Bayh-Dole Government License–2: Misrepresenting the Government License

We have been through the Bayh-Dole government license at 35 USC 202(c)(4) and have reviewed its sources in executive branch patent policy from 1963 to 1975. Bayh-Dole was drafted in 1978-79, so the connection to the definitions and usage in executive branch patent policies is relevant, given that’s where Latker picks out Bayh-Dole’s wording, Dr. Frankenstein style.

Now let’s turn to our webinar by Fuentek on the government license in Bayh-Dole. Our first slide opens with the paragraph from the standard patent rights clause at 37 CFR 401.14. There we see the “license to practice and have practiced for or on behalf of the United States throughout the world.” But then the slide switches from the regulations to Bayh-Dole the statute–35 USC 202. The slide is titled “Government Rights Regulations”–the proper citation is 37 CFR 401.3:

Each funding agreement awarded to a contractor (except those subject to 35 U.S.C. 212) shall contain the clause found in § 401.14 with such modifications and tailoring as authorized or required elsewhere in this part. However, a funding agreement may contain alternative provisions – . . . .

What’s the difference? The regulations allow for modifications and tailoring, while 35 USC 202(c) just states:

Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following:

If there’s one lesson from all of this, it is to follow the regulatory pathway to the patents rights clause that pertains to each specific federal funding agreement that one is working with. Confirm that the standard patent rights clause is unmodified or otherwise. Work with the form of the clause that you have. Recognize that this is part of a federal contract, which does not behave in the same manner as an ordinary contract under state law. It’s more like this. I will transcribe some bits of the webinar and comment.

“What constitutes the right of the government to these innovations that were developed with federally funded dollars but at other institutions, what rights do they have on that?”

The answer should be direct–each federal agency that provides funding has a non-exclusive license to practice and have practiced throughout the world for each subject invention that a contractor has elected to retain title. That’s 37 CFR 401.14(b), right there in the “Allocation of Principal Rights” where the contractor may “retain title” (by electing to retain title, having gotten title).

But no, instead we hear this:

“The federal government has a non-exclusive, paid-up right to use the innovation that was developed with their dollars or with any federally funded dollars on their behalf or directly.”

The government has a license, not merely a right. The license involves a grant–a waiver of the right to enforce a patent. The scope of the license is to “practice and have practiced” not merely to “use.” Practice = “make, use, and sell.” The subject matter is a “subject invention”–one that is or may be patentable, and without an actual patent, the license covers anything else that might be claimed with regard to the invention. Bayh-Dole does not deal with “innovation.” It’s like confusing bears and humans out walking because they both might be on their hind legs. Bayh-Dole is part of patent law, and but for the clumsy inclusion of plant variety certification (which is not patentable subject matter) instead of plants (which are), its subject matter is inventions which are or may be patentable. Not innovations.

Finally, the inventions within the scope of Bayh-Dole are those “arising from federally supported research or development.” Bayh-Dole is clear that the concept of interest is the “work” that is supported by the government, not any particular invention. The “work” may be funded “in whole or in part” by the federal government (35 USC 201(b)). Thus, the proper analysis is to identify the work. Establish that the federal government has funded at least some portion of that work. Identify any inventions made in that work. When acquired by a party to that funding agreement, these inventions are subject inventions and within the scope of Bayh-Dole. Separate accounting and chronology are not determinative (see 37 CFR 401.1 on scope). It does not matter whether federal funding comes first or later, or whether an invention was made with federal dollars or with other dollars. All that matters is that the invention arose from the work, and the federal government funded some part of the work. Got it? It’s easy. And it is broad.

A contractor may extend the parties to a funding agreement, and thus the parties engaged in a given work, by “any assignment, substitution of parties, or subcontract of any type.” Bayh-Dole defines a party to the funding agreement to be a “contractor.” Whenever you see “contractor” in Bayh-Dole, it means “any party to the funding agreement”–and there may be multiple, even many, depending on whether contractors comply with the standard patent rights clause.

To be clear, assignment of inventions comes within this expansion of contractors. If a contractor assigns a subject invention, the assignee becomes a contractor. Anything that this assignee invents that’s part of the “work” established by the funding agreement (and that in itself is really important to get right–the request for proposals, the proposal, the statement of work, university written policy all are in play) is also, when acquired by a contractor (such as the assignee), also a subject invention. If such subject inventions go unreported, the federal government can take title to them, and so does not need a license.

And the kicker: it is well established that an exclusive license to all substantial rights in an invention (make, use, and sell) assigns the invention. This drives to the heart of university “technology transfer” practice under Bayh-Dole. If a university exclusively licenses all substantial rights (so that the licensee has the right to enforce any patent on the invention), that’s an assignment within “any assignment” of Bayh-Dole’s funding agreement. Many–most–university exclusive licensees of subject inventions are assignees of the invention. The instrument is labeled exclusive license but its effect–what it is–is assignment. The licensee is a contractor. Anything that the licensee does to further invent within the scope of the “work” that the federal government has funded some part of, is also a subject invention.

