NIST proposes to “clarify” the (f)(2) clause of the standard patent rights clause authorized by Bayh-Dole to turn it into an assignment clause. This is wrong. I will explain.
1. Bayh-Dole does not require an assignment clause. Bayh-Dole gives no authority for a standard patent rights clause that requires assignment. If NIST places an assignment requirement in the standard patent rights clause, it exceeds its authority under Bayh-Dole. It is a misrepresentation of the law and the standard patent rights clause to argue that (f)(2) is an assignment clause.
2. The Supreme Court in Stanford v Roche was asked to determine if Bayh-Dole vested title in or otherwise required the assignment of subject inventions to the contractor. The Court ruled that Bayh-Dole did not disturb the common law ownership of patentable inventions.
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 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.
The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.
The “Nothing more” is telling. The Court noted that federal agencies can provide “guidance” that a university, if it desires to obtain title to subject inventions, should have assignment agreements in place. But guidance is not the same thing as requiring inventors to assign, as a condition of funding, made without authorization of statute. And Bayh-Dole does not authorize federal agencies to require assignment. Bayh-Dole assures contractors that if they obtain title, they may retain that title, subject to various conditions. Nothing more. Bayh-Dole does not vest, mandate, require, recommend, or assure contractors of title to inventions made with federal support. That’s not in Bayh-Dole, and Bayh-Dole controls what can go into a standard patent rights clause.
Just as the NIH can only recommend that universities make patentable research tools available non-exclusively (something many universities ignore in practice), so also the NIH can only advise universities to obtain patent assignments. Nothing more, quoth the Raven.
3. The (f)(2) clause as drafted protects the federal government’s interest in subject inventions, not the contractor’s interest. This protection is consistent with Bayh-Dole.
Here’s the part of the (f)(2) clause under discussion (37 CFR 401.14). I’ve added some numeration and spacing and some bold for ease of reference:
The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees,
(i) 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
(ii) to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
Let’s put it simply:
The contractor must require eligible employees who might invent to make a written promise to the government that they will report inventions to the contractor, sign papers to file patent applications, and sign papers to establish the government’s rights.
Contractors must require potential inventors to
- report inventions
- sign patent application documents
- license or assign rights to the government
There’s nothing here about assignment to the contractor, just as there is nothing in Bayh-Dole that requires federal agencies to require contractors to take assignment. Certainly there’s no statutory authority in Bayh-Dole that changes common law so that universities suddenly find that they, not inventors, own inventions outright. There is no way to “clarify” (f)(2) to turn it into an assignment-to-the-contractor requirement. To do so violates Bayh-Dole.
4. The Supreme Court worried the lack of protections for inventors under Bayh-Dole.
The Act, for example, does not expressly permit an interested third party or an inventor to challenge a claim that a particular invention was supported by federal funding. In a world in which there is frequent collaboration between private entities, inventors, and federal contractors, that absence would be deeply troubling. [citation omitted]
But the lack of procedures protecting inventor and third-party rights makes perfect sense if the Act applies only when a federal contractor has already acquired title to an inventor’s interest. In that case, there is no need to protect inventor or third-party rights, because the only rights at issue are those of the contractor and the Government.
If NIST turns (f)(2) into an assignment requirement, it turns Bayh-Dole into the equivalent of a vesting statute, against the ruling of the Supreme Court. And it does so without the protections for inventors and third parties the absence of which the Supreme Court would find “deeply troubling.” By requiring assignment of inventions, NIST would in effect use the power of a federal contract to force inventors to breach the terms of any agreement made under state law. There would be no protections for inventors or third parties–just what the Supreme Court worried.
5. The (f)(2) agreement performs a function different from assignment to the contractor. Changing that function undermines a key link necessary for the standard patent rights clause to operate.
A patentable invention made with federal support within the planned and committed activities of a research project becomes “subject” when it is owned by a contractor. A contractor is any party to a funding agreement. Funding agreements include subcontracts, assignments, and substitutions of parties. The (f)(2) requirement functions to flow down three key responsibilities to inventors–things only the inventors, with ownership, can do–report (they first know they have invented), sign patent application paperwork (attesting that they are true inventors and the like), and sign documents to convey rights to the government (assignment or licensing, as indicated by circumstances). There would be no need for such a flow down requirement to inventors regarding invention rights if there were an assignment requirement in Bayh-Dole. Inventors would have no rights to convey to the federal government.
