Bayh-Dole Basics, 7: Disclosure comments, 1

This will be longish. For the brief of heart, here’s a synopsis.

  • Invention disclosure is the heart of Bayh-Dole standard patent rights compliance.
  • Disclosure is not reporting that an invention exists.
  • Disclosure means providing, for an invention owned by a contractor, the information necessary for a determination of patentability and for a patent application to be drafted.
  • Bayh-Dole plays games with the timing of disclosure. Originally, it was within a reasonable time after a subject invention was made. Now, it’s two months after a contractor’s designated patent administrators receive disclosure in writing from the inventors–could be a long time.
  • An invention must be owned by a contractor before Bayh-Dole applies. Contractor ownership is Bayh-Dole’s trigger, not inventing, not federal funding.
  • The definition of subject invention means that a contractor can become aware that an invention exists–and acquire ownership of it–long before a conforming disclosure is received by the contractor’s patent administrators.
  • Contractors may be added to a funding agreement by assignment, substitution, and subcontract, and any inventions these contractors make are also subject inventions for which the disclosure requirement applies.

Procedures for disclosure have to be strange because of the definition of subject invention.

Okay, here’s the discussion, O less faint of heart.

First, Bayh-Dole

Bayh-Dole requires federal agencies to use a default patent rights clause in funding agreements for research or development when they cannot justify a purpose-specific clause. The patent rights clause establishes the primary obligations for a contractor who obtains ownership of a patentable invention made under the funding agreement and chooses to retain that ownership. The patent rights clause then becomes part of the federal funding agreement. While Bayh-Dole specifies the provisions that are to be included in the patent rights clause, the implementing regulations establish four variations on the patent rights clause–one for companies, one for nonprofits, one for inventors (a subset of the company clause), and one that originally was a default “exceptional circumstance” for DOE nuclear energy and weapons programs.

If a contractor obtains ownership of a patentable invention, and that invention has been made under a federal funding agreement, the invention becomes a “subject invention.” The requirements of the standard patent rights clause then apply to that invention. How does a contractor determine that an invention is a subject invention? A contractor must acquire the invention. That part requires, for an institutional contractor, a written assignment. So, there’s a piece of paper. But also, an assignment is of a property–so there must be some definition of what is assigned (and what is not). That’s the starting point for a disclosure–the disclosure defines what is to be assigned. Otherwise, the assignment is really a promise to assign later, when everything has been sorted out: “I assign all of this whatever” is really “I assign what later we decide I have assigned.”

Finally, the invention must be one that was made under a funding agreement, or in the performance of work under a funding agreement, or under contract, or arising in federally supported research or development–Bayh-Dole uses all of these constructions. Bayh-Dole’s implementing regulations are clear (if that term can be used for anything in Bayh-Dole) that “under contract” does not mean “made using federal money”–separate accounting for an invention is not a determining factor (see 37 CFR 401.1). The proper wording is more like “made in a project that has received federal funds.” The definition of “funding agreement” includes funding that is provided “in whole or in part” to a “work.”

Bayh-Dole’s Scope of Work

The federal funding may be part of the project’s funding base, but “under contract” means that the federal government has an interest in the output of the project that it has funded at least part of, not merely the part of the project that federal money was used for. Put another way, if the federal government funds one part of a bigger project, then that part of the project supports the bigger project and the federal government therefore has supported the bigger project. The regulations on scope also assert that chronology is not determinative. The federal funding does not have to be spent simultaneously with other funding–the federal part of the project may come first, or after. This treatment makes really good sense. Otherwise, the federal government could be induced to fund a project with desirable possible outcomes only to find that the contractor arranged it so that the federal money paid for all the bottle washers, collection equipment, and janitorial services, while a company was recruited to pay for the scientist that used all this equipment and services to make the discoveries anticipated by the project.

Thus, scope of the funding agreement does not acknowledge separate accounting within a project, nor does it acknowledge efforts to break up a project into separate stages. Either practice isolates inventive work from the sponsors who are induced to fund based on the entirety of the effort, not merely for a part that may end up not to be the one that generates the patentable work. And it’s the patentable work that Bayh-Dole has an interest in–for government rights, for a public covenant with regard to the private use of patent monopolies.

