Mapping Bayh-Dole Flow of Control

This would be a good time to map out how Bayh-Dole operates.  I’ve put together 10 slides that show the flow of control.   Perhaps this will help folks see what Bayh-Dole does require, and what it doesn’t.

First, let’s look at the law and its implementing regulations.  The law is at 35 USC 200-212 and is part of patent law.   Bayh-Dole is directed at federal agency contracting for research services with universities, nonprofits, and small companies (which I will shorten to universities).  More particularly, Bayh-Dole makes uniform federal agency treatment of inventions as deliverables in funding agreements.   As such, Bayh-Dole does not apply to universities, but rather to agencies.

Bayh-Dole requires the Secretary of Commerce to create implementing regulations.  In particular, it requires Commerce to produce standard patent rights clauses (35 USC 206).   The standard patent rights clauses are at 37 CFR 401.14.  There are two, one for general use, section (a), and one for use under exceptional circumstances, and rights to inventions must be negotiated, section (b).  We will deal only with (a), which we will call the Standard Patent Rights Clause, or SPRC.   The implementing regulations provide for variations from the SPRC to accommodate certain agency-specific matters, treaties, foreign work, weapons and naval propulsion, and exceptional circumstances in general.  For this discussion, we will assume the SPRC is tailored only for agency-specific matters.

Agencies are required to use the SPRC in all funding agreements with universities.  Funding agreements may be in the form of grants, which are regulated by Circular A-110 (now in 2 CFR 215) or contracts, which are regulated by the Federal Acquisition Regulations (FARs) and their defense equivalents, the DFARs.  The SPRC is inserted into these regulations, along with federal agency variations, which the agencies then use to form funding agreements with universities.

As you can see, the flow of control in Bayh-Dole means that universities come to be affected by Bayh-Dole not directly by action of law but as terms and conditions in a funding agreement–essentially, a federal contract into which universities voluntarily enter.

The SPRC is drawn almost entirely from 35 USC 200-204, but includes one key provision that is not in Bayh-Dole proper.  This key provision is found in section (f)(2) of the SPRC.  Section (f)(2) requires, among other things, that universities require of their employees (other than non-technical and clerical employees)–I will call them research employees here for short–a written agreement under which they agree to protect the government’s interest in inventions by a) disclosing inventions to personnel designated by the university, b) signing paperwork to permit patent applications to be filed, and c) signing paperwork to establish the government’s rights in inventions.  For c), this could mean assigning ownership or granting a non-exclusive license to the government, or assigning title or granting a license to others that permits granting a non-exclusive license to the government.   We will discuss this more in a bit.  For now, it is important to see that the SPRC is the contractual means by which agencies manage patent rights in funding agreements, and the (f)(2) agreement is the means by which agencies reach to a university’s research employees to ensure that the agencies obtain rights in inventions, as might be limited by the SPRC.

Here is the funding agreement situation, divided with the agency-university relationship on the left, and the agency-research employees relationship on the right:

The SPRC makes no assumptions about the relationship regarding inventions that might exist between the university and its research employees, other than that they are employees.   It does not require assignment agreements between the university and research employees, nor that the university have an IP policy, nor that the university have a technology transfer office.

We will work through the flow of control by which a funding agreement is established, and then examine what happens when an invention is made. 

The start of a funding agreement is on the right side of the relationship, between research employees and agencies.  A researcher, usually a member of the university’s faculty, decides to conduct a project and writes a proposal, often in response to a request for proposals issued by the agency.  The proposal is submitted to the agency formally through the university.  The agency then reviews the proposal and makes a decision to fund it.   It is rare that a university refuses to submit a proposal from a principal investigator.  It may happen, for instance, when only one proposal on a given grant program is allowed from any one university and multiple proposals are prepared.   A proposal also may not be allowed to go forward if it involves classified research or other research for which the university lacks the resources, such as laboratories with security to handle dangerous substances.  In general, however, the university does not censor proposals, nor does it seek funding and then assign faculty researchers to conduct research not of their choosing.  It is the principal investigators who decide to seek federal assistance.  It is their deal, their choice.  Furthermore, it is the investigators that the funding agency seeks to work with.  It is the investigator’s qualifications and expertise that are reviewed as part of the grant application.  It is a matter of special performance.  If the principal investigator bails from the deal, the award if off unless a substitute investigator is found who is acceptable to the agency.  The university’s role is subordinate to the process–to provide technical services to assist in the application process, and if an award is made, to manage the financial accounting and other regulatory compliance matters on behalf of the agency and the investigators.

