Authored by Scott J. Popma
In 2011, the most substantial patent legislation since the 1950s was passed, the America Invents Act ("AIA"), Pub. L. No. 112-29, 125 Stat. 288, 293 (2011). It has broad-ranging effects on many areas of patent law, including important revisions to the Bayh-Dole Act ("BDA"), which was passed in 1980 to facilitate the transfer of inventions arising from federally funded research to the private sector.
The BDA permits government contractors, such as universities or small businesses, to retain title to their inventions if they fulfill a series of obligations, including disclosing the invention to the federal agency funding the underlying research, electing to retain title, and filing corresponding patent applications covering the inventive subject matter. There are strict timing requirements tied to these disclosure and filing obligations, and failure to comply could lead to forfeiture.
The AIA amended several provisions of the BDA, including various timing requirements. Although the AIA's amendments to the timing requirements appear to preserve the pre-AIA one-year grace period for electing to retain title and filing patent applications, in reality, the AIA's landmark amendments to 35 U.S.C. § 102(a) may negate the grace period. The AIA also changed provisions governing the share of licensing royalties and income earned by nonprofit organizations operating government-owned facilities. Contractors who seek to retain the rights to their inventions must understand the scope and effect of the AIA's amendments to the BDA.
II. Understanding the AIA's Impact on the Bayh-Dole Act
The AIA is considered the most significant patent legislation since the Patent Act of 1952, P.L. 82-593.1 It was intended "to establish a more efficient and streamlined patent system . . . [to] improve patent quality and limit unnecessary and counterproductive litigation costs."2 Of particular focus here, the AIA amended § 202(c) of the BDA affecting (1) the timing of certain disclosures by contractors seeking to retain rights to inventions developed at least in part with government funds, and (2) the commercialization incentive for contractors operating government-owned facilities.
A. Impact on the Timing of the Required Steps for Retention of Title
Contractors seeking to retain rights to a government-funded invention must follow at least three steps dictated by § 202(c)(1)-(3) of the BDA. First, any contractor that wishes to retain title must first disclose the invention to the relevant federal agency in accordance with any governing funding agreement. Under subsection 202(c)(1) (which was not amended by the AIA) and the implementing regulations, a contractor must disclose to the federal agency each subject invention in a written report, identifying the contract under which the invention was made and the inventor(s), within two months "after the inventor discloses it in writing to contractor personnel responsible for patent matters."3 If the contractor does not adequately disclose the invention, the federal government may receive title.4
Section 3(g)(7) of the AIA, however, amended the timing requirements for the second and third steps under § 202(c)(2)- (3) of the BDA, as shown below:
(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following:
(2) That the contractor make a written election within two years after disclosure to the Federal agency (or such additional time as may be approved by the Federal agency) whether the contractor will retain title to a subject invention: Provided, That in any case where publication, on sale, or public use, has initiated the one year statutory period in which valid patent protection can still be obtained in the United States the 1-year period referred to in section 102(b) would end before the end of that 2-year period, the period for election may be shortened by the Federal agency to a date that is not more than sixty days prior to the end of the statutory before the end of that 1-year period: And provided further, 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 times.
(3) That a contractor electing rights in a subject invention agrees to file a patent application prior to any statutory bar date that may occur under this title due to publication, on sale, or public use the expiration of the 1-year period referred to in section 102(b), and shall thereafter file corresponding patent applications in other countries in which it wishes to retain title 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.5
As reflected above, a contractor's second step under § 202(c)(2) of the BDA, is to make a written election to retain title to a subject invention within two years after the invention is disclosed.6 In the event of a pre-filing disclosure of the invention, however, the time for election of rights can be shortened by the agency to a date that is not more than 60 days prior to the end of the one-year statutory period provided by the AIA's new 35 U.S.C. § 102(b).7
Third, under the AIA's amendments to § 202(c)(3), a contractor electing rights must file a patent application before the expiration of the one-year period referred to in amended § 102(b), and file corresponding patent applications in other countries in which the contractor wants to retain title within a reasonable time.8 Although the BDA's implementing regulations provide standard patent rights clauses that proscribe additional time periods for compliance, requests for extensions of time may be granted by an agency at its discretion.9
Although the AIA's amendments to §§ 202(c)(2) and (3) appear to preserve the one-year grace period under pre-AIA § 102(b) for electing to retain title and filing patent applications, in reality, other AIA changes to § 102(a) may negate the grace period. In particular, the AIA amended § 102(a) to expand the scope of prior art under the new "first-to-file" system.10 Before the AIA, § 102(a) tied the definitions of prior art to the date of invention, whereas prior art now will be tied to the "effective filing date of the claimed invention."11 Inventors no longer will be able to "swear behind" intervening art (i.e., art developed between an inventor's date of invention and patent application filing date). This change undoubtedly will put pressure on contractors to disclose potential inventions before they are required to under § 202 in an effort to avoid intervening art.
