Let’s get simple about the NIST rule change on assignment of subject inventions. This requires logic. I’m sorry about that. I know it’s not the Bayh-Dole way.
Supreme Court: Bayh-Dole applies only to subject inventions. A subject invention is an invention already owned by the contractor and made in a project with federal support. Nothing in Bayh-Dole gives a contractor any special right to acquire an invention made in a project with federal support.
Consequence: Any invention made in a project with federal support and not owned by a contractor is subject to the laws and regulations in place before Bayh-Dole. Bayh-Dole did not repeal those laws and regulations–only asserted precedence over them for its subject matter, namely, subject inventions.
Bayh-Dole: A contractor is any party to a funding agreement. Parties can be added by assignment, substitution of parties, or subcontract.
Now the fun: Bayh-Dole’s standard patent rights clause has a requirement not in Bayh-Dole. Each initial contractor must require its employees to make a written agreement to protect the federal government’s interest in subject inventions, including to establish the government’s rights in those inventions.
Conclusion: the subject inventions here cannot be ones owned by the initial contractor. They must be owned by the inventors.
When the initial contractor requires the written agreement, it makes those employees parties to the funding agreement–that is, contractors. As contractors, when they invent, they own their inventions, and those inventions become–voila–subject inventions.
It’s just that the inventors’ subject inventions are controlled by a special patent rights clause for inventors, a subset of the patent rights clause for businesses, not by the standard patent rights clause.
Good so far? Good. Keep in mind no one complies with this requirement. Federal agencies don’t enforce it. NIST appears not to understand it. Has your confidence in universities and government peaked yet?
Now NIST comes along and adds an assignment requirement into the patent rights clause. The initial contractor must now require its employees to make an agreement to protect the government’s interest in subject inventions by assigning those inventions to the initial contractor AND at the same time also having the initial contractor delegated right to establish the government’s rights in those inventions.
Well, that can’t be. If NIST intended for all inventions to route through the initial contractor, then it would have removed the “establish the government’s rights” part when it added the assignment requirement. So it can’t be that.
Moreover, the Supreme Court has already ruled that Bayh-Dole does not affect an inventor’s ownership rights. So whatever NIST would be doing is outside of Bayh-Dole–but Bayh-Dole dictates that NIST, as a federal agency, can only implement Bayh-Dole, not make new law regarding ownership of federally supported inventions.
If NIST requires initial contractors to require their employees to assign all *the employees’* subject inventions as a condition of federal funding, that’s the same as vesting, which the Supreme Court rejected. If there’s to be vesting, or a right to take title, or a right of first refusal, or a requirement to require assignment–that takes an act of Congress, if Congress even has such power under the Constitution to require some form of vesting in a contractor other than the inventor. So it also can’t be that.
Furthermore, NIST makes this new requirement only for inventions made “under contract.” Contract is one of three forms of funding agreement defined in Bayh-Dole. The others are grant and cooperative agreement. So this new requirement applies only to contracts. That’s really strange. [No, see 37 CFR 401.5:
Agencies may replace the italicized words and phrases in the clauses at § 401.14 with those appropriate to the particular funding agreement. For example, “contracts” could be replaced by “grant,” “contractor” by “grantee,” and “contracting officer” by “grants officer.”
So the limitation is just to the specific form of funding agreement, and the drafting of the standard patent rights clause simply opts for cognitive dissonance.]
One way to make the NIST rule change work is to consider “equitable title.” If an initial contractor hires an employee to invent or assigns an employee to experiment, then the initial contractor may have equitable title in a given invention. Work performed under a federal contract (typically via the FARs) may very likely involve such work assignments.
Thus, NIST may be requiring initial contractors that hold equitable title to acquire legal title by requiring their employee inventors to assign that title. In some clever way, then, NIST is not making inventions vest with the initial contractor–rather, NIST is insisting that if an initial contractor already has equitable title, then it must obtain legal title.
That works. It’s strange. It’s obscure. It’s pissy. But it works and does not do “violence to the basic principle of patent law that inventors own their inventions” to quote the Supreme Court in Stanford v Roche. But it does violence to Bayh-Dole and interferes in an employer’s relationship with an employee. Nothing in Bayh-Dole requires an employer to take title to an invention made with federal support. It is not in NIST’s power to add that requirement. Face it, some initial contractors may not want to take title to every gawd-awful invention that some employee might make under a federal contract. NIST apparently doesn’t care.
Talk about creating needless bureaucratic paperwork. Employers must now take ownership of inventions so that they can notify the government that they don’t elect to retain that ownership, and then the government can request title at its leisure but if the initial contractor doesn’t file a patent application (because, won’t, having not elected to retain title), then the government won’t have any rights and gosh, the invention enters the public domain thus dooming it (according to Bayh-Dole advocates) to sit on the shelf forever, unused because there’s no patent monopoly for anyone to speculate on. But only for inventions that employers already hold equitable title. And only for inventions made under contract, not grant or cooperative agreement. Screwball.
There’s one more variation. NIST might have reasoned thus (I know–it is a reach to suggest that NIST reasoned): the written agreement requirement turns employee inventors into contractors. Their inventions then are subject inventions. And it is these subject inventions that the initial contractor must require the assignment of. Sure, the inventors own their inventions, just as the Supreme Court said, so there’s no vesting. But since Bayh-Dole applies to subject inventions, we can jolly well require contractor inventors to assign their inventions to the initial contractor.
