Bayh-Dole Secrecy, Part 1

Bayh-Dole makes information about the use of subject inventions a federal secret. Or, more accurately, Bayh-Dole excludes subject invention use information from disclosure under the Federal Freedom of Information Act (FOIA). Or, yet more accurately, Bayh-Dole requires federal agencies to agree with contractors to keep use information from disclosure under FOIA. Or, more accurately still, Bayh-Dole requires federal agencies to include in federal funding agreements a provision by which they agree to exempt use reports from FOIA disclosure. Or, if we must be yet more accurate, Bayh-Dole requires federal agencies to use a provision by which they agree not to disclose use reports outside of government as if the reports were exempt from FOIA disclosure. Or, because we really must be accurate, Bayh-Dole has permitted the creation of implementing regulations and a standard patent rights clause under which agencies are required to agree to exempt use reports from FOIA disclosure.

I know, it’s a bother to be accurate, and with Bayh-Dole, it is more difficult than usual, since Bayh-Dole is mostly a law about how the federal government makes funding agreements having to do with inventions made with federal support. That is, Bayh-Dole’s focus is about what must go into a funding agreement’s patent rights clause and how that clause may be modified. What actually happens, then, under the clause is a matter of federal agreement, not directly federal law. A university, for the most part, does not comply with Bayh-Dole. Rather, it complies with the patent rights clause in each federal funding agreement. (For completeness, Bayh-Dole, as a part of federal patent law, adds a new category of invention, called a “subject invention” and establishes federal policy specific to this category of invention–and compliance with that patent law policy does not depend on the operation of any particular federal funding agreement–but that’s another matter). (For further completeness, universities don’t comply with most substantive parts of any patent rights clause–just the administrative paperwork part, and even then they get that wrong, but no matter, the federal agencies don’t care or get those parts wrong, conveniently, in just the same way, forming a sort of public-private partnership to ignore the law while making a big show over compliance.)

And here’s the rub. Once we are accurate, we find that Bayh-Dole apparently requires federal agencies to contract to ignore FOIA with regard to subject invention use reports. If Bayh-Dole works the way it appears to work, then it provides a map for an easy federal work-around to FOIA disclosure requirements–just contract to ignore FOIA and agree with a private party that FOIA won’t apply. Interesting.

To track down what is happening, we have to deal with the structure of Bayh-Dole–(i) a law that (ii) requires a federal contract that (iii) requires agencies to agree not to release outside of government use report information (iv) as if the report information is exempt from FOIA. Here’s what we will find: Bayh-Dole’s implementation violates FOIA and exceeds the authority of Bayh-Dole. Use reports are not exempt from FOIA–only those parts of the reports that contain trade secret, privileged, or confidential material are exempt. However, because Bayh-Dole is a do WTF you want sort of law, it has been construed to exempt use reports and thus all these reports end up being a government secret. All that accuracy doesn’t amount to anything. The law is how it is used, not how it is written. Or more bluntly, the law is how people wanted it to read, despite the “political expediencies” that prevented the law from reading the way they want.

To change things now would take a lawsuit to the Supreme Court or an act of Congress–and of course only institutions have that sort of money and clout, so nothing will change. Read on and prepare to be bitter! Oh, but there is hope, after a fashion. Even though federal agencies must contract to exempt use reports from FOIA, this does not mean universities cannot release their own use reports. And public universities may be obligated to release their use reports under state public disclosure law. Except–more bitterness here–many public universities in their licensing agreements contract to agree to keep company information secret, and so work the same end-run around state public disclosure laws that Bayh-Dole appears to work around FOIA. Even if university administrators could resist the release of use information for subject inventions that have been licensed, they would have a more difficult time releasing use information for the 80% or more of their inventions that have not been licensed. By seeing what hasn’t been licensed, we begin to see the shape of what has been licensed.

It wasn’t always this way. Bayh-Dole as originally passed contained a provision to make clear that by requesting invention use reports, a federal agency was not required to make public everything in any such report. Here’s the original Bayh-Dole, setting forth what must be included in the patent rights clause for federal contracts. Among other things:

(5) 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: Provided, That any such information may be treated by the Federal agency as commercial and financial information obtained from a person and privileged and confidential and not subject to disclosure under section 552 of title 5 of the United States Code.

5 USC 552 is the Freedom of Information Act–FOIA. The requirement to report on invention use is balanced by a provision that permits (“may be treated”) federal agencies to rely on FOIA to withhold disclosure of information that otherwise meets certain of the conditions in FOIA for withholding information.

