I worked through the MIT amicus brief in Stanford v. Roche. Better than AUTM and WARF. In brief, it wastes time on stuff that doesn’t relate, such as how important government research is to MIT. Instead it should focus on the standing of Stanford’s argument for a “second right of refusal” within Bayh-Dole, and how that plays against prior, apparently valid contracts under which patent rights are disposed.
The first part of the brief focuses on the importance of government sponsored research. We can dispense with this stuff. It doesn’t matter. The brief fails to make a connection between the provision of government research contracts and the management of resulting patent rights. Similarly, the brief fails to connect Bayh-Dole to global university rankings. Similarly for the history of Bayh-Dole, which conflates ideas and inventions, publication and commercialization. The upshot of this part of the brief’s argument, put crassly, is that justice should serve the money-making agenda of university administrators.
Because the brief presents a case for public policy by a leading university, it should matter a lot for folks working in research IP management as it shows the attitudes and quality of the thinking that goes with this territory.
It’s worth noting three aspects of this first part of the brief. First, it tries to argue that the agencies had commercialization problems because of their differing patent policies. But it was the few universities who were trying to work out invention management agreements with those agencies that were having the problem. It wasn’t an issue of industry access, but of who could be a broker and under what conditions. It would not be a problem for any company desiring patent licenses to practice, unless it wanted to be a commercialization agent and needed rights from multiple agencies to get exclusivity. But anyway, it’s all a big non sequitur in the brief.
Second, the brief tries to associate the rise in technology transfer offices with technology transfer itself. All of this is not relevant to the case. But even if it were, the brief merely makes an assertion. There are no data. It is not available. The conflation is that patent licensing = technology transfer. Patent licensing is a poor proxy for technology transfer. There are many other ways that a research discovery can come to be used. Indeed, holding unlicensed research patents could easily be used as a proxy for barriers to use. Going this way, the growth of university licensing operations, all with more unlicensed patents than licensed, would show a huge expansion of barriers to use rather than something wonderful. The point is, without data, none of this matters. And, oh, for the case at hand, it doesn’t matter anyway.
Finally, the chart on economic activity. It represents nothing more than multiplying the reported licensing income from all sources (not just patents, not just patents on subject inventions) by the reciprocal of assumed royalty rates. Since many inventions earn only income in the form of upfront payments and patent-cost reimbursements, payments often do not reflect sales at all. Further, the sales may be displacing other sales, so there may be no net gain in the GDP as one technology is substituted for another. And in any event, $186.6 billion contribution to GDP over 12 years is tiny. The GDP for 2007 alone is $14T. At best, we are talking about an economic contribution of 0.15%, and more likely closer to 0.02%. If the GDP is a big juicy 9″ apple pie, then the MIT amicus brief claim for importance of university patent licensing is on the order of a large fruit fly egg. That’s what we are getting all horsed up about here. Whew. Wake me when it is over.
While the first major line of argument, that Bayh-Dole is important to research and innovation, is simply not relevant, the second argument, that the Federal Circuit decision undermines Bayh-Dole’s “clarity of title” is wrong. Let’s have at it.
The brief aims to read the law so that 1) “retain” must mean “own”; 2) assignment is controlled by agency approval; 3) that the court’s decision “does violence to the language, structure, and objectives of Bayh-Dole”.
Bayh-Dole operates through federal contracts. It is a law harmonizing federal contracts procuring patent rights, and therefore is placed in the patent law. To understand the “chain of title” one has to look to federal contracting. That’s why 37 CFR 401.14(a) exists as a standard patent clause. That’s why it is incorporated into Circular A-110 at __.36.
