I want my, I want my IPA–Part I

From time to time advocates of the idea that Bayh-Dole vests ownership of inventions with employers argue that the intent of the law was to build off of the Institutional Patent Agreement model developed by the NIH. The IPA approach appears to have been a workaround to the HEW patent policy that the pharmaceutical industry hated so much that they began a boycott of government-identified compounds. If universities could get rights, and then license the rights, maybe that would be an acceptable alternative.

It is true that many of the key concepts in the IPA make it to Bayh-Dole. Subject inventions, electing something related to patenting, sharing royalties with inventors, a kind of march-in, and a number of reporting requirements.  It’s just that the IPA, and these concepts, are very different, and have different means of operation and different effects, when translated into the Bayh-Dole Act and especially into the implementing regulations and the standard patent rights clause. An examination of four core issues–subject invention, ownership, licensing, and march-in–demonstrates how different things became under Bayh-Dole. This examination will also show where the real boon to university licensing offices and their affiliated foundations aimed to be, and why that couldn’t be placed in Bayh-Dole proper and get the bill passed, so it was postponed for the regulations in the hope that things there could be arranged to the university/foundation patent administrators’ liking.

Grab your copy of Bayh-Dole and its regulations, and pull up a copy of an IPA template, and follow along.

The architecture of an IPA is that of a master agreement made between HEW and a given university. Once in place, the IPA applies to all inventions that are made at the university with support from HEW. In this, the IPA differs from Bayh-Dole in multiple ways.  Bayh-Dole is part of federal patent law, and is implemented by patent rights clauses inserted into each funding agreement, agreement by agreement. The master agreement in Bayh-Dole, if one could call it that, is between the law and the executive branch agencies, dictating the standard patent rights clause the agencies must use, and how they may modify that clause when they must to meet their objectives.

This shift in architecture has substantial effects. For instance, in the IPA, royalty money left over from the management of all claimed inventions is to be used for “educational or research pursuits.” In the Bayh-Dole implementation, that stipulation is made within the context of each funding agreement and its subject inventions. There is no concept in Bayh-Dole of “other subject inventions, subject to other funding agreements, for which income from present subject inventions might go to cover the costs of those other subject inventions.”  In other words, the IPA permits joint accounting, while the standard patent rights clause (SPRC) under Bayh-Dole does not.

There are other effects. The IPA master agreement is based on a federal agency’s approval of the university’s patent policy and licensing program. Thus, there is an expectation that there will indeed be a patent policy. While universities were slowly coming around to the idea of patent policies, if only to disavow an interest in patents or to point faculty inventors to external invention management agents, many universities did not have a patent policy and therefore would not be candidates for IPA-style arrangements.

The drafters of Bayh-Dole then had a problem. If they merely imposed the IPA requirements in the law, they would have to force universities to adopt a patent policy, which may well change the conditions of employment for faculty members, and therefore change fundamentals of the relationship between faculty and administration, such as academic freedom, merely so patent administrators could get their thumbs on more inventions, with less effort. To solve this problem, the drafters of Bayh-Dole left the patent policy requirements out of the law and chose to use the patent rights clause as the place to establish the minimum requirements for compliance. In this way, Bayh-Dole allows for a self-implementing university patent policy, agreement by agreement, rather than mandating a federally approved, all-embracing university patent policy that may well have required all faculty inventions to end up in the control of administrators, and, for public universities, under the control of state governments.

A second effect is a shift in who is motivating the effort to obtain rights in federally supported inventions. In the IPA, the motivating force is the university administration:

Grantee means university. In Bayh-Dole, the apparatus is motivated by Congress, by the law. Agencies have to comply with the apparatus because, well, they have to, not because they have responded to a request from universities and exchanged something of value for granting something of value. Thus, what under the IPA was based on a university request becomes a unilateral grant (and not directly to the university) by the federal government.

This reversal is a remarkable difference that reflects an exploit in research policies that has now become so widespread it is treated as foundational.  Many early research policies at universities included a stipulation–and still do–that whatever the patent policy of the university, the terms of any research agreement approved by the university will take precedence. Such language is useful where faculty investigators have the primary responsibility to negotiate their research agreements and and patent policies disavow ownership except in exceptional circumstances where equity of the situation requires it.  And these were typical conditions.

