We are working through the University of Pittsburgh summary of the Bayh-Dole Act, and I at least am getting increasingly grouchy as I do. How can someone writing for university faculty “innovators” get things so wrong in some many places? That’s more of a rhetorical question than a metaphysical one, of course.
- The University must provide the U.S. government with a nontransferable, irrevocable, paid-up, nonexclusive license (“confirmatory license”) to use the invention.
The “confirmatory license” is not in Bayh-Dole, and there’s a “throughout the world” left out, but no matter. The license required is “to practice and have practiced” not merely to “use” an invention. In the history of federal invention regulations, “practice” means “to make, use, and sell” and “have practiced” means “to have made, have used, and have sold.” That’s way, way broader than to “use” an invention. The license does not exist until it has been granted. The paper copy may confirm something–but what it confirms is compliance with the patent rights clause, not something that the government already has in the absence of anyone at Pittsburgh getting around to granting the government its license.
- In granting a license to use the invention, the University also generally must give priority to small businesses, while maintaining the fair-market value of the invention.
This is nonsense! There’s nothing whatsoever in Bayh-Dole about maintaining the “fair-market value” of an invention. As Captain Haddock would say, “Billions of blistering blue barnacles!” Here’s what Bayh-Dole requires to be in the standard patent rights clause:
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
Already the requirement is walked back. But in the original Bayh-Dole Act, the requirement was that nonprofit exclusive licenses to non-small firms were limited to eight years from the sooner of the date of the license or date of first commercial sale. That bit was quickly eliminated. But the actual standard patent rights clause has this addition:
It will make efforts that are reasonable under the circumstances to attract licensees of subject invention that are small business firms and that it will give a preference to a small business firm when licensing a subject invention if the contractor determines that the small business firm has a plan or proposal for marketing the invention which, if executed, is equally as likely to bring the invention to practical application as any plans or proposals from applicants that are not small business firms
That is, the requirement is to attract small business licensees and give preference to small business licensees. But then all this is walked back. The efforts only have to be “reasonable under the circumstances” and only in the context of competing proposals from non-small firms. Oh, and even all this gets walked back some more, so that the ultimate effect is that a federal agency has the right to sniff at a university’s policy on licensing to small businesses and recommend changes–something, again, that to my knowledge has never been done. This is also not a “key provision” of the law, as it was designed in implementation never to operate. It is a non-provision.
“give priority”–the term is “preference.” “Priority” suggests time as well as preference. In practice this clause is used by universities to justify sweetheart exclusive licensing deals to their own startups rather than offering licensing opportunities to anyone else. Often those startups are paper companies or research repackaged as a company so it can compete for SBIR funding, and thus universities steal what otherwise would be available to assist actual small businesses.
- When granting an exclusive license, the University must ensure that the invention will be “manufactured substantially” in the United States.
Almost accurate! The exclusive license is in the U.S. and is to “use” or “sell.” The verb “ensure” is wrong–the university (or its assignee) must obtain the agreement from an exclusive licensee that product will be substantially manufactured in the U.S. That is, the licensee does not have to manufacture the product in the U.S.–the exclusive license is to “use” or “sell”–so the manufacturing could be licensed non-exclusively in the U.S.–but all those manufacturers would have to be OEMs for whomever had the exclusive rights. I know, complicated in its way if one has never bothered to think in these terms.
And it’s not the subject invention that gets manufactured, it’s “any products embodying the subject invention or produced through the use of the subject invention.” The requirement is, then, much broader with respect to the required manufacturing, but narrower with regard to territory. A contractor can grant any sort of exclusive license it wants outside the U.S. Again, this is more of a bother requirement, since Bayh-Dole gives federal agencies the right to waive the requirement. And if they don’t waive the requirement, they are forced to deal with enforcing the requirement by means of march-in procedures, which were happily designed not to operate. Thus, the manufacturing requirement is also designed not to operate, though it sure looks like it should in all its protectionist splendor.
- Excess revenue must support research and education.
