Why is Bayh-Dole not part of the Federal Grants and Cooperative Agreements Act?

Posted on February 13, 2017 by Gerald Barnett

Why is Bayh-Dole a part of federal patent law? It concerns how federal agencies contract for research, not (apparently) how patents are awarded. It doesn’t make any sense for Bayh-Dole to be in patent law. Instead, why wasn’t Bayh-Dole made a part of the Federal Grants and Cooperative Agreements Act of 1977? But since Bayh-Dole is part of patent law, then we might expect that Bayh-Dole makes patents on subject inventions different from patents on ordinary inventions.

Let’s have a look.

Here’s the original statement of purpose for the Federal Grants and Cooperative Agreements Act (things got revised in 1982, two years after Bayh-Dole):

(b) The purposes of this Act are—

(1) to characterize the relationship between the Federal Government and contractors, State and local governments, and other recipients in the acquisition of property and services and in the furnishing of assistance by the Federal Government so as to promote a better understanding of Federal spending and help eliminate unnecessary administrative requirements on recipients of Federal awards;

(2) to establish Government-wide criteria for selection of appropriate legal instruments to achieve uniformity in the use by the executive agencies of such instruments, a clear definition of the relationships they reflect, and a better understanding of the responsibilities of the parties;

(3) to promote increased discipline in the selection and use of types of contract, grant agreement, and cooperative agreements, and to maximize competition in the award of contracts and encourage competition, where deemed appropriate, in the award of grants and cooperative agreements; and

(4) to require a study of the relationship between the Federal Government and grantees and other recipients in Federal assistance programs and the feasibility of developing a comprehensive system of guideline for the use of grant and cooperative agreements, and other forms of Federal assistance in carrying out such programs.

The FGCAA (“fig-caw”) established (overtly) simple rules to determine whether the government should use a grant, contract, or collaborative agreement. A contract was to be used for procurement, a grant for providing support for a public purpose, and a collaborative agreement when the work involved substantial involvement by the federal government.

In the FGCAA, we have elements that we find in Bayh-Dole: matters of sponsored research, especially at universities; a need for uniform policy that’s government wide; and rules on acquisition of property and services by a contractor relative to the interests of government. Continue reading →

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Free Competition and Enterprise in Bayh-Dole

Posted on February 10, 2017 by Gerald Barnett

One reason that Bayh-Dole is so difficult to parse is that there are multiple levels at work. It’s easier to just say that Bayh-Dole gives universities ownership of inventions made with federal support, and they can do anything they want with those inventions because whatever they do is done with good intentions and in the public interest. That sounds simple and wonderful. But it’s not the law, and it’s not true, and universities can’t show that what they are doing with inventions is at all in the public interest. Mostly, they acquire patents and sit on them, dragon-like. Every now and then someone does a huge financial deal and these deals inspire all the other universities to try even harder to patent everything. No one bothers to look at why there is such value changing hands, and so rarely. Is it the monopoly pricing? Is it speculative exuberance? Is it misrepresentation of what’s been done and what’s possible?

Let’s look at just one part of Bayh-Dole to show how it has gone so horribly wrong. When Bayh-Dole was passed, it contained the following elements with regard to competition:

35 USC 200

It is the policy and objective of the Congress to …  to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise…

35 USC 202(c)(7)(B)

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

(7) In the case of a nonprofit organization…

(B) a prohibition against the granting of exclusive licenses under United States Patents or Patent Applications in a subject invention by the contractor to persons other than small business firms for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the date of the exclusive license excepting that time before regulatory agencies necessary to obtain premarket clearance unless, on a case-by-case basis, the Federal agency approves a longer exclusive license….

