Penn State’s Protection Racket, 25: Precarious Position on IP

Had enough of Penn State? I sure have, but we are not done. Penn State is not an outlier in its problems with IP policy and otherwise. It’s just more of the same. At Penn State’s Office of Sponsored Programs web site, there is a statement titled “Penn State’s Position on Intellectual Property.”

Here is the sprightly opening line:

Penn State’s basic position regarding Intellectual Property (IP) is determined by the source of funding.

As we have seen working through Penn State’s IP policy, this assertion is simply untrue. Or, ignores IP policy. Or operates as an amendment to IP policy. Or creates an utter mess of an already utter mess. Would that be an utterer mess?

Penn State’s “basic position” as set out in IP policy is that (at best) that the university requires disclosure of a wide range of IP. Otherwise (at worst), the position simply claims all IP based on use of resources and field of expertise or scope of employment. Absolutely nothing in either case having to do with source of funding. Even if the university’s IP position was based on source of funding, it would be something powful stupid. Source of funding is meaningless for IP. What matters is whatever legal obligations run with the funding. 

With such a smart opening, here’s what the Position has to say about federal funding, as a source:


Almost all federal grants and contracts are subject to the terms and conditions of the Bayh-Dole Act (37 CFR 401).

Well, federal grants, contracts, and cooperative agreements for performance of experimental, developmental, or research work. Educational awards are expressly excluded (35 USC 212). So all federal grants in the form of fellowships and scholarships or for training are excluded from Bayh-Dole. Thus “almost all” is mostly untrue.

And while we are at it, Bayh-Dole is at 35 USC 200-212. The implementing regulations are at 37 CFR Part 401. But while federal agencies are required by Bayh-Dole to use a standard patent rights clause, it is the patent rights clause that is actually included in a given funding agreement that controls the university’s disposition of patentable inventions made with federal support. Whatever the university does with patentable inventions, the controlling instrument is the patent rights clause, not Bayh-Dole.

Under these terms, Penn State retains title to all inventions conceived or reduced to practice in the performance of the project (37 CFR 401.14(B)).

This is nonsense. Under the standard patent rights clause, the university has no special privilege with regard to ownership of patentable inventions. The Supreme Court was clear on the matter in Stanford v Roche. Penn State has to obtain ownership of inventions the old-fashioned way, by obtaining an assignment. Only then does an invention become a “subject invention” subject to the standard patent rights clause.

Thus, it is untrue that “under these terms” Penn State has any right to title in any inventions made with federal support. This is a gross misrepresentation. It may be that once Penn State acquires title, it is its policy to “retain” that title. But if that’s the case, there is nothing (that I have found) in policy that so states this position on retention of title.

Given that Penn State’s IP policy defines “invention” to be sufficiently broad to include non-patentable inventions and non-inventions, the statement here is also inaccurate. Bayh-Dole is specific to inventions made with federal support that “are or may be patentable” (or subject to plant variety protection), and only then only after those inventions come to be owned by a contractor.

The Position makes it appear that federal law provides for Penn State to own inventions made with federal support. This is simple deception. One might say it puts the Commonwealth of Pennsylvania in contempt of the Supreme Court.

Finally, the standard patent rights clause (which may be modified by federal agencies) is at 37 CFR 401.14(a), not at 37 CFR 401.14(B). Perhaps it is too much to get the citations right. Maybe, implicitly, that is Penn State’s position on IP–a sloppy, negligent, deceptive mess.

The Federal government receives a non-exclusive license to use the invention for government purposes.

Well, Penn State is required to grant to the federal government a non-exclusive license. The scope is not “use” but “practice and have practiced for or on behalf of the United States throughout the world.” The meaning of “practiced” in long-standing executive branch patent policy is “to make, use, and sell”; “have practiced” is “to have made, have used, have sold.”

