Journal of Legal Technology Risk Management

THIRD CIRCUIT USES PROCEDURAL GROUNDS i

JOURNAL OF LEGAL TECHNOLOGY RISK MANAGEMENT

1. THIRD CIRCUIT USES PROCEDURAL GROUNDS TO REJECT FCC’S WEAKENING OF MEDIA CROSS-OWNERSHIP RULES FOR A SECOND TIME IN PROMETHEUS RADIO PROJECT V. FCC

2. WHEN PARALLEL TRACKS CROSS: APPLICATION OF THE NEW INSIDER TRADING REGULATIONS UNDER DODD-FRANK DERAILS

3. ELECTRONIC DISCOVERY AND THE CONSTITUTION: INACCESSIBLE JUSTICE

4. RENEWING THE BAYH-DOLE ACT AS A DEFAULT RULE IN THE WAKE OF STANFORD V. ROCHE

Volume 6 | Summer 2012 | Issue 1

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Editor-in-Chief Daniel B. Garrie, Esq. (USA)

Guest Editor Kelly Merkel, Esq. (USA)

Publications Editor Candice M. Lang, Esq. (USA)

Executive Editors Matthew Armstrong, Esq. (USA) Dr. Sylvia Mercado Kierkegaard (Denmark)

Scientific Council Stephanie A. “Tess” Blair, Esq. (USA) Hon. Amir Ali Majid (UK) Hon. Maureen Duffy-Lewis (USA) Micah Lemonik (USA) Andres Guadamuz (UK ) Carlos Rohrmann, Esq. (Brazil) Camille Andrews, Esq. (USA) Gary T. Marx (USA) William Burdett (USA) Eric A. Capriloi (France) Donald P. Harris (USA) Hon. Justice Ivor Archie (Trinidad & Tobago)

Members Janet Coppins (USA) Eleni Kosta (Belgium) Dr. Paolo Balboni (Italy) Salvatore Scibetta, Esq. (USA) Ygal Saadoun (France/Egypt) Steve Williams, Esq. (USA) Rebecca Wong (United Kingdom)

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FOREWORD

In this edition, we explore seemingly disparate realms of regulation and legislation and discover shared nuances in growing concern for current legal framework in all facets of legal practice and scholarship. This edition prompts timely discussion of constitutional tenets and how malleable our Constitution may be in view of lightning-quick technological advances. This edition also pauses to consider different concepts of ownership and how linguistic alterations continually affect such concepts.

In preparing this edition of the Journal of Legal Technology Risk Management, I have been humbled by the thoughtful scholarship and writing that has consistently appeared in my in-box. At the Journal, we always welcome a broad spectrum of authors and do not discriminate on topic choice. As a result, we have been rewarded with premium submissions from students, professors, practicing lawyers, business people and others who simply have an interest in how law and technology impact our daily lives. I thank the Authors of the articles appearing in this edition - Michael Dingerdissen, Gregory Melus, Parker iv

Tresemer and Jennifer M. Smith – for elevating the discussion. I also thank every author and scholar who contributed submissions to our publication. We hope you continue your introspection and we hope you continue to share your insights with us moving forward.

As Fred Shero, the great Flyers coach, said, “Win together today and we walk together forever.” I thank the entire team who put so much time into creating this edition of the Journal: our Scientific Council and Editorial Board members who graciously gave of their time; Daniel Garrie, our Editor-in-Chief and Candice Lang, who pulled everything together seamlessly. We have created something memorable.

Kelly Merkel 26 June 2012

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RENEWING THE BAYH-DOLE ACT AS A DEFAULT RULE IN THE WAKE OF STANFORD V. ROCHE

Parker Tresemer

I. INTRODUCTION

For thirty years the Bayh-Dole Act has stimulated American innovation by guaranteeing ownership of federally funded technologies to the small businesses and universities best suited to develop them. The Supreme Court’s holding in Stanford v. Roche, however, undermines the Bayh- Dole Act’s framework and threatens to stall its continued beneficial application. In the wake of World War II and the resulting spike in American production, United States policymakers looked to universities and domestic industry to maintain the country’s status as the international leader in innovation and production.1 However, by the 1970s, the United States had begun to fall behind international competition, largely because of the federal government’s policy of retaining the patents on all federally funded technologies.2 Before the 1980s, the government was unwilling to cede patent

1 Ashley J. Stevens, The Enactment of Bayh-Dole, 29 J. TECH. TRANSFER 93, 93 (2004); Steve L. Bertha, Intellectual Property Activities in U.S. Research Universities, 36 IDEA 513, 514 (1996). 2 Stevens, supra note 1, at 93.

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rights on federally funded inventions to private industry, yet it lacked the resources to successfully commercialize those inventions.3 Without exclusive patent rights to government-funded technologies, private companies were simply unwilling to make the substantial investment required to commercialize early-stage technologies.4 While some government lawmakers believed only the federal government could properly manage federally funded technologies,5 Senators Bob Dole (R., KS) and Birch Bayh (D., IN) believed that by retaining sole rights to federally funded inventions, the government was destroying any incentive for researchers and private industry to commercialize such technologies.6 Instead, Senators Bayh and Dole sought to spark development of commercial products by putting both their faith and their patents in the hands of private industry.7

3 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Birch Bayh). 4 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole); Joseph P. Allen, A Long, Hard Journey: From Bayh-Dole to the Federal Technology Transfer Act, TOMORROW’S TECH. TRANSFER, Winter 2009, at 21, 21; Bertha, supra note 1, at 525-26; Kesan, supra note 4, at 2175. 5 Stevens, supra note 1, at 94. 6 See generally 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole). 7 See generally id.; 96 CONG. REC. S4,124 (daily ed. Apr. 23, 1980) (statement of Sen. Robert Dole); Stevens, supra note 1, at 94.

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In 1980, Congress enacted the Bayh-Dole Act to do just that.8 Simply put, the Bayh-Dole Act was intended to create a three-tiered, hierarchical system distributing intellectual property rights in federally funded inventions.9 First, the Act was intended to grant federally funded small businesses and nonprofit organizations (“federal contractors” or “contractors”) exclusive patent rights to inventions developed by their employees using federal funds.10 In return for granting contractors these exclusive rights, federally funded nonprofits were required to share royalties with their employee-inventors.11 Second, Bayh-Dole was to give the federal government the opportunity to acquire full title to federally funded inventions only if the federally funded contractor first elected not to

8 See generally 35 U.S.C. §§ 200-211 (1980). 9 See 35 U.S.C. § 202 (1980) (describing contractor’s property rights and employee-inventors’ financial rights to federally funded inventions); 35 U.S.C. § 203 (1980) (describing the government’s “march-in rights” to contractor owned inventions); Fenn v. Yale Univ., 393 F. Supp. 2d 133, 137 (2004). 10 35 U.S.C. § 202(a) (1980) (“Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to ay subject invention . . . .”); 35 U.S.C. § 201(e) (1980) (“The term 'subject invention' means any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.”). 11 35 U.S.C. § 202(c)(7)(C) (1980) (“[A] requirement that the contractor share royalties with the inventor.”).

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retain title.12 Third, the Act’s drafters intended for employee-inventors to receive title to federally funded inventions, including their own inventions, only if both their employer-contractor and the federal government elected not to retain title to the inventions.13 Although granting inventions to federally funded employers instead of the actual employee- inventors may offend our basic understanding of property and patent rights,14 the Bayh-Dole Act’s legislative history makes it very clear that this is precisely what Congress intended.15 Congress intended to unequivocally subordinate inventors’ rights to both the contractor’s and the federal government’s rights.16 Congress did so, however, for a particular purpose.17 Congress enacted Bayh-

12 35 U.S.C. § 202(c)(2) & (3) (1980). 13 35 U.S.C. § 202(d) (1980) (“If a contractor does not elect to retain title to a subject invention in cases subject to this section, the federal agency may consider and after consultation with the contractor requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.”). 14 This was, in fact, the principal reason why the Supreme Court in Stanford v. Roche held that the Bayh-Dole Act did not automatically divest inventors of the rights to their federally funded inventions. See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2198 (2011) discussed infra at Part V. 15 See infra Part III. 16 See infra Part VI.A. 17 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2201 (2011) (Breyer, J., 176

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Dole to incentivize private industry to commercialize undeveloped federally funded technologies.18 The Act’s legislative history makes it clear that Congress viewed small and nonprofit federal contractors as best suited to develop those technologies and to rejuvenate American innovation.19 However, despite Congress’s intent, on June 6, 2011 the Supreme Court ruled that the Bayh-Dole Act does not grant contractors title to federally funded inventions or authorize them to take title to their employee’s inventions.20 The Court held that because inventors have, and always have had, exclusive rights to their inventions,21 inventors must expressly grant employers their patent rights for contractors to gain title to federally funded inventions.22 The Court grounded its decision not in the Act’s legislative history, but instead in its

dissenting) (“I agree with the majority that the Act does not simply take the individual inventors’ rights and grant them to the Government.”). 18 See infra Part II.B. 19 See infra Part II. 20 Roche, 131 S.Ct. at 2197. 21 Id. at 2194 (2011). The Court quoted the Patent Act at the time stating that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefore.” Id. (quoting 35 U.S.C. § 101). 22 Id. at 2195 (citing United States v. Dubilier Condenser Corp., 289 U.S. 178, 189 (1933)).

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language. 23 According to the Supreme Court, if Congress had actually intended the Bayh-Dole Act to grant exclusive title to federal contractors, it would have said so clearly.24 Further, the court concluded that because federally funded institutions often enter into assignment agreements with their employees as a condition of employment, their decision in Stanford v. Roche wouldn’t practically effect how industry and universities acquire title to federally funded technologies.25 What the court failed to recognize, however, was that the groups the Bayh-Dole Act was designed to protect, universities and small businesses, are not always legally sophisticated and do not always employ “effective” employee assignment agreements consistent with Stanford v. Roche.26 The move from default statutory rights to contractual rights conditioned on proper drafting is significant. By shifting default ownership from federal contractors to their employees, the Supreme Court has created a situation where any federal contractor that is unaware of how to draft a proper assignment agreement can be divested of any rights in its federally funded inventions.27 This is not what Congress intended, and this is not in the

23 Id. at 2198-99. 24 Id. 25 See infra Part V.C.4. 26 See infra Part VI.B. 27 See infra Part VI.B.

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public’s best interest.28 Therefore, some minor linguistic changes should be made to the Bayh-Dole Act that clearly establish the three-tiered system for disposition of rights envisioned by its drafters and recognized by industry since its enactment.29 This Comment analyzes the Bayh-Dole Act’s legislative history, contrasts Congress’s intent with the Supreme Court’s holding in Stanford v. Roche, and recommends ways in which Congress can insure the Act’s continued success. Part II summarizes the background of declining American innovation against which the Bayh-Dole Act was enacted. Part III details the Act’s legislative history and Part IV explains how Bayh-Dole was intended to function in light of its legislative history. Part V discusses the Supreme Court’s decision in Stanford v. Roche. Finally, Part VI summarizes Congress’s policy objectives in enacting the Bayh-Dole Act, discusses how Stanford v. Roche undermines these objectives, and recommends slight linguistic changes to the Act that will ensure its continued success in stimulating American innovation.

II. BEFORE BAYH-DOLE

A. The Decline of American Innovation

By the end of World War II, the United States had established itself as the world leader in

28 See infra Parts VI.A and VI.B. 29 See infra Part VI.C.

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technological innovation.30 Partly in response to the success of scientific-military projects conducted in conjunction with U.S. universities, the federal government expanded funding for scientific research at American universities.31 Policymakers at the time sought to fund basic research in universities and national laboratories with the expectation that academics would publish their results in public scientific journals.32 Government leaders believed that industry would then invest in these foundational technologies, commercialize related products, and ensure the United States’ continued position at the forefront of technological innovation.33 However, by the 1970s, countries like Japan had begun to dominate competitively in both mature and emerging U.S. industries: electronics, automobiles, and memory chips for example.34 The Government’s plan to spur basic scientific research had succeeded, but while university researchers continued publishing their federally funded

30 Stevens, supra note 1, at 93. 31 Bertha, supra note 1, at 514. In his July 1945 report to the President, Vannemar Bush, a primary organizer of the Manhattan Project, produced a document entitled “Science, the Endless Frontier,” in which he urged the importance of Government sponsored basic research. Id. The federal government was further encouraged by the success of the Manhattan Project in developing radar technology. Id. 32 Id. 33 Id. 34 Stevens, supra note 1, at 93.

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discoveries, industry seemed unwilling to invest in commercialization without strong, exclusive rights in the underlying technologies.35 Government policy at the time mandated that the federal government take title to all inventions developed with federal funds regardless of how little or how significant an investment the federal government had made in the research.36 As a result, inventors and research institutions had very little motivation to patent their federally funded inventions.37 As government policy dictated, the federal government owned and managed the few patents secured on federally funded inventions,38 but it

35 Kesan, supra note 4, at 2171. During the 1960s and 1970s, industrial sponsorship in university research constituted only two to four percent of total funding. 36 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole). For example, in 1965, the federal government sued the University of Wisconsin for title to an anti-cancer medication, 5-fluororacil, developed at the university. Stevens, supra note 1, at 94. A secretarial error at the university had attributed $120 of reagents to a federal grant, while a private pharmaceutical developer exclusively funded the remainder of the project. Id. Yet, the federal government was able to completely divest both the inventors and the pharmaceutical company of any rights in their invention. Id. 37 Bertha, supra note 1, at 525-26. 38 The Bayh-Dole Act, a Review of Patent Issues in federally Funded Research: Hearing on Pub. L. 96-517 Before the S. Comm. on Patents, Copyrights and Trademarks of the Comm. on the Judiciary, 103rd Cong. 13 (1994) [hereinafter Hearings] (statement of Sen. Birch Bayh); Bertha, supra note 1, at 525-26.

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offered only non-exclusive licenses on patented inventions to private companies who wished to commercialize the technologies.39 These nonexclusive licenses were administered by various federal agencies according to complex bureaucratic procedures and regulations,40 and no uniform policy governing intellectual property rights to federally funded inventions existed at the time.41 More than twenty different policies on patents and licensing were in use across the various federal funding agencies, and many of these agencies’ policies conflicted with one another.42 As a result, research universities and small companies found it exceedingly difficult to obtain even non-exclusive licenses to government owned patents.43

39 Hearings, supra note 38, at 13. Policymakers at the time believed that any economic or commercial rewards derived from federally funded research and development should inure to the federal government on behalf of the taxpayers. Id. Policymakers further believed that granting exclusive rights to non-government entities, including universities and small companies, would improperly divert financial benefit from taxpayers to organizations concerned only with personal profit. Id. 40 Bertha, supra note 1, at 525-26. 41 Kesan, supra note 4, at 2175. 42 Allen, supra note 4, at 21. Under many of these policies, universities and federal contractors whose inventions were requisitioned by the federal government could petition for patent rights or licenses, but these procedures often took between eighteen and twenty-four months and did not guarantee the government would comply. Id. at 21-22. 43 Hearings, supra note 38, at 17 (statement of Sen. Robert Dole).

