A non-compliant Bayh-Dole written agreement at Yale-1

Bayh-Dole’s standard patent rights clause introduces a requirement not in Bayh-Dole. 37 CFR 401.14(f)(2) requires contractors to require their employees, other than clerical and non-technical employees, to make a written agreement to protect the government’s interest in subject inventions:

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, . . .

This is not statutory material. It is not something in Bayh-Dole that stipulates a contractor’s employees’ obligations under the law. It is, rather, a regulatory requirement in the form of a federal contracting provision that the contractor take a specific action *after the contractor has accepted the funding agreement and become a party to it.* Bayh-Dole specifies what is to be in the standard patent rights clause. This written agreement isn’t there. How does the executive branch (that is, Latker, again) have authority to make up something outside Bayh-Dole (that he didn’t get into Bayh-Dole) and insert it instead as a condition of the operation of Bayh-Dole? Here’s the thing. The written agreement is itself part of a second patent rights clause–one specific to inventors who are also employees of a contractor. That’s how.

Bayh-Dole defines “funding agreement” so that a contractor may add new parties to the funding agreement by “any assignment, substitution of parties, or subcontract of any type.” These new parties Bayh-Dole then defines as “contractors”:

The term “contractor” means any person, small business firm, or nonprofit organization that is a party to a funding agreement.

While most everywhere else Bayh-Dole refers to small business firms and nonprofit organizations, here is added “person.” Persons, too, can be contractors. Since the federal government does not generally contract with persons, the only way that persons can become contractors is if an institutional contractor adds them (and they agree to be added) as parties to the funding agreement–that is, under Bayh-Dole, contractors may add more contractors. The written agreement requirement in the standard patent rights clause has standing to do what it does because it requires contractors to add potential inventors as person-contractors to the funding agreement. Once these person-contractors have been added, Bayh-Dole then implements a patent rights clause specific to these person-contractors.

Doing so is in keeping with the general rule in Bayh-Dole: each contractor as a party to a given funding agreement has a patent rights clause specific to that contractor’s status. Thus, a small company contractor operates under the small company patent rights clause (37 CFR 401.14(a)-(l) without (j)) and a nonprofit operates under that same clause but with (j) added. Persons–when they invent–operate under a different version of 37 CFR 401.14, as set out in 37 CFR 401.9 and as augmented by the written agreement requirements. The only exception to this general rule in Bayh-Dole is stated expressly in 35 USC 202(c)(7)(A)–that when a nonprofit assigns a subject invention, the nonprofit patent rights clause goes with the assignment, regardless of the standing of the assignee.

The assignee becomes a party to the funding agreement by accepting the assignment, per 35 USC 201(b), and thus is also a contractor per 35 USC 201(c), but the patent rights clause that applies is the nonprofit’s patent rights clause. Any assignee of a nonprofit’s subject invention must comply then with nonprofit requirements such as sharing royalties with inventors, deducting from income earned with respect to the subject invention only expenses incidental to the administration of subject inventions, and using the remaining balance to support scientific research or education. These are things that universities can easily manage when they receive royalties or earn income from the inventions they acquire, but these are not so readily attractive to for-profit companies that might think that obtaining an invention (by assignment of title or by assignment conveyed by means of an exclusive license) might provide them with a way to boost profits and suppress competition. But no, the for-profit must behave as a nonprofit and not take an interest in profits–these must go to the specified activities in the public interest.

That’s a whole lot wrapped up in the written agreement requirement–it requires contractors to add person-parties to the funding agreement and then augments the patent rights clause under which those person-parties must operate when working under the funding agreement.  Part of the person-parties patent rights clause comes from 37 CFR 401.9 and part comes through the contractor’s action to add the person-parties to the funding agreement. That contractor’s action means that the contractor cannot both require the things specified in the written agreement and at the same time require something else by means of its policies or agreements with its employees. The written agreement requirement, as part of a federal contract, preempts anything that would conflict with it that would be enforced under state law.

