Typical Bayh-Dole wrongness in the wild

Here’s a 2017 article on Bayh-Dole, “Bullies and Beakers: How Large Universities are
Squashing Research Competition and the Contractual Remedies to Solve It,” by Jonathan Fort, then a law student, published in the Washington University Journal of Law & Policy. The burden of the article is a claim that big universities poach researchers from small universities and small universities can fight back by forcing their researchers to assign all inventions to them and to include a clause for “liquidated damages” if the researchers jump to another university. It’s law student silliness from premise to remedy, but that’s not what’s interesting about the article. In the middle of the discussion we find an account of the Bayh-Dole Act. There is nothing at all exceptional about the account of Bayh-Dole. It gets most everything wrong, as usual. And that’s what is interesting about it. The article makes what it presents as an utterly factual statement the bogus claims made about Bayh-Dole by the university invention management community.

Let’s work through some text from the article.

In 1980, Congress passed the Bayh-Dole Act (BDA) to incentivize researchers and private industry professionals to commercialize federally funded technologies.29

The part that Congress passed Bayh-Dole in 1980 is true. The rest is nonsense. Bayh-Dole sets forth the intent of Congress at 35 USC 200. There is nothing about “incentivizing” anyone, and certainly not either “researchers” or “private industry professionals”–whoever those might be. Put it this way–why would researchers have any greater incentive because university administrators were motivated to take researchers inventions from them? And why would federal policy on research inventions suddenly decide that non-descript “private industry professionals” should be the object of attention? Of all people, why them?

35 USC 200 gives as Congressional policy and objective:

It is the policy and objective of the Congress

to use the patent system to promote the utilization of  inventions arising from federally supported research or development

The objective is utilization, not commercialization. There is no mention here of who might be involved in the use of the patent system, but the patent system is founded on the idea that Congress has the authority to reserve to inventors for limited times exclusive rights to their inventions. If we want to consider objectives, then we should consider what Congress has set out as objectives, and consider what the patent system offers. People can make up their own objectives for the law, but those are their personal opinions about objectives–what they want the law to endorse (or what they fear others will say the law endorses)–but those are not the objectives of the law.

Congress’s express statement of policy and objective at 35 USC 200 is the controlling statement of purpose, and we need to refer to legislative history only where some aspect of the statement of policy and objective is uncertain. At 35 USC 200, we see nothing about incentivizing researchers or even incentives to commercialize “technologies.” The focus is patentable inventions–Bayh-Dole is part of federal patent law–and the primary objective is utilization. Everything else, even from Bayh and Dole, is not the intent of the law, even if it forms the political rationale of the law’s primary sponsors.

Now, more typical nonsense about Bayh-Dole for our article:

The BDA was established as a three tiered hierarchy of intellectual property rights stemming from these federally funded technologies.30

Here’s note 30:

See 35 U.S.C. § 202 (Westlaw through Pub. L. No. 114-316) (describing contractor’s property rights and employee-inventors’ financial rights to federally funded inventions); 35 U.S.C. § 203 (Westlaw through Pub. L. No. 96-517) (describing the government’s “march-in rights” to contractor owned inventions); Fenn v. Yale Univ., 393 F. Supp. 2d 133, 137 (2004)

35 USC 202 provides no “three tiered hierarchy of intellectual property rights.” Bayh-Dole pertains only to patentable inventions when owned by a contractor and made in the performance of work under a funding agreement. So “intellectual property rights” is needlessly and misleadingly general. Inventors do not have, in general, any financial rights in inventions under Bayh-Dole. Why? First, because Bayh-Dole applies to subject inventions–ones that contractors have already acquired in some conventional manner. Thus, whatever deal regarding consideration for assignment has already taken place by the time Bayh-Dole applies.

Nonetheless, Bayh-Dole does require nonprofits only to share royalties with inventors–see 35 USC 202(c)(7)(B). It’s just that Bayh-Dole nor its standard patent rights clause provide any guidance on what this sharing of royalties ought to be, and how this sharing differs (if it does) from the consideration paid by the nonprofit in acquiring the invention in the first place. One would think that sharing of royalties must be in addition to the consideration for the assignment–but little in Bayh-Dole is rational, so there’s not much point in pursuing the matter. Nothing in 35 USC 202 lays out any three-tiered hierarchy of rights.

35 USC 203 is the march-in provision that gets incorporated into the provisions required of the standard patent rights clause by 35 USC 202(c)(8). March-in permits a federal agency, on specified conditions, to compel the owner, assignee, or exclusive licensee of a subject invention to grant one or more licenses. There’s nothing there about multiple tiers of rights.

