Bayh-Dole’s “subject invention” botch of the Federal Procurement Regulations, 3

A careful read of Bayh-Dole and its omission of the patent agreement requirement argues not only did Bayh-Dole reverse the “presumption” of federal ownership of inventions made under contract but also repudiated the federal requirement that contractors own inventions so these inventions could be delivered to the federal government. If inventions do not have to be delivered to the federal government by default, then there is no statutory reason why contractors should own, so long as the federal government received a non-exclusive license if anyone involved ever did obtain a patent.

Bayh-Dole does not require university administrators to crush academic freedom. Indeed, the way Bayh-Dole is drafted, it leaves universities free to be as open and ungrasping as they choose to be, even as small companies might adopt conventional industry-style patent agreements suitable for employees assigned to invent or experiment. Similarly, the implementing regulations for Bayh-Dole produce four distinct standard patent rights clauses–now conflated into two clauses–at 37 CFR 401.14 (for companies, for nonprofits, and for nuclear weapons and propulsion research) and 37 CFR 401.9 (for inventors, to be treated as small business contractors, but with fewer requirements than other small businesses). Notably, the inventor patent rights clause does not require inventors to file patent applications. Federal patent law does not require inventors to use the patent system. Perhaps that’s why Bayh-Dole, as part of federal patent law, also does not require inventors to use the patent system.

For universities, this is a tough nut–though clever university attorneys have persuaded courts using the argument that if a requirement to assign inventions is in the university handbook, then faculty have agreed to it. They then point out their claim on inventions in patent policy and ignore elsewhere in the policy or handbook the more fundamental assurance to faculty of their  freedom of research and freedom of publication. If university attorneys were honest folk rather than (with all due respect) the mostly inapt mercenaries that they are, we would have a chance to have a decent national practice involving inventions made by people at universities. But not the way things are now. Now things are run by clowns misrepresenting Bayh-Dole, a federal law drafted by clowns.

Consider, then the assignment requirements between the FPR and the SPRC. Here’s the FPR again:

(FPR) The Contractor agrees to assign to the Government the entire right, title, and interest throughout the world in and to each Subject Invention, except to the extent that rights are retained by the Contractor under paragraphs (b)(2) and (d) of this clause.

(SPRC) to assign to the contractor the entire right, title and interest in and to each subject invention made under contract

In the FPR framework, the contractor holds equitable title in each invention made under contract because the FPR requires the contractor to have a patent agreement to that effect–to effectuate the contractor’s assignment of inventions to the federal government. Thus, each invention made under contract becomes a subject invention. The SPRC lacks such clarity. Before 2018, there was no assignment provision whatsoever in the SPRC–the written agreement concerned disclosure of subject inventions to the contractor and the signing of papers to enable patent applications to be filed and to “establish the government’s rights in the subject inventions.”

Before 2018, the SPRC clearly contemplated that inventors owned their inventions and the written agreement that was required did not change that fact. The obligation to sign papers is not set out as an obligation to the contractor–the federal government is also a beneficiary of the written agreement and could require an inventor to, say, sign papers. But given that Bayh-Dole preempts all other federal claims on inventions made under contract, what papers could an inventor be made to sign to establish the government’s rights on subject inventions? If the contractor owns the invention, then there’s nothing for the inventor to sign. If the inventor owns the invention, then it is not a subject invention, and there’s nothing for the federal government to claim under Bayh-Dole.

You see. The work of clowns. The logic has nothing to do with the logic of innovation. This is not an inherent complexity in innovation. This logic has to do with clowns presenting themselves as experts and botching the drafting to avoid letting on what they are up to.

Much of Bayh-Dole is botched. Thus, when Latker moved over to the Office of Federal Procurement Policy to draft Bayh-Dole’s implementing regulations, he felt the need to stuff in things that Bayh-Dole the statute had left out. Thus sections (e), (f), and (g) of the standard patent rights clause show up without any authority in Bayh-Dole.

Here’s how the logic resolves–though no one I know in a university legal office bothers to follow the logic. The written agreement requirement at (f)(2) is not a patent agreement. It does not involve assignment of inventions made under contract to the contractor so that these inventions become subject inventions. Rather, the (f)(2) agreement makes inventors parties to the funding agreement’s patent rights clause, and thus under Bayh-Dole’s definition, inventors become contractors. The (f)(2) requirement, when complied with, expands the parties to the funding agreement. As contractors, when inventors invent, they own their inventions and therefore their inventions necessarily are subject inventions–but not ones owned by their employer and Bayh-Dole provides no authorization for employers to claim any ownership. The inventors then are in a position to disclose their inventions to their employers–or, as it were, prime contractors–who may (companies) or may not (universities) also have employed them to invent, and the inventors are required to establish the government’s rights in inventions, if the inventors fail to disclose, elect to retain title, and the like.

