[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE BAYH-DOLE ACT (P.L. 96-517,
AMENDMENTS TO THE PATENT
AND TRADEMARK ACT OF 1980)--
THE NEXT 25 YEARS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION
COMMITTEE ON SCIENCE AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JULY 17, 2007
__________
Serial No. 110-46
__________
Printed for the use of the Committee on Science and Technology
Available via the World Wide Web: http://www.house.gov/science
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______
COMMITTEE ON SCIENCE AND TECHNOLOGY
HON. BART GORDON, Tennessee, Chairman
JERRY F. COSTELLO, Illinois RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas F. JAMES SENSENBRENNER JR.,
LYNN C. WOOLSEY, California Wisconsin
MARK UDALL, Colorado LAMAR S. SMITH, Texas
DAVID WU, Oregon DANA ROHRABACHER, California
BRIAN BAIRD, Washington ROSCOE G. BARTLETT, Maryland
BRAD MILLER, North Carolina VERNON J. EHLERS, Michigan
DANIEL LIPINSKI, Illinois FRANK D. LUCAS, Oklahoma
NICK LAMPSON, Texas JUDY BIGGERT, Illinois
GABRIELLE GIFFORDS, Arizona W. TODD AKIN, Missouri
JERRY MCNERNEY, California JO BONNER, Alabama
PAUL KANJORSKI, Pennsylvania TOM FEENEY, Florida
DARLENE HOOLEY, Oregon RANDY NEUGEBAUER, Texas
STEVEN R. ROTHMAN, New Jersey BOB INGLIS, South Carolina
MICHAEL M. HONDA, California DAVID G. REICHERT, Washington
JIM MATHESON, Utah MICHAEL T. MCCAUL, Texas
MIKE ROSS, Arkansas MARIO DIAZ-BALART, Florida
BEN CHANDLER, Kentucky PHIL GINGREY, Georgia
RUSS CARNAHAN, Missouri BRIAN P. BILBRAY, California
CHARLIE MELANCON, Louisiana ADRIAN SMITH, Nebraska
BARON P. HILL, Indiana VACANCY
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
------
Subcommittee on Technology and Innovation
HON. DAVID WU, Oregon, Chairman
JIM MATHESON, Utah PHIL GINGREY, Georgia
HARRY E. MITCHELL, Arizona VERNON J. EHLERS, Michigan
CHARLIE A. WILSON, Ohio JUDY BIGGERT, Illinois
BEN CHANDLER, Kentucky JO BONNER, Alabama
MIKE ROSS, Arizona ADRIAN SMITH, Nebraska
MICHAEL M. HONDA, California
BART GORDON, Tennessee RALPH M. HALL, Texas
MIKE QUEAR Subcommittee Staff Director
RACHEL JAGODA BRUNETTE Democratic Professional Staff Member
COLIN MCCORMICK Democratic Professional Staff Member
TIND SHEPPER RYEN Republican Professional Staff Member
PIPER LARGENT Republican Professional Staff Member
MEGHAN HOUSEWRIGHT Research Assistant
C O N T E N T S
July 17, 2007
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative David Wu, Chairman, Subcommittee on
Technology and Innovation, Committee on Science and Technology,
U.S. House of Representatives.................................. 6
Written Statement............................................ 7
Statement by Representative Phil Gingrey, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science and Technology, U.S. House of Representatives.......... 7
Written Statement............................................ 8
Prepared Statement by Representative Harry E. Mitchell, Member,
Subcommittee on Technology and Innovation, Committee on Science
and Technology, U.S. House of Representatives.................. 9
Witnesses:
Mr. Arundeep S. Pradhan, Director, Technology and Research
Collaborations, Oregon Health & Science University; Vice
President for Annual Meetings and Board of Trustees,
Association of University Technology Managers
Oral Statement............................................... 10
Written Statement............................................ 12
Biography.................................................... 37
Dr. Susan B. Butts, Senior Director, External Science and
Technology Programs, The Dow Chemical Company
Oral Statement............................................... 37
Written Statement............................................ 39
Biography.................................................... 46
Mr. Wayne C. Johnson, Vice President, Worldwide University
Relations, Hewlett-Packard Company
Oral Statement............................................... 46
Written Statement............................................ 48
Biography.................................................... 58
Dr. Mark A. Lemley, Professor of Law, Stanford Law School;
Director, Stanford Program in Law, Science, and Technology
Oral Statement............................................... 57
Written Statement............................................ 58
Biography.................................................... 68
Dr. Mark G. Allen, Joseph M. Pettit Professor; Regents Professor,
Georgia Institute of Technology; Co-founder & Chief Technology
Officer, CardioMEMS, Inc., Atlanta
Oral Statement............................................... 69
Written Statement............................................ 70
Biography.................................................... 93
Discussion....................................................... 94
Appendix 1: Answers to Post-Hearing Questions
Mr. Arundeep S. Pradhan, Director, Technology and Research
Collaborations, Oregon Health & Science University; Vice
President for Annual Meetings and Board of Trustees,
Association of University Technology Managers.................. 116
Dr. Susan B. Butts, Senior Director, External Science and
Technology Programs, The Dow Chemical Company.................. 122
Mr. Wayne C. Johnson, Vice President, Worldwide University
Relations, Hewlett-Packard Company............................. 129
Dr. Mark A. Lemley, Professor of Law, Stanford Law School;
Director, Stanford Program in Law, Science, and Technology..... 135
Dr. Mark G. Allen, Joseph M. Pettit Professor; Regents Professor,
Georgia Institute of Technology; Co-founder & Chief Technology
Officer, CardioMEMS, Inc., Atlanta............................. 138
Appendix 2: Additional Material for the Record
Letter from the Association of American Universities, Association
of American Medical Colleges, Council on Governmental
Relations, and National Association of State Universities and
Land-Grant Colleges, dated August 8, 2007...................... 144
Statement of the Biotechnology Industry Organization............. 148
THE BAYH-DOLE ACT (P.L. 96-517, AMENDMENTS TO THE PATENT AND TRADEMARK
ACT OF 1980)--THE NEXT 25 YEARS
----------
TUESDAY, JULY 17, 2007
House of Representatives,
Subcommittee on Technology and Innovation,
Committee on Science and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:17 p.m., in
Room 2318 of the Rayburn House Office Building, Hon. David Wu
[Chairman of the Subcommittee] presiding.
hearing charter
SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION
COMMITTEE ON SCIENCE AND TECHNOLOGY
U.S. HOUSE OF REPRESENTATIVES
The Bayh-Dole Act (P.L. 96-517,
Amendments to the Patent
and Trademark Act of 1980)--
The Next 25 Years
tuesday, july 17, 2007
1:00 p.m.-3:00 p.m.
2318 rayburn house office building
1. Purpose
On Tuesday, July 17, the Subcommittee on Technology and Innovation
of the Committee on Science and Technology will hold a general
oversight hearing on P.L. 96-517, Amendments to the Patent and
Trademark Act of 1980, commonly referred to as the Bayh-Dole Act. More
than 25 years have passed since Bayh-Dole was enacted. The purpose of
the hearing is to assess the current implementation of Bayh-Dole from
the perspectives of universities and industry, and to hear
recommendations that may be appropriate to improve the current
implementation as we look toward the next 25 years.
2. Witnesses
Mr. Arundeep S. Pradhan is Director of Technology and Research
Collaborations at Oregon Health & Science University.
Dr. Susan B. Butts is Senior Director of External Science and
Technology Programs at The Dow Chemical Company.
Mr. Wayne C. Johnson is Vice President, Worldwide University Relations
at Hewlett-Packard Company.
Dr. Mark A. Lemley is Professor of Law at Stanford Law School, and
Director of the Stanford Program in Law, Science and Technology.
Dr. Mark G. Allen is Professor in the School of Electrical and
Computing Engineering at Georgia Institute of Technology, and co-
founder and Chief Technology Officer of CardioMEMS, Inc.
3. Hearing Issues
Impact of Bayh-Dole. What has been the impact of the
current implementation of Bayh-Dole on federally funded
university research, and the technology transfer and
commercialization of that research?
University-Industry Relations. How has Bayh-Dole
shaped university-industry research collaboration? Are there
differences in interpretation of the statute and regulations by
universities and industry? Are there differences in the impact
across industry sectors, or for large and small businesses?
Impact of Globalization. What is the possible effect
of the increasing globalization of research? Are U.S. companies
turning to foreign universities for research collaboration? How
do the intellectual property and business practices at U.S.
universities compare to universities in other developed and
developing countries?
Impact on Universities and Innovation. Has Bayh-Dole
influenced basic university research, academic collaboration
and the broad dissemination of knowledge? In what ways does the
law promote innovation; has it created any barriers?
Legislation. What changes in Bayh-Dole legislation,
if any, may be appropriate as we look to the next 25 years, to
promote innovation, commercialization of federally funded
research, and U.S. economic development?
4. Background--Bayh-Dole Legislation
P.L. 96-517, Amendments to the Patent and Trademark Act of 1980,
commonly referred to as Bayh-Dole, promoted the utilization of
inventions arising from federally supported research and development.
Bayh-Dole had other important policy objectives including (emphasis
added):
to encourage maximum participation of small business
firms in federally supported 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 in a manner to
promote free competition and enterprise without unduly
encumbering future research and discovery;
to promote the commercialization and public
availability of inventions made in the U.S. by U.S. industry
and labor;
to ensure that the Government obtains sufficient
rights in federally supported inventions to meet the needs of
the Government and protect the public against nonuse or
unreasonable use of inventions.
The legislation was motivated by a number of concerns in the 1970s.
The U.S. lacked a uniform patent policy for federally funded research,
and inventions from this research were not leading to commercial
products and services. The Federal Government retained title to the
inventions and licensed technology on a non-exclusive basis, providing
insufficient incentive to make the sizable investment required to
commercialize early stage, high-risk technologies.
Under Bayh-Dole, a uniform technology transfer policy was created
along with new incentives for commercialization. Non-profit
organizations, including universities, and small businesses, could take
title to inventions based upon federally funded R&D, and license
technology to companies with exclusive licenses.
The broader economic conditions were also important factor shaping
Bayh-Dole. The U.S. economy was in a recession, productivity was
declining, and the U.S. faced growing competition internationally from
Germany and Japan. Promoting university based innovation and technology
transfer to industry was seen as an important policy lever to counter
these developments.
5. Hearing Issues
Impact of Bayh-Dole. The impact of Bayh-Dole can be measured in terms
of technology innovation (patent disclosures and application), licenses
granted, and new company spin-offs. It can also be measured in
financial returns to the university to support further research and new
jobs created in the region.
According to the most recent published survey for FY 2005\1\ from
the Association of University Technology Managers (AUTM) of their
membership, 4,932 new licenses were signed in 2005 with 28,349 active
licenses. 527 new products were introduced in 2005 from 151
organizations, and cumulatively 3,641 new products were introduced
between FY98 through FY05. 628 new spinoff companies were created in
2005; 5,171 since 1980.
