The following is a computer-generated transcript from the Patently Strategic Podcast. The results aren't always perfect, but we will continue working on improving the quality of the automation.
00:05 G'day and welcome to the Patently Strategic Podcast, where we discuss all things at the intersection of business, technology and patents. This podcast is a monthly discussion amongst experts in the field of patenting. It is for inventors, founders and IPO professionals alike, established or aspiring. And in today's episode, we're talking about the use of government grants and the strings that can come attached to your IP.
00:26 We'll be exploring the various types of small business research grants, how the Bayh-Dole Act regulates inventions generated under government grants, licensing and ownership implications for your patent when using federal dollars, and the sticky webs that you may find yourself in if you're not carefully tracking IP and adhering to the numerous provisions and timelines. The use of government grants for research and development is one of the most common areas of concern we get questions about from our clients. And for good reason.
00:52 Nondiluting capital can be an essential source of funding when trying to get your innovation off the ground. Investor money comes with loss of equity and or control family and friends money may come with the risk of strained relationships. So essentially, free money by way of government grants can seem like an obvious choice, right? And it is for many.
01:11 The Small Business Technology Transfer, or STTR, and Small Business Innovation Research, or SBIR grants are the largest source of early stage capital for life science startups in the United States, combining to provide over 2 billion annually in support from federal agencies like the NIH. But like money from investors, friends and families, these grants do still come with some serious strings attached and potential ramifications you need to be aware of. For instance, use of these funds grants the government a royalty free license to practice your invention worldwide, to the surprise of many.
01:44 And as we'll discuss, this can include royalty free use of patents obtained before even applying for the grant. This is potentially a big problem, especially if the Federal government could be one of your primary customers. Other provisions can result in lost ownership rights if you fail to commercialize or neglect to file the correct paperwork on time.
02:02 Most of these things are manageable, but when considering government grants, you need to be aware of these gotchas so you're going in with clear eyes and can manage the hooks in a way that doesn't jeopardize your patent rights. And that awareness is our focus today. Dr. Ashley Sloat, President and Director of Patent Strategy here at Aurora, leads the discussion, along with our all star patent panel, exploring how the Bayh-Dole Act of 1980 regulates inventions under government grants.
02:25 As a small business, what type of grants are available to you and whether or not they can cover IP related costs? The rights of the Federal government to your invention when you use grant money implications for using contractors to perform the work under the grant and of course, some of the biggest gotchas and practical tips for avoiding them. Ashley is also joined today by our always exceptional group of IP experts, including Kristen Hansen, patent strategy specialist at Aurora, Dr. David Jackrel, president of Jackrel Consulting, and Ty Davis, patent strategy associate at Aurora.
02:57 Before jumping in with the panel, we'd like to take you to the third installment of the Mossoff Minute, a new monthly segment that builds on our Patent Wars episode and features short conversations with Professor Adam Mossoff, providing updates and quick takes on movements in patent reform, significant court rulings, innovation policy happenings, and occasional Star Wars references. This month we discussed the introduction of a very important piece of patent reform legislation called the Prevail Act. Very important developments this summer in patent policy with the introduction of the Prevail Act of 2023, co sponsored primarily in the Senate by Senator Christopher Coons and Senator Tom Tillis, this bipartisan bill would bring much needed reform to the PTAB, the Patent Trial and Appeal Board.
03:43 Created in 2011 by the American Vents Act, this administrative tribunal at the Patent Office that cancels patents at rates around now 83% or higher has been, I think, rightly accused of engaging in willy nilly decision making and in many cases, having been captured by its mission to cancel patents. So the Prevail Act would impose important procedural and substantive safeguards and guard rails on how this agency acts and hears the claims that patents are, in fact, invalid or not. This is really important.
04:24 It will bring stability and reliability back to the patent system and will help move us forward in restoring the gold standard patent system that the United States has historically had. The bill largely seeks to curb predatory infringement and undo. Hopefully, a lot of the damage caused by the American Invents Act and its most unfortunate progeny of the Patent Trial Appeal Board, which, as you mentioned, collectively resulted in something along the lines of an 84% invalidation rate and the death of thousands of patents at the hands of infringers looking to profit from innovations that they didn't invest in or create.
05:03 The bill seems to largely be a refined version of the Stronger Patents Act, which we discussed previously. In that same discussion. Our Patent Wars episode with you, Judge Michelle Randy Landreno of us.
05:15 Inventor, we identified the core issues of AIA and the PTAB. Many of those center on differences in how the PTAB operates versus constitutionally defined courts. So among those issues that we sort of listed prioritized, one was that the PTAB doesn't require standing so that validity of granted patents can be challenged by any member of the public, offensively or defensively, whether or not they're being sued for infringement, and whether or not they have anything at all to do with the patent whatsoever.
05:46 The PTAB also has a lowered burden of proof and a weakened presumption of validity that the courts afford to a patent that was previously reviewed by experts for potentially years. PTAB Administrative Patent Judges and I use air quotes intentionally have no code of ethics about recusal on conflict of interest. So the individuals deciding validity can own stock in or have been employed by an accused infringer, even as legal counsel sometimes.
06:11 The USPTO has committed to panel stacking its APJs to reach preordained results. The PTAB was sold as a faster, cheaper alternative district courts. But the average cost to defend a patent at the PTAB is somewhere around a half million dollars per case, and it can take five to ten years for a final result.
06:28 Petitioners can keep filing petitions repeatedly 30, 40, 50 against the same patent. I think I've heard you say as many as 90. This is referred to as serial petitioning.
06:38 The patent owner has to constantly pay to defend against countless bytes of the same apple. And speaking of double jeopardy, these challenges can also come after a patent is held valid in court under statute grounds, not in purview of the PTAB. That was a lot of context.
