Being blunt about Bayh-Dole operations, 2

Under Bayh-Dole, a federal contractor has no special right, and no obligation, to take ownership of inventions arising in federally supported research or development. There is nothing, absolutely nothing, in Bayh-Dole that suggests that Congress had any intention to make contractors own inventions made by research personnel the contractors happened to host to undertake projects supported in part by the federal government. It is simply untrue that Bayh-Dole, to operate “as intended” must get contractors to take ownership of these inventions. The Supreme Court in Stanford v Roche made it clear that Bayh-Dole sorts out priority of claim to ownership only after a federal contractor has obtained ownership, “nothing more.” Not before the contractor obtains ownership.

What happens, then, if a contractor does not take ownership of an invention made in federally funded work?

By statute, bluntly, nothing. Nothing at all.

If a contractor does not acquire ownership of an invention, it is not a subject invention.

Inventions are still owned by their inventors, following federal patent law.

Contractors have no statutory mandate or incentive to take that ownership.

Federal agencies have no statutory or regulatory authority to take ownership.

Inventors have no obligation to disclose inventions or assign inventions.

That’s the established, federal policy. That’s the consequence of the Supreme Court decision in Stanford v Roche. Consider it intended.

I’ll explain, if you are up for it.

Things weren’t quite this way when Bayh-Dole was passed in 1980. In 1980, federal patent policy was governed by executive branch patent policy, codified by the Federal Procurement Regulation finalized in 1975. On top of the FPR were a set of federal statutes that stipulated federal ownership of inventions made in specific federal research programs, including space, atomic and nuclear, and water desalination. The executive branch patent policy in turn tracked these federal statutes, so its requirements generally conformed to the various requirements of the statutes. Thus, executive branch patent policy provided that the federal government would not claim ownership of inventions made by contractors with actual non-governmental markets, except in four situations:

(1) agencies aimed to develop an invention to the point of practical application and then release it openly (as with water desalination, new fertilizers)

(2) the research concerned public health and safety

(3) the federal government was the dominant user or funder and private exclusive ownership would disrupt competitive bidding (space, atomic)

(4) supervising the work of others

The FPR required contractors to agree to assign subject inventions to the federal government (1-9.107-5(b)(1) long form; 1-9.107-6(c)(1) short form) unless the federal agency providing the funding agreed to a request for greater rights.

Nonprofits and contract research organizations, which generally do not have real non-governmental “markets” for products, if for some reason they took ownership of inventions made under federal contract, could retain that ownership only by making a request in which they made a persuasive case that their control of exclusive patent rights would better serve the public than would federal open access. That case could be that the nonprofit would do a better job at open access than the federal agency would, or that by limiting access for a period of time, the nonprofit might induce private “investment capital” that otherwise was not forthcoming to develop the invention to the point of practical application. The public good argument here was–necessarily–that the private investment was necessary because the invention was not a priority for federal funding (i.e., out of scope or mediocre) or because the private investment would allow for faster development than would federal contracting or better quality or functional characteristics.

But nothing in the FPR required nonprofits to take ownership. Although the FPR uses the same wording as Bayh-Dole–contract, subject invention, title, practical application, practice–the words are used within a fundamentally different architecture. The FPR does not care whether an employee inventor owns an invention or the inventor has assigned the invention to the contractor. The FPR handles these alternatives (1-9.107-5(e)(3) long form; 1-9.107-6(e)(1) short form) by requiring the contractor to “obtain patent agreements to effectuate the provisions of this clause from all persons in his employ who perform any part of the work under this contract except nontechnical personnel, such as clerical workers and manual laborers.”

That patent agreement then must deal with the two options laid out in FPR’s patent rights clause (b)(2)–either the contractor or the employee-inventor may request “greater rights” in an invention than a non-exclusive license from the government (in the event that the government takes ownership and obtains a patent). The FPR doesn’t care what the deal is between the contractor and inventor so long as the contractor requires the inventor to deal with the government under the FPR provisions if the inventor has not assigned the invention to the contractor. Under the FPR, the government has the right to request ownership of any “subject invention” that lies within the executive branch patent policy claims (and tracks the statutory requirements for special programs), and contractor or the inventor has the opportunity to request to retain greater rights than just a license.

The patent agreement required in the FPR binds the inventor to the same protocols as the contractor. The inventor becomes a party to the patent rights clause at these required points as a substituted party.

