Bayh-Dole Up Your Counsel, 3

I won’t belabor the problems in the next section of UpCounsel’s account of Bayh-Dole. The major provisions of Bayh-Dole are 1) a public covenant that runs with patent property rights on inventions arising in federally supported research or development–and specifically on a new category of patentable invention defined in federal patent law call the subject invention; 2) authorization for federal agencies to deal in exclusive licenses for inventions acquired by the federal government; 3) restrictions on how federal agencies can contract for inventions as research deliverables, including the specification of provisions to be included in standard patent rights clauses unless a federal agency can justify an exception.

What Are the Major Provisions of the Bayh-Dole Act?

The major provisions of the Bayh-Dole Act are as follows:

All non-profits can retain a full claim on innovations made with the help of federally-funded research. Universities also fall into this category. The only exception is if the government states upfront that it will keep ownership of any innovations discovered during the project.

Nonprofits can choose to keep title to federally supported inventions that they have otherwise acquired ownership of. There are multiple exceptions to the standard patent rights clause. The “exceptional circumstances” determination does not merely involve the government taking ownership–any change to the standard patent rights clause must follow the exceptional circumstances determination.

Universities can and should file patents on their innovations. Otherwise, the government retains the right to take control of the invention. The Bayh-Dole Act attempts to legislate universities into more aggressive reactions to innovation.

There is no “can and should.” If a university has obtained ownership of a federally supported invention, it has an obligation to file a patent application. There is absolutely nothing in Bayh-Dole that “attempts to legislate universities into more aggressive reactions to innovation.” That’s laughable, if even comprehensible. Bayh-Dole is directed at federal agencies. At best (where at best may mean less horrific), Bayh-Dole prevents federal agencies from readily requiring inventions as research deliverables and makes it more difficult for those in federal agencies who desire to grant broad public access to such inventions to be able to do so.

When a university discovers an innovation, the institution has two months to report it to the federal government. The university also has the right to patent any invention it intends to market.

When an inventor reports to the personnel designated by a university as responsible for patent matters an invention that the university owns, the university has two months to report that invention to the federal agency. The university’s right to retain ownership of an invention it already owns has absolutely nothing to do with the university’s intentions with regard to “marketing.”

Universities can and should offer licensing deals to small businesses, thereby jointly growing two important groups in the American business community.

The small business preference is two-fold: that nonprofits will make an effort to attract small business licensees; and that nonprofits will prefer a nonprofit licensee over other licensees if the small business’s offer is as good as the other offers and in the nonprofit’s judgment the small business has the capability to follow through on its offer. Basically, nonprofits should choose the best deal. The federal government has no right to interfere in any particular transaction. It’s another Bayh-Dole empty gesture. For its first three years, Bayh-Dole had a requirement that nonprofits could not license a subject invention exclusively to a large company for more than the sooner of five years from first commercial sale or eight years from the date of the license. But that small business preference is long gone. Funny how UpCounsel thinks universities are part of the “business community” and need “growing.”

The university must share some of any money made from the innovation with the person or group who discovers it. This part of the law guarantees that people in labs have a personal stake in the inventing process.

Nonprofits must share royalties (from licensing) with inventors. They have no right to share with others who are not inventors–the inventors may do so with their share. Further, other “income earned with respect to subject inventions” is not to be shared with inventors but must be used to support “scientific research or education.” People in labs have a “personal stake” only to the extent that they have to fill out paperwork. Most inventions are never licensed, and those that are often do not result in meaningful financial return–and for all that, nothing in Bayh-Dole requires anyone to license anything nor if something is licensed to charge anything for that license. Making absolutely no money from licensing is entirely compliant with Bayh-Dole. Licensing inventions non-exclusively and royalty-free is entirely compliant with Bayh-Dole. The law guarantees nothing about a “personal stake.” Gibberish. Fantasy.

Universities should work with businesses to promote innovations. One of the stated goals is to choose businesses that will make sure the innovation is “manufactured substantially.”

