Bayh-Dole Basics 6: enforcement comments

Bayh-Dole is part of federal patent law. It covers three areas.

  1. Public covenant. Bayh-Dole creates a public covenant that runs with inventions arising in federally supported research and development
  2. Federal contracting. Bayh-Dole permits nonprofit organizations and small business firms to retain title to inventions arising in federally supported research and development if they acquire ownership of those inventions, and requires federal agencies to use a standard patent rights clause in funding agreements unless they can justify a custom patent rights clause. There are four patent rights clauses.
  3. Federal exclusive licensing. Bayh-Dole authorizes federal agencies to grant exclusive patent licenses to inventions owned by the federal government.

Bayh-Dole also carries an apparatus of definitions, an exclusion for educational grants, a statement of precedence over all prior statutes but for Stevenson-Wydler, and a reaffirmation of antitrust law.

When there’s talk of university compliance “with Bayh-Dole,” people generally mean compliance with the standard nonprofit patent rights clause at 37 CFR 401.14(a). That is, the compliance is not with the statute, which applies to federal agencies and patent property rights in the inventions they support, but rather with federal contracts for research and development set forth by regulation.

Furthermore, talk of university compliance centers on a few rather bureaucratic aspects of the patent rights clause, not on its substance, such as:

  • report subject inventions (within the time specified)
  • elect to retain title (or not, within the time specified)
  • file patent applications (within the time specified)
  • include a federal funding and rights notice in patent applications (as specified)
  • grant the government a license (with the requisite terms)
  • report on utilization of inventions (as requested)

Sometimes mentioned:

  • preference for small businesses in licensing
  • preference for American manufacturing

Worried:

  • march-in rights

Ignored:

  • the public covenant on subject inventions
  • education of inventors regarding disclosure
  • restriction on nonprofit assignment of subject inventions
  • restriction on the use of income with respect to subject inventions
  • written agreement to protect the government’s interest

Misrepresented:

  • university right to ownership of subject inventions
  • mandate to commercialize inventions

Federal agencies generally comply with Bayh-Dole’s requirement that they use a standard patent rights clause. They do not, however, do much to enforce the standard patent rights clause. There are reasons.

First, there is not much to enforce. Of the stipulations listed above, most don’t matter. There are no financial or criminal penalties established by Bayh-Dole. There is virtually no mechanism for private actions with regard to the law or the patent rights clause or federal agency administration of any particular patent rights clause. Almost every substantive provision of the patent rights clauses can be waived by federal agencies. The remedy for the few possible breaches of the patent rights clause is loss of ownership of subject inventions (but retaining in most cases a non-exclusive license that extends to sublicensing to anyone to which the university had a legal obligation to provide a license prior to the funding agreement).

Second, almost anything that might be enforced can be waived. A federal agency does not have to request title to any invention when a university fails to report or elect to retain title or file a patent application or maintain an issued patent. A federal agency does not have to request invention utilization reports. A federal agency may waive the American manufacturing preference. A federal agency may waive the nonprofit small business licensing preference. A federal agency has no obligation to march-in–and none ever has.

Thus, university compliance with the standard patent rights clause involves properly placing a government funding and rights notice in patent applications, issuing a paper document granting the federal government its license, and responding to federal agency requests for invention utilization reports. Everything else can be ignored, so long as a university insists that it is complying. A GAO report from 1998 made it clear that universities are pretty much on their own to comply with the standard patent rights clause. And as far as I can tell, that’s the last that even the GAO has bothered to look into compliance. Bayh-Dole is so inconsequential that there’s not even compliance with checking on compliance. Either Bayh-Dole is working perfectly, a model citizen, or it is a dismal failure that no one wants to sort out. There’s not much room for middle ground. Think of Bayh-Dole as an organized crime syndicate that has made its separate peace with the broader community–don’t get on its turf and you won’t get hurt. Stay away, and you won’t be bothered.

