What the NIH says about Bayh-Dole, 1

The NIH has published comments on the NIST changes to the regulations that implement the Bayh-Dole Act and the standard patent rights clause. Jamie Love at Knowledge Ecology International calls out in a tweet a passage in the “Background” section in those comments. The passage is pretty much the entire “background.” Let’s have a look at what the NIH says about Bayh-Dole:

Recipients of NIH funded research awards are required to report all inventions that result from NIH funded projects. See the Bayh-Dole Act  at 35 U.S.C. § 200-212.

The Bayh-Dole Act permits all funding recipients i.e., universities, nonprofit research institutions, and large and small businesses to retain ownership of the inventions made under federally funded research grants or contract programs, while also giving the government a license to practice the Subject Invention. In return for retaining ownership, funding recipients are required to pursue the invention to practical application, such as by licensing the invention under reasonable terms for the benefit of public health whether the invention is patented or treated as an unpatented biological material or research tool.

Pretty much every statement here is untrue, misleading, or deceptive. If you see how, good for you. Go do something important in the world or relax with your friends and family–that’s important, too. Your work here is done. If not, or you can’t help but be curious, read on at your peril.

Recipients of NIH funded research awards are required to report all inventions that result from NIH funded projects. See the Bayh-Dole Act  at 35 U.S.C. § 200-212.

That’s not true–at least not with respect to the Bayh-Dole Act. Bayh-Dole requires federal agencies to use a standard patent rights clause that requires contractors to disclose subject inventions–inventions that the contractor owns. Not all inventions. See, here at 35 USC 202(c)(1):

(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following:

(1) That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters, and that the Federal Government may receive title to any subject invention not disclosed to it within such time.

If a contractor does not acquire title to an invention made under a federal contract, then that invention is not a subject invention, and under Bayh-Dole, the contractor has no obligation to disclose the invention. Heck, the contractor might not even have knowledge of the invention or sufficient information about it to disclose anything. Thus, contractors must disclose subject inventions, not “all inventions.” If one doesn’t get this point, one doesn’t get Bayh-Dole. It’s that simple.

Here’s 35 USC 202(c)(1) then:

(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: 

That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters . . . .

Here’s the version from the FARs, 52.227-11(c)(1), which gets it right:

The Contractor shall disclose in writing each subject invention to the Contracting Officer within 2 months after the inventor discloses it in writing to Contractor personnel responsible for patent matters.

A “subject” invention is not any invention made under a federal contract. A subject invention is defined as an invention “of the contractor” (35 USC 201(e)) that also is or may be patentable, made under a federal funding agreement  for research or development work). The Supreme Court in Stanford v Roche made clear “of” requires ownership.

Thus, there is no general reporting requirement in Bayh-Dole for all inventions. NIH just makes things up out of its posterior cortex. The distinction matters. When a contractor acquires ownership of an invention that meets all the other requirements for a subject invention, only then does Bayh-Dole apply. Bayh-Dole then preempts any other statutes (but for Stevenson-Wydler and any future law that references Bayh-Dole) and therefore preempts as well any other public purposes expressed by those statutes.

Inventions that aren’t subject inventions could still be reportable, but that would have nothing to do with Bayh-Dole. It would have to do with statutory requirements that aren’t in any federal funding agreement. The NIH, though, wants to bamboozle us with nonsense, or perhaps it really is the case that the folks at the NIH really don’t have a clue how Bayh-Dole operates. After all, scores of university attorneys in Stanford v Roche signed onto amicus briefs that were dead wrong about the law.

Now, there is a way that *most* inventions would end up being subject inventions. A prime contractor could make all inventors-to-be parties to the funding agreement. Then the inventors would be contractors, they would own their inventions, and the inventions then would be subject inventions. In fact, the implementing regulations introduce just this thing in the standard patent rights clause at 37 CFR 401.14(f)(2)–as a contractor action to protect the government’s interest. Inventors then have their own patent rights clause at 37 CFR 401.9, a subset of the business patent rights clause (inventors are to be treated as small businesses).

Alas, no one complies with the (f)(2) requirement. If they did, practice under Bayh-Dole would be very different–perhaps even refreshingly different. But federal agencies like the NIH and NIST are so incapable of tracking Bayh-Dole that they don’t enforce compliance with the standard patent rights clause. The NIH mistaking all inventions for subject inventions points to the wholesale lack of understanding in federal agencies with regard to the requirements of Bayh-Dole. Bayh-Dole ought to be repealed if only because it is clearly much too complicated for federal agency officials to understand.

