Federal Research
Information on the Government's Right to Assert Ownership Control over Federally Funded Inventions Gao ID: GAO-09-742 July 27, 2009The Bayh-Dole Act, passed in 1980, allows recipients of federal research funds the option to retain patents on any inventions they create using those funds. At the same time, the act provides the government with rights intended to ensure that the public benefits from these federal research investments. One of these rights is known as the "march-in" authority, which allows federal agencies to take control of a patent when they have credible information that certain conditions described in the act have been met. Until March 2009, the Bayh-Dole Act required GAO to report periodically on its implementation. To meet that requirement, for select federal agencies, GAO reviewed (1) the policies and procedures used to determine whether march-in authority should be exercised; (2) how the march-in authority has been used; and (3) what barriers and disincentives have been encountered in exercising the march-in authority. GAO selected four agencies for this review that accounted for 89 percent of the federal research funding for fiscal year 2006. These were the Departments of Defense and Energy (DOD and DOE), the National Aeronautics and Space Administration (NASA), and the National Institutes of Health (NIH). GAO is not making any recommendations in this report. DOE, NASA, and NIH provided technical comments on this report that GAO incorporated, as appropriate.
Officials at DOD, DOE, NASA, and NIH rely on Commerce regulations for the Bayh-Dole Act and on their agencies' interpretations of the act to determine whether to exercise their march-in authority. Agency officials said that the administrative processes developed by Commerce are detailed and time-consuming, and may make it difficult to initiate and exercise a march-in proceeding. However, some officials said the detailed regulations ensure that appropriate and fair processes are followed during march-in proceedings. The agencies have chosen not to develop agency-specific guidance for a variety of reasons. For example, none of the officials believe that the regulations are onerous enough to warrant the development of agency-specific guidance and agency-specific guidance would reduce the flexibility agencies have to examine the specific circumstances of each case. In addition, an array of agency-specific regulations could hinder the transfer of research results to the market by increasing the regulatory burden on recipients of federal research funds. None of the four agencies has chosen to exercise march-in authority. DOD, DOE, and NASA have neither discovered nor received information that would lead them to initiate a march-in proceeding or exercise their march-in authority during the last 20 years. In contrast, NIH has been petitioned formally three times, but in each case determined that the statutory requirements for march-in proceedings had not been met. Nevertheless, officials at DOD, NASA, and NIH said they value the authority because it provides leverage to promote commercialization of federally funded inventions. DOE officials disagree, in part, because no agency has ever exercised the authority. Agency officials said they do not have ongoing efforts to identify potential candidates for a march-in proceeding and primarily rely on the public, including potential competitors, to provide information that could lead to a march-in proceeding. According to these officials, their agencies would have to expend significant additional resources to track federally funded inventions because of the large number of inventions and because commercialization can take many years. Officials at DOD, NASA, and NIH said they value the march-in authority because it helps ensure that federally sponsored research results are commercialized. Also march-in authority is not the only tool to achieve the goals of the Bayh-Dole Act. For example, the government can take a patent without a license subject to reasonable compensation being paid to the patent owner or licensee that may allow for more timely interventions than would occur under the Bayh-Dole march-in process. Federal and technology transfer officials identified four disincentives to the use of march-in authority. One of these is that the use of the march-in authority could have a "chilling effect" on federal research. These officials said that if a march-in occurred, investors would be less likely to provide the funds to commercialize federal inventions for fear of losing their investments. Also, because the march-in process can be long, these officials believe that it would have limited utility in an emergency situation. For example, the time to complete the fact-finding process in the three cases NIH reviewed ranged from 5 to 8 months.
GAO-09-742, Federal Research: Information on the Government's Right to Assert Ownership Control over Federally Funded Inventions
This is the accessible text file for GAO report number GAO-09-742
entitled 'Federal Research: Information on the Government's Right to
Assert Ownership Control over Federally Funded Inventions' which was
released on July 27, 2009.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2009:
Federal Research:
Information on the Government's Right to Assert Ownership Control over
Federally Funded Inventions:
GAO-09-742:
GAO Highlights:
Highlights of GAO-09-742, a report to congressional committees.
Why GAO Did This Study:
The Bayh-Dole Act, passed in 1980, allows recipients of federal
research funds the option to retain patents on any inventions they
create using those funds. At the same time, the act provides the
government with rights intended to ensure that the public benefits from
these federal research investments. One of these rights is known as
the ’march-in“ authority, which allows federal agencies to take control
of a patent when they have credible information that certain conditions
described in the act have been met.
Until March 2009, the Bayh-Dole Act required GAO to report periodically
on its implementation. To meet that requirement, for select federal
agencies, GAO reviewed (1) the policies and procedures used to
determine whether march-in authority should be exercised; (2) how the
march-in authority has been used; and (3) what barriers and
disincentives have been encountered in exercising the march-in
authority.
GAO selected four agencies for this review that accounted for 89
percent of the federal research funding for fiscal year 2006. These
were the Departments of Defense and Energy (DOD and DOE), the National
Aeronautics and Space Administration (NASA), and the National
Institutes of Health (NIH).
GAO is not making any recommendations in this report. DOE, NASA, and
NIH provided technical comments on this report that GAO incorporated,
as appropriate.
What GAO Found:
Officials at DOD, DOE, NASA, and NIH rely on Commerce regulations for
the Bayh-Dole Act and on their agencies‘ interpretations of the act to
determine whether to exercise their march-in authority. Agency
officials said that the administrative processes developed by Commerce
are detailed and time-consuming, and may make it difficult to initiate
and exercise a march-in proceeding. However, some officials said the
detailed regulations ensure that appropriate and fair processes are
followed during march-in proceedings. The agencies have chosen not to
develop agency-specific guidance for a variety of reasons. For example,
none of the officials believe that the regulations are onerous enough
to warrant the development of agency-specific guidance and agency-
specific guidance would reduce the flexibility agencies have to examine
the specific circumstances of each case. In addition, an array of
agency-specific regulations could hinder the transfer of research
results to the market by increasing the regulatory burden on recipients
of federal research funds.
