University of Misery’s IP Policy Scam, 13

In the Institutional Patent Agreement program operated by the NIH, the “conception or first actual reduction to practice” scope gets changed from being only about the scope of what the government does not have to compensate a patent owner for under 28 USC 1498. Now it is also about the scope of what university administrators can claim from inventors. This is hugeness. It may take some work, but you really should try to grasp it.

In an ordinary university workplace of the time (1968 to 1978), faculty members generally had no obligation to assign inventions to the university unless they were assigned work (“official duties”) or made use of university resources beyond what the university ordinarily provided. Since the university committed to provide resources to support federal research work and was fully compensated for doing so, these were not resources that gave rise to a university invention ownership claim. Any inventions were a matter between the inventors and the federal agency. The university’s only interest was to see that the inventors complied with whatever the federal agency required.

But the IPA program changed this. It decreed–by agreement between federal agencies (NIH and NSF) and university patent administrators–that any invention within the scope of federal interest for a license must also be placed within the scope of an assignment claim by the university. This was a sea-change. Again, universities for the most part did not demand faculty inventions unless the faculty members had agreed to work on a special project or requested and received special support–financial or access to special equipment or facilities. Even universities that had an in-house patent program, such as the University of California and Stanford, had voluntary programs for faculty inventions. But the IPA program changed all this for federally supported research at IPA-approved universities. There, the scope of the federal interest in licenses (or ownership, depending on the federal agency practice) was, by federal contract, made to become the university’s interest in ownership of those same inventions–even where under normal federal contracting and their own patent policies universities had no such ownership interest. The universities contracted with the NIH to obtain that ownership interest.

Let’s repeat, for emphasis. Universities had no policy position by which to demand ownership of faculty inventions, even those made with federal support, unless special circumstances prevailed. University patent brokers, however, contracted with federal agencies who required the universities to take ownership of inventions if they wanted to manage those inventions. The IPA program was entirely voluntary. No faculty member requested the IPA program, to my knowledge. And no faculty member requesting the IPA program for his or her own research had any right under university patent policy to impose that same program on everyone else. Many universities did have a research policy that provided that the terms of any research contract took precedence over the terms of the patent policy. But the IPA program was not a research contract. It was a contract regarding invention ownership practices. One might say that university administrators had no authority to unilaterally change the patent policy by signing a contract with the federal government on the matter. Administrators would have to first change the patent policy, and then they might sign on to the IPA program. But that’s not what happened. Once a university had the IPA program, they then claimed a mandate (required by federal contract) to take ownership of any invention within the scope of the federal interest in ownership or a license–and that new claim to ownership was way, way broader than the claim to ownership in most universities’ patent policies. A sea-change. The wording was subtle, but the effect was huge. Sleight of hand.

In the classic guide to cheating at cards, The Expert at the Card Table, the point gets made that an expert cheater can cheat regardless of the watchfulness of anyone who expects him or her to cheat. An expert cheat can get away with cheating, even with with expert watchfulness.

Perfection in performing the “blind” shuffle, whether the
old-fashioned hand shuffle or the “riffle” supplemented by a thorough knowledge of “blind” cutting, makes it impossible for the smartest card handler living to determine whether the procedure is true or “blind.”

The only remedy against playing against “experts” is this:

There is one way by which absolute protection against unknown advantages may be assured, that is by never playing for money.

In Bayh-Dole, we encounter the “expert at the table” in the form of patent brokers who have turned contract relief from owing money for using inventions made with federal support into a new, wildly broad claim on faculty inventions–and using a federal contract as the excuse to make the claim. Bayh-Dole attempted to make this broad claim a matter of patent law, and it would have worked, but for the addition of “of the contractor” in the definition of subject invention.

The definition of subject invention has caused university administrators no end of confrustion. They treat Bayh-Dole in contradictory ways. They claim that the law is a god’s gift (Moloch being the god in play) to universities, and at the same time writhe with worry about compliance with the law–even though there is nothing in the law that requires university compliance, and virtually nothing in the standard patent rights clause authorized by Bayh-Dole that requires compliance, and of all the things that require compliance, there’s virtually nothing that isn’t waivable by a federal agency, to difficult to enforce, or there’s no meaningful consequence for non-compliance.

A typical misreading of the definition is that there are two sorts of inventions–conceived inventions and inventions that are both conceived and actually reduced to practice. If either sort of invention is made using federal funds, then–so the misreading goes–the invention is a subject invention.

Here’s an example from 2008:

Federal research sponsors are increasingly encouraging university research funding recipients to comply with the Federal Bayh-Dole Act reporting requirements by disclosing all inventions conceived or first actually reduced to practice using federal funds.

No doubt federal agencies were “encouraging” universities to comply with Bayh-Dole’s standard patent rights clause. But the reporting requirement is limited to inventions “of the contractor”–that is, inventions that the contractor owns. A subject invention is a patentable invention that the contractor owns. “Using federal funds” is ambiguous. The invention must be “made in performance of work under a federal funding agreement.” So one looks at the statement of work for the project identified by the federal funding agreement. Is the invention something that the statement of work for that project anticipates? Solves a problem stated by the statement of work? Implements something stated by the statement of work? Now look at whether federal funds support the project.

