Bayh-Dole Government License–1: Practice or Have Practiced

NIST published a Green Paper that evidences its confusion with various aspects of Bayh-Dole. One of these areas of confusion involves the government license that Bayh-Dole requires in all federal research contracts, and in particular in the standard patent rights clause for nonprofits and small business contractors. At the 2020 AUTM national conference, Fuentek hosted a session on the topic of the government license and has posted a “webinar” of their session, “Government Use of Federally Funded IP: Not as Simple as You Think.” The session is worth the listen because it gives a good insight into the level of thinking taking place in university and government settings with regard to Bayh-Dole, the use of the patent system, and the quality of licensing. The webinar is presently here. And the slides are here. The NIST Green Paper is here.

Let’s start by looking at Bayh-Dole and get clear on things. It’s not that difficult. The government license is to make, use, and sell, and have others do so as well for the government. The license operates without formalities whenever a contractor elects to retain title. The license extends to any federal agreements with other countries if the funding agreement so provides.

Here’s 35 USC 210(c):

Nothing in this chapter is intended to limit the authority of agencies to agree to the disposition of rights in inventions made in the performance of work under funding agreements with persons other than nonprofit organizations or small business firms in accordance with the Statement of Government Patent Policy issued on February 18, 1983, agency regulations, or other applicable regulations or to otherwise limit the authority of agencies to allow such persons to retain ownership of inventions except that all funding agreements, including those with other than small business firms and nonprofit organizations, shall include the requirements established in section 202(c)(4) and section 203.

Thus, Bayh-Dole makes 35 USC 202(c)(4) a provision for all funding agreements–including those primarily for education, and with non-small companies–so we should take a look at it. 202(c)(4) stipulates a provision that must be in funding agreements. We will take it in three parts:

With respect to any invention in which the contractor elects rights,

The provision begins with a scope statement–this provision applies only after a contractor has elected to retain rights (the primary action enabled under section 202(a)). The usage here is clipped. “Any invention” must be “any subject invention,” since 202(a) expressly limits the election to retain rights to subject inventions:

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention

Contractors have no right to elect to retain rights in inventions that are not subject inventions–and in particular in inventions that the contractor has not acquired. Here in 202(c)(4), “elects rights” means “elects to retain rights,” again following 202(a).

To elect to retain title, in turn, means to notify the federal government that, having acquired title to an invention made under federal contract (and thus making it a subject invention), the contractor chooses to retain that title, and thus preempt any statutory claim that the federal government may have to acquire title. Bayh-Dole at section 210(a) preempts most other federal statutes with regard to disposition of ownership of subject inventions. Thus, a contractor’s election to retain title acts to claim Bayh-Dole’s preemption. If a contractor invokes this preemption, then the provision of 202(c)(4) comes into effect:

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:

The wording here follows the Kennedy patent policy (1963) and the NIH IPA master agreement (1968). Here’s Kennedy:

Governmental purpose–means the right of the Government of the United States (including any agency thereof, state, or domestic municipal government) to practice and have practiced (made or have made, used or have used, sold or have sold) throughout the world by or on behalf of the Government of the United States.

The Nixon revision of Kennedy (1971) replaces “practice and have practiced” with the make, use, and sell wording. The Federal Procurement Regulation (1975), which codified the Nixon patent policy, is similar, but removes the “have practiced” wording:

to make, use, and sell each Subject Invention throughout the world by or on behalf of the Government of the United States (including any Government agency) and States and domestic municipal governments.

Getting this far, it is clear that “practice and have practiced” means to make, use, and sell, and have made, have used, and have sold anything pertaining to a given invention. “Make, use, and sell” are standard terms of art in patent licensing. Nothing could be more basic. Thus, in Bayh-Dole, it is clear that the license to practice and have practiced involves granting a non-exclusive license to all substantial rights in the invention.

Bayh-Dole makes two departures in usage worth noting. First, Bayh-Dole uses “United States” rather than “Government of the United States.” It would appear that “United States” is a broader term than “government of the United States” or “federal agency.” Thus, it makes reasonable sense that “United States” includes the federal government as well as the states. The fact that a specific federal agency has the license does not lessen its scope because the federal agency may authorize any other federal agency to practice the invention as well.

It is worth pointing out that the states enjoy constitutional sovereign immunity and so cannot be sued in federal court unless they agree to be sued, and so cannot be sued for patent infringement. Even if “United States” does not include the states, there’s no way for a contractor to enforce its patent on a state anyway.

Second, Bayh-Dole’s statement of license is curiously defective. Where the Kennedy, Nixon, and FPR policies stipulate that the license is granted to the Government, Bayh-Dole does not do so:

license to practice or have practiced for or on behalf of the United States

You see? The license is not granted to the United States–it is granted to the federal agency to act “for or on behalf of the United States.” It is a weird construction, licensing a part of the executive branch to act on behalf of not just the entire executive branch but for the “United States.” It appears that anyone making, using, or selling the invention for or on behalf of the United States also has the benefit of the license granted to the federal agency. Makes sense, because the federal agency holds the license for all practice “for or on behalf of” the United States.

