Bayh-Dole Compliance Requires Your Attention: Best Practices For Universities, Companies, Investors, Strategic Partners, And Acquirors

A significant number of inventions made at academic and research institutions, non-profit research organizations and businesses are developed with federal government funding. The Bayh-Dole Act of 1980 provided a clear path for federal grant recipients to secure ownership of patent rights so long as they complied with the Act's provisions.

Failures to comply with Bayh-Dole Act provisions may, however, give the government a discretionary right to take ownership of such inventions (albeit extremely rarely exercised) or the right to "march-in" by forcing a license to a third party (albeit not exercised as of the date of this post). Although federal agencies have not traditionally exercised such rights, the Federal government has recently telegraphed a willingness to exercise them, most clearly with a letter from the U.S. Department of Commerce to the President of Harvard University expressing concerns with Harvard's compliance with "statutory, regulatory and contractual requirements tied to Harvard's federally funded research programs and intellectual property arising therefrom, including patents."

Below is a tip sheet for what universities, companies, investors, strategic partners and acquirors should be doing to minimize their Bayh-Dole Risk. Access an in-depth article summarizing the Bayh-Dole Act's compliance requirements, associated risks and risk mitigation strategies here.

TIP SHEET

BEST PRACTICES FOR MINIMIZING BAYH-DOLE RISK

Failure to comply with Bayh-Dole can give the government the right to exercise "march-in" rights to, and even ownership of, inventions that were developed using government funding. With the government telegraphing an enhanced willingness to exercise these rights:

• grant recipients need to be extremely diligent in their Bayh-Dole compliance efforts,
• licensees and licensors need to consider bolstering their license agreements, and
• potential investors, strategic partners and acquirors need to do their due diligence on those efforts to avoid unpleasant surprises.

1. GRANT RECIPIENTS (Universities, Research Institutes and Companies)

• Prompt invention disclosure
  • Have employment agreements requiring research employees to promptly disclose inventions and containing present assignment language assigning their rights to inventions to the employer
  • Train research employees consistently on the importance of prompt disclosure
• Prompt assessment of Bayh-Dole relevance
  • Promptly after receipt of invention disclosures, have employees responsible for Bayh-Dole compliance perform a detailed assessment whether an invention is a "subject invention" under Bayh-Dole together with appropriate intellectual property professionals
  • Develop checklists to assist research employees in providing relevant information to responsible employees and to assist such employees and intellectual property professionals in "subject invention" analysis
  • Turn to legal counsel for guidance where the assessment requires complex factual and/or legal analysis
  • Keep clear documentation regarding the diligence that was performed for the assessment and the rationale underlying the conclusions that were reached
• Make timely iEdison filings
  • Have procedures in place for timely compliance with disclosure (within 2 months of inventor's disclosure), title election (within 2 years of disclosure and at least 60 days before a statutory deadline), government license and reporting procedures via iEdison
  • Make sure that people responsible for making the filings are aware of all ongoing reporting obligations (including utilization reports, patent application filing reports, patent issuance reports, reports relating to acceptance for publication of manuscripts describing "subject invention," reports prior to grant award close-out, etc.)
  • Monitor and audit the people responsible for making the filings to ensure the filings are being made, and on a timely basis
• Make timely IP filings
  • Have procedures in place for timely filing of initial (provisional) patent application (within 1 year of title election and before a statutory deadline) and subsequent (non-provisional) patent application (within 10 months of the provisional in the absence of an extension)
  • Include a government support statement in patent applications
  • If desired, file a request with iEdison to extend the deadline for filing a non-provisional application (until 12 months from provisional filing)
  • File a pre-abandonment notice via iEdison at least 60 days before letting patents and patent applications go abandoned
  • Train employees on the importance of communicating relevant information to legal counsel handling patent applications (including the timing of title election, any statutory bars, and whether an extension of time to file a non-provisional application was obtained) and to iEdison.
• Continual monitoring
  • Reassess whether an invention is a "subject invention" under Bayh-Dole when inventorship is corrected and/or when a substantial amendment to the claims of a patent application is made
  • Train employees on the importance of considering Bayh-Dole compliance when correcting inventorship, making a substantial amendment to the claims of a patent application, or filing new divisional or continuation patent applications
• Keep detailed records
  • Keep detailed records of all submissions by the inventors, "subject invention" analyses, iEdison filings, and patent application filings, sufficient to demonstrate compliance if audited

2. LICENSEES AND LICENSORS

• Licensees should:
  • Given the heightened risk, consider seeking a specific representation in license agreements as to the satisfaction of the various components of Bayh-Dole compliance by licensors in addition to a general "compliance with law" representation
  • Obtain an ongoing covenant referencing specific existing Bayh-Dole compliance obligations, including with disclosure, election, filing and the reporting requirements
  • Consider obtaining an additional covenant specifically referencing any reporting that may be required if any reassessment referenced above newly results in an invention being a "subject invention" under Bayh-Dole
  • Licensees may want to consider termination rights, adjustments to license consideration, or express indemnification or damages provisions addressing losses of exclusivity or losses of intellectual property rights arising from federal government action
• Licensors should:
  • Exercise a preference for small business licensees (when appropriate and reasonable under the circumstances)
  • Continue to include traditional Bayh-Dole clauses seen in license agreements, including:
    • acknowledgment that the U.S. government retains rights in intellectual property funded under any grant or similar contract with a federal agency,
    • a statement that the license is expressly subject to all applicable U.S. government rights,
    • obligations to use diligent efforts to commercialize subject inventions, and
    • for exclusive licenses, a requirement that any product embodying the funded subject invention or produced through the use of the funded subject invention will be manufactured substantially in the United States
  • Include a clause requiring cooperation in regard to iEdison reporting obligations, including preparation of annual utilization reports
  • University licensors may want to expressly disclaim liabilities arising out of any loss of intellectual property rights or exclusivity arising out of failures to comply with Bayh-Dole requirements
  • Commercial licensors may want to directly address the implications of any loss of intellectual property rights or exclusivity arising out of failures by them or upstream licensors to comply with Bayh-Dole requirements, including impacts on limitations of liability and indemnification, and expressly contemplate how to deal with a loss or narrowing of rights
  • University/non-profit licensors should have an internal policy on royalty sharing with inventors
  • University/non-profit licensors should make sure that, apart from allowable expenses (such as royalty sharing with inventors), royalties are used to support research or education
• Diligence
  • Licensees should request and carefully review all records of the licensor and all upstream licensors related to Bayh-Dole compliance
  • Even where a licensor has indicated that licensed intellectual property was not federally funded (and thus not subject to the requirements of Bayh-Dole), request information about research conducted under all federal grants relating to the subject matter of the license, to investigate whether licensed intellectual property perhaps should have been characterized as a "subject invention" (and subject to Bayh-Dole compliance)

3. INVESTORS, STRATEGIC PARTNERS AND ACQUIRORS

• Agreement provisions
  • Given the heightened risk, consider seeking a specific representation in agreements as to the satisfaction of the various components of Bayh-Dole compliance by the target and all upstream licensors—resist knowledge qualifications on the basis of fair risk allocation
  • Consider a special indemnification that is not subject to a cap in the event of loss or narrowing of IP rights
  • Be mindful that "domestic manufacturing waivers" may be more difficult to obtain in the future
• Diligence
  • Request and carefully review all records of the target and all upstream licensors related to Bayh-Dole relevance (as outlined above) and Bayh-Dole compliance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.