If one then wants to get expedited access to faculty inventions without changing the text of the university’s patent policy, all one has to do–so the exploit teaches–is to insert the claim to inventions into research agreements, and that claim will then be enforceable on faculty regardless of the statements of the patent policy. The exploit works the first time by persuading faculty that it is in their interest to assign their invention rights, and in this way expedite the dedication of university resources to patenting their most important findings–as if it is a perk they want anyway. Once the exploit is embedded in, say, a master agreement with the government, then it does not matter what anyone thinks. Policy is merely reconfigured to acknowledge the government contract requires university ownership, and there you go.

There are then two places to do the snip, snip to fix the cat of ownership post-Bayh-Dole. First, drop the standing claim to ownership of all faculty inventions in patent policy. Second, prohibit the university administration from inserting the ownership claim back in as part of research, procurement, or license contracting.

Thus, here in the recitals we find our first bits of Bayh-Dole-like matter: “a first option” to “retain” “principal rights” to inventions made “in the course of or under research” supported by federal grants. In SPRC (b), we find the heading “Allocation of Principal Rights” and we have “The Contractor may retain the entire right, title, and interest . . .” to each “subject invention subject” to the funding agreement’s patent rights clause.  Similar, to be sure. No definition of “principal rights” in either the IPA or the SPRC, nor of what “retain” is supposed to mean.

The “first option” language does not appear in Bayh-Dole, though it is spayed all over university accounts of Bayh-Dole. The Supreme Court in Stanford v Roche makes clear that for Bayh-Dole the disposition of rights has to do with the relationship between the federal agency and the university, and does not address how the rights might get from the inventors, where they vest, to either the government or the university. That is, the rights under the SPRC are federal contract rights relative to any potential claim by a government agency for the delivery of invention title.  It is a right to resist such claim even if that claim is based in agency regulations. One can only assume that the “first option” language comes from those who intended for the IPA pattern of dealing to prevail in interpretations of Bayh-Dole, even though the text of the Act does not support the IPA pattern.

Indeed, the IPA pattern of dealing is not at all that of Bayh-Dole. In almost every instance, Bayh-Dole makes ambiguous what is relatively clear in the IPA, and relaxes university accountability, restrictions on licensing, and the conditions for march-in. One way in which this is accomplished is to move provisions in the IPA that are contractual requirements into the general statement of objectives of the law, where they may serve as aspirations rather than operate as conditions upon which a university is permitted to administrate inventions made with federal support without direct agency oversight. Very clever indeed.

Subject Invention. The IPA has only two definitions.  Both pertain to inventions. The first definition is direct:

A subject invention is one that is or may be patentable and made in research supported by the federal agency. Compare this definition with the stack presented in Bayh-Dole (35 USC 201), and carried through to the enabling regulations, and repeated once again in the SPRC. There are two parts–“invention” and “subject invention.” Here’s “invention”:

(c) The term invention means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code, or any novel variety of plant which is or may be protectable under the Plant Variety Protection Act (7 U.S.C. 2321 et seq. ).

In its way, the definition itself is now very odd. Nowhere else does federal patent law define invention. Instead, patent law defines what is patentable. Of all inventions, the ones that matter for federal patent law are the ones patentable. Patent law operates for patentable inventions. The fundamental thing, then, is the freedom with which an inventor chooses to request the benefits of patent law. In the contracting mindset offered by the IPA program, and then taken up by Bayh-Dole (at least in its misrepresented form), inventors don’t have any choices. Under the IPA, federal research contractors agree to force inventors to give up rights to any invention the contractor decides to patent.

The IPA definition of invention is altered by Bayh-Dole in important ways. The Bayh-Dole drafting introduces a flawed technique, of defining a term with the same term and then adding a restrictive clause to the term. Thus an invention is an invention (whatever that is) or a synonym for an invention, but with certain properties. Again, patent law does not care what an invention is–what matters is that someone thinks an invention is patentable and acts to gain the benefits offered by patent law.

