Introduction
The Bayh-Dole Act is a complex piece of work, with a tangle of requirements and implementing regulations, with plenty of opportunity for misunderstandings and exploitation. In other places, I have worked to show in detail how the Bayh-Dole Act operates, citing the Act chapter and verse, as it were. To make it simple, one has to drop the citations, the qualifications, and the explanations, and reduce things to basic points. If you know the details of Bayh-Dole, then you will see the limitations of the account I provide here. If you don’t know Bayh-Dole, then be assured that each point here drives at something that is well supported in the Act, its implementing regulations, and the Supreme Court’s decision in Stanford v. Roche.
You may have read versions of Bayh-Dole that differ from the account here. There has been a massive misinformation campaign, led by university patent administrators of the course of nearly thirty years. Any web search will turn of pages of sloppy, self-serving, and even fabricated statements about Bayh-Dole. Much of the academic literature has been taken in, or accepted the university administrators’ arguments for convenience. A few authors stand out–Rebecca Eisenberg, David Mowrey, Bhaven Sampat, Robert Cook-Deegan, and Arti Rai among them.
I encourage you to check the account given here for yourself. Bayh-Dole is at 35 USC 200-212. Its implementing regulations are at 37 CFR part 401.1-16. The standard patent rights clause is at 37 CFR 401.14(a). The standard federal funding agreement applicable to most university research awards is at 2 CFR 215. The standard patent rights clause is referenced at 2 CFR 215.36(b). Other conditions on patents acquired or improved with federal funding are at 2 CFR 215.37. The flow down of the standard patent rights clause to research personnel is at 37 CFR 401.14(a)(f)(2).
Simply Put
The Bayh-Dole Act applies to federal agencies. The Act aims to use the patent system to promote the use of inventions made with federal support (called “subject inventions”). The Act requires federal agencies to use, in each funding agreement, a standard patent rights clause (SPRC) prepared by the Department of Commerce. As a condition of accepting federal funds, a university agrees to comply with the SPRC.
The SPRC defines the relationship between a federal funding agency and a university with regard to patent rights. A university’s employees do not become parties to a federal funding agreement when a university becomes a party to such an agreement. Research employees become parties to the funding agreement when a university complies with the SPRC and requires them to agree to report inventions and sign patent paperwork.
Under the SPRC, a university receiving the federal funding must:
- report subject inventions made with federal support;
- educate its employees on the importance of reporting subject inventions;
- require research personnel to agree to report inventions and to sign patent paperwork;
- flow down the SPRC in subcontracts;
- make a final report of subject inventions; and
- periodically make summary reports of subject inventions.
There is no requirement in the SPRC that inventors must assign subject inventions to the host university, or that a university must take ownership of subject inventions, or has a first right to take ownership of subject inventions. The Supreme Court ruled in Stanford v Roche that the Bayh-Dole Act does not vest title in subject inventions with universities. Indeed, according to the Supreme Court, an invention is not a “subject” invention until a party meeting the definition of “contractor” under the federal funding agreement owns it.
The SPRC anticipates alternatives in the management of inventions. Inventors may assign their inventions to their university or to another organization, and the new owner must agree to minimum conditions for invention management. If inventors do not assign their inventions, then the federal funding agency may request assignment to the federal government, otherwise the inventors keep their inventions.
There are five alternative outcomes for inventions:
- Assignment from inventors to university.
- Assignment from inventors to another agent.
- Assignment from inventors to the government.
- Inventors retain ownership.
- The invention enters the public domain.
Bayh-Dole provides for a diversity of private practice and does not dictate any particular outcome. Disposition of ownership is at the discretion of inventors, their employers, other agents, and the federal funding agencies.
Once a university or other agent has obtained ownership of a federally supported invention, the SPRC places additional requirements on the new owner of the invention. One set of requirements pertains to filing patent applications; another set has to do with licensing; a third set has to do with reporting; and another set is specific to universities and non-profits and has to do with assignment of inventions and use of royalties. If a university or other new owner decides not to seek a patent, or maintain a patent that has issued, then the federal funding agency may request assignment. If a university or other owner fails to comply with the SPRC, then the federal funding agency may request assignment, or may “march-in” and require licenses (or do the licensing itself).
These SPRC requirements focus on meeting the objectives of the Bayh-Dole Act. The emphasis throughout Bayh-Dole and the SPRC is on “practical application” of subject inventions, not “commercialization” or “licensing” or “making money” or “enforcement of patent rights.” The standard in the Act is not whether inventions are owned and patented, but whether the patent system has been used to promote invention use. Patents may be used to produce income without having anything positive to do with use. One may, for instance, litigate to extract payments from companies–that is, threaten to preclude, rather than to promote, use. It is essential, therefore, if one is to liberalize federal policies on research contracting, that one also pay close attention to ensure that practices undertaken as a result of the law and its regulations are achieving the objectives set out in the legislation.
Does Bayh-Dole Work?
Bayh-Dole has never been fully implemented. Compliance with the (f)(2) agreement requirement of the SPRC has been ignored by universities and federal agencies alike. Federal funding statements in issued patents are not consistent. New products are not generally reported, except in rare splashy “success” stories. Licensing revenues are conflated inventions that did not receive federal funding, and royalties from sales are conflated with income coming from other licensing premises, such as upfront fees. March-in procedures have never protected the public interest.
