A major law firm’s new FAQ on Bayh-Dole, 3: Mindless Administrative Compliance

We are working through a FAQ on Bayh-Dole that doesn’t hesitate to delight and entertain with compliance porn. Remember, the FAQ started out with the claim that Bayh-Dole was intended to “provide incentives to promote commercialization”–which isn’t rightly defensible (there’s no such statement of objective in the law, nor any incentives offered). But all we get is a storm of complicated compliance requirements. Apparently the path to commercialization lies in tons of petty paperwork required by federal agencies, where “incentive” is a code word for “almost entirely but not quite entirely unlike incentive.”

FAQ: What are the terms and conditions if the company takes title to a Subject Invention?

Again, Bayh-Dole’s verb is “retain” not “take”–what are the terms and conditions if the company elects to retain title to a subject invention?

A company must:

1. Grant the government a nonexclusive, irrevocable, paid-up license to use the Subject Invention throughout the world.

Nope. The license is to “practice and have practiced.” The language used is “the Federal agency shall  have”–it is not clear that anyone must grant the license, other than as a bureaucratic exercise in compliance. And folks left out “nontransferrable.” As long as one is going to list much, then list it all.

But even more horrifying (in a swamp monster sort of way–don’t run off just yet) is that the federal government basically splits the future patent rights with you. In the “incentive” version, you pay all the patenting costs and do all the hard work to get a patent, and the federal government gets a free right to make, use, and sell, and authorize others to do so as well, for any government purpose. You also get that right, and a right to exclude anyone except for those that the government chooses to include. As long as the market you care about doesn’t involve much government activity, you should be fine. For anything else, what’s the point of the patent again? Now, in the “non-incentive” version, you give up title to your invention, the government pays for the patenting, and you get the royalty-free license to make, use, and sell, with a limited right, even, to sublicense. Sure, you don’t have exclusivity–but then you didn’t have that in the incentive version, either, but at least you aren’t out $15,000 for the patent work, and you don’t have any more compliance paperwork. Now, which of these actually seems to have incentives? Oh well.

2. Require substantial manufacture in the U.S. for any exclusive licensee.

Garble. Companies generally *don’t* exclusively license their assets. That’s a university bad habit. 35 USC 204 requires anyone holding title to a subject invention to require anyone accepting an exclusive license to use or to sell in the U.S. to agree that any products embodying the subject invention or produced through the use of the subject invention will be “manufactured substantially” in the U.S. Sorry, but “substantial manufacture” is not “manufactured substantially” (one difference is how much product vs how much of a product; another is whether substantial means “a darned impressive amount” or “nearly all”); and not “any exclusive licensee” is covered–just exclusive licenses to use or to sell in the United States. Exclusive licenses for other countries is not an issue (though one would think it would be, but it’s Bayh-Dole here, not something rational!).

The practice advice for companies is don’t do exclusive licenses. Sell or license non-exclusively, even use sole licenses if you must (non-exclusive done once).

3. Allow the U.S. government to exercise March-In Rights, i.e., the government can require the contractor to license the patent to others on reasonable terms.

Yes. 35 USC 203. But the contractor does not have to allow it. Federal agencies are required to require it. A contractor can fight it tooth and nail using the procedures laid out for just such a thing. A contractor can string out any march-in procedure for months if not years. That alone makes most march-in unworkable–as was intended. The technical bit is that if a contractor does not timely make the benefits of use of a subject invention available to the public on reasonable terms, then a federal agency has the right to march in. Same if a contractor does not provide adequate supply of product for health or regulatory needs, or fails to obtain agreement on sourcing U.S. product in exclusive licenses to use or to sell in the U.S. And, while we are being technical, march-in specifies licensing the subject invention, not the patent.  And the government may do the licensing directly if the contractor refuses. And the licensing may be exclusive, which amounts to confiscating the invention and the patent rights with it.

4. Comply with the administrative components of the law.

And this is the only bit that actually matters–and none of it has to do with promoting commercialization or anything else having to do with innovation. The FAQ takes this part up next. It is the longest section by far. I’m getting totally bored with working through this mess of an FAQ on this mess that’s Bayh-Dole, so we will keep it short just to document how bad the FAQ is.

FAQ: What are the administrative compliance requirements for a company?

1. Obtain written assignments from your employees assigning all rights to the company.

Nope. See Stanford v Roche. There’s no authority in Bayh-Dole to compel a company to acquire employee inventions. The NIST change in the standard patent rights clause in defiance of the Supreme Court extends only to subject inventions. Those are inventions that are already owned by the company. The compliance step at 37 CFR 401.14(f)(2) has to do with requiring employees to make a written agreement to protect the government’s interest in subject inventions, not the company’s.

2. Educate employees about the importance of reporting inventions to permit filing of patent applications.

Yes. But it’s not anything in Bayh-Dole. It’s something thrown in willy-nilly to the standard patent rights clause (along with sections (e) and the rest of (f) and (g)). The important bit is that the instruction required is pro-forma. There’s nothing in Bayh-Dole that requires any inventor to disclose anything to anyone prior to a patent bar date. It’s technical, but technically, it’s not there.

