Federal Circuit Hints at the Scope of Government’s License Rights

The Federal Circuit’s decision in University of South Florida Board of Trustees v. United States, 22-2248 (Fed. Cir. Feb. 9, 2024) hints at the broad scope of the federal government’s license rights under the Bayh-Dole Act. 

This case originates from a patent infringement dispute at the Court of Federal Claims pursuant to 28 U.S.C. § 1498(a).  The University of South Florida (“USF”), the owner of a patent covering transgenic mice used in Alzheimer’s research, sued the federal government because a government contractor, with the government’s authorization and consent, had been producing and using transgenic mice covered by the patent.  As a defense, the government argued that it had a license to the invention under the Bayh-Dole Act, because the invention was developed using government funding.  The Court of Federal Claims sided with the government, finding no infringement. 

On appeal, the Federal Circuit upheld the government’s license to the patented invention.  The Federal Circuit found that research leading to the invention was “in the performance of work under a funding agreement”—even though this research was conducted months before the effective date of the funding agreement.  Therefore, it is a “subject invention” for which the government obtained a license. 

Funding for the research leading to the patented invention came from an NIH grant to the Mayo Clinic, but part of that research—indeed the first reduction to practice of the patented invention—was conducted at USF.  As a result of this arrangement, NIH policies implementing the Bayh-Dole Act required Mayo and USF to enter into a subcontract with each other in order for grant money received by Mayo to be paid to USF for conducting the research.  Mayo and USF only executed this contract months after USF scientists had completed the first reduction to practice of the patented invention. 

The Federal Circuit found that the Bayh-Dole Act does not require a funding agreement to predate work done in furtherance of an invention.  To the contrary, the Federal Circuit found the Bayh-Dole Act’s language is broad, providing for “payment for work already performed before the subcontract is executed or its effective date.”  Because USF entered into a funding agreement with Mayo and accepted NIH funding from Mayo for the research done before the funding agreement was inked, the Federal Circuit found the Bayh-Dole Act applied to that research. 

The Federal Circuit explained that the record strongly supported its conclusion, because the fact pattern illustrated in this case—a subcontract not executed until after the grant is awarded, “yet the grant-covered work proceeds without waiting for the inking of a subcontract”—is a common one.  The Court reasoned that this fact pattern allows for the advancement of useful knowledge without waiting for the formalities of a grant award to be finalized. 

This decision comes at a time when the Executive Branch has released draft guidance on factors, including price and other terms, that an agency may consider when deciding whether to exercise march-in rights.  The draft guidance is being presented by the White House as part of actions intended to promote the affordability of taxpayer-funded drugs and other inventions, but the proposed policies have raised concerns about the impact upon innovation. 

Accordingly, innovators and licensees may wish to keep in mind the potential federal governmental rights to inventions as they seek funding, draft licensing agreements, and conduct due diligence on research inputs—both past and present, and how they intend to price products or methods.