Here’s the court in Yale v Fenn on Bayh-Dole:

The statute establishes rules for the federal government, for nonprofit or small-business grantee contractors funded by the government, and for inventors who work for those contractors.

Perhaps this is the “three-tiered hierarchy” that our author refers to. But there’s no hierarchy here. The rules for federal government have to do with how contracting must be conducted to enable the rules for contractors and how the federal government manages the inventions it owns. There are no rules for inventors, other than 35 USC 202(d) which provides that inventors may retain ownership of their subject inventions, subject to a request to a federal agency. How that is a rule or part of a hierarchy is a mystery. Certainly Senator Bayh thought there was a pecking order of rights–contractors first, then federal agencies, and then inventors. But the Supreme Court in Stanford v Roche disregarded the claim he made in his amicus brief.

The Yale v Fenn court, continues:

If a contracting institution elects to retain title to a subject invention, the individual inventor (who typically is employed by the institution) has no further rights.

This, too, is wrong. “Electing to retain title” does not have anything to do with taking title or transfer of title or vesting of title, as the Supreme Court decision seven years later makes clear. A contracting institution elects to retain title in inventions that the contracting institution has acquired in a conventional manner–by written assignment, for instance. The Yale v Fenn court gets Bayh-Dole all wrong and the decision ought to be vacated on that basis alone. Why our author cites this case as an authority on Bayh-Dole is also a mystery.

As discussed previously, the Bayh-Dole Act imposes two prerequisites before a federal agency may grant an inventor’s request to retain rights to a subject invention: the contractor must elect not to retain title to the invention, and the federal agency is directed to consult with the contractor before deciding whether to grant the request.

The Yale v Fenn court misses the obvious point that an inventor owns his invention absent a valid assignment. Thus, while 35 USC 202(d) does set up the conditions that the court recites, those are not the only conditions upon which an inventor owns a subject invention or otherwise retains rights in such an invention. The inventor owns inventions he makes when he makes them. For that ownership to change, there must be a valid assignment. 35 USC 202(d) applies only after (a) there has been a valid assignment from inventor to institution or (b) the institution has made the inventor a party to the funding agreement per 35 USC 201(b) and 37 CFR 401.14(f)(2). In either case, as long as the inventor owns a subject invention, the inventor has an equal right to elect to retain title under 35 USC 202(a) as confirmed by the inventor patent rights clause at 37 CFR 401.9. Fenn’s mistake in petitioning the NIH for a declaration that he, Fenn, was the owner of the invention in dispute was that Bayh-Dole does not provide for such a petition. Fenn ought to have given notice of his election to retain title. The NIH may well have rejected that notice, but after Stanford v Roche, it could not do so.

The Fenn case is so much Bayh-Dole nonsense. It is a guide to how screwed up university officials had become–and many still are–with regard not only to Bayh-Dole but to the disposition of research inventions generally. And our author Fort provides no help here. More:

The BDA granted federally funded small businesses and nonprofit organizations (contractors) exclusive patent rights to inventions developed by their employees using federal funds.31

Bayh-Dole grants no patent rights. And no invention rights. Nuts. Note 31 cites 35 USC 202 and the definition of subject invention at 35 USC 201(e). Apparently Fort does not know that the Supreme Court made clear that the “of” in “of the contractor” means ownership. Bayh-Dole does not grant any exclusive patent rights to the inventions developed by their employees. That’s the whole point of Stanford v Roche:

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.

This problem alone is sufficient for the article to be withdrawn and rebuilt.

These contractors were required to share any royalties flowing from the invention with their employees who devised the invention.32

Nope. The royalty sharing applies only to nonprofits–see 35 USC 202(c)(7). “Flowing from” is musical but fails to distinguish royalties from “income earned with respect to” subject inventions. Two distinct forms of revenue, only one of which must be shared, and only then if the owner is subject to the nonprofit patent rights clause.

If the federally funded contractors elected not to retain title to the inventions, the BDA gave the federal government the opportunity to acquire title to the inventions.33

Yes. This part works. Note 33 is to the relevant section of Bayh-Dole. But the contractors had to already have got title, even if they chose not to retain it, and if they choose not to retain title, then inventors have the right under 35 USC 202(d) to request rights they may have, including the right under university policy or employment contract for the university to reassign inventions that university refuses to file a patent application on or otherwise refuses to manage.

