The path from Bayh-Dole to inventors

Bayh-Dole is a law of federal contracting for inventions. Let’s work through it, again.

1) Bayh-Dole applies to federal agencies, not to universities.

When university administrators say that “Bayh-Dole requires universities to commercialize inventions made with federal funding,” they are twice wrong. First, because Bayh-Dole does not apply to universities, and second, because even if Bayh-Dole did apply to universities, it doesn’t require anyone to commercialize anything. The standard is practical application, with benefits available to the public on reasonable terms. Not commercialization.

2) Bayh-Dole requires federal agencies to adopt uniform practices in contracting for patent rights in inventions made with federal support. That is, federal agencies do not have much flexibility in how they obtain an interest in inventions made with federal support.

3) There are five distinct steps from Congressional intent to university practice. It is essential to understand each of these steps. 

First, there is the law. The law–35 USC 200-212–lays out the objectives and the requirements placed on federal agencies. The law applies to federal agencies. It shapes how federal agencies can contract for invention rights in funding agreements with nonprofits and small businesses.

Second, there are the implementing regulations–37 CFR Part 401. These regulations may be then adapted to agency-specific tailoring. Thus, the National Science Foundation, for instance, has its version of the regulations at 45 CFR Part 650.

Third, there are the standard patent rights clauses. These clauses are authorized by the law, drafted by the Department of Commerce, and placed in the implementing regulations for agency use. There are four such patent clauses. The standard patent rights clause is 37 CFR 401.14(a) and applies to nonprofits. With the removal of section (j), 37 CFR 404.14(a) applies to small businesses. A variant for certain nuclear and weapons programs is at 37 CFR 401.14(b). A fourth patent rights clause, specific to situations in which inventors do not assign their rights to the university that hosted their research or to an approved invention management agent, is at 37 CFR 401.9. Federal agencies may tailor these clauses, and do.

Fourth, there are the federal funding agreements. These are the specific requirements by which any particular federal award is made to a given university or other “contractor.” For universities, the primary federal funding agreement is set out at 2 CFR 200. There, two sections matter. The first is 2 CFR 200.315, which addresses copyrights, data, and inventions. Section 315 requires “recipients” to follow the requirements of 37 CFR Part 401. The second section is 2 CFR 200.316, which deals with intangible assets in general when those assets are “acquired or improved” with federal support. If a university claims ownership of inventions made with federal support on the basis of participation in a federal award, then the university has used the federal support as consideration for obtaining the inventions. Again, federal agencies may have their own versions, and certainly do when the funding agreements are in the form of contracts rather than grants.

Fifth, within each standard patent rights clause included in a federal funding agreement are requirements to flow down certain obligations derived from Bayh-Dole to subcontractors and to certain employees (those who may invent and which public policy recognizes may be subject to a federal government interest in their inventions).

Subcontractors are addressed in the standard patent rights clause at 37 CFR 401.14(a)(g). A university must flow down the standard patent rights clause, but modified for the subcontractor’s situation. The university is expressly prohibited from claiming any interest in inventions made by the subcontractor, who as a result of the flow down operates with the same relationship to the government as does the university. The effect of the flow down to subcontractors is to make them parties to the funding agreement for the purposes of the patent rights clause.

University employees are addressed in the standard patent rights clause at 37 CFR 401.14(a)(f)(2). Clerical and non-technical employees are excluded from the requirements, but the university is required to require other employees to make a written agreement to protect the government’s interest in inventions made with federal support.

Federal awards to universities in the form of grants are almost always in response to specific proposals for work submitted by university faculty members. The awards assume special performance–that is, the award is made to the university for the support of a specific individual, typically called the “principal investigator” (there may be more than one principal investigator, of course). Awards are not made to institutions-as-persons, but to individuals and teams of individuals, backed as needed by institutional resources. The (f)(2) written agreement functions as a flow-down of specific requirements related to patents–reporting inventions, filing patent applications, and making assignments or granting licenses to the government. This written agreement is *not* a requirement that universities demand assignment of patent rights from faculty members; rather, the written agreement *displaces* any such agreement.

A university cannot both require that a faculty investigator assign inventions made with federal support to the university and at the same time comply with the requirement that the university delegate the right to assign or license inventions to the federal government.

The federal funding agreement obligation to delegate takes precedence. (But federal agencies can screw even this up–see my discussion here of what NASA has done.) The same is true of subcontracting under the standard patent rights clause, where universities often have policies that insist that inventions should be deliverables in contracts with independent contractors.

The purpose of the employee flow down is similar to that of the flow down to subcontractors. Without this flow down, the federal funding agreement requirements regarding inventions does not reach to potential inventors, leaving a gap, as the Gen-Prob case made clear. The federal funding agreement is between the university and the federal government for the special performance of individuals. Since federal agencies have some freedom to tailor the terms of their funding agreements, including the standard patent rights clause, one has to look to the specific funding agreement to see the specific terms that apply. In particular, one has to consider both sections 2 CFR 200.315 and 316 of the standard funding agreement, along with any modifications of these sections.

Rather than requiring universities to require assignment of inventions to the university, the standard patent rights clause requires universities to require potential inventors to commit to protect the government’s–not the university’s–interest in inventions. When a university implements this (f)(2) flow down, it makes its potential employee inventors parties to the funding agreement–that is, contractors. Their inventions become subject inventions, not because the university-as-contractor acquires ownership, but because these inventions are “of the contractor”–that is, owned by the inventor-made-co-contractor. By using the required subcontracting and delegating agreements, a university contracting with the federal government completes the path from Congressional intent, through federal law applying to federal agencies, to federal regulations, to a patent rights clause inserted in a funding agreement, to potential inventors.

Yes, it’s complicated. Doesn’t have to be, but there it is. Perhaps the complications reflect the continuing uncertainty–if not clear differences in policy positions–regarding how the federal government should deal with inventions arising in its funding of research projects led by university faculty. Should the government take title to all inventions, to provide broad access and limit monopolization of publicly supported research? Should universities take title to all inventions, to offer speculative investment opportunities to the wealthy and to those pitching to the wealthy under the general heading of “commercialization”? Should individual inventors hold title but be required to work through invention management organizations that manage relationships with industry? Or should individuals hold title to their inventions and do what they will?

Is there any good public policy reason that we have to pick just one of these options, for all research, all people, all purposes? And why is “commercialization” of patent rights such a prominent agenda for what is otherwise called “basic” research? It makes no sense from the point of view of research directed at discovery, hosted by nonprofit institutions.

Is it just for the convenience of university patent administrators that Bayh-Dole exists? Or is it to create a speculative market in monopoly patent rights, a way of betting, as it were, on the downstream impact of federally supported research? It’s just that here, as in betting in FIFA football, the betting appears to have a direct influence on the game itself–and generally not a favorable influence.



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