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\1\ AUTM U.S. Licensing Survey FY 2005. This is a survey of
technology licensing (and related) performance for U.S. Academic and
Non-profit Institutions and Technology Investment firms.
---------------------------------------------------------------------------
In 2005, technology transfer offices received 17,382 invention
disclosures and filed 9,536 patent applications of which 69.9 percent
were provisional applications which gave a one year opportunity to test
company interest before filing a full utility application. Technology
transfer offices licensed primarily to startups (12.7 percent), small
companies (50.2 percent), and large companies (30.9 percent). 37
percent of total licenses and options reported in the survey were
exclusive licenses.
However, the financial returns to universities from licensing or
equity positions in spin-off companies are highly concentrated. Of 141
universities with licensing income in 1999 and 2000, 22 universities
received almost 80 percent of the income and five universities received
over 45 percent of the licensing income.\2\ This pattern has resulted
in some universities taking a broader view of the appropriate metrics
of technology transfer activity to include regional economic
development.
---------------------------------------------------------------------------
\2\ AUTM Technology Transfer Data for Two-Year Recurrent
Respondents.
University-Industry Relations. Bayh-Dole has also shaped university-
industry research collaboration in areas beyond direct licensing.
Industry collaborates with universities across a wide spectrum of
activities from the exchange of ideas and researchers to transactions
involving intellectual property. There is a perception that Bayh-Dole
has broadly influenced these activities.
Much of university licensing activity is focused on biotechnology
where there is potentially larger financial return to the university,
or at least the potential for some ``big wins.'' In fact, the
Biotechnology industry traces its explosive growth to three events in
1980: the Supreme Court decision in Diamond v. Chakrabarty (finding
that Congress had intended patentable subject matter to ``include
anything under the sun that is made by man''), Bayh-Dole, and P.L. 96-
480, the Stevenson-Wydler Technology Innovation Act of 1980, which
covers technology transfer from federal laboratories.
Impact of Globalization. In the late 1970s, the U.S. faced increasing
competition from Germany and Japan. Today, globalization is a much
broader force with the increasing globalization of not only
manufacturing and services, but research activities as well. U.S.
companies are beginning to turn to foreign universities for research
collaboration. This is in part driven by difference in business
practices between U.S. and foreign universities and the opportunity for
greater control of intellectual property. Agreements can be reached in
days to weeks compared to what can be months and years in the U.S.
Impact on Universities and Innovation. There have been concerns raised
about the impact of Bayh-Dole on the broad university research
enterprise as well as the role of universities in the dissemination of
knowledge. In particular, with Bayh-Dole's focus on ``downstream''
commercialization of research, there is concern that there is a
negative impact on collaboration and innovation ``upstream'' in basic
research.\3\
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\3\ Arti K. Rai and Rebecca Eisenberg, ``Bayh-Dole Reform and the
Progress of Biomedicine,'' Law and Contemporary Problems 69, p. 289,
2003.
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Recently, several universities and the Association of American
Medical Colleges (AAMC) released a white paper, ``In the Public
Interest: Nine Points to Consider in Licensing University Technology.''
\4\ The paper captures shared perspectives of the participating
university research officers and licensing directors on policy issues
related to university technology transfer, in particular, when
universities license technologies ``in the public interest and for
society's benefit.'' The paper identified nine points and provided
example licensing clauses to address each point. The nine points
included:
---------------------------------------------------------------------------
\4\ ``In the Public Interest: Nine Points to Consider in University
Licensing,'' March 6, 2007. newsservice.stanford.edu/news/2007/march7/
gifs/whitepaper.pdf
Universities should reserve the right to practice
licensed inventions and to allow other non-profit and
---------------------------------------------------------------------------
governmental organizations to do so.
Exclusive licenses should be structured in a manner
that encourages technology development and use.
Strive to minimize the licensing of ``future
improvements.''
Ensure broad access to research tools.
Consider including provisions that address unmet
needs, such as those of neglected patient populations or
geographic areas, giving particular attention to improved
therapeutics, diagnostics and agricultural technologies for the
developing world.
Legislation. What changes in Bayh-Dole legislation or regulations, if
any, may be appropriate to address these issues as we look to the next
25 years, to promote innovation, commercialization of federally funded
research, and U.S. economic development? The issues may be directly
tied to the Bayh-Dole statute or a matter of implementation of the law.
The issues raised include addressing incentives that discourage
scientific sharing of information, protecting access to research tools,
and the role government should play in pricing to increase humanitarian
access to products and services such as therapeutic drugs.\5\
---------------------------------------------------------------------------
\5\ Sara Boettiger and Alan B. Bennett, ``Bayh-Dole: if we knew
then what we know now,'' Nature Biotechnology, March 2006 and Wendy H.
Schacht, CRS Report RL32076, The Bayh-Dole Act: Selected Issues in
Patent Policy and the Commercialization of Technology, December 8,
2006;
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Chairman Wu. Welcome everyone, to this afternoon's general
hearing on Bayh-Dole legislation and its effect on our economic
competitiveness and our university enterprise.
It has been a quarter century since Bayh-Dole was enacted.
It is time to assess the impact of that legislation, and
whether we can improve technology transfer from the federal
investment in research. I want to mention that this will be
only the first of several hearings on technology transfer. At
this point in time, it is my intention to hold further
subcommittee hearings on Stevenson-Wydler legislation.
It took a good while, perhaps close to 20 years, to achieve
passage of the Bayh-Dole legislation. The House Committee on
Science and Technology held hearings in 1979 and 1980 on the
original legislation, and this committee has been a very strong
supporter of improving technology transfer.
The broad economic conditions during the time of passage of
Bayh-Dole were a factor in shaping it. The U.S. economy was in
a deep recession. Productivity was declining, and our country
faced growing competition internationally from both Germany and
Japan and certain other countries. At that point in time, I was
beginning to practice law in Silicon Valley, and quite frankly,
there were folks who said that Silicon Valley was going to die,
and that we just weren't going to compete in high tech any
more. And there are others, policy-makers in Washington, D.C.,
who said potato chips, silicon chips, it hardly matters which
one it is, because it is just all about money. And that is not
true.
Now, promoting university-based research and its subsequent
technology transfer to industry, was seen at that time, and
continues to be seen as a very, very important policy tool to
counter international competition, and to stimulate,
irregardless of international competition, domestic, economic,
and job growth.
The purpose of this hearing is to assess the current
implementation of Bayh-Dole from the perspectives of
universities and industry, and to hear recommendations to
improve the implementation of Bayh-Dole, as we look forward to
the next quarter century.
A few key questions that we will consider. What has been
the impact of the current implementation of Bayh-Dole on
federally funded university research, technology transfer, and
the commercialization of that research? How has Bayh-Dole
shaped university-industry research collaboration? Are there
differences in interpretation of the statute and regulations by
universities, industry, and others? What is the possible effect
of the increasing globalization of the research enterprise? Are
U.S. companies turning to foreign universities for research
collaboration? Are foreign companies turning to U.S.
universities to the same extent? How do the intellectual
property and business practices at U.S. universities compare to
universities in other developed and developing countries? Has
Bayh-Dole influenced basic university research, academic
collaboration, and the broad dissemination of knowledge? In
what way does the law promote innovation? Has it created any
barriers? Finally, how can we improve technology transfer as we
look forward to the next 25 years, to promote innovation and
commercialization of federally funded research, and promote
U.S. economic development?
All of these questions are on the table today, and in our
subsequent hearings, we look forward to hearing the thoughts of
our witnesses, and also of the comments and questions from our
fellow members of this subcommittee.
And now, I would like to recognize my colleague and good
friend, the ranking member from Georgia, Dr. Gingrey, for his
opening remarks.
[Statement of Mr. Wu follows:]
Prepared Statement of Chairman David Wu
I want to welcome everyone to this afternoon's general hearing on
Bayh-Dole. More than 25 years have passed since Bayh-Dole was enacted.
It is time to assess the impact of Bayh-Dole and how we can improve
technology transfer from Federal investment in R&D. I want to mention
that this will be our first hearing on technology transfer issues. The
Subcommittee will hold a subsequent hearing on Stevenson-Wydler.
It took almost 20 years to achieve passage of the Bayh-Dole Act.
Indeed the House Committee on Science and Technology, held hearings in
1979 and 1980 on the original legislation. This committee has been a
strong supporter of improving technology transfer.
Broad economic conditions were a factor shaping Bayh-Dole. The U.S.
economy was in a recession, productivity was declining, and the U.S.
faced growing competition internationally from Germany and Japan.
Promoting university based innovation and technology transfer to
industry was seen as an important policy lever to counter these
developments. And it still is today as we face greater global
competition--which now includes R&D.
The purpose of this hearing is to assess the current implementation
of Bayh-Dole from the perspectives of universities and industry, and to
hear recommendations to improve the current implementation as we look
toward the next 25 years.
A few key questions we will consider today:
What has been the impact of the current
implementation of Bayh-Dole on federally funded university
research, technology transfer and commercialization of that
research?
How has Bayh-Dole shaped university-industry research
collaboration? Are there differences in interpretation of the
statute and regulations by universities and industry?
What is the possible effect of the increasing
globalization of research? Are U.S. companies turning to
foreign universities for research collaboration? How do the
intellectual property and business practices at U.S.
universities compare to universities in other developed and
developing countries?
Has Bayh-Dole influenced basic university research,
academic collaboration and the broad dissemination of
knowledge? In what ways does the law promote innovation; has it
created any barriers?
And finally,
How can we improve technology transfer as we look to
the next 25 years, to promote innovation, commercialization of
federally funded research, and U.S. economic development?
All these questions are on the table today for comment and
discussion by our witnesses and we look forward to hearing your
thoughts.
Now, I would like to recognize my colleague and the ranking member
from Georgia, Dr. Gingrey, for his opening remarks.
Mr. Gingrey. Good afternoon, Mr. Chairman, and certainly, I
appreciate your holding this hearing on the Bayh-Dole Act.
And certainly, as you point out, it is a timely issue. We
have just celebrated the Act's 25 years of existence. I agree
with you, Mr. Chairman, the time is indeed right to look at the
program, and see where we can improve it, and ensure that the
next 25 years are just as successful as have been the past 25
years.
In The Economist, and this is a quote: The Bayh-Dole Act is
``probably the most inspired piece of legislation to be enacted
in America over the past half-century.'' I don't think that is
an embellishment, when we think about the remarks that you just
heard from the Chairman, in regard to the global economy, and
what our concerns might be as we go forward.
The Bayh-Dole Act was passed in an era of deep concern that
the United States was indeed losing that competitive edge to
some of these foreign countries, certainly, India and China, to
name two big ones. Its impact in reversing that trend has been
phenomenal. In fact, Bayh-Dole has been the most successful
technology transfer program ever implemented. Prior to Bayh-
Dole, only five percent of government-owned patents were ever
used in the private sector. Let me repeat that. Only five
percent of government-owned patents were ever used in the
private sector.
