When a university and a company love America so much that they produce usable technology and dedicate it to be practiced for any government purpose, 1

Bayh-Dole requires federal agencies to require that owners of subject inventions grant to the government a license in those inventions. Sounds easy, and really, it is. But people are fickle and university patent administrators can be more fickler than most, especially with nearly unlimited legal budgets to force their fickles on the rest of us.

Here’s Bayh-Dole (35 USC 202(c)(4)):

With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world:…

That is, federal agencies are required to use a patent rights clause that “effectuates” this license. Notice that the license is directed to the subject invention, not to any particular patent right in the subject invention.

Notice as well that the license is required as a condition of the contractor’s “electing” to retain ownership of the subject invention. That is, the license happens, generally, before any patent has issued on the subject invention.

The license is to the invention as disclosed and acquired by the contractor.

That is, regardless of whatever rights the contractor might develop in the invention. Why does this matter?

In the late 1940s, when the Department of Defense expanded its contracting for research, it included an “anticipation” clause–the DoD required a license to any invention made with federal funding or in anticipation of federal funding. One could not rush to file patent applications based on a proposal for federal support and thereby frustrate the federal government’s license in whatever work was done under the contract after it was awarded. Makes sense, especially if one is working in a world full of fickle university administrators.

Here’s sample language, quoted by the court in Mine Safety Appliances.

First, subject inventions:

Where used in this Section, and not elsewhere in this contract, the expression “Subject Invention” means each invention, improvement and discovery (whether or not patentable) conceived or first actually reduced to practice (i) in the performance of this contract, * * * or (ii) in the performance of any research or development work relating to the subject matter hereof which was done upon the understanding that this contract or any subcontract hereunder would be awarded * * *.

The anticipation clause is in (ii). Now the license:

Contractor agrees to and does hereby grant to the Government an irrevocable, non-exclusive, non-transferable and royalty-free license to practice, and cause to be practiced for the Government, throughout the world, each Subject Invention in the manufacture, use and disposition according to law of any article or material, and the use of any method * * *.

It is fascinating that Bayh-Dole, embedded in federal patent law rather than research contracting regulations, makes such a mess of the license provision. The subject of Bayh-Dole is what a default patent rights clause must have in it, and the procedures for varying from that default. But why repeat contracting language if one is already in patent law? Why not just restrict the scope of the property right in patents on subject inventions to not include any practice by the Government and be done with it? Instead of requiring a clause that requires contractors to grant a license in the future, why not just limit what contractors can do with any rights in subject inventions, so they can never sue the Government over the use of any subject invention? Oh, I know, then Bayh-Dole wouldn’t be the convoluted mess that it is!

In the Mine Safety Appliances usage, we see also that the license is to the invention, not to any particular patent on the invention. The government is contracting for freedom to practice the invention, not merely for a license to a particular patent on the invention. And the government reaches before the contract as well, to acquire a license to any invention made in anticipation of the federal funding.

Consider also that the scope of the license in Bayh-Dole is directed at inventions made in projects supported by federal funding:

Here’s the definition of subject invention (35 USC 201(e)):

The term “subject invention” means any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement

Here is how this definition gets dealt with in the implementing regulations (37 CFR 401.1(a)). Let’s take it sentence by sentence.

Traditionally there have been no conditions imposed by the government on research performers while using private facilities which would preclude them from accepting research funding from other sources to expand, to aid in completing or to conduct separate investigations closely related to research activities sponsored by the government.