None of the four agencies has chosen to exercise march-in authority.
DOD, DOE, and NASA have neither discovered nor received information
that would lead them to initiate a march-in proceeding or exercise
their march-in authority during the last 20 years. In contrast, NIH has
been petitioned formally three times, but in each case determined that
the statutory requirements for march-in proceedings had not been met.
Nevertheless, officials at DOD, NASA, and NIH said they value the
authority because it provides leverage to promote commercialization of
federally funded inventions. DOE officials disagree, in part, because
no agency has ever exercised the authority. Agency officials said they
do not have ongoing efforts to identify potential candidates for a
march-in proceeding and primarily rely on the public, including
potential competitors, to provide information that could lead to a
march-in proceeding. According to these officials, their agencies would
have to expend significant additional resources to track federally
funded inventions because of the large number of inventions and because
commercialization can take many years. Officials at DOD, NASA, and NIH
said they value the march-in authority because it helps ensure that
federally sponsored research results are commercialized. Also march-in
authority is not the only tool to achieve the goals of the Bayh-Dole
Act. For example, the government can take a patent without a license
subject to reasonable compensation being paid to the patent owner or
licensee that may allow for more timely interventions than would occur
under the Bayh-Dole march-in process.
Federal and technology transfer officials identified four disincentives
to the use of march-in authority. One of these is that the use of the
march-in authority could have a ’chilling effect“ on federal research.
These officials said that if a march-in occurred, investors would be
less likely to provide the funds to commercialize federal inventions
for fear of losing their investments. Also, because the march-in
process can be long, these officials believe that it would have limited
utility in an emergency situation. For example, the time to complete
the fact-finding process in the three cases NIH reviewed ranged from 5
to 8 months.
View [hyperlink, http://www.gao.gov/products/GAO-09-742] or key
components. For more information, contact Ms. Anu K. Mittal at (202)
512-3841 or mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
Federal Agencies Use Department of Commerce Regulations to Implement
the March-in Authority under the Bayh-Dole Act:
None of the Agencies We Reviewed Has Used March-in Authority, but Three
Value It as a Way to Promote Commercialization of Inventions:
Four Key Concerns May Create Disincentives to the Use of Bayh-Dole
March-in Authority by Federal Agencies:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: National Aeronautics and Space Administration Official
Comments:
Appendix III: GAO Contact and Staff Acknowledgments:
Abbreviations:
AIDS: Acquired Immune Deficiency Syndrome:
DOD: Department of Defense:
DOE: Department of Energy:
GAO: Government Accountability Office:
HIV: Human Immunodeficiency Virus:
NASA: National Aeronautics and Space Administration:
NSF: National Science Foundation:
NIH: National Institutes of Health:
NIST: National Institute of Standards and Technology:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 27, 2009:
The Honorable Patrick J. Leahy:
Chairman:
The Honorable Jeff Sessions:
Ranking Member:
Committee on the Judiciary:
United States Senate:
The Honorable John Conyers, Jr.
Chairman:
The Honorable Lamar Smith:
Ranking Member:
Committee on the Judiciary:
House of Representatives:
Technological innovation is widely seen as responsible for much of the
economic growth and increased standard of living in modern societies.
Patent rights give inventors, or other patent owners, exclusive control
over the use of their inventions for about 20 years, which promotes
commercialization of new ideas and allows inventors to profit from
their ideas. Patent rights ownership encourages the additional, and
often substantial, investment of time and money needed to transform the
technological innovations developed in the laboratory into goods,
services, and processes available in the marketplace. Patent owners--
including individuals, companies, and universities--may grant licenses
to one or more businesses to complete this transformation and, in
return, receive payments in the form of license fees or royalties.
The federal government supports technological innovation through a wide
range of research activities that focus on the mission needs of various
departments and agencies. In addition, it supports work in areas where
a specific need has been identified that the private sector has not
addressed. Although the largest share of research funding comes from
the private sector, the federal government funds a majority of the
nation's basic research, which produces the innovations that drive
technological progress. Moreover, federal support accounts for over
half of the research conducted at colleges and universities in the
United States. Because the public benefits when technological advances
are transformed into new goods and services in the marketplace, the
federal government has an interest in facilitating the
commercialization of new inventions that arise from the research that
it funds.
Since its enactment in 1980, the Bayh-Dole Act has provided recipients
of federal research and development funding--often referred to as
contractors--the option to retain patents on the inventions they
create, provided they adhere to certain requirements.[Footnote 1] A
main goal of the act is to promote the utilization of inventions
arising from federally supported research or development, and observers
have judged the act a success in this regard. Prior to 1980, when the
government routinely retained the patents on federally sponsored
inventions, only 5 percent of these patents were ever used in the
private sector. In contrast, some stakeholders, including federal and
technology transfer officials, today believe inventions that arise from
federally funded research are routinely commercialized, although
comprehensive data are not available on how often this happens. Each
federal agency that enters into funding agreements subject to the Bayh-
Dole Act is responsible for administering the act's requirements and
the implementing regulations developed by the Department of Commerce.
