Was Bayh-Dole based on a misconception?

In an article published in 2013, Sean O’Connor argues that Bayh-Dole is the descendant of the Biddle Report, produced in 1947 in an attempt to shape national policy regarding ownership of federally supported inventions. The paper makes an important contribution to the history of federal contracting, though it oddly does not mention the work of David Mowery, one of the primary academic historians of Bayh-Dole. Perhaps that is the result of law professors citing lawyers and not business professors.

O’Connor argues that the omission of an express assignment requirement in Bayh-Dole came about as the result of a “misconception” of how universities handled ownership of inventions. I will present a different line of reasoning and history and argue that Bayh-Dole’s approach–and that of the standard patent rights clauses it authorizes–is not the result of a misconception but rather of a clear understanding of where to set the limits of federal authority in contracting for inventions made at universities with federal support. I will further argue that setting up the situation as one of “misconception” creates an expectation that what remains is to inform people of the proper practice and implement that practice, sweeping away previous approaches as if they were merely erroneous.

O’Connor lays out six “partially conflicting narratives” regarding inventions, patents, and federal funding. No doubt there have been more than six. We might add the argument that government should license the patents it does own for commercial use, and allow exclusive licensing of those patents. That argument was what pharmaceutical companies wanted from the Public Health Service, and what advocates of Bayh-Dole criticized the government for not doing. We might also add the argument that universities had a special relationship with their faculty and so as federal funding for research expanded after World War 2 into universities, government agencies were divided about how to deal with faculty-generated inventions. In the medical arena, university faculty were often opposed to patenting altogether, or if it were to happen, the rights should be held not for commercial exploitation of patents, but as a defense against monopoly exploitation of improvements or applications of those same research inventions. As a result, federal ownership of medical patents looked like an acceptable alternative to universities expending their own resources to take patent positions purely to protect the public, physicians, and the medical research community from the wiles of clever monopolist business folk.

Although the Biddle Report presents many of the features also found in the later Institutional Patent Agreements and then in Bayh-Dole, there are also key differences and other documents that also must be considered as sources for Bayh-Dole. Vannevar Bush’s report to the President, Science the Endless Frontier laid out the map for federally supported research at universities. That map does not argue for either federal ownership of inventions or university ownership of inventions. Instead, basic research creates a body of technology available at need when someone has insight into what is possible and assembles a team to create something new, something unlike what an established order believes is possible or can even imagine. Bush expected innovation would come from lateral moves across disciplines. Medicine would benefit from findings in chemistry more than from findings in medicine, for instance. Seems Bush was right on that account.

Archie Palmer’s compendia of university patent policies–1948, 1952, 1955, 1958, and 1962–with their commentary on approaches and reasoning about patents, for instance, were published under the auspices of the National Research Council and the National Academy of Sciences. If anything, Palmer’s compendia teach that American universities took a diverse approach to patents, and that the experimentation and alternative practices represented a good thing. Different institutions built policies to reflect differing purposes, specializations, and local circumstances. Such diversity allowed practices to develop that might, from time to time, become highly important and at other times be less so. Think of it as a form of crop rotation, so not all fields are planted with the same crop, all the time, regardless of local climate and markets.

It is difficult to accept that government officials dealing with the question of university ownership of inventions made with federal support in the late 1970s would have failed to consult anything other than a line of presidential executive orders and an AG report from 1947 in getting to whatever it is they wanted from Bayh-Dole. The political impetus for Bayh-Dole came first from the Purdue Research Foundation, via Dole, and was later carried by the Wisconsin Alumni Research Foundation (WARF), which provided one of the so-called “Three Amigos” in the team that takes credit for getting Bayh-Dole drafted and passed. As I’ve been told in personal communications by people close to the whole thing, the text of the Bayh-Dole Act was prepared by these Amigos, not by confused government officials looking back to the Biddle Report and making assumptions about how universities contracted for inventions from employees.

The research foundation folks knew perfectly well the situation with regard to university ownership of inventions. At the University of Wisconsin, for instance, faculty owned their inventions and were encouraged but not required to use WARF, the first of the university-affiliated invention management organizations–for their patenting services. Even IPAs used by the Public Health Service with a few universities were master contracts–not laws–that provided for assignment by inventors to their universities or to an affiliated research foundation. Even then, those assignments were conditioned on a number of publicly-spirited requirements: default non-exclusive licensing, time limits on the length of exclusive licenses (3 to 8 years), government intervention if things weren’t happening with the burden on the university to show why the government shouldn’t intervene and take back the inventions. That is, it was not so simple as “companies routinely require assignment from their employees; university faculty are employees, so universities require assignment from them, too; oh, gosh, I guess we were wrong about that.”

