Wisconsin continues to defy the US Supreme Court, five years on

Here is an excerpt from the University of Wisconsin’s current patent policy regarding the Bayh-Dole Act, under the heading “Federal Agreements”:

In order to expand public use of inventions and in recognition of the need for establishing government-wide policies for the allocation of rights to Federally supported inventions, Section 6 of Public Law 96-517 dealing with the disposition of rights to inventions made with Federal assistance was adopted and became effective on July 1, 1981. That section of the law provides, in general, that universities have the first right to take title to inventions resulting from research supported by Federal funding.

The introductory part of the first sentence is administrative fantasy. It’s close to reality, but isn’t.

In order to expand public use of inventions

The Bayh-Dole Act sets out the “policy and objective” of Congress (35 USC 200) with regard to inventions made with federal support–not just any inventions. Whatever anyone else might have wanted Bayh-Dole to do, Congress made sure that it would do its own speaking on the matter. The first stated objective in Bayh-Dole is “to use the patent system to promote the utilization of inventions arising from federally supported research or development.” Well, you might think, that part sounds a lot like “expand public use of inventions.” But the Wisconsin policy is written in a kind of clever code, while the Congressional intent is plain. I will explain.

The focus of Congress was on using the patent system to promote the use of inventions, not to “expand the public use” of inventions. Bayh-Dole defines “practical application”–utilization–as use such that “the benefits are . . . available to the public on reasonable terms.” It’s the benefits of an invention’s use that matter. The purpose of the patent system is to promote public access to the benefits of such use.

The Wisconsin patent policy, however, is written with (apparently) a heap of assumptions that one would have to know in advance: that the advocates for Bayh-Dole claimed that federal invention policy was that the government owned all inventions made with federal support (not so, as David Mowrey and Rebecca Eisenberg have demonstrated); that the advocates for Bayh-Dole claimed that privately managed inventions did better than federal agencies were doing (that might have been true, but only because there were different selection principles at work and different policy objectives in play–how does one go about creating a domestic commercial market for weapons systems?). The idea behind the Wisconsin wording, then, is that inventions that otherwise would have been claimed by the federal government could now be used by the public, and this would “expand public use” of these inventions.

Otherwise, the policy statement makes little sense. Even in the preamble to the Wisconsin patent policy, we see the same confusion:

There is always the possibility that these developments may have commercial value, which possibly may be enhanced through the use of patents.

Lots of developments, only some having “commercial value” and of those some whose commercial value might be enhanced by patents. That is, the policy here is focused on commercial value of a development not on broad public use. The patent, it would appear, is a tool to increase commercial value at the expense of public access.

The University of Wisconsin System has traditionally recognized and continues to foster and support development of inventions for public use.

This next sentence is strange in a number of ways. First, the System is put to recognizing and fostering, something it cannot do, as it has no brain. Make the System faceless. Second, “development” is an odd word here. Does the policy mean “making” inventions? Or does it mean improving on an invention, developing it from its lab version to a public version? And what does “public use” use mean in the context of the last sentence’s use of “commercial value”? Is commercial value here set against public use? That would appear to be the case. Or is the point being made that the university, despite its long-standing efforts to support development of inventions for use, can’t do so good a job as commercial firms? No doubt we will never know. The words sound pretty, but the sentences are not coherent, one after the other.

With a next sentence, we get a turn that sets aside the recognizing, fostering, and supporting for public use:

However, the contractual rights of extramural sponsors and the System’s commitment to the principles of academic freedom and the tradition of free and open discussion of research must also be maintained.

This sentence is full of contradictions. The opening “however” marks a contrast, suggesting that somehow the elements that follow displace the System’s efforts. There are three such elements: contractual rights of sponsors, academic freedom, and “free and open discussion of research.” It is difficult to see how any of these three would pose a challenge to a universities recognizing, fostering, and supporting inventions for public use. Yet there’s that “however.”

