Invention, subject invention, and the clever scheme of Bayh-Dole

Here is the definition of invention in the Kennedy executive branch patent policy, 1963 (Section 4(b)):

Invention or Invention or discovery–includes any art, 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 under the Patent Laws of the United States of America or any foreign country.

Essentially, an invention is what is patentable. Note “variety of plant which is or may be patentable”–not plant variety protection. This is the definition that operates across government, other than in specific statutes:

The following basic policy is established for all government agencies with respect to inventions or discoveries made in the course of or under any contract of any government agency, subject to specific statutes governing the disposition of patent rights of certain government agencies.

“Made” is given its own definition:

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.

These same definitions are used in Nixon’s revision of the Kennedy patent policy in 1971.

The definition of subject invention, however, is somewhat different. Here is the definition of subject invention in the IPA template, 1968:

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.

The boldface part turns an “invention” into a “subject” invention. Any patentable invention made in research supported by HEW grants. Again, to be clear with the words–not any patentable invention supported by HEW grants, not any patentable invention made in the course of or under HEW grants, but rather any patentable invention made in research supported by HEW grants. HEW supports a project–in whole or in part–and any inventions made in that project are subject inventions. The purposes and course of action for the project establish the scope of the government’s interest. And that’s a subject invention.

The IPA master agreement conforms to the Kennedy patent policy definition of invention. But there’s more. After the Nixon revision, federal officials got about to codifying executive branch patent policy. The result, after a couple of attempts, was 41 CFR 9-100.

Here is the definition of invention in the Federal Procurement Regulation, 41 CFR 9-1.107-5, 1975:

“Subject invention” means any invention or discovery of the Contractor conceived or first actually reduced to practice in the course of or under this contract, and includes any art, method, process, machine, manufacture, any variety of plant, which is or may be patentable under the Patent Laws of the United States of America or any foreign country.

Now things are conflated. First, we have the insertion of “of the Contractor.” This wording makes a substantial change in the definition. In the IPA, a subject invention is one made in research funded by HEW. The definition does not depend on who owns the invention–inventor, contractor, some assignee foundation, whatever. But here in the codification, we get “of the Contractor”–which, over three decades later, the Supreme Court has to explain means “owned by the Contractor” and not merely “arising in work contracted for by the Contractor.” Second, “made” is replaced with “conceived or first actually reduced to practice” and incorporated directly into the definition. Perhaps that’s just drafting style–putting technical details directly in the text rather than using a defined term and placing the technical details in the definition. Third, the regulatory definition returns the scope to that of the contract, not the project that the contract may fund only a part of.

This wavering back and forth on things matters as we get to Bayh-Dole.

Norman Latker at the NIH did the principal drafting of the IPA program template agreement. Latker was also involved in the codification of the Nixon patent policy in the FPR. Latker then drafted Bayh-Dole four years later. Latker too also led the drafting Bayh-Dole’s implementing regulations, which are a Frankenstein’s monster stitched together from the IPA program, the Nixon-era Federal Procurement Regulations, and Bayh-Dole. I sense a pattern here, but can’t quite articulate what it is.

Here is the Bayh-Dole definitions of invention and subject invention, 1980:

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.).

The PVPA was passed in 1970. It was not included in the definition of invention in the 1975 Federal Procurement Regulations–there, the definition of invention is restricted to plant patents. Latker apparently took the opportunity in reading “plant variety” out of context to expand the scope of interest to include plant varieties that are otherwise protectable and not just plant varieties that are patentable. Thus we get the addition in federal patent law of non-patentable subject matter, with a definition that then must mean “invention that may or may not be patentable.” The use of “protectable” is itself a tell that we are dealing here with patent attorneys doing the drafting–they think of inventions as in need of “protection”–rather than public policy makers, who might think, rather, of inventions as forms of research output to be used. That is, the definition in Bayh-Dole implies that the patent system is to be used to “protect” inventions, while a definition that simply recites what is patentable makes no such implication.

