Bayh-Dole Adds Bureaucracy, 1: Conditional Preemption

Bayh-Dole conditionally preempts federal statutes pertaining to the ownership of inventions made with federal support (35 USC 210(a)). If a party to a federal funding agreement acquires ownership of such an invention–a subject invention–then Bayh-Dole conditions, as conveyed through that funding agreement, apply to that invention. If no party to the federal funding agreement owns a given invention, then it cannot be a subject invention, and Bayh-Dole’s conditions do not apply. Bayh-Dole’s preemption operates only for “inventions of a contractor.” Otherwise, the other federal statutes continue to operate, including in the absence of any particular guidance, the Nixon patent policy of 1971.

Thus, even if there were a “gap” in Bayh-Dole, it doesn’t matter because Bayh-Dole is not the only federal word on federally funded inventions. Bayh-Dole is a conditional law that comes into play when a party to a funding agreement acquires title to an invention made under contract. If Bayh-Dole doesn’t apply, then the Nixon patent policy applies, or a federal statute that takes precedence over the Nixon policy applies.

Thus, Bayh-Dole nor its standard patent rights clause needs an assignment clause. If a contractor fails to have a patent agreement with inventors with regard to a given federal funding agreement, it is no big deal. Bayh-Dole doesn’t require the contractor to take ownership of any invention. Even the Nixon patent policy does not require contractors to own inventions made in work with federal support. The Federal Procurement Regulation (1975) based on the Nixon patent policy (and stipulated by the Nixon policy) included a standard patent rights clause that did require a contractor to have a patent agreement with potential inventor-employees, but the FPR was repealed in favor of the Federal Acquisition Regulations and the FAR ignores the Nixon patent policy and only stipulates Bayh-Dole compliance. As a result, we have the Nixon patent policy but without the required regulatory codification, along with a bunch of federal statutes, that apply whenever a contractor does not acquire ownership.

Bayh-Dole adds a layer to the regulatory apparatus. It does not replace all the old layers with a single new layer. It’s just that some folks forget (or want to forget, or never knew) that the old layers continue on. Their effort, then, is to make those layers not operate by somehow getting contractors to take ownership of all inventions made in work receiving federal funding. Forcing contractors to own–forcing inventors to assign to contractors–so that somehow always Bayh-Dole can be invoked to preempt those older layers. It is as if these folks live in a great fear that some invention will fall outside of Bayh-Dole and the Nixon patent policy or some statute dictating ownership will demonstrate that it works just fine.

We should pause on one point. If Bayh-Dole doesn’t operate because a contractor does not take ownership of an invention, but the Nixon patent policy or a federal statute then does–as it must–then the government (if it remembers to do this) then may acquire title to the invention. Once the government acquires title, then Bayh-Dole again controls the situation, as that is the federal licensing side of Bayh-Dole, 35 USC 207-209. Thus, the only bit that falls outside of Bayh-Dole is the part where an invention is not owned by either the contractor or the federal government but was made within the scope of a federal funding agreement.

What about these inventions?

First. The government has rights in these inventions via the Nixon patent policy or a federal statute–it’s just that the regulatory apparatus associated with these laws is in a shambles. It’s not that there’s a gap in Bayh-Dole–that simply does not matter–but that the federal government has failed to maintain the layer of regulations that addresses what happens when a contractor does not take ownership of an invention made with federal support. There’s your problem, if you think it is a problem.

Second. The implementing regulations for Bayh-Dole require things that Bayh-Dole does not require. One of these regulations is in the standard patent rights clause, requiring contractors to have written agreements with their employees other than clerical and non-technical employees to protect the government’s interest (37 CFR 401.14(f)(2)). The employees are to be required by the contractor to make a written agreement to disclose subject inventions and sign papers to allow patent applications to be filed and to establish the government’s rights. Now a subject invention is one that the contractor owns, so these obligations by inventors come into effect only after a contractor has acquired an invention. Before that point, an inventor has no obligation under this written agreement  to disclose, help to file patent applications, or to sign licenses or assignments for the invention to the federal government.

That’s all interesting. But there’s more–this written agreement requirement requires contractors to make their inventors parties to the funding agreement. It’s like a compulsory subcontract (though it’s actually something of a substitution of parties). In any event, if contractors comply with the written agreement requirement, they delegate actions under the funding agreement to their inventors, and that makes the inventors parties to the patent rights clause of the funding agreement and that makes the inventors, by Bayh-Dole’s definition, contractors. Any invention they make within the scope of a funding agreement becomes a subject invention–it does not have to be assigned to the inventor’s employer-as-contractor to achieve this status. The inventor owns the invention. The inventor is a contractor. The invention is otherwise within scope of the federal funding agreement. The invention is a subject invention. Bayh-Dole kicks in.