06:54 Does the Prevail Act address some, all or most of these issues? Well, first of all, Josh, that was a spectacular kind of bill. Of particulars in a well pledged complaint detailing everything that is wrong with the PTAB, which is I am on record repeatedly in white papers that I've published in op eds and in my commentary and my academic scholarship in which I have repeatedly identified the PTAB as an Administrative Tribunal that is, for all intents and purposes, kind of out of control and has wrecked havoc on the US. Innovation economy.
07:45 A lot of this goes back to kind of its very founding generation in the American Vents Act, which imposes almost no limits on the PTAB. I think what we refer to as the IPR process, right, the inner party's review process. I think in the American Men's Act, the entirety of the provisions that govern how this process will occur, both procedurally and substantively, are about eight provisions.
08:17 I mean, for what is supposed to be this very substantive hearing process, supposed to be these hearings, the administrative hearings. And so, for all intents and purposes, what happened here is Congress got caught up in this narrative of the so called patent troll, which I think has now been well established as a policy narrative pushed by big tech and other companies to create this notion of a moral panic about a broken patent system and invalid patents. And so you had this very one sided piece of legislation that was enacted where Congress said, we have to address this problem.
09:02 We have to address this problem of this alleged abuse of the patent system by people receiving invalid patents and suing companies like Google and Apple, which at the time claimed as the white hat. So we're the great innovators. We're not stealing anyone's technology, which also has now shown to be false.
09:26 Do no evil. JK yes, they created this agency where they essentially, or this tribunal where they essentially said to it, all right, you have one mission. Cancel patents, invalidate patents, eliminate patents, and we're going to impose almost no restrictions on you in achieving that mission.
09:46 Now, I mean, in any other context, you say, okay, Congress creates an administrative agency, imposes almost no limits on them, and gives them a mission to achieve. Are any of us shocked that they become captured by that mission and driven by that mission and will do anything in their power to achieve that goal of their mission? And this is exactly what has happened with the PTAB. And so you just have had extensive abuses of process, abuses of basic norms of rule of law.
10:17 Something that Josh And mentioned, among his identification of numerous problems with the PTAB course is panel stacking, where they were literally adding judges. Sorry, I will follow Chief Justice Roberts point in one of the PTAB cases where he said to the attorney, what did you call these people at the PTAB? Judges. I use a different term for that.
10:42 So these Administrative Patent Judges, as they're called that, they were literally adding administrative Patent Judges to panels. You're supposed to have three judges. In one notorious case, they ended up with seven total APJs in order to reach the preordained right mean.
10:59 And it's almost shocking that these are lawyers who are these are all lawyers. These are people with law degrees. They went to law school, and even before law school, they learned about and everyone has studied in history the whole controversy over FDR's court packing plan, and yet no one blinked an eye, and no one said, maybe there's a problem here.
11:20 In Due Process and the Rule of Law more administrative judges to a panel. In order to reach a preordained right result, the Prevail Act really is necessary to just bring some basic norms of due process and the rule of law back to this Tribunal, which is absolutely necessary, especially given that many of the very important reforms that were adopted by Director Iyanku during his tenure at the Patent Office as Director, including the discretionary denials to the Fintiv test and his creation of this kind of appellate and precedential decision making process as a way to address the superficial justification or rationalization for panel stacking that have been eliminated, for all intents and purposes, by the current Director. So you just have this kind of whip sign back and forth of different procedures, different rules, things changing on a month to month basis.
12:31 And this is exactly what undermines and kills the function of property rights as a reliable and effective legal platform for people to rely on, to say, okay, my rights will be the same today as they will be five years from now. So you can invest in me, and we can go into the market and spend hundreds of millions of dollars, if not billions, to create a supply chain to produce new products and services. The Prevail Act is incredibly important, and it's absolutely necessary if we're going to have any semblance of the patent system that drove the US.
13:07 Innovation economy for the 200 years before the AIA was created. PTA we're also publishing clips from the Mossov Minute as, short form videos on Instagram reels, YouTube shorts, and even TikTok. You can check out these shorts and follow us at aurora patents on all three platforms.
13:23 Now, before diving into the deep on all things SBIR, STTR Bayh-Dole, and patent specific hooks when using government grant money, we'd like to provide some extra context, as we often do for those newer to patenting on some important concepts that come up in today's talk. One of the most important things to understand for navigating one of the sharpest patent related corners with government grants is the distinction between enablement and reduction to practice. We've spoken a ton about enablement in prior episodes, and I'd highly recommend you go back and check those out, because there are a few more important areas of patent law to grasp when it comes to getting a quality patent that will actually stand the test when it comes time to assert your hard earned patent rights.
14:01 When patents are examined by the Patent Office and later litigated in a courtroom, several sections of US. Statute come into play in determining if the claims in the patent are eligible. Useful, novel, nonobvious, and enabled reasons for rejection or invalidation fall under a handful of sections of US.
14:18 Code title 35, section 112 covers enablement or describing the invention in sufficient detail to allow it to be practiced by someone skilled in the art without undue experimentation. You're trading disclosure for exclusivity. This is the fundamental deal of the patent system, and enabling public disclosure is a core requirement to getting and retaining a granted patent.
14:40 This allows others to take the invention and reduce it to practice in other words, practically make it work in the real world, as you have described in your patent application. In many cases, to get a granted patent, you wouldn't have yet had to actually reduce the invention to practice yourself, say, with something like a testable prototype. The panel gets into more particulars on this, but it's important to understand that the government grant stipulations care more about actual reduction to practice and less about basic enablement when it comes to what aspects of your invention will come with automatic license implications when working with grant funds.