What does it mean to “protect” an invention–other than to prevent others from making, using, or selling the invention? You see the problem, perhaps. Bayh-Dole’s fundamental policy requirement is that the patent system be used to promote the “utilization” of inventions arising in federally supported research or development. But the definition of invention implies that the first step in the use of the patent system is to prevent utilization by anyone other than the patent owner–to “protect” the invention from the public. Bayh-Dole is rotten from the inside out.

Now for subject invention in Bayh-Dole. We must use color:

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 agreementProvided, 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.

First, we note the baggage created by the inclusion of PVPA plant varieties. The “date of determination” is a technical nightmare in itself, but that’s for another time. Let’s focused on the colorific phrases, each of which carries a technical context and history.

of the contractor” we recognize from the Federal Procurement Regulations, and the Supreme Court ruled that “of” means “owned by” and Professor O’Connor then argued that somebody in 1947 must have forgotten that universities don’t necessarily demand to own inventions made “outside the walls” of a faculty member’s “official duties”–extramural research being one of those not official duties that a faculty member has to request a release to engage in–and that somehow that assumption continued all the way to 1980 burrowed into the mind of Norman Latker.

Be that as it may, Bayh-Dole applies only after a contractor–defined as any party to a funding agreement–acquires ownership of an invention as defined by Bayh-Dole–is or may be patentable or a PVPA determination. In Bayh-Dole, what makes an invention “subject” is first contractor ownership and then that the contractor-owned invention comes within the rest of the colored phrases. Most university administrators have this reversed and drop the contractor ownership. They claim they must disclose any invention made in federally funded research. Perhaps–but not under Bayh-Dole.

conceived or first actually reduced to practice.” This language goes back to the Kennedy patent policy and is retained by the Nixon revision and the codification of the Nixon revision in the Federal Procurement Regulations. It stands in for “made” and its interpretation awaits a ruling by the commissioner of patents in 1987 based on a case stemming from an invention made in 1969, in re Eddie L. King. More of this later.

in the performance of work.” This is new language replacing “in the course of or under” from the prior policies and the IPA. Bayh-Dole’s implementing regulations (37 CFR 401.1) lay out an attempt at interpreting the scope of “performance of work.” That work must be “planned and committed”–i.e., there has to be some documentary record of the work to be done. It is not merely what someone later claimed to intend or not intend. It is not something done on a whim. Further, the regulations provide that even if work was not planned and committed, it could come within the scope of performance of work if it diminished or distracted from the planned and committed work. If the planned and committed work gets done (not diminished) on time (not distracted), then whatever else takes place at the same time cannot have diminished or distracted from the planned and committed work and therefore cannot be within the scope of the definition of subject invention, even if closely related, as the application of new knowledge obtained by planned and committed work. Without a documentary record of what was planned and committed and what may have diminished or distracted, there’s no way to establish anything as a subject invention.

In the FPR, this problem was addressed directly. In Bayh-Dole, it is left to a fussy and nearly useless opening section of the implementing regulations. Here’s the FPR standard patent clause on the matter (1-9.107-5(e)):

The Contractor shall establish and maintain active and effective procedures to ensure that Subject Inventions are promptly identified and timely disclosed. These procedures shall include the maintenance of laboratory notebooks or equivalent records and any other records that are reasonably necessary to document the conception and/or the first actual reduction to practice of Subject Inventions, and records which show that the procedures for identifying and disclosing the inventions are followed.

The key element is the “work”–what work is this? It would appear to be the work specified in the funding agreement–“under a funding agreement.” But look at the definition of “funding agreement”:

The term “funding agreement” means 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.

Read carefully. This is a statute. Here’s that “work” again–but now it is clear that the “work” may be funded “in part” by the federal government. This is the definition from the IPA, not from the Federal Procurement Regulations. Latker brings forward his expansive claim in the IPA rather than using the standard contracting language of the executive branch patent policies and the Federal Procurement Regulation. Why?

