[Federal Register Volume 69, Number 64 (Friday, April 2, 2004)]
[Rules and Regulations]
[Pages 17299-17301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7487]


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DEPARTMENT OF COMMERCE

37 CFR Part 401

[Docket No. 950615153-3312-03]
RIN 0692-AA14


Assistant Secretary for Technology Policy; Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts, and Cooperative Agreements; Special 
Agreements To Provide Services for a Government Laboratory Under a 
Cooperative Research and Development Agreement (CRADA) With a 
Collaborating Party

AGENCY: Assistant Secretary for Technology Policy, Department of 
Commerce (DOC).

ACTION: Final rule.

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[[Page 17300]]

SUMMARY: The Under Secretary for Technology, United States Department 
of Commerce, is today issuing a final rule amending regulations to 
authorize Federal agencies to use an alternate patent rights clause in 
certain agreements with nonprofit organizations and small business 
firms to provide services at Government-owned and Government-operated 
and Government-owned and contractor-operated laboratories in connection 
with a CRADA between the laboratory and a collaborating party. A 
proposed rule, with a request for public comment, was published in the 
Federal Register on September 11, 2000 (65 FR 54826). This final rule 
responds to comments received in response to this Federal Register 
notice. The changes in this final rule include clarifications and 
editorial corrections.

DATES: This rule is effective on May 3, 2004.

FOR FURTHER INFORMATION CONTACT: Mr. John Raubitschek, Patent Counsel, 
at telephone (202) 482-8010.

SUPPLEMENTARY INFORMATION: Under the authority of 35 U.S.C. 206 and the 
delegation by the Secretary of Commerce in section 3(g) of DOO 10-18, 
the Assistant Secretary of Commerce for Technology Policy may issue 
revisions to 37 CFR part 401.

Background

    Under the Bayh-Dole Act (Pub. L. 96-517), nonprofit and small 
business contractors and grantees have the option to retain rights in 
their inventions in order to facilitate the commercialization of the 
results of federally funded research. However, this option may be 
limited if an ``exceptional circumstances'' determination is made by 
the funding agency under 37 CFR 401.3(a)(2). The criteria for such a 
determination are exacting and the contractor or grantee may appeal 
such a determination within the agency. There is a need to limit the 
rights of certain contractors and grantees in their inventions when 
they are performing research for the Government under a cooperative 
research and development agreement (CRADA) with a collaborating party 
as authorized by the Federal Technology Transfer Act (Pub. L. 99-502) 
(FTTA). If these rights are not limited, the collaborating party would 
not receive the rights to which it would normally be entitled under a 
CRADA, which includes the option for an exclusive license to any CRADA 
invention made by a Government employee. Contractors are now being used 
at certain federally-owned laboratories of various agencies such as the 
Department of Defense and the Environmental Protection Agency. The 
contracts are not usually entered into for securing research expertise 
of a particular company or individual but rather to provide general 
support to the operation of the laboratories.
    Presently, some agencies using contractors for CRADAs have notified 
their collaborating parties that they will endeavor to acquire the 
necessary rights from their contractors but cannot promise that those 
rights will be obtained. Other agencies preclude their contractors from 
working on CRADAs or permit them to own their inventions whether or not 
made under a CRADA. When the Department of Defense proposed several 
years ago a special clause for their contractors limiting rights in 
their inventions, DOC was concerned that the exception was too broad 
and that the clause should encourage negotiation.
    Since the laboratory's obligations under the FTTA do not 
technically apply to the inventions of its contractors or grantees, DOC 
does not consider that there is an actual conflict between the Bayh-
Dole Act and the FTTA. Nevertheless, we do believe that the situation 
presents a conflict between the general policies of the Bayh-Dole Act 
and the specific directives of the FTTA. We think that allowing a 
contractor or grantee to work under a CRADA in such circumstances might 
be a negative factor or disincentive to the participation by private 
parties in a CRADA because they would not be assured of receiving 
rights in all CRADA inventions as mandated by the FTTA.
    DOC published a proposed rule in the Federal Register on September 
11, 2000 (65 FR 54826), seeking public comment on a proposal to add an 
alternate new subparagraph to paragraph (b) of the basic patent rights 
clause (37 CFR 401.14). The comment period closed October 11, 2000. The 
new subparagraph encourages the contractor or grantee to negotiate with 
the collaborating party but, in the absence of an agreement, provides 
certain minimum rights for the collaborating party in inventions made 
by the contractor or grantee. The provision of those minimum rights in 
the agreement constitutes an ``exceptional circumstances'' 
determination by the agency pursuant to 37 CFR 401.3(a)(2) and would be 
appealable under Sec.  401.4. The rights would be of the same scope and 
terms the collaborating party would receive in an invention made by a 
Government laboratory employee under the CRADA, which is typically an 
option for an exclusive license. Although negotiation should occur 
prior to the contractor or grantee starting work under the CRADA, it 
could be postponed with the permission of the Government until an 
invention is made by the contractor or grantee under the CRADA. The 
procedures for using the alternate clause are provided in new Sec.  
401.3(a)(5). The alternate clause is optional and laboratories may 
allow contractors or grantees to own their inventions made under a 
CRADA.

