Persons under Bayh-Dole

Bayh-Dole defines “contractor” as “Any person, small business firm, or nonprofit organization that is a party to a funding agreement.” In turn, 1 USC 1 defines “person” thus:

In determining the meaning of any Act of Congress, unless the context indicates otherwise—

. . .

the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals;

Some universities, say, might be left out of this definition because they are chartered under state law and not organized as corporations or the like. Bayh-Dole deals with this by defining both small business firm and nonprofit organization and adding these to the standard 1 USC 1 definition of person.

This is all pretty messed up, though it is foundational to the structure of the law. Why does Bayh-Dole bother with “persons” at all? Ah, there are reasons.

Bayh-Dole purports to be about how nonprofits and small businesses deal with federal agencies over invention rights the nonprofits and small businesses have got from inventors working in projects receiving federal funds. The definitions of funding agreement and contractor then are fundamental to that scope. Except they aren’t exactly.

Look again at Bayh-Dole’s definition of contractor:

Any person, small business firm, or nonprofit organization that is a party to a funding agreement

“Person,” as a defined term in the United States Code, means any individual and any of a list of forms of company–corporation, company, association, firm, partnership, society, joint stock company. Left out of this list are instruments of state government, among other forms of collective, fictional “person.” Bayh-Dole’s structural problem then has to be how to restrict the USC definition of “person” to small companies and nonprofits and to deal with whether individuals are to be included or not. But Bayh-Dole doesn’t do any such thing. Instead, it adds definitions for small business firm and nonprofit organization (35 USC 201) to 1 USC 1’s definition rather than replacing 1 USC 1’s definition:

(h) The term “small business firm” means a small business concern as defined at section 2 of Public Law 85–536 (15 U.S.C. 632) and implementing regulations of the Administrator of the Small Business Administration.

15 USC 632 is almost useless. The law there sets out how federal agencies may define small business. Bayh-Dole’s definition says, then, a small business is anything that federal agencies say is a small business following the requirements of yet another law and the SBA implementing regulations.

(i) The term “nonprofit organization” means universities and other institutions of higher education or an organization of the type described in section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)) and exempt from taxation under section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a)) or any nonprofit scientific or educational organization qualified under a State nonprofit organization statute.

Here Bayh-Dole restricts nonprofits to 501(c)(3) organizations and “any nonprofit scientific or educational organization” under state “nonprofit organization statute.” Nothing about, say, engineering or technical organizations–but that’s just the start of the problem.

Bayh-Dole could have drafted “Any individual, small business firm, or nonprofit organization that is a party to a funding agreement.” That would make clear that 1 USC 1’s definition of “person” was not being used. But no.


contractor = person, nonprofit, small biz

Then Bayh-Dole defines nonprofit and small biz. But that means we have

person = (individual AND list of forms of business) AND (nonprofits AND small biz).

There’s nothing to indicate by context that Bayh-Dole intends its definitions of nonprofit and small business firm to displace the 1 USC 1 definition of person. “Nonprofit” restricts the list of business forms to 501(c)(3)s and expands the list to include state “qualified” (whatever that means) nonprofit scientific or educational organizations. But that leaves the possibility that a contractor may be a large, for-profit company as well, and that a contractor may be an individual. As we will see, this is in fact the case, and necessary to Bayh-Dole’s operation, such as that operation is.

Consider how this works out. Bayh-Dole’s definition of funding agreement (35 USC 201(b)) uses the term contractor:

(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.

That’s basically any contractor, regardless of size, given how Bayh-Dole defines contractor. And then, the definition allows contractors to unilaterally add more contractors:

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 contractor can assign, substitute, or subcontract and in doing so adds contractors–adds parties to the funding agreement. Since there’s no restriction on who a contractor can assign, substitute, or subcontract with, then there can be no restriction of contractor to nonprofit or small business. Bayh-Dole applies to businesses of all size, and whether nonprofit or not, and whether 501(c)(3) approved or not–it’s just that it does not require federal agencies to use the default patent rights clause other than in funding agreements with nonprofits and small businesses. Here, look (35 USC 202(c)):

Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: . . .