The university, then, is something of a steward. Circular A-110 makes this express. In section 37, dealing with intangible property (including inventions), A-110 requires inventions (and other intangible assets) “to be held in trust by the recipient as trustee for the beneficiaries of the project or program”. The university, as a condition of the award, is to act as steward, not master. An understanding of this role shapes much of what follows for invention ownership and innovation practice. Disagreement over this role is the source of many of the problems that arise in the present, now conventional, approach university administrators take to technology transfer.

When a grant is awarded, the federal funding agreement is established.   The agreement has a number of components.  The primary one is the Statement of Work, which is generally the proposal that has been submitted by the principal investigator (PI), the faculty member responsible for the conduct of the work.  The PI hires staff, decides on subcontracting, creates the work plans and designs experiments, assembles the tools, gathers and reviews data, directs reporting and publication, and spends the money.

In addition to the Statement of Work, the funding agreement consists of the appropriate set of regulations that govern the relationship.  If a grant, then Circular A-110.  If a contract, a set of clauses from the FARs or DFARs.   In either case, these will include the SPRC with its (f)(2) agreement requirement.

When the university accepts the funding on behalf of the Principal Investigator for the proposed project, it also agrees to the SPRC.  The university makes a voluntary decision to conduct its affairs in compliance with the SPRC.  The university in accepting the SPRC therefore displaces any university policies or agreements that would conflict with the SPRC.  Put another way, the university cannot accept the SPRC’s conditions while asserting practices for its research employees that are contrary to the SPRC.  This is an important point.  It is not the law that dictates the university’s behavior, but rather it is the university’s own affirmative acceptance that the SPRC is how rights will be managed.

As required by the SPRC’s section (f)(2), the university requires its research employees to make a written agreement to protect the government’s interest.   In directing its research employees to make this agreement, the university releases them from any conflicting agreements or policies (including IP policies and conflict of interest policies) that it may otherwise require them to follow.  The (f)(2) agreement permits research employees to sign away patent rights or grant licenses as may be required by the funding agency, or by another organization that gains standing under the SPRC to direct such activity.

Now the research gets going and an invention is made.  In terms of the SPRC, this means that an invention is conceived or first actually reduced to practice.  (It does not include constructively reduced to practice–such as by filing a patent application).   What happens then?

Inventions that are made in performance of work under the funding agreement by university research employees are “subject inventions”.    As confirmed by the (f)(2) agreement, research employees have agreed to disclose subject inventions to the personnel the university designates to receive such disclosures.   These personnel could be technology managers in a tech transfer office, or legal counsel, or an external foundation or other invention management organization.  (The personnel could also be principal investigators or department chairs, but I don’t know of any university that has done this.)

Per the SPRC, the university is responsible for reporting subject inventions to the funding agency.   Then someone–the agency, the university, and the inventors–has to decide what to do with the invention.  There are various options.  The effect of Bayh-Dole now becomes evident.  Rather than agencies insisting on a first right to obtain title to inventions made with federal support, Bayh-Dole requires the agencies to use the SPRC.  The SPRC, in turn, allows the university to “elect to retain title” to subject inventions.  This phrase has been the subject of a lot of recent dispute.  It does not mean that the university must own by automatic vesting all subject inventions made by its research employees, and it does not mean that by electing to retain title a university somehow thereby obtains title, nor does it mean that research employees have no other legal options but to assign to the university.   Rather, “retain title” means that the university may intervene in the (f)(2) relationship it has been instrumental in establishing, and forestall the agency from requesting title from the university’s inventors.   In essence, the university stands in for the agency to undertake the objectives of Bayh-Dole, the primary one of which is to use the patent system to promote the utilization of inventions made with federal support.

