A major law firm’s new FAQ on Bayh-Dole, 1: What is Bayh-Dole?

Wilson Sonsini, a big law firm, just published “Basics of the Bayh-Dole Act: FAQs.” The document appears to be directed at companies getting SBIR/STTR awards. The document is filed under “Client Advisories.”

The FAQ, as a rhetorical piece, makes it clear that Bayh-Dole allows a company to keep title to inventions that it acquires that were made in work receiving federal funding, but to keep that title, there’s a ton of mindless bureaucratic tasks that are so difficult to describe that the FAQ cannot seem to get any one of them right. By simple reasoning, then, no small company thinking about SBIR funding could possibly do better–but they better. A firm like Wilson Sonsini is known for its work with technology investments. The implication is that such firms are watching you small pickup companies, and you had better have your paperwork in order when a big dump comes through to consider an investment, buyout, or merger.

Let’s work through the FAQ and see what it advises.

The first FAQ question is “What is Bayh-Dole?”

Bayh-Dole refers to a law (spearheaded by Senators Birch Bayh of Indiana and Bob Dole of Kansas) passed in 1980

So far, so good.

that allowed small businesses and non-profit institutions to elect to take title to federally funded inventions under certain terms and conditions.

This part is not accurate, and not helpful.

Bayh-Dole requires federal agencies to use a standard patent rights clause in all funding agreements for research or development work with federal agencies, authorizes federal agencies to grant exclusive licenses to government-owned inventions, and allows small businesses and nonprofits to retain title to inventions that they acquire and which were made in work funded by the federal government, even if federal laws would require otherwise.

There is nothing in Bayh-Dole that allows businesses or nonprofits to “take” title to inventions. See Stanford v Roche, 2011. The inventions involved aren’t “federally funded”–the work is federally funded, even in part. An invention made in that work may have no direct federal funding. See 37 CFR 401.1 for a scope discussion. See 35 USC 201(b) for the definition of funding agreement.

The “taking” of title is not subject to “certain terms and conditions.” Rather, once a business or nonprofit has (i) acquired title to an invention and (ii) determined that the invention was made in federally funded work and (iii) the business or nonprofit has elected to retain title to the invention, then Bayh-Dole stipulates what federal agencies must require the business or nonprofit to do with that invention. The terms and conditions  in the standard patent rights clause are directed to what the business or nonprofit may do with the invention.

And a bit more:

It was enacted to provide incentives to promote commercialization of federally funded inventions.

This is made up. Sounds good. Nothing in Bayh-Dole supports the claim, however. Bayh-Dole states its policy and objective at 35 USC 200. There, the focus is on the use of inventions made in federally supported research or development. Commercialization is one way that an invention might be used, and gets a mention along with public availability.  There are other objectives as well, such as promoting free competition and enterprise, promoting United States industry and labor, maximum participation of small businesses, and collaboration between nonprofits and companies.

But there’s nothing at all in Bayh-Dole having to do with the promotion of commercialization. A business or nonprofit is not required to commercialize any invention under Bayh-Dole, and there’s absolutely nothing in the law by way of incentives to do so. Everything about Bayh-Dole’s terms and conditions have to do with bureaucratic red tape and limitations on patent property rights relative to ordinary patents.

It may be that a federal agency allowing a company that has acquired an invention made in federally funded work keep that invention is something of an “incentive” over taking that invention away and licensing it exclusively to some other company. But if a federal agency has distributed research support across tens if not scores of companies, all working on similar or related aspects of new science or technology, then the incentive to commercialize will be caught up in the access by each of these companies to the work of all–otherwise, things fragment into bits of patent held by each, and no-one can use, let alone commercialize, anything until a whole lot of cross-licensing has gone on. A much more efficient approach (and historically, highly successful) is for the federal government to acquire rights to inventions from each contractor involved, and grant everyone free access. Cross-licensing done.

Even Senator Bayh’s statements introducing Bayh-Dole are premised on the need for the U.S. to catch up with other countries in the development of technology. Somehow–it is not clear quite how–by allowing universities (especially) to get into the patent licensing business, with an expectation of exclusive licensing, the U.S. would zoom to the forefront of global technology development. Small companies got thrown into the mix as well to sweeten the pot to pass the bill, but large companies were excluded because there was a perception that large companies would just gain more economic power if they were subsidized by federal funding and got to keep their inventions. The bureaucrats designing Bayh-Dole included a limitation on licensing inventions exclusively to big companies–but they then took that condition out less than four years after Bayh-Dole became law, before the law could even operate.

The purpose behind Bayh-Dole, as Senator Bayh would have it, appears to be to patent a lot more of federally supported inventions and hold back those inventions from general access so that those nefarious foreign companies that don’t require patent monopoly positions cannot swoop in and adopt the results of federally funded research, create new products, and sell those products back to the U.S. before lumbering American companies can be bothered. If–so the inspired idea went–universities filed a bunch of patents on such work, then foreign companies could be held off while American companies were recruited to adopt and commercialize these inventions.