But if inventors own their inventions, then (f)(2) makes perfect sense. (f)(2) requires contractors to substitute parties for the three identified inventor responsibilities–the inventors when they make the written agreement and invent become parties to the funding agreement–they become contractors. They own their inventions. Thus, those inventions are “of a contractor” and are “subject” inventions. Otherwise, inventors under Bayh-Dole would have no obligation whatsoever with regard to inventions made with federal support. That, indeed, was what happened when Stanford failed to require (f)(2)’s written agreement and relied on its own “promise to assign inventions only when Stanford is required to obtain assignment agreement.” No telling what would have happened with an (f)(2) agreement–a federal agreement–in place. Without (f)(2), no inventions would ever be “of the contractor” when invented, and in the standard patent rights clause, inventors are obligated only to disclose “subject inventions”–not all inventions made in performance of planned and committed activities under a federal funding agreement.
6. Here’s the authority under Bayh-Dole (35 USC 202(c)(1)) (with some bold) for assignment:
Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: . . .
That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters,
and that the Federal Government may receive title to any subject invention not disclosed to it within such time.
That is, the contractor must disclose subject inventions. If the contractor is the research host, and there’s no (f)(2) agreement as required, then there simply are no subject inventions to report until the research host happens to acquire an invention made with federal support. For Bayh-Dole, subject invention is a narrow term–only the inventions that a research host has acquired, not all inventions made with federal support. The Supreme Court followed this reasoning as well.
If a contractor fails to report a subject invention, then the standard patent rights clause must require assignment to the federal government if the federal government requests assignment. But if the invention is not “subject,” then there’s no Bayh-Dole requirement to assign.
A contractor must report subject inventions to the government–that’s the “disclose” bit in 35 USC 202(c)(1). Bayh-Dole does not require federal agencies to require inventors to disclose their inventions to the research host contractor. Even the reporting requirement in the (f)(2) clause of the standard patent rights clause lies outside the express requirements of Bayh-Dole. Folks just drafted it in because it sounded good. Inventors are not subject to the requirements Bayh-Dole places on the standard patent rights clause–that clause pertains to the disposition of rights between the contractor and the federal government. Inventors aren’t involved unless they also become contractors. That’s the burden of (f)(2).
Perhaps Bayh-Dole’s inattention to reporting and assignment is due to a drafting oversight–subject invention could be defined to mean any patentable invention made within the planned and committed activities of federally funded research. No need for “of the contractor.” No need to single out only those inventions a contractor comes to own. But then there would be need for all sorts of protections for inventors and third parties, and those protections aren’t in Bayh-Dole. Rock and hard place. So Norman Latker and others went for a law that didn’t protect inventors and third parties and figured they could amend the hell out of such a confusing and badly drafted law later. Encroach bit by bit rather than get it all at once. The Stanford v Roche dispute was a major effort at such encroachment, but was turned back by the Supreme Court.
and that the Federal Government may receive title to any subject invention not disclosed to it within such time.
The problem for the standard patent rights clause, then, is how to implement this requirement when Bayh-Dole does not require federal agencies to require anything of inventors–not disclosure, not assignment, not promotion of use, nada. Furthermore, there’s no other requirement in Bayh-Dole stipulating when and how federal agencies might obtain title. Everything goes the other way–when federal agencies may allow contractors or inventors to retain title. Federal agency decisions to request title remain a matter of executive branch policy. The provision here at 35 USC 202(c)(1) is of the form of a penalty clause–a federal agency may request title if a contractor does not report a subject invention timely.
This was even more evident in the original version of Bayh-Dole passed in 1980. There, 35 USC 202(c)(1) read:
A requirement that the contractor disclose each subject invention to the Federal agency within a reasonable time after it is made and that the Federal Government may receive title to any subject invention not reported to it within such time.
The 1984 amendments changes “it is made” to “within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters.” This makes a big difference for the operation of (f)(2). Under the original law, once an inventor is made by the research host into a contractor by making the (f)(2) agreement, then the inventor has an obligation to report the invention to the government–directly or through an intermediary. The inventor has this obligation. But folks couldn’t figure this out, and so they added language to the law that makes it appear that there’s only one contractor possible–the research host–who must do the reporting. But (f)(2) makes inventors into contractors, and they then have an obligation to report timely or the federal government can require assignment of the invention, quite apart of whether they also report to their employer-research host.
