Circumventing Bayh-Dole, Fitt the First

Circumventing Bayh-Dole is easy. University administrators have been circumventing Bayh-Dole since the law became effective in 1981. Let’s look at three sorts of circumvention:

1) circumvention for non-compliant convenience–to make Bayh-Dole do even better what people claim Bayh-Dole was intended to do;

2) circumvention by exploit–to use Bayh-Dole’s limitations to end up with the best deal under Bayh-Dole and avoid public covenant requirements; and

3) circumvention by practice to upset the premises of Bayh-Dole while complying with the terms of the standard patent rights clause.

These are all contractor-side practices. We can finish with yet another:

4) circumvention by regulatory procedure, by which federal agencies may reduce the attraction of contractor-side exploits that don’t end up serving the public interest.

Circumvention by Non-compliant Convenience

Rather than implementing the written agreement requirement in (f)(2) of the standard patent rights clause, university administrators instead created the idea that Bayh-Dole vested ownership of inventions with the universities that hosted federally supported research. And when the Supreme Court in Stanford v Roche ruled that the law did not support such vesting by research hosts (who are not necessarily even legitimate employers), university administrators switched to requiring “present assignments” for any and all future inventions, patentable or not. They’d rather do what they want to do than to do what the standard patent rights clause requires them to do, which is to implement the (f)(2) written agreement clause.

If one wanted to put this practice as a quip, Bayh-Dole’s standard patent rights clause stipulates that universities give inventors the choice of assigning to the federal government or to a non-federal patent broker, but university administrators fear such a choice and instead prevent it from ever operating, in defiance of the standard patent rights clause.

Similarly, university administrators circumvent Bayh-Dole by assigning inventions under the cover of documents labeled “exclusive license.” Bayh-Dole prohibits universities (and other nonprofits) from assigning subject inventions without federal agency approval except to organizations that have as a primary function the management of inventions–and even then the assignment must include Bayh-Dole’s restrictions on patenting specific to nonprofits. University administrators circumvent this prohibition routinely, rationalizing that the requirement applies only when they formally transfer “title” to an invention. It’s just that Bayh-Dole makes no such limitation.

There are two ways to manage patent rights to create for a company an exclusive commercial position. One is to grant an exclusive license under one’s patent rights. That license is, in essence, a promise not to sue the licensee for practicing the invention, with a further promise not to make any such similar promises with the same scope (for the same stuff) to anyone else in the future. Thus, one might grant to a company the exclusive right to sell, but not the exclusive right to use, an invention. The exclusive licensee ends up with an exclusive commercial position (the only one selling the invention).

The second way is to assign the invention to the other party. One can do that formally, by declaring the entire right, title, and interest is conveyed to a recipient. Or one can do the assignment implicitly, by “licensing” what the courts call the “substantial rights” in an invention exclusively to the recipient. The substantial rights are the rights to make, use, and sell. To license these rights exclusively to another amounts to transferring the right, title, and interest in the invention–and if not the “entire” right, title, and interest then enough to constitute the “substantial” portion of that right, title, and interest–and hence, the implicit transfer of rights is also an assignment. A good test of whether there’s been an implicit assignment is whether there’s 1) an exclusive license to make, use, and sell; 2) the “licensee” is granted the right to sue for infringement; 3) and the “licensee” may grant sublicenses, including to settle claims of infringement. Most university template exclusive patent licenses include these three elements. Courts examining such agreements call them assignments.

University administrators do not give implicit assignments a second thought, though Bayh-Dole expressly prohibits the practice. They would rather circumvent the law than to build their practice within the requirements of the law. If one wanted to make the point with a quip, Bayh-Dole expects nonprofit patent brokers to break up the monopoly on subject inventions. But university administrators license to preserve the monopoly and so circumvent the law.

Similar circumventions are available (and widely practiced)–

overclaiming inventions as subject inventions when they are not (and so exploiting university policies that require assignment of federally supported inventions);

not really setting up a licensing program to preferentially license to small businesses (such as only licensing to shell companies set up by the university, and so excluding all existing small businesses from access to university subject inventions); and

using income from patent licensing for things that Bayh-Dole does not permit (such as to fund the management of non-subject inventions or as slush funds for administrators and not used for scientific research or education).

But all these circumventions are the play of mice in the dark, really. Covert stuff done by unthinking administrative scurriers. Consider the following circumventions that university administrators do not generally practice but are there for the taking.

First, since inventions do not become subject inventions until they are owned by a contractor–a party to a federal funding agreement for research–a university can exploit the federal government’s indifference to the (f)(2) agreement by not making any claim to inventions made with federal funding and also not complying with (f)(2). Then no invention made with federal funds is a subject invention and Bayh-Dole’s apparatus in the standard patent rights clause does not apply.

The university then might take instead of an ownership interest (which would create a subject invention) merely a financial interest in whatever the inventor did with an invention. The university could even help things along by providing funding to the inventor to file a patent application, point out reliable patent attorneys ready to help, and patent brokers who might also provide assistance. This operation would be entirely outside Bayh-Dole. No contractor owns the invention, thus no subject invention, and folks are free and clear from all federal reporting and the mess of obligations that show up regarding electing title, assignment, small business preferences, and the use of licensing income. Nice and clear, all sparked by what universities are doing now anyway but even better, since the university need only have a financial interest, not an ownership interest in the exploitation of each invention.

The practice of establishing a financial interest rather than an ownership interest in faculty inventions had a long history in university patent practices, but has now been largely forgotten. The great upside of asking only a financial interest is that one is responsible for nothing, can help out only when one wants, and one still gets a share of everything that does make money. This same distinction is the one that’s at work in the difference between an exclusive license and an assignment. If one grants a true exclusive license, one takes a financial interest in the activity of the licensee. If one assigns, one transfers powers of ownership to the licensee, in exchange for a financial interest in the exploitation of those powers of ownership rather than just activity endorsed by a simple license (even a simple exclusive license).

But one might have some compunctions about violating Bayh-Dole’s standard patent rights clause. It might be fine to violate Bayh-Dole in some ways, but in other ways that haven’t been explored? That would be like, say, stealing from the farmhouse instead of the farmer’s barn or field. Dan Ariely in The (Honest) Truth about Dishonesty posits that we each have a moral “fudge factor”–the extent to which we are willing to do things and still think of ourselves as “honest.” Some people drive 2 mph over the speed limit and think that’s okay, while others might be willing to drive 6 or 10 mph over and still think they are fine. For university patent administrators, not complying with (f)(2) is okay (because everyone is not doing it), but not complying with (f)(2) and exploiting the fact would be, somehow, wrong. Perhaps the issue of “what’s right” depends in part on how obvious the practice becomes. Not reporting any subject inventions would attract attention. Perhaps, then, that’s another reason why university administrator’s like Bayh-Dole’s secrecy provisions. What’s not exposed to the light can continue to play the troll.

This entry was posted in Bayh-Dole, Policy. Bookmark the permalink.

Leave a Reply