<DOC>
[110 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:43657.wais]
S. Hrg. 110-470
THE ROLE OF FEDERALLY FUNDED UNIVERSITY RESEARCH IN THE PATENT SYSTEM
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 24, 2007
__________
Serial No. J-110-58
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
43-657 PDF WASHINGTON DC: 2008
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP,
Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa. 2
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 107
WITNESSES
Hoffman, Elizabeth, Executive Vice President and Provost,
Professor of Economics, Iowa State University, Ames, Iowa...... 6
Louis, Charles F., Vice Chancellor for Research, University of
California, Riverside, Riverside, California................... 10
Rai, Arti K., Professor of Law, Duke University School of Law,
Durham, North Carolina......................................... 4
Weissman, Robert, Director, Essential Action, Washington, D.C.... 8
QUESTIONS AND ANSWERS
Responses of Elizabeth Hoffman to questions submitted by Senators
Leahy, Grassley and Hatch...................................... 24
Responses of Charles Louis to questions submitted by Senators
Hatch and Grassley............................................. 41
Responses of Arti K. Rai to questions submitted by Senators
Leahy, Hatch and Grassley...................................... 59
Responses of Robert Weissman to questions submitted by Senators
Grassley and Hatch............................................. 64
SUBMISSIONS FOR THE RECORD
Biotechnology Industry Organization, Washington, D.C., statement. 71
Gulbrandsen, Carl E., Managing Director, Wisconsin Alumni
Research Foundation, Madison, Wisconsin, statement............. 77
Harkin, Hon. Tom, a U.S. Senator from the State of of Iowa,
prepared statement............................................. 92
Hoffman, Elizabeth, Executive Vice President and Provost,
Professor of Economics, Iowa State University, Ames, Iowa,
statement and attachments...................................... 94
Latham, Hon. Tom, a Representative in Congress from the State of
Iowa, letter................................................... 108
Louis, Charles F., Vice Chancellor for Research, University of
California, Riverside, Riverside, California, statement........ 110
Rai, Arti K., Professor of Law, Duke University School of Law,
Durham, North Carolina, statement and attachments.............. 126
Weissman, Robert, Director, Essential Action, Washington, D.C.,
statement...................................................... 158
THE ROLE OF FEDERALLY FUNDED UNIVERSITY RESEARCH IN THE PATENT SYSTEM
----------
WEDNESDAY, OCTOBER 24, 2007
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, Pursuant to notice, at 1:40 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Cardin, and Grassley.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Thank you all for being here. Senator
Cardin, thank you, and I know that Senator Grassley will be
joining us.
As we know, universities conduct much of the research that
advances our understanding of the world around us. Since the
passage of the Bayh-Dole Act in 1980--and I remember that one
well--they have played an increasingly important role in the
patent system and commercializing innovation.
Under Bayh-Dole, universities may take title to inventions
developed with Federal funds, and they can retain all the
profits from licensing those inventions, without reimbursing
the Government. There is, of course, one exception to that
rule, and that is when the university's work is being done in a
facility that is actually owned by the Federal Government. Then
the university has to return a portion of the royalties from
the invention if those royalties exceed 5 percent of the
facility's budget.
Iowa State University operates such a Federal facility--
Ames Laboratory--and they showed a great deal of ingenuity and
commercialization. Ames last year exceeded the 5-percent mark
and, as a result, repaid the taxpayers nearly $1 million. They
actually became the first such facility to do that. At the
close of the last Congress, the House had hoped to raise the
threshold to 15 percent, so Iowa State would not have had to
make any reimbursement. The bill was introduced on December 8th
and it was passed on December 9th. I said at the time that
regardless of whether the threshold should be 5 percent or 15
percent, we should not make that kind of a step at the 11th
hour, because process is important. It will illuminate and let
the public know if we are going to make such substantive
changes.
So this hearing gives us that kind of process. It will give
us a long overdue opportunity to begin an examination of the
successes, as well as any shortcomings, of the tech transfer
provisions.
In saying that, I do want to acknowledge that American
research universities are the envy of the world. I hear about
them everywhere I go in the world. Patented inventions
developed at these universities with Federal dollars have
created businesses and jobs; they have boosted local economies.
Medicines developed there have saved lives. Federal taxpayers
fund more than 60 percent of research at universities, however,
so it is proper to ask whether the taxpayer is getting an
adequate refund.
At the end of the 109th Congress, I introduced the Public
Research in the Public Interest Act to ensure that medical
product innovations created with Federal funds were available
in developing countries at the lowest possible cost. I imagine
that will be a matter of debate here.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
We were speaking of Ames, Iowa, and as we spoke of Iowa
State University at Ames, in walked the senior Senator from
Iowa. Senator Grassley, I will yield to you for any kind of a
statement you wish to make. Of course, Dr. Hoffman, the Vice
President and Provost of Iowa State is here.
STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE
STATE OF IOWA
Senator Grassley. Thank you very much.
Well, first of all, I appreciate your willingness to hold
this hearing on the Bayh-Dole Act and include in that hearing a
discussion of a patent issue that has been before Congress for
a few years now concerning Iowa State University. You said you
would hold a hearing, and I know you always keep your word, and
you surely have and I think you need to know that I really
appreciate that very much.
This is an important hearing that you have noticed today
because of the many benefits that have been derived since
enactment of the Bayh-Dole Act. The Bayh-Dole Act promotes the
utilization of inventions arising from federally supported
research and development. This law has proven to be a very
effective incentive for small businesses and nonprofit
organizations, including universities, to collaborate in
researching and developing new products and technology with the
support of our Federal Government. Ultimately, promoting
university-based innovation and technology transfer to industry
helps boost the Nation's economy and gives us a better world
through new cures and inventions.
The Chairman has assembled an impressive list of witnesses.
I thank all of you for being present. In particular, I am
pleased to welcome, as has already been mentioned, Dr.
Elizabeth Hoffman, who is Executive Vice President and Provost
at Iowa State University. She is going to discuss the patent
issues around Iowa State's concerns and the legislative fix
that they would like to see in the Bayh-Dole Act.
As you know, in the 109th Congress, the House of
Representatives passed a bill that would have changed the
royalty formula under Bayh-Dole for small or nonprofits because
they saw a basic issue of fairness. I agree with that
assessment. In fact, I circulated the same language of that
bill as an amendment to a comprehensive patent reform bill that
was considered by the Judiciary Committee earlier this year.
The change that Iowa State University is seeking to the Bayh-
Dole law would allow for a modest increase in the royalty
threshold for smaller budgets, thus preserving the necessary
incentive for smaller institutions and laboratories to continue
investing in cutting-edge research and development.
Currently, the Bayh-Dole Act allows nonprofits to patent
any new discoveries, sell and license the inventions, and keep
a portion of the profits. The law places a limitation on the
amount of royalty income that can be retained in a given fiscal
year once a ceiling of 5 percent of a Government-owned,
contractor-operated laboratory budget has been reached.
Seventy-five percent of the remaining income is paid to the
U.S. treasury. The remaining 25 percent is shared between the
laboratory and the university nonprofit.
Unfortunately, this one-size-fits-all ceiling creates a
situation where smaller institutions end up paying royalties
back to the Government a lot sooner than institutions with much
larger budgets. Smaller contracts should not be penalized for
their successes just because they naturally will reach the
current statutory ceiling much more quickly than the larger
contracts of hundreds of millions of dollars.
The bill that the House of Representatives passed last year
would have allowed small Government-owned, contractor-operated
labs and their affiliated universities or nonprofits to receive
a fair percentage of revenue from successful patents that they
license. Specifically, the legislation raises the threshold for
smaller annual budgets, $40 million or less, from 5 percent to
15 percent for Bayh-Dole. The bill left in place the current 5-
percent threshold for budgets over $40 million. In this way,
everyone would pay back to the Federal treasury once revenues
reached a certain amount, as is appropriate.
I know this is just one small issue in the scheme of
things, but I do think that such a tweak to the Bayh-Dole Act
will produce an equitable result for small entities that
perform research in many scientific technological fields. This
small but important modification in the law will allow these
institutions to continue to reinvest in their research and
educational operations, which, of course, greatly benefit our
public.
I look forward to Provost Hoffman's more detailed testimony
on this issue and how a modest change in law will improve the
incentive for little people to continue reinventing in their
research and development activities. I also look forward to all
the testimony of witnesses on Bayh-Dole, and I ask permission,
Mr. Chairman, for the Congressman that includes Story County
and Ames, Iowa, where Iowa State University is, Congressman
Latham, for a statement of his to be inserted in the record.
Chairman Leahy. Without objection, it will be.
Senator Grassley. Thank you, Mr. Chairman.
