Morrison & Foerster, a big law firm (revenue near $1b per year, around 1,000 attorneys), has an infographic out about the Bayh-Dole Act, subtitled “5 Steps to Retain Title.” Here’s a bit of their advice–steps 1 to 3. It looks relatively straightforward:
Notify the government, elect to retain title, and file a patent application. It’s just that this advice omits a fundamental step. To “retain” title, an organization has to already have that title, and as the Supreme Court made clear in Stanford v Roche, to get title, one has to acquire it by assignment–there’s no vesting of title in Bayh-Dole or even of a right to take title from inventors.
Thus, somewhere before step 2, there must be another step–call it step 0, or step 1.5–in which the organization acquires title to an invention. Once an organization acquires title, according the Supreme Court, then the invention, if made in the performance of work under a funding agreement, becomes a subject invention.
This is a big obvious omission from the MoFo infographic, but it is only part of the misinformation put out by the firm. An invention becomes a subject invention, according to Bayh-Dole, when it is owned by a contractor, and according to the definitions in Bayh-Dole, a contractor is any party to a funding agreement, including by assignment, substitution, or subcontract.
Bayh-Dole authorizes the creation of a standard patent rights clause, specifies provisions that must be in that clause (but does not limit the clause to those provisions), and requires federal agencies to use the standard patent rights clause in all their funding agreements unless they can justify a determination to require some other clause. It is by means of the standard patent rights clause that anything in Bayh-Dole is communicated to a contractor, such as a university.
Thus, the idea put forth in the MoFo infographic regarding “Bayh-Dole” that “the Bayh-Dole Act allocates rights for intellectual property developed with federal funds between contractors or grant recipients and the government” is also not accurate. Bayh-Dole does not allocate anything. It stipulates what patent rights clauses federal agencies must use in their funding agreements unless they can find exceptions. Bayh-Dole requires federal agencies to allow contractors to retain title to inventions made with federal support if the inventors assign title to those contractors, subject to various conditions. Bayh-Dole therefore restricts how federal agencies may claim title to such inventions as a deliverable in funding agreements. That’s not an “allocation” of title, but rather a restraint on federal contracting powers.
The addition of “or grant recipients” also points to a lack of knowledge about the law. “Contractor” is a defined term in Bayh-Dole (35 USC 201( c)):
The term “contractor” means any person, small business firm, or nonprofit organization that is a party to a funding agreement.
(The NIST April 2018 rule changes the definition of “contractor” in the implementing regulations to include large businesses, consistent with the executive order that expanded Bayh-Dole to non-small businesses). Thus, a “grant recipient” is just another form of “contractor.” Except a “grant recipient” may also not be a contractor–organizations can receive federal funds that are not within the definition of “funding agreement.” A “funding agreement” must involve “the performance of experimental, developmental, or research work.” As Bayh-Dole makes clear, educational grants are excluded (35 USC 212):
No scholarship, fellowship, training grant, or other funding agreement made by a Federal agency primarily to an awardee for educational purposes will contain any provision giving the Federal agency any rights to inventions made by the awardee.
Thus, when Mo-Fo adds “or grant recipient” to “contractor,” it needlessly broadens the apparent scope of the law, and it suggests that the law firm doesn’t know what it is talking about, or that it doesn’t care, or that it doesn’t need to be accurate, or that it doesn’t matter whether it is accurate (because, after all, Bayh-Dole is a do WTF you want law, so why not let law firms state authoritative what one should do while reciting Bayh-Dole?).
The big problem with a strategy of dictating in federal patent law how federal agencies contract for patent rights with “contractors” is that such contracting is between federal agencies and organizations such as universities. That contracting does not reach to inventors. Again, the Supreme Court was clear on this point in Stanford v Roche, but it doesn’t take a Supreme Court ruling to know that this is an issue in any research contracting between organizations. The deal between organizations depends on the deals the organization doing the research has with its potential inventors, or the deals the organization commissioning the research has with those same inventors.