3. Require your employees to disclose each Subject Invention to your patent administrator.

Well, a subject invention is an invention already owned by a contractor. So a company would have to have got assignment of an invention for this disclosure requirement to kick in. Bayh-Dole stipulates “personnel identified as responsible for the administration of patent matters.” Might be outside counsel. Might be a patent administrator. The FAQ puts words in the law’s mouth. It’s one thing to say, here’s a good set of practices to adopt. It’s another to say, here’s what the law requires administratively.

4. Report each Subject Invention to the sponsoring agency.

Technically, the term is “disclose” in the form of a written report. To report an invention is to announce that an invention exists. To disclose an invention is to provide full technical detail sufficient to prepare a patent application. And again, an invention cannot be a subject invention if the company chooses not to own it. In that case, the invention goes into bureaucratic purgatory because the bureaucrats concocting Bayh-Dole didn’t bother to deal with that boundary case, crappy programmers that they were.

NOTE: Most companies will not publish these inventions; however, if you/the company intends to publish, the company needs to notify the government of the acceptance of any manuscript describing the Subject Invention.

Another thing not in Bayh-Dole but crammed in later without authority. The disclosure must include manuscripts published, submitted for publication, or accepted for publication and that obligation continues after disclosure. Why? Publication establishes a patent bar date–and destroys most foreign patent rights. The company must also report other things–on sale or public use planned by the contractor.

In its way, though, the note is silly. Companies publish. But it does not matter–the government has the right to publish, with a delay to permit the filing of a patent application. And the PTO publishes patent applications at 18 months. So the invention will come out–it’s a matter of whether the company gets ahead of the game and uses its own publication to establish priority and position itself for new business.

5. Elect in writing within two years of reporting to the government whether or not the company wishes to retain title to the Subject Invention.

Yes. And the federal agency can shorten that period if the one-year statutory period for patenting has been triggered, as by a publication.

NOTE: The company must elect to take title before the filing of an initial patent application.

Garble. The company elects to retain title, not to take title. The company must already have title if the invention is a subject invention, which it is, so there it is. Nothing in Bayh-Dole has anything to say about whether a company must elect to retain title before filing. It is just good practice to do the useless election paperwork with the government first–something Stanford didn’t do in Stanford v Roche. 

NOTE: If a printed publication, public use, sale, or other availability to the public has initiated the one-year Statutory Bar, the company must elect 60 days prior to the end of the Statutory period. (Statutory Bar is the date after which one cannot file a patent application.)

Not reality. If a company starts the one-year statutory period (a Statutory Bar, I think, is one that is licensed to serve liquor–which I’ll likely need after finishing this article), then it must notify the federal agency. That’s the continuing obligation discussed above. The federal agency then may shorten the period in which the company may elect to retain title to no more than 60 days–could be less–before the end of that statutory period.

6. File the Initial Patent Application within one year after election of title (or earlier if there is a Statutory Bar).

Here the FAQ is spot on with the patent rights clause. The problem is that the patent rights clause does not conform to Bayh-Dole, which was amended in 2011 for the AIA. Now a company has no obligation to file a patent application unless the company discloses the invention. Here (35 USC 202(c)(3)):

(3) That a contractor electing rights in a subject invention agrees to file a patent application prior to the expiration of the 1-year period referred to in section 102(b), and shall thereafter file corresponding patent applications in other countries in which it wishes to retain title within reasonable times, and that the Federal Government may receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times.

You see–the date for filing a patent application is now prior to the end of the statutory period and not linked at all to the date of electing to retain title–and has been that way for nearly a decade, not that NIST comprehends these things, or much of anything about Bayh-Dole. What a waste of taxpayer money to have NIST doing anything with Bayh-Dole regulations.

Now a string of notes, heaven help us.

NOTE: If the company is not filing a patent application right away, ask for an extension.

This would be good advice a decade ago. After AIA, it’s first to file. A company should light a fire and file immediately, doing all the worthless Bayh-Dole paperwork in parallel.

NOTE: Each patent application filed must include the exact statement: “This invention was made with government support under [identify the contract] awarded by [identify the federal agency]. The government has certain rights in the invention.”

Good. The statement is required by the standard patent rights clause. 37 CFR 401.14(f)(4). Bayh-Dole doesn’t dictate the “exact statement.” See 35 USC 202(c)(6).

NOTE: In the above statement you identify the federal agency (e.g., the National Institutes of Health (NIH)) and not the Institute or Center (e.g., the National Institute of Allergy and Infectious Diseases).

Okay. Is this level of detail necessary here? Isn’t “Federal agency” clear enough?

NOTE: The Company must provide a confirmatory license to the government.

Wrong context. The government license happens at election to retain title, not at filing a patent application. See 35 USC 202(c)(4).

NOTE: The Company must inform the sponsoring agency of the filing date of the Initial Patent Application, number, and title AND all subsequently filed patent applications.

Not in Bayh-Dole. Not in the standard patent rights clause. This is an alternative that a federal agency may include in its tailored version of the standard patent rights clause–see 37 CFR 401.5(f)(2). Practice advice: read the actual patent rights clause included with your funding agreement.

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