The Bayh-Dole Act permits all funding recipients i.e., universities, nonprofit research institutions, and large and small businesses . . .

Nope. Bayh-Dole is limited to funding agreements involving research or development, or as the implementing regulations have it, developmental, experimental, or research work. And even then, according to 35 USC 212, Bayh-Dole’s ownership provisions don’t operate (though Bayh-Dole applies) if the purpose of the funding agreement is for education.

Nope again. Bayh-Dole is expressly directed at nonprofits and small businesses. Large businesses are excluded. President Regan issued an executive order that directed federal agencies to adopt Bayh-Dole procedures for large businesses, essentially overriding existing federal procurement regulations for large businesses. But Bayh-Dole is not what authorizes large businesses, for inventions made in work receiving federal support, to keep title to the inventions they acquire. NIST’s rule changes in May 2018 expressly and happily conflate statute and executive order in the implementing regulations for Bayh-Dole, but that’s NIST’s problem with reality.

. . . to retain ownership of the inventions made under federally funded research grants or contract programs . . . 

“Retain” means “keep what one has acquired by means other than anything having to do with Bayh-Dole. That’s the Supreme Court in Stanford v Roche. But the NIH, like universities, continues to use “retain” in a manner that allows a reader to believe that “retain” means to “compel acquisition of” or “to take ownership of” or “to have ownership outright as an operation of the law.” Yes, “retain” is a word used in Bayh-Dole, but given that no university attorney formally opposed the host of university attorneys who all insisted that “retain” meant that Bayh-Dole gave the university rights in subject inventions, the NIH must do more than merely repeat the formula university administrators used to assert that faculty must assign their inventions to comply with the law. The “tell” that the NIH persists in misrepresenting Bayh-Dole, despite the Supreme Court’s ruling, is that the NIH omits the word “elect.” The funding recipient may “elect to retain”–choose to keep–what the recipient has otherwise obtained. “To elect to retain title” is not “to retain title.” But the NIH shows no interest in making the difference clear.

Wording that would not mislead: “to elect to retain title to subject inventions–patentable inventions, made under federally funded research programs, that the funding recipients have otherwise acquired.”

The decision to acquire any invention made with federal support is entirely that of the funding recipient, and nothing in Bayh-Dole compels any funding recipient to acquire any invention or to use the patent system. Yes, NIST has inserted an assignment clause, but that clause is specific to subject inventions–a funding recipient must require inventors to assign inventions the funding recipient already owns. And even then, the funding recipient does not have to actually receive assignment–it just must require inventors to have made a written agreement that includes a promise to assign what the funding recipient already owns. Work out the logic if you can. I doubt there is any.

. . . while also giving the government a license to practice the Subject Invention.

The NIH comment switches seamlessly from “inventions” to “the Subject Invention.” Look at what that means. This is huge. Bayh-Dole applies (for its contracting part) only to subject inventions–to inventions that the funding recipient already owns, which are or may be patentable, which were made in performance of work under a funding agreement:

But because the Bayh-Dole Act, including §210(a) [which lists statutes preempted by Bayh-Dole], applies only to “subject inventions”— “inventions of the contractor”—it does not displace an inventor’s antecedent title to his invention.

The NIH makes it appear that Bayh-Dole applies to all inventions made in the performance of work under a funding agreement. The NIH still uses “retain” to mean “take” all inventions. Bayh-Dole does not provide a funding recipient with any special privilege to take inventions. It does not even “allow” a funding recipient to retain title to all inventions. Bayh-Dole “allows” a funding recipient (nonprofit, small business) to “retain” title to subject inventions–inventions that the funding recipient has already obtained by other means. Here’s the guts of it, from 35 USC 202(a):

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention . . .

The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter.

Paragraph (c) lays out the provisions to be included in the standard patent rights clause. The other provisions of the “chapter” (i.e., Chapter 18) include Bayh-Dole’s statement of policy at 35 USC 200 and the definitions at 35 USC 201.

