Bayh-Dole Adds Bureaucracy, 2: Complications of Ownership Positions

So far, this should all be easy and clear. Heh. The Nixon patent policy states the general federal policy for inventions made with federal support. A set of specialty statutes supersede the Nixon patent policy for specific contracting purposes. Bayh-Dole conditionally preempts the statutes and Nixon policy if a party to a federal funding agreement acquires ownership of an invention made with federal support. (Except Bayh-Dole does not preempt Stevenson-Wydler or any later law that cites Bayh-Dole). Heh.

Now, ahem, for some actual complications. Bayh-Dole adds another administrative layer to the mix. Before Bayh-Dole, a nonprofit had to rig for the Nixon patent policy in general (and the patent rights clause codified in the Federal Procurement Regulations at 9-1.107-5). The nonprofit could also be in the NIH and NSF IPA programs, which circumvented the FPR codification. And the nonprofit also had to deal with a number of specialty statutes that preempted the Nixon patent policy (or at least dictated how that policy must be implemented). Bayh-Dole, rather than repealing these various statutes and the Nixon policy, instead conditionally preempts them. Thus, the nonprofit now has to deal with yet another layer of administration–Bayh-Dole on top of specialty federal statutes and the Nixon patent policy.

One big complication is that there has to be two parallel patent rights clauses for any given federal funding agreement, but there isn’t. One patent rights clause must follow the Nixon patent policy in the case that no party to a federal funding agreement owns an invention made with federal support, and the other patent rights clause in the case that a party does own such an invention. These have to be in place at the time of contracting–but federal regulations stipulate only the Bayh-Dole conditions–at 2 CFR 200.315(c) for grants and at 48 CFR 27.303 for contracts.

So things get all messed up at this point.

The Nixon patent policy requires its codification. That became the Federal Procurement Regulation with its patent rights clause, introduced in 1975. But Bayh-Dole requires a different patent rights clause, specified in 35 USC 202(c) and implemented by 37 CFR 401.9 and 37 CFR 401.14. Worse, the Federal Procurement Regulation was replaced by the Federal Acquisition Regulation in 1987, and the FAR implements only Bayh-Dole’s patent rights clause, not the Nixon policy required FPR clause. So while the Nixon patent policy is still federal law, it now lacks codification, so there’s no standard patent rights clause for those situations in which a party to a federal funding agreement does not own a given invention made under contract.

We might observe, just in passing, that federal patent policy for both contracting and licensing by the government is a total shambles, an ugly mess, an embarrassment. There is no fixing it. What’s required is a complete rebuild. But the people closest to the present implementation–such as at NIST, AUTM, BIO, or PhRMA–are not the people to work on any rebuild. We already have seen what they can’t do. Time to learn and move on.

There’s a huge difference, then, between a contractor identifying an invention and declining to own it (so it does not become a subject invention and does not trigger Bayh-Dole conditions) and a contractor identifying an invention, choosing to own it, and then declining to retain that ownership (so it is a subject invention, it has been removed from its inventors, and now the federal government has a right to acquire the invention via Bayh-Dole), and a contractor making inventors parties to the funding agreement, identifying an invention, declining to own it (so that it is a subject invention but the federal government has no right to request ownership unless the inventor files a patent application and then declines to pursue patenting or otherwise maintain an issued patent). In the first case, the invention is not a subject invention, Bayh-Dole cannot apply, and the Nixon policy (or specialty statute) does apply. In the second case, Bayh-Dole applies, so the federal government can request rights (but does not have to–in which case, what?). In the third case, the invention is a subject invention, the federal government cannot request rights unless the inventor seeks patent rights and then fails to maintain those rights.

Under the Nixon policy, companies should keep ownership of inventions made with federal support if they have commercial operations (other than in four reserved areas of research and development), but for contract research organizations and nonprofits, the federal government should get ownership unless the contractor is given the right to keep ownership for a given contract, or otherwise after a particular invention has been made. However, for all of this, the federal government should get ownership in those four reserved areas when (i) a federal agency intends to develop inventions to the point of practical application; (ii) the federal government has dominant expertise or is the primary user; (iii) the research is directed at public health or safety; or (iv) the contract is for the supervision of others.

Under Bayh-Dole, companies with commercial operations are largely unaffected but for the paperwork. They still get to own whatever they choose. However, federal ownership for everyone else is substantially changed. Contract research organizations and nonprofits, if they obtain title to inventions made under contract, can choose to keep that title. The federal government can obtain title only if the contractor fails to disclose an invention, elect to retain title, file and prosecute a patent application, and maintain and defend the validity of an issued patent.

