Bayh-Dole Basics, 5: invention assignment comments

Here is a basic distinction. Bayh-Dole prohibits nonprofits from assigning subject inventions except to an invention management organization or with the approval of the federal agency–and then only if the assignee accepts the nonprofit patent rights clause. Bayh-Dole says nothing about assigning title to patents on subject inventions.

A subject invention may have more than one patent associated with it. There can be divisionals–an invention is broken up into multiple inventions; there can be continuations–an invention is recast with different claims language; there can be continuations in part–an invention is added to with claims expanded for the new matter. Any number of university-managed inventions results in a cascade of patent applications and issued patents.

Now Bayh-Dole restricts nonprofit assignment of inventions and has nothing to say about the assignment of patents. But university administrators make a big deal in their exclusive license agreements about not assigning title to patents, while going about clearly assigning the underlying invention–they grant the exclusive rights to make, use, and sell; they grant the right to sublicense; and they grant the right for the licensee/assignee to enforce the patent–these grants are all consistent with the assignment of the invention. Courts have ruled as much. And reservations of rights (which might be construed as grant backs) don’t change the courts’ finding of assignment. Nor does the license to the federal government. 

When a university assigns a subject invention, Bayh-Dole requires that the nonprofit patent rights clause follow the assignment. The assignee–called the “exclusive licensee”–is subject to the same patent rights clause that the university is. Often universities stumble into making this requirement, though no doubt the university administrators and company representatives have no clue. Here’s an example from Georgia Tech Research Corporation.

First, the grant, at 2.1:

an exclusive, nontransferable license, with the right of sublicense as set forth in Article 4 below, in and to the Invention to make, have made, sell, offer for sale, use, and import Products throughout the Territory in the Field of Use

An grant of all substantial rights in the invention. An assignment. Furthermore, 12.1 contemplates that the licensee has the right to “pursue enforcement” of “GTRC’s Intellectual Property Rights”–and those Rights are defined as “Patents, copyrights, or trademarks.” Only the owner of an invention has standing to sue for infringement. An assignment. But here’s what the license has to say about Bayh-Dole, at 2.2:

Notwithstanding anything to the contrary contained herein and pursuant to Public Laws 96-517, 97-256, 98-260, codified at 35 U.S.C. 200-212 (together with its corresponding regulations, the “Bayh-Dole Act”), the United States government retains for itself a non-exclusive, non-transferable, irrevocable, fully paid-up
license to practice and have practiced the Invention on behalf of the United States government throughout the Territory. Furthermore, this Agreement and the license granted herein are expressly subject to all applicable United States government rights as provided by the Bayh-Dole Act and any regulations issued under the Act, as may be amended from time to time.

Pretty darned impressive fussiness. But here’s the effect: no matter what the text of the exclusive license agreement says anywhere, the exclusive license agreement here says not only does the federal government have its non-exclusive license (and, uh, throughout the world) but the agreement is “expressly subject” to “any regulations issued under the Act.” Gotta love an “expressly subject” that is itself simply incorporation by reference, and an utterly abstract reference at that.

Furthermore, this Agreement and the license granted herein are expressly subject to all applicable United States
government rights as provided by the Bayh-Dole Act and any regulations issued under the Act, as may be amended from time to time.

The government rights extend to the right of the government to expect university compliance with the standard nonprofit patent rights clause. Thus, clearly, the poor licensee of the patent, as an assignee of the subject invention, is “expressly” subject to the nonprofit patent rights clause. That means, among other things, that the assignee may only deduct from revenues with respect to the subject invention costs incidental to the administration of subject inventions (such as the patenting costs and sharing royalties with inventors) and must use the remaining balance to support scientific research or education–that is, in the public interest, not in some profit interest. That’s the upshot of the GTRC requirement.

By making its license agreement “expressly subject” to federal rights, it would appear that GTRC and the licensee/assignee have named the federal government as a third party beneficiary to the agreement. Perhaps, then, the federal government has standing within the context of the agreement to enforce its rights–namely, here, 37 CFR 401.14(a)(k)(1) and (3).