Four years later, in 1984, Bayh-Dole was amended in various ways, as Howard Bremer put it, to remove provisions put there “for political expediency” to get Bayh-Dole passed. Once the bill was passed, folks came back around again to remove these provisions as if they were merely cosmetic improvements. One of these changes concerns disclosure of information under this same clause:

Provided, That any such information as well as any information on utilization or efforts at obtaining utilization obtained as part of a proceeding under section 203 of this chapter shall be treated by the Federal agency as commercial and financial information obtained from a person and privileged and confidential and not subject to disclosure under section 552 of title 5.

I have put in bold the changes. There are two. The first change extends the scope of the requirement to include use reports arising under a march-in proceeding. But the big change is the change from “may be treated” to “shall be treated.” In the original law, the purpose of “may” was to make it clear that federal agencies were not required by Bayh-Dole to disclose otherwise confidential or privileged use information they obtained by exercising their contractual right to periodic reports. In the altered law, the clause requires federal agencies to contract to keep secret any use reports regardless of  the status of the information that the reports contain. That’s a huge change, and all the more difficult to recognize because much of the language is left unchanged. Just a change from “may be treated” to “shall be treated”–but the effect this change has on the surrounding wording leads to problems in understanding just what the new combined language does.

Does Bayh-Dole really require federal agencies to keep all use reports secret? Or does it just create the impression that this is the case–like most everything else in Bayh-Dole, which works on impressions but not actual statements? There’s the impression that subject inventions vest with contractors. Not so. There’s the impression that the public is protected by march-in procedures. Not so. There’s the impression that owners of patents on subject inventions can do whatever they want. Not so. There’s the impression that the government’s rights are limited. Not so. And on it goes. Perhaps keeping secret everything about the use of subject inventions is just another impression written into the law. Let’s work through things. Behind it all, consider whether you think Bayh-Dole is a better law if indeed all use reports are kept secret.

To begin to see what Bayh-Dole has done, I can think of nothing better than to roll back “shall” to “may” in 35 USC 202(c)(5) and make the necessary changes in the implementing regulations and standard patent rights clause. While we are at it, require federal agencies to publish a report, annually, identifying by nonprofit contractor each subject invention, the date it was reported to the agency, the date on which the contractor elected to retain title, and the date of first commercial sale or use. Sure, there’s more information that could be had, but just these five data points would tell us a great deal. We wouldn’t know whether an invention had been licensed exclusively or non-exclusively. We wouldn’t know what efforts (if any–likely none) were under way to achieve practical application. We wouldn’t know how much money the universities were being paid for their licenses. But we could begin to see the outline of what inventions were being “commercialized.”

The apparent effect of the 1984 amendment to “shall be treated” is to make any use information regarding subject inventions a government secret. It’s understandable that there might be sensitive information regarding product release dates and the like that might for a time not be disclosed by the federal government. But that’s not the same as an argument that all information provided is sensitive, or, even if it is sensitive in some way, that the purposes of Bayh-Dole should be subordinated to the desire by contractors that their actions (or non-actions) should never come to light. That is, if a condition of contractor ownership of subject inventions is that the owner report efforts to achieve practical application, then the owner is faced with a choice–report those efforts when requested or give up ownership. There’s no “fear” that patent owners will refuse to report. Under the original version of Bayh-Dole, portions of those reports–especially from exclusive licensee companies developing commercial product–a federal agency could agree to keep from public disclosure such information provided to a contractor and marked confidential. Under the changed Bayh-Dole, federal agencies have no choice in the matter but to keep everything they receive from public disclosure. Apparently.

As it stands, there is virtually no public reporting with regard to the fundamental metrics of the Bayh-Dole Act. The AUTM licensing survey does not even break out subject inventions from everything else that might be disclosed or licensed. Universities report selectively their “successes” but don’t report on the majority of their subject inventions, which would appear to be “non-successes” or “collateral damage.” You would be right, too, if you found “there’s no evidence that Bayh-Dole isn’t a success” (as a National Academies committee concluded, having not looked very hard). It appears that keeping the performance of Bayh-Dole secret is the secret to the law’s apparent “success.”

