Now for the mess. The standard patent rights clause inserts a provision that’s not authorized by Bayh-Dole and is a screwed up version of an FPR provision. This is the provision for a written agreement in 37 CFR 401.14(f)(2).
The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c) of this clause, to assign to the contractor the entire right, title and interest in and to each subject invention made under contract, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
This is a big wad. Let’s reduce it:
The contractor agrees to require, by written agreement, its employees
to disclose promptly each subject invention
to assign to the contractor the entire right, title and interest in and to each subject invention
and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
The assignment requirement was added recently by NIST, which has *no* understanding of Bayh-Dole but is delegated by the Secretary of Commerce to manage Bayh-Dole’s regulations. A subject invention is one owned by the contractor. Thus, by the time an invention is a subject invention, it has already been acquired by a contractor. If the contractor doesn’t own the invention, and the invention is a subject invention, then it is owned by another contractor–another party to the funding agreement–and that other contractor has its own right under federal law–Bayh-Dole–to elect to retain title to the subject invention. As we have already seen in the discussion of subcontracting above, the implementing regulations for Bayh-Dole make clear what 35 USC 202(a) provides–one contractor cannot gain an interest–including by assignment–in the rights to a subject invention as consideration for the sublicense. Here, the written agreement requirement in what was once (f)(2) of the standard patent rights clause clearly makes assignment a condition of the agreement between a contractor and the contractor’s employees. That agreement functions as a subcontract of specific responsibilities with regard to inventions made in work funded by the federal government.
We have been through this many times at RE. The written agreement requirement is part of the patent rights clause. It is a matter of federal contract compliance. That compliance takes precedence over state-enforced contracts. Whatever agreements a contractor may have in force with employees with regard to inventions, the (f)(2) written agreement takes precedence. The (f)(2) requirement goes out of its way to specify how the written agreement is to be formed: it is a compulsory subcontract of patent-related duties appropriate to inventors, not to organizations that cannot invent and do not own inventions when those inventions are made, as a matter of federal law.
The contractor agrees to require, by written agreement, its employees
This is not a general statement of law. It is a requirement imposed within each particular funding agreement. First, the contractor accepts the funding agreement. Then the contractor is bound to require certain employees to make a written agreement. That agreement is to protect the government’s interest, not the contractor’s interest, in subject inventions. Section (f), containing the written agreement requirement, is headed “Contractor Action to Protect the Government’s Interest.” The federal government, for the purposes of Bayh-Dole, does not care who owns a subject invention. It cares rather about the conditions under which the federal government, by default, may obtain title to such inventions. In the FPR, this was handled by requiring the contractor to have patent agreements with employees to “effectuate the provisions” of the patent rights clause–and there the patent rights clause required the contractor or the inventor to assign to the government unless the government granted a request for the invention owner (contractor or inventor) to retain ownership. That patent agreement then displaced whatever other agreements might have been in place between the contractor and its employees. It would not matter whether the contractor obtained ownership or not. Either way, if the government chose not to grant a request to retain rights, whoever held rights had to sign them over.
Bayh-Dole doesn’t follow the FPR. It ignores the FPR, in fact, with regard to patent agreements, among other things. So in preparing the standard patent rights clause, those involved (including Norman Latker from the NIH, who had drafted Bayh-Dole), felt the need to insert stuff from the FPR that had been left out. But now Bayh-Dole was positioned to be part of federal patent law, not just a statute having to do with federal procurement of invention rights in research contracts (and disposition of inventions owned by the federal government). It’s one thing to offer inventors the patent system to encourage disclosure of inventions and discoveries; it’s quite another to amend patent law to force inventors to use the patent system. That’s what Bayh-Dole has been used to attempt to do, and what the Supreme Court blocked in Stanford v. Roche. In response, NIST turns around and inserts a requirement in the standard patent rights clause that, read superficially, makes it appear that inventors must assign their inventions made in work receiving federal funds to their employers as a condition of federal funding. Inventors are forced to use the patent system. Their inventions are forced to become subject inventions owned by their employer-contractors. That’s the claim anyway. But the claim is bogus, wrong, and ultimately ineffectual in promoting the use of inventions.
In the FPR, whoever wants to deal in patent monopolies on federally supported work has to make a case that their actions will result in a public benefit better than what the federal government would achieve in releasing inventions to the public domain, obtaining patents and licensing royalty-free, non-exclusively (thus using the patent system to publish the invention), and only rarely, when the federal government can demonstrate that an exclusive license is necessary for the public to benefit from the invention, would the federal government withhold an invention from public access in favor of a single, non-federal licensee. The policy debate never was whether universities and their research foundations could license inventions exclusively better than could the federal government. The data at the time showed that the universities were worse than the federal government at exclusive licensing of inventions made with federal support. The claim made by Latker and others was that in theory (or, in plausible-sounding assertions) universities would in time be better than the federal government in such licensing. Whatever. Universities have not got any better at licensing–the indications are that they have got much worse, largely by being uncritical with regard to what they claim to own and then failing to do anything with that ownership except throw their weight around like patent trolls while trying to appear to be moral about it. The upshot is that universities have over 50,000 patents citing federal funding in the Bayh-Dole era, and by the few accounts that have emerged, it is evident that only a small percent–maybe 1%, maybe 0.5%–have resulted in commercial products, and even then, a majority of those products directed at health care do not meet Bayh-Dole’s march-in threshold of “benefits available to the public…on reasonable terms.” The terms are not reasonable. Overall, as a general conclusion, Bayh-Dole is a policy failure.
