industry collaboration promises to benefit not only HIV/AIDS research but also all drug discovery and development efforts.

The following sections examine the evolution of federal policies regarding the transfer of government technology to the private sector and, in particular, the rules governing the assignment of patent rights to federally supported pharmaceutical inventions. The sections also highlight several impediments to government and industry collaboration on HIV drug and vaccine development and present suggestions by workshop participants for ways to overcome these obstacles. It must be emphasized, however, that these proposals do not represent a consensus, nor do they necessarily reflect the views of the Roundtable or the Institute of Medicine. In addition, because of the nature of the workshop format, a comprehensive analysis or discussion of the relative merits and shortcomings of the proposed solutions is beyond the scope of this report.

HISTORICAL PERSPECTIVES ON GOVERNMENT TECHNOLOGY TRANSFER POLICY AND THE PHARMACEUTICAL INDUSTRY3

Ever since the federal government in the 1940s began to invest heavily in scientific research conducted in the private sector, there have been conflicting theories about the proper allocation of rights to inventions arising from research supported wholly or in part by public funds. Some observers argue that inventions supported by any amount of taxpayer money should be freely available to the public. Others contend that such inventions effectively reach the public only when they are commercialized by private companies with exclusive patent rights. Neither approach has ever entirely prevailed, and since 1955 government policy has taken a variety of positions regarding the issue of intellectual property rights deriving from federally sponsored research.

The federal government has generally claimed a property right in any invention developed (even in part) with federal funds. If the government decides to relinquish its property right, it always retains a nonexclusive right to use that invention anywhere in the world without paying royalties. Still in question, however, is whether the federal government will grant no rights, nonexclusive rights, or exclusive rights to an invention to private institutions or companies.

Prior to the 1950s, the federal government had no uniform policy concerning patent rights to inventions arising from federally funded private research, and the

3  

This section is based on material presented by Peter Barton Hutt and Thomas Mays. It also draws heavily on a background paper, A Brief and General History of Government Policy Concerning Patent Rights to Federally-Funded Pharmaceutical Inventions, prepared for the Roundtable by Lewis A. Grossman and Peter Barton Hutt, Covington & Burling, April 18, 1994.



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Government and Industry Collaboration in AIDS Drug Development: Summary of a Workshop Held on May 6, 1994 industry collaboration promises to benefit not only HIV/AIDS research but also all drug discovery and development efforts. The following sections examine the evolution of federal policies regarding the transfer of government technology to the private sector and, in particular, the rules governing the assignment of patent rights to federally supported pharmaceutical inventions. The sections also highlight several impediments to government and industry collaboration on HIV drug and vaccine development and present suggestions by workshop participants for ways to overcome these obstacles. It must be emphasized, however, that these proposals do not represent a consensus, nor do they necessarily reflect the views of the Roundtable or the Institute of Medicine. In addition, because of the nature of the workshop format, a comprehensive analysis or discussion of the relative merits and shortcomings of the proposed solutions is beyond the scope of this report. HISTORICAL PERSPECTIVES ON GOVERNMENT TECHNOLOGY TRANSFER POLICY AND THE PHARMACEUTICAL INDUSTRY3 Ever since the federal government in the 1940s began to invest heavily in scientific research conducted in the private sector, there have been conflicting theories about the proper allocation of rights to inventions arising from research supported wholly or in part by public funds. Some observers argue that inventions supported by any amount of taxpayer money should be freely available to the public. Others contend that such inventions effectively reach the public only when they are commercialized by private companies with exclusive patent rights. Neither approach has ever entirely prevailed, and since 1955 government policy has taken a variety of positions regarding the issue of intellectual property rights deriving from federally sponsored research. The federal government has generally claimed a property right in any invention developed (even in part) with federal funds. If the government decides to relinquish its property right, it always retains a nonexclusive right to use that invention anywhere in the world without paying royalties. Still in question, however, is whether the federal government will grant no rights, nonexclusive rights, or exclusive rights to an invention to private institutions or companies. Prior to the 1950s, the federal government had no uniform policy concerning patent rights to inventions arising from federally funded private research, and the 3   This section is based on material presented by Peter Barton Hutt and Thomas Mays. It also draws heavily on a background paper, A Brief and General History of Government Policy Concerning Patent Rights to Federally-Funded Pharmaceutical Inventions, prepared for the Roundtable by Lewis A. Grossman and Peter Barton Hutt, Covington & Burling, April 18, 1994.