These provisions go together. The general statement of policy and objective requires patents on subject inventions to be used to promote free competition and enterprise. This is a general restriction on how patents on subject inventions are used. This restriction is placed in federal patent law, not in executive branch procurement policy as was the case with the Kennedy and Nixon executive policies. The definition of “subject invention” is also placed in federal patent law, not in a master agreement between a federal agency and a university. The statutory definition applies regardless of what happens in any specific funding agreement. The statement of policy and objective is law quite apart from who happens to own a subject invention or anything else that Bayh-Dole might require. And a statement of policy is not the same thing as a statement of purpose. A policy binds the policy-maker. A purpose envisions. Federal policy states that patents on subject inventions are to be used to promote “free competition and enterprise.” What does that mean? Continue reading →

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Negotiating a share of royalties under Bayh-Dole

Posted on February 8, 2017 by Gerald Barnett

[See the afterthought for something shorter and blunt and just as useless.] In his amicus brief to the Supreme Court in the Stanford v Roche case, former Senator Birch Bayh made an odd claim–that inventors had the right to negotiate royalties with the universities that took ownership of their inventions:

Rather, Congress rewarded individual inventors by requiring their employers to provide them with a share of royalties to be negotiated with the universities or nonprofit organizations. See 35 U.S.C. 202(c)(7)(B).

But at 35 USC 202(c)(7)(B) we find only this:

(B) a requirement that the contractor share royalties with the inventor;

There’s nothing in the law about negotiation. And nothing in the standard patent rights clause. And nothing in most university patent policies–in fact, those policies are written, now, to preclude negotiation. Some policies even declare such negotiation to be an ethics violation–since an inventor would then have a financial interest in the university’s management of contracts under which the invention was licensed.

Even Sen. Bayh’s own argument regarding the standing of inventors (last in line for rights, which vest conditionally with their employers) appears to eliminate any prospect for negotiating royalties. Continue reading →

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Affordances, Innovation, and University Patents

Posted on February 6, 2017 by Gerald Barnett

I first hit affordances in Don Norman’s book The Design of Everyday Things. Here’s some key points:

The term affordance refers to the relationship between a physical object and a person . . . . An affordance is a relationship between the properties of an object and the capabilities of the agent that determine just how the object could possibly be used. A chair affords (“is for”) support and, therefore, affords sitting.

The presence of an affordance is jointly determined by the qualtiies of the object and the abilities of the agent that is interacting….

But affordance is not a property. An affordance is a relationship. Whether an affordance exists depends upon the properties of both the object and the agent. (11)

The door handle on a car door is an affordance. It looks like something you can stick your hand into, and poof! you feel a latch and the door opens.

My mother had all sorts of trouble with a television cabinet because she couldn’t get the doors to open. She didn’t know that she had to press on the door to trip a latch to make it open. Pressing on a door to make it open towards you is counter-intuitive. And there was no affordance to suggest pressing. So she was prying the doors open with a wooden ruler. Why not? Continue reading →

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University IP Bustle and Evidence for Bayh-Dole’s Performance

Posted on February 3, 2017 by Gerald Barnett

There are any number of assertions that the Bayh-Dole Act has been wildly successful. Even many critics of Bayh-Dole start from the position that Bayh-Dole is successful, and then carp about bits of collateral damage and beg for crumbs and mercy. We saw that in the article by Boettiger and Bennett, with all its sad irony–since Bennett at one time was the director of the UC System-wide technology transfer program and did not make policy changes to the licensing program then, when he had the chance.

The problem with these discussions about Bayh-Dole is that the actual information regarding performance of the law is not publicly available, and apparently not even tracked or collected. In 1984, Bayh-Dole was amended to make secret all information regarding use reports, not merely the parts of those reports that were determined by federal agencies to be confidential or privileged.

The fundamental metric set forth by Bayh-Dole is “utilization” of inventions made with federal support–subject inventions, as Bayh-Dole defines them. This goal is announced as the first objective of the law, at 35 USC 200:

to use the patent system to promote the utilization of inventions arising from federally supported research or development.

