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Every year, the U.S. government pours tens of billions of taxpayer dollars into research at universities, nonprofit institutes, and small businesses across the country. This funding drives breakthroughs in medicine, energy, technology, and countless other fields.
But what happens when this publicly funded research leads to a patentable invention? Who owns it? And when can the federal government step in and take ownership or control?
The legal framework at the heart of this question is the Patent and Trademark Law Amendments Act of 1980, better known as the Bayh-Dole Act. This law has shaped American innovation policy.
It established a system where inventors and their institutions can, by default, choose to own the inventions they create with federal funds. This ownership provides the critical incentive for them to partner with the private sector, which can then undertake the risky and expensive process of turning a raw discovery into a useful product for the public.
However, this right to ownership is conditional. The relationship between the government and a federally funded inventor is fundamentally contractual, not confiscatory. The government’s ability to “take” an invention is almost always a pre-defined consequence of the inventor failing to uphold their end of the funding agreement.
The government can take control of federally funded inventions through four primary pathways: reversion of title when inventors fail to meet legal obligations, the government-use license retained in every federally funded invention, “exceptional circumstances” restrictions imposed upfront, and “march-in rights” that allow forcing licensing to protect the public interest.
The Bayh-Dole Act: A Landmark Shift in Innovation Policy
To understand the current rules, you need to look at the system that existed before 1980. The landscape of government patent policy was a chaotic and inefficient patchwork of conflicting regulations that stifled innovation.
The Pre-Bayh-Dole Problem
Before the Bayh-Dole Act, federal agencies followed disparate and often contradictory policies regarding inventions made with their funding. Some agencies, like the Department of Defense, often allowed contractors to retain ownership, while others, like the Department of Health, Education, and Welfare (the precursor to HHS), typically took title for the government.
The result was that the federal government amassed a portfolio of approximately 28,000 patents.
However, government ownership proved to be a dead end for innovation. With no single entity having the exclusive rights needed to justify the immense financial risk of product development, private companies had little incentive to license these government-owned patents.
Consequently, the vast majority of these taxpayer-funded inventions—estimated at over 95 percent—were never developed into commercial products. They simply sat on the shelf, failing to benefit the American public, create jobs, or improve lives.
This failure was not just a missed opportunity; it was seen as a contributing factor to the economic stagnation and declining industrial competitiveness the U.S. faced in the 1970s.
The Bayh-Dole Solution
Enacted in 1980 with strong bipartisan support from Senators Birch Bayh (D-IN) and Bob Dole (R-KS), the Bayh-Dole Act created a uniform federal patent policy that applied to all federal agencies.
Its premise was revolutionary in its simplicity: move technology management away from Washington and place it in the hands of those who actually made the discoveries.
The Act allows universities, nonprofit organizations, and small businesses (collectively known as “contractors”) to elect to retain title to inventions conceived or developed with federal funding. This ability to own the patent provides the necessary incentive for these institutions to seek out private-sector partners.
A company is far more willing to invest the millions or even billions of dollars required for product development, clinical trials, and marketing if it can secure an exclusive license to the underlying patent, protecting its investment from competitors.
This public-private partnership model has been hailed as a primary driver of American innovation for over 40 years, contributing up to $1.9 trillion to U.S. economic output and supporting 6.5 million jobs between 1996 and 2020.
The Act’s Goals
The text of the Bayh-Dole Act explicitly lays out its objectives. It’s not merely a patent law but a strategic economic policy designed to achieve several national goals:
- Promoting the utilization of inventions arising from federally supported research
- Encouraging maximum participation of small business firms in federal R&D efforts
- Promoting collaboration between commercial concerns and nonprofit organizations
- Ensuring that inventions are used to promote free competition and enterprise
- Promoting the commercialization and public availability of inventions made in the United States by U.S. industry and labor
- Ensuring the government obtains sufficient rights to meet its own needs and to protect the public against nonuse or unreasonable use of inventions
This last point is critical, as it forms the legal basis for the government’s residual powers, such as march-in rights, which are designed as a safeguard if the system fails to deliver benefits to the public.
The entire framework is a delicate balance, designed to harness the power of market incentives while retaining government oversight to protect the public’s investment.
How Inventors Keep Their Rights
The Bayh-Dole Act operates on a “comply-to-own” basis. Contractors are granted the option to own their inventions, but this right is contingent upon fulfilling a detailed list of administrative and legal obligations.
The system is built on a “paper trail” of compliance, where the burden is placed squarely on the contractor to report, disclose, and act. Failure at any of these procedural steps is the most common reason a contractor can lose its rights to an invention.
Defining a “Subject Invention”
The rules of the Bayh-Dole Act apply only to a specific type of invention, legally defined as a “subject invention.” A subject invention is “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.”
