In Stanford v Roche, the Supreme Court ruled that “of the contractor” in the definition of “Subject Invention” meant “owned by the contractor” and not “made by employees with the use of federal funds.” Here’s the Court:
Stanford asserts that the phrase “invention of the contractor” in this provision “is naturally read to include all inventions made by the contractor’s employees with the aid of federal funding.” That reading assumes that Congress subtly set aside two centuries of patent law in a statutory definition. . . .
In fact, this is what the universities, led by Bremer and Latker, were trying to do–induce Congress to set aside two centuries of patent law, and to get there, things had to be done subtly. More from the Supremes:
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.”
There’s a good argument that this little “of” ruined the whole cleverly crafted scheme by patent brokers to take from university inventors ownership rights in their inventions. Of course, the patent brokers couldn’t bear the thought of all those inventions going to the federal government, to be lost from the opportunity to profit from monopoly positions. So where did things go so wrong?
Here’s how the Kennedy executive branch patent policy dealt with the matter in 1963. The Kennedy policy discusses “inventions or discoveries made in the course of or under any contract of any government agency” except as otherwise provided for by law. This scope then gets built into the definition of “made”:
Made–when used in relation to any invention or discovery means the conception or first actual reduction to practice of such invention in the course of or under the contract.
This definition is also about as close as we get to acknowledging that the inventions under discussion are patentable ones, using patent-centric terms “conception” and “first actual reduction to practice.” If there’s no patent, then the policy doesn’t care. Whatever the invention is at that point, there’s no patent and thus the matter is outside the scope of a patent policy. The invention might be held as a trade secret, but that would require the federal government to agree not receive reports or if the government received reports then not to publish those reports. That would involve, then, a policy regarding government secrecy, not one on patents. But as university patent brokers get involved, they succeed in turning a patent policy into a secrecy policy, too.
In the Kennedy patent policy definition of “made” we also encounter this distinction between an invention that is “made”–where both conception and reduction to practice must take place (along with recognition by the inventor) before there’s a patentable invention (assuming proper subject matter and no prior art and the like). The point appears to be that either the conception or first actual reduction to practice must be specified in the federal contract–solve this problem or build this prototype and any invention involved is “made.” In the Kennedy patent policy, there’s no discussion of “subject invention” and no need to introduce ownership into such a definition.
Five years later, the NIH (led by Latker) re-starts the Institutional Patent Agreement program, which began in the mid-1950s and was suspended around 1960.
Here’s the definition of Subject Invention in the 1968 Institutional Patent Agreement:
The term “subject invention” as used in this Agreement means any process, machine, manufacture, composition of matter or design, or any new or useful improvement thereof, and any variety of plant which is or may be patentable under the Patent Laws of the United States made in the course of or under research supported by grants and awards from the Department of Health, Education, and Welfare.
There’s nothing here with “of the contractor.” An invention is subject if it is patentable and “made in the course of or under research” supported by the HEW. This definition makes good sense. Whatever is invented within the scope of work for a given contract is “subject” to the invention management requirements. There is no need to worry whether the invention is owned by the inventors (which it will be, initially) or the university.
Ten years later, in 1978, university patent folks push to make the IPA program government wide, and for that they want to amend the Federal Procurement Regulations. Inside the NIH, deep state folks–especially Norman Latker– work against HEW leadership, who wanted to shut down the NIH IPA program. The NIH program was not performing well–much lower “commercialization” rates than NIH’s own licensing program and sweetheart deals with the drug companies for the few deals that were happening. The university folks were blocked by a senate committee that cited a bunch of good reasons for not pushing the IPA on everyone. But the effort got as far as publishing a draft IPA template in the Federal Register.
Here’s the definition of Subject Invention from the regulatory change that never happened:
(1) “Subject Invention” means any invention or discovery of the Institution or its contractors conceived or first actually reduced to practice in the course of or under a contract with the Agency, and includes any art, method, process, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof; and any variety of plant, which is or maybe patentable under the patent Laws of the United States of America or any foreign country.
We get here the wording “of the Institution or its contractors.” Instead of focusing on inventions made in the scope of the federally funded work, the proposed IPA template introduced that “of” construction–a Subject Invention must be owned by the Institution or a contractor to the institution to come within the scope of the IPA. Or–perhaps even here the drafters of the template IPA believed that “of” was just a general marker for whatever might be invented in a given research project, that somehow the project was “the Institution’s” and therefore so should the inventions made in the project.
There is something in all this that has to do with a subtle misappropriation of attribution by university administrators. Federal subventions–grants supporting basic research–are set up as federal support for projects proposed by individuals, called “principal investigators.”
In one formulation, federal money is designated for the use of these individuals, based on the merit of the projects they propose to do, and universities serve as a supporting role, agreeing to release their employees to work on the project and providing administrative and facility support, for which they are reimbursed by the federal government by way of “indirect costs” added to the budget of the project.
In a second formulation, one used implicitly by university administrators, the federal money is a gift to the university–the project is an institutional project, and the university assigns its employees to conduct the project, and therefore any invention made in the project is necessarily “of the Institution” because all those working on the project were hired by the university to discover and invent.
The Supreme Court in Stanford v Roche made it clear that this second formulation doesn’t do what administrators thought (or hoped, or schemed) that it did. Employment, even in a university-approved research project does not give the university any rights to inventions. Adding federal funding to the project does not change anything. Bayh-Dole (via the standard patent rights clause) applies only after an invention has become a subject invention. That happens when a party to the funding agreement acquires ownership of an invention made in the performance of a federally supported project. The university is a party to the funding agreement by default. An invention may become a subject invention in one of two ways: (1) the university acquires ownership of the invention; (2) the university acts to make others party to the funding agreement through substitution, assignment, or subcontract, and one of those parties acquires ownership of the invention.