“Utilization” then becomes the basis for the key definition of “practical application,” at 35 USC 201: Continue reading →

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Exclusive licenses, assignments, and ticks, Part 4

Posted on February 2, 2017 by Gerald Barnett

Per Bayh-Dole, universities should not create “gray” areas in which nonprofits allow exclusive licensees the rights that only an assignee should have.  If universities do so, they are required at the same time to transfer to those exclusive licensees/assignees the public covenant required by section (k) of the standard patent rights clause, in addition to the limitations on patent property rights on subject inventions in 2 CFR 200.316 and 35 USC 200. That is, even if there were a gray area in the law regarding exclusive licenses and assignments, it is not and should not be a gray area for universities managing subject inventions. There, if the area is gray through the action of the university, the university has already failed to comply with Bayh-Dole and to consider the public interest.

License templates such as Washington University’s–and WU is hardly alone on this–should not give any right to enforce the licensed patent. Doing so creates a “gray area” that’s not appropriate to Bayh-Dole, and not allowed by the standard patent rights clause. Similarly, license templates should grant no greater exclusive rights than to make and use or make and sell or use and sell–but never the full package of rights, unless those rights are divided for fields of use that have meaningful commercial application. The court in Sharplan found that a noncommercial reservation of rights by the university for research and educational purposes did not amount to a substantial interest. The rule might be as simple as this: grant no exclusive license with a scope so great that there can be no commercial value to a second licensee of the patent.

The alternative, of course, is to go ahead and grant substantial rights, confirm the licensee’s right to enforce the patent–and require the licensee to accept the nonprofit requirements of the standard patent rights clause. Continue reading →

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Exclusive licenses, assignments, and ticks, Part 3

Posted on February 1, 2017 by Gerald Barnett

We may now come back around to our primary interest–does the WU Exclusive License template agreement assign patent rights? The answer appears to be yes, it does. It grants exclusive rights to make, use, and sell, leaving only vestigial rights for the university. It grants the right to sublicense and to enforce the patent against infringers–these are rights of an owner, not a licensee. And while the template also claims that “all ownership rights” are retained, the transaction itself forces the meaning of “all” to be “all rights not conveyed” to avoid making a huge build out of grants and rights to be withdrawn by a clever word tucked into its own nondescript paragraph.

Bayh-Dole, in limiting its attention with regard to exclusive licenses to “use or sell” follows a technical point. An exclusive license may grant the right to “use” or the right to “sell” or the right to “make”–or any combination of two of these rights–but if an exclusive license grants all three–“make, use, and sell,” then the license transfers the “substantial” rights of the patent. And that’s an assignment. Put another way, a license grant is a contractual right to be free from a suit for infringement–it’s a license “under” a patent right. It’s a permission of sorts. The licensee gains no rights in the patent, just freedom from suit for infringement. An assignment is a grant of rights in the patent itself–and the assignment may result in co-ownership, conditional ownership, or outright ownership of the invention. A license and an assignment both provide the recipient freedom from a claim of infringement, but they do it in different ways. The license is an agreement not to sue. An assignment makes the recipient an owner of the patent, and so there is no way that the assignor can sue. No license is needed if one has an assignment.

Universities have a choice when it comes to how they deploy their patent rights. They can license or they can assign, and if they assign, they can use any number of approaches, including sale, donation, or even an instrument labeled “exclusive license.” What matters is what the instrument does, not how it is titled.

For small company contractors, whether a deal is an exclusive license or an assignment doesn’t matter much, as far as Bayh-Dole is concerned. For nonprofits and their business partners, however, the difference is huge. If the license is an assignment, then  paragraph (k) of the standard patent rights clause kicks in, and (k) deals with the money side of the use of patents on subject inventions.

Bayh-Dole is noticeable for its absence of express protections for the public use of subject inventions. Continue reading →

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Exclusive licenses, assignments, and ticks, Part 2

Posted on January 31, 2017 by Gerald Barnett

We aren’t done. There is another issue to deal with, that of “prudential standing”–which has to do with the standing to bring an action in federal court, such as for patent infringement. There are cases that find that a license has not conveyed all “substantial” rights in a patent if the licensee cannot “indulge” infringement. I won’t get into all the details. Read here, and here for starters. And this gets us as well into sublicensing, since a sublicense can resolve a matter of infringement. The primary case of interest here is that of AsymmetRx v Biocare.