The government’s license is not merely “to practice” each subject invention. It is “to practice or have practiced for or on behalf of the United States throughout the world.” Yes, to save space one might shorten, but even then, it is worth being clear that “practice” has been expressly defined in executive branch patent policy since 1963 to mean “make, use, and sell.” The government has the right to sell and authorize the sale of product based on subject inventions. If one works through Bayh-Dole’s definitions and requirements, including how funding recipients may expand the number of parties to a funding agreement by any assignment, substitution of parties, or subcontract of any type, the requirement that the nonprofit patent rights clause must apply to any assignee of a nonprofit owned subject invention, and the obtuse but logical definition of “made” to be “conceived or first actually reduced to practice,” then the government’s right to make, use, and sell extends to the development of products based on subject inventions conceived in research programs. The scope of the license is breathtaking, even if most university administrators and their company exclusive licensee/assignees would readily deny it.

We might refine the NIH description yet further. Bayh-Dole stipulates that nonprofits and small businesses may “elect” to “retain title,” provided that they have disclosed the subject invention. The license to the government is a provision in the standard patent rights clause. It is enforcement of the standard patent rights clause that provides the license to the government, not Bayh-Dole the statute.

In return for retaining ownership, funding recipients are required to pursue the invention to practical application,

Simply not true. The NIH here conflates the requirements for subject inventions–inventions owned by a funding recipient–and federally owned inventions, which are not subject inventions. Let’s sort out what the NIH hasn’t sorted out.

For subject inventions–ones owned by funding recipients or more generally ones owned by any party to a funding agreement (see the definitions at 35 USC 201, folks)–Bayh-Dole specifies no obligation for an owner of a subject invention to “purse the invention to practical application.” It’s just not there. Here is what is there. First, Bayh-Dole’s policy statement at 35 USC 200 includes the general requirement that the “patent system be used to promote the utilization of inventions arising in federally supported research or development.” There we have “utilization.” In the definitions at 35 USC 201(f), we find “practical application”:

to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

Practical application means that an invention is being used and that the benefits of that use are available to the public on reasonable terms.

While the requirement to use the patent system to promote utilization of inventions is general to any invention made in federally supported research or development (including, then, by federal employees as well as by inventors working for contractors), the definition of practical application comes into play for funding recipients only with regard to government march-in, at 35 USC 203:

the Federal agency under whose funding agreement the subject invention was made shall have the right . . . to require the contractor . . . to grant a . . . license . . . if the Federal agency determines that such–

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use

That is, contractors (and assignees, exclusive licensees) are not required to pursue practical application. If they don’t give the appearance of achieving practical application, then the federal agency can compel them to grant licenses. But there’s nothing in the granting of licenses that requires the new licensees to pursue practical application. There’s an implication that licensees would only want a license if they wanted to pursue practical application, but even this is a shoddy implication. A licensee may simply want to preserve future freedom to practice without making any decision to pursue practical application or a licensee may want to mess with the invention but not necessarily make benefits of that messing around available to the public or in any event not on reasonable terms.

The idea behind compulsory non-discriminatory non-exclusive licensing, at least, is that the subject invention is now readily available to all on reasonable terms. That idea goes back at least as far as the Kennedy executive branch patent policy from 1963. The requirement to achieve practical application (and public benefit on reasonable terms) is tied not to ownership of a subject invention but to retention of the right to exclude all others, the “monopoly” right of any patent on some aspect of the subject invention.

Thus, the NIH gets it wrong about the basic exchange in Bayh-Dole. It’s not that a recipient may take ownership of inventions provided the government gets a license and the recipient pursues practical application. Instead, it is that a recipient may keep ownership of inventions it acquires provided it has disclosed the inventions to the government and pursued patent applications and the maintenance of patents on the inventions. Pursuing practical application has nothing to do with the right to elect to retain ownership. A funding recipient or any assignee or exclusive licensee of the recipient may keep the patent right to exclude all others if it achieves practical application or at least gives the appearance that it is not unlikely to take effective steps to achieve practical application. Practical application has to do with retaining an exclusive right, not with retaining ownership. Failing to secure and maintain an exclusive patent right may cause a recipient to give up title to a subject invention. 

It as if the NIH thinks it is good enough to describe Bayh-Dole using words found in Bayh-Dole without much care at all what the words actually mean. It’s just complicated fluff for them, so just fluff as fluff will. If the NIH is this incompetent about Bayh-Dole, what should we make of their science policy?

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