Considerations with Bayh Dole Act and impact on joint Canada-United States research and development projects

1. Bayh Dole Act, or the Patent and Trademark Law Amendment Act, is bipartisan United States (US) legislation enacted in 1980. The name of the Act comes from the two Senators who introduced and sponsored the bill- Birch Bayh (D- IN) and Bob Dole (R-KS).
2. Bayh-Dole legislates inventions generated wholly or in-part from federally funded research.
3. Prior to Bayh-Dole, government agencies assumed ownership of inventions made or reduced to practice using federal funding. This led to the government owning tens of thousands of patents but that resulted in little commercialization. Bayh-Dole provides a uniform policy across all federal agencies.
4. Bayh-Dole intended to stimulate US innovation, giving small businesses and non-profit organizations such as universities and research labs control over the IP in order to market the inventions / make into commercial product(s).
5. Bayh-Dole is credited with helping develop hundreds of new drugs and thousands of start-up companies that contribute hundreds of billions in economic value.
6. The funding recipient may elect not to retain title (protect, seek ownership) of subject inventions. If the sponsoring government agency also declines to elect title, the ownership of the inventions falls back to the original inventors.
7. Funding recipients must follow certain guidelines to stay compliant with Bayh-Dole. Most of these are strict timelines for reporting to the government around items such as inventions created or reduced to practice, electing title, abandoning prosecution/protection.
8. Patent applications for inventions from federally funded research must include the government contract number and government agency that may have rights.
9. The sponsoring government agency must be given a non-exclusive, non-transferable license.
10. Any invention that will be used or sold in the US must also have reasonable efforts made to substantially manufacture in the US as well. Steps can be taken to waive such measures, and Bayh-Dole inventions can be licensed to be manufactured/sold in foreign markets such as Canada.
11. Federal funding agreements with non-profits must include a standard patent rights clause. This clause must be included in any related subcontracts.
12. Failure to comply with any of the Bayh-Dole requirements (e.g. failure to disclose) gives the government agency right to take title from the contractor. In such cases, the contractor loses ALL rights to the IP, even the right to practice.
13. Government also has "March-In Rights" which effectively transfers authority of the asset's activity to the government. These rights only apply in certain situations and have never been exercised by the government. March-In rights are not used to control prices.
14. March-In rights may be triggered if a contractor/recipient fails to apply the invention within a reasonable time, if the nation's health or safety are at stake, or if the resulting product is not primarily manufactured in the US. In these cases, the government would grant a license to a third party who is trusted to complete the needed action.
    
    

    Example 1: In the context of a national emergency, if a patent existed under Bayh-Dole that included key components that could help the Government deal  with the emergency, but the patent owner had neither the inclination, connections or funding to manufacture in the US in a reasonable timeframe, the government agency at stake could have licensed the patent to a local manufacturer to accelerate the timeline getting the technology available for production.

Key considerations for Canadian companies:

• Canadian companies establishing joint partnerships with a US entity must be aware of the impact of the Bayh-Dole law.
  • Contracts:
    1. The Canadian company must thoroughly review the funding sources of the US entity prior to entering into Joint research and development (R&D), including any relevant US government agency contracts, and to which invention(s) the funding applies or might apply for future inventions. It is important to ensure the partner has fully complied with Bayh-Dole requirements and is set up to continue compliance.
    2. If hiring a US student, the Canadian company must ensure that the student's work is not subject to Bayh-Dole through their home university via a federal grant or other federal funding. If Bayh-Dole could be in effect, the Canadian company should clarify with the US entity how inventions will be recorded and who will own them.
    3. If the Joint R&D includes work from the US entity that is funded at least in part by a US government agency, the standard patent rights clause must be included in the subcontract.
    4. Before signing a joint R&D agreement, the Canadian company must do due diligence to ensure the employee contracts of the US entity include clauses to assign all IP ownership to the US entity, avoiding messy ownership issues. Both research and employee contracts should also require timely disclosure of potential inventions.
    5. By electing title, the US entity has first rights to own the IP of the work if the research is funded wholly or in part by the US government. The Canadian company should seek a license/royalties from the US entity and an exclusive license and royalties to any related Canadian or other foreign IP.
    6. The Canadian company must ensure that efforts will be made by the US entity to minimize the likelihood that the US government will exercise March-In rights or to withdraw title away from the US partner.
  • Operations and Transparency – The Canadian company must make sure to establish processes and governance to:
    1. Separately track any IP subject to Bayh-Dole; prepare to report same to the government. Be especially mindful of deadlines.
    2. Flag potential inventions at the disclosure stage that would apply under Bayh-Dole.
    3. Report IP activity and intentions thereof from any Bayh-Dole inventions.
    4. Report all inventions, election of title, intention to protect with formal IP.
    5. Inform government of any changes (filed IP, intent to lapse, granted/issued IP, etc.).
    6. All reporting needs to be timely (per Bayh-Dole timetables) and transparent.
    7. Filed IP includes notice of federal funding used, with contract number and potential government rights. (see #8 above).
  • According to Jordan Pynn, Vice President at Stratford Intellectual Property, "Patents for inventions developed by Canadian companies with the use of US federal funding, either directly or through a US partner, can be considered a riskier investment and will be subject to stringent scrutiny in due diligence. A robust IP management strategy that includes proper disclosure and maintenance of these assets will help reduce the potential pitfalls in M&A and fundraising."

Additional information:

• For information about IP protection in the US, please see the Canadian Intellectual Property Office's publication on Doing business abroad: Protecting your IP in the United States
• For more material relating to the export of goods to the US, please see the Doing Business in the United States page
• For more information on going global with your IP, visit Canada.ca/export-ip