Stanford v Roche makes clear that Bayh-Dole is not a vesting statute. It does not confer ownership of inventions made with federal support on contractors. Individual inventors own title to their inventions, and title is transferred by written agreement, as it always has.
There is more to it, however. The decision also makes clear that Bayh-Dole does not require university ownership of inventions made with federal support. That is, the law is not defective in not requiring contractor ownership or even restricting the private disposition of title in favor of a contractor option to obtain title.
The critical piece of Bayh-Dole turns out not to be in Bayh-Dole at all, but in the implementing regulations at 37 CFR 401. That piece is the requirement (at section (f)(2)) in the standard patent rights clause that is made part of every federal funding agreement that the university will require its research employees (let’s call them) to agree in writing to protect the *government’s* interest in inventions made with federal support. It is by means of this (f)(2) agreement that the government has a claim on subject inventions when the contractor does not pursue patent protection. It is also this agreement–not Bayh-Dole generally (which applies to agencies anyway) or the standard patent rights clause (which applies to the university)–that limits the scope of what an individual investigator may do with his or her rights in an invention. The investigators *agree* to limit what they can do with their rights. It is the university’s responsibility to see that they make this agreement. The university *agrees* to this responsibility.
In Stanford v. Roche, there is no evidence that Stanford required the (f)(2) agreement of any of its personnel. All it had was its promise to assign policy, which it had waived to permit the consulting at Cetus, and which it then could not reassert with the federal funding without getting changes to the consulting deal, and Stanford didn’t do that.
The Supreme Court decision, however, suggrests an odd interpretation of “subject invention”. The justices read “of the contractor” to mean “owned by the contractor” rather than merely “made through the agency of contractor employees”. We might ask, does “of the contractor” mean “holding legal title” or might it also mean “holding equitable title”? And might it mean something else in addition?
Imagine a university that does not have a requirement that all inventions are to be owned by the university (as was the case a lot of places at the time Bayh-Dole went into effect). Now an invention is made in federally supported research. Since there is no ownership claim by the university, it is not an invention “of the contractor”. No legal title, no equitable title. No subject invention, no duty to disclose. The (f)(2) agreement, which expressly covers subject inventions, would not come into play, and it would appear that the government would have no rights in the invention–neither ownership nor a royalty-free non-exclusive license. Furthermore, it would appear that the provisions for permitting inventors to own their inventions made with federal support (37 CFR 401.9 (and its antecedent at 35 USC 202(d))) would then only apply if the contractor has an arrangement in place to own inventions made by employees. Otherwise, it would be a “don’t claim, don’t tell” policy. [Update: see this discussion for how the “contractor” becomes *multiple* when the (f)(2) agreement is implemented, making the research employees party to the standard patent rights clause of the funding agreement, and therefore also “contractors” for the purpose of inventions only.]
Either there is a hole in Bayh-Dole–which may be intentional and good–or the interpretation of “of the contractor” has not been fully articulated. The intent of “of the contractor” is not only “that the contractor must have title to inventions before inventions are made or they are not subject” but rather something closer to “an invention made in the performance of work under a federal funding agreement by contractor’s employees and in which the government holds an interest, subject to permitted intervening action on the part of the contractor [or other agent]”. Bayh-Dole is all about what happens when a contractor makes such an intervening action, and especially concerns protections for inventors, industry, and the public in the absence of direct agency oversight of university patent administrators.
This latter sense of “of the contractor” would mean that an invention is subject when it is made with federal funding and an (f)(2) agreement is in place, regardless of whether or not the contractor has a policy to take title to every invention made with federal funds. This usage would push “of the contractor” to mean (i) “owned by the contractor (by assignment whether voluntary or by contractual duty),” or (ii) “subject to the contractor’s interest in the invention (as established by the contractor through an employment or invention agreement)”, or (iii) “subject to each employee’s written agreement to protect the government’s interest, even if the contractor has no ownership or other interest in the invention.”
That is, “of the contractor” does not mean simply “legal title is with the contractor” before anything happens. Clearly, the law then ought to have required contractors to have private vesting agreements, such present assignments or promises to assign with designation of durable power of attorney as a condition of participation in federal funded work.
Set aside Bayh-Dole for a moment. Here is the problem for federal research contracting. A federal agency wants to get title to every invention made with federal funds that it has an interest in. But how does the agency contract to get that title? If we set aside vesting, there are three ways: 1) the agency contracts directly with individual participants in the federal funding, so that when they invent, they have obligated title to the agency until the agency releases them from that obligation; 2) the agency contracts with the employer, and requires the employer to have agreements with its employees so that the employer can take title and then meet obligations to the agency; and 3) the agency can require the contractor to require its employees to have an agreement to protect the government’s interest, even if the employer does not itself choose to have an interest.