The Bayh-Dole Act also provides the federal government with certain
rights to protect the public against nonuse or unreasonable use of
federally funded inventions. One of these rights, known as the "march-
in" authority, authorizes federal agencies, at their discretion, to
require the contractor or licensee to grant a license to any
responsible entity or entities when credible information exists that
certain statutory conditions in the act have been met. For example, an
agency may march in if it determines that an inventor is not taking the
necessary steps toward commercialization of the technology, or that
such action is needed to meet public health or safety needs. [Footnote
2]
Until recently, the Bayh-Dole Act also contained a requirement that GAO
issue a report on how agencies have implemented the act's provisions at
least once every 5 years. In consultation with your offices we began
work on this review to meet that reporting requirement. However,
subsequent to our initiating this review, the Omnibus Appropriations
Act for fiscal year 2009, eliminated the recurring study requirement on
March 11, 2009.[Footnote 3] As agreed with your offices, we have
completed this review and addressed the following objectives: (1) what
policies and procedures have federal agencies with significant research
budgets established to determine whether march-in authority under the
Bayh-Dole Act should be exercised; (2) to what extent have these
selected federal research agencies used Bayh-Dole march-in authority
and what do they believe are its benefits; and (3) what barriers and
disincentives, if any, have these agencies encountered to the exercise
of their march-in authority under the Bayh-Dole Act.
To determine which agencies to focus our review on, we analyzed federal
research and development budgets for all federal research agencies. We
selected the Department of Defense (DOD), the Department of Energy
(DOE), the National Aeronautics and Space Administration (NASA), and
the National Institutes of Health (NIH) within the Department of Health
and Human Services because together they accounted for 89 percent of
the total federal research funding for fiscal year 2006--the most
recent year for which complete data were available. For each of the
objectives, we reviewed key agency documents and interviewed officials
from the technology transfer offices of each agency. In addition, for
each of the objectives we spoke with officials in stakeholder groups
such as the Association of University Technology Managers, the
Biotechnology Industry Organization, and the American Intellectual
Property Law Association, as well as academics who have evaluated the
Bayh-Dole Act.
We conducted our work from November 2008 to July 2009 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Background:
The Bayh-Dole Act was enacted in 1980, in part, to address the low
utilization rate of federal patents. At the time the bill was
considered, 26 different federal agency policies existed regarding the
use of results from federally funded research. Prior to Bayh-Dole's
enactment, agencies frequently retained title to inventions made with
federal support whether the research was performed in federal
laboratories, in universities, or by individual companies. Licenses to
use and further commercialize the patents on federally funded
inventions were then negotiated with firms typically on a non-exclusive
basis or, more rarely, for the exclusive use by one manufacturer. The
Bayh-Dole Act established a governmentwide policy that gave contractors
the opportunity to retain ownership of federally funded inventions. In
addition, it was designed to use the patent system 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, among
other things. Many experts continue to believe that certainty in the
ownership of patents and exclusivity in the right to develop the
related technology are important for both large and small firms.
[Footnote 4]
In exchange for the right to retain ownership of federally sponsored
inventions under the Bayh-Dole Act, contractors must agree to certain
reporting requirements. More specifically, contractors agree to notify
the funding agency within 2 months after the contractor learns that an
invention has been created and to notify the funding agency within 2
years after this notification of the contractor's decision to retain
title to the invention. In addition, contractors agree to apply for a
patent on the invention typically within 1 year of the election of
title, attempt to commercialize the invention, and to provide
additional reports. These additional reports, if requested by the
agency, can provide such information as utilization of the invention
and patent-related information such as the filing date, patent
application number and title, and patent number and issue date for the
invention in any country in which the contractor has applied for a
patent. Failure by the contractor to disclose the invention, elect
title to it, or file a patent application within the times specified,
or failure to follow through with the patent application process,
allows the relevant federal agency to obtain ownership of the
invention.
The Bayh-Dole Act also reserved certain rights for the government to
protect the public's interests. Specifically, the government retains "a
nonexclusive, nontransferable, irrevocable, paid-up license to practice
or have practiced for or on behalf of the United States any subject
invention throughout the world," also known as a nonexclusive royalty-
free license. In addition, the act provides the government march-in
authority. Under this authority, the federal agency that funded the
development of an invention has the right to require the contractor or
exclusive licensee to grant a license in any field of use to a
responsible applicant upon terms that are reasonable under the
circumstances, if the agency determines that:
* the contractor has not made, and is not expected to make, efforts to
commercialize the invention within an agreed upon time frame;
* public health or safety needs are not reasonably satisfied by the
contractor or licensee;
* the use of the invention is required by the federal government and
the contractor or licensee cannot meet the government's requirements;
or:
* the owner of an exclusive license is not ensuring that the invention
is "manufactured substantially" in the United States and has not
obtained the necessary waivers to do so.
Implementation of the Bayh-Dole Act is decentralized across the federal
government. Each federal agency that enters into funding agreements
subject to the Bayh-Dole Act is responsible for administering the act's
requirements. However, the act directs the Department of Commerce to
develop regulations to implement the provisions contained in the act,
including procedures for agencies to follow regarding the exercise of
the march-in authority.[Footnote 5] The regulations Commerce issued in
1987 also allow agencies to develop supplemental procedures regarding
their march-in authority. Although Commerce does not maintain any
overall Bayh-Dole databases, other agencies rely on Commerce as a
coordinator and consultant for Bayh-Dole related issues.
