A major law firm’s new FAQ on Bayh-Dole, 4: More Mindless Administrative Compliance

We are nearly done with this FAQ from a major law firm purporting to give advice to small companies regarding Bayh-Dole. We are working through a list of 12 administrative compliance steps singled out as the essence of the law–those incentives that you thought were to be a form of enticement, but now you begin to see the bureaucratic humor in the choice of words. Ignored are all those Bayh-Dole objectives that have to do with public benefit, use of inventions, American jobs, and free competition. But no matter, innovation is about compliance, and compliance means proper, timely paperwork, and without paperwork, don’t even think about getting funding from a sophisticated investor using a sophisticated law firm–here, “sophisticated” means “can’t get Bayh-Dole right but it doesn’t matter because the whole point is to beg you to get the paperwork right so you can become deal flow.”

Anyhows. The FAQ continues with the things a company has to do to comply with Bayh-Dole’s patent rights clause.

7. File a non-provisional application within 10 months of the filing of the provisional application.


NOTE: Extensions are available—Ask for an extension of time if the company cannot file within 10 months.

No. This one is weird. Yes, extensions are available. But consider the advice. If one files a provisional patent application, one has a year to convert it to a non-provisional application. Otherwise, it goes abandoned. If the company cannot file within 10 months, then it starts all over. The standard patent rights clause says that the federal agency by default will grant a year extension unless it doesn’t within 60 days–two months, essentially. What a botch. Company for some seriously wrong reason cannot convert a provisional in 10 months and so wants an extension but won’t find out about that extension until the day the provisional must be converted. Gawd. And if the federal agency refuses the extension request, what then? Application goes abandoned, and we haven’t even dealt with foreign applications–also on a 10 month or less timeline. What happens then? The apparent effect is that the federal agency can request title to the invention in every country that the company has failed to file an application in. Not that such a thing has ever happened or would–which is another indication that all these compliance dances are a total crock and have nothing to do with innovation, commercialization, or protecting the public interest. Just full-on bureaucracy. Talk about regulations that could be eliminated.

The practice advice here is never get in a situation that requires begging an extension.

8. Notify the government of the date a patent is issued, the patent number, and the expiration date of the issued patent.

Only if required by the patent rights clause included in your funding agreement. The expiration date of the issued patent is nowhere in Bayh-Dole, the patent rights clause, or the implementing regulations on tailoring the patent rights clause. Might be just made up. It’s a rather useless bit of information, since a patent could expire for failure to pay maintenance fees long before its full term is up.

This is not in Bayh-Dole and is not a general requirement of the standard patent rights clause. In its way, it is wasted effort. The government issues patents. It has the patent issue date, the patent number, and the expiration date–is well–not known, generally. The government also (in theory at least) has a government rights legend in every patent on a subject invention. Thus, it is a small matter for any federal agency to set up a script to check patents issuing for the week for federal funding statements citing that agency and scrape off all the information it needs. This is just more waste reporting.

9. File an annual Utilization Report describing the use of the Subject Invention, its stage of development, date of first commercial sale/use, royalties received (if any).

Utilization reports are a matter of federal agency request. If a federal agency doesn’t request a report, don’t send one. Reporting requirements are left to each agency. Follow the requirements of the request. Because the status of development and efforts at obtaining utilization figure materially in a determination of whether it is likely that the company is taking effective steps to achieve practical application, which in turn figures in any march-in determination, any utilization report should be reviewed for accuracy and backed with documentation. Otherwise, you know, fraud.

10. File an Annual Invention Statement Disclosing all Subject Inventions developed during the previous budget period.

Again, not a general requirement. Not in Bayh-Dole. Not in the standard patent rights clause. An agency-by-agency determination buried in the tailoring options at 37 CFR 401.5(f). Check your local patent rights clause for time and channel. Again, this is stupid, since one has to be disclosing these inventions all along–don’t federal agencies keep, like, files? Just more bureaucratic crap. Notice–there is no consequence for not filing such reports. A federal agency cannot pull title, cannot march-in–just bitch and moan and maybe threaten to withhold further funding. But that’s just petty bureaucratic posturing–though serious, it has nothing to do with promoting use of inventions, commercial development, innovation, economic vitality, nothing. Total nonsense.