Slipping away again. Bayh-Dole stipulates the use of all revenue received by nonprofits from the disposition of subject inventions. Universities advocated for these requirements because these requirements were better (so they thought) than the government seeking to get a share of the revenue to recoup its research expenditures. Here’s the language:
a requirement that the balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, be utilized for the support of scientific research or education
Any “income earned . . with respect to subject inventions.” I suppose that’s “revenue.” But “excess” does not capture what an inventor might most want to know–that the university cannot dip into royalty or income earned other than to pay allowable expenses–paying inventors and paying costs “incidental to the administration of subject inventions.” Not incidental to the administration of any inventions, not of non-inventions, not, ahem, pf “accomplishments.”
If we look at the University of Pittsburgh policy on revenue management, we can see that it does not comply with the standard patent rights clause (which repeats Bayh-Dole’s requirement). For instance, after recovery of expenses incidental to the management of the licensed invention, among other things, there’s
15% to the Office of Technology Management to cover administrative expenses
If those administrative expenses are entirely devoted to the management of subject inventions, perhaps things are compliant, and
30% to the above “Patent Rights Fund.”
Which is called, a few sentences before, a “University Development Fund” and already has recovered any expenditures in support of the invention. This 30% is in addition–not an expense. Again, if the 30% of general income from a subject invention is designated solely for the administration of subject inventions, then things work out. What do you think is the likelihood we will find such accounting at the University of Pittsburgh? Do you think the federal government cares? If Pittsburgh folks don’t care, then do you think they should be listing this bit as a “key provision” of Bayh-Dole? Yeah, that’s my thought, too.
- The University must share a portion of the royalties with the inventor(s).
Yes! They got one key provision totally right! Huzzah-hooray!
We might add that Bayh-Dole requires a contract provision under which the university must share royalties with the inventors. Thus, sharing royalties is a legal obligation of the university. The fact of sharing cannot be, then, consideration for the assignment of an invention by the inventors. There has to be some other “valuable consideration” that binds the assignment. See patent law at 35 USC 261 for the wording and context. Senator Bayh, in a strange amicus brief to the Supreme Court in Stanford v Roche, which the Court rebutted in its decision, argued that inventors had a right to negotiate with their universities for a share of royalties, but had no right whatsoever with regard to ownership of their inventions. Bayh was wrong about inventor rights. We might ask, then, whether universities in asserting ownership over inventions (or accomplishments) has identified proper consideration for assignment when federal funding is involved. Royalty sharing is required by law to be in each federal contract and the university agrees to the federal contract. What’s not in the federal contract is the proportion of the sharing. That, perhaps, is what Senator Bayh thought that a university inventor might negotiate for. That would be interesting.
In a superficial way, a university could meet the requirement to share by sharing $1 of royalties with inventors. But we might argue such a practice is not equitable, and that it might not meet the requirement of “valuable consideration” in patent law. But more so, if Senator Bayh was right about at least something regarding Bayh-Dole, perhaps what his point means is that the university is not “entitled” to any ownership unless and until it reaches an agreement with the inventor on the share of royalties it will pay. If it cannot reach agreement, then it cannot demand assignment. Again, the obligation to share royalties is the result of federal law mapped through the standard patent rights clause. That requirement takes precedence over any state-enforced contractual agreement–and so takes precedence over university policy statements on royalty sharing and conditions of employment.
In fact, that’s also what the (f)(2) written agreement requirement in the standard patent rights clause indicates–universities must delegate to potential inventors key responsibilities as individuals, including the responsibility to establish the government’s rights in subject inventions. Inventors cannot do this if they do not have title to their inventions. It would appear that (f)(2) requires universities to give up any prior claim of ownership to federally supported inventions. That sets up the negotiation with inventors over a share of royalties. And that sets up a voluntary assignment based on a mutual agreement that the university is the appropriate organization to manage the invention and the inventor is satisfied that the “valuable consideration” reflects the value of the invention.
