NIST’s Chief Counsel on Bayh-Dole, 2

As further evidence that NIST’s chief counsel does not properly describe Bayh-Dole, consider this point in his first slide of Bayh-Dole “highlights”:

This point is accurate only in an obscure technical sense. Bayh-Dole does not preclude a contractor, having obtained title from an inventor, from re-assigning that title back to the inventor. It is less true, however, that a federal agency having received title to an invention made by a contractor’s employee may assign that title back to that inventor. The rights to federally owned inventions are controlled as well by Bayh-Dole. Nothing in 35 USC 207 or 209 authorizes the federal government to assign inventions to inventors. Federal agencies are authorized to assign inventions as part of an exclusive license (section 207(a)(2)), but then the inventor has to do all sorts of things, first, including developing a marketing plan for the invention.

But all this is technical gyration to save the chief counsel–work for lawyers gaming language, not for us. It is clear that Wixon does not represent clearly how Bayh-Dole’s patent rights clauses operate, even though he is the chief attorney responsible for them. Bayh-Dole makes clear that inventors may “retain” ownership of their inventions. To understand how it all works, however, one has to understand both the statute and the patent rights clauses.

Here’s the statute–35 USC 202(d):

If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder

There is nothing here about a federal agency assigning rights to the inventor. The inventor “retains” those rights. The inventor has these rights to start with. The Supreme Court made clear that this has always been the case in federal patent law and Bayh-Dole, even though it is part of federal patent law, did not change this expectation.

But look at it! 202(d) uses “subject invention.” Bayh-Dole applies only to subject inventions. But a subject invention is one owned by a contractor! Wixon then assumes that the contractor must be the initial contractor, the nonprofit or small business (now, with his changes, any business) that receives federal funds under a funding agreement. But that’s not how things work.

Section 201(c) defines a “contractor” as “any person, small business firm, or nonprofit organization that is a party to a funding agreement.” Even though Bayh-Dole is directed at the ownership of inventions by small businesses and nonprofits, the definition of contractor also includes “any person.” Individuals, clearly, can also be contractors, if they become parties to a funding agreement.

The definition of funding agreement in section 201(b) makes clear that there can be multiple parties to a funding agreement.

The term “funding agreement” means any contract, grant, or cooperative agreement entered into between any Federal agency . . . and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government.

So far, we expect just one contractor–but nothing rules out two contractors both entering into the same funding agreement with a federal agency. But there’s a second sentence to the definition, and it expands the potential for more contractors:

Such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.

When an initial contractor makes any assignment, substitution of parties, or subcontract–of any type–the initial contractor expands the parties to the funding agreement and therefore also expands the number of contractors involved. In Bayh-Dole “the contractor” means “any contractor”–including any party to the funding agreement that has been added by an initial contractor.

There are obvious places where this extended definition of funding agreement comes into play. Nonprofits are required to include the standard patent rights clause in any assignment of a subject invention (35 USC 202(c)(7)(A))–the assignee expressly becomes a party to the funding agreement by assignment.

This extended definition also comes into play in the standard patent rights clause, in a provision that is not in Bayh-Dole the statute–that’s in section (f) “Contractor Action to Protect the Government’s Interest.” At (f)(2), the patent rights clause requires the contractor (here, the initial contractor) to require employees other than clerical or nontechnical employees to make a “written agreement”–to, as the heading of the section makes clear, “protect the government’s interest”–not, say, the contractor’s interest.

In this written agreement, required by the initial contractor–not by Bayh-Dole–those specified employees agree to report subject inventions to the initial contractor, agree to sign papers to permit patent applications to be filed on subject inventions, and agree to sign papers to establish the government’s rights in subject inventions.

Holy cow! There’s a lot going on here. First, this written agreement is a delegation of duties–a subcontract, essentially–under which employees, when they invent, act in their personal, non-employee capacity to report inventions and manage their rights in those inventions. In making the written agreement, inventors become parties to the funding agreement. They become “person” contractors within Bayh-Dole’s definition of contractor.

This result is critical for any understanding of Bayh-Dole’s scope. When the written agreement is made, inventors become contractors. They own their inventions under federal patent law, and so those inventions are subject inventions–without any action by an initial contractor such as a university to acquire such inventions. Now the inventor is obligated by his or her written agreement to protect the government’s interest to report each subject invention to the initial contractor, to sign papers for patent applications, and to sign papers to establish the government’s rights. It is clear–yes?–that for an inventor to be able to establish the government’s rights, the inventor must! have those rights. Thus when an invention is made and reported to the initial contractor, an inventor has the entire right, title, and interest in and to that subject invention. Title vests with the inventor, as the Supreme Court said it does, and that title is a conditional title because the inventor is also party to the funding agreement.

But now look at what happens to 35 USC 202(d).

If contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder

The standard patent rights clause for businesses and nonprofits requires the initial contractor to make all specified inventors parties to the funding agreement–and therefore contractors. Now 202(d) refers to those inventors as well. “A” contractor is just as readily an inventor as it is the initial organizational contractor. The federal agency has a duty to consult with the organizational contractor to determine that the inventor contractor does not have some outstanding obligation to the initial contractor. Otherwise, the agency may permit the inventor to retain ownership. That is, the federal agency has no statutory obligation to demand that the inventor assign rights to the government.

