NIST’s other changes to Bayh-Dole’s implementation, 1

NIST’s new rules for the implementation of the Bayh-Dole Act go into effect in May 2018. I have worked through the assignment provision for federal contracts that has been added to the (f)(2) written agreement requirement and how nutty that is–contractors must require inventors working under federal contracts (but perhaps not grants) to assign to the contractors those inventions that the contractors already own. Sigh.

I tried to make some sense out of that with an argument that equitable ownership is a form of ownership and the requirement to assign inventions that a contractor-employer already equitably owns is a matter of perfecting the contractor-employer’s ownership rights. Still, it’s nutty in the sense that the federal government now forces contractors to own inventions that contractors may not have any desire to own in the first place. But now the contractors have to take title to those inventions and then notify the government that they do not wish to retain that title, and then the government can do what it usually does and ignore the whole business.

The likely upshot of the assignment clause is that university administrators will claim that Bayh-Dole has been fixed and now surely does require universities to require their inventors to assign all inventions made with federal support. That’s not the case, but university administrators often engage in patch thinking for complicated things and assert the most foolish things.

NIST has made other changes, however, and these may matter more. So let’s look at a few of those. Here an overview:

1/NIST puts multiple patent rights clauses into a single omnibus patent rights clause loaded with conditionals and then renumbers.

2/NIST notes that by executive order Bayh-Dole is expanded to apply to all companies and so drops in a number of places references to small businesses.

3/NIST removes the 60 day window in which a federal agency must act to request assignment of title in the event that a contractor fails to disclose a subject invention or fails to elect to retain title in the time required.

Each of these changes carries with it consequences. We will discuss each in turn. Short answer. Don’t waste your time. Nothing changes that will undermine Bayh-Dole’s ineffectiveness and murkicity. Things will remain as ineffective and murky as before. But if you have way too much time on your hands, or really do want to understand Bayh-Dole, then read on at your peril. 

1/A single omnibus patent rights clause

Bayh-Dole section 206 (“Uniform clauses and regulations”) authorizes the Secretary of Commerce to issue regulations “applicable to Federal agencies” as well as to “establish standard funding agreement provisions required under this chapter.”

It turns out that four “uniform clauses” were created to cover four distinct funding situations: small business, nonprofit, naval nuclear propulsion and weapons, and inventors. Three of these clauses are built from a common base–what has been labeled 37 CFR 401.14(a). The base form is the small business patent rights clause. The nonprofit clause is this clause plus paragraph (k), which requires that allowable assignments of inventions include the nonprofit patent rights clause and limits the use of income earned with respect to a subject invention to scientific research or education. The inventors clause is a subset of the small business clause, notably without an obligation to file patent applications or a right of a federal agency to request title if an inventor does not file a patent application. The fourth standard patent rights clause is set out at 37 CFR 401.14(b) and is, essentially, a standard implementation of the “exceptional circumstances” provision provided for by 35 USC 202(a)(ii). One could envision additional such clauses being labeled 401.14(c), (d), and the like as federal agencies found reason to construct clauses specific to recurring circumstances.

Bayh-Dole is structured for exactly this build out of clauses. “Exceptional” circumstances are not necessarily rare circumstances. They are simply those for which the public is not well served by the default condition of 35 USC 202(a)–that if a contractor acquires ownership of an invention made in a project with federal support, the contractor can retain that ownership provided the contractor timely discloses the invention and notifies the government of the decision to retain ownership. If that default won’t serve–and there are plenty of situations where surely that is the case–then federal agencies have the right under Bayh-Dole to develop other clauses.

NIST, however, envisions something different. Instead of multiple clauses specific to various default situations–small company, nonprofit, inventor–followed by a series of clauses built for exceptional circumstances, NIST has decided to roll clauses into a single omnibus clause loaded with conditionals that may never operate. The inventor clause remains at 37 CFR 401.9, but the first exceptional circumstance clause–naval nuclear research and development–now is treated as a conditional within the small business clause.

One might argue that nothing has changed–if the old 37 CFR 401.14(b) clause applies, then it still applies in its new location. True enough. But things have still changed for the management and interpretation of the patent rights clause operating in each funding agreement. Now any new exceptional circumstances clauses appear headed to be additional conditional paragraphs within one big clause. Of course, Bayh-Dole is also designed to make the cost of developing new clauses prohibitively expensive, so it would appear that institutional contractors seeking to profit from a trade in patent monopolies have priority over federal agency thoughts about addressing public interest. Or, put another way, NIST accepts the idea that the public interest is generally best served by an institutional trade in patent monopolies. That’s quite the idea, especially when it comes to inventions made in basic research projects that have been distributed by federal agencies to scores of nonprofit contractors, who then often subcontract to scores more nonprofit contractors–each of which may pursue their patent monopolies independently of the others and without regard to any federal agency idea of a mission.