This definition has two critical parts:
“Conceived or first actually reduced to practice”: This means the Act covers not only ideas that are fully formed during the funding period but also pre-existing ideas that are first successfully built and tested with federal funds.
“Invention of the contractor”: In the landmark Supreme Court case Stanford v. Roche (2011), the court clarified that this phrase means the invention must legally belong to the contractor (the university or nonprofit) in the first place. If an inventor fails to assign their rights to their employer, the invention is not “of the contractor,” and the Bayh-Dole Act’s provisions do not automatically apply.
This ruling underscored the importance of having proper employment agreements in place.
The Act applies only to patentable inventions and has no impact on works protected by copyright (like manuscripts or software code, unless the code is also part of a patentable process) or trademark.
The Contractor’s Compliance Checklist
To successfully elect and retain title to a subject invention, a contractor must meticulously follow a series of steps laid out in the law and its implementing regulations.
Educate and Secure Rights from Employees: The contractor must require its employees, especially technical personnel, to sign a written agreement to disclose inventions promptly and to assign the rights to those inventions to the contractor. This is a foundational step to ensure the invention is legally “of the contractor.” Universities often fulfill this requirement through employee handbooks or participation agreements that graduate students and researchers must sign.
Disclose Inventions to the Government: The contractor must disclose each subject invention to the funding federal agency. This disclosure must be made within two months of the inventor reporting it to the contractor’s patent personnel (e.g., the university’s technology transfer office). This reporting is typically done through a centralized online portal called iEdison, which is used by more than 30 federal agencies.
Elect Title: After disclosing the invention, the contractor must formally notify the funding agency in writing that it elects (chooses) to retain title. This election must be made within two years of the initial disclosure to the agency. This two-year window can be shortened by the agency if a public disclosure (like a publication or presentation) has occurred, which starts a one-year clock for filing a U.S. patent.
File a Patent Application: The contractor must file an initial patent application for the invention within one year of electing title. Under modern rules, this can be a provisional patent application, which gives the contractor another year to file a full non-provisional application. If the contractor fails to file before a statutory bar (e.g., more than one year after a public disclosure), it can lose its patent rights entirely.
Grant the Government its License: The contractor must agree to grant the U.S. government its automatic “government-use license,” a right that is retained in every federally funded invention.
Include a Government Support Clause: Every U.S. patent application filed for a subject invention must contain a specific statement acknowledging that the “invention was made with government support” and that “the government has certain rights in the invention.” This clause serves as a public notice of the government’s retained interests.
Pursue Commercialization and Report on It: The contractor must make ongoing efforts to achieve “practical application”—that is, to see that the invention is utilized and its benefits are made available to the public. Upon request, the contractor must submit periodic reports on these utilization efforts.
Prefer U.S. Manufacturing: For any exclusive license granted to use or sell a product in the United States, the contractor must ensure the product will be “substantially manufactured” in the U.S. This requirement can be waived by the funding agency if it is not commercially feasible.
Failure to diligently follow this checklist can have severe consequences, including the loss of the patent title to the government. This compliance-driven system places the responsibility for action and documentation entirely on the research institution.
Four Pathways to Government Control
While the Bayh-Dole Act’s default is contractor ownership, the law provides four distinct mechanisms through which the federal government can assert control or reclaim ownership. These range from a simple consequence of non-compliance to a highly contentious power of intervention.
Pathway 1: Reversion of Title
This is the most direct and common way for the government to obtain full ownership of a federally funded invention. It’s not an aggressive seizure of property; rather, it’s the contractually defined outcome when a contractor fails to fulfill its core obligations under the Bayh-Dole Act.
The right for the government to take title is triggered by several specific failures on the part of the contractor:
- Failure to Disclose: If the contractor does not report the subject invention to the funding agency within the specified time
- Failure to Elect: If the contractor discloses the invention but then fails to formally elect to retain title in writing within the two-year window
- Failure to File: If the contractor elects title but then fails to file a patent application in a timely manner, or decides to abandon the patent prosecution process
In any of these cases, the funding agency has the right to send a written request to the contractor demanding that it convey title of the invention to the U.S. government.
A 2018 update to the implementing regulations significantly strengthened the government’s position by clarifying that there is no time limit for the government to make this request after discovering a contractor’s non-compliance. This means an institution could lose its rights to a valuable patent years after the fact if it is discovered that a procedural requirement was missed.
Pathway 2: The Government-Use License
Even when a contractor does everything right and retains full title to a patent, the U.S. government automatically keeps a significant, albeit limited, set of rights for itself. This is known as the government-use license.
The Bayh-Dole Act specifies that for every subject invention, the federal government retains 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.”
Breaking down this legal language reveals what the license allows and what it does not:
What it allows: This license gives any federal agency (like the Department of Defense or the National Institutes of Health) and any contractor working on behalf of the government the right to use the patented technology for official government purposes. This can include using a patented material in a military vehicle, employing a patented research tool in a government lab, or having a contractor manufacture a product for the government’s own use.
