3
Effectiveness and Accountability of University Technology Transfer Activities

INTRODUCTION

In addition to concerns about the effects of technology transfer practices on academic science and teaching, as discussed in Chapter 2, another major concern is whether the current technology transfer system is effective in achieving the Bayh-Dole objectives, which include

  1. use of the patent system to promote the utilization of inventions arising from federally supported research or development;

  2. encouraging maximum participation of small business firms in federally supported research and development efforts;

  3. promoting collaboration between commercial concerns and nonprofit organizations, including universities;

  4. ensuring that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery;

  5. promoting the commercialization and public availability of inventions made in the United States by U.S. industry and labor;

  6. ensuring that the government obtains sufficient rights in federally supported inventions to meet the needs of the government and protect the public against nonuse or unreasonable use of inventions; and

  7. minimizing the costs of administering policies in this area.

Assuming that institutions have determined the appropriate measures for determining whether these purposes are being achieved, one must then ask whether there are characteristics of institutions’ organization, objectives, staffing, and conduct of patenting and licensing that account for seemingly large differences in outcomes across universities. What organizational characteristics and practices are counterproductive? Alternatively, would a different system—for example, sponsor ownership and disposition of intellectual property (IP) or faculty inventor ownership and licensing—be more effective overall in achieving the goals of Bayh-Dole?



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3 Effectiveness and Accountability of University Technology Transfer Activities INTRODUCTION In addition to concerns about the effects of technology transfer practices on academic science and teaching, as discussed in Chapter 2, another major concern is whether the current technology transfer system is effective in achieving the Bayh-Dole objectives, which include 1. use of the patent system to promote the utilization of inventions arising from federally supported research or development; 2. encouraging maximum participation of small business firms in federally supported research and development efforts; 3. promoting collaboration between commercial concerns and nonprofit organizations, including universities; 4. ensuring that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; 5. promoting the commercialization and public availability of inventions made in the United States by U.S. industry and labor; 6. ensuring that the government obtains sufficient rights in federally supported inventions to meet the needs of the government and protect the public against nonuse or unreasonable use of inventions; and 7. minimizing the costs of administering policies in this area. Assuming that institutions have determined the appropriate measures for determining whether these purposes are being achieved, one must then ask whether there are characteristics of institutions’ organization, objectives, staffing, and conduct of patenting and licensing that account for seemingly large differences in outcomes across universities. What organizational characteristics and practices are counterproductive? Alternatively, would a different system— for example, sponsor ownership and disposition of intellectual property (IP) or faculty inventor ownership and licensing—be more effective overall in achieving the goals of Bayh-Dole? 43

