The Bayh-Dole Act, 35 U.S.C. §§ 200-2121, creates a program that, ostensibly, encourages the practical use of inventions that are supported by federally funded research. As stated in Bayh-Dole, Congress seeks "to use the patent system to promote the utilization of inventions arising from federally supported research or development."2 The Bayh-Dole Act aims to promote small businesses and provide fair compensation to the inventors of the underlying technology. Congress seeks to accomplish this goal through various requirements.
Funding Agreements and the Requirement to Report on Utilization
Under Bayh-Dole, any funding agreement between a federal agency and a contractor that results in patentable inventions requires the contractor to report the discovery or technology to the funding agency within a reasonable time.3 Generally, the contractor must disclose the invention or patentable matter to the federal agency within two months of the inventor disclosing their invention to the contractor.4 In the disclosure, the contractor must identify the contract with the federal agency that funded the research and identify the inventors.5 In the disclosure, the contractor must sufficiently explain the technology and the invention so that the federal agency can clearly understand it.6 Further, Bayh-Dole requires that the contractor inform the federal agency funding the contract if the invention is or will be published in any publication.7
Another provision of Bayh-Dole requires the contractor to elect to retain title to the disclosed invention within two years of the disclosure of the invention to the federal agency.8 If the contractor elects to retain title to the disclosed invention, then the contractor is required to file a patent application in the United States before any statutory bars to filing a patent application occur.9 As part of the requirement to elect and file a patent application, contractors must also file foreign patent applications in any foreign country where they wish to retain rights to the invention.10 Otherwise, the federal agency can retain rights to the invention in those foreign countries.11 Importantly, the federal agency retains the right to require "periodic reporting on the utilization or efforts at obtaining utilization that are being made by the contractor, his licensees, or assignees."12 To effectuate this portion of the statute, the agreements between the contractor and the federal agency must include language that requires reporting by the contractor on utilization efforts on a periodic basis "no more frequently than annually."13 The contractor must include information on the status of development, date of sale or use, royalties received and other data reasonably specified by the federal agency.14
Federal Agencies' March-In Rights
Reporting on the utilization of the subject invention is important because failure to utilize the subject invention satisfactorily can trigger "march-in rights." March-in rights permit the federal agency to require the contractor to grant a license to the invention to a third party so that the invention may be utilized.15 And if the contractor refuses to grant the license, the federal agency can grant a license to a third party to utilize the invention.16 There are four situations where the federal agency can march-in.
- First, if the federal agency determines that "action 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," the federal agency can march-in.17
- Second, if the federal agency determines that "action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees," the federal agency can march-in.18
- Third, if the federal agency determines that "action 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," the federal agency can march-in.19
- Fourth, if the federal agency determines that "action 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," the federal agency can march-in.20 This situation applies to the Bayh-Dole Act's preference for industrial activity related to a subject invention to occur in the U.S.21
The Code of Federal Regulations provides further information regarding the process in which the government must engage to exercise march-in rights.22 Noteworthy, since the passage of the Bayh-Dole Act in 1980, no federal agency has ever exercised march-in rights.23
Proposed Agency Guidance Regarding Use of Federal March-In Rights
On July 9, 2021, President Biden signed Executive Order 14036, "Promoting Competition in the American Economy."24 This order sets out many different policy goals, all ostensibly directed at increasing competition within the U.S. economy and increasing the competitiveness of the U.S. economy with foreign economies. One policy goal addresses the problem that "Americans are paying too much for prescription drugs" and that this problem is due in part to "patent and other laws hav[ing] been misused to inhibit or delay—for years and even decades—competition from generic drugs and biosimilars."25 To move the policy goal forward, the order instructs the National Institute of Standards and Technology (NIST) to "consider initiating a rulemaking to require agencies to report to NIST, on an annual basis, their contractor's utilization activities, as reported to the agencies under 35 U.S.C. 202(c)(5)."26
In response, NIST published a Notice and Request for Information "regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In rights."27 The notice "reviews the factors that an agency may consider when deciding whether to exercise march-in rights."28 The framework proposed by the guidance requires the federal agency to answer three broad questions to determine if the exercise of the march-in right is warranted.
