The rule of law

Let’s look at Bayh-Dole and subject inventions from another angle. Same material as in our last article, developed a bit differently.

Nothing in federal patent law requires an inventor to use the patent system. Nothing in federal patent law vests ownership of an invention in anyone other than the inventor. There’s no “invent for hire” as there is in patent laws elsewhere. Now look at Bayh-Dole. Bayh-Dole is part of federal patent law. What do you expect?

Yes, of course. Bayh-Dole does not require inventors to use the patent system. And Bayh-Dole does not force inventors to give up ownership of their inventions.

If we go looking through Bayh-Dole, we find these points to be true. There’s nothing in Bayh-Dole that forces inventors to file patent applications or to assign their rights in an invention to anyone.

The Supreme Court in Stanford v Roche was clear: Bayh-Dole applies (for its contracting part) only to subject inventions. A subject invention is an invention owned by a contractor and which is otherwise patentable and made in work receiving federal support.

If a contractor is an organization, then the contractor, to come within the scope of Bayh-Dole, must acquire an invention through some means other than Bayh-Dole, since Bayh-Dole offers no means to acquire the invention. Patent law does not force inventors to give up their inventions nor does it force inventors to use the patent system.

A subject invention then is an invention for which an inventor has already given up ownership, not one that an inventor is required to assign to a contractor.

Are you with me so far?

Let’s go further. Bayh-Dole authorizes the Secretary of Commerce to create standard patent rights clauses that federal agencies must use in all funding agreements unless they can justify an alternative clause. The standard patent rights clause for nonprofits forms the federal contract with regard to the disposition of subject inventions.

Only one part of the standard patent rights clause reaches to inventors–that’s the (f)(2) written agreement requirement. Be clear–the standard patent rights clause implements Bayh-Dole, a part of federal patent law. The standard patent rights clause cannot require disposition of inventions not authorized by the statute. Thus, what should we expect? Exactly–that the standard patent rights clause does not force inventors to use the patent system or to give up ownership of their inventions.

And this is indeed what we find. Here’s the guts of the (f)(2) requirement:

 The contractor agrees to require, by written agreement,

The contractor is required to take this action. The written agreement is not imposed by the patent rights clause–or by extension under the authority Bayh-Dole (patent law). The contractor must require the written agreement. If the contractor requires the written agreement, then the contractor cannot at the same time enforce or require any other written agreement that conflicts with this written agreement. Capiche?

its employees, other than clerical and nontechnical employees,

The requirement is selective–only certain employees and not any non-employees (for universities–students, visitors, volunteers, and even faculty when not acting in their “official duties” for which the university has the right to assign and direct). The scope of the selectivity appears to be for only those employees who might reasonably be construed as ones “hired to invent.” For such employees, there might be a presumption that the employer should hold equitable title in inventions they make, provided that the inventions are within the scope of the employer’s business. Again–employees, master/servant relationship, work the employer has the right to control. Not just anyone who participates in a project; not anyone who might invent.

to disclose promptly in writing

“Disclose” is implicitly defined in the following text–it is not merely “reporting” that an invention has been made. The invention must be fully described.

to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor 

The personnel to whom a disclosure is made are those responsible for *patent* matters–not merely *invention* matters. Further, the personnel identified are clearly not limited to the contractor’s employees. The personnel might be patent attorneys working for a law firm, or employees of an invention management organization. The critical points here are that (i) the contractor must identify those personnel, and (ii) until an inventor has disclosed to those personnel, no disclosure has taken place, no matter who an inventor talks to about having invented, and (iii) the disclosure must be in the format suggested by the contractor.

each subject invention made under contract

Now the guts. The disclosure is of an invention already owned by the contractor. The contractor is not to require inventors to disclose inventions that are not subject inventions. The written agreement clause does not operate to turn any old invention–even one made “under contract”–into a subject invention. A subject invention is one already owned by the contractor. (We will get to my use of “the” with “contractor” later–save it up).

in order that the contractor can comply with the disclosure provisions of paragraph (c), above,

Paragraph (c) requires the contractor *disclose* (not merely report) each subject invention. Here’s the guts of paragraph (c):

The contractor will disclose each subject invention to the Federal Agency within two months after the inventor discloses it in writing to contractor personnel responsible for patent matters.

