Illusions of Bayh-Dole: “manufactured substantially” 6

Now let’s look at Bayh-Dole’s treatment of federal employees who make inventions. Actually, there’s nothing in Bayh-Dole about it–Bayh-Dole applies only when a federal agency grants licenses to the inventions it owns. When the federal government allows a federal employee inventor to retain title, there’s no license. Instead, we have to look to other authority–and in this case, that authority is Executive Order 10096 (later amended and which has its own odd history). The regulations cover the scope of the government’s claim on inventions made by federal employees and how that claim may be administered. There’s a long section setting out the inventions that the federal government may claim. For our purposes, it’s enough to recognize that the federal government is authorized by Executive Order 10096 to make such claims on inventions.

However, the federal government does not have to obtain ownership of an invention even when it has the authority to make a claim on a federal employee’s invention. In a bizarre bit of drafting, 37 CFR 501.6 describes two situations–one in which the federal government has an equitable claim in an employee’s invention and a second situation in which the federal government’s interest in an invention is insufficient to make an equitable claim of ownership OR the federal government is not interested in making a claim of ownership even if it does have an equitable claim. This may feel complicated on first impression, but hang in there.

Situation 1: Government has equitable claim

Situation 2: Government lacks interest in invention to make an equitable claim or to act on its equitable claim

Now here’s the bizarre bit. 37 CFR 501.6 provides that the government can claim a non-exclusive license and impose conditions on the inventor’s use of an invention even when the invention falls outside the federal government’s claims to equitable title and even when the invention falls outside any other basis for the government to have any claim whatsoever. Even if an invention was not made in connection with an employee’s official duties, not during working hours, without the contribution of any federal funds, 37 CFR 501.6 still authorizes the federal agency to take a non-exclusive license and impose conditions on an employee inventor’s ownership of an invention.

It is only somewhat less bizarre when the federal government does have an equitable claim to an invention and decides that it is not in the public’s interest to pursue that claim. Why should the government then place any conditions on what an inventor does with an invention that the government is not willing to claim? What is the equitable motivation for imposing requirements on that which a federal agency has determined isn’t of sufficient public interest to acquire, even when the federal agency has the equitable right to acquire? No, it makes no sense. It’s just bizarre.

Deep sigh. There is much that’s bizarre in all this. One of the bizarre conditions that the regulations permit federal agencies to impose on federal employees who happen to invent so that the federal government has no equitable claim of ownership involves American manufacture. When the federal government permits an employee to retain ownership of an invention, 37 CFR 5o1.7 creates a right for the federal agency to include a condition that requires U.S. manufacture:

. . . the agency may impose on the employee any one or all of the following conditions or any other conditions that may be necessary in a particular case: . . .

Again we see that a “may” enter the authorization for requiring American manufacturing.

. . . (3) That any assignment or license of rights to use or sell the invention in the United States shall contain a requirement that any products embodying the invention or produced through the use of the invention be substantially manufactured in the United States.

What’s most odd about this bit of an otherwise bizarre requirement is not that it is optional for the federal agency–we have grown used to that in dealing with the American manufacturing requirement that has all the apparatus of a requirement but isn’t a requirement. The oddity here is that the federal agency may impose this requirement on an inventor, even when the federal government has no equitable claim to the inventor’s invention–the inventor simply has the misfortune to also be a federal employee.

Contrast this to Bayh-Dole’s treatment of contractors that own inventions. There, Bayh-Dole places restrictions on exclusive licenses in the United States to use or to sell, but places no restrictions on contractors themselves, or on anyone a contractor may assign a subject invention to. But here–where a federal employee may have invented outside his official duties and in such a manner as the government has no equitable claim to ownership under these federal regulations, the federal regulations stipulate that the government has the right to require any assignee of the employee inventor to manufacture in America.

We might pause, too, to wonder if there’s a difference in meaning between “manufactured substantially” (35 USC 204) and “substantially manufactured” (37 CFR 501.7). Is it just that the folks drafting the regulations could not copy accurately? Or did they not consider the ambiguity–“most of each product will be made in America” (more of the meaning of “manufactured substantially”) versus “most products will be made in American but others can be made elsewhere” (more of the meaning of “substantially manufactured”)?

It is not clear at all what the federal government’s remedy might be if an inventor breaches this obligation to require American manufacturing. What happens, say, if the inventor grants everyone a royalty-free, non-exclusive license and skips the “substantially manufactured” requirement. There’s no license for the federal government to terminate. Could the government demand assignment of the invention? And what would the public purpose be in that, given that the invention has been made broadly accessible by the inventor and the federal agency doesn’t have to impose the requirement in the first place?