The regulations established by Commerce detail the procedures an agency
must follow when it receives information that it believes might warrant
the exercise of march-in rights. Specifically, the agency must notify
the contractor, in writing, that it has information it believes might
warrant the exercise of its march-in authority. As part of this
notification, the agency is to provide the contractor 30 days to
respond informally, either verbally or in writing, with relevant
information. Once the agency has received the contractor's response, it
may initiate the march-in procedures within 60 days through written
notice to the contractor and its assignee or exclusive licensee, as
appropriate and if known to the agency. The notice must include the
reasons for the proposed march-in and the specific uses of the
invention for which the agency may require licensing. Within 30 days
after receiving written notice of the proposed march-in proceeding, the
contractor may submit information opposing the proposed march-in to the
agency in person, in writing, or through a representative. If the
agency determines that the contractor's information raises a dispute
over the facts of the case, it must undertake a fact-finding process
that gives the contractor the opportunity to appear with counsel,
submit documents, present witnesses, and question individuals presented
by the agency. The results of the fact-finding process and a
recommendation are presented to the head of the agency (or his or her
designee) as well as to the contractor. Both the agency and the
contractor have 30 days to submit written arguments to the head of the
agency or designee. In addition, the contractor may request to present
oral arguments. Within 90 days after the completion of the fact-finding
or oral arguments, whichever is later, the agency must provide a
written decision regarding whether march-in rights will be exercised.
Any decision unfavorable to the contractor will be held in abeyance
pending the exhaustion of the contractor's administrative and judicial
appeals. At any point, the agency may terminate the fact-finding
process if it decides not to exercise its march-in authority.
The time from when an agency announces a funding opportunity to the
time a viable commercial product reaches the marketplace may take many
years and substantial financial investment. During the period of agency
funding, which may last 8 to 10 years for drugs and biologics, the
agency's program, procurement, and/or grants office monitors the
progress of the research and maintains contact with the contractor. In
fiscal year 2007 federal agencies devoted $116 billion to conduct
research on various topics related to their respective missions.
Pharmaceutical-related inventions, which may arise from research
sponsored by NIH, may require an additional 10 to 15 years after the
invention is made to obtain the federal approvals necessary to reach
the market. According to industry officials, pharmaceutical-related
inventions may require an investment of between $800 million and $1.3
billion to conduct the safety and other studies required for approval.
Additional time may be required to obtain a patent on the invention and
to develop a market ready process or product. [Footnote 6] More
specifically, the U.S. Patent and Trademark Office issues a patent in
32 months, on average, but the time ranges from 28 months for
inventions in the fields of semiconductors and electrical items to
almost 44 months for computer software and communications inventions.
Once a patent is granted, the patent owner has, in most instances, a
period of 20 years from the date the application was filed during which
time the patent owner has the right to exclude others from making,
using, or selling the patented invention.
Federal Agencies Use Department of Commerce Regulations to Implement
the March-in Authority under the Bayh-Dole Act:
Officials at DOD, DOE, NASA, and NIH rely on Commerce regulations for
the Bayh-Dole Act and on their agencies' interpretations of the act to
determine whether to exercise their march-in authority. These officials
told us that the administrative processes developed by Commerce for
agencies to use when considering whether marching-in may be warranted
are detailed and time-consuming, and may make it difficult to initiate
a march-in proceeding. However, some officials also acknowledged that
because the regulations are detailed, they ensure that appropriate and
fair processes are followed during march-in proceedings. One official
noted that there is no way to pre-empt the process and retain the
necessary legal protections for all of the participants in the process.
According to this official, the regulations, while detailed and time-
consuming, allow everyone to be heard during the process. For example,
during the fact-finding procedure the contractor has the opportunity to
appear with counsel, submit documentary evidence, present witnesses,
and cross-examine witnesses who the agency presents. Moreover, both the
contractor and agency staff have an opportunity to rebut an agency's
decision and contractors may appeal adverse decisions to the federal
courts, which delays action on the agency's decision until the appeals
process is concluded.
However, according to agency officials we spoke with, the agencies have
chosen not to develop agency-specific guidance for a variety of
reasons. First, none of the agency officials we spoke with believe that
the regulations developed by Commerce are onerous enough to warrant the
development of agency-specific guidance. Second, both agency and
technology transfer officials told us that agency-specific guidance
would, in essence, pre-define how the federal government would exercise
its march-in authority and reduce the flexibility agencies have to
examine the specific circumstances of each individual case. Third,
federal officials--as well as officials from organizations that
represent technology transfer offices in colleges and universities--
told us that creating an array of agency-specific regulations could
hinder the transfer of research results to the market by increasing the
regulatory burden on contractors.[Footnote 7] For example, one
technology transfer official said that many universities receive
funding concurrently from more than one federal agency. In such cases,
these contractors could be required to follow a different set of
regulations from each of their agency partners. As a result, these
officials believe that Commerce should remain in charge of developing
march-in regulations, rather than have individual agencies issue their
own policies and procedures. Finally, technology transfer officials we
spoke to also said that march-in regulations should be centralized at a
high enough level to ensure consistency among federal research agencies
in their march-in decisions.
Until August 2007, if federal agencies or contractors had any questions
concerning Bayh-Dole Act implementation issues, including march-in
procedures, they generally coordinated with officials in Commerce's
Technology Administration. However, since August 2007, as a result of
changes mandated by the America COMPETES Act, the Technology
Administration has been disbanded and Commerce has shifted
responsibility for the Bayh-Dole Act to the National Institute of
Standards and Technology (NIST). Officials from two technology transfer
organizations told us that, as a result of this change, the department
currently has little expertise on the march-in process. Specifically,
technology transfer officials told us they were concerned that NIST did
not have the knowledge and experience of the Technology Administration
with regard to oversight of march-in procedures and officials at one
organization believed that this might cause some ambiguity in
facilitating agencies' implementation of the act.
