[Note: This post was written two years before Stanford v Roche was decided by the US Supreme Court, which held that Bayh-Dole does not vest title to inventions made in federally supported work with the contractor but rather governs the disposition of title after a contractor has acquired title in some conventional, acceptable manner.
This post is also odd in that it relies on the wording of the CFR rather than the language of the statute. But there’s some sense in doing so, since it is the CFR that gives color to the federal agency interpretation of the statute, and in particular, the standard patent rights clauses at 37 CFR 401.9 and .14 govern what contractors must do, if they do acquire title.
In this, it is important to understand that Bayh-Dole defines a contractor as “any person, small business firm, or nonprofit organization that is a party to a funding agreement.” The CFR has a similar definition but NIST recently added–most stupidly–all companies, regardless of size, as if an Executive Order could be mixed in to the codification of a statute. All the more reason, of course, to consider the CFR in construing Bayh-Dole. The inclusion of “person” is important, because a prime contractor has the power to add parties to a funding agreement (see 35 USC 201(b)) by assignment, substitution of parties, and subcontract. So a contractor may add employees, for instance, as parties to the funding agreement, and so make them by definition contractors with independent standing under Bayh-Dole and its patent rights clauses.
Compliance with 37 CFR 401.14(f)(2)–the written agreement requirement, nowhere to be found in the statute–has the effect that contractors make specified employees who might invent parties to the funding agreement. But no-one at universities acknowledges that this is the case. But then no university complies with the (f)(2) requirement anyway, choosing to substitute a patent agreement and claim that complies. Since federal agencies don’t enforce (f)(2), I guess a patent agreement instead of the written agreement does comply, if up is down and Bayh-Dole is our friend.
Also, NIST unhelpfully altered the section nomenclature to 37 CFR 401.14, dropping the (a) and (b) and collapsing the two distinct clauses to a single patent rights clause, which now deals with three discrete situations–small businesses, nonprofits, and DOE nuclear stuff–in a single big balky clause. I have changed the references below accordingly.]
Over at IP Wachdog Eric W. Guttag has posted a detailed review of Stanford v. Roche, and provides an argument for the vesting of rights under Bayh-Dole. Guttag argues that the court misinterprets how title works under Bayh-Dole. There’s an interesting comment thread there to check out, too. I’m going to suggest, though, that Guttag has more work to do. We should all be happy, though.
By way of explanation, this isn’t a law blog. It’s a practice blog. If lots of talented people can’t figure Bayh-Dole out, then perhaps the real starting point back a ways: perhaps we’ve got ourselves a bad drafting problem in the law. But I’m not going for the idea that Bayh-Dole was intended to be so obscure only attorneys have a right to read it and understand what it means, and if they disagree with one another (meaning even they can’t make sense of it), it has to be in a dispute rather than a consideration of what would best serve practice, and then it’s about being on the winning side rather than informing practice. And oh, if you are in the practice community, the implication is, STFU. It’s not a good thing for practice, messy and imprecise and untrained in legal stuff as we may be. It’s not a good thing for Bayh-Dole. It’s one thing to try whether someone has breached an obligation under the law–but it’s another to try to use the courts to sort out something this fundamental about the law itself. Can so many people for so long have no settled idea what Bayh-Dole requires? The amicus curae brief filed recently by WARF, AUTM, and others argues Guttag’s direction as well. I’ll try to deal with that soon. I don’t find any of it persuasive, though Guttag has produced a nice piece of work.
The “title vesting in contractor by operation of law” (TVinC) argument appears to hinge on what “elect whether or not to retain title” means in 37 CFR 401.14(a)(c)(2) (and similar language elsewhere). At its core, the argument goes, this has to mean that the contractor already had title in order to elect to retain it, or else “retain” would mean something else, and that would weaken the argument, so we can’t allow that. Bother.
Let’s trot out some other parts of the law, just for the joy of it.
37 CFR 401.9: “Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention….” How can employees “retain” rights when they have never had them to start with? According to the TVinC argument, there are no rights for contractor employees to “retain” because “retain” means “the university had the rights already”. But here we have the law seemingly ignoring that point, and suggesting that if employee/inventors can “retain” rights, then it is they who hold them already. Gosh, that’s hard.
37 CFR 401.10 [pertaining to co-invention of subject invention with federal employees]: “…the Federal agency employing such co-inventor transfer or reassigns the right it has acquired in the subject invention from its employee….” Here we find that federal employees apparently own personal rights in their inventions, even when made along with Bayh-Dole funded folks. It’s not that this says that those Bayh-Dole inventors ever had any personal rights, but oddly, the federal employee co-inventor seems to, since the agency has to acquire the rights and (note) re-assign them. One might say, you can’t re-assign something if you haven’t had it assigned in the first place. Doesn’t appear for at least some federal employees that there’s any outright employer vesting. How very strange! Federal employees hold personal rights subject to obligations to assign to their employer the Government, but private folks working on a government-funded contract don’t have any of those rights under Bayh-Dole? What a strange way to handle it with co-inventors. But law is strange, and this one in particular gets more and more peculiar. Perhaps the TVinC isn’t a dead parrot yet.
More. Let’s go back to those “written agreements” in 37 CFR 401.14(f)(2). The contractor must require its employees (not others, apparently) by written agreement “to disclose promptly…and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.”
Prompt disclosure may be important to ensure timely filing of a patent application, but why does this have to be a written agreement? Couldn’t that as easily be wrapped up in the “employment agreements or other suitable educational programs on the importance of reporting inventions…” addressed later in the same paragraph? That is, just a notice and some punchy training is all that is required for disclosure, not a separate written agreement that apparently is not the employment agreement and is not merely reference stuff. Further, note that there’s no requirement to assign invention rights to anyone stated expressly here. This is something the TVinC folks might jump on–“it’s merely pining for the fjords”.