This reasoning–something many university administrators hate–sets aside all the bluster of claims put into university patent policies regarding ownership and royalties. Universities routinely in policy establish royalty sharing as a matter of administrative policy. That royalty sharing and the sharing amount is set by schedule and has nothing to do with being consideration for assignment or even the merit of the invention so assigned. Thus, there is no bargain of the form, “if you assign your invention to us, we will pay you x% of royalties we earn from licensing your invention.” Instead, the arrangement proposed is, “as a condition of employment you must assign your invention to us, and as a matter of administrative policy we choose to share x% with you, but tomorrow we could change our policy and share some other % with you.” If you don’t assign, your alternative is to quit, since assignment is a condition of employment. We might say, then, that continued employment is the consideration for assignment. That’s what the University of California argued in Shaw. So much for tenure, if all that’s needed to force faculty to quit is to change the policy on them. May as well require them to ride a unicycle wherever they go. That should do it.
Even if we allow such outrageousness for the typical invention, what happens with Bayh-Dole? There, the university accepts a federal contract that establishes the terms under which inventions made with federal support are to be managed. The university is required to require inventors to become parties to the federal contract by promising, among other things, to establish the government’s rights in their inventions. The university cannot both require this federal contract and at the same time require anything that conflicts with this federal contract. If the university agrees (as required) to permit its research personnel to be responsible to establish the government’s rights in inventions, then the university cannot also prevent its research personnel from doing so by demanding that they assign all their rights to the university. The university can’t do both.
If a university complies with the federal contract, then it cannot at the same time require the assignment of all inventions made in the performance of a federally supported project. The Supreme Court was adamant that Bayh-Dole does not authorize the taking of inventions from inventors. The (f)(2) agreement states the entire obligation of research personnel with regard to inventions as authorized by Bayh-Dole. Thus, inventors inventing within the scope of a federally supported project own their inventions, and the university, to obtain an invention, cannot invoke policy because it has already agreed to delegate ownership matters to its research personnel for each federal contract. Furthermore, the university has agreed to share royalties with inventors if the university acquires ownership of any such subject invention. What’s not determined is what that share should be.
Here’s what it comes down to. The university can stipulate that if it owns the invention, the royalty share is set by policy, as x%. The university can even say “take it or leave it”–but the university cannot say “you have to take it” because the federal contract does not give them that authority and the (f)(2) requirement demands that the university delegate to the inventors the responsibility to establish the government’s rights in each subject invention. Thus, inventors do have the right to negotiate the share of royalties they receive. And if the university is unwilling to negotiate, the inventors are free to take their subject invention management business elsewhere. This has nothing to do with their employment with the university. It has to do with how federal contracts take precedence over state-enforced contracts.
The same matter is stated expressly in the case of subcontracts:
the contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions
We might restate the (f)(2) written requirement with parallel language:
the university-contractor will not, as part of the consideration for allow its employees to perform work under the funding agreement, obtain rights in the employee’s subject inventions
The university cannot obtain those rights because it is required by section (f)(2) of the standard patent rights clause to release any claim on those rights to the inventors pending the fulfillment of their written promise to establish the rights of the government.
The Supreme Court in Stanford v Roche noted the lack of protections for inventors and other third parties in Bayh-Dole. This lack only worked if Bayh-Dole dealt only with the relationship between the federal government and a university after the university had acquired ownership of an invention made in a project with federal support.
Thus, buried underneath the clumsy rhetoric produced by the University of Pittsburgh and endorsed by AUTM, there’s still the vestige of a protection for inventors–not in Bayh-Dole proper, but in the standard patent rights clause.
We have finished with the University of Pittsburgh summary of Bayh-Dole. We get no real help with what “It” means for “technology commercialization” other than that it provided a “tremendous incentive” for university administrators to seek profits from monopoly patent positions and perhaps to chronically misstate and misrepresent the law. If their description of what they take to be their founding document is so sloppy to a point beyond simple incompetence, what do you expect to find in their licensing practices? Pity the entrepreneur who is compelled to deal with them. Perhaps, that, then is what “It” means for technology commercialization–misrepresented Bayh-Dole law and history means you really do have to deal with university’s version of “It”–a sewer-dwelling patent policy and practice that from time to time emerges to haunt the faculty and the general public, creating mayhem when it can.