Nothing in Bayh-Dole other than a general policy statement that Congress intends the law to promote collaboration between nonprofits and industry. The rest is deeply drawn nonsense. Bayh-Dole requires a patent rights clause provision that requires for exclusive licenses to use or to sell in the United States that the licensee agree that any products will be manufactured substantially in the United States. UpCounsel garbles this requirement into a requirement to manufacture. There is no such requirement. The standard is “practical application”–use a subject invention so that the benefits of that use are available to the public on reasonable terms. A contractor has no obligation to license any invention–it can use that invention itself and meet its obligations. A contractor can license non-exclusively in the U.S. and not require product to be manufactured in the U.S.–it can then license manufacturing rights exclusively to a foreign company and import product. Another empty Bayh-Dole provision presented as meaningful.

The government keeps the right to use the patent through a non-exclusive claim when it has a financial reason to do so. In other words, the United States always has the right to use any innovation that comes from federal grant money.

The government’s right is to practice and have practiced the invention. The government’s right is not dependent on any particular patent. The government does not keep this right. It is a right that invention owners must grant upon electing to retain title. The stuff about a “financial reason to do so” is fabrication. The federal government has the right to use any patented invention under 28 USC 1498–it does not need Bayh-Dole for that. Bayh-Dole’s required subject invention license means the government owes no compensation for the use.

The university must pay it forward with their innovations. Excess revenue of any profitable invention should go to further research and education. In this way, one innovation should pay for others.

“Excess revenue” is a strange construction. Bayh-Dole’s usage is the “balance” of any income after allowable expenses (“incidental to the administration of subject inventions, including payments to inventors”) must be used for scientific research or education. This is a fundamental restriction on nonprofit invention administration and applies to anyone that receives assignment of any subject invention, including for-profit companies. Universities have had this arrangement for over a hundred years. Bayh-Dole did not do anything other than restrict university use of invention income and extend the requirement to any assignees of the invention. Oh, and an exclusive license that grants all substantial rights in an invention–make, use, and sell–operates as an assignment of the invention. Fancy that.

The government maintains what it calls march-in rights. This is the most controversial part of the Bayh-Dole Act.

It’s a strange assertion that a part of the law that has never been used is its most controversial part. UpCounsel may have that point. But we might ask whether it might be more controversial to create a patent monopoly pipeline of federally supported research results to pharmaceutical companies and venture speculators is more controversial. Or whether making an arbitrary policy that applies regardless of the purpose of the research, the desires of the faculty investigators, the effect of fragmenting ownership of inventions among institutions, or the capability of any given institution to manage inventions.  Oh well. We march on.

What Are March-In Rights?

The federal government maintains some control over the innovations discovered in federally-funded labs. The government has the right to give itself a license to these discoveries, even though the non-profit has the primary claim.

“Innovation” continues to show up where “subject invention” or “patentable invention” should be used. “Federally funded labs” are covered by Stevenson-Wydler. Bayh-Dole concerns subject inventions (patentable inventions made in projects with federal support and owned by a contractor) arising in research or development under a federal funding agreement. The rest here is pure garble. March-in has nothing to do with the government license to practice and have practiced. March-in has to do with compelling an owner of a subject invention to grant licenses under certain circumstances, and if the owner will not do so, the government may grant those licenses directly.

The government can also grant licenses to other parties if the innovation will affect public safety. Many uses of march-in rights have military applications. The government may see a chance to improve its peace-keeping operations. Thus, it grants licenses to departments of the armed forces as well as military contractors.

The government’s license to practice and have practiced any subject invention allows it to authorize royalty-free use of any subject invention “for or on behalf of the United States.” March-in has to do with nonuse, noncompliance (of US manufacturing preference), and failure to provide reasonable availability of a subject invention. These are matters of the private marketplace, not the federal marketplace.

One aspect of the march-in rights clause is especially unpopular. The federal government has the right to grant a license to a competitor in the same field as the innovator. When this happens, the patent holder loses a key market advantage.

