Unhelpful NIAID guidance on Bayh-Dole, 2

We are working through another unhelpful NIAID document on Bayh-Dole. With such ubiquitous misinformation put out as authoritative, it is no wonder that Bayh-Dole has become an excuse for what amounts to ad hoc law, created by wonderful agreement between federal agencies and university administrators to make a private agreement to disregard the law and do whatever sounds good, so long as paperwork is maintained for appearances and everyone shows mock fear of the consequences of non-compliance, even though there are no consequences to non-compliance (although there certainly are for making a federal agency look bad).

More from NIAID’s misguidance on Bayh-Dole:

you (the inventor with the permission of your employer and the funding federal agency) may be allowed to submit a patent application to the United States Patent and Trademark Office  (USPTO).

Here is the Bayh-Dole provision that mystifies NIAID (35 USC 202(d)):

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.

The Supreme Court cited the “retention of rights by the inventor” to mean that the inventor had ownership of the subject invention. An inventor could not “retain” rights without already having them. The Court’s reading is consistent with the idea that inventors are also parties to the funding agreement. They are, by definition, contractors subject to a patent rights clause authorized by Bayh-Dole. The problem is that “contractor” referenced in 35 USC 202(d) is not the owner of the subject invention.

The employee-inventor is the owner, and for the invention to be a subject invention, the employee-inventor must be a party to the funding agreement and therefore subject to a patent rights clause authorized by Bayh-Dole.

The situation contemplated by 35 USC 202(d) is that of the FPR on which Bayh-Dole is based. If an employer confirms that it will not to assert a claim relative to an employee-inventor, then the government deals with the employee-inventor–a substitution of parties. The government does not care what an employer does by way of agreements or policies with its employees–the issue for the FPR, as it is for Bayh-Dole, is what rights the government may request, and what special obligations arising from public funding that remain with the owner of any invention that the federal agency allows to retain that ownership. The federal government does not step in to mandate or enforce the agreements made between employer and employee, other than to stipulate that employers must make employees parties to the federal funding agreement and so have their own standing to deal with the federal government as “contractors” when their employers choose not to deal in inventions made under federal contract.

I know it is a difficult thing. Part of the problem is the huge conditioning we have encountered to rewrite the law for the convenience of university administrators and the government officials who love them. But that won’t do.

The Bayh-Dole Act requires that all government-funded inventions, from both contracts and grants, be reported to the awarding federal agency, e.g., NIH.

Not true. Bayh-Dole requires the disclosure only of subject inventions–ones that (i) are owned by the contractor and (ii) which have been disclosed to the contractor’s patent personnel. For these subject inventions, the contractor then has an obligation to disclose to the federal government–but clearly it is conditional. If the contractor does not disclose such subject inventions–ones it owns, that have been disclosed to its patent personnel, and have been made under contract, then the federal government may require the contractor to assign these inventions to the federal government (but does not have to do so). A contractor has no obligation to disclose inventions that it does not own–even if made under contract–and has no obligation to disclose inventions it does own, even made under contract, if the invention has not been disclosed to its patent personnel.

Let it sink in. Only if a contractor goes out of its way to acquire an invention made under federal contract and then takes the extra step of having that invention disclosed to its patent personnel does the contractor have an obligation to disclose the invention under Bayh-Dole. If a contractor does not want any patent on a given invention, and does not want the government to obtain a patent, then the contractor need only not take ownership of the invention or if it takes ownership to make sure that the invention is not disclosed to its patent personnel. The invention then may enter the public domain, where it might be available for broad use, and perhaps use in a standard. Only if a contractor wants exclusive control of a given invention should it acquire ownership and allow its patent personnel to see a disclosure–since that’s what triggers the obligation to disclose, and it is disclosure that triggers the condition under which the contractor can elect to retain title relative to a federal agency request for assignment.

Furthermore, “disclose” has a clear definition in Bayh-Dole’s standard patent rights clause–it is not merely reporting that an invention has been made (37 CFR 401.14(c)(1)):

The disclosure to the agency shall be in the form of a written report and shall identify the contract  under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure.

If the disclosure is not in the form of a written report, and does not include the specified requirements, it is not a disclosure. If an inventor has not conveyed the required information to patent personnel, the inventor has not disclosed and the organization does not yet have an obligation yet to disclose to the federal government. 

