Five easy ways to circumvent Bayh-Dole’s “manufactured substantially” requirement

Bayh-Dole makes American manufacture of product based on subject inventions the centerpiece of the law. Bayh-Dole’s statement of policy and objective calls out promotion of inventions “made in the United States by United States industry and labor” (35 USC 200). The section that expressly concerns American manufacture expressly takes precedence over all other parts of Bayh-Dole: “Notwithstanding any other provision of this chapter . . . .” (35 USC 204). When Senator Bayh introduced S. 414, which would eventually become Bayh-Dole, he led with claims about the decline in American technology and innovation, with S. 414 as the remedy.

One would think, then, that above all else, the point of Bayh-Dole would be to create more American manufactured products–new products–and new American industries based on making those products, and new jobs for American workers. If one wanted to create any metrics whatsoever, one would look for measures of these three things–new product manufactured in America based on subject inventions, new industries created by such new products made in America, and new manufacturing jobs in America directly related to such manufacturing. But we have nothing of the sort.

Most university administrators I know would rather circumvent the “manufactured substantially” in the United States requirement, the centerpiece of the law they so publicly adore, than they would work hard to find ways to have product based on their subject inventions manufactured in the United States. 

There’s plenty of ways provided by Bayh-Dole to circumvent American manufacturing, both as a goal of Bayh-Dole and as a specific requirement in the law and standard patent rights clause. But university attorneys aren’t necessarily the sharpest tools in the shed, so here’s some help on how to circumvent 35 USC 204 and frustrate the fundamental, most important objective of Bayh-Dole.

1. Don’t grant exclusive licenses. Grant a non-exclusive license, but grant only one–a sole license.35 USC 204 is pathetically weak. It applies only to certain exclusive licenses–to use or to sell exclusively in the United States. Since a non-exclusive licensee does not have an exclusive license–even if there is only one non-exclusive licensee–35 USC 204 doesn’t apply. Done. Wasn’t that easy?

2. Don’t deal in licenses at all for subject inventions. Instead, assign the subject invention using the cover of an exclusive patent license.35 USC 204 doesn’t apply to the using and selling done by owners of subject inventions. So don’t deal in exclusive licenses to subject inventions–deal only in exclusive patent licenses and at the same time assign the underlying subject invention. Any conveyance of all substantial rights in an invention–make, use, and sell–makes an assignment of the invention, even if you don’t transfer title to the patents involved. So just assign the subject invention.

Yes, technically, 35 USC 202(c)(7)(A) requires a standard patent rights clause that prohibits such assignments without federal agency approval, but no federal agency has ever objected to this scheme, and arguably any company that has an IP department meets the definition of an organization having as one of its principal functions the management of inventions. Just label the document “exclusive patent license” and you are home free. The new owner of the subject invention is free to manufacture anywhere. If a federal agency ever goes stark raving mad and feigns to care about U.S. interests, just convert the assignment to a sole license (see #1) and you are safe. But first argue laches–if federal agencies haven’t bothered to enforce 37 CFR 401.14(k)(1) for three decades, and you have come to rely on their indifference, they can’t just start up selectively enforcing the provision against one of your deals.

3. Grant an exclusive patent license with implicit invention assignment to a foreign company. See #2 for the details. But it gets better. To ensure total circumvention of Section 204, just require that your foreign exclusive licensee (=new owner) use at least two distributors in the United States–then there’s no exclusivity in the United States and, voila, Section 204 doesn’t apply.

4. Ask for a waiver of Section 204. The NIH does such a brisk business in waivers that they have set up a web site to expedite your efforts to undermine the most important provision of Bayh-Dole. You will have to have a bunch of puffery ready to go, but nothing is all that difficult if you are determined to avoid any requirement for American manufacturing. Make sure you use all the right words–that’s what matters. Federal agencies stand ready to assist.

5. Throw boilerplate language about Bayh-Dole into your exclusive patent licenses that includes the requirement that your licensee agrees to comply with Bayh-Dole, including Section 204’s letter of assurance to use product “manufactured substantially” in the United States for sales in the United States. It doesn’t matter whether you get the boilerplate language right–it just has to look like a good faith effort that got close, since federal agency administrators are just as clueless with regard to Bayh-Dole as anyone. Then don’t bother to follow up. The federal agency has to somehow monitor the actual sourcing of product, and then determine that things aren’t being done right, and then marching in based on 35 USC 203(a)(4). Now, no federal agency has ever marched in for any reason. So there’s no prospect that a federal agency would march in for the most important part of Bayh-Dole.

But you really don’t have to do that–if you have done a good job granting an exclusive license to make, use, and sell in the United States, then that license is an assignment, and Section 204 doesn’t apply. If the federal agency insists that Section 204 applies anyway (federal agencies are like that), then you can disable the march-in simply by putting a conditional in the exclusive license agreement that if any federal agency sends notice of intent to march-in for 35 USC 203(a)(4) non-compliance, the exclusive license downgrades to non-exclusive done once (a sole license) to use or sell in the United States. Then Section 204 doesn’t apply, and the federal agency has no authority to march in.

Of course, if one thought patriotic thoughts, then Section 204 would not come into play anyway. One would insist on US manufacture–even for product to be sold in other countries. Section 204 doesn’t even bother with product manufactured for export–and presumably export of products based on new technology is precisely the rationale on which Bayh-Dole was expressly promoted. Funny who those drafting the bill didn’t bother to consider export. One would almost think that the problems with American global technology leadership weren’t really a big concern of those promoting Bayh-Dole–it is almost like Section 204 was just a useful political bluff to get Bayh-Dole passed where competing bills premised only on the need for administrative uniformity just didn’t cut it.

Thus, rather than reducing the administrative burden on federal agencies and bureaukleptic universities, Bayh-Dole creates with Section 204 a mind-numbing paperwork apparatus that produces no apparent benefit for American industry or labor–and certainly whatever benefit Section 204 does produce is so utterly uninteresting that neither federal agencies nor universities bother to track and report that benefit.


This entry was posted in Bayh-Dole and tagged , , , , , . Bookmark the permalink.