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44 EFFECTIVENESS AND ACCOUNTABILITY In the context of the university-ownership system, there are second-order issues that vary with the type of research sponsor. In the case of federally sponsored research, are universities accountable with respect to the objectives, conditions, and limitations stipulated in the Bayh-Dole Act? In the case of privately sponsored research, does the effort expended on negotiation of terms addressing the ownership or dissemination of IP that could result from the research to be sponsored represent a serious impediment to universities concluding sponsored research agreements with businesses or private foundations? If so, are these sponsors seeking relationships with non-U.S. institutions instead? In addressing these questions, the committee drew upon a variety of sources. As discussed in Chapter 2, the subject of university-owned IP has attracted a number of scholars in economics, sociology, and other disciplines who have produced a body of empirical research. Much of that research concerns the impact of IP on the university research enterprise. There has been somewhat less systematic research on the relative effectiveness of different institutional practices and arrangements with private research sponsors and even less work comparing alternative systems of IP ownership and management. The committee’s own inquiries, through testimony in public meetings and a two-day workshop held on November 20-21, 2008, provided additional, although limited, sources of evidence, as did the survey of technology transfer offices conducted by Feldman and Bercovitz,92 for which this study provided partial support. Finally, the committee reviewed the recommendations of other groups, organizations, and individuals, ranging from guidance on licensing practices to calls for a new system of managing IP arising from academic research. The federal government also plays a role in implementing Bayh-Dole in terms of oversight and monitoring. To address the issue of public accountability, the committee relied on reports of the U.S. Government Accountability Office (GAO; formerly, General Accounting Office), to which Congress assigned periodic investigative and reporting responsibility in the Bayh-Dole Act. EFFECTIVENESS OF TECHNOLOGY TRANSFER IN COMMERCIALIZING UNIVERSITY RESEARCH RESULTS Annually collected AUTM data dominate nearly all scholarly efforts to evaluate and compare institutions’ performance in IP-based technology transfer. The principal metrics are number of invention disclosures received from faculty by the technology transfer office; the number of patents applied for and granted; the number of licenses executed; and the amount of revenue derived from licenses, investment liquidation, sales of IP rights, legal settlements, and related indicators. Several researchers have investigated the striking differences in 92 M. Feldman and J. Bercovitz, op. cit.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 45 performance across institutions on these measures.93 These scholars cite a number of contributing variables including the presence or absence of a medical school, the public or private status of the institution, the structure of incentives for faculty to participate in the system, and technology transfer personnel compensation (e.g., the presence or absence of incentive pay). But there is very little consistency in results across studies apart from the very strong correlations between various output measures and the scale of universities’ research portfolios. For their sample of institutions, for example, Feldman and Bercovitz reported the following Pearson correlation coefficients between total research expenditures and invention disclosures (0.97), patent grants and applications (0.94), licenses (0.55), and start-ups (0.84), compared with office age, that is, experience (0.33 for invention disclosures) and the presence or absence of a medical or engineering school (not significant for any performance measure). Kordal and Guice94 argued persuasively that it is “inappropriate to compare institutions with widely varying sizes” of research portfolios and that “institutions should be compared to their peers.” Grouping institutions in three categories—large, medium, and small—Kordal and Guice found just as large differences in revenue, invention disclosure and patenting rates, licensing, and start-up company activity within each of the three tiers as across them, suggesting that more fine-grain analysis could be revealing of ways to improve technology transfer performance based on the current set of metrics. It would be most useful to know the extent to which such disparities among universities reflect differences in the organizational structure, staffing, and funding sources of technology transfer offices and their relations with research faculty, centers of entrepreneurial education, and other controllable variables as distinct from structural factors that are hard or impossible to change (e.g., scale and specialization of research portfolios, public versus private status, presence of certain academic units, historical reputations, mission or niche, and geographical proximity to potential investors and industrial partners). But this work for the most part remains to be done. A more serious and challenging problem with the data regularly reported on university technology transfer activities is that they draw attention to the volume of technology transfer activity and away from its quality and efficiency (e.g., timeliness, extent of marketing outreach, character of relations with faculty 93 Inter alia, D.S. Siegel, M. Wright, and A. Lockett. 2007. The rise of entrepreneurial activity at universities: Organizational and societal implications. Industrial and Corporate Change 16(4):489-504; J.G. Thursby and S. Kemp. 2002. Growth and productive efficiency of university intellectual property licensing. Research Policy 31(1):109-124; R. Kordal and L. Guice. Op. cit.; D. Siegel, D. Waldman, J. Silberman, and A. Link. 1999. Assessing the Impact of Organizational Practices on the Performance of University Technology Transfer Offices: Quantitative and Qualitative Evidence. Paper presented to the NBER Conference on Organizational Change and Performance Improvement, Santa Rosa, CA; R. DeVol and A. Bedroussian. 2006. Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization. Santa Monica, CA: Milken Institute; S. Belenzon and M. Schneiderman. 2007. Harnessing Success: Determinants of University Technology Licensing Performance. Centre for Economic Performance Discussion Paper No. 779; and M. Feldman and J. Bercovitz, op. cit. 94 Kordal and Guice, op. cit.