One further complication. Under the Technology Transfer Act of 1986, which amended Stevenson-Wydler, if a federal agency allows an inventor to retain title, then the inventor must file a patent application (15 USC 3710d):

If a Federal agency which has ownership of or the right of ownership to an invention made by a Federal employee does not intend to file for a patent application or otherwise to promote commercialization of such invention,

That “or” clause is huge–what does it mean for the federal government to demand ownership of an invention that the government has no intention of filing a patent application on but still plans to “promote commercialization”of? This whole idea runs against the monopoly meme, for a start, indicating that someone in the federal government still thought that perhaps commercialization could take place without any patent rights whatsoever. Then again, whoever drafted this clause was clueless, since one does not “file for a patent application”–one “files a patent application.”

the agency shall allow the inventor, if the inventor is a Government employee or former employee who made the invention during the course of employment with the Government,

“During” means “in the same time period as.” It is the same overreach that we find in 37 CFR 501.7. “During” is broader than “in the course of” or “within the scope of.”

to obtain

(huh? how does an inventor obtain title to an invention unless the inventor has already assigned the invention?)

or retain title to the invention (subject to reservation by the Government of a nonexclusive, nontransferrable, irrevocable, paid-up license to practice the invention or have the invention practiced throughout the world by or on behalf of the Government).

This “reservation” wording doesn’t work. If the federal government had no equitable interest in a given invention, then the government has no interest to release and no license to “reserve.” This is just copying language from Bayh-Dole without comprehension–the “practice” usage is the tell to the source. Now for the funny punch line:

In addition, the agency may condition the inventor’s right to title on the timely filing of a patent application in cases when the Government determines that it has or may have a need to practice the invention.

Why on earth would the government need the inventor to file a patent application if the government needs to practice that invention? There’s nothing about a patent that enables the government to practice an invention. The government has already “reserved” a right to practice inventions. It does not need any stinkin’ patent on the invention to meet its need to practice. No, this is nonsense written by incompetents, with all due respect. The starting point to address the problems with federal technology transfer start with the hopeless nonsense that passes for federal regulations concerning inventions, patents, and licensing. No policy would be better than policy drafted by monkeys.

We have worked through yet another variation on the “manufactured substantially” theme. In the Bayh-Dole world, there are at least nine of these variations–

35 USC 200 statement of policy and objective to use the patent system to promote the commercialization and public availability of inventions made in the United States by United States industry

35 USC 204 a statement of preference for United States industry, made the most important section of Bayh-Dole, but with walk-backs

35 USC 202(c)(8) a requirement that 35 USC 204 be included in the standard patent rights clause

37 CFR 401.14(i) a repeat of 35 USC 204 in the standard patent rights clause

37 CFR 401.9 a reference to 37 CFR 401.14(i) in the inventor patent rights clause

35 USC 209(b) a broader requirement but made optional with “normally”

37 CFR 404.5(a)(2) repeating 35 USC 209(b) but adding agency self-waiver

37 CFR 404.5(b)(7) insisting that agreement on American manufacturing as a condition of a license be included in the license

37 CFR 501.7(b)(3) authorizing but not requiring federal agencies to impose American manufacturing requirements as a condition of permitting federal employee inventors to own their inventions, even when the federal government has no equitable interest in those inventions.

What do we learn from all of this? Everywhere the American manufacturing requirement shows up, it turns out not to be a requirement at all. Federal agencies don’t have to require anything. The requirement is an apparatus concerning the requirement. That is, the American manufacturing is just adding bureaucracy to cover for allowing federal agencies to do whatever they please, but now with more paperwork. As a result, there’s nothing at all uniform about the provision. It is not uniform between contractors and federal agencies, it is not uniform between contractors’ employee-inventors and federal agencies’ employee-inventors, it is not uniform across federal agencies. More than that, it is a strange clause tied to licensing and assigning of inventions and not, for the most part, to what an owner of an invention made with federal support may do itself.

In all, the American manufacturing requirement is nothing but administrative fluffery. It does nothing to promote new American industry or manufacturing jobs. If anything, it covers for sucker punches to American industry and labor by university administrators and federal agencies alike. If one were serious about constraining the manufacturing of products based on federally supported inventions to the United States, there would be an entirely different statutory regime and apparatus. A patent right would not be enforceable but for imports; the requirement would be enforced as a condition of any patent issued–both a working requirement and a prohibition on assignment or exclusive licensing to any foreign company or for manufacture outside the United States. That sort of thing. It would be protectionist, of course, and likely unworkable–but that would be the tool set one would draw on if one insisted on using federal patent law to promote American industry and labor.

One could, also, promote American industry and labor involving federally supported inventions in other ways that do not concern federal patent law, but then patent brokers would no longer rule the roost, and isn’t ruling the roost what Bayh-Dole is all about?

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