One of the benefits of reading carefully is discovering how a well constructed text makes sense of complex situations. The implementing regulations for Bayh-Dole are one such text. It is really something to take the mish-mash that is 35 USC 200-204 and make that into something that can be implemented. There are things that could be improved, but all in all, it’s actually an astute job of drafting. It’s a shame that so many readers of the text are content with superficial stuff, like misreading “elect to retain title” to mean “take title with impunity”.
Let’s look at a rather obscure, quiet part of 37 CFR 401.14(a), the standard patent rights clause for universities, the SPRC, for short. Again, this clause goes in each federal funding agreement and can be modified only in exceptional circumstances, with the agency following a protocol to do so. So it’s a pretty stable clause. I’ve written about this clause before, but there’s more to it, now, in light of Stanford v Roche.
In SPRC (e), we encounter a section titled “Minimum Rights to Contractor and Protection of the Contractor Right to File”. It is an odd title, since the section concerns license rights residual with the contractor should the government take title to a subject invention, and the subsequent status of those rights. It is as if there was another section in the original draft, which was deleted but the heading not changed. What’s left, however, makes for some interesting reading–really, not as good, as say, Cryptonomicon, but still worth the read. Here’s (e)(1),
(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.
This means that if a contractor holds title to an invention, then if the government obtains title and takes a patent position, the contractor is granted a non-exclusive worldwide license, royalty-free. Pretty cool. The part that I’ve bolded is even more interesting–the scope of the license includes sublicenses that were obligated prior to the time that the contract was awarded.
That is, a contractor could offer “present licenses” (let’s call them) to expectant inventions that might be made in a federal funding agreement, and even if the government owned the invention, these licenses would still be effective, provided that those holding the licenses worked on practical application of the inventions (as per (e)(2)). One could imagine such “present licenses” being part of, say, a research consortium, in which companies are working with a university supported by federal funding, and the deal is that the companies have a contractual right to a license to any inventions made with the federal funds. University contract administrators often work against this benefit, however, by refusing to grant such licenses upfront–demanding that the license be granted, later, when there is an invention, and of course, where there is no prospect of relying on SPRC (e) to assure the industry collaborators of a license, even if the government takes title to the invention.
One could also imagine a university affiliates program, where companies paid a fee to subscribe, and for that benefit received a non-exclusive, royalty-free make-use right to inventions made with federal support at the university, within in a specified area of interest. Faculty investigators could join this area of interest (voluntary!), and so could companies. The faculty that joined would have the benefit of the industry subscription payments for their work, and the more faculty that joined, the greater the future dollar value of the research being contributed to the commons. The rights could be make-use with an option to sell, provided that the option was entirely the right of the company to elect. That way, it meets the condition of “legally obligated” “at the time the contract was awarded.” The option to sell could include a step up in the subscription fee for the affiliates program, or the payment of an equal amount should the company choose to leave the affiliates program. In this way, a university could create a research commons–it could even extend beyond a single university–and assure companies of access to any inventions, regardless of who ends up with ownership. One would think that this would be a workable deal for faculty and companies. It certainly is for the government–as it’s baked right into the implementing regulations–another of those things that are in the regulations and not in Bayh-Dole proper.
Talk about reducing “title uncertainty”–here is a way to do it *without* having to know where title ends up! The university *does not have to own* in order to do this deal–it just has to *do the deal before it gets the contract!* If innovation is about the unexpected future, and research surfaces the unexpected or it’s not much in the way of research, then this SPRC (e) is the way to do it. In 30 years, has it ever been used by universities, except, perhaps by accident? It certainly appears to be antagonistic to what tech transfer and sponsored projects folks put out as the party line–“party” as in official bureaucratic requirement, not “party” as in we are now going to have a really good time.
Stanford v Roche made it clear that inventors own their federally supported inventions. The Supreme Court saw that the definition of “subject invention” was one “of the contractor” and so title did not pass to the contractor by means of Bayh-Dole vesting title, but in the standard way, by written assignment. Thus, if the university wished to “retain title”, it had to first obtain title. Bayh-Dole does not require the university to obtain title. Bayh-Dole does not require that the university require assignment of title. Bayh-Dole doesn’t even require a patent policy.