Since the passage of this landmark legislation, there has
been a tenfold increase in academic patents. It is often said
that the clearest form of flattery is imitation. Well,
countries all over the world are indeed copying Bayh-Dole, from
the Europeans to the governments of Japan and India, and I am
sure China as well. As we are now combating the often negative
effects of globalization, perhaps there is no better time, Mr.
Chairman, to see if there are any improvements that we can make
in this law.
Some of the principal players in this program, businesses
do say that it has become increasingly difficult to come to an
agreement with universities. I hope we will be able to find out
in this hearing what is the problem. And so, instead, some
businesses say they are increasingly making the sort of
cooperative agreements that Bayh-Dole is supposed to facilitate
in this country, but they are making them with foreign
universities, not American universities. It is sort of a
globalization of research, if you will.
So, we need to ensure that Bayh-Dole meets the 21st Century
needs of both business and universities, in order to ensure
that the United States' competitiveness is first and foremost;
because we are, ladies and gentlemen, in an economic war. Make
no mistake about that. The Economist went further, and said,
and I quote: ``A dollar's worth of academic invention or
discovery requires upwards of $10,000 of private capital to
bring it to market.'' So, clearly, there is a need to marry
private enterprise with university research, as Bayh-Dole
intended, when it was originally passed 25 years ago.
Mr. Chairman, I indeed, as a graduate of the Georgia
Institute of Technology, would like to plug my alma mater at
every shameless opportunity, I appreciate your holding this
hearing on such an important topic, and I do look forward to
hearing from all of our witnesses, not just the one from
Georgia Tech.
[The prepared statement of Mr. Gingrey follows:]
Prepared Statement of Representative Phil Gingrey
Good Afternoon Mr. Chairman. I appreciate you holding this hearing
on the Bayh-Dole Act. It's a timely issue, as we have just celebrated
the Act's first 25 years in existence. I agree with you, Mr. Chairman,
that the time is indeed right to look at the program and see where it
can be improved to ensure that its next 25 years are as successful as
its first 25 years.
According to The Economist, ``the Bayh-Dole Act is [p]robably the
most inspired piece of legislation to be enacted in America over the
past half-century.'' The Bayh-Dole Act was passed in an era of deep
concern that the U.S. was losing its competitive edge to foreign
countries. Its impact in reversing that trend has been phenomenal.
In fact, Bayh-Dole has been the most successful technology transfer
program ever implemented. Prior to Bayh-Dole, only five percent of
government owned patents were ever used in the private sector. Since
passage of this landmark legislation, however, there has been a tenfold
increase in academic patents.
It is often said that the clearest form of flattery is imitation.
Well, countries all over the world are copying the Bayh-Dole Act--from
the Europeans to the governments of Japan and India.
As we are now combating the often negative effects of
globalization, perhaps there is no better time to see if there are any
improvements to be made to the Bayh-Dole law.
Some of the principal players in this program--businesses--do say
that it has become increasingly difficult to come to agreement with
universities. Instead, some businesses say that they are increasingly
making the sort of cooperative agreements that Bayh-Dole is supposed to
facilitate, but they are making them with foreign universities--a sort
of globalization of research. We need to ensure that Bayh-Dole meets
the 21S` Century needs of both businesses and universities, in order
ensure that U.S. competitiveness is first and foremost.
Further, according to The Economist, ``A dollar's worth of academic
invention or discovery requires upwards of ten thousand dollars of
private capital to bring [it] to market.'' Clearly there is a need to
marry private enterprise with university research, as Bayh-Dole
intended.
Mr. Chairman, I appreciate your holding this hearing on such an in
important topic. and I look forward to hearing from all of the
witnesses. Thank you.
Chairman Wu. Well, Dr. Gingrey, I think that Georgia Tech
always has a better football team than Oregon Health and
Science University.
If there are Members who wish to submit opening statements,
your statements will be added to the record.
[The prepared statement of Mr. Mitchell follows:]
Prepared Statement of Representative Harry E. Mitchell
Thank you, Mr. Chairman.
Throughout the twentieth century, the United States led the world
in university-driven research and development.
This research inspired much of the innovation upon which we have
come to rely. From the Internet boom to countless medical
breakthroughs, university research has benefited us all.
There is no doubt that our world class university system with
federal support, such as the Bayh-Dole Act, is one of the reasons our
nation has enjoyed the technological success that it has.
This law enabled the spread of government funded research from the
world of ideas into the world of application. The patent transfer
policy enabled businesses to focus on production, while the government
took on the risk associated with uncertain research projects.
Since enactment, Bayh-Dole related development has created over a
quarter of a million jobs and added $40 billion annually to our
economy. In my district, Bayh-Dole has benefited Arizona State
University.
The advancement of communications technology and global trade
agreements has led to the inevitable re-examination of university,
government, and business research partnerships.
As we consider the next twenty-five years of this legislation, the
growing global market cannot be too far from our consideration.
We must strive to maintain the high intellectual standards of our
top universities, and ensure that their research makes it into real-
world applications through strategic business and government
partnerships.
I am looking forward to hearing from our witnesses to see how we
can accomplish these complementary goals.
I yield back the balance of my time.
Chairman Wu. As our witnesses are well aware, your time is
limited to five minutes. Please feel free to summarize your
written testimony, and now, let me introduce the witnesses.
Mr. Arun Pradhan, who is the Director of Technology and
Research Collaborations at Oregon Health and Science
University. We continue to have aspirations for your football
team in the future.
Dr. Susan Butts is Senior Director of External Science and
Technology Programs at the Dow Chemical Company.
Mr. Wayne Johnson is Vice President, Worldwide University
Relations, at Hewlett-Packard Company.
Mr. Mark Lemley is Professor of Law at Stanford Law School,
and let me warn you, Dr. Lemley, that you have the job that I
want. And Professor Lemley is Director of the Stanford Program
in Law, Science, and Technology.
And Dr. Mark Allen, Professor at a great institution in
Georgia, in the School of Electrical and Computing Engineering
at Georgia Institute of Technology, and Co-Founder and Chief
Technology Officer of CardioMEMS.
We will begin testimony with you, Arun.
STATEMENT OF MR. ARUNDEEP S. PRADHAN, DIRECTOR, TECHNOLOGY AND
RESEARCH COLLABORATIONS, OREGON HEALTH & SCIENCE UNIVERSITY;
VICE PRESIDENT FOR ANNUAL MEETINGS AND BOARD OF TRUSTEES,
ASSOCIATION OF UNIVERSITY TECHNOLOGY MANAGERS
Mr. Pradhan. Mr. Chairman, Ranking Member Gingrey, and
honorable Members of the Subcommittee, thank you for this
opportunity to testify before you today on the important topic
of the Bayh-Dole Act. In addition to my role as Director for
Technology and Research Collaborations at Oregon Health &
Science University, I am also on the Board of Trustees for the
Association for University Technology Managers, or AUTM.
I have been asked to provide my opinion, as well as express
the views of the AUTM Board, on various topics related to the
Bayh-Dole Act, and how it relates to academic technology
transfer. These views are a result of my 19 years of experience
in this industry, covering three institutions in Utah,
Colorado, and now, Oregon. We believe that the Bayh-Dole has
been instrumental in accelerating innovation in the United
States, and hopefully, will continue to be a key factor in
driving U.S. innovation policy for the next 25 years.
As Ranking Member Gingrey stated, The Economist called the
Bayh-Dole Act one of the most possibly inspired pieces of
legislation to be enacted in America, that unlocked inventions
and discoveries throughout the United States. The Bayh-Dole Act
is as viable today as it was when conceived and passed, and I
believe that we are only seeing the proverbial tip of the
iceberg. The impacts of Bayh-Dole are diverse, such as the
5,000 companies that are based on university research, the 1.25
products per day that have been introduced as a result of that
over the last 10 years, the 260,000 jobs that have been
created, and the addition of over $40 billion annually to the
U.S. economy. The Biotechnology Industry Organization, or BIO,
has identified over 350 drugs based on federally funded
research that are either available now, or are currently in
clinical trials.
Another impact of Bayh-Dole, according to the former
President of the NASDAQ, is that approximately 30 percent of
its value is rooted in university-based federally funded
research, which might never have been realized but for Bayh-
Dole. State investment in innovation has also been a key,
although unanticipated outcome of the Bayh-Dole Act. Just since
2005, 19 states have begun initiatives targeted to innovation,
representing approximately $4 billion in the next 10 years.
A key similarity to a number of these initiatives is the
role of universities as drivers of regional economic
development. In Oregon, for example, several such programs are
coordinated through the Oregon Innovation Council. Signature
research centers in the field of nanotechnology, bio-economy,
and sustainable technologies, and drug development and
translational research, funding of programs to foster
university-industry partnerships in seafood, manufacturing, and
food technologies, and the creation of university venture
development funds through Oregon tax credits, all come together
in Oregon's investment into resources that foster innovation
and development.
With respect to university-industry interactions, it is an
issue of competing cultures and drivers, trying to create
partnerships for societal and mutual benefit. These differences
are most often highlighted in negotiations regarding the right
to publish and intellectual property. These issues do not arise
directly from Bayh-Dole, but from the fundamentally different
roles that universities and industry play in society.
Any partnership based on economic incentives needs to be
fair to both parties in order to succeed. It is therefore
incumbent on both parties to recognize the synergies and
differences, as well as federal and State regulations and
policies that play a role to arrive at mutually beneficial
partnerships. The Bayh-Dole Act is one such example.
The Bayh-Dole Act fundamentally provides a simple structure
that works as intended, and should not be substantially
altered. Further, the Bayh-Dole Act offers great opportunity to
ensure that technology can be appropriately packaged and
commercialized. As you yourself suggested, one dollar of
academic research requires $10,000 of development to make it
into a product. The Nine Points to Consider document that is
being promoted by a number of organizations in AUTM, for
example, begins to provide consistency to the implementation of
Bayh-Dole to arrive at these objectives.
If anything, Bayh-Dole needs to be strengthened, starting
with a comprehensive look at programs and initiatives being
implemented, successful technology transfer programs, local and
regional factors that contribute to the success of
commercializing federally funded research. One such example
would be to provide effective oversight, which would be able to
address the implementation of Bayh-Dole across federal
agencies.
In summation, I would like to emphasize that technology
transfer at universities, as it exists today, is a complex
process that has multiple roles, ranging from being good
stewards of public resources to participants in economic
development. These roles are, in turn, defined by local,
regional, and national needs and regulations.
It is critical that the U.S. preserve Bayh-Dole and its
fundamental elements, and continue to support funding of basic
research, so that our country can maintain its leading edge in
innovation in this increasingly competitive global environment.
Thank you.
[The prepared statement of Mr. Pradhan follows:]
Prepared Statement of Arundeep S. Pradhan
Mr. Chairman, Ranking Member Gingrey and honorable Members of the
Subcommittee, thank you for the opportunity to testify before you today
on the important topic of the Bayh-Dole Act which has been instrumental
in accelerating the evolution of innovation in the United States, and
hopefully will continue to be a key factor in driving the U.S.
innovation policy for the next 25 years.
