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What If...Bayh-Dole is More Clever than Folks Possibly Imagine?

I am looking at the following argument. It is a what-if. It takes a very different approach to those arguments that assume that Stanford has a subject invention and is losing licensing income but for the action of an imprudent employee and a sneaky company, and that the case is somehow therefore about a weakness of Bayh-Dole that has to be patched up to give universities clear title. The argument below doesn't give the university clear title via a vesting statute argument (I'm still a big no on that one) but it does give an avenue where the case is still on, with new instructions for the CAFC, all without arguing a deficiency in Bayh-Dole.


Bayh-Dole defines subject invention as a matter of patent law. A subject invention happens whenever the definition is met, and it's a subject invention for everyone who co-invents and everyone who might lay a claim to title. The definition is at 35 USC 201 (e), and is not restricted to the standard patent rights clause. The definition is limited to the inventions "of a contractor". "Contractor" in turn is defined as any person, small business firm, or nonprofit organization, which is a party to a funding agreement. A "funding agreement" is any contract, grant, or cooperative agreement between the government and a university (with some qualifications). The term also includes "any assignment, substitution of parties, or subcontract of any type" for a funding agreement.

The last bit is the interesting part. There are two ways to come within scope of Bayh-Dole if one isn't right off a party to a funding agreement. First, one can acquire obligations through actions of the contractor under the standard patent rights clause-by assignment of title 37 CFR 401.14(a)(k)(1) or subcontract (g) or by exclusive license (i). Second, these rights can come about as anticipated by 37 CFR 401.2(a)-by any assignment, substitution of parties, or subcontract of any type. When any of these happen, one not only has certain obligations-one is also a *party to the funding agreement*. That's one of the oddities of federal contracts. It's a kind of Augustinian moment-"compel them to come in." Note, the definition of a funding agreement is not part of the standard patent rights clause. It's in 35 USC 201(b), though. It's federal law, not just a clause in a contract formed under the authority of federal law. It can apply to others, not just to the university.

If this is the deal, then when a person assigns future invention rights, and these may include rights to inventions made with federal funds, then the assignee acquires an equitable interest also in *subject inventions*. If the university's employee is an agent of the university with regard to notice of prior obligations to defeat a 35 USC 261 matter of notice, then the employee is also reasonably the agent of the university with regard to various other matters, such as any assignment, substitution of parties, and subcontracting of any time. It does not matter whether the university has formalized the delegation of this authority in its policy documents.

That is, the assignee becomes a *party to the funding agreement* by means of assignment ("any") and substitution of parties (in part) transacted by means of the present assignment of future inventions when any part of such future inventions comes within the definition of subject invention. Not only is the invention a subject invention, but also the assignee of the title interest in the subject invention is a party to the funding agreement. Note, this would not happen if the company only held a license, since license is not within the list of assignment, substitution of parties, and subcontract.

That's the argument anyway. If a research employee can't meet an (f)(2) obligation to the university because the employee has signed away invention title to a company ahead of time, then attention turns not to how this undermines a weak and perfunctory spirit of Bayh-Dole as understood by patent administrators bent on expeditious title, but how Bayh-Dole is a sufficiently robust and thoughtfully designed law that attention turns to the obligations transferred by means of an unguarded and unrestricted present assignment to the company.

If this argument holds, then a company holding a present assignment to future inventions ends up with a subject invention with Bayh-Dole obligations and opportunities. The company would have a contractor's right to elect to retain title, but also would have obligations under Bayh-Dole. How might those obligations play out given the circumstances thus far, and more interestingly, what obligations might those be? Those specific to its standing under Bayh-Dole, as if it were an independent contractor with the government, or those obligations it would have based on the original deal-the standard patent rights clause as applied in the funding agreement to which it has become a party?

Would it be possible for a court to construct this movement-that yes, title follows the present assignment, but under Bayh-Dole's definition of party to a funding agreement (a matter of patent law, not just the standard patent rights clause), the company acquiring title is a party to the funding agreement. That means, becomes a "contractor" within the meaning of the law, and has to deal with the standing that comes with that. So while it acquires title, it has not perfected its rights relative to its obligations to the government under Bayh-Dole.

Just as the university may lose the opportunity to obtain the entire title outright to a subject invention by failing to obtain (f)(2) agreements from its research employees-and too bad for the university if it doesn't like that outcome-so also a company bargaining for any and all future inventions from a researcher using a present assignment instrument rather than a conditional promise to assign or non-exclusive license is also bargaining for getting subject inventions when that researcher gets involved with federal funding-and too bad for the company, too, if it has to take *everything* it bargained for without regard to the consequences.

One might see where this leads in Stanford v. Roche. It's a subject invention (if it really is) for everyone involved holding a claim to title. SCOTUS accepts the CAFC finding that Roche holds title via the present assignment and so Stanford has a problem with the infringement case, but also Roche has obligations under Bayh-Dole because it is now a party to a funding agreement by substitution of parties and assignment. As a party to the *funding agreement between the federal government and Stanford*, Roche has the obligations set out for contractor under the standard patent rights clause as applicable to small business concern Cetus. If Cetus/Roche has failed under those conditions, then the court turns to the remedies provided in Bayh-Dole. Did the company report the invention? (no, because it did not receive an invention report, because it did not obtain an (f)(2) agreement with Holodniy when it obtained the present assignment that was broad enough to include federally funded research). Did the agency request title per (d)(1) within 60 days of learning of the failure of the contractor to disclose or elect title? (no, and it's not clear that anyone thinks of Cetus/Roche as a party to the funding agreement, so this *still could be triggered!*). If the government obtains title under (e)(1), does the company retain a non-exclusive license? (no, because it did not disclose the invention within the times specified-but wait-it has not properly received the disclosure from its person Holodniy so perhaps the clock in (c)(1) hasn't started so perhaps *this also could still be triggered*).

If the company has failed in its (f)(2) obligation management (as has the university, for a different set of reasons), then it would appear this clears the way for the SCOTUS to find that 1) the company meets the definition of Contractor under 35 USC 201(c); the university does not presently have standing to sue, but that the company also does not yet have standing to retain title, and as no one has recognized the company as a Contractor as a result of its use of a present assignment for unrestricted future inventions, including subject inventions, the matter cannot be finally settled until the agency now on notice that the company has not disclosed the invention acts to request (or not) to obtain title from the company.

If the agency may request title, then the issue for the company will be whether it retains a non-exclusive royalty free license from the government (it may well still comply with the disclosure requirement). If the agency permits the company to retain that license, then the case is over, and Stanford cannot succeed in its infringement case. If the agency requires title and does not permit the company to retain its license, then the company and agency will have a heartfelt (e)(3) discussion in which the company has the opportunity to show good cause why it should retain a license. Product on the market under (e)(2) would be one such good cause. However, if the company does not prevail with its good cause argument, then the suit by Stanford is back on, if the agency agrees to it as the co-owner having revoked any license Roche might claim.

I am still working on the matter of: if the invention is a subject invention, and the company comes to hold title in it by means of becoming a contractor that is party to the funding agreement entered into by Stanford and the government, whether it can be constructed that the obligations of 37 CFR 401.14(a)(k) apply to the company though it is not a nonprofit organization because it has agreed (by means of using an unrestricted present assignment) to a substitution of parties. That is, it has obligations to share royalties with inventors and use any proceeds after costs for scientific research and education. Now, wouldn't that be a fun outcome?



Comments : 0 - Last Post : Mar 2, 2011 2:42 PM by: IP Advocate
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