Nolo Press Still Confused About Bayh-Dole, 1

A couple of years ago, I worked through a Nolo Press excerpt on the Bayh-Dole Act, showing how dreadfully wrong it is. That bit is still up at the Nolo Press site, and still dreadful as ever. I came back across it yesterday while looking for something else. That it remains up is testimony to how deeply unmindful university officials and writers about the topic remain. It’s not just that they get complicated stuff wrong (that’s bad enough, if they consider themselves experts), but it is also that they just don’t seem to care that they get things wrong.

I have worked through the Nolo page again, providing more detail for the problems and suggesting alternative language that accurately restates Bayh-Dole and Stanford v Roche. The most rotten part of the Nolo account is that, although it appears addressed to university employees who might invent, it does little to show those employees what they ought to consider in dealing with inventions arising in and around federally funded research. It’s worse than useless–it’s in many places outright wrong, and the advice it offers is awful. Other than that, it’s nicely edited.

Here’s the opening bit of the Nolo page:

Today, many universities own large patent portfolios and earn substantial royalties from them.

Some universities do own large patent portfolios. But using the word “many” is misleading. Most universities have relatively small patent portfolios. As for royalties, about half of universities don’t break even on their patent licensing activities. It may be that they spend substantial amounts and earn slightly less by way of substantial amounts. But only a few universities earn “substantial” royalties from licensing patents.

To keep those royalties flowing, most universities seek to obtain ownership of inventions created by their employees.

This is true. Most universities do seek to obtain ownership of inventions created by their employees. But many universities expand their claims to include non-employees—faculty (when acting outside the scope of their employment), students, visitors, volunteers, collaborators. These claims are based on use of resources or inventions made “under the auspices” of the university.

The fallacy in all this is that by obtaining more inventions, and by compulsion, a university will make more money. More inventions means more bureaucracy, more complications, greater liabilities, and less ability to focus on those inventions that are truly important.

The deeper problem is that while money-seeking is the practical purpose of many university patent licensing programs, university charters (and sometimes patent polices) are directed at public benefit arising from research and not institutional profit-making. Even federal funding regulations stipulate that inventions acquired by a university with federal funds should be held in trust for the beneficiaries of the project in which they were acquired.

Moreover, if the research leading to the invention was federally funded, they are required by law to obtain ownership under the Bayh-Dole Act, discussed below.

Utterly false. Bayh-Dole does not require universities to obtain ownership. Even if NIST changes the standard patent rights clause to require universities to obtain assignments of inventions, there is no authority for doing so in Bayh-Dole, as the Supreme Court made clear in Stanford v Roche.

If a university accepts federal funding, a law called the Bayh-Dole Act (35 USC § § 200-212) applies.

No. What applies is the patent rights clause in the federal funding agreement. Bayh-Dole requires federal agencies to use a standard patent rights clause (37 CFR 401.14(a)) unless they can justify a different clause and follow proper procedure to do so. What binds a university is the patent rights clause in the funding agreement, not Bayh-Dole. The construction above makes it appear that Bayh-Dole applies directly to a university when it receives any federal funding, and that’s misleading. The requirements on inventions are specific to each funding agreement, agreement by agreement. Here’s a revised statement:

When a university receives funding under a federal funding agreement, a law called the Bayh-Dole Act (35 USC 200-212) requires the federal agency to use a default patent rights clause in the funding agreement.

The Bayh-Dole Act works like this:

  • First, a government agency decides to sponsor (pay for) research by a university’s faculty, with the university acting as the contractor.

Actually, the university accepts funds on behalf of a faculty investigator. The faculty member proposes the research to the federal government. The university releases the faculty member from other duties to conduct the research. The university does not behave in the manner of a contractor, assigning work to its faculty. While Bayh-Dole refers to the university as a “contractor,” the federal grant regulations applicable to universities in which Bayh-Dole is incorporated by reference uses “non-federal entity.” The government agency does not “pay for” the research—that suggests procurement. The government provides funding in response to a budget for support prepared by the investigator, submitted to the federal government through a university. With regard to intellectual property acquired or improved with federal funding, including patent applications and patents, the university is to act as a “trustee” (See 2 CFR 200.316).

Revised:

When a university accepts research funding from the federal government on behalf of a faculty investigator, it agrees to comply with a patent rights clause as part of the funding agreement.

  • The university must have written agreements with its faculty and technical staff requiring disclosure and assignment of inventions.

Half right. The standard patent rights clause requires the university to require a written agreement to disclose, and to sign papers to allow patent applications to be filed and to establish the government’s rights. Nothing in Bayh-Dole requires inventors to assign inventions, either to the university or to the federal government. (See 37 CFR 401.14(a)(f)(2)) The written agreement requirement is not in Bayh-Dole. It’s only in the CFR.

For each funding agreement, the university must require its faculty and other technical staff to make written agreements to protect the federal government’s interest in inventions, including promising to disclose inventions and sign papers to allow patent applications to be filed and to establish the federal government’s rights in those inventions.

  • If faculty develop an invention arising from the research, they must disclose it to the university and the university must disclose it to the federal government within two months.

The standard patent rights clause is not concerned whether an inventor is a faculty member or otherwise. The university must report the invention to the federal government within two months from the date the university’s personnel responsible for patent matters receive the invention disclosure from the inventors. See 37 CFR 401.14(a)(c)(1). “Arising from” is overly broad. The invention must come within the “planned and committed” activities of a federally funded project. See 37 CFR 401.1. The regulations expressly anticipate that inventions that are applications of funded research but not included in the statement of work for that research are not within the scope of the standard patent rights clause. See again 37 CFR 401.1(a)(1) and (2).