Now, if an inventor has not assigned to a contractor and the federal agency declines to grant the inventor “greater rights,” then the federal government may rely on the contractor’s patent agreement with the inventor to require the inventor to assign that invention to the federal government, or, alternatively, the inventor may assign to the contractor and the contractor then assigns to the federal government. Thus, when the FPR defines a “subject invention” as one “of the contractor,” the patent agreement required between the contractor and inventor is intended to provide the contractor with a prospective right of ownership, which the contractor may decline to perfect and allow the inventor to retain rights, subject to working out with the federal government whether the inventor will be allowed to retain greater rights.

The FPR patent agreement, properly executed, creates for the contractor conditional equitable title in any invention made under contract, so that any such invention might be characterized as “of” the contractor. The patent agreement creates the “of,” not the assertions of definitions in the FPR. In a way, the federal government’s default requirement that any invention is to be assigned to the federal government creates a tractor beam of assignment that forces the relationship between employer and inventor to be one in which the employer must hold equitable title to any invention in order to comply with the FPR patent rights clause. Bayh-Dole, however, in its brilliance, removes this tractor beam and replaces it with a set of conditionals under which the federal government *may* request title, but only if the contractor, having got title, messes up or balks in some way. No tractor beam of ownership. The contractor is on its own. An invention is not a subject invention until the contractor acquires it. uuuuuuuuuuuuuuuuuuuuu

Sigh. There was yet another layer of regulation in operation–the Institutional Patent Agreement programs of the NIH, NSF, and Department of Commerce, restarted by Norman Latker at the NIH in 1968. The IPA programs were extra-regulatory, using a contracting mechanism to end-run executive branch patent policy by suspending the greater rights determination requirement. Under the IPA master, a nonprofit was required to take ownership of any invention arising in work with federal agency funding that the nonprofit chose to patent. If you decided to patent, then you had to get ownership, and the IPA then required the nonprofit (the nonprofit agreed to this, as a matter of federal contract) to have a patent agreement requiring inventors “promptly report an assign all subject inventions to Grantee or its approved patent management organization” (IV(a)).

In the IPA, the definition of subject invention is not limited to inventions “of the contractor.” The NIH IPA program was launched under the Kennedy patent policy, which had no codification. Nixon’s modifications in 1971–subtle but significant–required codification, resulting in the FPR in 1975. Once the FPR was effective, the IPA program ended up stipulating the form that, for participating nonprofits, the patent agreement stipulated in the FPR patent rights clause long form at (e)(3) had to take. That patent agreement had to “effectuate” the deal struck in the IPA master rather than the contingencies of the FPR long form (b)(2)’s greater rights determination. That was a big, silent change. Rogue, but okay  there it is.

Whew. Now for the kickers. Bayh-Dole passes in 1980. It conditionally displaces certain provisions of the FPR rather than preempting or repealing the FPR. The focus of Bayh-Dole is the FPR’s standard patent rights clauses, long form (b)(2) and short form (c)(2)–the “Greater rights determinations.” If a contractor lacks a non-governmental market or the work is in one of the four areas identified by executive branch patent policy, and if the contractor has got title to an invention made under contract, then the contractor does not have to request a greater rights determination. Under Bayh-Dole, 35 USC 202(a), the contractor merely has to disclose the invention and notify the federal government that it chooses to keep that title. Then there are a bunch of other things, too. But the core of Bayh-Dole’s contracting provisions is the contractor’s blanket relief from greater rights determinations by federal agencies, subject to a new set of patent property rights baked into federal patent law. This is the “reversal of the presumption of title” that gets political spin as the core of Bayh-Dole. That reversal was not general, applying to all contractors, but was only to relieve contractors required otherwise to request greater rights (if they even wanted greater rights) of the need to make that request, so long as they then accepted an arbitrary set of requirements not made of ordinary patents in order to “protect” the public from “nonuse or unreasonable use” of the inventions involved.

Bayh-Dole does not address the FPR’s patent agreement requirement because that agreement is already required by the FPR and Bayh-Dole preempts the FPR only at this point in (b)(2). Everywhere else, the FPR clauses–apparently–continue to operate. The patent agreement is still required, and isn’t affected in the least by Bayh-Dole’s waiver of the greater rights determination if a contractor has got title. The subject invention is “of the contractor” in Bayh-Dole because the FPR’s patent agreement requirement makes it so. The contractor is not required to own any given invention outright, but only if the government declines an inventor’s request for greater rights. This is the core of it.

There were two patent rights clauses operating in parallel: the FPR clause and the Bayh-Dole clause. Yes, it’s weird and ungainly. Nothing in Bayh-Dole expressly preempts the FPR except for this bit at (b)(2) (and its analog short form at (c)(2))–relieving contractors of greater rights determinations and tacking on a bunch of requirements to patent property rights instead. Call it a bungle. But it’s intended. Ungainly does not disqualify a law and given folks a free pass to make up whatever pretty thing they like better to stand in its place.

