The NIH’s View of Bayh-Dole Compliance, 7

We have come full circle through NIH’s garbled version of Bayh-Dole, having been referred by the NIH’s SBIR guidance back to the NIH’s policy manual regarblization of Bayh-Dole in section 8.2.4.

Section 8.2 has a bunch of data and research tool and organism sharing guidelines and says this about inventions:

8.2.4 Inventions and Patents

The Bayh-Dole Act of 1980 (Public Law 96-517; 35 U.S.C. 200-212) and the related EO 12591 (April 10, 1987) provide incentives for the practical application of research supported through Federal funding agreements.

Citations are real. The incentives are fake. Nothing in Bayh-Dole speaks of incentives. Bayh-Dole applies to federal agencies and requires them to use a default patent rights clause that preempts other federal law that might require the agency to take ownership of inventions made in work with federal support that a contractor has come to own. No incentives. Rather, restrictions on federal agencies. In this, perhaps, a restriction on federal agencies to act in the public interest. Private ownership of inventions with public strings attached is arbitrarily announced to be in the public interest, wherever someone private can obtain that ownership. Think about it: the NIH is teaching people that they should make every attempt to obtain ownership of federally supported inventions so that the NIH will not have to consider the public interest in its management of those inventions. How very odd.

We might restate Bayh-Dole’s basic policy this way: if the patent system is to be used, it must be used to promote the utilization of inventions arising in federally supported research or development. That is, practical application of the invention–the invention is used so that benefits are available to the public on reasonable terms. And that the patent system is used to promote free competition and enterprise, not to suppress such competition and enterprise. If you figure out what’s left of the patent system, then you have a grasp of Bayh-Dole’s policy for inventions in federally supported work that a contractor has come to own–subject inventions.

More from NIH’s 8.4.2:

To be able to retain rights and title to inventions made with Federal funds, so-called “subject” inventions, the recipient must comply with a series of regulations that ensure the timely transfer of the technology to the private sector, while protecting limited rights of the Federal government.

Don’t you love the “so-called” with reference to subject inventions. Subject invention is perhaps the key definition of Bayh-Dole. NIH here gets the definition wrong. Subject inventions are not just inventions “made with Federal funds.”

The most important characteristic of a subject invention is that it is an invention “of the contractor.” That is–Supreme Court here, crystal clear–an invention that a contractor owns. And a contractor does not own any invention as a result of Bayh-Dole (though an inventor-contractor certainly will own, if a prime contractor has complied with the standard patent rights clause–yes, even with NIST’s new, twisted assignment requirement). And the Supreme Court also made clear that Bayh-Dole applies only to subject inventions. Only when a contractor owns an invention arising in federally supported research or development does Bayh-Dole’s standard patent rights clause apply.

NIH then leaves out the crucial enabling element of Bayh-Dole–leaves out the key element of subject invention and makes it appear that a subject invention is any invention made with federal support. That’s simply not true. Call it bad guidance. Call it malpractice. Call it contempt of the Supreme Court. Bayh-Dole’s contracting provisions apply only to subject inventions. For any other inventions arising in federally supported projects, a broad body of federal law–statutes and regulations–still applies. Bayh-Dole did not repeal those federal laws; rather, it preempted them, but only for subject inventions (See 35 USC 210). Only when a contractor comes to own such inventions do they become subject inventions. For everything else, the old ways to operate. If one wants the cone of Bayh-Dole to descend, then acquire an invention made in research or development with federal support. There are two paths you can go by:

(i) an inventor assigns an invention arising in federally supported research or development to a party to the funding agreement;


(ii) a party to the funding agreement makes inventors also become parties to the funding agreement by assignment, substitution of parties, or subcontract, and therefore are by definition also contractors.

In the first case, inventions that would be managed under federal law prior to Bayh-Dole become subject inventions and come within Bayh-Dole’s control via the standard patent rights clause that federal agencies must use. In the second case, inventions, when they are made, are owned by their inventors, who also are contractors and come within Bayh-Dole’s control. It’s just that these inventions are subject to the inventor patent rights clause at 37 CFR 401.9, not the standard patent rights clause at 37 CFR 401.14. In this second case, there is no need or requirement for the inventor-contractor to assign invention ownership to anyone else. In fact, Bayh-Dole’s standard patent rights clause precludes some prime contractor claims to ownership, just as it does for other forms of subcontracting.