What it does not allow: This is not full ownership. The government cannot sell the invention or license it to other companies for commercial purposes. The contractor retains the exclusive right to commercialize the patent. Furthermore, a 2003 report by the Government Accountability Office (GAO) clarified that this license does not entitle the government to automatic price discounts when it buys a commercial product that happens to incorporate the invention.
The primary value of the government-use license is defensive. Its main purpose is to ensure the government’s own freedom to operate is not blocked by a patent that it paid to create.
For example, it prevents a scenario where a company holding a patent on a GPS technology funded by the DOD could sue the DOD for patent infringement for using that same technology in its own systems.
The GAO found that while the license is valuable for enabling government research without fear of lawsuits, agencies like the VA and DOD have rarely, if ever, used it to procure or manufacture biomedical products, in part because they already receive favorable pricing through other federal programs.
Pathway 3: “Exceptional Circumstances”
While the Bayh-Dole Act was designed to create a uniform policy, it includes a provision for agencies to deviate from the standard rules in rare cases. An agency can restrict or even eliminate a contractor’s right to retain title to an invention from the outset of a funding agreement if it makes a formal Determination of Exceptional Circumstances (DEC).
To issue a DEC, the agency must prepare a written justification, including a statement of facts, explaining why restricting the contractor’s title rights “will better promote the policy and objectives” of the Bayh-Dole Act.
This is a high bar, intended for situations that are genuinely exceptional. Critics of this provision worry that its overuse could undermine the uniformity that is central to the Act’s success, potentially leading back to the confusing patchwork of agency-specific rules that existed before 1980.
This power is not merely theoretical. The Department of Energy (DOE), for instance, has used DECs for research in areas with significant national security implications or specific policy goals. Examples include:
- Work related to naval nuclear propulsion and weapons programs
- Research in sensitive fields like quantum information science and cybersecurity
- To impose stricter domestic manufacturing requirements than the Act normally requires, such as mandating U.S. manufacturing for products resulting from non-exclusive licenses, not just exclusive ones
A DEC allows an agency to tailor the intellectual property terms of a funding agreement to a specific, overriding national interest when the standard Bayh-Dole framework is deemed insufficient.
Pathway 4: “March-In Rights”
Of all the government’s powers under the Bayh-Dole Act, none is more powerful, more misunderstood, or more controversial than its march-in rights. This mechanism has been the subject of intense debate for decades, particularly in the context of high-priced prescription drugs.
What Are March-In Rights?
First, it’s crucial to understand what march-in rights are not. They are not a mechanism for the government to take ownership of a patent.
Instead, march-in rights are the government’s power to step in and force a patent owner to license their federally funded invention to a third-party applicant—a “responsible applicant” who is willing to commercialize the product.
If the patent owner refuses to grant the license on “reasonable terms,” the government agency can grant the license itself. This is a form of compulsory licensing.
This power is intended as a last-resort public safety net, a tool to be used in very limited circumstances to “protect the public against nonuse or unreasonable use of inventions.”
The Four Statutory Triggers
An agency cannot march in simply because it wants to. The law provides only four specific conditions, or triggers, one of which must be met for an agency to initiate a march-in proceeding. The agency must determine that action is necessary because:
- The contractor or its licensee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the invention
- Action is necessary to alleviate health or safety needs that are not being reasonably satisfied by the contractor or its licensee
- Action is necessary to meet requirements for public use as specified by federal regulations, and those requirements are not being reasonably satisfied
- The agreement to give preference to U.S. industry and manufacturing has been breached by the patent holder or its exclusive licensee
The process for exercising these rights is formal and lengthy. It requires the agency to notify the contractor, potentially hold public hearings with fact-finding and testimony, and issue a formal determination. The contractor has the right to appeal any final march-in decision in the U.S. Court of Federal Claims.
The Great Debate: Can “Reasonable Terms” Mean “Reasonable Price”?
For over two decades, a fierce debate has raged over whether march-in rights can be used to control the price of products, especially prescription drugs.
The dispute centers on the interpretation of the first trigger and the legal definition of “practical application.” The law defines practical application to mean that an invention is being utilized and its benefits are “available to the public on reasonable terms.”
The entire controversy boils down to what “reasonable terms” means. This is more than a legal squabble; it’s a proxy war over the fundamental purpose of the U.S. innovation and healthcare systems, pitting the principle of market-driven innovation against the principle of healthcare as a public good.
The Proponents’ Position: Price is a Key “Term”
Proponents, including patient advocacy groups like Knowledge Ecology International (KEI) and Universities Allied for Essential Medicines (UAEM), some members of Congress, and the Federal Trade Commission (FTC), argue that an excessively high price makes a product functionally unavailable to the public.