Chairman Leahy. Professor Rai, we will start with you.
Did I pronounce that correctly? Is it ``Ray''?
Ms. Rai. ``Rye,'' as in the bread.
Chairman Leahy. Thank you.
STATEMENT OF ARTI K. RAI, PROFESSOR OF LAW, DUKE UNIVERSITY
SCHOOL OF LAW, DURHAM, NORTH CAROLINA
Ms. Rai. Good afternoon, Mr. Chairman and distinguished
members of the Committee. Thank you for the opportunity to
speak on the role of federally funded university research in
the patent system.
I am Arti Rai, a law professor at Duke Law School. I have
studied technology transfer issues for the last 10 years.
Currently, I am funded by both the NIH and the Kauffman
Foundation to study these issues in both the life sciences and
in information technology. So my current research is examining
both sides of the life sciences versus information technology
divide that we sometimes see in debates over patent issues.
Before I delve into the details of my testimony, let me
state my bottom-line conclusions.
First, although I do not think that we need a major
overhaul of the current system, we do need to recognize that a
patent and exclusive licensing model is not necessarily
appropriate for all technologies.
Second, one mechanism of ensuring that universities pay
attention to the idea that ``one size does not fit all'' might
involve bolstering particular provisions of Bayh-Dole that
allow funding agencies to be attentive to differences between
technologies.
Third, we need to be cautious about efforts to recoup
royalties from technology transfer efforts. I understand that
the immediate catalyst for the hearing today surrounds this
question of royalties. In the context of Government-owned,
contractor-operated facilities, there is a recoupment
provision. In general, however, there are no recoupment
provisions in Bayh-Dole, so this is an important question.
In order to understand whether we should have more or less
recoupment by the Government, I think it is important to
understand why we have Bayh-Dole and Stevenson-Wydler. Both of
these statutes aim, one, to promote university-industry
collaboration and, two, to commercialize federally funded
research through the use of patents. The theory is that if
federally funded research is patented, then private sector
firms will have a powerful financial incentive to collaborate
and to commercialize.
For certain types of inventions, this commercialization
theory makes a lot of sense. Drugs are the classic example.
Outside of the life sciences, however, the importance of
patents for collaboration and commercialization is not as
clear. And even within the life sciences, commercialization of
certain basic scientific research tools might be achieved
through the lure of more downstream patents on specific
applications of those tools.
So one size does not fit all. Unfortunately, it is not
clear that universities always pay attention to these
differences. In fact, there have been some recent court cases
in which it appears that the university patent did not so much
aid in technology transfer as it allowed the university to
extract money from an entity that had already commercialized.
In the recently settled case of Eolas v. Microsoft, for
example, Microsoft and various other firms did not need an
exclusive license to commercialize the Web browser software
that was the subject of the patent dispute. Of course, one
never knows how representative litigated cases are.
Universities may generally be doing a good job, with these
litigated cases being the exception.
A more troubling indicator emerges from some research I
have done which indicates that the most important predictor of
the number of university software patents that are sought is
simply how many other patents the university tech transfer
office has. In other words, large tech transfer offices just
patent a lot of what comes in the door. They do use a one-size-
fits-all approach to their invention. And so it should come as
no surprise that some prominent information technology firms
are somewhat troubled by what universities are doing.
Even so, I would not endorse taking the decision about
patenting away from universities. The question is always a
comparative one, and Federal agencies are not always or even
generally better placed to make these decisions.
There is also reason to believe that universities are
beginning to understand that technologies differ from one
another and that not all of them should be promoted through a
patent and exclusive licensing model.
Still, it might be worth doing some tweaking of particular
provisions of Bayh-Dole and giving Federal agencies a little
more authority in certain circumstances to work with the
universities in determining situations in which one size does
not fit all.
Let me conclude by returning briefly to the issue of
royalty recoupment. Currently, outside of special circumstances
like GOCOs, Bayh-Dole does not provide for such recoupment. One
might argue that the Federal Government should get a return on
its investment. However, there is little evidence to support
the idea that the Federal Government would be making large sums
of money even if it did have a general recoupment provision.
More importantly, part of the problem that I see with
current university tech transfer efforts is that there is
sometimes too much focus on generating revenue. I have
mentioned, for example, some cases in the software context
where these patents appear to be used as a mechanism for
revenue extraction rather than a mechanism for promoting
collaboration and commercialization. So anything that gets
universities to pay even more attention to their revenue
generation seems to me a bad idea.
In sum, I think there is little reason to do a major
overhaul of the current mechanism for technology transfer that
we have. However, universities should be educated about the
reality that one size does not fit all, and some tweaks in
Bayh-Dole might help with that education. Relatedly, I think
because we do not want universities to focus on generating
revenue but, rather, on commercialization and collaboration, we
should be cautious about using technology transfer as a
mechanism for raising revenue.
Thank you very much.
[The prepared statement of Ms. Rai appears as a submission
for the record.]
Chairman Leahy. Thank you. And, Professor Rai, your full
statement and the appendage you had for it will be part of the
record.
I should have noted that Professor Rai is a Professor of
Law at the Duke University School of Law, where she teaches
courses in administrative and patent law. Her publications have
concentrated on intellectual property law, and her current
research focuses on IP issues raised by collaborative research
and development.
Dr. Hoffman, as Senator Grassley pointed out, is the
Executive Vice President and Provost of Iowa State. She earned
her Ph.D. in history from the University of Pennsylvania, and a
Ph.D. in economics from the California Institute of Technology.
Prior to coming to Iowa State, Dr. Hoffman served as the 20th
President of the University of Colorado System. I know Senator
Harkin also wanted to be here today. He is down at a place
where I am going to be leaving for in a few minutes, in the
Senate Agriculture Committee, where we are trying to mark up a
farm bill. I will place a statement from Senator Harkin in the
record.
Dr. Hoffman, please go ahead.
Incidentally, I should note that at some point I will have
to leave. When I do, I will turn the gavel over to Senator
Grassley, who has had as much experience as I have had in
handling a gavel and will continue the hearings.
STATEMENT OF ELIZABETH HOFFMAN, EXECUTIVE VICE PRESIDENT AND
PROVOST, PROFESSOR OF ECONOMICS, IOWA STATE UNIVERSITY, AMES,
IOWA
Ms. Hoffman. Thank you, Mr. Chairman, Senator Grassley,
distinguished members of the Committee. I am Elizabeth Hoffman,
Executive Vice President and Provost of Iowa State University.
I am here first to convey our emphatic support for the Bayh-
Dole Act. I am here also to propose a limited, technical fix
that would eliminate a restriction we believe has an
inequitable impact on small, Government-owned, contractor-
operated laboratories--namely, the current limit imposed on
retaining royalties that result from tech transfer activities.
My colleague Charles Louis will address the broader
benefits of Bayh-Dole, and we have included our support in our
written testimony. I will speak to the experience of Iowa State
and Ames Laboratory.
The effectiveness of Bayh-Dole incentives can be seen in
the upward trend in technology disclosures and licenses at Iowa
State University. Technology disclosures increased from 46 per
year in the 1970s, prior to the adoption of Bayh-Dole, to 118
per year from 2000 to 2007. In 2005, Iowa State University was
second in the Nation--behind the entire University of
California System--in licenses and options with 218, and we
were sixth nationally in the total number of active licenses,
with 245. In the past 8 years alone, fully 20 new companies
have been started on the basis of 41 licensed technologies,
contributing to the economy of our State and our Nation.
Now I would like to turn to look more closely at the Ames
Laboratory. No better illustration of the success of Bayh-Dole
can be found than the example of lead-free solder, a result of
Federal support that has been developed jointly at the Ames
Laboratory and Sandia National Laboratory. The research team
that created this remarkable and remarkably marketable
innovation was led by Ames metallurgist Iver Anderson. You are
all familiar with the environmental impact of leaded solder in
landfills. By removing the lead, we protect the environment and
avoid a serious health risk.
The so-called Iver Patent for this lead-free solder is
licensed by Iowa State to 28 companies under very reasonable
financial terms, and over 60 companies around the world--
including a small company in Iowa--use the patent. Thus, our
experience has been that the principles, practice, and impact
of Bayh-Dole are sound.
However, we want to discuss with you today one technical
concern that we believe can have an unfair impact on small GOCO
Federal laboratories and that has had an inequitable impact on
the Ames Laboratory.
As mentioned before, Bayh-Dole, as modified in 1984, limits
the earnings from royalties for these laboratories to 5 percent
of their annual budget; and then after reaching the 5 percent
threshold, 75 percent of additional royalties are returned to
the Federal Government. All royalties retained by the
contractor must be expended for research, education, and
technology transfer purposes.