My name is Arundeep S. Pradhan, and I am currently the Director of
Technology and Research Collaborations at the Oregon Health & Science
University (OHSU) in Portland, Oregon and serve on the Board of
Trustees for the Association of University Technology Managers (AUTM).
AUTM is a nonprofit organization dedicated to promoting, supporting and
enhancing the global academic technology transfer profession through
education, training and communications. AUTM's more than 3,500 members,
primarily managers of intellectual property, represent more than 300
universities, research institutions and teaching hospitals as well as
numerous businesses and government organizations.
My office at OHSU is responsible for managing and commercializing
the intellectual assets of the university; forging ties with industrial
partners; and participating in various programs and initiatives with
institutional, local, State and regional groups to align the interests
of universities, city and State constituencies as to effectively
achieve success in technology transfer objectives.
I have been asked to give my opinion, as well as express the views
of the AUTM Board, on various aspects of the Bayh-Dole Act (35 U.S.C.
200-212) and how it relates to academic technology transfer. These
views are a result of my 19 years of experiences in this industry,
which began as a student working in the technology transfer office at
the University of Utah where we established the culture for
collaborating not only with numerous start-up companies, but also with
existing companies in the fields of biotechnology, pharmaceutics,
electronics and software. I subsequently spent five years at the
Colorado State University Research Foundation in Fort Collins, where we
continued the proactive approach to collaborating with State, local and
regional organizations to further technology transfer and economic
impact missions of the university.
Historical Perspective
In 1980 prior to the Bayh-Dole Act, the Federal Government held
title to approximately 28,000 patents of which fewer that five percent
were licensed to companies for commercialization into products per the
1998 GAO Report on the Act. This lack of commercialization can be
attributed to several factors, among which are a lack of incentives for
universities and faculty to engage in technology transfer, patent
policy that varied by federal agency, and a lack of clarity of
ownership of patents developed under federal funding.
The Bayh-Dole Act represented a fundamental change in government
patent policy. It provided ownership and title to any invention made in
whole or in part with federal funds under Bayh-Dole to universities and
small business. The government reserved for itself a royalty-free
license to practice any such invention for governmental purpose.
Further, the Bayh-Dole Act was instrumental in establishing a Federal
patent policy that was uniformly applied to all of its agencies, as
well as providing the first statutory authority for the government
itself to obtain, own and license patents.
The Committee on Science and Technology has been instrumental in
recognizing that federal patent policy is an integral part of U.S.
competitiveness and helped to shape the current environment in which we
function. This committee not only was instrumental in fashioning the
Bayh-Dole Act, but also the Federal Technology Transfer Act in 1986. We
thank you for your foresight in establishing policies that have helped
the U.S. be a leader in innovation.
Summary Conclusions
1. Impact of the Bayh-Dole Act on Research, Technology Transfer and
Commercialization
On December 14, 2002, The Economist stated that ``Possibly the most
inspired piece of legislation to be enacted in America over the past
half-century was the Bayh-Dole Act of 1980. Together with amendments in
1984 and augmentation in 1986, this unlocked all the inventions and
discoveries that have been made in laboratories throughout the United
States with the help of taxpayer's money. More than anything, this
single policy measure helped to reverse America's precipitous slide
into industrial irrelevance.'' The Bayh-Dole Act truly has been
instrumental in achieving that goal.
The Bayh-Dole Act is as fully viable today as it was when passed in
1980. Since 1980, American universities have spun off more than 5,000
companies, which have been responsible for the introduction of 1.25
products per day into the marketplace and have contributed to the
creation of over 260,000 jobs. The result has been a contribution of
over $40 billion dollars annually to the American economy.
The Biotechnology Industry Organization (BIO) has identified 60
drugs derived from university research, and there are over 300
biotechnology therapeutic products based on federally funded research
that are now in clinical trials. Examples of these include the
Hepatitis B Vaccine (Fox Chase Cancer Center); New Therapeutics for
Prostate Cancer (OHSU); New Treatments for Heart Disease (Emory
University).
These breakthroughs of commercial applications occur not only in
the field of biotechnology and life sciences, but in all fields ranging
from electronics to agriculture [7, 8]. A few examples from AUTM's
Better World Report series (http://www.betterworldproject.net/) are:
Arizona
Lighting strike detection technology that is now
deployed in over 40 countries (University of Arizona)
Chemical-free technology to help control crop
diseases is licensed to companies in the Midwest (University of
Arizona)
A new class of carbon compounds based on fullerenes
which can be the basis for among other things new flat panel
display technologies, batteries, and capacitors(University of
Arizona)
California
Topical gel treatment for AIDS-related Kaposi's
sarcoma (Salk Institute for Biological Studies)
Electrodes that enable three-dimensional imaging with
atomic force microscopy (Stanford University)
Novel IV catheters that eliminate risks of
potentially dangerous needlesticks (City of Hope)
Oregon
Rib-fixation device for fractured ribs (Oregon Health
& Science University)
Improved three-dimensional depiction of proteins and
large molecules (University of Oregon)
Novel non-toxic wood adhesives (Oregon State
University)
Nebraska
Drought tolerant grass (University of Nebraska-
Lincoln)
New Organo-metallic reagents for the synthesis of
drugs (University of Nebraska-Lincoln)
And there are numerous more examples ranging over many areas of
research.
2. How has the Bayh-Dole Act Shaped University-Industry Relations?
Prior to passage of the Bayh-Dole Act and with no uniform
government patent policy in place, each of the government agencies had
developed its own patent policy. The majority of those were ``title''
policies, where ownership resided in the government as represented by
the agency. Most agencies had also adopted a non-exclusive licensing
policy to such inventions. As a consequence industry was highly
reluctant to obtain non-exclusive licenses from the government knowing
it could not really exercise control over the invention licensed and
that a competitor could obtain a similar license. Simply put, there was
no reward, in the form of marketplace exclusivity to justify the risk
and expense necessary to develop an invention for the market.
Moreover, industry was reluctant to fund research at the
universities for fear of government funds ``contaminating'' the
research that was sponsored and because of the ``title'' policy adopted
by the agencies, depriving the particular sponsor of the right to
assert ownership to any invention arising from the sponsored research.
The ``contamination'' principle was particularly onerous since there
was no de minimis amount of federal funding specified for triggering
the government's right to take title to an invention and even a single
dollar of government money co-mingled with the industry-sponsor
research funds could permit the government to assert rights to the
invention or, at least, put a cloud on the title.
The passage of the Bayh-Dole Act established certainty of title in
and to inventions conveyed to the universities under the Act and
alleviated the industry-sponsor's fears, thereby encouraging additional
sponsorship, collaborative efforts, and expanded licensing
opportunities. Since the government retains a non-exclusive right to
inventions made in whole or in part with government funds but only for
governmental purposes, the relationship with the private sector is
truly a university-industry-government relationship and one which
industry has been willing to accept.
The Bayh-Dole Act has made institutions more aware of their role in
being good stewards of public resources, including capturing a fair
economic value of federally funded research contributions, and as Bayh-
Dole requires, reinvesting any return in research and education. While
Bayh-Dole does not directly govern industry sponsored research, it
establishes good practices within our offices that ensure that
federally-funded technologies are commercialized for the public
benefit, both as a result of licensing inventions directly from
federally funded research as well as obtaining exclusive licenses to
inventions resulting from industry sponsored research. It is incumbent
on both sectors to foster, encourage and grow these collaborations.
3. Effects of Globalization of Research
The global environment has changed considerably in the last two
decades. Countries, such as Germany, United Kingdom, Singapore, China
and India, are increasingly pumping resources into research and
development and establishing ties between industry and academic
institutions. The technological and basic research leads that the U.S.
has enjoyed over the last two decades should not be taken for granted.
Recognizing the success of the Bayh-Dole Act in the U.S., other
countries are emulating our lead by passing similar laws. Bayh-Dole has
reduced certain barriers for collaborations with companies and also
encouraged entrepreneurship across all aspects of university research.
This entrepreneurial environment provides a key element in attracting,
training and retaining students, young faculty and thought leaders when
other countries are becoming more welcoming to entrepreneurship.
Mr. Chairman, I understand that the Committee has heard reports
that industry is looking for research partners overseas because they
find it so hard to negotiate with universities in the United States. I
cannot vouch for whether those reports are accurate, or what role
different factors, including cost, play in those decisions. I can speak
to my experiences and to the issues that take up the most time in
university negotiations with industry.
The biggest, most time-consuming issue involves faculty
researchers' right to publish their research findings and share the
research data with their colleagues. This is a core issue for
universities. The ability of faculty to publish, and thus to advance
the state-of-the-art, is central to our mission and is probably the
most important method of knowledge transfer we have. Intellectual
property rights are also a point of negotiations. They are complicated
because a fair allocation of rights and access to rights really depends
on the particular facts of the research. It is hard to articulate a
general rule for what is fair because the facts and circumstances are
so important. These issues do not arise from Bayh-Dole, but from the
fundamentally different roles that universities and industry have in
society.
In my capacity at OHSU, as well as historically, I have seen
significant increases in university-industry partnerships. Over the
last five years at OHSU, the number of industry-sponsored research
agreements has doubled and the amount of research funding has almost
tripled. I feel that these collaborations will continue to grow in the
future. It is critical that the U.S. preserve Bayh-Dole and its
fundamental elements and continue to support the funding of basic
research so that our country can maintain our leading edge in
innovation in this increasingly competitive global environment.
4. The Bayh-Dole Act's Influence on Basic Research
A study by the American Association for the Advancement of Science
(AAAS) indicates that there is no significant ``negative'' impact of
technology patents and commercialization on scientific research in
terms of access and sharing. There has however, been net positive
outcome in terms of collaborations with industry, as is highlighted by
the fact that the U.S. has seen a significant increase in joint
industry-university scientific papers that the National Science
Foundation cited as a significant achievement for science in their
annual Science and Engineering Indicators.
In 2006, key individuals from the university technology transfer
community and Association of American Medical Colleges (AAMC),
developed ``Nine Points to Consider when Licensing University
Technology'' (attached). This document has been adopted by AUTM and
recommended to its members; the list of signatories is now kept by the
AUTM, much like AUTM serves as a repository for signatories of the
Uniform Biological Materials Transfer Agreement. This document is a set
of guiding principles that illustrate general good practices. The first
point in this document is to reserve the right to practice licensed
inventions and to allow other non-profit and government organizations
to do so. The National Institutes of Health which provides substantial
funding for basic research also supports this approach. While Bayh-Dole
allows licensing of inventions for commercialization, it does not
preclude use of such inventions for continued research. This and the
other points in this document are meant to provide good practice
guidelines for licensing. As each negotiation and relationship is
unique, it is incumbent to strike a balance between the business needs
of our industry partners as well as the fulfillment of the core mission
of the universities.