NIST officials acknowledged that no one currently in their office has
any experience with the march-in authority and said the process appears
to be very time-consuming and complex. However, these officials told us
that when the Technology Administration was disbanded, the same lawyers
who worked on Bayh-Dole issues continued to provide their services,
which allowed continuity in the overall legal aspects of oversight for
the act. They also noted that most of the questions they have addressed
for agencies concern aspects of the act other than the march-in
authority. They also believe that because agencies are not required to
contact NIST with questions related to the Bayh-Dole Act, that NIST's
role in any future march-in proceedings will likely be very limited.
None of the Agencies We Reviewed Has Used March-in Authority, but Three
Value It as a Way to Promote Commercialization of Inventions:
None of the four agencies we reviewed has chosen to exercise march-in
authority under the Bayh-Dole Act. DOD, DOE, and NASA have neither
discovered nor received information that would lead them to initiate a
march-in proceeding or exercise their march-in authority during the
last 20 years. In contrast, NIH has been petitioned formally to
exercise its march-in authority three times, but in each case
determined that the statutory requirements for march-in proceedings had
not been met. Nevertheless, officials at three of the four agencies
told us they value the authority because, together with other tools, it
provides them leverage to promote commercialization of federally funded
inventions. In contrast, DOE officials do not believe march-in
authority has significant value as leverage, in part, because no agency
has ever exercised the authority.
Officials at all four agencies included in our review acknowledged that
their agencies have not conducted any march-in proceedings. They
further acknowledged that while they monitor contractors' compliance
with reporting requirements, their agencies do not have ongoing efforts
to identify potential candidates for march-in proceedings from the wide-
array of federally funded inventions. These officials told us that they
primarily rely on public and private sources of information, including
news reports, interest groups, and potential competitors, to provide
them with information that could lead to a march-in proceeding. For
example, according to one official, participants in the science and
technology market are very aware of emerging technologies and
information on patents is publicly available, which allows interested
entities to know what inventions and technologies are being developed.
In addition, companies employ technology scouts to report on the
technologies being produced by other companies. Officials told us that
one source of information regarding a potential march-in proceeding
could be a person or business that wants to enter into a licensing
agreement but is unable to negotiate agreeable terms. However, they
also acknowledged that such instances are generally uncommon because
most contractors are very interested in licensing their inventions.
According to the agency officials we spoke with, relying on the public
for information is a more efficient and effective mechanism for
tracking federally funded inventions, which would otherwise require
federal agencies to expend significant additional resources to monitor
a large volume of federally funded inventions for possible situations
that might lead to march-in proceedings. In fiscal year 2008, NIH
provided 50,980 awards, worth about $21 billion, to 2,606 institutions.
The agency's awards for the previous 5 fiscal years were steady at
about this same level. Monitoring such a large number of awards and
institutions would be very resource intense. Moreover, because many
inventions require substantial investments of time to produce a market-
ready product or process, agencies would need to monitor awards and
their subsequent inventions over a number of years. For example, NIH
officials said that pharmaceutical inventions may take as many as 14
years to reach the marketplace. In addition, although contractors
report information on inventions that result from federally funded
projects, they are not required to report information on progress
toward commercialization of those inventions or other details of the
licensing agreements they enter into, which are considered proprietary
information. Consequently, agencies do not always receive information
on the extent to which licensees are making progress toward
commercialization of the inventions the agencies have funded. Officials
also told us that proactive efforts to track federally funded
inventions are further complicated by the fact that a single invention
may result in multiple licensing agreements for different uses. For
example, a contractor who owns a cancer treatment could license the
technology to one entity to treat eye cancer and to another to treat
liver cancer.
Since Congress enacted the Bayh-Dole Act in 1980, only NIH, of the four
agencies we reviewed, has received formal march-in petitions--one in
1997 and two in 2004. In each of these cases, the agency determined
after a 5-to 8-month fact-finding process that the circumstances did
not meet any of the statutory conditions under which march in could
occur. Specifically, in 1997, NIH received a petition in which the
petitioner alleged that the invention's owner and exclusive licensee
had failed to take reasonable measures to bring a stem cell separation
device to market and that doing so would alleviate patient health and
safety needs. NIH found no basis to initiate a march-in proceeding
because it determined that the invention's owner and exclusive licensee
had taken effective steps to develop the device and that it was already
being marketed. In 2004, NIH received two more petitions, in which the
petitioner expressed concern that the price of two drugs--one to treat
HIV/AIDS and the other to treat glaucoma--made them unaffordable for
many people living with these diseases, posing a threat to their health
and safety. However, NIH determined that the drugs were already on the
market and widely prescribed, and therefore marching in would not
alleviate health and safety needs that were not already being satisfied
by the producer. NIH also stated in its decisions that drug pricing is
an issue more appropriately left to the Congress.[Footnote 8]
Furthermore, as NIH noted in its decision on the 1997 petition, the
agency is "wary of forced attempts to influence the marketplace for the
benefit of a single company."
Although DOE has not been petitioned to exercise its march-in authority
nor has it used the authority on its own, the department used the Bayh-
Dole march-in framework to review a dispute brought by a company
against a contractor and its exclusive licensee over the use of two
inventions that could identify gene sequences. According to the
company, the contractor and its licensee had not taken effective steps
to achieve substantial utilization of the inventions, and had not given
the requisite preference to small businesses. While this dispute did
not arise under the Bayh-Dole Act, DOE suggested, and all parties
agreed, to settle the dispute using the march-in procedures detailed in
the Commerce regulations. During a 30-month fact-finding process, both
parties to the dispute submitted evidence and counter evidence and
reviewed the draft decision prior to its release. DOE decided not to
march in based on its determination, among other things, that the terms
of the exclusive license were fair and that the company making the
allegations had failed to offer sufficient evidence to support its
contentions.
