The Bayh-Dole Act: What Licensees and Grantees of Federally Funded Technology Need to Know

The Bayh-Dole Act of 1980 is one of the most significant pieces of innovation legislation in the United States, yet many companies that license federally funded technology, or receive federal grants themselves, do not fully appreciate how it affects their operations, IP rights, and commercial strategies. With recent enforcement actions and proposed reforms signaling a shift toward stricter government oversight, now is the time for licensees and grantees to understand their obligations and take proactive steps to protect their interests. 

What Is the Bayh-Dole Act?

The Bayh-Dole Act (codified at 35 U.S.C. §§ 200–212 and implemented through 37 C.F.R. Part 401) allows universities, nonprofit organizations, and small businesses that receive federal research funding to retain ownership of inventions conceived or reduced to practice under those awards. Congress enacted the law to "promote the utilization of inventions arising from federally supported research or development" and to "encourage maximum participation of small business firms in federally supported research and development efforts." The law covers any federally funded research, including grants from agencies such as the NIH, NSF, DOE, and DOD, as well as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) funding.

Importantly, the Bayh-Dole Act does not only affect grantees. If your company licenses patented technology from a university or research institution that received federal funding, or if your company itself received an SBIR/STTR grant, the Act's requirements likely apply to you. 

Key Compliance Obligations: The "Three Pillars"

The Bayh-Dole Act imposes three core timing obligations on contractors, a term that includes any person, small business firm, or nonprofit organization party to a funding agreement. 

Pillar 1: Timely Disclosure. A contractor must disclose each "subject invention" (any invention conceived or first actually reduced to practice under a funding agreement) to the relevant federal agency within two months after the inventor discloses it in writing to the contractor's personnel responsible for patent matters. Failure to disclose can result in enforcement actions, withholding of future awards, suspension or termination of grants, or, critically, transfer of ownership to the government. 

Pillar 2: Timely Election of Title. The contractor must elect in writing whether to retain title to a subject invention within two years of disclosing it to the federal agency. If a statutory bar period has been triggered (for example, by a publication, public use, or sale), the election deadline may be shortened to 60 days before the end of that statutory period.

Pillar 3: Timely Patent Filing. The contractor must file an initial patent application within one year after electing title. If a provisional application is filed first, a non-provisional must follow within 10 months (extendable to 12 months upon request). Foreign filings must be made within 10 months of the initial application or 6 months from the date permission is granted where a secrecy order applies.

Additional Obligations That Affect Licensees

Beyond the three pillars, contractors have several obligations with direct implications for companies that license federally funded inventions. 

Domestic Manufacturing Requirement. Any exclusive license to use or sell a subject invention in the United States must be contingent on the licensee agreeing that products embodying the invention will be "manufactured substantially in the United States." This requirement can be waived by the funding agency if the contractor demonstrates that reasonable but unsuccessful efforts have been made to find licensees willing to manufacture domestically, or that domestic manufacturing is not commercially feasible. Under Executive Order 14104 (issued July 2023), the government has expanded this expectation to non-exclusive licenses and foreign sales or use, a significant broadening from the prior rule. 

Government License. The federal government retains a nonexclusive, nontransferable, irrevocable, paid-up license to practice, or have practiced on its behalf, any subject invention throughout the world. Licensees should be aware that this government license exists and cannot be contracted away.

Government Support Clause. All U.S. patent applications for subject inventions must include a statement acknowledging federal support and noting that the government has certain rights in the invention. 

Reporting and Transparency. Contractors must submit periodic utilization reports as requested and must notify the funding agency of decisions not to continue prosecution of a patent application, not to pay maintenance fees, or not to defend in reexamination or opposition proceedings, each at least 60 days prior to relevant deadlines. 

March-In Rights: What They Are and Why They Matter Now

Under 35 U.S.C. § 203, federal agencies have the authority to "march in" and force a contractor or licensee to grant licenses to third parties under four circumstances: (1) the contractor has not taken effective steps to achieve "practical application" of the invention; (2) action is necessary to alleviate unmet health or safety needs; (3) action is needed to meet public use requirements specified by federal regulations; or (4) the licensee has breached the domestic manufacturing agreement. 

In the more than 40 years since Bayh-Dole's enactment, no federal agency has ever exercised march-in rights. However, the enforcement landscape is shifting rapidly.

In December 2023, NIST released draft interagency guidance proposing that agencies may consider the price of a product, among other factors, when assessing whether the "practical application" and "health and safety needs" criteria for march-in are satisfied. As of late 2025, NIST had not finalized this guidance due to lack of interagency consensus, but the framework remains a signal of future direction. 

