An invention is not a thing, 2: The fringe cases and federal policy

We are working through the logic of Bayh-Dole’s requirements on ownership of inventions made in work receiving federal support. We have made the point that an invention is not a thing–it is a category, a set, a collection of ways to practice. The definition of invention varies based on context. Federal patent law, other than Bayh-Dole, has no definition of invention. So we are taking apart Bayh-Dole’s definition of invention, which is, basically, an invention is anything that is or may be patentable and plant varieties that aren’t. This definition has a scope that’s beyond what is patentable and we have been considering the “may be patentable” part, which we have called strange because it covers stuff that turns out to be patentable as well as stuff that turns out not to be patentable and therefore not the stuff federal patent law is looking for.

In the general case, where a contractor acquires ownership of an invention made in work receiving federal funding, Bayh-Dole could easily be reduced to the government gets a royalty-free, non-exclusive license and that would be it. No special disclosure requirements, no electing to retain title, and all that paperwork bother that doesn’t do a thing for innovation, commercialization, practical application, or US manufacturing.

But what about other cases, other than when a contractor acquires ownership of an invention made in work receiving federal funding? Let’s consider fringe cases.

The contractor does not own. In this case, Bayh-Dole’s problem is that it uses a definition of subject invention that requires contractor ownership. If a contractor doesn’t own, then the invention is not subject, and Bayh-Dole’s patent rights clause does not operate. The upshot is: there must be two patent rights clauses for every federal funding agreement, one Bayh-Dole and one other. The other one, in some cases, is established by federal statute. There’s a list of these in 35 USC 210–the stuff that Bayh-Dole preempts (does not repeal) when a contractor acquires ownership of an invention made in work with federal support. In other cases, the other patent rights clause is established by the Nixon executive branch patent policy as modified by Reagan. Except that Reagan’s modification of Nixon requires federal agencies to use Bayh-Dole for all their non-small business/nonprofit funding agreements–which amounts to not dealing with inventions that a contractor does not own.

For small businesses and nonprofits, the Nixon patent policy still applies to those inventions that the contractor does not acquire, but that policy requires codification–which was completed in 1975 in the form of the Federal Procurement Regulation–but those regulations were discarded in favor of the Federal Acquisition Regulation in 1984, and the FAR cites only Bayh-Dole. Thus, when a contractor does not own a given invention made in federal work, there are only ghost requirements–in federal statutes, in modified executive branch policy, in displaced procurement regulations that implement prior executive branch policy. What a mess.

Wait, we aren’t done. Bayh-Dole’s implementing regulations require contractors to make their research and supervisory personnel parties to each federal funding agreement. When contractors do so, those personnel become, under Bayh-Dole’s definitions, contractors. Bayh-Dole’s implementing regulations then provide for a standard patent rights clause for those personnel–at 37 CFR 401.9. They are to be treated as small business contractors, but with fewer obligations than small business contractors (and with none of the obligations of nonprofit contractors). Thus, inventors making inventions in federally funded work, if they do not assign to another contractor, have the same rights under Bayh-Dole to elect to retain title as any other contractor. One might think, even, that Bayh-Dole’s federal grant of right to elect to retain title preempts any state-enforceable contract that would require otherwise. If a contractor must make its inventors into contractors as a matter of federal contract, then in doing so the contractor necessarily must release all state-based contractual claims that would conflict with making inventors into contractors. Bayh-Dole’s implementation of the standard patent rights clause-at 37 CFR 401.14–does exactly this for subcontracting–where a contractor makes an otherwise unrelated third party into a contractor by issuing a subcontract.

If inventors are made parties to the funding agreement and therefore are contractors, then the same logic applies to inventors as to any other contractors–if the inventor files a patent application, then there’s nothing a federal agency needs to do. But here’s where things differ. The inventor patent rights clause at 37 CFR 401.9 does not require inventors to file patent applications. Inventors can choose to blow patent rights or hold the invention. The federal government still has the right to publish reports of the work, but cannot force the inventor to file a patent application or give up the invention so that the federal government can file a patent application (and potentially license the invention exclusively, denying the inventor the right to practice or teach others to practice the invention). The difference makes sense. Bayh-Dole is in federal patent law. Nothing else in federal patent law requires inventors to use the patent system. It would be a sea change if Congress intended to alter the deal so that in the special condition in which inventors invent in work receiving federal support under a funding agreement, they are forced to use the patent system, either on their own, or after the invention has been taken from them by the federal government. Nothing like this is made express in Bayh-Dole. Following the Supreme Court’s reasoning in Stanford v Roche, if Congress had intended such a change–inventors forced to patent–then Congress would have spelled it out expressly.