Because of its small budget and successful patent
portfolio, as the Senator mentioned, the Ames Laboratory is
alone in the Nation in coming up against the 5-percent royalty
cap. Last year, we returned nearly $1 million to the Federal
Government, and we anticipate returning about the same amount
per year for the foreseeable future.
My contention today, which I respectfully offer for your
consideration, is that the authors of Bayh-Dole and subsequent
modifying legislation did not intend to incorporate a provision
that would have a disparate and deleterious impact on the
smallest of the DOE laboratories. Therefore, we ask you to re-
examine this technical clause and to modify the limitation in
accord with the spirit of Bayh-Dole.
To bring home the inequitable impact of this technical
limitation on small, successful, federally funded research
centers, let me point out that Ames Laboratory's partner in the
development of lead-free solder--Sandia National Laboratory--
has not had to return any of their royalty stream to the
Government. Sandia has a much larger budget--$2.27 billion--as
compared to Ames's approximately $30 million. In this
successful, partnership, then, is a case illustration of our
contention that the 5-percent royalty cap is a discriminatory
tax on small, successful, nonprofit laboratories. Accordingly,
I propose for your consideration that the royalty limitation in
the House legislation be increased to 15 percent of the annual
budget for GOCO contractors with annual budgets of less than
$40 million. If the Committee, in its wisdom, feels that these
exact numbers are not the right ones but accepts our basic
argument and request for relief from inequitable impact, we
will be immensely gratified.
Thank you for your attention and for your leadership here
in Washington. Thank you, Mr. Chairman.
[The prepared statement of Ms. Hoffman appears as a
submission for the record.]
Chairman Leahy. Thank you very much, Doctor.
Mr. Robert Weissman is Director of Essential Action, a
nonprofit advocacy organization that works to promote access to
medicines. Through Essential Action, he has experience
petitioning the NIH and other Government agencies to exercise
their rights under provisions of the Bayh-Dole Act. A graduate
of Harvard College, Harvard Law School, Mr. Weissman, please go
ahead, sir.
STATEMENT OF ROBERT WEISSMAN, DIRECTOR, ESSENTIAL ACTION,
WASHINGTON, D.C.
Mr. Weissman. Thank you, Mr. Chairman. Thank you for
inviting me to be here today.
At the time of passage of Bayh-Dole and the years leading
up to passage, there was even by proponents a recognition that
there were serious risks in the proposal to enact the Bayh-Dole
approach. There were concerns about whether the Government
would get a fair return on its investment, about whether there
would be reasonable pricing of Government-sponsored inventions
and access to the fruits of Government-sponsored inventions.
There was concern about windfall profits for those who gained
exclusive rights to Government-funded inventions, and concern
about whether those exclusive rights might lead to market
concentration and anticompetitive behavior.
The final bill included safeguards to deal with many of
these concerns, not so much on recoupment but on many of the
other key issues. Unfortunately, it has been our experience and
I think the global experience that the Government has failed to
exercise the safeguards that were included.
In the area of pharmaceutical products, the result is that
the Government uses taxpayer money to develop important new
medicines. It gives away the inventions. Then the companies
that take the federally sponsored inventions charge very high
prices, price-gouge the very taxpayers that have paid a
considerable part of the development, and even the Government
itself, which is the largest buyer of pharmaceuticals in the
world. Our experience is that even in the worst cases of abuse,
the Government has failed to exercise the safeguards designed
to limit these kinds of problems.
Our organizations have requested that the National
Institutes of Health use its rights to license inventions to
the World Health Organization to enable access to cheap
medicines in developing countries. That request was declined.
We have requested that the Office of Management and Budget use
the Government rights to purchase generic versions of
pharmaceuticals that it helped develop. That request went
unanswered. And we petitioned on two occasions for the NIH to
exercise march-in rights where there were particular cases of
pricing and market concentration abuses.
One example involved an Abbott Laboratories product, the
generic name of which is ritonavir. That is an anti-AIDS drug.
It went on the market in 1996. The company in 2003 suddenly
announced a 400-percent price increase for the drug, which
would have made it as a stand-alone drug cost $45,000 a year
per person. However, ritonavir's main role is not as a stand-
alone drug but as a booster to be used in conjunction with
other pharmaceutical products. As a booster, the price went
from roughly $1,500 a year per person to more than $8,000 a
year per person. However, Abbott did not apply the price
increase uniformly. It did not apply if the booster ritonavir
was to be used in conjunction with Abbott's own product. As a
result, the combination of Abbott's drug with this ritonavir
booster is much cheaper than competitors in the same class who
want to combine with ritonavir. The effect is a massive price
increase for all other medications except for the Abbott
product. It has tilted buying and prescription decisions, and
it has, unfortunately, limited investment by other
pharmaceutical companies in this category of medicine because
they know they cannot compete with the Abbott product.
We petitioned in this circumstance for NIH to exercise its
march-in rights. The Abbott product was developed with a high
degree of Federal support, and the Government does have Bayh-
Dole rights in the invention. The National Institutes of Health
declined our petition. They said in their written response that
Abbott was meeting its requirements to achieve practical
application of the invention by simple virtue of putting the
product on the market. Whatever price Abbott charged from NIH's
point of view was irrelevant.
Unfortunately, NIH read out of the statute the definition
of practical application, which specifies that it means putting
a product on the market on reasonable terms available to the
public. There is no way, in our view, that the Abbott pricing
arrangement could be considered reasonable. It is not clear
that NIH thinks it reasonable either. They did not address the
issue at all.
As I discuss in my written testimony, we think there are a
number of reforms that should be made to the Bayh-Dole Act to
address this and other concerns. Generally, there needs to be
much more purposeful management of the Government's patent
portfolio and the products in which it holds intellectual
property rights. The basic principle should be that there
should be some reciprocity for the Government's funding of R&D.
It does not need to be in the form of royalties. Much more
important from our point of view is the area of pricing and
access.
The requirement for reciprocity should apply in more than
the worst-case circumstances as well. In our petition on the
march-in, we proposed a standard that the march-in should be
exercised where U.S. Government-funded inventions were priced
more for U.S. consumers who paid for them than they are for
other consumers in other high-income countries. Whatever is
done in this area, we think there needs to be specific
direction on the use of the march-in right.
Finally, one other point. There are other areas that need
careful investigation, as Dr. Rai suggested, besides
pharmaceuticals. There are going to be major increases in
Federal research money devoted to climate change-related
technologies. It will be hugely important to consider how those
resulting technologies are managed and licensed to look for
ways to promote open and collaborative means of development
rather than relying exclusively on exclusive models.
Thank you very much.
[The prepared statement of Mr. Weissman appears as a
submission for the record.]
Chairman Leahy. Thank you, Mr. Weissman.
Dr. Charles Louis is the Vice Chancellor for Research at
the University of California, Riverside, holds an appointment
as professor of cell biology and neuroscience. As Vice
Chancellor, he is responsible for advancing the research
mission of the university, including technology
commercialization. He received degrees from Trinity College in
Ireland--the only one of my colleagues whom I know of that
studied at Trinity is Senator Cochran.
Mr. Louis. I was unaware of that.
Chairman Leahy. The senior Senator from Mississippi.
He reminds me of that any time we have been in Dublin
walking by Trinity. Dr. Louis also received a degree from
Oxford University in England, and received his postdoctoral
training at Stanford University. Doctor, the floor is yours.
And as with everybody, your whole statement and any additional
material you have will be put in the record as though read.
STATEMENT OF CHARLES F. LOUIS, VICE CHANCELLOR FOR RESEARCH,
UNIVERSITY OF CALIFORNIA, RIVERSIDE, CALIFORNIA
Mr. Louis. Thank you so much. Good afternoon, Chairman
Leahy and Senator Grassley, and thanks for this opportunity to
speak before you today.
Thanks to the support of Congress, I have been very
fortunate over 25 years of continuous NIH funding to support a
biomedical research program that has allowed me to train a
large group of graduate students and postdoctoral fellows. I
would also like to thank the U.S. Senate, and this Committee in
particular, for its hard work in passing the Bayh-Dole Act
almost 30 years ago, which first allowed universities to take
title in federally funded inventions and translate them into
good and useful products for the public. It is a privilege to
be able to thank so many of the original sponsors of this law
in person here today, including yourself, Mr. Chairman, because
I am also an inventor of a patent with colleagues at the other
Iowa University--the University of Iowa--and also the
University of Minnesota, where I spent many years.
According to the Economist magazine, the Bayh-Dole Act is
``perhaps the most inspired piece of legislation to be enacted
in America over the past half-century.'' The piece goes on to
state that ``[m]ore than anything, this single policy measure
helped to reverse America's precipitous slide into industrial
irrelevance.''