There’s more. Cream. The implementing regulations, which Wixon ought to know through and through, includes an inventor patent rights clause–37 CFR 401.9. When an inventor owns an invention–a subject invention not assigned–federal agencies are to use the inventor patent rights clause, not the standard business and nonprofit patent rights clause. The inventor patent rights clause is in fact a limited subset of the business patent rights clause–

Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at § 401.14(a).

Under those specified conditions, an inventor must report the invention and must choose to keep ownership (“request for retention of rights”)  but does not have to file a patent application (which is required by paragraph (c), with the government having a right to request title for failure at (d)(2), which is omitted from the inventor patent rights list of paragraphs).

This, then, is the general apparatus that Bayh-Dole sets up in favor of inventors. There are additional important details, but the picture should be clear: initial contractors are required to make their specified inventors parties to the funding agreement to protect the government’s interest. Those inventors then become contractors, too, and their inventions become subject inventions without having been assigned to the initial contractors. Federal agencies then are directed to use the inventor patent rights clause with the inventor contractors, which is a reduced version of the small business patent rights clause.

But NIST’s chief counsel misses all this and instead treats as a highlight of Bayh-Dole that inventors can get ownership rights back from initial contractors or federal agencies–which could only be the case if the inventors have first already assigned their inventions to one or the other. It’s not really a highlight of Bayh-Dole–it’s an obscure detail of what’s permitted but in practice almost never happens. Universities almost never take ownership of a subject invention and then assign it back to the inventors, nor do federal agencies.

While we might splutter about what NIST’s chief counsel has asserted so far as in a strange way technically true though hardly not the nutshell one might expect, the last bullet point on the slide presents a bigger problem with truth:

This part simply is not true. Nothing in Bayh-Dole’s standard patent rights clause requires a contractor to “commit to commercialization” and certainly not as a matter of negotiation with the federal agency for the timing. It’s just not there. It’s a confused jumble.

The point of Bayh-Dole is to make the default patent rights clause arbitrary. Under the standard patent rights clause, the only conditions required of the owner of a subject invention, once the invention has been disclosed and the owner has chosen to keep ownership are that the owner file a patent application (and continue prosecution and maintain and defend any patent that issues), include a federal funding statement in each patent application, and respond to requests for reports of subject invention utilization.

The standard in Bayh-Dole is not commercialization but rather practical application–the use of a subject invention so that the benefits of use are available to the public on reasonable terms. Such use does not require “commercialization” of any subject invention. An invention might, for instance, be widely used as a research tool or industrial standard (as, say, a method) without any commercial product version being required. And even here, Bayh-Dole conveniently does not make practical development a positive requirement. Instead, Bayh-Dole requires a federal agency to use march-in procedures if the agency determines that the owner of a subject invention has not or is not likely to “take effective steps” to achieving practical application. It’s just that nothing in Bayh-Dole requires a federal agency to review subject inventions for effective steps, and nothing requires a federal agency to decide to march-in, and there’s nothing in Bayh-Dole that provides the public with a means to force a federal agency to act.

It may be that NIST’s chief counsel was thinking of the requirement in the portion of Bayh-Dole specific to federal agency licensing of inventions that the government owns. If a federal agency decides to grant an “exclusive or partially exclusive” license to such an invention, among the various requirements is this one, at 35 USC 209(a)(3):

the applicant makes a commitment to achieve  practical application of the invention within a reasonable time, which time may be extended by the agency upon the applicant’s request and the applicant’s demonstration that the refusal of such extension would be unreasonable;

But that’s an applicant for an exclusive license--not a contractor receiving federal support for research. NIST’s chief counsel cannot get the law square, even in attempting the “highlights” of Bayh-Dole in a nutshell. It is worth noting that for the standard patent rights clause, there is no parallel requirement on contractors–they do not have to make any commitment to achieve practical application, and they do not have to require any exclusive licensee or assignee to achieve practical application, either. The driver of their efforts is that of march-in, which has never been used in three decades. Effectively, there is no driver for practical application within the standard patent rights clause. There is, instead, a disconnect between Bayh-Dole’s statement of policy, 35 USC 200:

to use the patent system to promote the utilization of inventions arising from federally supported research or development

And the definition of practical application, 35 USC 201(f):

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

And the triggers for march-in, 35 USC 203:

action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use

A federal agency has to determine that a contractor, the contractor’s assignee, or contractor’s exclusive licensee is not expected by the agency to take effective steps to “achieve practical application.” Practical application is not commercialization. The federal agency does not negotiate with the contractor over its determination. The “within a reasonable time” modifies “is not expected to take,” not “has not taken”–that would be punctuated “has not taken, or is not expected to take, within a reasonable time” or better worded “…. the contractor…, within a reasonable time, has not taken and is not expected to take.” The reasonable time is about a federal agency’s determination regarding its own expectations of a contractor’s “steps.”

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