Federally Funded Research & Development: New Executive Order Pushes Federal Agencies to Take Title to Subject Inventions and Require Domestic Manufacturing

Key Points

• On July 28, 2023, President Biden signed EO 14104, “Federal Research and Development in Support of Domestic Manufacturing and United States Jobs,” which aims to increase domestic manufacturing and commercialization of federally funded R&D. The EO requires the Departments of Defense, Agriculture, Commerce, Health and Human Services, Transportation and Energy (DOE), the National Science Foundation and the National Aeronautics and Space Administration to consider whether “exceptional circumstances” exist under the Bayh-Dole Act such that the federal government may retain title to patentable intellectual property first discovered or reduced to practice (“subject inventions”)¹ under federal R&D agreements.
• The EO requires these agencies to also evaluate whether the Bayh-Dole requirement that exclusive licensees manufacture subject inventions “substantially in the United States” should be extended to non-exclusive licensees of subject inventions and for use or sale of subject inventions outside the United States.
• The EO encourages federal agencies to include domestic manufacturing requirements in their R&D solicitations and funding agreements, including OTAs and small business innovation research or small business technology transfer awards.
• The EO also directs agencies to develop a plan to transition to the iEdison system for reporting subject inventions and patents. Notably, recipients of federal R&D awards will also be required to report where their subject inventions are manufactured and provide the names of their licensees.
• The EO aims to improve the domestic manufacturing waiver process by making it more transparent and consistent across federal agencies.

Background

Under the Bayh-Dole Act (35 U.S.C. §§ 200 - 212), small businesses and nonprofits may retain title in inventions arising from federally funded research, unless the funding agency determines that “exceptional circumstances” exist such that “restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives” of the Act. Further, the Bayh-Dole Act requires that any subject invention or related product to which a small business or nonprofit retains title must be “manufactured substantially in the U.S.” by an exclusive licensee, absent a waiver.²

Most federal agencies have allowed all businesses to retain title to subject inventions, but have imposed the domestic manufacturing requirement.

• DOE, however, has long been the exception among federal agencies with different statutory authority requiring DOE to take title to subject inventions, but allowing large businesses to request a patent waiver to take title. 42 U.S.C. 5908; 10 C.F.R. 784.1 - .13.

While the Bayh-Dole Act and other statutes have not changed, the Executive Order (EO) would require other federal agencies to consider taking title to inventions and also require manufacturing of products developed through federally funded research and development (R&D) to manufacture in the U.S., consistent with the renewed focus on U.S. manufacturing in other federal laws. Notably, the EO directs the specified agencies to consider (i) taking title to subject inventions related to technologies important to the U.S. economy and national security and (ii) requiring manufacturing in the United States. Technologies identified by the EO include critical and emerging technologies such as energy storage, quantum information science, artificial intelligence and machine learning, semiconductors and microelectronics, and advanced manufacturing.

For federal R&D funding recipients, whether via new contracts, grants, other transaction agreements (OTAs) or Cooperative Research and Development Agreements (CRADAs), the default intellectual property rights may change and the focus on domestic manufacturing requirements may be more rigorously enforced. Funding recipients should carefully examine federal funding opportunities to ensure they fully understand rights to title in subject inventions and limitations on the manufacture and commercialization of subsequent subject inventions.

Waiver Process for U.S. Manufacturing Requirements

The Bayh-Dole Act allows federal agencies to waive the requirement that subject inventions and related products be manufactured substantially in the U.S. if “reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States” or “under the circumstances domestic manufacture is not commercially feasible.” 35 U.S.C. § 204.

The EO aims to improve the domestic manufacturing waiver process. First, it encourages the listed agencies to develop a rigorous, timely, and transparent waiver process that is consistent with the Bayh-Dole Act’s waiver requirements and does not require a request from the funding recipient. To achieve consistency across agencies, the EO tasks the National Institute of Standards and Technology (NIST) with developing guidance on what factors agencies should consider when evaluating whether domestic manufacturing is not commercially feasible. Specifically, NIST is required to develop a list of common waiver questions that agencies shall adopt. These questions include how the waiver will be used, the potential economic and national security impacts of manufacturing the subject invention abroad, the benefits to domestic manufacturing, benefits to the U.S. job market and the conditions under which the invention will be manufactured abroad.

Agencies are encouraged to improve the timeliness of the process by acknowledging receipt of waiver applications within 10 business days and finalizing waiver decisions as soon as possible. Agencies must also establish agency guidelines for negotiating with waiver applicants to retain as much benefit to the U.S. as possible.

Invention and Manufacturing Reporting in iEdison

The EO mandates that the identified agencies make reporting subject inventions easier and consistent. The EO requires the Secretary of Commerce in conjunction with the Director of NIST and the Interagency Working Group for Bayh-Dole to develop an action plan to consolidate reporting of unclassified subject inventions, patents and related utilization reports in iEdison by 2025. Importantly, the EO requires award recipients to report to the awarding agency the location where subject inventions are manufactured, as well as the names of licensees.

Conclusion

While it remains to be seen how extensively and widely these changes will be adopted, the EO’s directives could cause agencies to insert new requirements for retaining title to subject inventions and new domestic manufacturing requirements in grants, contracts, OTAs and CRADAs.

As new clauses for grants and contracts are developed, opportunities for public comment should be available. In the interim, prospective recipients should closely examine federal funding opportunities to understand any restrictions on title and U.S. manufacturing requirements applicable to the commercialization of subsequent subject inventions.

^{1 Pursuant to 35 U.S.C. 201(e), “subject invention” means any invention of a contractor that was conceived, or first actually reduced to practice, in the performance of work under a funding agreement.}

^{2 See 37 C.F.R. § 401.14.}

• ^{Allocation of Principal Rights - “The Contractor may retain the entire right, title, and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 203. With respect to any subject invention in which the Contractor retains title, the Federal government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.”}
• ^{Preference for United States Industry - “Notwithstanding any other provision of this clause, the contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject inventions in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by the Federal agency upon a showing by the contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible.”}