Another NIST FAQ-up, 2

For the rest of NIST’s FAQ’d-up answer, let’s parse closely. NIST has just repeated the obvious–if an invention has been conceived and reduced to practice prior to federal funding, it is not a subject invention. The question, however, has to do with what happens when reduction to practice takes place after federal funding and “as part of the award.” Here’s NIST:

However, an invention which had been conceived but not actually reduced to practice by a contractor prior to commencement of a funding agreement,

Keep in mind that if a contractor does not own an invention, it cannot be a subject invention, ever. NIST drops the contractor ownership part of the definition and adds the “actually.” “Actually” reduced to practice is not “actual” reduction to practice. Someone doing the drafting at NIST does not have a clue what they are writing–or at least they are certainly not attentive to what they are writing. Maybe they don’t care, really.

Bayh-Dole’s definition plays with technical terms in federal patent law practice having to do with determining who has invented first. It is an obsolete discussion, but lives on in Bayh-Dole. For an invention to be patentable, among other things, it must be conceived and reduced to practice. Conception means that the invention has been completely represented in the mind of the inventor and the inventor must recognize that what is there in his/her mind is an invention. And to demonstrate conception, there must be documentation. Though the eyes may be the window to the soul, paperwork is necessary to see the state of an inventor’s mind. See MPEP 2138.04:

Conception has been defined as . . . “the formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention as it is thereafter to be applied in practice . . . . ”

Conception has also been defined as a disclosure of an invention which enables one skilled in the art to reduce the invention to a practical form without “exercise of the inventive faculty.”

There must be a contemporaneous recognition and appreciation of the invention for there to be conception.

Reduction to practice takes two forms–constructive reduction to practice involves fully describing the invention in a patent application. Here’s MPEP 2138.05:

Reduction to practice may be an actual reduction or a constructive reduction to practice which occurs when a patent application on the claimed invention is filed. The filing of a patent application serves as conception and constructive reduction to practice of the subject matter described in the application.

Thus, if a contractor has acquired (“of the contractor”) an invention, and has filed a patent application, then it does not matter whether an “actual” reduction to practice takes place with federal funding.

NIST, in its FAQ, conflates the “actual” of “actual reduction to practice” with a common, loose, unhelpful usage of “actually reduce to practice” as in “like, did you actually reduce that invention to practice.” See, read again:

an invention which had been conceived but not actually reduced to practice by a contractor

If you didn’t have any idea about “actual reduction to practice” being a technical term of art, how would you know what NIST means here?


1)  If a contractor doesn’t own an invention, it is never a subject invention. It may be subject to the Nixon patent policy as amended by Reagan, but that’s not a matter for Bayh-Dole, or for NIST.

2) If a contractor owns an invention and files a patent application prior to federal funding, then the invention cannot be a subject invention because it has been (constructively) reduced to practice prior to the start of the federal funding agreement.

But here’s the next bit of NIST’s FAQ answer:

However, an invention which had been conceived but not actually reduced to practice by a contractor prior to commencement of a funding agreement, and which was first actually reduced to practice under that agreement, would be a “subject invention,” even if a provisional application had been filed prior to commencement.

None of this has been tested in court, so NIST can say what it wants and people will have to bow until it matters enough to challenge NIST. (And since no one enforces Bayh-Dole anyway, no one could possibly care, other than if they hate overly much the awful Bayh-Dole paperwork). NIST asserts that even if one has met the requirement of patent law and reduced an invention (owned by a contractor) to practice by filing a patent application (even a provisional application), the invention is still a subject invention under Bayh-Dole if one then “first actually reduces” the invention to practice under the funding agreement. This ought to boggle.

Here. I will help, if you aren’t feeling the boggle. We have to turn to In re King (1987) for a minute. In In re King, the Commissioner of Patents and Trademarks decided on appeal whether an inventor who was a government employee had a right to compensation for government use of his invention. The invention was not made within the scope of the inventor’s employment with the government. But the inventor had allowed the government to test the invention before the inventor had filed a patent application. The Commissioner ruled that the invention had not been reduced to practice until the government had tested it, even though the inventor had built prototypes and supplied them to the government, and had not used the government’s test data in his patent application. Thus, according to the Commissioner, the invention had been “first actually reduced to practice” with the aid of government resources and thus the government had a non-exclusive license to practice the invention.