11. File a Final Invention Statement and Certification summarizing all Subject Inventions during the entire term of the grant/contract.

More specific tailored clause requirements, not a general requirement. Bad advice to treat something optional for a federal agency as if it is a default requirement. Again: advice is to read the specific patent rights clause you are operating with. And note that it just more bureaucratic crap. Why again did you even think about SBIR funding?

12. If the company is no longer interested in pursuing the patent, notify the government at least 60 days before any pending patent office deadline.

That’s close. The deadline is the “statutory deadline” not merely any “pending patent office deadline.” There’s a difference. Statutory deadlines, office deadlines–the FAQ really doesn’t see that it matters. One might even think that the FAQ doesn’t think anyone really cares, or checks. Slop.  Indifference.

The FAQ mentions the iEdison system. That’s a whole nother bit of bureaucracy that creates inertia on reform and locks in federal agency interpretations as matters of data base fields and the like.

FAQ: What are the consequences if the company does not comply with these requirements?

The listed requirements are merely administrative. Some have consequences far out of scope for their materiality and others have no consequences at all. And these are just the administrative requirements–the FAQ doesn’t even bother with the substantive ones–the objectives of Bayh-Dole, like using the patent system to promote the utilization of inventions arising from federally supported research or development, or achieving practical application, or creating work for United States labor, or promoting free competition and enterprise. None of that apparently matters. 

But here are the FAQ consequences:

1. The government may restrict or eliminate the company’s right to retain ownership of the Subject Invention such that the government obtains title to the Subject Invention.

A long winded way of saying, for failing to disclose an invention or timely elect to retain title or timely file a patent application, the government may request title. “Restrict or eliminate” is more garble. A federal agency may request title. That’s the remedy.

2. It is unclear whether the company can cure a failure to disclose. As such, it is important to comply with the requirements.

That’s because NIST screwed up its revisions to the standard patent rights clause. Previously, the government had 60 days from determining a failure to disclose to request title. Now it doesn’t matter how long the government waits. This one NIST screw up alone in the standard patent rights clause is enough to chill “innovation” based on a company holding exclusive rights to an invention. Any defect in disclosure–failure to identify an invention as a subject invention, failure to provide a compliant written report (see Campbell Plastics), failure to report timely–any of these things might give the federal government a basis to request title.

And then–to top it off–a defect in disclosure means that the government does not even leave the contractor with a non-exclusive license. Contractor gets totally screwed. How does screwing over a contractor for a process technicality do anything to advance innovation or the public interest? No, it doesn’t. It’s just bureaucratic bullying. Compliance for the sake of ironing shoelaces before the track meet of public benefit.

Failure to disclose itself is way more broad than the FAQ makes it appear. Such failure could result from a failure to properly identify subject inventions–and that in turn is more likely to happen if company folk read FAQs like this one that don’t get it right, using phrases such as “federally funded” invention rather than any invention made in work within the scope of a federal funding agreement, regardless of whether the invention itself was federal funded. And that obligation to disclose extends to assignees of subject inventions, and an exclusive license of all substantial rights in an invention constitutes an assignment. The reality is that failure to disclose has resulted in loss of title about once in 40 years, and there the failure was not disclosure but a failure to put the disclosure in the form of a written report. Providing the patent application was not a compliant “written report.” Petty, but there it is.

If a federal agency claims that your company has failed to disclose a subject invention, then rely on 37 CFR 401.11(d), which provides for appeals if there is “any dispute as to whether or not an invention is a subject invention.” Don’t submit invention disclosures of inventions that you don’t think are subject inventions “just in case” they might be claimed to be subject inventions by the federal agency. Notice there’s no problem in Bayh-Dole for over-reporting, which is just as bad in its way as under-reporting. The penalty for failing to disclose a subject invention should not be read as a “shake-down” clause federal agencies can use to force more disclosures of inventions than federal funding has actually produced, presumably to pad agency numbers to make some dumb-as-stone presentation about productivity and innovation. So appeal.

