by Dennis Crouch
The Federal Circuit recently upheld the US government’s royalty-free license rights over an Alzheimer’s disease research patent under the Bayh-Dole Act. University of South Florida Board of Trustees v. United States, 22-2248 (Fed. Cir. February 9, 2024). The decision confirms the broad scope of the government’s licensing rights under the Act — namely that it can include work that predates the funding agreement. It also comes at a salient time, as the Biden Administration weighs the idea of more aggressively exercising “march-in rights” under the Act to promote affordability of taxpayer-funded inventions. Read the Decision.
The dispute centered on U.S. Patent No. 5,898,094, which covers transgenic mice expressing mutated genes linked to Alzheimer’s. Scientists at the University of South Florida (USF) and Mayo Clinic developed the mice with partial funding from a National Institutes of Health grant. USF sued the government for infringement after a government contractor used the patented mice without authorization.
In its defense, the government argued the work that led to reducing the patented invention to practice occurred “under” its grant funding agreement with Mayo Clinic. The Bayh-Dole Act gives federal funding agencies certain rights over federally-sponsored inventions, including “a nonexclusive, nontransferrable, irrevocable, paid-up license” under 35 USC §202(c)(4).
With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world [with some further caveats].
35 USC §202(c)(4). The Court of Federal Claims agreed with the government’s interpretation and entered judgment of noninfringement.
On appeal, USF argued the statute requires the funding agreement predate the inventive work. It claimed the subcontract between Mayo and USF was not executed until months after the critical experiments. However, the Federal Circuit affirmed based on the breadth of the statutory language. It held that a subsequent agreement can cover prior work, if payment for the prior work is within the grant’s scope. Since USF eventually accepted grant funds for the experiments under its subcontract with Mayo, §202(c)(4) applied.
[A necessary premise of USF’s argument] is that any “funding agreement” adequate to trigger § 202(c)(4) must be in place at the time of the relevant work (here, a first actual reduction to practice in April 1997), so that the November 1997 subcontract (whose execution and effective date were later than April 1997) does not suffice to trigger § 202(c)(4).
The court rejects this premise, finding the statutory language does not impose strict timing requirements for funding agreements to establish government license rights:
The Act says that “funding agreement” includes “any . . . subcontract of any type” for the performance of work under a funding agreement. § 201(b). That breadth-indicating language supports inclusion within the provision of a subcontract that provides for, among other things, payment for work already performed before the subcontract is executed or its “effective date.
The court later reaffirms this conclusion. “We reject this suggested temporal limitation on the scope of the relevant Bayh-Dole Act language.”
This conclusion is strongly bolstered by the record in this case, which suggests that what occurred here is not an uncommon fact pattern in government funding of research conducted in part by non-grantee members of a consortium called for in a government grant. Specifically, the record makes clear that subcontracts are commonly not executed until sometime after the grant is awarded, yet the grant-covered work proceeds without waiting for the inking of a subcontract.
Id. This decision endorses broad government rights under Bayh-Dole when research funding and contracting arrangements evolve over long timelines. The court refused to impose strict timing requirements not evident from the statutory text. As government witnesses observed, delays in memorializing inter-institutional agreements are commonplace in collaborative grant projects.
The ruling also comes amidst attention on the proper scope of Bayh-Dole march-in rights. USF’s lawsuit invoked the related §1498, where the government assumes liability for third-party patent infringement. Exercising march-in rights under §203 lets the government grant licenses to third parties for health or safety needs, yet this authority has almost never been affirmatively used. The Biden Administration recently sought public input on utilizing march-in rights to promote affordable access to publicly-funded inventions. Among other limitations, commenters noted march-in rights likely do not authorize the government to set product prices.
The case here highlights that the Government has broad power in situations where parties have accepted federal funding. It does not, however, answer when exertion of that power is sound policy.
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I received several emails and comments about this post unfairly treating Section 202 and 203 rights as the same thing. I agree that I was cavalier in my post by not distinguishing the two. Although both involve actions that the Federal Government can take with regard to federally-funded inventions, Section 202 licenses are regularly relied upon, while Section 203 march-in rights are almost never relied upon (but the Biden admin would like to expand their use.)
Section 202 provides the Federal Government with a nonexclusive, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world. Section 203 allows the U.S. government to go further an grant a narrow “reasonable” license to a “responsible applicant” if the patent resulted from federally funded research and certain conditions are met. The government can only exercise Section 203 march-in rights if it determines that action is necessary because the patent owner has not achieved “practical application” of the invention or because public health/safety needs are not being reasonably satisfied. So there must be a specific triggering condition. Those limits are not in place for Section 202 license rights.