Under strictly controlled conditions…

I want to discuss a relatively obscure bit of Bayh-Dole. It is found in section (e) of the standard patent rights clause, our old friend at 37 CFR 401.14(a), with my bold for emphasis:

(1) The contractor will retain a nonexclusive royalty-free license throughout the world in each subject invention to which the Government obtains title, except if the contractor fails to disclose the invention within the times specified in (c), above. The contractor’s license extends to its domestic subsidiary and affiliates, if any, within the corporate structure of which the contractor is a party and includes the right to grant sublicenses of the same scope to the extent the contractor was legally obligated to do so at the time the contract was awarded. The license is transferable only with the approval of the Federal agency except when transferred to the sucessor [sic] of that party of the contractor’s business to which the invention pertains.

Section (e) deals with the rights that a university has after the government has obtained title.   The first bit of (1) is that the contractor gets a royalty free non-exclusive, except if it has messed up on reporting. That license is subject to revision if it is not used and the government wants to grant an exclusive license. But the really interesting stuff is in bold. Even if the government takes title, the university has not only the right to practice the invention, but if it pre-obligated rights in subject inventions before the federal funding agreement came into existence, it also has the right to grant sublicenses for what has become a government property.

Let’s say a university is working with a company under a sponsored research agreement, and under that agreement the university has agreed to grant the company at least a non-exclusive license in any future inventions arising from the research. Now one of the faculty investigators in that work, under strictly controlled laboratory conditions, does what he/she darn well pleases, and gets a federal grant in the same area and, yes, invents. Whatever happens with title, the standard patent rights clause says, that deal with the company is still good. That license contract isn’t voided by Bayh-Dole.

Now imagine in a variation that one of the investigators acting with the approval of the university obligates his personal future patent rights to a company and then under the same strictly controlled laboratory conditions does what he darn well pleases and gets involved in federal grant and invents. Those are personal rights that the university could otherwise claim for itself and then obligate to the company, but for convenience lets the employee obligate them in their personal, rather than university-administrative state.

Well now, (1) there is obligation with regard to a license that pre-exists the federal award, and (2) the university at any rate is bound by the act of its employee as its agent for his personal rights, and (3) therefore regardless of what happens with title, whether it vests in the university automagically or it goes to the government, it would appear that under (e)(1) the university retains the right, through a non-exclusive license to grant the effect of title to the invention rights of that employee. Further, under (e)(2), that license and sublicense is not revocable by the government if the licensee or sublicensee has achieved practical application in a given area.

The effect of this section (e) is to say: if the university has a collaboration with companies, then the standard patent rights clause should leave those commitments alone everywhere they meet objectives of Bayh-Dole (like, practical application with benefits to the public). But also:  even where the government obtains title, the government should forego exclusive licensing if the university already has something in play. The policy bit is, if there is something in play non-exclusively then the argument about needing exclusive rights to attract invention doesn’t hold up, so put that bit aside.

What is the consequence? The government gets title and there is still a standing license pipeline under the standard patent rights clause to companies to which the university has made commitments. One situation would be the creation of an industry consortium hosted by the university. The practice point here is:  make absolutely sure (if you are companies) to create the consortium with its commitment of at least a non-exclusive license *before* the university goes and gets the federal funds. Do not wait for the federal grant to come in or you are pwned. Or, rather, you have lost the benefit of the standing license you would otherwise have under the standard patent rights clause.

I figure you see the shape of the argument. Research employee at university commits personal future invention rights to company. University approves via policy and knowledge of its employees this arrangement. University therefore has participated in granting rights (in the form of title). Now university gets federal funding, and its folks, including this research employee co-invent. Bayh-Dole! Standard patent rights clause!  Subject invention! Elect to retain title! (f)(2) is a hit! All that. But also, the *university* has this outstanding commitment to the company. The standard patent rights clause says:  you can honor that commitment to at least the extent of a non-exclusive license so long as that commitment was in place when the federal funding agreement began, regardless of where title ends up as between the government and anyone that the university designates (including and usually itself) to acquire title.

Following this flow of control, the commitment made by the research employee is not entirely private, but rather is within the context of his university employment, made under the auspices of his employment agreement and the written IP policy that has to function in this case like an (f)(2) written agreement to protect the government’s interest. As such, the commitment is also a commitment by the university.   In the case of co-invention with others lacking that commitment, the university’s obligation in permitting the transfer of title in the interests of one inventor is indistinguishable in effect from an irrevocable non-exclusive license–irrevocable so long as there is practical application and benefit to the public.

What if the research employee was the sole inventor? Then if the university elects to retain title under the standard patent rights clause, its pre-committed rights come into play. Under (k)(1) it can assign its Bayh-Dole rights to the company if that company has as one of its primary functions the management of inventions–which it does.  Under (e)(1) it can grant a non-exclusive license and agree not to grant any other non-exclusive licenses, and that grant will be irrevocable against any future government claim so long as there is practical application with benefits to the public.

So even if Bayh-Dole were a vesting statute and there was for some reason no obligation for just consideration, it would not have any material effect on the commitment the university through its research employee has made with the company. At the very least, the company has a license.  More broadly, in the case of a sole inventor, the company has a case that under (k)(1) the university must assign title to the company. Just that the (k)(1) assignment comes with Bayh-Dole obligations, which would have to be considered relative to the obligations that come via a license or sublicense (depending on where title is).

If one follows this line of development, it doesn’t much matter whether a commitment of future rights is a promise to assign or present assignment–scope matters, not form; and it doesn’t much matter whether Bayh-Dole is a vesting statute or a re-scoping statute or a regular old federal contracting statute–a university’s contractual obligations for future rights is not canceled by the standard patent rights clause.

It comes down to: if a university wants the entire title to a subject invention, then it has to conduct its affairs to make that result happen. It is not handed to the university by *any* interpretation of the standard patent rights clause. Further, as far as government policy is concerned, if there is practical application with benefits available to the public, there is no need to continue to argue for exclusive rights to title or to licensing. Needing a monopoly to attract private investment is simply moot at that point, so give it up. It is really important that Bayh-Dole distinguish between a bona fide need to attract private investment and a plain, earthy desire to make money by creating a monopoly position after stuff is already in play. That is, to get money by blocking the work of others.  At that point use = success, and the government’s objective is met. Nothing Else Matters.