If a federal agency wants an outcome that differs from this Bayh-Dole default, such as consolidating ownership of inventions made by a number of contractors all working under the guidance of the federal agency on various aspects of the same technology, then the federal agency has to determine an “exceptional circumstance” and draft an alternative patent rights clause that gives the agency broader control over ownership of any inventions made under contract. We might say, then, that a federal agency has to unpreempt Bayh-Dole’s preemption, or revert from the Bayh-Dole standard patent rights clause to the Nixon standard patent rights clause or to the provisions of statute that is otherwise preempted by the default patent rights clause whenever a contractor obtains ownership. It’s just that the Nixon standard patent rights clause has been retired and is forgotten.

Bayh-Dole simplifies things only if it preempts everything. Bayh-Dole thus has to have a scope as wide as the widest reach of specialty statutes and the Nixon patent policy, so it can preempt them if a contractor obtains ownership. Otherwise, some inventions will be outside the reach of Bayh-Dole even if a contractor acquires ownership. A wide scope then has to take in subcontractors or anyone else who works with, under the direction of, or on behalf of a federal contractor. Otherwise, a contractor could “contract out from under Bayh-Dole.” A university operating under the Bayh-Dole patent rights clause (intending to own everything) might subcontract with another university (which would have no Bayh-Dole obligations). So Bayh-Dole extends its patent rights clause to apply to everyone that gets involved–by any assignment, substitution of parties, or subcontract.

But there remains the problem of inventors. Under federal law, inventors own their inventions. There is no “work for hire” equivalent in federal patent law. Employment does not give an employer rights to employee’s inventions. Neither does the use of an employer’s resources by an inventing employee (the employer may get a “shop right”–a royalty-free implied license). Even Congressional authority is limited under the Constitution–to secure for inventors exclusive rights to their discoveries, not to secure those rights to the employers of inventors or to anyone who happens to manage federal money provided to support the work of an inventor.

Under specialty statutes or the Nixon patent policy, it is not a problem that inventors own their inventions. The federal requirements construct an implied obligation for inventors to assign their inventions made under contract unless federal law provides otherwise or a federal agency has contracted otherwise or agrees otherwise after an invention has been made. Think of it as a standard contractual deliverable, enabled by federal law and contract.

The Nixon policy patent rights clause handled the situation by requiring contractors to have a patent agreement with each prospective inventor that provided the contractor with the right to assign inventions made under contract to the federal government or to grant to the federal government a non-exclusive license. To do either, a contractor has to acquire ownership of the invention, relying on the patent agreement required by the FPR. Things sort out from there. The definition of “subject invention” in the FPR then meant any invention made with federal support regardless of ownership, because elsewhere in the FPR, the regulation required contractors to have an agreement with inventors to take ownership of subject inventions or that the inventors would comply with the FPR (1-9.107-5(e)(3)):

The Contractor shall obtain patent agreements to effectuate the provisions of this clause from all persons in his employ who perform any part of the work under this contract except nontechnical personnel, such as clerical employees and manual laborers.

To “effectuate” the provisions means to have sufficient control over inventions to comply with the patent rights clause–to assign inventions to the federal government unless the federal government decides otherwise.

One can see that Bayh-Dole did not reverse any “presumption of ownership” in federal law–the Nixon patent policy’s implementation–as well as the IPA program, for many nonprofits funded by the NIH or NSF–required contractors to obtain ownership of inventions made under contract unless the federal government released them of the requirement, in which case the contractor must have a patent agreement with each inventor under which the inventor agrees to comply with government determinations of where ownership will end up. It was never a matter of the federal government owning by presumption–it was a matter of the contractor obtaining the right to own from inventors so that if the federal government chose to own, it could, but if it chose not to own, matters were left to be sorted out between contractors and their inventors.

The question was then what a contractor was to do with that prospective ownership–grant a license to the federal government or assign the invention to the federal government? For research in medicinal chemistry and space technologies, the default was to assign to the federal government, but for most defense-related work, the default for companies with commercial positions was that the companies would own and the government would get a license.

Furthermore, if the federal government acquired ownership, its default action would then to be to release the invention into the public domain or under a royalty-free non-exclusive license–which the contractor was also assured of under the standard patent rights clause. Bayh-Dole certainly reversed that presumption–the the federal government would release for public access the inventions that it acquired in its extramural research programs. So this “reversed the presumption of ownership” is another political bit of nonsense.

But inventor ownership is a huge problem for Bayh-Dole. If inventors are not parties to the federal funding agreement, then even though they own their own inventions made under federal contract, these inventions are not subject inventions and Bayh-Dole does not apply. Bayh-Dole cannot make inventors give up their inventions because Bayh-Dole applies only after inventors have given up their inventions.

