Reprinted from the Federal Register, Vol.
59, No. 215, Tuesday, November 8, 1994, pp. 55674-55679.
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Contents
- Introduction
- Purpose
- Background
- Recipient Responsibilities
- Universal Points for
Consideration
- Points
for Special Consideration
- Other Points
for Consideration by Nonprofit Recipients
- Conclusion
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 nonprofit and forprofit organizations
(hereafter referred to as Recipients). Whenever
a Recipient's research work is funded either in
whole or in part through NIH research grants,
contracts, and cooperative agreements, that activity
is subject to the requirements of Public Law 96+517,
known as the Bayh-Dole Act of 1980*
(hereafter referred to as "Bayh-Dole"
or "the Act"). Those Recipients 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.
Recipients also have interactions with industry
which may 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 Recipient/industry interaction, sponsored
research agreements. The NIH has focused a substantial
amount of its recent attention on this relationship
when NIH funds may also be involved. The term
sponsored research agreement means a written document
which describes the relationship between Recipients
and commercial entities in which Recipients receive
funding or other consideration to support their
research in return for preferential access and/or
rights to intellectual property deriving from
Recipient research results.
Although Recipients are primarily responsible
for the implementation of the Bayh-Dole requirements,
NIH, as a steward of Federal funds, has a responsibility
to provide guidance on issues which may place
Recipients at odds with Federal law and/or NIH
funding requirements.
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PURPOSE
The purpose of this document is to provide Recipients
with issues and points to consider in developing
sponsored research agreements with commercial
entities, where such agreements may include research
activities which are fully or partially funded
by NIH. The intent is to assist Recipients in
ensuring that those agreements comply with the
requirements of the Bayh-Dole 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
Recipients, 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, Recipients should review
each proposed sponsored research agreement on
a case by case basis, and the provisions both
individually and in the context of the entire
agreement.
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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
Recipients to retain title to inventions resulting
from their federally funded research and to license
such inventions to commercial entities for development.
Specifically, the Act states that:
"It is the policy and objective
of the Congress to use the patent system to promote
the utilization of inventions arising from federally
supported research or development; to encourage
maximum participation of small business firms
in Federally sponsored research and development
efforts; to promote collaboration between commercial
concerns and nonprofit organizations, including
universities; to ensure that inventions made by
nonprofit organizations and small business firms
are used to promote free competition and enterprise;
to promote the commercialization and public availability
of inventions made in the United States by United
States industry and labor; to ensure that the
Government obtains sufficient rights in federally
supported inventions to meet the needs of the
Government and protect against nonuse or unreasonable
use of inventions; and to 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.*
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 Recipients to industry as evidenced by the
aggressive pursuit of patenting and licensing
and the proliferation of university/industry collaborations.*
In addition, the development of many new and important
drugs and devices has been facilitated by increased
industrial support for academic research*
and the explosion in the licensing of university
owned inventions.* Furthermore,
statistics indicate that the Act has provided
significant economic benefits which are projected
as increasing between 25 to 30 percent per year.*
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RECIPIENT
RESPONSIBILITIES
In keeping with the objectives and policies of
Bayh-Dole, it is incumbent upon Recipients to
effectively and efficiently transfer technology
to industry for commercial development. However,
in doing so Recipients 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,
Recipients need to concern themselves with issues
involving maintenance of academic freedom for
institutions and investigators, fair access to
information, timeliness of notification and reporting
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, Recipients should anticipate such
issues and consider the following points in developing
a sponsored research agreement.
The first section, Universal Points for Consideration,
highlights several requirements and issues that
Recipients 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 Nonprofit Recipients,
contains additional considerations which apply
only to nonprofit Recipients.
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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 Recipient institutions and researchers is
of considerable concern to the NIH.
Recipients 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, Recipients 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.*
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. Recipients
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 Recipient
would be inappropriate.
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Dissemination
of Research Results
Recipients must ensure that the timely dissemination
of research findings is not adversely affected
by the conditions of a sponsored research agreement.
For example, in the case of research grants, 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 the organization's
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 thirty (30) to sixty (60) days is generally
viewed as a reasonable period for such activity.
Depending upon the individual circumstances, Recipients
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.
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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, Recipients should consider whether the
organization has the experience, capability, and
commitment to bring its likely inventions to commercial
status.
Additionally, Recipients 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. Recipients could 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 after disclosure to the authorized
representative of the sponsor. 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, normally, the agreement
should not provide for a second opportunity to
obtain licensing rights by matching other parties'
offers for the rights. Such actions 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,
Recipients 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 they become available for commercial
development. In addition, Recipients should actively
monitor licensees in accordance with those requirements
and benchmarks to assure compliance with Recipient
obligations under the Act.
