University breach of Bayh-Dole’s standard patent rights clause

Let’s get at the consequence of two non-Bayh-Dole provisions injected into the standard patent rights clause stipulated by Bayh-Dole: the (f)(2) written agreement requirement and the (g)(1) requirements on subcontracts. In particular, let’s look at what happens when a university contractor fails to comply with these two provisions together. Universities routinely breach the standard patent rights clause–get this–by insisting that employees must make agreements with them in order to comply with federal grant requirements.

Bayh-Dole requires federal agencies to use a default patent rights clause in all funding agreements for research or development with nonprofits and small businesses unless an agency can justify a different clause, and then makes it difficult for an agency to justify anything different. Bayh-Dole specifies what must be in this default patent rights clause (35 USC 202(c)) and authorizes the Secretary of Commerce (35 USC 206) to

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.

Nowhere does Bayh-Dole authorize the Secretary of Commerce to mess around with the default provisions that Bayh-Dole requires. Federal agencies are authorized to mess with the default provisions, but only if they move through the proper procedures to do so. But what did the executive branch do once Bayh-Dole became law? Ah, yes, stick on their own provisions to the standard patent rights clause and make three such clauses (37 CFR 401.14(a)-(l), 37 CFR 401.14(a)-(j) and (l), and 37 CFR 401.9, which selects various provisions from 37 CFR 401.14(a))  instead of just one, plus one standing alternative clause required by the Department of Energy (previously 37 CFR 401.14(a)(b) and now conflated as a conditional in 37 CFR 401.14(a)).

Among the added provisions to the standard patent rights clauses for small companies and nonprofits–not authorized by Bayh-Dole–is a requirement that the contractor require a written agreement (37 CFR 401.14(f)(2)):

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c) of this clause, to assign to the contractor the entire right, title and interest in and to each subject invention made under contract, and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.

This provision is specific to a contractor’s employees. It has nothing to do with volunteers, independent contractors, anyone who is not, for the purposes of the funding agreement, an employee. There is no requirement here for a contractor to require anything of non-employees. A contractor does not even have to get its officers to sign–just a subset of employees–not clerical or non-technical employees. In fact, the requirement is broader: the patent rights clause does not permit contractors from making anyone sign the written agreement that the patent rights clause does not require them to make sign. That’s interesting. Why would the federal government be concerned only with having a contractor insist that certain of its employees make written agreements to protect the government’s interest in subject inventions and not anyone else, not even clerical and non-technical employees?

Clearly, the executive branch, in fiddling with Bayh-Dole’s patent rights clause, is not concerned about making contractors gather signatures from everyone who might become involved in a federally funded project. Ponder that. Beyond that, nothing in Bayh-Dole authorizes the executive branch to make any contractor gather signatures at all. If a contractor does not obtain ownership of a given invention, then the contracting provisions of Bayh-Dole don’t apply and neither does the standard patent rights clause. Any inventions outside the standard patent rights clause are then governed by federal statutes (if any) specific to the federal funding, and if not one or more of those statutes, then executive branch patent policy (but that policy was modified by Reagan to require Bayh-Dole, and if Bayh-Dole doesn’t reach to those inventions, then executive branch patent policy does not reach to them either).

Furthermore, this (f)(2) provision becomes effective for each funding agreement, once a contractor becomes a party to that funding agreement. That is, it is a requirement within the funding agreement, not an overarching statutory requirement. Each contractor, must, after the contract becomes effective, act to require the written agreement, and require it only of the specified employees.

The Supreme Court in Stanford v Roche ruled that Bayh-Dole does not vest title to inventions arising from federally supported research or development with contractors, nor give contractors any special right to acquire such inventions. Thus, nothing in Bayh-Dole’s standard patent rights clause can–at least under the power of Bayh-Dole–provide contractors with such special rights. Whatever means a contractor may have to acquire such inventions takes place entirely outside of Bayh-Dole.

We can be short with it. Inventions made under federal contract by non-employees and by clerical and non-technical employees are not subject inventions. The federal government has no rights in these inventions as a matter of Bayh-Dole, no right to disclosure, no right to obtain title, no government license to practice, no right to march-in. Nada. Furthermore, a contractor has no standing under the standard patent rights clause to compel non-employees or non-technical and clerical employees to make any written agreement with regard to rights or compliance as a condition of the federal contract.

To represent that non-employees or clerical and non-technical employees must make a written agreement is simply not true. Doing so does not comply with federal regulation. It is a form of fraud. But more so, contractors are prohibited from setting up such a requirement as a way to take an interest in any invention of any subcontractor.