There are two strategies possible, then. In the first, the commissioning party requires the commissioned party to obtain assignments from inventors and then convey to the commissioning party whatever rights the commissioning party has bargained for, such as assignment of title.
In the first method, the commissioning party or sponsor contracts to receive rights in inventions from the commissioned party. In one version of the first method, the sponsor party leaves it at that, and the commissioned party has to do whatever deals with inventors that it takes to comply. That’s the loose version. In the loose version, the commissioned party could require assignment upfront (such as with a present assignment), or require a promise to assign later, or could just leave things until there’s an invention and then request assignment (and get fussy if it doesn’t get assignment).
In another version, the sponsor party specifies the form of the deal between the commissioned party and inventors. The commissioned party might be required to obtain assignments from all inventors, or require inventors to grant to the commissioned party whatever rights the commissioned party must pass on to the sponsor.
When a sponsor wants to make really sure it gets the rights it bargained for, using this first method, the sponsor requires the commissioned party to produce the required paperwork with inventors and requires that no other individuals work on the the project unless they sign comparable paperwork. Typically, that paperwork then is more than just an obligation to assign patentable inventions–it will include assignment of all sorts of IP rights and a trade secret provision regarding disclosure and use of whatever is created in the research and a release and permission in whatever residual rights are not otherwise covered by the assignment and trade secret arrangements.
In the second method, the sponsor contracts directly with the commissioned party’s potential inventors, and so has direct assurances that it will receive the rights it has bargained for with the commissioned party.
In this second method, whatever rights potential inventors might owe their employer, the commissioned party, get thinned down, as the rights owed to the sponsor take precedence. For whatever rights might fail to be conveyed directly, the sponsor can still also rely on any deals that the commissioned party has with its inventors, and perhaps also then get those thin rights from the commissioned party, if the commissioned party hold rights that the sponsor’s agreement with inventors doesn’t cover but the research agreement does (or even if the research agreement doesn’t exactly cover the situation but the commissioned party wants to have more research contracts from the sponsor in the future).
Now consider Bayh-Dole. Bayh-Dole has nothing to say about either method. Bayh-Dole does not even require federal agencies to require assignment of invention rights to the federal government if a contractor screws up or decides not to acquire title to inventions made with federal support. Nothing in Bayh-Dole dictates that the government must contract to obtain title. Bayh-Dole goes only so far as to specify when the government may obtain title, or request title. But there’s nothing in the law that requires the government to contract to require assignment. And that makes the NIST rule change in April 2018 all the more strange, since there’s no support in Bayh-Dole for a patent rights clause that requires a contractor to require inventors to assign inventions made in projects with federal support to the contractor.
It’s all very odd. Bayh-Dole supplants federal laws regarding ownership of inventions by the federal government–Bayh-Dole gives a long list of the laws that it supersedes–but Bayh-Dole has nothing to say directly about executive branch policies on inventions made with federal support. Bayh-Dole provides conditions under which a federal agency can request title–if the contractor fails to disclose subject inventions, or fails to file patent applications, or chooses not to elect to retain title in a subject invention.
That is, Bayh-Dole does not supersede those policies when it stipulates a standard patent rights clause. Bayh-Dole only makes “uniform” the restriction on federal agency decisions on delivery of title to inventions. If a contractor acquires title, then the contractor can retain that title, subject to uniform conditions. But there’s no uniformity among agencies with regard to what happens if a contractor does not obtain title, or fails to comply with the standard patent rights clause having obtained title, or even when an agency might march-in to address matters of public welfare. All of that is left entirely unaddressed, non-uniform. Agencies can do whatever they want–within their authorized powers, and with regard to contractors, within whatever they contract for with regard to rights beyond those that Bayh-Dole restricts.