Way 1 requires agencies to track obligations with many individuals, and carries a lot of overhead. But Way 1 also tracks the general interest of federal funding for university-based research–that funding is directed to individuals, based on their personal qualifications and proposals, rather than to universities who are then tasked with going out and finding folks to do the work. Faculty investigators are much more than designated technical contacts. But Way 1 hasn’t been used. The university is interjected as an administrative manager for grant logistics, and so we consider Way 2.
Way 2 expects all invention rights made by individuals to move to the contractor, and from thence to the agency. There will always be one set of assignments, even for stuff that no one in their right minds wants–the inventors will always assign to the university, and then, if the agency doesn’t want, and the university doesn’t want, then the inventors can always want and there will be a second assignment back to the inventors from the university. This also has a lot of assignment activity, but much more of it is on the backs of the university administrators than in Way 1. This Way 2 is what university administrators came out like mosquitoes to a picnic in favor of. If vesting won’t happen, then make everything pass through university ownership, even if it’s parrot droppings.
I’ve argued elsewhere that this Way 2 would have done damage to the way most universities handled inventions at the time of Bayh-Dole. In 1980, few universities ran their own internal “technology transfer” office. Most that did have a technology transfer function used an affiliated research foundation, on the model of WARF, or contracted for services with an organization like Research Corporation. A Way 2 implementation would have required an assignment to the university, and then from the university to the agent, and then the agent would deal with federal rights. This is a lot of overhead, and forces IP management decisions into universities that otherwise already have made the choice to use a foundation or other agent.
It appears that Bayh-Dole has been drafted to permit a wide range of transfers of obligation in federal funding agreements–“Such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement”. Bayh-Dole obligations are designed to be moved around, such that an invention might be made an obligated to an agent such as a research foundation (as permitted under 37 CFR 401.14(a)(k)(1)). In the case of such an assignment done prospectively, the invention would never be *of the contractor* in the sense of the contractor holding legal title, because the owner would be the agent. It still is reasonable, however, that the invention is a “subject invention” regardless of the disposition of future rights (and obligations) by the contractor by assignment, substitution of parties, or subcontracting of a funding agreement or Bayh-Dole obligations.
It is possible to attempt to implement Way 2 by private means. A university may insist on owning all federally funded inventions made by its investigators. There is no federal mandate to do so. There is no administrative argument that this way is less burdensome than other approaches–indeed, it produces more paperwork, much of which is useless and we are talking not only assignment documents but also triage sheets, and entering invention information in databases, forms to be completed on market information, and category tags for future marketing, and the write up of a non-confidential summary (if folks choose to withhold publication)–all “just in case”.
Way 3, however, is what Bayh-Dole appears to track. In Way 3, the agency requires the contractor to require its research employees to make a written agreement to protect the government’s interest. Why would the government choose this Way 3? First, it avoids the administrative overhead of the other alternatives. Second, it does not dictate a relationship between employer and employees over invention rights. Third, it does not interfere generally in employer decisions about agents that might handle inventions on the employer’s behalf (or, for that matter, on the inventors’ behalf).
Before Bayh-Dole, inventions were generally not the business of the university. The business of the university was research, instruction, and public service. Inventions were a separate matter, and the university’s business was not to make money from them, but to ensure that commercial activity did not interfere with commitments to research, instruction, and public service. Agents such as research foundations and Research Corporation filled that role nicely, as did any other ways that university-based inventors could move stuff out. The primary agent for federal funding, however, was the US government. Prior to Bayh-Dole, the deal was, if it was federally funded, then the agency would have first interest in obtaining title from inventors, and only if a patent management agreement was in place (as it was with a few institutions, with a few agencies) would the university or its research foundation be allowed to obtain title from the inventors, subject to case-by-case review. Bayh-Dole is directed at making uniform the conditions set by federal agencies for the intervention of university management in the relationship that otherwise is fundamentally between federal agencies and individual investigator-inventors.
Using Way 3, a university requires its investigators to commit in writing to protect the government’s rights–disclose inventions, sign documents for patent filings, sign documents to establish the government’s rights. Way 3 re-implements the relationship between the investigators and the government, but now with deference to situations in which the university comes to have an ownership interest in federally supported inventions. If one implemented Way 2, individuals signing documents to establish the government’s rights would be mostly moot. With Way 3, invention rights move to the government through any of a number of channels: the inventors may grant licenses or assign title to the government directly, in fulfillment of their (f)(2) commitments; the university may take title and grant licenses or assign title to the government; or the university may designate an agent to take title and grant licenses or subsequently assign title to the government. If the university or its agent elects not to retain title, and has not obtained title by assignment, then the arrangement under Way 3 depends on the (f)(2) agreement and the procedures of 35 USC 202(d) and 37 CFR 401.9.
