Exceptional Circumstances in Bayh-Dole, 6

You may think it’s mean of me to pick on Dr. Thomas for a talk that’s a decade old, and presented before the Stanford v Roche case was decided. If so, then you might want to consider the Public Health Services Technology Transfer Procedure Manual, Chapter 607.  That’s the version in effect when Dr. Thomas gave his talk in 2008. That version has been superseded by “Technology Transfer Procedure Manual” 607.1, revised 3/14/2013. Here we will find much of what was presented by Dr. Thomas still baked into PHS policy. And if you want to invoke the general rule that courts should defer to federal agencies’ interpretation of laws, then you might also toss into the mix the idea that federal agencies should defer to the Supreme Court’s interpretation of federal law–and the PHS apparently still refuses to do so.

Behind all of this is a more general matter: what interpretation ought we use to best support the use of federally supported research inventions? Is it really sufficient to presume that Bayh-Dole’s arbitrary default works fine for nearly everything, whether a procurement contract, a grant-in-aid, a cooperative agreement, whether the recipient is a for-profit company, a contract research organization, a mission-oriented non-profit, or a university hosting faculty-led research projects, regardless of the form of invention–research tool, basic scientific discovery, a method such as a disease diagnostic assay or a software-based algorithm, or a bit piece in a complex technology that might involve fifty such inventions; and regardless of the nature of the industry that might have an interest in the invention, ranging from industries in which patents are avoided to industries in which many patents are cross-licensed or used to form standards, to industries that compete to create patent monopolies? It’s difficult to believe that anyone’s contracting on such a scale would best be served by a single arrangement by which contractors could take ownership of inventions so long as each invention is disclosed and the commissioning party gets a royalty-free, non-exclusive license.

And in within that consideration of “best,” to what extent do we impose a system of management, and how firm should that system be? If we are after practice that in each instance leads to utilization of research inventions made with federal support, should we expect–or demand–that all instances will be alike? Should we expect that all instances, or even most, will benefit from being placed in an administrative process? Should we make it difficult for administrators to vary from a default process, even when we know that the default process is inadequate for all sorts of contracted research or development work?

In this we get down to the nub of the “exceptional circumstances” policy–how does it come about that a person hired as a grants officer at a federal agency can know in advance how inventive newness ought to be “managed”? Faux Bayh-Dole’s policy default is that a contractor’s managers always know better than federal managers, and that both contractor and federal managers always know better than faculty investigators or federal grants officers or inventors or industry scientists and engineers. This policy default, however one might want to wordsmith it, is a crappy default.

Let’s look at the PHS’s Technology Transfer Manual, Chapter 607.1. After reciting Bayh-Dole to establish the purpose of the document, the Manual summarizes Bayh-Dole:

The Bayh-Dole Act, 35 U.S.C. §§ 200-212, permits Contractors to elect title to Subject Inventions.

This summary includes footnotes to the definitions of Contractor and Subject Invention. But the summary is wrong. Bayh-Dole does not permit contractors to “elect title” to subject inventions. A subject invention is a patentable invention made under contract that the contractor has come to own. A contractor cannot “elect” title in such an invention. Bayh-Dole permits a contractor to “elect to retain title” in inventions that the contractor has acquired. When a contractor acquires a patentable invention made under contract, the invention becomes a subject invention, not before. If an invention is not a subject invention but is made under contract, then it falls outside the scope of Bayh-Dole and is managed under the federal statutes that Bayh-Dole otherwise preempts. Bayh-Dole is a carve out in those statutes that applies only when a contractor acquires a patentable invention made under contract.

Here’s the Supreme Court:

Only when an invention belongs to the contractor does the Bayh-Dole Act come into play. The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.

Got it? The PHS doesn’t got it. The PHS refuses to accept Stanford v Roche. All this PHS apparatus dedicated to complying with a faux version of the law. Goofballs.

In exceptional circumstances, however, the Bayh-Dole Act authorizes the funding Agency to modify the terms of a Funding Agreement by restricting or eliminating the Contractor’s right to title, or to retain title itself, to Subject Inventions, when doing so better promotes the policy and objectives of the Act.

The footnote here is just to 35 USC 202(a). But here, too, the PHS cannot get Bayh-Dole right. Bayh-Dole states a general default (I expand it to make the definitions clear): a nonprofit or small business, having acquired ownership of an invention made under a funding agreement, may elect to retain title to that subject invention after it has disclosed the subject invention to the government. Acquisition of the invention makes it “of the contractor.” Once the contractor has acquired and disclosed, then Bayh-Dole gives the contractor the right to elect to retain title. The disclosure serves to define what it is that the contractor has acquired, and what the contractor has chosen to continue to own–and also serves to define the scope of the license granted to by the contractor to the federal government as a condition of that election to retain title.