It is clear that Bayh-Dole anticipates delegation of responsibility in a funding agreement–by subcontract, substitution of parties, and assignment. Thus, it is within the authority of Bayh-Dole to deal with such matters. Rather than work outside the law, the standard patent rights clause requires contractors to substitute inventors as parties to the funding agreement for purposes of reporting and signing papers. Inventors become contractors. All inventions become subject inventions. If (f)(2) were written following the law, however, it would omit the reporting requirement. All that’s required is that inventors deal with the federal government. That’s the purpose of the (f)(2) requirement that contractors must require of their research employee-inventors:
to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
There is no authority in Bayh-Dole that federal agencies must require inventors to assign to the organizations that host federally supported research. NIST has no authority to put an assignment clause in the standard patent rights clause. And there’s no authority for agencies to put an assignment clause there on their own–other than by invoking exceptional circumstances and demonstrating why they must insist on such an assignment clause. Assignment to the research host runs against Bayh-Dole, not with it.
If you stop for a moment and contemplate Bayh-Dole’s requirements for a standard patent rights clause as those requirements are drafted, you see that contractors–the research hosts–are detached from inventions made with federal support. The primary deal is between the federal government and the inventors. That’s the effect of 35 UCS 202(d)–inventors own, and a federal agency has only to “consult” with the research host prior to making a determination of whether to take ownership or allow the inventors to retain ownership.
Despite all the apparatus, all the gestures and apparatus to walk back on those gestures–all indications that Bayh-Dole is a scam put over on the public and federal agencies and university faculty–Bayh-Dole reduces to a simple proposition:
Federal agencies may allow inventors to own their inventions made with federal support, but they must consult with the research hosts first.
That’s it. Amazing, isn’t it. All the rest of the apparatus has to do with what happens if the inventors choose instead to assign their inventions to their research host, or to an organization designated by their research host, or to anyone else. The entire patent rights clause then would read something like this:
The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to execute all papers necessary to establish the government’s rights in the subject inventions.
Everything else comes about when an inventor of an invention made with federal support assigns the invention other than to the government. It’s just that those drafting the law were fixated on universities and patent broker gaining access to these inventions, and so buried the inventor ownership deep in the law. More subtlety to work the scam.
Once a university (or other research host-contractor) learns it owns such an invention–now a subject invention–it must report to the federal government what it is going to do with ownership, and if it decides to retain that ownership, then it must off and do things like file patent applications and promote utilization. But the business about receiving invention reports and assigning inventions to the university–those are things that are not required by Bayh-Dole and the reporting part, like the assigning part, simply is not in Bayh-Dole, is not authorized by Bayh-Dole, and is not required to comply with Bayh-Dole. Not only is Bayh-Dole a do WTF you want law for universities, it also has been a do WTF you want law for writing the implementing regulations. (Take a look at the 37 CFR 401.14(a)(e)(1)–try to find that in Bayh-Dole–not there. Funny thing–just made up on the sly because the foxes were doing the writing and the farmers and hens were asleep).
7. (f)(2) has one more effect: it supersedes any contractor agreement with inventors on the same subject matter.
Work it through. Bayh-Dole requires agencies to use a standard patent rights clause in funding agreements and stipulates what must be in that clause. The standard patent rights clause in turn requires contractors to require a written agreement from their potential research inventors. When the contractors require that written agreement, they cannot at the same time also require something different. If the contractors require disclosure via policy or patent agreement, it doesn’t matter–the (f)(2) agreement is a federal agreement and takes precedence. Inventors comply with their (f)(2) agreement, not with the contractor’s policies or contracts on the matter of disclosure.
The same is true of the requirement to establish the government’s rights. If a university has a requirement that inventors must promise to assign to the university such-and-such inventions, that requirement, too, gets knocked out because the (f)(2) written agreement promises the federal government the establishment of its rights–and the (f)(2) agreement takes precedence. An inventor under (f)(2) has no obligation to assign to the research host ahead of assigning to the federal government. If an inventor assigns to the federal government, there’s no breach of a private agreement otherwise. The (f)(2) agreement takes precedence and the research host required the (f)(2) agreement.
The Supreme Court did not consider the standard patent rights clause, as that was not in dispute–Bayh-Dole was. The Court ruled that Bayh-Dole does not disturb common law ownership of inventions and deals only with the relationship between federal agencies and research host contractors, should the host contractor come to own inventions made with federal support. The Court goes so far to chide universities for not having invention assignment agreements in place if they want to own such inventions. But that chiding was based on a reading of the statute, not the implementing regulations and the standard patent rights clause. Stanford never complied with (f)(2). It blew off (f)(2). So the Supreme Court had no written agreement by the inventor with regard to government rights to consider. While a university or other research-host contractor might have requirements that inventors report and assign their inventions, those requirements cannot get in the way of the (f)(2) agreement. And without the (f)(2) agreement, there is no federal requirement–no sponsored research agreement requirement–that inventors report inventions or assign inventions because inventions are not “subject” inventions until they are owned by a contractor, by a party to the funding agreement.
