More Impractical Advice About NIST’s Changes to Bayh-Dole’s Regulations

NIST–can’t live with them, but law firms sure can.

Here’s another law firm popping off about NIST’s recent revisions to Bayh-Dole’s implementing regulations and standard patent rights clause. Keep in mind that NIST’s chief counsel is already on record not understanding the law or the Supreme Court’s decision in Stanford v Roche. Keep in mind as well that I have yet to meet a law firm willing to offer free advice to faculty about how to beat back predatory administrators. Every law firm that publishes free advice about Bayh-Dole seems to want a contract with a university administration or already has one. (See this “Success Story”–probably this.) Thus, law firms are motivated to write stuff like “Practical Advice Regarding Changes to Bayh-Dole Act Obligations”:

Another aspect of the regulation changes is that Contractors must now ensure an employee is under a written obligation to presently assign any Subject Inventions for the entirety of the funding agreement period.

With all due respect, this is bungled nonsense. Here’s the NIST requirement, inserted into the (f)(2) requirement of the standard patent rights clause–and having no statutory antecedent in Bayh-Dole:

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c) of this clause, to assign to the contractor the entire right, title and interest in and to each subject invention made under contract, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.

Let’s count the screwups. 1) There is no present assignment. It is an agreement that requires assignment, not a present assignment of all future inventions. NIST might have wanted folks to add a present assignment, but NIST did not put that wording into the revised patent rights clause requirement. Even if they had–it would be a present assignment to a future invention that was already one owned by the contractor–it has to be this way. See below. 

2) A subject invention is one that’s “of the contractor.” The Supreme Court make clear that “of” means “owned by.” So NIST requires contractors to require employees to assign the entire right, title, and interest to inventions the contractor already owns. Oh, and make that a present assignment to a future invention that the contractor already owns in the future. Go figure. Yeah, FUBAR, but then that’s NIST and that’s Bayh-Dole. It doesn’t mean every law firm in the country has to employ lemmings to run over the same cliff and take their clients with them.

In Stanford University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), the Supreme Court held that rights to Subject Inventions initially belong to the inventor (despite Bayh-Dole obligations and a Contractor’s election of title) . . .

Hey, they get the citation right, but that’s it. 3) The Supreme Court held that an invention was not a subject invention until a contractor acquired it. The attorneys here get things entirely wrong. 4) The Supreme Court ruled that there were no Bayh-Dole obligations until the contractor acquired title and made an otherwise patentable invention made within the scope of the funding agreement a subject invention. 5) The Supreme Court ruled that “elect to retain title” does not mean “elect title.” Bayh-Dole does not vest rights, does not give any special privilege. The Supreme Court:

We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so
clearly—not obliquely through an ambiguous definition of
“subject invention” and an idiosyncratic use of the word

More from our impractical advisers:

. . .  and must be affirmatively and presently assigned to the Contractor, or else the inventor will wind up retaining legal title to the invention.

Here they are just making up fantasies. The Supreme Court gave no such advice. Here’s what the Court wrote:

As just noted, universities typically enter into agreements
with their employees requiring the assignment to the university of rights in inventions. With an effective assignment, those inventions—if federally funded—become “subject inventions” under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.

Nothing here about present assignments or even a requirement that universities require assignments. Certainly nothing that would indicate that there’s a great horror that inventors might own what federal law and long-standing public policy says inventors own. It’s a far cry from “an effective assignment” to “affirmatively and presently assigned.”

More from our maladvisers:

The updated regulations seek to address the Stanford holding by requiring Contractors to have researchers and employees sign agreements that presently assign their entire title and interest (even future interests) in any Subject Inventions to the Contractor.

6) If the updated regulations address Stanford v Roche, they do a cruddy job of it. But first, our copy: the regulation at (f)(2) is directed only at certain employees–excluding clerical and nontechnical employees. So “researchers and employees” is just wrong–it’s overly broad.