The federal government does not prevent a contractor from accepting funds from non-federal sources to augment research activities supported by the federal government–expand, aid in completing, or conduct closely related investigations. These augmented activities have the same feel as the anticipation clause in the old DoD contracts. This first sentence expands the scope from merely what’s done with a federal budget for research to what is done in the project that was proposed for federal support, regardless of the funding source. The first sentence says: “you can take private funds, of course–the government does not forbid that.” Now consider the consequences. First a wind up that gathers in that first sentence again and sets it aside while restating it:

Notwithstanding the right of research organizations to accept supplemental funding from other sources for the purpose of expediting or more comprehensively accomplishing the research objectives of the government sponsored project,

Now we have “expediting” and “more comprehensively accomplishing”–that is doing things faster or doing more things. But the move is from research activities to a project that has government support. Here’s the mental map. Start with a project that has research objectives–to develop a new drug, say. Now get federal funding for a portion of that project. Now get non-federal funding for other activities within the project. What happens:

it is clear that the ownership provisions of these regulations would remain applicable in any invention“conceived or first actually reduced to practice in performance” of the project.

If one has a project, and for some portion of that project one gets federal support, then the government’s license extends to any inventions made in the project, not merely those inventions made with the direct use of the federal funding. A final sentence to hammer this home:

Separate accounting for the two funds used to support the project in this case is not a determining factor.

If the project proposes something grand, such as developing a new therapeutic drug, and the request to the government is to support a portion of this work, say, messing around synthesizing a bunch of variant compounds and screening them for biological activity, then it is the objectives of the project that are in play, not merely the stated activities of the federally supported activities. One can’t add non-federal funding and then say that only where the federal money was used can there be a subject invention.

The ownership provisions of the Bayh-Dole regulations are tightly bound with the government’s license–it is the same fundamental clause (37 CFR 401.14(a)(b)):

The Contractor may retain the entire right, title, and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 203. With respect to any subject invention in which the Contractor retains title, the Federal government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.

The government has a license to any subject invention–any invention made in the performance of a government-supported project–the “performance of work under a funding agreement.” “Performance of work under a funding agreement” is not merely the work specified in the funding agreement, but work under the research objectives stated for the project to which the federal government provides funding.

Now the implementing regulations seek to clarify this assertion of government interest:

To the extent that a non-government sponsor established a project which, although closely related, falls outside the planned and committed activities of a government-funded project and does not diminish or distract from the performance of such activities, inventions made in performance of the non-government sponsored project would not be subject to the conditions of these regulations.

Again, the issue is directed at the planned and committed activities of the project, a project that has government funding. A university establishes a project to develop a new therapeutic drug–of course the university won’t pay for the development work itself, but that’s the premise on which its researchers go hunting for new compounds with “potential.” The “planned and committed” activities in such a case go beyond what it is proposed for the use of the federal portion of the budget–they extend to all the usual activities, the research objectives, necessary to identify compounds, screen them for activity and safety, and test them to determine efficacy, figure out how to deliver them effectively. All of this is bound up in the “planned and committed” activities of such a project. If a non-government organization creates a different project, and that project doesn’t affect the project that’s already proposed, then inventions in that non-federal project aren’t subject inventions, even if the project is closely related.

The regulations here are not talking about adding funding from other sources to a proposed project, but rather establishing an entirely distinct project that runs in parallel but does not share the same research objectives as the initial project that has received federal funding.

We might then distinguish between to projects involving chemistry. In the first project, investigators propose looking for compounds that might be useful in treating cancer. That’s a big project and the ultimate research objective is to create a new, lucrative anti-cancer drug. In the second project, investigators propose looking at methods for characterizing new compounds of any sort. In the process of messing around with their methods, they might happen to characterize some new compounds. But the objective of their project is to develop methods, not to discover compounds or to create anti-cancer drugs.

Big whoop, you say, putting on your fickle university patent broker tin hat. But consider–the premise for public funding involves exactly these end objectives. “By studying new compounds we open up the prospect for treatments to cure cancer in our lifetime” is not the same as “By creating new methods to characterize compounds, we can better understand these compounds.” These are two very different projects, with distinctive justifications for their efforts and funding. These public objectives matter. They aren’t just puff, or fiction, or fingers crossed, or stated just to get the federal money–they are essential to the scope of what constitutes a subject invention and also therefore to the scope of the federal government’s license.