Summary of Public Comments Received by DOC in Response to the September 
11, 2000 Proposed Rule and DOC's Response to Those Comments

    DOC received four responses to the request for comments. Two 
responses were from Federal government agencies. One response was from 
a not-for-profit association of research universities and another from 
a private individual. An analysis of the comments follows.
    Comment: One comment supported the proposed language which 
clarifies that, in the absence of a separate agreement with a 
contractor, the contractor is obligated to grant the collaborating 
party an option for a license in the contractor's CRADA inventions in 
the same scope and terms set forth in the CRADA for inventions made by 
the Government. However, the comment concluded that a Federal agency's 
use of the alternate rights clause may be limited if a determination of 
``exceptional circumstances'' is made by the funding agency under 37 
CFR 401.3(a)(2).
    Response: DOC agrees with the comment with the exception of the 
conclusion which appears to be based on a misunderstanding of 37 CFR 
401.3(a)(2). The regulation does not require a determination of 
``exceptional circumstances'' to limit the use of the alternate rights 
clause. To the contrary, the determination authorizes the use of an 
alternate clause.
    Comment: One comment suggested the phrase ``the Government may 
require the Contractor to try to negotiate an agreement with the CRADA 
collaborating party or parties, over the rights to any subject 
invention the Contractor makes, solely or jointly'' in the proposed 37 
CFR 401.14(b)(2) could better be expressed by re-wording ``to try to'' 
and ``over the rights.''
    Response: DOC agrees with the comment and has revised the phrase to 
read: ``the Government may require the Contractor to negotiate an 
agreement with the CRADA collaborating party or parties regarding the 
allocation of rights to any subject invention the Contractor made, 
solely or jointly.'' In addition to the revisions suggested by the 
comment, the word ``makes'' was changed to

[[Page 17301]]

``made,'' which is defined in the Bayh-Dole Act and the FTTA and the 
phrase ``in the course of its work'' was dropped because it does not 
appear in these laws.
    Comment: One comment noted that the proposed rule was too narrowly 
drawn in that it applied only to CRADAs at Government-owned Government-
operated (GOGO) laboratories. The comment suggested that the proposed 
rule should be broadened to include CRADAs at Government-owned 
contractor-operated (GOCO) laboratories.
    Response: DOC agrees with the comment. Accordingly, changes were 
made to 37 CFR 401.14(c) of the proposed rule so that the rule now 
applies to both GOCOs and GOGOs.
    Comment: One comment questioned whether the proposed regulatory 
change was sufficient to achieve the desired result, without additional 
amendments to the Bayh-Dole Act, because the need to grant the CRADA 
collaborator rights to inventions made by a laboratory contractor under 
a CRADA does not constitute ``exceptional circumstances'' as required 
by 35 U.S.C. 202(a)(ii). This comment also suggested that ``support 
contractor'' be defined and that in order to ensure exclusivity, 
support contractors should be denied all rights to CRADA inventions, 
including non-exclusive rights, particularly in a non-CRADA 
environment.
    Response: DOC believes that the requirement of the Federal 
Technology Transfer Act (Pub. L. 99-502) that Federal laboratories 
``shall ensure through such agreement, that the collaborating party has 
the option to choose an exclusive license for a pre-negotiated field of 
use for any such invention'' (15 U.S.C. 3710a(b)(1)) is sufficient 
justification to merit an ``exceptional circumstances'' determination 
for contractors or grantees working on CRADAs. Such a determination is 
consistent with the policies and objectives of the Bayh-Dole Act. At 
this time, DOC does not see a need to restrict the contractor from 
having any rights in its inventions. However, we dropped the word 
``support'' from the term ``support contractor'' because it is subject 
to interpretation and have made it clear that the rule also applies to 
grantees working under CRADAs. Since the scope of this rule change is 
limited to CRADAs, there is no issue of rights in inventions not made 
under a CRADA.

