Bayh-Dole applies only to inventions owned by a contractor
Bayh-Dole applies only to subject inventions. Supreme Court:
the Bayh-Dole Act . . . applies only to “subject inventions”—“inventions of the contractor”
Subject inventions are patentable inventions made in work under a funding agreement that are owned by a contractor–any party to the funding agreement. It is the contractor’s ownership that brings an invention within the scope of Bayh-Dole. It is not merely the fact of federal funding or even that an invention is or may be patentable. And nothing in Bayh-Dole provides a mechanism, mandate, or right for an invention that is not a subject invention to be turned into one. Nothing in Bayh-Dole authorizes a change in ownership of any invention.
Bayh-Dole is part of federal patent law. Nothing in federal patent law compels an inventor to use the patent system. Nothing in federal patent law vests the ownership of inventions other than with the inventor. We might expect, then, that Bayh-Dole also does not require inventors to use the patent system and does not divest inventors of the ownership of their inventions. No matter what words we might encounter–even from dazed and confused NIST chief legal counsel–the reasonable interpretation will be one that does not require the use of the patent system and does not divest inventors of their inventions. And, indeed, neither Bayh-Dole nor the standard patent rights clause authorized by Bayh-Dole requires inventors to use the patent system or to assign their rights to any other party.
And this is true even with NIST’s goofball addition of an assignment provision to the standard patent rights clause, which to comply with Bayh-Dole can apply only to subject inventions–ones already owned by a contractor. If the inventor is not a contractor, then the assignment clause does not apply, because it is specific to subject inventions. If the inventor has been made a party to the funding agreement by the subcontract required by the standard patent right clause–and therefore is a contractor–then the inventor is covered by a different patent rights clause–at 37 CFR 401.9. About the only conceivable meaning for NIST’s new assignment requirement is that contractors must require inventors to agree to assign inventions that the contractors already own–at best inventions that the contractor holds equitable title but not formal title.
The fundamental concept of Bayh-Dole is that *if* a contractor comes to have ownership of an invention made in work with federal support, *then if* the contractor behaves properly with the invention, *then* the federal agency cannot require the contractor to give up ownership of the invention, provided that the contractor grants the United States a license to practice and have practiced the invention.
There’s nothing in Bayh-Dole that gives a contractor any special right to acquire any invention made in work with federal support.
Any other inventions–ones not owned by a contractor–are not subject to Bayh-Dole. Those inventions may be subject to the federal regulatory regime not preempted by Bayh-Dole. Bayh-Dole did not repeal past statutes and executive branch patent policy–it merely exempts inventions made in projects receiving federal support from such laws and policy when a contractor has come to own such inventions. One might think then of Bayh-Dole as a “safe harbor” from the vicissitudes of federal law and policy regarding the disposition of inventions made in projects receiving federal support. If inventors don’t like those vicissitudes, they can assign their inventions to a party to a funding agreement, and then Bayh-Dole applies.
Bayh-Dole does not force anyone to assign inventions to a contractor. Bayh-Dole offers no special privilege for a contractor to take inventions. It applies only after an invention is owned by a contractor. Thus, it’s nonsense to imagine that Bayh-Dole or its patent rights clause can require assignment of inventions made with federal support and so turn those inventions into subject inventions, as if the intent of the law was that every invention made in work receiving federal support should be a subject invention. But that’s not in the law. Every invention made in work receiving federal support is not, by Bayh-Dole’s definitions, a subject invention. Only those that a contractor comes to own. Let that sink in.
Bayh-Dole applies only after an invention is owned by a contractor. Bayh-Dole is part of federal patent law, and the federal government has the authority to reserve exclusive rights in inventions for the inventors, not for random bureaucrats who happen to manage the money for federal grants. Bayh-Dole cannot vest title with the random bureaucracies or give them authority to take title–certainly not as part of federal patent law.
Cleverness of the standard patent rights clause
Now consider the cleverness of the standard patent rights clause. Rather than attempting to force inventors to assign their inventions to random bureaucrats, the standard patent rights clause requires the random bureaucrats to make potential inventor employees parties to the funding agreement. That’s the reason for the convoluted structure used by the patent rights clause–
. . . contractor agrees to require, by written agreement, its employees, . . . to disclose promptly . . . each subject invention made under contract . . .
Again, a “subject invention made under contract” is not any invention made under contract. A subject invention by Bayh-Dole’s statutory definition is a patentable invention owned by a contractor made under contract. The contractor has to already own the subject invention for the disclosure requirement to apply. But even the disclosure obligation is further qualified:
in order that the contractor can comply with the disclosure provisions of paragraph (c) . . .
