In the Bayh-Dole Act, a “subject invention” is defined as
any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement… (35 USC 201(e)).
A “contractor” is defined as
any person, small business firm or nonprofit organization that is a party to a funding agreement. (35 USC 201(c)).
A “funding agreement” is
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.
That much is fine. But there’s another sentence:
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.
This second sentence makes it clear that a funding agreement is broader than just the arrangement by which a faculty-led proposal for research is approved and federal funds deposited in a university account. A funding agreement includes all the various ways that a university can distribute the obligations under which the proposed work is performed. Bayh-Dole requires that a patent rights clause be included in each funding agreement. For university grants, the funding agreement is set forth at 2 CFR 215, with the Bayh-Dole required clause at 2 CFR 215.36(b), which in turn points back to 37 CFR 401 with its definitions, which track Bayh-Dole’s, and its standard patent rights clause at .14(a).
A university may distribute obligations under a funding agreement in various ways. The effort of the standard patent rights clause is to make sure that the requirements for handling inventions follows this distribution of obligations. If a university subcontracts work, then SPRC (g) handles the matter, requiring flowdown of the SPRC as well as forbidding the university from claiming any interest in the subcontractor’s subject inventions. If a university assigns to a research foundation the responsibilities under the SPRC with regard to invention reporting and the like, then the definitions operate to make it clear that this assignment is part of the funding agreement, and thus the research foundation is a party to the funding agreement, and hence also a contractor under the definitions of Bayh-Dole. Thus, one can read “contractor” in the SPRC and understand that it may mean the university, and as well it may mean anyone else that the university might engage to do work under any part of the funding agreement, including the SPRC–that could be, for instance, a subcontractor such as another university or small company, or an independent consultant, or an affiliated research foundation.
There is one other flowdown requirement in the SPRC, one that is not in the Bayh-Dole Act proper. That’s the requirement in SPRC (f)(2) that the contractor–the university, here–agrees to require its employees (other than clerical and nontechnical workers) to make a written agreement to protect the government’s interest. By that agreement, the researchers individually agree to report inventions, sign patent filing documents, and sign documents that establish the government’s rights in subject inventions.
Basic stuff, but stuff that an inventor can do and a university would have a difficult time doing otherwise. For one thing, when an invention is made, the inventors are the first to know it, and are the ones that own it. So until that ownership changes, it’s up to the inventors to take whatever actions are necessary to protect the government’s interest in subject inventions. The SPRC recognizes this and requires universities to distribute these functions of the SPRC to all potential inventors in whose work the government has an interest–that is, only employees of the university-contractor, and then only the ones with research qualifications. These are the ones the university agrees to require to make the written agreement to protect the government’s interest.
A couple things happen when a university complies with the SPRC (f)(2) requirement. First, because the university is directing its employees to make the written agreement, necessarily this agreement supersedes any conflicting requirements the university might have on these same employees. A university cannot require both the (f)(2) agreement and something that conflicts with (f)(2). Second, even if the university has similar requirements, the operative agreement is still the (f)(2) arrangement, because it is part of the funding agreement, which is a form of federal contract, and which takes precedence over state-enforced contracts. With (f)(2) agreements in place, a university’s research employees are parties to the funding agreement, by accepting the university’s delegation of certain of its responsibilities with regard to inventions. Research personnel become “contractors” within the definitions established by Bayh-Dole, just as do subcontractors and assignees of obligations under the funding agreement. The (f)(2) arrangement operates as a “substitution of parties,” since individuals are delegated to act in a capacity that otherwise would fall to the university, but which the university could not readily perform, if at all. Put another way, in the absence of any other university policy, agreement, or action, the (f)(2) agreement carries with it all that a federal agency requires to secure an interest in subject inventions. Whether a university disavows invention management, screws it up, or gets into a fuss with its research employees, or some of those employees quit (for instance, they graduate!) half way through the project, the (f)(2) agreement keeps them connected to the federal agency if they have made a subject invention. Pretty cool, that for all the words on the page, all that’s required, really is:
The contractor agrees to require, by written agreement, its employees . . . to disclose promptly . . . , and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.
