Second Layer: Regulations
Third Layer: Patent rights clauses
The second layer of Bayh-Dole involves the implementing regulations. We will consider only those that have to do with the contracting section, 202-204. These regulations are found at 37 CFR part 401.
We can differentiate four parts to these regulations. The first part works to establish the scope of the patent rights clauses. The scope is established by an express discussion–an invention is subject to the patent rights clause when it is made in “the planned and committed activities of a government-funded project” or “diminish[es] or distract[s]” from that those activities. The definition of funding agreement in Bayh-Dole (201(e)) makes clear that the government funding for a government-funded project may be just “in part.” Put another way, a project in which the federal government provides at least some of the funding. The implementing regulations make clear that separate accounting for funds does not matter, nor does the chronological sequence of funding. Whether money is mixed or kept separate, whether the federal funds come before or after or simultaneous with other efforts or funding does not matter. What matters is whether the federal government has supported a project in which an invention has been made.
The implementing regulations then set out four default patent rights clauses. In addition to the three specified by Bayh-Dole (small business, nonprofit, inventor), the regulations add a fourth patent rights clause that applies to Department of Energy research on naval nuclear propulsion or weapons, then the government asserts the right to own inventions produced, subject to a “greater rights determination” in which a contractor can petition to own the inventions. This additional patent rights clause is at 37 CFR 401.14(b). It sets the template for how other patent rights clauses covering exceptional circumstances might be added–even routinely–to the collection specified by, or otherwise permitted, by Bayh-Dole. That is, “exceptional” circumstances not somehow rare or extreme situations–they are simply situations that lie outside the arbitrary requirements established by Bayh-Dole as the defaults. The DOE naval propulsion and weapons programs are one such situation. No doubt there are any number of others–but for the most part agencies have found it difficult to declare exceptional circumstances, facing stiff opposition from university patent administrators.
The special situations provisions deal with inventions made jointly with government employees (.10), appeals (.11), background rights (.12), and deferred determinations–as for the DOE’s naval research propulsion and weapons programs. Housekeeping provisions involve electronic communications of reports and notices (.15) and inquiries (.16).
Thus, there are four default patent rights clauses. Any account of Bayh-Dole should take into account how each of these patent rights clauses operates and the outcomes each clause has produced. For instance, there has been almost total silence with regard to the effect of Bayh-Dole on for-profit contractors. While front organizations for universities have made a big deal about their success under Bayh-Dole (even while withholding supporting data), there’s nothing about companies. I have heard that the NSF has launched a project to try to figure out why its SBIR program has produced virtually no commercial products. That’s telling, but law professors focused entirely on the statute won’t ever get this far in their otherwise sophisticized discussions.
Third Layer: Patent rights clauses
We have mentioned the DOE patent rights clause. Let’s review the other three, and note that all four clauses are reprised, in slightly different form (with a notable typo) in the Federal Acquisition Regulations (FAR), including the clauses at 52.227-11 and -13.
The business and nonprofit standard patent rights clauses (37 CFR 401.14(a)(a)-(j)) are identical but for a section (k) specific to nonprofits. These two patent rights clauses cover the provisions set out in 35 USC 202(c), add three additional sections not addressed by Bayh-Dole, and vary the language required by Bayh-Dole for some provisions, sometimes oddly. The patent rights clause controls in any specific contracting situation, not Bayh-Dole the statute, which controls how the clause is constructed, not the clause itself. This is an important–even crucial–characteristic of Bayh-Dole. Reading the law does not provide one with the patent rights clauses. Skipping from the law to outcomes misses the whole purpose of the law, which is to make arbitrary default patent rights clauses and thus permit contractors to engage in much broader exclusive licensing of patents on inventions made in projects receiving at least some federal support.