If all this isn’t mess enough–two patent rights clauses, but one abandoned and the other conditional only when a contractor acquires an invention–there’s more. Bayh-Dole’s implementation of the standard patent rights clause add provisions that are not in Bayh-Dole–especially sections (e), (f), and (g). These sections are based on the abandoned Nixon FPR patent rights clause–stuff apparently not important enough to include in the statute but on second thought apparently turned out to matter. Section (f) deals with actions that a contractor must take to protect the government’s interest in subject inventions. Paragraph (f)(2) requires contractors to require their employees to make a written agreement to protect the government’s interest. Employees must disclose subject inventions, must sign papers to allow patent applications to be filed on subject inventions, and must sign papers to establish the government’s rights in subject inventions.

Now, since subject inventions are ones that the contractor already has acquired, this (f)(2) requirement appears all backwards. What is the point of agreeing to disclose to an employer what the employer already owns? And how can an inventor possibly sign any document to establish the government’s rights when the inventor has already given up ownership of those rights? Well, ordinarily, they can’t. They have already assigned away those rights. The (f)(2) requirement has been misread as requiring contractors to have patent agreements with their employees. But that is not what the (f)(2) agreement requires.

The (f)(2) requirement makes sense if the initial contractor is required to make inventors parties to the federal funding agreement, just as they are required to make everyone else they deal with parties to the funding agreement. In the case of employee-inventors, the (f)(2) requirement requires a substitution of parties. The contractor agrees to a funding agreement and its standard patent rights clause and immediately must contract with its potential inventors so that they hold obligations that the contractor has taken on.

A contractor owes the federal government a duty but the federal government requires the contractor to make employees undertake the duty on behalf of the federal government. Thus, by the contractor’s action, its employees owe the federal government under the patent rights clause, as substituted parties, those obligations that are subject to the (f)(2) written agreement requirement. It’s a total hack job, trying to fix up a half-baked, rushed- through, once-failed legislation based on practices that had already been shown to be ineffective and contrary to public policy in the NIH IPA program.

The (f)(2) requirement, when complied with, compels contractors to make their employee inventors parties to the funding agreement. Since inventors have a standing for inventions outside the conditions of ordinary employment, it makes sense, sort of, to think of the (f)(2) requirement as one that treats inventors as independent contractors with regard to their inventions. The written agreement made by the employee-inventor-independent-contractor makes them parties to the funding agreement, and therefore also contractors. The inventions they make under federal contract, which they own, then become subject inventions, and Bayh-Dole comes into effect whenever an invention is made under contract.

Although the standard patent rights clause requires the (f)(2) written agreement, there’s nothing in Bayh-Dole that prevents any contractor from voluntarily adding employees as parties to a federal funding agreement. One could imagine, even, at universities, that faculty and students–whether employed for research or not–might even request the opportunity to be parties to a given federal funding agreement.

But there’s a consequence in Bayh-Dole to this approach of bringing inventors into federal funding agreements. Each party to a federal funding agreement has equal standing under the law. What goes for initial contractors, for assignees, and for subcontractors also goes for inventors as substituted parties. Each inventor has standing as a contractor, and under 35 USC 202(a), each inventor has the right to elect to retain title in inventions the inventor owns, provided the invention is timely disclosed to the federal agency.

Bayh-Dole’s implementing regulations make this outcome clear, providing a patent rights clause that is to be used when inventors own subject inventions–that clause, at 37 CFR 401.9–is a variant on the standard patent rights clause at 37 CFR 401.14, but with fewer requirements, including no requirement that inventors file patent applications. The inventor patent rights clause stipulates that inventors are to be treated as small business contractors–and this without regard for if the initial contractor is a nonprofit. If an inventor is a party to the funding agreement, then the inventor has an equal right under 35 USC 202(a) to elect to retain title, and if an inventor so elects, then there’s nothing that an employer can do about it, just as a contractor is forbidden by (g)(1) to have any interest in inventions acquired by subcontractors.

If a contractor fails to comply with the (f)(2) written agreement, then inventors have no obligation under Bayh-Dole to disclose anything to the contractor. While their inventions may yet be made “under contract,” those inventions are subject to the Nixon patent policy, or to a specialty statute that supersedes the Nixon patent policy. It’s just that the codification of the Nixon patent policy has been dismantled and federal agencies are not generally set up to handle inventions that are not subject inventions.

What is so strange is why those folks drafting Bayh-Dole–including Norman Latker, NIH patent counsel–who also apparently drafted the FPR for the Nixon patent policy–could not just make simple adjustments to the FPR? Why not just add a provision that limits federal determinations of greater rights in the case of nonprofit and small business contractors–other than in the four reserved areas? Why a statute? Why make federal patent policy so arbitrary, so difficult to modify for public purposes, so darned unresponsive to changing conditions? What an embarrassment.

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