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46 EFFECTIVENESS AND ACCOUNTABILITY inventors) as well as its economic or social impact. The results that garner most of the attention—receipts from licenses, occasional infringement suit settlements, and sales of patents or rights to future revenue streams—may involve only one or two transactions. Yet the universities fortunate enough to score a big hit appear to be highly successful, while institutions unable to cover the cost of their technology transfer office operations, however active, are considered to be underperformers. Furthermore, largely ignored in the literature and discussion are the principal avenues of transfer, that is, publication, networking, teaching, student placement, consulting, and collaboration. As a result, these avenues are not only undervalued but also underevaluated. We have no means of assessing changes, benchmarking institutions, or making international comparisons. Scotland and by extension the United Kingdom have made the most concerted efforts to overcome these deficiencies. The Scottish Higher Education Funding Council (or Scottish Funding Council) pioneered this effort in 2000 for the simple reason that it set up a separate funding stream to support university technology transfer activities and needed an appropriate framework to evaluate those expenditures. The Scottish framework was further developed in a report by UNICO, the U.K. technology transfer association.95 Addressing metrics for quality as well as quantity of technology transfer activity,96 the report addressed all of the avenues of transfer and judged U.K. institutions on the whole to be well ahead of those in the United States, where “the key measure of success is the collection of revenues—an incomplete and poor measure of knowledge transfer performance.” The report acknowledged, however, that one of the main reasons for U.K. progress was the government’s introduction in 2001 of the Higher Education, Business and Community Interaction Survey covering a broad spectrum of university activities with both financial and other objectives, a survey whose only U.S. counterpart is the much narrower annual National Science Foundation (NSF) Survey of University and College Research Expenditures.97 U.S. data collection efforts, both public (NSF, Office of Science and Technology Policy) and private (Association of University Technology Managers [AUTM] and the Association of Public and Land-grant Universities), are in flux, however, creating opportunities for improvements that are explored further in Chapter 4. 95 M.T. Holi and R. Wickramasinghe. Metrics for the Evaluation of Knowledge Transfer Activities at Universities. Available at: http://ec.europa.eu/invest-in- research/pdf/download_en/library_house_ 2008_unico.pdf. 96 For example, suggested metrics for networking are the number of people met at events leading to other technology transfer activities (quantity) and the percentage of events leading to other technology transfer activities (quality); for consulting, the number of faculty contracts and length of their relationships with contractors (quantity) as well as the percentage of repeat business customers (quality); for teaching, the graduate rates of students and the rate at which employed in industry (quantity) as well as student and employer satisfaction after employment (quality). 97 See http://www.nsf.gov/statistics/srvyrdexpenditures/.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 47 PERFORMANCE IN LAUNCHING NEW FIRMS The attractions of using university-developed technologies to create entirely new enterprises rather than license to established firms have become widely recognized. Entrepreneurial faculty members often aspire to play leading roles in new ventures. The creation of jobs in new, generally local, firms is visible to communities and political leaders whose support of the university is important. Founding a company like Google or Yahoo! that becomes a global leader adds luster to the university and may hold the promise of significant financial benefits for individual and institutional stakeholders if the firm goes public. Such prospects account for the increasing emphasis in technology transfer practice on start-ups or spin-offs. According to the AUTM survey, the number of start-ups grew from 241 in 1994 to 555 in 2007, the most recent survey year. The conditions for start-up success are much more stringent, however, than they are for licensing existing companies. Only a fraction of faculty invention disclosures lend themselves to the formation of a stand-alone company. The head of a major university business school-based innovation center estimated that a robust university research enterprise including a medical complex and a highly ranked engineering school generates no more than six viable stand-alone business prospects a year. Although 20 institutions exceeded that number of start-ups in 2006, according to the AUTM survey, the ratio of start-ups to licensing agreements with established firms ranged from 1:1.5 to 1:22 for those institutions. 98 In addition to the challenge of selectivity, the university must anticipate the need for three other critical elements—a viable business plan, investment capital, and managerial talent other than the faculty inventor. The committee heard from university officials and venture capital investors representing a variety of views on how these requirements are best met. Some of the investors were of the view that the university could play no constructive role other than securing and licensing any underlying IP. University representatives, on the other hand, described strikingly different start-up programs as successful. One model, clearly suited to an environment with an active venture investment community, relies simply on technology transfer office networking— introducing ideas and faculty inventors to potential early-stage investors. At the opposite extreme, the institution may have an innovation center independent of the technology transfer office to help finance development of the technology to the point where it may attract investor interest, a graduate business school program where students develop business plans for faculty or student start-up concepts, a seed capital fund with alumni contributors, and an incubator or science park where fledging companies share low-cost space and services while struggling to take off. The latter model clearly encompasses activities extending 98 D. Bostrom and R. Tieckelmann. 2006. AUTM US Licensing Activity Survey: FY 2006. Deerfield, IL.