Take contractual obligations. Extramural sponsors do not magically obtain “contractual rights” in inventions but for the university agreeing to those rights. Does the patent policy here indicate that the policy’s statements about public benefit are subordinate to any time administrators want to do something different? It would seem that is the implication of the “however.” The university could easily stipulate that sponsors have to deal with faculty investigators directly and that the university’s role is to approve and enforce proposed agreements made between sponsors and faculty investigators that make sense and veto agreements that would be a problem. A list of such situations in a policy would be handy. Wisconsin at one time did have faculty negotiate their own IP terms in research contracts.

And what about academic freedom? There does not appear to be a Wisconsin System-wide policy on academic freedom. It’s difficult, therefore, to know what the System’s “commitment” to academic freedom actually is. We might rely on common descriptions of academic freedom, such as that published by AAUP (including this bit):

  1. Teachers are entitled to full freedom in research and in the publication of the results, subject to the adequate performance of their other academic duties; but research for pecuniary return should be based upon an understanding with the authorities of the institution.

Or we could refer to the UW-Madison statement of academic freedom:

Academic freedom is the freedom to discuss and present scholarly opinions and conclusions regarding all relevant matters in the classroom, to explore all avenues of scholarship, research, and creative expression, and to reach conclusions according to one’s scholarly discernment. It also includes the right to speak or write-as a private citizen or within the context of one’s activities as an employee of the university-without institutional discipline or restraint on matters of public concern as well as on matters related to professional duties, the functioning of the university, and university positions and policies.

Based on these statements of academic freedom, does the university have the power to force faculty to publish under their own names what the university wants to publish? One would think that the “right to write . . . without institutional discipline or restraint” would include freedom from being coerced by university administrators to publish articles of advantage to those administrators. A patent application is a publication. Publication is fundamental to the concept of a patent–publish the invention and in return receive the right to exclude others for a limited time. A patent application is filed in the name of the inventors. It will be published as a work of the inventors. Academic freedom precludes the university from forcing a faculty inventor to file a patent application, no matter the added “commercial value” arising from doing so. There would have to be an external requirement that the faculty member voluntarily accepted, that the university did not veto, for a faculty member to end up filing a patent application (which is generally published a year and half after filing). But if the university imposes a requirement that inventors file patent applications, then the patent policy’s “however” means, counter-intuitively, that the university can tolerate academic freedom only so far as it does not affect the university’s interest in commercializing patents.

“Free and open” discussion of research also is made to stand in contrast to the university’s recognizing, fostering, and supporting inventions for public use. It’s hard to understand why or how. As with academic freedom, free and open discussion of research does not preclude public use of university inventions–one would expect such discussion would promote public use. At this point, I am mystified at what the policy here intends to argue. The university has the power to refuse contracts that would violate its commitment to supporting the public use of inventions; academic freedom would appear to further limit the university’s administrative role in forcing patent work onto faculty; and open discussion of research might limit the availability of patent rights but hardly is a basis for administrative intervention to prevent university support for the public use of inventions.

But the patent policy imperative has for a long while not been about the use of inventions by the public. The issue that drove the universities was owning patent rights to derive income from commercial use of inventions. The universities were about income, not use.

Is this a fine line or a huge gulf? In a bureaucrat’s mind, it might all be the same thing–inventions! patents! licenses! money! er, public benefit! (to put it in Piscopo). But in terms of public policy, it’s not this at all. The purpose is benefits available to the public on reasonable terms. We might expect, then, that “reasonable terms” would include reasonable access, reasonable prices, reasonable conditions, reasonable quality, reasonable support, reasonable licensing practices.

This requirement–on reasonable terms–presents a challenge to university invention practices. If one looks at the history of government agency supported research and university faculty discussions of patents, the big concerns are that patents may be used to create monopolies that block research or prevent companies from entering a market or asserting monopoly control that jacks prices or suppresses use. Within the university, concerns were that patents would distort research objectives and disrupt the academic norms of collegiality and commitment to public benefits, and turn the public against funding universities (“if they are making so much money from patents, then they can fund themselves”). The positive arguments for patents started with making money for research and arguing that the patent system was a force for good, typically quoting Lincoln. Without patents, inventions would sit on the shelf.