Boggling. The contractor owns an invention–so it is a subject invention–but to comply with the disclosure obligation in (c), the contractor has to have its personnel designated for patent matters receive a technically complete disclosure from the inventors. If the inventors do not provide a compliant disclosure to the patent matters personnel, then there’s nothing for the contractor to comply with–the clock on disclosing to the federal government does not start until the patent matters personnel have received a compliant disclosure from the inventors.
Imagine other ways of doing this. The written agreement could require inventors to disclose all inventions made under contract rather than merely subject inventions. The written agreement could require inventors to disclose all inventions made under contract directly to the federal agency, and the federal agency could then forward a summary of each invention to the contractor, and the contractor could determine whether it should request title from the inventors (you know, the contractor does not need to force inventors to assign–it could just ask, or make an offer). If the contractor obtains title, then it notifies the federal agency that it has done so, and there’s no need for an additional “election to retain title.”
But none of this. That would be too easy, too direct, too clear. Instead, inventors have to be required to disclose to the contractor’s patent matters personnel, but only those inventions that a contractor already owns. How can this be?
Here are two possibilities. First possibility: equitable title. If the circumstances permit, an employer may hold equitable title in an invention. If an employer assigns an employee to work to invent, for instance, then courts may construct an implied contract under which the employee has agreed to assign the invention to the employer. The implied contract arises from the circumstances. Similarly, of course, an employer and employee could have voluntarily agreed that certain future inventions would be owned by the employer, and again the circumstances would provide for equitable title held by the employer. And some states have laws that provide that inventions made by state employees working at universities will be owned by the university–again, circumstances.
Bayh-Dole’s standard patent rights clause, however, limits the scope of these circumstances so that federal funding itself is not one of those circumstances, nor is the patent rights clause in federal funding agreements. Contractors are prohibited in having any interest in inventions made and owned by subcontractors–the subcontractors’ subject inventions. Bayh-Dole provides no authority, no special privilege, by which a contractor can take title to any invention. Thus, if a contractor holds equitable title, it must be the result of circumstances that have nothing to do with federal funding, Bayh-Dole, or the standard patent rights clause authorized by Bayh-Dole–and cannot involve anything that the federal funding agreement prohibits, such as an interest in the subject inventions of subcontractors.
Got that–equitable title, but with qualifying circumstances limited by Bayh-Dole’s patent rights clause.
Second possibility: contractors make inventors subcontractors when they require the written agreement. A written agreement might be taken to be a private agreement between employer and employee–a “patent agreement” if you will, even made a condition of employment or continued employment.
The Institutional Patent Agreement program that Bayh-Dole replaced had just such a requirement–contractors were required to have an agreement with each employee that the employee would assign any invention made with NIH funding that the employer had decided to patent. But Bayh-Dole does not do this. Bayh-Dole uses a different definition for its subject invention; Bayh-Dole is patent law, not a federal agency contracting policy running under the radar of executive branch patent policy; Bayh-Dole cannot dictate the disposition of patent rights until a contractor owns an invention made in work under a funding agreement.
But there’s a second angle on written agreement. A written agreement may be transacted so that it is an extension of the funding agreement, like a subcontract. The definition of funding agreement expressly contemplates just such a thing:
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
Any assignment, substitution of parties, or subcontract of any type. The written agreement requirement is a compulsory subcontract. It is a condition of the funding agreement, not a condition of any employee’s employment. It does not matter whether the contractor’s employee is even technically employed while working on the federal project, or whether the employee’s scope of work for his or her employer has anything to do with the work done under the federal funding agreement.
You see the issue–the federal project may involve work that’s entirely unrelated to a university faculty member’s official duties for the university. A private patent agreement will be directed to those official duties. A faculty member is not assigned to a federal project–ahem, freedom of research–rather, a faculty member must request a release from official duties to conduct the federally supported project. Federally supported work is formally outside the scope of the duties a university may assign to a faculty member. “Employee” for a faculty member has a radically limited scope, no matter how university patent policies try to expand the definition of invention and their university’s claim on invention.
But if the written agreement required by Bayh-Dole’s standard patent rights clause is a compulsory subcontract–and it is–then the obligations of the funding agreement and the patent rights clause in the funding agreement flow down to each individual who makes the written agreement regardless of their employment status and regardless of any patent agreements or policy claims that may or may not be in place. Bayh-Dole, as patent law, does not intrude into employer-employee relationships. Cannot. But a federal contract takes precedence over other contracts, and a written agreement that becomes part of a federal contract also then takes precedence over patent policies, employment agreements, and patent agreements.