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48 EFFECTIVENESS AND ACCOUNTABILITY well beyond the competence and resources of the average technology transfer office, although technology-licensing personnel may provide coordination. At present, few evidence-based generalizations can be drawn to guide technology transfer offices in the selection of candidates for spin-offs; decisions as to whether to source the requisite business plan, capital investment, and management from inside the institution or externally; and means of sustaining the firm until the later-stage equity investors exit by organizing an initial public offering or selling out to an established company. It might be that university equity participation in start-ups is superior to negotiating an ongoing stream of royalties as long as it is relative to passive experienced management, because holding equity is less of a drain on the firm’s limited capital in a phase of growth without profits. On the other hand, the prospect that the university’s initial equity share will be diluted in successive rounds of financing should dampen expectations of a large return on the investment. Beyond such operational principles, authors of literature surveys agree that empirical research has yet to produce consistent findings. Di Greggorio and Shane wrote: “We find no effect of local venture capital activity and only limited support for an effect of the commercial orientation of university research on technology transfer office start-up rates. The two additional policy variables that we tested—the presence of a university-affiliated incubator and whether or not the university is permitted to actively make venture capital investments in licensees—do not appear to have an impact on start-up activity.”99 RELATIONS WITH PRIVATE RESEARCH SPONSORS Relations between universities and private research sponsors are not well studied or understood. There is certainly much anecdotal evidence, however, that relations could be better. In widely publicized congressional testimony in 2007, one prominent information technology executive complained that aggressive university patenting, overvaluing of intellectual assets, and hence unrealistic licensing terms impeded both product development and university- industry collaboration, encouraging companies to find other research partners, including offshore.100 Similar complaints have been repeated periodically, with some firms admitting that they prefer foreign to domestic university partnerships because academic institutions abroad are less insistent upon IP ownership and agreements are more quickly negotiated.101 A study by Thursby and Thursby of executives responsible for corporate R&D location decisions provided some 99 D. Di Gregario and S. Shane. 2003. Why do some universities generate more start-ups than the others? Research Policy 32(2):209-227. 100 W. Johnson (Vice President, University Relations, Hewlett-Packard). 2007. Bayh-Dole–The next 25 years. Testimony before House Committee on Science & Technology, Subcommittee on Technology and Innovation, July 17. 101 D. Kramer. 2008. Universities and industry find roadblocks to R&D partnering. Physics Today 61(5):20-22.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 49 evidence of such attitudes, although research cost and quality considerations weighed more heavily in location decisions.102 When pressed, corporate representatives generally distinguish between U.S. universities with experienced, well-functioning technology transfer operations and institutions—generally less experienced—that place a premium on revenue generation. Members of the academic research community have responded to industry complaints by claiming that some companies look to universities as “work for hire” organizations and that companies contribute equally to delays. While such exchanges often devolve into generalities, perhaps the best evidence that university-industry relationships involving IP are in need of improvement is that efforts to bridge the gap are ongoing (see Box 3A). They have been moderately productive, less at the level of general principles than at the level of facilitating negotiations over details of research collaborations. Box 3A University-Industry Dialogue A 2006 joint project between the National Council of University Research Administrators and the Industrial Research Institute, facilitated by the Government-University-Industry Research Roundtable at NAS, resulted in Guiding Principles for University-Industry Endeavors. The authors recommended that universities avoid licensing future inventions, noting that licensing is often the most contentious part of negotiations. Because future inventions are often hypothetical (and sometimes do not arise at all), it is beneficial to both parties to defer the argument. Instead, the group recommended that universities establish a general framework for future IP, but not a specific agreement. A permanent institutional framework, the University-Industry Demonstration Project, was established to continue to address contentious issues in university-industry relations as they arise. The project also is developing a software tool intended to streamline negotiations by suggesting agreement clauses based on the situation. Interview questions are used to define variables such as type and size of the university and company involved, the level of confidentiality needed, national security concerns, whether student thesis work may result, or even the amount of funding anticipated. 102 J. Thursby and M. Thursby. 2006. Where is the new science in corporate R&D? Science 314:1547-1548.

