How Bayh-Dole went wrong and what might be done, 1

This article starts a series on structural problems in Bayh-Dole. As an architecture to take ownership of inventions from university investigators, Bayh-Dole suffers from significant flaws. The effort by university patent brokers and their biotech partners has been to cover the flaws with a rhetoric of good intentions and beneficial outcomes, while ensuring that the actual data that would document practices and outcomes is kept a government secret and the apparatus put forward as a means to protect the public interest is made so cumbersome that it does not operate. If we set aside the fundamental argument that university patent brokers should not have any right to take ownership of inventions made with federal support–that doing so is bad for science, for innovation, for universities as public institutions, for making money, for the public–we can consider what architecture Bayh-Dole ought to have to ensure that bureaucrats, not inventors, control the inventive results of federally supported research.

I know, this looks like helping the enemy–“how to run an architecturally sound plantation based on slave labor.” But really, it’s not. Describing the architecture Bayh-Dole ought to have used shows the limitations in the thinking of those that advocate for the law but don’t know how to pull it off. We still have the broader problem, that the ideas put forward in support of the law don’t hold up. It’s just an all-around mess, a disaster, a pile of blistering blue barnacles. Even if we get to the point that inventors ought to own their inventions, even those made with federal support, we still have to deal with the equally pernicious concept of the “public interest” and the efforts to reshape patent property rights for inventions made with federal support. Apparently the patent system as it is just isn’t in the public interest when public money is involved.

If, however, the government takes ownership of inventions made with federal support, then the government is in essence issuing patents to itself. If the government then exclusively licenses or assigns its self-issued patents, then it is by-passing the patent system and as it were re-issuing patents to whomever is its licensing favorite, based not on who has invented (the basis of the patent system) but based on who shows that it loves the government best (the King Lear problem). And Bayh-Dole, in those portions of the law directed at federal agency ownership and licensing of patents (35 USC 207, 209), makes clear that re-issue of patents by means of exclusive licenses (with the right to enforce the patent) is in fact the motivating and distinguishing feature of the law. Thus, Bayh-Dole, in claiming to “use the patent system” ends up repudiating the patent system in two fundamental ways: (1) disenfranchising inventors when they receive federal support; (2) permitting re-issue of patents to government favorites and with a government profit motive, both things that the patent system was designed to prevent.

What Bayh-Dole Isn’t

Various groups, including APLU, AAU, and AUTM, sent amicus briefs to the CAFC and/or the Supreme Court in support of the argument that the Bayh-Dole Act vested ownership of inventions made with federal support in the contractor that hosted the research, changing up federal common law that held that inventions were owned by their inventors, who then had a right to seek a patent on their inventions. They had various theories about how the vesting worked. It might be that ownership vested outright. That was Senator Bayh’s argument in his amicus brief–that there was a “presumption of ownership.” Or it might be that ownership vested when a university contractor “elected to retain title,” as if title could be snatched from the air before it settled on an ill-begotten inventor. Or it might be that the university had a first right to require assignment of title, or a right of first refusal–that the ill-begotten inventor, before title might settle firmly upon him or her, had to offer that title to the university if he or she offered the title to anyone.

The variety of theories offered up suggests the paucity of statutory guidance. The Supreme Court, looking at the text of the law, ruled that Bayh-Dole did “nothing more” than determine the order in which federal agencies and contractors could hold title, if they happened to obtain title to an invention from an inventor. Bayh-Dole required federal agencies to allow a contractor to “retain title” if the contractor acquired title. The Court found numerous reasons for its ruling.

Bayh-Dole does not vest title in anyone:

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 definition of “subject invention” (35 USC 201(e)) includes that the invention was “of a contractor.” “Of” means “owned by” not merely “made using the resources of” or “made while residing at.” Since nearly all of Bayh-Dole (exception, 35 USC 200) concerns “subject inventions,” these inventions have to be already owned by a contractor before the apparatus of Bayh-Dole comes into effect. Disregarding “of” makes a reasonable phrase in the definition have no effect–in essence claiming that Congress did not intend what it approved.

As we have explained, “[t]he use of the word ‘of’ denotes ownership.”

Reading “of the contractor” to mean “all inventions made by the contractor’s employees with the aid of federal funding,” as Stanford would, adds nothing that is not already in the definition, since the definition already covers inventions made under the funding agreement. That is contrary to our general “reluctan[ce] to treat statutory terms as surplusage.”

Only when an invention belongs to the contractor does the Bayh-Dole Act come into play.

Bayh-Dole provides for inventors to “retain title” (35 USC 202(d)) if a federal agency agrees. This can happen only if inventors have title, as would be expected by federal common law.

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.

If an employee inventor never had title to his invention because title vested in the contractor by operation of law—as Stanford submits—it would be odd to allow the Government to grant “requests for retention of rights by the inventor.”

The Supreme Court was concerned that Bayh-Dole had no protections for inventors or third parties that might be affected by the law. A contractor could over-claim inventions, making them appear to be subject inventions when they were not, and no one would have a pathway of appeal. But the lack of protections made sense if all Bayh-Dole did was to give a contractor a right to keep inventions made with federal support that it had otherwise acquired.

