The Key Provisions of Bayh-Dole

Now, with all that fusstation from the University of Pittsburgh out of the way, we might ask then what are the “key provisions” of Bayh-Dole that a university should make faculty and the public aware of.

Only One Key Provision

For universities, there is only one key provision in Bayh-Dole that actually matters. Everything else is contingent on discretionary actions. Here it is (35 USC 202(c)(1)):

That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters, and that the Federal Government may receive title to any subject invention not disclosed to it within such time.

That’s a requirement for what must be in the standard patent rights clause. Here’s the version in the standard patent rights clause, then (37 CFR 401.14(a)(c)(1)):

(1) The contractor will disclose each subject invention to the Federal Agency within two months after the inventor discloses it in writing to contractor personnel responsible for patent matters.

There’s a bunch more administrative hoo-haw, of course about the level of detail, and that the report has to be written, and further any statutory bars, especially publications:

The disclosure to the agency shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to the agency, the Contractor will promptly notify the agency of the acceptance of any manuscript describing the invention for publication or of any on sale or public use planned by the contractor.

You can see how fussy Bayh-Dole gets once we are into the implementing regulations. Most of this doesn’t matter a speck, what with the publication of patent applications and a first-to-file patent system. Given that patent applications must carry a government funding/rights clause, the government could just wait for the application to publish, or the Patent Office could be directed to notify each federal agency whenever an application is submitted that carries a federal funding notice.

Actually, No Key Provisions

But even this one provision is a problem, if we are to claim it is “key.” For an invention to be a subject invention, a university–or at least a party to the funding agreement–has to own it. That’s because the definition of a subject invention restricts inventions to ones that are “of the contractor.” When an invention is made with federal support, as far as Bayh-Dole is concerned, it is not a subject invention. An invention becomes a subject invention when it is owned by a party to the funding agreement–defined to be a contractor.

Thus, technically, under Bayh-Dole, a university has absolutely no obligations until it comes to own an invention made with federal support. That’s not to say Bayh-Dole does not operate until a university owns such an invention. Bayh-Dole is part of federal patent law, and thus whenever an invention meets the condition stated in Bayh-Dole’s statement of policy and objective (35 USC 200), the invention and any patent on the invention is subject to Bayh-Dole:  “inventions arising from federally supported research or development.” It’s just that all this means nothing to a university in terms of compliance with the law unless and until the university acquires ownership of such an invention.

Shake off, then, the idea that Bayh-Dole applies to universities or that any invention made with federal support is a subject invention. Inventions “arising from federally supported research or development” are within the scope of Bayh-Dole’s statement of policy and objective, and that statement is a part of federal patent law, and thus we should expect that the statement actually has an effect and is not just there for show, as “surplusage.”

Shake off, too, the idea that Bayh-Dole is complicated and there’s a whole lot that university administrators must do. Bayh-Dole is less complicated than it is badly written, but even so, the requirements that federal agencies must have in a patent rights clause are simple, plus a bunch of things that are conditionals, but for most of the conditionals, the requirements that are stated simply don’t matter–there is no consequence for failure to comply, waivers readily granted, and there are disincentives for federal agencies to enforce the terms of the patent rights clause or to act on any of the rights granted to the federal government. Bayh-Dole really is an administrative puff ball of mostly nothing.

Thus, finally, shake off the idea that Bayh-Dole advances innovation, American competitiveness, economic development, commercialization, practical application, or public benefit. If any of these things come about, they do so despite Bayh-Dole. Whatever bits of compliance a university might take on have nothing, nothing to do with advancing the practical application of inventions arising in federally supported research and development.

Whether a university properly notifies the government or reports on efforts to use an invention doesn’t matter. The government does nothing with the information. Whether the university puts a government funding legend in patent applications does nothing for innovation or anything else. That a university files patent applications, or obtains patents, has no obvious positive effect on innovation–and without any further information, the necessary implication of a university obtaining a patent is that the patent acts against innovation by excluding all others (but for the U.S. government and those the government authorizes to act on its behalf) who might practice the invention. If one goes down the list of bureaucratic requirements that are not enforced, for which there is no penalty but for the possible loss of ownership or licensing control over a patent, there’s nothing in Bayh-Dole that promotes innovation, competitiveness, commercialization, or much of anything other than the employment of bureaucrats and their helpers to push papers around.

