Guide to Bayh-Dole by the Layers, 1

[4/30/18: fixed an editing artifact, bringing together text on “housekeeping” into a single section where it belongs]

A helpful way to look at Bayh-Dole is as a set of layers of law, regulation, contracting, enforcement, and outcomes. There are at least eight such layers, not counting the historical situation and the legislative context. Let’s work through these layers.

First Layer: Statute

Let’s start with the statute.

Bayh-Dole is part of federal patent law. Bayh-Dole is not part of federal procurement law, where it ought to be, at least for research and development contracting. The statute layer may be divided into four parts: policy, housekeeping, contracting, and federal ownership.

Policy and objective

1. Bayh-Dole the statute provides a statement of “policy and objective” (35 USC 200) which along with definitions (section 201) establishes the scope of the law and shapes the property right in patents on inventions made with federal support. The fundamental policy of Bayh-Dole is that the patent system is to be used to promote the utilization of inventions arising from federally supported research or development.

Patents on inventions made with federal support are not ordinary patents. Or, another way, the patent property rights on inventions within the scope of Bayh-Dole are not ordinary patent property rights.

Bayh-Dole’s policy restricts the use of the patent system. In its broadest expression, the patent system offers inventors a basic exchange: publish a complete account of your invention in return for exclusive rights to that invention for a limited time. There is no requirement for ordinary patents that inventors use their inventions, or let anyone else use their inventions. For ordinary patents, as well, there is no requirement that inventors must attempt to make money from their patents or develop “commercial” products, or must enforce their patent rights, or even defend their patents from claims of invalidity.

By contrast, Bayh-Dole’s policy to use the patent system to promote the use of inventions introduces a working requirement into federal patent law for inventions covered by Bayh-Dole. Bayh-Dole inventions carry a public covenant that runs with any patent property right covering any such invention. In the implementation of Bayh-Dole’s federal ownership section, this “policy and objective” is called out as the only objective–see 37 CFR 404.2).

In addition to constraining owners of Bayh-Dole inventions to use the patent system to promote the use of inventions arising in projects receiving federal support, Bayh-Dole’s policy also establishes three other elements of its public covenant. The patent system is to be used to promote free competition and enterprise; is to promote United States industry and labor in the manufacturing of products based on inventions made with federal support; and is to provide the federal government with the rights that it needs and to protect the public from nonuse and unreasonable use of these inventions. These four elements are called out expressly in the federal acquisition regulations restatement of policy (see FAR 27.302(a) for a list of six elements to the statement of policy and objective and FAR 27.304-1 for the list of four as above).

Thus, the public covenant on patents on inventions arising in projects receiving federal support requires that patents be used to promote use (and therefore not to exclude use, unless excluding some use somehow otherwise promotes use); promote free competition (and therefore not to suppress competition by excluding competitors, unless excluding some competitors somehow promotes free competition); promote American industry and labor (unless, of course, by promoting industry in some other country one better promotes American industry); and provide the government with a license to practice and have practiced, and to march-in on invention owner practices that fail the other elements of policy.

Bayh-Dole’s policy preempts (see 35 USC 210) previous executive branch policies (in the form of Presidential memoranda or executive orders) that otherwise apply to federal contracting for research or to the federal government’s own management of inventions that it acquires.

The Supreme Court ruled in Stanford v Roche (2011) that Bayh-Dole applies only to subject inventions (at least with regard to its contracting requirements):

But because the Bayh-Dole Act, including §210(a), applies only to “subject inventions” —“inventions of the contractor”—it does not displace an inventor’s antecedent title to his invention.

A subject invention is a patentable invention (or plant variety) made in performance of work under a federal funding agreement and which has come to be owned by a party to that funding agreement. A party to a funding agreement is called a contractor. A funding agreement may be extended to include additional parties by any assignment, substitution of parties, or subcontract of any type. The work performed under a funding agreement may be funded only in part by the federal government. Thus, the vision of the work to be done may be greater than the part for which the federal government provides funding–the federal part may come first, or later, or may be provided in parallel with other funding.

Thus, to determine whether any given invention is a subject invention, one must see that the invention may be patentable, that it has arisen as a planned and committed activity in a project that has received federal funding (even if the invention has not been funded directly or entirely with federal funds), and that–and this is the crucial point–that the invention has come to be owned by a contractor (a party to the funding agreement).

Bayh-Dole, however, provides no special privilege or mandate for a contractor to acquire any such invention. A contractor does not obtain a right to ownership in such inventions because federal funding is involved. This, despite what you may have been told or assumed. If a contractor represents to an inventor that the inventor must assign a given invention to comply with Bayh-Dole, what then is the status of that assignment, obtained with a false representation of the law?

*****

Next we have the two sections that do statutory Bayh-Dole’s primary work–federal research contracting for inventions and federal invention licensing.