But before doing that–jumping rather than pining–let’s look at how assignment is, apparently, dealt with here. One might expect that “execute all papers necessary to file patent applications” might mean stuff like the declaration and oath. One might wonder why Bayh-Dole goes out of its way to regard formalities like that, when according to the TVinC argument, ownership vests by law in the contractor. Certainly the “papers necessary” can’t include assignment documents under the TVinC reading, because those would be “papers superfluous”, since the university already has title (so it goes). Why does Bayh-Dole then (apparently) regard as important the signatures of inventors that they are the true inventors but not any personal ownership interest in what they’ve invented? Why not, say, just appoint the contractor as having power of attorney to represent the inventors in all such things and be done with the inventors? Or just say that all patents issued under Bayh-Dole shall be issued in the name of the contractor unless the contractor transfers its rights as provided by the law? The law can do odd things. That must be it.
Finally, we can look at the papers necessary “to establish the government’s rights in the subject inventions.” So what papers are these? If the inventors never owned nothing, what business does the government have worrying the inventors for rights? Why does the government need the contractor to obtain written agreements about this? I’m not tracking the line of reasoning. If the contractor has the rights outright when a subject invention is made, and giving notice to retain title just keeps the title train from rolling on to the agency, why have all this apparatus? A case of over-drafting just to be safe? Is it a dead parrot yet?
We can see other indications that things are not all that rosy for the TVinC argument. In 37 CFR 401.14(f)(1), the contractor is to “execute or to have executed…all instruments necessary to (i) establish or confirm the rights the Government has…to which the contractor elects to retain title, and (ii) convey title to the Federal agency when requested … and to enable the government to obtain patent protection….” If the contractor owns, and later the contractor is to have written agreements covering inventors’ last rights, what is the point of “have executed”? Who is doing the executing here, if not the contractor? If the contractor assigns, then all this flows down to the assignee (37 CFR 401.14(k)(1)). This all makes sense if title doesn’t vest with the contractor, but provisionally with the inventors. The logic is: first the contractor must protect the government’s interest when it elects title, and second, the contractor must insure its employee-inventors protect the government’s interest.
Why is there nothing in Bayh-Dole requiring employees to assign? The TVinC folks have it easy here. They might say, “because the ownership never vests in the inventors. The law says “elect to retain title” and that means title must have been already vested.” One might wonder why 35 USC 261 didn’t take a call out that rights are personal except when there is federal funding under a contract with a university when Bayh-Dole was passed. But it also may be that assignment is not directly addressed by Bayh-Dole because it does not need to be (because those procedures are already in place, under 35 USC 261 without any modification), and further, the pathways of assignment that protect the government’s interest do not need to run through the contractor, and therefore it is not of interest to the law to stipulate any particular arrangement. Bayh-Dole gives university contractors choice in the matter. What it so odd is that the universities–at least some of them–appear to be fine with trying to argue that there isn’t any choice, at least as to initial vesting of title.
The argument for TVinC then is, “yes, there’s a lot of unnecessary apparatus in Bayh-Dole. That’s a defect. It just specifies a bunch of things that never need to happen.” That’s some comment on the drafting, right there, if it goes this way–if not a indictment of the interpretation.
What’s bothersome then is why Stanford went off and asked for an assignment from the inventor, only to have a court say it was void because of the present assignment of future inventions left nothing to assign. If Bayh-Dole says rights vest in the university when an invention is made, as TVinC folks argue, then why is Stanford off getting an assignment? Of course it would be void! It would be void because Bayh-Dole itself said the inventor had nothing to assign. I don’t get it. 29 years of practice and the universities haven’t realized that they own stuff outright? What a new surprise! Gosh, darn it! And even the PTO didn’t bother to point it out. Federal agencies just let it go on and on, universities rustling up inventor assignments to convey title to universities when the universities owned stuff already. A three-decade easter egg right there in the law. Not sure anyone should buy this.
Let’s reprise an alternative. Even if TVinC were viable, someone ought to show how it is both a sufficient and necessary reading, not just assert it and say everyone else has got it wrong. That’s a power play, and there can be reasons for that, but it isn’t well reasoned. The apparatus in Bayh-Dole, and the various references I’ve called out, that the TVinC argument turns to mush, makes sense if “retain title” means that the contractor may step in to take assignment of subject inventions ahead of any agency claims. To secure that title, assignment must be made, as one would expect following 35 USC 261.
To ensure that assignment when requested, we need written agreements with research personnel, not simply to look out after the contractor’s interests, but also the government’s, depending on how title is managed. If the contractor doesn’t elect to retain title, then it’s the agency’s turn. If it requires title, then the written agreements preserve the government’s interest by requiring assignment to the government–and the other things that go with filing patent applications.
This is consistent with how Bayh-Dole handles subcontracts dealing with IP. The obligation passes down, forming a new contract between the subcontractor and the agency, without the prime contractor having anything to do with it. For the flow down of interest from the government to the contractor’s inventors, the contractor’s employment agreement won’t do. Even the contractor’s IP policy is likely self-directed. If anything, it is the contractor’s research policy that requires its personnel to comply with the requirements of extramurally sponsored research that matters for the written agreements required under Bayh-Dole. In the TVinC reading, none of this apparatus makes sense. In the reading based on agency rather than vesting, it does. Or it appears to. Or, you know, this law is strange and big forces are at play.