- The federal agency must determine: Does the Bayh-Dole Act apply?29
- If Bayh-Dole applies, the federal agency must determine whether a statutory criterion is met.30
- If a statutory criterion is met, then the federal agency must determine if exercising the march-in right would support the policy and objectives of Bayh-Dole.31
To determine if Bayh-Dole applies, the federal agency must evaluate whether the inventions under consideration are subject inventions, which are "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement."32 The inventions can be either inventions that were reported to the federal agency to be subject inventions or the inventions can be unreported subject inventions.33 Essentially, the subject inventions will either be acknowledged by the contractor to be subject to the provisions of Bayh-Dole or there will be evidence that the subject invention was a result of federal funding.34 For example, the patent for the subject invention may acknowledge federal funding on its face.35
If the federal agency determines the Bayh-Dole Act applies, the federal agency must determine if the statutory criterion for march-in as articulated in Bayh-Dole are met.36 As previously articulated, the federal agency assesses if "action 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."37 In this regard, the federal agency should consider "steps that contractors have taken to develop and achieve practical application of the subject invention."38 For example, has the subject invention been licensed, and is there a product embodying the subject invention?39 Another question the federal agency should consider is whether the product embodying the subject invention is being offered at a price or on reasonable terms.40
If the federal agency determines that "action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees,"41 the federal agency should consider what health or safety need exists that is not being satisfied or addressed and how action by the federal agency to march-in will address the health or safety need.42 For example, is there a health or safety need that the contractor is exploiting in an unjustified manner?43
If the federal agency determines that "action 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,"44 the federal agency determines if the contractor is taking reasonable steps to meet public use requirements as per other federal regulations.45
If the federal agency determines that "action 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,"46 the agency must determine the location of the subject invention's manufacturing. If manufacturing occurs outside of the U.S., a waiver is required or should have been obtained.47
Third, if a statutory criterion is met, the federal agency must then evaluate whether the exercise of the march-in right would support the policy and objective of Bayh-Dole.48 As articulated in the notice, "[t]he foundation of Bayh-Dole's policies and objectives reflect two themes (among others): promoting the development of new products in the U.S. and their availability to end-users or consumers in the U.S."49 The query is context-specific and must be thoroughly evaluated in each case. The federal agency may consider if march-in would "help achieve practical application, alleviate health or safety needs, meet public use requirements, or meet manufacturing requirements."50 The federal agency should consider whether there are "other ways to address the identified problem, and can those alternatives be pursued instead of or in parallel with any march-in proceedings."51 The federal agency should also consider "the wider implications of use of march-in."52 The notice provides further queries underneath each of these broad questions to help the federal agency further evaluate the necessity exercising or of not exercising the march-in right.
As previously noted, the federal government has never exercised the march-in right. The suggestion in the executive order and the concrete action to produce the guidance to evaluate when using the march-in right is appropriate indicates a potential shift in the federal government's position. Many in the government, research organizations, and industry expressed concern that the executive order and guidance represent a fundamental change in the implementation of Bayh-Dole.
Possible Legislative Response to March-In Right Guidance
In January 2024, Senators Thom Tillis and Chris Coons introduced legislation directed at the Bayh-Dole Act and possibly the Biden Administration's move to increase use of the federal government march-in rights. In particular, Senators Tillis and Coons are concerned that the reporting process as it currently exists under Bayh-Dole is inefficient and burdensome.53 While not explicitly stated, the timing of the proposed legislation implies that Senators Tillis and Coons are concerned that, under the new guidelines, difficulties in the reporting process may lead many small businesses and non-profits to inadvertently fall under the purview of march-in rights. Rather than due to the contractor's lack of technology development, the contractor may lose its property rights because the contractor is unable to report its efforts accurately and efficiently.
The proposed legislation requests studies on the "Impact of Bayh-Dole Act Regulations on Contractors in the United States."54Additionally, if passed, the proposed legislation requires that approximately a year and a half following passage, the Comptroller General of the U.S. will produce a report.55 The report will include: the percentage of inventions not elected by contractors; automatic extensions of time for reporting; the impact of the reporting requirements on the competition with foreign actors; how federal agencies use the reporting; barriers the reporting requirements create; how much time and effort non-profits must spend to comply with the reporting requirements; difficulties faced by contractors in reporting with the iEdison system of the NIST; whether a single disclosure system would be beneficial; and how many disclosure systems are currently being used to comply with Bayh-Dole.56
Assessing the Impact of the Proposed Legislation
On its face, the proposed legislation is fairly innocuous. Senators Coons and Tillis appear to simply want additional information that could be used to help improve the efficiency of reporting under Bayh-Dole. And that may be the case. However, given the timing of the proposed legislation, it is not unreasonable to draw the inference that the proposed legislation is intended to develop a record by which further legislation can be crafted to blunt any uses of the march-in right by the federal government.
