Federally supported inventions and public trusts

In 1933, the Supreme Court considered a claim by the United States that two employees of the National Bureau of Standards must give up a patent they had obtained on improvements to radio technology (United States v Dubilier Condenser Corp). The United States claimed, among other things, that the invention should be held in trust on behalf of the public. The Court disagreed:

 It is claimed that, as the work of the Bureau, including all that Dunmore and Lowell did, was in the public interest, these public servants had dedicated the offspring of their brains to the public, and so held their patents in trust for the common weal, represented here in a corporate capacity by the United States. The patentees, we are told, should surrender the patents for cancellation, and the respondent must also give up its rights under the patents.

The trust cannot be express. Every fact in the case negatives the existence of one. Nor can it arise ex maleficio.

That was 1933. Now consider the present situation for federal grants. Here’s the first sentence of 2 CFR 200.316:

Real property, equipment, and intangible property, that are acquired or improved with a Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries of the project or program under which the property was acquired or improved.

“Intangible property” in turn is defined at 2 CFR 200.59 as

property having no physical existence, such as trademarks, copyrights, patents and patent applications and property, such as loans, notes and other debt instruments, lease agreements, stock and other instruments of property ownership (whether the property is tangible or intangible).

It would appear that the federal government has addressed the shortfall in its argument in Dubilier. There is, expressly, the expectation of a trust whenever a “non-federal entity” that has received a grant acquires or improves an invention “with a Federal award.” If a university then asserts ownership of an invention as a condition of a federal grant, or the use of resources made available for use in the performance of work supported by a federal grant, then the university acquires or improves the intangible property with the federal award. A property trust relationship is established.

Now, the question is whether Bayh-Dole preempts 2 CFR 200.316. Here’s Bayh-Dole, 35 USC 210:

This chapter shall take precedence over any other Act which would require a disposition of rights in subject inventions of small business firms or nonprofit organizations contractors in a manner that is inconsistent with this chapter . . .

And then a list of statutes, and then some walkback–the precedence applies only to contracts with nonprofits and small businesses, and does not apply to Stevenson-Wydler, among other things.

So, is a property trust relationship a “disposition of rights” “inconsistent with this chapter”–i.e., Chapter 18 of 35 USC–“Bayh-Dole”? Who can say?

One might argue that university appropriation of inventions made in work receiving federal support for the purpose of commercialization complies with the property trust requirement, and therefore the issue is moot for most everything. One might also argue that holding an invention in trust is entirely consistent with promoting free competition and enterprise. It would appear that there’s actually nothing in 2 CFR 200.316 that ends up altering what a university might do with a subject invention as a “trustee.” There’s an odd argument that it is in the interest of the beneficiaries of a project receiving federal funds that they pay a premium to obtain a commercial version of what was discovered or invented with federal funds–and that no other access to the discovery or invention is allowed. Such an outcome must be enforced on the public, so this argument goes, or there will not be money to repeat the process of making beneficiaries pay a premium for other discoveries or inventions.

According to this reasoning, university fulfills its role as trustee for beneficiaries of a project by working to ensure that beneficiaries must pay as much as they can bear to obtain the benefit of discoveries and inventions made in projects receiving federal support, and to that end, no one may have access for any other purpose to those discoveries and inventions: “Patients must pay as much as they can for new medicines because otherwise there won’t be the money available to universities as an incentive to repeat the process for other new medicines.”

Thus, even after the federal government addresses the “trust” problem, Bayh-Dole ends up preempting the trust requirement. And even if Bayh-Dole doesn’t preempt the trust requirement, it appears that the “trust” required by 2 CFR 200.316 applies only after a university has “acquired or improved” an invention, and then can be interpreted pretty much any way university administrators want to, so long as they cast their interpretation in terms of benefits for beneficiaries. It just happens that the greatest benefit for beneficiaries, in the university administrator’s mind’s eye, also happens to be one that offers the greatest financial return to the university.



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