15:13 How some of this actually plays out, though, in terms of when and why innovators will seek government funding, will often depend somewhat on where the invention falls. On the art spectrum, practitioners put inventions into one of two categories predictable and unpredictable art. This distinction comes up quite a bit in today's talk in terms of what it means for both enablement and reduction to practice standards.
15:34 We discussed the difference in greater depth back in season two, episode ten on patenting, biological, Chemical, and Emerging technologies. But in essence, some technologies, like those rooted in physics and mechanics, are considered predictable by the US. Patent office, while others, like biological and chemical technologies, are generally considered unpredictable.
15:52 It follows that the amount of disclosure required to enable an invention is related to the predictability of the technology, and socalled unpredictable arts require more description. To teach a reader how to make and use the technology, one last piece of new terminology that comes up is march and rights. This is a provision of the Bidul act that causes some confusion and alarm.
16:12 As discussed, when you take government grant money, that often comes with a requirement to license your patent to the government for free. This doesn't prevent you from licensing to others for profit and doesn't have to impact your ownership rights. It just means uncle Sam gets free use in exchange for your now federally supported research.
16:28 March in rights, however, can take that one step further and would allow the government to demand that you license or even assign your invention to another entity, potentially even outside of the government. As the panel will discuss, this hasn't been as horrifying in practice as it sounds like it could be, but it's important to understand the potential risk and distinction when compared to the express rights that come by default for the federal government. Now, without further ado, here's our conversation on government grants.
16:53 Take it away, Ashley. So today what I wanted to really talk about. This has been something on my agenda for a long, long time, but we just had other stuff that we wanted to dig into.
17:02 But I wanted to basically look into the Bayh-Dole act of 1980s provisions and then look at the types of grants that kind of fell under this, in particular companies that we work with, and then some of the interesting nuances of invention reporting and protection requirements. And so there's definitely some stuff I'm sure most of us are familiar with, but there's definitely some nuanced stuff that was even a little surprising to me. So I'll kind of go through some of that.
17:29 So the Bayh-Dole act was signed in 1980. This is a picture of Senators Birch Bay and Bob Dole at the US. Capitol in February of 1978.
17:39 And the act provides NIH funding recipients incentives to promote the utilization of inventions conceived or reduced to practice, or so called the subject invention, which we'll talk about what that definition is, and the performance of federally supported research and development. And so, really, the goals of the Baydoll Act were to promote utilization of inventions arising from federal money, encourage maximum participation of small businesses in federally supported research and development. Was to promote collaboration between commercial concerns and nonprofit.
18:13 Organizations to ensure that inventions made by nonprofits and small businesses are used in a manner to promote competition and enterprise, but without encumbering, research and discovery. Promote the commercialization and public availability of inventions ensure that the government obtains sufficient rights in federally supported inventions to meet the needs of the government and protect the public against non use or unreasonable use of inventions and also minimize the cost of administering policies in this area. So there's lots of reasons that the Bandel Act was put into act, but it's really know, again, incentivize innovation, promote collaboration between small business and nonprofits and the government, and also make sure that the government can get its piece when it wants to.
19:00 So, before we get into various provisions of the Betawell Act, I want to go through some definitions because these aren't there's definitely some meat here. So they talk about subject invention everywhere. And this is any invention conceived or first actually reduced to practice in the performance of work under a funding agreement.
19:21 And so the interesting thing is that even if you are not, and this will come up later, even if you're not going to pursue protection on an invention, you still have a duty to disclose that invention to the federal agency. And so it's not just any invention that you want to be protected, it's any invention that you've conceived of or first actually reduced to practice in the performance of the work under the funding agreement. And this is also interesting too, because even just from a when you think about the patent process and inventions versus inventions and federal money, you go through the patent process when you've conceived of it and can at least constructively reduce it to practice, right? Whether you can kind of describe it and make some drawings about it.
20:08 But here the government grant, the provisions of Baydol apply if you've conceived of it or first actually reduce it to practice. And there's actually some meat there. So from a conception perspective, there's lots of areas where this is described in the MPEP and case law and different legislation, but it's the formation in the mind of inventor of a definite and permanent idea of complete and operative invention, conception and means of putting the idea into practice.
20:42 So this again is beyond just I have an idea. It's the fact that I have an idea and I have some thoughts around how I would actually put it into practice, right? So it has more formation than just an idea. And that kind of gets at the question we always get also of can I patent my idea? And it's like, well, when does an idea become an invention? And it's really that conception, right? It's that formation in the mind of not only the idea, but the operative nature of it and the means of putting it into practice, right? And that's where you finally actually have an invention that is patented rather than just an idea, right? And of course, anybody refute me, speak up, tell me something else.
21:25 And then from a first actual reduction to practice, there's quite a bit of case law about this. So a lot of what's in the MPEP. Actually, the only place I could really find good clear definitions in the MPEP was around interference proceedings, which we know are not really a thing anymore with America invents act.
21:43 But there's a lot of case law in other parts of federal rules and things that include additional language. A lot of times you'll find it as I think, making the invention, I think is a lot of times how you see it. Yeah.
21:56 The invention term is made basically meaning conception or actual reduction of practice. But it basically means embodiment or a performed process meets every element of the claimed invention and the embodiment or process operated for its intended purpose. And in terms of what has tripped a lot of people up in terms of federal money is that last piece there where it operated for its intended purpose? Let me see here.
22:25 I have some notes here on the side. Yes. Even when tests are conducted under bench or laboratory conditions, those conditions must fully duplicate each and every condition of actual use.
22:38 Or if they do not, then the evidence must establish a relationship between the subject matter, the test condition, and the intended functional setting of the invention. And where this has trip people up is that they think they actually reduce it to practice before they take federal money. And then they take federal money and do more testing, only to find out that the additional testing they're doing was considered by different court systems to be the first actually reduced reduction to practice of the invention.
