The US Supreme Court in Stanford v Roche ruled that Bayh-Dole was not a “vesting statute”–the law did not place ownership of patentable inventions made with federal support with the universities that hosted the research:
Stanford contends that reading the Bayh-Dole Act as not vesting title to federally funded inventions in federal contractors “fundamentally undermin[es]” the Act’s framework and severely threatens its continued “successful application.” Brief for Petitioner 45. We do not agree. As just noted, universities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions. With an effective assignment, those inventions—if federally funded—become “subject inventions” under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.
NASA, as of a year ago, has reversed the Supreme Court decision by requiring each university receiving NASA funds to require a present assignment from potential inventors to the university of future rights in federally supported inventions. The effect is to create a standard patent rights clause for NASA contracts that vests ownership outright in the universities. In essence, NASA has done what the Supreme Court ruled that Bayh-Dole did not do. What is NASA’s statutory authority to make this requirement? Clearly, it’s not Bayh-Dole and it’s not the Department of Commerce’s mandate to create standard patent rights clauses. It’s not something in the implementing regulations that permits modifications of the standard patent rights clause. And if it’s from some other bit of law, then what? And is that bit of law pre-empted by Bayh-Dole’s precedence clause (35 USC 210)?
Consider NASA’s implementation of Bayh-Dole, as of April 2015. NASA’s regulatory framework based on 37 CFR Part 401 is found in the NASA FAR Supplement (NFS) at 48 CFR 1827.303 (the regulation controlling modification of the patent rights clause) and 1852.227-11 (the modifications to make) and 52.227-11 (the basic clause set out in 37 CFR 401.14(a)). The NFS makes it clear that contractor right to elect title applies only to nonprofits and small businesses:
(b) Contractor right to elect title.
(1) For NASA contracts, the contractor right to elect title under the FAR only applies to contracts with small businesses and nonprofit organizations. For other business entities, see paragraph (2)(v) of this section;
(2)(v) Under any NASA contract with other than a small business or nonprofit organization (i.e., contracts subject to Section 20135(b) of the Act), title to subject inventions vests in NASA when the determinations of Section 20135(b)(1)(A) or (b)(1)(B) have been made. The Administrator may grant the contractor a waiver of title in accordance with 14 CFR Part 1245.
The NFS then directs NASA contracting officers to use 1852.227-84 in funding agreements with nonprofits and small businesses. Here’s -84:
1852.227-84 Patent Rights Clauses.
As prescribed in 1827.303(a)(1), the contracting officer shall insert the following provision in solicitations for experimental, developmental, or research work to be performed in the United States when the eventual awardee may be a small business or a nonprofit organization:
PATENT RIGHTS CLAUSES
This solicitation contains the patent rights clauses of FAR 52.227-11 (as modified by the NFS) and NFS 1852.227-70. If the contract resulting from this solicitation is awarded to a small business or nonprofit organization, the clause at NFS 1852.227-70 shall not apply. If the award is to other than a small business or nonprofit organization, the clause at FAR 52.227-11 shall not apply.
Now here’s the part that shows how things are developing following Stanford v Roche. The NFS 1852.227-11 (as of April 2015) requires that universities require assignment of inventions to the university, using “present assignment language”:
(iii) The Contractor shall, through employee agreements or other suitable Contractor policy, require that its employees “will assign and do hereby assign” to the Contractor all right, title, and interest in any subject invention under this Contract.
The modification goes in (e)(2), which in the standard patent rights clause is (f)(2):
(2) The Contractor shall 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 the Contractor’s format, each subject invention in order that the Contractor can comply with the disclosure provisions of paragraph (c) of this clause, and to execute all papers necessary to file patent applications on subject inventions and to establish the Government’s rights in the subject inventions. The disclosure format should require, as a minimum, the information required by paragraph (c)(1) of this clause. The Contractor shall instruct such employees, through employee agreements or other suitable educational programs, as to the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars.
