[In a previous essay, I worked through problems with “of the contractor” and argued that the interpretation had to include employees who invent even if they had not assigned to the contractor. Here, I explain in more detail how this comes about. It is not by stretching the “of” but by recognizing who has the standing of “contractor”. ]
In Stanford v Roche, the Supreme Court reasoned that “of the contractor” meant ownership not agency. Thus, for an invention to be “retained” by the contractor, it first had to be owned by the contractor. University administrators argued that this meant that Bayh-Dole must be a vesting statute, handing inventor’s rights to university employers as a matter of federal law. The Supreme Court rejected this argument, ruling that patent law governs the assignment of title to inventions.
What then do we do with 35 USC 202(d):
(d) If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.
In 37 CFR 401.9, we find a restatement:
Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at Sec. 401.14(a).
Now, here’s the definition of subject invention:
(e) The term “subject invention” means any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement: Provided, That in the case of a variety of plant, the date of determination (as defined in section 41(d) of the Plant Variety Protection Act (7 U.S.C. 2401(d)) must also occur during the period of contract performance.
If “of the contractor” means “owned by the contractor” then in 202(d), we have something like, “if the contractor does not desire to retain title to what it already owns, then the agency can discuss with the inventors whether they can retain title to what they don’t own.” That is, the inventors can’t “retain” rights to something they gave up rights to so that the contractor owns it.
Let’s consider another passage, this one in 37 CFR 401.14(a)(f)(2):
(2) The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c), above, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
This is the (f)(2) clause–one of the few things that’s not in Bayh-Dole but is in the Standard Patent Rights Clause. Here we find that contractors are to have agreements with employees so that the employees report to the contractor what it already must own (subject inventions=inventions of the contractor) so that the contractor can comply with the reporting requirements of the standard patent rights clause. That is, the contractor has to own the invention before finding out about it. That is–if “of the contractor” only means “owned by the contractor”.
But in 202(d), we see that “of the contractor” can’t mean “owned by the contractor” if “retain” is going to mean “keep what one already has”. Something has to give. One route is to argue–see, even though Bayh-Dole is not a vesting statute, it is clear to the folks drafting the CFR that for universities to comply with the standard patent rights clause, they all but have to use a present assignment, since the whole processes is predicated on subject inventions, and subject inventions are owned by the contractor. Inventors would have no obligation to report inventions made with federal support unless the university has ownership.
We have an additional oddity in this (f)(2) clause. The requirement for disclosure by inventors to the contractor is so that the contractor can comply with the SPRC requirement to report. But that requirement to report (c)(1) is premised on a timeline that starts when the inventor discloses the invention to the contractor. That is, if the inventor doesn’t disclose the invention to the contractor, then the contractor apparently has no obligation to report it to the government, but then the contractor also doesn’t have any way to file patents without knowing about the invention.
The basic idea is pretty clear. When inventions are made in the performance of federally supported work, they are to be disclosed to the contractor, and the contractor is to report them to the agency, and then folks can fuss through title stuff. Different contractors will have different kinds of fuss–small companies will differ from universities with tech transfer offices and these will differ from universities that assign all that work to a research foundation. The idea is that everything inventive should be reported timely, with the sensitivity being that only those things that are properly within scope must be reported. It’s just that this is not what the law and regulations actually say. There’s a problem of drafting, or a problem of interpretation, or both.
What stuff isn’t within scope? That’s the subject of 37 CFR 401.1, where we can see that stuff that is within the scope of planned and committed activities or does not diminish or distract from the performance of those activities, is subject to the SPRC. That’s what the “subject” means in “subject invention”. It is a class of invention, defined by federal law, that arises when the conditions of the definition are met, similar in this regard to “work made for hire” in copyright law.
But subject inventions are also modified by “of the contractor” in the definition. That is, according to the definition, only inventions “of the contractor” are “subject”.