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Uncertainty of title and bureaucratic delays hindered technology transfer to industry and made commercialization all but impossible.44 Research and development were often prohibitively expensive,45 but despite their extreme costs, R&D alone only accounted for an estimated twenty-five percent of the costs necessary to fully commercialize a new product.46 Total development costs routinely exceeded federally contributed funds by at least ten to one.47 Without exclusive rights to a technology, either in the form of patent rights or an exclusive license, companies were unwilling to invest the significant capital required to develop early-stage technologies into commercially viable products.48 In the 1970’s, Congress came to the stark realization that the U.S.’s role as the world leader in innovation had been supplanted by Europe and Japan.49 The federal government’s investment in research and development failed to increase in the decade preceding introduction of the Bayh-Dole

44 Allen, supra note 4, at 22; Bertha, supra note 1, at 514. 45 Hearings, supra note 38, at 17 (statement of Sen. Robert Dole). 46 Id. 47 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Birch Bayh). 48 Hearings, supra note 38, at 17 (statement of Sen. Robert Dole). 49 Id. at 12 (statement of Sen. Birch Bayh).

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Act,50 and the number of patentable innovations produced with federal funding declined steadily.51 Growth in American productivity slowed, and it became clear that American efforts at innovation and commercialization under the current model simply were not working.52 If the U.S. Government was spending more than $75 billion per year in Government sponsored research and development, why were we lagging so far behind?53 Senator Birch Bayh (D., IN) answered this question quite succinctly:

50 Bradley Graham, Something’s Happened to Yankee Ingenuity, WASH. POST, Sept. 3, 1978. “From 1953 to 1966, U.S. investment in research grew at an impressive rate of 10 percent annually in inflation-adjusted dollars. However, investment in research by all sectors in the U.S. over the past 10 years has shown essentially no growth in constant dollars.” Id. 51 Hearings, supra note 38, at 12 (statement of Sen. Birch Bayh). According to one source at the time, “U.S. inventions reached a peak in 1971 and has declined steadily since. But the number granted to foreign investors has increased steadily since 1963. In 1977, foreigners claimed 35 percent of all patents issued in the U.S. across a broad range of fields.” Graham, supra note 50. 52 Hearings, supra note 38, at 12 (statement of Sen. Birch Bayh). In 1978, the Washington Post reported the “[p]roductivity, which is party a function of technological innovation, has slumped severely. In the [1970s], the rate of growth in U.S. productivity has averaged only half of what it was the previous 20 years. In contrast, productivity growth rates in Europe and Japan has been on the rise.” Graham, supra note 50. 53 Stevens, supra note 1, at 94.

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Hundreds of valuable medical, energy, and other technological discoveries [were] sitting unused under Government control, because the Government, which sponsored the research that led to the discoveries, lack[ed] the resources necessary for development and marketing purposes, yet [was] unwilling to relinquish patent rights that would encourage and stimulate private industry to develop discoveries into products available to the public.54 In other words, the U.S. was spending enough in all the right places, but it wasn’t allowing foundational discoveries to mature into marketable products. With universities and small companies unwilling to risk investing in technologies to which they did not have exclusive rights, technology transfer to industry simply did not happen.55 Of the 28,000 inventions to which the federal government held title prior to 1980, less than five percent were licensed and less than four percent were ever commercialized.56 It became clear that without participation by universities and the private sector,

54 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Birch Bayh). 55 Hearings, supra note 38, at 18 (statement of Sen. Robert Dole). 56 Hearings, supra note 38, at 13 (statement of Sen. Birch Bayh); id. at 17 (statement of Sen. Robert Dole).

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American taxpayers would be deprived of the benefit of federally funded research.57 B. Competing Solutions to America’s Innovation Problem

Two competing ideologies developed as solutions to America’s innovation problem.58 Senator Adlai Stevenson (D., IL) and the Carter Administration, argued hat nationwide productivity and innovation could only be sparked through a strong central government that owned and managed the products of federally funded research.59 Supporters of the Carter model believed that federal funding for research came directly from taxpayers’ pockets, and therefore, the public had an equitable claim to the inventions for which it paid.60 Only by retaining title itself, on behalf of the public, could the government properly protect the taxpayers’ investment.61 By granting title or exclusive licenses on federally funded inventions to private companies, the Government would be misappropriating the public’s investment and

57 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole). 58 Stevens, supra note 1, at 94. 59 Stevens, supra note 1, at 94. 60 Rebecca S. Eisenberg, Public Research and Private Development: Patents and Technology Transfer in Government-Sponsored Research, 82 VA. L. REV. 1663, 1673- 74 (1996). 61 Id.

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subsidizing a private monopoly.62 Further, granting exclusive rights to private companies would force taxpayers to pay twice for goods to which they had basic equitable rights: first for research and development and second for goods at monopoly prices.63 Senator Bob Dole (R., KS) and Senator Bayh, however, believed that Senator Stevenson’s government-centric approach was in fact stifling innovation, not fueling it.64 Senators Bayh and Dole believed that the solution to America’s flagging competitiveness lay with private industry and the free market.65 Senator Dole “urged a

62 96 CONG. REC. S4,123 (daily ed. Apr.. 23, 1980) (statement of Sen. Russell Long) 63 96 CONG. REC. S4,123 (daily ed. Apr.. 23, 1980) (statement of Sen. Russell Long) 64 See generally 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole). For example, in a 1994 report to the Senate Subcommittee on Patents, Copyrights and Trademarks, Senator Bayh stated that the Carter Administration’s “policy was not only wasting tax dollars, but it had a very negative impact on U.S. technological innovations and undercut American competitiveness.” Hearings, supra note 38, at 13 (statement of Sen. Birch Bayh). Similarly, in a 1978 floor debate regarding the Bayh-Dole Act, Senator Dole stated that the Carter Administration’s “attitude will not encourage startups of new small businesses, nor will it enhance economic growth, nor increase employment, nor trade competitiveness, nor solve our energy shortage.” 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole). 65 See generally 95 CONG. REC. S15,034 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole).

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‘reduction in Government interference’ so that the ‘American economic system [is] given a chance to work.’”66 Specifically, the Senators proposed that the federal government simply provide industry with incentives to invest in commercialization and then get out of the way, allowing universities and private industry to take their intellectual property rights and run with them.67

III. LEGISLATIVE HISTORY OF THE BAYH-DOLE ACT

The Bayh-Dole Act was designed to give research institutions and small companies the commercial incentives they required to invest in federally funded technologies.68 The Act was a collaborative, bipartisan effort to spark innovation and restore the United States to its post-World War II position as the world’s industrial leader.69 Various sponsors introduced three major bills during the Bayh-Dole Act’s legislative history: S.

66 96 CONG. REC. S4,124 (daily ed. Apr.. 23, 1980) (statement of Sen. Robert Dole) 67 Stevens, supra note 1, at 94. 68 See infra Part VI.A. 69 It is interesting to note that from its inception, the Bayh- Dole Act was a model of bipartisan collaboration. Even at the first, Senator Dole (R., KS) introduced his bill on behalf of Senators Bayh (D., IN), Case (R., NJ), DeConcini (D., AZ), Domencini (R., NM), Hatch (R., UT), Hatfield (R., OR), Garn (R., UT), Mathias (R., MD), Metzenbaum (D., OH), and Hatfield (R., OR).

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3496,70 S. 414,71 and H.R. 6933.72 Although the Act as first introduced was ambiguous and difficult to follow, each bill introduced during the Act’s legislative history more clearly identified Congress’s intent to create a three-tiered system of intellectual property rights: 1) federal contractors, 2) the federal government, and 3) inventors. As enacted, the Bayh-Dole Act established a clear roadmap distributing rights under federally funded research contracts.73

A. S. 3496

On September 13, 1978, Senator Dole introduced to the Senate the first iteration of what would become the Bayh-Dole Act as S. 3496.74 The bill’s statutory provisions were often confusing and required significant speculation to draw forth Congress’s intent.75 Statements from the bill’s sponsors, however, help to shed light on its drafters’ intent to confer rights to federally funded inventions on federal contractors.76

70 See generally S. 3496, 95th Cong. (1978). 71 See generally S. 414, 96th Cong. (1979). 72 See generally H.R. 6933, 96th Cong. (1980). 73 See infra Part IV. 74 See generally S. 3496, 95th Cong. (1978). 75 See infra Part III.A.1. 76 See infra Part III.A.2.

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1. Statutory Provisions

The bill’s provisions distributing intellectual property rights used often contradictory and ambiguous terms (e.g. subject inventor, contractor, inventor) to describe the various stakeholders to federally funded research. The majority of the bill’s face, therefore, sheds very little light on whether or not Congress intended to vest title in employee- inventors, employer-contractors, or both. a) Policy and Objective

Unlike the remainder of the bill, S. 3496’s policy and objectives section indicates Congress’s intent to confer title to federally funded inventions on either federal contractors or their funding agencies. From introduction of S. 3496 through enactment of the Bayh-Dole Act, the Act’s policy and objectives section remained markedly unchanged and failed to mention any rights in employee-inventors. The bill’s policy and objective section read as follows: SEC. 200. POLICY AND OBJECTIVE.—It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development by nonprofit organizations and small business firms; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote

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collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area.77 Congress’s failure to mention inventors in the bill’s purpose section suggests that Congress simply did not intend for employee-inventors to retain ownership rights to federally funded inventions. Critics may argue that failure to mention individual inventors in the Act’s policy section does not indicate Congress’s intent to exclude employee- inventors from rights in federally funded inventions. Perhaps Congress did not view employee-inventors as distinct from their contractor employers. Or maybe Congress viewed employee-inventors’ intellectual property rights as so fundamental to

77 S. 3496, 95th Cong. § 200 (1978).

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make explicit mention unnecessary. The canon of statutory interpretation “in pari materia” requires that when a statute is ambiguous, its meaning may be determined in light of other statutes on the same subject matter.78 Like the Supreme Court posits in Stanford v. Roche, vesting full title to inventions not in the inventors themselves but in the inventors’ employers would seem contradictory to the basic tenants of United States patent law.79 Simply put, critics would argue that individual inventors always have, and will continue to, retain sole title to their own inventions.80 The canon of statutory interpretation “expressio unius est exclusio alterius,” however, provides that a statute’s express mention of one thing excludes all others.81 Throughout its legislative history, the bill’s purpose explicitly references “nonprofit organizations,” “small business firms,” “commercial concerns,”

78 Erienbaugh v. United States, 409 U.S. 239, 243 (1972) (“The rule of in pari materia-like any canon of statutory construction-is a reflection of practical experience in the interpretation of statutes: a legislative body generally uses a particular word with a consistent meaning in a given context.”). 79 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2198 (2011); see infra Part V.C.3. 80 Id.; see infra Part V.C.3. 81 United States v. Wells Fargo Bank, 485 U.S. 351, 357 (1988) (describing “the rule ‘expressio unius est exclusio alterius’ as meaning that “the expression of one is the exclusion of others.”).

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“universities,” the “United States,” and the “Government.”82 The purpose section does not, however, mention individual inventors.83 Congress did not intend for employee-inventors to retain intellectual property rights in inventions developed using federal funding.

b) Definitions

In stark contrast to its purpose section, the bill’s definitions section used ambiguous terminology and could reasonably have been read to confer intellectual property rights on employee- inventors as well as federally funded employer- contractors. For example, in Section 201(b), the bill defined a “funding agreement” as any agreement “entered into between any federal agency and any person for the performance of . . . research work funded in whole or in part by the federal government.”84 In addition, such funding agreements included “any assignment, substitution of parties, or subcontract of any type entered into for . . . research work under a funding agreement.”85 Then in Section 201(c), the bill defined a “subject inventor” as “any person that is a party to funding agreement.”86

82 S. 3496, 95th Cong. § 200 (1978). 83 See id. 84 Id. § 201(b) (emphasis added). 85 Id. (emphasis added). 86 Id. (emphasis added).

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A plain reading of this language indicates no reason why an individual inventor, as opposed to a research university that employs that inventor, could not have been labeled a subject inventor.87 Even if the inventor did not personally have a contract, grant, or cooperative agreement with any federal agency, so long as the research university did have such an agreement and the inventor had a subcontract with that university, the employee- inventor would likely be considered a party to a funding agreement under Section 201(b). As a party to a funding agreement, then, the employee- inventor likely would have been considered a subject inventor. c) Disposition of Rights

Due largely to the bill’s failure to draw any meaningful distinction between “subject inventors” and inventors in general, S. 3496 Section 202 on disposition of rights to inventions developed under funding agreements was borderline unworkable.88

87 For clarity, the full text of Sections 201(b) and (c) are reproduced here. Section 201(b) states that the “term ‘funding agreement’ means any contract, grant, or cooperative agreement entered into between any federal agency and any person for the performance of experimental, developmental, or research work funded in whole or in part by the federal government, such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.” Id. Section 201(c) states that the “term ‘subject inventor’ means any person that is a party to funding agreement.” Id. § 201(c). 88 See generally Id. § 202.

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Section 202(a) stated that “[e]ach nonprofit organization or small business firm may, within a reasonable time, elect to retain title to any subject invention.”89 Section 202(b), however, stated that the “subject inventor shall disclose . . . the subject matter of the subject invention . . . and whether the subject inventor intends to retain title . . . or to relinquish title to the Government.”90 In short, Section 202(a) would have conferred rights on small business firms and nonprofit organizations while Section 202(b) would have conferred the same rights on subject inventors. The bill’s definition of small business firms/nonprofit organizations versus subject inventors thus became crucial to understanding the statute’s mechanics. It is unclear from the face of the statute whether Congress intended for subject inventors and small business firms/nonprofit organizations to retain different rights or identical rights in federally funded inventions or whether Congress even intended them to be considered distinct parties. Depending on Congress’s intent, S. 3496 could have operated in any one of three ways depending on these terms’ definitions. First, Congress’s use of inconsistent terms (e.g. small business firms vs. subject inventors) could be construed to indicate the existence of two

89 Id. § 202(a). 90 Id. § 202(b). Note that in addition to electing to retain title, a “subject inventor” was required to file the patent applications on the subject inventions to which it intended to retain title. Id.