Instead, agencies work around Bayh-Dole. The NSF, for example, in its Cooperative Research Center program of industry consortia built around a specific research theme, mandates a template consortium agreement that grants non-exclusive licenses to industry consortium members. Sure, a university can propose using a different template, but as the CRC program officer pointed out to me, in that case, the new template becomes part of the reviewed proposal. Implication–if you change the template in any material way, don’t bother to apply.

The NIH goes a different direction and puts out a policy on “research tools”–work that really ought to be shared across all participants in a given line of research, regardless of their tax standing or funding sources. Prior to Bayh-Dole–an NIH creation–the federal government could have aggregated inventions that were research tools and made them available to everyone on common terms, if not in the public domain. But now all the NIH can do is beg universities to make research tools available broadly–something that university administrators find it nearly impossible to do if a tool can be patented and delivered as a monopoly to a “commercialization” partner. Now multiply that over all the different variations on a research tool that various universities might seek to patent, and each emerging technology platform fragments into tiny bits, to reform as useful technology when all the patents have expired.

It would be much easier for the NIH to have a standard clause for the exceptional circumstance of public health research funding–that the government requires without march-in all contractors to grant fair, reasonable, non-discriminatory licenses for all research uses–making and using–regardless of whether the use is by a university, a non-profit, or a for-profit. But Bayh-Dole makes such a thing next to impossible. Thus, the work arounds.

What does all this have to do with NIST rolling up 401.14(b) into 401.14(a) and dropping the lettering scheme altogether? By doing so, NIST obscures the structure of Bayh-Dole, making it appear that there’s just one standard patent rights clause and no provision for others. Further, that one standard patent rights clause is now saddled with provisions that were developed for a first exceptional circumstance. The result is a less readable, more uncertain standard patent rights clause.

There’s a rule in software development that if there’s non-operating code, take it out. NIST disregards this rule for the standard patent rights clause and instead puts into the standard clause provisions that will rarely operate. A much better choice would have been to separate the small business patent rights clause from the nonprofit patent rights clause and relabel the small business clause as the “business” clause. Even better, bring all three clauses together as a list–business clause, nonprofit clause, inventor clause. Then add the variations for exceptional circumstances that might apply to one or more of these clauses based on determinations of public interest by federal agencies, and work with the agencies to lower the cost of administrating such determinations.

Thus, while contractors won’t see much change with regard to the current clauses–just relabeling–the public can expect an even lower chance that federal agencies will use the exceptional circumstances provisions built into Bayh-Dole’s design. Big whoop, that a probability has changed, you might say. And yet it is exactly in the changing of probabilities that a law finds its adaptability to changing circumstances. In a similar manner, a mountain climber or a stock broker or a sea captain that does not sense and respond to changing degrees of risk or opportunity puts self and assets at risk. Same here, with Bayh-Dole.

2/drops the references to small business

Bayh-Dole is specific to nonprofit and small business contracting. In 1987, President Regan extended the contracting requirements of Bayh-Dole to all companies by executive order. It’s not clear at all how an executive order can countermand established federal laws on the matter. Bayh-Dole did not repeal those laws–it merely states that it takes precedence over the laws in the matter of subject inventions. An executive order might alter federal agency policies but could not assert that the various laws are now preempted for non-small companies as well.

NIST, however, appears to treat Bayh-Dole as repealing those laws recited by Bayh-Dole with regard to subject inventions in general. And here’s the odd thing about it all. Under the Kennedy/Nixon executive branch uniform patent policy, companies regardless of size were permitted to own inventions made in projects receiving federal support if they had a commercial position in a non-governmental market and the projects were not ones (i) intending to create a commercial product or (ii) directly affecting public health; or (iii) in which the government was the only user or developer of the technology. In the first case, the point of the government effort is to bring a technology to the point of practical application and then release it for use and commercial manufacturing. There’s no need for private investors to pony up in exchange for a patent monopoly. In the third case, there is no point in allowing contractors to play with patent monopolies–all those monopolies can do is to undermine the government’s ability to entertain bids from competing companies–if that. Again, what’s the point?

That leaves the second condition, where the research is directed at public health (or welfare). Here, the point is that the involvement of government in the support of such research is to make available the results for public use by all, not to finance the creation of patent monopolies that then exploit that very public need for maximum financial gain. The point of restricting patent ownership by nonprofits and companies alike in the area of public health work supported by the government is–and this is simple, really–that joining government efforts to treat disease or injury is not a matter of maximizing profits, even if there are some people who think this way.

