The Bayh-Dole Act of 1980 (which is a part of the Patent Act - 35 U.S.C. § 200-204) provides universities, non-profits, and small businesses with the ability to retain title to a “subject invention” developed under federally sponsored contracts. Under the Bayh-Dole Act, a small business, non-profit or university can use government-funded research to develop an invention, and retain title in a patent based on the “subject invention” (as defined in the Act).
The goal of the Bayh-Dole Act is to use “…the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure 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; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure 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; and to minimize the costs of administering policies in this area." 35 U.S.C. § 200.
Under the Bayh-Dole Act, title to any resulting patents covering the “subject inventions” can be retained by the developing entity (i.e., the government contractor) subject to government rights. What this means, from a practical standpoint, is that a federal contractor who retains title to a “subject invention” can pursue a patent application covering the subject invention, and take title to the resulting asset. The contractor is also free to transfer or license the patented technology, subject to the government’s rights in the patent.
That caveat can be a big deal. Although the government contractor has the primary claim to the subject invention, the U.S. government maintains rights even after, for example, the transfer of the patent to another party (e.g., through a patent sale). These rights include special “march in” rights that allow the federal government to retain a license for its own use, along with the right to grant licenses to other parties, particularly for military applications and areas of public safety. The march-in rights also provide the government discretion to grant a license to, for example, the contractor’s competitors. While these special “march in” rights can be onerous, particularly in the case of a license to a competitor, the use of the government’s license is limited to areas of special interest to the federal government, which may not necessarily involve direct competition with the patent owner in the marketplace.
An example of a scenario involving march in rights may be as follows. Suppose a small business contractor in a particular Artificial Intelligence (AI) field develops a new AI product as part of a contract with both the U.S. Army and DARPA under a federally sponsored research and development contract. The contractor then files a number of patent applications covering “subject inventions” related to the developed software, and assigns the patent applications (and resulting issued patents) to its business (e.g., a Limited Liability Company).
A few years later the issued patents are sold by the LLC to a wireless telecommunications company as part of a patent acquisition. The new patent owner -- the telecom company -- now has title to the patents and can freely utilize the patented technology in its wireless products and services. The new patent owner may even choose to not practice the patented technology and instead, may hold the patents for defensive purposes or assert the patents against potential infringers (e.g., via a licensing program, litigation, etc). The fact that the government has certain rights in the patents does not alter the wireless telecom’s ability to sell or license its rights to the patents.
Although title issues, such as the federal government’s “March-In Rights,” may be tied to patented innovations developed with government funding, the benefits to a contracting entity often outweigh such risks. The benefits include a source of income (via the federal contract) during the research and development phase of a new technology, along with the ability to seek patent protection for innovations created under the government contract. For small businesses, and start-ups in particular, a government contract can be a financial “shot in the arm” that may also result in the development of valuable intellectual property assets that can be later sold, licensed, or strategically held as part of an organization’s intellectual property portfolio.