And each small business firm or nonprofit organization may then add additional contractors of any kind by assigning, substituting, or subcontracting. But Bayh-Dole provides only that those new contractors that are small businesses or nonprofits have the benefits of Bayh-Dole (35 USC 202(a)):

(a) 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: . . .

Nothing here about persons–individual or otherwise. Thus, contractors that get added by other contractors do not have the benefit of Bayh-Dole’s election to retain title offer unless they are also nonprofits or small businesses. Whoa! you should say right here. (And don’t even get started on what happens if a small business becomes a contractor and then exceeds the size of some federal definition of small business–hires, say, employees 501 through 510 to work on that federal grant.)

It would appear that individuals, too, are out of luck. They might become parties to a funding agreement–by operation of a contractor’s assignment, substitution, or subcontract–but don’t have any right to elect to retain title. But wait, the implementing regulations for Bayh-Dole work some juju on the situation. Here’s 37 CFR 401.9:

Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at § 401.14.

Yup. A patent rights clause just for inventors, treated as if they are small business contractors–sole proprietors of their inventions, so to speak. If an individual gets added to a funding agreement (by assignment, substitution, or subcontract), then that individual gets treated as a small business firm–a sole proprietor, say–and thus comes within the scope of 35 USC 202(a)’s election of title language, but with far fewer obligations chosen from those in 35 USC 202(c). NIST legal whiz folks claim they don’t understand 37 CFR 401.9, but now you do.

There’s more. Bayh-Dole stipulates that when a nonprofit assigns a subject invention, the recipient of that assignment must also accept the nonprofit’s patent rights clause (35 USC 202(c)(7)(A):

In the case of a nonprofit organization, (A) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions (provided that such assignee shall be subject to the same provisions as the contractor);

This requirement makes loads of sense. The nonprofit patent rights clause is loaded up with extra public protections at 35 USC 202(c)(7). One of these is (A) but there are others, and it is (A)’s job to see that a nonprofit cannot slip any of these requirements merely by assigning rights to a for-profit company, regardless of size. Otherwise, say, a nonprofit could avoid sharing royalties with inventors or using income earned with respect to a subject invention for scientific research or education simply by assigning rights to a company–say, one that the nonprofit owns. The (A) requirement fixes that by insisting that the assignee operate under the nonprofit patent rights clause–including all of 202(c)(7)–and it should be clear to you by now that the nonprofit’s assignment necessarily must make the assignee become a contractor within the definition given by Bayh-Dole (again, regardless of its size or tax standing) and that contractor must operate under the nonprofit patent rights clause even though a federal agency has not imposed that clause on this new contractor. It does not have to. The nonprofit doing the assigning imposes that clause–or, the clause itself does the imposing, as is the quirk of federal contracts.

Once a federal agency uses the standard patent rights clause in a funding agreement with a nonprofit or small business, that nonprofit or small business may hop off and add lots of other parties to the funding agreement, and all those other parties become contractors if they are 1 USC 1 persons or are within Bayh-Dole’s definitions (screwy as they are) of small business firm or nonprofit organization.

We might add, then, that the standard patent rights clause–37 CFR 401.14–includes an entirely non-Bayh-Dole requirement that nonprofits and small businesses make certain employees parties to the funding agreement as individuals–within the definition of person in 1 USC 1. That’s the written agreement requirement at (f)(2)–another part of this whole mess of Bayh-Dole that NIST legal gurus don’t understand. Look at the structure of (f)(2):

Federal agencies must require small businesses and nonprofits to require certain employees to make a written agreement to protect the government’s rights in inventions.

The flow down is important. This is no patent agreement under which an employee is forced to cough up inventions for employer ownership. Really, it much the opposite–that the employer by requiring this agreement gives up any claims to any inventions based on anything having to do with Bayh-Dole or its funding agreement. That’s consistent with the subcontracting requirement (37 CFR 401.14(g))–also not authorized by Bayh-Dole but futzed into the standard patent rights clause from the Federal Procurement Regulation that codified the Nixon executive branch patent policy.

