Reagan’s Executive Order 12591-1

In 1987, President Reagan issued Executive Order 12591, which extended, sort of, the Bayh-Dole Act to “all contractors.” Let’s work through EO 12591 and try to sort out this “sort of.” It’s rather a mess. In doing so, we end up with something remarkably simple and direct to say about Bayh-Dole. It is worth working through the details to show how it comes about.

Here’s the relevant bit of Reagan’s EO 12591, with some parts in bold to mark points of interest:

(4) promote the commercialization, in accord with my Memorandum to the Heads of Executive Departments and Agencies of February 18, 1983, of patentable results of federally funded research by granting to all contractors, regardless of size, the title to patents made in whole or in part with Federal funds, in exchange for royalty-free use by or on behalf of the government;

Let’s go down the rabbit hole. Reagan’s February 18, 1983 Memorandum, however, does not mention commercialization. Here:

To the extent permitted by law, agency policy with respect to the disposition of any invention made in the performance of a federally-funded research and development contract, grant or cooperative agreement award shall be the same or substantially the same as applied to small business firms and nonprofit organizations under Chapter 38 of Title 35 of the United States Code.

Other than that Bayh-Dole is Chapter 18, not Chapter 38, of federal patent law, the memorandum extends at least some Bayh-Dole treatment to any contractor not otherwise specified by Bayh-Dole–any contractor other than a small business or nonprofit. That means foreign contractors and large company contractors, but if one follows Bayh-Dole, only when such contractors acquire rights in inventions made under federal contract, and only if not superseded by federal specialty laws. But there are big differences. Whereas Bayh-Dole expressly preempts various specialty laws dealing with the ownership of federally supported inventions, Reagan’s Memorandum is limited to treatment of contractors “to the extent permitted by law”–that is, to the extent permitted by those specialty laws that Bayh-Dole otherwise preempts for small businesses and nonprofits.

Despite Reagan’s executive order, Bayh-Dole says nothing about promoting commercialization. Even the preliminary statement of the executive order mentions only “the development of new products and processes”–obliquely commercialization, though neither products nor processes have to be commercial in nature. A look at 35 USC 200, Bayh-Dole’s statement of policy and objective, shows that the primary objective is to promote the utilization of inventions arising from federally supported research or development. The threshold for march-in compulsory licensing is practical application–use of inventions with benefits available to the public on reasonable terms, not commercialization. There is in Bayh-Dole no mandate for “commercialization”  and no provision for dealing with contractors that fail to commercialize. True, there is a reference to commercialization in 35 USC 200, but it pertains the promoting American industry and labor in the commercialization and public availability of inventions.

But Reagan’s executive order mandates the promotion of  “commercialization” by means of contractor ownership of, um, patents (not inventions):

by granting to all contractors, regardless of size, the title to patents made in whole or in part with Federal funds, in exchange for royalty-free use by or on behalf of the government;

I have highlighted some oddities. Bayh-Dole does not grant anyone title to anything. The Supreme Court in Stanford v Roche (2011) made that clear enough even to scores of university lawyers who insisted that the law meant otherwise, even if it didn’t read otherwise. Bayh-Dole applies only after a small business or nonprofit contractor has acquired an invention made with federal support. Furthermore, federal agencies don’t have any title in such inventions to grant. Inventors own their inventions. If a contractor doesn’t own the invention, then the inventor does, not a federal agency. A federal agency might release a claim on title to an invention as a contract deliverable, were a contractor to obtain ownership or even if not, but how do the federal agencies come to own inventions (or patents) made under contract in the first place, to be able to grant title to anyone?

Bayh-Dole’s fundamental gesture is that small businesses and nonprofits can elect to retain title in the inventions made with federal support that they acquire. They receive no grant of title from the federal government. They notify the federal government that they will not give up title, and the government acquiesces in the contractor’s choice.

Ownership of inventions made by federal employees are dealt with under a different regime, based on President Truman’s executive order 10096 and codified by 37 CFR 501. Bayh-Dole, by contrast, does not deal with how contractors obtain ownership, but only what federal agencies must do if a contractor does obtain ownership. Similarly, Bayh-Dole on the federal side does not stipulate how a federal agency acquires ownership of inventions made by federal employees, but rather deals with how federal agencies may license the inventions that they do acquire.

But here, in the passage quoted above, Reagan’s executive order appears to require federal agencies to grant title to all contractors in patents that federal agencies do own. That would be a strange requirement, as there would be many co-owners, then, of each patent–all contractors. And how strange to restrict the grant of title to contractors and not everyone. We are left with the idea that the executive order does not intend what the words say, but there’s little to establish that intent but to say the executive order has made a hash of things and a plausible thing to expect is something rather different than anything put forward by the words.

