Bayh-Dole Basics, 4: contractor comments

Bayh-Dole defines anyone on the other side of a funding agreement from a federal agency as a contractor.  The term is arbitrary and misleading. Let’s look at both aspects.

The standard patent rights clause requires the contractors that host federally supported research to subcontract with their employees–to require their employees to make written agreements as individuals to protect the government’s interest in inventions made with federal support. This is the (f)(2) written agreement requirement.

The effect of a contractor-host doing this is to make those written agreements take precedence over the contractor-host’s own requirements on the matter. There aren’t competing agreements–the contractor-host’s and the written agreement–because the contractor-host must require the written agreement. The contractor-host cannot require the written agreement and at the same time require something other than the written agreement. The written agreement takes precedence.

Those employees then become contractors, too. Contractor, then, wherever it appears in the standard patent rights clause, necessarily will be a collective term for the contractor-host and all the contractor-employees. The standard patent rights clause instructs federal agencies to treat the contractor-employees when they invent as small business contractors. They are, in effect, sole proprietorships. 

The effect of the (f)(2) requirement is to knock out the contractor-host’s patent policies, patent agreements, and employment agreements with regard to federally supported research and development. The knock out is not necessarily entire–but does include anything that the contractor-host would require as a condition of participation in the federally supported work. Thus, a small business may have an employment agreement with employees that requires them to assign anything that the company directs the employee to do. Federal funding comes along, and the employer directs the employee to work on the project and to make the (f)(2) agreement. The small business still has the right to claim ownership of inventions, despite the (f)(2) agreement, because the small business had the right to direct and control the employee prior to the federal funding.

At a university, however, the analysis comes to a markedly different result. The university has no right to assign and direct faculty in the choice and conduct of their research. Faculty members are not employees in the descriptive sense–that is, they are not the servants of the university executive masters with regard to their scholarship and their research activities. The university executive masters can refuse to accept extramural funding for a faculty member’s work, and the university executive masters can require a faculty member to take certain activities judged to be “commercial” in nature off campus, but the university executive masters cannot assign faculty member to a research project without the faculty member’s concurrence. Not employees.

Now consider federal funding–the faculty member has chosen to seek a federal grant and the university has allowed that proposal to be submitted, and a federal agency has agreed to fund the project. The university must now require the (f)(2) written agreement. The (f)(2) agreement prevents the university from asserting a claim to ownership of inventions made with the federal support by faculty members because everything about the research activity arises within the context of the faculty-led proposal: the time spent on the research is compensated by the federal government; the university is reimbursed for the resources used; the university is paid an indirect cost fee to cover the use of facilities and administration for the grant. Unlike the small business case, in the university case, the (f)(2) agreement requirement prevents the university from adding a requirement of university ownership based on the presence of federal funding, use of university resources in conjunction with that funding, or participation in the funded project. The small business has an agreement with employees that stands outside the federal funding agreement, and thus remains in effect.

The university does not have such an agreement with faculty–it becomes clear that when a university policy stipulates that the university has a claim to own a faculty member’s inventions as a condition of employment, “employment” must be understood to be only those situations in which university executive masters have the right to command the work of faculty members–and federally supported work is generally not within the scope of such employment. A confirmation: university administrators do not fire faculty members who refuse to participate in federally supported research. There is no insubordination involved. University executive masters do not have the right to assign faculty members to research against their will. Period.

A second confirmation comes from the parallel construction in section (g) of the standard patent rights clause, involving subcontracts:

The subcontractor will retain all rights provided for the contractor in this clause, and the contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions.

Now consider employee-contractors as subcontractors, which they become with the (f)(2) written agreement. The university-host-contractor cannot establish a quid-pro-quo with faculty members with regard to the federal funding. The university executive masters cannot say: “in consideration for permitting you to participate in the federally supported project, you agree to hand over all your inventions”; nor, “in consideration for using university resources that the university has allocated to the project as a condition of receiving the federal award, you agree…”; nor, “in consideration of your employment with the university (which has nothing to do with the work on the federal contract–meaning, we can fire you if you don’t agree), you agree….”

