[Revised 9/11/2019 to clean up the option theory].
I have been looking at this paper from 2002: “Academia, Industry, and the Bayh-Dole Act: An Implied Duty to Commercialize.” I’ve seen it before and always shied away from commenting, but with all the buzz about Bayh-Dole around things like Stanford v. Roche, maybe there needs to be some close look at this kind of article. In general, I have to say that a lot of this stuff is sloppy. The peers reviewing this kind of work need to be something other than sloppy themselves. Indeed, they need extra vigilance. Until the peers are experts, and therefore are competent judges of their own expertise and that of others, peer review is another property of a bozonet. That is, peers of an author, given standing but lacking expertise, just as the author lacks expertise, are just as likely to let through badness and demand the removal of goodness as offer comments for improvement of the article. And they won’t know it. I saw this all the time teaching writing, where in group work students asked to edit were routinely handing out really bad advice about other students’ work. So in the absence of a working peer review function, reviews have to be done in the wild and later. Here goes.
The first sentence gets the Bayh-Dole Act fundamentally wrong. The paper is a waste of time.
The Bayh-Dole Act
fundamentally altered the ownership paradigm of intellectual property developed with federal research dollars, transferring that ownership from the federal government to grant recipients (grantees) and organizations that are parties to government funding agreements (contractors) in an effort to enhance the public’s access to technology developed with federal funds.
This is just wrong throughout. Bayh-Dole did not fundamentally alter the ownership paradigm. It added a layer of administration on top of the “ownership paradigm” that preempted a part of that paradigm–the part where a contractor, to keep ownership of what the contractor had acquired, had to petition the government, demonstrating that the contractor’s ownership would better serve the public interest than the federal government making the invention available to all by dedication to the public domain or a royalty-free non-exclusive license. Furthermore, Bayh-Dole did nothing for federal government ownership of inventions made by federal employees. There, Bayh-Dole established that federal agencies could grant exclusive licenses in inventions it owns–licenses that amount to assignments of the inventions. That was not a fundamental alteration of ownership, but of the authority of federal agencies to deal in patent monopolies with non-federal entities.
Bayh-Dole does not deal with “intellectual property” generally. It deals with patentable inventions and plant variety certificates only. Bayh-Dole is made part of federal patent law. The plant variety certificates should not be there. Only a sleight of hand in drafting shifted “variety of plants” in a list of patentable subject matter to plant variety protection, which is not patentable subject matter.
Bayh-Dole does not “transfer” ownership of inventions. It preempts federal laws that provide for the federal government to acquire inventions made in specific areas of federal research–mainly within the provisions set out by executive branch patent policy under Kennedy and Nixon. That is, Bayh-Dole adds another layer of administration to research administration. There have to be *two* patent rights clauses attached to each funding agreement. One, if the contractor does not acquire a given invention, and another if the contractor does. Except Reagan amended executive branch patent policy to force all funding agreements to follow Bayh-Dole (but for the part that preempts federal law, which an executive order can’t do) and the Federal Acquisition Regulations replaced the Federal Procurement Regulations and failed to include the FPR patent rights clause for inventions a contractor does not acquire. What a botch!
In any event, the paper is wrong on the transfer of ownership. This issue was fought out at the Supreme Court in Stanford v Roche (2011) and the Court was clear that Bayh-Dole did not relieve inventors of their right to their inventions.
The way I thought about in 2010 when I drafted this article was that for some of its research contracts (with nonprofits, in areas of public health or safety, where the government was developing a technology for public release, where the government was the dominant funder or user) the federal government had the option to acquire title of inventions within the scope of executive branch regulation or federal statute, but had not requirement to exercise that option in any given case. A contractor, for instance, could petition to retain ownership if it had acquired ownership, or an inventor could make the petition if a contractor had not acquired ownership. The government then could decide whether the petition represented better service to the public than open access and either grant the petition or exercise the government’s right to acquire.
Bayh-Dole, in this reading, transferred the government’s option to acquire any given invention to the contractor, so the contractor could stand in for the government and request ownership from the contractor’s inventors, as if the contractor were the federal government. The Supreme Court never considered this argument–but I expect would have made the same argument if it had–if Congress had intended something of this nature, it would have made its intentions clear: “Federal agencies may deputize research contractors to exercise the government’s right under federal law or regulation to request title to inventions made in work receiving federal support, so that contractors may act in their own interest to obtain that title but in doing so relying on the erstwhile federal authority vested in them by federal agencies through a standard patent rights clause.”