If a contractor requires the (f)(2) agreement, then the SPRC covers all possibilities that the government cares about. The government does not care about inventions made by clerical and nontechnical workers, or by volunteers or visitors, or by informal collaborations. Just certain employees, supported by federal funds, working within the scope of planned and committed activities under a funding agreement.
Are you with me so far?
Now, let’s turn to pages 9-12 of the Supreme Court decision in Stanford v Roche. Here we find a discussion of the definition of “subject invention” and following from Sean O’Conner’s excellent discussion in the AIPLA amicus brief (as was also argued in the IPO amicus brief filed at an earlier stage of the proceedings, that argued that the Supreme Court should not hear the case) , the Court considers the meaning of “of” in the phrase “of the contractor.” Yes, it comes down to “of.”
Bayh-Dole does not define a “subject invention” as “any invention conceived or first actually reduced to practice in the performance of work under a funding agreement.” That would have been a very interesting move, had the law done so. Then an invention would be “subject” any time it was made within the activities of a federally funded project, regardless of who may have done the inventing, and regardless of their relationship to the university-contractor, and utterly heedless of what any inventor might think, or know, about federal funding. There are all sorts of bother with doing so, such as the problem of how anyone could possibly require non-employees to comply with the funding agreement, or, alternatively, how could a research project remain open and public and fundamental research and all those things that make university research so strong, if one had to work to preclude the possibility that some interloping smart visitor might contribute significantly to a federally funded project. It’s difficult to see why the government wouldn’t want that.
No, Bayh-Dole adds “of a contractor.” And it is a rule of interpretation of such things as laws that words mean things. So “of a contractor” does not mean, whatever happens under the contractor’s auspices, or by means of the contractor’s employees, or whatever the contractor wants it to mean. None of that is necessary to the interpretation of “of a contractor”–those sorts of things would happen anyway. The phrase “of a contractor” is restrictive: it limits meaning rather than adds colorfully duplicative language to the definition of subject invention.
Here’s how the Supreme Court goes about it, having set aside the claim that “of the contractor” is just fluffy language and is not the “of” that you are looking for:
Construing the phrase to refer instead to a particular category of inventions conceived or reduced to practice under a funding agreement–inventions “of the contractor,” that is, those owned by or belonging to the contractor–makes the phrase meaningful in the statutory definition. And “invention owned by the contractor” or “invention belonging to the contractor” are natural readings of the phrase “invention of the contractor.” As we have explained, “[t]he use of the word ‘of’ denotes ownership.”
The Court then works through other reasons for “of” to denote ownership.
No one would claim that an autoworker who builds a car while working in a factory owns that car. But, as noted, patent law has always been different: We have rejected the idea that mere employment is sufficient to vest title to an employee’s invention in the employer. Against this background, a contractor’s invention–an “invention of the contractor”–does not automatically include inventions made by the contractor’s employees.
The Court then discusses the problems of “retain” and dismisses the metamagical thinking that “retain” must have secretly set aside two hundred years of US patent law to vest title with the university employer rather than with the inventor. The Court reaches a remarkably clear conclusion:
Only when an invention belongs to the contractor does the Bayh-Dole Act come into play. The Act’s disposition of rights–like much of the rest of the Bayh-Dole Act–serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.
All this makes great sense, but it has created consternation among some of the most ardent advocates of the Bayh-Dole Act and of university-managed patent licensing programs. Without vesting of ownership in the university, these folks have argued, the wonderful edifice of licensing offices will fall apart, and with it will go technology transfer, economic development, and, and… innovation and public good. Everything falls apart, so the university administrators argued in their amicus brief to the Supreme Court, if universities do not get outright title under Bayh-Dole to federally supported inventions. It is a silly argument, really, but the administrators, having made the argument in all seriousness to the highest court in the land, couldn’t just let it go when the court basically told them their argument was silly and irrelevant. They had to save all these good things by acting to preserve institutional ownership of federally funded inventions. If the Court wouldn’t do it, and Bayh-Dole doesn’t do it, and federal research policy doesn’t do it, why then someone with a lot of nerve has to step up and do it. And that, folks, is now where we are on the matter.