In a world in which there is frequent collaboration between private entities, inventors, and federal contractors, . . . that absence would be deeply troubling. 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.

The Supreme Court observed that if Congress had wanted to change long-standing federal common law on invention ownership, it had ample opportunity to do so and had no need to rely on clever wording:

It would be noteworthy enough for Congress to supplant one of the fundamental precepts of patent law and deprive inventors of rights in their own inventions. To do so under such unusual terms would be truly surprising. We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly—not obliquely through an ambiguous definition of “subject invention” and an idiosyncratic use of the word “retain.”

The Court goes on to chide universities arguing that Bayh-Dole is a vesting statute. Get assignments the conventional way, as it has always been done. Patent agreements are good for this purpose:

With an effective assignment, those inventions—if federally funded—become “subject inventions” under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.

And with that, the Supreme Court rejected Stanford’s argument that Bayh-Dole vested title to the inventions in dispute with Stanford, and thus Stanford did not have standing to sue Roche for infringement.

Institutional foreclosing of investigator interests

University administrators then went on a rampage to change their patent policies to include “present assignment” language, so that (according to the theory, anyway) whenever an invention was made, it instantly was assigned to the university, became a subject invention, and allowed the university then to rely on the apparatus supplied by Bayh-Dole as the standard patent rights clause (37 CFR 401.14(a), following 35 USC 202(c)).

It’s not at all clear that present assignments operate in the way that university administrators seem to think, however. A statement in a patent policy does not create a written instrument signed by the inventor conveying title, for instance. Nor does a claim to invention made after employment necessarily become a binding part of an employment contract (even if it asserts that it does), since it lacks consideration. If continued employment is that consideration, then university administrators have to grapple with the problem of tenure (for faculty) and the problem that in an adhesion contract, ambiguous language is generally interpreted against the drafting party.

And for all that, there’s a further problem of whether participation (at least by faculty) in federally funded research has anything at all to do with “employment” for the university. The university releases faculty to participate in “extramural” research (“outside the walls”). The university does not assign faculty to research, does not direct or control the research, does not even have the right to direct or control the research, does not dictate collaborators, not review or approve findings, does not restrict publication. Furthermore, the university is compensated for the salary of those involved, for their expenses, and for the “indirect” expenses of providing facilities and administrative support. The university (in theory at least) is not out a dime of its own money and pays the costs of the federally funded research with federal dollars which the university holds in trust for those working on the federal project. That is, the university does not even spend its own money to support the work. How then can those working on the project be “employees” when they aren’t even paid by the university?

The problem is not so much how assignment is made but rather the scope of the assignment that the parties have agreed to–and there, universities often over-claim the scope of a federal funding agreement’s “planned and committed activities.” Many university administrators don’t even bother to read research proposals to determine whether an invention arose from “planned and committed” activities and not from “closely related” applications of scientific findings (see 37 CFR 401.1).

And finally, there is the problem of the (f)(2) written agreement requirement in the standard patent rights clause. The (f)(2) provision requires contractors to require their inventive employees to make a written agreement to protect the federal government’s interest in subject inventions. The language here might appear garbled–how could an inventor disclose subject inventions or convey rights to the government if these inventions were already owned by the contractor (since that’s what subject invention is defined to mean)? We might think that the drafters of the standard patent rights clause thought that Bayh-Dole was a vesting statute (and if so, they were wrong–and since Latker was involved in both drafting Bayh-Dole and the implementing regulations, we might think that Latker intended Bayh-Dole to be a vesting statute, but if he did, he was wrong because it was not his intention that mattered, but the intent of Congress. A private intention does not matter. It is a motive, but that motive does not establish the meaning of the words in a public law.

The language turns out, however, not to be garbled but rather clever. By flowing down three obligations to inventors personally–they must make the agreement on behalf of the federal government, by substitution of parties become “parties to the funding agreement” (37 CFR 401.2(a) and (b)) and therefore become “contractors.” Thus, when they make an invention with federal funds, the invention is a subject invention owned by a contractor (an inventor) and thus the apparatus of Bayh-Dole applies.

There’s one problem with this clever scheme. University administrators refuse to implement it. So essentially for the past thirty five years or so, most inventions made with federal support “technically” were not subject inventions when reported to university hosts. But no matter, as university administrators ignore distinctions made by the Supreme Court, claim every invention they can, and rely on fuzzy “present assignment language” in policy statements, figuring it will cost about $200,000 in legal fees for someone to resist them, and few inventors have that sort of money lying around.

But for all this–and only an earnest reader will make it this far (part of my clever scheme)–there is a way that Bayh-Dole could operate that university administrators have not grasped and the Supreme Court did not consider. In typical fashion, Bayh-Dole has gummed it all up and so it would take some new drafting, but it avoids all the vesting issues and accomplishes pretty much the same thing. Interested?

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