5. Bayh-Dole: The Next Twenty-five Years
The architects of the Bayh-Dole Act, in which this committee played
a role, exhibited profound insight as Bayh-Dole serves as the
foundation for technology-based economic development by allowing
universities to work regionally with established or start up companies
to launch new products to benefit the public and at the same time,
remains flexible to encourage partnerships across a broad spectrum of
industries for a wide variety of technologies that are commercialized
under different business models. Bayh-Dole has been instrumental in
linking the Federal and State governments, research universities, small
business and the corporate worlds [11]. Because the impact of the Bayh-
Dole is now far reaching and affects the economy at multiple levels,
any changes, if warranted at all, need to be evaluated prudently and
carefully to avoid disruption of the innovation ecosystem. I, the AUTM
Board of Trustees, as well as other organizations, believe that Bayh-
Dole works well as intended and we anticipate that Bayh-Dole will
continue to accelerate technology transfer and foster university-
industry partnerships far into the future.
What has been the impact of Bayh-Dole on federally funded research and
technology transfer and commercialization of that research?
It has now been twenty eight years since Bayh-Dole passed. In those
twenty eight years the Bayh-Dole Act has had tremendous impact on the
innovation economy of the United States and has become the model for
technology-based economic development not only in the U.S., but on a
global scale. Countries such as Japan, United Kingdom, Germany and
others hope to achieve the same success as we have in the U.S., and
even developing countries are instituting means to utilize their
universities' talents and research results to boost their economies.
The fundamental stated goal of Congress in passing the Bayh-Dole
Act was to promote the utilization of inventions arising from federally
supported research and development. I, as well as the AUTM Board,
believe that those goals have been achieved and we are becoming more
effective in how this intention is implemented. One clear indicator of
innovation is the increase in ``invention disclosures'' from university
faculty. There is imaginative research, at which faculty excels, from
which, in turn, arises invention and innovation. The increase in
invention disclosures is an indication that there has been a cultural
change in how faculty and academic institutions view transferring the
results of research in a manner to further benefit the public. In
addition to the traditional method of publishing research results which
continues to be pursued vigorously, universities and their faculty are
increasingly aware that commercialization of research results can
significantly impact society through improving the health, welfare and
safety of the public. And, as with any cultural changes, it takes time;
it is not something that will be adopted at the turn of a switch. In
1980, approximately 25 U.S. universities had technology transfer
offices and no uniform federal patent policy existed. Today, more than
230 U.S. universities support such offices. In 1980, only a few patents
were issued to universities. Today, universities are granted
approximately four percent of U.S. patents. This success has its roots
in the Bayh-Dole Act.
The academic community and federal agencies continue to find new
ways to innovate. This is evidenced by new programs, such as NIH's
Clinical and Translational Science Awards that encourage
interdisciplinary collaborations, collaborations with companies and
movement of research from the bench to its applications. While this may
indicate a willingness to use federal research funding to implement
applications of basic research, the emphasis of federally funded
research clearly continues to be on basic research. A recent study
conducted by the AAAS concludes that scientific research has not been
hindered significantly by technology patents and licensing activities
[4]. Therefore, federally-funded inventions can continue to stimulate
more research while being developed into useful, commercial products.
There are annual increases in the activities and outcomes that AUTM
has been tracking for the last fifteen years. Since 1980, there are now
over 28,000 active licenses of technologies to companies, and, 5,171
spin-off companies based on university research [2]. A great majority
of these, in fact, arose during the last decade, indicating an
acceleration of the rate at which research is transferred into the
market place. These numbers only tell part of the story. Over the last
two years, AUTM has documented specific societal impact through the
Better World Reports that contain descriptions of university-based
discoveries and inventions that have had a significant impact on the
health of our citizens and the economic well-being of our society. This
is not the only measure of the innovation economy on which the success
of Bayh-Dole should be based. According to the former President of the
NASDAQ stock market, an estimated 30 percent of its value is rooted in
university-based, federally funded research results which might never
have been realized but for the Bayh-Dole Act. Technology transfer as it
exists today is a complex process that has multiple roles and
objectives defined by local, regional, and national needs and
regulations.
Since 1997, when AUTM started tracking this metric, 3,641 new
products were introduced in the economy, 527 in 2005 alone. This
represents 1.25 products per day [2]. This illustrates significant
innovation occurring in our universities and nation that is directly
based on federally funded research at universities and small
businesses.
State investment in innovation has also been a key, although
unanticipated, outcome of the Bayh-Dole Act. A significant number of
these investments involve academic institutions which are viewed as key
partners and drivers of regional economic development. Since 2005, 19
states have begun initiatives targeted to innovation in the form of
investment into university R&D; these include providing private sector
R&D incentives to partner with academic institutions, new business
innovation support, and tax credits for new business R&D investment.
This incremental investment represents approximately $4 billion in the
next ten years and is only a sample of programs being initiated by
various states.
In Oregon, as in many other states, several programs were initiated
to encourage the transfer of research from research institutions to the
marketplace. In the last six years, Oregon has committed to the
formation of Signature Research Centers in the fields of
nanotechnology, bio-economy & sustainable technologies, and drug
development and translational research, the purpose of which, among
other things is to foster university-industry partnerships. The Oregon
universities have been active in this field in the last decade.
Since the Oregon Nanoscience and Microtechnologies
Institute (ONAMI) has been in existence, ONAMI has been able to
leverage State and federal resources for cutting edge research
and launch start-up companies such as HomeDialysis+ (a light-
weight medical device that will allow patients with failing
kidneys to receive dialysis over night in their own homes).
Research at Oregon Health & Science University has
been the basis of over 60 start-up companies, half of which
have been started since 2002.
Oregon is unique in the creation of University
Venture Development Funds, by offering donors State tax
credits, which are paid back to the state through generation of
income resulting from commercialization of university research.
All of these programs and activities, not only in Oregon, but
across the country in different states reflect the impact of Bayh-Dole.
How has Bayh-Dole shaped University-Industry research collaborations?
Federally funded research leverages a tremendous amount of
investment into the research and development infrastructure. This
occurs not only in the form of direct investment into research by non-
federal entities but ranges from investment into companies that are
spun off and investment into products that are developed from licensed
technologies.
Bayh-Dole has encouraged the formation of productive university-
industry partnerships, especially in light of diminishing resources at
all levels. The demise of corporate research laboratories has led to
the increasing tendency of U.S. industry to look to universities to
perform research that a decade or two ago industry was more likely to
perform itself. Both companies and universities seek to leverage their
respective expertise in science and product development to further
advance respective goals. While AUTM does not directly track the number
of industry-university research collaborations, the number of such
research collaborations seems to be on the increase. While the absolute
number of dollars spent on research at academic institutions has
increased, the latest data indicate that the relative percentages from
federal, industrial and non-federal sources have been relatively stable
for the last decade [2]. At a time where the resources for research and
development have not kept pace with need, it is important to recognize
these cultural differences and arrive at pragmatic solutions that
benefit both industry and universities. This represents a highly
effective mechanism through which technology is transferred and not
always in the form of patents and licenses.
It is important to highlight at this point the differences in
culture between academia and industry, and even within industry,
variations in culture by industry cluster as well as by the size of a
company and institutions. These cultural differences have led either to
successful collaboration or complete breakdown of communication between
respective participants [3]. A fundamental tenet of a university is the
broad dissemination of knowledge through peer-review publications and
education and training of students. Companies maintain a more secretive
environment for their proprietary technologies and to ensure a return
to their shareholders. University-industry partnerships in the field of
biological or life sciences are most often highlighted as these
products require significant investment by industry and remain visibly
available for many years. In other fields where an exclusive position
is less critical and product life cycles are measured in months,
federally-funded research still plays a role as academic institutions
transfer both knowledge and technology developed under federal funding.
Any partnership which is based on economic incentives needs to be
fair to the parties in that arrangement. It is therefore incumbent on
both parties to recognize the synergies, differences, as well as
activities that may be prohibited not only by federal statute, but also
State laws and regulations and policies to arrive at mutually
beneficial partnerships [5]. The Bayh-Dole Act, while significant,
represents one of several pieces of legislation that plays a role in
defining the interactions and relationships between academic and non-
profit research institutions and industry.
What is the possible effect of the increasing globalization of
research?
U.S. universities and companies increasingly function in a global
environment. Both universities and companies have to therefore
recognize additional cultural differences and address issues that arise
from crossing international borders. These differences are also evident
in dealing with local divisions of larger multinational companies which
now have access to expertise and facilities on a global basis.
Universities have traditionally fostered research collaborations
both nationally as well as internationally. The issues of intellectual
property development have not typically been a stumbling block in such
collaborations. As other countries see the success of Bayh-Dole, they
have increased their respective funding of basic research and
implemented laws, regulations and policies that mimic Bayh-Dole in an
effort to become successful in the innovation economy. Whereas in the
U.S., federal funding for research has grown in the last decade, but
has been flat over the last few years--increasing number of applicants
for the same size pie--this is also true for industry based research
funding at universities. This only serves to highlight the increasing
amount of competition for limited research resources in the U.S.
However, a large proportion of university-industry collaborations
involve not large multinational companies, but more medium and small
businesses that do not have the resources for international
collaborations. For U.S. institutions, this means that actual barriers
in collaborating with industry need to be reduced and perceived
barriers need to be addressed in order to achieve success in this area.
How has Bayh-Dole influenced Basic Research?
As indicated earlier, an AAAS study indicates that there is no
significant impact of technology patents and commercialization on
scientific research. This study surveyed respondents in the U.S.,
United Kingdom, Germany and Japan. This is true of collaborations,
access to research tools and publications especially between academic
institutions. Such interactions between institutions and industry are
also commonplace, but usually proceed at a slower pace due to the
differing cultures.
Bayh-Dole in giving great impetus to technology transfer and to
cultural changes on how best to utilize research results for the public
benefit, providing some focus on the potential commercial applications
derived from basic research. Most research results still get published
without the need for review for patent protection. There is a small
subset of research results that technology transfer staff as well as
faculty are learning to recognize to have commercial potential that
does get published after review, and if necessary after filing for
appropriate protection. It is the intent of academic institutions to
pursue commercialization of those research results for the public
benefit, but not to obstruct others from doing research in the same
field.
What changes in Bayh-Dole if any, may be appropriate as look to the
next 25 years to promote commercialization of federally funded research
and U.S. economic development?
The Bayh-Dole Act fundamentally provides a simple structure that
works as intended and should not be substantially altered. Further,
Bayh-Dole offers greater opportunity to ensure that technology can be
appropriately packaged and commercialized. If anything, this
opportunity needs to be strengthened. There are numerous initiatives
that are being implemented at the State and regional levels that are
facilitating the transfer of federally funded research into commercial
applications. A comprehensive look at such initiatives can be conducted
to determine appropriate models for adoption. In addition, there are
several outstanding technology transfer programs that have been
successful that can provide information on creating infrastructure that
leads to effective transfer. It must also be taken into accord that
local, regional, and State stakeholders also play a significant role in
the commercialization of federally funded research.
Any development of programs that would augment Bayh-Dole should
take into account such regional drivers, industry-academic institution
cultural differences, resources allocated for technology transfer at
institutions, education and training of technology transfer
professionals as well as university faculty and staff, and appropriate
metrics.