Under those conditions, the inventors hold title and may be required to assign title to the agency, or may be permitted by the agency to retain title, subject to certain conditions. Interestingly, the conditions specified as the minimum requirements do not include a royalty-free license to the government. An agency would appear to be free to add such a condition (especially in light of the requirement to include the government rights legend in patent applications), but unlike the requirements on universities and agents as owners of subject inventions, inventors allowed to retain title are not expressly required to grant the government a royalty-free, non-exclusive license. [Clearly, if the agency does not want ownership, and does not require the invention to enter into the public domain, then it may not as well feel the need for a US government license, either.]
Where does this get us? First, we have gotten rid of the vesting requirement. Second, we have established that the desire to make university inventors assign federally supported inventions to the university is *not* a requirement of federal law. We might add, therefore, it is not an objective of federal research or innovation policy that inventions pass from individuals to their employers. Any initiative for a university to own federally supported inventions arises with the university, with investigators, or with the inventors.
Policy claims or requirements placed on inventors by administrators that argue such assignment is a federal requirement are simply wrong. “Retain title” does not mean title has vested without formality, and does not mean right to dispose of title has been unilaterally narrowed by federal law to only the employer. “Retain title” means, not having to give it up to the agency upon request, providing one already has it. For inventors, this is easy, since they have title at the outset via the Constitution and federal patent law. For universities, this means obtaining assignment from inventors and then electing to retain the title so obtained or directing inventors to assign to an agent to which the university has assigned its standard patent rights clause obligations, and which then elects to retain title in the place of the university.
We may ask then what is the effect of a university’s notice of election to retain title? Clearly that does not confirm vesting of title. Further we know now that electing to retain title does not mean *obtaining* title by giving such notice. The notice to retain title means, fundamentally, that the agency does not have standing under the patent rights clause in the funding agreement or the (f)(2) agreement, to require assignment of title to the government.
What of the case in which the university requires assignment of title in a federally supported invention, and then does not elect to retain that title, and further, the agency declines to require assignment of title from the university? Then 35 USC 202(d) / 37 CFR 401.9 come into play. The inventors may petition *the agency* to retain title. The agency may allow them to retain title, but the actual mechanism for this to happen is that the agency requires the university to assign title back to the inventors. If the university were to refuse to re-assign title, or were unable to do so, then the agency could take assignment from the university and make the assignment back to the inventors directly.
With regard to “subject invention”, then, it would appear that we need more than just the bare idea that “of the contractor” means “legal title is with the contractor by means of some privately transacted assignment”. Throughout the law and the implementing regulations, were this bare reading the only meaning, then anywhere a university did not have a means to obtain legal title, a federally supported invention would not be subject to the patent rights clause, and the government would not have any interest in the invention, and the invention would not be required to be disclosed to the government. If the bare reading holds, then a university by not requiring assignment (and not taking assignment when offered voluntarily) would simply preempt the standard patent rights clause from operating (the condition of “of the contractor”) would not be met, and no inventions made would be “subject inventions”.
In that case, Bayh-Dole would be only about the inventions a contractor takes ownership of, not more broadly the inventions made with federal support. I rather think interpretations of Bayh-Dole have to extend to the broader case. If an invention is made a) by an employee of the contractor other than non-technical and clerical employees [and the employee has made the (f)(2) agreement, and b) in the performance of work under a federal funding agreement, then it is “of the contractor” [and the contractor that is signified may be either the institution or the employee, as the circumstances require].
Connecting all the dots looks like this. A contractor is defined as “any person, small business firm or nonprofit organization which is a party to a funding agreement”. Contractors agree under the standard patent rights clause of each funding agreement to require employees to make a written agreement to protect the government’s interest. In this way, these employees become party to the funding agreement, and come within the definition of “contractor”. Thus, “of the contractor” can mean just what the Supreme Court said it meant–owned by the university–and also extend to inventions owned by individuals who have made an (f)(2) commitment to the government.
If a subject invention has to be owned by the university before investigators are under obligation via (f)(2) to report it, then it would appear that Bayh-Dole is either indifferent to all inventions other than those a university comes into ownership of all on its own (whether required or offered voluntarily), or there is a big drafting hole in the legislation. In the alternative “of the contractor” can be understood to extend to research employees through the (f)(2) agreement. If someone sees another way this shakes out, I’d appreciate a note about it.