We have already dealt with the present assignment nonsense–but here it is for the third time in a paragraph. A subject invention is defined by Bayh-Dole as an invention already owned by a contractor. I won’t get into it all yet again. Let’s just say that in the form presented here, it’s nonsense that would lead the gullible and easily flustered university administrator to think that a “subject invention” is more like “any patentable invention made with federal funding.” And that’s simply not the case. The lawyers here do everyone a disservice by not getting things right to a professional standard.

More garble:

In addition, the new regulations state a Contractor must educate its inventors and researchers about the importance of reporting inventions early during the one-year grace period to qualify for patent protection and the inventor’s role to execute all papers necessary to file patent applications on Subject Inventions.

7) Meet the new regulations, same as the old regulations on this point. The requirement to educate inventors on the importance of timely disclosure was there before the recent NIST changes. 8) There’s nothing in the new requirements about “the one-year grace period.” That grace period has been around for a while. Here’s the requirement from 37 CFR 401.14(f)(2):

The contractor shall instruct such employees through employee agreements or other suitable educational programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars.

Nothing about the grace period. No reason to think that inventors have published before disclosing and thus must rely on the grace period (having blown foreign rights anyway). Push it further: under Bayh-Dole, inventors have the same standing as any other contractor when it comes to the right to retain title. Work it through 35 USC 201(b), 35 USC 202(a), 37 CFR 401.9, 37 CFR 401.14(f)(2). Yeah, I’d do it here but I have done it so many times. Go do it yourself. Especially if you are a lawyer. The upshot of 401.9 is that inventors as small business contractors don’t even have to file a patent application. Bayh-Dole does not force them to use the patent system or to assign their inventions to others. Chase that down.

“Disclosure” is a technical term in the standard patent rights clause, given an implicit definition at 37 CFR 401.14(c)(1):

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). 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. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure.

The disclosure comprises the information necessary to determine whether an invention is patentable, whether it has been made within the scope of a funding agreement, and if so decided, to prepare a patent application. Disclosure is the condition on which a contractor can then retain title to an invention the contractor has acquired.

Now the garble, highlighted:

In addition, the new regulations state a Contractor must educate its inventors and researchers about the importance of reporting inventions early during the one-year grace period to qualify for patent protection and the inventor’s role to execute all papers necessary to file patent applications on Subject Inventions.

9) There’s the grammatical garble of lousy editing. 10) But the bigger garble is that our impractical advisers fail to recognize that the requirement to execute papers to file patent applications has been in (f)(2) all along–it’s not a new requirement. 11) Further, the discussion here leaves out

 to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions

How, pray tell, can inventors be required to execute papers necessary to establish the government’s rights in subject inventions if the inventors have no rights in those inventions? There’s a reasonable interpretation that makes all this make sense, but here our lawyer friends just omit stuff that doesn’t fit their narrative. That’s the do WTF you want way of Bayh-Dole, but it’s lousy free advice.

Here’s the deal about assignments in Stanford v Roche. The CAFC ruled that a present assignment of a future interest meant that when Stanford later obtained an assignment for the same invention, the inventor had no rights remaining to assign. Folks then went berserk with the claim that Stanford had made the inventor-to-be promise to assign, and that somehow the present assignment took precedence over the promise to assign. Justice Breyer went so far to object to the ruling because present assignments and promises to assign ought to have (in his argument) pretty much the same meaning. And Breyer has a point. It’s just that Stanford’s promise to assign was conditional only for those inventions that Stanford was required to own. Stanford’s own patent policy at the time provided that inventors would own their inventions “whenever possible.” In the circumstance under dispute, everything pointed to Stanford having no reason to own–unless Bayh-Dole were interpreted to be a vesting statute that somehow required Stanford to own, and with a quarter of a billion dollars riding on the answer, Stanford was willing to take the chance with an appeal to the Supreme Court.