Proposed Reforms on the Horizon

Several additional proposals could further reshape the Bayh-Dole landscape:

Expanded Domestic Manufacturing Requirements. The "Invent Here, Make Here Act," proposed in 2023 and passed the Senate in 2024, sought to codify stricter definitions of "manufactured substantially in the United States" and limit agency discretion to grant manufacturing waivers. Although the relevant provisions did not ultimately pass, the legislative activity signals ongoing congressional interest in tightening these requirements.

Proposed Federal Royalty Tax. In January 2025, a proposal emerged to impose a federal royalty of approximately 50% on licensing revenue earned by universities from patents arising out of federally funded research. Although this would not change ownership structures, it could significantly reduce incentives for universities to commercialize inventions and would undermine technology transfer economics. Even if not enacted, it reflects a broader trend toward greater federal intervention in Bayh-Dole outcomes.

Executive Order 14104. Issued in July 2023, this order instructs agencies to restrict or eliminate contractor title retention in "exceptional circumstances," expand domestic manufacturing expectations beyond exclusive licenses, and require enhanced reporting on manufacturing locations, licensee identities, and commercialization status. 

What This Means for Licensees of Federally Funded Technology

If your company holds a license, exclusive or otherwise, to technology arising from federally funded research, these developments carry real commercial risk. 

Ownership Risk. Non-compliance by your licensor with Bayh-Dole's disclosure and election requirements could allow the government to demand title to the underlying patents, potentially invalidating your license entirely. Under post-2018 rules, the government can request title at any time after a missed deadline, with no 60-day limitation period, placing a cloud on patent ownership. 

Exclusivity Risk. If march-in rights are exercised, an exclusive licensee could lose its exclusivity, as the government would grant additional licenses to third parties. While the original licensee retains its (now non-exclusive) rights, the competitive advantage of exclusivity disappears.

Manufacturing Compliance Risk. Exclusive licensees must ensure compliance with U.S. manufacturing requirements or risk triggering march-in proceedings. With expanded expectations now extending to non-exclusive licenses and foreign use, all licensees should assess their manufacturing footprints. 

Practical Guidance for Licensees and Grantees

In light of the current enforcement environment, we recommend the following actions:

For Licensees:

Conduct IP due diligence that goes beyond standard patent validity and ownership analysis. Specifically, confirm that your licensor has properly disclosed each subject invention to the funding agency, timely elected title, and filed patent applications within required deadlines. Verify that iEdison filings are complete and current. Review your license agreement for U.S. manufacturing clauses and confirm your compliance or the existence of agency waivers. Request representations and warranties from licensors regarding Bayh-Dole compliance and consider indemnification provisions addressing government title claims or march-in proceedings.

For Grantees (SBIR/STTR Recipients and Research Institutions):

Establish or reinforce internal systems for tracking invention disclosures and ensuring the two-month reporting window is met. Confirm that employee invention assignment agreements include all three required elements: prompt disclosure, execution of patent papers, and assignment of rights to the contractor. Maintain detailed records of commercialization efforts, including development milestones, manufacturing plans, and licensing activities. If you have missed a compliance deadline, notify the funding agency promptly and seek a cure or waiver, agencies retain discretion to grant extensions, and good-faith efforts at correction weigh favorably. 

For All Stakeholders:

Monitor developments from NIST regarding finalization of the march-in rights guidance and the domestic manufacturing waiver form. Stay current on legislative proposals that could affect royalty structures, manufacturing requirements, or march-in authority. Track enforcement actions by agencies, particularly the Department of Commerce, HHS, and NIH. Consider engaging experienced IP counsel to conduct a comprehensive Bayh-Dole compliance audit of your patent portfolio and licensing practices. 

Conclusion

The Bayh-Dole Act has been extraordinarily successful in fostering innovation by channeling federally funded discoveries into the commercial marketplace. But the rules come with real obligations, and the government is now demonstrating that it intends to enforce them. For companies licensing university or research institution technology, or for businesses holding SBIR and STTR grants, compliance is no longer optional or merely theoretical. It is a concrete business risk that requires attention, diligence, and strategic planning.

Michael Best's IP Business Solutions team advises clients on the full spectrum of Bayh-Dole compliance, technology transfer, and IP licensing matters. If you have questions about how the Bayh-Dole Act affects your organization, or if you would like to discuss a compliance review of your IP portfolio, please contact us.

Jeffrey D. Peterson is an attorney at Michael Best & Friedrich LLP and leads the firm's IP Business Solutions group. He advises universities, research institutions, and companies on intellectual property strategy, technology transfer, and regulatory compliance.