Furthermore, Bayh-Dole does not stipulate federal ownership in exceptional circumstances. Here’s 35 USC 202(a):

Provided, however, That a funding agreement may provide otherwise . . .

(ii) in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter

The definition of “funding agreement” includes any assignment, substitution of parties, and subcontract of any type. Thus, a funding agreement in its general sense is a cluster of contracts that start with a prime contract. Similarly, a contractor is defined as any party to a funding agreement. Contractor, therefore, in its general sense, is a collective noun, a plural represented by a singular construction.

But look at how Bayh-Dole is worded. A federal agency may “restrict” or “eliminate” the “right to retain title.” There’s nothing there about “retain title itself.” “Retain title itself” is nonsense fantasy wording. Under federal law, inventors own their inventions. The Supreme Court was adamant that Bayh-Dole did not disturb federal invention law:

Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not. . . .

Our precedents confirm the general rule that rights in an invention belong to the inventor.

Other than a few instances of vesting statutes–where a federal statute or a state law dictates invention ownership–inventors own their inventions. The general case is that if a contractor must give up title to an invention, then the invention is no longer a subject invention and its disposition falls outside of Bayh-Dole’s contracting provisions. If a federal statute then provides that the federal government must own the invention, then, yes, the government owns the invention, but then there is absolutely no reason for a funding agreement to assert that the government “retains title itself” in a subject invention. The invention is not a subject invention if a contractor does not own it. In the general case, then, the federal government might require the contractor that has come to own an invention made under contract to convey title to the federal government. That’s not “retain title itself” as if the federal government somehow has title to an invention that by definition must be owned by the contractor. You see how screwed up the PHS depiction of Bayh-Dole is? It’s a bozonet.

Again–if an invention is made under contract and not acquired by a contractor, then it’s not a subject invention. Whatever is in Bayh-Dole with regard to funding agreements directed at subject inventions doesn’t apply.  Supreme Court, again:

But because the Bayh-Dole Act, including §210(a), applies only to “subject inventions”— “inventions of the contractor”—it does not displace an inventor’s antecedent title to his invention. Only when an invention belongs to the contractor does the Bayh-Dole Act come into play.

Bayh-Dole applies only to subject inventions.  The fundamental provision in 35 USC 202(a) is that nonprofits and small businesses that acquire an invention made under federal contract can–now a subject invention–after they disclose the invention, may choose to keep title to that invention. Bayh-Dole goes on to say that federal agencies may interfere with the contractor’s choice to keep title in “exceptional circumstances,” among other conditions. Again, if a contractor doesn’t obtain title, a modified funding agreement cannot interfere with the contractor’s choice to retain title. The title issue then falls outside the patent rights clause specified by Bayh-Dole. The title then is a matter of the federal statutes that Bayh-Dole otherwise preempts when a contractor does acquire title, and if there’s no such statute, then federal patent law.

The procedural problem for a federal agency proposing a patent rights clause outside of Bayh-Dole’s default and not within the scope of a federal statute is getting at inventor ownership of inventions made under contract. In the Federal Procurement Regulation (1975–from which the standard patent rights clause copies whole sections not in Bayh-Dole), contractors were required to obtain patent agreements from specified employees to “effectuate” the terms of the FPR patent rights clause. Inventors either assigned to their employer, who then did what the federal agency required, or inventors did not assign to their employer, and then they did what the federal agency required.

Bayh-Dole navigates–or bungles, depending on your point of view–its way through this issue by not addressing inventor obligations at all. The standard patent rights clause–without any authority in Bayh-Dole, requires contractors to require certain employees to make a written agreement to protect the government’s interest in subject inventions. For that clause to operate, the inventors have to have been made parties to the funding agreement. That’s the only way it is meaningful for them to be required to “establish the government’s rights in the subject inventions” (37 CFR 401.14(f)(2)). If a subject invention has been assigned to a contractor, then the inventor would appear to have no rights left to sign away, and the requirement is meaningless. But if in requiring the written agreement of inventors a contractor necessarily is required to make those inventors parties to the funding agreement (and therefore contractors), then those inventions are subject inventions when they are made–it’s just that the contractor is not the owner and never has to become the owner for Bayh-Dole to operate.

Yes, that’s all complicated. It’s clear, however, that the PHS has no clue. Much later in the Manual 607.1, at C.6, we get this:

Finally, if the altered Funding Agreement specifies that title to Subject Inventions vests with any party other than the Contractor, the IC is responsible for ensuring that the assignee of title is notified and agrees that then Bayh-Dole rights, responsibilities, and obligations apply to the assignee as if the assignee were the original Contractor.