So the folks drafting Bayh-Dole–patent attorneys, including Norman Latker, who was working for the NIH–shift over to the Office of Federal Procurement Policy and try to sort out the requirements in the implementing regulations and standard patent rights clauses. They see that Bayh-Dole reaches only to inventions “of the contractor”–inventions that have been acquired by a contractor. They know that federal patent law cannot vest ownership of inventions other than with inventors and Bayh-Dole doesn’t disturb this disposition of ownership. Instead, they require contractors to expand the number of parties to each funding agreement by requiring each contractor to make a “mini-subcontract,” the written agreement required of each employee–but still within the definition of “subcontract of any type.” Those employees then become subcontractors, and when they invent, because inventors own their inventions, those inventions become subject inventions–inventions “of a contractor.” Clever.
There’s more. It’s a cascade of cleverness. The law only works as popularly depicted if you give up on the cleverness and don’t chase it down. Chase, please. Inventors when they make the written agreement become mini-subcontractors. Under paragraph (g)(1) of the standard patent rights clause, the prime contractor (the employer) cannot have an interest in the subject inventions of the subcontractor (the inventor) as consideration for the subcontract. That means the pay, the use of resources committed to the federally supported work–cannot be a basis for a claim of ownership, cannot be a condition under which it is equitable that the employer should have title.
The implementing regulations confirm this outcome. There’s a patent rights clause for inventors as mini-subcontractors at 37 CFR 401.9.
. . . will impose upon the inventor at least those conditions that would apply to a small business firm contractor . . .
That is, not only does the written agreement requirement compel a prime contractor to require its nonclerical employees to become mini-subcontractors–those mini-subcontractors are to be treated as “small business firm contractors.” They are not even, for universities, nonprofit contractors. And as small business firm contractors, they are not even subject to the full small business patent rights clause. For instance, the inventor patent rights clause does not include a provision that permits the federal government to take title to inventions if an inventor fails to file a patent application. Whoop!
Bayh-Dole does not require inventors to use the patent system
Bayh-Dole requires the patent system to be used to promote the use of inventions made in work with federal support. But Bayh-Dole does not require inventors to use the patent system. Nothing in patent law requires inventors to use the patent system. The federal government reserves exclusive rights for inventors, but inventors do not have to seek those exclusive rights. If Bayh-Dole’s apparatus required inventors to use the patent system, it would create a system of compulsory patent monopolies. The effect at universities would be to compel university faculty to publish in the patent literature–a violation of their academic freedom–as well as to produce patent monopolies–a violation, often, of the exercise of their judgment.
There is a monstrous opinion out there in AUTM-land that Bayh-Dole is virtuous because precisely because it violates the academic freedom of faculty–freedom of research and freedom of publication. Bayh-Dole, in their monstrous (and crassly ineffective) opinion, supersedes academic freedom and entitles institutions to deal in patent monopolies, to the great relief of the American public and of course entirely for the public’s benefit. This monstrous opinion makes nonsense of Bayh-Dole. Perhaps Bayh-Dole was drafted so obtusely precisely to allow monstrous opinions to prevail. No one would have the energy to chase down the details, with provocateurs, fakers, liars, and sincere drones positioned along the way to offer various forms of dissuasion. All the elements of video game. Fallout: Bayh-Dole.
Instead, Bayh-Dole’s patent rights clause requires contractors to make inventive employees parties to the funding agreement. Those inventors become subcontractors. They own their inventions so that those inventions are subject inventions. And their employer is prohibited from any interest in those inventions as consideration for the subcontract. The inventors are subject to their own patent rights clause, and don’t even have to file patent applications to retain ownership of their inventions. Nothing in patent law requires inventors to use the patent system, and neither does–or can–Bayh-Dole.
Thus, if a prime contractor, an employer, desires ownership of an inventor’s subject invention, it has two options. First, the prime contractor can make an offer. That’s fine–make a good, attractive offer and an inventor might take it. Second the prime contractor can rely on equitable title, that circumstances outside the subcontract and not precluded by the subcontract provide for equitable title to vest with the prime contractor.
Let’s look then at the requirements of the written agreement beyond disclosure to designated patent matters personnel:
and to execute all papers necessary to file patent applications on subject inventions
Those would be papers in which the inventors identify that they are the true inventors and the like. That’s important–but it also means that inventors can refuse to sign papers that misrepresent inventorship or represent as an invention what the inventor refuses to recognize as inventive. Just saying. But this requirement does not much take up equitable title. It’s more of a promise to assist in the patent application process.
and to establish the government’s rights in the subject inventions.
