The consequences of Bayh-Dole non-disclosure of inventions, 2

We are looking at the consequences of a contractor not disclosing a subject invention to the federal agency that funded work in which the invention was made. One consequence is that the federal agency “may receive title” to such an undisclosed invention, provided that the federal agency finds out that an invention has not been disclosed and then is able to define that invention with sufficient clarity (i.e., obtains disclosure) so that it can properly require the contractor to convey title in that invention. Logically and practically, this requirement is a mess. How do federal agencies find out that there’s a subject invention out there–if the invention has not been disclosed? And what public good is served by the federal government taking ownership of such an invention? No, this way leads to economic mayhem, not to any particular public advantage.

One might say, then, that disclosure is the necessary step to enable Bayh-Dole preemption of other federal statutes and regulations pertaining to ownership. But that’s the case only with regard to the disposition of ownership of subject inventions as between a contractor and the laws under which that federal agency contracts for research other than under the Bayh-Dole standard patent rights clause. Whether or not a federal agency has the right to require assignment of a subject invention is distinct from the other requirements imposed on subject inventions by Bayh-Dole.

It’s just that there necessarily must be two patent clauses in every federal funding agreement: one is the patent rights clause required by Bayh-Dole; the other is the patent rights clause that applies if an invention made under contract does not become a subject invention–this second patent rights clause may be required by federal statute or by executive branch patent policy and regulations. The big problem is that the executive branch patent policy has largely been dismantled or left to rot, especially after Reagan amended the Nixon patent policy to extend Bayh-Dole practices (as possible) to all companies and the Federal Acquisition Regulation replaced the Federal Procurement Regulation.

The federal government’s standing to “may receive title” is not the only consequence of an invention becoming a subject invention. There are four other consequences that matter:

          • no federal agency oversight
          • government license
          • march-in
          • nonprofit requirements

Let’s look at the first three consequences in this installment, and the fourth in the next.

If a subject invention is not disclosed, then there’s no prospect for any federal agency oversight for the exploitation of that invention. This is not really a big deal, because federal agencies routinely do not provide any oversight anyway. Sure, there’s an apparatus of oversight, but nothing but paperwork requirements are important. Thus, federal agencies may hound contractors to file required reports of subject invention utilization, but nothing comes of those reports–the reports are not audited for accuracy (and truth), are not used in policy discussions, and don’t have consequences for other agency actions, such as march-in. It’s difficult to see how the added paperwork burden of Bayh-Dole does anything to promote the use of federally supported inventions or to create benefits available to the public on reasonable terms.

No one goes, “Wow, filing this paperwork with a federal agency that no one will read sure does inspire me to invest in developing this invention!” Bayh-Dole advocates end up arguing that Bayh-Dole is so successful precisely because it requires wasteful paperwork and its other requirements can be ignored. If Bayh-Dole’s other requirements were enforced, so the argument goes, that would have a chilling effect on the ability of federal contractors to deal in patent monopolies. Enforcing Bayh-Dole would ruin the brilliant success of the law. What sort of law is that, which to be successful adds useless paperwork and otherwise isn’t enforced?

There are a variety of consequences once federal agencies don’t know that an invention is a subject invention. First, obviously, there usually is no government rights legend in issued patents on non-disclosed subject inventions. Thus, anyone hoping to use that government rights legend to count the number of patents on subject inventions will undercount the extent to which results of government-supported research are excluded from public use by means of the patent system. Perhaps it doesn’t matter. Most things related to Bayh-Dole don’t appear to have much to do with the law anyway, and Bayh-Dole makes most reporting with regard to subject inventions a government secret. But there’s a consequence of non-disclosure of subject inventions–we know even less about what’s happening than we think already that we don’t know.

There are other oversight matters, of course. The US manufacturing requirement at 35 USC 204 comes into play for subject inventions exclusively licensed in the US for use or sale. And even though that requirement is pitifully useless, Bayh-Dole does make it out to be the most important provision of the law. It’s just that if a subject invention is not disclosed, then it’s pretty darned difficult for a federal agency to require compliance–not that any federal agency ever has. The NIH has a web site devoted to processing requests from contractors for waiver of the US manufacturing requirement. The standard for a waiver is pretty much “we tried but couldn’t” or “we didn’t bother to try.” It’s difficult to understand how ignoring the US manufacturing provision by not disclosing a subject invention is much different from disclosing a subject invention, going through all the bother of electing to retain title, filing patent applications, reporting the applications to the government a second time (once to the USPTO and again to the funding agency) and then a third time (in final grant reports), and then a bunch of utilization reports (kept secret), and then getting a waiver on US manufacturing. How exactly does all that paperwork oversight improve anything? No, it’s just government waste hoo-haw.

If an invention is a subject invention, then Bayh-Dole requires that the default patent rights clause in each funding agreement stipulate that the federal agency receives a license (35 USC 202(c)(4)):

With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world

Oddly, for this license to come into effect, a contractor must “elect rights”–that is, elect to retain title, and to do that, the invention must first be disclosed to the federal agency. If the invention has not been disclosed, there can be no election to retain rights, and therefore the contractor has no obligation under the federal funding agreement to grant the federal government a license to practice. Talk about sloppy drafting. The contractor still owns the invention (assuming the contractor has acquired it), and if the contractor pops its head up and announces that the invention was made in work with federal support, then it might get bopped for it–economic mayhem and all–but Bayh-Dole does not require contractors to pop up their heads about disclosure. It’s worse than that.

