I would like to expand on what used to be OMB Circular A-110. Section .36 deals with intangible property. Bayh-Dole via 37 CFR 401 is incorporated by reference at .36(b).
At (d), there is this text:
Title to intangible property and debt instruments acquired under an award or subaward vests upon acquisition in the recipient. The recipient shall use that property for the originally-authorized purpose, and the recipient shall not encumber the property without approval of the Federal awarding agency. When no longer needed for the originally authorized purpose, disposition of the intangible property shall occur in accordance with the provisions of § 215.34(g).
The first sentence is rather interesting. It says that title vests upon acquisition. Not at all clear what “acquisition” might mean, but it appears to be different from “upon creation” so there is some other step necessary for a recipient to do what is necessary to obtain title. I believe this text references the same mechanism as in Bayh-Dole, that the agency has the ability to take delivery of title, but will not exercise that right on those things that the recipient acquires. The language here says, for those things, title vests with the recipient when the recipient does what it takes to “acquire” what it wants to retain.
215.34 addresses equipment. (g) has to do with disposition of equipment no longer needed for the grant. It’s a long provision, so I won’t quote it all here. The upshot is that nearly none of it seems to apply to intangible property, let alone inventions, and much of it outright would appear to be displaced by Bayh-Dole’s precedence clause at 35 USC 210.
Intangible property gets a definition at .2(s):
(s) Intangible property and debt instruments means, but is not limited to, trademarks, copyrights, patents and patent applications and such property as loans, notes and other debt instruments,lease agreements, stock and other instruments of property ownership, whether considered tangible or intangible.
This is a really broad definition, but it is clear that patents and patent applications are expressly listed. Further, a university’s interest in these items includes lease and “other instruments of property ownership” which may extend to present assignments of future inventions.
.37 starts out:
Real property, equipment, intangible property and debt instruments that are acquired or improved with Federal funds shall be held in trust by the recipient as trustee for the beneficiaries of the project or program under which the property was acquired or improved.
My emphasis, of course. This is the condition that folks don’t pay attention to. One argument might be that it, like .34(g), is preempted by 35 USC 210 when it comes to inventions. However, it does not appear that it has the same subject matter as Bayh-Dole, as it places an additional condition on the management of inventions, not one that is “inconsistent” with Bayh-Dole.
If this .37 text does apply to university grants (I think it does, and it makes policy and practice sense that it does), then it’s another way that university research inventions, made with federal grants–themselves rather unique to universities–are distinctive in the broader national innovation ecosystem. The university as owner is the trustee for the IP, much as it is a trustee for the research itself, which it does not specify (though may decline), does not control (though it may require compliance with terms and law), and conducts (by its own arguments) in the public interest.
What does it mean to be an invention owner-trustee? First, one has a fiduciary duty to the “beneficiaries” of the project or program. That duty is a condition of the funding agreement by which the IP is acquired or developed. One would think that the first order of business having acquired IP would then be to make note of the beneficiaries of the project or program. It would appear that the university generally is not one of these beneficiaries, anymore than it could be argued that it is a trustee for itself, which would make empty the whole provision–if it is a trustee for its own interests, then it need not look at any others. More so, the university technology transfer office, if there is one, is not acting for itself, but acting on behalf of the project or program.
Now one can just set all this aside and argue that provision is meant only for going out and getting IP from elsewhere. But if one does take this argument, then one is also blowing away a university’s standing to claim copyright material produced under a federal grant. No, it’s a clause that also covers stuff that is developed in the grant by those involved as well as stuff one goes out and gets, equipment-like, from others. One might see in this trustee business a central idea: that the university is the recipient of the award but it is only an aggregator of results and not itself the agent that produces them. That work is done by the individuals doing the project or program, and the university’s business is to be a trustee, able to acquire intellectual property arising in that work on the condition it holds it for the beneficiaries of the project or project.
This is a valuable concept, and it makes sense in the context of federal funding going to projects proposed by individuals, which a university has agreed to host and take care of. That’s what a proposal for government funding under a grants program represents. The university is not the employer nor the commissioning party nor the controller of work. Recipient is defined at (cc) as “an organization receiving financial assistance directly from Federal awarding agencies to carry out a project or program” (with a listing of examples, and excluding certain government owned labs and centers). So a recipient is an organization not a person, but it is people who do the work that creates the IP, so the recipient has to acquire it from them, and when it does so, it acts as a trustee, and its obligation is not to itself, not to commercialization, not to money making, and not to passing the good stuff to one’s venture capital or corporate buddies, but rather to meeting one’s obligations to beneficiaries. If any of the previous do that, fine. But otherwise, it’s dingo scat.
For Bayh-Dole, the beneficiaries might reasonably include those identified in the program documents for the funding program under which the grant has been obtained, any beneficiaries identified in the statement of work, and those identified in the objectives of the Act, at 35 USC 200, and within the patent rights clauses at 37 CFR 401. Can the university identify additional beneficiaries (like, say, itself)? Can those undertaking the project or program? The indifferent folk might well go, “it doesn’t much matter at all, just anyone is a beneficiary, so long as we own the stuff when we want to and do with it what we want to.” I don’t see how such an attitude washes at all. Perhaps there is a better statement of the virtuous indifferent position. That would be a good exercise. What is the least easily rebutted restatement of virtuous administrative indifference to regulatory documents?