Bayh-Dole didn’t change much for federal procurement contracts with small companies already selling similar products to the public. Extending the same contracting provisions to non-small companies also selling to the public did not change much. These companies already could keep what they invented if they wanted to.

Where Bayh-Dole had its effect, however, was in regard to the restricted areas. If a federal agency desired to develop a product to the point of commercial adoption, as the Department of Agriculture had done multiple times, the agency was out of luck. It could choose one contractor and allow that contractor to develop a monopoly on the work, or it could choose multiple contractors and watch as they fragmented the developing technology into tiny bits of patentable subject matter which they then each sought to license exclusively. In the least likely scenario, they all license to the same company, who then gets the benefit of a commercial position developed at public expense. These two choices represent devil’s bargains for the federal agency. Either way, the agency uses public funds to set up a private monopoly rather than to make a product–a new fertilizer, say–available to all for manufacture and sale. Or, more likely, the new product is disabled by twenty different contractors all with their bits of patent position, to be revisited two decades later. And that’s what has happened to carbon nanotubes, for instance.

As for research that the government is the primary developer or user, now contractors engaged to work on any particular piece of that work can take ownership positions. The government has its non-exclusive license, and may authorize others to work for it as it chooses under such license, but the technology platform as a whole is lost to public use, again under the weight of fragmented patent rights spread over multiple contractors. Where nonprofits are involved, it’s even worse, as the nonprofits generally don’t use their patents but for disrupting the work of others who might contribute to the government effort–and for licensing exclusive so that they might make some money on their fragment of the overall platform, even if that exclusive license ensures that the fragment is then unavailable to others, even for research purposes or internal use. That’s as good a way as any to prevent new work from becoming broadly used, all on the premise that the only route to use is venture-backed mass market commercial products. What nonsense!

Finally, we hit the change Bayh-Dole made to executive branch policy justifying public money for research directed at public health and welfare. It was this area that Bayh-Dole was specifically designed. The rest was necessary collateral damage. Bayh-Dole was drafted by NIH’s patent counsel to overcome the PHS policy of taking ownership of publicly funded inventions and releasing access for all qualified users. The pharmaceutical industry had boycotted publicly funded work in medicinal chemistry as a result. Rather than then pursuing the development of potentially important discoveries to the point of practical application–providing funding for screening of classes of compounds, and for testing promising compounds in various stages of clinical trials–the NIH instead chose to spread out its research funding and leave development to big pharma.

The first scheme to do so was the Institutional Patent Agreement program, which not only went outside executive branch policy but also cut out faculty investigators from having any involvement in the disposition of their inventions. After ten years the IPA program was shut down by pressure from Congress for being ineffective and doing sweetheart deals with big pharma in the few instances in which a commercial deal did get done. The worst of it was, the universities involved in the IPA program were just a conduit for patent monopolies passing from public research to monopolies in the hands of corporations. The year after the IPA program was shuttered, the NIH came up with Bayh-Dole to do much the same thing, do it government-wide, and make it difficult for the executive branch to have any say in the matter.

That’s where we are now, and what NIST appears to endorse. Public money should be used to subsidize companies seeking to exploit public health (or, rather, suffering) for whatever maximal financial gain can be squeezed from a patent that excludes competition and allows for optimal pricing for profits. That’s the default written into Bayh-Dole, but placed in such an abstract form that it takes work to trace it all back to its fundamental purpose, to create a speculative betting pool on the future value of publicly funded inventions directed at healing injuries and curing diseases. In that betting pool, the maximum financial return is in creating products that make acute conditions chronic. Not prevention, not cure. Prevention and cure would be disasters for big pharma’s business model. It would be like airplane manufacturers developing products that would mean people would not have to fly anywhere. It just isn’t done.

NIST’s rolling big companies in with small companies removes the idea from Bayh-Dole that small companies are specially included alongside nonprofits to give them a competitive advantage in developing new technology relative to established companies. And once all companies are treated alike, Bayh-Dole rolls up the nonprofits as well into a single concept that the purpose of federal funding is to seed opportunities for speculation on the future value of patent monopolies. That’s perhaps a reason why the administration of Bayh-Dole was moved from the Office of Federal Procurement to the Secretary of Commerce. Politically, the Secretary of Commerce provides cover for “commercialization”–patent speculation–while federal procurement remains the rather dull by comparison domain of acquiring even research inventions for public purposes.

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