Without one of these two cases happening, Bayh-Dole doesn’t apply. An invention might be made with federal support, but it’s not within scope of Bayh-Dole if no contractor owns it. If one does not have a problem with the regime of federal law prior to or otherwise outside of Bayh-Dole, then there’s no particular reason to seek out Bayh-Dole management. Bayh-Dole, as part of federal patent law, cannot compel the use of the patent system and cannot compel inventors to give up ownership of their inventions. That’s a limit of federal patent law, so it is a limit, too, of Bayh-Dole.

Clearly, the second case, in which contractors make their technical employees also become contractors, results in way more subject inventions. In the second case, every invention that gets made is a subject invention. But the prime contractors give up their claim to ownership to these inventions as a matter of the federal funding agreement when they add their technical employees as contractors. Way more subject inventions, but not ones all claimable by the prime contractor. In the first case, the only inventions that become subject inventions are those that an inventor assigns to a contractor. Depending on how a prime contractor sets up the relationship with its technical employees, that could involve most inventions, or a few, or none.

Inventions, even patentable inventions, are a dime a dozen. I could go into most any university and emerge with 500 unreported inventions in a matter of weeks without much effort. Patentable invention does not imply meaningful usefulness. An engineering design might follow ten or twenty different pathways, each with its own tradeoffs for function, ease of manufacturing, availability of technology, quality, extensibility, cost, interoperability, and the like. In an engineering setting, one might file patent applications in an attempt to limit the chance that the engineers in their next iteration of design will jump outside the previously claimed inventions. No one in their right mind thinks that each patent application will be–or even ought to be–the source of a new commercial product. That’s just plain nuts. And yes, any university or government administrator who doesn’t see the point is also plain nuts.

The NIH continues its nonsense by repeating the definition of subject invention, adding greater specificity while continuing to ignore the key defining element that brings an invention within the scope of Bayh-Dole:

The regulations apply to any subject invention–defined as any invention either conceived or first actually reduced to practice in the performance of work under the Federal award–and to all types of recipients of Federal funding.

The regulations apply to federal agencies (see 35 USC 206)Federal agencies are required to use a default standard patent rights clause. The patent rights clause deals only in subject inventions. Subject inventions are ones owned by a party to a funding agreement–as well as meeting the other requirements for scope. The NIH may as well here point out that the “performance of work under a Federal award” is actually “performance of experimental, developmental, or research work funded in whole or in part by the Federal government” (37 CFR 401.2(a)). It’s that “in part” part that matters. It’s not that specific federal funds were used to pay people making an invention. It’s that federal funds were used in a project in which an invention was made. Timing does not matter. Separate accounting does not matter. Project? Y. Federal funds support project at least in part? Y. Invention in project (within planned and committed activities or course of work)? Y. Owned by party to funding agreement? Y. = Subject invention.

This includes non-profit entities and small businesses or large businesses receiving funding through grants, cooperative agreements, or contracts as direct recipients of funds, or as consortium participants or subcontractors under those awards.

How is it that the regulations come apply to “consortium participants” or “subcontractors”? NIH makes it appear that somehow these parties are named in the regulations or the standard patent rights clause. But they are not. The controlling element is the definition of funding agreement. Here’s the second sentence of the definition:

This term [funding agreement] also 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 defined in the first sentence of this paragraph.

A prime contractor may add contractors by adding parties to the funding agreement–by any assignment, substitution of parties, or subcontract. Consortium participants become subject to the standard patent rights clause when the prime takes an action to make them parties to the funding agreement by subcontracting work or assigning rights. The thing that a contractor needs to know is what actions add parties to the funding agreement and what do those parties need to know about their obligations?


This entry was posted in Bayh-Dole and tagged , , . Bookmark the permalink.