If NIST wanted to “clarify” (f)(2), the thing to do is make clear in the implementing regulations, such as at 37 CFR 401.9, that the (f)(2) requirement is not an assignment requirement and in fact operates to limit the scope of research host assignment requirements in favor of assignment or license to the federal government. That would be a provision that protects inventors and third parties from predatory assignment practices and from the possible lack of capability or diligence required to manage research inventions. An inventor under Bayh-Dole has a choice: deal with the government or deal with the research host. If the research host demands assignment, and the inventor thinks the research host will do a lousy job with the invention, then the inventor may assign to the government instead. That’s Bayh-Dole the way it is written. That’s the law. (f)(2) should make it clear that this is the deal.
If an inventor has choice–even this constrained choice between the government and the research host–then the inventor has a basis to negotiate with the research host regarding assignment. If the research host cannot meet the inventor’s requirements, then the inventor can assign to the government. If the research host cannot present invention management services that will do better than the federal government’s services, then the inventor may–and ought–to choose the federal government. That’s what Bayh-Dole sets up. That’s what (f)(2) enables. That’s what an assignment requirement would dismantle–without any authority to do so in Bayh-Dole. The authority in Bayh-Dole is to include a provision in the standard patent rights clause
So Bayh-Dole is a tangled mess of a law. Sorting out (f)(2) isn’t at all easy. I’m sorry about that. But once you see the pattern, things become clear. Bayh-Dole defines “subject invention” to be one “of the contractor.” (f)(2) requires contractors to make inventors also into contractors. Then all patentable inventions made with federal support are subject inventions–just not ones necessarily owned by the research host.
Bayh-Dole leaves assignment of inventions as an inventor’s choice. Research host contractors can attempt to constrain inventors’ choices with policy statements and assignment agreements and even with present assignments that assert that any invention becomes the property of the research host contractor the moment it is made. But (f)(2) makes research host contractors suspend those claims and instead requires them to authorize inventors to do something different if they wish. Inventors have a choice under (f)(2)–to assign to the federal government or deal with their employer. That sets up an actual negotiation–the one that Senator Bayh referred to but was unclear on how it might happen given his argument that Bayh-Dole vested ownership outright in contractors, leaving inventors at the bottom of the list for rights.
Turning (f)(2) into an assignment clause is what university administrators want. Scores of university attorneys signed onto amicus briefs in Stanford v Roche arguing not only for vesting but that the whole system of innovation as we know it would crumble if middlemen patent brokers didn’t get outright ownership of federally supported inventions. If they can’t get vesting, then an assignment requirement is the next best thing. But just as there is no vesting in Bayh-Dole, also there is no assignment requirement. NIST has no business trying to make Bayh-Dole appear to have such a requirement when it does not. Bayh-Dole endorses inventor choice. (f)(2) is consistent with that choice. Changing (f)(2) to an assignment clause removes that choice and acts outside the authority of Bayh-Dole.
And we haven’t even got to the argument that university patent practices under Bayh-Dole are an utter failure–a disaster–and that preserving inventor choice is a spark of hope, even if that choice is only between a university patent office fixated on monopoly licensing but 99.5% of the time failing to produce any commercial product and the federal government, who might just make things available non-exclusively and royalty-free.
The Supreme Court ruled that Bayh-Dole dealt with matters between a contractor and the federal government. Nothing more. The only way to bring inventors within the scope of Bayh-Dole is to make them contractors. That’s an act of desperation by folks determined to find a way to force inventors to assign to patent brokers. But that’s all they could do to make the fussy, badly drafted Bayh-Dole Act operate as planned. Then they described (f)(2) as an assignment clause, when it wasn’t, isn’t, and can’t be. The Supreme Court ruled “nothing more” and NIST would do well to heed that advice.
If folks want Bayh-Dole to ream out inventors, then they need to go back to Congress and ask Congress to overturn a couple centuries of patent law and have patent brokers without oversight gain outright ownership of inventions made in research to promote scientific knowledge and the public welfare. Make the case outright–not with subterfuge, not as a scam of public gestures that get walked back whenever possible in the implementing regulations and with misrepresentations galore.