Patent agreements in Federal Procurement Regulations and Bayh-Dole, 2

If we return for a moment to O’Connor’s article–it is a great read for what it aims to do, but for O’Connor’s theme of abstract mistaken assumptions rather than providing a specific account of Latker’s lack of drafting ability–there is a set of elements that influence the direction O’Connor takes his study.

O’Connor does not take into account the role of Norman Latker and Howard Bremer, both of whom had a primary hand in developing the revived IPA program, then Bayh-Dole, and then Bayh-Dole’s implementing regulations. O’Connor makes it appear that Bayh-Dole emerged from abstract policy debates, evidenced by formal reports. In practice, however, Latker played a cat-and-mouse game with his HEW supervisors to end-run public policy with what he considered a better policy–delivering inventions made in NIH-supported work as patent monopolies for the pharma industry, using gullible university administrators as the lusty enablers.

Furthermore, O’Connor apparently imagines that university administrators bumbled along attempting to make sense of all the complexity of Bayh-Dole. But that wasn’t the case. University administrators were told what Bayh-Dole did by Howard Bremer, by the Council on Government Relations, and by the Society of University Patent Administrators, later renamed the Association of University Technology Managers. If O’Connor had been at any AUTM conference, he would have heard the repeated refrains regarding Bayh-Dole. It was announced that federal law required university inventors to assign their inventions to the university, as a formality, to comply with the law. There was no analysis of the law. Few read the law and those that did already had the idea in their head that Bayh-Dole vested ownership rights with the university. Senator Bayh as late as 2010 in his amicus brief in Stanford v Roche insisted that Bayh-Dole happily vested rights in contractors and disenfranchised inventors. The Supreme Court read the law and disagreed.

No, there was an organized propaganda campaign to turn Bayh-Dole into something that Congress could not have intended, exploiting ambiguities in the text of the law and implementing regulations, all traceable to the work of Latker and Bremer–the primary proponents of reading Bayh-Dole as a vesting statute. That perhaps is what they intended, but their intent does not matter–what matters is the legislative intent of Congress, starting with the law itself and working back to legislative history framed by Constitutional powers and reasonable interpretations.

Third, O’Connor in all this Bayh-Dole froth cannot find any pathway by which inventors are to own their inventions as a matter of public policy. But it’s there, and it’s not only the vestigial bit of 35 USC 202(d) that says that inventors can retain rights in subject inventions:

If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.

Section 202(d) distinguishes contractor and inventor. You would think that these must be different somehow. And then you would think that a contractor has to first acquire an invention (to make it subject) and then decide not to retain title to it, and instead of conveying the subject invention to the federal agency, the contractor could instead allow the inventor to request that the federal agency allow the inventor to retain rights (there must be implied an assignment back from the contractor to the inventor, and the federal agency must have some right to require assignment of subject inventions). Well, Bayh-Dole does give federal agencies the right to require assignment of subject inventions–but only for non-disclosure, decision not to retain title, failure to file a patent application, and failure to prosecute a patent application or maintain or defend an issued patent. But that’s it. Nothing in 202(d) gives a hint that an inventor hasn’t disclosed or that the inventor doesn’t want to retain title.

The Supreme Court read 202(d) to mean that inventors had title to subject inventions:

If an employee inventor never had title to his invention because title vested in the contractor by operation of law—as Stanford submits—it would be odd to allow the Government to grant “requests for retention of rights by the inventor.” By using the word “retention,” §202(d) assumes that the inventor had rights in the subject invention at some point, undermining the notion that the Act automatically vests title to federally funded inventions in federal contractors.

It’s just that the Supreme Court to reach its decision did not have to consider the standard patent rights clause that governs contractors and comes in three versions–one for small businesses (37 CFR 401.14 without paragraph (k)), one for nonprofits (37 CFR 401.14 with paragraph (k)), and one for inventors (37 CFR 401.9, a subset of the small business patent rights clause). The small business and nonprofit patent rights clauses both require the contractor to require inventors to make a written agreement to protect the government’s interests. The standard patent rights clause requires contractors to make the inventors perform tasks that otherwise the standard patent rights clause requires of the contractors–to disclose subject inventions, to establish the government’s rights in subject inventions.