University faculty were not uniformly considered employees, and certainly not in the usual corporate sense of servants of a company master. Where universities–some few–made claims on the inventions made by faculty, these claims were for patentable inventions (not some broad definition of anything administratively covetable) made within the course of official duties (that is, assigned duties, not anything one with training might do) for which the university had a public mandate to own (to protect the public, as in the case of medical inventions; or to ensure broad access (and not for money-making purposes, and certainly not to be held for the special first pickings by speculative monopolists).

Even now, most university faculty handbooks are reserved in the use of “employee”–faculty are members, professors, academic staff, not employees. For intellectual property, the gulf also exists. The university as “employer” does not assert control over what faculty members study, who they collaborates with, when and how they publish, and where they conduct their research. Some university administrators may imagine that they have a secret “right” to control such activities, but generously refrain from doing so (“because that would get people upset”–true enough), but there’s nothing to indicate that administrators have more than a wish backed up by a legal budget. They certainly don’t have the good will or “meeting of the minds” of most faculty members on that account. This observation is not so much one based in statements of academic freedom as it is in the manner in which universities have operated and continue to operate, but for the claims on IP being inserted into university policy statements, often in conflict with other statements in those same policy documents.

Anyone aiming to draft a uniform statute to apply to all federal agencies had to deal with both the differing practices of the agencies and with the widely varied practices of the universities, which for the most part were anything like corporate practices regarding inventions. As I’ve been told, again by someone closely involved, there was a huge fight among the federal agencies when the Department of Commerce came to draft the implementing regulations and the standard patent rights clauses. What we have is something of a compromise, or perhaps more along the lines of text that survived the fight. Thus, there’s also 37 CFR 401.14(b), which carves out some nuclear propulsion and weapons systems. I didn’t hear anyone speak of a misconception of how universities handled patentable inventions. What mattered was that agencies had very different attitudes toward what the government needed and why. Oddly, the strongest claim for federal ownership appears to have come from the Public Health Service, which was–it appears–the most concerned that patenting medical interventions was contrary to public policy, just as medical school faculty at some of the elite universities were.

Bayh-Dole was different from the policy that governed the standard government contract with a business concern. Whatever the Biddle Report wanted to argue in general, and even what it concerned itself with universities acting as contractors, the development of the National Science Foundation (established in 1950), in the years following the Biddle Report, took the form adopted from Research Corporation, with the change being that the money to support research came from taxes, not patent royalties. The NSF and other agencies awarding grants to university faculty for research was modeled not on the procurement contract but on donations requiring special performance. A similar situation shows up in IRC 41(e) governing basic research tax credits–what can amount to a donation combined with a contract to meet the requirements for securing the tax credit. One might then differ from O’Connor’s assessment that

These twin overstatements—that most universities require assignment of employee inventions and common law rules would transfer equitable title from contractors (and their employees) to the government—seem to have led the drafters of the Report to conclude that government patent policy need concern itself solely with allocation of title between the government and its contractors. This faulty conclusion became a fundamental premise upon which the entire edifice of government contracting and procurement policy (including Bayh-Dole) was built.

The problem was that Bayh-Dole was meant to pre-empt government procurement policy and at the same time deal with the wide diversity of practice at universities. Bayh-Dole made uniform federal agency contracting for inventions–it did not have any objective or even pretension to make uniform university involvement in patenting. There is no indication that Bayh-Dole aimed to get rid of university policies that allowed inventors to own their inventions or to void the contracts universities had made with invention management organizations to manage their faculties’ inventions. I argue that it was no misunderstanding that Bayh-Dole failed to force all universities to own inventions made with federal support. Given all the university-affiliated research foundations in existence in the mid-1970s and the rarity of internal university licensing offices (notably, UC, Stanford, and MIT), it would be strange indeed to see a law forcing a change in practice, especially since the law itself was predicated on the existing practice’s success and the opportunity for federally supported inventions to more readily participate in the existing practice.

History has its own accidents, and there may be strangeness that I can’t account for, but from what I have learned, Bayh-Dole was built to change the federal interface, not the university interface.

We can now turn our attention to a key question that O’Connor asks:

But this in turn leads to the question of how government rights to contractor inventions can be secured if the contractor’s employees are free to retain title to their inventions or assign it to third parties. Why would the government not have taken care of this by requiring assignments from a contractor’s employees to the contractors or passing a vesting statute that allocated title to the contractor by operation of law?

