Government Grant and Contract News for Nonprofits – April 2018

5 min

The U.S. Department of Commerce's National Institute of Standards and Technology (NIST) just issued a final rule changing its regulations implementing the Bayh-Dole Act. Here is what small businesses and nonprofit organizations, such as universities, that create inventions with federal funds need to know.

What Is the Bayh-Dole Act and Why Does It Matter?

Enacted in 1980 as the Patent and Trademark Law Amendments Act (Pub. L. No. 96-517) and amended in 1984 by the Trademark Clarification Act of 1984 (Title V of Pub. L. No. 98-620) and again in 2000 by the Technology Transfer Commercialization Act of 1999 (Pub. L. No. 106-404), the Bayh-Dole Act generally gives small businesses and nonprofit organizations the option to retain title to inventions made under government contracts, grants, or cooperative agreements that are for the performance of experimental, developmental, or research work. The implementing regulations are found at 37 C.F.R. Part 401 and Federal Acquisition Regulation (FAR) Subpart 27.3.

The Bayh-Dole Act balances multiple objectives, including ensuring "that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery" and "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." 35 U.S.C. § 200. Though it has become the foundation for much of the federal government's patent policy, it does not address or change the standards for the patentability of inventions. Since the Bayh-Dole Act's passage, nonprofit and university patents and licenses have increased substantially.

What Is Changing as a Result of NIST's New Final Rule?

Here is a summary of changes in the new rule to be aware of:

  • No Government Time Limit to Request Title – The standard patents rights clause that is inserted into applicable agreements requires conveyance of title in subject inventions to the government "[i]f the contractor fails to disclose or elect title to the subject invention within the times specified in" the rules, "or elects not to retain title." 37 C.F.R. § 401.14(d)(1). Under current law, however, there is a caveat: title transfers "provided that the agency may only request title within 60 days after learning of the failure of the contractor to disclose or elect within the specified times." Id. The new rule eliminates this 60-day time limit. NIST justifies this change, over several commenters' objection, by stating that "[a] contractor's failure to timely disclose or elect title to a subject invention, both as required by its funding agreement, can work to deny the Federal government any rights in the funded invention, through no fault of the funding agency."
  • Shorter Time to Decide Whether to Prosecute Patent – Under current law, contractors and grant recipients must "notify the Federal agency of any decisions not to continue the prosecution of a patent application, pay maintenance fees, or defend in a reexamination or opposition proceeding on a patent, in any country, not less than thirty days before the expiration of the response period required by the relevant patent office." 37 C.F.R. § 401.14(f)(3) (emphasis added). NIST originally proposed extending this period to 120 days prior to the expiration of the USPTO response period, but the final rule only extends the period to 60 days. Nonetheless, this reduces the time that industry has to decide whether to proceed with patents of subject inventions.
  • Limits on Services Contractors – NIST's regulations permit agencies to use alternatives to the provisions contained in 37 C.F.R. § 401.14, including limitations on elections to retain title, in certain circumstances. 37 C.F.R. § 401.3(a). This final rule adds another category of situations in which an agency may do so: "If the contract provides for services and the contractor is not a nonprofit organization and does not promote the commercialization and public availability of subject inventions pursuant to 35 U.S.C. 200." NIST indicates that the goal of this change is "to address the scenario in which a services contractor, whose business model by design does not promote the commercialization or public availability of subject inventions, can, by simply neglecting to waive title for as long as two years, delay (at best) efforts to achieve commercialization or public availability."
  • Funding Agency Review of Compliance with Small Business Licensing Preference – Under the current rules, if a small business believes a nonprofit organization is not meeting its obligation under the Bayh-Dole Act to give a preference in the licensing of subject inventions to small business firms, the small business may report the concern to the Secretary of Commerce for investigation. 35 U.S.C. § 202(c)(7)(D); 37 C.F.R. § 401.7; 37 C.F.R. § 401.14(k)(4). NIST's new rule permits such small businesses to report their concerns in the first instance to the funding agency, rather than to the Secretary of Commerce as previously provided.
  • Abandonment Applies to Non-Provisional Patent Applications – NIST's new rule clarifies that contractors and grant recipients seeking not to continue prosecution of non-provisional patents on subject inventions, rather than provisional patents, will result in the government taking title upon request. See 37 C.F.R. § 401.14(d)(3). NIST is acknowledging here the increased use by contractors of provisional patent applications under the Leahy-Smith America Invents Act. NIST also states, however, that it expects contractors and grant recipients to communicate to their funding agencies that they are not abandoning patent rights in subject inventions despite having decided not to convert a provisional application.

The Bayh-Dole Act's implementing regulations contain multiple deadlines and conditions with which contractors and grant recipients must comply to protect their rights fully. Small businesses and nonprofits with patentable interests in subject inventions should review NIST's new rule carefully. The new rule goes into effect on May 14, 2018.