We continue with our review of the Arizona Commerce Authority’s account of Bayh-Dole. The ACA has made these points [our comment]:
Bayh-Dole is really broad [yes–but its breadth is not just in the scope of what’s patentable, but also in everything done that comprises a project receiving somewhere, at least in part, federal money]
Invention is anything made in federally supported research [no; Bayh-Dole’s focus is subject inventions–ones that a contractor acquires and made in work supported at least in part by federal funds]
The government gets a license [yes, if you choose to keep title]
The government has no right to commercialize your invention [because it doesn’t need to do that to screw you over]
You have the right to make money from your invention [no; you have the obligation to use the invention so that the benefits of that use are available to the public on reasonable terms]
Now a long section of problematic bullet points, ending with a confusion between nonprofits and small companies and a weird discussion of march-in. Sigh. Here’s the ACA header to what follows:
Small businesses and non-profit organizations can retain title to intellectual property in a federally funded “subject invention.” In exchange for this title, the organization is required to:
No. It’s title to the subject invention–a right to patent or seek plant variety protection, not “intellectual property” generally. Bayh-Dole outright permits contractors to elect to retain title to subject inventions (ones they already have acquired) after disclosing those inventions to the federal government. That’s 35 USC 202(a). Sequence: acquire, disclose, elect to keep.
- Report each disclosed invention to the funding agency
Reporting and disclosure here are botched: disclose each disclosed invention that the contractor acquires. The contractor must acquire inventions before they become subject inventions under Bayh-Dole. The contractor must disclose a subject invention to the funding agency before the contractor may elect to keep title to that invention. There is no “in exchange” for the title–the contractor does not get title in exchange for reporting an invention. The contractor already has to already have acquired title to have the obligation to disclose the invention to the funding agency. Bayh-Dole does require contractors to disclose each subject invention that is disclosed to the contractor’s personnel designated for patent matters. Again, the contractor has to acquire the invention and its patent personnel have to receive a conforming disclosure before Bayh-Dole requires anything. Sequence–obtain disclosure by your patent personnel, acquire title = subject invention; disclose subject invention to funding agency; elect to retain title; grant the federal government a license; (or do not elect to retain title; government may or may not request title; you retain a conditional non-exclusive license with certain rights to sublicense).
- Elect to retain title in writing within a statutorily prescribed timeframe
Yes. Within two years of disclosure to the funding agency or earlier if there’s a patent bar date.
- File for patent protection
File a patent application before the expiration of a statutory term based on prior public disclosure of the invention. That is, so long as you don’t publicly disclose the invention, you don’t have to file an application. You can hold it as a trade secret. If someone else files ahead of you, of course, then you are screwed–but then your invention isn’t patentable, isn’t a subject invention, and you don’t have to bother. But the implementing regulations mess with all this. Under 37 CFR 401.14(c)(3), you have to file your patent application within a year of electing to retain title, or sooner if there’s been a prior public disclosure of the invention. Plus there are obligations to file in foreign countries–and that expense adds up quickly. The translation costs for a patent application alone can run $10K. Multiply by 50 countries. Ouch! But it gets worse–if you don’t file in these foreign jurisdictions, the federal government can do so and own the patents that issue and license them all exclusively to some favored company that’s not you, so you would be effectively locked out of the rest of the world with your invention. Bayh-Dole sort of sucks, doesn’t it.
But this applies only to institutional owners of subject inventions, not to inventors who own subject inventions (because they have been made parties to the funding agreement–as required by 37 CFR 401.14(f)(2) but no one complies–or because they receive by return assignment subject inventions they have previously assigned to the contractor). Your inventors have their own patent rights clause, at 37 CFR 401.9. Thus, if you don’t make your employees parties to the SBIR funding agreement, whatever they invent won’t be a subject invention unless you acquire ownership of it. They won’t have any obligation to disclose the invention to your company (under Bayh-Dole, at least) or to the funding agency (under Bayh-Dole, at least). And even if you have made them parties to the SBIR funding agreement, but haven’t acquired ownership of their inventions, then under the inventor patent rights clause, they don’t have any obligation to file patent applications. In short, patent law (Bayh-Dole is part of patent law) does not require inventors to file patent applications, even if it can require companies to file patent applications after inventors give up their ownership interest in inventions they have made.
