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Get ready for extra compliance burden under revised Bayh-Dole rules

This article appeared in the May 2018 issue of Technology Transfer Tactics. Click here for a free sample issue or click here to subscribe.

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The anticipated revisions in Bayh-Dole regulations, published in the Federal Register on April 13, will no doubt have a significant impact on TTO activities. And while one crystal ball may be more or less clearer than the next, TTO leaders agree they will significantly increase the amount of time needed to assure full compliance — and thus the amount of resources required to do that.

In fact, the Massachusetts Institute of Technology was so clearly anticipating that possibility that they put in for — and received — approval for an additional compliance staff member prior to the final rule’s implementation. “I managed to get an extra member of staff in next year’s budget in anticipation of the changes and I am glad I did, because I think it’s going to have huge impact on our processes,” says Lesley Millar-Nicholson, CLP, MIT’s Technology Licensing Office director.

Leigh Edwards, Patent Compliance Administrator at MIT, described the ruling as “reaffirming” that planning while noting that the compliance department needed more people at any rate. “Now our compliance team will be three,” she reports.

The University of Minnesota’s TTO is also expecting a heavier compliance burden, says Jay W. Schrankler, associate vice president in the Office for Technology Commercialization. “Bayh-Dole is an unfunded mandate. If it’s unfunded and you just add more overhead it doesn’t make life easier,” Schrankler comments. Prior to the new rules, he has been dedicating at least one full-time person to compliance, and “I’ve now taken on a 50% contractor, partially due to this change,” he adds.

Any changes requiring additional staff will be more onerous for smaller universities, notes Dan Sharp, associate vice president for research and director of the Office of Technology Commercialization at the University of Texas-Austin. “At UT Austin we have a very robust legal department — a paralegal, one lawyer, the director of IP is a lawyer, and a full-time person in charge of compliance,” he shares. “I suppose if you did not already have that position, you’d have to create it, and theoretically if you do not comply with these requirements, through no fault of your own you’d potentially put some research findings at risk.”

Significant provisions

While certainly in agreement that the new regulations will require a greater amount of time and resources, the experts contacted by TTT did not totally agree on which of the provisions was most significant. For example, Edwards says the “60-day abandonment notice” is the most significant of the changes for MIT, and “will be huge for our office and our office practice.” Edwards is referring to Section 401.14(f)(3), which states: “For each subject invention, the contractor will no less than 60 days prior to the expiration of the statutory deadline, notify the Federal agency of any decision: Not to continue the prosecution of a non-provisional application; not to pay a maintenance, annuity or renewal fee . . .”

“Prior to these updates in Bayh-Dole it was 30 days; that gave us another month’s grace and did not say if you could weigh the case with annuity fees,” notes Edwards. “Before, we did not know if maintenance fees or annuity fees or renewal fees would be included — now it’s clear the decision we make has to come before that.”

She adds that MIT now has a committee just to talk about the case abandonment process. “It will involve law firms we work with and licensing staff,” she notes. “It’s not just for compliance; it’s to figure out how we as an office, with our law firms, can be sure we know when these maintenance and annuity fees come up, and if the case is federally sponsored we may have to give notification 90 days prior to that date so we will have time internally prior to the statutory deadline.”

Sharp, who was previously expecting the notification requirement to be extended to 120 days, was nonetheless still displeased with the ruling. “I have a hard time seeing the benefit,” he says. “You deal with things the best you can as soon as you know you have the intent, but it’s rare to abandon a patent.” Still, he notes, technology start-ups licensed from universities are quite different from start-ups, say, simply involving an app.

“When you do technology out of a university, it’s important keep in mind you have to follow basic science and translate information to a commercializable product,” he explains. “As early stage start-ups raise money they may not truthfully control spending on IP — there are probably investors early on. That adds another actor, which hurts us on the timing and puts the university in a more difficult position.”

In short, Sharp says he just doesn’t see any rationale for the change. “The best you can do is talk to licensees about being responsive,” he says. “If they intend to abandon, if the licensee gives us 60-day notice do we have to pay some additional fee to prolong whether there’s an annuity or something else to pay just not to run afoul of the law through no fault of our own?”

For Sharp, however, Section 401.14(c)(3) is even more onerous than the abandonment notification rule change. It states, “. . . If the contractor files a provisional application, it shall file a non-provisional application within 10 months of the filing of a provisional application . . . .” Although a one-year extension is available, the rule change “does not make a lick of sense,” he claims. “You can get an extension if you need it, but why it make more difficult than patent law? I have to question who thought this was a good idea — and why?”