All this is pretty straight. But it leaves open what to do with the (f)(2) requirement that employees be required to disclose “subject inventions”. If a subject invention is one owned by the contractor, then what inventions are there for the inventor to disclose, given that inventions aren’t owned by the university when they are made?–they are owned by their inventors, per federal law. We solved this problem by showing that for the purpose the patent rights clause, research employees are required to become parties to the funding agreement. That is one effect of the (f)(2) clause. It requires the university to add its employees to the funding agreement through the patent rights clause. The result is that the research employees meet the definition of “contractor” but only when they invent, and then only for the purposes of the patent rights clause portion of the funding agreement.
Let’s rip through the definitions, with some emphasis:
(a) 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. This term also 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 defined in the first sentence of this paragraph.
Here we may ask whether the (f)(2) agreement comes within the scope of “assignment, substitution of parties, or subcontract of any type”. Subcontracts are dealt with expressly in SPRC (g). However, if we look at the (f)(2) agreement, we see that it has the characteristics of substitution of parties–that for the purposes of invention, it is the individuals who have been required to make a federal agreement to protect the government’s interests. They are, for the purposes of the SPRC, substituted for the performance of the university, which cannot report inventions for the inventors–because it will not know of them! Nor can it establish the government’s rights in all instances–especially those in which it doesn’t obtain title. Nor can the regulations assume that all universities after 3o years or so will suddenly realize that they should have been using present assignments. No, a present assignment is not needed to implement Bayh-Dole–it is only needed to *frustrate* Bayh-Dole.
It is in fact a requirement of the federal funding agreement that universities (or any other contractor) *substitute parties* with regard to inventions by delegating key elements of the SPRC to their research employees. It is important then that the contractor do this–it comes from the power of the contractor to make the proper delegations and waive any conflicting contractor requirements. When the contractor does this, it chooses to do this. It is not an action imposed by law on either universities or their employees. It is an action of institutional governance, chosen when the university chooses to accept the funds under the federal funding agreement, on behalf of the investigators. If the university wants the funds, then it must *require* the (f)(2) agreement. The focus of “requiring” is not on making the employees do something, but in eliminating any other “requirements” that the university may have otherwise put on employees. That is, (f)(2) empowers employees, at the moment they invent, because it is at that moment that the government has an interest in what they own, and the university does not and should not own.
In the subcontracting provision (g) of the SPRC, we get the following:
The subcontractor will retain all rights provided for the contractor in this clause, and the contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions.
The federal policy is, if you share the funding you cannot use your position as a federal contractor to claim title to what the subcontractor does. Imagine, if you will, that a university receives funds, and by allocating them for use by the investigators, is in a way subcontracting those funds. This is exactly what happens, for instance, if the inventors subsequently retain title to their inventions under 37 CFR 401.9. They are to be treated as is they were small business contractors–in essence, subcontractors of the university with regard to the SPRC! It all works. It really does work. It’s just that some university folks *don’t want it to work* and are doing everything they can to prevent it from working. And these folks are often the ones that bill themselves as the “defenders of Bayh-Dole”. We need fewer “defenders” and more “diligent users” of Bayh-Dole.
(b) The term contractor means any person, small business firm or nonprofit organization which is a party to a funding agreement.
“Person” seems like typical language, since corporations are these fictitious “persons” anyway–but why list all three–person, small business firm, and nonprofit? Why not just “contractor means the recipient of federal funds under a funding agreement”? Perhaps because such a narrow definition is not what the regulations are getting at. If employees are to be made parties to a funding agreement so they may handle their personal invention rights relative to government interests, and that this is to be done without federal interference in the private agreements they may make, such as with their employers, then it is these “persons” that the definition is in particular calling out here. Otherwise, the definition appears to be a truism, because the government generally does not make funding agreements for the performance of experimental, developmental, or research work with persons–as individuals. It funds organizations. So why would “persons” be called out in the definition? I suggest it is because it is exactly persons–and potentially quite a few–that will become party to federal funding agreements through the operation of the (f)(2) agreements.