One Key Provision, But in the Standard Patent Rights Clause

Now for the complications on “subject invention.” Although Bayh-Dole does not require universities to do anything with regard to inventions made with federal support, the standard patent rights clause authorized by Bayh-Dole messes things up. It does so by adding requirements that are not in the law, and those requirements make significant changes. The key requirement is that universities must require their research personnel to make a written agreement to protect the government’s interest in inventions. That written agreement, as a requirement of the patent rights clause in a funding agreement, then becomes a delegation of responsibilities under the funding agreement, and each person making the written agreement becomes a party to the agreement and hence a contractor. When someone invents, then, he or she owns that invention, and since he or she is also a contractor, voila, the invention is “of the contractor” and becomes a subject invention–it is just that “contractor” does not mean “university” but rather “inventor who has joined as a party to the funding agreement.” This is, by the way, pretty much what the Public Health Service required of university investigators under the regulatory regime Bayh-Dole preempts.

Thus, if the written agreement requirement is complied with, universities will always have an obligation to report subject inventions when those inventions are reported to them–but now many of these subject inventions are not inventions owned by the universities. A university reports such inventions as actions “to protect the Government’s interest,” not the university’s own interest (if any) in these inventions. All inventions made with federal support that meet the definition of subject invention (for which see 35 USC 201(e)) must be reported by the university when reported to the university’s personnel responsible for patent matters. Thus, we are back to one key provision in Bayh-Dole, though it is not in Bayh-Dole at all, but rather in the standard patent rights clause. Perhaps, then, the key provision in Bayh-Dole is 35 USC 206:

The Secretary of Commerce may issue regulations which may be made applicable to Federal agencies implementing the provisions of sections 202 through 204 of this chapter and shall establish standard funding agreement provisions required under this chapter.

Of course, what has happened is that the Secretary of Commerce (well, originally the Office of Federal Procurement Policy) went ahead and established standard funding agreement provisions that weren’t required under by Bayh-Dole, including the written agreement required of contractor personnel and a prohibition on contractors claiming an interest in inventions made by subcontractors to a federal funding agreement. (This sort of thing is to be expected, since the architect of the policy-circumventing Institutional Patent Agreement and then Bayh-Dole moved over to the Office of Federal Procurement Policy to screw up participate in the implementation of Bayh-Dole as well.)

Sadly, there is another complication. No university I know of complies with the written agreement requirement. Technically for those universities no invention becomes a subject invention unless it is assigned to a university. University administrators make a big fuss out of complying “with Bayh-Dole”–by which they should mean “the standard patent rights clause,” but they don’t actually mean this. They do mean Bayh-Dole. But there is nothing at all they have to comply with in Bayh-Dole! Nothing at all. All the bother about disclosing inventions, electing to retain title (having got title by some other way), and the like is not a matter of compliance unless universities comply with the requirement to require a written agreement that delegates responsibilities to research personnel acting for themselves.

But, of course, with even deeper sadness, there is yet another complication, as many universities cast such a wide policy claim to inventions that their claim includes inventions made with federal support. But often these claims are defective–such as silly demands of present assignments embedded in policy documents hidden in bathrooms in basements that have no lights or stairs, guarded by leopards. And further, even if a claim isn’t defective, there’s still the problem that the university has breached its federal funding agreement to claim ownership of the invention under its own policy or contracting without making the research personnel’s written agreement take precedence, which it must as part of a federal contract.

It’s a mess. It’s a mess because university administrators–at least these patent administrators–are pigpens and bring with them their own disasters. It’s how they get the big bucks relative to their contribution to the university. Other administrators ought to go after them and chase them out, but alas, B’s tend to hire C’s and so reap the whirlwind.

So, Four Key Provisions in the Standard Patent Rights Clause

If a university complies with the standard patent rights clause authorized by Bayh-Dole, it has four obligations (all references are to 37 CFR 401.14(a)):

  • to require a written agreement of all research personnel (f)(2)
  • to report subject inventions within two months of receiving reports (c)(1)
  • to educate research personnel on the importance of timely reporting (f)(2)
  • to flow down the patent rights clause in subcontracts (g)

These things happen outside of any action by a university to obtain title. If the university does not obtain title, then it has no basis to elect to retain title, and thus has no obligation to convey title to the government on request. That obligation falls to the inventor-contractor, the person who actually has title and has made a written agreement, part of the funding agreement, to protect the government’s interest by establishing the government’s rights in subject inventions.

And here is the glorious rub, the huge hole in the whole cleverly crafted scheme. There is absolutely nothing in Bayh-Dole that gives a federal agency the right to require assignment of a subject invention from an inventor-contractor, provided that the inventor-contractor (or the host university) has properly disclosed the invention to the government. Look for yourself. It’s just not there. [And it still isn’t there after NIST added to the (f)(2) written agreement that employees will assign subject inventions–since a subject invention is one already owned by the contractor, the NIST added requirement cannot reach to inventions not already owned by the contractor–otherwise, Bayh-Dole becomes a vesting statute, and that’s exactly what the Supreme Court said it was not.]