March-in has never been used. The procedures were designed to be unworkable. Howard Bremer took credit for it. In march-in, a federal agency can require licensing by the patent owner or assignee or exclusive licensee. The whole point of march-in is that a patent owner’s use of a subject invention is unreasonable, the “key market advantage” is unreasonable. Who is it who would find such a thing “unpopular”? “most controversial”? Ah, folks who desire to be unreasonable in their exploitation of inventions subsidized by the public. Why should such folks be so very important to public policy? Dunno. Ask UpCounsel.

People have often petitioned the National Institutes of Health (NIH) to use its march-in rights to address high drug prices. So far, the NIH has refused to do so.

There is no mechanism in Bayh-Dole to permit petitions for march-in. Bayh-Dole provides only that a federal agency may make a determination that march-in is necessary, following an easily delayed protocol. “Often” is fabrication. There have been six petitions in 35 years, all rejected.

What Are the Obligations of an Innovator Under the Bayh-Dole Act?

As a way to streamline the process, the federal government has set up regulations for the contracting of innovations. The innovator must:

Bayh-Dole requires federal agencies to use a standard patent rights clause unless they can justify an exception. The patent rights clause states the obligations of the contracting organization receiving federal funding–the initial “contractor.”

Create an employee invention policy that covers issues such as reporting of discoveries and royalty expectations.

There is no requirement that a contractor have an employee invention policy. The standard patent rights clause requires the initial contractor to flow down four obligations to technical employees–1) to disclose subject inventions to the initial contractor; 2) to assign subject inventions to the initial contractor (as of 2018); 3) to sign papers to permit patent applications to be filed on subject inventions; and 4) to sign papers to establish the government’s rights in subject inventions. A subject invention is an invention already owned by a contractor. It’s a long story. Not here. Basic bit is that everything that matters is contained in the written agreement requirement that the initial contractor must comply with. No new policy necessary.

Choose to elect or waive a title within two years.

Provide notice whether to elect to retain title within two years of disclosing the invention to the federal government.

Confirm the contribution of the federal government to the innovation.

Place a government funding and rights notice in patent applications and issued patents.

Report all inventions to the United States government within 60 days of disclosure to the university. Note that the inventor may not reveal the innovation to the university right away. Many inventions need a great deal of testing to confirm that they work. The 60-day clock doesn’t start until the university knows of the innovation.

Bayh-Dole says “within a reasonable time.” The patent rights clause says “two months.” In the original version of Bayh-Dole, the clock started when the invention was “made.” That bloated up university patent administrators so they got the law changed so they didn’t have to worry. If the inventor has not determined that the invention works, the invention is not patentable. Since the disclosure obligation does not apply to inventions that are not yet patentable, there is no reporting obligation. Furthermore, the reporting obligation is specific to subject inventions–so the invention must be owned by a contractor–a party to the funding agreement–before it is reportable. Supreme Court, Stanford v Roche (2011).

File for a patent within one year of choosing the title or disclosing the innovation to the public, as long as the patent isn’t biological material. The clock starts after whichever event comes first. It’s usually the choosing of title, though. The university has 10 months after filing the American patent to inform the USPTO whether it will also file international patent applications.

Is it possible for UpCounsel not to garble at least one thing? A patent application must be filed within one year of its election to retain title, or sooner if there’s a statutory patent bar.  That’s not at all the same as “disclosing the innovation to the public.” The bit about biological material is not in Bayh-Dole or the standard patent rights clause. More fantasy. There is no requirement in Bayh-Dole that the first patent application must be in the U.S. A contractor may file a PCT application, designating the US for a national phase application after review of the application.

Here’s 35 USC 184: “Except when authorized by a license obtained from the Commissioner of Patents a person shall not file or cause or authorize to be filed in any foreign country prior to six months after filing in the United States an application for patent . . . in respect of an invention made in this country.”

Alternately, the innovator must notify the government of its choice not to file for a patent.