If we turn back to the SPRC, we can see where there might be a problem. In (c)(1), we find that
The contractor will disclose each subject invention to the Federal Agency within two months after the inventor discloses it in writing to contractor personnel responsible for patent matters.
But if a subject invention is one that the contractor owns, then how can the contractor disclose a subject invention before owning it? And how can an inventor report a subject invention to the contractor, unless the contractor already owns the invention? If an invention made with federal support under a funding agreement is merely an invention, and doesn’t become a subject invention until the university owns it, then there are three possible courses of action that one can choose to follow.
1. Nothing but what becomes university-owned. There is no obligation under the SPRC for inventors to report anything to their universities. A subject invention is only one that the university owns, and since a university doesn’t own it until it has been assigned, then there’s nothing to report, and inventors can do what they want with their work. Under this approach, the government only cares about inventions when universities and their monopoly-leaning patent managers get involved, and then the government wants assurances of its rights, and compliance with standards of decent behavior. In this reading, the government remembers the problems it had with WARF’s patent licensing behaviors, and has written a law to deal with such things. Consider this, and also this (p.240). Oh, and this.
WARF was the great competitor to Research Corporation. Where Research Corporation had taken a national view of inventions and research support, dealing with faculty from any institution and providing research support from licensing income to worthy projects anywhere, WARF had used the research foundation model to set up shop to serve only the University of Wisconsin. Each year WARF would donate a portion of the money made from licensing to the University of Wisconsin. Other universities followed the WARF pattern and set up their own research foundations–Purdue, Kansas State, Washington State among them. By 1962, there were over 50 of these. Some aimed to manage inventions themselves. Others contracted with Research Corporation or Battelle Development Corporation, among others. But the idea was: inventions made at a university should result in an exclusive benefit for that university. This was not the angle taken by Research Corporation, which argued that a university ought to get a share, but that the portion to support research ought to be available to anyone with a meritorious project.
These are very different perspectives on how the proceeds of invention management should be distributed. The rhetoric around Bayh-Dole went a number of different ways, but underneath it all, there was also a fight over which of these two philosophies ought to win out. Should a university stay out of the licensing business, and get from time to time a check from a national organization reflecting its licensing activity, or should a university get more involved, and aim to get a bigger check that covers not just an equitable amount reflecting support for the inventive work, but also ensures that all research that might be supported is supported at the local campus. While research collaborations might be global in nature, and while there might be all sorts of support among investigators, not to mention movement of investigators among institutions, an invention should anchor all the benefits to the campus that got so lucky as to host the invention, identify it, and find a way to profit from it. In essence, the WARF model was: there will be no sharing of patent licensing proceeds with any other institution or its faculty.
The interpretations of Bayh-Dole and institutional ownership still follow this ancient debate. In the institutional-ownership model, the WARF-MIT model wins, Research Corporation is crushed, and administrators never have to revisit a faculty request to work with any external agent, or to see proceeds from patent work go to benefit faculty and students at any other institution. In the faculty-choice model, the WARF-MIT model loses, and faculty are free to choose the most suited, and capable invention management agent, and can in their arrangement with that agent provide for any income to be shared with their host university, or with any other universities or other beneficiaries. Under the cover of government inefficiency in commercialization of inventions, and alongside an effort by the NIH, WARF, Purdue RF, and others to extricate DOE and NIH from a long-standing invention policies hated by industry and university administrators alike, Bayh-Dole was really about sticking it to Research Corporation, faculty choice, and a national perspective on sharing benefits from patent licensing.