The benefits of this Act are well recognized by our
economic competitors around the world for converting early
stage inventions into products. My written testimony documents
many of the well-known products that have resulted from these
inventions.
Prior to Bayh-Dole, few of the federally funded patents,
less than 5 percent in 1980, were ever licensed for
development, in part due to the Government's prior practice of
issuing only non-exclusive licenses. This practice failed to
provide an incentive for a company to risk investing its own
money in resources in commercializing a technology because its
competitors could reap the benefits of its development efforts
for free. Bayh-Dole established a consistent and uniform policy
across agencies, allowing universities to elect to retain title
in inventions created by their researchers in the course of
federally funded research, on the condition that the
universities diligently work with private industry to ensure
that the technology is developed in a timely and beneficial
manner.
This shifted development of the technology from distant
Federal agencies with little knowledge of the applicability of
the invention, to the local university which possessed the most
knowledge about the technology and could more effectively
determine what inventions to patent or not.
While U.S. universities have a mission of conducting
research and furthering human knowledge, they are neither
positioned nor equipped to develop their discoveries into
commercial products that can be used by the general public, and
this is where the partnership with industry comes in.
As a result of the Bayh-Dole Act, university technology
transfer activities skyrocketed. More than 230 universities
have technology transfer offices. The University of California
is very proud to have one of the top offices in the country.
Indeed, 4,300 new products were introduced between 1998 and
2006, with over 5,700 new spin-off companies created in the
U.S. since 1980 as the result of university technology transfer
efforts.
A personal example. At the University of California,
Riverside, Dr. David Bocian has been doing research in creating
molecular-scale features that can function as the circuit
elements in microelectronic chips. The technology will lead to
significant advances in memory capability, playing a key role
in new generations of electronic devices, both large and small.
And UC Riverside has licensed this technology to a startup
company.
Dr. Rai suggests that universities focus on making money,
and many outside observers make the erroneous assumption that
technology transfer is undertaken by universities to do just
this. Well, at the University of California, Riverside, like
the majority of university technology transfer offices,
licensing income rarely covers the costs of the office. In
fact, we view technology transfer in both the licenses we issue
and the students we train as an important means to advance the
university's mission and serve the public interest.
Universities do not have the resources to file patents on
everything that is discovered by their researchers, and we have
to pick and choose the ones which have the potential for
commercialization. I would love to have so much money I had the
flexibility to license everything that came in the door, but we
have to be far more sensitive.
Any policy changes that would make it harder for
universities to engage financially in technology transfer
efforts or reduce the certainty that the public currently has
in a patent's validity would serve to undermine the Bayh-Dole
Act's effectiveness. Any legislative or regulatory actions that
increase a company's risk or uncertainty or reduce their
incentive to invest in a university's inherently early stage
technology, such action would certainly undermine the current
success of the Bayh-Dole Act. The Bayh-Dole Act lays a solid
foundation for the success of technology transfer, including
elements that ensure that the public interest is preserved,
while at the same time providing recipients of Federal funding
with tremendous flexibility to craft the best business approach
to maximize utilization of a federally funded invention.
The Act was an inspired piece of legislation that has
provided incentives and rewards for risk taking that has led to
successful products. I am speaking for all of the University of
California in asking the Congress to continue to nurture its
success.
Thank you.
[The prepared statement of Mr. Louis appears as a
submission for the record.]
Chairman Leahy. Thank you very much, Doctor. And before I
leave, Dr. Hoffman, you said in your testimony that the 5-
percent limitation for small laboratories means, and I quote,
``an atrophied incentive for innovation.'' Has Iowa State ever
decided not to commercialize an invention because it might have
to reimburse a portion of the royalties to taxpayers?
Ms. Hoffman. No, Senator, but much of our technology
transfer is not through the Ames Laboratory. The lead-free
solder technology is the first time that Iowa State or, as far
as we know, any other federally funded laboratory has run up
against the 5 percent. So we really view this as a future
disincentive, especially for the Ames Laboratory.
Chairman Leahy. Well, if it gets even more successful--say
the next time it is--say we changed it to 15 percent; and then
you run up against the 15 percent, won't you want to change it
again?
Ms. Hoffman. Senator, I hope we are so successful. At this
point in time, we would be happy with the 15 percent.
Chairman Leahy. At this point.
[Laughter.]
Chairman Leahy. I understand. Of course, I always ask the
obvious question, and I was one of the people voting for Bayh-
Dole in the first place that as the taxpayers put money into
this, shouldn't they have some reimbursement of that, just so
you understand. But I am going to turn the gavel over to
Chairman Grassley, who I am sure has a number of questions.
Chuck, thank you for requesting this hearing.
Ms. Hoffman. Thank you, Senator.
Senator Grassley. [Presiding.] First I will start with Dr.
Hoffman. The Trademark Clarification Act of 1984 amended Bayh-
Dole, requiring return of royalties from Government contractors
that exceed 5 percent of a contractor's operating budget. That
law also stipulated how royalties retained shall be reinvested.
Can you explain how the law functions in this regard and how
Iowa State University specifically uses royalty income from
federally funded research?
Ms. Hoffman. Thank you, Mr. Chairman. As mentioned, we are
required to use the funds for scientific research, education,
and further technology transfer. Under our contract with the
Department of Energy, the royalties that have been earned by
the Ames Laboratory in the last few years of approximately $7
million have been used, about $6 million, to support research,
about $120 thousand to support education, and about $670
thousand to support further tech transfer.
To give you a few examples, one of the things that Ames
Laboratory is doing now is teaming up with our biofuels group
in our Plant Sciences Institute to provide seed funding for
research in biomaterials to replace the use of petroleum in the
development of things like plastics.
We also are testing materials for photonics, and this has
been very important in retaining one of our key faculty
members, Dr. Costas Soukoulis, who is one of the world's
leaders in photonics technology in the experimental area. We
have a world-renowned theoretical group, and we are investing
in further experimental work in photonics.
The numbers, of course, do not tell the whole story. We
purchase or create specialized equipment. We provide this broad
seed funding. We support graduate students' and postdocs'
education as a very important part of what we do. And, of
course, we provide seed funding for additional technology
transfer so that more faculty can bring their technology to the
marketplace.
So we have invested it as required by the law, and it has
been immensely valuable in furthering technology transfer and
research in the State of Iowa. Thank you, Senator.
Senator Grassley. Thank you.
Now I would turn to you once again and to Dr. Louis. You
understand that an investor is looking for an optimal return on
investment. How would you describe the public's return on
investment for the Federal Government's investment in projects
at your institutions? Dr. Hoffman first.
Ms. Hoffman. Could you repeat that? I am sorry, sir.
Senator Grassley. Yes. How would you describe the public's
return on investment for the Federal Government's investment in
projects at your university?
Ms. Hoffman. The return has been very high. I do not have
the exact numbers, but if you would like us to look into that,
I would be happy to. But, of course, if you look at the
Government's investment in Iowa State very broadly, one of the
largest investments of the Federal Government in Iowa State has
been through agriculture-related research. The Green Revolution
really started at Iowa State with the research of Henry Wallace
and the development of Pioneer seed. We have partnered with
Monsanto, with many small ethanol producers. Hawkeye Renewables
is relocating to the city of Ames in order to take advantage of
Iowa State's technology in biofuels.
Many of our faculty are very involved in working in
developing new technologies for biofuels, new technologies for
environmental protection, new technologies to improve land
fertility, to sequester carbon in the land, all of which will
have huge benefits to Iowa agriculture.
We work very closely with industry bringing our technology
to Iowa industries, and as noted, we were ranked second in the
country behind the University of California System in bringing
our technology to the marketplace.
So that is the return on the investment. I do not have an
exact figure for you. Thank you very much.
Senator Grassley. That is good enough.
Dr. Louis?
Mr. Louis. Senator Grassley, the University of California
obviously has been one of the leading universities in the
United States. At the current time, it has 7,500 active
inventions in its portfolio; 80 percent of these have generated
interest, either the private or public sector. Of those
interests generating inventions, over 50 percent have resulted
in a financial investment in the development of a product. As
of fiscal year 2003, over 700 products have been developed out
of these discoveries. And I was looking earlier at a 2000
congressional Joint Economic Committee report on the benefits
of medical research and the role of the NIH where it estimates
a return of as much as $240 billion in increased life
expectancy benefits contributable to NIH-funded research, 15
times actually the very large budget of the NIH, even as it is
at this point in time. So I think the examples--and we could
also quote many of the great discoveries such as a vaccination
for potentially fatal hepatitis B disease and the Cohen-Boyer
original DNA methodology. Our own campus actually has a
fertilizer which has produced superior qualities for plant
growth.
So many, many inventions across the spectrum, from
agriculture through engineering and human health.
