Seven Ways Universities Commonly Fail to Comply with Bayh-Dole

University patent administrators and patent policies make a fetish out of compliance with Bayh-Dole. What’s funny is how this fetish is about selective compliance–compliance that advances the power and freedom from accountability for administrators, at the expense of faculty and students, and in defiance of the Bayh-Dole Act. It’s as if Bayh-Dole was only half a law, a law to establish a well paid administrative class that can operate with impunity when it comes to federally supported inventions–inventions, one would think, that are near the heart of desirable federal research outcomes.

Here’s a list of seven areas in which university administrators routinely thumb their noses at Bayh-Dole, sometimes out of ignorance, sometimes with disregard, and sometimes just because they can. In all cases, however, non-compliance points to a failure to respect the law as well as to an institutional incompetence, or negligence, or even malpractice in managing inventions and invention policy.

1 Fail to implement the (f)(2) agreement

The (f)(2) agreement is not in Bayh-Dole itself, but rather is in the standard patent rights clause authorized by Bayh-Dole:

(f) Contractor Action to Protect the Government’s Interest

(2) The contractor agrees to 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 a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c), above, 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 fundamental action of Bayh-Dole is to require federal agencies to use a standard patent rights clause by default in all their grants for research, development, and experimental work at nonprofits and small businesses. This standard patent rights clause forms the agreement between the federal government and a university with regard patent rights in inventions made by investigators hosted by the university. The (f)(2) agreement is an, if not the, essential element of this agreement regarding the government’s interest in these patent rights. When a university requires its research personnel to make a written agreement to protect the government’s interests, the university necessarily includes those personnel as conditional parties to the funding agreement–when they invent with federal support, they become contractors, and as they own their patentable inventions, those inventions become subject inventions–inventions subject to the standard patent rights clause.

Here are the core properties of the (f)(2) agreement.

It is required by the university. Thus, the university cannot simultaneously require something different.

It is made by research employees for the benefit of the government, not for the university. Thus, it is not an agreement with the university over rights, but an agreement within the federal funding agreement on behalf of the government, approved by the university.

It is in writing. It’s not an edict in policy. It’s not a requirement that inventors comply with contracts. It is an actual written instrument that conditionally binds potential inventors to the federal funding agreement and specific requirements under the standard patent rights clause that only inventors, when they invent, can do.

It involves three commitments: (1) disclose inventions with enough detail to permit the university to comply with its reporting obligation; (2) sign paperwork to permit patent applications to be filed; (3) sign paperwork to establish the government’s rights.

It binds inventors to the standard patent rights clause so that the moment an invention is made within scope, it is an invention of a contractor, and thus is a subject invention. Even if an inventor fails to disclose the invention, or the university host fails to report the invention or take any action with regard to it, the government’s interests are still protected through the (f)(2) agreement.

Failing to implement the (f)(2) agreement breaches the heart and soul of the standard patent rights clause. The (f)(2) agreement is the one thing in the standard patent rights clause that turns a grant made to a university in support of an individual’s research work–a subvention–into a federal agreement with the individual with regard to patent rights.

2 Misidentify inventions as subject inventions

“Subject invention” is a definition placed into patent law by Bayh-Dole. The definition creates a new class of patentable invention. The standard patent rights clause then uses this definition to establish the scope of the government’s interest in inventions made under federal grants. Here’s the definition (from the standard patent rights clause):

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

The implementing regulations for Bayh-Dole provide guidance for what “in the performance of work under this contract” means (37 CFR 401.1). Here are the key points:

An invention which is made outside of the research activities of a government-funded project is not viewed as a “subject invention” since it cannot be shown to have been “conceived or first actually reduced to practice” in performance of the project.

The guidance emphasizes documentary evidence. It is not a matter of whether inventors or administrators assert that an invention is “subject”–it is a matter of what can be shown. That means looking at the proposal, its objectives and statement of work. Does the proposal anticipate the conception of an invention? Does it propose first actually reducing a conceived invention to practice? If not, the invention is not a subject invention because it lacks documentary evidence of intent. This is equivalent to the idea of equitable ownership of inventions in situations in which someone is hired expressly to invent. In the case of principal investigators, who ask the government to support their work, a subject invention is a proposed deliverable–“fund us, and we will do the following.” If the invention cannot be shown to be in “the following,” then it is not a subject invention.