Lastly, if both the federally funded contractor and the federal government elected not to acquire title to the inventions, the employee who devised the invention would receive title.34

But this is nonsense. Note 34 cites 35 USC 202(d). Fort sets out essentially Sen. Bayh’s argument for a pecking order of ownership, with inventors last in line. But that’s not the Supreme Court’s ruling. The idea is that title is suspended in the air when an invention is made in a project receiving federal funds and does not resolve until each entity in turn has had its chance to reach out and take title, the contractor by “electing title,” the agency by “requesting title,” and the inventor by begging for title when no one else wants it. Fantasy. Why would a federal agency need to request title if a contractor did not elect to retain title? How would the contractor even have title if title vested when a contractor elected it? Oh, title vests with the contractor even if the contractor does not want title? A very strange fantasy.

The U.S. Supreme Court in Stanford v. Roche35 further interpreted the BDA’s assignment provision.

What an idiosyncratic use of “further interpreted.” I won’t work through Fort’s treatment of Stanford v Roche. Fort doesn’t understand the case and apparently uses flawed accounts of the case to reach the conclusions that the flawed accounts reach. Stanford’s patent policy did not require assignment of inventions unless Stanford was required to own the invention. Inventors were to own “whenever possible.” Since Bayh-Dole does not require anyone to own an invention, Stanford’s policy was merely conditional, not an absolute promise to assign inventions. Thus, the inventor had no equitable obligation to assign any invention to Stanford, was free to assign it to Cetus (acquired by Roche), and did. It would not have mattered that Stanford used promise to assign language or present assignment language, the assignment would not have operated unless Bayh-Dole required assignment, and the law does not. Thus, Justice Breyer’s dissent with regard to magical language between promise to assign and present assignment is apt, and the Supreme Court could have resolved two muddles rather than one by clarifying that the CAFC decision was flawed with regard to Bayh-Dole and that led to a faulty argument with regard to the priority of one sort of promise to assign over another (because an assignment of an invention that hasn’t been made yet is pretty much the same as promising to assign an invention that hasn’t been made yet).

If Bayh-Dole is so difficult that law students cannot write coherent articles about it–and neither can many law professors or lawyers at law firms–then perhaps the law is just too complicated to continue to exist. Clearly, the law has been a failure with regard to nearly all of its stated objectives–utilization of inventions, maximum involvement of small businesses, university-industry collaboration, free competition, American manufacturing. Instead, we are told the law was intended to make the pharmaceutical industry fat on monopoly profits on medicines and grow an inflated university bureaucracy living off revenue swiped from other university missions and from a disruption of public service by putting research discoveries behind paywalls.

Funny, we never hear about how successful small businesses have been with Bayh-Dole subject invention commercialization. Small businesses don’t cry out for Bayh-Dole. Same for large businesses managing inventions under Bayh-Dole as contractors. No reports of how they have been doing with inventions they have acquired and elected to retain title in. Nor with federal agencies and their exclusive licensing. No information–it is as if the operation of Bayh-Dole is a government secret. The public gets misinformation about how the law works, is told repeatedly that the law is successful, but there’s nothing to show that any of this is true. It’s a scam. But it’s complicated enough and clever enough that law students can write articles that don’t come close to getting Bayh-Dole right. Maybe there’s better money in keeping Bayh-Dole wrong.

Where does Fort’s article end up? He argues for iron-fisted assignment agreements using the magical “hereby assign” language that Justice Breyer questioned. There goes academic freedom of research and publication. There goes the idea of the faculty member as a “free intellect” whose distinctive advantage in research is that he or she is not bound by any institution, company, or government nor bound to seek profit or “incentivized” by profit. There goes, bluntly, the argument that the federal government should fund research at universities. As Dean Baker has argued, we would have much better outcomes if the federal government simply took over all development of medicines that its research discoveries and contracted with capable companies for that work. Other than training people to work in indentured positions to invent for others, there’s no point left for the public to fund university research, once university administrators claim ownership of whatever is discovered for the purpose of monetizing patent rights.

Fort then argues that universities should have a “liquidated damages” provision in their employment agreements with faculty to make it unappealing for faculty to move to new positions. The flip side, of course, is that small universities could conceivably get into the business of selling off their faculty to raise money. Not that Fort has considered such a perverse effect of the incentive he proposes.

Unless we can get square on Bayh-Dole–please, anyone, how about doing more than cite crappy articles and treating political claims as if they are facts. That may be polite. It may even be necessary in court. But it does no good for policy or policy discussions regarding research discoveries.

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