Another question on RE: what to do if a subcontractor has a subject invention?–1

Bother. For the TL;DR crowd, I’ll copy the end to the beginning:

What to do if a subcontractor has a subject invention?

It’s not yours. It’s theirs.

If the subcontractor is a company, then if you have previously negotiated a deal to acquire inventions, regardless of any future subcontracting relationship on any federal contracts, then pull out that deal and send notice. Otherwise, make an offer.

If the subcontractor is an employee inventor, and you are a for-profit company, then you do the same thing–pull out the patent agreement and send notice.

If the subcontractor is an employee inventor, and you are a nonprofit operating with a federal grant, then you cannot have a deal in which the consideration for the obligation to assign is continued employment or use of resources for work under the grant, as you the employer have permitted the employee to work in the federally funded research and are required to require the written agreement that makes the employee inventor a party to the grant funding agreement and therefore the employee inventor is a subcontractor–a contractor operating under the inventor owns patent rights clause at 37 CFR 401.9 not under institution owns patent rights clause at 37 CFR 401.14. Make an offer.

Okay, now back to the discussion that documents the short answer.

Bayh-Dole governs the disposition of ownership of certain inventions made in research work funded by the federal government. The disposition of ownership, however, has only to do with a tug of war between a contractor having acquired ownership and a federal agency required by law or otherwise wanting to obtain ownership. An invention that’s (i) otherwise patentable or may be patentable (but could turn out not to be patentable) or is a plant variety that’s not patentable and (ii) is made in performance of work under a funding agreement becomes a subject invention when (iii) it is acquired by a party to the federal funding agreement (a “contractor”). When a contractor–a party to a federal funding agreement–acquires an invention made in performance of work under a funding agreement–then Bayh-Dole applies. If in doubt, read the Supreme Court decision in Stanford v Roche. Oh, heck. Here:

Construing the phrase to refer instead to a particular category of inventions conceived or reduced to practice under a funding agreement—inventions “of the contractor,” that is, those owned by or belonging to the contractor—makes the phrase meaningful in the statutory definition. And “invention owned by the contractor” or “invention belonging to the contractor” are natural readings of the phrase “invention of the contractor.” As we have explained, “[t]he use of the word ‘of’ denotes ownership.”

If the invention is not patentable, then Bayh-Dole does not apply. Other federal requirements might apply–rights in technical data under FAR 52.227-14, copyright provisions of 2 CFR 200.316, and the like–but not Bayh-Dole. And if an invention is patentable but not owned by a contractor, the invention is not a subject invention and Bayh-Dole does not apply. Any of a number of specialty federal statutes concerning ownership of inventions by the federal government might apply, and if not those, then executive branch patent policy may apply–except that policy is largely abandoned, along with the Federal Procurement Regulation of 1975 that implemented the Nixon patent policy and which was displaced by the Federal Acquisition Regulation in 1984.

Now, to get at the question–what about subject inventions owned by a subcontractor?

Here’s what Bayh-Dole has to say about subcontracts. There’s not a lot, but it is potent stuff and gets at how Bayh-Dole is supposed to operate. The only bit about subcontracts in Bayh-Dole shows up in the second sentence of the definition of funding agreement at 35 USC 201(b):

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. Such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.

A “funding agreement” then may be extended by the action of a contractor to assign, substitute parties, or subcontract. Those assignment, substitution of parties, and subcontract documents then become part of the funding agreement through the mutual action of the contractor and the parties on the other side of the agreement from the contractor. These other parties then become parties not only to the assignment, substitution of parties, or subcontract, but also parties to the funding agreement: they become contractors. 