But it is even odder than that. Bayh-Dole provides that a contractor may add more contractors to a funding agreement by any assignment, substitution of parties, or subcontract of any kind. Thus, a contractor may make its own employees parties to a funding agreement, and if it does so, those employees are also contractors and they end up with the same right as the employer, to retain title to the inventions they make. This all gets mixed and sorted in Bayh-Dole’s implementing regulations. The implementing regulations purport to require employers to make employees parties to the funding agreement by requiring employers to flow down patent rights clause requirements to employees. Thus, even if the option theory had been intended, it would work out that inventors had the option to retain their inventions, and employer-contractors would have been prevented from intervening to prevent that option from operating by asserting their own option. What a mess of a law.
Bayh-Dole’s “effort”–its statement of policy and objective–is to use the patent system to promote use of inventions arising in federally supported research. Use becomes “utilization” and “utilization” becomes “practical application”–use with benefits of use available to the public on reasonable terms. There’s nothing in Bayh-Dole that requires commercialization to achieve practical application, mandates commercialization, or encourages commercialization, or implies commercialization. At best, Bayh-Dole anticipates that there may be commercialization. Kennedy and Nixon executive branch patent policies provided two alternatives–broad non-exclusive licensing of an invention or achieve practical application. Neither required commercialization–one could use commercially (not the same as commercialization) or non-commercially (that is, provide benefits of use without selling anything). Research uses, uses by professionals, uses in standards. That sort of thing–which happens all the time, but for patents used to exclude and suppress such activity.
That should be enough. The rest of the paper is wrong. There’s not an implied duty to commercialize in Bayh-Dole. Universities, when they take ownership under protocols of Bayh-Dole, undertake an express duty to use the patent system to promote the use of the invention. There’s no secret implied meaning that promoting use means commercializing. If a university asserts this is their goal, then fine, that’s an assertion. But don’t pin it on the law, and certainly not as the secret unstated desire of the law. Hmpf.
Let’s be clear. Bayh-Dole doesn’t transfer ownership to grant recipients. Grant recipients obtain ownership in a conventional way and then may exercise protocols available to them under Bayh-Dole. The transfer of ownership in inventions is from the inventors to the grant recipients or to whomever the grant recipients has a right (by arrangement with the inventors) to designate. That transfer happens by written assignment. Bayh-Dole allows grant recipients to step ahead of other federal law or regulation and have standing to retain title to inventions that it has received from its inventors. Huge difference. It’s not the law that does this, it is a contractor’s administrative choice.
Furthermore, the effort of the Act is not to move research technology to the public domain (for public access), but rather to use the patent system to promote the use of federally supported inventions. That’s not a policy of the public domain but of the patent system. It makes sense, given Bayh-Dole amends federal patent law. In the case of medical technology, those doing the development may be especially well trained and equipped to teach and enable the use of what they develop. How could one say otherwise in general? That the surgeon who develops a new stent isn’t qualified? No, there’s a difference between mass production and regulatory approvals and being ill equipped to provide the public with access. But these are nits, perhaps. I don’t see in Bayh-Dole a goal of *increasing* public access. Check for yourself: here. It may be that an argument used to pass the law was that there would be more public use, but it’s not in the law. There’s a difference between arguments used to get the votes to pass a law, and what the law itself sets out as the law. Hmpf.
The upshot of this paper is that federal contractors have an implied duty to partner with industry to commercialize “promising federally funded research.” They don’t. They have a choice about it, not a duty. They don’t have to commercialize at all. They can make inventions freely available (even having obtained a patent–to establish a standard, to cross-license into a commons, to set up profitable opportunities based on use rather than suppression of use, to–and this for nonprofits–to serve the public without giving priority to its own financial interests). Or, a contractor can hand stuff off to others that do any of this. That’s not commercializing–it’s protecting the government’s interest as set out in Bayh-Dole’s statement of policy and objective. The government’s interest, once a contractor obtains ownership of a qualifying invention, is just what Bayh-Dole sets out for it–such as to use the patent system to promote use of each invention. That’s not necessarily commercializing. Not necessarily making product for sale, not necessarily creating a mass-produced version of the product, not making the product a commodity. Companies can just use the inventions and not make products. Methods to improve safety or production, or use in research. Not commercialization. Even in use by companies. Not the same thing. Not required. It’s a choice.
The paper has many flaws. It’s not my place to work through them all. The central flaw, however, is the displacement of practical application with commercialization, and then a selective slog through the law to find support for this reading. Badly reasoned, poorly annotated, not persuasive. I’m sorry.
