Nolo Can’t Get Either Bayh-Dole or Stanford v Roche Right

I have always liked Nolo Press publications. They are usually well written, easy to read, and affordable. But here’s a bit from Nolo’s “Legal Encyclopedia” doing a number on Bayh-Dole–and this is after Stanford v Roche, because they manage to mess that up, too:

Today, many universities own large patent portfolios and earn substantial royalties from them. To keep those royalties flowing, most universities seek to obtain ownership of inventions created by their employees. Moreover, if the research leading to the invention was federally funded, they are required by law to obtain ownership under the Bayh-Dole Act, discussed below.

The Supreme Court ruling in Stanford v Roche made it clear that universities do not get an automatic title in federally funded research, they are not required by law to obtain title, and university inventors are not constrained in how they may dispose of inventions other than as they are constrained by a patent agreement. Mere employment is not sufficient.

So, for Nolo here: you should know better by now. Please read the law and the implementing regulations before offering advice. Bayh-Dole does not apply to universities. Bayh-Dole applies to federal agencies. Bayh-Dole requires federal agencies to use a standard patent rights clause in each funding agreement, or else follow uniform procedures for exceptional circumstances. The standard patent rights clause requires universities to flow down to potential inventors working with federal funding the obligation to report inventions, sign paperwork to allow patent applications to be filed, and sign paperwork to establish the government’s rights in inventions subject to the standard patent rights clause.

Stanford did not flow down this obligation. Thus, its inventors did not become party to the funding agreement when they invented. Stanford failed to comply with the standard patent rights clause in the federal funding agreement. Prior to the federal funding, and with Stanford’s encouragement, one of its future inventors worked for nine months in a company’s labs to learn its technology. As a condition of this extended visit, again with Stanford’s knowledge, the future inventor–a post-doc–assigned any future inventions directly arising from his work at the company to the company. Makes sense. Entirely within Stanford’s patent policy. Call it industry collaboration.

So the post-doc comes back, joins a federally funded grant, and poof! invents right away using what he’d just learned at the company. If Stanford wanted full ownership of the invention, then Stanford would have to make a deal with the company. But no, instead, Stanford tried to break the assignment it permitted its postdoc to make to the company–and it was that deal that gave Stanford direct access to the company’s hot, proprietary technology, which in turn was the basis for Stanford’s invention soon after the post doc returned to Stanford. I don’t know why it happened this way. The Stanford TLO people are some of the best professionals in the country. I have the greatest respect for them. Someday someone will learn the reasons why. Clearly there were hundreds of millions of dollars in play. But something else must have snapped in the background, out of the public eye. When stuff like this happens, something else often has broken the relationship already. The litigation is just a grave marker for something that died. Goodwill. Good faith. Sumthin’.

Now let’s look at Nolo’s discussion of Bayh-Dole. There’s a bullet list of stuff. We’ll pull the bullets that matter:

The university must have written agreements with its faculty and technical staff requiring disclosure and assignment of inventions.

No. The university must flow down an obligation for faculty and technical staff to make a written agreement–not specified with the university–under the heading “Contractor Action to Protect the Government’s Interest” (see 37 CFR 401.14(a)(f)). The flow down is that the faculty and technical staff — no it’s ” employees, other than clerical and nontechnical employees” (see (f)(2))–to confirm in writing that they will disclose subject inventions, sign paperwork for patent applications, and sign paperwork to establish the government’s rights. There is absolutely no mention of assignment. There was no reason to require assignment to the university. Many universities used Research Corporation or an affiliated foundation and never took assignment of inventions from faculty anyway. The law is silent on assignment. So is the standard patent rights clause. No assignment requirement. There was an assignment requirement in Institutional Patent Rights agreements, but those were wiped away by Bayh-Dole.

So, utter clusterfuckination. Nolo claims Bayh-Dole requires assignment to the university. I guess no one bothers to read research contracts anymore. Sigh. Any attorney dealing with federal contracting knows that one has to deal with the contract, baby. Sure, go check the law to contest some clause in the contract. But you gotta read the contract. For federal grants to universities, that’s 2 CFR 215. For the Bayh-Dole part, that’s 2 CFR 215.36(b), which incorporates 37 CFR 401 by reference. Now pull out the appropriate patent rights clause–(a) or (b) or 401.9 or a custom clause under exceptional circumstances. Only then do you know what you’ve got.

The university then has two years to decide whether to retain title to the invention; if it keeps ownership, the federal government gets a shop right in the invention.