We just force initial contractors to force their employees to assign the employee’s subject inventions to the initial contractors after an invention becomes a subject invention–at least if the invention has been made in a federal contract, but not a federal grant or federal cooperative agreement.
What could be wrong with this? Clearly, NIST believes that it’s a really good thing to find a way to strip inventors of their ownership of inventions and hand that ownership to initial contractors. They smoke Stanford v Roche and apparently believe that the intent of the law is to place ownership of federally supported inventions (at least those made under contract) with the employer, with the initial contractor. Invention for hire. But not even really that. Invention merely for managing federal money, regardless of capability or performance in managing such inventions.
The Supreme Court made clear that the intent of Bayh-Dole is not to place inventions with initial contractors. The intent of the law is to decide priority of rights only after the contractor–meaning the initial contractor, because the Supreme Court did not need to consider the standard patent rights clause to address vesting–has acquired ownership. In the Court’s words:
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
But NIST appears to then make Bayh-Dole a matter of “clarifying” the priority of rights between an inventor and the inventor’s employer–something that the Supreme Court said was not a matter for Bayh-Dole. So it’s not a matter for Bayh-Dole’s standard patent rights clause, either.
In its form before the NIST genius new rule, the written agreement requirement works just fine (other than that no one complies). When an inventor invents, having made the written agreement, the inventor is a contractor and the invention is a subject invention. Bayh-Dole may then decide the priority of rights between that inventor contractor and the federal government. Bayh-Dole provides for this outcome at 35 USC 202(d). And the implementing regulations provide for this outcome with the inventor patent rights clause at 37 CFR 401.9. That all makes perfect sense. Sure, it is a bit long way around, but the logic works.
Now with the genius new rule in place, the written agreement requirement appears to decide the priority of inventions between inventor contractors and initial contractors. There’s no authority for that in Bayh-Dole. Even requiring that an initial contractor’s equitable title must be followed by legal title is outside Bayh-Dole’s contracting framework imposed on federal agencies.
Okay, so what if NIST worked it so that federal agencies could demand ownership from inventor contractors and then assign that ownership to initial contractors? Doesn’t work. Bayh-Dole gives the contractor (whether inventor or initial) the right to elect to retain title, provided the invention is timely and properly disclosed to the funding agency. And under the inventor patent rights clause, an inventor does not even have to file a patent application. Yeah, go read 37 CFR 401.9. It’s all of one sentence long. NIST can’t then force inventor contractors to give up their rights to the federal government. How then could NIST force those same inventor contractors to give up their rights to an initial contractor–a company or university or whatever that’s not necessarily even paying anything for the work to be done? The government covers the salaries, the direct costs, the indirect costs for administration and facilities. Doesn’t work.
We are left with the stretch of equitable title in federal contracts.
But the impression is that NIST has the authority under Bayh-Dole to require inventors to give up their rights in their subject inventions to the initial contractor.
Given widespread non-compliance with the written agreement requirement, NIST also gives the impression that any initial contractor patent agreement with an employee complies with the patent rights clause. That’s simply not the case. As the Supreme Court made clear, any private deal between an initial contractor and an employee inventor lies outside of Bayh-Dole. The standard patent rights clause, however, lies entirely within Bayh-Dole.
We can say that NIST requires nonsense–initial contractors must require inventors to assign inventions that the initial contractors already own.
We can say that NIST requires vesting–initial contractors must require inventors to assign inventions that the initial contractor doesn’t already own. Supreme Court rejected that. So NIST is in contempt.
We can say that NIST requires priority of rights between initial contractors and inventor contractors. But Bayh-Dole has nothing to say about such priority. Its priority is between a contractor–an initial contractor or an inventor contractor or any other contractor added by assignment, substitution of parties, or subcontract–and the federal government, not between contractors.
(So, yeah, what to do about (g)(1) of the standard patent rights clause regarding an initial contractor’s rights to inventions made under subcontract? (g)(1) forbids an initial contractor from obtaining any right in a subcontractor’s subject inventions as a condition of the subcontract. That’s a lot like the situation in (f)(2)’s written agreement requirement that forces an initial contractor to delegate the right to establish the government’s interest to inventor contractors.)
We can say that NIST requires initial contractors that have equitable title to secure legal title, but even that’s a stretch of authority and is in any case prissy and unnecessary. If an initial contractor has equitable title and an inventor refuses to assign to convey legal title, the initial contractor can present the evidence to a court and obtain a decision–if the initial contractor indeed has equitable title and not just a bullying claim to entitlement, then the court will find that there’s an implied contract to assign and enforce that obligation to assign. Done. No NIST fussiness needed.
We can say that NIST wants to create the illusion that all contractors must require their employee inventors to assign all inventions made with federal support. That’s not Bayh-Dole. That runs against the Supreme Court in Stanford v Roche. That’s outside federal patent law, of which Bayh-Dole is a part. And it turns out that in practice, it’s crappy public policy. Bayh-Dole practice is a dismal failure, even with all the noncompliance and federal agency indifference to enforcement. And that is the worst part about all of this.