Although none of the agencies we reviewed has actually used its
authority to march in, officials in three of the four agencies we
contacted said they value the authority and they do not want it
eliminated because it helps to ensure that federally sponsored research
results are commercialized. These officials told us that the march-in
authority is particularly valuable as leverage in informal discussions
between contractors and sponsoring agencies and in license negotiations
between contractors and potential licensees to encourage
commercialization of technologies developed with federal funding.
However, neither the agencies we reviewed nor the technology transfer
organizations we contacted maintain data on the extent to which the
potential for a march-in proceeding is discussed informally during
negotiations.
According to some agency and technology transfer officials, the parties
to licensing negotiations are usually sufficiently aware of the
potential for march-in that it may not be necessary to explicitly
discuss this possibility during meetings. However, neither could
provide us with any metrics by which they could measure this effect,
and no data exist on the extent to which contractors or licensees are
aware of the potential for an agency to march in and to what extent
this influences their decisions. Executives from two bio-technology
firms told us that they are well aware of the Bayh-Dole Act and its
march-in provision. They consider the potential for a march-in as one
of several business risks, but said it is not a subject they typically
discuss during licensing negotiations. Nevertheless, according to one
technology transfer official, an explicit discussion of march-in
authority can provide effective leverage to push a company struggling
to meet its obligation to pursue commercialization of a federally
funded invention. DOE officials, on the other hand, said an awareness
of the march-in authority did not appear to have much influence on its
contractors and their licensees. DOE officials said their contractors
generally produce inventions, processes, and technologies that are
intended for the market and are already strongly motivated by potential
profits to move forward quickly. Consequently, these officials said it
is difficult to see how the potential for a march-in proceeding under
the Bayh-Dole Act would provide an additional incentive to these
contractors.
Although most of the officials we spoke with value the leverage that
the march-in authority provides, they said they prefer to work with
contractors informally to resolve commercialization issues. For
example, NIH officials noted that contractors often resolve such
issues--without agency involvement--by reviewing the milestones in the
licensing agreement to determine whether the licensee has met its
obligations, and if it has not, the contractor may adjust the terms of
the agreement based on speed and results of the licensee's efforts or
revoke the license and seek a new licensee. According to one NIH
official, if NIH enters such discussions its mere involvement often
serves as enough leverage to encourage resolution of the problem
without resorting to an explicit mention of march-in. Similarly, DOD
officials said that in the early 1990s, during a patent-related dispute
between two defense contractors, one of the companies raised the
possibility of petitioning DOD for a march-in proceeding to settle the
disagreement. DOD entered into informal discussions with both
companies, then withdrew, and the companies subsequently resolved their
dispute without petitioning for a march-in.
Some officials also told us that the march-in authority is not the only
available tool to achieve commercialization goals for federal research
efforts or to meet the government's needs. For example, NIH officials
told us that one useful tool is the agency's guidance for contractors
to use when negotiating license agreements. Contractors can enter into
such agreements with parties who wish to commercialize an invention.
The NIH guidance recommends including specific commercialization
milestones and a termination clause to ensure that inventions are
commercialized by licensees. For example, if an invention has a
potential therapeutic use, the agreement may include requirements to
reach federal approval for various clinical trials by certain dates, as
well as the anticipated date of first sale. Technology transfer
officials we spoke with said that the widespread use of
commercialization milestones and termination clauses reduces the
likelihood that an agency would need to march in because contractors
are already assuring that commercialization is achieved.
The government can also use patented technology without a license
subject to reasonable compensation being paid to the patent owner or
licensee, regardless of whether the invention had been developed with
federal funding. This allows the federal government to use an invention
without a license, if the use is "by or for the United States."
Further, under federal law if the federal government uses a patent, the
patent owner or licensee may sue the government to recover reasonable
compensation but may not stop the government from using the
invention.[Footnote 9] This option might be of greater value than the
Bayh-Dole march-in authority in the case of a public health emergency
because it allows for rapid action and it allows the government to use
inventions that incorporate federally funded technologies as well as
technologies that were not federally funded. In addition, officials
told us that the Bayh-Dole Act itself contains another tool--the
royalty-free license--that allows federal agencies to use federally
funded inventions without risk of infringing the ownership rights of
the contractor or licensee. For example, federal agencies may contract
with a third party to manufacture products containing such inventions
for, or on behalf of, the government. However, if the product or
process contained inventions that were not developed with federal
funds, the government would need to negotiate a license to use them.
Finally, some agencies, including DOD, DOE, and NASA, have been granted
other statutory tools that provide additional flexibility to negotiate
ownership terms with contractors. For example, all three have similar
statutory authorities--called "other transaction authority"--that apply
to certain research efforts conducted under contracts. DOD and DOE have
used this authority to obtain cutting-edge research and prototypes for
their use and NASA has used its authority to negotiate ownership rights
that will foster the commercialization of inventive work produced under
collaborative research projects that are not being conducted
specifically for the agency.
Four Key Concerns May Create Disincentives to the Use of Bayh-Dole
March-in Authority by Federal Agencies:
Four key disincentives inhibit federal agencies use of Bayh-Dole march-
in authority. First, the potential "chilling effect" that such an
action might have could deter investors from investing in the
commercialization of the research results and some researchers from
participating in federal research efforts. Second, the lengthy march-in
process could be unworkable in an emergency or other time-critical
situation. Third, commercial products or processes based on federal
inventions sometimes employ multiple patents, some of which are not
federally funded. Such circumstances often pose difficult, if not
intractable, issues that could make marching in unattractive for
federal officials seeking to commercialize an invention. Finally,
agencies might be disinclined to march in if current licensees have
specialized knowledge that makes them particularly well positioned to
bring a product to market, and if the loss of such knowledge through a
march-in proceeding might jeopardize the commercialization of an
invention. This section further describes these four disincentives.
