Bayh-Dole’s Public Covenant, 3

Government Rights

We turn finally to the government’s rights in inventions arising in federally supported research and development. We will consider both the scope of these rights and the effect these rights should have on the development of new technology in the public interest.

Patents on subject inventions are not ordinary patents. We have seen how Bayh-Dole’s public covenant transforms the property rights in such patents. There’s a working requirement not otherwise in patent law. There’s a requirement to promote free competition and enterprise that’s more demanding than antitrust law. There’s a requirement to promote American manufacturing. All very nice, were these property rights acknowledged by nonprofits, their non-conforming practices challenged, and Bayh-Dole’s requirements enforced.

Of course, this is Bayh-Dole, the do WTF you want Franken-monster law. There are no public protections operating. But even in its written form, Bayh-Dole lacks protections for inventors and third parties (anyone other than institutional owners and their commercialization favorites), and the Supreme Court noted that it would find that lack “deeply troubling” if it were not that Bayh-Dole governs only the relationship between the government and an institutional contractor after the contractor acquires ownership of an invention made in research supported by the federal government.

What then about the government’s rights? There are multiple elements here. First, there is the government’s license. Then there is the government’s right to obtain title to inventions. And finally there’s the government’s march-in rights on a patent owner’s patent rights.

Under Bayh-Dole, a patent owner’s rights are divided between the invention owner and the government. The government’s rights come by way of a compulsory license made a condition of the owner’s “election” to retain title to an invention the contractor has otherwise acquired. That is, the patent rights split upon that notice of election (see 35 USC 202(a) and 202(c)(4)), as a matter of federal contracting. In Bayh-Dole, there is no distinctive labeling of the patent owner’s rights or the government’s rights–the section heading is “Disposition of Rights.” But the standard patent rights clause calls the patent owner’s rights  the “principal rights,” taking up the usage of the Kennedy executive branch patent policy, where the rights are called “principal or exclusive rights.” The “principal rights” are the conditional rights that the federal government permits, by federal contract, an invention owner to exercise, provided that the owner comply with the obligations imposed by the federal contract.

Bayh-Dole takes this division a step further. Bayh-Dole is part of federal patent law, where the Kennedy executive branch policy was established by executive order and applied to federal contracting. The Kennedy patent policy did not alter patent law–it worked by regulatory agreement, as it were. It was conditional upon a contractor accepting a funding agreement; it altered what a contractor could do with a patent, not the patent itself. Bayh-Dole is different. Bayh-Dole does alter patent law. It introduces a new category of invention, the subject invention, and it establishes a policy in law that governs the property rights in this new category. The policy and property rights are stitched together by the first sentence of 35 USC 261:

Subject to the provisions of this title, patents shall have the attributes of personal property.

Patents on subject inventions are subject to the provisions of 35 USC 200 among other portions of Bayh-Dole. Thus, Bayh-Dole alters patent law, dictates how federal agencies must treat inventions in funding agreements, and dictates how federal agencies dispose of inventions that the federal government owns.

The patent owner’s interest in a subject invention, then, is in its “principal” rights, along with the limitations on the patent property right set out in 35 USC 200. Collectively, these two restrictions form the public covenant of Bayh-Dole. One principal right of the invention owner is to file a patent application on the invention. A second principal right is to use the patent to achieve the purposes set forth in 35 USC 200. A third principal right is to retain income relating to the invention or from licensing royalties. But what the invention owner cannot do is sue the federal government for infringement or to bring a claim for restitution in the Court of Federal Claims–that’s one effect of the government’s license to all subject inventions. A patent on a subject invention is not enforceable on the government.

The government’s license is often depicted as a “right to use” an invention. But the actual language of the grant is much broader–the right to “Practice and have practiced.” Bayh-Dole does not bother to define “practiced and have practiced.” The Kennedy patent policy did, the Nixon variations on that policy did, and the IPA program template agreements did, and the IPA program was created by the same person who drafted Bayh-Dole and then oversaw its implementing procedures–Norman Latker, patent counsel at the NIH. In the former policies, “practice and have practiced” was defined to mean “make, use, and sell, and have made, have used, and have sold.” That’s much broader than “use.”

The scope of this grant is also broader than the federal agency that funded the work. In prior executive branch policy, the scope of the right extended to the entire federal government, to states, and to domestic municipal governments (unless a federal agency determined that the license should be restricted only to the federal government). Bayh-Dole, true to form, is less forthright on the extant of the scope (35 USC 202(c)(4)):

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

The agency gets the license, but the scope of the license includes “for or on behalf of” the “United States.” The standard patent rights clause slips this language:

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 federal government gets a license “for or on behalf of the United States.” This addition would not be needed if the federal government has a license for itself–that’s what “shall have a license” means. The additional language alters that scope. It does not merely repeat the scope. The alteration is to expand the license to include the states of the United States–that’s what “United States” means and that usage is consistent with the Kennedy and Nixon patent policies that Bayh-Dole replaces. The federal government and state governments are thus granted a license to make, use, and sell each subject invention, and to have others do so on their behalf.