Think of the situation from the perspective of an inventor for a moment (something that MoFo’s infographic doesn’t do). If the inventor’s employer does not obtain assignment of the invention, then the invention rights remain with the inventor–that’s common law of inventions. Bayh-Dole requires a standard patent rights clause to be used with inventors who retain their rights–that’s 35 USC 202(d) and implemented at 37 CFR 401.9. But there’s nothing in Bayh-Dole that indicates whether a federal agency will allow the inventor to retain rights. (There is a provision in the standard patent rights clause for which there has been a good argument that federal agencies must treat inventors also as small business contractors when they do not assign their inventions, but that argument has been muddied by the NIST changes in the patent rights clause).
And–here’s the strange part–there’s nothing in Bayh-Dole that stipulates that federal agencies have the power to require inventors to assign inventions to the federal government (or even to the contractor). Clearly, agencies don’t have the power on their own, absent some statute, to simply take title to an inventor’s invention. That would be an eminent domain taking. And Bayh-Dole claims to take precedence over statutory authorities that stipulate federal ownership of inventions made with federal support, whether as a condition of funding or otherwise. So Bayh-Dole pre-empts whatever claims were in these laws with regard to the power of agencies to require assignment.
So federal agencies would have to contract for rights held by inventors and not obtained by contractors and obligated through some other aspect of a federal funding agreement to the sponsoring federal agency. It’s just that there’s no mechanism for such a thing in Bayh-Dole or in the standard patent rights clause. Not there. Go look. I’ll wait.
For an inventor working with federal support, the standard patent rights clause stipulates that if an inventor assigns to her employer (or other contractor), then the employer can elect to retain title and expect uniformity of treatment across all federal agencies. That’s nice for the employer. But if the inventor does not assign (for whatever reason), then the inventor has no assurance that a federal agency will allow her to retain title–and there’s nothing in Bayh-Dole that creates a relationship between the inventor and the federal agency under which the agency has the authority to demand title to an invention. Again, not there. There’s not even a mechanism in Bayh-Dole by which a federal agency can impose conditions on how inventors use inventions made with federal support when they retain title to their inventions.
From an inventor’s point of view, then, Bayh-Dole makes absolutely nothing uniform. There’s no “certainty of title” for inventors. But there’s also no mechanism by which federal agencies can obtain title from inventors directly–and also no mechanism by which federal agencies can obtain title from contractors directly (when contractors mess up and the like). There’s only a pathway by which agencies *may* obtain title, and that pathway only works if the agencies also have a contractual mechanism by which they can require a contractor to convey title.
Do you see the problem now? This is a huge defect in Bayh-Dole. Folks covered it up with the assertion that there was an extra-statutorial “presumption” of ownership. And the Supreme Court laughed that off. Write out expressly what is intended or it doesn’t exist in the law. Otherwise, common law prevails with regard to invention ownership.
NIST aimed to “fix” this defect in Bayh-Dole by reversing Bayh-Dole’s public policy (i.e., the law as written) and introducing a requirement, entirely spurious, that contractors must require their inventors to assign “subject inventions” to the contractor. That requirement, in turn, makes no sense, given that a subject invention is one already owned by the contractor. And the requirement makes no sense, too, given that the Supreme Court ruled that Bayh-Dole applies only after a contractor has acquired an invention made in a project receiving federal support. It would appear the NIST rule change amounts to a requirement that if a contractor has (due to its actions with regard to any given inventive work) an equitable ownership interest in an invention made in a project receiving federal support, then the contractor is obligated to require the inventor to assign the invention to the contractor. That is, if the contractor has an equitable claim to ownership of such an invention, the patent rights clause requires the contractor to perfect that ownership by means of an assignment from the inventor.
When executive branch patent policy prevailed, a federal agency was authorized to contract for delivery of inventions made in federally supported research. The HEW Institutional Patent Agreement program from 1968 to 1978 formalized such matters for nonprofit organizations. Contractors were required to obtain promises to assign from inventors. Agencies obtained licenses under prescribed form licenses. Behind the IPA program was the Kennedy and then Nixon executive branch patent policies that authorized IPA contracting (well, not quite–the IPA bent the rules or simply ignored them–and eventually was shut down by HEW). The IPA program used a version of “Method 1” outlined above.