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

The regulations establish two tests for the scope of a subject invention. (1) Is the invention within the “planned and committed activities”? That is, are there documents that establish what the work on the project will be–the request for proposals, the proposal, the statement of work, the detailed budget? (2) Did the work on the invention “diminish or distract” from the planned and committed activities, so that those activities did not get accomplished as described? That is, was grant budget spent on the inventive work? Did proposed work not get done, get delayed, get reduced in effort? To determine whether an invention is subject, one has to get well formed answers to these to questions. Proposal documents, time cards, communications with federal grant officers.

An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology.

This example makes clear the issue. Applying new knowledge to create a “usable new technology” is where inventions happen. At one point, in the discussion of the definition of basic research, people argued that there were inventions, then the research simply wasn’t basic. That’s a tough lesson for a loose-thinking, self-interested university administrative crowd. If a proposal for research does not include the application of discoveries to create new technology, then one has to move to the second test of scope–did the application involve a diminishment or distraction from the proposed research? Clearly, if there is funding from another source for the application of new knowledge, then the second test will be difficult to meet. The implementing regulations make it clear–if there is an application of new knowledge that’s been discovered with federal funding, and the activity of making that application is not in the proposed statement of work (and otherwise fails the two tests of scope), then the invention is not a subject invention. It is not an invention that the government is authorized under Bayh-Dole to contract for. It is not an invention in which the government, by federal law, has an interest. These are not the inventions that you are looking for.

University inventors, however, like to ascribe their inventions to federal funding because it makes their federally supported work appear more productive. University administrators like to ascribe inventions to federal funding because then they can use the bugaboo that federal law gives the university ownership of the invention through some complex magical hoodooing.

The implementing regulations require contractors to have a program for identifying subject inventions (37 CFR 401.5(5)):

The contractor shall establish and maintain active and effective procedures to ensure that subject inventions are promptly identified and timely disclosed and shall submit a description of the procedures to the contracting officer so that the contracting officer may evaluate and determine their effectiveness.

Not only are universities to distinguish subject inventions from other inventions, but they are to have a description of the procedures for doing so.

The implementing regulations do not anticipate over-reporting of subject inventions, but rather under-reporting:

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

Here’s 401.11(d):

(d) Appeals procedures established under paragraph (c) of this section shall include administrative due process procedures and standards for fact-finding at least comparable to those set forth in §401.6 (e) through (g) whenever there is a dispute as to the factual basis for an agency request for a conveyance of title under paragraph (d) of the standard clause, including any dispute as to whether or not an invention is a subject invention.

There’s nothing that goes the other way–that inventions that are not subject inventions are not reportable, and should not be reported as if they were subject inventions. There’s nothing in Bayh-Dole that permits university officials from unilaterally declaring an invention to be a subject invention. There must be documentary evidence. There’s nothing in Bayh-Dole that indicates that anything “related to” or “arising from” or “produced while” must be a subject invention. The two tests of scope have to do with whether the invention can be documented as a deliverable or a deviation from deliverables.

But administrators ignore the definition of subject invention and the implementing regulatory guidance. They want the definition to be broader than it is, and typically do little more than ask on an invention disclosure form for a grant number. Frequently, they provide guidance that requires an expansive definition.

Here’s Rice:

Grant or Contract Number: If the invention was made in connection with any sponsored research or grant, provide the names of all sponsors, including government, corporate and foundation sponsors. This is important because sponsored research contracts frequently obligate Rice with respect to intellectual property which results from the sponsored research. This may include fellowships which paid for work performed that is associated with this invention or the inventors. Provide the full applicable grant or contract number(s), including the R-fund number. If not sponsored, please indicate by “None.”

Here’s Princeton:

Sponsorship. Was the work that led to the invention sponsored? List all sponsors below.

Here’s Florida State (with the bad semicolon retained):

CONTRACTS AND GRANTS. Provide the following information for each grant or contract which supported; the work, material, software, or conception and enablement of the invention.

Here’s Illinois:

10. SPONSORSHIP Identify all grants, contracts, and other sources of funds contributing to the research that led to the invention. You should list all agencies that you would acknowledge in a publication. Be liberal in the interpretation.

You get the idea–the wording here is entirely loose, but the form itself is a formal document, required by the standard patent rights clause. The guidance should be clear. It’s not a matter of whether funding “led” to an invention–it’s a matter of whether making the invention was anticipated in the statement of work, or that making the invention diminished or distracted from that work.