OMG. Would you look at that. A prime contractor is required to subcontract the responsibility for mini-subcontractor inventor employees to establish the government’s rights in subject inventions. This is in effect a quit claim of the prime contractor’s interest in subject inventions. A prime contractor cannot both claim title to an inventor’s subject inventions and at the same time require inventors to execute papers to establish the government’s rights in those same inventions. The federal obligation takes precedence. At best we might resolve this apparent contradiction by reasoning that there are two sorts of subject inventions in play here–subject inventions in which the inventor holds title and the employer has no claim of equitable title, including no claim made in connection with the subcontract–and subject inventions in which the employer holds equitable title through some other circumstance remote from the federal funding and not excluded by federal funding agreement.
NIST’s sad, strange assignment requirement
Now you can see the sad, strange nature of NIST’s new assignment requirement in the written agreement.
to assign to the contractor the entire right, title and interest in and to each subject invention made under contract
Again, subject invention is not any invention. The invention must be “of the contractor” before it is a subject invention. Assign to the contractor those inventions that the contractor already owns. But oh, my, with the written agreement in place, inventors own their inventions, so those inventions are subject inventions–but prime contractors cannot have a right in those inventions. So the only inventions that could possibly be within the scope of this new assignment clause are ones for which equitable title still applies, after we recognize that the written agreement is a subcontract, that the prime contractor is forbidden from taking an interest in the subject inventions of subcontractors as consideration for the subcontract, and further that the prime contractor is required to require its inventors to agree to execute papers to establish the government’s rights in subject inventions.
We might restate the requirement this way:
inventors agree to establish the government’s rights in their subject inventions in those circumstances in which they retain those rights, and for those subject inventions for which they have agreed to assign their rights or otherwise engaged in circumstances that vest equitable title in their employers, they agree to assign formally those rights.
NIST’s new assignment clause cannot reach to non-subject inventions and make turn them into subject inventions by assignment. Nor can NIST’s new assignment clause turn Bayh-Dole, a part of federal patent law, into a vesting statute. Nor does NIST have authority outside Bayh-Dole to do so–it would take an act of Congress to authorize such vesting–electing, taking, first right, mandate, privilege, call it what you will. We are left with a reasonable, though fussy, requirement that contractors require inventors to assign their subject inventions when the contractors hold equitable title in those inventions through the operation of circumstances outside the funding agreement.
No one complies with the written agreement requirement
Don’t you wish we were done? One last layer. No one complies with the written agreement requirement. No one implements the written agreement as a subcontract. Instead the effort has been to make the written agreement requirement moot–by substituting a comprehensive demand by contractors that inventors assign everything to the contractor–regardless of scope of assigned employment duties, regardless of the contractor’s commitment of resources as a condition of the federal award, regardless of the terms of the federal funding agreement and its patent rights clause.
“We claim we comply because we have so arranged things to screw over our inventors so that we don’t have to comply with requirements that would prevent us from screwing over our inventors.”
Oh gawd. What fools these mortals be.
I will be bold. The basis for the provision of federal funds to support faculty-proposed research projects is precisely the intellectual freedom of those faculty members. “The free play of free intellects,” to quote Vannevar Bush’s Science the Endless Frontier. Some academics think Bush was making a “seductive lie” and really no one should be free if the government and universities want to get anything done. But they have no evidence that Bush was lying, committing politics for the sake of getting the funding he proposed. They just don’t like the idea that academic freedom might be a fundamental justification for public funds to expand the frontiers of science with basic research–research not dictated by institutional, corporate, or even governmental objectives. Apparently, institutions are just entitled to these funds as a matter of public good, and inventors are unworthy crap people who will dither away the speculative value of patent rights while institutions will hold those patent rights until someone offering money shows up to buy the inventions.
Let’s surface. We talked about Bayh-Dole’s focus on utilization, not commercialization. Bayh-Dole applies only to subject inventions–inventions of the contractor, owned by a contractor, owned by a party to a funding agreement. Bayh-Dole’s patent rights clause includes a compulsory subcontract, and subcontracts of any type add parties to the funding agreement, add contractors. Thus, inventors become contractors when the compulsory subcontract is implemented, they own their inventions, and so those inventions become subject inventions. But then control passes to the inventor’s patent rights clause, and the standard patent rights clause has only limited operation.
The standard patent rights clause’s new assignment provision come into play only when the prime contractor has equitable title in the inventor’s subject inventions or the inventor voluntarily assigns to the prime contractor an invention made in work receiving federal support. None of this much matters, because no one complies with the written agreement requirement. Bayh-Dole in essence never operates. University administrators and the pressure groups they control work tirelessly to ensure that Bayh-Dole never operates and that no one changes the law to make it possible for the law to operate.