The Commissioner breathed a sigh of relief at the outset of his opinion that he did not have address whether the government would have a license if the inventor had filed his patent application before the government tested the prototype:

Since a constructive reduction to practice did not take place prior to the time Government resources were used to effect an actual reduction to practice on behalf of King, there is no need to determine
in this case whether a constructive reduction to practice prior to the use of Government resources to accomplish an actual reduction to practice would provide any basis for holding that the invention was ‘made’ prior to those Government resources being used.

But this is just what NIST has decided on, without the bother of waiting for something to come up on appeal. The Commissioner’s reasoning is that reduction to practice may not be complete until an invention has been tested and shown to operate as conceived. But this determination must be made case-by-case:

The extent to which testing is needed to establish an actual reduction to practice of an invention is manifestly a matter which must be decided on a case-by-case basis.

Thus, there is no general statement that can be made with regard to testing. Someone may build a prototype, for instance, but that is not necessarily actual reduction to practice if the prototype is not tested. Even if the prototype is tested for some functions and properties that have been conceived but not for all of those that require testing, the invention still has not been actually reduced to practice.

The Commissioner gets around a number of problems by deciding that the inventor conceived of his invention in terms of solving a problem for the federal government, rather than solving a problem in general, and since the federal government had tested a number of inventions that had failed, it was (so the Commissioner reasoned) necessary that the government also test the inventor’s invention, too. Thus, no actual reduction to practice until the government did its testing, and since the government used its own resources to do its testing (even though the inventor did not need the test results in order to file his patent application), the Commissioner ruled that government resources had been used (by the government) and that was sufficient to meet the requirement for the term “made” in Executive Order 10096 which along with the Federal Technology Transfer Act of 1986 governs federal government claims in inventions made by federal government employees. The In re King decision is now baked into federal regulations on the matter by 37 CFR 501.3(e):

The term made as used in this part in relation to any invention, means the conception or first actual reduction to practice of such invention as stated in In re King, 3 USPQ2d (BNA) 1747 (Comm’r Pat. 1987).

Bayh-Dole uses this same “conceived or first actually reduced to practice” language–now obsolete in its primary usage to determine who has priority for claiming an invention since the U.S. has moved to first to file not first to invent. Put it simply: (i) if your employees make a patentable invention and (ii) you acquire ownership of this invention, and (iii) if any part of making the invention was under a federal contract, then (iv) the invention is a subject invention, and (v) you must timely disclose subject inventions. The critical issue for an answer to NIST’s FAQ is how does “first actually reduced to practice” come within the scope of a federal contract?

Perhaps now you see the problem that NIST evades. Each case must be decided on its merits, according to the Commissioner of Patents and Trademarks. That would be good to put into a FAQ answer.

Was the invention of the contractor conceived to address a problem presented by work anticipated under a federal funding agreement? Then the conception falls outside the scope of the funding agreement. The issue will be first actual reduction to practice.

Put it in terms of a company thinking about asking for federal funding for research. “Why, we have got great ideas about how to go about doing the research that this federal agency has requested! In fact, we can be really competitive for funding because we have invented new methods and tools and compounds and stuff.” What does the company have to do so that it does not inadvertently hand the federal government a royalty-free license to practice what the company has conceived entirely without federal funding? and worse, to not inadvertently commit to patenting (not trade secret, say, or open publication) its ideas or risk losing those independent great ideas to federal ownership and the secret licensing machinations of federal agencies? That’s what’s implied in the NIST FAQ.

We can then turn to how a would-be contractor ought to manage the situation. First, there must be some documentation of conception–some way to demonstrate that an invention was conceived prior to a federal funding agreement–notebooks, an invention disclosure, a manuscript in preparation or even a published article. But the most important place for this documentation is in the federal funding agreement–in the contractor’s proposal or statement of work.