If contractors wanted to comply with Bayh-Dole’s standard patent rights clause, then they would comply with the written agreement requirement. But they don’t. And NIST helps them not do that. Instead, contractors attempt to force inventors to assign all their inventions to the contractor. For a long time, university contractors claimed that Bayh-Dole required inventors to assign, or prevented inventors from assigning to anyone else, or that the law vested ownership outright with the university and the paperwork of assignment was merely a required documentary formality that did not actually transfer anything. The Supreme Court in Stanford v Roche disagreed with all this. But most everyone has ignored the Court on this point.

And, sigh, there’s more. NIST has changed the written agreement requirement to require contractors to require inventors to assign subject inventions to the contractor. It’s just that this new provision makes a garble of Bayh-Dole’s standard patent rights clause. First, it requires contractors to require other contractors (the inventors) to assign inventions, which the patent rights clause otherwise forbids. And if the inventors aren’t contractors, then what they invent is not a subject invention anyway and therefore is not something they have been required to agree to assign. The driving force behind the NIST requirement appears to be one to “fix” a perceived “gap” in Bayh-Dole that would allow inventors to own their inventions and not force all inventions to pass to an organizational contractor’s ownership. Of course, inventor ownership is a long-standing, constitutionally authorized right of inventors, so this odd NIST policy move appears to be at odds with federal patent law, and is an attempt to create a “work for hire” patent provision under which inventions made with federal funding must be owned by organizations, not by individual inventors–this despite the Supreme Court ruling that Bayh-Dole provides no vesting of ownership of inventions with organizational contractors nor does it provide any special privilege by which such contractors may compel assignment of inventions. NIST turns around and attempts to do what the Supreme Court ruled Bayh-Dole lacked the authority to do, that Congress never intended the law to do.

Third. If a contractor makes its inventors parties to the funding agreement, but does not take ownership of the inventions, then Bayh-Dole’s implementing regulations stipulate an inventor’s patent rights clause (37 CFR 401.9) that comes into play for subject inventions owned by inventors. That clause does not require inventors to file patent applications, but if they do, then some parts of Bayh-Dole’s standard patent license for small businesses kick in, but none of the nonprofit-specific parts do. Thus, inventors who own their subject inventions do not have any restrictions on assigning their inventions, do not have restrictions on how to use royalties or income earned with respect to their inventions, and do not have to have a preference for small business in their licensing. They still have to prefer US industry in exclusive licenses to use or sell in the US, but if they don’t grant exclusive licenses, that does not matter either. And if they fail to achieve practical application or make inventions sufficiently available to meet unmet health, safety, or regulatory requirements, then the federal government may still march-in and compel licensing (which it has never done).

According to Bayh-Dole’s implementing regulations, inventors are to be treated as small business contractors, and so inventors as contractors gain the same standing to elect to retain title in their inventions as do organizational contractors. Inventors become “small businesses.” If inventors can elect to retain title to inventions by notice to the funding agency, then they would appear to have statutory relief from any competing claims by any other contractors under that same funding agreement, just as subcontractors have relief from demands of prime contractors.

In short, nothing in Bayh-Dole compels parties to a funding agreement to trigger Bayh-Dole. Nothing in Bayh-Dole requires a party to a federal funding agreement to take ownership of any invention made under federal contract. If a party to a funding agreement does not choose to acquire an invention and trigger Bayh-Dole, then in the absence of any specialty statute, the old Nixon patent policy applies and the federal government can request ownership of the invention or field requests for a determination of greater rights by the contractor or inventor.

For that matter, if a contractor wanted the benefit of an invention made with federal support without all the awful hassles of turning that invention into a subject invention, the workaround it rather easy. Don’t make inventors parties to the funding agreement. Nothing in Bayh-Dole requires that written agreement. Don’t take ownership of any invention made within the scope of federal funding. Let the inventors own–in fact, insist that they continue to own. Assert a shop right in the invention–that gets one the equivalent of a royalty-free non-exclusive license for all company work. Pay the inventor to file a patent application, and if an exclusive position is needed, pay the inventor not to license to anyone else. The invention is not a subject invention, Bayh-Dole does not apply, and federal agencies lack the regulatory mechanisms to demand title to the invention.

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