DEVELOPING SPONSORED RESEARCH AGREEMENTS:  CONSIDERATIONS FORRECIPIENTS OF NIH RESEARCH GRANTS AND CONTRACTS



NIH GUIDE, Volume 23, Number 25, July 1, 1994



P.T. 34



Keywords:

  Grants Administration/Policy+ 



National Institutes of Health



The following is a reprint of the Developing Sponsored Research

Agreements:  Considerations for Recipients of NIH Research and

Contracts, which was published in the Federal Register of June 27,

1994.



INTRODUCTION



The National Institutes of Health (NIH) is the principal biomedical

and behavioral research agency within the Federal Government.  Its

mission is to improve human health by increasing scientific knowledge

related to health and disease through the conduct and support of

biomedical and behavioral research.  The NIH advances its mission

through intramural research activity and the award of research grants

and contracts to institutions of higher education, research

institutes and foundations, and other non-profit and for-profit

organizations.  Entities funded through NIH research grants,

contracts, and cooperative agreements (hereafter collectively

referred to as Grantees) are required to maximize the use of their

research findings by making them available to the research community

and the public at large and through their timely and effective

transfer to industry for development.



In general, interactions between Grantees and industry take many

forms, including industrial liaison programs, spinoff companies,

consortia, commercial licenses, material transfers, consultations,

and clinical trial agreements.  This document addresses one form of

Grantee/industry interaction, sponsored research agreements, on which

the NIH has focused a substantial amount of its recent attention.

Sponsored research agreements are agreements between Grantees and

commercial entities in which Grantees receive funding or other

consideration to support their research in return for preferential

access and/or rights to intellectual property deriving from their

research results.



In developing sponsored research agreements, Grantees must consider

the Bayh-Dole Act of 1980 (1) (hereafter referred to as "Bayh-Dole"

or "the Act") and NIH funding agreements and refrain from engaging in

activities which undermine a Grantee's ability to fulfill its

responsibilities and obligations to the Federal government.  Although

Grantees are primarily responsible for the implementation of the Act,

NIH, as a steward of Federal funds, has a responsibility to provide

guidance on issues regarding sponsored research agreements which may

put Grantees at odds with the Act or NIH funding requirements.



PURPOSE



The purpose of this document is to provide Grantees with issues and

points to consider in developing sponsored research agreements with

commercial entities.  The intent is to assist Grantees in ensuring

that those agreements comply with the requirements of the Act and NIH

funding agreements while upholding basic principles of academic

freedom.



This document represents the culmination of various activities, under

the aegis of the NIH Task Force on Commercialization of Intellectual

Property Rights from NIH Supported Extramural Research, which

included the review and analysis of 375 sponsored research agreements

from 100 Grantees, meetings with industry, academia, and other

Government agencies, and a specially convened public forum involving

subject matter experts from outside of the NIH.



The NIH recognizes that sponsored research agreements are unique,

creative devices which reflect the needs and interests of the parties

involved and require a delicate balance of risks and benefits to all

of the parties.  Although this document identifies a number of points

to consider, with some necessitating more scrutiny than others, no

single point or issue is so dominant that it is likely to be fatal to

an agreement.  Rather, the juxtaposition of multiple factors or

clauses in an agreement and their synergy needs to be assessed.

Therefore, Grantees should review the provisions of proposed

sponsored research agreements both individually and in their

totality.



BACKGROUND



While NIH policies on the use of research results have been in effect

for some time, commercial development of research results took a

major step forward with the passage of the Bayh-Dole Act.  Congress

passed the Act in response to significant concerns about the United

States' competitiveness and data indicating that rights to many

inventions developed under Federal grants and contracts and assigned

to the Federal government were not being commercialized.  In general,

the Act authorizes Grantees to retain title to inventions resulting

from their Federally funded research and to license such inventions

to commercial entities for development.