Unintended effects

Again, cost becomes an issue, Sharp adds. “We get back to the point that a place like Stanford or MIT can handle these things because of their resources, skill, and culture. Smaller schools, like UT El Paso, do not have these capabilities. They only have a few different inventions so each one is considerably more important. When you make these changes it has the perverse effect of hurting the people who need help more than anyone else. I doubt this is the intent of the law, but it is one of the effects.”

Edwards is also concerned about the implications of the changes noted in Section 401.14(c)(3). “It may not seem like a significant difference but internally we will have to notify licensing staff eight months prior to that conversion,” she points out. “It will require a huge overhaul in how we review federally sponsored cases; reporting all provisional applications will be a huge undertaking.” The office already files quite a bit, she says, and runs a lot of monthly queries. “These will have to be additional queries — who will manage reporting, managing government support language required, and making sure it gets into provisional applications?” Her team is “still ironing out the details,” she notes. 

Schrankler, however, was less concerned about the changes. “My view is they are inconsequential,” he says. “There’s more reporting; I like the structure.” When it comes to the new provisional guidelines, for example, “we had already self-imposed a nine-month period,” he says. “A lot of researchers said if we were to waive the technology back to them they had to have time. ‘Don’t tell me you’re not going to do anything, and then I have a month to write a $5,000 check,’ they said. So, we’re out in front of that one.”

A big positive of the new rules, he says, can be found in the new assignment language in Section 401.14(f)(2), requiring “ . . . a written agreement . . . to assign to the contractor the entire right, title and interest in and to each subject invention made under contract. . . .”

“I think the assurance of assignment rights is really significant,” Schrankler asserts. “Because, look at Stanford v Roche (in which the Supreme Court ruled that title in a patented invention vests first in the inventor) — I would rather be able to show to a researcher that this is now a legal requirement; it is not ambiguous.” Prior to the ruling, there were no specific requirements concerning such assignments.

In a letter to all members, AUTM CEO Steve Susalka agreed with Schrankler, stating, “Perhaps the most important change is a new requirement for employees to assign, by written agreement, invention rights to the contractor. AUTM and other like-minded organizations support this change.”

“My understanding is we are now statutorily required to assign and we already do that,” adds Sharp.

Education is critical

While there may be some disagreement as to which of the recent changes are the most significant, or which will have the greatest impact on TTOs, there was one thing on which all could agree: It will be critical to educate staff members about these changes so they can respond appropriately in their daily and ongoing operations.

“We’re working on a very simple kind of PowerPoint presentation to give out the details and try to brainstorm what office processes look like,” says Edwards. “Then we’ll have roll-out sessions as to what office practices are vs. what they were.” It will “take awhile,” she adds, to figure out exactly what those new policies are.

“We have a training program that regularly addresses lots of legal challenges, so we’re not changing that,” says Sharp. “We’ll have someone in the legal group periodically lead training sessions. Dave Palmer, our director of IP, gives a presentation on a topic — assignment, patent enforcement — for example, [covering] what the issues of assigning are and how they play out.”

Explaining these rather complicated issues that “even beginning lawyers can’t understand” to non-lawyers is a challenge, he notes, “but they are very smart, and can pick things up, so we teach them,” says Sharp. “Now we will include the changes in Bayh-Dole and talk about strategies to reduce the risk and address the challenges.”

TTOs will also need to be in more frequent contact with licensees, he adds. “The shorter notice period makes it more likely licensees will reach out to you,” he says. “I now suspect the onus falls more on universities to be proactive. When you have over 100 licenses out, that’s a lot to monitor.”

Which brings him back to financial resources. “In figuring out what ways to stay on top of licensees so as not to have lags in communication, we have software that lets us know when certain action items are due,” he notes. “Most law firms do, but it’s not cheap, and you have to have staff — I do not know how many universities have that.”

Another advantage larger universities have, he asserts, is continuity of staff. “A lot of smaller offices have more turnover at key positions — at least that’s been my experience,” says Sharp. “I’ve been here eight years and our paralegal has been here even longer; I can go to her to ask questions. If I did not have a paralegal, but only people at a lower level, staff would tend to be more transient.”

Edwards says “it will be a challenge for everyone to accommodate these new regulations, but they’re clear and we do understand why they’ve amended them. The changes do make sense.”

Sharp is not so sure. “It affects any university whose resources are constrained — and whose isn’t?” he poses. “Our purpose is to commercialize technology; financial burdens and more monitoring are going to go up — and for what?”

Contact Edwards at 617-253-6966 or leighedw@mit.edu; Millar-Nicholson at lesleymn@mit.edu; Schrankler at 612-624-0869 or schra223@umn.edu; and Sharp at 512-471-4738 or dsharp@otc.utexas.edu.


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