But then, from certain administrative perspectives, I am obviously biased and will never give such a task a fair hearing. Clearly such a subjective, personal, even extraordinary perspective is idealist, by which is meant impractical and unrealistic, creating needless challenges and bother where busy, capable people are trying to get something done. Isn’t that about it? And this, friends, is the core of the university administrative vision of what research innovation is all about. Be very busy, too busy for mere details, and certainly with no time for anything “idealistic” like paying attention to key elements of the regulatory framework except when, like, you have a big problem, and then selectively work the documents to advantage. This, the chewy nougat, the heart, the informing intelligence between the ears of university administration when it comes to something like dealing with the output of all that $60b odd annual federal dollars flowing to universities.
Let’s stop on the edge of the canyon and think about the thin stream of thought that has made such a deep scar in the landscape of research innovation. Sublime, isn’t it, what is possible? That is, for all the claims made about the public mission of universities, that research is the thing to spring economic development, transform society, and lead us toward the promised land of cures, peace, and environmentally sustainable 3d entertainment devices, it comes down to indifference as a virtue, with a sweet coating of frenzied efforts to make money. Tech transfer is stuffed off in a corner and told to commercialize whatever one can. Inventions, data, whatever–sell this stuff to industry, start companies when industry won’t do the deal, make the government fork over the money for companies when investors aren’t dumb enough to throw their money at your start up ideas, and when all else fails, at least offer the IP for free, just as if you hadn’t claimed the IP in the first place, but now with the pleasant delay of having tried to make a pile of money on it first and failed, and then the second fine delay of still requiring the bother of doing business with the university and its regulatory processes for contracting, but now with the added benefit of not being charged so much for the opportunity. Not only this, but off in the corner with this hangover, tech transfer administration goes, well at least we are far too busy to worry about this trustee stuff. At least if no one is looking, who cares? We don’t.
Returning then from the rim of the canyon, because we still care and don’t want to end the discussion that way, we may ask the question: are inventors beneficiaries? They are called out at 37 CFR 401.14(a)(k)(2) to receive a share of royalties. That sounds like benefit. But at 37 CFR 401.14(a)(k)(3), their share is identified as an *expense* “incidental to the administration of subject inventions”. That sounds like a negotiated deal rather than being a beneficiary. We might ask, do both Bayh-Dole and Circular A-110 expect there to be a negotiated deal between the university and those developing IP in a funding agreement with a university?
Why does all this matter? If inventors are beneficiaries of the federally supported project or program in which they invent, then the university has a fiduciary duty to them. And it does not–cannot–have this duty to itself. The thing that matters then is to whom else in addition to inventors might the university also owe such a duty? If the university owes the inventors such a duty, then in any compulsory scheme in which the university takes title to inventions, whether under the belief that Bayh-Dole is or should be or would be way more inspired if it were a vesting statute, or whether instead as a matter of efficiently constructed university policy, employment agreements, or even state law you have rammed through–in any such compulsory scheme, one also claims that duty outright. The inventors have nothing to do with agreeing to the shape of that duty any more than they have the power to resist the claim on their title to inventions. Might be a pretty heady bit of liability exposure, if anyone ever got around to considering that.
One might also see how this .37 clause and university trustee standing mitigates other claims. One is, “we are not in it for the money.” But if .37 establishes a fiduciary obligation with regard to beneficiaries, then one may not be at liberty to say that, generally. It may be, depending on the purposes of the project or program, precisely that the university is in it for the money–such as, creating a sustaining revenue stream for the program to continue after the exhaustion of the federal seed funding that got it going.
Similarly, the university asking in general for “fair return” on licensing may have to be withdrawn. The trustee has no basis for such a claim on the disposition of the property it holds in trust. Especially given that small businesses are singled out in Bayh-Dole for benefit–they clearly are intended beneficiaries of the Act–then how could a university say to an organization that it has a fiduciary duty to, that it pay instead a “fair return” to the university for its acts as a trustee? It might argue that its expenses must be covered–fair enough–but not a “fair return”.
Furthermore, the idea that the public benefits when the university makes money in its licensing program then also stands on its head. There is nothing in Bayh-Dole that suggests the trustee should be making money beyond its expenses. The benefits to the public come through the services to the beneficiaries. These are at least small businesses, American labor, companies that collaborate with universities, and where there is excess income over expenses, scientists conducting research, educators, and students.
Again, to say “education” = “anything in a university” does not make sense of the regulation. Given that “scientific research” is also present, “education” could at best be “anything at a university but for scientific research”. But we also have expenses incidental to the administration of subject inventions (which may also be at the university), so the usage is more limited yet. It might be, this is where university administrators show their character in the designation of funds.
