TAXPAYER-FUNDED PATENTS

One of the most important byproducts of federally funded R&D is a new patented invention.

IT STARTS WITH FUNDING

The US-funded $548 billion of R&D in 2017 according to the most recent report by the National Science Foundation. Twenty-two percent (22%) of that amount, $120.6B, came from US taxpayers. That federal funding supported half (51%) of all academic R&D; thirty-five percent (35%) of R&D performed by nonprofits; and six percent (6%) of R&D performed by American businesses. That funding also covered 98% of federally funded research and development centers (FFRDCs), the public-private partnerships that conduct R&D for the US government.

Seventeen percent (17%) of the funding was focused on basic research. Eighty percent (80%) was focused on applied research. In 2017, 42% of all basic research in the US was funded by the US taxpayer.

A breakdown of federal research and development funding by research area.

R&D has three components:

  • Basic Research
  • Applied Research
  • Development

Basic research answers fundamental questions like what is it and how does it work. Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view. Basic research is aimed at gaining a better understanding of a subject, phenomenon or basic law of nature. Basic research is an essential element of scientific and technical discovery.

Applied research aims to figure out what to do with the knowledge gained from basic research. Applied research is an original investigation undertaken to acquire new knowledge; directed primarily toward a specific, practical aim or objective. Applied research is designed to answer specific questions aimed at solving problems. New knowledge acquired from applied research has specific commercial objectives in the form of products, procedures, or services.

Development (or experimental development) is the systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes.

The end product of some of this taxpayer-funded R&D is an invention and in turn a patent.

THE BIG EIGHT

  1. Department of Defense
  2. Health and Human Services
  3. Department of Energy
  4. National Science Foundation
  5. Department of Commerce
  6. Department of Agriculture
  7. Department of Transportation
  8. National Aeronautics and Space Administration

Eight federal departments and agencies together account for most of the federal R&D spending. Defense has long been a federal R&D budget priority, accounting for 44% of federal R&D support in 2017. Over half, 56% of the federal R&D budget, is devoted to non-defense work.

Health and environment account for slightly more than one-half (56%) of the federal non-defense R&D budget. The other federal agencies with large R&D portfolios—the Department of Health and Human Services, Department of Energy, National Science Foundation, Department of Agriculture, Department of Commerce, and Department of Transportation — focus primarily on the areas of basic and applied research. The National Aeronautics and Space Administration distributes its budget more evenly across the different types of R&D, with about half going to basic and applied research and the other half to experimental development.

FUNDING VEHICLES

Government-funded research comes from universities, research institutes, small businesses, and federal contractors. The Government enters into different types of contracts when it funds R&D any of which might result in an invention. There are four main types of contract vehicles that may result in a taxpayer-funded patent:

  1. Procurement Contracts — The government is exchanging money for deliverables. The contractor building a new fighter jet for the Air Force makes a discovery that leads to an invention that lead to a patent.
  2. Research Grants — The government funds Investigators, scientists, and technologists, to undertake research important to the funding agency. Research grants generally align with an agency’s areas of interest or priorities to solve problems. Again, the end product might be the solution to a specific government priority and an invention disclosure that leads to a patent.
  3. Cooperative Agreements — Cooperative Agreements, also called Cooperative Research And Development Agreements (CRADA or CRDA), are agreements between a government agency and a private company or university to work together on research and development. This may include performance of experimental, developmental, or research work. This work may be funded in part or wholey by the federal government.
  4. Other Transactions — The new contract category called "Other Transactions" covers a broad swath of mechanisms to accelerate getting important development activities done. They can include "Pitch Days" where government agencies invite small businesses to come in and give a pitch with successful pitchers getting immediate Small Business Innovative Research awards paid on the spot via government credit card. There are also Rapid Prototype and Rapid Fielding programs that use Other Transaction contracting vehicles to make it easier for agencies to enlist researchers to solve complex problems without a drawn-out procurement process.

Any of these contracts or a combination of them might result in a novel, useful, and non-obvious invention that is patent worthy.

A federal contractor can retain the title to the invention created during their work for the government if they meet the requirements created by the Bayh-Dole Act. The US Government certain rights in inventions, patent applications and the patents that result from federally funded research and development.