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distinct parties. However, if either distinct party were vested with exclusive title, Section 202 would cease to function. The bill conferred title to both subject inventors and small businesses/nonprofit organizations, and conferring exclusive title to two distinct parties simply would not work. According to the canons of statutory interpretation, the bill must be construed to make it effective and operative.91 Therefore, Congress’s intent to grant exclusive rights to two distinct parties seems unlikely. Second, even interpreting the statute to consider small business firms and subject inventors to be distinct parties, Section 202 on the disposition of rights could have vested at least some intellectual property rights in both parties concurrently. However, as discussed, the bill’s policy and objectives section read in light of congressional floor statements make this option unlikely.92 The weight of the Bayh-Dole’s legislative history drives towards exclusive rights and certainty of title.93 Finally, Congress may have intended for the terms small business firms/nonprofit organizations and subject inventors to be interchangeable, i.e., to refer

91 Hibbs v. Winn, 542 U.S. 88, 101 (2008) (“A statute should be construed [to give effect] to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.”); Troy Iron and Nail Factory v. Corning, 55 U.S. 193, 204 (1852) (“[W]hen a clause is capable of two significations, it should be understood in that in which it will have some operation, rather than in that which it will have none, ‘ut res magis valeat quam pereat.’”). 92 See supra Part III.A.1.a). 93 See infra Part VI.A.2.

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to the same party. Although the canons of statutory interpretation generally require Congress’s use of distinct terms to indicate its intention to identify distinct parties, this option seems unlikely here. Congress explicitly stated that “each small business firm or nonprofit organization may, within a reasonable time, elect to retain title to any subject invention.” There is nothing ambiguous about that. The plain meaning of “small business firm or nonprofit organization” is clear, and it is the Court’s role to give effect to this plain meaning irrespective of its implications.94 Despite S. 3496’s later subsection requiring “subject inventors” to submit their requests to retain title to subject inventions, the term “subject inventor” has no unambiguous plain meaning. The Senate could easily have written the following: “each subject inventor may, within a reasonable time, elect to retain title to any subject invention.” Use of the term “subject inventor” would quite possibly have allowed employee- inventors to retain title to subject inventions. Instead, the Senate chose to explicitly refer only to nonprofit organizations or small business firms to retain title to subject inventions.95 In this case, the

94 Caminetti v. United States, 242 U.S. 470, 485 (1917) (“It is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain . . . the sole function of the courts is to enforce it according to its terms."). 95 For clarity, I reproduce the pertinent test from Section 202 here: “SEC. 202. DISPOSITION OF RIGHTS.—(a) Each nonprofit organization or small business firm may, within a reasonable time, elect to retain title to any subject invention . . . .” S. 3496, 95th Cong. § 202(a) (1978).

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unambiguous reference to small business firms and nonprofit organizations must be read to define the term subject inventor. The bill’s stated purpose to protect the rights of small business firms and nonprofit organizations and to facilitate their commercialization of federally funded technologies further bolsters this interpretation.96 When read as a whole, the bill clearly evinces Congress’s intent to vest sole title in small business firms and nonprofit organizations, not some as-yet-undefined inventor. Section 202(c), which remained markedly unchanged throughout the Act’s legislative history, underscored the distinction between inventor and small business/nonprofit rights. While some subsections under Section 202(c) contain ambiguous use of the term “subject inventor,”97 Sections 202(c)(7)(c) and 202(c)(8) contain unequivocal language that suggests a distinction between subject inventors and the typical employee- inventor.98 Section 202(c)(7)(c) established a requirement that any royalties paid to the “subject inventor” in excess of “expenses (including any payments to inventors)” be used in the furtherance

96 See supra Part III.A.1.a). 97 For example, Section 202(c) requires that each “funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate . . . [t]he right of the federal government . . . to receive title to any subject invention in which the subject inventor does not elect to retain rights.” S. 3496, 95th Cong. § 202(c)(3) (1978) (emphasis added). 98 See generally id. § 202(c)(7)(c) & (c)(8).

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of science.99 In addition, Section 202(c)(8) warrants quotation in full: “If a subject inventor does not elect to retain title to a subject invention in cases subject to this chapter, the federal agency may consider and grant requests for retention of rights by the inventor subject to the provisions of this act and regulations promulgated hereunder.”100 If subject inventors were intended to include individual inventors, this provision would simply fall apart. Despite the confusion between subject inventors, contractors, and employee-inventors that runs throughout S. 3496, Sections 202(c)(7)(c) and (c)(8) seemed to speak clearly to the distinction between subject inventors and ordinary employee-inventors. d) March-In Rights

Like S. 3496’s provisions on disposition of rights, the bill’s Section 203 on government “march-in rights” suffered from a similar use of inconsistent terminology. Section 203 stated that “[w]ith respect to any subject invention in which a small business firm or nonprofit organization has acquired title . . . the Federal agency . . . shall have the right . . . to require the subject inventor, an assignee or exclusive licensee . . . to grant a [license]” to certain applicants.101 The section then stated that “if the contractor, assignee, or exclusive licensee refuses such request,” then the federal

99 Id. § 202(c)(7)(c). 100 Id. § 202(c)(8). 101 Id. § 203 (emphasis added).

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agency could grant a license itself.102 It is difficult to discern any meaningful distinction between the party names as used in the bill. This ambiguity alone may suggest that the bill’s drafters did not contemplate a distinction between small business firms, nonprofit organizations, subject inventors, and contractors. Perhaps for purposes of S. 3496 they were one in the same.

2. Sponsor Remarks

While floor statements made surrounding S. 3496’s introduction were geared more towards the bill’s broader purpose then any specific disposition of intellectual property rights, particular Senators’ statements began to confirm that the bill was intended to confer sole title on employer-contractors whether referred to as subject inventors or small business firms/nonprofit organizations. For example, in a September 13th, 1978 Senate debate on S. 3496, Senator Dole stressed that the Government’s policy of taking title to all inventions developed using federal funds “discourages participation by the private sector, with the end result being that the innovation will never be brought to the marketplace for use by the public.”103 Senator Dole admitted that, “[a]lthough patents may be but a small factor in establishing meaningful private-public collaborations, it does provide an

102 Id. (emphasis added). 103 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole).

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opportunity for the Government and private sectors to display mutual trust and willingness to work together on common problems.”104 By “provid[ing] to universities, nonprofit organizations, and small businesses patent rights to inventions they have made with Government grant and contract support,” the bill “provide[s] the incentives necessary to unleash the creative energies of the private sector.”105 Similarly, in an October 14, 1978 debate, Senator Bayh reiterated that the purpose of the bill was to “allow universities, small businesses, and non-profit institutions to retain patent rights on these inventions” and to “protect the legitimate rights of the Government to enjoy the benefits of research that is has helped to support.”106 These statements, like S. 3496 itself, fail even to mention any inventors’ property rights. S. 3496’s statutory provisions, Congressional reports, and sponsor remarks all clearly indicate it’s drafters’ intent to confer patent rights to federally funded inventions on employer-contractors, not their employee- inventors.

B. S. 414

On February 9, 1979, Senator Bayh introduced S. 414 to the Senate for consideration.107

104 Id. 105 Id. 106 95 CONG. REC. S19,325 (daily ed. Oct. 14, 1978) (statement of Sen. Birch Bayh). 107 See generally S. 414, 96th Cong. (1979).

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1. Statutory Provisions

S. 414 made only a few amendments to S. 3496, but these amendments were critical to drawing the distinction between federal contractors, who were granted full title to federally funded inventions under the bill, and individual inventors, who the bill’s drafters intended to receive only royalties from their inventions’ commercial success. The changes made from S. 3496 to S. 414 are particularly important in clarifying Congress’s intent because S. 414’s provisions remained almost unchanged through enactment of the Bayh-Dole Act.108

a) Definitions

S. 414’s policy and objective section was essentially the same as S. 3496,109 and its definitions were nearly identical except for one significant change.110 S. 414 replaced the term “subject inventor” with the term “contractor.”111 A contractor was defined as “any person that is party to a funding agreement,” the same definition of

108 Compare S. 3496, 95th Cong. § 200 (1978), with, S. 414, 96th Cong. § 200 (1979). 109 Compare S. 3496, 95th Cong. § 200 (1978), with, 35 U.S.C. §§ 200-211 (1980). 110 Compare S. 3496, 95th Cong. § 201 (1978), with, S. 414, 96th Cong. § 201 (1979). 111 S. 414, 96th Cong. § 201(c) (1979).

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subject inventor under S. 3496.112 The bill’s definition of a funding agreement also remained the same and still allowed any “person” to be party to a funding agreement.113 The shift from subject inventor to contractor may have seemed like pure semantics at this point, but the bill’s drafters made an affirmative choice to abandon the term subject inventor and commit to the term contractor. It can be presumed that they made this shift, at least in part, to dispel the understandable confusion between subject inventors and employee-inventors.

b) Disposition of Rights

After insertion of the term contractor, it became clear that S. 414 was intended to grant exclusive title to federally funded inventions to universities, small business firms, and nonprofit organizations, not to inventors. After this terminology shift, the bill required contractors instead of subject inventors to disclose their intent to retain title to inventions.114 The bill also required

112 Compare S. 3496, 95th Cong. § 201(c) (1978) with S. 414, 96th Cong. § 201(c) (1979). 113 Section 201(b) states in part that the “term ‘funding agreement’ means any [agreement] between any federal agency and any person for . . . research work funded in whole or in part by the federal government.” S. 414, 96th Cong. § 201(b) (1979). Like S. 3496, funding agreements still included “any assignment, substitution of parties, or subcontract” for purposes of research. Id. 114 Compare Id. § 202(c)(1) (1979) with S. 3496, 95th Cong. § 202(b) (1978).

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contractors, not subject inventors, to donate to science the remainder of royalties earned after making payments to inventors.115 A simple semantic swap, subject inventors out and contractors in, instantly clarified the distinction between employer-contractors (e.g. research universities) and employee-inventors (e.g. researchers as individuals). Two specific provisions in S. 414 further solidified this distinction. First, S. 414 contained an entirely new subsection simply stating the “requirement that the contractor share royalties with the inventor.”116 Second, Section 202(d) provided that federal agencies could consider granting rights to inventors only “after consultation with the contractor” and only “if a contractor does not elect to retain title to a subject invention.”117 Again, according to the canons of statutory interpretation, the bill must be construed to make it effective and operative.118 If employee-inventors were considered contractors under the bill, Section

115 Compare S. 414, 96th Cong. § 202(c)(7)(d) (1979) with S. 3496, 95th Cong. § 202(c)(7)(c) (1978). 116 S. 414, 96th Cong. § 202(c)(7)(c) (1979). 117 Id. § 202(d) (emphasis added). 118 Hibbs v. Winn, 542 U.S. 88, 101 (2008) (“A statute should be construed [to give effect] to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.”); Troy Iron and Nail Factory v. Corning, 55 U.S. 193, 204 (1852) (“[W]hen a clause is capable of two significations, it should be understood in that in which it will have some operation, rather than in that which it will have none, ‘ut res magis valeat quam pereat.’”).

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202(d) would become superfluous and unworkable. Granting rights to inventors only after consulting with the same inventors simply does not make sense. Once the bill’s drafters chose to replace the term subject inventors with contractors, the bill’s distribution of rights became significantly clearer. Congress considered research institutions (i.e. contractors) and their employee-inventors (i.e. inventors) to be distinct parties to funding agreements and intended to subordinate employee- inventors’ rights under a funding agreement to the contractors’ rights to any resulting inventions.

c) March-In Rights

Curiously, S. 414’s shift from “subject inventor” to “contractor” was not applied to Section 203 on government march-in rights.119 S. 414’s provision on march-in rights remained identical to the corresponding provision under S. 3496.120 The Senate’s continued use of “small business firm or nonprofit organization,” “subject inventor,” and even “contractor” within the same section made the provision on government march-in rights largely unworkable.121 Some may argue that the Senate’s continued use of all three terms indicated the drafters’ intent to confer rights on these groups as distinct parties. However, introduction of the Act’s

119 See generally S. 414, 96th Cong. § 203 (1979). 120 Compare S. 3496, 95th Cong. § 203 (1978), with, S. 414, 96th Cong. § 203 (1979). 121 S. 414, 96th Cong. § 203 (1979).

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final iteration, H.R. 6933, would clarify the confusing terminology that remained in Section 203 and align the section with Congress’s prevailing intent to vest sole title to federally funded inventions in federal contractors.122

2. Report of the Committee on the Judiciary

On December 12, 1979, the Senate Committee on the Judiciary issued a report on S. 414 (“1979 Senate Judiciary Report on S. 414”) that unambiguously confirmed Congress’s intent to automatically vest sole title to federally funded inventions in their employer-contractors.123 In the Report, the Committee highlighted the United States’ flagging innovation and productivity compared to international competition.124 The Committee noted that although investment in research and development increased during the 1970s, America’s productivity failed to grow accordingly.125 The report specifically identified small businesses as being crucial to technological innovation, and thus questioned why small businesses received a “distressingly low percentage” of federal funding and a declining number of patents on their inventions.126 The

122 See infra Part III.C.1.a). 123 See generally S. REP. NO. 96-480 (1979). 124 Id. 125 Id. 126 Id. at 1-2.

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Report stated clearly that the “private sector simply needs more protection for the time and effort needed to develop and commercialize new products than is afforded by a nonexclusive license.”127 The 1979 Senate Judiciary Report on S. 414 then discussed the Comptroller General’s summary of previous attempts to revise Government patent policies and President Carter’s recent domestic policy review.128 First, the Committee on Government Patent Policy, which included representatives from most of the federal research and development agencies, found that patent legislation was required to clarify allocation of rights to “contractor inventions.”129 Second, a Draft Report on Patent Policy issued by the Advisory Subcommittee on Patent and Information Policy of the Advisory committee on Industrial Innovation recommended granting patent rights on federally funded research to the private sector.130 More specifically, the Advisory Subcommittee recommended that patents “go to the university or private contractor.”131 Third, a bipartisan Commission on Government Procurement, which included members from the Senate, House, Executive Branch agencies, and private industry,

127 Id. at 2. 128 See generally id. at 16-17. 129 Id. at 17. 130 Id. at 18-19. 131 Id.

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was created to review government patent policy.132 In a December 1972 report, the Commission highlighted the importance of stimulating commercialization of inventions by taking advantage of the fact that “development will be promoted by those having an exclusive interest.”133 The 1979 Senate Judiciary Report on S. 414 then discussed how patent policies at the time affected university research and development.134 The Report stated that the delay and confusion associated with ownership of inventions made by federally funded universities, nonprofit organizations, and small businesses before S. 414 were unacceptable.135 S. 414, the Report concluded, would end the uncertainty of ownership.136 More specifically, the Report posited that Section 202(d) provided federal agencies with the authority to confer patent rights on individual employee-inventors only “in cases when contractors do not elect rights.”137 By granting full title to federal contractors, the uncertainty of title stifling commercialization and innovation would be eliminated.

