Turning (f)(2) into an assignment clause violates Bayh-Dole

When I first looked through the proposed revisions to Bayh-Dole’s implementing regulations, it appeared that they applied to inventions made by federal employees and extended implementing regulations to include large businesses, consistent with a presidential executive order that does the same thing. But I missed the following:

18. Clarify the requirement in § 401.14(a)(f)(2) for a contractor to require its employees to assign rights in subject inventions to the contractor and in order for the contractor to file patent applications on subject inventions developed under the contract;

This will be a huge change in the practice of the law, especially after the Supreme Court ruling in Stanford v Roche. In essence, it creates a work-for-hire provision in the standard patent rights clause for all inventions made with federal support. The inventor does not own anything–the employer does, regardless of the terms of employment.

Bayh-Dole pre-empts all other federal laws on the procurement of patent rights in federally supported research involving small businesses and nonprofits. Bayh-Dole must also pre-empt regulations implementing Bayh-Dole that don’t have any standing. If there’s no statutory authority in Bayh-Dole to require contractors to require assignment of inventions, no regulation has standing to require such a thing anyway. (f)(2) was drafted to be consistent with Bayh-Dole. Bayh-Dole does not provide any mandate for federal agencies to require small business and nonprofit contractors to require they obtain assignment of subject inventions. There is therefore no statutory authority for NIST to revise (f)(2) to turn Bayh-Dole into a vesting statute by requiring small businesses and nonprofits to require in the standard patent rights clause assignment of subject inventions.

This proposed change reflects a fundamental misunderstanding of Bayh-Dole–one that is of course a desired misunderstanding by folks intent on ensuring that universities in particular gain ownership to most anything that faculty or others might make in the course of research. And of course, they want ownership to ensure that they have work trying to make money licensing patents to monopolist interests. So far, they have reduced the commercialization rate from 25% to 5% to 0.5% over the course of forty years.

There is nothing in Bayh-Dole that requires contractors to demand assignment of subject inventions. There is nothing in Bayh-Dole that requires contractors to acquire subject inventions. There is nothing in Bayh-Dole that requires contractors to file patent applications. There is nothing in Bayh-Dole that requires commercialization of subject inventions. Bayh-Dole’s standard is practical application–use with public benefits on reasonable terms.

The (f)(2) provision as it stands is required to protect the federal government’s interest in inventions. Contractors are to require the (f)(2) written agreement of their potential inventors at the time a funding agreement comes into force. The (f)(2) written agreement commits potential inventors to protecting the government’s rights–by reporting their inventions, by signing papers to allow patent applications to be filed (by whoever may own the invention), and by signing papers to establish the government’s rights in inventions.

The (f)(2) written agreement does more. It also makes potential inventors, when they invent, parties to the funding agreement. This is a consequence of the definition of “funding agreement” in Bayh-Dole. As parties to the funding agreement, inventors are also contractors, and by common law, own their inventions. Thus their inventions become subject inventions because they are “inventions of a contractor”–the inventor, by virtue of the (f)(2) written agreement the inventor has made as part of the funding agreement, as required by the contractor, as required by the standard patent clause at (f)(2), as authorized by Bayh-Dole (but there’s nothing in Bayh-Dole about it, just an authorization to create uniform patent clauses for use by federal agencies).

So the idea that (f)(2) has to be “clarified” to require assignment to the contractor is an awful idea! It does not fix anything, and it makes the definition of “subject invention” all the more murky, as the obligation to assign an invention does not make the invention “of the contractor”–meaning the employer. It just creates an equitable interest in title. An invention, when made within the scope of a federal funding agreement, isn’t an invention of the contractor until assignment is made, not when there is an agreement to assign, even if someone inserts “present assignment” language, making it appear that the assignment has already taken place. Even the CAFC didn’t go so far as to say Roche owned a share of the patents in dispute–just that Stanford lacked standing to sue for infringement.

The proposal to turn (f)(2) into an assignment requirement means that inventors by force of federal law are required to assign their invention rights to the contractor–regardless of whether the contractor has any standing to require such an assignment. This is the old IPA strategy, but now imposed on contractors rather than requested by contractors.

I’d argue that “clarifying” the requirement that (f)(2) forces assignment to the host of federally supported research is unconstitutional. The Constitution gives the federal government the power to reserve exclusive rights for inventors. The government does not have the power to also demand in patent law that inventors give up their rights to inventions to the hosts of their research. That’s something the government might do by contract–but that’s not what Bayh-Dole authorizes.

So how will this work with 35 USC 202(d)–the provision in Bayh-Dole proper that allows inventors to “retain” ownership? You know, the provision the Supreme Court cited to indicate that inventors had ownership of their inventions despite Bayh-Dole, that under Bayh-Dole rights did not vest with the university-contractor. If NIST makes the assignment change to (f)(2), then 35 USC 202(d) cannot operate. If inventors must assign, then how can they “retain” any rights? No, we end up with patent rights passing to research hosts. Not necessarily employers, not necessarily anyone competent, not necessarily anyone free of institutional conflicts of interest. Just plain and simple an invent-for-hire situation, without the hire (since the federal government pays the salaries of the inventors, pays their expenses, pays the university for its overhead in administrating the funding and providing the facilities).

Bayh-Dole is systematically killing off private invention management. The federal policy appears to use federal funding to create an industry in institutional speculation on patent rights to create monopolies in the name of “commercializing” research. It hasn’t worked so far. Winding it up tighter will make it work even less.

I guess it’s up now to NIST folks to work it out.