The requirement to assign exists only for defects in compliance with the standard patent rights clause, and for inventors, the implementing regulations reduce these compliance issues to just a handful–disclosure, election to retain title (now by the inventor-contractor), failure to pursue foreign patent rights, inclusion of a federal funding legend in patent applications, reporting on use on request, requiring U.S. manufacturing for exclusive licenses to use or sell in the U.S., and accepting the march-in requirements.

If inventors elect to retain title, then there’s not much a federal agency can do, short of playing the bully (perhaps in cahoots with the host university) other than to treat the inventors as small business contractors, as required by 37 CFR 401.9.

If someone wanted Bayh-Dole to not have this hole, the basic requirement of Bayh-Dole would be that each funding agreement must contain a provision under which the federal government shall receive the entire right, title, and interest in and to any invention arising in federally supported research or development unless certain conditions are met that require different treatment. This requirement could be walked back to “shall receive title upon request” or some such.

The Key Provisions

With that as a preamble, here’s a summary of the key provisions of the Bayh-Dole Act and its standard patent rights clause, with regard to inventors and universities.

  • Bayh-Dole is a part of federal patent law. It creates a new category of patentable invention, the subject invention, and establishes by policy the patent property rights specific to subject inventions. [35 USC 200]

Patents on subject inventions are not ordinary patents. Owners of subject inventions are restricted in their ability to assign subject inventions, exclusively license subject inventions, litigate for infringement, suppress competition, and use royalties or other income arising in connection with subject inventions. 

  • Bayh-Dole requires federal agencies to use a default patent rights clause in all funding agreements. Federal agencies may modify the defaults for various reasons, including finding “exceptional circumstances.” [35 USC 202(c)]

A university has very few compliance obligations under the default patent rights clause: delegate invention responsibilities to inventors, educate research personnel on the importance of timely reporting of inventions, report inventions to the government after those inventions are reported to the university, and flow down the default patent rights clause in subcontracts. A university does not have ownership of federally supported inventions and does not have to own any such inventions. 

  • Bayh-Dole’s fundamental policy is to use the patent system to promote the utilization of subject inventions so that the benefits of use are available to the public on reasonable terms. Bayh-Dole also requires patents to be used to promote free competition and enterprise, and not to interfere in research. [35 USC 200]

Enforcement of patent rights in subject inventions must conform with Bayh-Dole’s policy of promoting use and competition. Patent trolling lies outside the patent property rights defined by Bayh-Dole as does the granting of exclusive licenses that do not promote competition or prevent other versions of an invention from being developed. Exclusive licenses in most cases must be limited in scope or duration to permit competition and research use. No one actually enforces any of these policies. They may as well not exist.

  • The default patent rights clause requires universities to delegate to inventors responsibility for timely disclosure of inventions, executing papers to permit patent applications to be filed, and executing papers to establish the government’s rights in inventions. The university must report to the federal government within two months each subject invention disclosed to it. [37 CFR 401.14(f)(2); 37 CFR 401.9; 35 USC 201(b) and (c)]

When the university makes this delegation, inventors become parties to the funding agreements and the inventions they make with federal research support become subject inventions as defined by Bayh-Dole. This delegation necessarily supplants the university’s own policy claims to subject inventions, since the university cannot require two conflicting things on the same subject matter. If the university desires to own an inventor’s subject invention, it must negotiate with the inventor. 

  • If the university acquires a subject invention, it must notify the government within a year if it will retain ownership, and within two years from that notification the university must file a patent application. If the university does not file a patent application or decides not to prosecute the application or maintain the patent when it issues, the government can request title to the invention. [35 USC 202(a); 35 USC 202(c); 37 CFR 401.14(b), (c), (d); 37 CFR 401.9]

If the inventor does not assign a subject invention to the university or to another invention management agent, then the federal agency may (and may have to) allow the inventor to retain title to the invention, treating the inventor as a small business contractor but with fewer restrictions.

  • Nothing in Bayh-Dole requires a university to own an invention made with federal support, to license exclusively, to pursue commercialization as the only means to achieve practical application, or to charge a royalty. [It’s just not there–nothing to cite]

All the complications in university compliance with the default patent rights clause arise when a university acquires ownership of an invention made with federal support. And nearly all of those complications involve administrative requirements that do nothing to promote practical application and in many cases work against industrial use and commercialization.