Yes. Or that it will not continue prosecution of a patent application, or that it will not pay maintenance fees, or that it will not defend the patent.

Provide a license confirmation to the federal government.

The license is a condition of the action to elect to retain title to a subject invention.

Provide an annual utilization statement for all innovations that the organization has claimed.

No. Federal agencies are required to use a provision in the standard patent rights clause that permits them to request utilization reports no more often than annually. But a federal agency is not required to request such reports. The reports, if requested, are for subject inventions–any patentable invention made with federal support and owned by the contractor.

Create a final invention statement with certification. The organization must deliver these documents within 90 days of the end of the project.

Grant closeout invention reporting is not part of Bayh-Dole.

Verify that all existing internal agreements give researchers the freedom to pick projects.

Not part of Bayh-Dole. Not in standard patent rights clauses. Not even within the reach of the written agreement requirement that the initial contractor must pass down to technical employees. Many universities have formal policies assuring faculty of freedom of research and publication. But these have nothing to do with Bayh-Dole, other than that some university administrators might cite a faux version of Bayh-Dole to rationalize refusing to comply with those policies on freedom of research and publication. A patent is, fundamentally, a publication (for which the government grants the inventor an exclusive right for a limited time).

For a university to comply with the patent rights clause obligation to file a patent application and also comply with its own policy on faculty freedom of publication, then the university cannot force a faculty inventor to file a patent application. If that’s the case, then the university cannot elect to retain title to inventions made in projects with federal support unless the faculty inventor voluntarily agrees. If that’s the case, then there is no point for a university to require assignment of such inventions unless the faculty inventor voluntarily assigns. If that’s the case, then a university cannot comply with NIST’s April 2018 requirement that universities (and all other initial contractors) must require inventors to assign subject inventions–if that means that universities must require inventors to assign inventions made in projects receiving federal support and by doing so turn those inventions into subject inventions.

There is a direct, even simple, approach to the patent rights clause that preserves faculty freedom to publish. Push down the written agreement requirement. Require inventors to assign to themselves as newly made contractors by virtue of their written agreement, and leave the inventors to operate under the inventor patent rights clause (37 CFR 401.9) rather than the standard patent rights clause. But that would be too easy, would give inventors a personal stake in their inventions, and offer an even greater incentive to those inventors to manage their affairs in keeping with their best professional judgment. Who could possibly allow that to take place when there are all these extra bureaucratic thumbs waiting in line to press themselves into each opportunity to innovate?

Release research findings in a timely manner. The general guideline for this timeframe is 30-60 days.

Not in Bayh-Dole. No idea where UpCounsel gets its “general guideline.” Posterior cortex maybe. If research findings are withheld, a university may run up against export control regulations. See the guidance on “fundamental research” at 15 CFR 734.8.

Confirm that any goods produces [sic] from the innovations should have a focus on American employment. The Bayh-Dole Act prioritizes American jobs, but it doesn’t require the creation of all goods in the United States — just a substantial portion.

The “manufactured substantially in the United States” provision applies only in the limited case of an exclusive license in the United States to use or to sell. It is not a general requirement for “American employment” or even United States industry with regard to any subject invention. Bayh-Dole’s statement of policy does have a general requirement that runs with the patent property right–“to promote the commercialization and public availability of inventions made in the United States by United States industry and labor.” But this provision does not show up in its general form in the standard patent rights clause. The provision that does show up (35 USC 204) is limited, easily circumvented, waivable by federal agencies, and enforceable only through the convoluted march-in procedures. There is no good guidance of what constitutes “manufactured substantially in the United States.” Is it the percentage of parts, the percentage of material, the value of the work, the value of the parts, the role of the parts in relation to the whole? Even though section 204 sets itself up to be the most important provision in Bayh-Dole, it is so unimportant that no-one could bother to consider what it means to “manufacture substantially in the United States.” It sounds good, like bacon made from flying pigs. But how? where? Oh, you don’t say! Well, I never!

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