The objectives of Bayh-Dole list a number of objectives. Commercialization is mentioned as something in parallel with “public availability.” Practical application plays a much greater role, is given a definition, and tracks the overall goal of promoting use. The law also encourages nonprofit-industry collaboration, especially through small companies, and support for US manufacturing. But commercialization is not the same as practical application. And collaboration isn’t secretly and implicitly licensing for product development. Practical application encompasses all sorts of beneficial uses, and does not require that products be made and sold. A company might self-implement an invention, realize benefits, and pass these along to the public, without any product being made whatsoever. And companies might collaborate with nonprofits to do this. The internet is an example, with many inventive technologies federally supported and deployed without commercialization. That’s because they became standards, not products.
We see the authors of our paper conflating commercialization and practical application: “In addition, the Act mandates that contractors take necessary steps to commercialize any discoveries or inventions resulting from federally-funded research….” This mandate simply is not in the Act.
The Act: “to promote the commercialization and public availability of inventions made in the United States by United States industry and labor.” This is one of eight or so objectives along side: “to promote the utilization of inventions arising from federally supported research” and “to ensure inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery” and this: “to…protect the public against nonuse or unreasonable use of inventions.”
There is an express duty to work within Bayh-Dole’s statement of policy and objectives, as well as within the patent rights clauses authorized by the law. The defaults of the law are the standard patent clause at 37 CFR 401.14 (small companies, nonprofits, and nuclear energy research) and 37 CFR 401.9 (inventors). It is placed in the context of federal research grants to nonprofits by 2 CFR 200. A university comes conditionally within the scope of the law when it accepts federal funding carrying the obligations of 37 CFR 401.14 (as implemented via 2 CFR 200.316) as a federal contract. At that point, the university has an obligation to comply with the contract to achieve its objectives. If a contractor, having obtained title to an invention, thereby making it a subject invention, elects to retain title to that invention, then the contractor also accepts additional, express duties with regard that invention (duties that vary with the patent rights clause involved). Apparently the authors want it to be that regardless of the express statements of the Act, including a set of objectives, a concocted implied duty is that only one of these matters objectives really matters–to “commercialize” inventions.
The authors want march-in rights to be more fodder for the implied duty to commercialize, but even in their development they use “practical application” which is a different, broader thing, of which commercialization is only one way. But march-in rights are much more directly dealt with in the Act, to protect the public from non-use or unreasonable use. If there is use, and it is reasonable, we are done. But not if there’s an implied duty to commercialize, or, that the law hints at something it doesn’t come out and say but that anyone reading this paper would realize is also part of the law. The authors call this “use it or lose it” policy. Yes, but they never can connect up use and commercialization.
We can see how different use and commercialization are in the Act by looking at the chain of decisions that result in the inventors retaining title to their inventions. If the contractor does not obtain title, and the federal agency chooses not to require assignment of title, then title stays where it always was, with the inventors. Under the implementing regulations of Bayh-Dole, inventors, treated as small business contractors but with their own patent rights clause, may elect to retain title under Bayh-Dole’s general provision pertaining to contractors–35 USC 202(a). Failure to achieve practical application does not cause a loss of title, but creates a conditional obligation to accept a government-imposed licensing. The difference is pretty clear.
The authors argue that that “ultimate goal” of Congress is that “federally funded inventions are made available to the public, for the public’s benefit.” That’s silliness because if it were the case, inventions would be dedicated to the public domain, where they could be had by all. The authors then have to create the illusion that “for the public’s benefit” means “held exclusively by companies then able to charge monopoly prices and suppress all other use of an invention (including all variations, all research uses, all differing product specifications).” That’s not so much “commercialization” as it is “speculation on public needs enabled by a flawed interpretation of a suck federal law.” By “ultimate” we must infer the authors mean something along the lines of “not stated in the law, but sure helps our argument if you pretend it’s there.” Again: Bayh-Dole says that the objective is to use the patent system to promote the use of inventions made in research supported by federal funds, with some things that follow from that. If the government wanted the public to have free (no assertion of rights, no charge) access to the inventions, it would have required publication of all invention reports and access to the inventive labs for a period of time so the public could come and gawk and fill their pockets with as much access as they could carry. No need for patents.
The authors conflate invention, technology, patents, and products. Making it simple like this gives them a plausible argument to discover “ultimate” implied duties. But the conflation does a disservice to Bayh-Dole and to technology transfer practice. Where it may take a lot of specialized resources to get a new drug approved, it may take very little to implement a new disease assay, and in fact, we find that university lab medicine personnel are just as good if not better at doing so than their industry counterparts. While the lab medicine doctors might not be able to come up with branding, or restrict a given invention to a particular product form easy to manufacture and designed to maximize profits, they are way better at practical application and are much the better route to public benefit.