Harvard licensed an antibody to Biocare and subsequently granted an exclusive license to AsymmetRx, which then sued Biocare for infringement. On appeal, the court found that AsymmetRx lacked standing to sue because its license was not an assignment and Harvard retained “substantial” rights in the patent. We might observe–obviously–because Harvard had granted commercial rights to another company, so that AsymmetRx could not have those rights, and as far as the license between Harvard and AsymmetRx was concerned, Harvard had retained those rights. The court, however, dug further and ruled that Harvard also retained rights to sue for infringement and to join any action for infringement and to lead such action that it did join. This right, along with requirements on AsymmetRx to consider the public interest in any litigation (something that universities might do well to consider on their own–hey, Caltech, how about it?), led the court to rule that Harvard’s exclusive license to AssymetRx was just that, and not an assignment.

The Harvard situation, however, does not declare that exclusive licenses to make, use, and sell are never assignments. Continue reading →

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Exclusive licenses, assignments, and ticks, Part 1

Posted on January 30, 2017 by Gerald Barnett

Washington University (in St. Louis) uses a template exclusive license agreement that makes the typical extension to assignment–it grants exclusive rights in making, using, and selling, adds the right to sublicense, and gives the licensee first crack at enforcing the licensed patent(s). There are plenty of other university license templates out there that do the same thing. Let’s see whether the template is an exclusive license or an assignment.

Take a look at the definition of assignment in U.S. patent law. Here’s the definition in 37 CFR 3.1:

Assignment means a transfer by a party of all or part of its right, title and interest in a patent, patent application, registered mark or a mark for which an application to register has been filed.

There are two similar actions that have rather different consequences. One may grant under one’s patent right a license to another to make, use, and sell an invention. Or one may transfer part of one’s right, title, and interest in a patent to another. In either case, the recipient is free of a claim of infringement by the original patent owner. But in the first case, the recipient is a licensee. In the second, the recipient is an owner of rights in the patent.

Here’s how attorneys Bruce Chapman and Keith Fraser put it (“Exclusive Patent License or Virtual Assignment?“): Continue reading →

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How a Moloch state defends its own

Posted on January 27, 2017 by Gerald Barnett

A while ago, I was going around with someone about a technical bit in Bayh-Dole. She thought my position was “baloney” because her lawyers had said it was. The language in the law, though, doesn’t support her position, nor do the courts. There is not much case law, and no one these days thinks to litigate the issue. My disputant figured that she would “never persuade” me–perhaps that’s true, because to persuade me would require, say, evidence from the law and the courts, and apparently such evidence is not there.

Something else is at work, however, in taking positions over what Bayh-Dole allows and doesn’t allow. I’ll put it in the form of a general hypothesis: Public policy includes whatever is not enforced by public policy.

Whatever is allowed to happen is public policy.

There are then different paths one can go by. One can do things because they are allowed to happen by public policy, and declare that these things must be right and acceptable on that basis. Or one can do things because they represent what public policy apparently directs, regardless of the lack of enforcement or strange and unnatural outcomes. Or one can do things based on what appears to be sound practices, given the lack of guidance in public policy–or at least the lack of sanctions for ignoring the express objectives and requirements of public policy. This last bit requires some exercise of personal judgment. (I once worked with someone who consistently refused to do such a thing–would rather write a crappy deal that followed conventional terms than to construct a deal that was clearly responsive to the circumstances–because, if the conventional deal goes bad, it will be the fault of the convention, not one’s own judgment, can’t be faulted for that–and of course, the conventional deal is more likely to go bad, so all the more reason to follow conventions, er “best practices.”)

Consider Bayh-Dole. Here’s a mess of a law, with further mess in the implementing regulations, and more mess in practice, with folks making all sorts of assertions about the law, its purpose, what it does, and how its effects should be measured and evaluated. Continue reading →

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