These after properties of the definition of “invention” then also must be considered. The drafters of Bayh-Dole are not content with the simple idea that inventions are or may be patentable, but introduce an alternative, in the form of “otherwise protectable.” One might think that the reason to do this is the bother of adding plant variety protection to the mix, but that is handled moments later by its own “protectable.” No, the use of “protectable” in the first part of the clause is to cover something in the patent law that isn’t patenting that may “protect” an invention under the patent law. It is an odd gesture.

The Bayh-Dole definition uses “protectable” as a property of inventions rather than as a function of patent law. These are distinct. In patent law usage, it is the law that protects the means by which inventors secure inventions as property rights. In patent law, other than in Bayh-Dole, patents have to do with protecting the right of ownership in inventions, such as “may obtain a patent therefor” (35 USC 101) or “shall have the attributes of personal property” (35 USC 261). That is, protection is something the law does by establishing patents as personal property. “Protection” of an invention by use a patent is an inventor’s choice. An inventor may, alternatively, choose not to “protect” a patented invention by means of the patent but rather offer it to the world, using the patent as a way of claiming priority and visibility. Or, an inventor may license the invention to others, using the patent as a basis promoting the development and use of the invention. A patent is a property right in the law, not necessarily armor or a weapon. The choice of exploit is up to the owner of the patent. And this choice is exactly what is in play in the use of IPAs, and furthered to patent broker advantage under Bayh-Dole.

In Bayh-Dole, protection is used with regard to something one might do with a patent right or unnamed other rights–one “protects” the invention, but construed as a defining property of the invention itself. Again, patent law:  establish the meets and bounds of personal property. Here:  fence out or threaten to shoot trespassers. This use of “protection” is the usage common in university licensing offices, and represents a tradition of practice introduced by invention management agents. Here, “protectable” is a clear sign of whose hand is at work in Bayh-Dole. It is certainly not the hand of the faculty, or any faculty inventor.

The cascade of usage goes like this.

1) Inventions are the results of scholarship and should be made broadly available as a public service. This is the grand bargain of public support for university faculty.

2)  But in some cases, unethical companies may take those inventions and file patents on them, or variations, or improvements and block both further research and public use of the inventions, and therefore patents can be used to protect the grand bargain from undesirable exploitation.

3) In some other cases, without some way to protect its investment, no company will undertake the expense of developing an invention into a product that could then be easily imitated by others, and so a patent may also be obtained to protect such investments.

4) As the decision to file patents on faculty inventions becomes routine, “protection” of an invention comes to stand for protection of the public or of private investment. The implied premise is that without protection, companies that would otherwise invest in developing an invention will not because the predations of free-riding and trolling companies would threaten that investment.

5) The class of companies that require a monopoly position in order to invest, as distinct from those that focus on first mover advantage, or superior workmanship, or greater efficiency, or better service, or brand loyalty, is then elevated to represent the class of potential licensees for university patents. That is, these companies are the targets for desirable deals. These are the companies that will most value the patent in any exchange involving also learning how an invention operates and using it to their advantage.

Protection in this way is an essential term of practice for the university foundation patent broker seeking to maximize profit from licensing. With Bayh-Dole, these patent brokers have written this usage into the law, formalizing such usage as the default way to think about faculty inventions made with federal support. This usage is distinct from patent law usage of “protection” and establishes in the default the implied predation of “bad” companies seeking inappropriate benefits from the work of “good” companies. This constant, ever-present predation requires regular application of “protection” — that is patenting — of faculty inventions made with federal support.  Thus, the grand bargain of public support for faculty research in exchange for the benefits of discovery is translated into a rationale for taking ownership of inventions, obtaining patents on those inventions, and seeking out the companies most ready to pay for patent rights over any other companies, and to select commercial development by a single company as preferred over broad access and competitive development by multiple companies.

“Protection” is introduced into law as a kind of “racket” to be operated by invention management organizations reciting public benefit as their purpose. The racket proposes to shakedown whole industries by favoring the companies ready to pay with the right (and obligation) to disrupt the ability of the rest of the industry to innovate based on federally funded research.  It is as plain as day in the introduction in Bayh-Dole of “protectable” in the definition of subject invention.

