Oh wow. Implications of Bayh-Dole’s broad scope

For Bayh-Dole’s preemption to operate “uniformly,” Bayh-Dole’s scope has to be as broad as any federal statutes and executive branch patent policy that claim any federal interest in inventions arising from federally supported research or development. Since those statutes and executive branch patent policy do not worry who actually has ownership of any invention “arising from federally supported research or development,” or “made under contract,” then Bayh-Dole, if it is to preempt such statutes and policy, also must extend to any owner of any such invention. If the federal government could claim an ownership interest in the invention, Bayh-Dole must be there to preempt that federal interest for any owner of any such invention and substitute Bayh-Dole’s apparatus–if indeed it has been Congress’s intent to preempt all such statutes and policy. And it’s arguable that Bayh-Dole’s scope should be broad enough to preempt even federal claims of a license interest in such inventions–otherwise, even if ownership claims were made uniform, federal license claims would not be uniform, and that would be just as much a problem as ownership.

We can distinguish four sorts of owners of an invention made with federal support: inventor, contractor, subcontractor, and assignee. Bayh-Dole’s patent rights clause, then, must reach to each of these four sorts of owners. Here’s how Bayh-Dole does this.

First, the definition of funding agreement (35 USC 201(b)) is expressly extended:

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.

When a contractor makes any assignment, the funding agreement necessarily extends to include the assignee. The assignee becomes a party to the funding agreement. By definition (35 USC 201(c)), each party is a “contractor.” As a party to the funding agreement, each party is necessarily bound by a patent rights clause. The same is true for substitution of parties (inventors, mainly) and for subcontracts. 

When an invention arising from federally supported research or development is owned by a contractor, it becomes a “subject” invention (skipping for now the PVPA bit):

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 agreement

Each party to a funding agreement has equal rights to Bayh-Dole’s basic gesture (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

It is important to see that each nonprofit or small business has the right to elect to retain title only to the subject invention that each already owns. It has no right to elect to retain title to inventions owned by any other contractor, or anyone else at all. The “any” in “any subject invention” necessarily must be the “any” of “any subject invention which a given contractor owns.” See Stanford v Roche for the details on how to read “retain” as “keep what one has” rather than “take.” The “any” cannot be the subject inventions owned by any other contractor or by anyone who is not a contractor.

Bayh-Dole does not create any special privilege under which a contractor may take inventions owned by anyone else. Furthermore, Bayh-Dole prevents a contractor from creating its own special privilege by using federal funding as leverage on others–no assignment, substitution of parties, or subcontract can be used to create for one contractor a special privilege to take inventions owned by another contractor. Each contractor has the right to elect to retain title to what it has acquired. None has the right to take title from another contractor, or any non-contractor, as a consequence of federal funding.

We cannot begin to grasp the breadth of Bayh-Dole’s scope here, but we need to make one point. Bayh-Dole’s scope depends on the purpose or objective of the project to which federal funding is provided, not merely the specific use of federal money to make or develop an invention. Here (35 USC 201(b), reduced for clarity):

The term “funding agreement” means any . . . agreement . . . for the performance of . . . work funded in whole or in part by the Federal Government.

First establish the scope of a project, the “work” in the definition of “funding agreement.” Then establish that federal money supported at least some part of that overall project. The funding agreement’s scope, then, is the overall project. The funding agreement takes in any subject invention made in any part of the overall project, regardless of whether federal money was directly used to make the invention. All that matters is that the invention is within the scope of the overall project. The standard patent rights clause applies to any such invention when that invention is acquired by a party to the funding agreement–that is, by a contractor.

Now we can state some general truths regarding Bayh-Dole.

The funding agreement and its patent rights clause follow–that is, must be made to apply to–any assignment, substitution of parties, or subcontract of any type.

The scope of the funding agreement is the broadest project or objective or purpose for which the federal government provides at least a portion of the funding.

Any invention made in that broadest project is “made under contract” and when owned by a party to the funding agreement becomes a subject invention.

One further point, then.

Bayh-Dole authorizes the creation of patent rights clauses (35 USC 206):

The Secretary of Commerce may issue regulations which may be made applicable to Federal agencies implementing the provisions of sections 202 through 204 of this chapter and shall establish standard  funding agreement provisions required under this chapter.