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50 EFFECTIVENESS AND ACCOUNTABILITY CONSIDERATION OF ALTERNATIVE MODELS OF TECHNOLOGY TRANSFER A few scholars have taken issue with the prevailing model for managing faculty-produced IP irrespective of whether it is publicly or privately financed. 103 Leading criticisms of this system include the following: • Inappropriate and contradictory incentives: University administrators have incentives to use technology transfer offices as generators of all- important unrestricted revenue rather than focusing on transferring technologies effectively. • Information asymmetries: Technology transfer personnel have little knowledge of the invention and, generally speaking, inadequate knowledge of the marketplace for it, while the inventor understands the invention thoroughly and often foresees its potential applications. By controlling the inventor’s ability to market her or his invention, the technology transfer office reduces incentives for faculty disclosure and unnecessarily constrains market opportunities. If the inventor aims to start a new company, his or her incentives are more closely aligned with the licensee, against the technology transfer office. These observations led Kenney and Patton to conclude that technology transfer offices tend to become revenue maximizers, neglecting some inventions with little profit potential altogether and ignoring some commercialization avenues for the inventions they do care about. The proposed solution to this problem is faculty ownership of inventions and ability to patent and license as they see fit, engaging professional help within their own institution or elsewhere as the need arises. Litan, Mitchell, and Reedy suggested other mechanisms for diluting or breaking the institutional technology transfer office monopoly, in particular, regional consortia and Internet-based marketing.104 These critics of the status quo recognize and articulate an often overlooked truth—not everyone involved in the technology transfer process has the same goals or complementary knowledge and skills, making success difficult to achieve. But their arguments for the superiority of an inventor-driven system of technology transfer are largely conjectural. There is certainly anecdotal evidence of faculty dissatisfaction with the technology transfer office-dominated model as 103 M. Kenney and D. Patton. 2009. Reconsidering the Bayh-Dole Act and the current university invention ownership model. Research Policy 38(9):1407-1422. 104 R.E. Litan, L. Mitchell, and E.J. Reedy. 2007. Commercializing University Innovations: Alternative Approaches. National Bureau of Economic Research Working Paper; also The University as Innovator: Bumps in the Road. Issues in Science and Technology 23(4):57-66. A recent version of the proposal suggests that faculty inventors could be given free reign to seek assistance in licensing their inventions while ownership is retained by the home university and any revenues are allocated in accord with the university’s standing policy. See Memorandum from Robert Litan and Lesa Mitchell to Esther Lee, U.S. Department of Commerce. 2009. Accelerating the Commercialization of Government-Funded University-Based Research. This variation is discussed in Chapter 4.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 51 well as evidence of faculty entrepreneurial success independent of such offices,105 but there is no systematically collected evidence that inventors have knowledge and skills superior to those of technology transfer personnel and their service providers in the various components of IP acquisition, management, and licensing International comparisons are a possible source of such evidence. Goldfarb and Henrekson106 found the American system to be more effective than that of Sweden, which has a professor’s privilege system, in promoting commercialization. They argued that this stems from greater competition within the U.S. system for resources and faculty as well as the incentives toward commercialization brought about by the Bayh-Dole Act. In 2001, Denmark passed its Law on University Patenting, which was inspired by the Bayh-Dole Act and which ended professor privilege. On the basis of an empirical analysis, Valentin and Jensen argued that this law had a largely negative effect in reducing collaborations between industry and with academic researchers.107 They further noted that over the same period of time they did not observe the same pattern in Sweden, a similar country but one that did not change from a system of professor’s privilege to one of university ownership. The fact is that there are many confounding variables in cross-national studies that undermine claims of superiority for one ownership model over another. FEDERAL OVERSIGHT AND MONITORING The Bayh-Dole legislation provides statutory provisions in the form of three government authorizations to promote “free competition and enterprise without unduly encumbering future research and discovery”: 105 Field studies (A.N. Link, et al., op. cit.; and A.N. Link, D. Siegal, and D. Waldman. 2003. Assessing the impact of organizational practices on the productivity of university technology transfer offices: an exploratory study. Research Policy 32(1):27-48), survey work (J. Thursby, A. Fuller, and M. Thursby. 2009. U.S. faculty patenting: Inside and outside the university. Research Policy 38(1):14-25), case studies (J. Bercovitz and M. Feldman. 2006. Entrepreneurial universities and technology transfer: A conceptual framework for understanding knowledge-based economic development. Journal of Technology Transfer 31:175-188), and a recent study of leading National Cancer Institute scientists (T. Aldridge and D.B. Audretsch. 2010. Does policy influence the commercialization route? Evidence from National Institutes of Health funded scientists. Research Policy 39:583-588) point to the propensity of some scientists to work directly with firms in commercializing their research inventions, seemingly without engaging their technology transfer offices. Whether these are “backdoor” transactions in violation of employment agreements to assign title to their universities is not at all clear. Thursby et al. studied 5,800 patents with at least one university faculty inventor and found that about one-quarter of them were assigned to firms. But on the basis of interviews with inventors and university and industry licensing officials, they concluded that a majority of the firm assignments resulted from individual consulting arrangements and represented more incremental advances than inventions assigned to universities. 106 B. Goldfarb and M. Henrekson. 2003. Bottom-up vs. top-down policies towards the commercialization of university intellectual property. Research Policy 32(4):639-658. 107 F. Valentin and R.L. Jensen. 2007. Effects of academia-industry collaboration of extending university property rights. Journal of Technology Transfer 32(3):251-276.