GTRC, if it had any sense about it, might recast this clause 2.2 as follows, when the Invention is a subject invention:

The exclusive license granted herein is subject to the following limitations:

(1) the federal government has a license to practice and have practiced for or on behalf of the United States the Invention throughout the world, as required by 37 CFR 401.14(a)(b);

(2) Licensee, as assignee of GTRC’s exclusive rights in the Invention, shall comply with the patent rights clause at 37 CFR 401.14(a), including its section (k).

Under (k)(2), the assignee is required to share royalties with inventors. That obligation is not fulfilled by GTRC or Georgia Tech sharing royalties with inventors. Every assignee is required to share royalties with inventors. And to the extent that a royalty is consideration for a patent license, it would appear that inventors are entitled to every assignment transaction through whatever chain of such assignments there might be–assignment, exclusive license of all substantial rights, exclusive sublicense of all substantial rights.

Given that sharing royalties with inventors is an express obligation of the nonprofit patent rights clause, and the GTRC exclusive license makes the Agreement “expressly subject” to this patent rights clause, it would appear that inventors also have standing as third-party beneficiaries to the license agreement/assignment and can sue for a share of royalties from GTRC’s assignee. Pretty cool, huh?

You can see, however, how this is all a confused mess. GTRC asserts that all of Bayh-Dole takes precedence, but GTRC shows no evidence of understanding what this might mean for the exclusive licensee of the patent who ends up also with an assignment of the underlying subject invention and the nonprofit patent rights clause that is required to come along for the ride.

Any sane company attorney who understand what all this means would reject any offer by GTRC to exclusively license all substantial rights in a subject invention and instead would insist on a limited exclusive license–such as to sell, leaving the rights to make and to use non-exclusive and thus avoiding the imposition of the nonprofit patent rights clause and its poisonous public interest requirements.

The standard patent rights clause carries another provision that follows this same pattern of flow down of the patent rights clause particular to the tax standing of the contractor. That’s the (g)(1) provision having to do with subcontracts. Here’s the first sentence:

The contractor will include this clause, suitably modified to identify the parties, in all subcontracts, regardless of tier, for experimental, developmental or research work to be performed by a small business firm or domestic nonprofit organization.

“This clause” is the nonprofit standard patent rights clause at 37 CFR 401.14(a), including section (k). The only modification allowed is to identify the parties. Now look what happens in the first part of the second sentence of (g)(1):

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.

The subcontractor inherits the rights “provided for the contractor”–that is, including the nonprofit clause (k), regardless of the tax standing of the subcontractor. Of course, if the federal agency had included a custom patent rights clause for “exceptional circumstances,” then this exceptional circumstances clause also would flow down to the subcontractor. If this was not the case, then a nonprofit could front a federal grant and subcontract the grant in its entirety to a for-profit company and the company could walk away with inventions and there would be no public covenant on those inventions and they would not be subject inventions, and the federal government would have no rights in them, whatever the patent rights clause accepted by the nonprofit.

But Bayh-Dole defines funding agreement to include subcontracts. So the moment there’s a subcontract, the subcontractor is a party to the funding agreement, a contractor, and the question is what patent rights clause is the subcontractor subject to. (g)(1) provides the answer: the same patent rights clause that the contractor accepted. If the contractor is a nonprofit, then the subcontractor is stuck with that same nonprofit patent rights clause. Any income with respect to a subject invention is designated for a public purpose. If it weren’t for this “all rights provided for the contractor” language, it would be easy to see that a small business subcontractor would look at the standard patent rights clause and see that (k) does not apply, and be happy. Of course, since almost nothing in the patent rights clause is enforced, small businesses can be happy anyway, at least for now.

It’s a big deal, then, that there’s a difference for a nonprofit between fussing over title to a patent on some part of a subject invention and being careful with the assignment of the underlying subject invention. It’s just that no one enforces the requirements of Bayh-Dole and the nonprofit patent rights clause, so even though a university (or its licensing front) insists that Bayh-Dole and its regulations take precedence over anything in the license, the university doesn’t enforce Bayh-Dole or its regulations, the federal government doesn’t even have notice of the agreement or its rights under the agreement, and so the whole regulatory framework of Bayh-Dole collapses in a fit of half-hearted virtue signaling that affects nothing in practice (other than the creation of fussy, abstract, bloodless verbiage in university template exclusive license agreements).





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