By making uniform federal agency procedures for inventions, Bayh-Dole relieves agencies of the administrative burden of case-by-case review of each request by a university to manage subject inventions.  In place of such review, crafting of individual agreements, and continual oversight of progress, Bayh-Dole substitutes a set of standard requirements built into the SPRC to govern university behavior.

It is important to recognize that the university has no mandate nor obligation under the SPRC to retain title, to manage inventions, to file patent applications, to seek out licensees, to start companies, to attempt to develop commercial products, or to make money through licensing and infringement litigation.   Any decisions that a university makes on these matters arise entirely from the university’s own motivations–that is, from the motivations of the individuals that the university assigns to the task of making such decisions, and to the arrangements they make, as stewards, with inventors and on behalf of the beneficiaries of the project in which the invention has been made.

If the university does not elect to retain title, here’s what happens:

If the university declines to retain title, then the relationship with the agency shifts to the right side of the diagram, the investigator side.  University administration is then all but out of the picture.   The agency deals directly with university inventors under the (f)(2) agreement.  The agency may request title to the invention, and if it does so, the agency may file patent applications on behalf of the government, or it may simply let the invention enter the public domain.  If the agency does not desire title, then under Bayh-Dole (35 USC 202 (d)), the agency may allow the inventors to “retain title” if they so request.

The procedures for allowing inventors to retain title are set forth in 37 CFR 401.9, which forms something of a mini-Bayh-Dole Act for inventors working directly with the government.   Inventors are required to comply with a subset of the SPRC, acting in the place of the contractor as a substituted party:  offering title back if they don’t continue with a patent application in the US or any foreign country, marking patents with a federal funding legend, reporting progress toward utilization, requiring substantial manufacturing in the United States for exclusive licenses, and accepting government march-in rights if the inventors or their licensees fail to make progress or are unable to meet certain other conditions.

Notably, there are no default restrictions on the inventors’ assignment of title, sharing of royalties, preference for small business, and other provisions that are required of contractors generally or universities in particular (though such restrictions could be added on a case-by-case basis if an agency desired to do so).

If, however, the university elects to retain title, then the picture changes to left side of the flow diagram and the relationship the university has with the funding agency.

The primary matter for the university when it elects to retain title in a subject invention is that it can indeed obtain the rights that are necessary for it to meet the conditions of the SPRC.   The conventional answer is that the university must obtain ownership of the invention.   But the SPRC does not say that university ownership is required.  The SPRC provides that the university retain title–that is, intervene so that the agency does not act on the (f)(2) agreement with inventors.   After retaining title, the university is to file patent applications and grant or have granted a non-exclusive license to the government (SPRC section (b) does not specify who grants the license).   Similarly, SPRC (f)(1) provides that the contractor will “execute or have executed . . . all instruments necessary to (i) establish or confirm the rights the Government has . . . and (ii) convey title to the Federal agency when requested . . . .”   At each point the language avoids stipulating that the contractor must do these things.  The contractor, if it cannot do these things, must be able to require others to do these things, and thus the language is sufficiently broad to allow a variety of situations, not restricted to university ownership.

One of these situations involves the use of an invention management organization, such as an affiliated research foundation or a professional invention management firm.  The SPRC provides that a university may assign its SPRC rights to such an organization, provided that organization take on the SPRC responsibilities that the university has agreed to.   This situation was very common when Bayh-Dole was passed (though now many universities have adopted an in-house technology transfer model and advocate against the use of agents).  It is therefore understandable that Bayh-Dole would be drafted to permit the continued use of research foundations as agents.

The other situation is less discussed and involves allowing the inventors to maintain title to inventions but requiring sufficient cooperation between the university and inventors to meet the obligations of the SPRC–a non-exclusive license to the government, reporting on utilization, preference for small business and US manufacture, and the like.  All of this can be accomplished without the university taking ownership of the invention or requiring ownership to pass to a designated agent.   Nothing in the SPRC actually requires the university to compel inventors to assign their rights to subject inventions.  Furthermore, nothing in the SPRC requires the university to have agreements in place to ensure assignment.  Even 37 CFR 401.9 does not indicate that the only way inventors can end up with ownership is by means of the 401.9 process, at the end of a line of choices by the university and agency. 401.9 merely is at the end of those choices. But inventors start out with ownership, and nothing in the SPRC requires the university to disturb that ownership when it elects to retain title. Assignment, if it is desired, could be entirely voluntary on the part of the inventors.  If the university is unable to obtain an agreement that permits it to meet its SPRC obligations on terms it finds acceptable, then the university always has the option to decline to retain title, and turn the management discussion over to the agency and inventors.