O’Connor’s answer relies on the idea of a “mistaken assumption” by those drafting the law. But those drafting the law were embedded in university practice. They surely knew what was going on. They did not have to rely on a line of government reports fussing over procurement in general. It’s a bit of an insult to the Amigos to argue they were that clueless and dependent on government reports to know about current practice. Clearly, at least two of the Amigos were well-informed about university practices. Whatever they did, it was no misconception about university assignment practices.

How the law turned out, and how it was debated to get passed–that’s politics. But no one should confuse politics for ignorance. There’s no question that Bayh-Dole is built Frankenstein-monster style from the body parts of previous documents. Here, an arm from an IPA; there, an abynormal head from an executive order. But in politics, one argues to get one’s way, not from practice to truths. Statements get made to make it difficult to oppose the conclusions already desired. In politics, confirmation bias is not a mistake, it’s a basic technique. Pick a string of pearls to throw out there and make someone else try to sow a pig’s ear.

Here’s 35 USC 202(d) on ownership of subject inventions:

If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.

How could a contractor not already have title in order to “retain” title? Folks looking only at the statute and mistaking it to apply to universities or to individuals miss the answer to this question entirely. The law expressly pushes the answer to the “regulations promulgated hereunder”–including the mandated standard patent rights clauses, which show up at 37 CFR 401.14(a), 401.14(b), and 401.9.

The US Supreme Court in Stanford v Roche goes after this as follows:

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.

Here the Court is addressing the issue as it presents–Stanford claims that it has a right to the inventions in dispute because Bayh-Dole gives it that right. The Court disagrees and says, get assignments the way others do, by entering into agreements with employees that require assignments. What the Court did not need to point out was that Stanford did have such an agreement, and it provided that Stanford would only take assignment when assignment was necessary. That is, whenever “possible,” an inventor owned. It would not have mattered a whit had Stanford included present assignment language–the prior assignment to Cetus (turned Roche) still controlled, still was entirely proper under Stanford policy, still was out of scope of any Stanford claim, unless of course Bayh-Dole forced Stanford to own–which the Supreme Court ruled it did not.

What the Court does not address is how the standard patent rights clause operates to connect Bayh-Dole to university inventors. If all one has is the law, then the only way for an invention to become a “subject invention” is for a contractor to own the invention. If the only contractor is the university, then what’s needed is an agreement to assign. But the law is not what controls universities and their inventors. What controls is each funding agreement, and the patent rights clause included in each funding agreement. And within that clause is one provision that’s not in Bayh-Dole–the (f)(2) agreement.

(f)(2) requires universities to flow down certain conditional obligations to potential inventors. In doing so, universities make those potential inventors “parties to the funding agreement” and therefore “contractors” with limited duties under the definitions of Bayh-Dole. These inventors, when they invent, own their inventions, which then meet the “of a contractor” requirement and thus the inventions are “subject” from the moment they are made–provided, of course, that a university complies with the federal funding agreement and actually implements the (f)(2) requirement. I don’t know of a university that does. They routinely ignore it. As one director of a technology transfer office told me when I asked about it back in 1989, “We will only implement that part when a federal agency tells us to.” Instead, university administrators are determined to build a private work-around, by preventing faculty inventors from ever owning anything and therefore ensuring that each invention will be “subject” by forcing ownership to the university “automatically.”

We might ask two questions, then, about scope. If the Supreme Court ruled that Bayh-Dole is not a vesting statute, and that employment is not sufficient to create an equitable transfer of title in inventions, then is a policy statement demanding assignment sufficient within the framework of Bayh-Dole to meet the requirement of “agreement with their inventors requiring the assignment to the university of rights in inventions”? That is, if federal regulations and contracts require universities to use the (f)(2) agreement, is any other, non-compliant method of agreement even valid? Can a university enforce an agreement with its faculty to breach a federal contract?

A second question. Given Bayh-Dole, does a federal agency such as NASA have the authority to require universities to require assignment of inventions from faculty receiving federal support? Can a federal agency unilaterally change the conditions set out to make uniform federal agency requirements regarding federally supported inventions at universities? It would appear not–other than that NASA has gone and done it and no one has caught them and made them stop. Perhaps NASA could use a finding of “exceptional circumstances” to justify its requirement–but then we’d have to see that finding somewhere, and it’s not to be.

O’Connor does not consider the patent rights clauses as material–they are more “memorial” (footnote citation removed):

The problem was that the petition process wound up in the statutory language of Bayh-Dole while the prior assignment requirement became buried in increasingly labyrinthine federal regulations. This seems to have led directly to the confusion at the heart of Stanford v. Roche: because the petition process seems to be the only way for inventors to retain title, Bayh-Dole must have allocated title to the contractor or government. The fault lies of course with the mistaken assumption of assignments between contactors and their employees. The government need not worry about how contractors were securing title from employees. It could simply rely on them to do so. The Patent Rights Clauses were in place to remind university administrators of this obligation.

