Bayh-Dole is a law directed at federal agency research contracting with universities, other nonprofits, and small businesses. Bayh-Dole makes uniform agency procurement of subject inventions—inventions made with federal support and falling within the definition of subject invention in Bayh-Dole—requiring agencies to use a standard patent rights clause in funding agreements, with any modifications of this clause following an established protocol.
University patent administrators have distorted Bayh-Dole to make it read as an entitlement under which university administrations obtain title outright to federally supported inventions made by research faculty. No assignment necessary. No protections for inventors required. Thereby creating the only general class of inventors in America who do not own title to their inventions, as required by the US Constitution. This is nonsense, bad innovation policy, and bad university governance. But it’s more. It shows that many leading university patent administrators do not have a working knowledge of the law that frames their livelihood. And they intend now to kill Bayh-Dole off.
Bayh-Dole, rather than reading as vesting statute, instructs government agencies to leave universities alone, establishing the minimum obligations a university as contractor must undertake, as well as the conditions under which the university must agree to operate if it seeks to obtain title to inventions made with federal support by its employees. In this, Bayh-Dole is a law of agreements. It stipulates the contracting clauses that agencies may use. Its actions affect universities through the standard patent rights clause or a permitted variation.
For universities, Bayh-Dole is a matter of agreements not statutes. The only parts of Bayh-Dole that universities see is through agreements and communications with agencies. Universities agree to a patent contract clause. They make agreements with their employees. They may make agreements with other organizations, by way of licenses, assignments, subcontracts, and substitution of parties. They don’t have to agree with the law because the law does not apply to them. The law applies to federal agencies. The law tells the agencies how they are to engage universities.
The federal agencies have no authority under the law to reach through to obtain title to inventions directly from faculty inventors using federal funds. Whatever right to inventions an agency may obtain is by means of the patent rights clause that the agency uses in any given funding agreement. Similarly, universities have no benefit from the law directly. We repeat: the law does not apply to universities. It applies to agency contracting. When a university accepts a funding agreement with a federal agency, the university agrees to the conditions of the patent rights clause in that funding agreement. It could be the standard patent rights clause, or it could be an approved variation. Whatever the conditions, they become effective for a contracting university by means of federal agreement, not by federal law. The university chooses to accept the conditions. The conditions are not imposed on the university by the law.
If Bayh-Dole does not dictate the disposition of invention title directly, how then does the government get its rights? Bayh-Dole authorizes the Department of Commerce to create standard patent rights clauses for use by federal agencies. There are two of them, set out in 37 CFR 401.14. We deal with the Standard Patent Rights Clause directed at most university activity, the one given in section (a). We will call it the SPRC, for short.
The SPRC tracks nearly everywhere the text of Bayh-Dole, as one would expect. However, it adds requirements not in Bayh-Dole. The most important of these is SPRC (f)(2). Section (f) of the SPRC concerns “Contractor Action to Protect the Government’s Interest”. Under (f), a university is required to educate employees on timely reporting of inventions and to require written agreements of employees other than clerical and non-technical employees, to protect the government’s interests. These written agreements are required by the SPRC of the university. It is up to the university to obtain these written agreements from its employees, as a condition of the SPRC. The university agrees to do this. The law does not do this for the university. The SPRC does not do this for the university. Even a university policy requiring employees to comply with the terms of a research contract does not do this for the university. Someone at the university has to actually do this. It’s a rather fundamental point.
What are the obligations of employees under the (f)(2) agreement? They agree to report inventions timely and in sufficient detail to permit the university to meet its obligations to report inventions to the government. They agree to sign paperwork to permit patent applications to be filed—without any designation of who might be filing the application or who might be an assignee of title to the invention. They agree to sign paperwork to establish the government’s rights in their inventions.