Speculation: when Latker worked with Howard Bremer from the Wisconsin Alumni Research Foundation–which was really the Wisconsin Stock Investment Using Royalties from Patents Fund–the idea behind the IPA was to expand the claims that Wisconsin could make on behalf of WARF on faculty inventions. Wisconsin had no claim on faculty inventions period. So WARF saw the opportunity to have the university make a contract with the federal government in which the federal government required Wisconsin to claim all inventions made in work funded by the federal government–at least all inventions that WARF wanted to patent. WARF wanted Wisconsin to be required to make a broad claim on inventions, and therefore wanted the NIH to draft a federal contract that required Wisconsin to make a broad claim–even though Wisconsin had no patent policy whatsoever and could not otherwise make any claim. Invention disclosure and management by WARF was entirely voluntary, but for the IPA. If anything the IPA scheme was the way by which the plague rat got into the university city.

The IPA scheme, then, was to create a research contract that no faculty member was party to, and therefore could not negotiate, that could be a master research contract governing all other research contracts between Wisconsin and the NIH. A research contract with only a patent rights clause and no actual research.

When Latker later wrote that Bayh-Dole was a codification of the IPA program, this bit especially is what he must have meant. That the government’s claim–meaning what a nonprofit could step in and preempt by taking ownerhip of an invention–should be broader than that specified in any given research contract–it should be as broad as the “work” that the federal government “funded.” That’s the import of “of in whole or in part.” It makes no sense to talk about the federal government only partially paying what it owes on a given contract but still claiming invention rights in the work the government defaulted on funding.

No, “in whole or in part” clearly means that the “work” stands on its own, and any federal funding agreement may pertain either to funding the entire “work” or funding only a portion of that “work.” Bayh-Dole’s implementing regulations, also apparently with Latker’s involvement, make clear (37 CFR 401.1) that the federal funding does not have to be simultaneous with other funding–it may also come before or after other funding. What matters, then, is the definition of the “work” for which federal funding may be only a part. This is an expansive claim of interest made by the federal government, but the purpose of the expansive claim is then to permit nonprofits to preempt in its entirety this expansive claim by acquiring inventions.

The one final bit in the scheme–one rooted out by the Supreme Court in Stanford v Roche–was to make it appear that the nonprofit acquired inventions automagically, by operation of law. That’s the part that the Supreme Court rejected, though most universities have not altered policy statements or guidance in response. They essentially defy the court, and so long as the executive branch does not enforce the court’s ruling, things go as they go, lawlessly but with happy bureaucrats and patent attorneys.

We are not done with Bayh-Dole’s definition of “funding agreement.” Yes, there is still more. A second sentence expands the scope of funding agreement. A contractor may add other contractors to perform some of the “work” that the federal government may or may not be funding:

Such term 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 herein defined.

A contractor may subcontract (of any type), may assign (any assignment), may substitute parties–and in each case, those parties become parties to the funding agreement and by the definition in Bayh-Dole of “contractor” become contractors and the work they do necessarily becomes part of the scope of the funding agreement, whether they spend federal dollars on the work or not.

Put it this way, if federal dollars had to support all such work, a prime contractor could then subcontract out (without funding) promising patentable work and thereby avoid any federal claim to any inventions. A contractor could, then, contract with another party to do “actual reduction to practice” or “development” work and avoid any federal claim.

The breadth of the claim then follows two paths of logic. First, the claim is broad so the university contractor can preempt it and take inventions for itself and “protect” them. The purpose is to put these inventions in a condition for presentation to pharmaceutical companies in an acceptable form–as a patent monopoly. That patent monopoly is not merely on some improbable but possible future commercial product but rather on the whole class of compounds or methods that might be otherwise investigated and used and developed. The monopoly does not merely protect against copying of some one formulated and tested compound, but against anyone considering the use or development of any of hundreds or thousands of other compounds or “functional equivalents.” All other kinds of seeds must die for a company to speculate on the future value of the seed it picks.

Second, the claim is broad so that even if a university does collaborate with others, the claim follows those collaborations. The university’s scope of claim (the preemption of the federal claim) ends with any assignment, substitution, or subcontract, but the federal government’s claim follows any of those contractor actions. The purpose is to ensure that no matter who makes the invention of value, the invention is “protected” by the patent system, the federal claim can be preempted by an institutional owner of an invention, and be placed in a condition to be conveyed to the pharmaceutical industry.

