United States: Amendments To Bayh-Dole Act Regulations Tweak Rights To Inventions Made Using Federal Assistance

The Patent and Trademark Law Amendments Act of 1980, commonly known as the "Bayh-Dole Act," governs the disposition of patent rights developed pursuant to three types of government funding arrangements: procurement contracts, grants, and cooperative agreements.¹ The Secretary of Commerce has delegated to the National Institute of Standards and Technology (NIST) the authority to promulgate implementing regulations.²

In late 2016, NIST issued proposed changes to the implementing regulations of Bayh-Dole Act. Following extensive public comment, new regulations went into effect on May 14, 2018. We have set forth below a brief summary of the changes.

The Bayh-Dole Act

The Bayh-Dole Act permits a recipient of federal funding to retain ownership of inventions "conceived or first actually reduced to practice" by its personnel in the performance of a government-funded project ("subject inventions"). By its terms, the Bayh-Dole Act applies to a "person, small business firm, or nonprofit organization that is a party to a funding agreement."³ However, it has been extended by Executive Order to apply to large, as well as small businesses.⁴

As a condition of retaining ownership, the contractor is obliged to comply with certain statutory and regulatory requirements. Among other things, the statute requires that the contractor:

If the contractor fails to comply with these requirements, the Government may restrict or eliminate the contractor's right to retain ownership of the invention—such that the Government obtains title to the invention.⁸

NIST's Modifications

NIST's amendments to Bayh-Dole's implementing regulations make several changes to this well-known regulatory scheme.⁹ A summary of these amendments follows:

Conform the regulations to Executive Orders 1259 and 12618.

NIST has modified the regulations to clarify that the presumption of the right to retain title, when invoked, applies to large business contractors as well as small businesses and nonprofit organizations.¹⁰ The revisions also clarify that the term "contractor" as used in the regulations includes any business firm regardless of size which is party to a funding agreement, and specifically conforms the definition to that provided in the Executive Orders.¹¹ As noted previously, Bayh-Dole has been extended to large entities by Executive Orders, but these modifications conform the regulations to the Executive Orders.

Modify certain time limitations.

As described above, a contractor must (i) disclose a subject invention to the Government within two months after the inventor discloses it to the contractor's personnel responsible for patent matters, and (ii) elect to retain title within two years after disclosure of the invention to the Government. Under the prior regulations, if the contractor failed to comply with either of these obligations, the agencies could request title within 60 days after learning of the contractor's action, or forgo the election. The amendments remove this time limitation.¹²

NIST also has added a requirement that, where a contractor has filed a provisional application as its initial patent application with respect to a subject invention, the contractor must file a nonprovisional application within 10 months of the filing of the provisional.¹³

Additionally, the regulations used to require contractors to notify the agency of any decision not to prosecute an application at least 30 days before the end of any applicable USPTO deadline (e.g., 30 days before the contractor's response is due to an Office Action issued by the USPTO). The amendments have lengthened that period to 60 days.¹⁴

Clarify what happens when a federal employee is a co-inventor of the subject invention.

The regulations governing the assignment of patent rights when a federal employee is a co-inventor of the subject invention were previously quite sparse.¹⁵ Among other things, the amendments clarify that the agency employing the co-inventor may file the initial patent application, provided that the contractor retains the ability to elect rights—and this determination is made by the agency, "at its discretion," though "in consultation with the contractor."¹⁶ If the contractor elects title in this situation, the agency employing the co-inventor retains all ownership rights to which they would otherwise be entitled.¹⁷

Require the contractor's employees to execute written assignments of subject inventions to the contractor.

The prior version of the regulations had required contractors to require, by written agreement, that each employee would promptly disclose subject inventions in writing to the person responsible for patent matters within the contractor. This provision was included to ensure that contractors could comply with their disclosure requirements.

The provision has been expanded to additionally require contractors to obtain from their employees written assignments, assigning all of the employees' rights and titles to subject inventions to their contractor employers.¹⁸

Make various definitional clarifications.