The standard patent rights clause requires universities to require its research employees (but not non-technical or clerical employees, and not non-employees) to make a written agreement to protect the federal government’s interests in inventions. When a university flows down this requirement of the funding agreement, those who make the written agreement undertake specific obligations otherwise required of the university in the standard patent rights clause–they become parties to the funding agreement, and when they invent, by federal common law, they own their inventions, and thus it happens that their inventions become subject inventions. It’s just that most universities refuse to comply with the standard patent rights clause on this requirement.
Two years later, in 1980, we encounter this same wording in Bayh-Dole’s version of the IPA (35 USC 201(e)):
The term “subject invention” means any invention of the 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) [1] of the Plant Variety Protection Act (7 U.S.C. 2401(d))) must also occur during the period of contract performance.
The “of” is there, now in the construction “of the contractor.” But things are very different, here, for another reason. Bayh-Dole modifies patent law, not procurement regulations. Thus, “subject invention” is not simply a term defined by federal contract (as in the IPA) or even a term defined in a federal regulation (as it would have been if the IPA had become a matter of federal regulations). Instead, the term ends up creating a new category of patentable invention–a “subject” invention. Bayh-Dole’s policy statement at (35 USC 200) then establishes the property rights that pertain to subject inventions, and federal patent law at 35 USC 261 connects up subject inventions with these special property rights.
Subject to the provisions of this title, patents shall have the attributes of personal property.
For subject inventions, the “provisions of this title” include the Bayh-Dole policy statement, which functions much as the Kennedy patent policy statement did for federal contracting, but with an important difference. The executive branch policy statements changed federal agency contracting practice and did nothing to change patent law. Bayh-Dole amends patent law. The policy statement amends the property rights available for patentable inventions when those inventions become subject inventions. The part of Bayh-Dole that pertains to the default patent rights clause that federal agencies must use unless they can justify something else then provides specific guidance with regard to some aspects of the policy statement. But even where that guidance has been rolled back, as in the case of the elimination of time limits on exclusive licenses granted by nonprofits to large companies, the policy requirement that the patent system be used to promote “free competition and enterprise” for subject inventions remains in effect, even though for the patent system generally, there is no such requirement for patents on inventions that are not “subject inventions.”
In general, there is no obligation in patent law for a patent owner to promote free competition and enterprise–a patent owner does not even have an obligation to work an invention or to license an invention to others. A patent owner can sit on an invention for the life of the patent, excluding all others from practicing the invention while also not practicing the invention. (Why might a patent owner do this? Because the invention would compete with a more profitable product.)
A year after Bayh-Dole was passed, Senator Harrison Schmidt and others attempted to create a general law regarding patents arising in federally funded research to replace Bayh-Dole, the “Uniform Federal Research and Development Act of 1981.” That effort failed, but it’s worth looking at that bill to see how “of” would have been handled. Here’s Section 501(5):
The term “subject invention” means any invention or discovery of the contractor conceived or first actually reduced to practice in the course of or under a contract.
But “invention” is broadly defined:
The term “invention” means any invention or discovery and includes any art, method, process, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof, or any variety of plant, which is or
may be patentable or otherwise protectable under the laws of the United States.
Compare Bayh-Dole (35 USC 201(d))
The term “invention” means any invention or discovery which is or may be patentable or otherwise protectable under this title 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.).
Bayh-Dole restricts the definition of invention to whatever is protectable under the patent laws or plant variety protection act. The UFRDA would have expanded the definition to any invention protected under any law of the United States. Given that “design” shows up in the list, that might include copyright and mask works. And for all that, trade secret. That would have made a mess of things, for sure! But otherwise, the UFRDA stays with “of the contractor,” and thus inventions, to be subject under the law, would have to be acquired by the contractor.
At present NIST is considering adding an assignment obligation to the standard patent rights clause. There’s no authority to do so in Bayh-Dole, and the Supreme Court ruled that Bayh-Dole created no right for contractors to take title to inventions made with federal support. Requiring an assignment clause would be entirely outside NIST’s authority to prepare a standard patent rights clause, as established by Bayh-Dole. The effect would be to make all inventions created with federal support subject inventions by forcing ownership of those inventions from inventors to universities. In effect, NIST would turn Bayh-Dole into a vesting statute without the law actually authorizing vesting. Talk about rogue deep state if that comes about.
The problems with Bayh-Dole are deeper than just a strange way of defining subject inventions. Bayh-Dole is a mess of requirements. It ought to be cleaned up so it is at least readable. Bayh-Dole creates a pathway for the monopolization of subvention research by companies exploiting human suffering. That shouldn’t happen. Bayh-Dole makes a big deal about public welfare but at each point walks back public protections to the point that they are unworkable or unenforceable. Bayh-Dole is embedded in patent law. It should not be there. It should be in federal procurement regulations.
Actually, the parts of Bayh-Dole that have to do with subvention funding for basic research should not even be mixed up with procurement–they should be aligned with educational training grants, honoraria, and other forms of government subvention directed at individuals. The difference with a federal grant for basic research is that the individual proposes a project and the federal subvention then provides support for the individual, for those working with him or her, for direct expenses, and to compensate an organization willing to host the project, for its work to manage money, facilities, and compliance.
It will be a good thing to get universities out of the role of contractor to the government for such research, and to eliminate any immediate access by them to patent rights other than through voluntary arrangements. In that context, the thing that comes after Bayh-Dole should require, for a basic research subvention, that any hosting institution waive any claim it has in inventions made with the federal support–regardless of the basis for the claim in employment, use of resources, conflict of interest, economic development, the mission of the university, auspices, or whatever.