The business and nonprofit patent rights clauses cover the ground of 35 USC 202(c)(1) to (8), which we have summarized already. Let’s look then at the variations from Bayh-Dole, and then at the provisions specific to nonprofits. There are three sections in the standard patent rights clause that are not in Bayh-Dole. These are sections (e), (f), and (g). Section (e) has to do with contractor retention of a license even when the federal government acquires ownership of an invention, other than through failure of the contractor to disclose the invention. This is an odd provision. If a contractor enters into deals to license an invention to be made in the future before receiving federal support, then even if the government acquires title to that invention, the government grants to the contractor a license that extends to all those to whom the contractor has pre-committed rights. In practice, as far as I know, this provision has never been exploited by university administrators.
The two other sections, (f) and (g) have parallel elements. Section (f) concerns dealings between a contractor and its employees that are within the scope of the patent rights clause. Interestingly, section (f) restricts itself to employees and distinguishes between “clerical and non-technical” employees and other employees, presumably ones who are technical or managerial. Thus, volunteers, visitors, and even independent contractors are not within the requirements of section (f) of the patent rights clause, even when they work on a project with federal support and invent.
Section (f) has four paragraphs. The contractor will
(1) execute or have executed required documents
(2) require certain employees to make a written agreement to protect the government’s interest; and instruct these employees on the importance of reporting inventions before statutory bars to patenting
(3) notify the government of any discontinuation of efforts to obtain, maintain, or defend a patent
(4) include a federal funding notice in patent applications and issued patents
Of these, paragraph (f)(2) is the most important. The contractor is required to require certain employees to make an agreement to protect the federal government’s interest in subject inventions. Let’s look first at what’s covered by the agreement, and then at the odd way in which a requirement to require operates in the context of Bayh-Dole. Its effect is huge, and yet non-existent. How can that be?
The (f)(2) written agreement covers a set of things that only inventors can do, initially, when they have invented:
(i) disclose their inventions to employer-designated personnel responsible for patent matters, so that those personnel can properly disclose the invention to the government
(ii) to assign subject inventions to the contractor (this provision has just been added by NIST–it’s crazy nuts, but there it is).
(iii) execute papers to permit patent applications to be filed
(iv) execute papers to establish the government’s rights in subject inventions
The disclosure requirement amounts to the documentation of an enabling description of the invention. Here’s the requirement from (c)(1) of the patent rights clause:
The disclosure to the agency shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure.
The invention disclosure requirement amounts to a constructive reduction to practice of the invention–the heart of any patent application, and there could be more than one patent application for any given subject invention, and often are. The disclosure also serves as a scoping document for the government’s license to practice and have practiced the invention. That license (see 37 CFR 401.14(a)(b)) is directed to the invention, not any particular patent. The federal government, of course, does not need a license to use any invention, even patented. That’s covered by 28 USC 1498. If the government uses a patented invention, the patent owner’s remedy is in the Court of Federal Claims for “reasonable and entire compensation” for the government’s use. Thus, the license required by Bayh-Dole eliminates the government’s obligation to compensate any owner of a patent covering a subject invention. The invention disclosure creates the basis for the scope of this license.
It’s clear that a university or company cannot disclose an invention unless its inventors first disclose their inventions. Thus, (f)(1) operates as an extension of Bayh-Dole, even though Bayh-Dole doesn’t specify anything about employee-inventors disclosing inventions to their employers.
Appended to the duty to disclose inventions is a new requirement (2018) that inventors must assign subject inventions to “the contractor”:
to assign to the contractor the entire right, title and interest in and to each subject invention made under contract
This new rule created by NIST makes a hash of the legal framework under which the patent rights clauses operate. The Supreme Court was clear in Stanford v Roche that Bayh-Dole applies only to subject inventions, and that an invention became a subject invention only when it is owned by the contractor. Thus, the new rule requires inventors to assign to the contractor those inventions made “under contract” that the contractor already owns. Perhaps there’s some theory of equitable title operating here that has not been fully articulated–inventors must be made to agree to assign to the contractor those inventions made “under contract” that the contractor has an equitable right to. Put it another way: a contractor must as a matter of compliance with the standard patent rights clause back up its equitable claim to inventions made “under contract” with a written agreement that compels future inventors to assign such inventions to the contractor.