It’s absolute nonsense, with respect to the Supreme Court ruling in Stanford v Roche, that a present assignment is necessary. Breyer argued just the opposite–that present assignments do pretty much what promises to assign do. And the Court’s ruling made it clear that Bayh-Dole doesn’t require either a present assignment or a promise to assign. NIST, however, must see the law more clearly than SCOTUS, and so adds an assignment requirement directed at subject inventions–inventions a contractor already owns–and so NIST misses entirely the problem in Stanford v Roche, which concerned an invention that Stanford most definitely could not acquire the *entire* right, title, and interest to, since one of the co-inventors, with Stanford’s prior acquiescence, had already assigned to a company. If Breyer’s analysis holds, it would not have mattered whether the co-inventor had promised to assign or made a present assignment–either would have been sufficient to preclude Stanford’s later effort to acquire the co-inventor’s interest in the invention.

Now the “practical advice”:

Practical Advice – While many Contractors have IP policies that generally set forth the allocation of IP ownership between researchers/inventors and the institution, those policies alone may not be enough under the new rule changes.

12) Those policies have nothing to do with the rule changes. The rule changes do not concern university policies (or that of any other contractor). Bayh-Dole does not require contractors to have policies. Bayh-Dole requires contractors, if they elect to retain ownership of inventions they have acquired, to comply with 35 USC 202(c), and 35 USC 200 and 201. 35 USC 202(c) incorporates 35 USC 203 and 204, so there. The policies were never enough. The policies were irrelevant.

Examples of policies that may need to be supplemented are those that use wording indicating what a researcher “will assign” to the employing Contractor, or stating that the Contractor “will own” certain categories of IP.

13) Ridiculous. It is not a matter of wording. Even the compliance now required in (f)(2) by NIST regarding assignment is directed to subject inventions–inventions already owned by a contractor. Bayh-Dole does not dictate what a contractor will acquire or having acquired will choose to retain. Whether someone agrees to assign or assigns in the present inventions that have not yet been made and may never be made is not even an issue for the NIST assignment language.

14) The reference to “certain categories of IP” merely adds confusion to garble. Bayh-Dole concerns patentable inventions and plant varieties when owned by a contractor and made in the performance of work under a funding agreement.

NIST recommends that Contractors engage counsel to ensure that their agreements and policies comply with the new rule, going so far as to state that “Contractors in fulfilling the requirements of 37 CFR 401.14(f)(2) may wish to seek counsel familiar with present assignment of future rights, addressed by the Court of Appeals for the Federal Circuit in FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991), and with the laws of their state, when crafting employment agreements or separate written agreements with their employees.” (See NIST FAQ webpage).

So true. Who can dispute this part. But lawyers familiar with present assignment of future rights have to also understand that the future rights that are in play are those that are already owned by the institutional contractor. NIST thinks that the (f)(2) agreement requirement is somehow an employee patent agreement rather than an agreement to protect the government’s interest made as a condition of the employee’s participation in the performance of work under the funding agreement. Sure–no law firm has an obligation to sort out NIST’s cluelessness and recklessness with regard to Bayh-Dole. But a law firm ought to get things as square as possible and not make up fantasies about Supreme Court decisions to suit their narrative.

We might observe that in this case, the come-on appeal for contractors to seek the advice of counsel might be better framed with the addition of “seek counsel familiar with getting things legally right.”

Even more–and here’s the consternating point in all of this consternation–why the heck cannot we have lawyers familiar with the mechanics of innovation arising from research proposed and led by faculty and premised on the idea that the work is in the public interest? Where are those lawyers? Why do universities go out and get lawyers that are largely clueless about IP, about Bayh-Dole, about federal subvention, about innovation arising from basic research? Why is that? Perhaps that’s because no law firm has the courage to offer free advice that would cross the narrative that universities have already put out about their mandate if not claim under Bayh-Dole to own everything invented in federally supported work, and to preempt public purposes (and inventor rights) with their own efforts to deal in patent monopolies.

By my count, 15 disputable assertions in this bit of impractical advice. How does that stack up with your count?

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