B. Impact on Provisions Specific to Nonprofit Organizations
The BDA imposes additional requirements for funding agreements with nonprofit organizations, two of which were amended by the AIA at least in part to increase the incentives to commercialize certain government funded inventions.12
First, the AIA amended the BDA requirement that nonprofits give a preference in the licensing of subject invention to small business firms except where it "proves" infeasible after a reasonable inquiry.13 The AIA amended the language of § 202(c)(7)(D) by changing "proves" to "determined to be" such that the statute will read: "except where it is determined to be infeasible following a reasonable inquiry."14
Second, the AIA amended § 202(c)(7)(E) by increasing the percentage of royalties and income earned by a contractor operating a government-owned facility.15 When royalties and earned income exceed "5 percent of the annual budget of the facility," a contractor can now keep 85%, rather than 25%, of that excess for "scientific research, development, and education consistent with the research and development mission and objectives of the facility."16 Consequently, the remaining 15%, rather than 75%, is paid to the Treasury of the United States.17 In keeping with the policy goals of the BDA, the amendments maintain the incentives for universities and small businesses operating government-owned facilities to commercialize subject inventions arising from research performed therein.18
III. Complying with the Revised BDA
The AIA amendments to title 35 of the U.S. Code affected the BDA directly, through amendments to § 202, and indirectly, through amendments to § 102. These changes have broad implications for the disclosure, election, and patent filing obligations of government contractors wishing to protect their rights in inventions developed with government funding. Failure to abide by the strictures of the BDA can result in the forfeiture of an invention and negate a contractor’s potentially significant investment in underlying research and development.
The amendments to § 102 also place an inherent tension on a contractor's ability to comply with the requirements of the BDA while protecting its potential rights to government funded inventions. No longer can a contractor rely on an employee's date of invention as a basis for patent rights. Instead, contractors need to implement efficient procedures to identify, disclose, elect, and file patent applications to best protect their rights while not risking forfeiture for noncompliance and minimizing the potential for intervening art. To best accomplish these tasks, contractors must be attentive to developments in the law, including judicial interpretations of the AIA amendments, to fully comply with the requirements of the BDA.
1 S. Rep. No. 112-98 (part 1), at 38 (2011).
2 Id. at 40.
3 37 C.F.R. § 401.14(a) (2011) ("Patent Rights" clause (c)(1), "Invention Disclosure, Election of Title and filing of Patent Application by Contractor"); 35 U.S.C. § 202(c)(1) (stating that a contractor must disclose within a "reasonable time" after it becomes known to contractor personnel responsible for the administration of patent matters). The disclosure must also "identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication, and if so, whether it has been accepted for publication at the time of disclosure." 37 C.F.R. § 401.14(a) (2011) ("Patent Rights" clause (c)(1), "Invention Disclosure, Election of Title and filing of Patent Application by Contractor"). In addition, the contractor must notify the agency even after disclosure if a manuscript is accepted for publication or the subject invention is planned for sale or public use. Id.
4 35 U.S.C. § 202(c)(1) (2006).
5 See AIA, Pub. L. No. 112-29, § 3(g)(7)(A)(i)-(ii), § 3(g)(7) (B), 125 Stat. 288, 293 (2011). The additions to the statute are reflected by the underlined text below, while the deletions are shown in strike-through. These amendments take effect on March 16, 2013. AIA, Pub. L. No. 112-29, § 3(n), 125 Stat. 288, 293 (2011).
6 35 U.S.C. § 202(c)(2) (2006).
7 See AIA, Pub. L. No. 112-29, § 3(g)(7)(A)(i)-(ii), 125 Stat. 288, 293 (2011).
8 See id., § 3(g)(7)(B). Any patent application filed by a contractor in accordance with the BDA must include a statement specifying that the invention was made with government support and that the government has certain rights in the invention. 35 U.S.C. § 202(c)(6) (2006); see 37 C.F.R. § 401.14(a) (2011) ("Patent Rights" clause (f)(4)) (specifying the language to include).
9 37 C.F.R. § 401.14(a) (2011) ("Patent Rights" clause (c)(4)).
10 See AIA, Pub. L. No. 112-29, § 3(b)(1), 125 Stat. 285, 293 (2011).
11 Compare 35 U.S.C. § 102(a) (2006) with AIA, Pub. L. No. 112-29, § 3(b)(1), 125 Stat. 285, 293 (2011). The changes to § 102 take effect on March 16, 2013. Id., § 3(n).
12 In addition to the two requirements discussed in this part of the article, the BDA also requires the following for nonprofits: (1) agency approval before assigning rights to a subject invention in certain circumstances; (2) sharing royalties with the inventor(s); and (3) that the balance of any royalties or income earned by a contractor from the subject inventions be used to support "scientific research or education."35 U.S.C. § 202(c)(7)(A)-(C) (2006) (noting that the last requirement does not apply to a funding agreement for the operation of a government-owned-contractor-operated facility); see Platzer v. Sloan-Kettering Inst. for Cancer Research, 787 F. Supp. 360, 368 (S.D.N.Y. 1992) (holding that the BDA does not require a contractor to share a specific royalty percentage with an inventor).
13 35 U.S.C. § 202(c)(7)(D) (2006). The regulations acknowledge that "[w]hat constitutes reasonable efforts . . . will vary with the circumstances and the nature, duration, and expense of efforts needed to bring the invention to market." 37 C.F.R. § 401.7(a) (2011).
14 See AIA, Pub. L. No. 112-29, § 20(i)(2)(B), 125 Stat. 334, 335 (2011). This amendment will take effect on September 16, 2012. See id., §20(l).
15 AIA, Pub. L. No. 112-29, § 13(b), 125 Stat. 327 (2011).
16 35 U.S.C. § 202(c)(7)(E)(i)-(ii) (2006); AIA, Pub. L. No. 112-29, § 13(b), 125 Stat. 327 (2011) (also noting that these amendments took effect on September 16, 2011, and apply to any patent issued before, on, or after that date).
17 35 U.S.C. § 202(c)(7)(E)(i)-(ii) (2006); AIA, Pub. L. No. 112-29, § 13(b), 125 Stat. 327 (2011).
18 S. Rep. No. 112-98 (part 1), at 51 (2011).
Originally printed in The Federal Circuit Bar Association Bench & Bar. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.