Reagan’s Executive Order 12591-3

President Reagan’s Executive Order 12591 does one more odd thing. It makes the contractor’s title to patents conditioned on a government license. But this government license is not the one required by Bayh-Dole. Here’s Bayh-Dole (35 USC 202(c)(4)):

With respect to any invention in which the  contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States  any subject invention throughout the world:

Here’s Reagan:

in exchange for royalty-free use by or on behalf of the government;

Well, “practice” is not “use.” In the Kennedy patent policy, “practice” is defined as “make, use, and sell.” In the Nixon revision to the Kennedy patent policy, “practice” is replaced by “make, use, and sell.” To “practice” an invention means to undertake any of the activities that are subject to an inventor’s exclusive control–the substantial rights in the invention as set forth in a patent. The Reagan revision to Nixon substitutes “use” rather than Nixon’s “make, use, and sell.” In effect, Reagan stipulates a much narrower government license for large companies gaining title to patents on inventions made with federal support than does Bayh-Dole. Furthermore, Reagan stipulates this narrower scope of license for all inventions not owned by any contractor but made under federal contract.

There is one more twist. In 1984, Bayh-Dole was amended to incorporate Reagan’s Memorandum from 1983. The change shows up in 35 USC 210(c):

Nothing in this chapter is intended to limit the authority of agencies to agree to the disposition of rights in inventions made in the performance of work under funding agreements with persons other than nonprofit organizations or small business firms in accordance with the Statement of Government Patent Policy issued on  February 18, 1983, agency regulations, or other applicable regulations

The opening gesture is odd. Bayh-Dole is amended to make clear that Bayh-Dole does not limit federal agencies from complying with a presidential memorandum concerning funding agreements with parties that are not within the scope of Bayh-Dole. Somewhere, someone must have felt that there was a way to interpret Bayh-Dole that did limit the authority of federal agencies to agree to disposition of rights in inventions for such out-of-scope funding agreements.

or to otherwise limit the authority of agencies to allow such persons to retain ownership of  inventions

Not only the “disposition of rights” but also to “retain ownership of inventions”–as if the retention of ownership was not clearly within the meaning of “disposition of rights.”

Section 210(c) then provides an exception–no limitation on agency authority except there really is a limitation on that authority:

except that all funding agreements, including those with other than small business firms  and nonprofit organizations, shall include the requirements established in section 202(c)(4) and section 203.

This is very odd. The point of Bayh-Dole is to preclude federal agencies from taking ownership of inventions made with federal support whenever a contractor acquires ownership of any such invention. The specialty statutes uniformly assert federal ownership of inventions in specified areas of federal research and development. There would be no need for the government to receive a nonexclusive license nor to have the right to march-in for a contractor that does not use or misuses an invention it has been allowed to own.

The oddity does not end there. It would be one thing for Bayh-Dole to stipulate that in all contracts for research the federal government should get a royalty-free license and a right to march in for contractor mispractice, but Bayh-Dole here asserts that its provisions will be included in all such contracts. Bayh-Dole’s government license at 35 USC 202(c)(4) in turn requires contracts to import Bayh-Dole’s definitions of funding agreement, contractor, invention, subject invention, and made. Section 202(c)(4) relies on a contractor having the right to “elect” rights, so contracts also have to import, implicitly, Bayh-Dole’s means for settling the disposition of rights. Bayh-Dole’s march-in procedure at 35 USC 203 relies in addition to Bayh-Dole’s definitions of funding agreement, contractor, subject invention, and made on the definition of practical application, incorporates 35 USC 204–preference for United States industry–and the implementing procedures for march-in at 37 CFR 401.14(j), which in turn invokes the procedures for march-in at 37 CFR 401.6, and those procedures in turn invoke 35 USC 202(c)(5)–a requirement to keep march-in information from public disclosure–and 35 USC 200–Bayh-Dole’s statement of policy and objective. By the time we have assembled the regulatory apparatus to comply with 35 USC 210(c), we have assembled most of Bayh-Dole for contracting–35 USC 200, 201, much of 202, 203, and 204.

Of 202, we get

202(a)–contractors electing to retain title and

202(c)(1) (disclosure–has to happen for a contractor to elect to retain title and for a federal agency to know what the government’s license is to);

202(c)(2) (election to retain title–but without any time limit specified);

202(c)(4) (government license);

202(c)(5) (non-disclosure);

202(c)(8) (march-in and preference for U.S. industry)

Left out– (c)(3) (filing patent applications), (c)(5) (allowing agencies to request utilization reports), (c)(6) (federal rights notice in patents), and (c)(7) (special conditions for nonprofits–not applicable).

In essence, then the Bayh-Dole amendment at 35 USC 210(c) implements the substance of Bayh-Dole for all contracts, but for the requirement to file patent applications, include a notice of government rights in issued patents, and the right for federal agencies to request periodic reports of contractor utilization of subject inventions.

Again, look at the Reagan Memorandum:

agency policy with respect to the disposition of any invention made in the performance of a federally-funded . . .  award shall be the same or substantially the same [as Bayh-Dole provides for small businesses and nonprofits]

That agency policy, then, would include Bayh-Dole implementing regulations, much of the standard patent rights clause, and the procedures for tailoring that clause, modifying it, and dealing with disputes.