Now, what must the contractor require the written agreement to require?

 . . . 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

The written agreement requires disclosure of subject inventions. A subject invention is an invention “of the contractor”–it is an invention owned by the contractor. Since the requirement to require written agreements is effective, and no written agreements (logically) are in place until the institutional contractor has become a party to the funding agreement, “contractor” here must mean the institutional contractor. Inventor-employees, when they are joined as parties to the funding agreement, must agree to disclose to the institutional contractor those inventions that the institutional contractor owns. Since federal patent law has no invent-for-hire provision by which an employer owns outright an invention made by any employee, for an institutional contractor to own any invention, it generally must first acquire that invention. (Some states have laws that dictate ownership of inventions made by state employees–that makes for yet more interesting discussion relative to Bayh-Dole, but not here.) Thus, inventions that must be disclosed are ones that the institutional contractor has already acquired by assignment from the inventor.

What’s implied–even necessary–is that an invention made under contract must be first reported, then assigned, and then the inventor, per this written agreement, has an obligation to disclose the invention. Clearly, reporting an invention and disclosing that invention are distinct actions.

. . . in order that the contractor can comply with the disclosure provisions of paragraph (c) of this clause, . . .

Paragraph (c)(1) specifies both the trigger for the contractor’s disclosure obligation and what must be in the disclosure document:

The contractor will disclose each subject invention to the Federal Agency within two months after the inventor discloses it in writing to contractor personnel responsible for patent matters.

The institutional contractor has no obligation to disclose any invention that is not a subject invention. An institutional contractor has to take an action to make an invention into a subject invention–it has to obtain assignment. Furthermore, even if an invention has become a subject invention, the contractor has no obligation to disclose that invention to the federal agency until (1) the inventor has (2) disclosed it (3) in writing to (4) contractor personnel responsible (5) for patent matters. These five conditions have to be met to trigger the institutional contractor’s disclosure obligation. If the five conditions are not met, the institutional contractor has no obligation to disclose the invention to the federal agency. (This was not how things were in the original Bayh-Dole statute–this state of affairs has been introduced by inept amendment.)

Paragraph (c) also specifies what must be in the disclosure report from the institutional contractor to the federal agency. These items then must also necessarily be in the written disclosure by the inventor to the institutional contractor’s patent personnel:

The disclosure to the agency shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure.

Thus, in the written agreement, when an institutional contractor requires its employee-inventor-contractor persons to disclose inventions so that the institutional contractor may comply with its own disclosure requirements, it is clear that those disclosure requirements do not come into effect until the inventor-contractor persons have properly disclosed subject inventions. The “promptly” in “disclose promptly” has been left, by less than careful amendment, logically dangling. It might be that once an invention has been made a subject invention by assignment to the institutional contractor and determined to have been made under federal contract and is or may be patentable or a plant variety, that then the employee-inventor contractor has an obligation to disclose promptly. But it’s difficult to see how any determination that an invention is or may be patentable can be made without already having in hand the information required by paragraph (c). Without that information, it’s all just handwaving and feelies.

In Bayh-Dole there is no disclosure requirement for inventors. The only disclosure requirement in Bayh-Dole is the contractor’s disclosure of a subject invention to the federal agency, which in turn forms the pre-condition for a contractor to have the right under 35 USC 202(a) to elect to retain title in a subject invention. What’s added in the standard patent rights clause for inventors is properly a mini patent rights clause created because the effect on the funding agreement of the institutional contractor’s compliance in requiring the written agreement is that doing so adds parties to the funding agreement, and those parties must have their own patent rights clause based on who they are–persons, not nonprofit organizations, not small company firms.

The written agreement, then, is not a private agreement between the contractor and its inventor-employee. It is not an employment agreement or amendment to an employment agreement. It is not a patent agreement between the employer and employee. It is not a non-compete agreement under which an employee agrees to give the employer first rights to any invention. None of that. The written agreement is part of the funding agreement’s patent rights clause, specific to employee-inventor persons. Its effect is to make those persons contractors, and as contractors, those persons then have standing as contractors under Bayh-Dole and under their own patent rights clause.

