Here is a representation of the Bayh-Dole Act, from a University of Illinois OTM brochure from 2006:
The Bayh-Dole Act of 1980 determined that the University retains title to intellectual property created using Federal funding. With this ownership comes the responsibility for patenting and pursuing opportunities to bring innovations into the public arena.
We are still five years from Stanford v Roche, which ruled that under Bayh-Dole, a university could “retain” title to a subject invention only after the university had acquired title to the invention. There’s nothing in Bayh-Dole that vests ownership of inventions in universities merely because they receive federal money to support work proposed by faculty investigators, or for that matter gives universities any special privilege, mandate, or duty to acquire inventions made in federally funded work. But this is how faculty (and the public) would have been told about Bayh-Dole.
The OTM brochure uses “intellectual property” where Bayh-Dole pertains only to patentable inventions (and plant varieties), and only then when those inventions are acquired by a contractor and have been made under a federal funding agreement.
Let’s look at the OTM then and now to draw out some points about Bayh-Dole and university patent policy and practice.
Here is the OTM’s current guidance on Bayh-Dole, from its “Inventor’s Handbook“:
The Bayh-Dole Act, adopted in 1980, was established to promote economic development by allowing small businesses and non-profit organizations (including universities) to own inventions made under federally-funded research programs. Under the Act, universities are:
- Responsible for the management of inventions in compliance with the terms of the Bayh-Dole Act
- Expected to file patent applications on inventions they elect to own
- Encouraged to collaborate with commercial concerns through licensing, to promote the utilization of inventions arising from federal funding
- Expected to give licensing preference to small businesses
The Bayh-Dole Act sets the stage for university participation in technology transfer activities. The government retains certain rights which include requiring use of licensed inventions to prevent sequestering, requiring U.S. manufacture for exclusive licenses, and retaining non-exclusive rights for government purposes.
We will work through this account slowly. It is mostly wrong where not particularly relevant.
The Bayh-Dole Act, adopted in 1980,
Yes. But the law became effective in mid-1981. Why does the date even matter?
was established to promote economic development
This is made up. Nothing in Bayh-Dole’s statement of policy and objectives identifies economic development. Use of inventions, yes. Collaborations, yes. Small company involvement, yes. Free competition, yes. Made in America, yes. But not economic development. An accurate statement here would be “was established to promote the utilization of inventions arising from federally supported research or development.” Whether the utilization of an invention contributes to “economic development” or crashes economic activity is an entirely different matter, one would think.
by allowing small businesses and non-profit organizations (including universities) to own inventions made under federally-funded research programs.
This is twisted. Before Bayh-Dole, universities could own inventions made in federally funded work under the NSF and NIH Institutional Patent Agreement programs, and under the Kennedy and Nixon executive branch patent policies. Under the IPA programs, a university signed a master agreement with the federal agency under which the university was required to take ownership of any invention made in agency-funded work that the university chose to patent. For inventions not within an IPA program, universities (or, most often, a university-affiliated nonprofit set up to deal with patents) could request a “greater rights” determination, for which they had to make a compelling case that their assertion of exclusive patent rights would better serve the public than would federal open access. Universities had to make a case if they wanted to exclude all others using a patent. Bayh-Dole said universities no longer had to make a case, even for health-related inventions.
The “by allowing” then distorts the law. Bayh-Dole says, if a university acquires an invention made under a federal funding agreement, then the federal agency has to allow the university to retain that title, subject to various conditions, to be spelled out in a patent rights clause. 35 USC 202.
Under the Act, universities are:
As federal contractors, only 35 USC 202(a) applies directly to universities. The rest of Bayh-Dole is directed at federal agencies. The requirements of Bayh-Dole come to universities by means of a patent rights clause attached to each federal funding agreement. 35 USC 206; see 37 CFR 401.14 and 401.9 for patent rights clauses. Federal agencies may tailor the patent rights clauses or may substitute their own patent rights clauses if they can justify doing so. The statute, then, in general does not apply to universities. “Under the patent rights clause authorized by Bayh-Dole, universities agree to be:” would be much better.