- Grant the federal government a non-exclusive, non-transferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world
Yes–but that’s not what the ACA has written earlier in their guidance. Wouldn’t it be nice if they went through and cleaned things up for small businesses?
- Actively promote and attempt to commercialize the invention
Nonsense. Nowhere in Bayh-Dole. Especially not for small businesses. Bayh-Dole’s standard is utilization–use the patent system to promote the utilization of inventions arising in federally supported research or development. This is just the Authority throwing in fantasy.
- Not assign the rights to the technology, with a few exceptions
More nonsense. We are talking subject invention here, not technology. The Bayh-Dole restriction of assignment applies only to nonprofits, not to small companies. Nonprofits may assign to (i) invention management organizations or (ii) with federal agency approval and in either case the assignee accepts the nonprofit’s patent rights clause. That’s not “a few exceptions”–that pretty much covers it.
- Share royalties with the inventor
Only applies to nonprofits and anyone a nonprofit assigns to. Not to companies. Nonsense to have it here, in help for companies thinking silly thoughts about getting SBIR funding.
- Use any remaining income for education and research
No. Botched. We are still talking nonprofits here. Doesn’t apply to small companies. Nonprofits may deduct from royalties or income earned with respect to a subject invention only the expenses incidental to the administration of subject inventions–which includes payments to inventors. Then any remaining income must be used for “scientific research or education.” The practice point is that this requirement also applies to anyone that a nonprofit assigns a subject invention to–whether by transfer of title or exclusively licensing all substantial rights. A secondary practice point is that no one enforces this provision. A third practice point is that this provision applies only to nonprofits, so what does a small company care? Why does the ACA include it here? Botchedness.
- Give preference to US industry and small business
More conflated botchedness. Nonprofits must give a preference to small businesses in licensing–and the standard patent rights clause goes further and requires nonprofits to make reasonable efforts to attract small business firms for licensing. Small companies doen’t have to do any such thing.
As for the preference for US industry–that applies in a stupid kind of way only to licensing exclusively for use or sale in the US. If a small company doesn’t license or doesn’t license exclusively, then it can ignore the US preference. Or if the small company does license exclusively for sale or use in the US, it can request a waiver and likely get a waiver. So much for preferences. More like a thought gesture.
Given that US manufacturing is the centerpiece of Bayh-Dole–35 USC 203 declares itself to take precedence over any other part of the law–and Senator Bayh premised Bayh-Dole in introducing his bill (that would fail but be revived by Kastenmeier) on restoring US leadership in manufacturing, it sort of sucks that the preference for US industry ends up as a thought gesture.
Almost done. Or fed up. Or bored with such nonsense:
The government’s march-in rights are one of the most challenging provisions in Bayh-Dole.
March-in has never been used. The procedures were designed not to operate. Howard Bremer, who had a hand in writing the implementing regulations, bragged about that later. March-is not challenging. It is a non-issue. It is hoodoos on the bayou. Fright time around the campfire. Nothing more.
It allows the funding agency, on its own initiative or at the request of a third party, to effectively ignore the exclusivity of a patent awarded under the act and grant additional licenses to other “reasonable applicants.”
Nothing in Bayh-Dole gives third parties the right to request march-in. The march-in trigger is that the agency receives information that warrants a determination. Third parties might provide such information, and they might request march-in, but they have no standing in Bayh-Dole to do so. The rest of the account is botched, too. The primary march-in compels the patent holder or assignee (of the invention) or the exclusive licensee (whomever holds the rights) to grant further licenses on reasonable terms to a responsible applicant or applicants (not “reasonable” applicants, as the Authority has it in its sloppy botched unedited way).