23:04 So their invention actually does fall under the federal money, even though they were trying to avoid that by first actually reducing it to practice in advance. And so some of the case law that's around this, some of the older one was this Nray Eddie L. King.
23:19 This is kind of a sad story, but like an interesting story. He was literally just a guy that operated forklifts and things like that for the you know, so he's like loading planes and doing all these things. And he notes that the Air Force so he has no employment agreement that says that when he invents something the government owns, like he's just a guy.
23:40 Right. And so he invents he notices that the government needs these pallet couplers. So he basically decides that he's going to, on his own time and with his own money, work in the evenings to come up with a pallet coupler.
23:56 So he does and he does some preliminary testing on his own and makes this really great coupler. Well, then again, he's contacted a patent practitioner to draft a patent application. So he's clearly conceived of it and at least constructively reduced it to practice.
24:14 BLC even has a prototype. Right. He's done by all, it seems like all measures a first actual reduction to practice.
24:22 He then takes this to the Air Force and hey, like, look at this. I've solved your problem. Why don't you use this and see if it works for you.
24:31 And so they basically had these four criteria that these couplers had to have. And it's unclear from the record whether any coupler they had ever used had met all four criteria. But Eddie's had met at least three of the four criteria.
24:46 So they're like, oh, this is freaking awesome, especially because it kept the pallets together in flight or something like that. Anyways, but then the government starts to use this without, I think, proper licensing with Eddie because they had contributed to it, right? They did the testing with the Air Force's resources. And so Eddie fights it and says, whoa, whoa, whoa, no way.
25:10 Like I did all this stuff before. And it was found that, know, Eddie had not actually tested it for the intended purpose. Like he had not actually taken pallets and done whatever moved them about and whatever it was that the first actual reduction to practice was actually with Air Force money.
25:26 And he prior to that, had not actually reduced it to practice. So the government was able to take a license. I don't think they owned it, but was able to get a license probably with reasonable all paid up license.
25:43 I don't know what the provisions of the license were. But anyways, suffice it to say that the testing that he did was not sufficient to avoid the government having rights to the invention. And this was another case way more recently that's actually not fully settled out yet.
25:58 There was ideal innovations inc. Versus United States, and this has been bouncing around the courts for a number of years, but there was several patent applications filed by Ideal Innovations in 2006. Ideal Innovations tested the material for impact.
26:12 So this was like an armored vehicle thing where they were going to basically wrap the chassis in some kind of metal to make it explosion proof or something. So when Ideal Innovations tested the material, they basically did a coupon, a small piece of metal and then tried to blow it up or something like that and said that this was the first actual reduction to practice because it showed that the test armor worked for its intended purpose. Well, one of the initial courts basically said, no, this was a test of the armor, not of the invention.
26:42 And the invention being the armored vehicle or the chassis wrapped in this armor. And so an actual test was needed to determine whether the prototype worked for its intended purpose. So when in 2007, Ideal Innovations entered in a licensing agreement with the US.
26:58 I can't remember which branch of the armed Forces it was and then had them do some testing, that was the first actual reduction of practice of the actual invention. And so again, the title and licensing provisions of that agreement were now different than what he had intended because the first actual reduction of practice was using government resources, not his own. And so, again, this is, like, a really tricky thing when there are companies and inventors who want to avoid using federal money for conception or actual reduction to practice, to avoid kind of this clause in their patents that we'll talk about and any kind of ability for the government to seek title to the invention or a non exclusive license to it because they help fund it.
27:44 But it's really hard. You definitely have to do a lot before the grant kicks in to avoid the government having those different rights. Do we have any questions about those two cases? Okay.
27:57 I remember being back at companies that we had government grants like SBIRS or even bigger government grants. And like you said, we sort of knew that anything invented under using the government's money was subject to these provisions. And as far as I understand it or understood it, I'm not sure if it's changed, is that the government then would be able to use the technology without paying.
28:30 They would basically own a non exclusive license to anything that was invented under the grant. I don't know all the details. I'm not sure what other rights they may have to be able to like any type of ownership over the IP, or be able to say who could use it or dictate other sorts of licensing agreements.
28:57 I'm not sure. But like you were saying, we knew that was a stipulation, so we would always file all the provisionals or patent applications and do all of the enablement right. Sufficient reduction to practice what have you to enable the actual invention.
29:17 Before we filed the grant, we saw it as just like any other type of disclosure. So these cases are interesting that I wonder a lot of the things we talk about, it seems like to me, and I'm curious to get your take on it, Ashley, if you think that it's really down to the details in these particular cases. From what we know of 112 and enablement and clarity and all that, if you filed as an inventor, enough provisionals or patent applications before the grant kicked in to fully enable it.
29:56 Actual reduction to practice to me, is not necessarily required for full enablement. So maybe that's really my question for you. Do you see that as a higher bar in this case? Yes, I would agree that's part of what I researched but didn't include in here because I kind of went down that road and I was like, well, it's kind of different because to satisfy section 112, it's like the written description requirement, enablement, possession, those kind of terminology.
30:27 And I think you could achieve now, again, it depends on what technical area we're talking about, right? The less predictable sciences. I think it's very easy, easier. Enable, provide written description, provide possession, proof of possession, because no prototype needs to be made to prove possession.
30:51 Right. That's very clearly spelled out in the and so I think for less crazy. Inventions, less word, more predictable art.
31:01 I think it's very easy to get a patent without first actual reduction to practice in the more highly technical areas or areas that are way more unpredictable. I think to really, truly enable it to really show possession and written description, you probably have to have some reduction to practice. But is it reach the bar of actual reduction to practice? Right? Because I can show taking it to like a cancer case, right.