Here, you can see that NASA, at least, has broken with a uniform patent policy and created its own language regarding assignment. What’s odd is that the (f)(2) requirement is left as intact, so the definition of the term “Contractor” is still in play. That is, inventors, by making the required agreement, become parties to the funding agreement and therefore become “contractors” within the definitions provided by the funding agreement.
But the effect of the new wording is (one expects) that NASA requires that universities require inventors to assign subject inventions to the university, where in the standard patent rights clause at 37 CFR 401.14, the requirement to license or assign is not directed to the university (but rather to whomever is in an authorized position under the funding agreement to require assignment–that could be the university, an affiliated foundation or any other invention management agent, or the federal government. We are back to the IPA approach, where inventor assignment to the university is a condition of a master agreement. In Stanford v Roche, the Supreme Court ruled that in “of a contractor” the “of” meant “owned by.” That for an invention to become “subject” within the definitions of Bayh-Dole, the contractor had to own the invention. But when an invention is made, it is owned by the inventor, not by an employer, until there is an assignment of ownership. So without (f)(2), there simply are no subject inventions made under Bayh-Dole.
The Department of Commerce could have solved this problem in a number of ways. One way was to require all inventions made under a federal funding agreement to be assigned to the university. But Commerce did not have authority under Bayh-Dole to do such a thing–it’s authority was limited to the scope of “subject invention”–that is, to inventions that contractors already have come to own. Another way would be to make potential inventors parties to the funding agreement (as are subcontractors, for instance), and in this way make inventors become “contractors.” Now when they invent, they own their inventions, and thus the inventions are “of the contractor” (namely, of the inventor-contractor), and therefore are “subject inventions.” The rest of the standard patent rights clause then operates, but then with a stipulation that prime contractors cannot have an interest in the subject inventions of subcontractors as consideration for the subcontract. That means a university cannot require assignment of subject inventions as a condition of requiring the written agreement to protect the government’s interest in subject inventions–even if federal agencies stipulate that inventors must be required to assign subject inventions. Sort that out for yourself when you get a chance. If you believe in logic (unlike many Bayh-Dole advocates), then you might well conclude that the only subject inventions that inventors are obligated to assign via the written agreement are those subject inventions in which the prime contractor already holds equitable title.
The NASA implement is what it is, but it raises problems on two fronts. First, it requires the development of a private bureaucracy–universities must take ownership of subject inventions, even if they do not want to take title or elect to retain title or want title assigned directly to an invention management organization. The NASA requirement runs against an express objective of Bayh-Dole to “minimize the costs of administrating policies in this area.”
Second, there’s still the logical problem that if (f)(2) is implemented–that is, the written agreement requirement at (e)(2) in the NFS patent rights clause–then inventors are also contractors, so “Contractor” is ambiguous.
Third, universities still have to require that potential inventors make a written agreement, and it is not at all clear that university policy statements meet that requirement. The potential inventors are to make the written agreement. It’s not compliant that the university has a written statement in policy about it–that would be the university asserting an agreement rather than requiring employee-inventors to make the agreement in their private, non-employee inventor capacity to protect the government’s interest in subject inventions. The policy statement ends up asserting an agreement with potential inventors outside what the standard patent rights clause written agreement requires.
Fourth, the new NASA language makes a mess of the restriction on written agreements in the unaltered (f)(2) requirement. The (f)(2) requirement applies to employees except for “clerical and nontechnical employees,” but the new NASA language does not include this restriction. Thus, NASA expands the employer’s claim–as a matter of federal contract–even to employees who could not reasonably be considered “hired to invent.” That’s a pretty sweeping move for a change that claims to be part of routine “clarifying language” of NASA contracting provisions.
Finally, the NASA assignment to university requirement breaks with the uniform requirements of federal agency contracting. Now universities have to implement present assignments for NASA funding agreements, but for NSF funding agreements, such an assignment is not required (see 45 CFR 650.4). So we are heading back to the old days of federal agencies messing with invention ownership as they please. So much for a “uniform” federal policy.