The Rules of Taxpayer-Funded Patents

The rules for retaining the title for inventions that resulted from taxpayer funded contracts are:

Inventors Must Disclose Their Inventions — If a government contractor creates an invention during the time they are working on a federal contract, it must disclose the invention in writing to the agency it worked for. 

Patent Applications and Patents Must Notify the Public of the Government Interest in the Invention — The patent application and the patent must contain a statement of Government Interest in the Invention.

Commercialize It — Contractors holding the title to inventions that were the result of work done on a federal contract are expected to work toward commercializing the product or process covered by the patent creating a marketable product which in turn generates economic activity for the country.

Make Things In the US — Owners of taxpayer-funded patents are supposed to commercialize the products and processes invented through a taxpayer-funded contract in the US so the US economy benefits from their work.

License to Others Who Make Things in the US — Licensing by any contractor retaining title under this act is restricted to companies that will manufacture substantially within the United States.

The Federal Government Has The Right To a Paid-Up License to the Invention — the Government gets a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention during the term of the patent.

The Federal Government Has The Rights to File More Patent Applications If The Assignee Doesn’t — the government has the right to file patent applications anywhere the patent assignee does not file and has the right to acquire any U.S. or foreign patent or application which the contractor organization elects to abandon.

The Government Has March–In Rights — If the patent holding organization is not diligently proceeding to commercialization, the government has march-in rights and can force the organization to license the patents upon reasonable terms to the government or other organizations. Despite having the authority since 1980, the U.S. government has never exercised its march-in rights.

Non-Profits Can Not Assign Their Patents To Others — If the organization seeking to retain a patent is a nonprofit entity (most universities and post-doc research institutions are non-profit entities) can only license the patented inventions they can't sell (transfer the title to) the rights to the invention.

Sometimes The Government Retains the Rights To the Invention — the Department of Defense, the Department of Energy, and NASA have statutory prohibitions against private business organizations obtaining title to inventions developed with federal funds. This is why you will see patents assigned to the Secretary of the Navy, or the Secretary of the Department of Energy or NASA.

HOW TO FIND TAXPAYER-FUNDED PATENTS

US patent applications and granted patents contain a Government Interest Statement in the body of the patent documents.

When a research organization retains US domestic patent rights, the research organization is under an obligation to include a statement at the beginning of the application and any patents issued as a result of that patent application that informs the reader that the government has certain rights in the invention. The statement usually appears in either the Government Interests section that follows the prior art section of the patent document or it should appear as the first paragraph of the specification. The statement includes the following:

This invention was made with government support under  (Contract #) awarded by  (the Federal agency). The Government has certain rights in the invention.

The Government Interest Statement for US Patent 10,913,777, granted February 9, 2021 to THE REGENTS OF THE UNIVERSITY OF CALIFORNIA in Oakland, CA says,

This invention was made with government support under Contract No. DE-AC02-05CH11231 awarded by the U.S. Department of Energy, under Grant No. 1R01AI114975-01 NIAID awarded by the U.S. National Institutes of Health, and under Contract No. DE-FG02-91ER20021 awarded by the U.S. Department of Energy, Basic Energy Sciences. The government has certain rights in the invention.

THE BAYH–DOLE ACT

Before 1980, the title to patented inventions created during federally funded research or work done as part of a Federal contract (grant, contract, R&D agreement) belonged to Uncle Sam. At that point, only 5% of government-owned patents were ever used by the private sector, the entities with the capacity to turn inventions into products and processes that transform patents into economic activity.

Bayh-Dole Act of 1980 (The University and Small Business Patent Procedures Act of 1980) allowed the recipients of federal research grants to patent their inventions and to retain the title to those inventions. Bayh-Dole states that contractors may "elect to retain title to any "subject invention" defining a subject invention as any invention of the contractor conceived or first actually reduced to practice in the performance of work under a federal contract." The Act addressed substantial federal barriers that impacted the federal innovation ecosphere.

REDUCE COMPLEXITY

The nexus between research, development, and creating products is a complex one. The Bayh-Dole Act recognized that adding the federal government into the mix added many other levels of unnecessary complexity. The Bayh-Dole Act sought to simplify the government part of the process by creating incentives to accelerate the path to the marketplace for inventions that were created by federal R&D.