But it’s worse than this, actually. (It always is!) When universities define “invention” broadly in policy to mean “invention, non-invention, and random list of whatever happens to come out of our adminstrative rictuses at the time that we produced the policy,” then the “invention” that is required to be disclosed does not need to have the property of “is or may be patentable.” Universities now routinely require a much broader set of assets to be reported, and they then claim outright ownership of this set, and report whatever is disclosed to sponsors, without clarifying to inventors or sponsors the university’s idiosyncratic policy definition of “invention.” This means that a university inventor, to follow university patent policy, must report on an “invention disclosure” form a range of “inventions” whether she thinks they are patentable or not, and even without regard to whether she thinks they are even inventions (in any rational world). But the university administrators turn around and claim that the “inventor” submitted the invention as if it were patentable, switching the meaning from the policy scope to patent usage.

It’s clever, self-serving, and indifferently non-compliant. All sorts of nonsense then gets reported to the government as if it were a subject invention, and then gets dealt with as if it were a subject invention, even down to the absurd worry about what the government might do if the university is unable to file a patent application because there aren’t any patent rights available–does the university then have to offer title back to the government, which also can’t file? This question comes up, for instance, with software.

The result is that universities over-report subject inventions. They feed an institutional rat in doing so–a rat conflicted with regard to university ownership and totally unhinged when it comes to compliance with Bayh-Dole’s definition of subject invention.

3 Claim the university has the “right to elect title” in subject inventions

Here’s the standard patent rights clause (37 CFR 401.14(a)(b)):

The Contractor may retain the entire right, title, and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 203.

The US Supreme Court in Stanford v Roche made clear that to “retain title” one had to already have it. The universities argued just this point–to already have title, why, Bayh-Dole must have made title automagically vest with the universities. But the Supreme Court when on to bash this mole of an interpretation on the head, finding that Bayh-Dole did nothing to disrupt the idea that inventors own their inventions and employers obtain ownership of such inventions by entering into patent agreements:

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.”

But universities persist in retaining policy statements that make use of just such an “idiosyncratic” use of “retain”–and enforcing these policies against inventors as if the policies were enforceable agreements.

Here’s Michigan Tech:

For Federally funded projects, the invention ownership terms are defined by the Bayh-Dole Act which was enacted into law in 1980 and specifically allows universities to retain ownership of inventions resulting from federally funded research.

If the University elects title, a patent application must be filed within one year of that election of title…

Here’s University of Southern California:

Both California and federal law provide that the University owns all intellectual property created or developed by an employee within the scope of his or her employment, including works developed under sponsored research agreements and works that make significant use of University funds or facilities.

Contracts or grants sponsored by the federal government require that the University retain title to inventions conceived or reduced to practice in the performance of a sponsored project, subject to a royalty-free, non-exclusive license granted to the government. The same requirement frequently applies to copyrightable material developed in the performance of a sponsored project.

Here’s East Carolina University:

Patents on any invention conceived or first actually reduced to practice in the performance of work under the Federal funding agreement arising from research supported by the United States Government (“Subject Invention”) may be controlled by the terms of the grants and contracts specified by the government agency pursuant to Federal law. Consistent with Federal law, the University may, within a reasonable time after disclosure to the U.S. government, elect to retain title to any Subject Invention.

Here’s Wisconsin:

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.

These policies–and there are many other instances–all play on the idiosyncratic use of “retain” to mean “take from inventors” rather than the plain meaning–“keep from a government request, having already gotten through normal means.” There’s no reason for the cleverness, other than institutional conflicted interest in separating university inventors from their patent rights, citing federal law as an authority for doing so, when federal law does no such thing. It’s not just non-compliance with Bayh-Dole to mis-cite the law–it’s contemptous non-compliance. Of course, one might argue that university administrators are just so busy that they can’t afford to pay attention to every nuance of their patent policies. But that’s just another argument based on the idea that administrators only selectively enforce their policies–against inventors, and do not hold themselves to anywhere close to a professional standard of practice.