But there never was a clear argument why a university should own the patents that would motivate investment or why a university should charge money for licenses–wouldn’t private investment to create products be enough?–and why should a university grant exclusive licenses?–and why should a university prohibit use, even if it does grant an exclusive license?–and why, if the university does receive money, should the university spend that money on itself and not spread it into the community?

When Bayh-Dole was passed, there does not appear to have been much discussion of the concerns of universities becoming involved in patenting and licensing. Well, yes, there were discussions of the expense and risk–how to get more budget and how to deal with complexities and how to avoid liability. But mostly the discussions were defenses–rationalizations, cheerleadings–for whatever it was that administrators were off to do with patents–license to make money, start companies to license to make money, sue to make money. In this, so said the patent administrators, federal law established a mandate that they do these things. To attempt to have a discussion about the limitations of Bayh-Dole, the misinterpretations of the law, the problems that university patent administrators and their mercenary legal advisors have caused is to get shouted down. Apparently, the truth is so fearsome that most university invention managers cannot bear to consider its awesomeness, and certainly not in any public setting. What’s more, the people the next rung up, the vice provost/president/chancellors for research and for finance and deans of graduate schools and schools of business are not about to have a discussion that might walk back on institutional control of patents.

in recognition of the need for establishing government-wide policies for the allocation of rights to Federally supported inventions

The Bayh-Dole Act was a political play brought on because the Purdue Research Foundation had gone and obtained assignment of a federally supported invention and the darned Department of Energy was delaying in giving PRF approval to go out and license the invention. PRF had got the cart before the horse, got pissed off, and made the problem political. The government did have a “government-wide” policy on allocation of rights–it was one of flexibility by agency. Some agencies, such as DoD and NSF, allowed contractors to retain inventions they had obtained ownership of; other agencies expected to the federal government to receive title to such inventions. The NIH had set up “Institutional Patent Agreements” with select universities, master agreements that required the university to take ownership of inventions and set requirements on how the university then could use patents based on those inventions (mostly, license non-exclusively unless there was a clear case for an exclusive license, and the federal agency could take control upon notice if there was any screw up by the university). What the political activists wanted, however, was a one-size-fits-all policy to replace the flexible policy. Doing so would get federal agency review out of the way for any invention with federal support that happened to come to be owned by a university or an affiliated research foundation.

The “allocation of rights” had to do with the question of whether, once a university (or research foundation) had obtained rights, a federal agency would allow the university to keep those rights. That was the allocation issue in question. Agencies that handled such things on a case-by-case basis (flexible! diligent! public interest!) were the baddies. Bayh-Dole was aimed at getting such practices out of the way, installing instead a standard patent rights clause to be used by every federal agency, regardless of the research involved, the nature of the expected outcomes, the purpose of sponsoring the research, or the condition of the public domain and commercial marketplace. Turn off the federal brain. Let the more astute and capable university bureaucrats handle it. Fascinating law, given that university administrators fixate on one statement (later reconsidered) statement in The Economist regarding how inspired such a law must be. A bureaucrat’s thumb in every innovation pie. Nice–a federal make-work law for bureaucrats. In any event, the “allocation of rights” had nothing to do with how universities obtained inventions from the researchers whose work they hosted (and for which federal agencies paid their salaries, the cost of their supplies and travel, and compensated the universities as well for the “indirect costs” of supporting such research).

Having set up the situation with some almost-truths, the Wisconsin discussion gets down to the grit:

That section of the law provides, in general, that universities have the first right to take title to inventions resulting from research supported by Federal funding.

Again, this might almost be true. A university has, according to the standard patent rights clause, the right to decide whether to retain title to inventions made with federal support that the university has already obtained title to. That’s not a “first right” to obtain title; it’s a contractual right to keep title, once obtained. All this is clear from a reading of the law and implementing regulations–especially the standard patent rights clause. And it all was confirmed by the Supreme Court in Stanford v Roche. But here, in the Wisconsin patent policy, the wording makes it appear that Bayh-Dole gives the university the first right to “take title” from inventors. One would have to know Bayh-Dole pretty well to think otherwise.