(c) The term invention means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code, or any novel variety of plant which is or may be protectable under the Plant Variety Protection Act (7 U.S.C. 2321 et seq.).
This definition is straight forward. An invention is what it is in patent law, plus what we do with plants. The key is “which is or may be patentable”. There is a fundamental uncertainty about inventions when they are made–they may not be patentable for any number of reasons–prior art, subject matter problems (like surgical methods), and the like. University policy writers often get this language wrong–it is so difficult to copy, apparently–and turn this into “whether or not patentable” or “including patentable and non-patented” or some such). An invention here is a subjunctive thing–it may be a patentable invention–and that’s the fundamental. Later, it may be shown not to be patentable, at which time, it is no longer within the definition of the SPRC. A subject invention must meet the standard of “is or may be patentable”.
(d) The term subject invention means any invention of a 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.
Now “subject invention”. Key is that it is “of a contractor”. As we learn from the Supreme Court, confirming the fine analysis in the AIPLA brief, “of” indicates “ownership” not “agency”. “Of” does not mean “by”. This means that for an invention to become subject to the SPRC of any funding agreement, it has to be owned by the contractor. If there’s only one contractor, then it looks like there is a big flaw in Bayh-Dole, since it expects inventors to report subject inventions, but the only inventions that could be so reported would have to be owned by the contractor already, and so none would be reported. Unless–as the universities argued–Bayh-Dole vests that ownership outright in the universities. Or, as the universities are now doing, perhaps to save Bayh-Dole from a terrible fate (such as actually getting the chance to operate!), by attempting vesting by private means of present assignments as a condition of employment (or of collaborating, or using facilities, or participating in any sponsored project).
But if there can be more than one contractor–and clearly the SPRC provides for multiple parties to a funding agreement–then this all makes perfect sense. An invention is owned by its inventor right from the get-go, as a matter of federal law. It is an invention “of the contractor” and therefore subject to the SPRC, if the (f)(2) agreement is used to bridge the gulf from university employer to research inventor.
Since we have got this far into it, we may as well pause here and note that a properly implemented present assignment can get at the subject invention issue as well. The moment there’s an invention, the present assignment makes it the university’s and voila, the inventor still have an obligation to disclose it, since it is an invention “of” the (university) contractor. But to do it, one has to draft the appropriate language, and position the present assignment properly, and not have a policy that says it’s a present assignment to anything the university decides it’s a present assignment to later. That is, one can’t leave a review step and require the inventor to agree to agree to whatever the university decides in its review. The best place to do the present assignment for universities is on entry of an employee to a federally funded project.
Be all that as it may, the present assignment approach still breaches the SPRC and may even breach university policy on research contracting, especially if it has a policy requirement that the terms of contracts supersede policy requirements when accepted by the university. The (f)(2) obligation would then by policy supersede the present assignment in policy, but if the university did not require the (f)(2) written agreement as required, there would be a definitional hole. Either the words mean something in policy or they don’t. If they don’t mean anything, then the policy is not part of the employment agreement–it’s just a wish list. If the words do mean something, then the university has drafted its way into non-compliance and cleverly cheated itself out of what it wanted. Again, that faculty don’t just stick their institutions with this stuff points to how willing they are to get along and do things voluntarily even when administrators are running around demanding that it is a legal requirement, when it’s so badly drafted it can’t possibly be anything but thunder–ominous, perhaps packing danger, but not contractual.
The present assignment approach, in addition, doesn’t provide the title certainty that its advocates claim. An inventor may still go consulting and assign an invention, even one made using university facilities or within the scope of the federal funding agreement. Which assignment then controls? The earlier one to the university, or the later one, to a company? That’s a matter of 35 USC 261, among other things:
An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.
If you have an assignment, you need to record it in the PTO within three months or prior to the the next assignment, provided that assignment is for “a valuable consideration” and does not have “notice” of the prior assignment. If you don’t, your assignment is void. Is a policy requirement for present assignment, if published, adequate notice? Making an assignment self-executing does not necessarily give it priority.