- Responsible for the management of inventions in compliance with the terms of the Bayh-Dole Act
Only those inventions that a university acquires. And there are good reasons, even in Bayh-Dole, for a university not to acquire inventions made in federal work. If a university does not acquire such an invention, it is not a subject invention, Bayh-Dole does not apply, and the inventors may do whatever they want with the invention–publish it freely, ignore it, hold it secret for a time while working on its implications and finding even better ways of doing things, file patent applications, whatever. Bayh-Dole does not make universities own anything, and does not make universities responsible for all inventions–just for those inventions that they agree to take ownership of. In a free-exchange world, where an inventor requests that a university manage an invention, the responsibilities undertaken by the university would be set out in a written agreement with the inventor. The inventor would then have a basis for negotiating royalties and would be in a position to hold the university accountable for keeping its promises under the agreement. The way Bayh-Dole is depicted here, inventors have no rights or leverage at all; only the federal agency can hold the university accountable–and then only on matters that Bayh-Dole deals with, which doesn’t include anything at all about, say, university diligence in getting an invention into use, or generating royalties, or sharing royalties with the inventors in a way acceptable to the inventors.
Workable here:
“responsible for management of patentable inventions made in federal work that inventors have agreed to assign to the university”
“in compliance with the terms of the patent rights clause authorized by Bayh-Dole”
- Expected to file patent applications on inventions they elect to own
“elect to own” misrepresents the requirement in the patent rights clause. A university may “elect to retain title” to an invention that the university has previously acquired. Otherwise, if a university has not acquired title, then it has no basis in Bayh-Dole to “elect to own” anything. The OTM guide here makes it appear that a university backed by federal law can take any invention that it wants, and inventors have no standing to resist. Inventors may have no standing to resist, but that lack of standing does not come from Bayh-Dole. In this way, the OTM obscures just who has decided to strong-arm inventions from inventors. It is not the federal government.
It is the case that if a university does acquire an invention made in federal work–making that invention a subject invention–then the university does have to file a patent application. “Expected to” is too light. “Must” is the word they were searching for and never found.
- Encouraged to collaborate with commercial concerns through licensing, to promote the utilization of inventions arising from federal funding
Well, 35 USC 200 sets forth Congress’s policy and objectives, and includes “use the patent system to . . . to promote collaboration between commercial concerns and nonprofit organizations, including universities . . . .” This, among other promoted things. There’s nothing that indicates, however, that licensing has to be involved. The collaboration could involve research and development, or in instructing people how to use the invention. There’s nothing about encouraging universities to collaborate through licensing until one gets to the march-in provision at 35 USC 203, where universities among other contractors may be compelled to grant licenses once they’ve shown that what they are doing with a given invention fails to meet the standard of Bayh-Dole’s policy and objective.
Small businesses run parallel with nonprofits throughout Bayh-Dole (but for one paragraph in the standard patent rights clause–(k)–which small businesses don’t have). Small businesses are not encouraged to license. They can hold rights to an invention and develop the darn thing themselves. No licensing needed. None pushed on them, but for a failure to perform. No–the need to license does not come from Bayh-Dole. It comes from a university getting in between inventors and the public, and then getting stuck with an obligation to obtain patents, which cost like $10K a pop for US only and $100Ks if one files national phase in even a few countries. The problem Bayh-Dole creates for a university is how to pay for that patenting work? Hence, licensing for money–even though if one were publicly spirited about it all, if patents held by universities were strongly aligned with public interest, one would expect a university to subsidize the cost of patenting from, say, gift funds (endowment!) and license royalty-free. After all, tacking a royalty on top of a company’s development and production costs just adds more to the price the public pays, or diminishes the attractiveness to the company of learning how to do something new from the university. There’s just no way that a royalty makes for happy companies unless they are able to charge monopoly prices and are willing to share some of that extra upside with a patent overlord.
“Through licensing” then carries with it the idea of exclusive licensing to suppress competition and allow monopoly pricing as a profit incentive–“without this exclusive license from the university, you’d have to compete on price with other companies, and so would only expect profits consistent with the stuff you already have out there that’s not subject to exclusive patent rights–such as everything that’s a standard, or cross-licensed, or in the public domain but for your quality, brand, and ability to deliver product in formats customers want.” One would have to write something expressly against this implication to counter it: Maybe try “Requires universities to achieve practical application of an invention or permit others to attempt to do so.” DIY, build and distribute (think, research tools, software), licensing, indifference, dedication to the public, contributio to a standard, royalty-free licensing–all sorts of ways to do it. “Through licensing” fails to communicate what Bayh-Dole requires. Just made up, sort of like trying to make federal law require the university to do what it has chosen all on its own to do. “We do this to comply with federal law”–when that’s pretty much a crock.
