What Is the Bayh-Dole Act?

The Bayh-Dole Act gave universities, non-profits, and other small businesses the ability to earn patents to inventions. This law settled a longstanding issue about the patenting of federally-funded projects.

What's the History of the Bayh-Dole Act?

The P.L. 96-517, formally known as the Patent and Trademark Act Amendments of 1980, added a new official policy for the granting of patents in the United States.

Birch Bayh, a Democrat from Indiana, and Bob Dole, a Republican from Kansas, crossed party lines to work together to write this legislation. The Economist deems the law so important that the magazine famously called it "innovation's golden goose."

Congress ratified this law due to a perceived need for a uniform patent policy throughout federally-funded research facilities. The belief was that the lack of reliable technology transfers had slowed down the pace of innovations in the United States.

The federal government needed to write legislation to make a uniform group of laws to encourage technology transfer. The biggest problem was that the United States had problems transferring technologies that it owned.

Prior to this act, countless innovations went unused in American businesses. That's because the government didn't grant licenses to the private sector. Any innovations that happened due to federal funding were not available to businesses.

One of Senator Bayh's researchers discovered that non-profits had invented ideas that had gained 30,000 patents. These innovations had cost the government $10 billion. Only 5 percent of them were in use at the time due to federal laws. These were the only technologies funded by the government that led to new or improved products. The other 95 percent went unused.

With the Bayh-Dole Act, Congress added a mechanism for non-profits like universities to grants licenses for such innovations to small businesses. Bayh-Dole gave control of inventions to the universities that discovered them.

This law was important since universities lacked the financial means to bring these innovations to the market. A dollar's worth of innovation isn't cheap to sell on the open market. It costs the equivalent of $10,000 of private capital to sell. Non-profits couldn't afford that. Businesses that could didn't have legal access to the licenses needed to buy the products.

With the new system in place, innovations left the labs and entered the marketplace. The corporate world enjoyed a sudden influx of new ideas. American businesses benefitted from the ideas created at universities. In exchange, businesses built longstanding relationships with non-profits that were innovating in ways that the companies could not.

From 1980 through 2002, universities increased the rate of patents by a factor of 10. From 1996 until 2013, the revenue earned from university patents was $518 billion. The belief is that this patents created 3,824,000 American jobs.

Specific industries thrived thanks to the Bayh-Dole Act. Smart innovations such as the Cohen-Boyer patent from Stanford University's lab led to a $35 billion dollar industry. Perhaps the best example is an innovation that came in 1983. Historians often mention the Axel patents as a direct result of the Bayh-Dole Act. This technology introduced foreign proteins into human cells. Columbia University has earned more than $790 million in royalties from these discoveries.

What Does the Bayh-Dole Act Do?

The federal government funds countless projects in a given year. Some of them lead to innovations worthy of patents. Prior to this legislation, inventors of any such innovations had to sign over ownership to the United States.

With the introduction of this legislation, the federal government negated its claim on patents. As of 1980, inventors from small businesses working for the government could earn patents. Non-profits that receive federal funding can also gain patents.

Most importantly, universities now have a greater incentive to innovate. The Bayh-Dole Act encourages the process of technology transfer. This action occurs when a university employee with a patent makes the technology available to a larger body of people and/or groups.

The belief is that the Bayh-Dole Act, combined with further amendments in 1984 and 1986, helped reverse the decline of American industrial innovation. It encouraged university research in a new way. Universities, professors, and students now have a financial incentive to make new discoveries. In the previous era when all inventions became the property of the federal government, these parties had less personal interest in making discoveries.

What Are the Major Provisions of the Bayh-Dole Act?

The major provisions of the Bayh-Dole Act are as follows:

  • All non-profits can retain a full claim on innovations made with the help of federally-funded research. Universities also fall into this category. The only exception is if the government states upfront that it will keep ownership of any innovations discovered during the project.
  • Universities can and should file patents on their innovations. Otherwise, the government retains the right to take control of the invention. The Bayh-Dole Act attempts to legislate universities into more aggressive reactions to innovation.
  • When a university discovers an innovation, the institution has two months to report it to the federal government. The university also has the right to patent any invention it intends to market.
  • Universities can and should offer licensing deals to small businesses, thereby jointly growing two important groups in the American business community.
  • The university must share some of any money made from the innovation with the person or group who discovers it. This part of the law guarantees that people in labs have a personal stake in the inventing process.
  • Universities should work with businesses to promote innovations. One of the stated goals is to choose businesses that will make sure the innovation is "manufactured substantially."
  • The government keeps the right to use the patent through a non-exclusive claim when it has a financial reason to do so. In other words, the United States always has the right to use any innovation that comes from federal grant money.
  • The university must pay it forward with their innovations. Excess revenue of any profitable invention should go to further research and education. In this way, one innovation should pay for others.
  • The government maintains what it calls march-in rights. This is the most controversial part of the Bayh-Dole Act.