Specifically, the policy and objective of the Bayh-Dole are to:



o  Promote collaboration between commercial concerns and nonprofit

organizations, including universities;

o  Promote the utilization of inventions arising from Federally

supported research or development;

o  Encourage maximum participation of small business firms in

Federally sponsored research and development efforts;

o  Ensure that inventions made by nonprofit organizations and small

business firms are used to promote free competition and enterprise;

o  Promote the commercialization and public availability of

inventions made in the United States by United States industry and

labor;

o  Ensure that the Government obtains sufficient rights in Federally

sponsored inventions to meet the needs of the Government and protect

the public against nonuse or unreasonable use of inventions; and

o  Minimize the costs of administering policies in this area.



The provisions of the Act have been implemented through regulations

issued by the Department of Commerce and adopted by the Department of

Health and Human Services.(2)



The Act serves the public not only by encouraging the development of

useful commercial products such as drugs and clinical diagnostic

materials, but also by providing economic benefits, and enhancing

U.S. competitiveness in the global market place.



Since its passage, the Bayh-Dole Act has been effective in promoting

the transfer of technology from Grantees to industry as evidenced by

the aggressive pursuit of patenting and licensing and the

proliferation of university/industry collaborations (3).  In

addition, the development of many new and important drugs and devices

have been facilitated by increased industrial support for academic

research (4) and the explosion in the licensing of university owned

inventions (5).  Furthermore, statistics indicate that the Act has

provided significant economic benefits which are projected as

increasing between 25 to 30 percent per year (6).



GRANTEE RESPONSIBILITIES



In keeping with the objectives and policy of Bayh-Dole, it is

incumbent upon Grantees to effectively and efficiently transfer

technology to industry for commercial development.  However, in doing

so Grantees must also comply with the specific terms of the Act, its

implementing regulations, and the terms and conditions of each NIH

award and ensure that such compliance is reflected in their

agreements with commercial entities.



In carrying out that responsibility, at a minimum, Grantees need to

concern themselves with issues involving maintenance of academic

freedom for institutions and investigators, fair access to

information, timeliness of notification and other requirements,

rational licensing to commercial entities, and adherence to the

specific requirements of the Act and NIH funding agreements.



While sponsored research agreements frequently are used where basic

research is involved and no invention exists to disclose nor

intellectual property to license at the time the agreement is

executed, Grantees should anticipate such issues to arise and use the

following points for consideration in developing a sponsored research

agreement.



The first section, Universal Points for Consideration, highlights

several requirements and issues that Grantees should consider in all

proposed sponsored research agreements.  The second section, Points

for Special Consideration, delineates circumstances which suggest

heightened scrutiny.  The third section, Other Points for

Consideration by Non Profit Grantees, contains additional

considerations which apply only to non profit Grantees.



UNIVERSAL POINTS FOR CONSIDERATION



Academic Freedom

Academic research freedom based upon social collaboration within the

scientific community and the scrutiny of claims and beliefs by its

members is at the heart of scientific advancement within the United

States.  Primarily through Federal funding, academic institutions

have contributed to fundamental knowledge and techniques upon which

current and future scientific discoveries and technological

innovations depend.  Therefore, the preservation of academic freedom

for Grantee institutions and researchers is of considerable concern

to the NIH.



Grantees should be aware that their interest in the scientific

endeavor covered by a sponsored research agreement and the interest

of the industrial sponsor may not be totally consonant.  As a result,

in general, Grantees should ensure that sponsored research agreements

preserve the freedom for academic researchers to select projects,

collaborate with other scientists, determine the types of sponsored

research activities in which they wish to participate, and

communicate their research findings at meetings, and by publication

and through other means (7).  Academic researchers also should be

made aware of any agreements executed by their institutions which may

restrict their ability to pursue research activities and publish

research results.  Grantees also should maintain their independence

to pursue their own mission without undue influence or restraint by

their industrial sponsors.  For example, an agreement which gives an

industrial sponsor the ability to direct the research mission of a

Grantee would be inappropriate.