The policies and regulations emanating from PL 96-517 are contained in OMB Circular A-124.

Actually, the policies and regulations are now in 37 CFR 401.14, and end up in federal funding agreements via OMB Circular A-110 (now 2 CFR 214), as versioned by the various federal agencies in their own regulations. It’s been a long time since anyone has bothered to update this part of the Wisconsin patent policy, and in the meantime it has grown more powerful. V’GERs happen.

The most significant aspect of these laws is that a university can use a single policy document and essentially uniform policies for all Federal agencies.

The above bit is just bureaucratic spin. A love letter from a bureaucrat to bureaucrats. The most significant aspect of Bayh-Dole was the utter destruction of accountability for institutional exploitation of patents on federally supported inventions. Making march-in so convoluted no one has yet to be successful, and making reporting of invention utilization optional for agencies and exempting all such reports from public disclosure law. Talk about a “don’t ask, don’t tell” invention policy! Essentially, Bayh-Dole moved federally supported inventions into the closet of university bureaucracy. One might say then that the most significant aspect of Bayh-Dole was that Congress favored a private bureaucracy to manage inventions made with federal support over federal executive branch agency bureaucracies. One type of bureaucracy over another. Again, inspiring in its way, if one is a privately inclined bureaucrat.

Universities had uniform policy with regard to sponsored research (and most still do)–to the effect that whatever the patent policy, anything in a research contract approved by the university takes precedence. Such a policy sets a default but allows the university to contract out of its own policy default. At universities such as Wisconsin, faculty were allowed to negotiate the IP terms of their extramural research contracts. Thus, faculty and sponsors could, with university approval, negotiate exceptions to the patent policy. Makes sense. But the uniform policy also was open to abuse, and there’s a natural law that goes something like this: “if there is a way to abuse a university policy, eventually an administrator will discover and use it.” So university administrators started to insert their own requirements in research agreements, regardless of patent policy, and once a sponsor agreed to the terms, the administrators had contracted themselves out of compliance with their own patent policy.

Here’s how Wisconsin sets up its discussion of contracts in its patent policy:

In the absence of contractual provisions obligating transfer of all or some proprietary rights in an invention, the inventor traditionally is free to dispose of those rights in the manner of his or her own choosing.

University policy is that inventors are free to manage their own inventions. So far, so good.

Much of the research is funded by outside parties through formal grants and contracts, with various Federal agencies constituting the major research funding source.

Federal funding involves grants and contracts.

The University of Wisconsin System Board of Regents is the legal recipient of all grants and contracts which are accepted on behalf of faculty, staff and students and, as such, has the legal responsibility for complying with all contractual obligations.

The university must comply with contractual obligations.

Consequently, when an invention is generated, it is necessary that the designated authorities at each university review and make determinations with regard to patent rights as set forth by those funding sources which contributed to the making of that invention.

The university must determine what funding sources may have contributed to any given invention and comply with the terms under which the invention was funded.

To insure that all obligations attaching to contracts and grants will be met, faculty, staff and students who participate in programs having extramural support are required to complete a patent agreement which recognizes those obligations.

Folks must sign a patent agreement with the university premised on ensuring that the university complies with invention management requirements in grants.

Trace the logic: inventors are free to do what they want with inventions except when the university contracts differently with a sponsor of research. Then the university must comply with the contract, and so must the inventor. So the inventor must sign a patent agreement that enables university compliance. That much makes sense–but if we turn to federal funding, we find that there is nothing that university inventors have to do besides agree to protect the government’s interest and report inventions promptly to whomever the university designates for patent matters. That’s it.

