Bayh-Dole basics, 1: public covenant comments

University patent administrators ignore Bayh-Dole’s statement of policy at 35 USC 200. At best, they treat it as a statement of objectives, not policy, and that these objectives are a problem for Congress if no one bothers to accomplish them. For university patent administrators, inventions made with federal support are ordinary inventions secured with bothersome bureaucratic requirements. And for all that, Bayh-Dole itself does not bother to require reporting that would ascertain whether the patent system has been used to promote the use of each invention made with federal support, to promote free competition and enterprise, or to promote American manufacturing.

But Bayh-Dole’s statement of policy and objective is not merely a statement of purpose. If Congress had intended that, Bayh-Dole would have a statement of purpose, or a statement of objective, and would not use the term “policy.” But Bayh-Dole uses policy, and the term should be given effect, not treated as surplusage or fluff–that is, not treated how university administrators draft and interpret their own patent policies.

A reasonable understanding of “policy” in Bayh-Dole’s statement of policy and objective is that Bayh-Dole’s policy replaces executive branch executive orders that establish a policy for the management of inventions made in federal contracting or acquired by the federal government. In this regard, Bayh-Dole’s statement of policy sets out a regulatory framework with regard to both the patent property rights in federally supported inventions–whether held by a contractor or by the federal government–and stipulates how the federal government may deal with contractors with regard to rights in inventions as contract deliverables. But Bayh-Dole does more: it places this policy statement in patent law.

If  Bayh-Dole had been added to, say, federal procurement law, then we would only consider contractual requirements. But Bayh-Dole is part of patent law, and the policy Bayh-Dole states acts as a limitation on patent property rights, not merely on the requirements federal agencies must place on contractors with regard to inventions and not merely the requirements federal agencies must follow if they wish to license inventions exclusively.

Both the patent property right in such inventions and the manner in which the federal government contracts for rights in inventions come within the scope of the Bayh-Dole policy statement.

The issue for interpretation of 35 USC 200 is not whether the policy statement affects property rights in patents on inventions made with federal support, but rather the extent of the change in those property rights. University administrators behave as if there is no change. Patents on inventions made with federal support are ordinary inventions, but for march-in rights that are never used and a variety of bureaucratic requirements. A university may fail to work an invention, may troll industry with infringement claims, and may license exclusively patent rights (and assign the underlying invention) without any concern for whether that assignment promotes free competition.

Bayh-Dole’s statement of policy and objective is placed in patent law. As part of patent law, Bayh-Dole’s statement of policy and objective changes patent law with regard to the subject matter covered by the statement–inventions arising in federally supported research or development. If there’s federal support–directly in the form of funding or indirectly in the form of supporting inventions that then support additional inventions–then Bayh-Dole’s statement of policy and objective applies to patents on those inventions.

The public covenant established by Bayh-Dole alters the patent property rights in inventions made with federal support. Bayh-Dole adds a working requirement not otherwise in federal patent law: patents on inventions made with federal support must be used to promote the use of the inventions. A patent owner of such an invention cannot use the patent right to prevent the use of the invention unless doing so promotes the use of the invention in some way. Thus, a patent owner might prevent the use of an invention by a company that has misrepresented the invention or developed a product that’s defective, but cannot prevent the use of an invention simply because a company has not accepted the terms of a licensing agreement. Bayh-Dole’s statement of policy prohibits patent trolling for inventions made with federal support.

This prohibition extends to rationalizations directed at public benefit–such as that a university deserves a share of the proceeds from the use of an invention. Bayh-Dole’s statement of policy is specific to promoting the use of the invention: invention use is the public benefit directed by Bayh-Dole.

Bayh-Dole’s public covenant also requires patents on inventions made with federal support to promote “free competition and enterprise.” Had Congress believed that any use of the patent system would promote free competition and enterprise, there would have been no need for Congress to include such a thing in a statement of policy.

We might how the patent system might be used for this purpose, given that as a default, the patent system appears to work against free competition by creating exclusive rights in inventions. Clearly, one approach is through non-exclusive licensing. Non-exclusive licensing can be used to establish a standard, contribute to cumulative technology, control quality, gain access to other proprietary technology (such as through cross-licensing or defending a commons). Another approach is to limit the term of exclusivity, both for the patent owner and for any exclusive licensee or assignee.

This approach was used by the Kennedy executive branch patent policy. Patent owners had three years from the issue date of a patent on an invention made with federal support to develop the invention to the point of practical application (such as, ready to be sold as a product and so available to all) or grant non-exclusive licenses (or explain why the patent owner needed more time).