The Position here is correct, however, in identifying “government purposes” rather than “federal government purposes.” The required license extends to state and (arguably) to municipal governments, just as it did under the prior executive branch policy from which Bayh-Dole is loosely derived.

Penn State reserves the right to negotiate additional licenses to commercial partners.

Whatever Penn State might choose to do, there’s nothing in Bayh-Dole that indicates anything about needing to “reserve” rights for any other purpose. That Penn State chooses to exclude licenses for research or licenses for industrial use in favor of licenses “to commercial partners” is entirely a Penn State thing. Of course, here, that reservation is made to appear to be a consequence of Bayh-Dole. But it is the consequence of an administrative urge, nothing more.

Next we get “Federal Flow-through”:

The Bayh-Dole Act applies to all federal funds, even when such funds are flowed through a third party.

Sloppy nonsense. See above. Bayh-Dole applies to federal agencies and to a new class of inventions in federal patent law called “subject inventions.” The patent rights clause controls the IP requirements for subcontracts. Those requirements are not in Bayh-Dole. They are only in the standard patent rights clause, which was authorized by Bayh-Dole.

If a company or state agency is flowing federal funds to Penn State, the company or state agency “will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions” (37 CFR 401.14(G)(1)).

The correct citation is 37 CFR 401.14(a)(g)(1), for what it’s worth. I doubt Penn State folks care much about citations, though I’m trying to be helpful. The angle in this statement of “flow-through” is that contractors subcontracting federal funds to Penn State cannot claim rights in Penn State’s subject inventions. That much is true–hey, Penn State has to get a few things right, so as not to be consistently wrong on this stuff. But what Penn State leaves out here is that if Penn State does not acquire ownership of a given invention, then it is not a subject invention, and a prime contractor could stipulate an obligation to assign such inventions to the contractor. As well, Penn State is obligated to the same limitation on any subcontracts that it offers on work supported by federal funds.

There is a further complication, not one that most any university administrator cares about, and that involves our old friend, the (f)(2) written agreement, another requirement not in Bayh-Dole but in the standard patent rights clause. NIST is presently working to make (f)(2) an assignment clause and turn Bayh-Dole into a vesting statute, even though the Supreme Court ruled that Bayh-Dole was not a vesting statute, so that would be one thing that NIST would not have authorization to do–but again, WTF. The standard patent rights clause requires university contractors to require research personnel to make a written agreement to protect the federal government’s interests–including to sign papers to establish the government’s rights–by license or assignment. No university that I know of complies with the (f)(2) requirement. But (f)(2) is also a “flow-through” requirement, just as is the subcontracting requirement. Under (f)(2), a university must delegate authority to its research personnel to disclose inventions, sign papers to allow patent applications to be filed, and to sign papers to establish the government’s rights. This last delegation runs the opposite to the university at the same time, as a condition of the federal funding (or use of resources paid for by federal funding), demanding to own inventions made with federal support.

In short, (f)(2) is a subcontract of inventor rights and responsibilities, flowed through from the university to each of its research personnel (“its employees, other than clerical and non-technical employees”). But Penn State ignores this flow through, while making a big thing of flow through to Penn State from prime contractors.

We now move in the Position to industry “sources” of funding that don’t involve federal money, goofily called “internal industry funds.” Who would make sense of that, reading casually?

Penn State may permit assignment of patent rights to industry sponsors as long as all project personnel are willing to do so. Click here for an in-depth overview of how Penn State will engage with industry. Please consult the Industry Agreement Decision Tree for identifying the appropriate industrial terms and conditions.

We have written about Penn State’s industry initiative back in 2012 (“Penn State gets innovative“) with a second look last year (“Penn State’s Psychomagnotheric IP Policy“). This is an interesting program, but it raises some questions. Why should all “project personnel” be involved in the decision? Why not just those personnel who are not clerical or nontechnical employees? And if project personnel have this right to decide where to assign their inventions, why not also allow project personnel to have this right with regard to, say, federally supported research–if all the project personnel are willing to assign to the federal government, why not let them? And why not let inventors assign their inventions to industry (with agreement from all collaborators) even when there is no sponsored project?