31:31 If I'm, that I want to cure or I want to provide a treatment for a broccogene driven breast cancer, I could put cells in a dish and put in some kind of inhibitor in that dish and show that the broca gene, the transcription of it was decreased. Right. The RNA coming off that gene was reduced.
31:57 Or I could show protein levels of broca down or I don't even know what broca does, frankly. Breast cancer. Right.
32:03 Anyway, I could show that broca was affected. Right. But that would not necessarily mean that it actually worked for its intended purpose, which was actually treating breast cancer.
32:15 Right. You'd actually have to go into humans or at least animals to show that. So in that case, I would say that I can't get first actual reduction to practice until I put it into at least an animal and probably ideally a human.
32:27 Right. And so I think it is going to be super case dependent, but I don't think they're mutually exclusive. But I also don't think that I guess yeah, they're not mutually exclusive, but they're not a complete overlap either.
32:41 Right. You don't get one by getting yeah. So do you think, let's say you're in a predictable art space and you have not actually reduced it to practice, only done modeling and what have you, that the patent office under 112 would say, okay, it is enabled even though you haven't actually reduced it to practice.
33:04 Now you go into a government grant and they say, oh, well, it was totally enabled, you clearly own this invention. But we still own it because you never reduced it because you reduced it to practice under our dollar 100%. How you understand? Because it's an or provision.
33:20 Right. So if you either conceive of the invention under the government grant or first actually reduce it to practice. So I guess what your point is, depending on the technology, it could be a higher bar or it may not be a higher bar.
33:35 If it's an unpredictable art, it's kind of the similar thing. You have to reduce it to practice anyway, or at least pretty close. But if it's unpredictable sorry, but if it's predictable, you may by the law, by the patent office own the invention.
33:52 But in terms of the government grant, you would still be under some agreement to license it to the government. Yeah, I think it's honestly, they're really smart in putting this in the Bay Dolph, because I think you'd have to do a lot of development in almost any technical area, but especially the more unpredictable it is to actually first reduce it to practice and prove that it works for its intended purpose. That's a lot of work to do and the whole reason you get these grants is to do that.
34:27 Right. So they were really smart in their language. They kind of right.
34:32 Yeah. That's interesting. But rest assured I'll share some other stuff with you later that it doesn't seem as bad as it appears, but Kristen, did you have something to do? I do, I have some clarification.
34:43 So in our first to file patent system, which is after the America Invents Act occurred, you no longer have to reduce your invention to practice in order to just file your application. Right. And when I say reduce to practice, there are two kinds.
35:04 You can actually reduce it to practice, which is what we're talking about here and which is what the government grant situation says. And you can constructively reduce to practice. Constructively reduce to practice is what you're doing when you file a regular patent application where the whole invention is completely disclosed.
35:24 Okay. So it didn't really go away. It was just a different sort of assessment of what reduced to practice means for the patent law side, for the government side.
35:37 I absolutely agree. It can be a much more stringent thing. And because of that, if you are a company that has a first product or a first couple of patent applications I don't think it's always smart to go after government grants if you are not reading the fine detail and understanding that they may own and in some cases an exclusive right in some cases a non exclusive right.
36:04 So you want to be careful when you go after these government grants to reduce to practice because maybe you don't want to do it with your first few brilliant ideas. Maybe you want to do this a little further along the line. That's helpful.
36:18 Thank you. Chris, I think additional detail quick. I'm just curious if it affects kind of the preference between so if one company was to apply for a company or I'm sorry, for a grant that has yet to reduce practice their invention versus another company that has, do you think the first company would probably have preference or does that weigh into it from a government grant perspective? I think it'd be pretty surprising.
36:50 It's one thing if it's a response to a request for proposal. Right. You're going to get a lot of proposals that are competing and I don't know what the provisions are about that.
36:58 There's basically two grant types in particular I'm going to talk about today that impact the companies that we work with and under those and I think are more in line with what the Baydoll Act was intending, especially around that partnership between government and small businesses or government and research institutions. Or between government, small businesses and research institutions. But from a request for proposal perspective, that's a really interesting question.
37:28 And that might get more to Kristen's point, where the licensing provisions of those might be a little bit more case dependent, and then obviously they're weighing different companies on lots of different parameters and that could impact how they're weighing those companies. But I also don't know what the licensing structure looks like for companies in that kind of setting where, like I said, where it's a request for a proposal or something like that. But I don't think it's as much of a in the types of grants I'm talking about today.
37:58 I would be surprised if you got two companies doing the exact same thing or really highly similar just because there's a whole bunch of just interesting research projects coming in across the whole spectrum. And so it'd be surprising that you would have two companies I mean, that's the hasn't happened, but surprising there'd be two companies at the same time at the same entry period applying for the same thing. Right.
38:21 What I was kind of getting at, though is as far as not a return on investment, because I doubt that they're looking at it that way, but if they see the opportunity of a licensing agreement or something more so with one company versus another, I wonder if that way sorry, go ahead. I was going to say, yeah, well, the license provisions for these two grant types I'm talking about today are just like set. It's basically a non exclusive, non transferable, whatever license.
38:49 And so it's the same for every company coming through these two particular grant types, but from where the company is in development and how that impacts their decision making, it's hard to say. But I will. Spoiler alert.
39:03 In all of the years that Baydol has been enacted for their march in rights is basically what we're talking about here. The government's ability to kind of step in and say, okay, you have your invention and now I want to use it. There's only been eight petitions for march and rights since Beidol was enacted almost 40 years ago, and all those petitions were denied.
39:24 So the likelihood of a government stepping in and saying, okay, you use federal money and we have this ability to step in when we want to, and then we actually do. There actually is no current case that shows that they did do spoiler alert. So interesting.