One glaring weakness in the current law is the absence of effective
Executive branch oversight. Congress made it clear that it expects for
this function to be performed by an entity with both the policy
background and clout to insure that federal agencies do not start
interpreting the law on their own. We have noticed that the
implementation of Bayh-Dole is increasingly uneven across federal
agencies. The oversight authority has been moved over the years from
the Office of Federal Procurement Policy to the Department of Commerce.
It is now time to re-examine the current assignment of this oversight
role since the Department of Commerce has now shown little interest in
fulfilling this responsibility for many years and in fact recently
abolished the office that previously had been assigned the oversight
responsibilities. Without continued effective central oversight,
agencies may tend increasingly to subordinate Bayh-Dole to individual
policy and program priorities and objectives, thus weakening the
ability to accomplish the broader Bayh-Dole goals, and we will de-
evolve back into the situation Congress passed Bayh-Dole to remedy:
agencies developing their own patent policies to the detriment of the
American public's health and future prosperity.
One thought is that this oversight authority might be better
implemented in the Office of Science and Technology Policy. While this
makes sense in looking at the Executive branch organization chart, to
really be effective what is really needed is having someone who
understands the importance of Bayh-Dole at the helm.
General Conclusions
Studies have found that universities are now drivers of regional
economic development that encourages the development of technology
based clusters which are important factors and may be attributable to
Bayh-Dole. Many countries are now adopting Bayh-Dole type laws, as they
see its successful implementation in the U.S. The benefits derived
directly as well as indirectly from Bayh-Dole are extensive and should
not be treated lightly due to a few anecdotal incidents.
The primary missions of universities to maintain academic freedom
to conduct research, educate and train students, and pursue and
disseminate knowledge for the public benefit are protected by Bayh-
Dole. In the course of the last 25 years, universities have learned a
tremendous amount on how to interact with industry. Universities are
learning to recognize that relationships with industry are dynamic;
vary with industry sectors; and, above all that we must adapt to
changing environments as per the respective sectors. As I have
indicated, the concerns of industry do not lie with the Bayh-Dole Act
itself, but in the manner in which some universities have chosen to
implement it, taking a narrow perspective on what defines technology
transfer. In order to address this, several universities created, and
the AUTM Board of Trustees and additional universities have endorsed,
the ``Nine Points to Consider when Licensing University Technology.''
These points not only address licensing but can also be applied broadly
to university-industry research relationships.
While the Bayh-Dole Act allows universities to collect royalties
from the licensing of subject inventions, the core mission of
universities remains education and generation and dissemination of new
knowledge. Some universities may focus purely on the licensing revenues
to measure success of academic technology transfer, but the real impact
is reflected in the impact on the lives of the American public. In
addition, many inventions generate little revenue, and the amount of
revenues that a particular university receives is usually minuscule
compared to the size of that university's research budget. A part of
the dissemination mission is to provide the information, whether it is
in the form of education or in the form of technology transfer, to
those who can best utilize it for the public benefit. Prior to Bayh-
Dole, this was primarily in the form of publications, and as we now
know, it takes more. It has taken us over twenty-five years to get to
this point, and we should not disrupt this trend. I, AUTM, as well as
other organizations, believe that the Bayh-Dole Act will continue to be
a catalyst for innovation in the U.S. economy for the next twenty-five
years as well.
Acknowledgements
Janna C. Tom, Assistant Director, Policy, Analysis and Campus Services,
Office of Technology Transfer, University of California, Office
of the President; Vice President for Public Policy, AUTM
Joseph P. Allen, Vice President and General Manager, Intellectual
Property Management Group, West Virginia High Technology
Consortium Foundation
Howard Bremer, Emeritus Patent Counsel, Wisconsin Alumni Research
Foundation
Jon Soderstrom, Managing Director, Office of Cooperative Research, Yale
University; President-Elect 2007, AUTM
References
1. 2004 AUTM Licensing Survey
2. 2005 AUTM Licensing Survey
3. Summary Report PCAST Subcommittee on Federal Investment in Science
& Technology
4. Intellectual Property Experiences in the United States Scientific
Community: A Report by the Project of Science and Intellectual Property
in the Public Interest, AAAS, 2007
5. Innovate America, December 2004, National Innovation Initiative
Report, Council on Competitiveness.
6. Measuring the Moment: Innovation, National Security and Economic
Competitiveness, The Taskforce on the Future of American Innovation,
November 2006.
7. Better World Report, AUTM, 2006
8. Reports from the Field, AUTM, 2006
9. Better World Report: Part I: Building a Stronger Economy, AUTM,
2007
10. Better World Report: Part II: Technology Transfer Works, AUTM 2007
11. Bayh-Dole Act: White Paper for Governor James E. Doyle, An
Economic Engine for Wisconsin, 2004
Attachment:
Biography for Arundeep S. Pradhan
Arundeep currently serves as Oregon Health & Science University's
Director of Technology & Research Collaborations and has over 20 years
of experience in technology transfer. He started his technology
transfer career at the University of Utah.
Arundeep has developed and implemented several programs for seed
research funding, gap funding and business development such as the
Innovation & Seed Fund (Oregon Health & Science University),
Springboard for University Entrepreneurs and the Commercialization
Opportunity Fund (Colorado State University Research Foundation) and
Technology Innovation Grant (University of Utah). He currently
participates in various programs and initiatives such as the Oregon
Innovation Council and the Oregon University Research Council to align
the interests of universities, city and State constituencies as to
effectively achieve success in technology transfer objectives. In the
past Arundeep has worked with groups in Colorado and Utah to achieve
these objectives. He continues to work with local and State economic
development agencies and industry groups to forge ties between these
entities and the institution.
As a member of AUTM (Association of University Technology Managers)
and LES (Licensing Executive Society), Arundeep has participated in and
moderated workshops on a variety of topics relating to technology
transfer. Arundeep served on the AUTM Program and Survey Committees
from 1993-1997. He was the Program Chair and Co-Program Chair for the
AUTM Western Region Meeting in 2000 and 2001 respectively. More
Recently, Arundeep was the Program Chair for the AUTM Annual Meeting in
2004 and 2005, which had record numbers in attendance. He is also the
current Vice President for Annual Meeting and the Board of Trustees for
AUTM (2007 & 2008).
Arundeep currently serves on the Board of the Oregon Bioscience
Association and as an observer on the Board of several university
research-based start-up companies. In the past he has served on the
Oregon Council for Knowledge and Economic Development (2004-2005), the
Board and the Managing Committee on the Colorado BioScience Association
(2002-2004) and the Board for the Western Institute for Biomedical
Research (1997-1999).
Chairman Wu. Thank you, Mr. Pradhan. Dr. Butts.
STATEMENT OF DR. SUSAN B. BUTTS, SENIOR DIRECTOR, EXTERNAL
SCIENCE AND TECHNOLOGY PROGRAMS, THE DOW CHEMICAL COMPANY
Dr. Butts. Chairman Wu, Ranking Member Gingrey, and Members
of the Subcommittee, it is my privilege to address you on the
topic of Bayh-Dole, the next 25 years. My name is Susan Butts,
and I am the Senior Director of External Science and Technology
Programs at The Dow Chemical Company. My group oversees, does
external research collaborations around the world. I am also
the Vice President of the University-Industry Demonstration
Partnership, an organization operating under the auspices of
the Government-University-Industry Research Roundtable, which
is in the National Academies.
The Bayh-Dole Act is an important and pivotal piece of
legislation that has produced many benefits. However, as you
consider the next 25 years of Bayh-Dole, there are three key
points to keep in mind. First, although the Bayh-Dole Act has
enabled the licensing of federally funded technology from
universities to industry, it has also created expectations for
control of intellectual property that actually discourage
research collaborations with industry.
Second, most foreign universities offer companies much more
favorable rights to intellectual property arising from the
research that they fund. This is causing companies to do more
of their university research collaborations abroad. Both of
these trends could have an adverse impact on U.S.
competitiveness, since they will diminish U.S.-based
collaborations, which can generate new knowledge, technologies,
business opportunities, and jobs.
Third, small changes in the Bayh-Dole Act, and tax
regulations to clarify the intent of Congress relative to the
treatment of inventions resulting from industry-funded
research, could significantly improve the climate for
university-industry research partnerships in the United States.
I am sure that we will hear many different points of view
in today's hearing. The important issue is not whether Bayh-
Dole is good or bad, but rather, that it has taken the U.S.
down a path that has diverged from most of the rest of the
world, in terms of university-industry interactions. Some
aspects of this path have been very beneficial. Other aspects
have been detrimental. The challenge for our Nation is to put
the United States on a new path that will fully engage our vast
technology resources from industry, universities, and National
Laboratories, to maximize U.S. competitiveness in technology
and innovation.
Innovation is the translation of ideas into products. It
happens in different ways and different technologies and
industries. In my written testimony, I have tried to reflect
issues and concerns that are broadly held across industries,
but we should keep in mind that there are important
differences. In industries like pharmaceuticals and chemicals,
innovation is a discrete, long, and costly process. Products
have a long lifetime, and business success is gained through
exclusive access to key patent protected products and
processes. In industries like information technology,
innovation is a rapid, continuous process. Each product
embodies many technologies and devices, products have a short
lifetime, and business success is gained through rapidly
getting the next product to market.
Pharmaceuticals and information technology define two ends
of the innovation spectrum for technology-intensive industries.
In order for university-industry collaborations to be
productive and mutually beneficial, they must be flexible
enough to accommodate the whole innovation spectrum.
Globalization is a reality. U.S.-based companies must compete
effectively in the global marketplace in order to stay in
business.
Globalization also brings home the responsibility that
government, industry, and universities share to solve the most
serious challenges facing mankind, that know no national
boundaries. Challenges like climate change and sustainable
energy, food, and water. My employer, The Dow Chemical Company,
has committed to meeting corporate sustainability goals to help
address these challenges. We will have to make significant
technology breakthroughs to meet these goals, and we want to
partners with the best university researchers to do this.
Unfortunately, the barriers that we experience in working with
U.S. universities often cause us to seek out research partners
with universities in other parts of the world.
I believe that the Bayh-Dole Act is fundamentally sound
with regard to its stated purposes, but has gotten off-track in
implementation, primarily through misapplication to research
that is privately funded rather than government funded. This
causes U.S. universities to impose their rights and obligations
under Bayh-Dole to research that is funded by industry profits
rather than taxpayer dollars.
Clarification of the intent of Congress, and the laws and
regulations that impact industry funded research at
universities, could greatly enhance the flexibility that both
parties have in dealing with foreground intellectual property,
could speed the process to negotiate research agreements, and
thus, foster more university-industry partnerships in the
United States.
Thank you for your attention, and I would welcome
questions.