Bayh-Dole originally used this approach, too. Nonprofits were limited to granting exclusive licenses to large companies for no longer than the first to occur of five years from the date of first commercial sale or eight years from the date of the license. This restriction was removed in 1984, but the statement of policy remains. Essentially, the nonprofit restriction on the term of exclusive licenses was a “safe harbor” that would count as compliance with Bayh-Dole’s policy limitation. Removing the restriction did not remove the policy limitation–it merely removed the safe harbor for nonprofits. Clearly, a nonprofit could continue the practice on its own, without the express requirement in Bayh-Dole–it’s just that none do.

Thus, there are two well-established ways to promote free competition and enterprise through the use of the patent system: non-exclusive licensing and limiting the term of an exclusive license or assignment to substantially less than the full term of any patent.

The public covenant in Bayh-Dole also expects the patent system to promote the American manufacture of products based on patents on inventions made with federal support. The public covenant here states two requirements: the use of United States industry and the use of United States labor. Again, Bayh-Dole states a safe harbor for compliance with this restriction on the patent property right in inventions made with federal support. 35 USC 204 sets up a narrow restriction pertaining to the exclusive licensing (short of assignment) of inventions in the United States. If an invention is licensed exclusively in the United States for use or sale, then the licensee must agree to use American-made product. That is, the exclusive licensee does not have to use American-made product–the exclusive licensee has to provide what amounts to a letter of agreement. And for all that, the federal agency can waive the requirement. So this safe harbor is very narrow. It does not apply to the patent owner or to any assignee of the patent owner. Nor does it apply in the case of non-exclusive licenses. Nor does it apply to exclusive licenses granted for any territory other than the United States. And the federal agency can waive the requirement.

However, Bayh-Dole’s public covenant at 35 USC 200 does not have any such narrow focus. The patent system is to be used to promote American manufacture of product based on inventions made with federal support. 35 USC 204 lays out one way of doing so. But Bayh-Dole’s public covenant applies in other situations as well. It’s just that there is no established safe harbor for these situations. We might argue that Bayh-Dole’s public covenant requires that an owner of an invention made with federal support must ensure that the right to manufacture in the United States is available to at least one company in the United States (and the patent owner could be that company). This interpretation means that a patent owner that has no means to manufacture cannot deny at least one American company of the right to manufacture. This interpretation also means that if a patent owner chooses to manufacture outside the United States for importation into the United States, the patent owner must provide a license to at least one American manufacturer. Neither of these situations is addressed by 35 USC 204, but Bayh-Dole’s public covenant is broader than the specific concern of 35 USC 204’s relatively tiny and mostly useless safe harbor. The reality is that no-one among nonprofits licenses exclusively just a right to use or to sell. They could, but they don’t. Pigs could have wings, too.

What’s the point, then, of 35 USC 200? University administrators ignore it. Federal agencies have no reach to enforce it. It appears that the primary use of 35 USC 200 would be as a defense to claims of infringement made by owners of patents on inventions made with federal support. If the patent owner has not developed the invention to the point of practical application, or, alternatively, has not offered the invention under a fair, reasonable non-discriminatory license, then the patent owner in claiming infringement acts outside the patent property right permitted by Bayh-Dole’s public covenant that runs with the invention. Bayh-Dole’s policy requires the patent system to be used to promote the use of such inventions–not to exclude such uses or to troll industry for payment.

Similarly, a company might use 35 USC 200 to object to a nonprofit granting an exclusive license to an invention made with federal support without making a reasonable effort first to identify companies that might take a non-exclusive license, and then (if the exclusive license amounts to an assignment), failing to also pass on the nonprofit patent rights clause to the assignee, as required by the standard patent rights clause.

Finally, an American company might object to a patent owner not making an invention available for United States manufacturing–regardless of whether the patent owner has granted an exclusive license to use or sell the invention in the United States.

Bayh-Dole makes it clear that inventions made with federal support are not ordinary inventions. The question is just how extraordinary these inventions are. Bayh-Dole’s statement of policy is the starting point–it adds a working requirement, a requirement to promote free competition, and a requirement to promote American manufacturing. Bayh-Dole offers various safe harbors for meeting these requirements, but in many places Bayh-Dole offers no specific guidance. Without voluntary adoption of standards within Bayh-Dole’s statement of policy, and without litigation by those abused by patent owners who violate Bayh-Dole’s public covenant, the upshot is that Bayh-Dole makes a big splash that patents on inventions made with federal support are different from others, but in practice the only difference is that Bayh-Dole adds more bureaucracy.

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