Alert August 02, 2018

Compliance With New Bayh-Dole Act Regulations Becomes Critically Important

Summary

Any business entity or nonprofit organization that receives federal government funding, and has inventions and patent applications made with such funding – even in part – is required to timely disclose and elect title (i.e., secure ownership) to such inventions and patent applications from the funding government agency. The government agency, however, can request title to these inventions and patent applications, but only has 60 days to do so after learning of the untimely disclosure or election of title. Now, importantly, for funding agreements executed after May 14, 2018, this 60-day period has been eliminated so that noncompliance effectively gives the government agency unlimited time to elect title, placing a cloud over the ownership of the worldwide patent rights for their duration.

Unfortunately, failure to timely comply with the requirements to secure ownership is often discovered at an inopportune time, for example, during due diligence related to a license agreement, a capital contribution, or an initial public offering. With a risk that ownership rights to a patent can be taken away at any time, the patent rights might not attract investment or be effectively licensed, never achieving their full potential value.

Accordingly, companies should consider reviewing current procedures to adjust the times for decision-making and take appropriate follow-up action such as communicating with the government agency.

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 providing reliable patent rights to the funding recipients. Before the Bayh-Dole Act, inventions developed with federal government funding (e.g., grants from NIH, NSF, DOD or under an SBIR program) were owned by the U.S. government and rarely out-licensed.[1] After the enactment of the Bayh-Dole Act, funding recipients, or “contractors,” were finally able to take advantage of and monetize such patent rights. The Bayh-Dole Act has been said to be responsible for developing over 10,000 startup companies and at least 200 drugs and vaccines, while contributing more than $500 billion or by some estimates, over $1 trillion, to the economy. As reported to Congress, “[o]ne of the major factors in the reported success of the Bayh-Dole Act is the certainty it conveys concerning ownership of intellectual property.”[2]

New Regulations

The new regulations will apply to all funding agreements executed after May 14, 2018. However, if a pre-existing funding agreement is amended after that date, the agency has the discretion to implement the new regulations prospectively. Accordingly, it is critical to be aware of the specific requirements of the particular funding agreement at issue.

Under the new regulations, certain times for taking actions have been shortened or eliminated, requiring adjustments in the decision-making process of funding recipients. Changes affecting time periods include:

  • If a provisional patent application (“provisional”) is filed as an initial patent application, a non-provisional application must be filed within 10 months of filing the provisional.  An “automatic” extension for one year is available but the extension must be requested and the agency has 60 days to deny it.[3]
  • Notifying the federal agency at least 60 days in advance of the statutory deadline for taking action if not continuing prosecution of an application, or defending or maintaining the patent in any country worldwide, which deadline is earlier than the current 30 days.[4]
  • Removal of the 60-day time period during which the government can request title after learning of an untimely disclosed or elected invention such that the government has the opportunity to request, at any time, title to the invention and any associated patent rights worldwide.[5]

Other changes to the regulations include:

  • A contractor now must agree to require, by written agreement, its employees to assign to the contractor their entire rights to each invention made with federal funding;[6]
  • updates to definitions such as,
    • “contractor” - to be of any size;
    • “initially filed application” - to include U.S. provisional and international (PCT) applications; and
    • “statutory period” - to be consistent with 35 U.S.C. § 102(b), under the America Invents Act;
  • clarifications of regulations when a federal employee is a co-inventor; and
  • expansion of electronic filing for reporting events.

The Government Has Taken Title - But Will It Take It Again?

Government agencies have requested title after late disclosure or election. Two published court cases illustrate the consequences of losing title and the inability to enforce a patent.[7] Moreover, certain agencies such as the Department of Energy and the National Aeronautics and Space Administration are known as “title-taking” agencies, which preserve their rights and request title immediately upon learning of a delinquent disclosure or election. 

One goal of the updated regulations was to increase reporting compliance of funding recipients. Removal of the 60-day time period for the government to request title to undisclosed or non-elected inventions may do that. However, to remove the ability of a contractor to retroactively correct such a defect in title and create a possible permanent cloud over the ownership of the associated patent rights may be an overreaction, removing that which made the Bayh-Dole Act successful – the certainty of ownership of the patent rights resulting from federally funded research and development.

