Practical Advice Regarding Changes to Bayh-Dole Act Obligations
Research Institutions Alert 09/06/18 Stephen J. Gardner, Ameera Haider
Earlier this year, the National Institute of Standards and Technology (“NIST”) promulgated new regulations (found at 37 C.F.R. Part 401) that changed various deadlines and procedures for how the Bayh-Dole Act is implemented. The changes affected several aspects of the Bayh-Dole implementing regulations, including in relation to how and when federal grant award recipients, small businesses with SBIR funding, CRADA participants, and other contractors receiving federal funding (collectively referred to as “Contractors” in the regulations) should take title to inventions from their employees; when Contractors must disclose and elect title to inventions conceived or first actually reduced to practice (“Subject Inventions”) while performing under the federal funding; and when provisional applications must be converted. The new regulations came into effect May 14, 2018, and apply to all inventions arising under either new grants awarded after that date or existing grants that might be amended after that date.
Now that a few months have passed since the changes took effect, it is possible that new grants will start resulting in inventions that fall under these new rules, or existing grants will have been amended by the granting agency to adopt the new rule changes for inventions under those existing grants. This note sets forth some practical considerations and recommendations for how Contractors affected by the IP provisions of the Bayh-Dole Act can now begin forming internal policies and taking steps towards ensuring compliance with the new rule changes as the updated deadlines and obligations start taking effect.
Applicability of New Regulations Implementing the Bayh-Dole Act
The new rule changes promulgated by NIST apply to grants, CRADAs, SBIRs, and other contracts awarded by all federal funding agencies -- they are not unique to NIST (though NIST does have its own technology transfer function). The explanations provided by NIST in its Federal Register notice and on its NIST FAQ website are fairly clear that all new federal funding contracts, cooperative agreements, and certain other government contracts executed after May 14, 2018 must comply with the new regulation changes, as well as those preexisting contracts that agencies choose to amend to comply with the rule changes, found at 37 C.F.R. § 401 et seq. NIST's explanations have not been clear on how widespread it may be that awarding agencies will choose to amend their contracts to adopt the new rules. NIST's FAQ website on the new rule changes even takes the position that the new rules would apply to an invention that was conceived prior to a new grant award, but first reduced to practice under the new grant award -- even if a provisional had been filed prior to the new grant award. (“However, an invention which had been conceived but not actually reduced to practice by a contractor prior to commencement of a funding agreement, and which was first actually reduced to practice under that agreement, would be a “subject invention,” even if a provisional application had been filed prior to commencement.”) Thus, it will not be a straightforward, simple task for Contractors to determine whether inventions arising and patents pending during this transitional period are subject to the old or new rules.
And, from a practical standpoint (especially for larger universities and institutions), it may be administratively difficult to create an interim, ad hoc system for tracking which awards were granted after May 14th, tracking which existing awards are amended, and then implementing internal changes to effectuate the rule changes for those amended awards. Often, departments tasked with filing and licensing patent applications are organized and operate separately from departments tasked with tracking government contracts and grant awards -- thus creating even more administrative burden.
Practical Advice - Because of this, we believe it may be beneficial for some institutions to simply start treating all new invention disclosures that arise from federal funding as though the new rules apply (rather than attempting to proceed with dual systems for inventions under preexisting versus new grants, all while monitoring for amendments to existing grants). And, at the point at which a license is granted under any invention, it would be wise for both the Contractor and its licensee to review whether the appropriate rules were followed (see below) as part of their due diligence.
Timing of Filing Provisional Patent Applications
In light of the increase in provisional patent applications being filed after the America Invents Act, one of the changes NIST made relates to certain deadlines surrounding provisional applications.
One of the most significant changes was that, if a provisional application is the “initial” filing for patent protection for a Subject Invention, the grant awardee must convert the provisional application to a non-provisional (or PCT) patent application within 10 months rather than the typical 12 months allowed for non-federally funded inventions. (See 37 CFR 401.14(c)(3)). The government's logic behind this requirement is that it wants to preserve a reasonable period of time to take title to a provisional application if the Contractor does not intend to pursue the Subject Invention. However, during the comment period, several commenters noted that there may be a reasonable, strategic reason for waiting longer than 10 months to convert (e.g., abandoning, then refiling, a provisional application at a later time) and the new rule would eliminate those options. Thus, NIST also revised the regulation pertaining to extensions of time to indicate that the funding agencies will “automatically” grant one year extensions of time to convert provisional applications, unless the agency objects in writing within 60 days of a request (37 C.F.R. § 401.14(c)(5)). NIST also made clear that failure to convert a provisional application is not a ground for the government to take title to a Subject Invention (37 CFR 401.14(d)(3)).
Moreover, now that a provisional application is considered a type of “initial patent application” under the regulations, Contractors can use provisional applications as their filing that is required within one year of electing title to a Subject Invention (whereas previously, the nonprovisional application would have needed to be filed within one year of electing title). (See 37 C.F.R. § 401.14(c)(3)).
Practical Advice - Grant awardees will need to revise their docketing practices to comply with the new 10-month deadline for provisional applications. One logical approach would be to docket the 10-month deadline for conversion, instead of docketing a 12-month deadline. Then, shortly after filing the provisional, a request for extension of time could be made as a matter of course in all instances. This could be done through iEdison, for example, by an institution's technology transfer office, and in our experience the actual submission can be quite short and does not involve much effort. Then after 60 days, the institution (and its prosecuting counsel) should move the 10-month deadline to a 12-month deadline.
