Whistling all the way to the bank, revisited 1

Back in 2010, I wrote an article titled “Whistling all the way to the bank.” The article explored the problem of compensation tied to the argument that the Bayh-Dole Act was a “vesting statute” that vested ownership of inventions made with federal support outright with the organizations that hosted the research. This wasn’t even “invent for hire”–the vesting argument was that Bayh-Dole preempted common law with regard to federally supported inventions, so that universities (especially) owned the inventions outright, or when they “elected title,” or prevented inventors from assigning their inventions except to the universities, or gave the universities a first right of refusal for assignment–the truth had to be in there somewhere.

My point was that if universities are misrepresenting Bayh-Dole, that it’s not a vesting statute (and it is not), then when they take title to inventions, it is “their own doing.” That is, Bayh-Dole does not vest title with the university, so if university administrators take title anyway, and their universities are instruments of the state, then they are the state taking personal property for public purposes, and that’s essentially an eminent domain procedure that lacks just compensation. It is not just compensation for a university to offer to share a royalty from licenses that may never happen and where the university does not accept a requirement to obtain one or more such licenses–even if it would be adequate consideration for a contract under which an inventor voluntarily agreed to assign the invention.

I was right about the vesting argument–the Supreme Court rejected the idea of Bayh-Dole vesting the next year, in 2011 in its Stanford v Roche decision. Universities have since adjusted their policy claims and practices, and now assert ownership of inventions under a variety of theories, just as sketchy as before–that university ownership is a condition of employment or continued employment (without regard for the meaning of employment for university faculty with academic freedom, freedom to choose what they study and publish, and with tenure), that university ownership is a condition of participation in extramural research (without regard for compliance with the standard patent rights clause’s (f)(2) written agreement, which preempts such claims, as as (g)(1) does for subcontracts, that university ownership is a condition of the use of university resources (without regard for the university’s prior commitment of those resources, in the case of federal grants, as a condition of the grant). The list goes on, with sketchy argument that is readily rebutted.

It appears that public universities, at least, are still simply taking private property in the form of inventions without just compensation, and now covering for this behavior with policy assertions and practices that make it appear that faculty inventors have agreed to these conditions. But for faculty inventors to agree, first they have to repudiate academic freedom, tenure, and a right to control their own research and public service. That is, they have to become “employees” subject to the beck and call of their masters in the university’s technology licensing operation. A study published a few years ago argued that people in positions with low status (such as technology transfer people) but given substantial power (as in control of all “inventions” broadly defined to include both inventions and non-inventions for the sake of completeness and to remove all doubt) are likely to abuse their position (my emphasis):

In one experiment, for example, we randomly assigned participants to play the role of a low-status boss in a workplace simulation. When they provided written responses to a request for help, their responses were more demeaning than the responses of participants who were randomly assigned to roles with other combinations of power and status. Furthermore, our findings from a separate survey of working professionals across a wide range of industries indicate that these demeaning actions set in motion a vicious cycle of conflict with others in the organization.

It appears, then, that there’s still a good opportunity for class-action lawsuits against public universities for taking personal property (inventions) without just compensation. Bayh-Dole, especially after Stanford v Roche, does not save university administrations from exposure to claims, which could be substantial–the reasonable future value of an invention at the point of disclosure to the university may be worth far more than after a university has sat on the invention for a decade with nothing to show but an issued US patent. That is, at the point of disclosure, the future value of an invention may be much higher than after the university has “administrated” it. And just compensation, unless an inventor agreed otherwise, would be the reasonable future value of the invention at the time of the taking. This situation is utterly unlike one in which an inventor is hired to invent, is subject to the control and direction of his or her employer, and agrees to assign inventions as a condition of that employment–as in a company or a federal laboratory–where inventors generally do not have academic freedom, freedom of research and publication, or tenure.

I figure each invention may be worth–present value over 20 years–of at least a million dollars. But even if we go with only what the university puts into the patenting as evidence of future value, then each invention is worth between $20K and $100K or more, depending on whether the university goes to national phase foreign filings. Think about it, you class action attorneys out there hungry for fresh meat–a typical research university may see 100 to 200 invention reports per year. We are looking at 35 years of abuses–maybe 5,000 inventions per university, each worth at minimum $20K–that’s $100 million, minimum, per public university with a typical research budget–and the asking price could go much higher for any number of those inventions, which may have had substantial value when they were assigned. And the taking is not restricted to federally funded inventions–all inventions subject to an abusive policy of taking private property (inventions, non-inventions) that does not comply with requirements for due process and just compensation.

But as for the “Whistling” article, I didn’t know what I now know about  how the details of the standard patent rights clause worked. I thought that there must be somewhere in federal contracting regulations that gave federal agencies a right to require delivery of inventions that contracting institutions did not take title to. But it appears that Bayh-Dole’s precedence clause voids any such regulations. The only way for a federal agency to gain title to an invention made with federal support is through Bayh-Dole–using the patent rights clause at 37 CFR 401.14(b) for programs involving certain nuclear research, declaring exceptional circumstances following the protocol at 37 CFR 401.3, or requesting title to a subject invention when a contractor elects not to retain title, fails to file a patent application or prosecute the application or maintain the patent–37 CFR 401.14(a)(d).

If one of these pathways is not available, then if an inventor does not give up title to an invention, the patent rights clause at 37 CFR 401.9 kicks in–the federal agency treats the inventor as a small business firm but with fewer requirements, and has no basis to “claim” ownership of an invention unless the inventor fails the conditions at 37 CFR 401.14(a)(d)(1) and (d)(3). Other inventor failures may give rise to a march-in proceeding, but not to the government taking title to the invention as a remedy.

Thus, one of the effects of Bayh-Dole’s broad precedence clause (35 USC 210), combined with the Supreme Court decision in Stanford v Roche, is that federal agencies have no standing regulatory authority to require assignment of inventions made with federal support. What authority they have, they get through Bayh-Dole. That’s stunning, really. If universities complied with the (f)(2) agreement of the standard patent rights clause, then the result in practice would be that university inventors could own any invention they made with federal support so long as they reported it and filed a patent application. They would not have to assign the invention to anyone–not to a predatory university administration filled with self-virtue, not to a patent administration foundation, not to a startup company. But on the flip side, they would have absolutely no restrictions under the patent rights clause at 37 CFR 401.9 in assigning such inventions however they wanted to.

It would be up to folks wanting to share in the outcomes of the deployment of these inventions to make a pitch to inventors. That would be an experiment worth trying. It is there for the taking–the apparatus is set up in Bayh-Dole and the patent rights clause. All it takes is a university with the guts to comply with the apparatus. AUTM is dead set against this outcome. AUTM is gutless.

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