The agreement to assign inventions to the employer has to stand outside the exchange by which the inventor is allowed to work on the federal project. Small businesses if they have any sort of patent agreement with their employees have this covered. Universities, because they assure their faculty members of academic freedom, freedom of research, and freedom of publication, do not have this covered, and (f)(2) prevents them from taking any special action to cover it.

Contractor, then, is arbitrary in the singular. If the (f)(2) requirement is complied with, then there will be multiple contractors–the research host and all the research host’s inventive employees, who the host releases to become, for the purposes of the federal contract, small business contractors, subcontracted rather than assigned by the research host for the purpose of establishing rights in inventions.

What is the upshot of all this for universities? The (f)(2) agreement brings into effect the inventor standard patent rights clause at 37 CFR 401.9. Each inventor-small business contractor is subject to 37 CFR 401.9, not the nonprofit standard patent rights clause at 37 CFR 401.14(a). The default patent rights clause, then, in any federal grant to a university is 37 CFR 401.9. As the Supreme Court made clear in Stanford v Roche, Bayh-Dole governs the relationship between a contractor and the federal government *after* the contractor comes to own an invention made with federal support. With (f)(2) compliance, when an invention is made, a small business contractor (the inventor) owns the invention (by common law confirmed by (f)(2)) and a Bayh-Dole patent rights clause applies–37 CFR 401.9.

At this point, the university has no right to claim ownership of the invention, to “take” title, to “elect” title, or even to “elect to retain title.” The university has no right to title, having confirmed it has no right by complying with (f)(2). But further: the federal government also has no right to claim ownership of the invention. The government’s right to title is entirely governed by Bayh-Dole and 37 CFR 401.9. If the inventor reports the invention, elects to retain title, and files a patent application, then the federal government has no standing to require assignment of the invention. It’s the same deal as Bayh-Dole provides when a contractor-host acquires an invention. It’s that same “certainty of title” bombast that university patent brokers chirp about as if it only applies to their institutional claims. But what’s good for the rat is good for the cheese, too.

If we pare away the layers of rat-generated claims regarding Bayh-Dole, we can see that with the addition of (f)(2) compliance, the first principal of Bayh-Dole reduces to:

inventors own their inventions made with federal support (Stanford v Roche)

inventors are free of claims by the host university ((f)(2))

if inventors report their inventions, elect to retain title, and timely file patent applications (37 CFR 401.9)

the inventors retain title to their inventions free of claims by the federal government (35 USC 202, 210).

Here’s 35 USC 202(a):

Each nonprofit organization or small business firm may … elect to retain title to any subject invention

Now read with (f)(2) compliance in place: inventors are small business firms per 37 CFR 401.9.

Each nonprofit organization or small business firm–including inventors confirmed in their ownership of inventions by (f)(2) compliance–may … elect to retain title to any subject invention

If Bayh-Dole were written only to cover federal grants to universities, then Bayh-Dole would reduce to

Inventors may elect to retain title to any subject invention, subject to the patent rights clause at 37 CFR 401.9

The rest of Bayh-Dole’s apparatus comes into play only when the inventors assign to the university that hosts the federally supported research. Even with Bayh-Dole written as it is, this is still true. It’s just that university patent brokers have worked to obscure the statutory and contractual truth of Bayh-Dole since Day 1. That is clear with their misrepresentations on ownership that the Supreme Court called out. We are talking over 50 university attorneys signing onto amicus briefs insisting that Bayh-Dole vested ownership of inventions with universities. They weren’t so much wrong–incompetent–as determined to deform the law to justify their past legal advice–corrupted.

Inventors are the primary contractors in Bayh-Dole with regard to inventions made with federal support. That’s the upshot. That’s clear once one gets past the bombast and bozonet. It’s just that there are only a few in university administration that might have the courage to stand up to that bombast and bozonity.