Dissemination of Research Results

Grantees must ensure that the timely dissemination of research

findings is not adversely affected by the conditions of a sponsored

research agreement.  For example, the PHS Grants Policy Statement,

incorporated as a condition of each NIH research grant, details

policies on publication of research results, responsibilities to

disseminate information on unique research resources, and standards

of conduct for Grantee employees.  Although an industrial sponsor's

consideration of the commercial applicability of specific research

findings and/or the filing of a patent application to secure

intellectual property rights may justify a need to delay disclosure

of research findings, a delay of up to thirty (30) days is generally

viewed as a reasonable period for such activity.  Depending upon the

individual circumstances, Grantees could consider a shorter or longer

period of time, as they deem appropriate.  In addition to the timing,

a sponsored research agreement which requires the disclosure of

inventions and research findings developed with NIH funds to an

industrial sponsor prior to submission of the invention disclosure to

the NIH, may be inconsistent with the terms and conditions of the NIH

grant or contract.



Utilization

The NIH also has a concern that Federally funded technology be

developed and commercialized in an expedited and efficient manner.

In deciding to enter into an agreement with an commercial entity,

Grantees should consider whether the organization has the experience,

capability, and commitment to bring its likely inventions to

commercial status.



Additionally, Grantees should not enter into sponsored research

agreements that permit a sponsor to tie up the development of a

technology by acquiring exclusive licensing rights to the product of

given research results before deciding whether or not it will

actively develop and commercialize that product.  Grantees should

provide a sponsor with an option to pursue licensing rights.  It is

reasonable for such options to be limited to no more than six (6)

months.  However, individual circumstances may dictate a shorter or

longer period of time.  After the option period expires, the

technology should become available for licensing to other entities.

Moreover, once a sponsor decides not to exercise its option, it

should not be given a second opportunity to obtain licensing rights

by matching other parties' offers for the rights.  Such requirements

enable Grantees to license to companies presenting a bona fide

commercialization plan, thus expediting the availability of products

to the public.



In order to ensure that technology is developed rapidly and is not

being subjected to delays, Grantees should also establish, maintain,

and actively administer policies and procedures which ensure that

licenses arising from sponsored research agreements contain due

diligence requirements and benchmarks to monitor performance.  When

future rights to as yet undiscovered inventions are included in a

sponsored research agreement, benchmarks for development of each such

invention should be established as it becomes available for

commercial development.  In addition, Grantees should actively

monitor licensees in accordance with those requirements and

benchmarks to assure compliance with Grantee obligations under the

Act.



U.S. Manufacture

The Bayh-Dole Act requires that products developed with Federal funds

and used and sold in the United States, be substantially manufactured

here.  In granting exclusive rights to use or sell any subject

invention in the United States, Grantees must ensure that each

agreement requires that any products embodying the subject invention

or produced through the use of the subject invention will be

manufactured substantially in the United States.  In individual

cases, a request for waiver may be considered by the NIH.  A

determination will be made based upon a showing by the Grantee that

reasonable but unsuccessful efforts have been made to grant licenses

on similar terms to potential licensees that would be likely to

manufacture substantially in the United States or that under the

circumstances domestic manufacture is not commercially feasible.  In

granting a waiver of the U.S. manufacture requirement, the NIH may

consider other benefits conferred on the United States by the

potential license including the rapid availability of a product of

benefit to the health of the American people.



Notification Requirements and Records

In sponsored research agreements, as in other contexts, Grantees must

also ensure that invention, patent and license notification

requirements are adhered to in a timely manner.  Timeliness

considerations include prompt (1) employee notification to Grantee

administrators of an invention made under NIH funding, (2) written

disclosure to NIH of an invention and the intent to retain or convey

to the Government title to the invention, (3) adherence to time

frames for initial filing of patent applications in the United States

and the filing of foreign patent applications, (4) execution and

confirmation throughout the world of NIH license rights in the

results of the research, and (5) notification to the NIH of any

decision not to continue patent prosecution, pay fees, or defend the

patent in reexamination.



Specifically, as conditions of NIH grants and cooperative agreements,

Grantees must fully notify the NIH in a timely manner when an

invention has been developed.  In any event, disclosure to the NIH

must be prior to the publication of any description of the invention.