It’s not possible, folks. A subject invention is one that has already been “vested” in a contractor–by assignment in the case of a prime contractor. Altered funding agreement provisions apply only after a contractor has acquired title to an invention. Thus, the government has the option to require assignment of subject inventions from a contractor–or to require a contractor to assign their subject invention to someone else (and for that, Bayh-Dole already has a provision, for nonprofits, at least, that requires the standard  patent rights clause to apply–see 35 USC 202(c)(7)(A)). But there’s no way that title to a subject invention can “vest” in a non-contractor other than an inventor by action of any patent rights clause in a funding agreement, no matter how altered. It’s simply not within the authority of Bayh-Dole, as a part of patent law, to change the vesting of invention ownership without an express act of Congress.

There is more mess, of course, because Bayh-Dole is like an incontinent dog, leaking all over the carpet of research enterprise. Bayh-Dole’s standard patent rights clause requires the first organizational contractor to a funding agreement to make certain of its employees parties to the funding agreement for specific invention purposes. (This provision is not in Bayh-Dole and arguably not authorized by Bayh-Dole). When these employees invent under contract, by federal law they own their inventions, so their inventions are subject inventions. The inventors then have the same benefit under 35 USC 202(a) that is offered to nonprofits and small businesses. Nothing in Bayh-Dole gives their employers any special right to take those inventions from them. 

The implementing regulations at 37 CFR 401.9 instruct federal agencies that inventors who own their inventions should be treated as small business contractors and a subset of the standard patent rights clause should apply to them. Prior federal contracting regulations in the PHS did as much–inventors were considered parties to the funding agreement. Either way, then–under Bayh-Dole’s patent rights clause or if an invention falls outside that clause–inventors end up being contractors and have the same deal that organizational contractors have with the federal government.

Now, take a breath–a determination of exceptional circumstances could require inventor-contractors to assign their inventions to another party–to their employers, say, or to a company favored by the federal government for some reason. But that determination would have to show why inventors as small business contractors should not have the same ownership right in subject inventions that the federal government thinks someone else should have. Thus, NIST violates the exceptional circumstances procedures of Bayh-Dole by introducing an assignment clause directed at inventors’ subject inventions into the standard patent rights clause. The requirement that inventors assign their subject inventions to anyone must be itself only in exceptional circumstances. NIST ignores Bayh-Dole in implementing Bayh-Dole. That’s some standard to practice down to.

The PHS Manual at 607.1 then quotes the policy and objective of Bayh-Dole from 35 USC 200. Thus we arrive at the PHS statement of faux Bayh-Dole–contractors can take title to inventions made under contractor unless in exceptional circumstances a federal agency limits that right or retains title itself. But an accurate statement would be–contractors who have title to an invention made under contract and have disclosed that invention to the federal government may choose to keep that title unless in exceptional circumstances a federal agency limits their right to keep title or requires title to be conveyed to the federal government. You might go–why does it matter? Who cares whether the PHS can’t get Bayh-Dole right? And in a sense, that would be a pragmatic position–no one cares. Bayh-Dole is designed to be a do WTF you want law, so you would be going along with the design flow. And you would also be acquiescing in the idea that the best rule of law is the law made up by bureaucrats claiming the authority of law but not bothering to follow the law. Rule by bureaucratic whim, political bluffery, and bullshitting the public. Perhaps that sounds like a good thing for research enterprise. I haven’t fully accepted that proposition.

What type of Funding Agreement is being considered — a contract, grant, or cooperative agreement? Generally, DECs may be considered more appropriate for contracts, since contracts are for the direct benefit and use of the government, and involve a higher degree of agency control than grants or cooperative agreements.

This is exactly the opposite of the Kennedy patent policy. Contracts offer the least need for government control of inventive outcomes. The government gains what it needs by a license to inventions, and does not need ownership of inventions in order to use the inventions. It is exactly in grants and cooperative agreements that the government must justify the use of public funding with a purpose other than to meet a governmental use requirement. Grant funding is awarded because there is a public purpose to be served. Bayh-Dole’s default cedes control to private purposes, including the exploitation of patent monopolies that may prevent free competition, reduce collaboration between universities and industry taken as a whole, and suppress uses of an invention. It ought to be obvious–as it is in the Kennedy patent policy that Bayh-Dole exists to preempt–that any grant to a nonprofit organization ought to be considered for exceptional circumstances. But the NIH created Bayh-Dole to preempt public purposes in favor of pharma company control of publicly funded inventions.

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