39:45 All right, so let's get to the provisions of Baydul. And I left out the nonprofit ones because we don't really work with nonprofits. Not to say they're not important, they are immensely important.
39:53 But I didn't go down the nonprofit trail, so I left off any nonprofit stuff. I think there was seven betal provisions I left off the 7th, which deals with nonprofits. All right, so Bay Dal provisions, you have to disclose each subject invention to the federal agency within two months of becoming aware of the subject invention.
40:13 You have to make a written election within two years after disclosure to the federal agency, or within 60 days of any statutory period, which means like a public disclosure, an on sale activity or something of that nature. And if you don't make that written election to keep the invention within two years, then the government can seek title. Otherwise, if you make the election, you retain the title to that subject invention, which means you own it.
40:38 Right. Three, agree to file a patent application prior to any statutory bar date and corresponding patent application in the US. Within one year and other countries within ten months.
40:50 Both are extendable, and it's actually recommended that you almost automatically extend those timelines because as we know, foreign country stuff, a lot of times you want to take a lot longer to do that. So you almost automatically, as a grant recipient, want to extend that foreign deadline as much as you are able so that you'll have to do it as quickly. For elected inventions, the federal agency shall have a non exclusive, non transferable, irrevocable paid up license to practice any subject invention throughout the world.
41:19 And that's to your point, the whole paid up license piece. The federal agency to require periodic reporting on the utilization of the invention and the obligation to include in patent applications a statement specifying that the invention was made with government support and that the government has certain rights. And then, like I said, there's a 7th one regarding nonprofits, but I didn't include that.
41:41 So here's kind of the timeline again that kind of just shows some of the reporting stuff. You have to report inventions. Again, that's all inventions, not just the ones that you want to protect within two months.
41:46 You have to make an election of that invention to keep the title within two years. And if you don't, then the agency can retain that title. You have to confirm the license with the government along with the initial patent filing.
41:46 You have to do that initial patent filing within one year of election, unless there's some kind of extension which is recommended. And then again, you can request extensions of time for any statutory bar stuff. You have to do annual reports on utilization.
42:23 Anytime you have a change in patent status, you have to update them and let them know. Like if you're going to discontinue prosecution, you need to let them know. And then you have to include a final report within 90 days after the project ends.
42:34 And there's some details on that final report as well that I'll talk about in terms of inventions, but also data. And all these are reports. Sorry.
42:43 Yeah, this is a great chart and definitely things that need to be kept in mind for companies that are doing this sort of work under government grants. And I'll say this almost in every case there's like yearly, if not quarterly reporting that you have to do for the grant itself, especially the bigger ones, you're physically meeting with people generally, right. Regularly, at least once a year.
43:13 And so the invention report within two months, though, is something that might fall in between those meetings. So I feel like in the grants that I've been involved in anyway, these sort of conversations are naturally always come up at grant review times and in these mini reports and of course in the larger reports. But that remembering that all disclosure to the government of any invention within two months is sort of its own thing that I think people don't always remember to do.
43:50 Yeah, you'd almost have to have a go to person to put stuff into Iedison or have multiple accounts with the business where anybody I don't know, it's interesting, there's definitely a management piece of this right within your company. How do you manage this? Because what do they say? If it's no one person's responsibility, it's nobody's or something? I always look for sayings, but it's something like that, right? If no one person is responsible, then it's nobody. Then nobody's going to do it.
44:20 Right? Yeah, just another we talk a lot in general about marketing and sales being looped in to IP team. So when you make an update to the website or when you put out customer material spec sheets, we should make sure that the IP team is in the loop and that all disclosures have been made. And this is sort of another one of those where it's like your grant management team should be looped in with IP.
44:50 Yeah, exactly. Walma says you should meet monthly probably to review it, and if there's nothing to review, then you just cancel the meeting. But there almost should be like a monthly for those organizations that are moving very quickly.
45:02 Right. There should be something more standardized, so kind of getting to the margin rights. So, like I said, the federal agency can require the contractor to an assignee or exclusive licensee of a subject convention to grant a non exclusive, partial exclusive or exclusive license in any field of use to a responsible applicant or applicants upon terms that are reasonable under the circumstances.
45:26 So what does this mean? What are reasonable? So, practical application if the government or the agency feels that effective steps are not being taken to achieve practical application of the subject convention in such field of use. You can imagine, of course, if you had supposedly a blockbuster drug that was going to cure all cancer, if they didn't feel like you were taking effective steps to achieve that field of use, they might want to march in health and safety need to alleviate health or safety needs which are not currently reasonably satisfied. Public use requirements set by agency are not being reasonably satisfied.
46:08 And actually, in the 42 years since enactment, the eight petitions that were filed were largely around health and Safety and public use. It was related to various drugs and either price problems with those drugs. Although the agency denied the petition because they said the drug is still adequately it was price in the US.
46:31 As compared to other wealthier nations, but they said that was still adequately available to the public. It didn't present any health or safety issues. And another one was around.
46:43 Apparently some drug manufacturer was having problems with their manufacturing line. And so somebody petitioned the NIH to basically say, please do marching rights to make this to fix this. And they basically said, by the time that we open this all up, by the time we march in, open it up, and people start making this drug, but go through the FDA to get their approval of the drug because you can't just go under their approval.
47:10 The manufacturing thing should be well remedied by that point. So there's no use in it. Right.
47:16 That's a pointless argument. So they denied that one as well. And then breach of agreement.
47:21 If the government feels like you're in breach of the agreement, then that they might then want to do a march in. But again, has only been petitioned eight times in the 42 years of Bayh-Dole, and all of them have been denied. So that's a good ODS for clients who are concerned that if they use government money to really springboard their technology and have to include this clause in their patent, the likelihood of the government marching in on those rights.