If one wants to worry it, consider also the effect of a university-demanded present assignment relative to a prior assignment obligation. This may happen when a faculty member moves from one university to another. Say, from the University of California, with its present assignment, to the University of Washington, with its present assignment. Now there’s an invention within scope of both–use of both institution’s facilities, say, or development in sponsored research while at both. Is there “a valuable consideration” for the subsequent assignment at Washington? That would depend on whether the faculty appointment includes the assignment of inventions, so that salary is “a valuable consideration” not just for services but for assignment of inventions. Of course, the California present assignment is designed to *prevent* just this kind of outcome by claiming ownership to inventions made “outside”. It’s the same deal whether the faculty member leaves California for Washington or merely consults with a company, on the same terms. But in the case of consulting, there would appear to be a much clearer “valuable consideration” than in the course of a faculty appointment.
If everyone implements a present assignment regime at universities, all it will do is render totally doubtful title to any invention the work for which spans multiple universities as faculty change jobs, visit, or collaborate.
The important thing about (f)(2) agreements is that they are federal. They are part of federal funding agreements via the SPRC. Federal agreements are special things. They are not entirely like state-law enforced contracts, and they take precedence. An (f)(2) agreement may not give a university a straight shot at gaining title–the inventor has choices granted him/her by the *university* under (f)(2)–but it does give the university powers under the SPRC that it doesn’t have under its own contracting with its employees. Even if a subject invention does not end up owned by the university–it could be some other university in the battle of present assignments–the (f)(2) agreement assures the government of its rights, and flows down the SPRC in any assignment of title. That protects the inventors, for a start, and provides a foundation for agency oversight of the invention with regard to subsequent practical application–which is the point of Bayh-Dole, after all, not making money for host universities.
Now for one last bit. Under SPRC (e)(1), if the (f)(2) agreement is in place, then when an inventor invents, the inventor is a party to the SPRC part of the funding agreement, and is therefore also by definition a contractor. If title to the invention passes to the government, the inventor retains a personal license to practice the invention along with the university–both are “contractors” for the purpose of the SPRC. Furthermore, if the inventor has pre-obligated the invention, say with a license of expectant interests (a “present license”, as we called it) made in consulting, then that license also stays valid, independent of what the university might do. Sort of like “prior use rights”. That is, there is room in Bayh-Dole for university inventors to pre-obligate their federal inventions by means of licensing, even if the government takes title. It is an open question whether the inventor may retain the right to practice a subject invention when a university takes title, say, under a present assignment regime, and what that does to any “present licenses” that might have been granted by the inventor prior to the federal funding.
One available strategy, then, for would-be inventors appears to be, prior to federal funding, granting “present licenses” to a number of companies, then doing the research with federal funding, and choosing to pass title to the invention to the funding agency. The companies are free to use the invention under the personal licenses granted, and the agency is free to file patents and grant licenses to other companies, or put the thing in the public domain, or designate the inventors as the federal agency’s agent, as a small business contractor.
Perhaps this is only hypothetically juicy, because as far as I can tell, no university is prepared to allow it to happen. It would, however, be a way to manage licensing of inventions without any institutional involvement, at much lower overhead, and perhaps with a much greater prospect of uptake by industry, working directly with inventors. I could imagine, even, universities providing standard simple licenses by which faculty could pre-obligate and push the offer of title to the government as agent. The faculty would have the benefit of the licenses–for whatever consideration was negotiated–the government would hold the patents (and pay for them, if they wanted them), and the university would not have to do a thing–no commercial assessment, no assignments, no drafting, no negotiations, no threats of audits, no fussing over royalties less expenses across three tiers of royalty limits, with checks to be cut and addresses to be kept and taxes to be reported.
Of course, with all of this, before you try it at home, check it through your legal advisors. I’m sure it will be well worth seeing their shocked faces, if they work for an (f)(2) non-conforming institution, to pose it as a possibility!