The NIH’s View of Bayh-Dole Compliance, 8

We are working through the NIH’s policy manual on Bayh-Dole. We reach a helpful list.

Some of the steps required by the regulation to retain intellectual property rights to subject inventions include:

  • Report all subject inventions to NIH.
  • Make efforts to commercialize the subject invention through patent or licensing.
  • Formally acknowledge the Federal government’s support in all patents that arise from the subject invention.
  • Formally grant the Federal government a limited use license to the subject invention.

This is garble, confusing election to retain title with conditions under which a federal agency may request title with requirements for which there is no title implication. And the NIH conflates invention rights–that is, right to use the patent system to promote use of inventions–with “intellectual property” generally. Simply wrong. Garble.

Report. The federal government may request title if a contractor fails to disclose a subject invention. “Report” is lazy. One may report without disclosing. Further, the condition is not that one may lose title to all subject inventions by failing to report any one of them. It is that one might lose title to each subject invention that one fails to disclose. Of course, if one also blows the patent rights to that subject invention by failing to disclose it for more than a year after a patenting bar date (such as public disclosure or offering for sale), then big whoop–there’s no title for the NIH to request.

The problem with the disclosure of subject inventions is that it may be difficult to determine whether an invention is within scope of the standard patent rights clause or not. This isn’t the place for a bunch of details–just keep in mind that proper disclosure is not so simple as one might think.

Make efforts. Nonsense. Bombast. Blistering blue barnacles. Nothing in Bayh-Dole requires commercialization or licensing. But more so, nothing in Bayh-Dole gives the government the right to take title for a failure to commercialize. March-in rights–which have nothing to do with ownership–even are not directed at commercialization. Rather,  march-in (we are talking whether unicorns poop) is directed at nonuse or lack of reasonable availability or a failure to prefer US manufacturing. And march-in involves compulsory licensing (a contractor may still make money from the licenses!), not change in ownership. Efforts to commercialize have nothing to do with retaining title.

Acknowledge. Has nothing to do with the government obtaining title. Has nothing to do with practical application or public benefit. At best, provides a coarse estimate of the extent to which federal funding has infected research and development work resulting in patenting. If a contractor properly discloses a subject invention but fails to include a proper federal funding notice in a patent application, that’s a paperwork problem.

Formally grant. Har! Har! Har! Too funny. Look at it again:

  • Formally grant the Federal government a limited use license to the subject invention.

What does unicorn poop look like? This! Har! Failure to grant “formally” a license to the government is not a condition set out by Bayh-Dole upon which a contractor can lose title to a subject invention. See the convenient summary of those conditions at 37 CFR 401.14(d). The requirement to grant a license to the government is a condition to be included in the standard patent rights clause, of contractor’s the election to retain title (See 35 USC 202(c)(4)). When a contractor elects to retain title to a subject invention that the contractor has otherwise obtained, the contractor is obligated by the standard patent rights clause (as stipulated by Bayh-Dole) to grant to the government a license to the subject invention.

The wording in both Bayh-Dole and the standard patent rights clause does not stipulate a “formal” grant: “the Federal government shall have a . . . license to practice and have practiced for or on behalf of the United States.” The wording “shall have” argues that the license is compelled when the contractor elects to retain title. Paperwork may be supplied to document the license, but Bayh-Dole and the standard patent rights clause do not express any requirement that the license be made “formal.”

Perhaps the NIH here might better phrase it that the contractor “Fuss around with extra, meaningless paperwork to document that the Federal government indeed has the license stipulated by federal law.” If a contractor has no legal power to withhold such a license, then also it is not possible for a contractor to lose title to a subject invention by failing to “formally grant” that which is already “formally”–as a matter of statute, regulation, and federal contract–“have-n” by the federal government.

That license is not a “limited use” license. It is a broad license, “to practice and have practiced.” “Practice” means “to make, use, and sell.” The license is not to “the Federal government” but rather to practice “by or on behalf of the United States.” The United States is not merely the federal government. It includes the states; it includes domestic municipal governments–that was made explicit in the Nixon executive branch patent policies that Bayh-Dole supersedes when a contractor acquires a patentable invention made in a project receiving federal support. The effect of the license is that the contractor waives the right to seek compensation in the Court of Federal Claims for practice of a subject invention. Neither the federal government (28 USC 1498) nor state governments (sovereign immunity) can be sued for infringement. Anything that a federal agency or instrument of state government is otherwise authorized to do can be done by practicing subject inventions. “Limited use license”–too funny. Who makes up this shit? Oh, yeah, unicorns!

Anyway, nothing about granting a license to the federal government has anything to do with the conditions upon which the federal government can take title. Whether the contractor makes a formal paper license or not, the contractor has no standing to stop the government from practicing and have practiced each subject invention, and has no standing to make a claim for compensation for that practice. Har.