Thus, it is simply wrong to use “made with federal funding” or “if $1 of federal money touches an invention”–Bayh-Dole’s scope of a funding agreement is focused on the “work” or the “project” that is “planned and committed,” regardless of whether the federal government funds some or all of that work or project, and regardless of whether the federal government funds the work or project early on or in the middle or at the end or at the same time as other funding.

Implications of Research and Development

Put another way: Bayh-Dole asserts as scope any planned and committed “research” or “development” or “experimental, developmental, or research work.” These words are not used as synonyms. Nor are they defined. They carry their meanings in common usage. Experimental work is work that is based on experience and observation, as in testing or evaluation. Call it messing around. Research is “careful or diligent search,” a systematic investigation. Here’s a definition of “basic research,” for instance, codified at 32 CFR 272.3 by the Department of Defense.

Basic research is systematic study directed toward greater knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications towards processes or products in mind. It includes all scientific study and experimentation directed toward increasing fundamental knowledge and understanding in those fields of the physical, engineering, environmental, and life sciences related to long-term national security needs. It is farsighted high payoff research that provides the basis for technological progress.

Here’s a definition of “applied research” from the FARs. Applied research “may not be severable” from basic research. Could be all the same thing. “Applied” research involves “attempts” to mess around with nature for useful purposes.

“Applied research” means the effort that (a) normally follows basic research, but may not be severable from the related basic research; (b) attempts to determine and exploit the potential of scientific discoveries or improvements in technology, materials, processes, methods, devices, or techniques; and (c) attempts to advance the state of the art. When being used by contractors in cost principle applications, this term does not include efforts whose principal aim is the design, development, or testing of specific items or services to be considered for sale; these efforts are within the definition of “development,” given below.

But applied research stops short of getting stuff ready for sale–for which see development. Development applies knowledge and experience to produce new products and processes.

Here’s the FAR definition of “development”:

“Development,” as used in this part, means the systematic use of scientific and technical knowledge in the design, development, testing, or evaluation of a potential new product or service (or of an improvement in an existing product or service) to meet specific performance requirements or objectives. It includes the functions of design engineering, prototyping, and engineering testing; it excludes subcontracted technical effort that is for the sole purpose of developing an additional source for an existing product.

Development means preparing a product according to a specification, but not if the product already exists and one is just adding additional suppliers who have to tool up.

Thus, Bayh-Dole in claiming experimental, developmental, and research work stakes out not only messing around with stuff (experiment) and systematically studying nature and technology (research) but also using what’s learned and what’s known to design and build new products–development means to get things in shape for practical application. One can see, then, where this heads for medicinal chemistry. Bayh-Dole covers not only messing around with compounds but also evaluating them for potential therapeutic effect, and furthermore, for designing drug versions of the compounds that may be sold as products. If the proposal for federal funding is to study a class of compounds for potential to treat disease that if demonstrated will involve development of commercial product, then the “work” or “project” that is planned and committed is this larger project of study, invention, and development–all the way through to practical application. The federal government merely funds a part, an early part–but Bayh-Dole applies to any invention made in the whole project, separate accounting notwithstanding, chronology notwithstanding.

Practical Application

Development entails the activities necessary for what’s known to reach the point of being useful in some way. Practical application–another definition in Bayh-Dole–is the preparation of a product or process for use, whether in research, in professional applications, within a company or by an industry, to be sold to companies or to the public, as a standard, or for messing around with by the general public. Practical application, then, is the end point of development and the start of making the benefits of the developed product or process available to the public.

Otherwise, what’s the point of Bayh-Dole even having a scope? It would be so easy to conduct one’s affairs to isolate inventive work from federal funding by changing what accounts spending takes place from, such as substituting non-federal money whenever things start to get interesting–say, by assigning a class of compounds to a company for development right before any invention was made. Or, perhaps, ask a company to do the  screening for activity, or to synthesize a new compound that might do the job.

For a university with a formal policy that mandates attempting to commercialize every invention that the university acquires as a commitment to the public good, any federally supported project involving research also necessarily involves development whenever the university assigns that work to a company. Bayh-Dole’s funding agreement is the planned and committed project that the federal government funds at least a part of. If a university is publicly and formally committed to commercialization, then the scope of any federal funding agreement necessarily includes development.