If you don’t comply with reporting requirements, you could lose the right and title to any federally funded inventions made under your contract, and NIH may withhold funds or take other enforcement actions.

Nothing in Bayh-Dole provides for federal agencies withholding funds for a failure to disclose inventions. The remedy in Bayh-Dole for a failure to disclose an invention a contractor has acquired and which has been disclosed to the contractor’s patent personnel is that the federal agency can require assignment of the invention–and that only matters if the contractor intends to rely on an exclusive position with regard to the invention. Then, yes, here the NIAID guidance is correct–if one does not disclose such a subject invention to the federal government, then the federal government can indeed take title to the invention. But NIAID is wrong to make it appear that under Bayh-Dole a contractor must disclose all inventions made under federal contract regardless of ownership or disclosure to patent personnel.

Here is 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

And paragraph (c)(1) requires disclosure:

That the contractor disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor  personnel responsible for the administration of patent matters, and that the Federal Government may receive title to any subject invention not disclosed to it within such time.

Of course, the disclosure obligation is conditional. If the contractor’s patent personnel never receive a conforming disclosure, then there is nothing for the contractor to disclose, and the government has no standing to request title to the invention. For that matter, the contractor has no standing to elect to retain title, either, because without disclosure, 35 USC 202(a) also does not operate.

In its way, this is a stunning outcome. When Bayh-Dole was originally passed, the disclosure requirement was different:

A requirement that the contractor disclose each subject invention to the Federal agency within a reasonable time after it is made and that the Federal Government may receive title to any subject invention not reported to it within such time.

Bayh-Dole was amended in 1984, just three years after it became law, apparently for the convenience of university patent administrators, who did not want to be responsible for identifying inventions when they were made and promptly reporting them. The difference, however, is huge. In the original law, a contractor’s obligation to disclose inventions was not conditional–once an invention was made, it must be reported. It was up to the contractor to make sure inventions were reported.

This was the case with the Federal Procurement Regulation implemented in 1975, just four years before Bayh-Dole was introduced. Here’s the long form patent rights clause for procurement (not the basic research short form clause), setting a standard for diligence in identifying subject inventions (41 CFR 1-9.107-5(e)(1)):

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. Upon request, the Contractor shall furnish the Contracting Officer a description of these procedures so that he may evaluate and determine their effectiveness.

The contractor was required to have an effective procedure that includes records showing conception and first actual reduction to contract, plus records to show that the procedures are followed, plus the opportunity for those records to be reviewed. That’s a nice stack of administrative requirements. That stack is not present in the short form patent rights clause for use with nonprofits for basic or applied research. In the short form clause, the nonprofit contractor has six months to report a subject invention, or a shorter time if there is a bar to patenting established, such as by publication. There is no requirement to set up procedures for documenting inventions–but there is still the unconditional requirement that inventions must be disclosed–“a complete technical disclosure”:

The disclosure shall identify the contract and inventor, and shall be sufficiently complete in technical detail and appropriately illustrated by sketch or diagram to convey to one skilled in the art to which the invention pertains a clear understanding of the nature, purpose, operation, and to the extent known, the physical, chemical, biological, or electrical characteristics of the invention.

Here’s the difference, then, between the FPR short form and Bayh-Dole four years later–in the FPR, a nonprofit doing basic research and its inventors were obligated to assign any invention made under contract to the federal government unless it or an inventor requested (and received) federal agency approval to retain greater rights than just a non-exclusive license.

Having worked through the NIAID guidance on contracts with regard to Bayh-Dole, we can see just how poorly understood Bayh-Dole is. Federal agencies make up a faux law that better suits them, that sounds like the law that they think ought to be rather than the one we have. And sure, it might make sense to have as federal policy that each contractor should report every invention made under federal contract, regardless of who owns it and regardless of whether its patent personnel have received a fully compliant disclosure. But that’s not Bayh-Dole, and the prior statutory regime and executive branch patent policy have both been superseded by Bayh-Dole amendments and presidential executive order, while the FPR has been dismantled and replaced by the FAR, which implements only Bayh-Dole with its subject inventions and its conditional disclosure requirement.

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