Senator Grassley. Dr. Hoffman, to take off from where
Senator Leahy left off with a question, and that is in regard
to changing the percentage from 5 to 15 percent for budgets
less than $40 million. Could you explain the rationale behind
the suggested cap? Is it kind of picked out of thin air, or is
there a rational to 15 percent and the limit on the size of the
operating budget?
Ms. Hoffman. Well, the idea for the 15 percent and the
limit on the size of the operating budget was to continue to
respect many of the issues that have been addressed today; the
need for the Federal Government to be able to recoup some of
its investment, especially for Government-owned laboratories.
And so by raising it from 5 to 15 percent, we felt that it
would not have an extensive impact on the Federal Treasury, but
would remove this serious inequity. By limiting it to $40
million, you really are limiting it to small laboratories.
The average size of the DOE laboratories is over $500
million per year, so at $30 million, Ames is a very, very small
laboratory. But we happen to have an extraordinarily successful
patent portfolio in comparison. So when look at Sandia, for
example, that is $2.27 billion, even if they are modestly
successful, they are not going to run up against even the 15-
percent cap.
So we were trying to balance the legitimate needs of the
Federal Government to recoup their investment in the
Government-owned laboratories against what we believe is an
unfair tax.
Senator Grassley. I think you have answered my next
question. I will ask my staff to look at Question 4, but I
think that that answers that. I would go back to you and to Dr.
Louis again on how has Bayh-Dole affected opportunities at your
two universities to partner with industry, and I think you have
touched on this already with your examples of partnering with
other industries. Do you hear concerns from your industry
partners about the challenges in licensing and developing
institution patents? How does the university strike an
appropriate balance between partnering with and serving
industry and preserving its core mission of research, service,
and education?
Ms. Hoffman. The only complaint we tend to hear is that it
takes a long time sometimes to reach an agreement. But over 90
percent of the time, research agreements are executed. In the
last 5 years, we have executed 824 license agreements and
options on Iowa State technology. So it is very, very rare not
to reach agreement, and Bayh-Dole is generally not the problem.
It is generally that we just simply cannot agree on which piece
of the technology belongs to whom and how much should be paid
for it rather than the issues surrounding Bayh-Dole.
We do work very hard to balance research, education, and
outreach with technology transfer. A lot of the royalty money
goes to support graduate students. It goes to support the
startup of new faculty members. It goes to seed new research
funding. So there is a very important synergistic relationship,
plus the young generation of scholars, particularly in
engineering, life sciences, veterinary science, and
agriculture, are very interested in being able to commercialize
their technology. And by allowing them to do so, we retain them
as researchers, teachers, and contributors, in our case to the
Iowa economy; whereas, otherwise they might sever their ties
with the university.
Senator Grassley. Dr. Louis?
Mr. Louis. Yes, I would mirror what Dr. Hoffman says. The
vast majority of our contracts with industry are successfully
negotiated. I think, you know, my experience in academy is that
industry and universities are very different animals. They have
very different cultures. Industry is there to make a profit,
and that is its goal, to be a successful company. For a
university, of course, it is education, research, discovery,
and then communication to the general public of what that
information is.
So I think we do come from different backgrounds. If the
industry with which we are negotiating understands that at the
outset, the negotiations are always much easier. But I think I
would mirror Dr. Hoffman's--the issues which tend to stick, and
it is also publications. The University of California, we have
a very strong belief that what is produced has to be published,
and sometimes for an industry that may be restrictive and may
break terms, but very, very rarely. Usually we can successfully
negotiate.
Senator Grassley. Can I ask all of you to listen to this
question? Some of the witnesses feel that the Bayh-Dole Act has
beneficially influenced university research, encouraged
collaboration academically and with industry, and created
productive partnerships. Others on the panel do not necessarily
share the view. How do the panelists who support Bayh-Dole
respond to those with concerns about it? And how do panelists
who think there are issues respond? More specifically, has
Bayh-Dole promoted innovation or created barriers? Would you
start, Professor Rai? And then let's just go across the table.
Ms. Rai. I think in many cases Bayh-Dole is the elephant
and we are all blind men examining different parts of the
elephant. So in the information technology industries, I think
it is fair to say--and if you look at the testimony, for
example, of Wayne Johnson from Hewlett-Packard before the House
Committee on Science and Technology this past May, I think it
is fair to say that in information technology there has been
some frustration. IBM has specifically sponsored particular
research collaborations with the explicit requirement that
there be no patents because in information technology patents
just have a very different role than they do in the life
sciences. And so if you examine the part of the elephant that
is information technology, you will think it is one thing. And
if you examine the part of the elephant that is life sciences,
you will think it is quite another.
I have also suggested--and sometimes in the life sciences
not everything is an end product drug that should be patented
and exclusively licensed. But that is actually a relatively
minor problem relative to the divide. And you have seen, I am
sure you on the Judiciary Committee have seen this divide over
and over again in the context of the patent system reform bill.
The divide between the life sciences and information technology
is quite acute when it comes to how they view patents.
Thank you.
Senator Grassley. Now Dr. Hoffman.
Ms. Hoffman. Mr. Chairman, my experience at several
different universities has been very strong partnerships
between industry and the universities. I mentioned a number of
the partners that Iowa State has. Pioneer, of course, grew out
of Iowa State technology, in 1924 was formed by Henry Wallace,
who had developed the new seeds with Iowa State technology. We
have worked with Monsanto on the development of low-linolenic
acid soybean oil, which is, of course, extremely important in
the prevention of heart disease. While we have a little bit of
dispute about that, we have worked it out, and we are very
satisfied with the partnership that we have with Monsanto.
As I noted, we have partnerships with many, many, many
ethanol producers and bio-based product producers in the State
of Iowa. At our Research Park, we have spawned many new
companies. Engineering Animation, which was acquired by EDS,
began--this is a good example of an information technology
patent that created a very successful computer that was then
acquired by another very successful company based on Iowa State
patented technology.
So while I am sure there are examples of instances where
there are disputes between universities and the industry, our
experience is that we work those out and that we continue to
have extremely profitable and valuable relationship,
longstanding relationships with our industrial partners.
Senator Grassley. Mr. Weissman?
Mr. Weissman. I think there is no question that the
university contribution to innovation has been extraordinary
and that the public investment from the United States has been
extraordinary. It is really one of the great stories of
American Government.
It is not necessarily the case, though, that every
university invention or federally sponsored invention would not
have come to market but for Bayh-Dole. The Pioneer example, of
course, predates Bayh-Dole. There are many examples that do. I
think we would agree with Dr. Rai, thinking globally, that it
makes sense to think that different industries and different
industry sectors have different models of development, that
whether you have exclusive or non-exclusive licensing
arrangements makes sense in different contexts or less sense in
other contexts.
The pharmaceutical development sector is the best case, the
strongest case for exclusive licensing, and it is one that we
have focused on. And even there we feel like there are very
severe abuses and a failure to exercise the checks that exist
in Bayh-Dole to curb those abuses. I think an overriding
principle, as I mentioned, should be that where the Government
is making investments, even though the public may get some
downstream return, there has to be some reciprocity from the
recipient of the license, from the licensee. They, after all,
are getting something of considerable value. In the area of
pharmaceuticals, the most important kind of return is both
restraints on price, ensuring access, and preventing
anticompetitive behavior.
And again, also to reiterate a comment from before, as the
Committee looks forward on this matter and as the Congress
looks forward to greater investment in the area of energy
technologies, it is going to be, I think, quite important to
think very carefully about whether exclusive licensing regimes
are always the best way to proceed, and if there are maybe
other models of development that could promote more open and
collaborative sharing approaches to moving early stage
inventions to the marketplace.
Senator Grassley. Dr. Louis?
Mr. Louis. Senator, many of the complaints stem from
companies who want to be guaranteed university-developed
technologies for free, including ownership, free licenses, and
background rights. I can comment from the University of
California that has entered into many agreements with for-
profit companies, and really it has only been a handful where
there are contentious negotiations. And in a university
environment where there is a commingling of funds in a research
laboratory with various sponsors funding projects within the
research laboratory to get differing results, it is difficult
for a university to make such promises at the time a research
agreement is negotiated. And I read that testimony too, and I
was really amused by the individual from HP who commented,
well, of course, the university should know exactly where
everything is. And while that is true, usually there is a
commingling, and so there has to be a very careful analysis
before one could commit something that maybe, because of Bayh-
Dole, we already have committed.
Finally, some foreign universities will either provide the
sponsoring company with sole ownership, joint ownership, or
guaranteed exclusive rights. But as foreign countries adopt
Bayh-Dole laws--and increasingly now the numbers are--they are
going to become more savvy in their licensing operations.