Contracting for subject inventions

2. The second section (202-204) has to do with how federal agencies contract for research and development work. Contracts, grants, cooperative agreements are conflated. Procurement and subvention are conflated. Bayh-Dole applied originally to small companies and nonprofits, but Reagan expanded Bayh-Dole by executive order to apply as well to all non-small companies and NIST in 2018 formalized the implementing regulations to apply to all companies regardless of size. When university administrators talk about Bayh-Dole, they generally mean 202-204 to the exclusion of most everything else. It’s a short-hand, but also it gets university administrators into trouble because they come to think of their short-hand as the entire hand, and it is not.

This contracting section then sets out the provisions that federal agencies must use in patent rights clauses in funding agreements, to be formalized (now) by the Secretary of Commerce (delegated subsequently to NIST–See DOO 30-2A Section 3.02(g)). The contracting section also sets out how federal agencies can vary from the standard patent rights clauses, appeals of those variations, and the like. It is clear that Bayh-Dole, here, applies to federal agencies–though it does set out a basic requirement at 202(a):

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention

The meaning here is that if a nonprofit or small business has obtained title to a subject invention (by whatever means–just nothing in Bayh-Dole), it will have the right to keep that title as against any claim by a federal agency for title, provided it has timely disclosed the invention to the federal agency. “If you can get title, then you can keep title, so long as you have timely disclosed.” That’s the core of Bayh-Dole’s contracting requirement for federal agencies.

But there is more, and these provisions are set forth at 202(c)(1)-(8).

(1) disclosure
(2) elect to retain title
(3) file patent applications
(4) government license to practice and have practiced
(5) reporting on invention use (and reports exempted from public disclosure)
(6) government funding notice in patent applications
(7) nonprofit additional requirements
(8) march-in (203) and US manufacturing (204).

The effect of section (c)(7) is to produce two patent rights clauses–one for businesses and one for nonprofits. Section 202(d) adds the basis for a third patent rights clause, one specific to inventors when they don’t assign their inventions to the organization that hosts their federally supported research.

Thus, any account of Bayh-Dole must recognize that it is, for 202-204, a law that dictates the provisions for a default patent rights clause. Federal agencies may vary from this default by following a procedure. And there end up being three patent rights clauses specified by Bayh-Dole. Bayh-Dole then delegates the formal substance of these clauses to the Secretary of Commerce. Anything having to do with an analysis of how Bayh-Dole has operated must start with the actual patent rights clauses in federal funding agreements. The statute merely establishes the framework for those clauses. To claim to study effects of the law without considering the contracts is at least misguided.

Federal exclusive licensing

3. The third section of Bayh-Dole (207-209) concerns the disposition of federally owned inventions, including inventions acquired by the federal government as a result of the patent rights clauses used in federal contracting, but also involving inventions that the federal government acquires directly from inventors (such as employee-inventors). Here, the law makes one sweeping change in federal patent policy–it authorizes federal agencies to grant exclusive licenses, including licenses that permit the licensee to enforce patent rights (see 207(a)(2), 208, 209(a)). It is the granting of exclusive licenses that overturns decades of executive branch policy that made non-exclusive licensing the default and insisted on non-exclusive licensing especially in areas such as public health. Bayh-Dole’s purpose, past all the rhetoric about American technology leadership and encouraging innovation, is about eliminating executive branch policies that required the federal government to make its patents available to all, especially in the Public Health Service, and especially with regard to patents on inventions directed at public health.

The effect of the federal patent section of Bayh-Dole is to authorize the federal government to deal in patent monopolies–to license patents exclusively, to seek a financial share of the exploitation of monopoly patent rights, to participate in chosen companies in suing American citizens and companies for infringement, and to in effect re-issue patents to chosen companies that the government has issued to itself or acquired, having first issued the patent to another.

If there is any single policy theme that runs through both the contracting and federal patent sections of Bayh-Dole, it is that inventions can be licensed exclusively, regardless of the form or purpose of the funding arrangements under which inventions are made, regardless of the issuing federal agency, regardless of the technological context, regardless of the consequences. Bayh-Dole does not create a uniform policy–it imposes an arbitrary policy. Federal funding, as it were, is made to act as a subsidy for the creation of private patent monopolies. These two sections then are only loosely connected to Bayh-Dole’s statement of policy and objective, while Bayh-Dole’s housekeeping measures make difficult any federal agency action to attempt to introduce fuller expressions of that policy and objective in patent rights clauses.

Housekeeping

Bayh-Dole the statute includes also what may be called “housekeeping” sections. These manage the framework apparatus–

  • patent applications and the like reported to federal agencies will be kept secret (205);
  • the Secretary of Commerce will make the regulations and patent rights clauses (206)–now delegated to NIST;
  • Bayh-Dole takes precedence over all other “Acts” but for Stevenson-Wydler and anything subsequent unless that subsequent act expressly cites Bayh-Dole (210);
  • nothing in Bayh-Dole disturbs antitrust law (211);
  • federal agencies cannot have an interest in inventions arising in funding agreements with a primary purpose for education or training (212).

These sections play important roles in the operation of the statute.

205: The requirement to keep reports of inventions and patent applications secret ensures that disclosure of inventions to the government does not create a statutory bar to patenting. Since patent applications are now published 18 months after filing, the secrecy for patent applications does not have the same effect. The secrecy requirement is understandable for for-profit federal contractors, who may use patent positions for competitive advantage and wish to delay tipping their hand with regard to new developments.