132 Id. at 16. 133 Id. at 16. 134 See generally Id. at 19-22. 135 Id. at 21. 136 Id. at 22. 137 Id. at 33; see S. 414, 96th Cong. § 202(d) (1979).

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3. Sponsor Remarks

Several Senators’ recorded statements in support of S. 414 confirm the 1979 Senate Judiciary Report on S. 414’s findings and indicate Congress’s clear intent for the Bayh-Dole Act to vest exclusive title to federally funded inventions in research institutions, not in employee-inventors. In a February 9, 1979 Senate debate on S. 414, Senator Dole stated that Congress “must use all possible incentives, including exclusive rights, in order to increase the flow of technology from the Government R. & D. programs into the commercial sector and the consumer.”138 First, Senator Dole cited the results of an ambitious 1965 empirical study conducted by the Committee on Government Patent Policy, operating as the Federal Council for Science and Technology (“The Harbridge House Reports”).139 The Harbridge House Reports compiled data on over 2,000 patents originating from federally funded research to judge the success of transferring government funded inventions to the private sector for commercialization.140 In its reports, the Committee emphasized the importance

138 96 CONG. REC. S1,448 (daily ed. Feb. 09, 1979) (emphasis added) (statement of Sen. Robert Dole). 139 Id.; see generally U.S. H.R., Comm. on Science and Technology, BACKGROUND MATERIALS ON GOVERNMENT PATENT POLICIES, Vol. II (August 1976), at 69-140. 140 F.M. SCHERER, THE POLITICAL ECONOMY OF PATENT POLICY REFORM IN THE UNITED STATES, FACULTY RESEARCH WORKING PAPERS SERIES 13-14 (2007).

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of granting contractors exclusive patent rights to stimulate commercial utilization and broaden the government’s potential contractor base.141 Second, Senator Dole relied on a 1979 study conducted for President Carter that unequivocally recommended that to maximize commercialization of federally funded inventions, universities and small businesses should retain full title to federally funded inventions.142 In his February 9, 1979 statement, Senator Dole emphasized that the Bayh-Dole Act was designed to go “a long way in meeting [President Carter’s] objectives,” or more specifically to grant federal contractors exclusive rights to inventions funded by the public.143 In a February 6, 1980 statement before the Senate, Senator Harrison Schmitt (R., NM) compared S. 414 to his own bill, the Science and Technology Research and Development Utilization Policy Act (“S. 1215”). Senator Schmitt recognized

141 Id. at 14. The Harbridge House Reports, for example, found that for contractors with prior commercial experience in the relevant field, granting exclusive patent rights in the underlying government inventions increased the commercial utilization rate from 13.3% without exclusive rights to 23.8% with exclusive rights. Id. at 16. 142 96 CONG. REC. S1,448 (daily ed. Feb. 09, 1979) (statement of Sen. Robert Dole). 143 Id. (“A committee appointed by President Carter to study the problems of U.S. industry has recently released the results of its study. Their recommendation is that title be with the contractor.”). See also JENIFER A. HENDERSON & JOHN J. SMITH, ACADEMIA, INDUSTRY, AND THE BAYH-DOLE ACT: AN IMPLIED DUTY TO COMMERCIALIZE 2-3 (Oct. 2002).

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that the two bills’ purposes were similar and that four days of hearings on S. 1215 before the Senate Commerce Committee yielded “overwhelming [evidence] in support of a uniform government patent policy that placed title in the hands of the contractor, subject to appropriate safeguards of the public interest.”144 The Senator identified these safeguards not as granting any sort of property interest to inventors, but instead as providing some collateral rights to the federal government.145 More specifically, Senator Schmitt identified Section 202(a) permitting the government, not inventors, to retain title to federally funded inventions in “exceptional circumstances” when necessary to effectuate the act’s purpose.146 In addition, he identified the government’s march-in rights under Section 203, which allow the Government to require contactors to license technologies if contractors fail to develop the inventions themselves.147 Like the bill’s supporters before him, Senator Schmitt made no mention of employee-inventors’ rights.148 Senator Russell Long (D., LA), one of S. 414’s staunchest opponents, also clearly indicated

144 96 CONG. REC. S1,032 (daily ed. Feb. 06, 1980) (statement of Sen. Harrison Schmitt). 145 Id. 146 Id.; see S. 414, 96th Cong. § 202(a) (1979). 147 96 CONG. REC. S1,032 (daily ed. Feb. 06, 1980) (statement of Sen. Harrison Schmitt); see S. 414, 96th Cong. § 203 (1979). 148 See generally 96 CONG. REC. S1,027-45 (daily ed. Feb. 06, 1980).

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the Senate’s intention to vest sole title to federal funded inventions in contractors. In his February 6, 1980 statement before the Senate, Senator Long criticized S. 414 as a “patent giveaway bill.”149 The Senator summarized S. 414 as saying, “Oh, no, the man that really invented it can’t have it [i.e. the employee-inventor]. All he is going to get is the same little salary he had anyway. . . . The man who gets it is the fellow in between [i.e. the federal contractor].”150 Senator Long argued clearly that he believed patent rights to federally funded inventions should be vested entirely in the federal government, but if the bill was going to give the Government’s rights away, then it may as well confer them on employee-inventors instead of employer- contractors. Senator Long’s adherence to the Carter model described above, however, is immaterial.151 Senator Long recognized that, despite his objections, S. 414 was intended to vest exclusive rights in contractors, not in the federal government and not in employee-inventors.

C. H.R. 6933 and Enactment of the Bayh-Dole Act

Despite significant bipartisan support, S. 414 did not breeze through Congress unopposed.152

149 96 CONG. REC. S1,036 (daily ed. Feb. 06, 1980) (statement of Sen. Russell Long). 150 Id. 151 See supra Part II.B. 152 See supra, note 74.

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On March 26, 1980, one month before the Senate approved S. 414,153 Representative Kastenmeir (D., WI) introduced the Carter Administration’s bill to oppose S. 414 in the House of Representatives.154 H.R. 6933 would have created provisions on disposition of rights to large corporations in addition to small businesses and nonprofit organizations.155 However, to preserve the bill’s small business and nonprofit focus, Senator Bayh proposed a deal with Representative Kastenmeir.156 Senator Bayh agreed to approve H.R. 6933’s provisions on reexamination and patent office fee structures if Representative Kastenmeir approved S. 414’s provisions governing disposition of rights to federally funded inventions.157 As a result, on November 17, 1980, the House of Representatives voted to approve H.R. 6933 with the Bayh-Dole provisions included virtually unmodified.158 Subsequently, on November 21, 1980 the Senate passed the Bayh-Dole Act by unanimous vote,159

153 96 CONG. REC. S4,116 (daily ed. Apr. 23, 1980). On April 23, 1980 the Senate approved S. 414 by a vote of 91-4. Id. 154 See generally H.R. 6933, 96th Cong. (1980). 155 See, e.g., id. § 383 (1980) (conferring title on government funded developments by small business and nonprofit contractors); Id. § 384 (1980) (conferring title to the government for all inventions developed by large corporations using government funds). 156 Stevens, supra note 1, at 97. 157 Stevens, supra note 1, at 97. 158 96 CONG. REC. H10762 (daily ed. Nov. 17, 1980). 159 Id.

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and on December 12, 1980, President Carter signed the Act into law.160

1. Statutory Provisions

H.R. 6933 was virtually identical to S. 414,161 but contained one very significant alteration. When read in light of its previous iterations and statement made before Congress by the bill’s supporters, H.R. 6933 indicates Congress’s unambiguous intent to vest exclusive property rights to federally funded inventions in federal contractors, not inventors.

a) March-In Rights

As enacted, the Bayh-Dole Act’s provision on government march-in rights completed Congress’s shift from the term “subject inventor” to “contractor,” and in so doing, eliminated any reasonable confusion between employer-contractors and employee-inventors.162 As enacted, Section 203 stated that “[w]ith respect to any subject invention in which a small business firm or nonprofit organization has acquired title . . . the Federal agency . . . shall have the right . . . to require the contractor, an assignee or exclusive licensee . . . to grant a [license]” to certain

160 Stevens, supra note 1, at 98. 161 Compare S. 414, 96th Cong. (1979), with, S. 6933, 96th Cong. (1980). 162 See generally 35 U.S.C. § 203 (1980).

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applicants.163 The section then stated that “if the contractor, assignee, or exclusive licensee refuses such request,” then the federal agency could grant a license itself.164 By replacing the term subject inventor with contractor in this provision, Congress removed any use of the term “subject inventor” from the statute.165 The Bayh-Dole Act refers explicitly to three parties: 1) the federal government and its agencies, 2) federal contractors (i.e. small business firms and nonprofit organizations), and 3) inventors.166 The statute as enacted uses the term “inventor” only three times. First, the Act requires contractors to share royalties with inventors.167 Second, the Act requires contractors to reinvest the proceeds of their patented inventions after such royalties are paid to inventors.168 Third, the Act allows inventors to retain rights to federally funded inventions after the Government and the contractor have chosen not to retain title.169 The term inventor is never used to grant inventors intellectual property rights, either exclusively or concurrently, unless the other two

163 Id. (emphasis added). 164 Id. (emphasis added). 165 See generally id. §§ 200-211. 166 See generally id. §§ 200-211. 167 Id. § 202(c)(7)(C). 168 Id. § 202(c)(7)(D). 169 Id. § 202(d).

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parties at interest have first chosen not to retain title.170

2. Report of the Committee on the Judiciary

Congressional reports on the Act confirm Congress’s intent to vest exclusive patent rights in federal contractors, not in employee-inventors. For example, on September 9, 1980, the House Committee on the Judiciary issued a report on S. 6933 (“1980 House Judiciary Report on S. 6933”).171 The Report summarized seven days of hearings on H.R. 6933, acknowledged that the bill was designed to amend the patent and trademark laws, and recommended that the bill pass.172 The Report indicated that S. 6933’s purpose was to eliminate much of the bureaucracy and uncertainty preventing many small businesses and nonprofit organizations from engaging in federally funded research and commercialization.173 The bill was designed to address “the special needs of Universities and small businesses when they attempt to deal with patent issues arising out of government contracts.”174 More specifically, the

170 See generally id. §§ 200-211. 171 See generally COMMITTEE ON THE JUDICIARY, AMENDING THE PATENT AND TRADEMARK LAWS, H.R. REP. NO. 96-1307, pt. 1 (1980). 172 Id. at 1. 173 Id. at 3. 174 Id.

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Report found that H.R. 6933 established a “presumption that ownership of all patent rights in government funded research will vest in any contractor who is a nonprofit research institution or a small business.”175 The 1980 House Judiciary Report on S. 6933’s clear acknowledgment of Congress’s intent to vest exclusive patent rights in federal contractors was not without critics however. Representative Jack Brooks (D., TX) criticized the bill’s assignment of “automatic patent rights . . . to companies and organizations for inventions developed at government expense.”176 Indeed, Representative Brooks stated that the mere “grant or contract determination for research and development” would inherently include “an automatic concession of exclusive rights to commercialize any resulting invention.”177 Representative Brooks urged a model under which inventions developed using government funding, “unless awarded to a specific contractor under existing permissible arrangements, are available to all” by grant to the federal government.178 The “permissible arrangements” to which Representative Brooks referred are the same assignment agreements between employer- contractors and employee-inventors to which the

175 Id. at 5. 176 Id. at 29. 177 Id. at 31. 178 Id. at 29.

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Supreme Court referred in Stanford v. Roche.179 Unlike the Supreme Court, however, at no time did Representative Brooks argue that S. 6933 ever contemplated conferring any patent rights on employee-inventors.180 Instead, he described S. 6933 as simply “handing over exclusive rights to [the] company [i.e. the federal contractor].”181

3. Sponsor Remarks

Floor statements in the fall of 1980, immediately preceding Bayh-Dole’s enactment, similarly indicated Congress’s intent to vest exclusive title to federally funded inventions in contractors, not in employee-inventors. For example, Representative George Brown, Jr. (D., CA) applauded the bill as “a much-needed incentive for Government contractors to commercialize inventions arising out of federal R. & D.”182 Representative Brown went on to remind the House that during the recent hearings on federal patent policy, there was “considerable testimony which indicated that merely making an invention available for development, without the grant of . . . exclusive rights to that invention, does not generally lead to

179 See infra Part V.C.4. 180 See generally COMMITTEE ON THE JUDICIARY, AMENDING THE PATENT AND TRADEMARK LAWS, H.R. REP. NO. 96-1307, pt. 1, at 29-32 (1980). 181 Id. at 5 (1980). 182 96 CONG. REC. H10770 (daily ed. Nov. 17, 1980) (statement of Rep. George Brown, Jr.).

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commercial utilization. Government contractors need some incentive to take on the costs of developing the invention to the point where it is marketable,” and “the grant of exclusive rights to an invention can and does provide a needed incentive to commercialize.”183 Finally, Representative Harold Hollenbeck (R., NJ) concretely and succinctly stated Congress’s intent in enacting the Bayh-Dole Act: “Testimony before our committee indicates that commercialization of inventions for which there are no exclusive rights is approximately 1 percent, whereas for inventions for which a contractor retains exclusive rights to develop and market the invention, the commercialization rate is more nearly 20 percent. For this reason, I am a strong supporter of . . . this bill.”184

D. Post-Enactment Hearing Before the Senate Subcommittee on Patents, Copyrights and Trademarks

On April 19, 1994 more than thirteen years after enactment of the Bayh-Dole Act, a hearing was held before the Subcommittee on Patents, Copyrights and Trademarks of the Senate Committee on the Judiciary to examine implementation of the Bayh-Dole Act and to measure its success.185 Senator Dennis DeConci

183 Id. 184 96 CONG. REC. H10772 (daily ed. Nov. 17, 1980) (statement of Rep. Harold Hollenbeck). 185 See generally Hearings, supra note 38.