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52 EFFECTIVENESS AND ACCOUNTABILITY 1. Government use rights: The government retains a royalty-free license to use a patented invention for its own purposes. 2. Determination of “exceptional circumstances”: The government, following certain procedures, may decide in advance that it will retain the right to elect title to an invention because doing so will better serve one of the Act’s seven objectives. This in effect means either seeking and retaining patent protection or permitting the invention to enter the public domain. 3. Invoking “march in” post facto: This can occur when the funding agency determines that the patent holder is neglecting to “work the patent” diligently, private patent rights conflict with other governmental policies, or “action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees.” Two conditions are required for these general welfare supporting provisions to have any practical meaning and the government’s leverage to be used appropriately and sparingly. First, there must be consistent oversight and interpretation of the statute. Second, the government must have access to relevant information. Both conditions appear to have diminished over time. The Bayh-Dole Act necessarily left most implementation and enforcement authority with the funding agencies awarding grants, entering contracts, and executing other funding arrangements to support research (e.g., see below on NIH policies). The Department of Commerce was charged with writing the regulatory framework for enforcing the Act, collecting and synthesizing reports from funding agencies, and chairing an interagency committee to help ensure consistent interpretation and action across the agencies.108 Successive GAO reports have made clear that since the promulgation of implementing regulations (37 CFR 401.1-17) and the formation of the interagency committee, Commerce Department oversight has atrophied.109 Responsibilities originally assigned to the Office of General Counsel were shifted to the Assistant Secretary for Technology Policy, and then with the elimination of that office in 2007 to the National Institute of Standards and Technology (NIST). Physically and bureaucratically, responsibility is now far removed from the Office of the Secretary of Commerce where it once resided. NIH GUIDANCE REGARDING GOVERNMENT-SPONSORED RESEARCH RESULTS Of the federal agencies covered by the Bayh-Dole legislation, NIH has issued the most guidance laying out its interpretation of its role as a research sponsor in promoting transfer of federally funded discoveries to applications. 108 U.S. General Accounting Office. 1999. Technology Transfer: Reporting Requirements for Federally Sponsored Inventions Need Revision. GAO/RCED-99-242. 109 U.S. General Accountability Office. 2009. Federal Research: Information on the Government’s Right to Assert Ownership Control over Federally Funded Inventions. GAO-09-742.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 53 Since 1994, NIH has issued three sets of guidelines for grantees to ensure researchers’ access to the results of previous work with regard to NIH-funded projects: 1. Developing Sponsored Research Agreements: Considerations for Recipients of NIH Research Grants and Contracts (1994) 2. Principles and Guidelines for Recipients of NIH Research Grants and Contracts on Obtaining and Disseminating Biomedical Research Resources (1999), and 3. Best Practices for the Licensing of Genomic Inventions (2005). In brief, the guidelines state that grantees should pursue a patent on research discoveries only if further development and investment are required to make them useful. The guidelines cite the Bayh-Dole objective of maximizing the use and wide availability of publicly supported inventions, especially research tools for which scientific research laboratories are the primary consumers. With regard to licensing terms, the guidelines support royalty-free nonexclusive licensing to all nonprofit research entities. “When transferring an NIH-funded research tool to a for-profit entity that intends to use the tool for its own internal purposes, Recipients are entitled to capture the value of their invention. Arrangements such as execution or annual fees are an appropriate way for Recipients to do so.”110 To facilitate the unencumbered exchange of research materials, the guidelines urge use of a streamlined standard agreement, the Uniform Biological Material Transfer Agreement. NIH condones exclusive licenses when additional investment is required or when exclusivity will promote rather than restrict distribution—for example, when a company can quickly produce and distribute a key research tool at a reasonable price. When exclusive rights are granted, the guidelines urge licensors to limit field of use and duration and use benchmarks to ensure that the technology is being advanced and marketed effectively. In general, background rights for inventions developed with federal funds should be granted so that further research and development is not hindered. In addition, universities should not claim royalties or rights to “reach-through” inventions because doing so could retard or prevent research tool use. In a 2006 report, Reaping the Benefits of Genomic and Proteomic Research, the National Research Council (NRC) broadly supported the NIH guidelines, recommending that NIH require grantees to adhere to its dissemination and licensing guidelines and urging other granting agencies to adopt and enforce similar guidelines. The NRC report noted that although guidelines are useful, they are limited to NIH grantees and NIH does not have regulatory or enforcement authority. The NRC committee also urged “Universities should adopt the emerging practice of retaining in their license agreements the authority to disseminate their research materials to other research institutions and to permit those institutions to use patented technology in their nonprofit activities.” 110 http://ott.od.nih.gov/pdfs/64FR72090.pdf.