- Expected to give licensing preference to small businesses
This is an odd one. Bayh-Dole has “use the patent system . . . to encourage maximum participation of small business firms in federally supported research and development efforts.” That is, allow small businesses to retain title to inventions and so build a patent barrier against the predations of large businesses and so lessen the concentration of economic power held by large businesses that otherwise would happily take up inventions acquired by the federal government and then made available to all, for free, including the large companies. The idea seems to be that if small companies have patents, they can block large companies from using federal research without paying somehow for it, or even not getting access to that research at all, so, well, the large companies will have to design around the federal work, or ignore it, or take it anyway and let a court decide what reasonable compensation ought to be, if the small company has the resources and half-brain to put up a fight about it.
But Bayh-Dole also throws in “development efforts.” And one thing that folks who like Bayh-Dole talk about is the “development” of inventions. Even Bayh-Dole talks about such “development”–but avoids the term in the context of contractors (“achieve practical application,” “utilization”) and uses it in connection with federal agencies licensing federally owned inventions–see 35 USC 209(f)–a “plan for development or marketing.”
Here’s the “preference” requirement in Bayh-Dole (35 USC 202(c)(7)(D), specific to nonprofits:
a requirement that, except where it is determined to be infeasible following a reasonable inquiry, a preference in the licensing of subject inventions shall be given to small business firms
This gets translated into a royal mess in the standard patent rights clause at 37 CFR 401.14(k)(4). A nonprofit contractor:
. . . will make efforts that are reasonable under the circumstances to attract licensees of subject inventions that are small business firms and that it will give a preference to a small business firm when licensing a subject invention if the contractor determines that the small business firm has a plan or proposal for marketing the invention which, if executed, is equally as likely to bring the invention to practical application as any plans or proposals from applicants that are not small business firms; provided, that the contractor is also satisfied that the small business firm has the capability and resources to carry out its plan or proposal. The decision whether to give a preference in any specific case will be at the discretion of the contractor. However, the contractor agrees that the Federal agency may review the contractor’s licensing program and decisions regarding small business applicants, and the contractor will negotiate changes to its licensing policies, procedures, or practices with the Federal agency when the Federal agency’s review discloses that the contractor could take reasonable steps to implement more effectively the requirements of this paragraph (k)(4). In accordance with 37 CFR 401.7, the Federal agency or the contractor may request that the Secretary review the contractor’s licensing program and decisions regarding small business applicants.
Go back and read it. Suffer. Upshot, license however you want and if someone complains, the Secretary of Commerce could review your licensing program and negotiate changes. Never has happened. Basically, the Department of Commerce in drafting the nonprofit patent rights clause writes the Bayh-Dole statutory requirement out of the law. Universities then don’t have to prefer licensing to small businesses, but if they make someone fuss about it, the federal agency might (but does not have to) review the university’s licensing program. That review might concern future licensing to small businesses at that one university, but won’t effect the licenses already in place.
The Bayh-Dole Act sets the stage for university participation in technology transfer activities.
Sorry. Nonsense. Historical fantasy. Universities were participating in “technology transfer activities” since at least 1960, when the University of California voted to start a technology licensing office, and since 1912 with the formation of Research Corporation to manage faculty inventions, often in collaboration with university administrations. With the NSF and NIH IPA programs, these restarting in 1968, the stage was already set well before Bayh-Dole. Norman Latker, patent counsel at the NIH and drafter of both the NIH IPA master agreement and Bayh-Dole, said he used the IPA program as the basis for Bayh-Dole. Universities were long involved in technology transfer (the term “technology transfer” in university usage comes from Research Corporation efforts in the 1970s to get universities to establish offices to help to transfer inventions from faculty to Research Corporation–“technology transfer offices.” Hey, whaddya know. But really university administrators have set their own stage, and have used Bayh-Dole to justify their exploitation of inventors and decisions about licensing to maximize income–at least enough to pay for their OTMs, OTLs, OTTs, and the like–rather than to achieve for each invention practical application.