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(D., AZ) began the proceedings by reviewing the landscape in which Congress enacted the Bayh- Dole Act.186 The Senator reminded the Subcommittee that before passage of the Act, technology transfer from universities to private industry was “virtually nonexistent.”187 Private companies were unable to gain “exclusive rights” to the results of federally funded research, and thus, were unable to “legally control” products derived from basic university research.188 Companies were simply unwilling to invest the money necessary to develop and commercialize the products of federally funded university research unless they were sure they would be granted exclusive rights.189 A string of speakers from government, academia, and private industry followed Senator DeConci and discussed the post-enactment benefits of granting exclusive title to federal contractors. For example, Sheldon Steinbach, Vice President and General Counsel for the American Council on Education, expressed his understanding that the Act “grants small businesses and nonprofit institutions the first right to hold title to inventions arising from federally supported research.”190 Steinbach

186 Id. at 1 (statement of Sen. Dennis DeConci). 187 Id. 188 Id. at 1-2 (statement of Sen. Dennis DeConci). 189 Id. 190 Id. at 3 (statement of Sheldon Steinbach, Vice President and General Counsel, American Counsel on Education) (emphasis added).

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praised the Act as a “positive step” in U.S. patent policy that provides the necessary incentives for universities and university researchers to participate in technology transfer.191 In addition, Christopher Doherty, the Washington Director of the New England Biomedical Research Coalition spoke about the Act’s success in igniting university technology transfer to private industry.192 “Critical to this success,” testified Doherty, is the Act’s “careful system of incentives.”193 Doherty identified three key stakeholders and their rights in federal funded inventions under Bayh-Dole.194 Universities retain title, investors can acquire exclusive licenses, and inventors have the right to

191 Id. 192 Id. at 6 (statement of Christopher Doherty, Washington Director, New England Biomedical Research Coalition). “For example, between 1980 and 1990, the percentage of total U.S.- origin patents granted to universities more than doubled, from 1 percent to 2.4 percent. In this same period, the number of applications for patents by universities involving NIH-funded inventions increased more than 300 percent. With respect to licensing, universities granted over 1,300 new licenses to technology developed in their laboratories in 1992 alone. These licenses are benefitting both universities and the general economy. In 1989 and 1990, 35 major universities granted 197 exclusive licenses and earned more than $29.3 million in royalties. A recent survey by the Association of University Technology Managers identified $9 billion in product sales and 53,000 jobs arising from such university licenses.” Id. at 5-6. 193 Id. at 6. 194 Id.

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royalties on their work.195 Further, the keynote address from the Texas Technology Transfer Association (“TTTA”) echoed the previous speakers.196 The TTTA testified that the Bayh-Dole Act “changed the presumption of title” to any federally funded invention developed by universities, small businesses, or nonprofit entities “to the contractor-grantee.”197 The TTTA described the Act as the “first cautious step in a new relationship between the Government . . . and the universities” and identified the Act’s establishment of “certainty of title in the universities” as the “impetus to new and expanding university-industry relationships.198 However, Howard Bremer of the Association of University Technology Managers (“AUTM”)’s testimony was perhaps the most salient and warrants quotation in full: Why has the act been so successful? I believe one of the major reasons is the certainty of title to the inventions, which was conveyed to the universities under the act. That fact alone gave strong impetus to the university-industry relationship. Industry could rely upon the licensing terms and provisions negotiated because of the vesting of

195 Id. 196 See generally Hearings, supra note 38, at 66-73 (statement of Texas Technology Transfer Association). 197 Id. at 68. 198 Id. at 69.

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the title in the university and without fear that there would be arbitrary or capricious bureaucratic interference. Since the Government reserved a nonexclusive license for governmental purposes, the relation established was really a relationship between the university, industry, and the Government.199 Admittedly, university interest groups provided much of the testimony summarized here. There is no denying that AUTMA and the TTTA have much to gain by arguing on the record that the Bayh-Dole Act was intended to vest sole title to federally funded inventions in federal contractors. Two factors, however, establish the objective truth of their testimony. First, Senators Bayh and Dole, the Act’s two named sponsors, testified that their Act was intended to confer title to federally funded inventions on universities.200 Second, the one

199 Id. at 32 (statement of Howard Bremer, Association of University Technology Managers) (emphasis added). 200 Id. at 13 (statement of Sen. Birch Bayh) (“Mr. Chairman, all indications are that since its enactment in 1980, the Bayh- Dole Act is working and, in fact, working remarkably well. The Act has motivated universities to become actively involved in transferring technology from their laboratories to the marketplace. A report on Bayh-Dole issued by the Council on Governmental Relations concluded that the clear patent policy established by the Act, which allowed universities to retain title to and license their inventions, has been a healthy incentive for universities to commercialize their inventions and has resulted in a sharp increase in the number of U.S. patents issued to universities. While prior to 1981 fewer than 223

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hundred and twenty four page hearing record contains not a shred of contradictory testimony.201 Not once did a representative for university researchers stand up and argue that perhaps Congress intended to confer joint title to contractors and employee inventors.202 Such clear and uncontroverted evidence underscores what the remainder of the Act’s legislative history makes obvious. Congress intended to vest sole title to federally funded inventions in employer- contractors, not in employee-inventors.

IV. THE BAYH-DOLE ACT IN VIEW OF CONGRESS’S INTENT

As Senator Bayh wrote in 2011, “the Bayh- Dole Act has established our university technology transfer system as a model for the world by permitting universities, small businesses, and nonprofits to own and manage patentable inventions arising from research conducted in their labs using federal funds.”203 With its legislative history in mind, the following section discusses how Congress intended the Bayh-Dole Act to function.

250 patents were issued to universities per year, a decade later almost 1,600 are being issued to universities each year.”). 201 See generally id. 202 See generally id. 203 Birch Bayh, The Bayh-Dole Act Survives the Courts, but What’s Next?, UNIVERSITYBUSINESS.COM (July 01, 2011, 12:00 AM), http://www.universitybusiness.com/article/bayh- dole-act-survives-courts-whats-next.

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The Act applies to all research performed under a federal funding agreement, whether funded in whole or in part by the federal government.204 For purposes of the Act, funding agreements must be written contracts or grants between any federal gency and any contractor for research including any assignments or subcontracts incident to the federally funded research. 205 The Act governs intellectual property rights under funding agreements through two key provisions establishing a three tier system of rights to inventions resulting from federal funding: 1) small businesses and nonprofit organizations funded by the government, 2) the federal government, and 3) employee-inventors who work for those contractors.206

204 35 U.S.C. § 201(b) (1980). 205 Id. For clarity, the Act’s full definition of funding agreement is reproduced here. “The term ‘funding agreement’ means any contract, grant, or cooperative agreement entered into between any federal agency, other than the Tennessee Valley Authority, and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the federal government. Such term includes any assignment, substitution of parties, or subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.” Id. 206 See id. § 202 (describing contractor’s property rights and employee-inventors’ financial rights to federally funded inventions); 35 U.S.C. § 203 (1980) (describing the government’s “march-in rights” to contractor owned inventions); Fenn v. Yale Univ., 393 F. Supp. 2d 133, 137 (2004).

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A. Tier 1: Contractor Rights and Obligations

The Bayh-Dole Act gives nonprofit organizations and small business firms the first opportunity to retain full title to federally funded inventions developed at their institutions.207 Under Bayh-Dole, federal contractors like universities have exclusive rights to subject inventions defined as any invention conceived or first actually reduced to practice under a funding agreement with a federal agency.208 In return for granting contractors these exclusive rights to their employee’s inventions, the Act imposes a series of obligations on the employer contractor, which must be described in the applicable written funding agreement.209 While most of the obligations imposed on contractors apply equally to small business firms and nonprofit organizations, in some cases nonprofit organizations are subject to further obligations.

207 35 U.S.C. § 202(a) (1980) (“Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to ay subject invention . . . .”). 208 Id. § 201(e) (“The term 'subject invention' means any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.”). 209 Id. § 202(c) (“Each funding agreement with a small business firm or non-profit organization shall contain appropriate provisions to effectuate [the contractor’s and the government’s rights to the subject invention].”).

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1. Common Obligations Imposed on Small Business Firms and Nonprofit Organizations

Under the Bayh-Dole Act, the written funding agreement between any contractor and its funding federal agency must contain the following obligations:210 1. The contractor must disclose to its funding federal agency the details of each invention to which the contractor intends to retain title;211 2. Within a reasonable time after its disclosure to the funding agency, the contractor must also disclose its intent to retain title to the described invention;212

210 Id. §§ 202(c)(1)-(c)(6) (“Each funding agreement with a small business firm or non-profit organization shall contain appropriate provisions to effectuate [the contractor’s and the government’s rights to the subject invention].”). 211 Id. § 202(c)(1) (“A requirement that the contractor disclose each subject invention to the federal agency within a reasonable time after it is made and that the federal government may receive title to any subject invention not reported to it within such time.”). 212 Id. § 202(c)(2) (“A requirement that the contractor make an election to retain title to any subject invention within a reasonable time after disclosure and that the federal government may receive title to any subject invention in which the contractor does not elect to retain rights or fails to elect rights within such time.”).

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3. The contractor must within a reasonable time file a patent application on its disclosed invention;213 4. The contractor must grant the federal agency a non-exclusive, nontransferable, irrevocable, paid-up license to practice the invention worldwide;214 5. The contractor must make and report on efforts to utilize and commercialize the invention;215 and 6. The contractor must include in its patent specification that the patented invention was

213 Id. § 202(c)(3) (“A requirement that a contractor electing rights file patent applications within reasonable times and that the federal government may receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times.”). 214 Id. § 202(c)(4) (“With respect to any invention in which the contractor elects rights, the federal agency shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world, and may if provided in the funding agreement, have additional rights to sublicense any foreign government or international organization pursuant to any existing or future treaty or agreement.”). 215 Id. § 202(c)(5) (“The right of the federal agency to require periodic reporting on the utilization or efforts at obtaining utilization that are being made by the contractor or his licensees or assignees: Provided, That any such information may be treated by the federal agency as commercial and financial information obtained from a person and privileged and confidential and not subject to disclosure under section 552 of title 5 of the United States Code.”).

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made with government funding and that the Government, therefore, has certain rights to the invention.216

2. Additional Obligations Imposed Only On Nonprofit Organizations

In addition to the common obligations imposed by the Act on all contractors, the Act also imposes some additional obligations on nonprofit organizations, which must be included in the applicable funding agreement:217 1. The nonprofit cannot assign rights to the invention without the funding federal agency’s approval unless the assignment is to an organization uninvolved in the manufacture or sale of similar or competing technologies;218

216 Id. § 202(c)(6) (“An obligation on the part of the contractor, in the event a United States patent application is filed by or on its behalf or by any assignee of the contractor, to include within the specification of such application and any patent issuing thereon, a statement specifying that the invention was made with Government support and that the Government has certain rights in the invention.”). 217 Id. § 202(c)(7) (“In the case of a nonprofit organization . . . .”). 218 Id. § 202(c)(7)(A) (“[A] prohibition upon the assignment of rights to a subject invention in the United States without the approval of the federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions and which is not, itself, engaged in or does not hold a substantial interest in other organizations engaged in the manufacture or sale of products or the use of processes that might utilize the 229

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2. Barring special federal agency approval, the nonprofit can grant an exclusive license to the invention only to a small business firm and only for the shorter of: 1) five years from the invention’s first commercial sale, or 2) eight years from the date the license is granted;219 3. The nonprofit employer must share royalties with the employee-inventor;220 and 4. The nonprofit must use the balance of any royalties or income it earns from the subject invention, after payment of expenses relating to the invention (including payment to inventors) for the support of scientific research or education.221 invention or be in competition with embodiments of the invention (provided that such assignee shall be subject to the same provisions as the contractor).”). 219 Id. § 202(c)(7)(B) (“[A] prohibition against the granting of exclusive licenses under United States Patent or Patent Applications in a subject invention by the contractor to persons other than small business firms for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the date of the exclusive license excepting that time before regulatory agencies necessary to obtain premarket clearance unless, on a case-by- case basis, the federal agency approves a longer exclusive license.”). 220 Id. § 202(c)(7)(C) (“[A] requirement that the contractor share royalties with the inventor.”). 221 Id. § 202(c)(7)(D) (“[A] requirement that the balance of any royalties or income earned by the contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions, be utilized for the support of scientific research or education.”). 230

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B. Tier 2: Government Rights

The Bayh-Dole Act establishes the funding federal agency’s 1) conditional rights to full title in contractor inventions, and 2) rights to ensure utilization of contractor owned inventions through imposition of mandatory licenses (“march-in rights”).

1. Rights to Title

The Act subordinates the government’s right to title beneath contractors’ rights to obtain full title to subject inventions.222 The Bayh-Dole Act gives federal agencies party to a funding agreement the opportunity to retain full title to federally funded inventions only if:223 1) the contractor does not elect to retain title,224 2) the contractor fails to disclose the invention to the federal agency consistent with the funding agreement’s reporting requirements,225 or 3) the funding agreement provides for any of three pre-defined exceptions.226

222 Fenn v. Yale Univ., 393 F. Supp. 2d 133, 141-42 (2004). 223 Id. § 202(a) (“Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to ay subject invention . . . .”). 224 Id. § 202(c)(1). 225 Id. § 202(c)(2). 226 Id. § 202(a). First, a federal agency can require that the government take title to inventions when the “funding agreement is for the operation of a Government-owned 231

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2. March-In Rights

Beyond the Government’s secondary rights to title, the Act also establishes federal agencies’ right to force contractors to license subject inventions in any field of use to any reasonable applicant, i.e., “march-in,” provided any of the following conditions are met:227 1. The contractor has not taken, or is not expected to take steps to achieve application of the invention;228 2. The contractor has not reasonably alleviated health or safety needs; 229 3. The contractor has failed to meet requirements for public use; 230 or

research or production facility.” Id. § 202(a)(i). Second, contractors may be disallowed from retaining title in “exceptional circumstances when it is determined by the agency . . . [to] better promote the policy and objectives” of the Act. Id. § 202(a)(ii). Third, the federal government may prevent contractors from retaining title to subject inventions when “necessary to protect the security of . . . foreign intelligence or counter-intelligence activities.” Id. § 202(a)(iii). 227 Id. § 203. 228 Id. § 203(a) (“[A]ction is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use.”). 229 Id. § 203(b) (“[A]ction is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees.”).

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4. The contractor or its licensee has failed to comply with Section 204’s requirement that the subject invention be manufactured substantially within the United States.231 The federal agency may require contractors to grant non-exclusive, partially exclusive, or exclusive licenses in any field of use upon any terms reasonable under the circumstances.232 Further, if

230 Id. § 203(c) (“[A]ction is necessary to meet requirements for public use specified by federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees.”). 231 Id. § 203(d) (“[A]ction is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.”). For clarity, Section 204 is reproduced here. “Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by the federal agency under whose funding agreement the invention was made upon a showing by the small business firm, nonprofit organization, or assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.” Id. § 204. 232 Id. § 203.