Let’s work through that last bit. The standard patent rights clause imports a provision from the now-defunct Federal Procurement Regulation that codified the Nixon version of the Kennedy patent policy. That provision (37 CFR 401.14(g)(1)) prohibits a contractor from having an interest in subject inventions of subcontractors:

The contractor will include this clause, suitably modified to identify the parties, in all subcontracts, regardless of tier, for experimental, developmental or research work to be performed by a subcontractor. The subcontractor will retain all rights provided for the contractor in this clause, and the contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor’s subject inventions.

A contractor can have an interest in a subcontractor’s subject inventions, but not as part of the deal by which the subcontractor becomes a party to the funding agreement. That is, a written agreement of the form required by (f)(2) is prohibited by (g)(1) for anyone who is not an employee or is a clerical or non-technical worker who otherwise becomes a party to the funding agreement by means of a subcontract.

Now, if someone is not an employee for the purposes of research–or not an employee at all, but a visitor or volunteer or independent contractor or informal consultant–then any agreement such a someone is required to sign, as a condition of involvement in a contractor’s federally funded work, amounts to a subcontract. Paragraph (g)(1) forbids any such agreement to provide the contractor with any interest in that someone’s inventions made under the funding agreement. Thus, to be more specific, any university that demands that people other than those specified by (f)(2) must sign a written agreement to disclose and assign inventions to the contractor is non-compliant–and in direct breach of the standard patent rights clause.

That’s not all. The same is true for those the contractor is required to require to make a written agreement to protect the government’s interest in subject inventions. A contractor cannot substitute its own written agreement for the (f)(2) agreement or place in the (f)(2) agreement anything beyond what the (f)(2) agreement requires, such as a contractor interest in the employee’s inventions as a condition of participation in the federally funded work. Why is that? First, and most obviously, (f)(2) requires the contractor to do the thing required–require a written agreement as set forth by (f)(2) and not some other agreement. Second, the express purpose of the (f)(2) agreement is to protect the government’s interest in subject inventions, not the contractor’s interest. Adding a contractor’s interest in subject inventions of the inventors as a condition of participation in the federally supported work (or use of contractor’s resources which the contractor is already bound to provide and for which the contractor is compensated by the federal government) is exactly the sort of bad behavior prohibited by (g)(1).

We can go further. What is the nature of the written agreement that (f)(2) requires contractors to require? It is required by a contractor, acting under the requirements of a federal funding agreement. It joins the specified employees to that federal funding agreement. See 35 USC 201(b) for the definition of funding agreement–second sentence:

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.

The written agreement, then, delegates obligations with regard to subject inventions from the contractor to the employee that the contractor has required to make the agreement. If that delegation takes the form of a subcontract of the patent rights clause, then the contractor cannot assert an interest in the subject inventions of the subcontractor. NIST’s addition of an assignment requirement for subject inventions then can only refer to the subject inventions of the contractor–inventions that the contractor already owns but for which has not obtained the paperwork that formalizes the ownership–that is, inventions that are the contractor’s as a matter of equity, such as inventions made by employees hired to invent or who have been assigned to research tasks undertaken to benefit the contractor. If one argues that the written agreement substitutes parties–the employees agree to provide to the federal government directly what the contractor otherwise would provide, but is required to delegate–then the contractor cannot have it the other way as well–the contractor cannot substitute parties and then claim not to have substituted parties by taking an interest in the substitute parties’ inventions. For assignment, it is even clearer–if the written agreement constitutes a tacit assignment of the contractor’s interest in inventions made by employees so that they can comply with the obligation to establish the government’s rights, then the contractor cannot at the same time demand assignment of those same inventions.

However one wants to argue it, the written agreement requirement is set up to require contractors to join the specified employees to the federal funding agreement. Those employees become contractors (see 35 USC 201(c)) and the patent rights clause that applies is 37 CFR 401.9. Inventions made by those employees, if within the scope of the funding agreement, are subject inventions of the employees. The employee-inventors have full standing under 35 USC 202(a) to disclose their inventions and elect to retain title to their inventions, subject to 37 CFR 401.9’s provisions, a subset of those at 35 USC 202(c)–and, most noticeably, omitting the requirement to file patent applications and the non-profit requirements. Inventors are, according to 37 CFR 401.9, to be treated as small business contractors–sole proprietors, as it were, for their invention rights only.