There’s another misleading aspect to Bayh-Dole’s use of “contractor” to point out. Bayh-Dole conflates federal procurement contracting with federal grants. That’s the role of adding small businesses to the law. If it were just a matter of dealing with universities, then everything would be a matter of grants–not contracts. There would be no contractor. In a federal grant to a university, the federal government provides a subvention, a “grant-in-aid” as it was once called, for the benefit of a faculty member who had proposed a worthy research project. The university acts as a steward, a trustee, for the federal money, on behalf of the faculty investigator. The federal grant regulations call this position out expressly with regard to intangible assets (and expressly patents and patent applications)–see 2 CFR 200.316.

If Bayh-Dole used the language proper to the situation, it would define the university as the “trustee” or “steward” or “host institution” and it would define the faculty investigator and any research assistants as “investigators.” It would be clear just from the definitions that the trustee has no right to claim ownership of the work of the investigators. That would be a fundamental violation of the university’s role as trustee–if unethical behavior admits of degrees, to turn traitor on what one is entrusted with serving is about as deep into the inferno as one can go, cold where the sun don’t ever shine. Bayh-Dole’s patent rights clause for university grants would be just 37 CFR 401.9. Bayh-Dole could then stipulate a patent rights clause for universities on the chance that investigators might choose voluntarily to assign their inventions to the university host. Given that the university host has agreed to be the steward or trustee of the grant, it would make sense to have a regulatory framework to manage the institutional conflict of interest in being both the trustee of the grant and the owner of an invention arising in that grant–with the opportunity to exploit patents on that invention.

And that’s just what 2 CFR 200.316 goes about doing, outside Bayh-Dole:

Real property, equipment, and intangible property, that are acquired or improved with a Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved.

That’s what Bayh-Dole, in its way, attempts to do with section (k) of the nonprofit patent rights clause at 37 CFR 401.14(a). The university is not to dip into income from patent licensing or any other income with respect to a subject invention other than to recover the costs of administrating only subject inventions, sharing royalties with inventors, and using the rest to support scientific research or education. And there’s no point in calling out “education” if that merely means “anything a university cares to spend money on.” No, “education” must be a restriction on how a university may spend such funds–one might say “education” means “instruction”–teaching–and not “higher education”–administrators’s salaries, pet projects, and investing.

Bayh-Dole’s job is to deal with the situation in which an invention is not “acquired or improved with a Federal award” but rather “acquired or improved in the context of a Federal award.” That’s the role of 37 CFR 401.14(a), including its section (k).

Thus, “contractor” is doubly misleading. First, contractor appears as a singular when definitions of funding agreement and contractor, and the patent rights clause itself, insist it must be plural. Second, university grants are not contracts in almost any sense of the word. They are subventions. They are agreements made to benefit the work of individual faculty investigators, based on proposals these investigators submit. The university role is to release the investigators from their university duties to work instead on the federally supported project, “outside the walls” of the university, as it were–“extramural” research.

Clarity is not a virtue to Bayh-Dole advocates. But when Bayh-Dole is made clear, then I am a big advocate for the Bayh-Dole framework. It’s just that Bayh-Dole is drafted as clear as mud has been misrepresented for over thee decades of corrupt university officials creating their own private, faux Bayh-Dole–a public interest horror policy, a monster, a dismal failure of innovation and economic stimulus. Worse, Bayh-Dole is set up to require patent rights clauses that no one is required to enforce. So compliance with the patent rights clauses is merely a matter of not making non-compliance overt. And even worse, federal agencies don’t bother to act on the rights that Bayh-Dole does reserve for the federal government, such as the standard government license to practice and have practiced–make, use, and sell, have made, have used, have sold.

There are very good reasons to be a strong advocate for the Bayh-Dole Act. And even gooder reasons to have the faux Bayh-Dole Act repealed and a diligent effort to restore sound invention management practices at universities–or at least to protect federally supported faculty investigators from predatory university patent policies and practices.

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