[The prepared statement of Dr. Butts follows:]
Prepared Statement of Susan B. Butts
Chairman Wu, Ranking Member Gingrey, and Members of the
Subcommittee, it is my privilege to address you on the topic of Bayh-
Dole--The Next 25 Years. My name is Susan Butts, and I am the Senior
Director of External Science and Technology Programs at The Dow
Chemical Company. My group oversees all of Dow's research
collaborations with universities, independent laboratories, government
laboratories, and government agencies around the world. Dow is the
second largest chemical company in the world, and we spend over one
billion dollars every year on research. Most of that funding is spent
on internal programs but we also support almost 200 external sponsored
research collaborations, research grants, and research consortium
memberships. I am also the current Vice President of the University-
Industry Demonstration Partnership, an organization operating under the
auspices of the Government-University-Industry Research Roundtable
which is in the National Academies.
There are three key points that I would like to make. First,
although the Bayh-Dole Act has enabled the transfer of technology
developed with federal funds from U.S. universities to industry it has
also contributed to a contentious climate around the issue of
intellectual property (IP) rights which discourages research
collaborations between industry and U.S. universities. Second, most
foreign universities, which do not have the IP expectations created by
Bayh-Dole, allow industry research sponsors to own or control
inventions resulting from the research that they fund. This much more
favorable treatment of IP is causing companies to do more of their
sponsored research abroad. Both of these trends will have an adverse
impact on U.S. competitiveness since they will diminish U.S.-based
collaborations which can generate new knowledge, technologies, and
business opportunities. Third, small changes in the Bayh-Dole Act and
tax regulations to clarify the intent of Congress relative to ownership
or control of intellectual property resulting from industry-sponsored
research could improve the climate for university-industry research
partnerships in the United States.
The Bayh-Dole Act is an important and pivotal piece of legislation.
It has successfully accomplished one of its primary stated purposes--to
promote the commercialization of federally funded university research.
There has also been, however, a negative and unintended consequence.
Namely, that U.S. universities, in stark contrast with most foreign
universities, have become substantially less attractive as research
partners for companies. As U.S. universities increasingly focus on
controlling intellectual property and maximizing their revenues from
licensing inventions they have become more like competitors than
partners to companies that sponsor research with their faculty and
students. This is occurring at a time when global scientific
challenges, such as climate change, renewable energy, health, and
nutrition require collaboration like never before.
In 1980 when the Bayh-Dole Act was passed the Federal Government
was the main source of funding for research and development in the
United States so research partnerships with companies were neither
common nor necessary for universities. Universities published their
research results and companies used the published information to assist
their internal research programs. Now, however, industry spends twice
as much on research and development as the Federal Government so
industry could be a significant source of research funding for
universities (Figure 1).[1] More importantly, such research
collaborations would benefit the U.S. economy by speeding the
development of new products that draw on both company and university
technology and capabilities. This is unlikely to happen, however, as
long as companies and universities are at odds on how to treat
intellectual property that comes from company-sponsored research.
Although the amount of university research funding from companies has
grown steadily over the last 25 years it still represents a small
percentage of the total received by U.S. universities (Figure 2).[1] In
a speech given in the fall of 2006 Dr. John Marburger, Director of the
Office of Science and Technology Policy, made the following observation
about the necessity of looking beyond the Federal Government to find
sufficient funding to sustain U.S. university research: ``More likely
in the foreseeable future is an increasing intensity of competition for
a large and expanding but finite federal research fund by a growing
number of research capable universities. . .. More promising is the
prospect of increasing the share of research funding contributed by the
states and by the private sector, particularly by industries that
benefit from technologies that build on the scientific products of the
universities. Unlike the Domestic Discretionary budget, the assets of
the private sector do grow with GDP, and industrial investment in R&D
has consequently increased much more rapidly than the federal
contribution.''[2]
Impact of Bayh-Dole
Bayh-Dole recognized a fundamental reality--that companies are the
primary engine for technology commercialization and the primary channel
for getting new products to market for the benefit of society. Neither
the government nor universities can or should fulfill those roles. So,
in order to develop nascent inventions from the university and deliver
them as new products to the market place companies are an essential
partner. By giving universities the right to take title to inventions
from federally funded research and the obligation to try to
commercialize those inventions through licensing, the Bayh-Dole Act
provided the legal framework to facilitate the transfer of technology
from universities to industry. This has undoubtedly benefited the
United States. Since universities were allowed to set licensing fees
and royalties and to keep all the licensing revenue Bayh-Dole also
created the expectation that universities should control intellectual
property and generate income from their inventions. As financial
pressures on universities have increased the prospect of filling the
funding gap through licensing revenue is very attractive. However,
although licensing income has grown steadily as university technology
transfer offices have licensed significant numbers of inventions, the
total net licensing revenues reported by universities to the
Association of University Technology Managers are not sufficient to
fill the research funding gap. In fact, the licensing income is only
about one third of the total research funding that the same
universities are receiving from industry (Figure 3).[3] Thus, it seems
that the best interests of the universities will not be served by
trying to increase licensing revenue at the expense of research funding
from industry.
Influence of Bayh-Dole on University-Industry Research Collaborations
Bayh-Dole has undoubtedly fostered some university-industry
collaborations but it has had the unintended consequence of impeding
many more.
Bayh-Dole has enabled licensing transactions and some new research
to support the transfer of the inventions. For instance, when a company
licenses a university invention that resulted from federal funding it
may choose to engage the faculty inventor in follow-on research to
further develop or refine the invention for commercial practice. This
is more likely to happen when the licensee is a small company with
limited internal research and development capabilities.
Bayh-Dole has not, however, fostered research partnerships--those
in which a company is not seeking to license an existing university
invention but, rather, to engage a faculty member and his or her
students to perform research of interest to the company. In those
research partnerships the company provides the funding for the research
(including university overhead), frames the research problem, and may
provide other resources to the university project such as company-
generated research or testing results, proprietary technical, business
or market information, non-commercial samples or prototypes, access to
company facilities, and consultation with company researchers. In
return, the faculty member and student(s) have an interesting real-
world research problem to work on and usually the right to publish the
research results. These company-sponsored projects thereby support the
educational, research, and information dissemination missions of the
university.
There is a fundamental difference between federally funded research
and company funded research. In the former case the funding comes from
tax dollars so it is reasonable to promote a use of resulting
inventions in a manner that generally benefits society. That societal
benefit comes in two ways: invention licensing income provides
financial support for the university and successful commercialization
of inventions brings new products to the public. The university, the
licensee, and tax payers all benefit. In the latter case, that of
company sponsored research, the research funding comes from the
company's owners or shareholders and not U.S. taxpayers in general.
Company profits pay for the research investment, and company owners/
shareholders expect this investment to produce a return which generally
comes from a competitive advantage for its products in the market
place.
U.S. universities have taken the position that virtually all
privately sponsored research is at least ``touched'' in some way by
federal funds and, therefore, subject to the Bayh-Dole Act. By this
reasoning it then follows that the university, not the sponsor, should
own and control any inventions resulting from the sponsored research
and that the university should be free to license these inventions as
it sees fit. This very broad interpretation seems to be in conflict
with both the stated intention of the Act and the language of the
implementing regulations. In fact, the policy and objective section of
the Bayh-Dole Act lists, among others, the following two objectives: to
promote collaboration between commercial concerns and nonprofit
organizations, including universities and to promote the
commercialization and public availability of inventions made in the
United States by United States industry and labor.[4] The section of
the implementing regulation which defines its scope states: ``To the
extent that a non-government sponsor established a project which,
although closely related, falls outside the planned and committed
activities of a government-funded project and does not diminish or
distract from the performance of such activities, inventions made in
performance of the non-government sponsored project would not be
subject to the conditions of these regulations. An example of such
related but separate projects would be a government sponsored project
having research objectives to expand scientific understanding in a
field and a closely related industry sponsored project having as its
objectives the application of such new knowledge to develop usable new
technology.''[5]
Before beginning a company-sponsored research project the
university and sponsor generally execute a research agreement that,
among other things, determines how any inventions that may occur will
be treated. As mentioned above U.S. universities generally claim
ownership of inventions made by their faculty and students in the
course of performing research sponsored by a company. The research
agreement terms typically offered by U.S. universities give the sponsor
a time-limited option to negotiate a license for the invention and
require the research sponsor to pay patenting costs. The sponsor has to
pay for the research and pay for the patenting without any guarantee
that it can obtain a license at a reasonable cost. In fact, if the
sponsor and university cannot reach agreement on the value of the
invention and licensing terms then the university is free to license
the invention to another company, even a competitor of the research
sponsor. This is indeed a ``nightmare scenario'' for the company
sponsoring the research because, although it framed the research
problem and paid for the research activity, the resulting invention
could give a competitive advantage to its competitor! Because of these
risks and uncertainties many companies hope that no inventions result
from their sponsored research at U.S. universities. This is an
unfortunate situation since it limits the scope of the research
partnerships and the potential benefit from them, for all parties.
For industries like my own (the chemical industry) patents are
critical to business success. The cost of taking an invention from
concept to commercial product is very high and the probability of
success is low. It is not unusual for development and commercialization
to take 10 to 15 years. Construction of a world-scale chemical plant
costs hundreds of millions of dollars. Products and plants have a long
life cycle. Most chemical companies are unwilling to make such a large
investment unless they have the protection provided by ownership or
exclusive control of the supporting product and process patents. They
are also unwilling to make these investments if their licensing fees
and royalty obligations make the profit margins too low.
Effects of the Increasing Globalization of Research
Global competition is an inevitable consequence of capitalism and
free trade, two of the foundations of the U.S. economy. U.S. companies
must produce products that are better or less expensive than those
produced by competitors in order to stay in business. U.S. companies
also want to access to foreign markets in order to grow. These and
other factors, (fast, reliable, and inexpensive global
telecommunications and air travel to name a few) have led U.S.-based
companies to expand their research, manufacturing, and marketing assets
abroad. This expansion leads naturally to the establishment of research
partnerships with universities located in the same regions as the
company's research or manufacturing facilities.
At the same time companies are finding that research partnerships
with foreign universities offer a distinct advantage with regard to
intellectual property use. Most foreign universities, in both the
developed and developing world, readily provide the research sponsor
with exclusive or controlling access to inventions resulting from the
research. Such exclusivity comes through a variety of treatments of
inventions ranging from outright assignment of ownership to the sponsor
to joint ownership to granting of an exclusive license. In most cases,
the exclusive access is provided in return for payment of the cost of
the research and the cost of obtaining the patent. In some cases, the
company sponsor pays an additional, modest, predetermined fee.
Figures 4 and 5 provide data to support the observation that
foreign universities provide more favorable intellectual property terms
to research sponsors. In 2003 Dow compared the intellectual property
terms from more than one hundred sponsored research agreements between
Dow and universities around the world. Figure 4 shows that in 69
percent of agreements with U.S. universities the university took title
to sole inventions (those made by faculty or students in the course of
performing the research sponsored by Dow). In contrast, Figure 5 shows
that in 85 percent of agreements with foreign universities sole
university inventions were assigned to Dow or Dow was made a joint
owner.
