IPA compared with BD and its CFR and SPRC

I have created a table that lays out some of the differences between the 1968 HEW Institutional Patent Agreement template and the Bayh-Dole Act, the implementing regulations at 37 CFR Part 401, and in particular the Standard Patent Rights Clause at 37 CFR 401.14. [I have updated CFR references to current citations and added some further notes.] Enjoy.

Under Bayh-Dole, the IPA master agreement approach is replaced by patent rights requirements governed by each agreement. There is no master relationship. No patent policy is required. There is no review for licensing practices. Each funding agreement contains a patent rights clause, as required by 37 CFR 401. The standard patent rights clause is at 37 CFR 401.14. This clause finds its way into most university funding agreements via 2 CFR 200.315(c).

Under the IPA, subject invention is a contract definition covering any inventions made in the funded research. In Bayh-Dole, “subject invention” is a definition in the patent law, and the condition of scope is “in the performance of” rather than “in the course of or under.”

The IPA requires a Grantee to deal with “all persons” performing any work, while the SPRC stipulates “employees.” The IPA avoids “employees” and refers to “persons” and “personnel” without indicating the relationship to the Grantee–what matters is the relationship to the work under a grant.

Under the IPA, the university must require assignment of inventions from everyone doing work under a grant, including subcontractors. Bayh-Dole is silent on assignment scope. In the SPRC, the university must require employees to make a written agreement to protect the government’s interest, and that interest could be either title or a license, and the government could get that interest from the inventors, or, if the inventors assign their inventions, from the university or other assignee. Under the SPRC, the university is forbidden from obtaining rights in inventions made by subcontractors as consideration for granting a subcontract.

[Note: Under NIST’s May 2018 rule change, the SPRC now includes a requirement that contractors require their employees to assign subject inventions to the contractor, if the subject invention was made under a contract (but not grant or cooperative agreement). This means that a contractors that already owns an invention must require employees to agree to assign that invention. Bayh-Dole applies to subject inventions only, and therefore has no authority to turn inventions into subject inventions. Ready the change as you may. One possibility: contractors holding equitable title must require employees to assign legal title.]

[Note: the license to the federal government really isn’t a license. Rather, it is a waiver of the right to seek compensation in the Court of Federal Claims. See 28 USC 1498–the government has the right to practice any patented invention. Here, a license then has to do with waiver of claim to compensation.]

Note: the patent agreement required of personnel in the IPA is general and arises prior to any particular grant or award. In Bayh-Dole, the written agreement requirement is carried in each funding agreement, and arises after the agreement is in place.

Inventors do not have a right to retain title under the IPA, but they do under Bayh-Dole.  The IPA carries an express prohibition on suppressing publication of inventions after a patent application is filed, while Bayh-Dole is silent on the matter.

Under the IPA, a university could assign title to a subject invention only to a nonprofit patent management organization, and only then with agency approval. Under Bayh-Dole, this requirement is specific to nonprofits (not to small business contractors or to inventors when they retain title), but relaxed to allow assignment to any organization so long as it has as one “primary function” the management of inventions. Such assignment may be done without agency approval. Note that if an exclusive license grants substantially all rights in an invention, then it functions as an assignment regardless of how it is labeled. An exclusive patent license may also be an assignment of the underlying invention. If so, then it comes within the requirements pertaining to assignments, not licenses, under the SPRC.

Under the IPA, a university decides to file a patent application, and then is required to obtain assignment. This sequence is relaxed under the SPRC. A university may elect to retain rights up to two years after disclosure, without any decision with regard to filing a patent application.

The IPA predicates university of administration of subject inventions on “the public interest.” This predication is reflected in the intangible assets management requirements of federal funding agreements for grants and cooperative agreements at 2 CFR 200.316, which requires the university to act as “trustee” with regard to patents (and other intangible assets acquired or improved) for the beneficiaries of the federally funded project. The IPA requires non-exclusive licensing as the default, limited further to royalty-free or on reasonable terms. Bayh-Dole places no restrictions on licensing strategies. Bayh-Dole licensing requirements are not connected to the statement of objectives other than with regard to march-in determinations. In the IPA, the public interest is a positive requirement on all licensing; in Bayh-Dole, the objectives are used to frame the outer bound of private interests. The burden of proof shifts from the university to the government.

