The devils in the details: Bayh-Dole supports academic freedom, 1

Bayh-Dole supports the academic freedom of faculty inventors. University administrators refuse to comply. Here, we walk through the law, the implementing regulations, the various patent rights clauses to show the result. Fair warning to university administrators reading this piece. I will call some of you turdly and boogerish later on. Those of you who recite the faux Bayh-Dole deserve name-calling worse than this. Those of you who want to change things at your university, who want to implement Bayh-Dole as rule of law that preserves academic freedom–which it does–well, get on with it. It’s not federal law that is stopping you. This article shows you what you need to do.

Bayh-Dole is often described as a law about invention ownership, when the invention has been made with federal support. But university administrators do not understand. The Supreme Court, in Stanford v Roche, made it clear that Bayh-Dole concerns only the disposition of rights in an invention between the federal government and a contractor after the contractor has acquired rights in the invention:

The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.

We can therefore set aside as misinformed those claims that Bayh-Dole vests ownership of inventions made with federal support in the universities that host the research, or gives those universities any special right to claim those inventions–the only right that Bayh-Dole insists that federal agencies offer to contractors in a funding agreement is the right to retain ownership of an invention ahead of the federal government if they come to own that invention. Here’s the clause, from 35 USC 202(a):

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

A subject invention is an invention that the nonprofit organization or small business firm already owns. This reservation of rights on behalf of nonprofit organizations and small business firms is statutory–patent law, even–it’s not merely part of a funding agreement. That is, a nonprofit or small business may choose to keep title (ownership) of an invention made with federal support and acquired by the nonprofit or small business, and not assign title, such as to the federal government.

But we have to be clear, not turdly, like many university patent administrators and erstwhile advocates for Bayh-Dole.

Bayh-Dole claims precedence over all other “acts” regarding federal ownership of inventions other than Stevenson-Wydler (35 USC 210). The Supreme Court also reminds us that Bayh-Dole does not take precedence over the Patent Act, of which it is made a part. What does this mean? It means there is no standing law by which the federal government can take ownership of inventions, other than a “taking” action under the Fifth Amendment. Of course, the federal government does not need to own any patent that it issues–it may use any patented invention as it will, subject to a patent owner’s claim for compensation in the Court of Federal Claims (see 28 USC 1498).

Bayh-Dole dictates what federal agencies can place in funding agreements with regard to invention ownership. Bayh-Dole states expressly the conditions under which a federal agency can “request title.” There is no standing condition that federal agencies have a right to title in inventions made with their support, but for the intervention of Bayh-Dole’s requirements on the priority of claims to title. Do you see? Bayh-Dole precludes any other law establishing the federal government’s authority to claim title to inventions made in federal contracting, and Bayh-Dole does not itself establish such a general right for the federal government. The federal government has the rights set forth at 35 USC 202, as requirements to be included in any patent rights clause in a funding agreement:

(c)(1) Failure to report inventions:  the Federal Government may receive title to any subject invention not disclosed to it within such time.

(c)(2) No election to retain title: the Federal Government may receive title to any subject invention in which the contractor does not elect to retain rights or fails to elect rights within such times.

(c)(3) Failure to file patent applications: the Federal Government may receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times.

(c)(4) Assignment of foreign rights to comply with treaties: the funding agreement may provide for such additional rights, including the right to assign or have assigned foreign patent rights in the subject invention, as are determined by the agency as necessary for meeting the obligations of the United States under any treaty, international agreement, arrangement of cooperation, memorandum of understanding, or similar arrangement, including military agreement relating to weapons development and production

The standard patent rights clause at 37 CFR 401.14(b) addresses the Department of Energy propulsion and weapons programs.

Furthermore, 35 USC 202(a) gives a federal agency the right deviate from the standard patent rights clause for contractors outside the US, in exceptional circumstances, for foreign intelligence operations, and for Department of Energy nuclear naval propulsion and weapons systems, but only by following an established protocol. Note especially the general condition, exceptional circumstances:

(a) exceptional circumstances: a funding agreement may provide otherwise … (ii) in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter

Both (c)(4) and (a) apply to the formation of special funding agreement patent rights clauses–if a federal agency cannot justify the use of a special patent rights clause, it must use a standard one.

The standard patent rights clause at 37 CFR 401.14(a), directed at nonprofits and small businesses generally, reprises these conditions of government ownership in section (d):

(d) Conditions When the Government May Obtain Title

The contractor will convey to the Federal agency, upon written request, title to any subject invention –

(1) If the contractor fails to disclose or elect title to the subject invention within the times specified in (c), above, or elects not to retain title; provided that the agency may only request title within 60 days after learning of the failure of the contractor to disclose or elect within the specified times.

(2) In those countries in which the contractor fails to file patent applications within the times specified in (c) above; provided, however, that if the contractor has filed a patent application in a country after the times specified in (c) above, but prior to its receipt of the written request of the Federal agency, the contractor shall continue to retain title in that country.

(3) In any country in which the contractor decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in reexamination or opposition proceeding on, a patent on a subject invention.

