The Bayh-Dole implications of “big” projects created by university policies and practices

In the usual depictions of the Bayh-Dole Act, the emphasis gets put on university ownership of inventions made with federal support. What is not pointed out is that Bayh-Dole not only allows (but does not require) such ownership, but makes this allowing a required default in federal contracting for research, and then tops it off by making it nearly impossible to alter the default or even to enforce anything having to do with the default.

But even less commented upon–meaning never, as far as I can tell–is Bayh-Dole’s handling of the scope of the government’s interest in inventions made with federal support. This scope matters, as it is the scope of the government’s rights in inventions that lies at the base of how the government might respond to monopoly pricing of prescription drugs discovered, invented, and made with federal support.

Let’s look at this in outline form. I will try not to oversimplify, and will keep the snark to a minimum. Here is a typical scenario:

A university investigator starts an inquiry. Call it a project.

The investigator requests federal support for part or all of the project.

The request includes a written account of the project and the proposed work to be funded by the government.

The government, however, provides the funding to the university that hosts the project, using a funding agreement. This is where Bayh-Dole’s standard patent rights clause comes into play.

The university, moreover, has written policies that require inventors to assign inventions to the university and to commercialize those inventions.

The university files patent applications on the inventions with claims that are directed to commercial applications.

In practice, the university assigns inventions to commercialization partners using an instrument labeled “exclusive license” and making a show of withholding formal title to licensed patents.

In this scenario, the project started by the investigator is expanded at each step. First, the project is depicted in a proposal for research. It’s not just the research funded by the government, but the statement of the justification for the government’s funding that expands the project. By studying these compounds, for instance, we might develop better drugs for cancer. The project just expanded from studying compounds to using the compounds to treat disease. That expansion is further confirmed as the university gets involved. Its policies and practices are necessarily also part of the project’s definition. The university files patent applications with claims that read as directly and broadly on commercial applications, making clear the university’s intent from the moment it has control of each invention. If the university is to own the results of the project and has dedicated those results in advance to commercialization through monopoly patent licenses, then that ownership and dedication is part and parcel with the project itself. It necessarily must be so: the university publicly represents that the project includes the ownership and effort to commercialize the results.

The “big” project thus includes the investigator’s initial conception of the project, the depiction of that conception in the context of a request for federal support, and the embedding that broader context in the university’s standing claim that any project that produces results must cede those results to the university for commercialization.

But wait, there’s more. The university expands the project by assigning its inventions to companies who agree to commercialize them on behalf of the university. Those companies then join the project and take on the tasks that were anticipated way back with the formal proposal for support to the government from a university with a formal policy of owning all inventions and commercializing them. The work the companies do to commercialize the invention is also part of the project. That part of the project receives federal support because that part relies on and benefits from the part of the project that federal money paid for.

Do you see the picture of the “big” project now? The investigator’s part, the university’s policy part, the university’s assigning-by-exclusive license part, and the company’s commercialization part. That’s the “big” project, connected by a trail of paper, from proposal to funding agreement to assignment to university to policy of commercialization to practice of assigning-by-exclusive-license to company development work on behalf of the university. If these conditions hold–and for nearly all universities in the U.S., they do–then any invention made anywhere in this chain of events is a subject invention.

Let’s look at the implications. A subject invention is any patentable invention made with federal support in a funding agreement AND owned by a contractor. A contractor is any party to a funding agreement. When a university assigns a subject invention, it is required to also assign the requirements of the standard patent rights clause in the funding agreement–the assignee becomes a party to the funding agreement, becomes a contractor.

The funding agreement funds a portion of a project. It may fund all of the project (if the project is, say, restricted to a scientific result that advances knowledge) or a portion of the project (if the project includes an expectation that results of the federally funded portion will be commercialized). It is up to the investigator and university to define the project. Given that universities have policies that insist on institutional ownership of inventions and commercialization of those inventions, and given that most universities use the assign-by-exclusive-license method of commercialization, the “big” project is almost always formed–investigator-university-company. It’s made into a virtue of institutional monopolizing. Without Bayh-Dole, institutional monopolizing could never have become so efficient. Never could private monopolies over pharmaceutical products have been created while suppressing all competing approaches, were it not for Bayh-Dole.

The contractor grants the government a license to practice and have practiced each subject invention made in the project. 

Here is the key point: That project may well be much bigger than the bit of work defined by the federal funding. A small project may be part of a bigger project. University patent policies define–and insist upon–such bigger projects. This university practice has a significant effect on the scope of the license in inventions granted to the federal government.

Trace through the definitions:

A funding agreement is any agreement “for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government.” The final modifier applies to “work”–that’s the “big” project when the federal funding is “in part.” The rest of the funding comes from other sources. As the implementing regulations make clear, neither the time relationship nor separate accounting makes a difference. The project is the project, the “work” is the work.

A subject invention is a patentable invention owned by a contractor and “conceived or first actually reduced to practice in the performance of work under a funding agreement.” The performance of work recites that same “work” in the definition of funding agreement–the work that is pointed to in the funding agreement for which the government is asked to pay all or just a part. It’s not only the “work” that is accounted for by the expenditure of the federal money. If that were the case, then there would never be an instance of funding “in part” because the government would always fund all the work–because by definition only what the federal money touched would be included in the definition. But there is the “in part”–and that part operates when the federally funded part is part of a bigger project–no matter whether more money to augment the federally funded part to get things done faster or more broadly, no matter whether more money is used to extend the work to commercial development, no matter whether more money invents more things necessary to achieve the aims of the “work” for which the government has paid for a “part.”

When a university obtains ownership of an invention made with federal support that is part of a larger work to discover things of commercial value and turn them into products, then any subsequent inventions made in that same effort, whether by the investigators or the inventors or employees of companies obtaining assignment of the initial inventions under a license that commits the company to completing the work–all those involved are parties to the funding agreement, all inventions involved are subject inventions that have been made with federal support (in whole or in part), and the government has a royalty-free license to practice and have practice (to make, use, and sell; to have made, have used, and have sold) for any government purpose anywhere in the world. There is no further paperwork, authorization, or agreement necessary. If the government has the authority to contract for the production of a prescription drug, and here’s a prescription drug made with federal support, then the government has a license already from the inventors, from the university, from the company that took assignment of the invention for all inventions that pertain to the “work” that was proposed and undertaken.

The government does not have merely a license to the initial invention. That license would easily be rendered useless by blocking improvement inventions made by the university “with its own money” or made by an assignee company sponsoring more “research” with the university, or doing the research itself, or even at another university. That blocking can happen, but only if done in an entirely separate “work.” That cannot be the case for any university with a policy of owning all inventions and dedicating them to commercialization through assignments masked as exclusive licenses. Any such assignment makes the assignee a party to the funding agreement because part of the patent rights clause must be included in the assignment. The assignee becomes a contractor and any new inventions the assignee owns are also subject inventions insofar as they are part and parcel of the originally proposed project.

Universities and companies that exploit subject inventions with these patent polices and practices necessarily create a single “work” that the government has funded a portion of, and to which the government has a licensed right to practice and have practiced for any government purpose. No march-in required. No payment required. No asking required. No remedy for the university or company under 28 USC 1498.

Universities might avoid this outcome by choosing policies that do not take ownership of inventions, or if they do take ownership, do not then permit the assignment of the invention under the guise of an exclusive license, and do not commit the university in every instance to seek commercialization of research results. The moment that the federal government wakes up and simply acts on the license Bayh-Dole requires it to have in subject inventions, companies will be demanding that they receive only a non-exclusive license and so can stand outside the project that has been funded in part by the federal government.

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