Here is how things operate. Title to subject inventions vests in inventors per normal patent law until assigned. Research inventor employees are required to have written agreements to protect the government’s interest. The government’s interest is that absent any other conditions, the government may obtain title or otherwise dispose of the inventions as it will. Bayh-Dole says that the university, if it obtains title to a subject invention, may choose to stand in for the agency and dispose of title, subject to conditions. If the university does not elect to retain the title it has obtained, then the written agreement binds the inventors to assign title to the government upon request. The written agreement is the operative instrument. The law establishes the framework for disposition of title. The implementing regulations create the mechanism–federal contract–and within that, the means by which title to inventions–personal property–is obtained from inventors to be used for public purposes.
Note: Bayh-Dole never says the university has title or even elects title. The law says the university may “retain” title, or “elect…to retain title”. It does not say “own” or “have title”. If the drafters had wanted “retain” to mean “own”, why they were capable of using “own” but they don’t, and there are good reasons for that.
Note: Bayh-Dole’s requirement on written agreements applies expressly to university employees. The law is silent on non-employees and expressly excludes clerical and non-technical employees. If a non-employee participates in a funding agreement and co-invents, there is nothing overtly in Bayh-Dole that places constraints on that non-employee’s title to the invention. If the drafters had wanted to restrict federal research so that no one other than university employees could participate, they could have done so. But they didn’t, and there are good reasons for that, too.
We have dealt with the “retain title” argument elsewhere. Retain as in attorney, not as in water. Title is something the university doesn’t have any right to until it elects to retain it, and then has it only when it does what is necessary to get it. The amicus brief knowledge of how Bayh-Dole operates is defective. Electing to retain title does not mean there is any title to be had. An invention disclosure may turn out to be not patentable–prior art, publication, technical flaws in the application. Then what title did the university retain? Nada. It obtained a non-title. What it got was the standing to try.
There are other situations when this also may occur. For instance, if a co-inventor is not a university employee, then the university may not have any written agreement under which it can require assignment of title. It may obtain an undivided interest in the invention, but not ownership outright. In such a case, the university can grant licenses all it wants, but those licenses cannot be exclusive, and it cannot sue any joint owner for infringement. One might see this situation is remarkably close to the Stanford v. Roche situation, and moreover *it happens all the time*. And when it does, it *does no violence to Bayh-Dole*. For that matter, no university has been screeching about it all these 30 years! Why is that? Because Bayh-Dole does not preclude such things. Further, preventing companies from holding an interest in federally supported inventions is *not* an objective of Bayh-Dole. It appears to be an objective of MIT, however, which makes it fascinating that such an elite university would end up coming out with a reading that is so openly anti-inventor, anti-industry, and anti-Bayh-Dole.
The amicus brief then argues that (i) if the university does not elect to retain title, (ii) then the fact that the inventor may request to retain title somehow shows that (iii) the inventor never had title to begin with. How does this logic work? The brief would have it that the inventor must be asking *for title ownership* as if ownership were already some place else, like with the university. For this to happen, the reading has to be, when a federally supported invention is made, title vests without formalities with the university, and then it’s up to the university whether to release the title to the government (by written assignment) or to the inventors (if the government does not take assignment). But for this to be the case, the brief has to argue automagicality. That is, it has to assume title is vested with the university in order to read everything else the way it does.
Alternatively, perhaps the brief imagines that Bayh-Dole creates a kind of title limbo, where title cannot vest anywhere until the university acts, or fails to act. But we see that if the university chooses not to elect to retain title, then it is the written agreements by which title is conveyed *from the inventors* to the government if the agency requires title, not from the university which has waived its interest in retaining title. Otherwise, there would be a ton of formal assignments of title to federal agencies, all lacking any assignment from the inventors to the university, which to my knowledge there are none. Someone should trot one out to explain the practice.
One might go so far as to say title is in limbo until the university elects to retain it, and then it actually vests in the inventor and the university has to retain it by getting the assignment. This would be good enough to say that there is a need for assignment but still say there can’t be any assignment of title by the inventor before that because the inventor doesn’t technically have it. For this to operate, however, we have to get into the metaphysics of title vesting. For now, it’s not in the MPEP. It’s not noted anywhere in US patent law. It would be good for an amicus to work this one through for the courts.