But Bayh-Dole forces all federal agencies to use a standard patent rights clause as a matter of federal patent law, not as a matter of executive branch patent policy. But in doing so, it does not require federal agencies to obtain title via the standard patent rights clause, and does not obligate contractors to assign inventions to the federal government unless they claim an exception from such an obligation to assign or the federal agency releases them from such an obligation to assign. Again, nothing like this is in Bayh-Dole. Really. Go look. It’s another “presumption”–which is to say, utter lack of actual wording. If folks wanted wording, it would look like this:
35 USC 202(c)(0):
(c)Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following:
(0) That the contractor assign each subject invention to the Federal Government unless the contractor qualifies for an exemption to such assignment as provided herein or the Federal agency otherwise releases the contractor from the obligation to assign.
But even this wording doesn’t reach to inventors. Again, here’s the structural problem. If federal patent law attempts to reach to inventors, it turns patent law into an “invent-for-hire” statute. But there’s no apparent Constitutional authority for the federal government to be able to do that. The Constitution allows the federal government to “secure for limited times” to inventors “the exclusive right” to their “discoveries.” The federal government does not have the power, as a matter of federal statute, to secure for limited times to itself the exclusive right in inventors’ discoveries. (Well, there are work-arounds–the government can limit the scope of inventions that can be secured; and can appropriate inventions for security reasons–that is, refuse to secure to inventors any exclusive rights; and can use eminent domain to take personal property, including inventions). But it’s a tough thing to try to make federal patent law secure rights in inventions for either employers or the government as a research sponsor.
So Bayh-Dole does a work-around. The government can contract with someone to receive a deliverable under a contract, and so can contract to make title to inventions a deliverable. That’s just a freedom to contract deal. And Bayh-Dole exploits this freedom to contract to set up a patent rights clause for such contracts. And that patent rights clause, rather than starting with patent title as a standard deliverable, for which there is a uniform set of exemptions as well as federal agency discretion to waive the delivery requirement, instead starts with contractor retention of title that has been assigned to the contractor. It’s just a plainly bad strategy for constructing the law.
All this to show that the MoFo infographic misses the assignment requirement in the “retention of title” steps, and furthermore fails to identify the (f)(2) written agreement requirement. Of course, if Bayh-Dole is made to appear to apply to contractor work directly (and is not specific to federal agency contracting provisions), then none of the apparatus of the funding agreement or standard patent rights clause matters. And the MoFo infographic does just that–it makes it appear that contractors must “comply” with Bayh-Dole. It may be, even, that contractors do have an obligation to comply with Bayh-Dole, but that compliance is specific to Bayh-Dole’s statement of policy at 35 USC 200, and the limitations on the scope of patent rights in federally supported inventions as further delineated by the definition of practical application in 35 USC 201. That’s where contractors have direct obligations under Bayh-Dole. The rest are obligations that are contracted for–via the standard patent rights clause or whatever patent rights clause an agency can demonstrate a reason to include.
The MoFo infographic has more going on that’s a problem. Look at step 4, regarding the “preference” for US industry. The description here is incorrect and overbroad. Here’s the preference requirement in Bayh-Dole:
Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States.
The requirement for substantial manufacturing is specific to an exclusive license and does not apply to the assignee of rights in any subject invention. So a nonprofit or small business that acquires a subject invention does not have any obligation under Bayh-Dole to substantially manufacture in the U.S. any product based on a subject invention. The requirement kicks in only for exclusive licenses. And even then, the nature of the exclusive license is restricted–it is an exclusive right to “use or sell.” Not “use and sell.” The exclusive right to use, or the exclusive right to sell–for either of these exclusive rights, the licensee must agree that the products will be manufactured “substantially” in the U.S. If an owner of a subject invention assigns the invention, then this requirement follows the assignee–but the assignee is not granted an exclusive right to use or sell. Rather, an assignee obtains an ownership interest in the invention. For all that, an assignee could be, for instance, a co-owner of the invention and therefore not have any exclusive right to use or sell because there is at least one other co-owner.