For example, the amendments clarify that "Initial patent application" means the "first provisional or non-provisional U.S. national application for a patent" under 37 C.F.R. § 1.9(a)(2) and (3) or the first international application for a patent under 37 C.F.R. § 1.9(b).¹⁹

Takeaways

Many of the amendments are simply clarifications of existing law. However, contractors should take special notice of the changes in timelines set out in the amendments. First, the NIST amendments expressly remove the 60-day deadline for agencies to elect title following a contractor's failure to timely disclose or elect title. By removing this 60-day deadline, it now seems that the Government can, at any time—even years—following such a failure, take title from the contractor. It is unclear whether anything can be done by the contractor to cure a failure to disclose; the only possible recourse a contractor has to cure a failure to disclose or elect title is to seek a retroactive extension of time, which may be granted "at the discretion of the agency.²⁰ To avoid inadvertent transfers of title, or a cloud on the title of a late-disclosed patent, contractors should strictly adhere to these timelines.

Second, if a contractor does elect title to a subject invention, it must be prepared to make quick decisions regarding patent prosecution. As noted, the proposed regulations require the contractor to give 60 days' notice in the event the contractor has decided to discontinue prosecution of a subject invention. By way of example, if the contractor receives a non-final Office Action, with the usual initial three-month response deadline and three additional months of available extensions, the contractor will need to determine within the first 120 days whether it intends to respond to the Office Action—or alert the Government. For contractors who typically make these decisions close to the end of the initial response period—or at the end of the extension period—a change in prosecution practice will be required.

Independent of timing issues, the amendments make explicit a requirement that the contractor obtain assignments of the subject invention from its employees. This requirement—likely added in response to the outcome of Stanford v. Roche—complements the previous requirement that by written agreement, its employees disclose each invention in a format suitable for complying with existing disclosure requirements.²¹

Finally, contractors should also pay increased attention when Government employees are working with contractor personnel and there is a co-invention scenario. This tends to be unusual in the types of situations governed by Bayh-Dole instruments, i.e., procurements, grants and cooperative agreements—typically an alternative funding instrument, a Cooperative Research and Development Agreement, which is governed by the Stevenson-Wydler Act rather than the Bayh-Dole Act, would be more appropriate in a collaborative development scenario.²² But, in the event there is joint invention between a government employee and a contractor employee under a procurement contract, grant, or cooperative agreement subject to Bayh-Dole, it is likely in the contractor's best interests to control patent prosecution, not the Government. The Government is generally less experienced than private contractors at seeking and securing patent protection—which is increasingly a lengthy, complex legal fight with the USPTO.

Unfortunately, the amended regulations do not clearly give the contractor a right to seek to control prosecution; they state that the Federal agency "may submit an initial patent application, provided that the contractor retains the ability to elect rights."²³ This implies that the contractor may control prosecution after the election of title, but that the initial application may have been filed by the Government. However, the drafting of the initial patent application can contribute materially to the application's ultimate issuance or rejection—for example, a poorly written specification may fail to give necessary support to claims the contractor would like to issue. Thus, contractors likely will want to avoid this scenario. To do so, contractors will need to closely monitor how and when their employees work with Government employees, and work with legal counsel, to try and eliminate co-invention scenarios. When there is a co-invention, contractors should coordinate closely with government counsel on whether the contractor or the agency will file the initial patent application.

Footnotes

1 Pub. L. No. 96-517, Dec. 12, 1980, as codified at 35 U.S.C. §§ 200-212.

2 27 C.F.R. Part 401 et seq.

3 35 U.S.C. § 201(c).

4 Executive Order 12591; see also Executive Order 12618.

5 35 U.S.C. § 201(c)(1).

6 35 U.S.C. § 201(c)(2).

7 35 U.S.C. § 201(c)(4).

8 35 U.S.C. § 202(a) and (b).

9 Note that these amendments do not change the statutory scheme, which would require amendment by an act of Congress.

10 37 C.F.R. § 401.1(b) (May 14, 2018).

11 37 C.F.R. § 401.2(b); 37 C.F.R. § 401.3(h), referencing Executive Order 12591 at § 1(b)(4).

12 37 C.F.R. § 401.14(d)(1).

13 37 C.F.R. § 401.14(c)(3).

14 37 C.F.R. § 401.14(f)(3).

15 37 C.F.R. § 401.10.

16 37 C.F.R. § 401.10(a)(2); see also 37 C.F.R. § 401.14(c)(4).

17 37 C.F.R. §401.10(a)(5).

18 This is a new addition to the rules, pursuant to 37 C.F.R. § 401.14(f)(2).

19 37 C.F.R. § 401.2(n).

20 37 C.F.R. § 401.14(c)(5).

21 Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc., 563 U.S. 776 (2011).

22 15 U.S.C. § 3710a.

23 37 C.F.R. § 401.10(a)(2); see also 37 C.F.R. § 401.14(c)(4).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.