Understanding the importance of retaining ownership of their
invention, they may be less likely to assign away ownership.
And because there has been a suggestion, well, the companies
are, therefore, going overseas to do their research because it
is easier to get the inventions, I would point out the
University of California is seeing an increasing amount of
foreign-sponsored research by industrial corporations on our
campuses, which I think is an indication that they understand
that the structure of Bayh-Dole is one that they can work very
well with and will be to the advantage of those companies.
Senator Grassley. Professor Rai and Mr. Weissman, in
looking at your testimony, it appears to me that you make a
distinction between biotech and pharmaceutical patents and
those generated by tech and software companies. Is it your view
that Congress should consider creating product-specific or
industry-specific patent rules?
Ms. Rai. I think in general, whether within the context of
Bayh-Dole or within the context of patent reform more
generally, industry-specific legislation is probably a bad idea
simply because there are all sorts of ways that I think it
cannot foresee the ways that industries will develop, because
what may look like an information science industry 1 day may
look like a nanotech industry the next day and so forth. So I
don't think industry-specific legislation is the way to go.
However, I do think that other actors in the system need to be
sensitive to industry context, and in that way, I think that
universities are beginning to do a better job. My research has
indicated and I think there is some evidence that universities
are doing a better job about being sensitive to context. It may
be also that Federal agencies could work with universities to
make them sensitive to context.
I don't think that congressional legislation can adapt to
the ways that industries adapt as quickly as it needs to. So I
think it should be done at the private sector level in the
case--the private-public sector level in the case of
universities, and also in conjunction with the agencies that
fund the research.
Senator Grassley. What about Government oversight? Before I
get to Mr. Weissman.
Ms. Rai. I think that is very important. I think it is very
important for the agencies that are funding this research to
look to see how the research is being licensed out in the
context--I am most familiar with NIH and in the context of
certain research that it funds. For example, in software it
will say this software has to be open-source software, which is
a way of developing software without patents. I think that
agencies should have that flexibility because they may know in
certain cases that this is the type of research that would be
better developed. I don't think they should have the only word.
Universities should also have some input. But it seems to me
that both sides, both the Federal agencies and universities,
can show sensitivity to these contexts and work together to
show sensitivity.
Senator Grassley. OK. Mr. Weissman, back to my original
question.
Mr. Weissman. Well, I think in general it would be--it is
quite a challenge for Congress to make those kinds of nuanced
distinctions because it involves a kind of hands-on engagement
with issues that are specific and technical and Congress is
busy. But I do think that the oversight--very busy.
[Laughter.]
Mr. Weissman. The oversight issue is one that needs a lot
of attention. In our experience with NIH, where the Congress
has given significant authority to the agency to exercise
march-in rights, the NIH has re-read the statute to not take
into account the requirement that inventions be made available
to the public on reasonable terms. For us that would be a
priority area of oversight. It is a possible area for
additional legislation or one where there should at least be
some congressional engagement with the agency to ensure that
the original language in the statute is acknowledged,
implemented, and relied on. We think more direct tests about
how the march-in rights should be used should be a priority
area.
There is one caveat to my statement, again, about focusing
on specific industry areas. It is an inevitability that there
will be major increases in Federal spending on energy-related
technologies, and it is just going to be very important to
think about those issues with an open mind rather than just
relying on the historic Bayh-Dole framework, which may or may
not make sense as Congress moves forward on a variety of
programs that we cannot yet envision.
Senator Grassley. Dr. Louis, do you want to comment?
Mr. Louis. Yes, I would like to comment, and I think, you
know, sometimes in these discussions it is forgotten that in
1980, these sorts of discussions, as I understand from reading
the literature and reading things that Senator Birch Bayh has
written are exactly the discussions that went on at that time.
And some of the concerns of march-in, for example, or some of
the issues of price controls have sent fears through the
community because of the concern that would weaken the strength
of the patents and that, quite frankly, anything that weakened
the security for what is often--as you know, with Bayh-Dole the
goal is for small startup companies, small businesses such as
the one I referred to from UC Riverside, those companies need
to be very sure that the patent that they are licensing from
the university is secure and that it will be defended and that
that is certain. But if there is a possibility that, well, that
might not be so and there might be situations where the
Government or some agency would have to step in and set price
or make some rules that could potentially minimize the value of
that patent, that suddenly makes it a much weaker patent. And
for the small business--and a very high percentage of the
startups that come out of the University of California as
result of patents and inventions in the university are to small
businesses--they want that security.
So I guess my word of caution would be that I would much
prefer that--and I think it is an evolving situation. I think
the nine points, the principles that the research universities
and many of the professional organizations enunciated and have
published now address some of these issues and sort of the
philosophy that we hope is the way to go; in other words, that
the universities are very sensitive to these types of issues.
But the Bayh-Dole was brilliant and we would prefer that those
issues not be further altered.
Senator Grassley. OK. Professor Rai and Mr. Weissman, and
other panelists ought to listen, and if you want to respond,
and I want to ask specifically these two witnesses: Have patent
ownership rights provided by Bayh-Dole interfered with
traditional operation procedures of academia and led to
conflicts of interest?
Ms. Rai. That is an excellent question. There has been no
systematic study, as far as I am aware, of exactly how
conflicts of interest have been dealt with in some of these
cases. One hears anecdotal reports of situations where
professors or graduate students are asked to hold off on
publication until a patent filing can be made, which is
obviously an issue. It is not quite a conflict of interest
issue, but it is an issue. It reflects a tension between the
goals of academia and the goals of commercialization, but
possibly inevitable and a tension we have to live with.
The one piece that I am happy to say has been
systematically studied and I think has come out in favor of
Bayh-Dole is that it does not appear--as far as we can tell,
anyway--that the emphasis on commercialization has changed the
research agendas of faculty. In other words, the faculty that
patent also tend to be faculty that are doing ground-breaking
research, publishing in the best journals, et cetera, et
cetera.
One fear about Bayh-Dole was that it would make, you know,
otherwise potential Nobel Prize winners into something else,
which is not something we would want. And that does not appear
to have been borne out. On the other hand, there are tensions,
and I think those have to be monitored as well.
Senator Grassley. Mr. Weissman?
Mr. Weissman. I think there is pretty good data that
concerns with secrecy have risen quite significantly since
passage of Bayh-Dole, that the proprietary nature of patenting
has changed the culture of university science in ways that are
not for the better. This is not an area of my focus and
expertise, so I cannot comment on ultimately how serious that
is.
I would highlight one area, though, where I think
congressional attention is merited and where there are
institutional conflicts that arise beyond those which may
relate to any individual professor. That is university
investment in the start-ups that then receive Bayh-Dole rights,
and in massive corporate-sponsored research agreements,
including one, for example, that the University of California,
Berkeley, has proposed with BP. The $500 million investment by
BP would involve BP building facilities on campus, having its
own researchers on the campus engaged in proprietary
undertakings that would not be published. They will be
commingled and intermingling with university scientists who
will be receiving Federal funds and engaged in Bayh-Dole-
implicated research.
I think it is just very hard to see, assuming best
intentions by everybody involved, how those arrangements cannot
raise major challenges and institutional biases about how
intellectual property is managed and rights are allocated. I
think that would be an area worth further scrutiny. We are
seeing a couple of these mega agreements on the order of half a
billion dollars which are going to, of course, change the local
university culture, but also directly implicate the patent
issues and the control of Government-funded inventions.
Mr. Louis. Senator Grassley, could I make one comment?
Senator Grassley. Yes. I invited you to if you wanted to,
and Dr. Hoffman, too. But go ahead, Dr. Louis.
Mr. Louis. I was going to make the point that I have the
privilege of being the institutional official in my university,
which is the individual where the buck stops, because the
conflict of interest committee, conflict of commitment, report
to me. I want to assure you that I take that responsibility
very, very seriously, and particularly when we have industry
contracts and we have entrepreneurial faculty, there are
challenging and more challenging issues that do require
oversight.
I make sure that the committees--when I appoint the
conflict of interest committee, I make sure it has senior
faculty who are very understanding of this issue. I closely
oversee how they operate and function. We put management
committees in place that meet with the faculty to discuss the
students and the progress on the research, if it is Federal and
if it is industry research. And we make sure that that conflict
is effectively managed and does not impact the students, the
faculty members' performance in the university.
So I think I could speak certainly for all of the
University of California and universities in the country. It is
something that we are very sensitive to. But as the Vice
Chancellor for Research, I can speak personally. It is
something that I take very seriously, and my colleagues around
the country take very seriously.
So something we are very aware of, and we deal with it
increasingly.
Senator Grassley. OK. Dr. Hoffman?