The bungle is that once Bayh-Dole came into effect, folks ignored the FPR, as if it had been replaced rather than altered in one particular place. NIH patent counsel Norman Latker, who drafted Bayh-Dole on the sly, claimed Bayh-Dole implemented the IPA program as statute. But Bayh-Dole didn’t do that. It dealt with the (b)(2) greater rights determination if a contractor got ownership of an invention but it did not deal with the (e)(3) patent agreement, and does not require any patent agreement at all. Why not? Because the FPR already dealt with the patent agreement. And–perhaps–because Congress lacks the constitutional powers to place title to inventions for the purpose of patenting with research hosts rather than with inventors. While a nonprofit might request to participate in an IPA program and as a condition of doing so agree to take ownership of any invention it chooses to patent, it’s another thing entirely for federal patent law to up and demand that everyone who hosts federal research take title to every invention whether they want title or not, whether they choose to patent or not. Or may be it’s just that Latker, drafting a document that apparently did not get an open review in draft form before it hit the Senate floor, screwed up.

In any event, for many nonprofits doing the bulk of NIH and NSF research, by 1975, there were two patent rights clauses running in parallel for any given federal funding agreement–the FPR and the IPA that replaced the FPR’s long form patent rights clause (b)(2) and (e)(3) and short form (c)(2) and (e)(1). The IPA programs were shut down in 1978 as ineffective and contrary to executive branch policy. Bayh-Dole, effective in 1981, slotted into that IPA role, but now as statute dictating the default form of a federal patent rights clause, not as the IPA’s specially applied federal contract clause that modified a codified default patent rights clause.

Then in 1983, Reagan changed executive branch patent policy to stipulate that all funding agreements follow Bayh-Dole-like patent rights clauses, regardless of the size of the contractor. Reagan’s Memorandum then set aside executive branch patent policy claims on inventions outright and replaced such claims with the conditional claims of Bayh-Dole–all packed into that waiver of the FPR’s patent rights clause provisions on greater rights determinations. Suddenly–and perhaps unexpectedly–the federal government no longer had standing as a matter of federal contracting for research to demand ownership of inventions except where authorized to do so by statute. In the general case, the federal government had a claim to ownership only where specified by Bayh-Dole–failure to disclose an invention acquired, not electing to retain title to an invention acquired, not filing timely patent applications. After Reagan’s Memorandum, effectively the federal government gave up its general right to require assignment of inventions.

And in 1985, the Federal Acquisition Regulation replaced the FPR. The FAR, however dropped the patent agreement stipulation of the FAR and instead replaced the FAR with the patent rights clause stipulated by Bayh-Dole. And that patent rights clause is silent on patent agreements to effectuate the Bayh-Dole patent rights clause. Not only that, but for nonprofits receiving grants rather than contracts, the federal contracting requirements were placed in a “Circular”–A-110, which again followed Bayh-Dole only and not the FPR, as if Bayh-Dole entirely displaced the FPR for grants. Eventually, A-110 was moved to the CFR, where it is now at 2 CFR 200.315 and 316, where all 315 does is point to Bayh-Dole. In 1987 Reagan issues EO 12591 that packs down his 1983 Memorandum with requirements for federal contracting outside of Bayh-Dole that indirectly cite the requirement that agencies adopt Bayh-Dole-like contracting for non-Bayh-Dole research but expressly state requirements that are unlike Bayh-Dole. Go figure.

The upshot is, that by 1987, there was no federal standing requirement that contractors report all inventions made in work receiving federal funding, assign those inventions to the government upon request, or have patent agreements with potential inventor employees to force those inventors to report, or to assign inventions, or otherwise petition for greater rights. Gone. Blown away by Regan’s 1983 Memorandum and 1987 EO 12591, which effectively ended the Nixon executive branch patent policy.

We might call it all a string of bungles, but for policy interpretation purposes we must assume that the result was intended so long as there’s a reasonable interpretation that works–and there is–federal policy to claim ownership of inventions cares only about that ownership when a contractor obtains that ownership. Nothing indicates that contractors are required to take the ownership, and nothing in the law vests that ownership with contractors. It is no longer there. It has been replaced without worry or notice.

