The NIH’s View of Bayh-Dole Compliance, 4

Here’s the NIH offering an overview of Bayh-Dole for its SBIR and STTR programs. Much of the “information” here appears to be drawn from an NIH Q&A document from 1995. That document, “A ’20-20′ View of Invention Reporting to the National Institutes of Health,” presents a view of Bayh-Dole that the Supreme Court rejected in Stanford v Roche (in 2011). After Stanford v Roche, the NIH should have reviewed all its published guidance on Bayh-Dole and removed or corrected all statements that ran against the Supreme Court interpretation of the law. But no. Just like other agencies–most especially NIST–the NIH ignores Stanford v Roche and goes its merry way on Bayh-Dole.

I groused about NIH’s 20-20 document five years ago here at Research Enterprise. And five years before that. But let’s look at it afresh, since it’s been nearly a decade, filtered through NIH guidance for small businesses with regard to Bayh-Dole.

Bayh-Dole Act Background

The Bayh–Dole Act is US legislation dealing with intellectual property arising from federally funded research.

Nope, just patent rights and PVPA. Bayh-Dole is part of federal patent law. Furthermore, on its federal contracting side, Bayh-Dole deals only with those patentable inventions that a contractor owns.

This Act encourages researchers to patent and market their inventions by guaranteeing patent rights.

Nonsense. Nothing in Bayh-Dole encourages researchers to patent and market their inventions. The patent system, if it is used, is to be used to promote utilization of inventions. That must be too hard to think about. To require inventions to be used is to impose a working requirement. We might say then that Bayh-Dole introduces into  federal patent law a working requirement for inventions made with federal support that are acquired by a contractor.

Otherwise, the statement is absurd. Bayh-Dole does not guarantee researchers their patent rights. Actually Bayh-Dole’s implementing regulations do guarantee inventors their patent rights–at least with respect to federal funding–but no one complies and federal agencies don’t enforce. So it turns out that Bayh-Dole does just the opposite in practice–all but ensuring that researchers have no right to patent or have any guarantee of patent rights. Smarthy crassness. And think about it–why would small companies wet their pants with excitement because Bayh-Dole might give their researchers rights to inventions. Wouldn’t you stink at this point that small companies would be happy to hear that Bayh-Dole serves up those inventions for preferential company ownership? Bayh-Dole doesn’t do that–but it’s exactly what the NIH asserts.

The overwhelming evidence is that Bayh-Dole has been used as a pretext by organizations to take ownership of inventions from researchers. The organizations decide what to patent. The organizations force researchers to agree. The organizations “market” the inventions.

For a long while, those organizations asserted–even gloated–that Bayh-Dole vested ownership of inventions with them, not with the researchers. If it wasn’t vesting, then it was the right to take title on notice, or a right of first refusal, or inventors couldn’t assign to anyone but them, or magic. Whatever, the organizations were clear that the inventions were not the researchers. Bayh-Dole did not intend for the researchers to have rights in the organizations’ inventions unless neither the organizations nor the federal agencies wanted them. Senator Bayh was adamant that it was good public policy that inventors should be the “last in line” to have a chance to own their inventions.

Any claim that Bayh-Dole vests title to inventions other than with the inventor runs against the rest of federal patent law, as the Supreme Court made clear. If Congress intends to change a fundamental principle of federal patent law, it must do so expressly, not with a nudge, nudge, wink, wink, know what I mean. In short, the NIH account here is nonsense. Bayh-Dole does not encourage researchers to patent. That’s not in the law. And Bayh-Dole has been used for decades to claim that the inventions are not and should not be the researchers’.

It’s a particular irony, then, that Bayh-Dole does indeed guarantee for research inventors their rights to inventions. But the NIH refuses to point out the regulatory pathway by which inventors are assured of “certainty of title” to their inventions. Where researchers have not been hired to invent or otherwise owe an equitable duty to their employer to assign title, Bayh-Dole provides researcher-inventors with the right, even, to decide whether to use the patent system at all.

All this comes through the operation of paragraph (f)(2) of the standard patent rights clause, the definition of funding agreement at 37 CFR 401.2(a), and the inventor patent rights clause at 37 CFR 401.9. But the NIH does not “interpret” Bayh-Dole this way. Screw the written stuff. Instead, it (and now NIST) thinks that Bayh-Dole guarantees patent rights for institutional contractors, not for the researchers at all. Bitter pills all around.

This Act automatically grants first rights to a patent for an invention fully or partially funded by a federal agency to the awardee organization.

Pants wetting time. But the Supreme Court in Stanford v Roche ruled exactly no. There is no special privilege granted by Bayh-Dole. Here’s the Supreme Court:

The Bayh-Dole Act does not confer title to federally
funded inventions on contractors or authorize contractors
to unilaterally take title to those inventions; it simply
assures contractors that they may keep title to whatever it
is they already have.

The NIH doesn’t give a damn, obviously, about the Supreme Court’s silly rulings.