  • Universities can lessen the negative effect of Bayh-Dole’s bureaucratic requirements and thereby promote the research, public, industrial, and commercial use of inventions made with federal support.

Universities may decline to take ownership whenever a federal agency indicates that it will allow the inventors to retain their ownership of an invention made with federal support. If a university does accept ownership of such inventions, it can offer royalty-free, non-exclusive licenses as a uniform default. If an exclusive license must be used because after a period of time no one has accepted a non-exclusive license, then the exclusive license can be limited in time and scope or carry other provisions that promote competition once the invention has been developed to the point of practical application. 

[But really, the key provision to understanding how Bayh-Dole operates is 35 USC 210. Bayh-Dole preempts other federal statutes (but for Stevenson-Wydler and anything later than Bayh-Dole that cites Bayh-Dole) and executive branch patent policy–but only for inventions made under contract that a contractor comes to own. If an invention made under contract is not owned by a contractor, then those statutes or the executive branch patent policy still apply.

Are you with me? Bayh-Dole preempts but only when a contractor already owns. If a contractor discloses what it owns, then it has the right under Bayh-Dole to give notice that it will keep what it owns. Then, if the contractor is an organization, the various other requirements of Bayh-Dole kick in–filing patent applications and march-in exposure, and the like.

But what happens if a contractor does not own? Then you would think it would be that the old regime of specialty federal statutes for space technology and nuclear weapons would control. But no. It is not to be. Bayh-Dole’s preemption clause was amended in 1984 (35 USC 210(c)) to extend two provisions of Bayh-Dole to all federal contracts–the government license (35 USC 202(c)(4)) and march-in (35 USC 203). To implement these two requirements for all federal contracts, nearly the entirety of Bayh-Dole with regard to federal contracting has to be imported– its statement of policy and objectives, its definitions, most of its patent rights clause, march-in, preference for US industry. Thus, when Bayh-Dole does not preempt federal statutes because a contractor does not own, well, then, wait for it, Bayh-Dole still applies because all those federal statutes have been preempted by Bayh-Dole. Even so, those federal statutes all now depend on Bayh-Dole’s definition of subject invention, but only if a contractor owns.

But that’s not the end of it. In 1987 President Reagan by executive order changed the Nixon executive patent policy. The Nixon patent policy is required for burn research by federal statute–15 USC 2218(d), which Bayh-Dole also preempts but only when a contractor owns. But Reagan altered the deal so that executive branch patent policy requires the use of Bayh-Dole. Thus, Bayh-Dole preempts itself when it preempts 15 USC 2218(d)–when a contractor owns–and when a contractor does not own, then executive patent policy preempts itself by insisting on Bayh-Dole, which–sigh–only operates when a contractor owns.

If inventors of inventions made under contract are not contractors–parties to the funding agreement–then inventors have no obligation under federal law to disclose any invention, nor does the federal government have any claim to ownership of their inventions. That’s the effect of 35 USC 210 and the Reagan executive order. This is not a regulatory framework that can be set aside–“oh, they did not mean this, they just bungled it.”

There’s just one bit of Bayh-Dole that applies if an inventor who is not a contractor owns an invention made under contract–and that’s 35 USC 200, Bayh-Dole’s statement of policy and objective. Bayh-Dole’s policy applies to all inventions “arising from federally supported research or development.” That policy does not depend on the definitions of funding agreement or contractor or subject invention. That policy does not depend on the ownership of any such invention, or even whether that invention was made “under contract”–the scope of Bayh-Dole’s policy is inventions “arising from” federally “supported” research or development.

Thus, 35 USC 200 is the key provision of Bayh-Dole. As part of federal patent law, 35 USC 200 combined with 35 USC 261 establishes the scope of patent property rights for inventions arising from federally supported research or development. 35 USC 210 preempts everything else if a contractor acquires ownership of an invention made under contract. 35 USC 202(a) permits a contractor to retain ownership of inventions that the contractor has acquired, on the condition that the contractor timely disclose the invention. After that, Bayh-Dole descends into administrative paperwork and a public interest apparatus that is never enforced.

The effect of the law has been to create a patent monopoly pipeline from federal funds to the pharmaceutical industry, sometimes intercepted by speculative investors, with a bureaucrat’s thumb in every innovation pie. We can ask whether that has been a good thing, and worth whatever side effects this scheme may have caused.

Perhaps it has–but we would do well to look at things soberly and not filled with a prophetic euphoria that university administrators have provided for the technological leadership and economic vitality of the United States.]


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