Why should inventors be forced to assign to the university, if the most direct way to move the rights to an invention from lab to company is by inventor assignment? After all, according to Penn State, “75% of university license agreements result from contacts provided by the inventors.” If inventors are already doing most of the work, why bother with (i) disclosing inventions to the university; (ii) assigning inventions to the university; (iii) dealing with university administrative red tape (“two-part invention disclosure number,” etc); (iv) dealing with the overhead of licensing, and from a state institution. Why not just assign the invention, if it is going to be an assignment labeled as an exclusive license anyway?

Ah, there are no good answers anymore. It is just what it is, because it is the way it is.

There’s a fun workaround to this policy. Project personnel start a company. The company then funds research. The project personnel all agree to assign inventions to the company. Inventions are made. Nice. They could even do this jointly with other industry funding, with companies preferring to get their licenses from the startup rather than from the university. I expect administrators would shut this sort of thing down, but there it is.

Then there is this bit with regard to contracts with the state:

Most state contracts are issued in accordance with the Commonwealth Master Agreement. Under these terms, Penn State retains title to all inventions conceived or reduced to practice in the performance of the project (Exhibit A, Article 11(C)). The state government, however, reserves the right to identify copyrightable works (including data, reports, and computer programs) as works made for hire (Exhibit A, Article 11(B)). This determination should be made in each individual purchase order.

The link in the Position statement points to a generic page. The Commonwealth Master Agreement is here. It makes for typically painful reading. Is the Master Agreement an actual contract–given it is the Commonwealth contracting with itself? Or is it just something akin to a memorandum of understanding within government? It’s hard to say. There’s something off about the treatment of federal money flowing through the Commonwealth:

D. FEDERAL GOVERNMENT INTERESTS: It is understood that certain funding under this Agreement may be provided by the Federal government. Accordingly, the rights to Works or Patentable Items of UNIVERSITY or its subcontractors hereunder will be further subject to government rights as set forth in 37 C.F.R. Section 401, and other applicable statutes. Notwithstanding the foregoing, the COMMONWEALTH retains the right to share information relating to Works or Patentable Items developed under the scope of work for a wholly state-funded contract with the federal government in accordance with the terms of this Agreement in general and this paragraph relating to ownership rights in particular.

37 CFR 401.14(a) has nothing to do with “Works”–just patentable inventions, once owned by a contractor. If the Master Agreement is an actual funding agreement, then the Commonwealth has to follow the subcontracting requirements at 37 CFR 401.14(a)(g), as we have discussed above. Worse, for the Commonwealth, if the university subcontracts work further, then the Commonwealth can have no interest (as a condition of the subcontracting) in any patentable inventions made by a subcontractor (and acquired by that subcontractor). If the Commonwealth wanted the benefit of deliverables, it would stipulate that the university cannot subcontract any work. Then it is just a matter of whether the Commonwealth can have an interest in what the university-as-Commonwealth acquires.

The “notwithstanding” clause is utterly strange. The standard patent rights clause concerns inventions. When it is flowed through in a subcontract, the obligation to “share information” pertaining to any subject invention also flows through to the subcontractor. There is no need for the Commonwealth to retain such a right in the context of patentable inventions. Given that rights to “Works” and “Patentable Items” are subject to federal interest, at least according to the Master Agreement, then there’s really no need for the Commonwealth to have any need of additional rights, or to disclaim those rights, in order to “share information relating to Works or Patentable Items” with the federal government.

There is this nuance, of course, that the “notwithstanding” clause has to do with a state-funded contract with the federal government, not a federally funded contract with the federal government. But this nuance fuzzes my brain. Why should there be any need to break out a state-funded contract with the federal government in an agreement pertaining to state funds. What rights might the federal government have in such a deal? When does such a thing ever happen, for all that?

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