Takeaways

These changes should encourage review of and timely compliance with the regulations in any funding agreement governed by the Bayh-Dole Act to ensure, in part, that ownership of patent rights is clear. 

Other suggested actions include:

  • Businesses with federal government procurement contracts, grants and cooperative agreements including SBIRs that incorporate the new regulations must 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 and election of title.
  • Meet the requirements timely for extensions and other reporting events where title can be jeopardized. Although at times difficult, complete compliance with the regulations should not provide any opportunity for the government to take title from contractors.
  • Consider requesting an extension soon after filing a provisional to keep the option of refiling it one year later available.
  • If an amendment is contemplated for an existing funding agreement, consider whether any inventions and patent applications should be disclosed to the agency or title elected. Completing such actions under the existing agreement should provide the government only 60 days to request title, after which time title would be secured by the contractor.
  • Be aware that the Bayh-Dole Act applies even if the federal government was not the sole source of funding for the invention. If federal government funding is necessary for a project, consider segregating those funds from other projects to avoid unnecessarily subjecting non-government funded projects to Bayh-Dole Act requirements and possible government ownership.

In sum, if federal government money is used to develop inventions for commercialization, knowledge of the regulations in the funding agreement 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 and assist in maintaining uninterrupted and continued funding.



[1] Before 1980, it has been estimated that only 5% of the patents resulting from federally funded research in university and research laboratories were out-licensed, and not one new drug was commercialized.

[2] Congressional Research Service Report for Congress, “The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of Technology,” by W. Schacht (December 3, 2012). Also: “With [the Bayh-Dole Act] passage, the title for inventions funded with federal government research dollars became the primary property of the institution conducting the research. While the bill was controversial at the time … The Economist in 2002 called Bayh-Dole ‘possibly the most inspired piece of legislation to be enacted in America over the past half century.’” House Small Business Committee Testimony by Bryan Lord, Vice President for Finance and Licensing and General Counsel of AmberWave Systems Corporation, Patent Issues and Small Business (March 29, 2007) (emphasis added); and “University technology transfer’s contributions to our nation were greatly enhanced by the passage of the Bayh-Dole Act in 1980, which allowed universities to retain the patent and licensing rights to inventions resulting from federally-funded research. The enactment of that landmark legislation sparked a dramatic increase in university-to-industry transfer.” Senate Small Business and Entrepreneurship Committee Testimony by Neil Veloso, Executive Director for Technology Transfer of John Hopkins Technology Ventures (February 25, 2016) (emphasis added).

[3] Thus, to avoid missing the 10-month deadline, an “automatic” extension would need to be requested at least 7 ½ months after filing a provisional to allow at least two weeks to file a non‑provisional application should the request be denied near the end of the 60-day period.

[4] The proposed regulations had the notice at least 120 days in advance, which likely contributed to the numerous comments on this proposed change and a more reasonable time prevailing.

[5] The statutory and regulatory requirements to retain ownership include: disclosing the invention to the federal agency within two months after the inventor discloses it in writing to the contractor personnel responsible for patent matters; electing title to the invention by notifying the agency in writing within two years of disclosure; and filing an initial patent application within one year after election of title as well as filing patent applications in additional countries or international patent offices within 10 months of filing the first filed patent application. Extensions of time, at the discretion of the agency, can be granted for completing these actions. However, these extensions must be requested in advance of the deadline; otherwise, the contractor faces possible noncompliance if an extension is not granted before the respective deadline. 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 a specifically formatted introductory statement of the government’s rights in the invention.

[6] 37 C.F.R. § 401.14(f)(2) (effective May 14, 2018) in response to Bd. of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S. Ct. 2188 (2011), where the Supreme Court held that title to an invention first vests in the inventor(s), despite the invention being made using federal money subject to the Bayh-Dole Act.

[7] In one such case, the Army demanded title from the contractor, Campbell Plastics, based on non-compliance 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. See Campbell Plastics Eng’g & Mfg., Inc. v. Brownlee, 389 F.3d 1243 (Fed. Cir. 2004). In another case, a defendant successfully dismissed a patent infringement 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. See L‑3 Communications Corporation v. Jaxon Engineering & Maintenance, Inc., 125 F. Supp. 3d 1155 (D. Colo. 2015).