Again, the contracting action of a contractor creates new parties to the funding agreement, new contractors. When any of these new contractors acquires an invention made in work funded in whole or in part by the federal government, that invention becomes a subject invention. Take a breath. Look at the structure. Imagine a “work”–a project, a set of tasks with objectives. Think big. A long-term project, say, or a multi-party effort, or a project defined in phases. Hold that task with objectives in mind. If it helps, think about biomedical research to discover new compounds that can be made into medicines. The project is the whole sheebang–research, testing, development, productization. Now someone in the project asks the federal government to fund some part of it–research, testing (experimentation), development. The federal government might fund the research, or if not the research then testing of discovered compounds, and if not testing then development of a selected compound into a form to be delivered as a medicine. Any invention made in any part of that project–not just the part funded by the federal government–is a subject invention. Bayh-Dole applies.

No federal dollars need be used expressly to make or test any given invention made in the project–all that is needed is that federal dollars at some point support some part of the project. Supporting some part of the project is the same as supporting the project. Stuff made in some part of the project is stuff made in the whole project. Inventions made in the performance of work under a funding agreement are inventions made in performance of some portion of the entire work under a funding agreement. The scope of interest in the funding agreement is access to the outcomes of the entire project, the “work” that is supported in whole or in part by federal funds. No one is forced to take federal money. People show up and request it, bid for it, beg for it. The federal government may provide money. If it does, then when a contractor acquires ownership, this is the Bayh-Dole deal.

In simple terms. If the federal government is asked to support a project, it ought to get the benefit that everyone else gets from the outcomes of the overall project, not just some perhaps piddly bit that comes from the part it funded. In more complicated terms, read 37 CFR 401.1’s discussion of scope. I won’t get into the nuanced depths here, but will pull a bit that gives the sense:

Notwithstanding the right of research organizations to accept supplemental funding from other sources for the purpose of expediting or more comprehensively accomplishing the research objectives of the government sponsored project, it is clear that the ownership provisions of these regulations would remain applicable in any invention “conceived or first actually reduced to practice in performance” of the project. Separate accounting for the two funds used to support the project in this case is not a determining factor.

That is, it does not matter whether one draws on federal funds or other funds to make an invention in a project that shares both federal and non-federal funding. One cannot dodge federal obligations merely by shifting around budgets in a research project as one senses an invention coming on. This is the lesson of Mine Safety Appliances Company v. United States (1966), as the University of Southern California learned the hard way when it opened up a line of research without federal funding based on work it had done for a Navy contract that had as an objective the same thing–a better helmet design.

The “work” referenced then in the definition of “funding agreement” is the overall project–the tasks plus objectives that the federally funded work is part of. I repeat all this because it takes some practice to think the way Bayh-Dole works rather than the way of short-cut convenience heuristics put out by folks who dumb down Bayh-Dole. Thus, it is not “inventions made with federal support” but “inventions made in work receiving federal support and owned by a federal contractor” or “inventions made in a project that at some point receives federal support and owned by a party to the funding agreement, including parties added by a contractor through any assignment, substitution of parties or subcontract of any type.”

It is not true that “if even one dollar of federal money touches an invention it is a subject invention.” The Supreme Court in Stanford v Roche laughed that contention off. And that contention is not supported by the scope discussion at 37 CFR 401.1. And it is not true that only inventions “made with money spent from federal accounts” are subject inventions. First, the invention must also be owned by a contractor to be a subject invention. Thus, ownership by a contractor must happen before Bayh-Dole even applies. Second, the invention does not have to be directly supported by federal money. All that matters is that federal money is in the project in which the invention arises. (There’s nuance here, too, because Bayh-Dole applies to more inventions than just subject inventions. The federal ownership/licensing parts of Bayh-Dole concern inventions that are not subject inventions, and Bayh-Dole’s statement of policy and objectives at 35 USC 200 applies to all inventions arising from federally supported research or development–not just subject inventions made under a funding agreement but also inventions made by federal employees and acquired by the federal government under Executive Order 10096 and In re Eddie L. King. But that’s all nuance for this discussion).

Now where have we got to? Funding agreements may be extended by a federal contractor, including by subcontract of any type. A subcontractor then becomes a party to the funding agreement and thus by Bayh-Dole’s definition (35 USC 201(c)) is a contractor.

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