Ms. Hoffman. Well, as a land grant university, Iowa State
has a long tradition of partnering with industry, and, yes, it
does predate Bayh-Dole. It goes back to the formation of the
Extension Service, the Agricultural Experiment Stations under
the Hatch Act in 1887, the Cooperative Extension Service under
the Smith-Level Act of 1914. All of the various industry
partnerships I have already enumerated have long traditions at
Iowa State. So Bayh-Dole has not in any way changed the focus
of the research. What it has done is to allow our innovative
researchers to be able to take advantage of the fruits of their
invention. It has provided them with an incentive to actually
commercialize those inventions that they may not have had
before. And as I mentioned, it is helping us to keep this young
generation of faculty who want to be both the great scientists,
as Professor Rai mentioned, and innovators.
And as Dr. Louis indicated, every university with which I
have been associated has had a very strong conflict of interest
policy. We at Iowa State are in the process of reviewing our
conflict of interest and our proprietary research policy to
make sure that it is state-of-the-art and that the kind of
safeguards that Dr. Louis mentioned are definitely in place. We
believe they are. We think it is extremely important to
maintain the publication of research, that any proprietary
research should be published within a reasonable amount of
time, that junior faculty, graduate students, and postdocs
should be protected from any restrictions on their ability to
publish.
As Dr. Louis mentioned, sometimes the negotiations break
down over the issue of publication, which we think is an
extremely important part of our mission. So I do not see that
Bayh-Dole has changed the mission of Iowa State or the other
universities with which I have been affiliated.
Senator Grassley. OK. I am going to have one last question.
It is only half the questions I had to ask, but I have got to
go where Senator Leahy just went, to the Agriculture Committee.
So if all of you would take a whack at this one, and it may be
an easy one to answer, but we still need this information.
Are there any changes in Bayh-Dole that Congress should
consider to improve the goals of this law? I will start with
Professor Rai and go across the table.
Ms. Rai. Sure. Let me just also add--I do not mean to take
up more time than I should, but let me add one point about the
conflict of interest issue. There is one study, just to note it
for the record, by the Thursbys at Georgia Tech on provisions
restricting publication in industry-sponsored research
conducted in universities, and that is a little bit
disappointing in terms of there is some--I do not recall the
exact numbers, but the study does indicate some significant
percentage of those agreements include restrictions on
publication. And that just came to mind so I bring that up.
Now, with respect to changes to Bayh-Dole, I do not think
that anything needs to be done immediately. However, I do think
that--and this goes back to something that Rob Weissman was
talking about a little bit--that agencies should not be as shy
about using their powers under Bayh-Dole as they currently seem
to be, whether in the context of march-in rights or in the
context of stating that certain types of research is not best
commercialized through patents. So if agencies fund software
research, for example, it might be the case that they should be
emboldened and say, you know, this particular software research
is best disseminated through an open-source model. And I would
guess that those agencies would have a lot of support from
industry on that score.
Senator Grassley. Dr. Hoffman?
Ms. Hoffman. Senator, I definitely do not want to keep you
from the farm bill, which, of course, is extremely important to
the State of Iowa, so let me just reiterate that the one change
that we are requesting is increasing the cap on GOCO
laboratories from 5 percent to 15 percent for the $40 million
or smaller laboratories.
Thank you very much.
Senator Grassley. And for the record, I want you to say,
``Chuck Grassley, you better get that bill passed or else.''
[Laughter.]
Ms. Hoffman. Thank you, Senator Grassley. I will let you
read that into the record.
Senator Grassley. Well, if you say it, that is for the
benefits of my colleagues, see.
Ms. Hoffman. For the benefit of your colleagues, please.
Thank you.
Senator Grassley. OK. Robert Weissman?
Mr. Weissman. I do not want to delay you from your other
engagements but a few suggestions, which may or may not be
legislative. They certainly involve oversight and more
direction to the agencies, and probably also some legislative
reforms.
First is that the march-in right has to not be a dormant
right. It must be used in some circumstances, and I think there
should be direction from Congress on guidelines for how the
agency should use that.
Second, relatedly, is the Federal Government has the right
to use the inventions it pays for. At the time Bayh-Dole was
passed, that was viewed, even by proponents, as the most
important right to maintain for the Government. But it is not
using that, at least on the biomedical side.
Third is thinking intelligently about how to manage the IP
portfolio of the Government to facilitate U.S. global health
policy objectives. I think the legislation that Senator Leahy
introduced is one very promising way to do that. There are
other ways that one might do it, including better use of
existing Bayh-Dole rights.
A fourth area, probably not legislative, is there is very
inadequate reporting, that is public at least, about what we
get out of Bayh-Dole. There is quite good reporting, I think,
to NIH, but it is all treated as proprietary for reasons that
are not obvious to me.
And, finally, I think it is worth the Committee examining
the areas where there is substantial Government funding, but
the Government funding does not directly lead to a patentable
invention. Bayh-Dole is an on-and-off switch. Right now the
Government gets no rights if its funding does not lead to the
invention directly. There is a logic to that, but it is also
useful to complement the existing Bayh-Dole rights with other
rights, contractual or otherwise, where the Government is
putting substantial moneys into R&D.
Senator Grassley. OK. Dr. Louis? I am sorry I mispronounced
your name. For a person like me who minored in French and
cannot say a word, if I can say--
Mr. Louis. Do not worry. I have been called far worse by my
students. I will also strongly endorse Dr. Hoffman's comment of
getting to the farm bill. California agriculture is still our
No. 1 industry, so it is a very important bill for our State.
I would say that--
Senator Grassley. Make sure your congressional delegation
votes that way.
[Laughter.]
Mr. Louis. Thank you, Senator. I think you will gather the
University of California and I personally strongly support
Bayh-Dole as it currently is. I think the modifications that
Dr. Hoffman suggests, we would accept those because that
certainly would be something we would support. But any march-in
price controls or modifications that would undercut the
strength of patents, which is the brilliance of Bayh-Dole,
would, quite frankly, likely destroy what is its greatest
ability. So that should be done with great, great caution, even
thinking of it.
And, finally, on the issue of pharma and drug control
prices, I think the reminder is that of the nine points in the
consider document, it encourages universities to consider in
their licensing arrangements provisions that meet unmet needs.
But university and research is just a tiny piece of the
investment. For that invention to get to market, big pharma can
invest $1 billion for a single drug and, you know, I think the
argument is not with the universities, but maybe it is the cost
of producing drugs, and we would love that to be less. But,
again, that is not an issue with Bayh-Dole, I would argue.
Thank you, Senator Grassley.
Senator Grassley. Two things before you go. One, myself
included, any members of the Committee will have some questions
maybe for you in writing, and within a week you might get some
questions, and then I presume the answer to how long to get the
answers back is as fast as you can, but keep open your
testimony.
The second thing is for Senator Leahy, this Senator, and
the whole Committee, thank you very much for your testimony.
The hearing is adjourned.