Recipients also need to ensure that they have
internal systems to provide required utilization
reports to the NIH on each invention. Those reports
are required by Department of Commerce regulation
and include such items as the status of development,
first commercial sale, and amount of gross royalties
received. Detailed information about the precise
utilization report requirements can be obtained
from the NIH Office of Extramural Research.
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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, Recipients 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 Recipient 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.
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Notification
Requirements and Records
In sponsored research agreements, as in other
contexts, Recipients 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 Recipient
administrators of an invention made under NIH
funding, (2) written disclosure to NIH in sufficient
technical detail to adequately describe the invention,
(3) written election to the NIH of whether or
not the Recipient will retain title to such invention,
(4) adherence to time frames for initial filing
of patent applications in the United States and
the filing of foreign patent applications, (5)
execution and delivery of all instruments necessary
to establish or confirm NIH rights throughout
the world in the subject inventions to which the
Recipient has elected to retain title, (6) notification
to the NIH of any decision not to continue patent
prosecution, pay fees, or defend the patent in
a reexamination or opposition proceeding on a
patent, in any country, (7) conveyance of title
to NIH when requested, and (8) specification in
any United States patent applications and any
patent issuing thereon covering a subject invention
that the invention was made with government support.*
Specifically, as conditions of NIH grants and
cooperative agreements, Recipients must fully
notify the NIH in a timely manner when an invention
has been developed. In addition, PHS grants policy
requires that 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, Recipients 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, Recipients 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.
Recipient 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.*
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POINTS
FOR SPECIAL CONSIDERATION
The NIH has identified several situations, outlined
below, in which Recipients 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 Recipient concerns such as academic freedom,
or shift control of the Recipient's scientific
activities, management, and independence into
the hands of the sponsor. While there is no requirement
that Recipients submit proposed sponsored research
agreements to the NIH for review, at the discretion
of the Recipient, the NIH Deputy Director for
Extramural Research may be consulted for additional
clarification in instances where special considerations
warrant.
- First, Recipients should subject their sponsored
research agreements to heightened scrutiny when
one or more of the following threshold criteria
apply:
- 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;
- The proportion of funding by the sponsor
exceeds 20 percent of the Recipient's total
research funding;
- The sponsor's prospective licensing rights
cover all technologies developed by a major
group or component of the Recipient 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 Recipient's
research staff; or
- The duration of the proposed agreement
is for more than 5 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 Recipient's federally funded research
activities and may delay or impede the rapid
development and commercialization of technology.
- Second, Recipients 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
Recipient research findings and technologies
that effectively exclude other organizations
from reasonable access to a Recipient'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's contribution of funds
is to support a Recipient's general operations
rather than specifically defined research projects,
the Recipient should consider the amount of
the sponsor's general funding in relation to
funds from other sources when determining what
prospective intellectual property rights the
sponsor will obtain from the results of the
Recipient research. 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. Additionally, Recipients should
also consider the level of risk that the sponsor
will be assuming in order to obtain rights.
In general, the greater the restrictions on
a sponsor's rights, the higher the sponsor's
risk in receiving benefit from its support.
As an extreme example, a sponsor should not
be able to provide 5 percent of the Recipient's
total support, review 100 percent of the Recipient's
inventions, and receive rights or a first option
to 50 percent of the research results generated
by the Recipient. Where general funding is involved,
a Recipient may consider a number of alternative
actions, including establishing some mechanism
to limit the review and licensing rights of
the sponsor to a particular segment or percentage
of the inventions for a set period of time.
For example, the Recipient may require the sponsor
to select those research areas on 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,
Recipients 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, Recipients should avoid any other
unusual practice or stipulation that might generate
public concern or undermine rather than serve
the public interest.
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OTHER
POINTS FOR CONSIDERATION BY NONPROFIT RECIPIENTS
The following points are to aid nonprofit Recipients
in administering the Act and in complying with
the requirements of NIH funding agreements.
- First, Recipients 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 Recipient.
- Second, Recipients 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, Recipients must employ reasonable
efforts to attract licensees of subject inventions
that are small business firms. Additionally,
Recipients must provide a preference to small
business firms when licensing a subject invention
if Recipients 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,
Recipients 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 Recipient.
However, since sponsored research agreements
typically provide exclusive licenses or options
to such rights to the sponsor, Recipients should
seriously consider and provide for these issues
when negotiating such agreements.
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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
Recipients to address the issues and apply the
points for consideration identified in this document
when developing sponsored research agreements
with commercial entities.
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