Patently Strategic - Patent Strategy for Startups
Patently Strategic - Patent Strategy for Startups
Government Grants and Patent Rights: SBIR, STTR, and Your IP
In this month's episode, we’re talking about the use of government grants and the strings that can come attached to your IP! We’re 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 are not carefully tracking IP and adhering to the numerous provisions and timelines.
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 Bye-Dole Act of 1980 regulates inventions under government grants
⦿ As a small business, what types 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 subcontractors to perform the work under the grant
⦿ And of course, some of the biggest gotcha’s 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
⦿ Ty Davis, Patent Strategy Associate at Aurora
** Mossoff Minute **
This month's Mossoff Minute, featuring Professor Adam Mossoff, looks at the introduction of a very important piece of patent reform legislation called the PREVAIL Act.
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Thanks for listening!
---
Note: The contents of this podcast do not constitute legal advice.
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 attack 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 out@aurorapatents.com
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 podcast@aurorapatins.com.
63:19 Do remember that this podcast does not constitute legal advice. And
until next time, keep calm and patent on.