Bayh-Dole recites the Reagan Memorandum. The Reagan Memorandum makes it executive branch policy to use Bayh-Dole for all contracts except where a specialty statute provides otherwise. The problem with all this is that 15 USC 2218(d) requires the Nixon patent policy including any revisions published in the Federal Register. Bayh-Dole at 35 USC 210(c) fixes this when a contractor outside the scope of Bayh-Dole elects to retain title in an invention because Bayh-Dole then preempts 15 USC 2218(d). While Congress did not pass a law to deal with the whole of federal contracting–only the portion pertaining to nonprofits and small business contractors (for the soon to launch SBIR program, primarily)–a combination of presidential memorandum, amendment to Bayh-Dole, and presidential executive order accomplished much of the rest, even when Bayh-Dole does not expressly preempt the specialty statutes, it actually does, despite the protestation that it does not intend to do so at 35 USC 210(b):

Nothing in this chapter is intended to alter the effect of the laws cited in paragraph (a) of this section or any other laws with respect to the disposition of rights in inventions made in the performance of funding agreements with persons other than nonprofit organizations  or small business firms.

The overall effect of the Reagan executive order, when combined with the amendment to Bayh-Dole at 210(c) is to replace the Nixon patent policy and its public interest apparatus with a patchwork version of Bayh-Dole for contracting for research or development with anyone other than a nonprofit or small business.

Thus, Bayh-Dole covers all organizations that might contract with the federal government for research or development, and preempts federal statutes even where Bayh-Dole otherwise claims not to. That leaves one critical issue–what happens to inventors?

Inventors own their inventions when they make them. That’s established federal law, confirmed by the Supreme Court in Stanford v Roche. Furthermore, federal agencies generally do not enter into funding agreements with individuals, and Bayh-Dole is limited to nonprofits (which cannot be individuals) and small business firms (which could be sole proprietorships). Under the Nixon patent policy, there was no problem. Federal statutes reached to inventions made with federal support regardless of who owned them. The codification of the Nixon patent policy required contractors to have patent agreements with inventions to “effectuate” the requirements of the patent rights clause, which included assigning inventions to the government or granting the government a license–either the contractor obtained title to inventions or required its inventors to assign to the government or grant to the government its license.

Bayh-Dole, however, unlike the specialty statutes or the Nixon patent policy, applies only when a contractor acquires ownership of an invention made with federal support. Bayh-Dole, according to the Supreme Court, provides a contractor with no special right to take ownership of inventions made with federal support.

The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.

By extending Bayh-Dole to all contractors (Bayh-Dole amendment 35 USC 210(c); Reagan Executive Order 12591), the federal government effectively undid the federal apparatus in the Nixon patent policy and the specialty statutes that dealt with inventions made with federal support regardless of the ownership of those inventions. The determination to allow contractors to resist, by notice, any federal claim to ownership has led the federal government to focus on subject inventions–inventions contractors own made with federal support–rather than inventions made with federal support regardless of whether any contractor owns them.

Let’s repeat using different words. In the pre-Bayh-Dole regime, it did not matter who owned an invention made with federal support. Statutes and federal contracts applied regardless. Contractors were obligated to assign or license the inventions they owned, as were inventors. To the extent a statute did not control, then the codification of the Nixon patent policy required contractors to obtain patent agreements from their inventors that the inventors would either assign to the federal government or grant to the federal government its license. Nothing in the specification of the patent agreement in the codification of the Nixon patent policy expressly requires a contractor to take ownership of inventions made with federal support.

In the nonprofit version of the Nixon policy patent rights clause, this point is made clear. The patent rights clause is indifferent whether the nonprofit or its employee-inventor owns any particular invention.

And the subcontracting provisions make clear that each subcontractor and its employees are subject to the patent rights clause.

The patent agreement, then, in the Nixon codification to “effectuate” the provisions of the patent rights clause, has to do with the disclosure of inventions to the federal government, initiating the process of determining whether the government will permit the owner of an invention made with federal support to retain that ownership. As is evident from the parallelism with the requirement in the subcontracting requirements, the purpose of the patent agreement is to make the subcontractors employees subject to the patent rights clause along with the subcontractor. That is the purpose of the patent agreement, then, with regard to the prime contractor. It does not matter to the federal government whether an inventor owns or the inventor’s employer owns any given invention–what matters is that both employer and inventor are subject to the patent rights clause, whatever other relationship they may have with regard to the disposition of inventions.

The FPR then packs this home in its procedure for determining whether a contractor may retain greater rights in an invention (1-9.109-6):

“[T]he term contractor shall be understood to also mean the employee-inventor.” The FPR uses “Contractor” and “employee-inventor” but it is clear that whenever an employee-inventor owns an invention and does not have a duty to assign that invention to the Contractor, the employee-inventor is subject to the patent rights clause and is, for the duties that the employee-inventor has under the patent rights clause to be treated as a contractor–and indeed is a contractor.

This is just what goes on with Bayh-Dole’s standard patent rights clause written agreement requirement at 37 CFR 401.14(f)(2). That written agreement is not a patent agreement under which employees are forced to assign rights in inventions to the Contractor, but rather is the patent agreement of the FPR, which makes employee-inventors subject to the patent rights clause by action of their employers–by substitution of parties. The inventors become parties to the funding agreement–contractors–and their inventions then are subject inventions–inventions “of the contractor.” It’s just that the contractor is not the Contractor, if you follow; it’s the employee-inventor as contractor.

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