When applying for continued funding in each subsequent funding

period, the institution must also provide either a listing of all

inventions made during the preceding budget period or a certification

that no inventions were made during the applicable period.  A final

invention statement and certification listing all inventions that

were conceived or first actually reduced to practice during the

course of work under the funding agreement is required within ninety

(90) days following the expiration or termination of support on an

applicable project.  Additionally, Grantees need to adhere to the

specific requirements contained in the patent clauses of their

contracts as well as the general provisions of the Federal

Acquisition Regulations.



Furthermore, Grantees must also document their compliance with the

requirements of the Act, regulations, and terms and conditions of NIH

awards, generally and as related to sponsored research agreements.

Such Grantee records must be available for review by authorized

Federal officials in accordance with the terms and conditions of the

award.  For example, concerning access and retention of records under

NIH grants and cooperative agreements, regulations require grantees

to retain financial and programmatic records, supporting documents,

statistical records, and all other grantee records which may

reasonably be considered pertinent to a grant or subgrant (8).



POINTS FOR SPECIAL CONSIDERATION



The NIH has identified several situations, outlined below, in which

Grantees should exercise heightened sensitivity and scrutiny in the

development of sponsored research agreements.  Such an exercise

should confirm that a sponsored research agreement does not adversely

impact NIH funded activities and Grantee concerns such as academic

freedom, or shift control of the Grantee's scientific activities,

management, and independence into the hands of the sponsor.  While

there is no requirement that Grantees submit proposed sponsored

research agreements to the NIH for review, at the discretion of the

Grantee, the NIH may be consulted for additional clarification in

instances where special considerations warrant.



First, Grantees should subject their sponsored research agreements to

heightened scrutiny when one or more of the following threshold

criteria apply:



(a) the amount of financial support from the sponsor meets or exceeds

$5 million in any one year, or, $50 million total over the total

period of funding under the agreement;



(b) the proportion of funding by the sponsor exceeds 20 per cent of

the Grantee's total research funding;



(c) the sponsor's prospective licensing rights cover all technologies

developed by a major group or component of the Grantee organization,

such as a large laboratory, department or center, or the technologies

in question represent a substantial proportion of the anticipated

intellectual output of the Grantee's research staff; or



(d) the duration of the agreement is for 5 or more years.



If one or more of these criteria apply, it is more likely that the

proposed sponsored research agreement will adversely affect open

commercial access, especially for small businesses, to a Grantee's

Federally funded research activities and may delay or impede the

rapid development and commercialization of technology.



Second, Grantees should be concerned if the scope of the sponsored

research agreement is so broad that the subsequent exclusive

licensing of technology under the agreement provides a single sponsor

with access to a wide array of Grantee research findings and

technologies that effectively exclude other organizations from

reasonable access to a Grantee's technology.  This type of

arrangement can also delay commercialization if the sponsor does not

have the interest or the capability to develop the technology.



Third, if the sponsor contributes funds to support a Grantee's

general operations rather than specifically defined research

projects, the Grantee should consider the amount of the sponsor's

general funding in relation to funds contributed from other sources

when determining what prospective intellectual property rights the

(sponsor will receive in the results of the Grantee's entire research

portfolio.  There should be a reasonable relationship between the

amount of money contributed by the sponsor and the rights that it is

granted both to review and license resulting technology or

inventions.  As an extreme example, a sponsor should not be able to

provide 5 percent of the Grantee's total support, review 100 percent

of the Grantee's inventions, and receive rights or a first option to

50 percent of the research results generated by the Grantee.  Where

general funding is involved, a Grantee should consider establishing

some mechanism to limit the review and licensing rights of the

sponsor to a particular segment or percentage of the inventions and

for a set period of time.  For example, the Grantee may require the

sponsor to select those research areas or projects to which its

general funding rights would attach in advance, thereby freeing up

research areas that may be of interest to other commercial entities.

Because, by its nature, general funding is less directed and its

results more imprecise, Grantees should carefully monitor the impact

on open competition and fair access by small business of the

sponsor's licensing practices for technology supported by general

funding.



Fourth, Grantees should avoid any other unusual practice or

stipulation that might generate public concern or undermine rather

than serve the public interest.



OTHER POINTS FOR CONSIDERATION BY NON-PROFIT GRANTEES



The following points are to aid non-profit Grantees in administering

the Act and in complying with the requirements of NIH funding

agreements.