In fact, the implementing regulations provide for multiple patent rights clauses. There’s one for small companies (37 CFR 401.14 without paragraph (k)), one for nonprofits (37 CFR 401.14 with (k), and one for inventors (37 CFR 401.9). There’s also one that is a built-in determination of exceptional circumstances for certain nuclear research and development (37 CFR 401.3(c)). Each contractor operates under the patent rights clause appropriate to its status under Bayh-Dole, with one exception. Thus, if a small business subcontracts with a nonprofit, the nonprofit has the benefit (and obligation) of the nonprofit patent rights clause. Similarly, if a nonprofit subcontracts with a small business, the small business operates under the small business patent rights clause. If a nonprofit substitutes parties (as required by 37 CFR 401.14(f)(2)) to make its technical employees parties to the funding agreement, those employees, if they invent, operate under the inventor patent rights clause.

Now for the exception. When a nonprofit assigns a subject invention, the nonprofit patent rights clause follows the assignment (35 USC 202(c)(7)(A)):

In the case of a nonprofit organization, (A) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions  (provided that such assignee shall be subject to the same provisions as the contractor)

The text I have emphasized does not have to do with making the patent rights clause apply only in some particular circumstance of assignment–such as to an invention management firm. The definition of funding agreement makes clear that a patent rights clause must follow every assignment (and substitution of parties, and subcontract). The burden of the emphasized wording here is that when a nonprofit assigns a subject invention, the nonprofit patent rights clause is the one that applies to the assignee.

This makes perfect sense. Nonprofits have the benefit of federal grants made with the expectation that the nonprofits will manage inventions in the public interest according to their charitable missions, unlike other contractors who have not made such a formal claim. Thus, once a grant has been made to a nonprofit on the basis of its charitable commitment, the nonprofit cannot simply assign its subject inventions to another organization and so avoid the requirements specific to the nonprofit patent rights clause–

  • make any assignee subject to the nonprofit patent rights clause
  • share royalties with inventors
  • deduct from royalties or other income with respect to a subject invention anything other than expenses incidental to the administration of subject inventions (and so, not expenses for technology transfer generally, or as a general administrative windfall)
  • use any remaining balance for scientific research or education
  • give a preference to small businesses in licensing subject inventions

Neither small businesses nor inventors have any of these obligations when they own subject inventions–unless they receive that ownership by assignment from a nonprofit, in which case the nonprofit patent rights clause applies. Share royalties with inventors, recover specified expenses, use remaining funds for specified charitable purposes, prefer small businesses in licensing.

If a nonprofit could simply assign subject inventions to any other organization and be free of these provisions, then it is foreseeable that all nonprofits would do so, cutting a private deal with whomever obtained ownership for a financial share. Even in Bayh-Dole, where circumvention is baked in, here it is not.

Where are inventors in this gesture? They show up as sole proprietorships–they are to be treated as small business firms (see 37 CFR 401.9), but with fewer obligations than ordinary small business firms. For instance, inventors have no obligation to file patent applications (if they did have such an obligation, it would amount to federal patent law requiring inventors to use the patent system).

What are the implications of this exercise?

When a nonprofit assigns a subject invention–even under the cover of an exclusive patent license–(i) the assignee comes within the scope of the funding agreement and (ii) the nonprofit patent rights clause applies.

Any invention made by the assignee that is within the scope of the overall project supported at least in part by federal funding is, when owned by that assignee, a subject invention. And the assignee’s patent rights clause obligations are those of the nonprofit organization.

Example. A university receives a grant in medicinal chemistry to explore compounds that might become medicines. The overall project is to turn chemical discoveries into medicines. The federal government funds one phase of this work. If inventors assign inventions made in the project to the university, those inventions become nonprofit subject inventions. If the university then assigns any of these nonprofit inventions to a company for development, not only does the assignee company become a party to the funding agreement but also must operate under the nonprofit patent rights clause. Any additional inventions that the company-cum-contractor makes to turn some compound claimed in the licensed chemical invention into a commercial medicine are also, when acquired by the company, nonprofit subject inventions. Any income earned with respect to these nonprofit subject inventions must be handled according to the nonprofit patent rights clause–share royalties with inventors, deduct only allowed administrative expenses, use the rest for the specified charitable purposes, prefer small companies in licensing.

Oh wow.

If only Bayh-Dole were enforced–and here we are not talking at all about march-in. We are talking about the fundamental definitions of Bayh-Dole and the distribution of obligations. Bayh-Dole is intended to run as broadly as the broadest federal claim that could be made in any invention made under any federal statute or executive branch regulation. That broad scope is unambiguously intended by Congress. The consequence of that broad scope, then, is that nonprofits in assigning subject inventions bring their commercialization partners and any of those partners’ subsequent inventions within the scope of Bayh-Dole and within the scope of the nonprofit patent rights clause.

Rather than bark up the march-in apparatus, which was designed not to operate, why not bark up the definitional apparatus, which was designed to work–had to work–if Bayh-Dole was to successfully and uniformly preempt all federal statutes and executive branch regulations regarding inventions arising from federally supported research or development?


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