Bayh-Dole goes out of its way to make it easy for federal agencies not to enforce the standard patent rights clause. Rather than establishing a federal right to receive inventions as deliverables, and then in certain circumstances waiving or delaying the exercise of that right, Bayh-Dole sets it up that contractors have a right to inventions when assigned to them, and that any diminishment of that right amounts to a taking of private property, subject to due process and including contractor appeal, rather than that a contractor, to maintain a limited monopoly in an invention deliverable to the government must demonstrate at each point the appropriate actions. The burden should be on the contractor–and especially the nonprofit contractor. But Bayh-Dole arbitrarily puts the burden on the federal agency to unclench the grasp that a contractor might have on an invention made with federal support.

Federal agencies may waive many of the substantive requirements of the standard patent rights clause, including preference in exclusive licensing in the US for US manufacture, nonprofit preference in licensing for small businesses, nonprofit assignment to anyone other than an invention management organization, reporting on utilization, and march-in procedures in the case of nonuse and other situations. And federal agencies generally ignore other requirements, such as the nonprofit restriction on use of royalties and income with respect to subject inventions.

Bayh-Dole also makes it difficult for federal agencies to exercise their march-in rights. The procedures are readily delayed by procedures and are cumbersome. Not only that, but the criteria for invoking march-in are limited and vague. So march-in has never been used to enforce Bayh-Dole’s standard patent rights clause. There is no third-party right to require a federal agency to march-in. And federal agencies have no obligation to march-in. One of the university affiliated patent attorneys that worked on the march-in procedures bragged later that the procedures were designed not to operate.

Finally, there’s virtually no consequence to a university’s failure to comply with Bayh-Dole’s patent rights clause in any of its substantive elements. Only in the case of a university failing to report a subject invention does the university have the possibility of losing ownership of the invention–and then only during a sixty day window after the federal agency “discovers” the failure to report. And even then, the federal agency has no obligation to require assignment of the invention to the government.

In short, talk about Bayh-Dole compliance is for show, to give the appearance that universities are complying with the law. There’s virtually nothing to comply with, however. Bayh-Dole applies to federal agencies. And universities and federal agencies alike ignore pretty much everything regarding the standard patent rights clause. Notice that almost no one talks about complying with the standard patent rights clause. That’s because they don’t, and don’t want to call any attention to the fact.

For instance, if a university does not elect to retain title in a subject invention, having previously obtained that title, then the federal government may request title. But that’s not a matter of compliance or enforcement–it is simply an option in the standard patent rights clause. Same for choosing not to file a patent application or prosecute it or maintain an issued patent–these are simply choices that enable options for the government to request title. Choosing not to file a patent application is not a breach of the patent rights clause–it is an option a contractor has. It’s just that the federal government has no obligation to request title when a contractor decides not to elect to retain title or file a patent application or prosecute a patent application or maintain an issued patent or defend an issued patent.

Even, then, in the fundamental exchange offered by Bayh-Dole, the federal government side of the exchange–the side that presumably is in the public interest–is a matter of federal agency indifference, waiver, and non-action. We are left with the idea that somehow the bureaucratic control of inventions made with federal funding for the public benefit is the public benefit. Or, to paraphrase the argument–the public benefit is the attempt by university bureaucrats to exploit the future value of patents on inventions made in work directed at the public benefit and thus funded by the federal government. The argument goes, the public won’t benefit any other way. If there’s no bureaucratic ownership, no attempt to exploit a patent monopoly, then no one will use or develop the invention and the public won’t benefit.

It’s mind numbing beyond reason. It’s a mystery of bureaucratic thinking. The inspiration of Bayh-Dole, according to its advocates, is that university bureaucrats should have arbitrary control over faculty inventions made in projects worthy of federal support, and that these bureaucrats should do whatever they might to trade in patent monopolies. While Bayh-Dole does not exactly provide for this outcome, it’s what happens when university officials don’t comply with the standard patent rights clause and federal agencies don’t care that the universities don’t comply.

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