It is apparent that those drafting Bayh-Dole wanted to make good and sure that the method they had exploited under the IPA program to convey federally supported inventions to pharmaceutical companies would not be compromised by executive branch patent policies–thus, the use of Congress by the NIH to ensure the pharmaceutical industry received in the form of patent monopolies on research discoveries whatever the federal government might fund in this area–regardless of the federal agency involved, regardless of the policies of the nonprofit or small business contractor, regardless of who these contractors may partner with in distributing the “work” to be performed in whole or in part with federal funding.

There’s on more part to all this–the inventors. Bayh-Dole ignores them for the most part. There’s a regulation pertaining to federal employees that provides indirect commentary–for later. The only thing Bayh-Dole does with inventors is 35 USC 202(d), which provides that inventors may retain rights in subject inventions, subject to federal agency policies. But a “subject invention” is one already owned by a contractor, and in Bayh-Dole, inventors aren’t contractors. So 202(d) appears to be a garbage can provision–if the university doesn’t want a subject invention once it has acquired it, it may assign rights back to the inventor and the inventor can work out what happens with the federal agency, which may require assignment of the invention to the government or after conferring with inventor’s employer leave the invention with the inventor.

But this isn’t the thing. Bayh-Dole’s implementing regulations require in the patent rights clause (see 37 CFR 401.14(f)(2)) contractors to require inventors to make a written agreement to protect the government’s interest in subject inventions. This, too, is strange, because  if inventors have assigned their inventions to their nonprofit or small business employers, they have no rights in those no-longer-their inventions with which to deal to protect the government’s interest. But the written agreement itself extends the funding agreement–the university (or other contractor) is required to make its inventors parties to the funding agreement and therefore by definition of federal law the inventors become contractors.

The implementing regulations go further–37 CFR 401.9 provides that inventors are subject to their own special version of the standard patent rights clause–a subset of the small business patent rights clause–and are to be treated as small business contractors. Thus, the scope of the federal claim extends as well to inventors, and inventors if they do not assign to anyone else, may also preempt the federal claim and retain rights to their invention by disclosing their inventions and electing to retain title to their inventions. A subcontracting clause inserted in the implementing regulations–also not in Bayh-Dole–prevents a contractor from demanding an interest in a subcontractor’s inventions as a condition of the subcontract. By extension, a university having made an inventor into a contractor, cannot then also claim as a condition of the federal funding that the inventor assign any inventions to the university.

Oh, I know it is all so technical. But that’s how the scheme operates. It’s not breaking and entering. It’s more of an inside job, a kind of invention embezzling or bamboozling. And it has worked for nearly forty years. I guess we were all ripe for being bamboozled and some people dearly love being bamboozled–it’s their careers to be bamboozled.

Bayh-Dole’s expanded scope of claim sets up preemption of the claim by contractors–that’s the essence of 35 USC 202(a):

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention: Provided [walkbacks with walkbacks of the walkbacks to make the initial walkbacks unworkable–the gesture of walkbacks without the actual prospect of walkbacks]. 

For “small business firm” then one must also read “inventor” (when a contractor complies with the standard patent rights clause (f)(2) written agreement requirement). Inventors may also preempt federal claims to inventions. The inventor patent rights clause, furthermore, does not require inventors to file patent applications on the inventions they retain. This is the exit from Bayh-Dole that Bayh-Dole advocates do not want anyone to find. They want Bayh-Dole to be a law that serves institutional patent administrators, not inventors. Senator Bayh himself was adamant about this in his amicus brief to the Supreme Court in Stanford v Roche. It is this part of the law that university administrators most deny–Bayh-Dole is “successful” only insofar as it passes inventors’ inventions to institutional control, so that institutions may deal these inventions as patent monopolies to pharmaceutical companies, to biotech companies aiming to sell out to pharmaceutical companies, and to speculators on the future value of broad patents generally.

For these reasons, university administrators refuse to comply with most elements of the standard patent rights clause authorized by Bayh-Dole. They substitute a claim to own all inventions in place of the required (f)(2) written agreement that would make inventors become parties to the funding agreement and have their own independent status as contractors with a right to retain ownership of their inventions and preempt federal (and institutional) demands for assignment.

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