The government retains certain rights which include requiring use of licensed inventions to prevent sequestering, requiring U.S. manufacture for exclusive licenses, and retaining non-exclusive rights for government purposes.
“Retain” here is just wrong. Bayh-Dole splits control over patents on subject inventions between the contractor and the federal government. The federal government does not “retain” non-exclusive rights. Bayh-Dole stipulates that the patent rights agreement must include a requirement that the contractor grant to the federal agency a non-exclusive license to “practice and have practiced for or on behalf of the United States.” 35 USC 202(c)(4). The contractor grants this right, the government does not retain it. And “practice” is broad–“to make, to use, to sell” as it is defined in the Kennedy patent policy that Latker used in drafting his IPA master agreement which he then lifted for use in Bayh-Dole.
There’s nothing about “sequestering” of inventions in the march-in provision at 35 USC 203. The issues are “nonuse and unreasonable use” (35 USC 200) and in 203 these are set out as failure to achieve practical application, failure to reasonably satisfy health or safety needs or regulatory needs, and failure to comply with the US manufacturing requirement. And “requiring use of licensed inventions” is rather, um, garbled. The march-in provision authorizes federal agencies to require a contractor to grant licenses on reasonable terms, not to require use. To require use in this context is just nutty.
35 USC 203 does require U.S. manufacturing for exclusive licenses in the U.S. Here the OTM piece is spot on. But we may as well point out that this requirement is limited to exclusive licenses to use or to sell. If an exclusive license is broader than this–all substantial rights in an invention (make, use, sell, enforce patents, sublicense)–then it’s not a license but rather an assignment, and other conditions apply for nonprofits (see 35 USC 202(c)(7)(A)–the licensee/assignee becomes a party to the funding agreement and accepts the nonprofit’s patent rights clause, which limits the use of income earned with respect to a subject invention after administrative costs to scientific research or education–no company I know of wants to take assignment of a subject invention. And that thar is the heart of Bayh-Dole’s implicit requirement that nonprofits license non-exclusively. Though no one at universities seems to want to point that bit out, given that universities uniformly operate with a default preference for assigning subject inventions but labeling it an “exclusive license.”
So there you have it–Illinois keeps up its misrepresentations of Bayh-Dole long after Stanford v Roche should have set them right on not claiming Bayh-Dole gives the university a special right to take faculty inventions made in federal work.
What’s left out, though, is where things get really interesting. Teasers–
(a) the biggest change in executive branch patent policy is Bayh-Dole’s renunciation of the 1947 Attorney General’s recommendation that federal agencies not deal in exclusive patent licenses, not take a money interest in licenses, and not enforce government-owned patents against US citizens and companies, nor allow anyone else to do so as a proxy of the government. Bayh-Dole allows federal agencies to play favorites with licensing, take a money interest in those licenses, and threaten everyone else with infringement lawsuits. With the federal agencies then authorized to put everything behind a patent paywall, a university and its inventors might feel the need to hold title just to keep the invention from federal manipulation. Prior to Bayh-Dole, if a university and inventor didn’t bother with patenting, the federal agency might acquire ownership but then would release, patent or not–ensuring that the university and inventor and everyone else doing research in the area had access. Not so after Bayh-Dole. Bayh-Dole forces universities that acquire rights to patent, to spend money on patenting, to try to license to recover that money–to avoid federal agencies holding back the invention. (There’s a weird conditional license in the patent rights clause not authorized by Bayh-Dole that extends a non-exclusive license to the contractor in any invention that the federal government acquires, but that sort of screws with the whole exclusive licensing thing in 35 USC 209, but geez, this supposed to be a teaser, so enough.)
(b) Bayh-Dole respects inventors rights. With Reagan’s 1983 Memorandum to displace prior executive branch patent policy with Bayh-Dole like provisions for all companies (drafted by Latker), and with the standard patent rights clause (Latker was involved) requiring contractors to make their employee-inventors parties to the funding agreement (and therefore contractors in their own right subject to their own patent rights clause 37 CFR 401.9 as if small business contractors but with fewer obligations) universities are required to waive their own patent policy requirements on ownership in favor of inventors (they make inventors become contractors, as contractors inventors have independent standing). If an inventor does not assign to the university, the inventor does not have to file a patent application. But universities don’t want to discuss this stuff, let alone let faculty find out.