Keep this in mind: first there’s a project. Then there’s a request for federal assistance for the project. A federal agency provides assistance to the project in the form of a funding agreement. The work specified in the funding agreement forms some part, if not all, of the project. If a patentable invention is made and acquired by a contractor, then the question becomes whether either the “conception” or the “actual reduction to practice” of the invention was “made in performance of work under a funding agreement.” If so, then there’s a subject invention. Summary:

  • a patentable invention (or plant variety)
  • owned by a contractor
  • made in a project that has received federal funds
  • either conception or first actual reduction to practice of the invention is a stated research objective of the project
  • the invention arose in performance of “planned and committed” activities of the project and did not “diminish or distract” from the project

Here’s an example from a thoroughly faux “lesson” on Bayh-Dole:

Conceived OR vs. Conceived AND

As we will see in later parts of this course, giving a sponsor rights to an invention “conceived or reduced to practice” in research under a particular agreement casts a very wide net, reaching to past and future research. In the context of the Bayh-Dole Act, this broad definition means that the provisions of the Act apply to inventions that may have been developed only in part with federal funds.

The part of this lesson that federal funds do not have to be the only source of support is accurate. The rest is a scare tale to broaden the scope of what university administrators can steal from inventors using a misrepresentation of Bayh-Dole. In the scare tale, if even $1 of federal money is involved, then the invention becomes a subject invention and the university is privileged to “retain” title–meaning take title and hold onto title with its cold, dead hands.

Here’s the Supreme Court in Stanford v Roche:

The Bayh-Dole Act applies to subject inventions “conceived or first actually reduced to practice in the performance of work” “funded in whole or in part by the Federal Government.” 35 U. S. C. §§201(e), 201(b) (emphasis added).

The Supreme Court recites just this claim regarding “conceived or first actually reduced to practice.”

Under Stanford’s construction of the Act, title to one of its employee’s inventions could vest in the University even if the invention was conceived before the inventor became a University employee, so long as the invention’s reduction to practice was supported by federal funding.

The mechanism in Stanford’s version of Bayh-Dole is that an invention vests with the university if it is a subject invention, and it becomes a subject invention if reduction to practice is supported by federal funds, even if conception takes place entirely without federal funds or the university’s involvement.  The Supreme Court counters that an invention must be already owned by the university if it is to be a subject invention, and reduction to practice with federal funding of an invention that the university has no right whatsoever to own (made before an inventor became a university employee) does not give the university any right to the invention. That is, the invention does not become a subject invention simply because it is first actually reduced to practice with federal funding.

Here is another way to think about the problem. An independent inventor conceives an invention–knows each element of the invention and the result of the invention–and files a patent application, establishing constructive reduction to practice. Now a university investigator proposes a project to first actually reduce the invention to practice and applies for federal support. Stanford’s version of Bayh-Dole would insist that the university was entitled to take ownership of the invention because first actual reduction to practice takes place with federal support. The effect would be to strip title of the invention (and patent rights) from the inventor and hand these to the university. The Supreme Court refuses to accept such an outcome. Thus, the definition of subject invention must start with the contractor’s ownership, not with the use of federal funds.

The Court continues:

What is more, Stanford’s reading suggests that the school would obtain title to one of its employee’s inventions even if only one dollar of federal funding was applied toward the invention’s conception or reduction to practice.

This argument was actually made repeatedly in university technology transfer meetings as one of the key tenets of Bayh-Dole. The argument again passes through the definition of subject invention. It is difficult to understand just what it means for money to be spent to conceive an invention. Since conception takes place in an inventor’s mind, it would appear that an inventor would have to be hired to invent–that solving a particular problem that had no obvious solution was the purpose of the work. Merely providing equipment, or laboratory space, or encouraging investigations in a given area would not meet the necessary standard for an employer to have an equitable right to own resulting inventions. The invention would have to be a specified deliverable of the work. Federal funding that established conditions in which an invention is conceived is not sufficient to establish a contractor’s ownership right to that invention, and thus the invention cannot be a subject invention, even though federal funds were “applied toward the invention’s conception.”

The Supreme Court concludes:

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 Supreme Court uses this argument to make clear that the use of federal funds has nothing to do with the initial ownership of an invention supported with those funds. A university has no special right under Bayh-Dole to obtain ownership of any invention, however the invention might be supported with federal money. The mere use of $1 of federal money does not make an invention a subject invention–as that would be the only way, under Stanford’s argument, that title to the invention would “vest” with the university.

The Supreme Court calls the definition of “subject invention” ambiguous, and then makes clear that the definition cannot include the two scenarios that Stanford’s construction of Bayh-Dole claims–that the “or” is significant and that there is no de minimis standard for subject inventions–any federal money spent in support of either conception or first actual reduction to practice makes an invention a subject invention, and thus it follows that the university has a special right of ownership in the invention, and thus title to the invention vests with the university. The Supreme Court does  not merely reject the vesting argument; the Court also rejects the special right of ownership. Furthermore, and especially, the Court rejects the idea that subject invention comes first, giving a right of ownership. The Court is clear that federal funding would have to first provide the contractor with a right of ownership–and federal contracts cannot do that. The government cannot contract to change the law. The patent law in its present form does not and cannot place title to an invention with a contractor rather than an inventor. Arguably, the federal government does not have the constitutional authority to do so. A contractor must acquire an invention by assignment from the inventor, not through the operation of a federal law or a federal contract.

To anchor this concept, it is essential to see that in the Bayh-Dole regime, a contractor must have a basis for a claim to ownership of an invention entirely outside the scope of the federal funding agreement–a separate agreement carrying its own offer, acceptance, and consideration that does not depend in any way on the federal contract. A university cannot make participation in the federal contract the “consideration” for an obligation to assign, just as it cannot for subcontracts of the federal contract. Furthermore, the Supreme Court reaffirmed that employment alone does not give an employer any right to own an employee’s invention. Thus, again, employment in work involving a federally funded project does not give an employer any special right to ownership of an employee’s invention. The source of money is not relevant. What matters is the nature of the employment–if the inventor is directed to invent, then there’s an argument that the employer has equitable title to the invention. Otherwise, there has to be some agreement regarding ownership of inventions that an employee has not been hired to invent, but which the employer wants anyway.

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