But there are further problems with limbo approaches. What do we do with this: … “‘I agree to assign’… is commonplace form language that reflects the fact that, at the time an individual begins her or his research work at a university, she or he has no invention to assign”? Why should there be any assignment if no assignment is necessary? Why for that matter should the law require written agreements with the employees to protect the government’s interest, if title is automagically with the university? It all breaks down, short of conditional vesting. There’s no reason for anyone to get an assignment of title from inventors if the university already has title.
Following the usual operation of the law, everything is pretty level. If the inventor holds title until required to assign, and Bayh-Dole sets up a contract provision between the government and the contracting organization about who has standing to require such assignment from individuals, then one can see that if the university elects to retain title, this means it has standing to decide on assignment, and if it does not, then the agency has standing to decide on assignment, and if the agency declines to take assignment, then it can decide whether the invention should enter the public domain, or whether it will release its control of title and permit the inventors to retain title (meaning, not lose it to the public domain or to the agency).
It is one heck of a smart, clear, articulate law that makes sense of the range of conditions possible in federal research contracting. I’m in awe the more I work with it.
Let’s turn to two more bits of the brief. On page 13 it makes the argument that there is a prohibition on assigning rights in subject inventions without agency approval, and that somehow demonstrates that the university “will hold title.” But the quote itself gets it wrong–it leaves out a huge qualification, making the limitation on assignment absolute. Look at 37 CFR 401.14(k)(1):
(1) Rights to a subject invention in the United States may not be assigned 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 will be subject to the same provisions as the contractor.
35 USC 202(c)(7) reads the same, with parentheses for a comma in the final conditional clause. The stuff I have bolded is at the heart of Bayh-Dole. It is cutting this stuff out that does violence to the law. It is clear that the law is set up to allow tremendous freedom by the university in assigning title and provisions of Bayh-Dole–that is, assigning the Bayh-Dole rights *established by federal contract*. We see this as well in the subcontracting clause, at 37 CFR 401.14(g).
(1) The contractor will include this clause, suitably modified to identify the parties, in all subcontracts, regardless of tier, for experimental, developmental or research work to be performed by a small business firm or domestic nonprofit organization. The subcontractor will retain all rights provided for the contractor in this clause, and the contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions.
The university as contractor at will can assign its Bayh-Dole rights and obligations to any other non-profit or small business in a research collaboration. Note that the subcontract is not defined as one that must involve flow down of federal funds–so long as the statement of work is within the “planned and committed activities” of the federal award, there’s a basis for a subcontract. Note also that there is no condition that the subcontractor has to have any function in managing inventions. It just has to comply with Bayh-Dole–get written agreements with its research personnel to protect the government’s interest, educate those folks on timely disclosure, designate someone to manage patent matters (doesn’t have to be employees, and if employees, doesn’t have to be administrators). (Furthermore, the university can also assign to for-profit subcontractors, but then must use the proper version of Bayh-Dole applicable to for-profits that are not also small businesses.)
The brief goes on to argue “That prohibition necessarily assumes that the university in the ordinary course obtains and retains title.” You can see how flawed the argument is. First, the brief drops the key element of the clause. Then it twists retains into “obtains and retains”. But in the law, it is *exactly the opposite*. Repeat: There is no automagicality.
The sequence is clear in the law:
1) get report of invention
2) report this invention to the government
3) elect in writing whether to retain title timely
At this point, the university has standing to do the following if it elects to retain title:
4) file patent application timely
5) obtain assignment
6) convey license to the government
But *before all this* or even *during all this*, the university also may:
Assign Bayh-Dole rights, including the right to elect title.
So the university could receive a report of invention, assign Bayh-Dole rights in the invention to an affiliated foundation, and that foundation would follow the sequence above–report to the government, elect to retain title, get assignments and file patent applications. At no point is it required that the university take title, or even decide on title. A university for business or risk reasons could designate an affiliated foundation or any other specialized agent.