But this bit doesn’t operate. I don’t know of a single contractor that complies with the requirement that they make inventors parties to the federal funding agreements. One might argue that the federal regulations operate anyway, and that a court might construct the actions of the contractors to make their inventors parties to the federal funding agreements even when the contractors have refused to do so and have instead implemented state-based patent requirements that force inventors to assign their inventions. But that’s an expensive, uncertain argument. In effect, Bayh-Dole’s deal is that if a contractor doesn’t file a patent application, then the federal agency has the right to acquire the invention for the purpose of suppressing public (and inventor) use of the invention in favor of a seeking an exclusive licensee (if not assignee) for the invention.

We reach then a most nuanced fringe case: where an institutional contractor has acquired an invention and does not want to file a patent application but does not want the federal government to demand ownership, file a patent application, suppress public use, and seek an exclusive licensee to control the invention in exchange for a federal money interest in the exclusive position conveyed to the licensee. It turns out this fringe case happens regularly, especially for computer software. The software implements some novel function in code, but it’s not worth dealing in patents to distribute the software. Whatever development might happen, it is not development to enable use of the code–the code already operates, at least for the novel function claimed. In this fringe case, then, a contractor might report the invention to the funding agency for the purpose of gaining an assurance that the federal government will not demand title to the invention and in doing so screw everything up. Here, Bayh-Dole operates like a huge, clunky administrative machine that does absolutely nothing for innovation. Piles of compliance paperwork just to get to a position where contractor and agency agree not to use any more of the clunky administrative machine. It’s like putting your quarters into the soda vending machine to punch the button to prevent the machine from dispensing anything. Yes, clunky like that.

In the map of the logic behind “is or may be patentable,” then, we can see that most of the Bayh-Dole apparatus directed at contractors is really there to enable federal exclusive licensing. If the federal government abandoned exclusive licensing, then there would be no particular need for special, duplicative disclosure of inventions, election to retain title and all that rot. There would be no need for the federal government to take title to anything once a contractor or inventor had title. Only if a federal agency could justify no non-federal patenting as a condition of a given federal funding agreement would Bayh-Dole serve a function–and then it would be to make clear that in addition to federal statutes that provided for no non-federal patenting federal agencies could also construct funding agreements that provided for no non-federal patenting.

But that is where we were before Bayh-Dole. Bayh-Dole then would reduce to simply preempting federal statutes that provide for no non-federal patenting except where federal agencies chose not to preempt those federal statutes or to require no non-federal patenting on their ownsome. Even that seems like expensive policy, given that the putative fuss that gave Bayh-Dole its traction was that the DOE had taken too long to determine whether Purdue Research Foundation dealing in patent rights on a given invention was a better thing for the public than letting the public have open access to it. And addressing that little problem of delay–perhaps PRF had a crappy plan for how it was going to use the right to exclude all others to benefit the public–gave the pharmaceutical industry the opening to create their own patent monopoly pipeline from all federal agencies–not just the NIH and NSF–extending through contractors and arriving at pharmaceutical companies, not only to grow fat on human misery but to prevent anyone else from building any muscle that would alleviate misery without producing the desired fat.

That’s a long road through

(i) Inventions are categories, not things.

(ii) The definition of invention–the size of the category–varies with context.

(iii) Bayh-Dole varies the definition to include stuff that’s not necessarily patentable.

(iv) The logic of the variation is to provide opportunities for the federal government to suppress public use in favor of dealing in patent monopolies under exclusive licenses (if not assignments).

(v) If the federal government did not have the right to license exclusively but for an act of Congress in each specific instance, then Bayh-Dole would reduce to a non-exclusive government license whenever there was non-federal patenting activity based on federally supported work. Essentially what Vannevar Bush advocated. Essentially what’s in the Nixon patent policy.

(vi) There would be only one policy issue: whether there should be non-federal patenting activity for inventions made in any given work receiving federal funds.

The Nixon patent policy made this logic of it all:

Companies with expertise and non-governmental market positions should get to keep their inventions, subject to a government non-exclusive license and three years from patent issue to achieve practical application.

Other companies–nonprofits, contract research organizations–should have to make a public case for dealing in patents that’s better than federal release of inventions.

Except if the work is directed at federal agency development of a product for public use or in areas of public health or where there are no non-governmental markets or where the work is to supervise others–in those cases, no non-federal patent activity.

Pretty much every statute that has to do with federal ownership of inventions in particular instances comes within one of the Nixon policy areas of exception to company ownership of inventions. Bayh-Dole makes an utter hash of this logic and creates a patent monopoly pipeline particularly directed at health research. The result is the formation of a speculative bubble around inventions that might have therapeutic benefit. Monopoly pricing is one consequence–but not necessarily because of monopolies on medical products but more so because of the use of patents to suppress public access to almost all significant discoveries–tens of thousands of instances of categories of invention–made in federally supported health research.

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