The consequences of Bayh-Dole non-disclosure of inventions, 1

If the federal government had the courage to enforce any one thing in Bayh-Dole, it would be the nonprofit assignment and accounting requirements at 35 USC 202(c)(7). The federal government taking title to non-disclosed subject inventions is mostly useless. Let me explain.

Bayh-Dole creates a new category of invention in federal patent law, the “subject” invention (35 USC 201(e)). A subject invention is one that a federal contractor acquires and which “is or may be patentable” or is an unpatentable plant variety, and which was made in performance of work under a federal funding agreement. “Made,” too is defined: conceived or first actually reduced to practice (35 USC 201(g)). That’s actually language used to decide who properly has invented first, from back in the first-to-invent days of US patent law. But in Bayh-Dole, the language is used to define the scope of federal interest in an invention. Anything from the first step of inventing–conception–to the last step–first actual reduction to practice (even if that last step is not necessary to file a patent application or have a patent issue).

We should point out, then, that first actual reduction to practice for pharmaceutical inventions may require human clinical trials to demonstrate that an invention indeed functions as conceived for a therapeutic purpose. Federal funding may have supported conception, and a patent may have issued before clinical trials were complete, and additional inventions may have been made during development of a commercial product (involving formulation, delivery, new applications, combination with other drugs or therapies, and the like). But if conception in turn supports these other developments (and pretty much has to), then federal funding also has supported these other developments by supporting conception. (See Mine Safety Equipment v United States for scope;  In re Eddie L. King for a discussion of first actual reduction to practice; 37 CFR 401.1 for Bayh-Dole guidance on scope).

The performance of work is everything that any contractor–any party to the federal funding agreement–does to meet the objectives of that work. If the purpose of the research is to find and bring to use a new therapeutic or class of therapeutics, then any contractor engaged in that work, and any inventions they make, are also within the scope of the definition of subject invention. Bayh-Dole makes it clear that federal funding may be only “in part”–that other sources of funding may also be used to support the overall “performance of work.” (See 35 USC 201(b)). Bayh-Dole also makes it clear that a contractor can add additional parties to a federal funding agreement–making them also contractors–by “any assignment, substitution of parties, or subcontract of any type.”

If a contractor assigns a subject invention to another party, then that party also becomes a contractor subject to the patent rights clause. If the contractor is a nonprofit, and the assignee is a for-profit, then Bayh-Dole expressly requires that the for-profit is subject to the nonprofit’s patent rights clause (35 USC 202(c)(7)(A)). If a nonprofit grants only a license, but does not assign or subcontract, then the licensee does not become a party to the funding agreement. But if the effect of the license is to convey ownership of the subject invention, then it doesn’t matter what the written instrument is titled–the license transfers ownership, it is an assignment, and the assignee becomes a contractor. Courts have looked squarely at exclusive licenses made by federal contractors and determined that these licenses, even with reservation of rights for government and educational purposes, convey ownership of inventions to the exclusive licensee–they are assignments. (See Vaupel v. American Trim, Ciba-Geigy v. Alza, and Prima Tek II v A-roo, for instance). Keep this bit in mind as we work through non-disclosure.

Folks can’t decide arbitrarily whether an invention is a subject invention. An invention’s status is decided by the facts–not by naming, not by good intentions, not by a side agreement with a federal agency.

Bayh-Dole requires each funding agreement to include a default patent rights clause that requires each subject invention to be disclosed to the federal agency that provided funding–but only after such invention has been disclosed to the contractor’s designated patent personnel. Thus, a subject invention can remain in limbo for a long time, so long as disclosure is kept from those contractor patent personnel.

There is guidance, too, regarding disclosure. Disclosure is not merely notice that an invention has been made or even the general area of art in which the invention operates. A disclosure is a formal report that lays out the invention with information that demonstrates that the invention is or may be patentable, and if so, with sufficient information that a patent application could be prepared (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.

In Campbell Plastics, a company contractor failed to make its disclosure in the form of a written report, and that cost the company title to the invention–though something about that whole case smells of rotten eggs. And that’s about the only case involving loss of invention title. It is not sufficient, even, to simply correct an issued patent to include the Bayh-Dole required federal funding annotation. Doing so might represent that an invention is a subject invention, but that does not provide a written report, and so under Campbell Plastics rotten eggs, is not a proper disclosure of the invention. For that matter, disclosure of what’s claimed in a patent may not properly describe what was invented. An invention may be greater than what any given patent is drafted to claim.