First, Grantees must ensure that the rights to inventions resulting

from Federal funding are not assigned without NIH approval.  An

exception to this is when the assignment is made to an organization

which has as one of its primary functions the management of

inventions, in which case, the assignee will be subject to the same

provisions as the Grantee.



Second, Grantees must share royalties collected on NIH supported

inventions with the inventors and the balance of any royalties or

income earned, after payment of expenses, including payment to

inventors and incidental expenses to the administration of subject

inventions, must be utilized for the support of scientific research

or education.



Third, Grantees must employ reasonable efforts to attract licensees

of subject inventions that are small business firms.  Additionally,

Grantees must provide a preference to small business firms when

licensing a subject invention if Grantees determine that small

business firms have plans or proposals for marketing the invention

which, if executed, are equally as likely to bring the invention to

practical application as any plans or proposals from applicants that

are not small business firms.  However, Grantees must be satisfied

that the small business firms have the capability and resources to

carry out plans or proposals.  The decision whether to give a

preference in any specific case is at the discretion of the Grantee.

However, since sponsored research agreements typically provide

exclusive licenses or options to such rights to the sponsor, Grantees

should seriously consider and provide for these issues when

negotiating such agreements.



CONCLUSION



Technology transfer is a vehicle through which the fruits of NIH

funded research are transferred to industry to be ultimately

developed into preventive, diagnostic and therapeutic products to

advance human health.  In a dynamic and multinational marketplace, if

the United States is to remain a world leader in technological and

scientific innovation, both the public and private sectors must work

together to foster rapid development and commercialization of useful

products to benefit human health, stimulate the economy, and enhance

our international competitiveness, while at the same time protecting

taxpayers' investment and safeguarding the principles of scientific

integrity and academic freedom.



It is in this spirit that the NIH encourages Grantees to address the

issues and apply the points for consideration identified in this

document when developing sponsored research agreements with

commercial entities.



INQUIRIES



Comments or inquiries may be directed to:



Mr. Theodore J. Roumel

Office of Science Policy and Technology Transfer

National Institutes of Health

6011 Executive Boulevard, Suite 325

Rockville, MD  20852-3804

Telephone:  (301) 496-7057 ext. 203

FAX:  (301) 402-0220



FOOTNOTES



1.  Public Law 96-517, enacted December 12, 1980, Chapter 38--Patent

Rights in Inventions Made with Federal Assistance.



2.  The Department of Commerce regulations are at 37 Code of Federal

Regulations (CFR) Part 401 and supersede applicable portions of 45

CFR Parts 6 and 8.



3.  Approximately one in every four university patents issued in the

late 1980s was for a biomedical or health related invention.  In the

early 1970s, the ratio was one in eight.  Source: Science and

Engineering Indicators, 1993, National Science Foundation.



4.  While still representing less than 10 percent of the total

funding for academic research, it is estimated that nearly two

percent of United States industry's expenditures for R&D now goes to

academic institutions, as compared with less than 1 percent in 1971.

Source: Science and Engineering Indicators, 1993, National Science

Foundation.



5.  Over 1000 licenses or options were executed in Fiscal Year 1992

by 260 academic institutions surveyed.  The institutions also

reported that they had over 5000 active licenses in place at the time

of the survey.  Source: Association of University Transfer Managers

Licensing Survey FY 1991-1992,  published October, 1993.



6.  In FY 1992 sales and employment attributable to the Act were

estimated to be as follows: between $9 and $13 billion in sales and

50-100,000 jobs, with an annual increase of between 25 and 30

percent.  Source: Dr. Ashley J. Stevens, Director, Office of

Technology Transfer, Dana-Farber Cancer Institute, Association of

University Technology Managers Winter Meeting, 1994.



7.  The NIH recognizes that there may be certain instances when it

may be reasonable for a Grantee institution to agree to minimally

restrict a researcher from collaborating with another industrial

partner when the subject matter of such collaboration overlaps with

that of the sponsored research agreement.



8.  The regulations are set forth at 45 CFR Part 74, Subpart D and 45

CFR Part 92.42.



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