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54 EFFECTIVENESS AND ACCOUNTABILITY Similarly, a 2003 NAS report, Sharing Publication-Related Data and Materials: Responsibilities of Authorship in the Life Sciences111, recommended that inventions used to generate data for scientific publications should be made available to other laboratories for research purposes within 60 days of request. If the invention is patented, then a royalty-free, nonexclusive license should be granted. University administration should enforce this availability. Moreover, the report recommended that universities and faculty not claim exclusive rights to commercialize “reach-through” inventions. This claim would prevent the use and dissemination of research materials and scientific progress. A 2010 draft report by the Secretary’s Advisory Committee on Genetics, Health, and Society (SACGHS) also promotes nonexclusivity in licensing of diagnostic genetic/genomic technologies, in addition to a research exemption for the use of patent-protected genes.112 Through a provision of the Bayh-Dole Act, an agency can use a Determination of Exceptional Circumstances (DEC) to retain patent rights as a condition of funding when it will better promote the policy and objectives of the statute. This authority has been used by NIH only on rare occasions, such as the NIH Mammalian Gene Collection initiative and disease-specific knockout mice, due in part to the lengthy approval process within many agencies. In a few instances NIH has attempted informally to persuade university patent holders to change licensing practices or terms (e.g., with regard to the University of Wisconsin stem cell patents). The Bayh-Dole statute includes two other authorities that have been rarely exercised enabling the government to condition or even cancel patent rights in certain circumstances. The government retains rights to use inventions developed with federal funds for its purposes and to delegate that authority to “funding recipients to use the government’s licenses for specific contracts, grant awards, or cooperative agreements meeting a federal government need.” 113This authority has rarely been invoked, but it has been suggested that it might be applicable when, for example, a diagnostic technique is being used in the context of a federally sponsored clinical drug trial. The final authority is the right to “march in” and assert government title to an invention when one of four conditions is not satisfied by the patent holder. NIH has been petitioned to march in on three occasions, but in no case did it exercise the right.114 Arno and Davis argued that NIH should assert march-in 111 National Academy of Sciences Board on Life Sciences. 2003. Sharing Publication-Related Data and Materials: Responsibilities of Authorship in the Life Sciences. National Academies Press. 112 SACGHS. Approved February 5, 2010. Revised Draft Report on Gene Patents and Licensing Practices and Their Impact on Patient Access to Genetic Tests. Available at: http://oba.od.nih.gov/oba/SACGHS/SACGHS%20Patents%20Report%20Approved%202-5- 20010.pdf. 113 U.S. General Accounting Office. 2003. Technology Transfer: Agencies’ Rights to Federally Sponsored Biomedical Inventions. GAO-03-536. 114 U.S. Government Accountability Office. 2009. Federal Research: Information on the Government’s Right to Assert Ownership Control over Federally Funded Inventions. GAO-09-742.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 55 rights if and when drug prices reduce patient access,115 but Raubitschek and Latker, both of whom were involved in early implementation of the statute, reviewed the legislative history and strongly disagreed that price is an appropriate ground for march-in.116 The three NIH cases took from 5 to 30 months of fact-finding.117 If the agency does decide to march in, the patentholder has extensive recourse through appeals and further administrative action, imposing a further burden on the agency officials. McGarey and Levy noted the value of the authority as a threat but doubted the practical likelihood of march-in given the procedures stipulated by the implementing regulations crafted by the Department of Commerce. INFORMATION ACCESS The national system of innovation, in which universities and university technology transfer play an important part, is constantly changing. Systematic collection, analysis, and reporting of data on how the system is working are needed to enable improvements over time. This report draws on a body of scholarship and, in turn, data that are illuminating but incomplete. Curiously, existing data are almost entirely privately collected and reported. Data about what happens to the inventions arising out of federally funded research are far harder to find and interpret than are data about research grants and contracts and their results. Patents themselves are public, although not always readily identifiable by source, but the terms on which they are licensed and how they are exploited are not. A 2003 GAO report summarized the most recent data at the time: Few of the biomedical products that federal agencies most commonly buy appear to incorporate federally funded inventions. In 2001 the government had licensing rights in only 6 brand name drugs associated with the top 100 pharmaceuticals that VA procured and in 4 brand name drugs associated with the top 100 pharmaceuticals that DOD dispensed. GAO was unable to determine the extent to which the government had rights to other types of biomedical products because there are no databases showing the underlying patents for most of these products and such products may incorporate numerous components that might not be covered by identifiable patents.”118 115 P. Arno and M. Davis. 2001. Why don't we enforce existing drug price controls? The unrecognized and unenforced reasonable pricing requirements imposed upon patents deriving in whole or in part from federally funded research. Tulane Law Review 75:631-693. 116 J. Raubitschek and N. Latker. 2005. Reasonable pricing—a new twist for march-in rights under the Bayh-Doyle Act. Santa Clara Computer and High Technology Law Journal 22:149-167. 117 B McGarey & A Levy. 1999. Patents, products, and public health: An analysis of the CellPro march-in petition. Berkeley Technology Law Journal 14:1095-1116. 118 U.S. General Accounting Office. 2003. op. cit.