Further, we have limitations on who must sign the (f)(2) agreement. These are restricted to “employees, other than clerical and nontechnical employees”. It is these who must disclose so that the contractor can comply. This means, apparently, that non-employees do not have to disclose, and are not required to assist in the filing of patent applications, and do not have to commit to establish the government’s rights in subject inventions. In other words, their inventions are not “subject”. This makes some sense, in that to be within the “planned and committed activities” or to “diminish or distract” from the performance of these, one would pretty much have to be paid to do the work as an employee, and other than a clerical worker. This would mean that students, visitors, informal collaborators, and independent contractors are not employees and are not obligated to sign an (f)(2) agreement and are not within what is “subject”.
It is clear that only some inventions made in the context of a federal funding agreement actually are “subject” to the SPRC. Further, if an invention is not “subject” then there’s no private means to make it “subject” anyway. That is, there is no safety in “just in case”. Either it’s in or not. This mattered a lot more when universities thought that by calling something subject they then owned it by operation of federal law. This is what the Supreme Court threw out. One might think, there’s a whole lot of liability exposure for university folks who obtained ownership of inventions in this way, and certainly some for those who persist in it after June 2011–whether in university policy statements, technology transfer office guidance documents, or simply in practice.
Now we have a new problem, and that is what to make of “of the contractor” rather than “retain title”. I’ve commented before about ways to adjust the drafting to make everything work out. Here, I’m more interested in seeing what works out if we keep the drafting the way it is and work on the interpretation.
If we consider how the requirements are set up in the SPRC, an invention becomes subject when it is made within the planned and committed activities of federally supported work under a funding agreement. Since the funding agreement is with a contractor, not with individuals, we might think that “of the contractor” is used to differentiate work that is within the scope of the funding agreement from work that is not. The restriction of disclosure to research employees (not clericals and nontechnicals, not non-employees) further provides shape to “of the contractor”. Clearly, research employees are carrying out the federally supported work. The contractor has taken on responsibilities for that work through the funding agreement. The work, generally, can then be said to be “of the contractor” in this regard. Not that it requires that the work product be owned by the contractor, but that it is specifically the contractor’s work that is subject to the SPRC. The drafting points to an effort to make a limited, not expansive claim to inventions.
One might think therefore of inventions as intrinsic to deliverables rather than being deliverables in general. In a typical contract for research one gets this frequently in dealing with deliverables. Is the commissioning party negotiating for a particular deliverable–a data set, a software tool, a poking and prodding with a report? Or is it asking for anything that gets thought of, realized, imagined, and worked on even though it is not part of a deliverable? Companies that seek a broad claim aim to define any discovery or invention as a deliverable, even if it is not tied to a specific investigation that has been laid out. If the contract is to try out a new material in a 3d printer, and in the process of doing so you realize that you could improve the build table design, the sponsor might claim rights to that improved design, even though the sponsor isn’t in the 3d printer manufacturing business and even though the new design is not part of the work specified or necessary to the use of the results of the work that is specified.
The government, however, is not doing this. It is not making an expansive claim. It is making a limited claim to deliverables. If something is not a deliverable, or necessary for the practice of a deliverable, or not otherwise something that employee time was charged out for in the agreement in lieu of work that had been planned and committed (i.e., “diminished or distracted”), then it is not “subject” to the SPRC.
University administrators, however, have been prone to read contracts expansively. Most of the time this causes horror, and then they negotiate against this horror, much to the pain of the research sponsor. But for Bayh-Dole work, university administrators, under the belief that everything federal money touches becomes the university’s, found that expansive reading to be preferred. In other words, the expansive reading put on Bayh-Dole by university patent officers read *against the interests of individuals* and therefore provided the university with the broadest claim to inventions.
This was huge, especially at universities with IP policies that were relatively open and only claimed inventions when required to do so in sponsored research contracts. The normal work around in those cases was to require the ownership in the contract *from the university side* rather than waiting for the *sponsor* to do it. That is, the contract with the sponsor was used administratively to change a policy expectation with employees. The reading that technology transfer officers gave to Bayh-Dole served this same role–turning private inventions, generally not claimable by the university under policy, into claimable inventions under policy, since the claim was a requirement (so the argument went) of Bayh-Dole. This practice, too, has been discredited by the Supreme Court ruling in Stanford v Roche. Federal funding does not require university ownership. The expansive reading of Bayh-Dole to obtain maximum claims on inventions does not provide the desired benefit.