The patent rights clause adds the requirement that the federal agency must make a written request for title and sets some protocols for how the federal agency’s request can be resisted–for instance, in (a), a federal agency has only sixty days to request title after “learning of the failure of the contractor to disclose or elect.” Think about that–if a contractor does not report an invention, then how will a federal agency come to discover this failure? And, clearly, if a contractor reports an invention, then a federal agency doesn’t have anything to “discover” about the failure to elect to retain title–if the contractor does not send in that election choice, then the federal agency presumably is on notice and has sixty days to request title.

Here’s the important point: these are the only conditions stated by Bayh-Dole that the federal government can acquire rights in subject inventions–those patentable inventions owned by a contractor and made in the performance of work supported at least in part by the federal government.

Despite the hand-waving fuss of certain advocates for Bayh-Dole, as a consequence of Bayh-Dole there is no “presumption of federal ownership of inventions.” Bayh-Dole does not “reverse” the presumption of ownership, so that universities may now presume to own what the federal government presumed it owned. That’s nonsense on multiple levels. Bayh-Dole instead eliminates any such presumption (that didn’t exist as a presumption anyway) and replaces it with the conditions stated expressly in Bayh-Dole and repeated in the standard patent rights clause.

We now have established that

universities have no right under Bayh-Dole to take title to inventions

federal agencies have no right to take title but for specified failures of a contractor

These failures of a contractor are failure

  • to report
  • to elect to retain
  • to file patent applications
  • to continue prosecution
  • to maintain a patent

Now we are ready to look at the patent rights clauses in greater detail. The devil in the details turns out to be rather amazing.

The standard patent rights clause authorized by Bayh-Dole sets out a number of requirements that are not expressly stated in Bayh-Dole–sections (e), (f), and (g) in particular. Section (e) has to do with how a contractor can retain a broad license in a subject invention even after the government acquires title. Let’s look, though, and (f) and (g). Start with (g), which deals with subcontracting. A contractor is prohibited from acquiring rights in a subcontractor’s inventions as consideration for the subcontract:

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.

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.

That’s pretty clear, and even university administrators accept this condition. The contractor must pass through the patent rights clause in the form that the contractor has it to the subcontractor. The contractor cannot use the awarding of the subcontract as a condition to gain an interest in the subcontractor’s inventions. There are two versions of the standard patent rights clause–one for small businesses and one for nonprofits. These are represented as 37 CFR 401.14(a) less its section (k) (small businesses) and 37 CFR 401.14(a) with its section (k) (nonprofits). The requirement at (g) says–even if a nonprofit subcontracts with a small business, the nonprofit must pass through “all rights” provided for the contractor. If the contractor is a nonprofit, then a small business subcontractor gets all the nonprofit rights of section (k); and the reverse is also true–if the contractor is a small business, as in an SBIR award, and the subcontractor is a nonprofit, then the nonprofit gets “all rights” of the small business version of the patent rights clause.

Given that the nonprofit patent rights clause has some important provisions, it is clear that (g) forbids a nonprofit from contracting away its obligations (“all rights”) under its nonprofit patent rights clause. We might then understand that one criterion on which federal agencies award grants to nonprofits is that they are indeed nonprofits and that they will comply with the nonprofit conditions set forth in the standard patent rights clause–and so will any subcontractors, even if they are not nonprofits.

Now look at (f). The heading for (f) is “Contractor Action to Protect the Government’s Interest.” Section (f)(1) states that contractors will “establish or confirm” the government’s rights in subject inventions–that would be the grant of the non-exclusive license to the government set forth in section (b):

With respect to any subject invention in which the Contractor retains title, 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.

Section (f)(3) requires the contractor to notify the federal agency if the contractor won’t continue prosecution, maintain a patent, defend a patent, and the like. Section (f)(4) requires a contractor to place a federal funding and rights legend in any patent application on a subject invention.

Now for section (f)(2). It has two parts. The second part requires the contractor to provide education to inventors on the importance of reporting inventions. That is, in a nutshell, the minimum condition for a university patent policy to comply with federal funding! But it’s the first part of (f)(2) that we need to focus on:

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c), above, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.

A university then must identify personnel responsible for patent matters that inventors are to report their inventions to.

Here is a reduced version that eliminates the fussiness about reporting and shows the core structure:

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees,

to disclose each subject invention, and

to execute all papers necessary

to file patent applications on subject inventions and

to establish the government’s rights in the subject inventions.

This (f)(2) requirement is extra-fussy about how the contractor must comply with this requirement. (f)(2) does not say that the contractor must have a policy or employment agreement or patent agreement that requires all employees to report inventions. Nor does it say that a contractor must have a policy or employment agreement or patent agreement that requires inventors to assign all inventions to the contractor. Rather, (f)(2) says that the contractor must require certain employees to have employees make a written agreement to do these three things–disclose, execute papers to file patent applications, and execute papers to establish the government’s rights.

In part 2, we work through (f)(2) to its devilish conclusion–academic freedom!

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