Some agency, university, and industry officials we contacted said the
march-in authority could have a "chilling effect" on the willingness of
venture capital firms and other investors to provide funding for the
further commercial development of federally funded inventions. For
example, three of the technology transfer officials we contacted said
the chilling effect on investors would be increased if agencies used
the march-in authority under circumstances that were not well supported
by the facts. According to these officials, investors are looking for
profitable technologies and inventions that either have, or are close
to obtaining, a patent, which allows them to capture profits in
relative safety. They said that for some investors the mere existence
of an agency's march-in authority makes such investments more risky
because, should an agency actually exercise its authority, investors
may believe the value of their investment could evaporate or decline
significantly and these perceived risks could increase significantly.
However, executives from two bio-technology firms--both of which hold
licenses to commercialize technologies developed in part with federal
funds and which must raise money from investors to pursue
commercialization--told us the perceived risk that an agency might
march in is far less important to investors than other risks they face.
For example, they cited the product's likely efficacy as perhaps the
key factor for investors to consider in making such decisions. The
executives added that one of the greatest concerns of their potential
investors is how soon the product or process can be marketed and, as a
result, return a profit on their investment. These executives expressed
confidence that if licensees take care to follow the requirements of
the Bayh-Dole Act, then march-ins would be rare and should not
negatively affect the flow of federally funded inventions to the
market. In addition, technology transfer officials noted that at the
time the act was passed companies were often unwilling to enter into
licensing agreements due to concerns about how agencies would use the
authority. They said such concerns have diminished, in part because the
small number of fact-finding proceedings has not led agencies to march
in.
The march-in authority would also have a chilling effect if
researchers, particularly private-sector researchers, were unwilling to
apply for federally funded projects because the potential for an agency
to march in creates uncertainty with regard to ownership of an
invention. However, none of the officials we contacted was aware of
specific instances when a researcher had declined to apply for federal
funding and they said it is impossible to know the extent to which
researchers decide against applying for federal funds due to such
concerns. In contrast, officials at DOE said they do not believe the
potential for a march in is a concern for their contractors. For
example, DOE officials noted that following the release of a recent
solicitation, 60 small businesses called with questions about the march-
in authority. However, even after DOE officials explained the march-in
authority to these callers, overwhelmingly they submitted applications.
Because the march-in process itself can be long and the outcome unknown
pending a possible appeal of the agency's decision to the federal
courts, the NIH officials we contacted believe march-in authority could
have limited utility in an emergency situation, such as an important
public health issue, that required prompt federal action. More
specifically, the Commerce regulations that govern march-in procedures
provide for a quasi-judicial process that may require more time to
complete than the other legislative options mentioned above. The march-
in procedures allow for contractors to be represented by counsel, the
opportunity to call and confront witnesses, and the chance to introduce
documentary evidence and review the evidence others have presented. In
the four fact-finding instances we reviewed, the time to reach a
decision not to initiate march-in proceedings ranged from 5 to 30
months. According to NIH officials, the specifics of each Bayh-Dole
fact-finding effort are likely to vary, but the process to determine
whether a march-in proceeding is warranted will usually require at
least several months to accomplish. Moreover, in the event an agency
decides to march in, action on the decision may be delayed pending
review by the federal courts if the contractor or licensee appeals the
decision. In emergency situations, NIH officials said the government
could use other legal authorities, discussed above, to obtain the
necessary rights.
Officials at NASA and NIH also reported that a march-in proceeding
would be complicated by the fact that most products and processes
include multiple technologies covered by multiple patents, and that in
many cases only some of them have been developed with federal funding.
As a result, federal agencies may only have the authority to march in
on one aspect of a product or process, yet marching in may negatively
affect the value of all the other patented inventions associated with
the product or process. For example, NIH officials described the
development of a single genome test that used 17 patents from 13
organizations (3 from outside the U.S.), some of which used government
funding and some did not. These officials said it would be impossible
for NIH to determine that 1 of those 17 patents is not being
commercialized fast enough, or not meeting a health need, in the face
of its dependence on 16 other patents. Any such effort would require
the cooperation of 12 other organizations, and an unknown number of
licensees. The officials concluded that it would be an impossible task
for NIH, or any agency, to decide to march in under those
circumstances.
Officials at NIH also said that agencies might be disinclined to march
in if current licensees have specialized knowledge about how to bring a
particular product to market. If the loss of such knowledge would
jeopardize the commercialization of an invention, agencies might be
reluctant to pursue a march-in. For example, licensees may possess
information such as trade secrets, other patented technologies related
to product development, experience with the federal approval process,
or marketing experience. If NIH were to force a contractor or licensee
to grant a license to another entity, it would have to consider whether
the other patented technologies would be available to the new licensee
and whether the new licensee would have the knowledge, resources, and
commitment needed to commercialize the product.
Agency Comments and Our Evaluation:
We provided a copy of a draft of this report to DOD, DOE, NIH, and NASA
for their review and comment. In commenting on the draft, NASA stated
that the report provides a balanced view of the issues related to the
regulations associated with the Bayh-Dole Act. NASA also provided
technical comments that we incorporated, as appropriate. NASA's overall
comments are included in appendix II. DOD, DOE, and NIH did not provide
overall comments, but NIH provided technical comments that we
incorporated, as appropriate.
We are sending copies of this report to the appropriate House and
Senate committees, interested Members of Congress, the Secretaries of
the Departments of Defense and Energy, the Administrator of NASA, and
the Director of NIH. The report will also be available at no charge on
the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have questions about this report, please contact
me at (202) 512-3841 or mittala@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this
report are listed in appendix III.