Harbridge House, a consultancy, produced a substantial report on government patent policy in 1968. That report advised that uniform treatment of inventions made in federally funded work as not advisable. How inventions were treated depended on the purpose of the work, the context in which the work was bid and undertaken, and ought to reflect the reality that attitudes toward the worth of patents varied wildly by industry and even among companies within any given industry. Of the various approaches Harbridge House reviewed, the worst outcomes came when organizations without commercial capability owned the inventions, and when the inventions were licensed to companies. Universities combined the very worst outcomes identified by Harbridge House into a single wallop of bad practice–incapable ownership combined with (attempted) licensing. It can’t get any worse than that, really.

For companies, however, Bayh-Dole does something even more pernicious. It forces companies to use the patent system–even if they want to hold an invention as a trade secret, even if they want to hold other technology that a given invention depends upon as trade secret, even if they want to publish the inventive work openly for anyone to use. Since Bayh-Dole allows federal agencies to grant exclusive licenses to government owned inventions (and to inventions that the government does not own, but can march-in on and require licensing), a company is all but forced to elect to retain title and file patent applications, just to prevent the federal government from being even more of a disruptive force.

Next FAQ question: If my company takes SBIR/STTR Funding, does Bayh-Dole apply?


This much is true and helpful!

An entity that receives federal funding (research grants, SBIR/STTR grants, etc.) is considered a “contractor”

This much isn’t, though. Bayh-Dole applies to federal agencies providing SBIR/STTR awards, so the funding agreements under those awards will have a patent rights clause that complies with Bayh-Dole. But Bayh-Dole is clear that its scope is federal funding for experimental, developmental, or research work by grant, contract, or cooperative agreement. So not all federal funding involves Bayh-Dole. “Other transaction authority” awards, for instance, don’t involve Bayh-Dole, even for research. Same for awards that are intended to be primarily for education–even if research is involved. Such awards are still funding agreements, but exclude Bayh-Dole’s invention requirements.

Bayh-Dole defines “contractor”–any party to a funding agreement (for research or development). Thus, “is considered” is nonsense. A company receiving an SBIR grant is a party to a Bayh-Dole funding agreement. The term used by Bayh-Dole for such parties is “contractor.”

thus your Company is a contractor and Bayh-Dole applies.

Ass-backwards. Bayh-Dole requires federal agencies to use a standard patent rights clause unless they can justify a different one. That clause goes into each funding agreement, including SBIR and STTR agreements. When a company accepts funding, it accepts the funding agreement and becomes a party to that funding agreement. Under the definition in that patent rights clause, it is also a contractor, for convenience of reference only. What matters is this: if your company accepts federal funding, it becomes a party to the funding agreement and thus also accepts the patent rights clause required by Bayh-Dole.

Your company will need to set up a system to receive inventions disclosures,

Or, really, all you might do is to designate personnel responsible for patent matters. Could be an outside law firm. But Bayh-Dole does not require a contractor to set up any system to deal with invention disclosures or file patent applications. As the Supreme Court made clear in Stanford v Roche, Bayh-Dole’s patent rights clause applies only to subject inventions–inventions once acquired by a contractor. If a company does not acquire an invention, then it is not a subject invention, and Bayh-Dole’s invention disclosure requirements simply don’t apply. Inventors do not have to agree to disclose non-subject inventions. Companies do not have to disclose–at least not under Bayh-Dole–those non-subject inventions, even if made in work receiving federal funding.

And it’s a pretty wild thing to assume a company doesn’t have a way to identify inventions and get its people to document them.

disclose these inventions to the U.S. government,

Only if your company goes out of its way to acquire those inventions–

file patent applications,

Only if your company discloses the invention publicly so as to create a statutory bar to patenting–see 35 USC 202(c)(3). The statutory requirement was amended in 2011 for AIA first to file, and the change fundamentally altered the deal. Not that NIST has bothered to change the text of the standard patent rights clause to conform to the law. And for that matter, if your company doesn’t acquire title, then it has no obligation to file any patent application, and if your company is fool enough to acquire title but then doesn’t want to keep title, your company still doesn’t have to file a patent application–it can let the government take title, the company gets a non-exclusive license, and the government has the bother and expense of filing a patent application.

and give the U.S. government a (non-exclusive) license to use the patented technology for governmental purposes.

This bit misstates the scope of the government license. The license is not to use the “patented technology” but rather to practice and have practiced the subject invention. The practice and have practiced wording is lifted from the Kennedy patent policy by way of the Institutional Patent Agreement master, where practice is defined to mean “to make, to use, and to sell.” That’s much broader than “use” and much broader even than 28 USC 1498’s “use and manufacture.”

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