In the IPA, a positive determination is required for a university to undertake exclusive licensing. No such apparatus is required by Bayh-Dole. In the IPA, exclusive licenses are limited in duration. No such limitation under the SPRC. Bayh-Dole requires exclusive licenses for the U.S. to require products to be “substantially manufactured” in the U.S., but even this is subject to agency waiver. Nonprofits are required to prefer small businesses in licensing, which presumably applies to exclusive licensing, but may also suggest discriminatory licensing practices. The CFR relaxes the requirement by arguing that universities may still offer large companies “right of first refusal”–which amounts to an exclusive interest in subject inventions. Clearly, here, there was much effort to remove as much university responsibility for exclusive licenses as possible.

The IPA has extensive reporting requirements that are substantially reduced in Bayh-Dole and the SPRC. The IPA’s “promptly” becomes “a reasonable time” and the IPA’s “after conception or first actual reduction to practice” becomes “known to contractor personnel responsible for administration of patent matters.” In the IPA, the university is responsible to file reports promptly. In the scheme under Bayh-Dole, they have no responsibility until specific personnel–the patent brokers–are notified. The SPRC adds a requirement that the university provide an educational program for employees teaching them the importance of timely invention reporting. Under the IPA, it is up to the university to get information promptly. The effort of Bayh-Dole was to put the patent brokers at some distance from the research and from responsibility.

IPA reports are required annually. Under Bayh-Dole, it is up to each agency to request reports.  Under Bayh-Dole, reports are exempt from public disclosure. The SPRC description of information that may be requested omits a licensee’s gross sales, leaving only the payments received by a university, which may not reflect sale of any product at all. Thus, Bayh-Dole hides the distinction between patent arbitrage, which plays on trade in patent rights, and invention development, which plays on the value of new products in the  marketplace. It is clear that under Bayh-Dole, patents have the potential to become more valuable than the inventions they cover.

The notice of government support under Bayh-Dole is broadened to include a statement that the government has rights in the invention. Indeed, the government could end up owning the invention. The basis notice shifts from one putting everyone on notice that the “public interest” must be met by the patent owner to indicating that the government at least has got its rights, so that any exclusive license will be thus limited.

Under the IPA, there’s a clock:  3 years from patent issue, the university must show it has taken effective steps toward practical application. If the university cannot do so, and cannot meet two other tests, then the government can act to eliminate the university’s monopoly position. All of this is gone under Bayh-Dole. No clock, no review of exclusivity, no remedy. This may be where Bayh-Dole represents the greatest loss of public control over university patent licensing.

The IPA makes multiple references to the public interest and public welfare in underscoring agency review of university licensing programs. The agency’s general criteria is that “public interest would otherwise suffer.” This standard is based on reason, as it is prospective, rather than on empirical data. Under Bayh-Dole, march-in is relaxed in a number of ways. The benefits of the invention, rather than the invention itself, are to be available to the public on reasonable terms. This change is substantial. Similarly, “public welfare” disappears from the Bayh-Dole list of conditions subject to agency review, leaving “health or safety needs.” A further limitation is that any march-in has to show that the university, assignees, or licensees have not “reasonably satisfied” the need. The burden has shifted to the government to take back rather than the university to “show cause.”

The march-in procedure under the IPA is short and sweet. Notice and chance for a hearing. Under Bayh-Dole there is added an opportunity to challenge march-in determinations in federal claims court. Bayh-Dole further defers administrative procedures to the CFR. There, a huge tangle of proceedings with challenges, qualifications, and burdens of proof are set forth, all favoring universities and aiming to make the process difficult if not impossible for the agencies. The CFR treatment goes so far as to provide agencies with the opportunity to abandon the process, as if the process is intended to exhaust agency patience and budgets. Certainly the process is set out to take so long that any meaningful government action to protect the public will be blocked for the time frame in which it is needed. Any march-in under Bayh-Dole’s CFR is entirely academic.