Here is the second part of the subject invention definition stack in Bayh-Dole:

(d) The term subject invention means any invention of a contractor conceived or first actually reduced to practice in the performance of work under a funding agreement; provided that in the case of a variety of plant, the date of determination (as defined in section 41(d) of the Plant Variety Protection Act, 7 U.S.C. 2401(d)) must also occur during the period of contract performance.

Here we get three additional elements that turns an invention (already imbued with the idea of “protection”) into a subject invention.  1) the invention is “of a contractor”; 2) conceived or first actually reduced to practice; and 3) under a funding agreement. Two of these elements are reflected in the IPA. The IPA’s second definition:

Here we see the use of “invention or discovery” that is promoted to a primary position in the Bayh-Dole definition. But also there is a change in the nature of a stack. In the IPA, the issue is to broaden the scope of claim in inventions, while in Bayh-Dole it is to broaden the claim of what is an invention, and then make some of these subject to the law. In patent law, an invention is patentable when it has been both conceived and reduced to practice. See the MPEP discussion at 2138.04. To cite one example given, conception is the “formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice.” Conception means that the invention in all its parts and functions is fully realized in the mind of the inventor, and the inventor recognizes the invention as such, and the invention can be taught and practiced by one with ordinary skill in the art without further “exercise of the inventive faculty.” Reduction to practice means either building or practicing the invention so that it operates for its intended function across all elements of its conception (actual reduction to practice), or setting a written description of how to make or use the invention sufficient to “enable” others with ordinary skill in the art to do so (constructive reduction to practice).

The burden in the IPA, however, is not to establish when an invention is patentable, but when an invention becomes subject to the IPA. Again, these are distinct issues, and they are easily conflated.  Indeed, their conflation is not a mistake but rather an objective of Bayh-Dole. In the IPA, things are straightforward:  an invention is subject to the IPA when it is a) patentable b) and made c) under research funded by the government. The “made” of the definition is not the “made” of an invention being patentable. It is the “made” of an invention being subject to the IPA deal between a university and the federal agency.

A great deal rides on the wording used here. It is that of contract, and in Bayh-Dole that of law, regulation, and contract.  It is not the time for hand-waving and conflation. This use of “made” in the IPA has to do with the statement of work for the grant or award. It is not merely that the invention pertains loosely to whatever happened to be the object of study. That would require language such as “related to” or “arising from”–either of which would be much broader in scope. “Made” here means, at least, that the statement of work for the award set forth either the objective of conceiving an invention (such as, solving a problem or seeking a discovery) or the objective of first actually reducing to practice an invention that had been conceived. A patentable invention cannot be reduced to practice before it is conceived by an inventor.

There are then two distinct “made” uses going on here.  The first “made” means that an invention is patentable–both conceived and reduced to practice–and second that at least one prong of that activity was performed “in the course of or under research supported by grants” from the federal agency. That this issue is not trivial is borne out by the discussion that takes place in the Bayh-Dole implementing regulations, at 37 CFR 401.1, which establishes the scope of the government’s interest in inventions made with federal support.

(1) To the extent that a non-government sponsor established a project which, although closely related, falls outside the planned and committed activities of a government-funded project and does not diminish or distract from the performance of such activities, inventions made in performance of the non-government sponsored project would not be subject to the conditions of these regulations.

Two factors are stated. One depends on the statement of work:  the “planned and committed activities.” Thus, if an invention is “made” in the sense of scope, it must be traceable to statement of the proposed work. That is, either the conception (not the act of conceiving, but the conception to be undertaken) or the first actual reduction to practice of something already conceived (that is, not an idea about what to do or study, but the full mental expression of the invention) is set forth.  The concern with scope is serious. The drafting here is not conflating things with “pretty much anything that looks close to the area of study under which someone is funded.” Just the opposite. The discussion here places bounds on scope.

There is a second factor: “diminish or distract.” Here, the test is whether any parallel project, even if closely related, does not prevent those working in the federally funded project from performing the work they proposed to do. The language here is not simply one of how one is funded, but rather whether performance of the federally funded research either followed from a stated activity of the research or that stated activities were not performed because attention was diverted to work not stated. If the federally funded work gets done as stated, then the “diminish or distract” test is not met.