Does that problem require testing to demonstrate that the conceived solution indeed meets the requirements of that problem? Was the testing done within the scope of the federal funding agreement? If “yes” to these three questions, then we have a subject invention, and if the contractor is to be certain to retain title, the contractor must disclose the invention to the federal government.

Otherwise, well, it’s a crap shoot because, well, NIST for one shoots that way. But let’s make an effort anyway. If an invention of the contractor has been conceived before the start of a federal funding agreement and subsequently is first actually reduced to practice under federal funding is “made” in performance of work under the funding agreement and therefore is a subject invention.

But if the invention is not directed at addressing a problem set out in a federal funding agreement–that is, is not within the “planned and committed activities” of that agreement (see 37 CFR 401.1) and any implementation or testing of the invention does not “diminish or distract” from those planned and committed activities, then the invention does not become a subject invention because whatever was done, since the planned and committed activities were not diminished or distracted, federal funding wasn’t used–and that’s even if a funded account shows expenditures. Why? Because if the planned and committed activities were budgeted to cost a given amount, and got done, then, why, the university must have spent money from some other source on the grant, equal to the amount expended from the federal budget. At least that would appear to be the reasoning–which is always in doubt given that Bayh-Dole is based on political bluffing not reasoning.

Furthermore, even if an invention of the contractor has been conceived to address a problem within the scope of a federal funding agreement does not require testing within that funding agreement in order to be reduced to practice, then mere use of an invention in the project receiving federal funding is not an actual reduction to practice since that use does not produce testing required to permit a patent to issue. At least, that would be the argument. Who knows what a NIST crap shoot would hit?

These are not the answers one gets from university administrators. Those answers generally are of the form if even a dollar is spent on the invention, it is a subject invention. In one extreme case, a university administrator claimed that if anyone in a lab where an invention was made received federal funds, they considered the invention to be a subject invention. Silly–but serious–nonsense.

Bayh-Dole provides for the circumstance that a contractor claims an invention is not a subject invention and a federal agency objects. Here is 37 CFR 401.1(a)(1):

Should such an invention be claimed by the performing organization to be the product of non-government sponsored research and be challenged by the sponsoring agency as being reportable to the government as a “subject invention”, the challenge is appealable as described in § 401.11(d).

Here’s 37 CFR 401.11(d):

Appeals procedures established under  paragraph (c) of this section shall include administrative due process procedures and standards for fact-finding at least comparable to those set forth in § 401.6 (e) through (g) whenever there is a dispute as to the factual basis for an agency request for a conveyance of title under paragraph (d) of the standard clause, including any dispute as to whether or not an invention  is a subject invention.

Thus, if a contractor does not disclose an invention because the contractor determines that the invention is not a subject invention, then a federal agency must request title to the invention and that action, in turn, triggers the contractor’s right of appeal, along with the extended appeals procedure set out at 37 CFR 401.11.

We can now return to NIST’s FAQ-up. NIST makes it appear that the problem is a failure to disclose a subject invention rather than a refusal to disclose an invention that is not a subject invention because (i) the invention is not owned by the contractor; (ii) the invention was reduced to practice prior to the start of the federal contract; (iii) the invention was reduced to practice during the federal contract but the reduction to practice was not within the planned and committed activities of the contract and did not diminish or distract from those activities.

Here’s NIST’s scare-mongering conclusion:

Failure to report a subject invention under this circumstance would violate the terms of the funding agency’s award,

Yes, but that’s not the issue. The issue is whether an invention is in fact a subject invention. If the invention is not a subject invention, then it does not have to be disclosed. The question in the FAQ is directed to whether an invention conceived prior to a federal contract but reduced to practice “as part of the award” is a subject invention. The problem with the question is the ambiguity of “as part of the award.” If the question had been phrased “in performance of work under the contract,” then the answer would have been straightforward. “As part of the award” is just confused.

and could subject the contractor to legal action, the consequence of which could include debarment

Huh? Bayh-Dole specifies the remedy for failure to disclose a subject invention–the federal government can request title. “Debarment” isn’t a remedy.

or loss of rights in the subject invention

Yes, including loss of the non-exclusive license when the federal government acquires title. But that’s only if the invention actually is a subject invention–one that the contractor owns, conceived before the federal contract, and actually first actually reduced to practice in performance of work under the federal contract.