We will take the scope of this license one further step. Bayh-Dole defines subject invention in a convoluted way, but it can be sorted out. First, we have the broad statement of scope in 35 USC 200: “inventions arising from federally supported research or development.” This scope is often reduced to an inapt and misleading shorthand–“federally supported inventions.” But that’s not the meaning here. The inventions arise in research or development that is federally supported. This is a meaningful distinction. If the research or development receives support, then inventions arising in that research or development come within the scope of 35 USC 200.

Now look at the definition cascade in 35 USC 201, where we would expect to find a clear statement of the scope established in 35 USC 200. There are multiple definitions, so bear with it. First, invention (201(d)):

The term “invention” means any invention or discovery which is or may be patentable or otherwise protectable under this title or any novel variety of plant which is or may be protectable under the Plant Variety Protection Act (7 U.S.C. 2321 et seq.).

An invention is anything that “is or may be patentable” or a “protectable” plant variety. Funny, that, patent law being extended to include non-patentable stuff. Now for subject invention (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

There is some further fussiness regarding those plant varieties, but the key points here are that the patentable invention must be owned by a contractor, and either the conception or first actual reduction to practice takes place “in the performance of work under a funding agreement.” We can spend a long while working through conception and reduction to practice issues–here, however, it is enough to point out that these are terms that arise in disputes over who invented first under a first-to-invent system, and US patent law is now first-to-file so it’s all rather strange. Instead, let’s look at what “performance of work under a funding agreement” means. For that, we have to look first at the definition of funding agreement, and then at the implementing regulation discussing scope.

Here’s the definition of “funding agreement” (201(b)). There are two sentences. Here’s the first:

The term “funding agreement” means any contract, grant, or cooperative agreement entered into between any Federal agency, other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government.

The point here is that the work is funded “in whole or in part” by the federal government. It’s that “in part” element that is the general scope, with “in whole” being a subset. The “performance” of “work,” then, is any work–project, effort, initiative–for which the federal government provides at least funding “in part.”

Dwell on this. Enjoy the moment. It’s something that university patent administration folks often decline to do, being so busy and all. If we unwind the logic, it looks like this:

  • Consider experimental, developmental, or research work
  • Now posit federal funding for at least part for that work
  • A funding agreement covers performance of the entire work
  • When the federal government funds at least some part of that work

The scope of the funding agreement is not just what the government fully pays for. It is not even that old wives’ tale about “if even $1 of federal funding touches an invention”–something that the Supreme Court had some jolly laughs in dismissing. It is rather, “whatever the federal government was reasonably led to believe it was supporting.” That is, the definition is directed at the work, not at the federal funding. The agreement pertains to the work in which some part has federal funding.

“Inventions arising in the performance of work under a funding agreement” is scoped to mean “any invention in the activities of experiment, research, or development for which the federal government provides at least some funding.” A statement of work by a contractor that it will do research and development to achieve a goal creates the definition of the “work” that is the subject of the agreement. It is not necessarily only the “work” that a detailed budget is prepared for as part of a federal grant application–that would cover only the “in whole” prong of the scoping statement, not the “in part” portion.

Now the second sentence of the definition.

Such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.

A funding agreement extends to include anyone who is assigned work (or some portion of the funding agreement), substituted to do work in place of the original contractor, or subcontracted to do the work. It doesn’t matter what “type” of transaction these actions take for the “performance of … work.” Some work may be called “research” and done by a university and some work may be “development” and done by, say, a commercialization partner who receives an assignment. Any invention that arises from the performance of work, when the federal government funds at least a part of the work, is a subject invention when it is owned by a contractor. And what’s a contractor (202(c))?:

The term “contractor” means any person, small business firm, or nonprofit organization that is a party to a funding agreement.

Presidential executive order has expanded Bayh-Dole to companies of any size. A contractor is any party to a funding agreement. Parties to funding agreements may be added by assignment, substitution, or subcontract–of any type. A license with a requirement to do development work may be a subcontract. A license that assigns a subject invention makes the assignee a party to the funding agreement, a contractor. When that assignee obtains ownership of an invention made in performance of “work,” that invention also becomes a subject invention. It doesn’t matter that Bayh-Dole isn’t enforced. It’s still the law.

All this to establish the scope of the government license required by Bayh-Dole. It’s broad. It includes downstream development in projects that have partial funding from the federal government. It includes the rights to make, use, and sell, and to authorize others to do so on behalf of the federal government and state governments. Why does this matter? Because these government license rights, also, form an essential part of Bayh-Dole’s public covenant.


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