And then we get “Exhibit 8”–a text box that we have already worked through that repeats the same bombast and garble about Bayh-Dole. Nothing about the redirection from the SBIR guide to 8.2.4 provides anything additional that a contractor should know about Bayh-Dole, reporting, and title. At least the NIH is consistent in providing garbage guidance about Bayh-Dole. Hobgoblins. Unicorns.

Recipients should refer to 37 CFR 401 (available on the  Interagency Edison) for a complete discussion of the regulations.

A complete discussion? These are the regulations. They are necessarily the complete discussion of the regulations. But more so, the NIH discussion is not just incomplete–it is fantasy.

After the table, NIH picks up again with its advice:

Failure of the recipient to comply with any of these or other regulations cited in 37 CFR 401 may result in the loss of patent rights or a withholding of additional grant funds.

If the agency withholds additional grant funds, that’s something outside of Bayh-Dole. That’s no doubt a real threat, but that’s punishment of investigators for the compliance failure of administrators. So strange. So sad. Why not punish the administrators who have failed in compliance?

The Bayh-Dole Act includes provisions for the recipient to assign invention rights to third parties.

That would be the definition of “funding agreement,” for starters–“any assignment.” But there is no obligation for businesses to also assign the patent rights clause. The nonprofit patent rights clause includes an express restriction on assignment:

Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions, provided that such assignee will be subject to the same provisions as the contractor;

The sentence is too long for NIH comprehension. Let’s help. The assignment restriction is specific to nonprofits. There is no similar restriction for businesses. The assignment restriction is limited to the United States. Assignment of a subject invention in foreign countries is not restricted here. Then there’s a big exception. Nonprofits can assign rights to a subject invention to any invention management firm (“organization which has as one of its primary functions the management of inventions”). Any other assignment requires federal agency approval. For all assignments, the assignee is “subject to the same provisions as the contractor.” That is, the nonprofit patent rights clause applies, not merely the general standard patent rights clause. And that’s huge, since the nonprofit patent rights clause requires all income earned with respect to subject inventions, after allowable expenses, to go to scientific research or education. Not to happy profits, and not even to development of new products–“research or education.” Public interest activities.

Keep in mind that any exclusive license that conveys all substantial rights in an invention is in effect an assignment–so, any exclusive license to make, use, and sell assigns the invention. The NIH fails to present the importance of this requirement, while at the same time garbling it. More:

Recipients that are non-profit organizations must request NIH approval for the assignment.

Only if not to an invention management firm.

If the assignment is approved and the rights are assigned to a third party, invention and patent reporting requirements apply to the third party.

Well, the nonprofit patent rights clause applies, and with it the reporting requirements.

The recipient should review existing agreements with third parties and revise them, as appropriate, to ensure they are consistent with the terms and conditions of their NIH grant awards and that the objectives of the Bayh-Dole Act are adequately represented in the assignment.

“Revise them” is light-hearted. Try “renegotiate, if possible.” The last bit, however, is very strange: “that the objectives of the Bayh-Dole Act are adequately represented in the assignment.” On the one hand, this makes some sense–the policy and objective of Bayh-Dole (35 USC 200) appears to form a public covenant that runs with subject inventions so that they are not ordinary inventions and patents on them are not ordinary patents, regardless of who owns the inventions, once a contractor has come to own them. Thus, it makes for good practice to provide notice of this covenant when assigning an invention. On the other hand, however, this advice makes little sense. The requirement in the patent rights clause is to require the assignee to be subject to the same provisions as the assignor. The objectives of the Bayh-Dole Act are not expressly made a part of those provisions. The requirement is to make the assignee comply with the nonprofit patent rights clause. The obligation to comply with Bayh-Dole’s public covenant is a matter of federal patent law. There is no need to adequately represent patent law in any assignment. Patent law can stand on its own.

Any invention made using funds awarded for educational purposes, e.g. fellowships, training grants or certain types of career development awards, is not considered a subject invention and therefore is not subject to invention reporting requirements (as provided in 45 CFR 75 and 37 CFR 401.1(b)). The recipient should seek the advice of NIH to verify whether any invention made under a career development award should be considered a subject invention.

Bayh-Dole (35 USC 212) forbids federal agencies from having an interest in inventions made in awards primarily for educational purposes. Such awards are still funding agreements, and any inventions made are still subject inventions. It’s just that provisions under which the government could request title or require a license don’t operate. The NIH might disclaim that these inventions are subject inventions–but they are, according to the definitions–but only when a contractor comes to own them. The NIH can say that these subject inventions are not subject to the standard patent rights clause’s reporting requirements, but that’s not how the standard patent rights clause reads. We might say that despite the effort to create a “uniform” policy, the NIH here ruins that effort by making up its own policy, despite the standard patent rights clause. Given that there is no requirement in Bayh-Dole for any agency to enforce the standard patent rights clause, the NIH just exploits the freedom (shall we call it) of Bayh-Dole. Uniform smuniform.

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