47:49 If you consider how many have been issued, how many patents with government grant clauses have been issued, how many times march in petitions have been filed, and then those that have been allowed, which is zero, your ODS are pretty good. So these are not the patent holders that are filing these petitions. These are like third parties that are asking the government to step in.
48:08 Correct? And I don't know who the third I didn't look that deep into who the third parties were, but yes, I could actually pull it up on the side here because I think the link is in all of it. Interesting. Didn't survive.
48:18 I'll share that. Apologies if I'm skipping ahead, but I'm curious how this actually works. Let's take the pallet coupler example.
48:28 So the air force wants to use this pallet coupler. Who do they have fabricated by the government having a license to use it? Are they then able to go to whoever they want and say, here's a great design, make this for us, and then that manufacturer is allowed to make it and sell it to the government at a profit because it seems like that manufacturer would then need to have the license? That's a good question. Presumably, probably.
48:57 And that's probably totally what the government would do. It seems like it. But if you go back to the provisions, it was like they have a fully paid up license.
49:10 Right. Or maybe it's this one. I don't is under Bayh-Dole.
49:19 they have a non exclusive, non transferable, irrevocable paid up license to practice it throughout the world? So if they wanted to set up their own manufacturing facility to make it and make it for themselves, they clearly could, but it's non transferable, so they can't just give that to Allied Signal to start producing this pallet coupler. You know what I mean? Yeah. Wouldn't that be an agent relationship? So even being that they're working at the disruption of the licensee, maybe.
49:59 I'm curious. I mean, it seems like there has to be a vehicle, a mechanism for ty. Maybe you're right.
50:05 Maybe that's exactly what it know. In the past, I worked for Solar, and like so you would get, like, Department of Defense, Department of Energy, tons of big government agencies very interested in Solar. Right.
50:18 But they were never proposing to build a manufacturing facility to make solar panels or cells. They were always talking about buying these things from third parties. So I've actually always wondered how that would really work in practice.
50:35 Yeah. As part of a license, you would think you would have to be able to set up your own supply chain to be able to do it. Right.
50:41 But yeah. How do you manage that supply chain to make sure that problem, that as the licensing, you're retaining control because it probably comes down to control. Right.
50:53 Maybe that's next month. Dave, you yeah, that's a good question, though. Very good question.
51:05 I do not have a good answer. All right, so switching gears here a little bit. So what types of clients grants are applicable for our clients in particular? And so I'm going to focus on the Small Business Technology Transfer Grant, the STTR, and the Small Business Innovation Research Grant, the SBIR.
51:23 And I think there's maybe a few others, but not really for our clients. Right. Because these are first, back it for a second.
51:34 So these two grants are the largest source of early stage capital for life science startups in the United States. So the NIH grants $1.2 billion every year in combined SBIR STTR programs.
51:47 So that's pretty sizable, if you think about it. And then there was some concern back in 2022 that these were actually going to expire both these grant types, and there was not going to be any funding available for them. But then in September of 2022, congress did pass the Extension Act, the SBIR and STTR Extension Act of 2022, which renewed this, is all administered under the Small Business Administration.
52:10 So they renewed all of it under the SBA program for the next three years. So it's now available again through 2025, or assuming that takes place as of that date. So, anyways, what are these two grants? So the STTR is to stimulate scientific and technological innovation between small business concerns and research institutions.
52:32 So you're making a partnership between you and the university down the road. And there's a three phase structure, feasibility R D, and commercialization. But the commercialization phase cannot be used for STTR funds cannot be used for the commercialization phase.
52:48 SBIR it's to stimulate technological innovation in the private sector, for profit institutions for ideas that have potential for commercialization. So, again, this is between the private sector for for profit institutions or in the private sector. And again, it's feasibility, R D, commercialization, where the SBIR funds cannot be used for commercialization.
53:14 And I know a lot of our clients actually use SBIR. I've heard less around STTR, but I think when you get into more of the unpredictable sciences, that's where I've seen clients turning more towards STTR, because you need that bench space, that research, to kind of really propel it forward. Whereas when you have SBIR, that's like the IoT, the digital health innovations, where you're really trying to launch your technology forward.
53:42 All right, so do SBIR and STTR grants cover IP costs? They could. So there's a technical and business assistance funds under both of these grants. And so they could be used for patent prosecution costs related to obtaining US.
53:59 Patent protection, which is nice that they include this, because they do require recipients to obtain patent protection. So it's nice that they allow this. It's not a ton of money, though.
54:08 In phase one, it's $6,500. In phase two, it's $50,000. Budget location.
54:14 You need to include these patent costs in the commercialization assistance budget or other direct costs area of the grant. The patent costs do include practitioner fees and USPTO fees. So that's also nice.
54:28 Not all grants include fees. A lot of times those are payable by the recipient filings. The grant money can be used for all USPTO related filings.
54:38 So provisional Pct, non provisional continuation, continuation in part, divisional patent applications can also be used for search, freedom to operate searches, market analysis, competitor IP, landscape and products searching costs. These all may be allowable, again, depending on the grant type you need to do your grant research. There are exclusions, though.
54:57 You cannot use it for foreign related costs. So this includes foreign attorneys, foreign patent offices, or translation fees. And generally licensing fees are not allowable, since these are typically not required in the performance of the award.
55:13 Another interesting thing that we get asked sometimes, especially now in this large language model, AI, ML, all that kind of world where data and data sets are really important. What are the provisions for data versus inventions under Baydol, specifically SBIR STTR grants? So if it's an idea, concept, design or method visible to the naked eye, definitely patent it. Per the SBIR STTR Baydol provisions, if it's recorded or written technical information or data developed under SBIR funding agreements, this data and information can be kept secret under a government nondisclosure obligation under the grant.