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Government and Industry Collaboration in AIDS Drug Development: Summary of a Workshop Held on May 6, 1994 various agencies and departments followed their own patent guidelines or policies. In 1955, the U.S. Department of Health, Education, and Welfare (HEW)—the parent department of NIH—promulgated regulations spelling out its approach to patent rights. HEW (now the U.S. Department of Health and Human Services [DHHS]4) took the position that inventions supported in any way by federal funds should generally be dedicated to public use or, if patented, be made available to the public on a nonexclusive and royalty-free basis. Accordingly, HEW freely published the results of most NIH-sponsored research and dedicated many inventions to public use. HEW recognized, however, that it is sometimes necessary to use the patent process “to foster an adequate commercial development to make an invention widely available.” Toward this end, HEW's 1955 regulations allowed the U.S. Surgeon General to enter into Institutional Patent Agreements (IPAs) with grantee institutions. These agreements permitted the institutions themselves to determine the ownership and disposition of patent rights, as long as the inventions were made available to the public without unreasonable restrictions or excessive royalties. Between 1953 and 1958, NIH entered into IPAs with 18 private institutions, primarily universities. HEW added more leeway in 1957, when it ruled that contracts with private industry for cancer chemotherapy research would not be subject to the presumption against privately owned patent rights. The first effort to establish a uniform patent policy for the federal government came in 1963, when President Kennedy issued a memorandum 5 stating that the government should generally acquire the principal or exclusive rights to inventions derived from federally supported research. IPAs would be permitted only in exceptional situations, and although it was not stated specifically, the intent seemed to be that IPAs would not apply to research or inventions that affect the public's health or welfare. Although many agencies remained flexible in their interpretations of the Kennedy memorandum and continued to routinely assign patent rights to private contractors, HEW did otherwise. The Department declined to enter into IPAs with any of the 34 institutions that made requests during this period, and almost never assigned grantees or contractors the patent rights to inventions. In 1968, the U.S. General Accounting Office (GAO) issued a report 6 stating that HEW's policy of retaining patent rights deterred industry from cooperating 4   The National Institutes of Health are part of the U.S. Public Health Service (PHS), which is part of DHHS. 5   President John F. Kennedy, Memorandum and Statement of Government Patent Policy, October 10, 1963. 6   U.S. General Accounting Office, Problem Areas Affecting Usefulness of Results of Government-Sponsored Research in Medicinal Chemistry, GAO Report B-164031(2), August 12, 1968.