(see, e.g., Campbell Plastics Eng’g & Mfg. v. Brownlee (Fed. Cir., 2004)).

So go read the case. The issue in the case was whether Campbell had failed to use the proper form to disclose the invention. The court played for its pound of flesh from an Army contract with a small business that reported continuously on its invention but did not use the required form:

Sound policy is promoted by the rule of strict compliance with the method of disclosure demanded by the contract.

So, yeah, if you have the misfortune to come before a hangin’ judge. But the judge ruled before Stanford v Roche and so made things up as a case of “first impression.” And that impression of Bayh-Dole is limited. Consider this reasoning:

The contract instead demands a single form for disclosure,

Which it did. But Bayh-Dole’s standard patent rights clause says this:

The disclosure to the agency shall be in the form of a written report

And then goes on to specify what is to be included in the report, including a full technical description and the name of the inventor and any enabling publications–essentially the information that must be provided to prepare a patent application and determine whether an application should be filed. There’s nothing about using a required form. Furthermore, if Campbell did not obtain an assignment until after the invention had been reported to Campbell’s patent counsel, then the invention was not a subject invention until that assignment–something that would not be clear until Stanford v Roche. But NIST doesn’t bother with that.

which enables the contracting officials to direct the inventive aspects of the contract performance

What the heck does this mean? What are the “inventive aspects of the contract”? If the company obtains title, elects to retain title, discloses the invention, grants the government its license, and cites the government’s funding in its patent application, then there’s nothing for the government to do until the company notifies the government that the company is not going to continue prosecution of the application or maintain the issued patent. In Campbell, the company did all these things but for using the required form for disclosure–and Bayh-Dole doesn’t require a form. We might say that the Army improperly implemented an exceptional circumstance without going through the proper process to make ownership depend on the absolute compliance with the use of a government-supplied form.

to the correct personnel in the agency for a determination of whether the government has an interest in the disclosed invention,

But the government would have that interest only if the contractor did not elect to retain title, or chose not to file a patent application, or chose not to continue prosecution or to maintain an issued patent–and those things would not happen as a matter of subject invention disclosure. They would depend on *other* reporting of those specified contractor decisions.

and for the government to determine how best to protect its interest.

There is nothing at disclosure for the government to do to protect its interest. At disclosure, there’s no requirement even to elect to retain title–the contractor has two years, and another year absent a bar date to file a patent application. There’s plenty of time for government personnel to sort out what’s been disclosed, confirm with the contractor, and remedy any administrative fusses–especially in dealing with small businesses and nonprofits that may not have the sophistication to know when they have got a patentable invention or the technicalities of when they own such an invention or whether the invention has been sufficiently disclosed by the inventor to meet the definition of disclosure by inventor set out in 37 CFR 401.14(f)(2).

But, pound of flesh, says NIST–even when NIST has the authority to clarify through regulations whether federal agencies can dictate that the failure to use a form can be fatal to Bayh-Dole’s fundamental grant at 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

Paragraph (c)(1) does not require the use of a form, and one of Bayh-Dole’s stated objectives is to “minimize the costs of administering policies in this area” (35 USC 200). NIST’s FAQ point is that administrative fussiness takes precedence over the core provisions of the law. Well, neat. That means that a disclosure is fatal if contractor fails to list all the possible statutory bars to a patent–such as any public use or pending manuscript for publication. I am willing to bet that well over half of university disclosures of inventions are defective in some way if NIST insists on a pound of flesh interpretation of the statute.

In that case, all contractors really must take seriously NIST’s change that permits the federal government to demand assignment of an invention at any time after the government learns of a failure to disclose. It is not the fact of failure to disclose that is fatal to a contractor’s ownership, but any administrative screw up that the government can find with whatever a contractor has disclosed. And NIST wants to “unleash” innovation with its regulatory changes.

What a FAQ-up.

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