The two month clock starts only when the personnel responsible for patent matters receive a proper written disclosure of an invention that the contractor already has acquired. Now we must think practice. A contracting organization can acquire ownership of an invention without anyone receiving a *disclosure* of the invention. The invention might be *reported*, with enough information for an assignment document to be prepared–all that is needed is sufficient information to make clear what exactly is to be assigned.

Of course, the inventor could also prepare a patent application and that application could be the basis of an assignment. We might observe that the inventor could work on a patent application with legal counsel that is not the personnel identified by the contractor as responsible for patent matters.

And finally, the assignment of ownership might come about by implied contract–through a finding of equitable title. The employer hired the inventor to invent, or assigned the inventor to conduct experiments, or the inventor has a duty to the organization that implies assignment of inventions is equitable.

In all of this, we might see implied that inventors will report inventions to their employers, and the employers may for at least some of these inventions acquire ownership. Until an employer-contractor acquires ownership, an invention is simply not a subject invention. Regardless, until an invention that the contractor owns is disclosed to personnel responsible for patent matters, the contractor has no obligation to disclose the subject invention to the federal agency.

More of paragraph (c):

The disclosure to the agency shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s).

Inventors and the federal funding agreement. Implied: the disclosure has passed through the hands of personnel responsible for patent matters. Those personnel, then, will have determined that an invention (a) is now owned by the contractor; (b) is or may be patentable; (c) was made under contract (and not otherwise); (d) that the invention  has been properly disclosed; and (e) that the inventors have been determined. Now consider: for patent matters, inventors are those that have contributed to at least one claim of the claimed invention. For patent matters, until one has drafted claims that describe what has been conceived, one can’t actually determine the inventors–those who did the conceiving of the invention as it is claimed.

The upshot here is that the disclosure to the federal government goes through the personnel responsible for patent matters. The disclosure must be more than a mere report. There’s got to be sufficient information in the disclosure to make a determination for patent matters:

It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention.

That is, the disclosure required by the federal government amounts to the specification of a patent application. If the contractor then declines to file the patent application, the federal government could request title and file the patent application. If the disclosure were anything less than the information necessary for the specification of a patent application, then the federal government would have to have some other means to require inventors to disclose the invention directly to the federal government. But the government does not need to have any such separate disclosure requirement–it’s right here in paragraph (c), backed up by the requirement that contractors require inventors to disclose that same level of detail to the contractors’ personnel identified as responsible for patent matters.

Returning to (f)(2), we get the new NIST horsepoop addition regarding assignment:

to assign to the contractor the entire right, title and interest in and to each subject invention made under contract,

This new assignment requirement is specific to subject inventions–inventions already owned by the contractor. The “made under contract” added to subject invention creates a momentary pause, since a subject invention is already defined as one “conceived or first actually reduced to practice in the performance of work under this contract” (37 CFR 401.14(a)(2)). We thus have a subject invention “made under contract” distinguished from a subject invention not made under contract. Apparently some inventions of the contractor conceived or first actually reduced to practice in the performance of work under a contract are not subject inventions made under contract. In any event, the NIST assignment requirement cannot reach to inventions that are not subject inventions–it cannot be used to turn non-subject inventions into subject inventions. All the assignment can do is formalize what has already taken place–the invention has become the contractor’s through some action that does not involve Bayh-Dole. 

We can finish up (f)(2):

and to execute all papers necessary to file patent applications on subject inventions

Contractors are to require certain of their employees (not others) to sign papers for patent applications. This provision cannot be read to force inventors to file patent applications on inventions they–the inventors–own. It applies to inventions that inventors have given up ownership of to the contractor-employer, or to anyone that the contractor-employer assigns those rights to.

and to establish the government’s rights in the subject inventions.