There’s really no other reasonable interpretation. University administrators may disagree, and ask their lawyers to beat down such talk, but they don’t have anything to stand on. Just as they bunched up in Stanford v Roche amicus briefs to insist that the law vested ownership of inventions in institutional contractors–and they were wrong–they are wrong here, too. The disclosure requirement is specific to subject inventions. If an inventor is not a party to the funding agreement, then whatever gets invented cannot possibly be a subject invention until it has been assigned to an institutional contractor. Yes, there is the dodge of the present assignment, but consider that an assignment cannot operate until something definite has been specified as the subject of the assignment.

Otherwise, the assignment fails for lack of definition. “You assigned anything I happen to want in the future” is not sufficient to determine that anything at all has been assigned. The “I” has to have something definite to want in order to make even a “present assignment” (“I hereby assign something that has not been made but might be made in the future”) operate. In other words, the assignment does not operate when the promise to assign has been made–regardless of the wording–but only when an invention has been made and its nature sufficiently specified so that it can be distinguished from all other subject matter.

The difference then between the wording of a present assignment and a promise to assign is that a promise to assign may require an additional step to transfer title. Justice Breyer’s dissent in Stanford v Roche argued that differences in wording should not make a difference–both forms of assignment wording convey equitable title. Even with present assignments, we might note, one still generally has to obtain a “confirming” assignment to link a defined invention (as an invention set forth in a draft patent application with specification and claims) to file with the Patent Office.  The magic of assignment takes place *after* there’s something existing and defined that may be assigned.

Back to the written agreement, then:

. . . to assign to the contractor the entire right, title and interest in and to each subject invention made under contract, . . .

This part has recently been added by NIST–it’s nonsense in a complicated less-than-silly way, but here we will note only that (i) the requirement to assign is not in Bayh-Dole and has no standing (ii) since that requirement to assign is specific to subject inventions, the requirement purports to require contractors to require their employees to assign the inventions the contractors must already have for those inventions to be subject inventions–so at best it is a requirement that inventors assign inventions to which contractors have made a claim of equitable title. But, sigh.

And more:

and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.

If inventors must assign *their* inventions, then inventors cannot possibly have any rights remaining by which they could “establish the government’s rights in subject inventions.” They could not assign inventions to the government, and they could not license inventions to the government. They could not do anything to establish the government’s rights. They could establish the government’s rights for such inventions only if they, the inventors, retained ownership. Thus, the assignment clause added by NIST, since NIST did not remove the “establish the government’s rights” part, cannot require inventors to assign inventions unless those inventions are already owned by the institutional contractor under a claim of equitable title–that is, where a court would find, based on circumstances, that it was reasonable (and just) to construct an assignment if an inventor was unwilling or unable to assign. The inventions of this written agreement could only be subject inventions, then, if the inventors were also parties to the funding agreement–that is contractors operating under the inventor patent rights clause. The inventor patent rights clause–37 CFR 401.9–has nothing about any compulsory obligation to assign subject inventions to any other contractor. That patent rights clause does not even have the written agreement requirement.

Let’s review the written agreement requirement:

(1) It is not in Bayh-Dole, but added to the standard patent rights clause
(2) It is required in each individual federal contract, after the contract is accepted
(3) The contractor must take the action to require it
(4) When a contractor requires it, it makes inventors parties to the funding agreement
(5) When inventors invent under contract, their inventions are subject inventions
(6) The inventors are subject to their own patent rights clause at 37 CFR 401.9
(7) The written agreement applies only to subject inventions of the prime contractor
(8) Inventors have an obligation to disclose to the contractor only those inventions that (i) have been made under contract and (ii) that the contractor already owns and (iii) which have been disclosed to the contractor’s personnel designated for patent matters.

Got it? Good! You are probably not a university patent administrator!

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