The federal agency is not authorized to contract directly with individuals to impose Bayh-Dole requirements. 35 USC 202(c) is expressly restricted to small businesses and nonprofits. But the executive branch all on its own (is this even within its authority? Ah, who the heck cares, it’s Bayh-Dole)–decides as at matter of implementation to force small businesses and nonprofits to require certain employees to become parties to the funding agreement, to become contractors-as-individuals that the implementing regulations then construct a separate patent rights clause for, treating them as if small business firms, at 37 CFR 401.9.

Thus, if any small business or nonprofit bothered to comply with the standard patent rights clause, each funding agreement would have many contractors. Not only the initial small business or nonprofit but also all their employees (other than clerical and non-technical workers) and anyone else (1 USC 1 person) with which any party to the funding agreement assigns, substitutes, or subcontracts.

That’s your mess of architecture and practice that derives from the Bayh-Dole definition of “contractor.” The mess comes about because Bayh-Dole does not get at inventors. It is not ready to propose that inventors don’t have rights to their inventions, or that inventors must use the patent system while giving up their rights to their inventions. Both would appear to be outside the constitutional grant to Congress of the power to reserve exclusive rights to inventors–not to reserve that right only to force it to pass to nonprofits that happen to host research paid for in part by federal agencies.

The mess also comes about because Bayh-Dole at its core is not about university ownership of inventions. Most universities in 1979 did not care to own inventions–they contracted with external agents, most often Research Corporation but also their own affiliated “research foundations” to handle inventions “outside the walls.” Take it out into the parking lot, so to speak. Thus, Bayh-Dole is about how those universities–having got ownership of inventions–give over that ownership to these patent development firms. Thus, there has to be this trail–35 USC 202(c)(7)(A)–that requires these firms to work under the patent right clause required of the universities in the first place. That’s also the burden of the second sentence of the definition of funding agreement at 35 USC 201(b). But to get at these things, Bayh-Dole also ends up not being able to force inventors to give up their invention rights, as the Supreme Court made clear in Stanford v Roche.

Bayh-Dole, a part of federal patent law, does not force inventors to use the patent system or to give up their patent rights if they don’t use the patent system or to give up their patent rights if they do use the patent system. Bayh-Dole does not require universities to force inventors to give up their patent rights. In a real sense, Congress does not have the authority to force universities to take ownership of inventions–even if federal agencies might contract with universities to require universities to take ownership of inventions that otherwise would be contractually obligated to the federal agencies. Bayh-Dole, in its clumbering stupor, suspends all those federal agency claims to federal ownership of such inventions, and once it has done that, it destroys the basis for the IPA-program circumvention of federal policy by which federal agencies could require universities to take ownership of inventions made by employees working within the scope of a federal grant.

In Bayh-Dole, “person” includes individuals. Individuals may be parties to a federal funding agreement, but to get there, a small business or nonprofit contractor must make those individuals parties to the funding agreement by assignment, substitution, or subcontract. The standard patent rights clause then requires small businesses and nonprofits to do this for certain of their employees. No one complies, of course. To do so would ruin their speculative looting fun, and, according to the advocates for Bayh-Dole, the public would be outraged that anyone might propose that the public might benefit from federally supported research without first having bureaucrats and speculators spend two decades trying to price gouge the public.

Bayh-Dole boils down to this sticky mess:

Universities, given the proper money incentives, will find better price gougers to screw over the public than will federal agencies, but just in case, federally agencies should also be authorized to find price gougers, too. And of course, according to Senator Bayh, both universities and federal agencies can find better price gougers than could any mere inventor.

Boiled down to the unremovable char at the bottom of your cookware, Bayh-Dole is:

Price gouging is essential to technological progress arising from federally supported research. Universities will do the best job in finding price gougers (in the public interest) if they are allowed to operate in secret, without accountability. Same for federal agencies.

Why again do we have this law?


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