4 Don’t exclude the management of non-subject inventions from the costs deductible from royalties on subject inventions

The standard patent rights clause places a specific limitation on the use of royalties by nonprofits (37 CFR 401.14(a)(k)(2)):

The balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, will be utilized for the support of scientific research or education…

The standard patent rights clause tracks the Bayh-Dole Act (35 USC 202(c)(7)):

except with respect to a funding agreement for the operation of a Government-owned-contractor-operated facility, a requirement that the balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, be utilized for the support of scientific research or education

The standard patent right clause sets up two requirements on royalties. First, that only allowable cost deduction is for expenses “incidental to the administration of subject inventions” (my emphasis, of course)–not to all inventions. Second, that any remaining funds “the balance” go to support “scientific research or education”–not more technology transfer, not “higher education” but rather “scientific education” (or, if you wish, “education”–but rather, “instruction and learning” not “anything that a university does.”

I don’t know a single university that separates out from subject invention royalties the costs of administrating subject inventions or that ensures that any money beyond costs goes to “scientific research or education.” I don’t know a university that even keeps separate accounting for the cost of administrating subject inventions. Most universities take a share of every royalty stream for technology transfer and then mix that money to cover whatever they want within their licensing program, regardless of whether they are dealing with subject inventions, other inventions, or the random list of non-inventions that puttered out of administrative rictuses. It’s non-compliant behavior–but do university administrators care? Do they stand aghast at what they do? No, hardly.

5 Don’t use the balance of royalties on subject inventions for “scientific research or education”

Once the university has paid off the technology licensing program and costs incidental to the administration of subject inventions–however badly and baldly they do this–the standard patent rights clause requires the university to use the balance for “scientific research or education”:

The balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, will be utilized for the support of scientific research or education

Most university patent policies don’t distinguish royalties on subject inventions from other royalties. They also never include “income earned with respect to subject inventions” as something other than “royalties”–and yet it is clear that “income earned” is intended to be something other than royalties. Whatever money is designated as “royalties” goes into an administrative slush fund and from there gets distributed out to schools and departments as smaller slush funds. A university’s central administration typically keeps a share for its own slush fund. Sometimes these funds do support research, but typically no distinction is made with regard to whether the research is “scientific.”

I don’t know of any university that allocates royalty money to education. The administrative reasoning is, “everything we do is education, so the law here is really nothingburger.” But that’s a reading of the law that makes the law have no purpose, when a proper interpretation should give reasonable sense to a law where that’s possible. In the hearings pertaining to the expansion of the IPA program–the predecessor of Bayh-Dole–a university official made it clear that university public service activities, at least, were excluded from “scientific research or education.” Humanities research, too, is not “scientific” research. No doubt business and law research, too, is not scientific research.

6 Label assignments of inventions as “exclusive licenses”

The standard patent rights clause places a specific restriction on nonprofits with regard to the assignment of subject inventions (37 CFR 401.14(a)(k)(1)):

Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions, provided that such assignee will be subject to the same provisions as the contractor;

University administrators get into a fuss about how they can’t assign subject inventions–they have to license them, so they argue, exclusively. Yet they create exclusive licenses that the courts have determined to be assignments. As a standard of interpretation has it, it is not how an instrument is labeled that determines what it is, but rather what the instrument does.

If an exclusive license conveys substantially all property rights in a patent, then it is an assignment. Courts have determined university “exclusive licenses” to be assignments when the license is for all commercial rights, permits sublicensing, allows the licensee to sue for infringement, and reserves to the university rights only for noncommercial research and educational use.

Here’s the court in Prima Tek II (Prima Tek II v. A-roo, 222 F.3rd 1372):

Section 261 recognizes, and courts have long held, that an exclusive, territorial license is equivalent to an assignment and may therefore confer standing upon the licensee to sue for patent infringement.

The court in a dispute involving laser scalpel patents reviews a University of Washington “exclusive license” involving:

(1) to “make, have made and sell” products world-wide covered by the University’s patent rights;

(2) to grant one or more sub-licenses to make, have made, use and sell licensed product(s) covered by UW’s patent rights;

(3) to bring suit in its own name, or if required by law, jointly with UW, for infringement of the licensed patent rights including the right to sue for past infringement of the licensed rights;

(4) to enjoin infringement and to collect damages, profits and awards of whatever nature recoverable for infringement;

(5) to settle any claim or suit for infringement of the patent by granting the infringing party a sublicense for the patent.