You may think this reading is convoluted. But it is the reasonable reading, the right reading. This reading is just how rights to patentable inventions has shaken out, at least since Dubilier, nearly a century ago. Invention rights do not follow employment or use of an employer’s resources, unless there’s something equitable that demands that a court construct an obligation for an inventor to assign a given invention. Individuals otherwise own their inventions with regard to federal patent law. This ownership is in its way a direct consequence of the Constitutional clause that authorizes the federal government to reserve to inventors for limited times exclusive rights to their discoveries. There’s nothing there that allows the federal government standing to reserve those rights to employers, let alone to nonprofit organizations that agree to host federally supported research on behalf of faculty members who the universities make a big show of not controlling with regard to their research.

The federal funding agreement does not suddenly grant the federal government more power to force inventions to be owned by employers rather than by inventors. Nor do federal funding agreements force employers to take ownership of inventions made by employees–or by non-employees. The federal funding agreement’s standard patent rights clause requires contractors to flow down the government’s interest to employee-inventors and to none others, and when a contractor has done this, those employee-inventors operate under their own patent rights clause–37 CFR 401.9–just as a small business subcontractor would operate under its version of 37 CFR 401.14.

(For what it is worth, the NIST changes to (g) make total hash of (g)(2). Previously, (g)(1) was restricted to subcontracts by nonprofits and small businesses to other nonprofits and small businesses–and (g)(2) then was for subcontracts to any other firms, which required use of the appropriate FAR clauses. But NIST conflates in (g) small businesses and non-small businesses, citing Reagan’s EO 12591 but not recognizing that the FAR has already been modified to comply with the EO. Thus, (g)(2) now reads meaningless garble. There are no “all other subcontracts.” The only difference left is–watch:

(g)(1) the contractor will include this clause in all subcontracts for work to be performed by a subcontractor

(g)(2) the contractor will include [the required FAR patent rights clause] in all other subcontracts

Yes–in (g)(1), the subcontracts are performed by a subcontractor. If a subcontract is not to be performed by a subcontractor, then use the FAR patent rights clause. But the FAR patent rights clause is now just another version of the standard patent rights clause. This stuff is just too difficult for NISTwits. The Secretary of Commerce needs to relieve NIST of the opportunity to further bungle what has already been well bungled.)

What’s the outcome of all this?

1. A contractor breaches the standard patent rights clause to require a written agreement of the form of (f)(2) for non-employees or for clerical and non-technical employees.

2. A contractor breaches the standard patent rights clause to substitute its own patent agreement claiming rights in an employee’s invention instead of the required (f)(2) agreement

3. A contractor breaches the standard patent rights clause if it represents that assignment of inventions to the contractor (other than those inventions that the contractor already owns as a matter of equity) is required to comply with Bayh-Dole or government regulations or the standard patent rights clause.

4. A contractor breaches the standard patent rights clause if it makes assignment of inventions a condition of participation in federally supported work.

For university contractors, there is a further point:

5. A university contractor breaches the standard patent rights clause if it makes any faculty  member assign inventions to the university as a condition of participation in federally supported work.

These breaches involve (i) failure to require what (f)(2) requires, (ii) substituting a private agreement for what (f)(2) requires, (iii) adding private demands that (g)(1), 35 USC 201(b) and 37 CFR 401.9, and the Supreme Court decision in Stanford v Roche preclude or forbid.

The federal government’s interest in inventions made in work receiving federal support is in no way advanced by prime contractors taking ownership in those inventions. The government does not care who holds the rights, so long as the government gets its rights and can hold the invention owner accountable under whatever patent rights clause applies–and otherwise, if Bayh-Dole apparatus does not apply, then under whatever federal statute might govern any given invention. The federal government does not need Bayh-Dole to control every invention, and clearly Congress has set things up so that Bayh-Dole does not cover every invention and even prohibits contractors from attempting to turn Bayh-Dole into a law that somehow gives contractors leverage over employees and even non-employees.

Federal funding furthermore is not an excuse for employers to demand inventions from employees, from faculty who aren’t employed for their research (faculty are not their administrators’ research servants–just ask them). Contractors, if they want to own inventions made in federally supported work, have to make arrangements to get those inventions as if there were no federal funding–but no, that’s not quite right.

Contractors have to make arrangements to get the invention rights they want without making anything having to do with federal funding a consideration for those rights AND while still complying with what their federal funding agreement in each case requires them to do and forbids them from doing.