And here’s the key provision that turns everything. If an inventor has assigned all right, title, and interest in a subject invention (an invention of the contractor, owned by the contractor), then what paper could an inventor possibly sign to “establish the government’s rights” in a subject invention? Read as we have read things so far, the provision makes no sense whatsoever. There would be no rights for an inventor to convey–as the CAFC ruled in the case of Stanford v Roche, in which an inventor made such an assignment to a company before Stanford could acquire rights. As it stands, it is an empty, useless requirement.

But there’s another way to understand the (f)(2) written agreement requirement that makes sense of it all. Bayh-Dole defines a contractor as

any person, small business firm or nonprofit organization which is a party to a funding agreement.

It’s notable that “person” is included in the definition, as Bayh-Dole purports to apply only to nonprofit organizations and small businesses. There’s nothing at all about persons–except here and in regard to inventors. Hmmm. If a person is a party to a funding agreement, that person is by definition a contractor.

Here’s Bayh-Dole’s definition of funding agreement. There are two parts. First part:

any contract, grant, or cooperative agreement entered into between any Federal agency, other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal government.

That’s straight. The “in whole or in part” is expansive in ways university officials have yet to comprehend–thank goodness federal agencies don’t enforce anything anyway. Next comes the wildness:

This term also includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as defined in the first sentence of this paragraph.

Any assignment, substitution of parties, or subcontract of any type extends the funding agreement to include whomever has been assigned, substituted, or subcontracted. Blistering blue barnacles! Now look again at the (f)(2) written agreement requirement. The contractor is required to require a written agreement that delegates disclosure of subject inventions to inventors–to persons–along with the responsibility to establish the government’s rights in subject inventions. Those persons, when they make the written agreement, become parties to the funding agreement. They become contractors.

Now we can look at the (f)(2) written agreement not for what it requires but what it does when a contractor complies with it. It compels the contractor to make certain of its employees parties to the funding agreement–to make them contractors. Now we can read the (f)(2) requirement an entirely different way that makes actual sense of it.

Having made their written agreement and become contractors, when inventors invent in performance of work under a funding agreement, they own their inventions and those inventions are then subject inventions. But these subject inventions are owned by the inventors, not by their employers. That’s never what you will hear from a university administrator, but you can see how the (f)(2) requirement works. It is in effect a compulsory subcontract. It is not a requirement that each nonprofit or small business have a written agreement with each inventor–it’s that the written agreement operates within the funding agreement, not outside it, and turns all inventions made by inventors into subject inventions–just not inventions owned by the nonprofit or small business.

This is the inspired part of the law. Remember, federal patent law does not compel inventors to use the patent system and does not force inventors to give up ownership of their inventions. Inventors own their inventions, even with federal support. But when they own their inventions, Bayh-Dole authorizes a different patent rights clause for the funding agreement, set forth at 37 CFR 401.9. That patent rights clause is a subset of the small business version of the standard patent rights clause. Inventors, when they own their inventions, are to be treated as small business contractors, but with fewer obligations than any small business. And in particular, the federal government has no right to request title to inventions for which the inventors choose not to file a patent application.

Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at § 401.14(a).

Here’s paragraph (d)(2)–the one that’s skipped in 37 CFR 401.9:

The contractor will convey to the Federal agency, upon written request, title to any subject invention . . .

(2) In those countries in which the contractor fails to file patent applications within the times specified in (c) above

That is, inventors cannot be forced by patent law to use the patent system. If an inventor owns an invention, and that invention is a subject invention, then the inventor can elect to retain title to the invention and choose not to use the patent system. If the inventor assigns that invention to a nonprofit or small business contractor, however, the nonprofit or small business does not have the same freedom–they are bound by (d)(2) to assign the invention upon request to the federal government if they don’t file a patent application.

This way of reading the law makes good sense, then, of the last requirement of the (f)(2) written agreement, that inventors sign papers to establish the government’s rights in subject inventions. It makes sense now. If inventors own their subject inventions, and they are treated as small business contractors, then when they elect to retain title, they owe the government a royalty-free, non-exclusive license to practice the invention, and they have the right to grant that license. Furthermore, if an inventor does file a patent application (and therefore chooses to use the patent system) and then decides not to continue with the application or otherwise pay patent issuance or maintenance fees, then the government can request title under paragraph (d)(3), and again the inventor would be constrained by the written agreement to assign the invention to the government.