Bayh-Dole is a law of preemption, not of repeal. Bayh-Dole preempts other federal statutes that have to do with ownership of inventions made with federal support (except it does not preempt Stevenson-Wydler, except Stevenson-Wydler was amended to require Bayh-Dole, and it does not preempt any later law that recites Bayh-Dole). That is, Bayh-Dole adds another layer of regulation to federal funding requirements for research–executive branch patent policy and related regulations, those federal statutes that overrule executive branch policy, and then Bayh-Dole, preempting everything else. But Bayh-Dole’s preemption only operates if a subject invention is disclosed. Here’s 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

First, a contractor must obtain title–by conventional means, such as assignment from the inventor(s). For such assignment, presumably the invention must be disclosed to the contractor’s personnel designated for patent matters. Otherwise, there’s no definition to what has been assigned. That’s true, even of present assignments, crap that they are. Bayh-Dole’s preemption operates when an invention becomes a subject invention–the contractor has acquired the invention, it is or may be patentable, and was made in performance of work under a federal funding agreement.

If a contractor does not disclose a subject invention, then Bayh-Dole provides that the federal government can request title (35 USC 202(c)(1)):

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.

“May receive” leaves open whether the federal government will receive title. There’s nothing automatic. It’s not even the case that Bayh-Dole gives the federal government the right to require title. The sense is, if the contractor has not complied with Bayh-Dole, then Bayh-Dole does not preempt other statutes or executive branch patent policy, and it is a matter of practice under those statutes, if they apply, or executive branch patent policy otherwise, whether the federal government has a legal right to require assignment of the subject invention. Under executive branch patent policy, for instance, a federal agency in dealing with a contractor with technical capability and an established non-governmental market is to allow the contractor to retain principal rights–the government receives a non-exclusive license to practice (make, use, and sell) and have practiced.

Thus, one consequence of not disclosing a subject invention timely is that the federal government may receive title to what hasn’t been disclosed. Of course, this is all strange, since the federal government must somehow come to know that a given invention is a subject invention, and that it has not been disclosed. Ponder that. Even if a patent issues on a subject invention–and the government clearly then must have the specification of that patent in its possession to be able to issue the patent–that’s not a proper disclosure to the federal agency that provided the funding (unless, of course, the funding was provided by the Department of Commerce, since the USPTO is within Commerce, sigh). Thus, if a subject invention goes undisclosed for an extended period of time, and the federal agency does not have knowledge of it, then a contractor can have a happy time exploiting patents on that invention without all the Bayh-Dole hoo-haw and paperwork. If the invention runs its commercial course or the patents on the invention expire, then even if the funding agency later discovers that the invention was a subject invention and wasn’t disclosed, the “may receive title” remedy in Bayh-Dole is moot. If the patent has expired, then the invention clearly is no longer a subject invention because it is now most definitely not patentable (again), and so there is nothing for the federal government to acquire by way of assignment except Cheshire cat grins.

Thus, this Bayh-Dole assignment to the government remedy is pretty limited in actual scope, and in the worst case–where a subject invention is not disclosed for its useful commercial life (if it has one) or for the life of any patents–the remedy of the government taking title is an entirely empty gesture.

And for all that, the government taking title to subject inventions for non-disclosure is futile anyway. In the case of Campbell Plastics, the government takes title to a small company’s invention because the company sent their patent application to the agency instead of a properly compliant written report. What happens? The company can’t practice the invention then without federal approval. Is the government going to then turn around and sue this small company contractor for infringement? Is the government going to turn around and license (or assign) the patent to some competitor of the small company–rather in spite–and let the new licensee/owner of the invention sue the small company for infringement? How would this sort of economic mayhem do anything to promote making the benefits of using the invention available to the public on reasonable terms. Sure, it’s clear how such mayhem teaches small companies to fear the wrath of rule pettiness at federal agencies, but really is this at all consistent with Bayh-Dole’s statement of policy and objectives at 35 USC 200? No, not hardly. So the “may receive title” bit in Bayh-Dole, like much of the law, hasn’t been thought out and is in fact potentially damaging for subject inventions that matter, impotent where subject inventions are never disclosed, and a waste of time for nearly all other subject inventions–the ones not worth anyone’s time.

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