What, then, do we do with “of the contractor”? Certainly it includes “owned by the contractor”. But there has to be more than ownership going on here, or the regulations fail to assure the disclosure of inventions made with federal support by research employees of the contractor–and make it appear that the only inventions that are to be disclosed are the ones the contractor already owns–and make it appear that once a contractor owns title, then title reverts to the inventors when the contractor elects not to retain the title it has.
Here is what I make of it. There are clues in 37 CFR 401.9. Let’s see it again:
Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at Sec. 401.14(a).
If the inventors retain rights, they are treated as if they were a small business firm contractor. They are free of the constraints on nonprofits set out in 35 USC 202(c)(7)/37 CFR 401.14(a)(k). It is as if there has been a transfer of parties under the funding agreement from the university to the inventors.
If we look more carefully at the definitions, we start to see how this works.
(b) The term “funding agreement” means any contract, grant, or cooperative agreement entered into between any Federal agency, other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government. 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 as herein defined.
(c) The term “contractor” means any person, small business firm, or nonprofit organization that is a party to a funding agreement.
The standard patent rights clause creates two parties to the funding agreement. The first is of course the university. The second, however, comes about through the (f)(2) agreement. That agreement creates, for potential inventors, parties to the funding agreement. Thus, when inventors invent, they are the contractor for purposes of reporting subject inventions, since they own the invention, and if they persist in owning the invention and the agency permits them to do so, they will be treated as small business contractors. Bayh-Dole contemplates that the primary funding agreement allows substitution of parties. The primary substitution is that of the inventors for the university when the university does not obtain title.
Thus, with this interpretation, it all works. Inventions are subject when they are owned by any contractor–either the university (or other host for the research) or the investigators. The investigators commit to report subject inventions to their host, because it has contractor obligations regarding reporting to the agency. If the host does not take title, then the (f)(2) agreement controls–a portion of the funding agreement–and the agency works directly with the inventors. The relationship under 35 USC 202(d) is essentially that of pre-Bayh-Dole management, with agency at liberty to obtain ownership, but now with standard requirements if it chooses to allow the inventors to retain title.
If we view Bayh-Dole this way, the “of the contractor” language works–there are multiple “contractors” at play, but to get there we have to understand how investigators become party to the *patent rights clause* of the funding agreement through operation of the (f)(2) agreement, and therefore, for the purposes of inventions, are party to the funding agreement and hence are also “contractors”; the substitution of parties, and the expectations of 37 CFR 401.9.
This approach to federal contracting works well with the idea that inventors have standing independent of their employers with regard to the rights in their inventions. It navigates the idea that employers do not necessarily hire personnel to invent, or have standing to make claims on those individuals for inventions that lie outside the employer’s business (per state labor laws governing inventions). It also navigates the idea that for federal funding to universities, in particular, the funding activity lies outside the duties the investigators owe to their university employers. In essence, though they are employees of the university, they are not employees when it comes to their inventing. Bayh-Dole properly does not assume, nor require, nor mandate, that federal funding transforms the job description of employees to include inventing for their employer, or that the charter or mission of a contractor magically adjusts so that for every invention, the employer’s business includes making money from the invention through licensing.
No, it is rather clear. Inventorship carries with it the Constitutionally protected roots of independent ownership, subject to the arrangements the inventors may make with agents to assist them. These agents can be employers or others, but there is nothing in the federal contracting that disturbs these arrangements. What Stanford v Roche teaches us is that the disruption of faculty invention rights through claims that federal law or policy requires university ownership for compliance is entirely misplaced. What a careful interpretation of Bayh-Dole shows is that despite the protestation of university contracting officials, investigators are parties to funding agreements through the standard patent rights clause and the (f)(2) agreement that universities are required to require. That is, universities are required to make investigators into invention-purposes contractors. This is what solves the “of the contractor” problem and underscores the importance given in federal policy to the standing of inventors with regard to a wide range of possible employment circumstances.