That this logic operates is all the more apparent with the inventor patent rights clause at 37 CFR 401.9. The inventor patent rights clause is a subset of the small business patent rights clause and applies whenever the inventor holds title to a subject invention. If contractors are required to make inventors agree to become contractors, then every invention made under contract will again be a subject invention.

Isn’t this a convoluted mess? Oh, we are not done with the muddiness in Bayh-Dole. NIST added in 2018 this assignment requirement to the (f)(2) written agreement requirement:

to assign to the contractor the entire right, title and interest in and to each subject invention made under contract

Well. The “made under contract” is superfluous. Given the definition of subject invention the addition works out to “made in the performance of work under under this contract under contract.” Yeah, the clownish department of clownishness.

The NIST-added assignment requirement is directed at subject inventions, not inventions made under contract. It cannot turn a non-subject invention into a subject invention. So an invention has to already be a subject invention for the assignment requirement to apply. That is, the invention has to be owned by the contractor–where “the contractor” means, consternatingly–“any party to the funding agreement.” We are then back to equitable title–inventions for which the inventor owes a duty to the contractor other than a duty arising as a consequence of the federal contract. Or (sigh) NIST intends that the (f)(2) requirement does turn inventors into contractors and now insists that inventors must assign their subject inventions to the prime contractor-employer. But such a thing is exactly what the Supreme Court ruled Bayh-Dole does not authorize–there’s no special privilege in Bayh-Dole for contractors to obtain title to inventions made under contract, so NIST has no standing to insert such a privilege anyway, in the form of a requirement.

It’s just that NIST has its own legal clowns. Here’s the Supreme Court:

Stanford contends that reading the Bayh-Dole Act as not vesting title to federally funded inventions in federal contractors “fundamentally undermin[es]” the Act’s framework and severely threatens its continued “successful application.” Brief for Petitioner 45. We do not agree. As just noted, universities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions. With an effective assignment, those inventions—if federally funded—become “subject inventions” under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.

The Supreme Court states the obvious that is apparent from reading the statute. Bayh-Dole does not provide any special privilege with regard to ownership. Universities have to “enter into agreements” on the matter with their employees–that is, patent agreements–if they want to claim ownership. Nothing in Bayh-Dole requires such agreements. Nor is the “way Stanford says” Bayh-Dole should operate the only way Bayh-Dole does operate or the only way Bayh-Dole was intended by Congress to operate. It’s just that if Stanford wants to operate under Bayh-Dole in its preferred way, then Stanford ought to go get patent agreements rather than futze around with goofy mischaracterizations of the law. The Supreme Court points out only that if universities have patent agreements on the matter, then they have equitable title to those inventions and can secure legal title and thus have inventions “of the contractor” to disclose and fuss over.

But NIST cannot comprehend this stuff. Instead, NIST acts seven years after Stanford v Roche to add an assignment requirement to the written agreement requirement–as if Bayh-Dole requires vesting, but under a different procedure. Furthermore, such an assignment, were it directed to the inventor’s subject inventions and not ones that a prime contractor already equitably owned, would violate the standard patent rights clause requirements on subcontracting (the written agreement acts as a subcontract between the prime contractor and inventor-contractor) and would render mere fluffery the inventor patent rights clause at 37 CFR 401.9. The NIST-added assignment clause can only go so far as to require that prime contractors must require inventor-contractors to assign any invention that a prime contractor holds equitable title outside the relationship formed by the federal contract.

Oh, and drat it all. Universities don’t comply with the (f)(2) written agreement anyway. They substitute their policy statements as patent agreements and ignore (f)(2).  Thus, they gain ownership of inventions that they ought not to have were they to comply with Bayh-Dole. But university administrators believe the bombast that Bayh-Dole was intended to supply universities with ownership of inventions, and that somehow university ownership provides the public with benefits otherwise not attainable–despite the evidence that university ownership has done nothing of the sort. Think about it–if there was evidence that university ownership of research inventions was essential to public benefit, wouldn’t universities report it? But they don’t. They report a bunch of things that aren’t evidence and think the public is dumb enough and trusting enough to accept bogusness in place of evidence.

The Federal Procurement Regulations are put in place in 1975. They provide a uniform treatment for inventions made in federal contracting. Bayh-Dole is introduced as S. 414 four years later–before the FPR have had any chance to demonstrate what they are capable of. Bayh-Dole also botches the FPR handling of invention ownership. In reversing the presumption of ownership and preempting federal regulations on the matter, Bayh-Dole ends up freeing university faculty from any claims not only of the federal government but also of their university administrations–at least any claims that would arise as a consequence of anything having to do with federal funding.

Perhaps, then, Bayh-Dole does not botch things as badly as the university administrators who not only cannot get Bayh-Dole right–either to characterize the law or to comply with its standard patent rights clause–but also choose to be illegal in a way determined to repudiate the assured faculty freedoms of research and publication–the very basis for Vannevar Bush’s proposal that the federal government fund basic research at universities to open up new scientific frontiers.

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