However, there is an argument that nonprofit organizations should not have the benefit of section 205’s secrecy requirement. If nonprofits are to acquire patents to serve a broad public interest, such as that of supporting an entire industry by promoting free competition without unduly encumbering future research, then why should nonprofits keep any aspect of their patenting efforts from the public? In this regard, Stanford set a good example by consulting industry with regard to its Cohen-Boyer patent work, gaining buy-in from industry as the patent applications were prosecuted.

To keep nonprofit patent applications secret suggests patenting strategies of “submarine” patents–surprise industry with new patent rights companies are forced to license and exclusive licenses–hold each invention as if it had been made by a company that had as its primary goal to use a monopoly patent position to prevent any competing use of any part of the claimed invention, regardless of how much of that invention the company itself is prepared to use. Neither of these two strategies complies with Bayh-Dole’s policy. Thus, while for for-profit contractors it makes sense that federal contracting requirements do not force all inventions into the open–the for-profit’s federal contract is itself, usually, the result of a commercially competitive competition–for nonprofits, secrecy of patent applications runs counter to Bayh-Dole’s public covenant.

206: The provision on uniform clauses and regulations (206) makes clear that sections 202 to 204 apply to federal agencies, not to universities:

The Secretary of Commerce may issue regulations which may be made applicable to Federal agencies implementing the provisions of sections 202 through 204 of this chapter

The delegation to the Secretary of Commerce of the responsibility for the implementing regulations and standard patent rights clauses is consistent with the Secretary’s responsibility for the Patent and Trademark Office. The responsibility for Bayh-Dole’s implementation has been further delegated by the Secretary of Commerce to NIST. The implementing regulations establish the procedural framework for Bayh-Dole. Where Bayh-Dole requires inventions to be disclosed within a “reasonable time” (35 USC 202(c)(1)), the implementing regulation–here, the standard patent rights clause–specifies “two months” (37 CFR 401.14(a)(c)(1)). That’s an important role of the regulations, to interpret the statute in practical terms. Thus, we have in the standard patent rights clause at 37 CFR 401.14(a) sections that don’t show up anywhere in Bayh-Dole the statute–sections on prior license obligations (e), actions to protect the government’s interests (f), and subcontracting (g). In a sense, these sections are just made up, and if the public doesn’t object when they are announced, then they may come to have the force of law.

210: Bayh-Dole asserts precedence over all other law pertaining to its subject matter, except for Stevenson-Wydler, which includes provisions on inventions made in the operation of federal laboratories. Because, however, Bayh-Dole’s scope is limited only to subject inventions–inventions that have been acquired by federal contractors–at least for Bayh-Dole’s contracting provisions, federal laws still apply to those inventions that have not been acquired by a federal contractor. Bayh-Dole does not repeal the previous federal regime regarding inventions made in research and development; Bayh-Dole rather carves out an area for special treatment, altering the patent property rights on inventions arising from federally funded research projects, especially when those inventions are acquired by a contractor.

The preemption provision (210) has been interpreted by the US Supreme Court to apply to subject inventions–that is to inventions after a contractor has acquired ownership. That means that Bayh-Dole does not also preempt federal patent law, of which it is a part, nor in particular the common law convention that inventors own their inventions and that the federal government has the constitutional right to grant inventors exclusive rights to those inventions for limited times. Nothing in the US Constitution or federal patent law gives the federal government the right to grant exclusive rights to inventions to organizations that happen to host federally supported research. Requiring as a matter of federal patent law contracting organizations to take ownership of inventions amounts to turning Bayh-Dole into a vesting statute under federal patent law.

211: This statement with regard to antitrust law differentiates the requirements established by Bayh-Dole from antitrust matters. Bayh-Dole does not merely restate antitrust law, but rather operates separately from antitrust law. Thus, when Bayh-Dole refers to “unreasonable use” of inventions made in projects receiving federal support, Bayh-Dole is not referring to only those uses that would give rise to antitrust concerns. There must be “unreasonable” uses that are entirely legal with respect to antitrust law, but which Bayh-Dole restricts.

212: Bayh-Dole also applies to funding agreements for experimental, development, or research work, but here stipulates that federal agencies may have no interest in any inventions that might arise, if the primary purpose of the award is for education or training. Thus, section 212 operates as a shadow patent rights clause for primarily educational support–the patent rights clause that forbids the federal agency providing funding from having a patent rights clause that gives the federal agency any rights in inventions “made by the awardee.” However, nothing in section 212 prevents a federal agency from requiring contracting organizations to refrain from making a claim to ownership of inventions made by individual awardees. Further, if a contractor acquires ownership of such inventions, those inventions still become “subject inventions” within the definition established by Bayh-Dole the statute and are therefore subject to Bayh-Dole’s statement of policy (which does not distinguish based on the purpose of the federal funding, beyond “research or development”) even if none of the provisions under which a federal agency might acquire ownership of or a license to these inventions is permitted to operate.

 

This entry was posted in Bayh-Dole and tagged , , . Bookmark the permalink.