More NIH “guidance”:

To obtain these benefits, however, the inventor and the organization have several reporting requirements that protect the rights of the government. For more information on the Bayh-Dole Act and NIH’s Role, please read Guide Notice NOT-95-003.

NIH’s Guide Notice NOT-95-003 is the 20-20 Guide from 1995. Bad advice then. Worse now.

Let’s focus on the reporting obligations of the inventor. Under Bayh-Dole the statute, inventors have no reporting obligations. They just are not there. And why would it be? Bayh-Dole applies to federal agencies and to subject inventions–inventions that a contractor owns. Bayh-Dole simply cannot possibly apply to inventors unless the inventors become contractors. Keep that in mind.

Inventors do end up have reporting obligations, but not under Bayh-Dole and not even under the standard Bayh-Dole patent rights clause. Instead, the standard patent rights clause (paragraph (f)(2)) requires each contractor to require its non-clerical employees to make a written agreement to protect the government’s interest in subject inventions.

This written agreement then is not part of Bayh-Dole, not part of the standard patent rights clause that applies to the contractor. It is a separate agreement that comes about because the contractor must assign to the specified employees in their personal capacities certain responsibilities for subject inventions–to disclose them to the contractor to be reported to the federal agency, to sign papers so patent applications can be filed, to sign papers to establish the government’s rights in them.

Now, here is a great mystery. If a subject invention is one owned by a contractor, then how can it be that an inventor must disclose each subject invention to the contractor? An invention, when it is made, is owned by the inventor. That’s federal patent law. Bayh-Dole is part of federal patent law. If an invention is owned by the inventor, not a contractor, then it’s not a subject invention and so does not need to be disclosed and the government has no interest in the invention that needs to be established.

Further, we know from the Supreme Court that the contractor does not have magical powers under Bayh-Dole to already own the invention the moment the invention has been made, nor any special privilege so that a contractor could take inventions at will (and so could take inventions even before they were invented). Bayh-Dole does not authorize any such thing.

And we can see from the requirements of the written agreement that contractor is required to concede to the inventor the right to establish the government’s rights in subject inventions. That is, the written agreement requirement forces the contractor to expressly give up any claim to an invention based on federal funding. A contractor cannot give up a claim to inventions as a federal contract requirement and at the same time persist in a claim to the same inventions as a matter of a state enforced contract.

And it cannot even be that a clever contractor could set up a scheme under which employees assign to the contractor in advance all their future inventions. The contractor must require the written agreement. The written agreement includes the inventor’s right to establish the government’s interest. To be able to do that, an inventor must have rights in the invention. Federal contracts–such as funding agreement’s patent rights clause and the written agreement that follows from it–take precedence over state-enforced contracts.

By making the written agreement, inventors become parties to the funding agreement. As a matter of federal patent law, inventors own their inventions. Having been required to become parties to the funding agreement, inventors then are also contractors. As contractors, any patentable invention they make in performance of work under the funding agreement is a subject invention. The inventors own their subject inventions. The inventors have an obligation to disclose their subject inventions to the contractor that required them to make the written agreement. The inventors have an obligation to sign papers to establish the government’s rights in their inventions.

Under Bayh-Dole’s implementing regulations, these inventors are treated as small business contractors, but with fewer obligations than those of the standard patent rights clause. See 37 CFR 401.9. Yes, the implementing regulations include an inventor patent rights clause. In fact, the inventor patent rights clause reflects the default of federal patent law. Inventors own their inventions. All subject invention ownership starts with the inventor. Bayh-Dole does not change that default. Bayh-Dole does not give any contractor the right to force an inventor to give up ownership of any subject invention. Bayh-Dole’s patent rights clause, in fact, limits a contractor’s ability to require assignment of a subject invention to the contractor.

This limitation remains true even with NIST’s new rule change that adds an assignment requirement to the written agreement. That assignment requirement can only apply to inventions that the contractor already holds equitable title to and even then, only for subject inventions arising under a contract, not a grant or cooperative agreement–for federal procurement contracts, mostly with companies, not for federal grants, mostly with nonprofits.

Now that the standard patent rights clause has required contractors to make all their non-clerical employees also become contractors, we can see that each of those employee-contractors does indeed have reporting obligations. Under the written agreement requirement, employee-contractors must report their subject inventions to the contractor, which is required to report the subject inventions to the federal government. But the employee-contractor still has the assigned responsibility to sign papers to establish the government’s rights in each subject invention–each such invention owned by the employee-contractor-inventor.

Under the inventor patent rights clause for subject inventions, each employee-contractor-inventor has the right to elect to retain ownership of the subject invention, and the federal government has the right to request title if the inventor does not timely disclose the invention, or does not elect to retain ownership; or if the inventor does file a patent application, the government may request title if the inventor does not prosecute the application or maintain or defend any issued patent. The employee-contractor-inventor has no obligation to file a patent application, however. Federal patent law does not require inventors to use the patent system. Bayh-Dole does not require inventors to use the patent system. Bayh-Dole requires institutional owners of subject inventions to use the patent system unless a federal agency agrees otherwise. There is no such requirement for inventors. When an inventor of a subject invention decides to file a patent application, there’s a flurry of bureaucratic requirements. When an inventor decides to assign a subject invention, there’s a blizzard of bureaucratic requirements.