O’Connor clearly wants to read the law as applying directly to universities, filled with reminders of statutory requirements. In doing so, he sets aside the whole apparatus by which federal funding agreements are established with universities–whether through 2 CFR 215 or via the Federal Acquisition Regulations. The patent rights clauses do not function as reminders, but as requirements. In particular, the (f)(2) clause in the standard patent rights clause is pivotal. It connects the federal agency with the inventor and provides three clear pathways by which an invention might be managed:

  1. the inventor does not assign a subject invention, and negotiates with the federal agency to retain rights
  2. the inventor assigns a subject invention to the host university, which then elects to retain title or does not
  3. the inventor assigns a subject invention to an agency-approved organization, along with the requirements of the patent rights clause, and the invention management organization then elects to retain title, or does not

In path 1, a federal agency consults with the host university because the host university might want the federal agency to take ownership, not because the university feels left out of a possible money-making grab. In path 2, the inventor reaches agreement with the host university. That could be a compulsory, condition-of-employment present assignment or an agreement to assign or a voluntary arrangement. The federal government does not have to care. In path 3, the inventor assigns to another organization organization. No agency approval is necessary if the other organization has as a primary function the management of inventions. Such an assignment could come about because the host university assigns its Bayh-Dole obligations to that organization (and hence, that organization also becomes a contractor) and requires the assignment; or it could come about because the inventor decides to contract with the organization (as was the case in many universities prior to Bayh-Dole–some university policies required an inventor to follow this path).

The problem for the Amigos drafting Bayh-Dole was that they did not want federal law dictating university ownership of all inventions made with with federal support. They just wanted federal agencies not to have case-by-case review of every request for private ownership of inventions when their research foundations acquired ownership of such inventions. So they modeled the IPA in law, but left the actual contracting to the standard patent rights clauses, which are not in law and are not restricted to restating only what is in the law.

O’Connor speculates that the Biddle Reports faulty accounting for university invention ownership practices eventually came to shape the interpretation of Bayh-Dole. But I experienced a very different source for the shape of university policies: AUTM meeting after AUTM meeting in which folks got up and told each other that federal law requires inventors to assign inventions made with federal support to the university that hosts the research; that “elect to retain title” means “elect title” and that in turn means that when a university “elects” title, federal law operates to vest title with the university.

If this was a confusion, it was not one openly or successfully corrected by any of the Amigos. But again, in my experience working in university tech transfer from 1990 on, no one in a university thought that Bayh-Dole assumed a university would have an agreement on patent rights. Instead they relied on standard research policy that required faculty to comply with the terms of research agreements. If Bayh-Dole allowed universities to take title to inventions by electing that title by notice to the funding agency, then faculty inventors were obligated to comply. It was only a variation on this theme that Stanford took to the Supreme Court, which tossed the whole line of reasoning, opening up the even worse expansion of university policies to claim ownership of everything, from everyone, all the time, whether patentable or not, whether ownable or not, and now upfront, before anything at all has ever been done, automatically by using the apparently magical words “and hereby assigns.”

There are holes in Bayh-Dole. It is a misshapen monster from the graveyard of federal patent policies. For instance, there is nothing that seals up how a federal agency obtains patent rights other than by requesting them when a university fails to comply or chooses not to elect title. There’s nothing in the law or standard patent rights clause, for instance, that expressly provides a federal agency with a right to require assignment directly from inventors if the inventors do not assign rights to a university or other organization. Perhaps such a thing might happen with a finding of “exceptional circumstances.”

Similarly, there is nothing in Bayh-Dole that addresses what happens if a university doesn’t implement the (f)(2) agreement and has no assignment agreement, as the Gen-Probe case illustrates. Federal patent law would apply. The research contract would not reach to mere employee-inventors. The invention would be privately held. At worst, the federal government would be prevented from practicing the invention without a license. For most basic research, the only disruptions would be to further research using the invention. But if the overall goal of Bayh-Dole is practical application with benefits available to the public on reasonable terms, then even this disruption is not of central concern.

With all the fixation on universities obtaining ownership outright in federally supported inventions, there’s next to no concern that most of the inventions so claimed by universities are not achieving practical application. Federal research policy has created a vast gulag of owned but not developed subject inventions, with university administrators charged with attending to these inventions–and happy and dutiful for the role. One might argue that much of university patent policy developments over the past decade have been aimed at reducing the accountability and liability for universities engaged in patent licensing programs. That is, administrative freedom rather than academic freedom. Somewhere in all of this is an implied philosophy of research enterprise–that it is a management activity of administrators, not an inquiry with responsibilities undertaken faculty supplied with institutional support.