The weirdness goes further: we would expect the wording of the FPR: “by or on behalf of”–“for” and “on behalf of” appears duplicative. Separating out how “for” might mean something distinctively different than “on behalf of” gives me a case of adiaphora. But it would be clear how “by” and “on behalf of” differ. In one, the United States acts. In the other, someone not the United States acts. Again, it is reasonable to interpret Bayh-Dole here to set out a broader license than that in Kennedy, Nixon, or the FPR–that the United States (or any constituent of the United States) surely is able to act for or on behalf of the United States and so has the benefit of the license.

Finally, 202(c)(4) is part of what must be included in the standard patent rights clause placed in each funding agreement. The stipulation is that

the Federal agency shall have

The wording here is not that “the contractor must grant to the federal agency”–it is that the federal agency “shall have”–at the time that the contractor elects to retain title in any given subject invention. The FPR treatment makes the point–in the Patent Rights clause that is to be used:

With respect to each Subject Invention to which the Contractor retains principal or exclusive rights, the Contractor:

(1) Hereby grants to the Government a nonexclusive, nontransferable, paid-up license to make, use, and sell each Subject Invention . . . .

That is, the grant of the license takes place without additional formalities when a contractor is permitted to retain rights in a Subject Invention. The Institutional Patent Agreement (1968), which is another source Latker used in drafting Bayh-Dole, deals with the license agreement somewhat differently, and this will be crucial to working through the Fuentek AUTM session. Here’s the IPA master:

The Grantee shall grant to the Government of the United States [Kennedy definition] a nonexclusive, irrevocable, royalty-free license for governmental purposes [Kennedy definition] and on behalf of any foreign government, pursuant to any existing or future treaty or agreement with the United States under each U.S. or foreign patent application it elects to file on a subject invention.

The IPA master then stipulates the form the license must take, referencing a document in an exhibit that repeats the same language–“governmental purposes.” That governmental purposes is using the definition of the Kennedy patent policy–which it has to, to comply with that policy. Here’s how the IPA exhibit’s license handles the definition:

As used herein, “governmental purposes” means the right of the Government of the United States (including any agency thereof, state, or domestic municipal government) to practice and have practiced (made, or have made, used or have used, sold or have sold) throughout the world by or on behalf of the Government of the United States.

That’s exactly the Kennedy definition of governmental purposes. Latker drafted the IPA master. Latker drafted Bayh-Dole. Latker was involved in drafting the FPR. Latker was involved in drafting Bayh-Dole’s implementing regulations. Funny the law isn’t called Latker’s Law. There’s more to the IPA license, including that any assignment or license by the Grantee must include a reservation for the government license and that the government has the right to contest the validity of any patent licensed. By accepting a license, the government is not agreeing that the patent that forms the basis for the license is valid.

This “governmental purposes” will come back to haunt, so keep it in mind. Detached from its definition in the Kennedy and Nixon patent policies–it can begin to sound like “government use.” And because “use” is just one of “make, use, and sell,” “use” can be made to sound like a substantial restriction on government rights. “Use,” deployed this way is even a lesser right than what’s provided in 28 CFR 1498, which establishes that the federal government may “manufacture and use” patented inventions, subject to a claim for reasonable and entire compensation in the Court of Federal Claims. “Make, use, and sell” is broader than “manufacture and use.” “Use” is necessarily less broad than “manufacture and use.” Clearly “use” is less broad than “practice” or “practice and have practiced.” And it is also clear that “use” is not merely a synonym for “practice.” Only in the loosest, least professional usage might one think that “use” and “practice” mean the same thing. Only if one is so sloppy that it does not matter (extreme adiaphora!–no, failure to be competent) would one conflate use and practice in a patent license.

One further section to 202(c)(4):

Provided, That the funding agreement may provide for such additional rights, including the right to assign or have assigned foreign patent rights in the subject invention, as are determined by the agency as necessary for meeting the obligations of the United States under any treaty, international agreement, arrangement of cooperation, memorandum of understanding, or similar arrangement, including military agreement relating to weapons development and production.

This part is more interesting than it may seem. In the IPA master, we have seen that the foreign rights license is forward-looking:

on behalf of any foreign government, pursuant to any existing or future treaty or agreement with the United States

But in Bayh-Dole, Latker shifts the foreign license to require a special change in a given funding agreement–“may provide for such additional rights.” These “additional rights” cannot be license rights because a foreign license “throughout the world” is already included in the government license to practice and have practiced. Two issues. One, the extent to which the US government operates in foreign jurisdictions–maybe at its military bases. Two, whether additional rights mean more specifically ownership rights–that a funding agreement may specify that a contractor cannot elect to retain title to certain foreign rights in an invention if the funding agreement specifies that those rights must be assigned to the federal government (or to some entity as provided by a treaty or other agreement).

One would think that this situation was already nicely addressed in the IPA master–the patent rights clause (that’s what the IPA master functions as) stipulates that the government has a license for foreign countries any time that it is engaged in an international agreement that provides for such rights. Bayh-Dole, by contrast, appears to make federal agencies identify existing treaties and agreements, and to anticipate future treaties and agreements, distinguishing between a license (granted outright) and ownership (must be specified in advance). That’s a whole lot of bother. The effect appears to be to limit the ability of the federal government to comply with international agreements–or to cleverly have removed inventions made in federally funded work from the scope of those agreements, and placed foreign control of those inventors with contractors to exploit however they might want. Strange foreign policy, no?

 

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