The patent policy statement also wrong about the opportunity for uniform university policy. Bayh-Dole permits agencies to determine “exceptional circumstances” for a given grant and require assignment of patent rights to the federal government. So a university will have to accommodate such a requirement. Furthermore, in collaborative agreements, such as the NSF CRC and ERC programs, the funding agency all but dictates that consortium members receive a royalty-free non-exclusive license to patent rights arising in the collaborative research. That, too, requires special university attention. Finally, inventions made under the FARs rather than as grants under 2 CFR 215 may, if funded under a subcontract with a for-profit prime contractor, may come with provisions for control of inventions that do not track the standard patent rights clause. Universities still have to pay attention. It’s just that Bayh-Dole changed the defaults. But universities still have to keep track of federal agreements that don’t follow the default.

The one important thing that university patent administrators got out of Bayh-Dole was that once they got ownership of a federally supported invention, they could likely hold onto it. That one bit of policy was true–they had less to worry about a federal agency actually taking an interest in what they might do with an invention once they got it. Bayh-Dole simply made it appear to be a mandate to patent and “commercialize” the invention–even though Bayh-Dole has no mandate either for patenting or “commercializing”–it’s focus is, as we’ve seen, on benefits of inventions available to the public on reasonable terms. If a patent can’t support that, it’s not indicated. If an invention needs no “commercialization” to accomplish that, then “commercialization” isn’t indicated, either. The Wisconsin has it, Bayh-Dole is a federal law to make life easier for university patent management bureaucrats. Again, such an inspired law must leave you breathless. Who would have thought that federal law would have as its primary purpose to intervene to save university bureaucrats from having to deal with flexible agency invention requirements? The Wisconsin patent policy was written by an institutional narcissist.

Here’s the thing. Bayh-Dole does not require that a university have any patent policy whatsoever, uniform or otherwise. The law, via the standard patent rights clause, is entirely self-implementing. To comply, a university agrees to:

  • designate personnel responsible for patent matters
  • require research personnel to make written agreements to protect the government’s interest (the (f)(2) agreement)
  • educate research personnel on the importance of timely disclosure
  • report inventions to the government after they are disclosed to those personnel

That’s it. No policy necessary. Certainly no need to change any policy that the university already had–in part because the university’s research policies likely includes a statement giving precedence to extramural contracts; and in part because federal contracts supersede state-sanctioned contracts, so whatever in university policy that might have the form of a contract that conflicts with federal contract gets set aside.

Because these laws require that the staff member and university initiate appropriate patent action for each invention, it is essential that faculty, staff and students become familiar with the reporting requirements. The most relevant of these policies and requirements are summarized here.

Now you can see how the Wisconsin argument develops. Bayh-Dole does not require universities to do anything. Bayh-Dole requires federal agencies to use a standard patent rights clause. That patent rights clause requires the four things listed above–designate patent personnel, require (f)(2), educate on disclosure, report disclosed inventions. There is no “appropriate patent action” that any university must take. Reporting inventions has nothing to do with taking any action with regards to patents. Even notifying the federal government with regard to whether the university will retain title assumes that the university has obtained assignment of a disclosed invention–and there’s nothing in the standard patent rights clause (or in Bayh-Dole) that requires a university to obtain assignment of inventions made with federal support.

Failing to obtain assignment has nothing to do with Bayh-Dole, is not a defect in Bayh-Dole, and assignment is not necessary to comply with Bayh-Dole (or with the standard patent rights clause). Just try telling that to a university bureaucrat who thinks his (or her) job or career or reputation depends on owning and licensing patents, or who thinks that institutional ownership of patents is the best way to make money for the university (and that magically, if the university makes money, the public must be benefited, no need to look further at the details to see if that’s so–and so universities create patent betting parlors for speculators and call it public benefit. If speculators get patent rights on reasonable terms from universities, the law has been satisfied. Neat.)

The only thing faculty need to know about Bayh-Dole is that the standard patent rights clause requires the university to require research personnel (employees other than clerical and non-technical employees) to make a written agreement to protect the government’s interest, and that agreement includes timely reporting of inventions made in the planned and committed activities of a federally funded project–deliverable inventions, as it were–to the university, to be reported by the university to the federal funding agency. There it is:

promptly report to university patent personal:

  • patentable inventions made with federal support
    within the planned and committed activities of the federally funded project or
    that diminished or distracted from those planned and committed activities
  • do not report as federally supported inventions
    closely related inventions that apply the results of federally supported projects
    arose prior to federal support

That’s it. Here’s the guidance in plainer words:

Report subject inventions–patentable inventions made with federal support.