Additional Information

Classification

    Administrative Procedure Act: Although the notice and comment 
requirements of the Administrative Procedure Act (APA) are not 
applicable to this rule of agency policy pursuant to 5 U.S.C. 
553(a)(2), all public comments received on this policy have been 
considered.

Executive Order 12866

    This final rule has been determined to be not significant for 
purposes of E.O. 12866 (58 FR 51735, October 4, 1993).

Executive Order 13132

    This rule does not contain policies with Federalism implications 
sufficient to warrant preparation of a Federalism assessment under E.O. 
13132.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Assistant General Counsel for Legislation and Regulation of 
the Department of Commerce certified to the Chief Counsel for Advocacy, 
Small Business Administration that this rule would not have a 
significant economic impact on a substantial number of small entities. 
No comments were received regarding this certification. As a result, no 
final regulatory flexibility analysis is required and none has been 
prepared.

Paperwork Reduction Act

    This rule will impose no collection of information requirements 
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

List of Subjects in 37 CFR Part 401

    Inventions, Nonprofit organizations, Patents, Small business firms.

0
For the reasons set forth in the preamble, 37 CFR part 401 is amended 
as follows:

PART 401--RIGHTS TO INVENTIONS MADE BY NONPROFIT ORGANIZATIONS AND 
SMALL BUSINESS FIRMS UNDER GOVERNMENT GRANTS, CONTRACTS, AND 
COOPERATIVE AGREEMENTS

0
1. The authority citation for 37 CFR part 401 continues to read as 
follows:

    Authority: 35 U.S.C. 206 and the delegation of authority by the 
Secretary of Commerce to the Assistant Secretary of Commerce for 
Technology Policy at sec. 3(g) of DOO 10-18.

0
2. Section 401.3 is amended by adding a new paragraph (a)(5) to read as 
follows:


Sec.  401.3  Use of the standard clauses at Sec.  401.14.

    (a) * * *
    (5) If any part of the contract may require the contractor to 
perform work on behalf of the Government at a Government laboratory 
under a Cooperative Research and Development Agreement (CRADA) pursuant 
to the statutory authority of 15 U.S.C. 3710a, the contracting officer 
may include alternate paragraph (b) in the basic patent rights clause 
in Sec.  401.14. Because the use of the alternate is based on a 
determination of exceptional circumstances under Sec.  401.3(a)(2), the 
contracting officer shall ensure that the appeal procedures of Sec.  
401.4 are satisfied whenever the alternate is used.
* * * * *

0
3. A new paragraph (c) is added to Sec.  401.14 to read as follows:


Sec.  401.14  Standard patent rights clauses.

* * * * *
    (c) As prescribed in Sec.  401.3, replace (b) of the basic clause 
with the following paragraphs (1) and (2):

    (b) Allocation of principal rights. (1) The Contractor may 
retain the entire right, title, and interest throughout the world to 
each subject invention subject to the provisions of this clause, 
including (2) below, 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.
    (2) If the Contractor performs services at a Government owned 
and operated laboratory or at a Government owned and contractor 
operated laboratory directed by the Government to fulfill the 
Government's obligations under a Cooperative Research and 
Development Agreement (CRADA) authorized by 15 U.S.C. 3710a, the 
Government may require the Contractor to negotiate an agreement with 
the CRADA collaborating party or parties regarding the allocation of 
rights to any subject invention the Contractor makes, solely or 
jointly, under the CRADA. The agreement shall be negotiated prior to 
the Contractor undertaking the CRADA work or, with the permission of 
the Government, upon the identification of a subject invention. In 
the absence of such an agreement, the Contractor agrees to grant the 
collaborating party or parties an option for a license in its 
inventions of the same scope and terms set forth in the CRADA for 
inventions made by the Government.

Phillip J. Bond,
Under Secretary of Commerce for Technology.
[FR Doc. 04-7487 Filed 4-1-04; 8:45 am]
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