More interestingly, perhaps, a university could do this for institutional conflict of interest reasons–where it is conflicted with regard to how it manages an invention between its money interests and its research and public commitments. Oddly, university licensing operations routinely fail to acknowledge any such conflict, though fundamental structure–the affiliated research foundation–was set up squarely with this potential conflict in mind. These days, university technology transfer offices hammer on personal conflict of interest in the form of university inventors with an interest in developing their work privately, but not on their institutional conflict of interest, which even extends to their ability to deal with any personal conflict of interest matters.
Back to the simple sequence. A university electing to retain title has to go get that title if it chooses to hold it directly rather than assign it to another organization. In electing to retain title all it has got is standing under the federal contract. Electing title is not *getting it* or *already having it and keeping it* but rather *getting standing for getting it*. It may be now apparent where the problem for practice comes up. It’s really this:
4) file patent application
4) secure assignment
The law doesn’t provide any direction regarding whether one files first or secures assignment first. If one files the patent application and doesn’t have assignment, then there are problems. This is an uncertainty of practice, however, not the law. Every patent practitioner faces this issue every time! Filing without assignment is bad IP joojoo. For an open research environment where personal consulting is not only allowed but encouraged and routine, getting assignment is really, really important. Take it further: if one’s business model requires granting an exclusive license, then even filing without *all* assignments screws up the whole plan.
The aim of the MIT amicus brief is to provide some cover for a practice that fails to get assignment before filing an application. That is, the argument is that the law should protect lapses in practice. To get to this, the brief has to invoke automagicality. Even if the contractor screws up, the law should cover for that. Perhaps it should–but only to protect the government’s interests, the public’s interests. I don’t see why the law should protect any university interest but for the university’s role in being a steward (Circular A-110 __.37) of the government’s interest on behalf of the beneficiaries of the grant in which the invention has arisen.
From this we can turn again to Stanford v. Roche. The brief argues that the Circuit Court failed to take into account Bayh-Dole and should have. The Circuit Court noted that it didn’t see an issue with Bayh-Dole, and that it didn’t have to. The thrust of any good brief should then be to demonstrate not how important Bayh-Dole is with a succession of unsupported assertions and non-sequiturs, but rather how Bayh-Dole actually matters to the disposition of the case.
If we turn to that–which I’ve worked through elsewhere–it would appear the objectives of Bayh-Dole are met by the outcome. Indeed, this is a shining case all around. University-industry collaboration. Invention. Patent system used to support practical application. Product on market. Profits and jobs. Benefit to the public. Full Bayh-Dole compliance by Stanford with regard to its election of title. Timely as all get out, as these things go in biotech. The squabble is over money after success. The government’s interest has been met. The problem is how to patch up a problem in the timing of assignment and filing.
The court looked at it. It goes, there’s an assignment out there by one of the inventors. Stanford knows this guy was consulting for a company directly controlling a key method of the research work. Now there’s an invention with federal support. Follow the action. Find *any* reason to adjust things away from this apparent success. Stanford gets its disclosure, files the application, and then comes back around for assignments. Well, the application counts as conception and constructive reduction to practice, so we have established there is an invention, so there is title at that point. Where is that title? For the consulting inventor, it has to be with Roche by assignment. Honor the contract. So what happens when Stanford comes back for assignment? The inventor has no rights to assign.
The Federal Circuit provides this history of the Stanford sequence:
June 1988 inventor signs Stanford patent agreement promising to assign
Feb 1989 inventor signs Cetus’s patent agreement with present assignment of future rights
May 1992 Stanford files patent application
June 1992 Stanford reports invention to government
Nov 1994 Stanford grants government non-exclusive license
Apr 1995 Stanford elects to retain title
May 1995 Stanford obtains inventor’s assignment
Bayh-Dole says: contractor must elect title within 2 years of disclosure to the government 37 CFR 401.14(a)(c)(2). Stanford took nearly three years to do so. Bayh-Dole says: if contractor fails, then it will convey title (note the verb) to the government upon request (d)(1), but the agency has 60 days to make this request upon learning of the failure of the contractor to elect timely. The agency doesn’t request title.