The contractors thus are required to subcontract specific responsibilities to their inventors. The standard patent rights clause compels contractors to expand the number of contractors. Call it compulsory subcontracting. Think of it as a form of “march-in.” The contractors must make inventors parties to the funding agreement; the inventors become contractors. Since inventors own what they invent, their inventions are all subject inventions.  Under 35 USC 202(a), each contractor has a right to retain title to subject inventions. Therefore, so do inventors when they are parties to the funding agreement–contractors.

Otherwise, and here’s the big gap in Bayh-Dole, if an inventor is not a party to the funding agreement, then the inventions that the inventor makes are not subject inventions unless the institutional contractor has a claim to equitable title in the invention or otherwise finds a way to acquire the invention. And if an invention is not a subject invention, then the federal government also has no claim to the invention under Bayh-Dole–and Bayh-Dole preempts all other statutes but for Stevenson-Wydler. And if an inventor owns a subject invention, then the inventor patent rights clause applies and the federal government still has no claim to the invention unless the inventor assigns the invention to a contractor or files a patent application.

It did not have to be this way. Latker drafted the IPA with a patent agreement requirement, and knew the Federal Procurement Regulations because he copied from them to draft Bayh-Dole.

Consider Latker’s IPA text again:

The Grantee shall require assignment to it of all right, title and interest in and to each subject invention on which it elects to file any patent application for administration by it

What is so hard about this? Change “Grantee” to “contractor”; change “subject invention” to “invention made in the course of or under the funding agreement” and it’s done. But no, Latker puts convoluted language in Bayh-Dole’s standard patent rights clause–not in the statute, but slipped into the patent rights clause anyway:

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, and

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

There’s no assignment language in Latker’s written agreement requirement. The emphasis is on disclosure, and the next sentence after what is here quoted takes up disclosure.

(NIST as of May 2018 has added an assignment provision, but that assignment is directed to subject inventions–ones that the contractor already must own for Bayh-Dole to apply. So NIST doesn’t have its head screwed on tight or is once again, like the NIH had done, trying to game the system to make the world safer for pharma patent monopolies built on federally funded research and laundered through university administrations.

Here’s the logic stack. Given that the Supreme Court has said that Bayh-Dole gives contractors no special privilege to acquire inventions made with federal support, and given that Bayh-Dole preempts any statute to the contrary, and given, then, that an assignment clause in Bayh-Dole’s implementing regulations cannot arise from the authority of Bayh-Dole, it follows that there cannot be an assignment clause in Bayh-Dole. If a contractor already owns an invention, making it a subject invention, then the contractor has nothing more to do to comply with a clause requiring inventors to assign the invention to the contractor; if the contractor does not own the invention, then it is not a subject invention and an assignment clause specific to subject inventions does not operate; if the contractor makes all inventors parties to the funding agreement and therefore also contractors by the definitions provided by Bayh-Dole, then the assignment clause necessarily is preempted by Bayh-Dole itself, which provides that contractors may elect to retain title, and by the implementing regulations that provide that inventors when they own subject inventions are to be treated as small business firms.

I know–there’s a rhetorical style that can be called the “math textbook style.” Make something logically complex that people don’t want to work through it to determine that it is so–they just want to be told what it all means and what they should do. That’s what Bayh-Dole exploiters expect. People don’t read Bayh-Dole to make sense of it; they read until their eyes glaze over and then they ask someone what it all means. But there is logic there. The Supreme Court found it in Stanford v Roche, much to the horror of scores of university attorneys who for all their training didn’t know squat or chose to argue against their knowledge.)

Compare the assignment language in the Federal Procurement Regulations again:

The Contractor shall obtain patent agreements to effectuate the provisions of this clause from all persons in his employ who perform any part of the work under this contract except nontechnical personnel such as clerical employees and manual laborers.

Clear enough. Why didn’t Latker just copy that? One of the things that the Contractor must “effectuate” is assigning inventions to the federal government:

The Contractor agrees to assign to the Government the entire right, title, and interest throughout the world in and to each Subject Invention, except to the extent that rights are retained by the Contractor under paragraphs (b)(2) [greater rights determination] and (d) [non-exclusive rights reserved by the contractor] of this clause.