Meanwhile, the work to codify Bayh-Dole and create default patent rights clauses took until 1985, resulting in 37 CFR part 401 and the patent rights clauses at 401.14(a) [for small companies and with for nonprofits added paragraph (k)], 401.14(b) [a first standing determination of exceptional circumstances for certain DOE-funded nuclear work], and 401.9 [for inventor ownership]. The codifiers–led by Norman Latker–apparently recognized there was an issue–that Bayh-Dole had left out the patent agreement stipulation of the FPR. So they added a “written agreement” provision at 401.14(a)(f)(2)–now just 401.14(f)(2) after NIST’s unhelpful conflation of patent rights clauses. (The odd (a) and (b) of 401.14 follows the odd usage of the FPR at just this same point, indicating that Latker was following the FPR in drafting 37 CFR part 400. The “written agreement” provision at (f)(2) is not called a “patent agreement” and (until 2018) did not have an assignment requirement. Instead, it functions to bind potential employee inventors to the federal funding agreement by delegating to those inventors responsibilities to the federal government–especially to sign documents to permit patent applications to be filed on subject inventions  (as, by the federal government) and to sign documents to establish the government’s rights in subject inventions.

Here’s where things get still weirder. For inventors to have the right to sign documents to assign title to a federal agency, inventors have to own the inventions. The “written agreement” assumes inventors own subject inventions. But if a subject invention is “of the contractor,” then the inventor cannot own such subject inventions unless the inventors, also, are contractors–parties to the funding agreement, according to Bayh-Dole’s definition at 35 USC 201(c). And that’s what the (f)(2) written agreement does–it requires contractors to make their potential employee-inventors parties to the funding agreement, in much the same way that the FPR did, but with different requirements. And that’s just what Bayh-Dole’s definition of “funding agreement” (35 USC 201(b)) anticipates. Contractors can add more parties to any funding agreement, by assignment, substitution of parties, or subcontract.

In the FPR, the patent agreement required employee inventors to follow the greater rights determination process and if denied greater rights, then assign to the contractor for the contractor to assign to the federal government. In the IPA, of course, the patent agreement stipulated that inventors must assign any invention made under contract that the contractor chose to patent. Bayh-Dole does neither of these things, though the model for doing so was right under the drafter’s nose–and he had drafted the IPA language and worked on the FPR, too. These were not unknown documents. Latker knew them as well.

The reasonable–and also necessary–interpretation, then, is that the (f)(2) written agreement–deliberately not called a patent agreement–makes inventors into contractors as substituted parties, just as does the IPA and FPR, but unlike the IPA, the (f)(2) agreement follows the inventor’s alternative in the FPR’s (b)(2) greater rights determination, not the contractor’s alternative. This is huge. The (f)(2) written agreement gives inventors standing under 35 USC 202(a) to elect to retain title in their inventions, subject to timely disclosure of the inventions to the federal agency. In effect, that disclosure requirement kicks in when the inventor discloses the invention to patent personnel–counsel or agent.

Gone, however, is the IPA demand that inventors assign when the Grantee decides to patent. And gone, too, is the requirement that an inventor who is declined greater rights must assign to the Contractor for assignment to the federal agency. And why is that gone? Because the inventor deals directly with the federal agency and has the contractor’s 202(a) right to elect to retain title. All this then gets confirmed by the inventor patent rights clause at 37 CFR 401.9, which is a subset of the small company patent rights clause, not the nonprofit patent rights clause. The key omission in the inventor’s subset is that inventors are not required to file patent applications. They can publish their inventions without regulatory consequence. If they fail to disclose their inventions and do file patent applications, however, then they are exposed to Bayh-Dole conditions on federal agencies requesting title to those undisclosed inventions.

Final kick. No one complies with the (f)(2) written agreement requirement. In its place contractors substitute a patent agreement or generic policy statement. But such things do not do what the (f)(2) written agreement necessarily requires, and so employee inventors are not made parties to the federal funding agreement and so their inventions are not subject inventions and therefore contractors have no obligation to disclose these inventions or do anything about them and inventors, too, have no obligation to disclose these inventions and are free to do whatever they might with them and the federal government has no regulatory basis to demand ownership, request as they might.

Bayh-Dole was amended in 1984 in ways consistent with this assumption that the policy was intended. In the 1984 amendments, the invention disclosure requirement was relaxed, so that a contractor had an obligation to disclose inventions only after (i) the contractor had obtained ownership of a given invention and (ii) the inventor had fully disclosed in writing the invention to the contractor’s patent personnel. If either of these conditions is not met, the contractor has no obligation under Bayh-Dole’s standard patent rights clause to disclose the invention to the federal agency. Such inventions can persist as trade secrets or as open access, and that’s a reasonable–if not also necessary–interpretation of, and operation of, federal policy.


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