Bayh-Dole ignores the “exclusivity of a patent awarded” anyway, since it requires the owner of the subject invention to grant a license to the federal government–right there goes the “exclusivity” big time. And that’s a compulsory license, too. Or, it is the condition upon which the government is willing to fund a project in the public interest and allow the contractor to screw around with patenting. Folks get all this backwards and then can’t see where it is going. First, the government places special conditions on its funding projects with regard to inventions. When a contractor acquires an invention made in a project with federal funding, then various public protections apply, including the government license and march-in. A contractor never has exclusive rights to patent on a subject invention. The government does not ignore or take away any rights by marching in. The contractor never ever has those rights. Get it?
Federal patent law, 35 USC 261:
Subject to the provisions of this title, patents shall have the attributes of personal property.
Bayh-Dole, part of federal patent law, 35 USC 200:
It is the policy and objective of the Congress
to use the patent system to promote the utilization of inventions arising from federally supported research or development;
to encourage maximum participation of small business firms in federally supported research and development efforts;
to promote collaboration between commercial concerns and nonprofit organizations, including universities;
to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery;
to promote the commercialization and public availability of inventions made in the United States by United States industry and labor;
to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions;
and to minimize the costs of administering policies in this area.
That’s a big gulp. But this is not just a preamble of the rationale for Bayh-Dole. It is a statement of federal patent policy–it is a statement of the attributes of personal property that are “subject to the provisions of this title” as they pertain to patents on inventions made in projects with federal funding. Those patents are not ordinary patents. Those patents do not have the same exclusive rights as other patents. The government does not ignore the exclusivity of patents on subject inventions–the patent holder never has that exclusivity. All the patent holder has is a conditional expectation of quiet possession provided the patent holder doesn’t screw up. March-in is for the screw ups. Of course, the federal government never marches in so march-in is just screwy nonsense.
This right is strictly limited and can only be exercised if the agency determines, following an investigation, that certain criteria are met.
Yes. And federal agencies have never made such a determination. They don’t care. Bayh-Dole was drafted by NIH patent counsel. He didn’t want march-in to operate. But he had to make a show of it to assure legislators that the public would be protected, even if they weren’t. Thus, march-in. Never used. Designed to get votes, but not operate. Got it?
The most important of these is a failure by the contractor to take “effective steps to achieve practical application of the subject invention” or a failure to satisfy “health and safety needs” of consumers.
This is opinion. Fine. It still misstates march-in. March-in is to “alleviate health or safety needs” that are not “reasonably satisfied” the contractor, assignee, or licensees. Nothing to do with “consumers.” And why is not march-in to meet federal regulations of any importance? And why, further, is a failure to comply with US manufacturing requirements–the most important bit of Bayh-Dole on its own account–not important? Oh, well, it’s just an opinion in a document laced with sloppiness, fake history, and fantasy, so why should we object now?
Though this right is, in theory, quite powerful, it has not proven to be so in terms of its practical application — to date, no federal agency has exercised its march-in rights. March-in petitions have been made to the National Institutes of Health, however. For example, pharmaceutical companies occasionally instruct their legal departments to evaluate the risk of march-in prior to negotiating licenses for drugs developed under Bayh-Dole coverage.
Finally, something practical. And what do those legal departments find? Nada. There is no risk. Pharmaceutical companies getting exclusive licenses from universities for inventions made with federal support is the purpose of Bayh-Dole. Why would anyone hesitate? The exposure, now, however, is that these pharma companies exploit their exclusive positions to price their drugs beyond what is “reasonable”–and therefore fail to meet the definition of “practical application,” which requires benefits available to the public on reasonable terms. If the price isn’t reasonable, then that’s a term that’s unreasonable, so far as the public is concerned. But no matter, Bayh-Dole is designed so that each federal agency decides whether to march-in. There’s no third party or public or inventor right or even other governmental agency right to initiate march-in. So if the NIH doesn’t want to march-in, then it doesn’t have to. Simple pimple.