55:57 This only applies when it has been written down. So the data or whatever the technical information needs to be written down. And there is a fixed protection period of 20 years.
56:06 Now what does the government would do with that data after 20 years? I don't know if they publish it, I don't know if they use it. I'm sure they just had to put a window on it. But it probably just sits in some database somewhere, I don't know.
56:19 So that's another thing we'd have to look into. But the caveat is here, don't include your privately funded data then in those data sets, because obviously then that gets confused with those data. And then you have this fixed protection window.
56:34 But yes. So you can have protection of data under these grants, but it's not through the I. Edison put the innovation into the system. It's record it, write it down and make sure it's in your final report for the grant to make it clear that you have these data and that they need to be kept under a nondisclosure obligation.
56:58 It basically talks about having a legend in your data. Make sure the first page of the COVID page includes statement that it contains SBIR STTR data. And make sure that the subsequent pages include authorized legend of simply SBIR STTR protected data.
57:19 Yeah. And so this also could include computer software, right? So you could include a legend on printed material or transmittal page. It may say that has both patent and data rights.
57:30 So just, you know, again, it's kind of like almost like trade secret, right? You want to include notice of it. And so I think that's really important here too is have put notice on these documents what provisions of the grant apply. So to kind of sum it up in these next two slides.
57:45 So, advice for government grant recipients. Mark your data, especially mark it in a final report. Report all your subject inventions, all inventions through Iedison, not just the patentable ones.
57:58 Make sure you track your statutory bars. And of course that's for everybody. Your whole company needs to track it for more than just a grant for practitioners like us as well.
58:07 And make sure you report these bars to your practitioner and your agency. And also understand us. Manufacturing requirements for I don't think I got into this in some of the requirements, but where did that end up? It must be in a note section that I had.
58:24 So you can have it's on the next slide. You almost should have been reversed. There are U.
58:30 S. Manufacturing requirements because it is US. Money.
58:33 And if you want to give a license to somebody else, especially exclusive license to another company, you have to get approval from the agency. And that licensee has to be able to manufacture it in the United States or have a really compelling reason why it cannot. And that's actually in the government grant gotcha slide, which is you cannot give an exclusive license to anybody else, right? Because you already have a non exclusive license with the government.
59:00 But you could, if it were approved by the agency in advance and is manufactured substantially in the United States. So it is possible, but it has to be requested, approved and manufactured in the United States. Other gotchas again, if the subject invention is unelected at two years, then the government receives title of the invention.
59:20 So if you don't want them to own it, then make sure that you elect that invention at two years. And this is the biggest one that came across. That kind of blew my mind, but kind of makes sense in terms of controlling these things if you hire a subcontractor to perform some of the work.
59:37 So let's say I'm a main contractor for the grant, right? I'm the contractor that got the government grant, and then I hire some subcontractors to perform the work. And let's say I even have a loctite amazing subcontractor agreement that says that I own as a company, as a contractor, own everything. You have an obligation to assign everything to me that doesn't matter.
60:00 Any subject invention that came from that subcontractor cannot be assigned to your company. They still own it and the subcontractor will retain ownership. And I think the reason Josh and I opined about this a little bit, I think the reason for that is they don't want some entity being created that takes up all of these grants and then just finds a whole bunch of underlings to do it for them.
60:25 And then they get all of the title to it, but then also take up all the government grants. And so this is a huge got you that I wasn't even aware of, that you just need to really make sure that if you use subcontractors to do some of the work, that they are just like executing technical documents and things like that, right. That they're not conceiving or first actually reducing the practice because it could be a really huge boondoggle for your company.
60:54 All right, so that is it. And David J just had to jump off, but anybody, any other thoughts, questions? Just a comment. Know, with grants, and I've been there myself in previous projects, it's always so appetizing to look at nondiluting capital coming in.
61:12 But man, it's really cool to talk about some of the ramifications because you don't see this part of it. It's always just nondiluting capital. Free money kind of largely is given the marching rights that have been denied over the years and how few of them there have been.
61:32 But still, there's still some hooks and if you're not dotting all your I's and crossing your T's, you can really mess things up. So if there is ever an issue, you've now dug yourself a pretty big hole. Yeah, but otherwise I don't have any follow up.
61:50 That's great. I don't work with this a lot, so it's really nice to see all the ins and outs. Yeah.
61:56 If anybody's interested, I can share. There's some other stuff in there. Too.
62:00 But I basically created a huge word doc of know some of the links that I used for this. But also just and also I was pulling some of know was it David J's question around possession and prototyping and stuff like of and also it's partly because Josh, when he thought I was going to do this, he took it in a very different direction than what I had intended. So he had all these questions in there and I was like, I don't know if that really applies, but I'm going to run it to ground to some degree just to make sure I'm not crazy.
62:30 Be and it still does apply, kind of, but it's kind of to the extent that we talked about with Dave anyways, I can share that doc with anybody who wants to go slightly deeper or read some of the notes and things I had pulled together, but this, I think, distills it all down relatively concisely. Yeah, it's a good one. Cool.
62:51 Well, awesome. Well, thanks everybody then and otherwise. That is it.
62:56 All right, thanks. Sounds good. Bye.
63:01 Bye. Bye. All right, that's all for today, folks.
63:03 Thanks for listening. And remember to check us firstname.lastname@example.org for more great podcasts, blogs and videos covering all things patent strategy. And if you're an agent or attorney and would like to be part of the discussion or an inventor with a topic you'd like to hear discussed, email us at email@example.com.
63:19 Do remember that this podcast does not constitute legal advice. And until next time, keep calm and patent on.