What Are March-In Rights?

The federal government maintains some control over the innovations discovered in federally-funded labs. The government has the right to give itself a license to these discoveries, even though the non-profit has the primary claim.

The government can also grant licenses to other parties if the innovation will affect public safety. Many uses of march-in rights have military applications. The government may see a chance to improve its peace-keeping operations. Thus, it grants licenses to departments of the armed forces as well as military contractors.

One aspect of the march-in rights clause is especially unpopular. The federal government has the right to grant a license to a competitor in the same field as the innovator. When this happens, the patent holder loses a key market advantage.

People have often petitioned the National Institutes of Health (NIH) to use its march-in rights to address high drug prices. So far, the NIH has refused to do so.

What Are the Obligations of an Innovator Under the Bayh-Dole Act?

As a way to streamline the process, the federal government has set up regulations for the contracting of innovations. The innovator must:

  • Create an employee invention policy that covers issues such as reporting of discoveries and royalty expectations.
  • Choose to elect or waive a title within two years.
  • Confirm the contribution of the federal government to the innovation.
  • Report all inventions to the United States government within 60 days of disclosure to the university. Note that the inventor may not reveal the innovation to the university right away. Many inventions need a great deal of testing to confirm that they work. The 60-day clock doesn't start until the university knows of the innovation.
  • File for a patent within one year of choosing the title or disclosing the innovation to the public, as long as the patent isn't biological material. The clock starts after whichever event comes first. It's usually the choosing of title, though. The university has 10 months after filing the American patent to inform the USPTO whether it will also file international patent applications.
  • Alternately, the innovator must notify the government of its choice not to file for a patent.
  • Provide a license confirmation to the federal government.
  • Provide an annual utilization statement for all innovations that the organization has claimed.
  • Create a final invention statement with certification. The organization must deliver these documents within 90 days of the end of the project.
  • Verify that all existing internal agreements give researchers the freedom to pick projects.
  • Release research findings in a timely manner. The general guideline for this timeframe is 30-60 days.
  • Confirm that any goods produces from the innovations should have a focus on American employment. The Bayh-Dole Act prioritizes American jobs, but it doesn't require the creation of all goods in the United States — just a substantial portion.

Does the Bayh-Dole Act Have Any Controversies?

One of the lesser-known details of this law is that Bayh was a lame duck member of the Senate at the time. His term had ended after he lost his re-election bid to Dan Quayle, who would later become Vice President. This act was Bayh's last major legislation, but it had political opponents.

Outgoing President Jimmy Carter considered a pocket veto. He didn't believe that such important legislation should happen during a lame duck session. He also wanted a more comprehensive law. Eventually, Carter's advisers persuaded him to sign the bill, which he did on December 12, 1980. 

Since Bayh and Dole had to work together quickly, the law had a few omissions. The largest one is how the law applies to nature and the human body. The Supreme Court eventually ruled in Molecular Pathology v. Myriad Genetics that a business couldn't claim ownership of genes. 

Potential conflicts of interest between inventors, universities, and businesses have created other debates about the law. Finally, an ongoing debate exists about the future of innovation and research in an era of millions of patents. 

Are Any Changes to the Bayh-Dole Act Possible?

Any legislation that is decades old has the potential need for updating. Technology has changed in ways that no one could have guessed in 1980. A law from that time understandably doesn't cover some modern issues.

The primary issue with the Bayh-Dole Act is that it has changed the way that universities do research. The drive to earn money through innovation has changed the goal from the pursuit of knowledge. Critics note that universities don't manage intellectual property as well as businesses.