The Reagan executive order focuses on patents, not inventions. The subject matter of Bayh-Dole, however, is patentable (or plant variety act protectable) inventions. While Bayh-Dole expects the patent system to be used in a relatively narrow way–to promote the utilization of inventions rather than, say, exploiting the patent monopoly right to maximize income–the Reagan executive order deals in patents directly. That’s an odd switcheroo. Under Reagan’s executive order, contractors do not hold title to patents until federal agencies grant them that title. That makes little sense, even if technically the Patent Office is in the Department of Commerce, which then might be thought of as in a way granting title to patents when it issues patents. But there’s no need for an executive order for such a thing.

Reagan’s executive order provides its own scope for the patents that are affected:

patents made in whole or in part with Federal funds

The Nixon patent policy gives a somewhat different scope:

inventions or discoveries made in the course of or under any contract of any Government agency

“Made” has this meaning the Nixon patent policy:

the conception or first actual reduction to practice of such invention in the course of or under the contract

There’s a tendency to attempt to harmonize the two texts, to settle on a meaning that might be approximately shared by both the Nixon policy and the Reagan policy. But if there were the case, there would be no particular reason for Reagan to state a scope. It would be enough to write that federal agencies should adopt the same protocols for large companies that they use for small companies, or that they should use Bayh-Dole’s standard patent rights clause and procedures for administrating it in all funding agreements with contractors. But harmonizing the readings requires that we already know that Reagan intended that the executive order merely recite Bayh-Dole. Otherwise, we are left to consider that Regan may well have intended something different, for clearly no executive order can countermand federal statutes–so while Bayh-Dole may preempt statutes and the Nixon patent policy (and therefore even the Reagan revision of Nixon), the Reagan executive order cannot preempt those statutes, nor can it preempt Bayh-Dole.

In the Nixon patent policy, there’s no “in whole or in part” language to the scope of interest. Reagan’s addition of “in part” changes things considerably. If an invention is made “in part” with federal funds, it must have been also made “in part” with support from non-federal sources, if only one’s personal time and effort. Reagan therefore substantially expands the scope of federal interest in inventions made with federal funding while at the same time Reagan restricts that scope to only those inventions for which some federal money was used in their making. It is all very strange, then, because the overall effect of the executive order is to concede that federal interest in inventions to contractors, but only for those funding agreements outside Bayh-Dole (not with small companies or nonprofits) and for patents (meaning, perhaps inventions) otherwise under the Nixon patent policy (because they meet the scope of interest set forth by the Nixon patent policy as modified by Reagan’s executive order) and not under Bayh-Dole (because not owned by a party to the funding agreement).

What about Bayh-Dole’s treatment of the scope of interest in inventions? Bayh-Dole has a different statement of scope than that of the Nixon patent policy or Reagan’s revision. There’s a whole book to be written about the matter, but the short of it is this:

35 USC 201(e):

The term “subject invention” means any invention of the contractor  conceived or first actually reduced to practice in the performance of work under a funding agreement:

That is, in Bayh-Dole, an invention has to be owned by a contractor before an invention is a subject invention. In Reagan’s policy, like that of Nixon, an invention merely has to be made with federal funds. Now consider “the performance of work.” Here’s Bayh-Dole:

The term “funding agreement” means any contract, grant, or cooperative agreement entered into between any Federal agency,  other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government.

Shortened we have “funding agreement means any agreement for the performance of work funded in whole or in part by the federal government.” Put the definitions of funding agreement and subject invention together, and one sees that subject inventions are those arising in a given “work”–regardless of whether one can show that federal funds were specifically used to make the invention. That’s the necessary implication of “in whole or in part” used to modify “performance of work” rather than “invention made.” In Bayh-Dole, it is not that an invention is funded in whole or in part, or even as Reagan has it, a patent (which makes no sense, or silly sense)–rather, it is that the work is the thing that is funded in whole or in part. “Under a funding agreement” then means for Bayh-Dole “in work funded at least in part by the federal government.” The invention could arise anywhere in that work–so long as some part of the work is funded by the federal government. The invention does not have to be funded at all with federal funding–it is enough that the work in which the invention has arisen is funded at least in part by the federal government.

This is a huge difference. In the Reagan policy, one looks to see whether federal funds were expended in making a given invention. In Bayh-Dole, one looks to see whether the invention has been made in a project for which the federal government has provided at least some funding, even if the invention was not made with the use of any federal funds at all. Instance: contractor recognizes that an area of research is ripe for invention and moves that work to a non-federal budget. The invention therefore is not made with federal funding, but clearly is made within the project that has received federal support. Bayh-Dole protects against such practices. Reagan’s policy does not. But perhaps there is no matter in the difference, as Reagan’s policy stipulates that contractors may keep what they want to keep, and if Reagan’s policy doesn’t claim something only to release it to contractors, then contractors can keep that unclaimed stuff, too.

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