Characterizing Bayh-Dole as based on a misunderstanding or misconception about university practices participates in this same philosophy–that somehow the government ought to have required university ownership of federally supported inventions, but government was bungling and those who drafted the law were bungling, that requiring university ownership would have been and is still a really good thing, and that what is needed now is for everyone to learn from the mistakes of government officials and get it right, finally, by creating the proper paperwork to ensure that university administrators decide what should happen, rather than inventors, or industry, or the general public.

Rather than working with the premise that universities ought to own all faculty work, and that this is the proper road to profits, to public benefit, to the value of research in society, we ought to get down to basics and ask whether anyone has a bleeping clue about how innovation from university research comes about, and if not, then perhaps we should be developing many approaches rather than deepening a monoculture of administrative control of faculty inventions.

Afterthought 1. The very existence of the (f)(2) requirement in the standard patent rights clause shows that there was no misunderstanding regarding university practice. The (f)(2) requirement is not in Bayh-Dole, so the fact it is there means people were working through the issues. Besides, one of the folks involved told me as much. Clearly, they could have just required universities to own inventions made with federal support, and could have made the written agreement expressly an agreement to assign to the university. That’s what was in the IPAs after all–but even there the language was “agree to assign” rather than “hereby assigns.” Apparently a promise to assign was sufficient for the government agencies using the IPA. But they decided not to go there, not to require university ownership.

Think of it this way: there is nothing in Bayh-Dole that authorizes the Department of Commerce to require universities to own inventions made with federal support. Despite what O’Connor argues, university ownership is *not* the only way to “protect the government’s interest.” The government’s interest in Bayh-Dole is only in getting a license to subject inventions, or, if the inventors don’t assign to an approved agent, requesting ownership from the inventors. All that the standard patent rights clause has to do is make sure that inventors are obligated to license rights to the government, or assign to the government if they don’t assign to anyone else and the government actually wants the rights. That is exactly what the added (f)(2) requirement does. There is no reason whatsoever to require universities to own subject inventions. And Bayh-Dole doesn’t. So why should the standard patent rights clause make that requirement? For that matter, how would the Department of Commerce have the statutory authority to require something that Bayh-Dole doesn’t require–and doesn’t have to?

The whole point of Bayh-Dole was to secure for research foundations “certainty of title”–what they meant was if a research foundation acquired patent rights in a subject invention, the research foundation could retain those rights without waiting for a federal agency to make a fuss over it all. Bayh-Dole, for all that it made muddy and stupid, made it clear that if a research foundation got hold of patent rights in a subject invention, it could keep those rights, subject to various requirements such as to file patent applications and seek practical application and favor small businesses in exclusive licensing situations.

That’s why Bayh-Dole refers to nonprofits and almost after an afterthought adds “including universities”:

to promote collaboration between commercial concerns and nonprofit organizations, including universities

That’s because at the time Bayh-Dole was drafted, almost all universities used licensing agents and did not have their own licensing operations. The “technology transfer” offices that existed existed to facilitate the transfer of rights from inventors to research foundations, and in particular to Research Corporation. The universities had no reason to own inventions made with federal funds–they expected nonprofit research foundations to manage those inventions. That an Amigo from a research foundation was involved in the Bayh-Dole drafting makes it all the clearer that there was no misunderstanding about universities owning subject inventions–the expectation was that nonprofits would own. Perhaps that’s why Research Corporation took no position on Bayh-Dole–the proposed law didn’t appear to affect the transfer of inventions from inventors to research foundations.

For all that, of the three possible owners of patent rights in subject inventions–inventors, small businesses, and nonprofits–the nonprofits are on the receiving end of the most restrictive requirements. Inventors have the most favorable treatment. That’s odd if it was an oversight that universities were supposed to own all subject inventions–and not, say, the nonprofit research foundations that were doing all the patenting and licensing work.

Why would the restrictions be there, especially given the role of the nonprofits in shaping Bayh-Dole? First, universities as the primary contractors for federal research dollars (some universities routed their research through a foundation–SUNY, for instance) could assign subject inventions without agency approval only to organizations that managed inventions. That was self-serving for the nonproft foundations.

Second, the research foundations needed to add some restrictions to deal with the antitrust claims brought by the government against WARF. They had to add enough restriction to make it appear that nonprofits would be kept at bay. No such concerns appear to have been raised with regard to either inventors or small businesses.

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