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the contractor refuses to grant the required license, the federal agency party to the funding agreement is authorized to grant the license itself. 233

C. Tier 3: Inventor Rights

The Bayh-Dole Act grants extremely limited rights to employee-inventors party to funding agreements.

1. Rights to Title

Inventors may only acquire title to a subject invention if 1) the contractor does not elect to retain title to the invention, 2) the inventor requests to retain rights to the invention, and 3) the federal agency grants the inventor’s request after consultation with the contractor.234 An inventor’s right to obtain full title to any subject invention, regardless of the inventor’s contribution, is subordinated to both the contractor’s and the federal government’s rights. Further, the funding federal agency has the discretion to deny the employee- inventor’s request to obtain title after consultation with the employer-contractor. Although divesting inventors of rights in their inventions is contrary to

233 Id. 234 Id. § 202(d) (“If a contractor does not elect to retain title to a subject invention in cases subject to this section, the federal agency may consider and after consultation with the contractor requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.”).

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basic principles of patent law as codified by the Patent Act,235 Section 210 of the Bayh-Dole Act states that it “take[s] precedence over any other Act which would require a disposition of rights in subject inventions . . . that is inconsistent with” the Act.236 This provision was meant to ensure that the existing patent statute will not challenge the Bayh- Dole Act’s three-tier system for disposition of rights under which inventors are entirely divested of ownership.237

2. Rights to Royalties

Beyond their tertiary right to title, inventors have the right to share in royalties on a subject invention, but only when the contractor is a nonprofit organization.238 The Act contains no requirement that small business firm contractors share invention royalties with their employee- inventors. Consistent with the Bayh-Dole Act’s

235 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2197 (2011). 236 35 U.S.C. § 210 (1980). 237 Brief for the United States as Amici Curia Supporting Petitioner at 21, Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 131 S.Ct. 2188 (2011) (“To be sure, under the Patent Act, the right to obtain a patent on an invention generally belongs to the inventor, who may assign that right. By its terms, however, the Bayh-Dole Act "take[s] precedence over any other Act" governing the disposition of rights in subject inventions.”) (internal citations omitted). 238 35 U.S.C. § 202(c)(7)(c) (1980).

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legislative history, inventors are granted only limited and subordinate rights to federally funded inventions.

V. STANFORD V. ROCHE

On June 6, 2011, the Supreme Court ruled 7- 2 that the “Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions.”239 This holding clearly contradicts Congress’s intent in enacting the Bayh- Dole Act, and it is important to understand the Court’s reasoning. A brief summary of the Court’s rationale and analysis follows.

A. Factual Background

In 1985, Cetus, a small California company, began researching methods to detect and quantify the levels of HIV present in human blood.240 In 1988, Cetus and researchers in Stanford University’s Department of Infectious Diseases began collaborating to test new AIDS medications.241 Dr. Mark Holodniy joined the Stanford team around this time and signed a Copyright and Patent Agreement (“CPA”) in which he “agree[d] to assign” to Stanford his right, title

239 Roche, 131 S.Ct. at 2197. 240 Id. at 2192. 241 Id.

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and interest in inventions resulting from his employment at Stanford.242 Subsequently, Stanford sent Holodniy to work at Cetus to familiarize himself with a process called Polymerase Chain Reaction (“PCR”), which was integral to his research on HIV.243 Before beginning work at Cetus, Holodniy signed a Visitor’s Confidentiality Agreement (“VCA”) stating that he “will assign and do[es] hereby assign” to Cetus his right, title and interest in each of the inventions made as a consequence of his engagement with Cetus.244 While at Cetus, Holodniy devised a PCR- based procedure to determine the amount of HIV in a patient’s blood.245 Holodniy then returned to Stanford to test and refine the procedure.246 Over the next several years, Stanford obtained written assignments of rights to the PCR-based testing procedures from their employees, including Holodniy.247 Stanford filed several patent applications on Holodiny’s technology and secured three patents on the HIV measurement process.248 In 1991, Roche Molecular Systems (“Roche”) acquired all of Cetus’s PCR-related

242 Id. 243 Id. 244 Id. 245 Id. 246 Id. 247 Id. 248 Id.

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assets, which included any and all rights obtained through VCAs like the one Holodniy signed with Cetus.249 Roche then commercialized the PCR- based HIV quantification method Holodniy devised and began selling HIV testing kits worldwide.250

B. Procedural History

1. The District Court

In 2005, Stanford sued Roche in the United States District Court for the Northern District of California alleging that Roche’s HIV testing products infringed Stanford’s patents.251 Stanford claimed that although Holodniy had signed a VCA with Cetus during his time at Cetus, because Holodniy’s research was federally funded, Stanford had superior rights to Holodniy’s inventions under the Bayh-Dole Act.252 Therefore, Holodniy had no rights to assign to Cetus, and Holodniy’s VCA with Cetus transferred no intellectual property rights to Cetus.253 Roche, however, argued that although Stanford had rights in Holodniy’s inventions, Roche was a co-owner of the inventions.254 Thus, Stanford

249 Id. 250 Id. 251 Id. at 2193. 252 Id. 253 Id. 254 Id. 238

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lacked standing to sue Roche for patent infringement.255 The District Court agreed with Stanford and held that although Holodniy assigned all of his rights in his inventions to Cetus through the VCA, Holodniy never had any rights to assign because the Bayh-Dole Act conferred title on Stanford.256 The court stated clearly that an individual inventor may obtain title to a federally funded invention “only after the government and the contracting party have declined to do so.”257

2. The Federal Circuit

The Court of Appeals for the Federal Circuit disagreed.258 First, the court drew a linguistic distinction between Holodniy’s agreement with Stanford and his agreement with Cetus.259 The court reasoned that Holodniy’s agreement with Stanford (i.e. I “agree to assign”) constituted a “mere promise to assign rights in the future.”260 Holodniy’s agreement with Cetus (i.e. I “assign and do hereby assign”) by contrast automatically and affirmatively assigned Holodniy’s interest in his

255 Id. 256 Id. at 2194. 257 Id. 258 Id. 259 Id. 260 Id.

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inventions to Cetus.261 Thus, Cetus’s rights in Holodniy’s inventions trumped Stanford’s interest, and Cetus obtained full title to the HIV testing patents.262 Second, the court addressed how the Bayh- Dole Act functions in such situations.263 The Court stated that the Act does not “automatically void” inventors’ rights in federally funded inventions.264 In this case, therefore, the Act did not automatically destroy the patent rights Cetus received from Holodniy.265 The Bayh-Dole Act did not void Roche’s ownership interest in the patents, and therefore, Stanford had no standing to sue Roche.266

C. The Supreme Court’s Analysis

The Supreme Court granted certiorari and decided the case on June 6, 2011. This section tracks the Supreme Court’s logical steps in coming to its decision.

1. The Bayh-Dole Act Applies

The Court began by stating quickly and clearly that because some of Holodniy’s and

261 Id. 262 Id. 263 Id. 264 Id. 265 Id. 266 Id.

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Stanford’s research relating to the HIV measurement techniques in question were funded by the National Institute of Health (“NIH”), the inventions were subject to the Bayh-Dole Act.267 The Court also found that because Stanford complied with all contractor requirements under the Act, Stanford was entitled to retain whatever interest in subject inventions the Act conferred on federal contractors.268 But at this time, the Court did not define exactly what intellectual property rights it interpreted Bayh-Dole to confer on contractors like Stanford.

2. Inventors Always Retain Ownership Of Their Inventions Unless They Explicitly Assign It

The Court then reiterated two basic pillars of patent law in the United States. First, the Court clarified that since the inception of the patent system, inventors have had the undeniable right to patent their own inventions.269 Second, the Court

267 Id. at 2193. 268Id. The Court stated specifically that the Stanford properly “disclosed the invention, conferred on the Government a nonexclusive, nontransferable, paid-up license to use the patented procedure, and formally notified NIH that it elected to retain title to the invention.” Id. 269 Id. at 2194. The Court quoted the Patent Act at the time stating that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefore.” Id.

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stated that any inventor has the right to assign his rights in his inventions to a third party.270 The Court reasoned that these principles require that absent an agreement to the contrary, an employer- contractor has no rights in an invention which the employee alone conceived.271 To obtain such rights, the inventor must expressly grant them to his employer.272 Further, the Court disagreed that Bayh-Dole’s definition of subject inventions as inventions conceived or first actually reduced to practice at the university could have been intended to vest employee’s inventions in a university even if the invention was conceived before the inventor became employed by the university, so long as the invention was reduced to practice at the university using federal funds.273 To the Court, these concepts were fundamental enough to create a strong presumption against displacement by Congress. 3. Congress Did Not Intend To Divest Inventors Of Their Rights

Without unequivocal language on the statute’s face, the Court was unwilling to find that the Bayh-Dole Act operated to vest sole title in federally funded inventions in contractors. The

270 Id. at 2195 (citing United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933) (“A patent is property and title to it can pass only by assignment.”)). 271 Id. (quoting Dubilier, 289 U.S. at 189). 272 Id. (citing Dubilier, 289 U.S. at 189). 273 Id. at 2198 (citing Dubilier, 289 U.S. at 189).

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Court reasoned that it would be “noteworthy enough” for Congress to displace the foundational precepts of patent law and deprive inventors of their inherent rights in their own inventions.274 But if Congress had intended the Bayh-Dole Act to work “such a sea change” in inventor rights, “it would have said so clearly.” 275 The Court provided several examples of when Congress had in fact divested inventors of their rights pursuant to certain federal contracts and had done so with clear and unequivocal language.276 For example, Congress has provided that any inventions resulting from contracts dealing with nuclear material and atomic energy “shall be vested in, and be the property of, the [Atomic Energy] Commission,”277 and title to all inventions made under contract with the National Aeronautics and Space Administration “shall be the exclusive property of the United States.”278 The Court then emphasized that such unequivocal language is “notably absent” from the Bayh-Dole Act. The Court stated that the Act nowhere expressly vests title in contractors or anyone else, nor does it explicitly deprive inventors of their basic interest in federally funded

274 Id. at 2198-99. 275 Id. 276 Id. at 2195. 277 Id. (quoting 42 U.S.C. § 2182 (2000)). 278 Id. (quoting Pub. L. 111–314, § 3, 124 Stat. 3339, 35 U.S.C. § 20135(b)(1) (2010)).

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inventions.279 The Court reasoned that inventions of the contractor do not include all inventions made by the contractor’s employees.280 Instead, inventions of the contractor include only those inventions actually owned by the federal contractor.281 Because the Act’s provision allowing contractors to “elect to retain title to any subject invention fails to vest sole title in federal contractors,282 without an explicit assignment transferring an employee-inventor’s rights to an employer-contractor, the contractor never has title.283 The Act merely assures contractors that they may keep title to any interests they already own.284 The Court posited that the Bayh-Dole Act only functions when an invention already belongs to the contractor and that the Act’s use of the word “retain” underscored this point.285 In conclusion, the Court held that the Bayh-Dole Act works only to clarify the distribution of rights between the federal government and a federal contractor when

279 Id. at 2196. 280 Id. at 2196-97 (“We have rejected the idea that mere employment is sufficient to vest title to an employee’s invention in the employer.”). 281 Id. at 2197. 282 Id. at 2196 (quoting 35 U.S.C. §§ 201(e) & 202(a) (1980)). 283 Id. at 2199. 284 Id. at 2196-97. 285 Id. at 2197.

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the contractor already owns the federally funded invention. “Nothing more.”286

4. Universities Must Instead Rely On Assignment Agreements

In conclusion, the Court quickly dismissed concerns that its holding “fundamentally undermin[es] the Act’s framework and severely threatens its continued successful application.”287 The Court reasoned that universities typically enter into assignment agreements with their employees as a condition of employment. 288 So long as these assignments are effective, any federally funded inventions subsumed by those assignments become subject inventions under Bayh-Dole. 289 The Court defined an effective assignment agreement as one using the “do hereby assign” language from the Cetus agreement, not Stanford’s “agree to assign” language.290 Assuming use of the proper assignment language, the Act then functions to bestow rights to the contractor, or subsequently, the federal agency consistent with its provisions. 291 The Act itself, however, never functions to divest an

286 Id. (emphasis added). 287 Id. at 2199 (internal quotations omitted). 288 Id. 289 Id. 290 Id. 291 Id.

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inventor of basic ownership rights in his or her inventions.292

VI. ALIGNING BAYH-DOLE WITH LEGISLATIVE INTENT

As discussed, the Supreme Court in Stanford v. Roche held that the “Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions.”293 However, the Act’s legislative history overwhelmingly contradicts the Supreme Court’s interpretation of the Act and its ultimate holding in Stanford v. Roche.294 Despite the obvious Congressional intent evinced by a thoughtful look into the Act’s brief legislative history, the Supreme Court chose to base its decision almost entirely on the Act’s admitted lack of “express” language.295 Specifically, the Act failed to unequivocally vest title to federally funded inventions in employer-contractors and deprive employee-inventors of their rights to their inventions.296 This section will 1) identify the problems with presupposing under Bayh-Dole the existence of effective assignment agreements

292 Id. at 2197. 293 Id. 294 Compare supra Part III, with, supra Part V. 295 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2196 (2011). 296 Id.

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between research institutions and their inventors, 2) clarify exactly why Congress intended the Bayh- Dole Act to grant contractors sole title to federally funded inventions, and 3) recommend linguistic changes to the Act to effectuate Congress’s original intent and put it beyond the reach of the Supreme Court’s contrary interpretation.

A. A Summary of Congress’s Intent in Enacting Bayh-Dole

In his dissenting opinion in Stanford v. Roche, Justice Breyer urged an interpretation of Bayh-Dole consistent with Congress’s intent.297 Justice Breyer recognized that the Bayh-Dole Act was intended to create a three-tier system distributing rights in federally funded inventions to: 1) federally funded contractors, then 2) the federal government, and then 3) the employee-inventor who made the invention.298 Congress granted the federal government the opportunity to claim rights to such inventions only if the funded contractor failed to claim its rights.299 Similarly, Congress granted employee-inventors the chance to acquire rights in their inventions only if the contractor, and subsequently, the Government chose not to acquire the rights granted to them by the Act.300 In short,

297 See generally id. at 2188 (Breyer, J., dissenting). 298 Id. at 2200 (Breyer, J., dissenting) (citing 35 U.S.C. §§ 202-203 (1980)). 299 Id. (Breyer, J., dissenting); see supra Part IV.B. 300 Id. (Breyer, J., dissenting); see supra Part IV.C. 247

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Congress granted contractors patent rights to federally funded inventions and did not intend for employee-inventors to share those rights.