Given all this, if a university does seek assignment, it has three routes to it.  One involves having an agreement in place with inventors under which they agree to assign such inventions.  This could be an employment agreement with an invention clause, a separate agreement that is required for employees to participate in sponsored research, or a policy requirement that is met when an invention is made using university facilities or other resources.  Despite claims that such an agreement is required by Bayh-Dole, or essential to compliance with Bayh-Dole, an assignment agreement is not required.  The university could leave it as a voluntary arrangement, as described above, negotiated on its own terms to the satisfaction of both the university and its inventors, dealing as equals and with nothing forcing the issue one way or another.  If no arrangement can be made, then the university declines to retain title, and the agency takes the lead in discussions with the inventors. While this approach is rather attractive in organizations that are based on respect rather than distrust, love of process, and self-interest, there is a third approach available as well.  This approach involves relying on the (f)(2) agreement, which like the language pertaining to government rights in the event of a contractor electing to retain title, is also drafted without specifying who is authorized to request paperwork to permit patent applications to be filed or establish the government’s rights in subject inventions.

When a university elects to retain title, it has standing under (f)(2) to request assignment, just as the agency would have, were the university to decline to retain title.  Thus, even in the absence of an employment agreement or other private invention assignment arrangement, the university has available the (f)(2) agreement on which it can rely to obtain assignment of subject inventions.  The university may request assignment be made to itself, or to another organization that it designates (and which meets the requirements of the SPRC).  In this way, the SPRC is self-implementing.  It does not require any further policy, agreements, or administrative offices on the part of the university.  The (f)(2) agreement is sufficient. This approach is remarkable in its simplicity.

Once the university and the inventors have worked out an arrangement that meets the requirements of the SPRC, the university can file patent applications, grant the government a non-exclusive license, and set about using the patent system to promote the utilization of subject inventions, collaborate with industry, help small businesses, stimulate American manufacturing, encourage competition and commercialization, prevent adverse effects on further research, protect the public public from non-use or misuse of inventions, and reduce administrative overhead–all those good things in 35 USC 200.

This then is an overview of the flow of invention management control under Bayh-Dole, a law applicable to federal agencies that then use a standard patent rights clause in funding agreements with universities.  Universities, in turn, agree to the SPRC to obtain funds on behalf of their investigators, who have their own relationship with the funding agencies.   The SPRC serves to protect the public, inventors, industry, and government from the choices and practices of university administrators in the absence of case-by-case agency review of every subject invention that university administrators or their patent agents might seek to manage.  In all of this, the (f)(2) agreement is pivotal, as it provides the link between the university and its research employees with regard to those employees’ obligations to the government.

It is a shame, then, that I don’t know of a single university that implements the (f)(2) agreement as it is specified in the SPRC.  When I asked about this agreement early in my work at the the University of Washington, the Director of Technology Transfer put it off, saying, “We won’t do it until an agency specifically requires us to comply.”  Instead, universities substitute policy statements and assignment requirements directed at the *university* for the *university’s benefit*, not to protect the *government’s rights* as the SPRC directs.  No wonder administrators and university attorneys are increasingly strident about assignment agreements.  They are attempting to find a way to comply with the SPRC without actually following the requirements that the SPRC lays out for them.

I wonder if it might not be a better relationship all the way around if university administrators were to follow the SPRC, pull out of their increasingly corporate model of ownership and control, and return university research to the course that made it so highly attractive to the government and the public, and the envy of the rest of the world–that of providing the greatest freedom possible to university investigators to invent, act on opportunity, and where institutional resources are desired, to create an arrangement that works for the local circumstances as they present.  It takes a pretty special group of researchers and administrators to be ready to take on the capabilities and mutual respect assumed by Bayh-Dole.   An approach to federally funded research that opts for freedom makes just this assumption and stands to present to the world the most effective approach to advancing science, research, innovation, and community development.

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