It is important to point out that the SPRC makes obtaining the (f)(2) agreement and its requirements a condition of funding. These are not requirements of law imposed directly on university inventors. These are not conditions of university employment. The SPRC mandates an *agreement* by the employees, at the time a given funding agreement is accepted by the university. There is no point in making an apparatus enabled by university employee agreement for something that is otherwise imposed by federal law. One does that to provide an express basis for canceling an agreement upon breach, not to make something happen that must happen anyway by law. The SPRC is not merely a recitation of Bayh-Dole in some ceremonial form for the benefit of extra administrative paperwork. Bayh-Dole does not apply to universities. It applies to federal agencies. It is only through the SPRC that its conditions extend to universities, and it is only through the SPRC’s (f)(2) agreement that its conditions extend to university employees.
This point cannot be emphasized enough. It is by means of the university’s action to require the (f)(2) agreement in each funding agreement that the government obtains its interest in inventions made with federal support by university employees. First, the university agrees to the SPRC. To do this, the university must release any other claims or policies it imposes on its employees that would be in conflict with the SPRC. The SPRC is part of a federal agreement. It supersedes private contracts and, in the case of public universities, state administrative rules. A university cannot comply with the SPRC and require something different from its own employees. It cannot be two-faced about things. It has agreed with the federal government to behave in certain ways. It cannot then behave contrary to that agreement with its own employees. Under the SPRC, the university is to require employees to agree to protect the government’s interest in three ways: disclose, permit patent applications to be filed, and establish the government’s rights in inventions.
We can now take up how the government obtains its rights from inventors. We may note that there would be absolutely no reason to include this third element in the (f)(2) agreement if universities owned the inventions of their employees outright, as if Bayh-Dole applied directly to everyone, and therefore stripped university employees of title to their inventions the moment these were created. No, one has to gravely misread Bayh-Dole to get to the idea that it applies to inventors. Clearly, it does not. It applies to federal agencies entering into agreements with universities. It requires universities to do certain things, including getting agreements with university employees. Without those agreements, title to invention does not move from the inventors.
There are multiple pathways by which the government obtains its rights in subject inventions. The simplest is that when university employees make a subject invention, the university reports the invention to the government, waives its interest, and the government then may request that the inventors honor their (f)(2) agreement and assign title to the government. The government can also defer receiving assignment, and following 37 CFR 401.9, may allow the inventors to retain title to their inventions.
The second pathway involves the university. The university, when it receives a report of a subject invention from its employees, may elect to retain title to the invention. This means that the university may take actions it has agreed to take in the SPRC or other patent rights clause to which the invention is subject. In essence, the agency, upon notice of election to retain title, allows the university to stand in for the inventors and for the agency in the disposition of the invention. To “retain title” does not and cannot mean that the university already got title by means of vesting under Bayh-Dole. It means that the university may retain title on behalf of its inventors, who hold title and otherwise may be obligated to assign title to the government, at the government’s request. To “retain title” means to not be subject to the government’s request for title.
Once a university has elected to retain title by notice to the government, the university then has standing to request assignment of title from its inventors. The university does not have standing under its own policies to do this. It has agreed with the government that the condition under which it obtains title is a condition of the funding agreement, not employment, use of facilities, administrative fiat, or in a quid pro quo for sharing royalties. By agreeing to the SPRC, a university agrees that the basis precondition for obtaining title from its inventors is the act of electing to retain title under the SPRC. That is the condition that supersedes any other statements of condition in the university’s agreements or policies with its inventors. Once a university obtains title, it is then in position to convey to the government rights in the subject invention as it has agreed to do under SPRC sections (b) and (d). The employee’s (f)(2) agreement with regard to the third condition, signing paperwork to establish the government’s interest, is thereby satisfied when title transfers to the university. The obligation to sign paperwork to permit patent applications to be filed remains, but now is subject to the requests of the university rather than the government.
One can see the elegance of the approach. The university needs to have no policy requiring assignment, no present assignment of future inventions as a condition of employment, no policy requiring employees to honor the terms and conditions of extramural research. None of that matters. In fact, it is displaced and superseded when the university agrees to the SPRC for a given funding agreement. It has to be. The university cannot agree to the SPRC and maintain demands contrary to the SPRC with its employees. It is the (f)(2) agreement that provides the government with its interest in subject inventions, and it is also the (f)(2) agreement that provides the university with its interest in subject inventions, subject to its agreement with, and compliance with, the SPRC. Once a university elects to retain title, it then has standing under the SPRC and the (f)(2) agreement to request assignment of title from its inventors. It has this right under the SPRC, and it does not have this right under any other arrangement. This is so because the university has agreed with the government that this is so. It cannot have a secret, fingers crossed, preferential other way of doing things.
