Alert April 10, 2017

Changes to Bayh-Dole Act Regulations Impacting Ownership of Patent Rights

Summary

Businesses and nonprofit organizations that receive federal government funding, such as NIH, DoD or SBIR grants, are required diligently to report and elect title to inventions and patent applications that have been made with such funding. If these and other requirements are not satisfied, a company or university may not have title (ownership) of the invention and associated patent rights. Current regulations provide a mechanism to retroactively correct such defects in title. However, timely compliance with the requirements may become significantly more important due to recent proposed changes to the regulations implementing the Bayh-Dole Act.

Background 

The Patent and Trademark Law Amendments Act of 1980, better known as the Bayh-Dole Act, facilitates the commercialization of federally funded research and development by small businesses and nonprofit organizations such as universities, by providing reliable patent rights to these entities. Before the Bayh-Dole Act, inventions developed with federal government funding (e.g., grants from National Institute of Health, Department of Defense, or under a Small Business Innovation Research program) were owned by the U.S. government and the technology was rarely out-licensed. After the enactment of the Bayh-Dole Act, funding recipients, or “contractors,” were finally able to exploit and monetize such patent rights. The Bayh-Dole Act has been credited with developing over 10,000 start-up companies and at least 200 drugs and vaccines, and contributing more than $500 billion to the economy, in part, because it provides for certainty of ownership of patent rights.

Requirements for Ownership of Patent Rights

The Bayh-Dole Act does not automatically and absolutely grant patent rights to inventions made with federal government funding to a contractor (e.g., a small business or university). Rather, a contractor needs to satisfy certain statutory and regulatory requirements, including associated deadlines, to retain title to the invention and related patent rights worldwide. Without sufficient ownership rights to a patent, it cannot be asserted against an alleged infringer or be effectively licensed.

The requirements to retain ownership include:

  • disclosing the invention to the federal agency within two months of learning of it;
  • electing title to the invention by notifying the agency in writing within two years of disclosure; and
  • filing a patent application on the invention within one year after election of title, or earlier if necessary to avoid forfeiture of patent rights. 

Extensions of time, at the discretion of the agency, can be granted for completing these actions. 

In addition, the contractor must grant the government a non-exclusive, nontransferable, irrevocable, paid-up license to practice, or have practiced for or on behalf of the U.S., the invention described in any patent throughout the world. Further, each patent must include an introductory statement of the government’s rights in the invention.[1]

Although straightforward, these requirements can be overlooked by a small company, with the resulting defect in ownership often discovered at an inopportune time, for example, during due diligence related to a license agreement, a capital contribution, or an initial public offering.

Correction

Fortunately, correction of ownership under the current regulations is possible, for example, if a company was previously unaware of these regulations or if a deadline under the requirements was missed. Under the current regulations – even years after noncompliance with the above requirements – a contractor can provide notice to the government funding agency of the patent application and elect title. Unless the agency then requests title within 60 days after such late disclosure or election, title to the invention and patent rights will be retained by the contractor.[2] Accordingly, noncompliance with the requirements to retain ownership, even many years later, can be remedied.

However, it is important to note that government agencies have occasionally requested title after late disclosure or election. In one such case, a contractor, Campbell Plastics, was awarded a contract with the U.S. Army, that resulted in an issued patent. Less than 60 days after Campbell Plastics notified the Army of the issued patent, the Army demanded title from Campbell Plastics based on noncompliance with the disclosure provisions of the contract. The U.S. Court of Appeals for the Federal Circuit confirmed that Campbell Plastics did not own the patent because the government timely exercised its rights to retain ownership of the invention.[3]

In another such case, where a plaintiff-contractor brought a claim for patent infringement against a defendant, the defendant successfully dismissed the claim on summary judgment by showing that the plaintiff-contractor did not possess title to the patent. Here, the government agency requested title within 60 days after being made aware of the patent by the contractor, long after the underlying contract had been closed.[4]

New Regulations

Due to the recent changes in patent laws under the America Invents Act, the Secretary of Commerce has revisited the Bayh-Dole Act to determine whether it needed updating. Proposed changes to the regulations were published in the Federal Register in November 2016 with a request for public comment.

One of the important proposed changes is the removal of the 60-day time during which the government can request title after learning of an unreported or unelected invention.[5] Under this proposed change, if the initial disclosure and election of title requirements are not timely met, the government has the opportunity to request, at any time, title to the invention and any associated patent rights. Consequently, a cloud on the title to the patent rights may be permanently present if the initial disclosure or election was not timely made.

Takeaways

Although it is uncertain when or if the new changes to the regulations will take effect, the proposed changes highlight the need to timely comply with the regulations so that ownership of patent rights is clear when any business does work using federal government money. Suggested actions include:

  • Businesses with federal government grants including SBIRs should be aware of and have a plan and procedures in place to ensure timely documented compliance with the required regulations including disclosure of any invention, election of title, and application for a patent.
  • Review patent portfolios, including issued patents, for patent properties with inventions made using federal government funding (including technology and patent rights licensed from others). If any patent properties are identified that have not been timely disclosed or title elected as required, take corrective action to begin the 60-day clock during which the government can request title according to current terms of the funding.
  • If federal government funding is necessary for a project, consider segregating those funds from other projects to avoid unnecessarily subjecting nongovernment-funded projects to Bayh-Dole Act requirements and possible government ownership.

In sum, if federal government money is being used to make inventions, education of the regulations and application of procedures to satisfy the Bayh‑Dole Act can help to avoid any unnecessary surprises down the road with respect to patent ownership.



[1] It is useful to note that, in practice, government agencies are usually happy to assist with compliance of the requirements and transfer of ownership of the patent rights to the contractor. Moreover, contractors that come forward to give notice of patent rights made with government money demonstrate that the agency’s funding was successful in producing patented technology.

[2] The regulations state, in part, “[t]he contractor will convey to the Federal agency, upon written request, title to any subject invention – (1) If the contractor fails to disclose or elect title to the subject invention within the times specified in (c), above, or elects not to retain title; provided that the agency may only request title within 60 days after learning of the failure of the contractor to disclose or elect within the specified times.”  37 C.F.R. § 401.14(a)(d)(1) (emphasis added). In addition, the other requirements to retain title must be completed, for example, granting the government its non-exclusive license and including the proper introductory statement of the government’s rights in the patent(s).

[3] See Campbell Plastics Eng’g & Mfg., Inc. v. Brownlee, 389 F.3d 1243 (Fed. Cir. 2004).

[4] See L‑3 Communications Corporation v. Jaxon Engineering & Maintenance, Inc., 125 F. Supp. 3d 1155 (D. Colo. 2015).

[5] The proposed, revised regulation 37 C.F.R. § 401.14 (a)(d)(1) would read, in part, “[t]he contractor will convey to the Federal agency, upon written request, title to any subject invention – (1) If the contractor fails to disclose or elect title to the subject invention within the times specified in (c), above, or elects not to retain title.” Rights to Federally Funded Inventions and Licensing of Government Owned Inventions, 81 Fed. Reg. 215 (November 7, 2016).