If a life-saving drug costs $200,000 per year, it is not accessible on “reasonable terms,” even if it is physically on pharmacy shelves. They contend that price is therefore a legitimate, and perhaps the most important, factor in determining whether practical application has been achieved.
This view is rooted in a philosophy that when public funds contribute to an invention, particularly a medical one, the government has a moral and economic duty to ensure affordability and protect the public from “unreasonable use,” which includes price gouging.
The FTC further argues that high prices can be a symptom of anticompetitive behavior that harms public welfare.
The Opponents’ Position: “Reasonable Terms” Means Commercial Availability, Not Price Control
Opponents, including a broad coalition of university associations like AUTM, industry groups like PhRMA, and the Bayh-Dole Coalition, argue that the law was never intended to be a price-control mechanism.
They point out that the law’s text makes no mention of “price” or “pricing,” an omission they claim was intentional. The act’s authors, Senators Bayh and Dole, wrote in a 2002 Washington Post op-ed that the law “did not intend that government set prices on resulting products.”
From this perspective, “reasonable terms” refers to the act of making an invention available on the commercial market through licensing and sales. As long as a product is being manufactured and sold, practical application has been achieved, regardless of the price.
This position reflects a market-based philosophy where the primary goal is to incentivize the risky, expensive process of innovation; interfering with the profit motive, they argue, would destroy the public-private partnership model, chill investment, and ultimately harm patients by preventing new technologies from ever being developed.
March-In Rights in Practice: A History of Denied Petitions
This debate is not just academic. It has played out in the real world through a series of high-profile petitions asking the National Institutes of Health (NIH) to march in on various medical technologies.
A crucial fact frames this entire discussion: in the more than 40-year history of the Bayh-Dole Act, a federal agency has never once exercised its march-in rights.
The consistent denial of these petitions has established a decades-long precedent, revealing a deep-seated institutional reluctance to interfere with patent rights and market pricing. Policymakers have historically calculated that the systemic risk of undermining the entire Bayh-Dole framework—which impacts innovation across all sectors—outweighs the benefit of lowering the price of a single product.
Table: Major March-In Petitions and NIH Responses
| Year | Product | Petitioner | Core Argument | NIH Decision & Rationale |
|---|---|---|---|---|
| 1997 | CellPro Stem Cell Device | CellPro, Inc. | A competitor (Baxter) had failed to achieve practical application, and there was an urgent health need not being met | Denied. NIH determined Baxter was taking effective steps to commercialize its device. Health need was reasonably satisfied because court order allowed CellPro to continue selling temporarily |
| 2004, 2012 | Norvir (ritonavir) | Essential Inventions; KEI et al. | Abbott Laboratories’ 400% price increase for HIV/AIDS drug meant it was not available on “reasonable terms” | Denied (both times). NIH ruled that drug price alone is not basis for march-in. Because Norvir was FDA-approved and widely available for prescription, it met “practical application” standard |
| 2016-2023 | Xtandi (enzalutamide) | KEI; UAEM | High price of prostate cancer drug in U.S. ($156,000/year) compared to other nations meant it was not available on “reasonable terms” | Denied (repeatedly). Across multiple administrations, NIH found that because Xtandi is “widely available” and has treated hundreds of thousands of patients, it satisfies practical application requirement. Price concerns acknowledged but march-in not “effective means” of lowering price |
A Potential Policy Shift
The long-standing consensus against using march-in for price control faced its most significant challenge in December 2023. The National Institute of Standards and Technology (NIST), the agency within the Department of Commerce that oversees Bayh-Dole regulations, released a “Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights” for public comment.
This draft framework represents the first significant crack in the institutional wall that has stood for over 40 years. For the first time, it proposes that a funding agency can and should consider the price of a product when determining if it is accessible to the public on “reasonable terms.”
The framework suggests that an agency could march in if a price is found to be “extreme and unjustified given the totality of circumstances.”
This proposal signals a potential major shift in policy, aligning the executive branch with the arguments of march-in proponents and alarming opponents who see it as a direct threat to the U.S. innovation ecosystem.
While the framework is not yet final and is non-binding, it indicates a new willingness by the government to use the threat of march-in as a lever to pressure companies on drug pricing.
However, even if this new interpretation is adopted, its practical impact on drug prices may be limited. Many modern drugs are protected by a “patent thicket”—a dense web of dozens or even hundreds of patents covering not just the core compound but also methods of manufacturing, formulations, and delivery systems.
March-in rights only apply to the specific patents that arose from federal funding. If a drug is also protected by crucial patents that were privately funded, forcing a license on the government-funded patents alone may not be enough to enable a generic competitor to enter the market.
Studies suggest that a very small percentage of drugs on the market are protected solely by patents that would be eligible for march-in.
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