If a federal contractor has a deal on patents with its employees outside of the funding agreement, then that agreement will control the disposition of inventions made by employees, to the extent that deal does not conflict with what the contractor must require in (f)(2). But if the contractor does not have such a deal, then the (f)(2)/37 CFR 401.9 federal contract requirements control, and there’s nothing that the contractor can do in the moment, as a condition of the federal funding, necessarily then in consideration for allowing participation in the federally supported work, to make a new demand for ownership of inventions. It just cannot be (though, of course, in the swamp that is university technology transfer, that is exactly what happens, all the time).

If a federal contractor asserts that anyone not within the stated scope of (f)(2) must also sign a patent agreement with the contractor as a condition of participation in federally funded work, that breaches the patent rights clause. Far from compliance, doing so is willful act of non-compliance. (f)(2) does not permit such a deal. One cannot do it “just in case” for others, nor can one exploit the fact of federal funding to force the deal for the contractor’s own benefit.

Thus, when a university demands that anyone but specified employees for the purpose of the federally supported project sign a written agreement on inventions that promises to assign inventions to the contractor, combined with the claim that one must do so to comply with federal regulations, that claim itself expressly and openly violates the federal regulations.

University administrators refuse to comply with the (f)(2) written agreement requirement. They substitute agreements in their own institutional interest. University administrators refuse to make employees parties to federal funding agreements as (f)(2) compliance requires. University administrators misconstrue faculty as employees for matters of federal research when faculty are, generally, not employees of the university for such research. University administrators misrepresent Bayh-Dole as requiring faculty and employees to sign over inventions to the university. Doing so creates a cause of action (42 USC 1983):

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, . . .

A right to inventions is secured under both the Constitution and federal patent law. Claiming that Bayh-Dole requires compliance in the form of assigning inventions to the university is clearly a claim made under the “color of law.” Forcing such assignment deprives inventors of their rights–not merely the rights established by federal patent law but also the rights that are established, however awkwardly, by Bayh-Dole and its patent rights clauses.

Not only that, but doing so is also a felony (18 USC 241) if two or more persons conspire–say, at an AUTM meeting:

If two or more persons conspire to injure, oppress, threaten, or intimidate any person in any State, Territory, Commonwealth, Possession, or District in the free exercise or enjoyment of any right or privilege secured to him by the Constitution or laws of the United States, or because of his having so exercised the same; . . .

They shall be fined under this title or imprisoned not more than ten years, or both;. . .

Threatening disciplinary action against a university inventor who refuses to sign a non-compliant written agreement, or an agreement in violation of Bayh-Dole’s standard patent rights clause, if two or more persons conspire to do it, creates a felony–a personal liability for those involved. The university is not going to sit in jail for them.

Bayh-Dole provides no remedies for third parties or the public with administrative non-compliance with its patent rights clauses, other than loss of institutional ownership for non-disclosure or failure to file patent applications or maintain and defend issued patents, and limited intervention for failure to achieve practical application, make product sufficiently available, or comply with the hopelessly weak preference for US industry. For everything else–silence. Even the Supreme Court found that silence potentially “deeply troubling,” but for the focus that Bayh-Dole was to have on only those inventions that a contractor legitimately obtained outside the requirements of Bayh-Dole (citation removed):

In a world in which there is frequent collaboration between private entities, inventors, and federal contractors, that absence would be deeply troubling. But the lack of procedures protecting inventor and third-party rights makes perfect sense if the Act applies only when a federal contractor has already acquired title to an inventor’s interest. In that case, there is no need to protect inventor or third-party rights, because the only rights at issue are those of the contractor and the Government.

The Supreme Court did not look at the standard patent rights clauses, nor at the (f)(2) written agreement (which Stanford breached), nor at the protection for inventors who are made parties to the funding agreement and thus have standing as contractors under 37 CFR 401.9. If they had, they would have found not only that Bayh-Dole does not vest title to inventions with contractors but also that contractors have no right to obtain title–by any means–if they fail to comply with the requirements of the patent rights clauses in federal funding agreements that limit what rights they can acquire, and on what basis.

University technology transfer, as conceived as bureaucrat-controlled exclusive patent licensing, is grossly ineffective. It is also does great damage to other non-bureaucratic modes of research enterprise–standards formation, cumulative technology, informal collaborations, the creation of research platforms and development commons. But beyond that, university technology transfer is its own swamp of institutional conflicts of interest, non-compliance, public deception, and lawless exploitation of both inventors and the public.




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