Bayh-Dole does not require inventors to disclose subject inventions to the contractors that host federally supported research. It’s just not there in the law. The law’s disclosure requirement is conditional. Contractors must disclose a subject invention only after the subject invention has been disclosed by the inventor to the contractor’s designated patent personnel. If a subject invention is not disclosed by the inventors to the contractor’s patent personnel, then the contractor has no obligation to disclose the invention to the federal agency that funded the work. That’s the law (35 USC 202(c)(1)):

That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters, and that the Federal Government may receive title to any subject invention not disclosed to it within such time.

Contractors have no obligation to disclose any subject invention to the federal government until inventors have disclosed the subject invention to the contractor’s patent personnel. Thus, when Bayh-Dole’s implementation of the standard patent rights clause includes the not-in-Bayh-Dole requirement that contractors must require inventors to make a written agreement to protect the government’s interest by, among other things, disclosing subject inventions, that requirement is made contingent:

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

A subject invention is one already owned by the contractor. But the contractor has no obligation to comply with the disclosure to the federal agency (the subject of paragraph (c)) until the inventors have disclosed to the contractor. If the inventors don’t disclose, then the contractor has no compliance problem. There’s nothing to comply with until the contractor has got a disclosure. Only a fool of a contractor would then obtain disclosure and not disclose when it could decline disclosure and have no obligation to disclose. Nothing in Bayh-Dole requires inventors to disclose or contractors to require disclosure or contractors to receive disclosure–just as nothing in Bayh-Dole requires contractors to own inventions made with federal support or for that matter have any special privilege or mandate or encouragement to acquire ownership.

Thus, with no disclosure, there’s no government license. Not that federal agencies use their government license–practice and have practiced, much broader than 28 USC 1498’s manufacture and use. But even so, without disclosure, there’s no basis to elect to retain title, and without that election to retain title, there’s no government license.

The government licensing wording in Bayh-Dole should be “with respect to any subject invention, the Federal agency shall have ” — not “with respect to any invention in which the contractor elects rights. . . .” The government license should not depend on anything that a contractor does or doesn’t do. For that matter, there’s no reason for the government’s rights to take the form of a license from the contractor. Bayh-Dole is part of patent law. So just restrict the patent holder’s right to enforce any patent on a subject invention against federal government practice of the invention. That would be a modification to 35 USC 287. Then there would be no need for all those tens of thousands of stupid paper-based confirmatory licenses to the federal government, no doubt stacked up in some dusty corner of a warehouse in the Nevada desert awaiting the sun to go supernova in six billion years. Oh, but those licenses in the warehouse surely must contribute the technological leadership of the United States. Yeah, sure.

The federal government does not get a license in any subject invention until a contractor has disclosed it. And a contractor does not have any obligation to disclose until its inventor-employees have disclosed to the contractor’s patent personnel. So if those inventors take their invention outside the company to their own patent attorneys and file a patent application, then the invention may not even be a subject invention–it depends on whether the contractor has made the inventors parties to the funding agreement (and that may in turn depend on compliance with a bit that is in the standard patent rights clause but not in Bayh-Dole at 37 CFR 401.14(f)(2)).

If the inventors are not parties to the funding agreement, then their inventions are not subject inventions when they make them, and Bayh-Dole does not operate to preempt other federal law. If no federal statute controls ownership, then executive branch patent policy comes into play–the Nixon policy from 1971 as modified by Reagan–but the codification of the Nixon policy was vacated by the new Federal Acquisition Regulation in 1985, and the FAR implements only Bayh-Dole, so it appears that whatever executive branch patent policy that still remains does not address what happens when an invention is made with federal support but is not owned by a contractor. This is the gap that Sean worries about and thinks the remedy is to screw over inventors.

Thus, in the case of non-disclosure, the federal government does not get its license, and so long as the contractor does not have the moxie to come after the federal government for compensation for federal use of the invention under 28 USC 1498, the contractor can go its merry way with the invention. If the inventors own the invention, and they aren’t made parties to the funding agreement, then the invention was never a subject invention and Bayh-Dole doesn’t even apply. Rather than treat that as a gap, we should recognize it as intended policy. If folks had wanted something different than the fundamental provision of federal patent law practice, that inventors own their inventions, then the folks had the opportunity to address it and didn’t. So there. The Supreme Court in Stanford v Roche argued as much. So much for the government license consequence.

If an invention is a subject invention, then federal march-in also applies. Even if the federal agency providing the funding does not request title to a subject invention, it may still have reason to march-in and require licensing of the subject invention. Why not just take ownership of the invention and then do whatever licensing the government feels necessary? That’s possible, of course, but Bayh-Dole does not require it. So the alternative–march-in–is also possible. Let’s say a federal agency discovers well after an invention has been “commercialized” that it is a subject invention. Well, the agency could create spiteful mayhem to evidence its capacity for economic disruption, but perhaps in a moment of weakness agency officials decide that taking ownership is not so cool. Then, if the contractor and its ilk (assignee, exclusive licensee) is not meeting demand for public health needs or regulatory needs, or is not making the benefits of the invention available to the public on reasonable terms, then the government might march-in and require licenses, even if the government does not itself have either a disclosure or a license. March-in does not depend on disclosure, election to retain title, or a government license.

Thus, a consequence of an invention becoming known as a subject invention is that a federal agency could march-in as an alternative to taking ownership of the invention. March-in procedures were designed not to operate and thus are remarkably clumsy, made to appear like a sort of eminent domain government taking of private property rather than a remedy for non-performance of a privilege that was granted conditionally to the contractor. But anyway, the federal agency could march-in. It’s sort of empty, too.

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