Your argument has to be “we didn’t disclose that invention because we determined it was not a subject invention.” The problem in Campbell Plastics was that the company admitted the invention was a subject invention. They screwed themselves from the start. The federal agency, then, must have published an appeals procedure, per 37 CFR 401.11(c). That appeal depends, expressly, on meeting the policy and objectives of 35 USC 200-206–and in particular 35 USC 200 (heading: “Policy and objectives”). The argument is–it is not a subject invention until it is determined to be a subject invention. When the federal agency head on appeal determines that the invention is a subject invention, and we don’t contest that determination in federal court, then we have “a reasonable time” to make a compliant written report and elect to retain title.

3. Failing to comply with disclosure and other Bayh-Dole requirements can lead to a cloud on the title of the ultimate patent.

Handwaving and throwing sticks in the air. Only the disclosure requirement leaves what an agency might do uncertain. For everything else–company decides not to retain title, decides not to file a patent application, decides not to maintain an issued patent or defend it–there’s no real worry. Either the government takes title or there is no title. Either way, no cloud.

4. Non-compliance will be a material fact that may need to be disclosed in transactions and to investors.

Bayh-Dole is so utterly stupid that most people don’t know whether they have complied or not. And given that federal agencies just don’t take title or march-in actions with regard to Bayh-Dole, it is difficult to see that non-compliance with an insane set of requirements is going to be material in transactions other than licenses on patents covering subject inventions. And there, the only thing that would appear to be material would be a failure to disclose timely a subject invention. And there, a company has a right to dispute the determination that an invention is a subject invention–for which see 35 USC 202(b)(3). Everything else administrative is a non-issue.

5. Sophisticated investors and potential partners will do due diligence for this issue.

The FAQ is kidding here, I’m sure. Anal retentive investors looking to devalue a company or throw it into bedlam will do their diligence, perhaps, but most folks lack the “sophistication” to follow all the paperwork–and most of it just doesn’t matter. Disclosure would. If a company is fool enough to have documentary records that make clear “this invention, critical to our future as a company, is a subject invention but we never disclosed it to the government but obtained a patent anyway,” the company doesn’t deserve the attention of sophisticated investors.

These last two points appear to be the core of the FAQ. A big law firm doesn’t have to get its advice on Bayh-Dole right–it just has to make it clear that if your small company expects to get series A funding or get bought out, then you had better get your SBIR paperwork right. That’s useful advice! But why is it buried as notes 4 and 5 to the last meaningful question in the FAQ? This whole exercise could be summed up by:

Small companies, if you take federal funding and expect at some point to get a round of investment or maybe get acquired, then make sure you have your Bayh-Dole paperwork in order, because big law firms representing sophisticated investors will be checking.

Be especially mindful to identify inventions that you acquire which are within the scope of a government claim and timely disclose those inventions to the federal agency. There’s much more, and Bayh-Dole compliance is a nightmare, so get help from a competent IP attorney who knows federal contracting, and do it now, at the start.

Oh, and might we add–why the heck are you bothering with SBIR funding and wasting time and energy on such petty, useless compliance nonsense? Find real investors!

That’s enough. The FAQ asks “Where can I get help?” Answer is: at the Statutory Bar! No, really. Find a competent IP attorney that specializes in government contracting.

Now, look back on this mess. Tons of administrative paperwork, claims that any little goof up will destroy your company and bring down clouds of uncertainty on the title to your patents. And here’s a major law firm with a former top university licensing office director on staff–and it cannot for the life of it get things even close to right. Just slop. Random. Out of date. Campfire bogeyman stories.

Now tell me, is Bayh-Dole inspired or what? Do you think there’s a chance in hell that Bayh-Dole promotes innovation? commercial investment? research discovery? public benefit? economic development?  Do you want your company to spend its resources on such a stinking heap of parrot droppings?

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