1. Congress Intended To Grant Contractors Rights

The Supreme Court’s holding in Stanford v. Roche turned on what it interpreted to be vague language on the face of the statute. The Court, however, failed to recognize Congress’s intent to divest inventors of patent rights in their inventions as obviated in the Act’s legislative history. As the Court stated, an inventor’s rights to his or her inventions is “one of the fundamental precepts of patent law.”301 However, the Court failed to recognize that Congress routinely denies individual inventors patent rights to inventions arising from federal funds.302 For example, the federal government automatically obtains by Executive mandate full title and interest to any inventions made by government employees.303 Further,

301 Id. at 2198. 302 Id. at 2200 (Breyer, J., dissenting). 303 See 37 CFR § 501.6 (2010) (codifying, as amended, Exec. Order 10096, 3 CFR 292 (1949–1953 Comp.)). Note that while the federal government does not automatically gain title to all inventions of its employees, the conditions under which the Government is granted full and exclusive rights are broad. The Government gets full title to employee inventions made: “(i) During working hours, or (ii) With a contribution by the Government of facilities, equipment, materials, funds or information, or of time or services of other Government employees on official duty, or (iii) Which bears a direct 248

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Congress has enacted several statutes in specific areas of research that grant the government full title to inventions under government contracts. Under the Atomic Energy Act, for example, the federal government obtains title to any inventions useful to the production or use of any nuclear material or atomic energy.304 The National Aeronautics and Space Act granted the Government full title to inventions developed under contract with NASA.305 The Federal Nonnuclear Energy Research and Development Act vests full title to inventions associated with Department of Energy contracts in the federal government.306 In addition, various federal regulations allow certain federal agencies to determine in whom intellectual property rights in inventions under federal contracts vest.307 These relation to or is made in consequence of the official duties of the inventor.” Id. § 501.6(a)(1). 304 42 U.S.C. § 2182 (1954). 305 51 U.S.C. § 20135(b)(1) (1958), repealed by § 6, 124 Stat. 3444. 306 42 U.S.C. § 5908 (1974). 307 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2201 (2011) (Breyer, J., dissenting) (“See, e.g., 45 CFR § 650.4(b) (1977) (National Science Foundation regulations providing that Foundation would “determine the disposition of the invention [made under the grant] and title to and rights under any patent application”); §§ 8.1(a), 8.2(d) (Department of Health, Education, and Welfare regulations providing that inventions made under department grants “shall be subject to determination” by the agency and that the department may “require that all domestic rights in the invention shall be assigned to the United States”).”).

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statutes and regulations divest individual owners of their federally funded inventions to ensure that taxpayers reap the benefits of their tax dollars.308 The public paid for these inventions with taxes used to fund their development.309 Granting monopoly rights to individual inventors would constitute unjust enrichment and would deprive taxpayers of the benefits of inventions for which they already paid.310 Only by vesting full title in the federally funded contractor (i.e. the true recipient of the public’s funds), can the Government ensure that publicly funded innovations are developed and distributed to the public.311 Like previous Congressional acts vesting intellectual property rights in the government, Bayh-Dole does not simply divest inventors of their rights in their own inventions.312 Instead, the Act confers title to federally funded inventions in the party that actually received the taxpayers’ money, i.e., the contractor.313 The Act vests title in federal contractors not because inventors should not

308 Id. (Breyer, J., dissenting). 309 Id. (Breyer, J., dissenting). 310 Id. (Breyer, J., dissenting). 311 Id. (Breyer, J., dissenting). 312 Id. (Breyer, J., dissenting) (“I agree with the majority that the Act does not simply take the individual inventors’ rights and grant them to the Government.”). 313 Id. (Breyer, J., dissenting) (“Rather, it assumes that the federal funds’ recipient, say a university or small business, will possess those rights.”).

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generally retain rights to their inventions.314 As the majority made obvious, they clearly should.315 Instead, the Bayh-Dole Act grants contractors rights to their employee’s inventions out of necessity. As discussed, after World War II the United States became unable to compete with rising international powers in terms of innovation and production.316 Congress conceived of the Bayh-Dole Act against a backdrop of technological decline and economic lethargy in the United States and enacted it to solve the problem.317 Congress chose to incentivize private industry to commercialize basic technologies that until then had remained undeveloped.318 The federal government had already proven itself unable to commercialize the technologies to which it had retained title in the years preceding Bayh-Dole’s enactment.319 The government was simply too big

314 Id. (Breyer, J., dissenting). 315 Id. at 2195; see, e.g., Gayler v. Wilder, 51 U.S. (10 How. 477), 493 (1851) (“the discoverer of a new and useful improvement is vested by law with an inchoate right to its exclusive use, which he may perfect and make absolute by proceeding in the manner which the law requires”); Solomons v. United States, 137 U.S. 342, 346 (1890) (“whatever invention [an inventor] may thus conceive and perfect is his individual property”); United States v. Dubilier Condenser Corp., 289 U.S. 178, 188 (1933) (an inventor owns “the product of [his] original thought”). 316 See supra Part II. 317 See supra Part II. 318 See supra Part II.B. 319 See supra Part II.

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and too slow to succeed. Individual inventors, on the other hand, were simply too small. The product lifecycle (conception, research, development, and ultimately commercialization) was simply too complex and expensive for individual inventors.320 Even well-funded universities and small businesses at the time were unwilling and unable to take on the risk of commercializing a basic technology before the Bayh-Dole Act.321 In comparison, underfunded and inexperienced inventors simply were not equipped to succeed.322 So Congress chose federal contractors. Research institutions and small businesses have always been crucial to innovation and commercialization.323 Technological innovation, for which small businesses were largely responsible, accounted for forty-five percent of America’s economic growth from 1929 to 1969.324 Further, between 1953 and 1973, of the 319 “major innovations” in the United States, companies with less than one hundred employees developed twenty- four percent and companies with less than one thousand employees were responsible for another twenty-four percent.325 Small and nonprofit federal

320 See supra Part II. 321 See supra Part II. 322 See supra Part II. 323 S. REP. NO. 96-480, at 1 (1979) (“Small businesses . . . have compiled a very impressive record in technological innovation). 324 Id. at 2. 325 Id. at 24. 252

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contractors were uniquely suited to help pull the United States out of its technological funk, and Congress knew it.326 Congress automatically conferred title to federal contractors not to effect a “sea change in intellectual property rights,”327 but to assure that rights to inventions derived from publicly funded research were distributed and used in ways that actually benefit the public and the nation.328 Congress’s particular changes to the language of the statute throughout its legislative history reflect that decision. As discussed, S. 414 replaced the term subject inventor with the term contractor.329 The drafters made this change to dispel any confusion between employer-contractors and employee-inventors.330 Section 202 on disposition of rights gives contractors the right to elect to gain title to federally funded inventions developed by their employee-inventors.331 Section 203 imposes government safeguards on the monopoly rights granted to contractors in Section 202. No section, however, mentions granting property rights to inventors.332

326 See supra Part II. 327 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2199 (2011). 328 Id. at 2201 (Breyer, J., dissenting). 329 S. 414, 96th Cong. § 201(c) (1979). 330 See supra Part III.B.1. 331 See supra Part III.B.1. 332 See supra Part III.C.1.

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Congressional reports issued throughout the Act’s history buttress the disposition of rights apparent from the face of the statute. The Committee on Government Patent Policy and the Advisory Subcommittee on Patent and Information Policy of the Advisory Committee on Industrial Innovation recommended granting patent rights on federally funded research to universities and private contractors.333 The Senate Committee on the Judiciary applauded the Act’s goal of protecting the patent rights of universities and private industries and identified federal contractors as frontrunners in remedying the United States’ lagging innovation and productivity compared to international competition.334 Finally, the Act’s various sponsors continually and clearly highlighted their intent to confer patent rights to federally funded inventions on employer-contractors. Senator Dole stressed that granting patent rights to universities, nonprofit organizations, and small businesses would provide the necessary incentives to commercialize the products of basic federally funded research.335 Likewise, Senator Bayh continually reiterated Dole’s sentiments and clearly identified the Bayh-

333 S. REP. NO. 96-480, at 17-19 (1979). 334 Id. at 1. 335 95 CONG. REC. S15,030 (daily ed. Sept. 13, 1978) (statement of Sen. Robert Dole).

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Dole Act as protecting these groups’ legitimate rights to their employees’ inventions.336 2. Congress Did Not Intend For Inventors To Share Those Rights

Beyond merely granting federal contractors some concurrent rights in their employee’s inventions, the legislative record surrounding Bayh- Dole’s enactment makes it clear that the Act vests exclusive rights in federal contractors, not their employee-inventors. Inventors with concurrent rights in federally funded technologies would have had full rights to exploit their inventions to the detriment of the university and the public.337 As Justice Breyer noted in his dissenting opinion in Stanford v. Roche, granting inventors rights to federally funded inventions would allow inventors to unilaterally terminate universities’ rights through a separate agreement assigning the inventor’s rights to a third party.338 Subsequent assignees, or inventors themselves, could compete with the university in commercializing federally funded technologies in direct contradiction of Bayh-Dole’s

336 95 CONG. REC. S19,325 (daily ed. Oct. 14, 1978) (statement of Sen. Birch Bayh). 337 Rochelle Cooper Dreyfuss, Collaborative Research: Conflicts on Authorship, Ownership, and Accountability, 53 VAND. L. REV. 1161, 1212 (2000). 338 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys. 131 S.Ct. 2188, 2199 (2011) (Breyer, J., dissenting).

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intent.339 The extent to which inventor exploitation of federally funded inventions would undermine Congress’s evident intent in enacting Bayh-Dole simply does not comport. The Act’s policy and objectives section explicitly references “nonprofit organizations,” “small business firms,” “commercial concerns,” “universities,” the “United States,” and the “Government.”340 The purpose section does not, however, mention individual inventors.341 The purpose of the Act is to grant federal contractors exclusive title to federally funded inventions so that they can most effectively commercialize useful technologies, plain and simple. The statute grants inventors only two things: royalties on their inventions when employed by a nonprofit organization and the option to gain title only after the government and the contractor have both chosen not to retain title, not before.342 Congressional reports created throughout the Act’s history bolster this intent. A Senate Judiciary Report recognized the importance of stimulating commercialization of inventions by granting developers exclusive interests in technologies.343 The House Committee on the Judiciary stressed that the Bayh-Dole Act created a presumption that

339 Dreyfuss, supra note 337, at 1212. 340 S. 3496, 95th Cong. § 200 (1978). 341 See id. 342 Id. §§ 202(c)(7)C) & 202(d). 343 S. REP. NO. 96-480, at 16 (1979).

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ownership of all patent rights in government funded research will vest exclusively in the federal contractor employing the inventor.344 Critics and supporters alike were clear on Congress’s intent to automatically grant exclusive rights to federal contractors,345 and fourteen years after enactment the message remained the same.346 The Act’s legislative history uncontrovertibly establishes Congress’s intent to vest sole title in federal contractors because contractors are best suited to fulfill the Act’s purpose.347 Congressional reports on the Act confirm this.348 Congressional hearings confirm this.349 The Act’s drafters confirm this.350 Why then was the Supreme Court unwilling to do so? Linguistics.

344 COMMITTEE ON THE JUDICIARY, AMENDING THE PATENT AND TRADEMARK LAWS, H.R. REP. NO. 96-1307, pt. 1, at 5 (1980). 345 See supra Parts III.B.3, III.C.2, and III.C.3. 346 35 U.S.C. § 200 (1980) (“[T]o use the patent system to promote the utilization of inventions arising from federally supported research or development.”); see generally Hearings, supra note 38. 347 35 U.S.C. § 200 (1980). 348 See supra Parts III.B.2 and III.C.2. 349 See supra Part III.D. 350 See supra Parts III.A.2, III.B.3, and III.C.3.

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B. Problems With Presupposing Effective Assignment Agreements

In Stanford v. Roche, the Supreme Court shifted default ownership of federally funded inventions from federal contractors to individual employee-inventors. The Court reasoned that because universities typically enter into assignment agreements with their employees as a condition of employment,351 the Court’s holding would not alter the ultimate disposition of intellectual property rights in federally funded inventions.352 Contractors would still acquire full title to their employee’s federally funded inventions, but they would do so through contract instead of operation of law.353 The Court’s reasoning, however, presupposes that the small businesses and universities the Bayh-Dole Act was designed to protect have effective employee assignment agreements containing the “do hereby assign” language identified in Stanford v. Roche.354 This is simply not the case. While the Court’s assumption may prove well-founded for large, sophisticated research universities, it is irrational to believe that the remaining multitude of universities and small businesses universally use “effective” employee assignment agreements consistent with Stanford v.

351 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2199 (2011). 352 Id. 353 Id. at 2197. 354 Id. at 2199.

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Roche. Perhaps we can reasonably expect large research universities with sophisticated technology transfer offices and considerable federal funding to maintain effective employee assignment agreements consistent with the Court’s expectations.355 Columbia University, MIT, and the University of Pennsylvania, for example, are all top-five research universities, and all three use assignment agreements that effectively transfer full title to the university consistent with the Supreme Court’s ruling.356 However, one does not have to look

355 See generally ELIZABETH D. CAPALDI ET AL., THE CENTER FOR MEASURING UNIVERSITY PERFORMANCE, THE TOP AMERICAN RESEARCH UNIVERSITIES: 2010 ANNUAL REPORT (2010) (ranking the top fifty research institutions based on factors like funding, academy members, faculty awards, and doctorates granted). 356 See COLUMBIA UNIVERSITY, ASSIGNMENT TO THE UNIVERSITY OF CERTAIN INVENTIONS, DISCOVERIES AND ASSOCIATED TECHNOLOGIES (2010), available at spa.columbia.edu/files.../Assignment_of_Inventions_instructio ns.pdf (“I further agree to assign, and do hereby assign, to Columbia all my rights, title, and interest in any Inventions . . . .”); MIT, INVENTIONS AND PROPRIETARY INFORMATION AGREEMENT FOR VISITING SCIENTISTS WITH SPONSORED RESEARCH AGREEMENT (2010), available at http://web.mit.edu/tlo/www/downloads/doc/IPIA_VSfSC.doc [hereinafter MIT VISITING SCIENTISTS WITH SPONSORED RESEARCH AGREEMENTS] (“I hereby assign to, M.I.T. all rights to all inventions . . . .”); UNIVERSITY OF PENNSYLVANIA, PARTICIPATION AGREEMENT, available at www.sas.upenn.edu/deans- office/.../ParticipationAgreement.pdf (“I hereby irrevocably assign to The Trustees of the University of Pennsylvania all right, title and interest in and to any and all such 259

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much deeper into the rankings to find research universities that to this date have not revised their assignment agreements to contain the “do hereby assign” language from Stanford v. Roche.357 For example, the University of Alabama, Arizona State University, and Texas A&M University, all top- twenty-five research universities, do not yet have “effective” assignment agreements.358 Some may argue that only a handful of research universities in this country, perhaps the top ten or fifteen institutions, receive the majority of federal funding and produce the most patented technologies. So long as these few institutions have effective assignment agreements then, Bayh-Dole

INVENTIONS, effective retroactively to my Start Date.”) (emphasis in original). 357 CAPALDI ET AL., supra note 355, at 16-18. 358 See UNIVERSITY OF ALABAMA, INTELLECTUAL PROPERTY AGREEMENT, available at hr.ua.edu/benefits/documents/IPAgreement06262007_002.pdf (“I particularly agree to . . . assign to the University (or its designee) all rights that I may have or may acquire in inventions, discoveries, or rights of patent therein. . . .”); ARIZONA STATE UNIVERSITY, PARTICIPATION AGREEMENT (2007), available at www.asu.edu/counsel/forms/ParticipationAgreement.pdf (“I agree to . . . assign to AzTE and/or ASU all rights to any invention or discovery if that is required by ASU’s obligations to external sponsors of research or by ASU policy.”); TEXAS A&M UNIVERSITY, INTELLECTUAL PROPERTY AGREEMENT (2009), available at agrilifeas.tamu.edu/library/pdf/forms/ag- 470.pdf (“I hereby agree to assign to The System every possible invention, innovation, discovery or patentable device, process, product, or improvement . . . .”).