The big question then is what happens to title if the university fails to comply with the election of title, and the government then does not require conveyance of title? Does the election of title happen anyway? Or has the university blown its chance and title stays where it is, with the inventors, through agency inaction? Or is the only remaining thing that the inventor can request to retain title under 37 CFR 401.9 and the agency after conferring with the university might grant that? If the inventor gets title, and there’s a binding contract that assigns that title to Roche, then that would be the end of it. Note that under 37 CFR 401.9, there is no prohibition on assignments by inventors. The assignment restriction is directed at the university contractor. Funny isn’t it, that if one really traces the title down through Bayh-Dole, with this fact set, it does end up that Roche has it.
The court looks at the agreements in place and goes, Stanford had no standing to hold title until at the minimum it elected to retain title, and that’s long after it should have done so if it wanted to rely upon the federal contract in Bayh-Dole, and the agency took no action to require government assignment of title, so the only document that controls is the assignment to Cetus. Why should that assignment not operate?
Stanford argues under 35 USC 261 that it is a bona fide purchaser of the patent rights, and Cetus/Roche failed to record their interest. The court rejects this argument on the grounds that Stanford had constructive notice of Cetus’s interest, as evidenced by signed MTAs that allocated IP rights, knowledge of the consulting activities of the inventor at Cetus, encouraged by Stanford supervisors, and that these activities directly related to a line of research resulting in the inventions under dispute. The argument is, Stanford cannot go get an assignment from its inventor after already knowing or constructively knowing through its own employees–even if these employees never disclosed the matter to the TLO–of the prior assignment obligation.
The court looks then at Bayh-Dole. What Stanford argues is that after it fails to elect title, and then the agency fails to require title, then Stanford gets a “right of second refusal”. The court finds that Bayh-Dole does not automatically void the inventor’s present assignment to Cetus (made before the federal funding, at that):
“Stanford was entitled to claim whatever rights were still available after the Government declined to exercise its option, including the rights of co-inventors Merigan, Katzenstein, and Kozal. However, Holodniy transferred his rights to Cetus more than six years before Stanford formally notified the Government of its election of title. As previously noted, Stanford’s invention rights policy ‘allow[ed] all rights to remain with the inventor if possible,’ J.A. 743, which supports the conclusion that Holodniy still possessed rights at the time he signed the VCA with Cetus.”
The effort of the amicus brief then has to be that Bayh-Dole can be used to automatically void lawful contracts disposing of assignment. This is the real OMG moment for technology licensing folks. They want the defect to be in the interpretation of Bayh-Dole, but in doing so they do violence to the law and public policy. The defect is in how universities manage consulting policies, delegations of authority for contract matters, the distinction between individual rights and university rights, and the disposition of those rights. Bayh-Dole cannot be interpreted to fix all this without calling into doubt many privately established contracts dealing with invention rights. Think of the uncertainty of title. Company and university person collaborate with consulting agreement. Everything is approved. Six years later, university elects title under Bayh-Dole because work touches federal money, and that outright voids the consulting agreement. The MIT amicus brief asks the court to give certainty of title to the university, and deny it to private companies working in good faith with university personnel through their authorized freedom to consult.
It is a long haul to get here. The amicus brief blows its wad on importance of Bayh-Dole and automagicality. It ought to focus on the disposition of a “right of second refusal” if it is going to take up Bayh-Dole. But to get there, it has to find a way to permit the court to invalidate a prior contract (involving the present assignment of future inventions), and show that doing so corrects an injustice. We have argued that the objectives of Bayh-Dole are met: product benefiting the public is available on reasonable terms. The injustice is perhaps a regret: that an inventor signed away rights that turned out could have been valuable had the inventor and his agent the university been in a position to require a license. I don’t see how Bayh-Dole is done violence by regrets.