Signed by:
Anu K. Mittal:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to determine (1) what policies and
procedures federal agencies with significant research budgets have
established to determine whether march-in authority under the Bayh-Dole
Act should be exercised; (2) the extent to which these selected federal
research agencies have used Bayh-Dole march-in authority and what they
believe are its benefits; and (3) what barriers and disincentives, if
any, these agencies have encountered to the exercise of their march-in
authority under the Bayh-Dole Act.
We sought to focus our review on those federal agencies whose combined
research and development spending represent a significant portion of
total federal research and development spending. To identify the
federal research agencies that meet this criterion, we obtained and
analyzed research and development funding data from the National
Science Foundation (NSF) on preliminary federal obligations for
research and development for all federal research agencies. The top
four agencies receiving research and development funding were the
Department of Defense (DOD), the Department of Energy (DOE), the
National Aeronautics and Space Administration (NASA), and the National
Institutes of Health (NIH) within the Department of Health and Human
Services. We judgmentally selected these four agencies as the focus of
our review. We compared the combined percent of funding from the total
research and development allotment for these four agencies to the total
allotment for the federal government and found that these four agencies
accounted for approximately 89 percent of the total federal research
funding for fiscal year 2006--the most recent year for which NSF had
complete data. In assessing the reliability of the NSF data, we noted
that it reports a 100 percent response rate, with responses to all
items; thus, we determined it was sufficient for the purposes of this
analysis.
To gain insights into the history of the Bayh-Dole Act, including its
provision for march-in authority, as well as to understand the context
in which the law was enacted and its current environment, we reviewed
the act's legislative history, including congressional hearing
statements made by the act's sponsors and other stakeholders. We also
reviewed the available literature on the Bayh-Dole Act's implementation
and the effects it has had on federal research. To understand the law's
requirements, we reviewed all provisions of the act, giving special
emphasis to those sections that establish march-in authority. To
understand how agencies are to implement their responsibilities under
the act, we reviewed the Department of Commerce's Bayh-Dole
regulations.
For each of our three objectives, we interviewed officials from the
technology transfer offices and offices of general counsel at DOD, DOE,
NASA, and NIH, as well as officials from the National Institute of
Standards and Technology. In addition, we contacted officials in
stakeholder groups such as the Association of University Technology
Managers, the Biotechnology Industry Organization, the American
Intellectual Property Law Association, the Association of Public and
Land-grant Universities, and Essential Inventions, as well as academics
who have evaluated the Bayh-Dole Act. We also contacted representatives
from the biotechnology industry who invest in and/or develop federally
funded technologies. We reviewed the three march-in petitions that NIH
received, and NIH's determinations in these cases, to understand how
NIH applies the Commerce regulations. Finally, we studied NIH's
research tool guidelines to determine their impact on agency decisions
on whether to conduct march-in proceedings.
We conducted our work from November 2008 to July 2009 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
[End of section]
Appendix II: Comments from the National Aeronautics and Space
Administration:
National Aeronautics and Space Administration:
Headquarters:
Washington, DC 20546-0001:
Reply to the attention of: Office of the General Counsel:
July 16, 2009:
Ms. Anu K. Mittal:
Director, Natural Resources & Environment:
United States Government Accountability Office:
Washington, DC 20548:
Dear Ms. Mittal:
Thank you for the opportunity to review draft report, "Federal
Research: Information on the Government's Right to Assert Ownership
Control Over Federally Funded Inventions," (GAO-09-742).
We found the report to he complete, concise, and accurate. In our
opinion, it provides a balanced view of the issues related to the
regulations associated with the Bayh-Dole Act. Technical comments to
the draft report have been provided separately.
Again, thank you for the opportunity to provide comments on the draft
report and for your continued interest in technological innovation and
march-in authority.
Sincerely,
Signed by:
Michael C. Wholley:
General Counsel:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anu Mittal (202) 512-3841 or mittala@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Cheryl Williams, Assistant
Director; Richard Johnson; Amanda Leissoo; Benjamin Shouse; Elizabeth
Wood; and Eugene Wisnoski made significant contributions to this
report.
[End of section]
Footnotes:
[1] The term "contractor" means any person, small business firm, or
nonprofit organization that is a party to a federal funding agreement,
which includes contracts, grants, or cooperative agreements for the
performance of experimental, developmental, or research work.
[2] The two additional statutory conditions under which agencies may
exercise march-in authority are (1) the use of an invention is required
by the federal government and the contractor cannot meet the
government's requirements; and (2) the patent owner or exclusive
licensee has failed to take certain steps to ensure that any products
embodying the invention or produced through the use of the invention
will be manufactured substantially in the United States.
[3] Pub. L. No. 111-8, Div. G, Title I, section 1301(h), 123 Stat. 829
(2009).
[4] The Bayh-Dole Act by its terms applies to universities, non-profit
organizations, and small businesses that receive federal research
funding. A presidential memorandum in 1983, followed by an Executive
Order in 1987, directed federal agencies, to the extent permitted by
law, to establish policies for all businesses that are substantially
the same as those contained in the Bayh-Dole Act.
[5] As originally enacted, the act required the Office of Federal
Procurement Policy to develop these regulations. In 1984 Congress
transferred this regulatory authority to the Department of Commerce.
Pub. L. No. 98-620, § 501(10), 1984.
[6] The time required to obtain a patent may overlap with the period of
federal funding for the research.
[7] Throughout this report we refer to officials from organizations
that represent technology transfer offices in colleges and universities
as technology transfer officials.
[8] In its decision on the drug for treating HIV/AIDS, NIH also stated
that the Federal Trade Commission was the appropriate agency to address
allegations that the drug manufacturer had engaged in anti-competitive
practices.
[9] 28 U.S.C. § 1498(a).
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