If university personnel make an invention in the planned and committed activities of a federally funded project, they must disclose the invention to the university, and the university must report the invention to the federal government within two months of receiving the invention disclosure.

OR

If university personnel make an invention in a federally funded project, they must—if they have made the written agreement required by the university—disclose the invention promptly to the university, and the university must report the invention to the federal government within two months of receiving the invention disclosure.

  • The university then has two years to decide whether to retain title to the invention; if it keeps ownership, the federal government gets a shop right in the invention.

The federal government does not get a “shop right” in a subject invention. The federal government receives a nonexclusive, nontransferable, irrevocable, paid-up license to practice and have practiced for or on behalf of the United States throughout the world. The “United States” is broader than the federal government—it includes states (“United States”) and domestic municipal governments. See the definitions in the Kennedy patent policy (1963) and the Institutional Patent Agreement templates (1968, 1978). This, despite hopes by university-affiliated patent brokers that using “United States” would somehow mean only the federal government and not the states and their divisions.

The university, if it acquires ownership of the invention, then has two years to decide whether to retain title to the invention; if the university elects to retain title, then it must grant to the federal government a royalty-free nonexclusive license.

  • If the university keeps title to the invention, it must patent it.

No. If the university retains title, it must file a patent application within one year after election to retain title, or earlier if required by a statutory bar. If the university does not file a patent application, then the federal government may request title. There is no obligation to patent a subject invention—just to file an application. See 37 CFR 401.14(a)(c)(3) and (d)(2). Even then, the university retains a royalty-free nonexclusive license, including the right to sublicense to anyone the university is legally obligated to license. See 37 CFR 401.14(a)(e)(1).

If the university, having acquired ownership of the invention, elects to retain title, then it must file a patent application within one year after giving notice.

  • The university may then license the invention, giving preference to companies with 500 or fewer employees (however, if a larger company helped fund the invention, it may receive a license).

The university may license the invention at any time—even before any invention has been made. The university must make efforts to attract small business firms. It has an obligation to prefer small business firms in licensing only when there are competing offers and a small business offer is judged equally likely to bring an invention to practical application. See 37 CFR 401.14(a)(k)(4). Large companies may receive licenses regardless of whether they have helped to fund a subject invention.

The university must make an effort to attract small business firms to license the invention, but may also license to large firms.

  • The faculty members who developed the invention must receive a percentage of the royalties the university earns.

Not accurate. Nonprofits are required to “share royalties collected” with inventors. There is no mention of faculty. The standard is “inventor” not “developer.” There is no specification of the nature of the sharing, such as a percentage of royalties received by a university. In any case, the university does not “earn” a royalty through licensing. It receives a royalty as consideration for granting a license. An “earned” royalty is consideration arising from working the invention—that’s something done by a licensee. See 37 CFR 401.14(a)(k)(2). University-affiliated patent brokers advocated for the royalty sharing requirement because that appeared to be head off the alternative that universities should pay a share of their royalties to the federal government to recoup the cost of federally supported research.

The university is required to share royalties on an invention with the inventor.

If the university doesn’t want to keep ownership of the invention, the federal government may elect to take it (something it does relatively rarely). If the government doesn’t want it, you can petition the federal agency involved to let you have ownership. These requests are usually granted.

This conflates two distinct situations. In one, a university obtains assignment of an invention, but then chooses not to retain title. In the other, a university does not obtain assignment of the invention, and therefore never has standing to choose to retain title. In the first instance, the university may request agency approval to assign the invention to the inventor (see 37 CFR 401.14(a)(k)(1)). If the agency approves the assignment, the university must include the requirements of the standard patent rights clause with the assignment—including requirements on use of any royalties or income earned with respect to the invention. If the agency does not approve the assignment, then the agency has 60 days to request title. If the agency does not request title, then the university may assign the invention to the inventors without standard patent rights formalities. If the agency requests title, then the university is required to convey title to the government.

In the second situation, however, the matter is between the inventors and the federal government. In this situation, the inventors have title by operation of federal common law. According to the implementing regulations, the agency may treat inventors as a small business firm, but with fewer requirements than a small business firm. See 37 CFR 401.9.

In this second situation, the role of the written agreement that universities are required to require becomes crucial. The written agreement is made within the requirements of the federal funding agreement and thus, by the definition of funding agreement in the implementing regulations, makes potential inventors conditional parties to the funding agreement. The definition identifies a contractor as any party to a funding agreement, including by assignment, substitution of parties, and subcontract. Therefore, when those inventors invent, they become contractors, their inventions are thus owned by a contractor (the inventor), and thus are subject inventions within the definition of Bayh-Dole and the standard patent rights clause.

If the university acquires ownership of an invention made with federal funding and then decides it does not want to keep ownership, the federal government may request ownership. If the federal government does not request ownership, then the university generally will follow its policies, which may permit the university to return ownership to the inventors. Some universities require the inventors to pay the university’s costs or to share future income with the university.

If the university does not acquire ownership of the invention, then you may petition the federal agency involved to let you have ownership. The agency, after consultation with university officials, may grant such a request, provided you agree to certain requirements. 

 

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