An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology. The time relationship in conducting the two projects and the use of new fundamental knowledge from one in the performance of the other are not important determinants since most inventions rest on a knowledge base built up by numerous independent research efforts extending over many years.

The example makes evident the nature of the scoping restrictions in play under Bayh-Dole. The drafters here are wrestling with whether the government interest in inventions should be broad, or narrow. It is clear that although Bayh-Dole is drafted broadly, the regulations here are drafted to be narrow. Thus, the expectations of those that advocated for Bayh-Dole may indeed have been to use federal law to claim a vast swath of faculty work, but the battle fought over the implementing regulations did not allow those expectations full play. Thus, one might find a little epiphany in the emphasis of certain patent brokers and their supporters on their intent in the law, and utter silence with regard to how the law has been implemented in fact. It is the law as implemented that controls, not the intent of those who sought its passage and left huge gaps relating to scope, ownership, licensing, and march-in to be completed later, knowing full well that if they were to put into the law what they intended for it, the law would never have passed. Never in a thousand years.

The discussion about scope at 37 CFR 401.1 continues:

Should such an invention be claimed by the performing organization to be the product of non-government sponsored research and be challenged by the sponsoring agency as being reportable to the government as a “subject invention”, the challenge is appealable as described in § 401.11(d).

Look at this! The regulation anticipates that the university contractors will be working to keep stuff out of the scope of Bayh-Dole, and the drafters have therefore laid out a way for agencies to challenge such claims. If an invention is not subject, then it falls back to whatever arrangements might pertain between a faculty inventor and the rest of the faculty, or in today’s typical pattern of dealing, between a faculty inventor and the university administration. University administrators, however, have done just the opposite. They have expanded their claims, so that anything related or arising in the context of federally supported research is attributed to that research, so the patent brokers can claim ownership of the invention outright rather than relying on general patent policy. The argument is typically shaped as one of “uncertainty of compliance”: that “just in case” an invention is subject, the university administration will not only treat it as if it is subject, but declare it to be subject. The administration, in essence, seeks to interpret the federal scope of interest broadly against both facts and interests of inventors in order to gain leverage for making a claim of ownership.

There is one additional element here.  In the IPA, “subject invention” is a contractual definition.  Its interpretation involves the meeting of minds of those making the contract. That interpretation is pretty clear, despite the double meanings of “made.” In Bayh-Dole, however, the definition of “subject invention” is a matter of law. It is a definition that is not subject to private alteration. It is what it is, just as “work made for hire” or “original work of authorship” are in copyright law. One cannot in a contract decide what is an “original work of authorship”–it is decided when a work meets the definition of the law.  Same with “subject invention.” Not a university administrator, nor a faculty inventor, nor a federal agency can decide unilaterally whether something is a “subject invention.” The definition does not allow for that. They cannot even agree to a different definition or to pretend that the statement of work includes what it otherwise never set forth.

What is at stake is whether the inventors, and anyone they happen to be working with, are able to retain the rights in inventions that federal law and their own arrangements provide, or whether a deal between the university and a federal agency permits either to require assignment of such inventions. The regulations are drafted so that the basis for any such requirement is fixed. University practice, and even NIH practice, however, is just the opposite, demanding an expansion of brokered interest well beyond what the scope discussion makes clear. The tests for subject invention, under Bayh-Dole are thus whether either the conception or reduction to practice of an invention that has both conception and reduction to practice (and therefore is a made, patentable invention) is set forth in a funded proposal (that is, at least one element of the invention was made as specified under the grant), and if not whether instead the actual work of the proposal was not performed as set forth, that is, as “planned and committed” so that such an element could be “made” (that is done with the funding or resources obtained by the funding) in such a was as to preclude the planned and committed work from being performed.

(2) An invention which is made outside of the research activities of a government-funded project is not viewed as a “subject invention” since it cannot be shown to have been “conceived or first actually reduced to practice” in performance of the project. An obvious example of this is a situation where an instrument purchased with government funds is later used, without interference with or cost to the government-funded project, in making an invention all expenses of which involve only non-government funds.