It is not, then, merely inventions that were “developed with federal dollars” but rather inventions made in the performance of work funded at least in part with federal dollars. The work gets funded, not inventions. Those inventions get conceived or first actually reduced to practice in the work, not  merely “developed” and not merely “with federal dollars.”

The sloppy talk at the start of this webinar leads directly to a misrepresentation of Bayh-Dole across the board in all of its core provision–election to retain title to subject inventions and the government license that goes with that election.

Talk turns to the NIST Green Paper. NIST announced a call for comments on how to improve federal technology transfer–transfer from federal laboratories–but then changed direction and used the comment period to address contractor technology transfer–transfer from universities and small companies. It was a clever political ploy. The Green Paper is the result. It’s an awful document in its own right and some day I will get up the courage to finish writing about it, but for now we consider only the Green Paper’s total misrepresentation of the government license, which our moderator accepts uncritically:

“. . . it’s not very well defined how the government stipulates their rights to use and their march-in rights, and that it creates some ambiguity in what is interpreted both by the people that would use that technology but also those that are the innovation holders.”

This is NIST nonsense. The scope of the government’s license is perfectly clear: practice and have practiced means to make, use, and sell and have others do so. That language in turn is absolutely standard patent licensing language. No one with any competence would have any problem at all with the language. Whatever the government does, a patent holder has no standing to assert a patent right in the invention against the government or anyone working for or on behalf of the government.

Sure–fuss over how to establish when practice is not for or on behalf of the government. But then also worry over the fundamental policy of Bayh-Dole at 35 USC 200: use the patent system to promote utilization of each subject invention, not how to extract payment from companies by threatening to suppress their use. Again, no.

NIST describes the government license as “Government Use.” This is a complete misrepresentation of Bayh-Dole. The license is practice and have practiced. The license is as broad as the “Governmental Purpose” defined by the Kennedy patent policy (1963) and current through to the Federal Procurement Regulation (1975). There is no “Government Use” license in Bayh-Dole. 

Here’s how the webinar slide quotes NIST’s Green Paper:

“Government use” is limited to use directly by the government—or a government contractor in the performance of an agreement with the government— for a government purpose only, including continued use in research and development by the government.

The appropriate comment at this point should be: “NIST has been entirely misled by comments from people who do not understand what they are talking about or who are determined to mislead NIST to reduce the government’s rights in inventions without having to show up in Congress and explain what they aim to do. What university licensing professionals need to come to grips with is what point is there in trying to set up situations in which to sue the federal government for compensation, given that these inventions have come about in work that the federal government has supported and ought to have the benefit of without such demands for payment? How on earth does a demand for payment in any way address the policy and objective set forth by Bayh-Dole? No, it doesn’t. This topic should be dropped. People are making a confusion where none should exist, especially for nonprofits hugely provided with federal funding.”

Alas, no.

“It’s pretty broad and pretty vague.”

Yes, it is broad. No, it is not vague. More Green Paper nonsense:

The scope of the government use license should not extend to goods and services made, sold, or otherwise distributed by third parties if the government—or a government contractor in the performance of an agreement with the government—does not directly use, provide, or consume those goods and services.

If folks want to change the scope, then they must do it with an amendment to the law. They cannot do it by messing with a regulation. NIST advocates for a restriction that would mean that the government could not authorize others to use an invention on behalf of the government if the government won’t directly use or consume products based on the invention.

That restriction might seem strange. Let me help. This is a backdoor action by the pharmaceutical industry to prevent the federal government from using its license to practice and have practiced to authorize companies to make and sell drugs (and other such stuff) wherever the federal government has a basis to act to supply drugs. Whenever, for instance, the federal government is authorized to pay for drugs–it also has a license to authorize others to make and sell those drugs if based on subject inventions to which contractors have elected to retain title.

There, now it should be clear. It’s not even that the pharmaceutical industry has to be involved. The effort just as easily arises from people who derive their income from pandering to the pharmaceutical industry–and this has been going on within the NIH and at universities since the early 1960s. Bayh-Dole is just another monstrous effort by these folks to find a way to build patent monopoly pipelines from federal funding to the pharmaceutical industry. It is not so much that big pharma demands such pipelines–their concern historically has been “contamination” of their own research and development if they bring in house inventions with a federal interest–rather, it is the interest of the people who want to make money dealing with pharma, and dealing with financial speculators who want to deal with pharma. If you want to understand what’s going on, that’s your starting point to view the entire terrain.

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