It’s clear that MoFo misrepresents the law. Not only is the US manufacturing requirement overstated, it’s also misapplied:
any licensee must also agree to manufacture goods substantially in the U.S.
It’s not any licensee–only licensees of the exclusive right to use or sell. And the also implies that any owner of a patent on a subject invention must manufacture substantially in the U.S.–and that’s not in the law. Bayh-Dole’s requirement applies only to those receiving an exclusive grant to use or sell. So the infographic is fake news. Just something MoFo cooked up on its own. A fakefographic.
The right of the Federal agency to require periodic reporting on the utilization or efforts at obtaining utilization that are being made by the contractor or his licensees or assignees
That’s just a right to require in the standard patent rights clause. An agency doesn’t have to require anything–just has to use a patent rights clause that gives the agency a right to require. Here’s the standard patent rights clause (37 CFR 401.14(a)(h)):
The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the contractor or its licensees or assignees.
All we get is a limitation on frequency. But the bigger problem with the MoFo infographic is the slant that the reports have to do “subject invention” reports. The point of compliance here is that the reports concern utilization of subject inventions–they are not simply reports disclosing subject inventions. And there is nothing in Bayh-Dole regarding “closeout” reporting. The “close out” report requirements are a matter of federal procurement procedures under FARs–see 27 CFR 303(b)(2)(ii):
(2) To the extent the information is not required elsewhere in the contract, and unless otherwise specified by agency supplemental regulations, the contracting officer may modify 52.227-11(e) or otherwise supplement the clause to require the contractor to do one or more of the following:
(i) Provide periodic (but not more frequently than annually) listings of all subject inventions required to be disclosed during the period covered by the report.
(ii) Provide a report prior to the closeout of the contract listing all subject inventions or stating that there were none.
(iii) Provide the filing date, serial number, title, patent number and issue date for any patent application filed on any subject invention in any country or, upon request, copies of any patent application so identified.
(iv) Furnish the Government an irrevocable power to inspect and make copies of the patent application file when a Government employee is a co-inventor.
FAR 52.227-11(e) concerns the requirements found in the standard patent rights clause at 37 CFR 401.14(f)–protecting the government interest. Oddly, one would expect the FAR citation to be to 11(f)–the reporting requirement, which follows 37 CFR 401.14(h). But no matter. It’s sausage all the way down. The closeout report is given at (ii). It’s an optional thing that a contract officer can require in a given procurement contract. It’s not in Bayh-Dole. It has nothing to do with retaining title to subject inventions. Failure to report at closeout has nothing to do with potential loss of title. Even in the FARs, if a closeout report isn’t submitted within sixty days of a request, things can get closed out anyway (FAR 4.804-5(a)(2)(ii)):
If the final patent report is not received, the contracting officer shall notify the contractor of the contractor’s obligations and the Government’s rights under the applicable patent rights clause, in accordance with 27.303. If the contractor fails to respond to this notification, the contracting officer may proceed with contract closeout upon consultation with the agency legal counsel responsible for patent matters regarding the contractor’s failure to respond.
This final patent report is not the reporting required for subject inventions within two months of a report being received by a contractor’s personnel designated for patent matters. It’s a different report, not in Bayh-Dole, not in the standard patent rights clause. But may be optionally inserted into that clause. The upshot: there is no Step 5 in Bayh-Dole. It’s not part of the “steps” to “retain title.” In fact, given the effect of the (f)(2) written agreement and the contractor’s own policies, the contractor obligated to prepare the closeout report may not even own the inventions listed on the closeout report. Those inventions might be owned by their inventors, or assigned by the inventors to an affiliated research foundation, or to a startup company, or whatever. However one looks at it, invention closeout reports don’t have anything to do with “retaining title.” At best, MoFo has conflated requirements. At worst, MoFo has made a hash of them and communicates nothing helpful here. Just more made-up stuff. Fakefo. Wrong.