The bold part is what Latker didn’t want to include in Bayh-Dole. So he removed that. Thus we get the (f)(2) written agreement requirement without an assignment provision to the contractor–but a conditional assignment provision to the federal government, but that assignment to the federal government flows through the conditions of Bayh-Dole. That was his big mistake. Latker removed the primary right of the federal government to receive title to any invention made in federally supported research in a law that purports to preempt that right in favor of any arbitrary contractor, regardless of the contractor’s capabilities or policies or past record. In Bayh-Dole, the federal government can receive title only in limited situations in which a contractor that has obtained title breaches certain specified provisions of the standard patent rights clause. For all other breaches, the remedy is compulsory licensing, or federal agency waiver, or federal agency indifference.

Look at the mechanics of the FPR approach. It uses “subject invention”–invention “of the contractor.” But it also requires contractors to assign inventions to the government, and thus when the FPR requires contractors to have patent agreements with employees to “effectuate” the provisions of the patent rights clause, the contractor necessarily must acquire all such inventions to have the standing to assign these inventions to the federal government. All inventions made under contract will then become subject inventions, if the contractor complies with the requirement of the clause.

Again, in the FPR approach, inventions are not subject inventions because they are made under contract. They are subject inventions because the contractor is required to acquire them in order to assign them to the federal government and is therefore required to assert an equitable interest in these inventions by means of a patent agreement with every specified potential inventor. That the contractor might be allowed to retain ownership of any given invention once the contractor has got that ownership is a separate issue. In the FPR, the contractor is required to get ownership and to that end must have patent agreements in place that obligate inventors to assign to the contractor. None of this operates in Bayh-Dole because Bayh-Dole does not insist that the contractor must own all inventions made in the performance of work under a funding agreement–and the Supreme Court underscored that Bayh-Dole does not give a contractor any special right to acquire, and that includes what Stanford argued–that the university is required to acquire inventions arising in federally supported research. The answer is still no.

In the FPR context, subject invention and a patent agreement work together, make perfect sense contractually. Why couldn’t Latker do the same thing with Bayh-Dole as a statute, as a part of federal patent law? Instead of being straightforward about it–and the language to do so is staring him back in the face–Latker gets all convoluted. What did he screw up? First, he failed to include a requirement in Bayh-Dole that obligated contractors to assign all inventions to the federal government. Perhaps he couldn’t do that. As part of federal patent law (where Bayh-Dole ended up), making express the transfer of invention rights from inventors to contractors would run against the Constitutional mandate and against federal patent law. It wasn’t even a matter of finessing the assignment–Latker didn’t put in the assignment clause as part of the implementing regulations either.

The requirement that the contractor assign inventions to the federal government sets up the FPR requirement that contractors must have written agreements with inventors to permit the contractors to comply with the contractors’ obligation to assign (to “effectuate” stuff). Instead, we get obtusions–“written agreements” rather than “patent agreements”; “establish the government’s rights” rather than “assign to the government”; and the Federal Government may receive title” rather than “the contractor must assign title to the Federal Government.”

Since I am using math textbook style, some readers might wish to see a summary. Bayh-Dole does not provide the federal government with an outright right to acquire inventions made in work receiving federal support. And Bayh-Dole preempts all other statutes that would do so for subject inventions–inventions a contractor owns. Thus, Bayh-Dole’s use of “subject invention” from the Federal Procurement Regulations ends up exactly where the Supreme Court said it ends up–a contractor has to acquire inventions without any reliance on Bayh-Dole. There has to be a straight-up deal based on equities. Latker’s mistake in drafting was to remove the federal government’s uniform claim to ownership of inventions made in federally supported research conducted at nonprofits and universities, and the government’s requirement that the government’s title come by assignment from the contractor, not from the inventors hosted by or working for the contractor. No mistaken assumption. Just haste and lack of review in drafting. Perhaps that is what happens when one has gone rogue and is drafting on the sly.

The only mistaken assumption I can find is that by university administrators assuming that when they are told by a political operator that Bayh-Dole does something, they assume they are being told the truth and don’t bother to read the law.

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