If the NIST folks want to make things clearer with regard to (f)(2), then make it clear that (f)(2) supersedes any contractor-required agreements that pertain to assignment, assisting, and establishing government rights. Bayh-Dole is self-implementing. The (f)(2) agreement requirement is one of the few things that a university must require (the others are flowing down the patent rights clause in subcontracts, designating personnel for patent matters, educating employees on the importance of prompt disclosure of inventions, and reporting inventions to the government–everything else only comes into play if inventors assign to the university).

The (f)(2) requirement commits inventors to assisting the government even in the absence of contractor compliance with the standard patent rights clause, and in the absence of a contractor acquiring title to a subject invention. To make the (f)(2) clause into an assignment requirement to the research host means that the government has no direct relationship with inventors. Instead, NIST should make clear that a contractor’s assignment clause does not comply with (f)(2) and federal agencies have absolutely no statutory interest in whether inventors assign to the research host or do not, so long as the inventors become parties to the funding agreement and so come within the requirements of Bayh-Dole, the implementing regulations, and federal agency control in the absence of contractor-host compliance or election to retain title they have acquired.

Even better, (f)(2) should be seen as a provision to protect inventors from predatory practices, at least at universities. Institutional ownership does not appear to have anything to do with the success of university research inventions in achieving practical application–by commercial commodification or otherwise. There’s no data to show anything other than a big institutional bureaucratic swelling of activity and expenses–not outcomes. The fundamental metrics of Bayh-Dole–date of practical application, date of first commercial sale or use–have never been publicly reported. The best information is that overall, university commercialization rates are sub 0.5%.

For all that, commercialization–that is, commodification of research findings, especially under monopoly conditions–is not the only or even the most important outcome of research-based inventions. Use in research is the first key. Use in industry and among the public is the second. Commodification comes after. The public policy espoused by the Bayh-Dole advocates–the faux Bayh-Dole folks–is that monopoly rights are necessary to prevent research uses and public uses in favor of, someday, maybe, 1 in 200 or 1 in 1000, creating a commodity product that will be lucrative. That’s nice for speculators. It’s nice the university administrators that prefer dealing with speculators. It’s nice for folks who think this is the ultimate goal of federal research policy, and that federal law and regulations should be directed at this goal.

Do the right thing, NIST. Leave (f)(2) alone, or follow the Supreme Court guidance that Bayh-Dole does not authorize forcing patent rights to research hosts, or better clarify that (f)(2) pre-empts any state-based contractual obligations that pertain to the same subject matter and has nothing to do with assignment to the research host.

Inventions made with federal support aren’t ordinary inventions. That much has been established in federal patent policy since at least 1947. The patent system is not well suited to the particular goals of advancing scientific knowledge or addressing public welfare needs, not generally and not in the presence of federal support for such efforts. For seventy years, folks have tried to find a balance to how to make federally supported inventions directed at science and public welfare available while allowing some degree of patent use as part of the activity. There are ways to do that, but the present “institutional commercialization by monopoly” approach sure hasn’t worked in practice. Yet this is where we are headed. It’s worse that having the federal government own inventions and dedicating them to the public to enlarge the public domain. Instead, we have what Matt Ridley in The Rational Optimist called the “Moloch State”–

governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.

monopoly rewards caution and discourages experiment, the income is gradually captured by the interests of the producers at the expense of the consumers.

No doubt NIST folks could consider the big picture of the history of innovation and recognize that patents held by institutions have been only a tiny and mostly inconsequential contributor to innovation. By far the greatest spur to innovation has been non-market, networked collaboration–not usually the warm and fuzzy kind, and not the kind demanded by federal officials in defining research goals, but the competitive, distant, random kind, full of betrayals and greed, altruism and support, mistakes and accidents, aspirations and lies.

No doubt NIST folks, too, could look at the institutional record on ownership of patentable inventions. Dismal, especially after that ownership was pitched as such a great thing that it ought to be required. The business model for the very model of a modern major university licensing operation is one lucrative monopoly deal every thirty years. One deal may last twenty years, and it will take another ten for slow moving university administrators to admit they have been taken with a vision of future wealth if only the university swallows all possible inventions and seeks out speculators–ones only willing to work to develop an invention if they have a monopoly.

And as the glib president of LES told us just last week, if that development work doesn’t work out (and it almost never does), why then the speculators can “monetize” their exclusive license by shaking down industry! Essentially, Bayh-Dole is built on this model–that monopoly patent rights will be good for trolling even if nothing else happens. It’s just that in presenting Bayh-Dole to the public and to policy-makers, advocates put things bass-ackwards–innovation, public benefit, exclusive licenses, patents, inventions, federal funding. They don’t say, our first priority is whether we can sue industry later for infringement if things don’t work out, and our second priority is finding gullible rich folks to buy us out, and our third priority is seeing if we can make something of our little monopoly.

Again, universities running a patent portfolio model need only one deal every thirty years. That’s one deal in 7,500 inventions or so. If they are doing a deal every 1,000 inventions, they are doing way over the minimum. But as for innovation in general, for the use of research findings arising in federally supported research, which mostly ought to go to the public domain, or to a research commons, or to a make-use commons–we’re talking about thousands of inventions being withheld from public use for 20 years, and often missing opportunities for combination with other findings, past or current or future.

The problem we have with federally funded innovation is not how to stuff more things faster into the narrow anal tube of commodification under a monopoly for institutional profit. The problem is how to delay doing this for enough time for platforms of technology to develop, to be used for research, to be used outside of research, so standard develop, so things can be interoperable, so things can develop at scale and not serve a single master.

Revising Bayh-Dole’s implementing regulations to make institutional monopolies easier is the wrong direction, if innovation is the goal. If forcing inventions to bureaucracies is the thing, if federal welfare for patent brokers is the thing, if fragmenting patent rights across non-co-operating bureaucracies is the thing–then, sure, “clarify” (f)(2) to turn it to the service of the Moloch state.

Bayh-Dole, what a killer.

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