So here we have a written agreement requirement inserted into a patent rights clause that attaches by default to every federal funding agreement. The written agreement is composed so that the contractor must require it, but the agreement itself is directed at a benefit to the federal government. For instance, inventors are required to sign paperwork to establish the government’s rights in subject inventions. If inventors have given up their rights to their employers (as NIST imagines that they must) in the immediately preceeding assignment requirement, then they would never have any rights by which to establish the government’s rights. Not assignment, not license. And if the contractor does not follow through on taking assignment of the inventions inventors have made in work receiving federal support, then those inventions are not subject inventions. It would seem, then, that the requirement that inventors sign paperwork to establish the government’s rights in subject inventions is meaningless garble–unless the inventors are also contractors.
And that’s what the written agreement requirement does, which no patent agreement between employer and inventor can ever do–it makes the inventors parties to the funding agreement, small business subcontractors (as the inventor patent rights clause at 37 CFR 401.9 has it) engaged for duties under the contract specific to inventors–disclosure, inventor oaths and declarations, establishing the government’s rights if the inventor does not assign the invention (and the Bayh-Dole obligations that go with ownership).
Thus, it is necessarily the case that inventors, when they make the written agreement as the patent rights clause requires contractors to require, the inventors become parties to the funding agreement, just as do subcontractors, assignees, and substituted parties, are thus contractors, and the patent rights clause that pertains to them is not 37 CFR 401.14 but a subset of 37 CFR 401.14 found at 37 CFR 401.9. The NIST assignment clause in 37 CFR 401.14(f) then can apply only to the special case in which a contractor has equitable ownership of an invention made in work receiving federal support–the contractor has assigned an employee to invent or conduct experiments. There, the assignment requirement reduces to “if the conditions are such that the contractor has equitable title to an invention you have made, you agree to assign that invention formally to the contractor.”
In simple terms, “you agree to assign to us what courts would rule we already own.” And that cannot be “everything you might possibly invent in the federally supported research.” For university faculty, that means only inventions that faculty have been assigned to invent would be within the scope of the NIST-produced obligation, since faculty are assured of freedom of research, and only if they expressly give up that freedom and agree to work under the direction and control of the administration would a finding of equitable title arise.
We can then answer the question–what to do if a subcontractor has a subject invention and that subcontractor is a contractor’s inventive employee? The answer is just as it is for other subcontractors: the contractor cannot have an interest in that invention as consideration for the subcontract–as consideration for the written agreement under which the inventor takes on duties to protect the government’s interest in subject inventions. If a contractor wants ownership from another contractor, then the contractor has to come to that deal outside the context of the federal funding. That deal must carry its own consideration–not any consideration such as “you will assign inventions in return for allowing you, employee, to participate in federally funded research” or “in return for allowing you, employee, to use resources paid for by a federal grant.” The deal cannot even be “you must assign to comply with federal law” or “to comply with Bayh-Dole.” And whatever consideration provided cannot be consideration that nonprofit contractors are required to provide under the standard patent rights clause. Payments required to be made cannot be consideration for a new deal that must carry its own consideration.
The upshot is–if a university wants to acquire from an inventor rights to an invention made in work receiving federal support, then the university has to pay consideration for that invention acceptable to the inventor. It’s not just sharing royalties, as Bayh-Dole requires nonprofits to do. It’s the whole deal–the reasonable and entire consideration for the assignment the university desires. That consideration may include payment, diligence, conditions for the return of the invention, risk management, and the nature of any licensing activity. But the deal has to happen entirely outside the context of the federal funding, and must not conflict with the obligations that a contractor must subcontract to its employees. That is, it is not simply that a contractor establishes a policy that claims ownership of all inventions made by employees (even if such a policy were defensible–it’s not, but that’s another thing), but rather that such a policy (or any prior deal) is necessarily displaced when the contractor extends the funding agreement to include inventor-employees by complying with the written agreement requirement in the standard patent rights clause. Those employees become contractors, they have the right to elect to retain title in their inventions, and there’s nothing that the employer-contractor can do about it because the employer-contractor has in requiring the written agreement necessarily delegated its interest in any such invention to the inventor-contractors.
There are dodges to this line of interpretation. One is that the consideration recited for a general obligation for an employee to assign all inventions is often continued employment. If you don’t assign, we can fire you. If you invent and keep working, it means you agree to assign. That sort of thing. But if the invention arises in federally funded work–work under a funding agreement–then the employer cannot allow the inventor to work in the federally funded task and at the same time threaten to terminate the inventor from that task if the inventor does not assign. You see how the dodge fails? Once the employer has complied with the written agreement requirement, the consideration for the assignment cannot be continued employment within the federally funded task–or use of resources made available for that task.
Another is that although the invention is indeed a subject invention owned by the inventor-contractor, the point of the NIST-inserted assignment language is that all such inventor-owned subject inventions must be assigned to the contractor. That amounts to using the authority of Bayh-Dole to compel assignments–just what the Supreme Court said that Bayh-Dole did not do, did not authorize, did not give any special privilege. The moment inventor-employees become parties to the funding agreement, they become contractors. The subcontract that applies to them, then, as a matter of federal law, is the inventor patent rights clause at 37 CFR 401.9. That’s the clause under which they would have any obligation to assign subject inventions to any other contractor, if it were a matter of federal law or Bayh-Dole compliance and the like. And there’s nothing like that there. Inventors don’t even have to file patent applications. Patent law does not force inventors to use patent law, even under Bayh-Dole’s amendments to patent law.
Short answers, now. 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 all inventions, regardless of any subcontracting relationship for 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, then you cannot have a deal in which the consideration for the obligation to assign is continued employment or use of resources, as you the employer permitted the employee to work in the federally funded research and required the written agreement that made the employee a party to the funding agreement and therefore a contractor operating under 37 CFR 401.9 not under 37 CFR 401.14. Make an offer.