Bayh-Dole was designed to preclude public accountability. Unlike the prior institutional patent agreements, agencies under Bayh-Dole are required to request reports of invention use and development. Even then, Bayh-Dole made secret such reports of patent use secret. Bayh-Dole also revised procedures to “march-in” when inventions were not being used or developed, making these procedures convoluted to the point of uselessness. In the more than thirty years since Bayh-Dole was passed there has not been a single report documenting the utilization of university inventions made under Bayh-Dole, nor has there ever been a federal march-in to release monopoly rights to any federally supported invention to provide for public access. Is Bayh-Dole working? There is no way to tell from objective evidence.
An internal document at the University of California recently suggested that 0.2% of inventions under management at universities were developed into commercial products. How many of those were federally supported is not reported. At the time that Bayh-Dole was passed, the federal government was criticized (unfairly, it appears now) because only about 5% of its patents supported commercial products. Well now. If only 1 in 500 inventions result in commercial products, what indeed is happening to the other 499? Again, we are not permitted to know.
It is clear that Bayh-Dole spurred universities to convert their “technology transfer” offices from support resources to help guide faculty to competent invention management agents to institutionally controlled patent licensing programs. In making this change, universities displaced their primary role as supporters, trustees, and mediators in favor of institutional self-interest (creating a serious conflict of interest with their stated public mission). One consequence of this change has been the conversion of university patent policies from ones focused on enabling external agents to undertake patenting and licensing, with faculty-mediated determination of “equity” in inventions based on circumstances, to policies based on a demand for ownership and an institutional claim on income, without regard for circumstances.
Organizations such as AUTM publish annual reports that track this transformation, but put their information forward as evidence of the “success” of university patent licensing, and therefore also of the Bayh-Dole Act. It is much more clear that university administrators have used the Bayh-Dole Act to execute this transformation in policy than it is that this new regime is at all effective. Financially, a licensing program requires only one lucrative patent license every twenty years. A typical research university might see 5,000 invention reports during that same period. If the purpose of Bayh-Dole was to promote the use of inventions, then there is a potential for a huge mismatch between financial reporting and the actual impact of university patent policies.
It is also clear that the Bayh-Dole Act has nothing directly to do with the transformation of universities from stewards to speculators. Nothing in the Act requires or encourages such a transformation. The great defect, if one might call it that, in the Act is that it did not provide for much better oversight of compliance with the SPRC, and a readiness to challenge and correct misrepresentations of the Act and SPRC by university administrators. As a result, America has saddled its university research–an area of great diversity, creativity, and independence–with hundreds of bureaucratic monopolies, which for all the statements regarding public benefit, operate primarily to shop patent rights for speculation rather than for broad use. In the process, faculty freedom has come under attack, the relationship of faculty to their host institutions has been undermined, and innovation has become a hostage of paywalls, contracting apparatus, and bureaucratic procedures. Such a system favors speculators and parasites. There is room in an innovation economy for even these, but it is difficult to see why federal policy would deliberately set out for this result.
Bayh-Dole has led to a stultification of university research activity. Many important advances that would have been readily available are now held for ransom. The transformation of university administrations to self-interested controllers of inventions undermines collaboration (introducing substantial overhead and delays), scholarly publication (cannot practice what one learns without permission from a bureaucrat), and public accountability (the institutions will not report their shortcomings, and no longer are the advocates for the public to ensure diligent invention management practice that serves the public). Some inventions still make it through these barriers, but it appears that the new processes do more to suppress collaboration and independent development of federally supported inventions than they do to promote use.
Simple Changes for a Better Bayh-Dole
In the run-up to Bayh-Dole, university administrators pointed to the success of their licensing programs, which were largely voluntary, conducted by external agents, and highly selective. After Bayh-Dole, university administrators transformed their policies and practices, implementing comprehensive, compulsory ownership policies, focusing on money-making, and suppressing a full, regular account of their work. Bayh-Dole carries no language to cause this situation, but it falls to Congress to change Bayh-Dole to correct the course that university administrators have chosen.
- Require full implementation of the (f)(2) requirement in the SPRC. Do this now.
- Restore public accountability for subject inventions. Start with universities and non-profits. Make utilization reports subject to FOIA. Require annual reports. Publish them. Simply changes in 35 USC 203 and 37 CFR 401.14(a)(k).
- Implement freedom to innovate. Don’t let the opportunity for the organizations to retain ownership of inventions when inventors choose to assign those inventions to them lead these organizations to demand assignment of subject inventions, threatening employment, reputation, initiative, collaboration, and innovation. 35 USC 202(c)(7) and 37 CFR 401.14(a)(b).
- Allow university inventors to dedicate inventions to the public domain. Yes, use the patent system to promote use of inventions, but only those inventions for which the patent system appears suited. 37 CFR 401.9.
- Limit the ability for nonprofits to sue for infringement of patents on subject inventions. No litigation without an approved utilization report, preferably one showing the invention is being used so that the benefits are available to the public at a reasonable price. No trolling on subject inventions. 35 USC 2o3 and 37 CFR 401.6(l).
- Require nonprofits to report the use of licensing income after expenses incidental to the management of subject inventions. The SPRC restricts the use of such funds. Now make the universities report publicly and pass audit to show compliance. 37 CFR 401.14(a)(f).
Bayh-Dole has allowed a great transformation in university invention management. It is great to see so many talented people working to develop inventions for the public good. It is disheartening, however, to see so many of these dedicated people working in terrible policy conditions with impossible demands. University invention practice has reached rock-bottom. Time to make some changes, restore freedom and accountability. Insist on compliance with the delegation of responsibilities to inventors. That should go a long way to improving the chance that Bayh-Dole, some day, may live up to its potential.