The Bayh-Dole implementing regulations then provide an example:

An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology.

This is text in the abstract. But the primary, unstated case is that of developing pharmaceutical products–that is the primary concern of “usable new technology”–a commercially available prescription drug. That is, in pharma research, a discovered compound (“expanded scientific understanding”) cannot be “used” as a “new technology” without a bunch of testing and packaging. Again, it is critical how a project is described–not just the part that is the request for federal support, but the research objectives for which the federal support is but a part.

The moment a university has a technology transfer program committed systematically to pushing newly discovered compounds from laboratory to pharmaceutical company, then any research project includes both the scientific understanding and the development of usable new technology–it’s just that the university anticipates private funding for the development part of the project. But the inventions conceived are not merely directed at advancing scientific understanding–they are directed at creating prescription drugs from the outset, by virtue of the university’s technology transfer program’s statements, if not express statements in the federal funding proposal or request for proposals that establish a project that aims to move from discovery to “usable new technology.” Let’s repeat:

Separate accounting for the two funds used to support the project in this case is not a determining factor.

Now any goodly fickled university patent administrator will try any number of ways to obfuscate and walkback this outcome. They will claim that university research is “basic” without any thought to commercial applications–but their own activity disproves such a thing. The university clearly is actively thinking of commercial applications. They will claim that only where federal money is used to make or develop the invention does it become subject–but that’s exactly the opposite of what the implementing regulations provide. Separate accounting doesn’t matter. The research objectives of the established project matter. It doesn’t matter what part was funded federally and what part not.

More from 37 CFR 401.1:

The time relationship in conducting the two projects and the use of new fundamental knowledge from one in the performance of the other are not important determinants

Surely you see it now. If a project’s goal is to discover compounds that should become prescription drugs, then it doesn’t matter when any private money comes into play to develop drugs from the compounds–the subject invention comprehends not only the compounds but their use as therapeutic drugs. You will see that baked into the patent applications for the claimed invention. If there are two independent projects, then it is different. But the analysis does not end with university budgets for the federal portion of the work or with the end of the contract term for the federal portion of the work. The time relationship is not an important determinant…

since most inventions rest on a knowledge base built up by numerous independent research efforts extending over many years.

Bayh-Dole’s claims in subject inventions extend, for non-profits, to any assignee of the inventions. Here’s 35 USC 202(c)(7)(A):

In the case of a nonprofit organization, (A) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions (provided that such assignee shall be subject to the same provisions as the contractor);

Again, this is a required patent rights clause provision directed at the subject invention, not merely at a patent that covers some aspect of the subject invention. “Rights to a subject invention” does not mean (fickle warning:) merely “patent rights” covering some aspect of a subject invention but rather any rights–and especially ownership rights. It is well established case law that assigning all substantial rights in an invention–rights to make, use, and sell–has the effect of assigning the invention. Universities routinely use instruments labeled “exclusive license” that in fact are assignments of an invention, even while reserving a claim on title to one or more patents that cover the invention–granting exclusive rights to make, use, and sell the invention.

When a university acquires an invention–so that it is a subject invention–the scope of the government’s license extends to any patents however acquired on that invention from the point of discovery to development as a commercial product, as “usable new technology” whenever that development was an objective of the project taken as a whole, end to end. If a university anticipates research may lead to a new prescription drug and operates an invention licensing program dedicated to just this outcome, then the existence and practice of that licensing program establishes that the scope of the subject invention cannot be merely some finding in science–it includes the development of usable technology–the university anticipates that from the outset of the project; the university commits to that from the outset of the project.

The project in play is discovery to commercial project. The subject invention is any manifestation of the invention as a commercial product, regardless of what subsequent patents may attach to that product. Any invention made to bring that invention “to market” is a subject invention if it has been made in the project which has received–at any point–federal support.


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