2. University aims to own everything. A university has to own everything that might be made under a federal funding agreement. To comply with the SPRC (typical usage is “to comply with Bayh-Dole”), a university has to require all employees assign patent rights to the university. The upshot of Stanford v Roche for administrators who buy into this view is that the Supreme Court hung its hat on a technicality that threatens everything that Bayh-Dole sought to accomplish. To restore order, universities must implement comprehensive present assignments for all inventions, invention-like things, and things that aren’t inventions at all but can be treated as inventions. All this is “just in case” to make sure the university complies with the Bayh-Dole, er, the SPRC. Or, more generally, all this is to preserve the university’s investment in a patent licensing operation based on a claim of expeditious ownership of all inventions.
This second approach is the line of reasoning that extends from WARF to the idea that the purpose of patenting is to attract paying investors and make a windfall profit. Since the windfall profit is identified as benefiting the university, it must be a public good for folks to be involved in seeking such profits. And the folks most interested in seeking windfall profits from patent positions they didn’t create for themselves are speculators, trolls, and second tier entrepreneurs. Sorry to be so critical, but that’s the sweet spot for windfall profits without having to do the actual work of developing an invention to the point of practical application, but instead putting someone else up to it and holding a share of the upside while taking little to none of the expense or risk. There are plenty of ways for university faculty to use the patent system to promote the use of their inventions and discoveries, and some of these might even result in windfall profits, but there is a big difference between an individual decision to pursue an invention and an institution’s decision to demand all such inventions, and pursue windfall profits from the patent positions.
It’s the difference between WARF and RC approaches. In one, an established order takes what it wants and dictates the arrangements. In the other, an established order is chosen based on acceptable arrangements. To be fair, for a long time the University of Wisconsin did not require its faculty inventors to assign to WARF. Other universities made “progress” in this regard and have demanded assignment, many using Bayh-Dole as leverage for insisting that federal law gave universities ownership of federally supported inventions, if not outright, then the right to take ownership, or the first right of refusal for assignment, or first in line to own, or something, anything that left the inventor with no choice until the university had chosen. Wisconsin has since caught up, it appears, and made its own requirements this direction.
The effort under this second approach is to require present assignments for all future inventions a faculty member (or any other employee, or non-employee) might make. If everything is owned by the university-contractor, then the Bayh-Dole definitions work, since then all inventions that might be made are “of the contractor” the moment they pop into existence–as are a lot of other inventions that the government has no contracted interest in. Thus, in this second approach, there is no need for the (f)(2) agreement, so the argument goes, because the university has covered all the worrisome parts with its own policy and private contracts with faculty and others. Just to make the logic clear: to ensure compliance with the SPRC, a university claims ownership of everything by policy and private agreement, and therefore does not have to comply with stuff in the SPRC such as the (f)(2) delegation.
Of course, a present assignment approach is more difficult to implement than university administrators realize. In a corporate environment, employees work for the benefit of the company, sign non-disclosure and non-compete agreements (except in states like CA where non-competes are pretty much void), and in this context, a present assignment of future inventions has a reasonably clear scope and supporting apparatus. Scope and supporting apparatus for faculty-led university-hosted research is not so well established. If faculty can choose what they want to study, and can choose where they want to study it, and with whom, and for what purpose, with what support, and with what forms of publication, instruction, and engagement, then scope is really difficult to get to. Further, the nature of “employment” itself, when it comes to faculty doing extramural research, is not all that settled. Yes, a faculty member may be also an employee, but as the Supreme Court wrote, “patent law is different.” Employment alone does not give an employer rights to inventions made by employees. All the more so when the employees are hardly employees at all with regard to their scholarship: rather, they are faculty, and students, and folks collaborating with them.
One can get tangled up in the arguments, but the outcome for the second approach is that faculty will have to be made into employee workers for the purposes of making the second approach work. Their appointments and employment agreements and policy environment will have to change to prevent independent faculty control of their work and work results. In the second approach, a faculty inventor has no rights to his or her invention the moment the inventor separates from the university. The inventor has to beg a patent license like everyone else. There is no fair use or research exception in patent law. In the second approach, the university is Hotel California for inventions: they can never leave.