Don’t report other inventions as subject inventions when they are not.

If you anticipated making the invention in your research proposal, or you diverted funds or equipment or time to work on the invention rather than doing what you proposed to do, then it is a subject invention.

One can get all worked up about the details, but this is basically it.

Now, what do you think might be the “most relevant” of “these policies and requirements” for the Wisconsin patent policy? Yes, of course:

  1. These Acts give non-profit organizations, including universities or their designated patent management organization, a first right to title in inventions made in performance of Federal grants and contracts.

Total nonsense. And after Stanford v Roche, contempt. Or is it just indifferent neglect, because no one cares what the patent policy actually says? The Bayh-Dole Act (and amendments) gives non-profits nothing. Bayh-Dole restrains federal agencies from requiring assignment of inventions to the federal government. In any case, Bayh-Dole does not give “a first right to title.” The language is not in the law, not in the standard patent rights clause. But here, in Wisconsin patent policy, which ought to be as clear an expression of the law as anywhere (given that WARF was involved in drafting the law), the policy makes it appear that the university somehow has a first right to inventions over the rights of inventors, not simply federal agencies. WARF argued even more in its amicus brief in the Stanford v Roche case:

As shown below, the Bayh-Dole Act of 1980 granted universities and other nonprofit research institutions initial title to federally funded inventions in order to promote the transfer and commercialization of federally funded research for the benefit of the public. (p. 2)

Supreme Court: “The Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”

As shown below, the statute is clear: title to federally funded inventions originally vests in the contracting research institution, not the inventor or third-party collaborators. (p. 3)

Supreme Court: “Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.”

The Bayh-Dole Act, adopted in 1980, changed the landscape by clearly vesting ownership of inventions made in whole or in part with federal funds in the contracting institutions. Individual inventors are entitled to a share of any royalties, but they cannot own title to the invention unless the institution waives title and the government agency consents. (p. 4)

Supreme Court:  “The Bayh-Dole Act does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title to such inventions.”

Other provisions of the Bayh-Dole Act confirm that research institutions own original title to the fruits of their federally funded research and that individual inventors have only contingent, secondary rights if the institution waives its ownership rights.

Supreme Court: “The Bayh-Dole Act’s provision stating that contractors may ‘elect to retain title’ confirms that the Act does not vest title.”

How many times does the Supreme Court have to beat down WARF’s claims? It’s whack-a-mole! Those drafting Wisconsin’s patent policy want readers to believe that “first right to take title” means taking title out of thin air–not even from inventors. It as if Bayh-Dole disturbed common law and made it that inventions created with federal funding were in a state of suspension, not owned at all until a university pronounced on title and started a cascade of events.

The Supreme Court, again: “It would be noteworthy enough for Congress to supplant one of the fundamental precepts of patent law and deprive inventors of rights in their own inventions. To do so under such unusual terms would be truly surprising. We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly—not obliquely through an ambiguous definition of “subject invention” and an idiosyncratic use of the word ‘retain.'”

It is just not the case that Bayh-Dole gives universities any such “first right to take title.” Yet here we have it, in Wisconsin patent policy, brazenly and resolutely defying the U.S. Supreme Court as well as the principles of statutory and contract interpretation. Surely the Wisconsin administration should be ashamed of its indifference to the law, and angry that its legal counsel is so stubborn or incompetent or negligent as to refuse to change the policy statement for running now on five years. And one wonders whether all those inventions managed by WARF are open to a challenge that they were obtained by fraud. It is not merely an honest mistake. It was and is deliberate. It is not merely a technical detail. It makes a huge difference in practice and possibilities. It is not just a “flesh wound.” The Wisconsin patent policy is fatally wrong. The policy damages Bayh-Dole, federal research and innovation policy, and university research enterprise–not just at Wisconsin, but throughout the country.

 

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