With respect to any subject invention … the Federal agency … shall have the right… [to march in] … if the Federal agency determines that such—
(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;
I have shortened up the preamble to remove various qualifications. But take a look at those, too. The big point is that the march-in procedures are not directed at the standard patent rights clause. They apply regardless of the standard patent rights clause. They act as a limitation on the patent property right an owner of a subject invention has. Regardless of anything else, the government can intervene in the management of patents on subject inventions. That’s an important point in itself. But the MoFo infographic claims that one condition for march-in is a failure to “achieve commercialization within a reasonable time.” But the law uses “practical application.” And “practical application” is defined by the law:
(f) The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.
There is nothing here about “commercialization.” One could “commercialize” and achieve practical application–but one could also “commercialize” and fail the practical application requirements–by not making the benefits of the invention available to the public, or not on reasonable terms. Commercialization has next to nothing to do with practical application. Practical application has to do with using an invention with public benefits on reasonable terms. Commercialization is more fake news. Sounds nice. Could be. Just isn’t the law. And the MoFo infographic claims it is representing the law.
And here’s a bit on the scope of the law. The laws pertaining to inventions made with DOE and NASA funding are expressly pre-empted by Bayh-Dole (35 USC 210):
(6) section 152 of the Atomic Energy Act of 1954 (42 U.S.C. 2182; 68 Stat. 943);
(7) section 20135 of title 51; [NASA]
I don’t find any exemptions for DOE and NASA from Bayh-Dole’s requirements. Perhaps what MoFo means is that the executive order that expanded Bayh-Dole to all contractors cannot supersede the laws regarding DOE’s and NASA’s interest in patents. But Bayh-Dole does take precedence over these laws for nonprofit and small business research contracting. So Bayh-Dole applies to all agencies, expect where Stevenson-Widler applies. It’s just for “large business contractors,” agencies such as DOE and NASA have rights established by statute to which executive orders cannot reach. The MoFo statement of scope, then, is incomplete, and therefore relatively useless. Bayh-Dole applies to all agencies. The expansion of Bayh-Dole to large companies by executive order doesn’t.
Of course, none of what I have covered is how most university patent brokers and their attorney support behave with regard to Bayh-Dole. According to them, inventors have no rights under Bayh-Dole. Bayh-Dole operates directly on universities. The standard patent rights clause is a silly extra that doesn’t need to operate. The (f)(2) clause doesn’t operate–has never operated. Presumptions about the law do operate. The presumption that universities are intended to own inventions made with federal support. The presumption that all inventions made with federal support are “actually” subject inventions. The presumption that universities must commercialize inventions. The presumption that federal agencies “have a general right” to require assignment of inventions from inventors, when that right is rather limited. Really, it’s quite the botch. But that’s what we have. And it’s called a “success.” And it’s built on institutionally self-serving presumptions, abuse of authority, and disregard for the law–egged on by law firms like MoFo, who produce careless and wrong “infographics” about Bayh-Dole.
How would these law firms characterize Bayh-Dole if their primary incentive was to work on behalf of inventors rather than for universities and big corporations? Perhaps that’s what’s wrong with American innovation–Bayh-Dole has given incentives for all the big law firms to suppress inventors’ rights, mischaracterize federal law, and help institutions madly over-patent research discovery whether made with federal support or otherwise.
You can see then how difficult it might be for university inventors to get legal representation from the big law firms in an area–those firms all would rather do business for the universities in the area. If not IP law then employment law or liability or financial or whatever. And universities have policies to spread the legal work around. The overt reason is to make a show of competitive contracting, but the political reason is that the more law firms in an area that work for them, the fewer law firms in the area that will take a case against them. For state universities, one might consider a state law that prohibits universities from contracting out legal work to private law firms such that private parties cannot readily obtain legal representation from major firms in the area.
So MoFo’s infographic is a kind of emblem for the big law firms who make their money by helping institutions strip inventors of their property rights. Maybe getting the big law firms on the side of inventors would be a good start to stimulating research innovation.