All this is another ill effect of the fallout from Stanford v Roche. It’s clear that the idea of making university faculty servile to university patent administrators committed to setting up betting pools for wealthy speculators dominates thinking about the public benefit arising from federally supported research. This is the genius of Bayh-Dole, apparently, to give capital interests an entry point into possible innovation pathways, and thereby gain an opportunity to speculate–and profit from–the output of publicly supported research. One wonders why such speculation is viewed as a powerfully important public benefit, and individual inventor ownership of inventions–if even to dedicate the invention to the public–is seen as somehow adverse to public benefit. What sort of mindset is that? Is it a sell out? Is it sucked up to power? Is it in love with power? Is it just the life of the parasite?
The prevailing idea of public benefit for faculty research supported by federal money is that university administrators sell off research assets exclusively to whoever is willing to pay. There’s no hesitation that dual monopoly is a great idea. Yes, there are instances of huge payouts–and these few are enough to anchor the idea that the approach should take in as much as it can so the odds improve for another huge payout. One would think we are dealing with a gambling addiction or a mass hysteria–or both. Perhaps we are.
The lesson from Stanford v Roche was that Bayh-Dole was no vesting statute. It was not that Stanford goofed up with magic wording in its patent and copyright agreement. If a university wanted to take ownership of federally supported inventions, it had to set up agreements with its personnel to do that. When it did so, then the invention was “subject” to the terms of the standard patent rights clause in the federal funding agreement. (In the case of Stanford and Roche, the problem was deeper, since Stanford’s policy gave ownership to inventors whenever possible. Thus, if the federal contract did not *require* Stanford to take ownership, then whatever claim Stanford might make to ownership came from Stanford, but Stanford already had given up any such claim by its own policy. All this is lost on those determined to find a way to make faculty servile to the institutional desire to make a betting pool for investors.)
But NASA’s move runs against the Supreme Court’s ruling. By requiring universities to take ownership, NASA extends the effect of Bayh-Dole so that it becomes, in essence, a vesting statute anyway. That’s the effect of the “present assignment” requirement placed in a federal contract for inventions. If the requirement were only a “promise to assign, should the university request assignment,” then the choice of assignment would still be with the university.
The resolution of NASA’s move isn’t likely going to come about by reasoning. It will require legislation. More likely it will take a lawsuit, a few million dollars, and a thoughtful judge. There is an argument that the federal government can do what it wants until someone stops it. That’s akin to Thrasymachus’s argument in The Republic, if you recall–that justice is whatever those in power say it is. But there is another argument–clearly it’s not one that NASA lawyers accept–that NASA does not have the authority to turn Bayh-Dole into a vesting statute. That authority, if it exists, is with the Department of Commerce to create a patent rights clause that entails vesting (see 35 USC 206).
It’s one thing to have the federal government all but dictate with its massive funding what areas will attract faculty research attention–that’s a problem in its own right, but also one that university administrators, other than the occasional Michael Crow, don’t seem to care about. Their agenda appears to be to get as much federal money as they can, regardless the cost, as bragging rights and to expand their research operations, facilities, and administrative power.
But it’s another thing to have agencies of the federal government dictate that universities must own inventions made by faculty researchers when federal money is involved–especially when most of these universities are committed to exclusive licensing, often now to shell startups that exist only to attract speculative investment ready to try to sell that investment off to still other investors. The perception is, there’s more money to be made speculating on most university-owned technology than in developing that technology for public use. All one has to do is make a big show of seeking public benefit, even if those that routinely benefit are only patent attorneys, technology licensing offices, and speculators.
At least for NASA, Bayh-Dole has become a vesting statute. There has been no outcry from university administrators. Perhaps it doesn’t matter. Perhaps–then–patenting federally supported research also, really doesn’t matter, no matter who does it, who gets rights. Perhaps what matters–beyond speculators selling interests to other speculators and sometimes making piles of money in the process–is that the innovation that matters happens outside federal funding or in time frames longer than that of patents. And if that’s the case, perhaps these are the primary effects of Bayh-Dole opening up federal research to widespread speculative patenting–that the discoveries that matter aren’t funded by the government or take longer than 20 years to become meaningful.