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56 EFFECTIVENESS AND ACCOUNTABILITY As noted above, regulatory provisions associated with Bayh-Dole stipulated the need for all grantees or contractors to report on the use of inventions resulting from federally funded research.119 To facilitate compliance with this requirement, the Interagency Edison (iEdison) tracking system and database was designed, developed, and implemented by NIH in 1995. iEdison facilitates and enables grantee and contractor organizations to directly input invention data as one means of fulfilling the reporting requirement. Since 1997, iEdison participation has grown to more than 1,300 registered grantee or contractor organizations supported by any of more than 29 covered federal agency offices.120 Use of iEdison, however, is voluntary for inventions and patents developed under federal funding agreements. Recognizing that the GAO investigations occurred some time ago, the committee was unable to find any current assessments or validation of the data provided to iEdison. Without a reasonably complete list of government-sponsored inventions, effective oversight is impossible. Public accountability for disposition of the inventions arising from public funding depends not only on a reasonably complete inventory but also on an understanding of what is done with the IP. The information reported to iEdison and to agencies that do not use it is highly confidential. Section 205 of the Bayh- Dole Act, using language identical to the Freedom of Information Act’s (FOIA’s) exception for business proprietary information obtained by the government, mandates such confidentiality. The Bayh-Dole regulations even more strongly reinforce confidentiality, stating “the agency agrees it will not disclose such information to persons outside the government without permission of the contractor.”121 Maintaining the anonymity of parties to perhaps even certain terms (e.g., royalty rates) of licensing agreements is appropriate and important, but that does not preclude analysis of the data and reporting of generalized findings without identifying either individual institutions or their business partners. The Technology Transfer Commercialization Act of 2000 attempted to address the lack of such analysis by requiring that agencies report to the Office of Management and Budget (OMB) the success of their technology transfer programs.122 A congressionally mandated GAO report in 2002 found that in the first required reporting year, agencies were not fully compliant.123 Agencies did not submit the reports in a timely manner, many were incomplete, contained information believed to be inconsistent or inaccurate, and varied in data elements used, even though the Department of Commerce had issued guidelines and a sample format for the agencies to use. GAO did not believe that the deficiencies in the reports were the result of adjustments to a brand new 119 37 CFR 401 120 https://s-edison.info.nih.gov/iEdison/. 121 37 CFR 401.14(h) 122 U.S. General Accounting Office. 2002. Intellectual Property: Federal Agency Efforts in Transferring and Reporting GAO-03-47. 123 Ibid.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 57 reporting requirement, observing that agencies already should have been tracking this information to comply with the Bayh-Dole Act. Assessment of how the system is working should not depend wholly on agencies’ compliance with congressional mandates. Many of the government’s most sensitive and secure civilian data systems—for example, Census and even Internal Revenue Service records—are accessible by qualified independent researchers who agree not to disclose any identifying information. But that seems highly unlikely to occur if such access requires the consent of every data source. CONCLUSIONS Universities in the United States are very diverse in terms of size, research portfolio, and culture. Consequently, approaches to technology transfer must be framed squarely within the established mission of individual universities. The goal of technology transfer offices must be to advance the university’s success in learning, discovery, and societal engagement and to facilitate the transfer of publicly funded innovations into benefits for society. In evaluating their individual technology transfer offices, universities must measure themselves against their own mission and yet recognize that they are part of a larger education and research enterprise.

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