Bayh-Dole was built on the ruins of the Institutional Patent Agreement program, which in turn was built to comply with, but bend (if not end-run), the Kennedy patent policy for executive branch research contracting. In those ruins were a requirement that a contractor would achieve the “practical application” of each invention the contractor acquired. One limit on the term of exclusive licenses (three years) then ran from the date of first commercial sale. (The other limit was eight years from the date of the exclusive license–whichever limit was reached first). It was important, then, under the IPA, that the contractor report the date of first commercial sale–that sets a clock ticking on the term of the exclusive license.

Here’s the requirement from the IPA. It’s a bit long, but you need to see it so you can compare with Bayh-Dole’s language.

Any exclusive license issued by Grantee under a U.S. patent or patent application shall be for a limited period of time and such period shall not, unless otherwise approved by the Assistant secretary (Health and Scientific Affairs), exceed three years from the date of the first commercial sale in the United States of America of a product or process embodying the invention, or eight years from the date of the exclusive license, whichever occurs first, provided that the licensee shall use all reasonable effort to effect introduction into the commercial market as soon as practicable, consistent with sound and reasonable business practices and judgment. Any extension of the maximum period of exclusivity shall be subject to approval of the Grantor. Upon expiration of the period of exclusivity or any extension thereof, licenses shall be offered to all qualified applicants at a reasonable royalty rate not in excess of the exclusive license royalty rate.

In the original Bayh-Dole Act, we find a similar restriction on exclusive licenses, directed expressly at nonprofit organizations. The Bayh-Dole Act is listing the requirements that must go into a patent rights clause in a funding agreement:

a prohibition against the granting of exclusive licenses under United States Patents or Patent Applications in a subject invention by the contractor to persons other than small business firms for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the date of the exclusive license excepting that time before regulatory agencies necessary to obtain premarket clearance unless, on a case-by-case basis, the Federal agency approves a longer exclusive license. If exclusive field of use licenses are granted, commercial sale or use in one field of use shall not be deemed commercial sale or use as to other fields of use, and a first commercial sale or use with respect to a product of the invention shall not be deemed to end the exclusive period to different subsequent products covered by the invention;

We have the same components in both IPA and Bayh-Dole:

  • U.S. patents
  • nonprofits
  • limited periods for exclusive licenses
  • agency may approve longer periods

Noticeably, under Bayh-Dole there was no term restriction for exclusive licenses to small businesses. That is one of the elements of Bayh-Dole that responds to the statement of Bayh-Dole’s objectives–“to encourage maximum participation of small business firms in federally supported research and development efforts.” But in 1984, Bayh-Dole is amended. Here’s how the provision reads after the changes:

a requirement that, except where it is determined to be infeasible following a reasonable inquiry, a preference in the licensing of subject inventions shall be given to small business firms

And even that’s walked back by a determination (by whom? the contractor? the federal agency?) that it’s “infeasible” to license to small businesses. (And even the preference is walked back further in the implementing regulations, giving the federal government nothing more than the right to require changes to a university’s small business licensing program policies if a federal agency doesn’t like a university’s practices. As we might say, “Big Whoop.”) Nothing at all is left regarding the term of exclusive licenses. Once the 1984 amendment is in place, there’s no compliance reason to report the date of first commercial sale–other than as part of a general report of the status of a subject invention. The term of exclusive licenses granted by nonprofits to big companies no longer depend on the big company getting something to the point of commercial sale or use.

If we consider how these changes ripple across Bayh-Dole and its implementing regulations and standard patent rights clause, it is not so clear how the changed language with regard to secrecy operates–that change from “may” to “shall” not disclose. I know, I know–words don’t matter in Bayh-Dole. It’s the intent that lawyers working for university licensing officers have that matters–at least to university administrators. But if you are willing to look at the evidence, and consider what the words are, and how those words might be reasonably understood, then follow along. It’s not all that pretty and gets us into the heart of FOIA, and then back to the dark fluttering heart of Bayh-Dole.

This is a study in ten parts. Here are the links.

1 1984 amendment from “may” to “shall”; roots of reporting in IPA

2 Bayh-Dole’s focus on use; regulations on reporting

3 1984 amendment in detail; connection between reporting and march-in

4 FOIA 552(b) and Bayh-Dole 202(c)(5)

5 37 CFR 401.8; Bayh-Dole circumvents FOIA

6 FOIA 552(b)(4); Public Citizen v NIH

7 18 USC 1905; Kennedy patent policy march-in; Bayh-Dole march-in

8 Comptroller General reporting; federal agency licensing 209(d) and secrecy 

9 Open access records case; distinguishing sensitive info; royalty reporting

10 Public enterprise or scam? public reporting essential; puffery

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