There is a third class of ways of managing subject inventions. A university may elect to retain title, but may choose to assign its interest in that title, and its obligations under the SPRC, to another organization. This matter is addressed in SPRC (k)(1). A university may assign its interest at any time, prospectively or after having elected to retain title, or after having obtained assignment of title under (f)(2). The only limitation in that assignment is that the receiving organization must have a primary function in the management of inventions (note: the SPRC does not say patents); if not, then the agency must approve the assignment.
Under this third class of management, a university may never own title to the subject invention for which notice to retain title is given. A university may assign its interest, for instance, to an affiliated research foundation, and direct its inventors to make their assignment to the new assignee. The research foundation obtains the benefit, then, of the (f)(2) agreement, and may receive the assignment of the invention, and direct the inventors in any other matters subject to their (f)(2) agreement. Assignment is not limited, however, to affiliated research foundations. A university may assign to a national invention management organization such as Research Corporation, or may assign to a for-profit company, such as Intellectual Ventures, so long as the company meets the requirements of (k)(1) and has as one of its primary functions the management of inventions.
It is this third class of management that opens up the inspired qualities of Bayh-Dole. Rather than treat each subject invention as an employer’s right to profit, Bayh-Dole proposes a much broader treatment of inventions than the typical corporate model of holding onto all inventions as assets for later use. Bayh-Dole says, “We are leaving it open how universities manage subject inventions”. They can opt out (first class), they can build their own operations (second class), or they can work with other organizations and not try to do it all themselves, with minimal overhead (third class).
Any effort to make Bayh-Dole a vesting statute is also an attack on this third class of alternative invention management. It might be expected that university patent administrators, to preserve their jobs and suppress any possible competing interests, would seek to make out a federal law as an entitlement to their approach, excluding others. Of course they do not want to consider alternatives. It makes perfect sense why they would take the Stanford v. Roche case to the Supreme Court. They want the Court to tell them that their approach is not only the best, but is a requirement of federal law. They want the Court to restrict Bayh-Dole to ensure their status. There is not much more to it than this. One can give them an A+ for moxy to preserve their jobs, but what they are doing makes for lousy innovation policy and turns Bayh-Dole into a rather dull, restrictive, and necessarily obsolete implementation of federal research and innovation policy.
If the university patent administrators win in their effort to undo Bayh-Dole by snookering the Supreme Court into thinking that Bayh-Dole is about university profits from licensing, then the inspired part of Bayh-Dole, this third class of invention management approaches, will be the experiment that failed. What remains will be exactly the same compulsory, unproductive system that prevailed in federal agencies and which gave rise to the need for Bayh-Dole. The only differences will be that universities rather than the federal government will hold the rights, and that universities appear much more disposed to grant poorly conceived exclusive licenses, engage in patent trolling rather than promoting use, and fixate on money and process to the exclusion of getting things done and building collaborations that fuel innovation in America.
If Bayh-Dole becomes a vesting statute, it dies as innovation policy and we are set back 30 years or more. And it will be university patent administrators that will have killed it.
It is only by disregarding the import of agreeing with the federal government and then failing to obtain the required (f)(2) agreement that a university might appeal to the help of a federal law that does not apply to it. Bayh-Dole applies to federal agencies, and to inventions made under a federal funding agreement. Bayh-Dole does not apply to universities or to inventors. Bayh-Dole does not apply to title to inventions or assignment of inventions. Bayh-Dole establishes a framework under which federal agreements address these matters with willing organizations. Bayh-Dole is no shortcut for university administrator efficiency to attempt to make the federal law apply to individuals or to non-federal organizations. Doing that is a corruption of the law, and runs into a host of other problems that would make the law unconstitutional, bad innovation policy, and disruptive of alternative approaches to the disposition of subject inventions—alternative approaches that do not involve a university holding title to subject inventions.