Retain as in water, not attorney. That is, the university has to get assignment first. Then the university can “elect to retain title” –but not the entire “right” or “interest” in the invention, because the federal government has rights (a license) and interest (to march in if nothing gets done). The decision with regard to retention has only to do with claims a federal agency might make on ownership of the invention–not with claims that a university might make on ownership of the invention.

And what is this about a government “shop right”? That’s bizarre. The government requires a non-exclusive license for government purposes and has an option to broader rights subject to review of performance. That’s broader than a “shop right.” Besides, the work does not take place in a government shop. The government is not the employer. “Shop right” is a related idea, but not the one that operates here. Certainly this is crappy text for a Nolo title. I know–I bet this summary was written by someone working in a university tech transfer office and Nolo just accepted it as truth.

The Nolo discussion of Stanford v Roche repeats the university fuss that the case hinged on a present assignment, a little “hereby does assign” instead of “agrees to assign.”

The Supreme Court ruled that the actual assignment agreement took precedence over the promise-to-assign agreement.

No, that was the Appeals Court. A different issue. This is such bogusness. Get out of denial, folks. I’ve moved on from 2nd and goal from the 1, which should have meant Beast mode. You can, too.

The ruling won’t invalidate past assignments.

Of course not. But it does set up a class action lawsuit against universities for falsely claiming that Bayh-Dole requires assignment, or vests ownership, or prevents any assignment other than to the university. And certainly sets up that lawsuit for all assignments made under such representations after June 2011. Gosh, maybe a state government or twenty would go after the public universities on a whistle-blower claim. Mmmm. It would be even better if the universities would throw out the rascals that could not get things right–and who refuse to accept the Supreme Court ruling–and bring in some folks willing to correct the record, rebuild policy statements, and change practices to conform with the standard patent rights clause in federal funding agreements.

But problems may occur in cases like this one, where two assignments appear to conflict. In addition, universities (and employers) should stop using language in which inventors promise to assign and instead use language that automatically assigns inventions.

A present assignment would not have saved Stanford because the question was not how the assignment was made, but rather the scope of the claim Stanford was entitled to make. If you get the difference between how and scope, then you really should be in university tech transfer. They need you (but they mostly *don’t want you*). The fact was, the courts found that the post doc made a valid assignment, an assignment that Stanford’s patent policy permitted, an assignment that Stanford officials knew of and accepted to gain access to company technology. The fact that the assignment was a present assignment with “hereby” language does not matter. Let it go.

When the post doc returned and used what he had learned to “invent” at Stanford (just what the company anticipated could happen), that invention was within scope of what he had assigned to the company. Company has equitable title. Stanford does not. Stanford implicitly agreed not to, since they knew of the deal and encouraged it. Even if the post doc had signed an “hereby” assignment to Stanford, the work at the company would have been out of scope of that assignment to Stanford. Stanford would have waived the scope of the claim to inventions made from the work at the company. It would not matter how Stanford came to have inventions (hereby or not)–what would matter is what inventions Stanford policy and decisions gave it a contractual right to claim.

Stanford’s policy at the time claimed only the inventions that it was required to claim. It was not required to claim inventions made at a company while on leave or arising directly out of that work for the company upon one’s return. The only thing left for Stanford in its effort to break the deal it had allowed its employee to make with the company was to recite Bayh-Dole as a vesting statute. Desperation, but there were folks out there who really wanted vesting to be part of the law and this was their moment to finish the work of destroying Research Corporation’s approach, putting a bureaucrat’s thumb in every innovation pie, and ensuring their legacy at AUTM meetings. But the Supreme Court wouldn’t have any of it.

Yes, Stanford v Roche does mention the issue of present assignments. But the case turned on whether Bayh-Dole–federal law–voided the contract Stanford had permitted its employee to make with a company. No, said the court. Instead of learning from this decisions, the same knot-heads who claimed Bayh-Dole vested ownership came up with the idea that the lesson to be learned from Stanford v Roche was to add present assignments to policy statements, to patent agreements, to consulting approval forms–grind those “herebys” out like pepper on salad.

I’ve noticed how some attorneys around the Stanford v Roche case have gone on the lecture circuit with their accounts of their amicus brief work. That’s nice. Perhaps I should do that, too. Let me know if you would like a talk on the difference between how and scope, or on how Bayh-Dole operates. Oh, but I’ve laid it all out here, so what’s more to be said? Check my work. Persuade yourself. Then change your policy and practice. Life is good on the right side of history.

[I revisit Nolo’s problems in this article.]

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  1. Pingback: Nolo Press Still Confused About Bayh-Dole, 1 | Research Enterprise

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