3. Inventors choose an agent or let the government choose. In the third approach, everything works according to the definitions in Bayh-Dole, when combined with the compliance required by the SPRC. In this approach, universities delegate via the (f)(2) agreement the initial invention duties to prospective inventors–the research employees in whose inventive work the government has an interest. As a result, Bayh-Dole restricts agency claims on inventions to give faculty (and other) inventors working with federal support a basic choice: if you choose an approved invention management agent, then when you assign to that agent, that agent is assured that it can, if it notifies the funding agency and otherwise complies with the SPRC retain title to the invention.
Much of the fuss around compliance with the SPRC (or “with Bayh-Dole”) has been on how much pressure a university administration can bring to bear on faculty to make them agree to assign inventions to the university for management. If inventors have a basic choice in invention management agents, and that is federal policy, then how vulnerable are those inventors to a university demand that the university be their only possible choice? Apparently the answer is: very vulnerable. Bayh-Dole did a great deal to impose a uniform limitation on the power of federal agencies to demand ownership of inventions made in faculty-led research by leveraging the offer of financial support. But Bayh-Dole did nothing to protect that faculty-led research choice. There is a reason for that. It was no oversight. The absence of protections for inventors gave the WARF-MIT model an advantage. Without protections, such as a stronger (f)(2) requirement, university inventors were left exposed to administrations ready to attempt to profit from their own patent licensing operations by setting up or expanding their institution-centric programs. The “growth” of university technology licensing charted so nicely by the Association of University Technology Managers is an account of the battle waged on Research Corporation, Battelle Development Corporation, Competitive Technologies, and any other agents that might work directly with faculty or through a university administration that chose not to involve the university directly in patent licensing matters, especially when the primary goal might be pursuit of windfall profits rather than, say, equitable access for everyone.
If Bayh-Dole, or even just the SPRC, were amended to adjust the balance, the (f)(2) agreement would carry the same stipulation that the subcontracting clause (g) includes:
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.
That would do it. Add to the end of (f)(2): “Such employees will retain all rights provided for the contractor in this clause, and the contractor will not, as part of the consideration for permitting such employees to participate in the performance of work under the funding agreement, obtain rights in such employee’s subject inventions.” With this addition, which the Department of Commerce is authorized by Bayh-Dole to make, if it so chooses, the balance would be restored, and faculty inventors could once again decide whether a national agent, or a specialized agent, or a local agent, or a university agent, or the federal agency that funded the work was the best suited and responsive to using the patent system to promote the use of any given invention. If the faculty inventor desired to manage the invention directly, that would be a matter to take up with the funding agency. Same for if the faculty inventor wanted the invention to become public domain. Since an invention in the public domain provides the equivalent of a non-exclusive license to the government–a license even broader than that provided for under Bayh-Dole–there should be many occasions in which the public domain would be a better outcome than spending $10K+ a pop to sequester research discoveries and inventions behind paywalls to which no-one may ever come to a-knocking.
The puzzle with this third approach, however, is how the SPRC distributes via (f)(2) to any assignee chosen by the inventors. One reading is that the contractor in section (k) may assign to any organization that has as a primary function the management of inventions. Since the inventor is a contractor–though not the exclusive contractor–then, the argument goes, the inventor may assign the invention just as a university-contractor may assign an invention, if the university comes to have ownership of the invention. The Supreme Court did not challenge the assignment made by an inventor in the case of Stanford v Roche. Nor did the justices offer to help Stanford figure out what it should do next–which would have been to argue that when the inventor assigned right, title, and interest in and to a subject invention, that assignment necessarily carried with it, as a matter of federal agreement, the SPRC under which Stanford had conducted the research. That would not have given Stanford ownership of the invention, or standing to sue Roche for infringement, but it would have made the argument that Roche was subject to section (k) of the SPRC, because Stanford was subject to (k), and the condition in (k)(1) on assignment is that the “assignee will be subject to the same provisions as the contractor.” Arguably, this would mean that Roche is subject to (k)(2) to share royalties with the inventors, and (k)(3) to use the balance of royalties or income after expenses involved in administrating the subject invention (including paying off their litigation expenses, perhaps) for the support of scientific research or education. If Roche finds such obligations unattractive, then, hey, maybe they could work out a deal with Stanford.