[Whereupon, at 3 p.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
[GRAPHIC] [TIFF OMITTED] 43657.001
[GRAPHIC] [TIFF OMITTED] 43657.002
[GRAPHIC] [TIFF OMITTED] 43657.003
[GRAPHIC] [TIFF OMITTED] 43657.004
[GRAPHIC] [TIFF OMITTED] 43657.005
[GRAPHIC] [TIFF OMITTED] 43657.006
[GRAPHIC] [TIFF OMITTED] 43657.007
[GRAPHIC] [TIFF OMITTED] 43657.008
[GRAPHIC] [TIFF OMITTED] 43657.009
[GRAPHIC] [TIFF OMITTED] 43657.010
[GRAPHIC] [TIFF OMITTED] 43657.011
[GRAPHIC] [TIFF OMITTED] 43657.012
[GRAPHIC] [TIFF OMITTED] 43657.013
[GRAPHIC] [TIFF OMITTED] 43657.014
[GRAPHIC] [TIFF OMITTED] 43657.015
[GRAPHIC] [TIFF OMITTED] 43657.016
[GRAPHIC] [TIFF OMITTED] 43657.017
[GRAPHIC] [TIFF OMITTED] 43657.018
[GRAPHIC] [TIFF OMITTED] 43657.019
[GRAPHIC] [TIFF OMITTED] 43657.020
[GRAPHIC] [TIFF OMITTED] 43657.021
[GRAPHIC] [TIFF OMITTED] 43657.022
[GRAPHIC] [TIFF OMITTED] 43657.023
[GRAPHIC] [TIFF OMITTED] 43657.024
[GRAPHIC] [TIFF OMITTED] 43657.025
[GRAPHIC] [TIFF OMITTED] 43657.026
[GRAPHIC] [TIFF OMITTED] 43657.027
[GRAPHIC] [TIFF OMITTED] 43657.028
[GRAPHIC] [TIFF OMITTED] 43657.029
[GRAPHIC] [TIFF OMITTED] 43657.030
[GRAPHIC] [TIFF OMITTED] 43657.031
[GRAPHIC] [TIFF OMITTED] 43657.032
[GRAPHIC] [TIFF OMITTED] 43657.033
[GRAPHIC] [TIFF OMITTED] 43657.034
[GRAPHIC] [TIFF OMITTED] 43657.035
[GRAPHIC] [TIFF OMITTED] 43657.036
[GRAPHIC] [TIFF OMITTED] 43657.037
[GRAPHIC] [TIFF OMITTED] 43657.038
[GRAPHIC] [TIFF OMITTED] 43657.039
[GRAPHIC] [TIFF OMITTED] 43657.040
[GRAPHIC] [TIFF OMITTED] 43657.041
[GRAPHIC] [TIFF OMITTED] 43657.042
[GRAPHIC] [TIFF OMITTED] 43657.043
[GRAPHIC] [TIFF OMITTED] 43657.044
[GRAPHIC] [TIFF OMITTED] 43657.045
[GRAPHIC] [TIFF OMITTED] 43657.046
[GRAPHIC] [TIFF OMITTED] 43657.047
[GRAPHIC] [TIFF OMITTED] 43657.048
[GRAPHIC] [TIFF OMITTED] 43657.049
[GRAPHIC] [TIFF OMITTED] 43657.050
[GRAPHIC] [TIFF OMITTED] 43657.051
[GRAPHIC] [TIFF OMITTED] 43657.052
[GRAPHIC] [TIFF OMITTED] 43657.053
[GRAPHIC] [TIFF OMITTED] 43657.054
[GRAPHIC] [TIFF OMITTED] 43657.055
[GRAPHIC] [TIFF OMITTED] 43657.056
[GRAPHIC] [TIFF OMITTED] 43657.057
[GRAPHIC] [TIFF OMITTED] 43657.058
[GRAPHIC] [TIFF OMITTED] 43657.059
[GRAPHIC] [TIFF OMITTED] 43657.060
[GRAPHIC] [TIFF OMITTED] 43657.061
[GRAPHIC] [TIFF OMITTED] 43657.062
[GRAPHIC] [TIFF OMITTED] 43657.063
[GRAPHIC] [TIFF OMITTED] 43657.064
[GRAPHIC] [TIFF OMITTED] 43657.065
[GRAPHIC] [TIFF OMITTED] 43657.066
[GRAPHIC] [TIFF OMITTED] 43657.067
[GRAPHIC] [TIFF OMITTED] 43657.068
[GRAPHIC] [TIFF OMITTED] 43657.069
[GRAPHIC] [TIFF OMITTED] 43657.070
[GRAPHIC] [TIFF OMITTED] 43657.071
[GRAPHIC] [TIFF OMITTED] 43657.072
[GRAPHIC] [TIFF OMITTED] 43657.073
[GRAPHIC] [TIFF OMITTED] 43657.074
[GRAPHIC] [TIFF OMITTED] 43657.075
[GRAPHIC] [TIFF OMITTED] 43657.076
[GRAPHIC] [TIFF OMITTED] 43657.077
[GRAPHIC] [TIFF OMITTED] 43657.078
[GRAPHIC] [TIFF OMITTED] 43657.079
[GRAPHIC] [TIFF OMITTED] 43657.080
[GRAPHIC] [TIFF OMITTED] 43657.081
[GRAPHIC] [TIFF OMITTED] 43657.082
[GRAPHIC] [TIFF OMITTED] 43657.083
[GRAPHIC] [TIFF OMITTED] 43657.084
[GRAPHIC] [TIFF OMITTED] 43657.085
[GRAPHIC] [TIFF OMITTED] 43657.086
[GRAPHIC] [TIFF OMITTED] 43657.087
[GRAPHIC] [TIFF OMITTED] 43657.088
[GRAPHIC] [TIFF OMITTED] 43657.089
[GRAPHIC] [TIFF OMITTED] 43657.090
[GRAPHIC] [TIFF OMITTED] 43657.091
[GRAPHIC] [TIFF OMITTED] 43657.092
[GRAPHIC] [TIFF OMITTED] 43657.093
[GRAPHIC] [TIFF OMITTED] 43657.094
[GRAPHIC] [TIFF OMITTED] 43657.095
[GRAPHIC] [TIFF OMITTED] 43657.096
[GRAPHIC] [TIFF OMITTED] 43657.097
[GRAPHIC] [TIFF OMITTED] 43657.098
[GRAPHIC] [TIFF OMITTED] 43657.099
[GRAPHIC] [TIFF OMITTED] 43657.100
[GRAPHIC] [TIFF OMITTED] 43657.101
[GRAPHIC] [TIFF OMITTED] 43657.102
[GRAPHIC] [TIFF OMITTED] 43657.103
[GRAPHIC] [TIFF OMITTED] 43657.104
[GRAPHIC] [TIFF OMITTED] 43657.105
[GRAPHIC] [TIFF OMITTED] 43657.106
[GRAPHIC] [TIFF OMITTED] 43657.107
[GRAPHIC] [TIFF OMITTED] 43657.108
[GRAPHIC] [TIFF OMITTED] 43657.109
[GRAPHIC] [TIFF OMITTED] 43657.110
[GRAPHIC] [TIFF OMITTED] 43657.111
[GRAPHIC] [TIFF OMITTED] 43657.112
[GRAPHIC] [TIFF OMITTED] 43657.113
[GRAPHIC] [TIFF OMITTED] 43657.114
[GRAPHIC] [TIFF OMITTED] 43657.115
[GRAPHIC] [TIFF OMITTED] 43657.116
[GRAPHIC] [TIFF OMITTED] 43657.117
[GRAPHIC] [TIFF OMITTED] 43657.118
[GRAPHIC] [TIFF OMITTED] 43657.119
[GRAPHIC] [TIFF OMITTED] 43657.120
[GRAPHIC] [TIFF OMITTED] 43657.121
[GRAPHIC] [TIFF OMITTED] 43657.122
[GRAPHIC] [TIFF OMITTED] 43657.123
[GRAPHIC] [TIFF OMITTED] 43657.124
[GRAPHIC] [TIFF OMITTED] 43657.125
[GRAPHIC] [TIFF OMITTED] 43657.126
[GRAPHIC] [TIFF OMITTED] 43657.127
[GRAPHIC] [TIFF OMITTED] 43657.128
[GRAPHIC] [TIFF OMITTED] 43657.129
[GRAPHIC] [TIFF OMITTED] 43657.130
[GRAPHIC] [TIFF OMITTED] 43657.131
[GRAPHIC] [TIFF OMITTED] 43657.132
[GRAPHIC] [TIFF OMITTED] 43657.133
[GRAPHIC] [TIFF OMITTED] 43657.134
[GRAPHIC] [TIFF OMITTED] 43657.135
[GRAPHIC] [TIFF OMITTED] 43657.136
[GRAPHIC] [TIFF OMITTED] 43657.137
[GRAPHIC] [TIFF OMITTED] 43657.138
[GRAPHIC] [TIFF OMITTED] 43657.139
[GRAPHIC] [TIFF OMITTED] 43657.140
[GRAPHIC] [TIFF OMITTED] 43657.141
[GRAPHIC] [TIFF OMITTED] 43657.142
[GRAPHIC] [TIFF OMITTED] 43657.143
[GRAPHIC] [TIFF OMITTED] 43657.144
[GRAPHIC] [TIFF OMITTED] 43657.145
[GRAPHIC] [TIFF OMITTED] 43657.146
[GRAPHIC] [TIFF OMITTED] 43657.147
[GRAPHIC] [TIFF OMITTED] 43657.148
[GRAPHIC] [TIFF OMITTED] 43657.149
[GRAPHIC] [TIFF OMITTED] 43657.150
[GRAPHIC] [TIFF OMITTED] 43657.151
[GRAPHIC] [TIFF OMITTED] 43657.152
[GRAPHIC] [TIFF OMITTED] 43657.153
[GRAPHIC] [TIFF OMITTED] 43657.154
[GRAPHIC] [TIFF OMITTED] 43657.155
[GRAPHIC] [TIFF OMITTED] 43657.156
[GRAPHIC] [TIFF OMITTED] 43657.157
[GRAPHIC] [TIFF OMITTED] 43657.158
[GRAPHIC] [TIFF OMITTED] 43657.159
[GRAPHIC] [TIFF OMITTED] 43657.160
[GRAPHIC] [TIFF OMITTED] 43657.161
[GRAPHIC] [TIFF OMITTED] 43657.162
[GRAPHIC] [TIFF OMITTED] 43657.163
<all>