Under the standard patent rights clause in Bayh-Dole (37 CFR 401.14(a)), a university taking title to subject inventions is restricted in its use of royalty income under section (k)(2) and (k)(3):
- (2) The contractor will share royalties collected on a subject invention with the inventor, including Federal employee co-inventors (when the agency deems it appropriate) when the subject invention is assigned in accordance with 35 U.S.C. 202(e) and 37 CFR 401.10;
- (3) The balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidential [sic] to the administration of subject inventions, will be utilized for the support of scientific research or education;…
First, the university must share royalties with the inventor under (k)(2). Under (k)(3), the university can subtract “expenses incidental to the administration of subject inventions”. These expenses include payments to inventors. Anything money remaining is to be used for “scientific research or education”.
Let’s note some things. First, there is no provision for using royalties from subject inventions to support *parts of technology transfer other than those devoted to subject inventions.* An audit would need to show that there’s sufficient accounting to show that funds are not being used for, say, other university-claimed inventions. I wonder how many universities would pass such an audit. Not many.
Second, there’s the use of any funds remaining “for scientific research or education.” There’s two ways to read this: “for scientific research or for education” or “for scientific research or scientific education”. It would have been much clearer if the wording were “education or scientific research”. A drafting tip when the law goes in for its 60,000 mile tune up.
Given the tremendous effort that universities have undertaken to get money for their patents, is it worth the effort? What do the universities spend all that money on? Oddly, hardly any of them report their expenditures of royalty income remaining after costs. One would think with all the pain they’ve caused, they would person up about it and show everyone that it was all for great causes. But nary a word in annual reports from technology transfer offices, nor in university general financial reports. An audit would have to look at whether the remaining funds were used in scientific research. That would appear to exclude research of other kinds, such as in the humanities or arts. One wonders whether engineering research is also scientific. One would hope the scientific research was really important stuff, and not, say, just bottom of the barrel stuff not worth anyone’s time.
With regard to education, I don’t think it cuts it to say that anything at a university is “education” because it is the mission of universities to “educate”. That reading isn’t indicated because then scientific research would also be education, and these are clearly intended to be two distinct alternatives. One might say, then, anything at a university other than scientific research, and so those humanities and arts projects are back on. I think, however, the aim of the clause is to be more focused on support for instruction and student learning, and at least one ought to start there before moving further afield into things such as administrative travel budgets.
Nothing in Bayh-Dole restricts the use of remaining funds to the university’s own programs. Yet I have never seen, in my 20 years of being involved in technology transfer, a university allocate any of its royalty income to support scientific research or education outside its own programs. Sort of sad, that for all the effort, the beneficiary that the university most likes is itself, even when it is supposed to be acting in trust under federal funding guidelines for the benefit of others.
I wonder, since this is a wondering piece, whether naming a worthy beneficiary for a particular patent or set of patents might give some organizations a bit of incentive to find a way to pay a royalty. What if a university said, “Here are some cool basic patents on subject inventions… we think that after costs, all the proceeds should go to this high school down the street, to support their education, or to this summer music camp, or to this foundation doing scientific research on the causes of a rare disease.
Maybe if the university wasn’t so obviously in it for their administrative, unreported slush budgets and instead became the advocates for others–even allowing licensees and the inventors help to identify worthy beneficiaries–maybe then it would be a bit easier to negotiate those royalty-bearing deals. Maybe then folks would have less worry about the way universities were going about handling their patent licensing. Maybe then inventors and licensees might choose to identify the university as that beneficiary. Maybe that would be the best feel-good a tech transfer officer could have.
But then, we know from the grizzled experts of technology transfer (I hear this from them, anyway) that it’s a hard-ball game played against entrenched corporations, and to get at them you have to be ready to litigate to “protect your rights” or they “won’t be worth anything”. Funny, I don’t believe that argument, and furthermore, I don’t have any respect for it.
So here’s hoping that the federal government, or the state government for public universities eventually rolls out the audit wagons for compliance with how universities allocate their expenses for the management of subject inventions (can’t just be a % of the take unless that % is always *less* than the actual expenses) and it has to be separately accounted from any other invention management expenses (so, no recovering the costs of patenting other inventions from royalties from subject invention patent licenses), and how they allocate their remaining funds.
Short of the audit, wouldn’t it be fine to see a university grow its administrative heart three sizes in a day and dedicate some or all of the revenue from some subject inventions to community organizations that meet the requirements of Bayh-Dole? My sense is, that would get a whole lot more folks bought in to the idea of using patents from research to promote good things in society.