Subject invention reporting and federal funding agreements

It would be interesting to see an audit of university invention reporting practices, especially in light of the definition of “funding agreement” and what it means for an invention to be made “in the performance of work under a funding agreement.”

In very short. Developers working under standard university exclusive licenses that function as assignments also produce subject inventions that go unreported.

That is, with less shortness, subject inventions are produced not only by federally supported research but also by product development that follows on that research when either (i) the product development is clear in the proposed work–as proposed by the federal government or by the university-approved proposal or by the proposal taken in the context of formal university statements with regard to a commitment to commercial development (such as a determination to “commercialize” results), or (ii) when the developer becomes a party to the federal funding agreement through “any assignment, substitution of parties, or subcontract of any type”–such as happens when the developer accepts assignment of a subject invention from a university and must therefore also accept the nonprofit standard patent rights clause.

In case (i), where the university determines to “commercialize” results, any subsequent inventions that address that effort to commercialize are within scope of the federal funding agreement. The federal award is based, in part, on the university’s representations of its efforts to turn research into products.

The university does not have to make such representations, but when it does, the “work” to be performed is what the university has represented that it will do. The federal funding need only be for “part” of that work. That’s clear from the definition of “funding agreement.”

If the university grants non-exclusive licenses or even licenses that do not in fact constitute assignments, then inventions made by those licensees lie outside the scope of subject invention unless those licensees otherwise had committed to participate in the “work” (as might be the case with a research consortium).

In case (ii), when a nonprofit assigns a subject invention, Bayh-Dole requires that the nonprofit patent rights clause must follow the assignment. The assignee becomes party to the funding agreement. The assignee’s subsequent inventions in the service of producing a commercial product are also, therefore, made in performance of work funded at least in part by federal money. The assignee’s inventions are also subject inventions, and must be reported and managed under the nonprofit patent rights clause–that is, managed in the public interest, not for the profit of the assignee. All income with respect to any subject invention, after recovery of allowed expenses, must be used for scientific research or education. That’s the nature of the public interest. Companies wanting the full benefit of a patent monopoly–exclusive rights to make, use, and sell; right to sublicense; right to settle infringement; right to sue for infringement–must also accept that they act in the public interest with regard to any income they may make.

Companies do not have to accept assignment of subject inventions, even in the clever form of an exclusive patent license, but when they do, they choose to act in the public interest, which is noble of them, but only noble if they fulfill their promises.

Thus, as background, the definition of subject invention can be rather broad. As 37 CFR 401.1 asserts:

Separate accounting for the two funds used to support the project in this case is not a determining factor.

The nature of the “project” determines the scope of applicability of Bayh-Dole’s “subject invention,” not merely a university’s accounting practices–“we paid for this but not for that.” The key determination is whether there is one project or two:

An example of such related but separate projects would be a government sponsored project having research objectives to expand scientific understanding in a field and a closely related industry sponsored project having as its objectives the application of such new knowledge to develop usable new technology.

If we have a federally funded project that has the objective of expanding scientific understanding AND application of such new knowledge to develop usable new technology, then there’s only ONE project, no matter how it may be sliced up over time or how parts of that project are accounted for. A federal agency may create such a singular project and fund universities in part to accomplish it. And universities may unilaterally assert that the federal funding they request is only part of the project they envision. And they may envision that greater project that involves both science and product development as a matter of policy assertion, or as a matter of research contracting (as with a consortium directed at identifying inventions that may become products), or as a matter of licensing practice–by assigning subject inventions and thereby making the assignees parties to the federal funding agreement and their work of development a formal part of the “performance of work under a funding agreement.” The “work” becomes, by university and company voluntary choice, the greater work of science plus product in the public interest.

Oh, this is an uncomfortable result. C’mon university lawyers, and try to bugger it up by arguing that Bayh-Dole really doesn’t intend anything to be in the public interest but for universities passing patent monopolies on publicly supported inventions to their favorite buds, especially in pharma and speculative biotech, and sharing a wee bit in the income that results from exploiting a patent monopoly to jack prices, prevent competition, and lure speculators on the promise of that patent monopoly.

We can see then, at the outset, that there is a vast number of subject inventions that go unreported because universities switch development to other accounts or don’t pass through the nonprofit patent rights clause when assigning subject inventions.


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