Here “made” concerns the use of grant funds and resources, not the conditions for patentability. The burden is on those who want the invention to become subject to show that it is, not on those who would argue it is not. Again, this is not a matter of preference, nor a matter of giving more than one should to avoid threats of non-compliance. It is a matter of what meets the definition of the law. If the law is unclear, it fails to be law and merely gives unlimited power to whoever wields the law. This, too, appears to have been an attraction for the patent management brokers considering how to use federal law to scoop up more faculty inventions, but this time without their choice and without the need to ask them to change university patent policy.

This brings us to the third element of the definition of subject invention in Bayh-Dole, “of a contractor.” In the SPRC, this is changed to “of the contractor.”  In each case, however, as the Supreme Court made clear, following amicus briefs by IPO and AIPLA, “of” means “ownership” not “agency.” For an invention to be “subject” under the IPA, all that was necessary was that the invention be patentable and made in the course of federally funded research. In the IPA, there is no ownership claim built into the definition. Yet here it is, in Bayh-Dole. That little “of” is what some folks believe cost Stanford a quarter of a billion dollars. Of course, that’s like saying it was the last at-bat that cost a team the game–a number of other things were at play, too.  Under the IPA, an invention becomes subject when its patentable and made with federal support. Under Bayh-Dole, an invention becomes subject when the university owns it, in addition to being patentable and made as stipulated by a funding agreement.

How very strange this is. Why would the drafters add “of a contractor” to the definition that was perfectly fine in the IPA? What battle took place to get Bayh-Dole passed? Or was it just a dumb mistake in drafting, where someone was incapable of simply porting the IPA definition, which clearly was in hand to provide the term “subject invention,” to the text of Bayh-Dole? It was no dumb mistake, certainly, because the composition of the definition is itself pulled apart and rebuilt. No doubt a study of the drafts of the bill and the personal notes of those involved would shed some light. One possibility is that the drafters intended “of a contractor” to perform the function they later declared for it: to vest title in the contractor when an invention met the definition of “subject invention.” That is, when the rest of the definition was met, then the invention was one “of the contractor” as well. If so, then this is another common drafting flaw encountered in university contracts, in which definitions are used to produce operational results. Another possibility is that “of the contractor” was simply put as a gloss, a reminder, that subject inventions were inventions owned by the contractor.

In either case, it appears “of a contractor” was used for the purpose of later claiming that Congress had passed a law that vested ownership of inventions with universities, as if the great impediment to innovation was the unacceptable practice of allowing faculty to choose whether to patent, and if so with what agent, if any, to employ. As federal funding of university research expanded over the course of thirty years, not only in amounts, but also number of investigators involved as a proportion of all investigators (so now federal funding is about 60% of all university extramural support, or about $40b per year), and the number of universities involved increased, it was not acceptable that university patent policies (or the lack thereof) should leave in doubt whether a university-affiliated patent broker should get the work. By the time of Bayh-Dole, it was clearly time to act not only to get more inventions away from federal agency control, but also to get them away from faculty control, whether that control was exercised by means of university patent and research policies, or through choices reserved to faculty inventors.

The problem with “of a contractor” however is that it requires ownership to operate. How are inventors supposed to report “subject inventions” to the university if the inventors own them, not the university? The dichotomy, really a faulty dilemma, is that inventions vest with the university when they meet the other parts of the definition, the parts that were roughly those of the IPA, or else Bayh-Dole has a huge hole that has to be completed by private action “to preserve the law.” Neither element of this dichotomy is true. There are ways of interpreting Bayh-Dole that require neither vesting nor an incompleteness theorem. This is what the drafters of the implementing regulations and patent rights clauses understood:  they had to create a delivery clause that reached to inventors, operated agreement by agreement, and did not require universities to wholesale abandon their positions on academic freedom and faculty-administration relations. It was, after all, just these positions that had produced the apparent “success” in research innovation relative to the government approach.  Bayh-Dole was premised on making more federally supported inventions available to this system, not to change it into something it generally was not. Yet, that is just what did happen.

We take this up in part II.