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Government and Industry Collaboration in AIDS Drug Development: Summary of a Workshop Held on May 6, 1994 in the development of potentially important new drugs. Without the certainty of obtaining exclusive patent rights, companies would be unwilling to undertake the investment needed to develop promising compounds into commercial products. Indeed, the report concluded that few, if any, drugs arising from NIH-supported research during this period had been successfully developed and marketed. In response, HEW agreed to reinstate the IPA program. During the next 10 years, government patent policies were once again variable and often confusing. By the late 1970s, there were approximately 22 different administrative policies regarding patent rights to government-sponsored inventions. HEW appeared to have resurrected its earlier patent policies discouraging private ownership and had become increasingly reluctant to admit new participants to the IPA program. Industry participation in the development of new drugs supported by federal funds once again began to stagnate. In 1978, Senator Robert Dole's office compiled a list of 29 important medical discoveries whose development had been significantly delayed because of HEW's inability to readily determine whether it would retain or transfer patent rights.7 By the end of the decade, there was growing support for legislation to create a government-wide patent policy to encourage the commercialization and use of federal technology. As a first step, Congress enacted the Patent and Trademark Amendments of 1980, commonly known as the Bayh-Dole Act (P.L. 96-517). The law gives universities, nonprofit institutions, and small businesses a right to retain title to inventions developed in the performance of government grants and contracts. A 1987 Executive Order,8 issued by President Reagan, extended similar rights to large businesses. Because the presumption is that the private grantees and contractors covered by the Act will acquire title to patents, the burden rests on the federal government to justify title acquisition for itself. Yet the government still retains a nonexclusive right to use the invention anywhere in the world without paying royalties. The law also provides government with “march-in rights” to require a delinquent grantee or contractor to grant a license to a responsible applicant. The government may exercise such rights primarily in situations in which a grantee is not taking effective steps to achieve practical application of the invention or in which the action is necessary to address pressing public health or safety needs. To further encourage private companies to commercialize federal inventions, Congress passed the Federal Technology Transfer Act of 1986 (P.L. 99-502). This statute authorizes federal laboratories to enter into cooperative research and development agreements (CRADAs) with nonprofit institutions and private companies, with preference given to small and domestic businesses. Through CRADAs, federal agencies can provide personnel, services, facilities, equipment, 7   U.S. Congress, Congressional Record—Senate, August 4, 1978, pp. 24423–24426. 8   Executive Order 12591, 52 Federal Register 13414, April 22, 1987.

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Government and Industry Collaboration in AIDS Drug Development: Summary of a Workshop Held on May 6, 1994 and other resources, but not funds, to nonfederal organizations for the conduct of specific research and development projects. These organizations can contribute similar resources as well as funds, and in return the government can agree in advance to grant them exclusive patent rights to inventions arising from the collaborative research, including inventions made by federal employees working under the agreement (who receive compensation through royalties and cash awards programs). The CRADA also offers government agencies an option to negotiate an exclusive commercialization license with industrial partners.9 These statutes enhanced research collaborations among industry, government, and universities10 and facilitated the discovery and development (and ultimate marketing) of many important new drugs—such as Taxol, didanosine (ddI), dideoxycytidine, trimetrexate, and fludarabine in the fields of cancer and AIDS treatment. Some consumer and congressional representatives have criticized the private commercialization of government-sponsored inventions. They argue that, at a minimum, the government should exercise some control over the price of drugs whose development has been supported by federal funds. A turning point in the public debate occurred in 1987, when consumer advocates and some government representatives claimed that the introductory price ($10,000 per patient per year) for the AIDS drug zidovudine (AZT) was excessively high, and therefore would prevent the drug from reaching many individuals who needed it or would create a significant financial burden for government when paying for the drug under programs such as Medicaid. These concerns were addressed in a widely publicized March 1987 hearing of the House Subcommittee on Health and the Environment, chaired by Representative Henry Waxman. Responding to this criticism about drug prices, NIH made an administrative decision in March 1989 to adopt a policy of inserting a “reasonable (or fair) pricing” clause into its CRADAs with private organizations. Although the clause includes no specific reference to “reasonable pricing,” the adoption of this policy was clearly intended by this clause (Article 8.3 of the Model PHS CRADA), which states: “NIH has a concern that there be a reasonable relationship between 9   Article 8.1 of the Model Public Health Service CRADA states: “With respect to Government intellectual property (IP) rights to any Subject Invention not made solely by the Collaborator's employees for which a patent or other IP application is filed, NIH hereby grants to the Collaborator an option to negotiate, in good faith, the terms of an exclusive or nonexclusive commercialization license that fairly reflect the relative contributions of the Parties to the invention and the CRADA, the risks incurred by the Collaborator, and the costs of subsequent research and development needed to bring the invention to the marketplace.” 10   U.S. General Accounting Office, Universities' Research Efforts Under Public Law 96-517, GAO Report B-207939, April 4, 1986.