If all the snow leaves you cold, it’s because bureaucratic requirements induce innovation in an odd way–by encouraging inventors to avoid the system altogether. Don’t put your best ideas with commercial value into proposals for federal funding. Don’t choose to explore applications of federally funded work while still doing that federally funded work. Bayh-Dole operates, then, by encouraging researchers to avoid federal funding with anything that they may want to develop personally. Bureaucratic requirements are not aligned with innovation. Bayh-Dole creates bureaucratic requirements. Bayh-Dole is not aligned with innovation. Researchers, at least, are often smart enough to see this. NIH, apparently not.

Nothing in Bayh-Dole gives an initial contractor any special right to take inventions from inventors. Nothing in Bayh-Dole forces any contractor to assign inventions to any other contractor. Indeed, the standard patent rights clause forbids a contractor from asserting an interest in subject inventions owned by a subcontractor, at least as consideration for the subcontract. The written agreement employee-inventors must make to protect the government’s interest in subject inventions amounts to a subcontract between the contractor and its non-clerical employees regarding a set of actions that only an inventor acting it his personal, non-employee capacity, could do–know that he has invented, disclose what he knows he has invented, sign papers pertaining to his recognition of his inventive action, and sign papers to convey rights to the federal government in the invention property the inventor owns–a subject invention.

If, when an invention is made, no contractor owns it, then it is not a subject invention and nothing in Bayh-Dole can compel that invention to become a subject invention. Nothing in Bayh-Dole gives any contractor any special right to take such inventions and so turn them into subject inventions. Inventions made outside of Bayh-Dole are subject to the federal statutes and regulations that Bayh-Dole does not preempt. That is, they are still in the pre-Bayh-Dole world of federal law.

If one argues that the written agreement requirement is merely that each employer must require inventors to assign their inventions made with federal support to their employers, that agreement fails to do anything. Inventors are then not contractors, and the inventions they make are not subject inventions (because not owned by a contractor), and therefore Bayh-Dole does not apply to them, nor does the standard patent rights clause, nor the inventor patent rights clause. But pre-Bayh-Dole federal law does.

Thus, under Bayh-Dole, inventors own their inventions, as federal patent law provides. Through the operation of the standard patent rights clause, contractors must turn their inventors into contractors, and as contractors, inventors have the right to retain ownership of their inventions, as long as they have timely disclosed them and notified the government of their election to retain ownership.

But here’s where it gets odd. In Bayh-Dole, the government’s license is part of the provisions for the standard patent rights clause–35 USC 202(c)(4). That provision then shows up in the standard patent rights clause as 37 CFR 401.14(b). But there is no such provision in the inventor patent rights clause at 37 CFR 401.9.

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

There’s no (b)–no default license to the government. Yes, there’s an “at least”–but no guidance on how that “at least” is to be managed in practice. It would appear to require a determination of “exceptional circumstances” before a given award has been made, just as for the standard patent rights clause. Furthermore, there’s no (d)(2). That’s the provision that requires a contractor to file a patent application, and that the government can request title if the contractor fails to do so. So an inventor under the inventor patent rights clause does not even have to file a patent application–at least not as a default requirement. Perhaps in exceptional circumstances. Thus, if an inventor timely discloses an invention and timely elects to retain title, the inventor may simply blow the patent rights and the government has no recourse. That outcome is entirely consistent with the use of the patent system, which does not require inventors to use it. Nor does anything in Bayh-Dole.

How strange, then, that Bayh-Dole is not drafted to make clear its fundamental operation. Bayh-Dole always has been a scheme to do something other than what the public is given to understand–just as did the IPA program before it. Both the IPA program and Bayh-Dole were created by the NIH. Both were drafted to create a pipeline of patent monopolies running from public research to pharma companies. The IPA program was shut down as ineffective and when it did manage to secure a license, those few licenses were almost always exclusive, and the terms of those licenses were “sweetheart” deals. We can try to rationalize Bayh-Dole in any other way, but the history of the law shows that it is just another attempt at the IPA, another version of the pipeline, with an apparatus to “benefit the public” and to “protect the public” that happens never to operate. Not in Bayh-Dole. Not in the implementing regulations. Not in the standard patent rights clause. Heck, other than the bureaucratic requirements, federal agencies don’t enforce the standard patent rights clause. They don’t enforce the written agreement requirement or anything else. It’s strange to even talk about what Bayh-Dole has done. Bayh-Dole has never operated. It has done nothing of its own.

Under Bayh-Dole–a part of the federal patent law–an inventor is not required to use the patent system.  This result is entirely consistent with federal patent law. Bayh-Dole is silent on the matter–as it must be–and the standard patent rights clause requires contractors to concede to inventors in effect quiet possession of their inventions as a matter of federal funding. That’s the purpose of the written agreement requirement in (f)(2) of the standard patent rights clause.

 

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