In the alternative, if the only thing that gets assigned with an inventor-contractor assigns title to an invention is the (f)(2) delegation, then Stanford gets nothing, the inventors get no royalty share, but at least the government is assured that its rights are protected. Of course, Stanford never formally complied with the (f)(2) requirement, so one would have to construct some way in which policy statements and invention agreements added up to the written agreement required by (f)(2).
There is yet another alternative, one that requires cooperation between a university administration and its inventors. In this alternative, an inventor chooses a qualifying invention management agent, and the university assigns its SPRC obligations to that agent, making it a contractor under the definitions in Bayh-Dole. The inventor can then assign to a contractor that has clear standing under the SPRC to elect to retain title and otherwise perform within the requirements of the SPRC.
As it stands, we have a law and federal contracting protocols that could be argued a number of ways. My preference is for the third way, as it does the best job of managing the various elements of the Bayh-Dole Act and the SPRC as they are presently drafted. I am fine with the idea that the (f)(2) delegation carries with it not only the bits that protect the government’s interest but also, with regard to “establishing the government’s rights” carrying with “establishing” the assignment of the university’s SPRC obligations under the funding agreement to any qualified agent prepared to accept assignment of a subject invention. It all works, but for objections from folks who don’t want it to work.
It is clear that there are some folks who do not want faculty inventors to have any choice in the disposition of their discoveries and inventions. The argument goes: Faculty inventors will make bad decisions. Patenting is expensive and complex, patent licensing is fraught with challenges, and is costly and long, and patent litigation is even worse. Faculty inventors will be gullible and selfish and foolish and mean and might share royalties with others or worse provide benefits without charging as much as possible, and they won’t likely hold out to get bought out by an even bigger speculative interest. The university by contrast will make good decisions. The university will use professionals who won’t be gullible or selfish or foolish or mean–and will not do any of the things that faculty might do. This was the argument made, for instance, in the WARF-led amicus briefs in the Stanford v Roche.
I am not buying this sort of argument. First, the issue isn’t faculty inventors acting isolation vs. a well funded, professionally operated university licensing shop, but a university licensing shop vs. any other method by which a faculty inventor might deploy his or her inventive work. There are many opportunities for invention development that don’t involve seeking windfall profits from patent positions, and even some that do, but don’t involve university administrators.
Second, faculty inventors have, for the most part, over the past century, made a lot of decent decisions. They have been responsible for both the Research Corporation model and the WARF model. They have developed consortia and open source approaches. They have demonstrated the kind of teamwork necessary to get things done in the context of World War 2 technologies, leading to the formation of the National Science Foundation, which also appears to have owed something to Research Corporation’s approach to funding research–just that at the NSF tax dollars are substituted for licensing dollars. Faculty investigators and inventors can and do make mistakes, err in judgment, and have streaks of bad fortune. So do university licensing offices. So do independent invention management agents. It’s just that when a university licensing office messes up, there is no recourse for the inventors, and no clear role for the university administration–it will be conflicted: whether to defend its administrators from the criticisms and claims of faculty inventors, or to side with the inventors and deal with the tech transfer problems, and potentially pay out a lot of money to make the inventors whole. One can anticipate where a university administration is likely to fall.
For all that, the third approach works without doing damage to academic freedom or leaving most everything unreported. It is a good alternative for university administrators who value academic freedom, find opportunity in diverse approaches to research innovation, and value the judgment of faculty and others creative and diligent enough to invent and discover.