as a federal agreement, and even potentially part of the funding agreement, supersedes other private obligations, including claims on federally funded inventions made by an employer.  If the university breaches its agreement with the government and does not require the written agreement of its researchers, then there is more to it:  the universities are breaching the terms of the funding agreement.  They are trying to make up a different protocol, and they very much wish that they could claim it wasn’t their doings, but rather a requirement of federal law.  But it is very much their own self-interested doings.

It is true that Bayh-Dole does affect universities in their management of inventions.  It relieves them of working out institutional patent agreements with agencies when the universities obtain ownership of federally supported inventions.  The particular obligations that a university operates under, when it does “elect to retain ownership,” are a function of the standard patent rights clause and other requirements of the federal funding agreement under which a given invention was developed and/or acquired.

3) There is a priority order for ownership in Bayh-Dole, and universities are first.

There is something of a priority order in Bayh-Dole, but it does not have to do with ownership, but rather with funding agency approval of ownership disposition.  Bayh-Dole then sets up an approach to invention ownership that involves dividing possible owners into those that are pre-approved, and those that require agency approval.  There is no “first in line” in the standard patent rights clause.

There are instead pre-approved owners, and others who are not.  Of those owners that are pre-approved, there are two classes–1) those that have as a primary function the management of inventions, and 2) the contractor-employer of the inventors, even if the contractor-employer does not have any such management of invention function.   There are two more classes of those that are not pre-approved:  3) assignees that do not have a primary management of invention function, and 4) the inventors themselves (who are not assignees at all, since they own their own inventions outright).  There is of course a fifth possible assignee:  5) the funding agency, which may require assignment on various triggers, the most important of which is that the inventors do not assign to a pre-approved agent.

Thus, if there is a priority element to the standard patent rights clause, it is the priority of an assignment by the inventors to a pre-approved agent over the need for an agency challenge to any other disposition of ownership (including the inventors retaining what they have).  Again, Bayh-Dole is about how agencies behave in their dealings with owners of patents that arise from federally supported inventions.

Thus, we must also object to the claim that Bayh-Dole envisions a sequence in which each invention is owned first by a university, and if inventors are to “retain title” then they first have to get it back from the university, which could just as happily assign title to the funding agency to spite them.  This sort of title ping-pong also is not in Bayh-Dole or the CFR.  It is a rather goof-ball scenario created to compensate for the consequence of claiming that Bayh-Dole vests ownership with universities.  If Bayh-Dole doesn’t do that–and it clearly does not–then there is no need for title ping-pong.  There are two reasons why invention title may move from inventors to their university:  1) they choose to assign; 2) they are forced to assign.  The first is a confirmation of a negotiated agreement that meets the inventor’s requirements.  The second is institutional capture, a kind of abuse of power, rationalized by the importance of innovation to economic development, the fallacy that university licensing personnel are more competent than anyone else the inventors might work with, and the desire to make money “for public purposes” from individuals’ scholarship and personal property.

Even if one thought that employers should own the inventions made by employees, they would have to work hard to extend that claim to university faculty proposing independent studies to the government, which contracts for logistics reasons with their host universities.   Faculty and staff doing federal research under university-administrated grants are simply not employees for the purpose of the disposition of patent rights.  They are the equivalent of special small business contractors, as 37 CFR 401.9 makes clear.

If anything, the apparent complexity of Bayh-Dole and its implementing regulations comes about because of the need to respect inventor independence when the work takes place at university.  This complexity also was necessary to respect the range of university approaches to invention management at the time Bayh-Dole was passed.  Most universities did not claim ownership, did not have a bevy of licensing professionals on staff.   Folks like Joe Allen who argued that Bayh-Dole vested ownership of inventions with universities because they had licensing professionals with far more capability than poor faculty inventors (who can choose their own sponsors and their own publishers but apparently not their own invention management agents), and that somehow this arrangement protects the public interest from such incapable, selfish, indolent faculty inventors, does not have anything to cite from actual history to support his position.  With respect to Joe, because I like him, but disagree with him, I think he is just making this stuff up to win a political point for university administrators that like the idea of government, rather than inventors, giving them ownership of research scholarship.

4)  Bayh-Dole eliminates inventor choice of agent in favor of institutional “title certainty”.

In administrators’ dreams perhaps.  Bayh-Dole does not eliminate, but rather enables, the choice of invention management agents.  If an inventor selects a pre-approved agent and assigns ownership of an invention to that agent, then the government has no need to contest that agent’s ownership, subject to the agent’s compliance with whatever terms the patent clause in the funding agreement requires.  That is, it is the funding agreement, and in particular the patent rights clause, that follows assignment, not Bayh-Dole proper.   The issue is not, then, the capacity of inventors of subject inventions to assign their inventions–they have that right by patent law.  The issue is the standing of a federal agency to contest such an assignment, and if it does not approve the assignment, to require assignment of ownership to the government if an acceptable assignment is not made.