Proactive Assignment and Ongoing Communication with Inventors
Another aspect of the regulation changes is that Contractors must now ensure an employee is under a written obligation to presently assign any Subject Inventions for the entirety of the funding agreement period. In Stanford University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), the Supreme Court held that rights to Subject Inventions initially belong to the inventor (despite Bayh-Dole obligations and a Contractor's election of title) and must be affirmatively and presently assigned to the Contractor, or else the inventor will wind up retaining legal title to the invention. The updated regulations seek to address the Stanford holding by requiring Contractors to have researchers and employees sign agreements that presently assign their entire title and interest (even future interests) in any Subject Inventions to the Contractor. In addition, the new regulations state a Contractor must educate its inventors and researchers about the importance of reporting inventions early during the one-year grace period to qualify for patent protection and the inventor’s role to execute all papers necessary to file patent applications on Subject Inventions.
Practical Advice - While many Contractors have IP policies that generally set forth the allocation of IP ownership between researchers/inventors and the institution, those policies alone may not be enough under the new rule changes. Examples of policies that may need to be supplemented are those that use wording indicating what a researcher “will assign” to the employing Contractor, or stating that the Contractor “will own” certain categories of IP.
NIST recommends that Contractors engage counsel to ensure that their agreements and policies comply with the new rule, going so far as to state that “Contractors in fulfilling the requirements of 37 CFR 401.14(f)(2) may wish to seek counsel familiar with present assignment of future rights, addressed by the Court of Appeals for the Federal Circuit in FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991), and with the laws of their state, when crafting employment agreements or separate written agreements with their employees.” (See NIST FAQ webpage). Generally speaking the effectiveness of a contractual obligation to transfer title to an invention is a matter of state law, and thus there will not be a universal best practice for how to specifically word a policy or agreement to ensure compliance.
Government Has Unlimited Timeframe To Request Title After Reporting Failure
While performing under a funding agreement, it has long been the case under Bayh-Dole regulations that Contractors are required to disclose all Subject Inventions and must inform the granting agency whether they elect to take title to those Subject Inventions. Grant Recipients must first notify the specific government agency within two months after the inventor first discloses patentable subject matter. Next, Grant Recipients have two years after initial invention notice to elect to take title to any such invention by notifying the federal agency. (This is often done through the iEdison portal, developed by NIH). After deciding to retain title, Grant Recipients have an additional year to file a U.S. patent application on a Subject Invention. However, the rule changes do expressly contemplate that bar dates under the AIA can shorten these timeframes.
Prior to the new regulations, when a Contractor failed to disclose or elect title to a Subject Invention within the specified timeframe, the government agency had 60 days to take title itself after learning of such a failure. One of the new regulation changes, at 37 C.F.R. § 401.14(d)(1), has eliminated the former 60-day period to request title for any reporting failure. Thus, the government now has an indefinite time period to request title after a Contractor fails to meet a reporting or election deadline.
Practical Advice - This regulation change now even further emphasizes the importance for Contractors to strictly adhere to deadlines for disclosing Subject Inventions and electing title to any such inventions. The obvious solution for Contractors is to simply never miss a reporting or election deadline, but that is easier said than done and implementing this advice requires Contractors to expend the resources necessary to develop a robust and foolproof internal system. Given the practicalities of compliance balanced against the consequences of non-compliance, a failsafe mechanism is needed. One approach might be that, whenever institutions subject to Bayh-Dole first learn that a reporting or election deadline for an important invention was missed, the institution uses the provisions of 37 CFR 401.14(c)(5) to request an extension of time to cover the period from the missed deadline to the time at which the error was discovered. In almost all instances, the request would be at the discretion of the agency, however.
Notice Prior to Abandoning Non-Provisional Applications
Another change in the rules was to increase the notice period from 30 to 60 days, for certain instances in which a Contractor may wish to abandon a patent filing. 37 C.F.R. § 401.14(f)(3) now indicates that Contractors must give the funding agency 60-days' notice before doing any of the following with respect to patents pursued on Subject Inventions:
- Taking or failing to take an action that results in abandoning the prosecution of a non-provisional patent application;
- Not paying a maintenance, annuity or renewal fee;
- Declining to defend against a reexamination or opposition proceeding on a patent, in any country;
- Requesting, being a party to, or taking action in a trial proceeding before the Patent Trial and Appeals Board of the U.S. Patent and Trademark Office, including but not limited to post-grant review, review of a business method patent, inter partes review, and derivation proceeding;
- Requesting, being a party to, or taking action in a non-trial submission of art or information at the U.S. Patent and Trademark Office, including but not limited to a pre-issuance submission, a post-issuance submission, and supplemental examination.
Practical Advice - This has long been a requirement that has not garnered as high a degree of adherence by Contractors as other requirements of the Bayh-Dole regulations. However, given the rule has now been recently amended, it is possible that it may be enforced to a greater degree (though there remain comparatively few instances in which funding agencies have actually taken title to a pending patent application). Nonetheless, this is particularly an issue for responses to office actions, which already may have shortened statutory deadlines. Contractors must now make even earlier decisions with respect to whether to respond to an office action or abandon a case, in order to give the funding agency 60-days, rather than 30-days, notice.
In addition to changing various deadlines and requirements, the regulation changes reflect an increased interest in the government ensuring its funding agencies having the opportunity to preserve their interests in Subject Inventions. Whether or not the changes will actually result in agencies being more aggressive than in the past as far as formally taking title to Subject Inventions remains to be seen. However, if nothing else the changes indicate that the government expects Contractors to take a more proactive role in tracking and reporting on the progress of Subject Inventions. Therefore, Contractors should now be evaluating their internal policies and procedures to prepare for deadlines that will start arriving in the next few months under the new rules.
For more information or advice concerning any of the changes to the Bayh-Dole regulations, please contact one of our technology transactions attorneys, Steve Gardner at [email protected] / (608) 283-2476 or Ameera Haider at [email protected] / (608) 283-2440.