At the time the legislation was drafted, the government-owned the patents but didn't make things. Industry made things but didn’t own the patents to make developing products worthwhile. There were no incentives for the private sector to convert the federal inventions into marketable products and processes because among other things they needed to negotiate a license with the government. This impeded economic activity. Nobody was making things or creating jobs.

Universities didn't make things either. Universities traditionally partner with industry to bring their innovations to the market. They worked with businesses that could turn inventions into products innovations and make things. Private industry collaborated with universities to fund critical research to accelerate making discoveries to advance their position in the marketplace. Government ownership of patents from academic research gummed up the works. Industry didn’t want to create products based on inventions that could be licensed to its competitors.

When the legislation was drafted the government handled the licensing of its patents. Licenses to use government patents were negotiated with firms either on a non-exclusive basis, meaning the honorable competition of the university-partnership companies could use the technology. More rarely the government negotiated a license for the exclusive use by one manufacturer, not necessarily the firm that made the invention. This made trying to commercialize an invention in a federal patent a high-risk proposition for business.

Pre-Bayh-Dole there were 26 different agency policies on how to use the results of federally funded R&D. Another major impediment especially in cases where two different agencies owned different patents earned from different work for different contracts like US Patent 10,913,777. Bayh-Dole sought to fix this problem by creating a single process for handling inventions that resulted from federal funding. There are some exceptions in the process when an invention involves national security inventions but the policy is generally the same for all agencies.

The end product of the Act is a set of rules that lets the federal contractors who create the invention to keep it and for the taxpayer to reap the economic rewards of American innovation.

SUPPORT SMALL BUSINESS

The Bayh-Dole Act also sought to support small businesses, the engines of economic growth and job creation. Bayh-Dole Act to made it easier for small businesses to innovate, develop products and protect its intellectual property. Before Bayh-Dole, many innovative science and technology-focused small businesses didn’t have the resources or the stamina to negotiate license agreements with the Federal Government for the inventions they created while working for the government.

At the time the Bayh-Dole legislation was being considered, an analysis found that firms of less than 1,000 employees were responsible for more major innovations than large firms in the years 1953-1966 and an equal number from 1967-1973. An often-cited 1982 study financed by the Small Business Administration reinforced this findings when it determined that small firms were 2.4 times as innovative per employee as large companies.

More recent research points to the contribution of small businesses to economic growth "as measured by net new job creation…" According to the National Science Foundation, "U.S. small business is closely associated with the development of new technologies in many of the science-based industries likely to be important to future economic growth."

The Kauffman Foundation, a non-profit foundation focused on entrepreneurship published a 2009 study that found that newly created and young companies are the primary drivers of job creation in the United States. In its study of Census data, the foundation continually found that new and young firms drive economic growth and job creation. According to the report, "Within this group of companies there is a substantial set of rapidly growing businesses that account for a disproportionate share of net job creation."

Another study showed that so-called "gazelle" firms, companies aged between three to five years after founding, comprised less than 1 percent (1%) of all companies, yet generated roughly 10 percent (10%) of new jobs in any given year.

The 2020 COVID pandemic has reminded Americans of the outsized role small businesses play in our economy, employing 47% of the United States workforce, generating two-thirds of new jobs, and serving as a critical path to economic self-sufficiency. The Federal Government sought to empower small businesses through the Bayh-Dole Act.

BAYH-DOLE WORKED!!

One important but often overlooked aspect of the Bayh-Dole Act is that it successfully achieved its objectives without cost to the taxpayer. No separate appropriation of government funds was needed to establish or manage the effort prescribed by this law. The Act created a streamlined process and got out of the way. Analysis of the Act’s impact estimated that the economic benefits flowing from the universities’ licensing activities that resulted from their retaining the titles to their federally-funded inventions adds billions to the United States economy.

University inventions and the "Big Science" enabled by Federal R&D and associated patenting have led to many products that are saving lives or improving the lives, safety, and health of the citizens of the United States and around the world and protecting national security. In many ways the Bayh-Dole Act’s contribution to society is immeasurable.

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