The court concludes that reservations of rights for university use notwithstanding, the instrument is an assignment, not a “mere” license. The standard patent rights clause under Bayh-Dole may permit universities to grant exclusive licenses, but it also requires federal agency approval when the exclusive license is an assignment that’s not to an organization that has a primary function the management of inventions–and certainly not without also assigning the requirements of the standard patent rights clause along with the assignment of title (and thus including, for instance, using the balance of royalty income for scientific research or education).

University administrators simply disregard this requirement of the standard patent rights clause. They think that if a document says “exclusive license,” then they don’t have to worry about obtaining agency approval. They just pop the deal, declare success, and move on. If faculty inventors were to take the same attitude, they would get sued–and do get sued–by university administrators. Perhaps there should be a time for turn about.

7 Don’t acknowledge limitations on subject invention property rights

Bayh-Dole creates a new class of inventions called “subject” inventions. The Act installs this definition in patent law. Patent law makes clear that patents “have the attributes of personal property” (35 USC 261):

Subject to the provisions of this title, patents shall have the attributes of personal property.

I have marked the introductory restriction, which university administrators overlook, but which is material to the law. The federal law does not say that patents are personal property–it says they have the “attributes of personal property.” More importantly, those attributes are “subject to the provisions of this title.” Bayh-Dole created a new class of inventions and added a new section to patent law (35 USC 200-212) [actually, only mostly 200-206, but people cite the whole wad]. University administrators fixate on the bit in 35 USC 202, which covers the stuff regarding how universities can elect to retain ownership of subject inventions, and must file patent applications and report on utilization (if an agency so requests), and the like.

Certainly the requirements in 35 USC 202 do place conditions on patents issuing on subject inventions. But so do the requirements in 35 USC 200–Congress’s express statement of “policy and objectives” for subject inventions. This statement is unusual–it does not merely provide a memo of Congress’s intent; rather it makes the “attributes of personal property” for subject inventions themselves subject to Congress’s statement of policy and objectives. The statement of Congressional intent does not merely add colorful background to the law, is not merely a pious reminder of why the law was needed. The statement of Congressional intent is part of the law, states limitations on the “attributes of personal property” for subject inventions.

Here’s the list of objectives (with layout for clarity):

It is the policy and objective of the Congress to use the patent system

to promote the utilization of inventions arising from federally supported research or development;

to encourage maximum participation of small business firms in federally supported research and development efforts;

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

to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery;

to promote the commercialization and public availability of inventions made in the United States by United States industry and labor;

to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and

to minimize the costs of administering policies in this area.

These objectives are part and parcel of the property rights in subject inventions. An owner of a subject invention is constrained in various ways by the standard patent rights clause in a given federal funding agreement. But the property rights in patents arising from the management of subject inventions–call them subject patents–are likewise constrained by this Congressional statement of purpose. Subject patents are to be used with the attributes of personal property to meet these objectives. These objectives are not fluff, not surplusage. They are material.

In particular, there’s no foundation in these objectives for a university to sue for infringement where the university has not achieved practical application of a given subject invention. But university administrators see subject inventions as another ordinary form of patent, as if being a subject invention has only to do with how expeditiously administrators gain control of the patent rights, and from there it’s a matter of making as much money as possible any way one can–by licensing, by licensing to speculators in companies, by licensing to trolls ready to shake down an industry, by threatening litigation to “increase the value” of a patent, and by litigating for infringement (“because that’s the right of a patent owner” and “the university has an obligation to the people of the state and/or to the inventors and/or to taxpayers”).

But a careful reading of federal patent law and Bayh-Dole argues that once there’s practical application, a university’s rights in a subject patent are greatly reduced. The Congressional objective has been met in practical application, and a university’s effort to use legal means to prevent that practical application–purely on the basis of a property right, not to protect the public from an abuse or nonuse–is simply outside the scope of the property right provided by Bayh-Dole. That’s not to say that universities don’t sue for subject patent infringement–of course they do. But in doing so, they don’t give a rat’s ass that Bayh-Dole places limitations on their actions. They don’t acknowledge there’s anything special to comply with. They read Bayh-Dole as a freedom to hunt, and if they can hunt to domesticate, they will, but if they need to hunt to kill, that’s also fair game, so to speak. Essentially, they take the position that they can do anything they want until they are stopped by some legal means–or rather by someone with the legal means. The Tale of Gyges comes to mind. Was Bayh-Dole simply a law to free university administrators from the values, if not also the restraints, of public service?

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