The third duty that contractors are required to require of their select inventive employees is to sign papers to permit patent applications to be filed. These papers typically are the “declaration and oath” papers–that the inventors are the true inventors of the invention. Patent applications can be filed without such paperwork (such as when an inventor dies or is in a coma or is legally obligated to assign an invention and refuses to sign the paperwork). So this second duty is more a promise to avoid extra fuss with whomever has rights to an invention. Given that inventors own their inventions when those inventions are made (and the Supreme Court reaffirmed this ownership in dealing with Bayh-Dole in Stanford v Roche), this duty to sign papers also extends to co-inventor situations where one inventor desires to file a patent application and other inventors might not care to be bothered.
The fourth duty of inventors that contractors are required to require is that of signing papers to establish the government’s rights in subject inventions. This requirement is significant in multiple ways. First, it recognizes that inventors own their inventions. Second, the requirement to require delegates the responsibility to establish the government’s rights to the inventors. The inventors, not the contracting organizations, have the primary responsibility to grant licenses or assign title to the government, in the situations in which Bayh-Dole allows federal agencies to obtain title. The new NIST rule requiring contractors to require inventors to assign subject inventions to the contractor makes this fourth duty moot. If inventors must assign their inventions to the organization that hosts federally supported research, then the inventors have no rights left to sign papers to establish the government’s interest in those inventions. In effect, NIST voided this fourth duty with the addition of the duty to assign to the contractor.
By putting this provision in the form of a requirement to require, the patent rights clause forces the contractor to take action to delegate the duty. The effect is that the contractor cannot simultaneously delegate this duty and at the same time require something else that’s contrary to this duty or would frustrate the delegation. The provision is not “unless you require something else, you must require this” but rather “you must require this and it knocks out anything else you might require–in part because you can’t require this and something else that isn’t this.” If a contractor complies with this (f)(2) requirement, however, then this assignment requirement takes precedence over any other requirement the contractor may have with its technical employees to assign inventions. Those other requirements–in policy, in employment agreements, in patent agreements–are superseded by this requirement as a matter of federal contract (which takes precedence over state-enforced contracts).
There are a number of good arguments that the NIST revision will have to be withdrawn eventually, but for now it is reality. One consequence of the requirement, then, is that inventors are to be required to assign subject inventions without any consideration for doing so. Patent law (35 USC 261) makes it clear that an assignment without “valuable consideration” may be void unless the interest is recorded in the PTO within three months. But if the argument is that the federal funding is itself the consideration for the assignment, then 2 CFR 200.316 comes into play for nonprofit federal awards–the invention clearly has been acquired with federal funds, and the “contractor” must manage the invention and any patent applications and patents “as trustee for the beneficiaries of the project or program under which the property was acquired or improved.” And there’s nothing that indicates that the requirement on nonprofits to share royalties with inventors (37 CFR 401.14(a)(k)(2)) has anything to do with consideration for assignment of inventions–and if that required royalty sharing was intended to be the consideration for the required assignment, then for-profit companies are left with a serious problem. There’s no easy way out of these matters other than to ignore the regulatory framework and assert that it’s federal law that inventors must assign inventions to the organization that hosts federally supported work.
Finally, the requirement to require does a special thing that dramatically expands the effect of Bayh-Dole. The requirement to require makes this (f)(2) agreement part of the federal funding agreement. The selected employee-inventors who make the written agreement become a party to the funding agreement (see the definition of funding agreement at 35 USC 201(b))–that is, become contractors (definition at 35 USC 201(c)). Thus, any patentable invention that gets made by a select employee-inventor becomes, immediately, a subject invention–because “of a contractor”–even though now the contractor is not the business or nonprofit, but rather the inventor. The effect of NIST’s revised (f)(2) assignment language then is that contractor (meaning the host organization) must make select employees also become contractors and require these contractors to assign inventions owned by a contractor to a contractor. Confused? Yes.