The four major suggestions for Bayh-Dole improvements are as follows:

  • Research exemption: A flaw with the law prevents university researchers from using some of their own patents. Many colleges with exclusive licenses cannot use them for non-commercial research. 
  • Research tool availability: Universities face a lack of access to many of the newest tools and inventions. The result is a roadblock preventing innovation. The law needs to prevent exclusive licensing that discourages innovation.
  • Anticommons: A huge issue with innovation is the cost of transaction fees. The law needs changing so that universities can deal with transactions in a timely manner and at a reasonable cost.
  • Transparency: The current version of the law doesn't force transparency during the patent process. It also doesn't require details of licensing of publically funded research. Many organizations abuse this glaring oversight.

What's Are Examples of Court Cases Involving the Bayh-Dole Act?

In 2011, the United States Supreme Court made a ruling that involved the Bayh-Dole Act. The case was Stanford University v. Roche Molecular Systems. The Supreme Court voted 7-2 in favor of the inventor.

The debate centered around a researcher at Stanford who held a second job. He also worked at Cetus, which later became a part of Roche Molecular. The inventor made advancements in the field of blood tests for the HIV virus.

Stanford workers questioned the inventor's licensing of the patents to other parties. The university believed that they had rights to the patent since the inventor had done some of the work in their labs.

The key language that settled the matter was in the contract of the inventor. The person agreed to assign his right title and interest to Stanford. It was a condition of employment. At Cetus, the innovator gave away the rights to his "ideas, inventions and improvements."

The Supreme Court ruled against the University. The majority opinion stated that the rights of invention haven't changed since the start of America. An inventor owns the innovations before anyone else can make a claim. The Bayh-Dole Act didn't change that basic fact of patent law.

The other important court case was Madey v. Duke University. John Madey was a famous researcher. He made patentable discoveries while working at Stanford University. The college didn't apply for the patents. Madey did it on his own, earning two.

The inventor later left for Duke. During his tenure there, he ran the research labs. Then, he had a conflict that caused the university to fire him. They continued to use his patents after he left. Duke students didn't use them to profit.

Madey sued anyway since the university didn't have a license to use his patents. He won the case in the Federal Circuit Court of Appeals. This ruling ended the 170-year practice of letting scientists use patents for research purposes.

How Do These Court Rulings Impact Universities?

Infringement lawsuits similar to Madey's are a huge issue for universities today. A research lab must have proof of a license to use it. Otherwise, the university is at risk of a lawsuit.

The problem at research labs is that the people working there rarely know who has rights to the license. The University of Iowa did a study to see who had invented intellectual property. They had to interview 71 people and groups at a cost of $24,000 before they could apply for a patent. It's a costly but needed step to avoid lawsuits.

Many universities are using broadly written research exemptions to avoid this issue. They expect that all researchers cede licenses to the school for any innovations made at their labs.

Unfortunately, broad adoption of this idea has yet to happen. Until it does, Madey vs. Duke prevents lab researchers from using unlicensed patents. It's become a stumbling block for technology transfer.

An amendment to the Bayh-Dole Act could solve the problem. It would restore the law to its original intent. That idea included university use of patents solely for research purposes.

Does the Bayh-Dole Act Work as Intended?

Due to its age, the act has a few issues. On the whole, it's worked better than anyone could have possibly predicted, though.

American universities have an impressive track record in the area of innovation. Many inventions have started in university labs. The Bayh-Dole Act takes those ideas and coordinates a transfer into the business world. The American economy is stronger due to this piece of legislation.

The University of California is a great example of excellent research. They have 10 satellite universities in the state. With 200,000 students, they have many innovators whose research leads to patents. In fact, this university earns more patents than any other college.

Biotechnology is the focus of many University of California research labs. Students have earned U.S. Patent No. 8,518,871 and U.S. Patent No. 8,512,943 for their work in peptides and nanomaterials.

Students also made huge advances in autism in U.S. Patent Application No. 20130210650.  They even learned more about the functions of the aging human brain in U.S. Patent Application No. 20130216985.

The Bayh-Dole Act has led to amazing innovations in mankind's understanding of the human body and other fields. All of the discoveries listed here wouldn't have happened if not for the law. Instead, the patents would have remained in possession of the federal government. The real world applications of the ideas are because of the Bayh-Dole Act.

Do Other Countries Have Similar Laws to the Bayh-Dole Act?

Yes, other governments have written legislation to encourage university-based innovation, too. Here's a list of the largest countries (by population) that have similar laws:

  • China
  • Brazil
  • Russia
  • Japan
  • Philippines
  • Germany
  • United Kingdom
  • Italy
  • South Africa
  • South Korea
  • Malaysia
  • Singapore
  • Denmark
  • Finland
  • Norway

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