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would operate for those institutions as intended, and the Supreme Court’s holding in Stanford v. Roche would have little practical effect.359 This too is untrue. Columbia, MIT, and Penn, the leading research institutions discussed above, received approximately $461 million, $495 million, and $482 million in federal funding respectively in 2008, while Alabama, Arizona State, and Texas A&M, the universities without effective assignment agreements, received approximately $303 million, $125 million, and $245 respectively in the same year.360 While the universities without effective assignment agreements did receive less federal funding than their Stanford v. Roche compliant counterparts, by no stretch of the imagination did the research universities without proper assignment agreements receive insignificant funding.361 These universities receive hundreds of millions of dollars per year from the federal government for research and yet are either unaware of the need to update their contracts, unsure of how to make the necessary changes, or unable to make timely changes to their policies. But surely research universities that do not yet have effective assignment agreements will employ them in the near future? Perhaps, but regardless, by shifting contractors’ rights from statutory rights under Bayh-Dole to contractual rights under Stanford v. Roche, the Court equates a

359 See supra Part V.C.4. 360 CAPALDI ET AL., supra note 355, at 16-18. 361 Id.

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handful of sophisticated, well-known research institutions with approximately 5,758 universities and countless small research companies in the United States.362 Federal regulations promulgated under Bayh-Dole do not limit the Act’s provisions to only large research universities.363 Universities of all sizes are included.364 Similarly, regulations promulgated under Bayh-Dole broadly define what qualifies as a small business entity. Small companies include manufacturing companies with less than 500 employees and non-manufacturing companies with less than $7 million in annual sales.365 While it is difficult to determine the number of entities that qualify under this definition as small businesses, a 2003 Small Business

362 COUNTRIES WITH MOST UNIVERSITIES, http://www.aneki.com/universities.html (last visited Nov. 15, 2011). 363 See generally Rights to Inventions Made by Nonprofit Organizations and Small Business Firms Under Government Grants, Contracts, and Cooperative Agreements, 37 C.F.R. § 401.2(h) (1995). 364 Id. (“The term nonprofit organization means universities and other institutions of higher education or an organizations described in section 501(c)(3) of the Internal Revenue Code . . . .”). 365 What size standards are applicable to programs for sales or leases of Government property?, 13 C.F.R. § 121.502(1) (2008) (“A concern primarily engaged in manufacturing is small for sales or leases of Government property if it does not exceed 500 employees.”); id. (“A concern not primarily engaged in manufacturing is small for sales or leases of Government property if it has annual receipts not exceeding $7.0 million.”).

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Association report (“SBA Report”) identified 501 small research companies with fifteen or more patents between 1996 and 2000.366 If 501 small companies with fifteen or more patents existed in 2000, the number of small businesses with fewer than fifteen patents can be presumed to be significantly greater. In fact, the SBA Report was forced to narrowly limit its inquiry to companies with between fifteen and forty-five patents because, otherwise, the number of small research companies was so large it made analysis infeasible.367 These small businesses are exactly the types of companies the Bayh-Dole Act was designed to protect.368 The small firms identified in the SBA Report were responsible for 41% of U.S. patents during last five years of the 1990s.369 These firms produced more highly cited patents than large firms and were granted thirteen to fourteen times more patents per employee than were large firms.370 Perhaps most importantly, patents procured by these

366 CHI RESEARCH, INC., SMALL SERIAL INNOVATORS: THE SMALL FIRM CONTRIBUTION TO TECHNICAL CHANGE 6 tbl.1 (2003) (prepared for the Small Business Association Office of Advocacy). 367 Id. at 4. 368 See supra Part VI.A. 369 CHI RESEARCH, INC., SMALL SERIAL INNOVATORS: THE SMALL FIRM CONTRIBUTION TO TECHNICAL CHANGE 3 (2003) (prepared for the Small Business Association Office of Advocacy). 370 Id. 263

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small firms were most closely linked to scientific research in high-tech areas.371 But for all of the leading edge technologies and federally funded patents produced at universities and small companies, there is no guarantee as to their legal savvy. Technological expertise has little to no bearing on these firms’ ability to recognize the need for precisely worded assignment agreements or how to go about drafting them. Put shortly, scientific sophistication does not equate to legal sophistication. This is what the Bayh-Dole Act was designed to remedy, and this is precisely what the Supreme Court has disregarded in Stanford v. Roche.372 The Bayh-Dole Act was designed to create a default rule vesting full ownership of federally funded inventions in federal contractors, whether they knew it or not.373 Despite wishes to the contrary, universities and small companies simply cannot be presumed to unilaterally understand or implement effective assignment agreements. Therefore, the Court’s holding in Stanford v. Roche severely threatens the Bayh-Dole Act’s successful application to all but the most sophisticated research institutions.374 Ultimately, by vesting full title to federally funded inventions in employee-inventors absent an explicit

371 Id. 372 See supra Parts V and VI.A. 373 See supra Part V. 374 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys. 131 S.Ct. 2188, 2199 (2011) (internal quotations omitted).

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and precisely worded assignment agreement to the contrary, the Supreme Court will likely divest of their rights thousands of federal contractors that have never heard the phrase “do hereby assign,” rights that Bayh-Dole was created to guarantee.

C. Suggested Amendments to Bayh- Dole

This section suggests minor changes Congress could make to the language of the Bayh- Dole Act to unequivocally, by operation of law vest full title to federally funded inventions in federal contractors, and in so doing, effectuate Congress’s intent for universities and small businesses to commercialize the products of federally funded research.375 The amendments suggested below are based on two statutes the Supreme Court specifically identified in Stanford v. Roche as unequivocally vesting title to federally funded inventions in a party other than the inventor.376 However, whereas the statutes on which these amendments are based create two-tier systems of rights, the amendments suggested here unequivocally establish the three-tiered system Congress intended to create by passing the Bayh- Dole Act. Additions to the statute are enclosed in [brackets] and excised portions are indicated by strikethrough.

375 See supra Part VI.A. 376 Suggested amendments to Bayh-Dole are based on 42 U.S.C. § 5908 (1974) and 42 U.S.C. 2182 (2000).

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Section 202. Disposition of rights (a) [Any subject invention shall vest in, and if patents on such invention are issued they shall be issued to the]377 Each nonprofit organization or small business firm[,] may, within a reasonable time after [except that the nonprofit organization or small business firm shall waive its claim to any such invention or discovery by failure to comply with]378 paragraph[s] (c)(1) [and (2)] of this section, elect to retain title to any subject invention: Provided, however, That a funding agreement may provide otherwise (i) when the funding agreement is for the operation of a Government-owned research or production facility, (ii) in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter or (iii)

377 Based on 42 U.S.C. § 5908 (1974) (“[T]itle to such invention shall vest in the United States, and if patents on such invention are issued they shall be issued to the United States . . . .”). 378 Based on 42 U.S.C. 2182 (2000) (“[E]xcept that the Commission may waive its claim to any such invention or discovery under such circumstances as the Commission may deem appropriate, consistent with the policy of this section.”).

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when it is determined by a Government authority which is authorized by statute or Executive order to conduct foreign intelligence or counter-intelligence activities that the restriction or elimination of the right to retain title to any subject invention is necessary to protect the security of such activities. The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter. . . . (c) Each funding agreement with a small business firm or non-profit organization shall contain appropriate provisions to effectuate the following: (1) A requirement that the contractor disclose each subject invention to the federal agency within a reasonable time after it is made and that the federal government may [shall] receive title to any subject invention not reported to it within such time. (2) A requirement that the contractor make an election to retain title to any subject invention within a reasonable time after disclosure and that the federal government may [shall] receive title to any subject invention

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in [to] which the contractor does not elect to retain rights or fails to elect [disclose its intention to retain] rights within such time. (3) A requirement that a contractor electing [to retain] rights file patent applications within reasonable times and that the federal government may [shall] receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times. (4) With respect to any invention in which the contractor elects [to retain] rights, the federal agency shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world, and may if provided in the funding agreement, have additional rights to sublicense any foreign government or international organization pursuant to any existing or future treaty or agreement. . . . (d) If a contractor does not elect to retain [waives] title to a subject invention in cases subject to this section, the federal agency may

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consider and after consultation with the contractor grant requests for retention rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder. These amendments would eliminate the Supreme Court’s linguistic issues with the Bayh- Dole Act by automatically and unequivocally vesting exclusive title to federally funded inventions in employee-contractors. As discussed, in coming to its decision in Stanford v. Roche, the Court placed significant emphasis on the definition of “subject invention” and its construction of the phrase “invention of the contractor.”379 Because the Court interpreted subject inventions to include only inventions already owned or belonging to the contractor, the Court held that Bayh-Dole only assures contractors retain title to whatever it is they already had.380 By amending Section 202(a) as suggested here, the Act would automatically and expressly vest in contractors full title to their employees’ federally funded inventions and any resulting patents on those inventions. All federally funded inventions would thus become subject inventions for purposes of the Act and would be subject to its three-tier disposition of rights. First, under these amendments, because Section 202(a) automatically vests title to all

379 See supra Part V.C.3. 380 Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2197 (2011).

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federally funded inventions in the federal contractor, amendments to the “elect to retain” language highlighted by the Court are unnecessary. As discussed, the Court interpreted the phrase “elect to retain” as only allowing contractors to “keep title to whatever it is they already have.”381 With the amendments to Section 202(a), so long as federal contractors complied with Section 202(c)(1) and (2)’s reporting requirements, they would simply retain the full title already vested in them. Section 210 of the Act establishing its precedence over all other Acts inconsistent with Bayh-Dole’s disposition of rights would then automatically divest inventors of any antecedent rights in their inventions despite the basic principle codified in the Patent Act that an inventor owns the rights to his inventions.382 Second, if and only if, a contractor failed to comply with Section202(c)(1) or (2)’s reporting requirements would full title automatically vest in the federal funding agency. The Court in Stanford v. Roche emphasized that inventors’ inherent rights in their patents can be divested only by explicit statutory language or by assignment.383 Under the modified language of Section 202(a), (c)(1) and

381 Id. 382 35 U.S.C. § 210 (1980) (“[T]his chapter shall take precedence over any other Act which would require a disposition of rights in subject inventions of small business firms or nonprofit organizations contractors in a manner that is inconsistent with this chapter . . . .”). 383 Roche, 131 S.Ct. at 2199.

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(c)(2), no transfer or assignment would be required. Through use of the term “shall” instead of “may,” the federal contractor would be divested of all property rights and the federal agency would gain full title to the federally funded invention by operation of law. Third, Section 202(d) would allow federal agencies to grant inventors’ requests for rights in their inventions only with federal agency approval and only after the federal contractor clearly waived its exclusive rights in the inventions. The phrase “does not elect to retain title” is replaced with “waived” to refer specifically to the language in Section 202(a) establishing waiver as the only method by which federal contractors may be divested of exclusive rights to federally funded inventions. As defined in Sections 202(c)(1) and (2), a federal Contractor can only waive its exclusive rights through 1) failure to disclose a subject invention to its funding federal agency, or 2) failure to elect to retain title to a subject invention. In addition, removal of the term “retain” from Section 202(d) clarifies that by operation of Section 202(a), employee-inventors never had any rights to their federally funded inventions. Only if a federal contractor waives its exclusive rights does Section 202(c)(1) or (2) vest full title in the federal agency, and only if the federal agency so chooses can the employee-inventor acquire rights in his or her invention. Thus, with only minor amendments, Congress’s intent as established by the Bayh-Dole Act’s legislative history can be unambiguously and

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effectively implemented. By automatically and unequivocally vesting full title to federally funded inventions in federal contractors as a default rule, even unsophisticated companies and universities will retain full rights to their employee’s inventions. An institution’s ability to retain the rights necessary to invest in a technology and to commercialize products stemming from that technology will not turn on a four word trap for unwary assignment drafters, i.e., “I do hereby assign.” Instead, title will automatically vest in the companies and universities that receive both public tax dollars and Congress’s blessing to innovate and maintain America’s position at the world’s leading edge.

VII. CONCLUSION

In the roughly thirty years since the Bayh- Dole Act’s inception, three things have become clear. First, neither the federal government nor individual inventors are particularly adept at developing basic, foundational technologies into commercially viable products that can benefit the public.384 Second, because of these shortcomings, Congress intended for the Bayh-Dole Act to vest sole title, and therefore, sole responsibility in federal contractors to successfully commercialize federally funded technologies.385 Third, it worked. The past thirty years have seen a proliferation of federal funding, research, patenting, and

384 See supra Parts II and VI.A. 385 See supra Part VI.A.

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commercialization that simply did not exist before the Bayh-Dole Act.386 What remains uncertain, however, is how the Supreme Court’s decision in Stanford v. Roche will bear on the country’s technological future. Because significant numbers of universities and small companies are unlikely to fully recognize the significance of Stanford v. Roche, innovation and commercialization by these groups is likely to suffer. However, by making some very minor linguistic changes to the Bayh-Dole Act, Congress can insure continued incentives for small companies and universities to commercialize, renew American innovation and productivity, and continue the legacy Bayh-Dole’s drafters began thirty years ago.

386 See generally Hearings, supra note 38.

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