Bayh-Dole requires us to dig through layers to make sense of it, but at the end we get to the result that matters for patent law. Inventors aren’t forced to use the patent system. Bayh-Dole does not force inventors to file patent applications and does not force inventors to assign their inventions to the nonprofit or small business, who then might compel them to use the patent system. That’s the upshot of the Supreme Court ruling in Stanford v Roche.

If we put Bayh-Dole in terms that even a caveman might understand, we would start at an entirely different point.

Inventors own their inventions, even ones made with federal support. Inventors are not obligated to use the patent system, and the nonprofits and small businesses that receive federal funding cannot use that federal funding as a means of compelling inventors to assign their inventions. Instead, nonprofits and small businesses must make inventors parties to the same funding agreement and therefore also contractors with their own standing and their own patent rights clause. Any arrangement by which an inventor assigns an invention to a nonprofit or small business contractor must come about entirely outside the requirements of federal funding.

Indeed, the standard patent rights clause for small businesses and nonprofits (at (g)(1)) forbids a prime contractor from having an interest in the subject inventions of a subcontractor as consideration for the subcontract. To the extent that the (f)(2) written agreement creates a compulsory subcontract, employers are not able to take an interest in their inventors’ subject inventions by anything under Bayh-Dole. They gain no special rights through Bayh-Dole.

Now what about the NIST assignment requirement–that contractors are to require their inventors to assign subject inventions made under contract. Well, if the inventors are not contractors, then the NIST assignment does not reach to those inventors because the NIST assignment is specific to subject inventions. And if the inventors are contractors, then the NIST assignment cannot operate for subcontract and can only apply in those cases in which an inventor has otherwise agreed to assign the invention–and we are back to equitable title and not anything operating within federal patent law, Bayh-Dole, or any patent rights clause authorized by Bayh-Dole.

If, on the other hand, the (f)(2) agreement were not to make inventors into contractors, then they would have no obligation even to disclose inventions until a contractor has obtained assignment of those inventions, and the federal government would have no rights whatsoever in those inventions as a matter of Bayh-Dole. Prior federal law would then apply–Bayh-Dole did not repeal those laws, but merely asserted precedence over those laws (but for Stevenson-Wydler), and only when a contractor owns a patentable invention made under federal contract. Who knows what any given federal agency might require of an inventor in such a case–and how would an agency know, without Bayh-Dole’s invention disclosure provision? If an inventor did not wish to comply with a federal agency request for title, he or she could always scamper to assign the invention to a contractor, negotiating whatever deal given the alternative. But again, a faculty inventor might find some relief in avoiding having to deal with university administrators over patent rights and prefer federal government ownership, especially if the federal government followed its former practice and made inventions broadly available for all to practice–including the inventor.

In this way, Bayh-Dole as part of federal patent law does not force inventors to use the patent system or to assign their inventions. Nor does Bayh-Dole require or give special authority or privilege to nonprofits or small companies to force inventors to assign their inventions.

How does it work out, then? For businesses that hire employees and assign them to work that might result in inventions, they are free to contract for patent rights outside any federal funding and the federal funding won’t change that contracting. Same for nonprofits that hire employees. But for university faculty, who aren’t hired to invent, aren’t assigned to research, and are not then the servants of the university for the purposes of their research or publication, Bayh-Dole does not force the use of the patent system and does not require faculty to assign their inventions or give universities any special mandate or obligation to take inventions from faculty inventors. It’s an impressive piece of drafting to navigate the conflation of procurement and subvention, business interests and university faculty research.

It’s just that you won’t get that from pretty much any university licensing officer, AUTM CEO, or law firm hoping to do business with a university, or even from NIST’s own general counsel. But there it is. That’s how the law works. That’s what the Supreme Court confirmed. It’s just then a matter of whether one accepts the rule of law.


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