The upshot is, university technology transfer offices should be grappling in their various policies, practices, and public claims with this obligation in .37 when the invention arises specifically within a federal grant. This obligation should come into play if the university assigns title (or causes title to be conveyed) to an affiliated foundation or agent. This obligation should be reflected in any licensing activity. This obligation should trace with fiduciary duty all funds received, with a proper accounting of expenses.
Note here a fundamental audit question. Since the SPRC at (k)(3) is quite clear that the expenses that may be recovered are those incidental to the administration of “subject inventions” and not inventions generally, a technology licensing office has an obligation to separate out those expenses from the expenses of administrating other inventions, that are not subject ones, and from managing other property, which is not inventions at all. That is, there is no mechanism in Bayh-Dole to support a fixed % going to a technology transfer office as its “fee”. As a trustee, that would be establishing itself as a beneficiary for a purpose other than managing the assets under the trust relationship. If the tech transfer office establishes a fee against license revenues, these monies should be tracked specifically to an account out of which allowable expenses are paid. Any excess in this account goes to “scientific research or education” not to “expenses incidental to the administration of other stuff, not subject inventions”.
The general practice observation is that university tech transfer folks are playing fast and loose with the regulatory environment. They ignore the details of their work, perhaps under the assumption that the details are merely technical, more like optional guidance, and the general drift of things is as they say it is, for their convenience and as necessary for practical application of the law. Yet a trust relationship would not appear to be merely a detail. Nor would a requirement to treat inventor share of royalty as an expense. Nor would using proceeds for scientific research and education rather than to subsidize other aspects of one’s licensing program that fall outside of the administration of subject inventions.
Beyond these technical details that really do appear to be important but are ignored (why these, and not others, and why do administrators and not inventors get to choose which things get ignored?), the thought is that the guidance in the Bayh-Dole Act and associated regs is there not so much to be explained away, or reduced to nit-picking details, as to point to a broader, much more substantial vision of the role of inventors, their relationship to universities, and the interests of government–one that is largely lost and all but swamped out by the race to claim title to inventions and to make money or gain administrative bragging rights based on that claim.
What difference might respect for .37 make in technology transfer practice?
Here is one. Inventions are to be managed first for the objectives of the project or program in which they are developed. This management is academic, not administrative, and it is subject to the direction of the principal investigator for the duration of the use of the invention in such a manner. This means, management as a research tool, management to foster adoption and use by others for their benefit, management to advance an understanding of the science and art involved. This also means that commercialization is not an early goal, nor necessarily ever a primary goal, unless either a) it is a stated objective of the project or program or b) those doing the commercialization undertake it under the university’s direction for the beneficiaries.
We may then turn to a second sphere–as the project or program winds down or does not need the invention or other purposes beyond the program are identified. In this second phase, the invention might be developed for the broader benefit of the beneficiaries, but outside the direction of the principal investigators. At this point, the university may appoint administrators that are not the principal investigators, though they still may be perfectly acceptable, if they are willing to perform in such a role. But we still are working the beneficiaries and not simple, compulsive commercialization.
Finally, we reach inventions that cannot any longer serve the beneficiaries as identified and not of further use to the university. This is the surplus stage for equipment and inventions alike. For equipment, 2 CFR 215.34(g) says sell it off and pay back the agency the difference if it is over $5k. But for inventions, we have Bayh-Dole, and the Act says, roughly, use the patent system to promote practical application of subject inventions. So now, in that context, and not foreclosing either the purposes of the grant funded work, or the broader obligations to beneficiaries, a university can develop a patent position with respect to other business. It can do this as a surplus action, not as a primary action. Bayh-Dole does not authorize a university to act outside its established mission, to ignore other commitments it makes as to its role (such as to be a trustee), nor to rush the trough if it thinks the commercialization feeding is good.
If one follows this approach, then the personnel first responsible for inventions are principal investigators, and it is their interaction with inventors that is crucial. As the principal investigator determines that the university should acquire title to an invention, and the university agrees, then that title is acquired on behalf of the objectives of the project or program–that is, for the beneficiaries. Depending on how one reads–how one wants to read–37 CFR 401.14(a)(k)(3), that may include the inventors. Only as those objectives are met may the university expand its sphere of interest to beneficiaries outside the immediate scope of the funded project or program and consider the broader beneficiaries that might benefit from administrative oversight rather than academic purpose. That transition requires careful coordination so as not to disrupt the benefits to those already served. Finally, one can turn to the most general conditions of Bayh-Dole, and consider surplus activities such as commercialization. These activities indeed may be made more possible through the uses encouraged through project beneficiaries and administrative management.
That’s one of the challenges set before tech transfer by the .37 clause. Rather than dismissing it, or saying it’s being met anyway (even without thinking about it or even knowing about it!), why not build a program responsive to it? Why not do this not because it is a technical requirement but because it makes good sense to do? Why not do this because it teaches some really valuable lessons about the role a university should have with regard to the outcomes of its federally supported activities? Why not do this because it is the right thing to do?
I know, it’s a long way down there. Lots of rocks. That tiny stream was once very powerful. Now all we have is this .37 thing, and loads of indifference.