For example, the information obtained through the proposed legislation could be used to create a single-point system through which small businesses and non-profits report on their efforts to commercialize technology funded by the federal government. A single-point system could ease any burden of the reporting requirements by standardizing the location and information that federal agencies could collect. Alternatively, a single-point system could overly simplify the information collected so that agencies are unable to easily obtain useful information about commercialization efforts. The mere existence of a system may also create a presumption that if the contractor has provided whatever bare-bones information the system requires, the contractor is making sufficient efforts to commercialize the technology.
The proposed guidance isn't without its issues, either. Any time accountability and transparency are increased, the administrative burden placed on the entity being held accountable or attempting to be transparent will also increase. Thus, if the federal government explores a stricter evaluation of grant and contract recipients under Bayh-Dole, it is likely that the administrative system responsible for handling and responding to the many information requests associated with assessing the appropriateness of march-in rights will significantly increase. This could divert money intended for education and research to additional bureaucracy.
Final Thoughts
This issue arises during an election year; historically, legislation doesn't often pass during such periods. Additionally, the current Congress appears more dysfunctional and less capable of advancing legislation than many in recent memory. Despite its bipartisan backing and limited requests, the probability of the legislation proposed by Senators Tillis and Coons becoming law seems remote. Consequently, the likelihood of the federal administration proceeding with the implementation of their guidance for evaluating the use of march-in rights is heightened.
The potential impact of the guidance hinges largely on the outcome of the November 2024 election. If President Biden remains in office, the federal administration may proceed with efforts to potentially invoke march-in rights under Bayh-Dole. If Donald Trump is elected again, the federal administration is unlikely to continue to pursue an expanded and increased use of march-in rights. Even if the federal administration moves forward, contractors receiving federal research funds are and will continue to be subject to the requirements of the Bayh-Dole Act. Over the last forty years, contractors have come to expect that march-in rights will not be used. Any change to that expectation has the potential to dramatically change the landscape of federally funded research.
Footnotes
1. 35 U.S.C. §§ 200-212. 35 USC Ch. 18: PATENT RIGHTS IN INVENTIONS MADE WITH FEDERAL ASSISTANCE (house.gov)
2. Id. at 200.
3. 35 U.S.C. § 202(c)(1).
4. 37 C.F.R. § 3.14(c)(1).
5. Id.
6. Id.
7. Id.
8. 35 U.S.C. § 202(c)(2).
9. 35 U.S.C. § 202(c)(3).
10. Id.
11. Id.
12. 35 U.S.C. § 202(c)(5).
13. 37 C.F.R. § 401.14(h).
14. Id.
15. 35 U.S.C. § 203(a).
16. 35 U.S.C. § 203.
17. 35 U.S.C. § 203 (a)(1).
18. 35 U.S.C. § 203(a)(2).
19. 35 U.S.C. § 203(a)(3).
20. 35 U.S.C. § 203(a)(4).
21. 35 U.S.C. § 204.
22. 37 C.F.R. § 401.6.
23. Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 Fed. Reg. 85,593, 85,596 (Dec. 8, 2023).
24.] Promoting Competition in the American Economy, 86 Fed. Reg. 36,987 (July 14, 2021).
25.] 86 Fed. Reg. 36,988.
26 86 Fed. Reg. 36,998.
27 Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 Fed. Reg. 85,593 (Dec. 8, 2023).
28 Id.
29 88 Fed. Reg. 85,597.
30 Id.
31 Id.
32 88 Fed. Reg. 85,595.
33 88 Fed. Reg. 85,597.
34 88 Fed. Reg. 85,597-98.
35 88 Fed. Reg. 85,597.
36 88 Fed. Reg. 85,598.
37 35 U.S.C. § 203 (a)(1).
38 88 Fed. Reg. 85,598.
39 Id.
40 Id.
41 35 U.S.C. § 203(a)(2).
42 88 Fed. Reg. 85,599.
43. Id.
44. 35 U.S.C. § 203(a)(3).
45. 88 Fed. Reg. 85,599.
46. 35 U.S.C. § 203(a)(4).
47. 88 Fed. Reg. 85,599.
48. 88 Fed. Reg. 85,600.
49. Id.
50. Id.
51. Id.
52. Id.
53. Tillis, Coons Introduce the Improving Efficiency to Increase Competition Act – T... (senate.gov).
54. Improving Efficiency to Increase Competition Act, S.3569, 118th § 2 (2024).
55. S.3569 § 2(b)(1).
56. S.3569 § 2(b)(2)(A)-(I).
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