University administrators for the most part hate this interpretation of Bayh-Dole. They want to suppress this sort of careful reading of the law. They want the law to mean something that the words don’t convey, something convenient to patent monopoly practice. The upshot of the inclusion of development in the scope of Bayh-Dole is that when a company develops a subject invention that it has obtained by assignment, the federal government has rights in that development work too. It’s not just the inventions that are made at the university–it’s all the inventions made in the planned and committed project, and that includes inventions made at the company obtaining a class of compounds by assignment and which are a subject invention. All the company’s patentable inventions made in development are also subject inventions. If a company does not timely disclose those inventions to the federal government, the government can require their assignment to the government. Most interesting. Disclosure, then, matters more than one might think if one read only university administrator and Bayh-Dole advocate selective restatements of Bayh-Dole.

Bayh-Dole expressly makes assignees and exclusive licensees subject to Bayh-Dole’s requirements for achieving practical application. For nonprofits, Bayh-Dole requires for assignments of subject inventions that the assignee accept the same patent rights clause as the nonprofit. That is, the assignee becomes a party to the funding agreement. The assignee becomes a federal contractor with regard to the disposition of inventions. The assignee takes on a portion of the “planned and committed” activities of the federal funding agreement. The assignee’s development work is done “under contract” or “in the performance of work under a federal funding agreement.”

Limitations on Scope

Bayh-Dole’s implementing regulations distinguish between a project that seeks new knowledge and one that applies that new knowledge:

An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology.

Let’s read carefully. A “government sponsored project” is one that the government provides at least some of the funding for. That’s the definition of funding agreement at 35 USC 201(b), second sentence. Thus, a university’s project has to be limited to “expanding scientific understanding in a field.” One might, then, want to look at various compounds to understand them better. But if one is proposing to look at various compounds because they might be used to treat cancer, and the university has a standing formal policy in the public interest to own and license any inventions involving those compounds for commercialization, and does so by means of assigning the compounds to a company for development–then that project is not simply “to expand scientific understanding.” It’s to develop compounds into therapeutic products. That’s the project. The university asks federal funding for only a part, but plans and is committed to the whole.

The regulations give a second example:

An invention which is made outside of the research activities of a government-funded project is not viewed as a “subject invention” since it cannot be shown to have been “conceived or first actually reduced to practice” in performance of the project. An obvious example of this is a situation where an instrument purchased with government funds is later used, without interference with or cost to the government-funded project, in making an invention all expenses of which involve only non-government funds.

One can re-use equipment to make an invention that is outside of the “research activities” of a “government-funded project.” Again, the government need fund only a part of the “project.” The standard is that the new invention “cannot be shown” to be one that was made “in performance of the project.” Sorry to repeat–“the project” is the biggest project that’s been “planned and committed” regardless of whether federal funding covers the full cost or just part, regardless of the timing involved in doing the various parts of this biggest project.

For the exclusion on scope for a bigger project, a university would have to disavow commercialization or provide access to a class of compounds of which it has acquired ownership on a non-exclusive basis, where the licensee then is not an assignee and does not operate under the nonprofit patent rights clause. The problem for a university want to avoid bringing development within scope of the “work” or “project” is that the university must not plan or commit to a project that necessarily includes development–not by anticipation, not by formal policy, not by established licensing practice in a given field, not by forward-looking statements of potential merit in grant proposals, not even by statements of objective in calls for proposals.

Bub, bub, bub…that would disrupt the patent monopoly pipeline that a university’s licensing office attempts for every invention it acquires. Yup–but only if any company that gets involved with that patent monopoly pipeline is unwilling to dedicate the income earned with respect to the subject invention to public purposes.

Bayh-Dole’s Fundamental Deal

In short–Bayh-Dole’s fundamental deal is

patent monopoly: everyone involved dedicates earnings to public purposes

non-exclusive access: have a ball

It is in this first category that disclosure matters–the propagation of the funding agreement to all those subject to the standard patent rights clause and carrying forward planned and committed activities of the work or project taken broadly to the point of practical application.

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