The university position claiming ownership of inventions on whatever theory (employment, use of resources, participation in organized research, conflict of interest) aims to exploit a liberty of Bayh-Dole’s approach to the agent model.  The university administration merely asserts that it is the only agent that a university inventor may assign to.

In doing so, the university destroys the liberty and open market for invention management services that is anticipated by Bayh-Dole and which existed at the time Bayh-Dole was passed, and which is comprehended in Bayh-Dole’s statement of objectives, which includes:  “to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery” (35 USC 200).  How are such inventions “used”–that can mean of course the practice of the inventions, but can it not also mean the use put to inventions by their owners, by way of trading in rights, excluding others from practice and the like?–is not this sort of “use” the reason for the concern about encumbering future research, which is not encumbered by having access to new things, but by being blocked by the actions of a patent owner?  Universities, by claiming all inventions outright defeat this objective, by limiting free competition rather than promoting it.

Unlike small businesses, which may have solid reasons for requiring assignment of inventions in an area of their business and business direction, universities have no such business or business direction.  They don’t manufacture and sell technology products.  They have no such basis for demanding assignment.   What works for the small company works against the university, both in public policy and in the expectation of funding sources that university faculty are independent and therefore can be engaged for public purposes.

As for “title certainty” there is no title more certain than that held by an inventor.   Beyond that, the best title is one obtained under a valid agreement, on reasonable and not deceptive or abusive premises, for just consideration, with the voluntary commitment of the inventors.  That “title certainty” is of a different order than title obtained by cleverness, compulsion, deceit, or exhaustion after a bitter fight.  It may be that university administrators mean by “title certainty” something more like “having the absolute power to obtain and prove ownership of title at will” but even that power does not provide for the patent owner access to every workaround, every variation, every possible application, or assistance at need with claim construction, review of agreements, or assistance to licensees.  All it gets them is the administratively efficient extraction of a property right from a context in which it had a natural position, even if that position did not serve directly institutional monetary interests.

5) Bayh-Dole can be read without reference to the implementing regulations.

Bayh-Dole authorizes the creation of the patent clauses that give effect to the law.  Those clauses are in the CFR, not the USC.  The law is substantially repeated in the CFR, of course, but the law authorizes more than it states, and additional provisions are found only in the CFR.  If a university breaches its funding agreement, it is not violating Bayh-Dole.  Its funding agreement may having something to say about remedies the government may have, such as march-in rights or taking title.  In any case, the university is violating a federal contract, and is not violating Bayh-Dole.  If an agency fails to include the standard patent rights clause in a funding agreement, or a permitted variation, then the agency *is* violating Bayh-Dole.

Lawyers, especially academic ones, love the USC part of Bayh-Dole and ignore the CFR part.  They then misconstrue the law and misapply it.   But it is the standard patent clause in the CFR, embedded in a funding agreement established by other federal contract requirements, such as 2 CFR 215 for university grants, that creates the obligations under which university inventions are managed.  Bayh-Dole is a law governing the formation of government contracts, yet many commentators ignore the contracts themselves.  Without a working understanding of 37 CFR 401.14(a) and its possible variations, these lawyers do innovation policy a disservice in discussing Bayh-Dole.   In particular, 2 CFR 215.37, 37 CFR 401.1, 401.9, and 401.14(a)(f)(2) are material to any interpretation of the Bayh-Dole Act as it affects the disposition of federally supported inventions at a university.   If a law article recites the USC and ignores the CFR, you can bet the authors are running blind–and probably don’t care that they are.

What fascinates me is that attorneys who ignore the CFR and miscontrue the law uniformly advocate a position that favors the use of federal power to compel ownership of inventions to institutional owners.   Even when they accept that Bayh-Dole does not do this, they cannot help themselves but propose how universities could make up for this “loophole” as if the only possible scenario in support of federal research policy is one in which institutional powers capture faculty scholarship in order to make money and fluff their authority.  Perhaps this is the powerful influence of AUTM’s recent, chronic inventor loathing, or maybe it is endemic in the practice of IP law to suck up to institutional power and not so much to individual freedoms.  The universities, after all, dish out a lot more–millions more–money in legal work than do faculty and staff.

In the case of innovation–and Bayh-Dole is certainly about discovery and invention, key sources of innovation–one would think that at least some of these power-loving attorneys, especially of the keen academic sort with a flair for disruption–would float arguments that explored the competitive liberty proposed by Bayh-Dole and reflected in the CFR.  While I can find debates over the problems of enclosing commons (gridlock!) or how universities get ownership (present assignments, anyone?), I see no debate over the legal underpinnings of federal research policy.  Apparently folks collectively assume that the policy objective is to use the power of the federal government to get invention ownership to institutions that will then pay for patent work in the hopes of making money.  It’s just that I don’t find that federal policy anywhere.

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