It has also been Dow's experience that it is much faster and easier
to negotiate a research agreement with foreign universities. Not only
does this allow research projects to get started in a timely manner but
it also reduces the transactional costs associated with the
negotiation. In 2002 Dow measured the average cycle time for executing
a research agreement with U.S. universities. We found that, on average,
it took over five months from the time that the Dow researcher and
faculty member finalized the research plan until both parties signed
the research agreement. The most time-consuming step was negotiating
the intellectual property terms. In some cases we were not able to
reach an agreement, and we just walked away from the project. In
contrast, when we set up agreements with universities outside the U.S.
most negotiations were quite fast and easy, being completed in a few
weeks rather than many months.
The high quality of research being performed at many universities
outside the U.S., the favorable intellectual property terms that these
same institutions offer to research sponsors, and the relative speed
and ease of negotiating the supporting research agreements makes it
increasingly attractive for companies in the U.S. to set up more of
their research partnerships with universities abroad. At a recent
meeting of the External Technology Directors Network, a working group
within the Industrial Research Institute, members of the network
conducted a straw poll to find out whether member companies were,
indeed, increasing the amount of their sponsored research being done
abroad.[6] Of the 23 companies represented at the meeting 17 responded
that they are doing more of their sponsored research with foreign
universities than they did in the past. Of the 17 who responded in the
affirmative, nine agreed that either better intellectual property terms
and/or ease of negotiating the agreements were major reasons for their
decision to do more work with foreign universities.
Influence of Bayh-Dole on Academic Collaborations and the Broad
Dissemination of Knowledge
Bayh-Dole has had both positive and negative influences on academic
collaborations and dissemination of information. Academic
collaborations are fostered by the fact that all universities have
clear and equal standing with regard to their faculty's inventions that
come from collaborations in which each party receives funding directly
from the Federal Government. The situation is more complicated when
there are joint inventions or when funding flows from one university to
another since each party strives to maximize its rights to intellectual
property.
Perhaps the most serious impediment to academic collaboration
occurs when a university fails to make research results or materials
available to the rest of the research community. Material transfer
agreements between institutions have become very difficult to
negotiate. Some universities have elected to patent and license
research tools that result from federally funded research. It is hard
to make a compelling argument that society is better served by limiting
access of the research community to research tools developed with
federal funding. Such tools have a limited number of potential users in
the research community and don't have to be commercialized in order to
be useful. Patent protection is not needed because little or no
investment is required to make the tools available for others to use.
Putting research tools into the public domain satisfies the intent of
the Bayh-Dole Act with regard to public benefit. Generating income and
limiting access appear to be the main reasons for universities to
patent and license research tools.[7]
Changes in Bayh-Dole Legislation Needed to Promote U.S. Economic
Development
U.S. competitiveness and, hence, U.S. economic development will be
adversely impacted if no improvements are made in the climate for
university-industry research and development partnerships. The U.S.
economic engine cannot be fully engaged and functional if the three
main components of the technology enterprise (Industry, Universities,
and Government Laboratories) do not work together effectively to
investigate science and translate technology into new products. U.S.
companies with technology-based products will do more and more of their
research collaborations with foreign universities. The potential impact
on U.S. competitiveness of such a shift is well described in the report
from The National Academies, Rising Above the Gathering Storm.[8] Many
individuals and organizations, such as the University-Industry
Demonstration Partnership, are working to lower the barriers to
research collaborations between universities and companies in the U.S.
but there are still some practices and expectations regarding
intellectual property as well as some statutory and regulatory issues
that are problematic.
The Bayh-Dole Act, largely through misinterpretation or
misapplication, is offered as one of the main reason why universities
must own inventions resulting from company-sponsored research and
should have the freedom to license these inventions as they choose.
This problem could be mitigated by the addition of language which
further clarifies the intent of Congress relative to university
research supported with private, rather than government, funding. In
particular, clarification of circumstances under which private and
federal funding of related research can exist simultaneously without
Bayh-Dole rights and obligations being triggered would be very helpful.
It would also be very helpful to change some of the tax code
provisions, mainly Revenue Procedure 97-14 (recently superseded by
Revenue Procedure 2007-47) which creates a safe harbor for universities
relative to their tax-exempt bonds only as long as they do not give
preference in licensing foreground inventions to an industry sponsor of
research. Finally, some of the economic pressures on universities which
cause them to try to maximize their licensing revenue could be relieved
by raising or eliminating the federal cap on overhead rates.
Although the focus of today's hearing is on how Bayh-Dole has
affected university-industry relations it is worthwhile to remember
that Bayh-Dole also applies to companies that receive research funding
directly from government agencies. A white paper prepared by the
Integrated Dual-use Commercial Companies (IDCC) organization makes the
following observations and recommendations:[9] ``Several aspects of the
Bayh-Dole Act represent major barriers preventing most technology rich
commercial companies from even considering performing R&D with the
Government when there could be laboratory developments with Government
funding with significant commercial application. Some of the concerns
raised regarding the Bayh-Dole Act include the inability to keep a
patentable invention a trade secret, the breadth of the Government-
purpose license, march-in rights, and the broad definition of ``subject
invention,'' which includes inventions conceived (and possibly even
patented) prior to entering into the funding agreement, but first
actually reduced to practice under the funding agreement. Other
concerns are the mandatory disclosure, election and filing requirements
for subject inventions, which can potentially result in forfeiture of
title to the inventions if the requirements are not timely followed. An
additional concern is the Preference for U.S. Industry requirement,
which prohibits the contractor from granting an exclusive license to
use or sell a subject invention in the U.S. unless the licensee agrees
that any product embodying the subject invention will be substantially
manufactured in the U.S. These concerns have resulted in
recommendations from both Government and industry that they be
addressed.''[10]
``Most of these industry concerns could be simply addressed by
amending Section 35 U.S.C. 210(c) to provide that if a funding
agreement is made with a contractor that is subject to the Bayh-Dole
Act (35 U.S.C. 200-212), any rights of the Government or obligations
of the contractor relating to patents described in 35 U.S.C. 202-
204, may be negotiated between the Government and the contractor to
reduce such Government rights or contractor obligations, if the head of
the contracting activity determines that the interest of the Government
and the general public will be served thereby. This same right to
negotiate reduced Government rights or reduced contractor obligations
relating to patents would apply to those contractors that are large
businesses and that are subject to the Statement of Government Patent
Policy issued on February 18, 1983.''[11]
In summary, the Bayh-Dole Act is an important piece of legislation
that has produced many benefits. The unintended negative impact on
research collaborations involving industry, universities and government
can be mitigated through relatively minor changes in the law and
related regulations.
References and Notes
1. National Science Board, Science and Engineering Indicators 2004,
published by the National Science Foundation.
2. J. Marburger in a speech to the Council on Governmental Relations,
Washington, D.C., October 26, 2006 on the topic of Emerging Issues in
Science and Technology Policy.
3. From data in the AUTM Licensing Survey--Fiscal Year 2004,
published by the Association of University Technology Managers.
4. See 35 U.S.C. 200.
5. See 37 C.F.R. 401.
6. From a meeting of the Industrial Research Institute (IRI)-External
Technology Directors Network (ETDN), Fort Lauderdale, FL, April 19-20,
2007.
7. See, for example, R. Eisenberg, Science, 299, 1018-1019 (2003).
8. N. Augustine et al., Rising Above the Gathering Storm: Energizing
and Employing America for a Brighter Economic Future, The National
Academies (2005).
9. IDCC, Integrated Dual-use Commercial Companies, was formed in 1991
by major commercial firms dedicated to improving the efficiency and
effectiveness of Federal Government procurement and R&D interaction
with commercial firms. For additional information on IDCC see
www.idcc.org
10. See Diane M. Sidebottom, Updating the Bayh-Dole Act: Keeping the
Federal Government on the Cutting Edge, 30 Pub. Cont. L. J. 225 (Winter
2001); Richard N. Kuyath, Barriers to Federal Procurement: Patent
Rights, 36 the Procurement Lawyer I (Fall 2000). Diane M. Sidebottom,
Intellectual Property in Federal Government Contracts: The Past, The
Present, and One Possible Future, 33 Pub. Cont. L. J. 63 (Fall 2003).
11. Corresponding changes for large business concerns would need to be
made to the organic patent statutes applicable to DOE and NASA, 42
U.S.C. 2011, et seq. (DOE), 42 U.S.C. 5901-5915 (DOE), 42 U.S.C. 2451-
2459 (NASA) and 42 U.S.C. 2471-2476 (NASA).
Biography for Susan B. Butts
Dr. Susan Butts is Senior Director of External Science and
Technology Programs at The Dow Chemical Company. In this capacity she
is responsible for Dow's contract research activities with U.S. and
European government agencies and sponsored research programs at over
150 universities, institutes, and national laboratories worldwide. She
also holds the position of Global Staffing Leader for R&D, with
responsibility for recruiting and hiring programs.
Dr. Butts is active in a number of organizations that address
issues pertaining to relationships between industry, universities, and
government research laboratories. She is currently a Dow representative
to the Council for Chemical Research, the American Chemical Society's
Committee on Corporation Associates, and the Industrial Research
Institute (IRI). She is also a member of the National Council of
University Research Administrators (NCURA), the Association of
University Technology Managers (AUTM), the American Association for the
Advancement of Science, and Sigma Xi. Dr. Butts currently serves on the
governing boards for the Council for Chemical Research and the Alliance
for Science and Technology Research in America (ASTRA). She was a co-
founder and member of the Steering Team for the University-Industry
Partnership Project, an effort sponsored by the Government-University-
Industry Research Roundtable (GUIRR) of the National Academies, NCURA
and IRI with the goal of lowering the barriers to industry sponsored
research at universities. This project led to the creation of a new
organization, the University-Industry Demonstration Partnership (UIDP),
which operates within GUIRR. Dr. Butts is the Vice President of the
UIDP and will be President in 2008.
Dr. Butts holds a B.S. in chemistry degree from the University of
Michigan and a Ph.D. degree in organometallic chemistry from
Northwestern University. Before joining the External Technology group
Dr. Butts held several other positions at Dow including Senior Resource
Leader for Atomic Spectroscopy and Inorganic Analysis within the
Analytical Sciences Laboratory, Manager of Ph.D. Hiring and Placement,
Safety and Regulatory Affairs Manager for Central Research, and
Principal Investigator on various catalysis research projects in
Central Research.
Chairman Wu. Thank you very much, Dr. Butts. Mr. Johnson,
please proceed.
STATEMENT OF MR. WAYNE C. JOHNSON, VICE PRESIDENT, WORLDWIDE
UNIVERSITY RELATIONS, HEWLETT-PACKARD COMPANY
Mr. Johnson. Good afternoon, Mr. Chairman and distinguished
Members of the Committee. Thank you for the opportunity to
speak with you today on the subject of Bayh-Dole, the next 25
years.
I am Wayne Johnson, Vice President of University Relations,
Worldwide, from Hewlett-Packard Company. My focus is on
bringing universities and industry together to work
collaboratively, for mutual benefit and for our innovation
system.
I have been working in this area for over 20 years,
representing companies such Raytheon, Microsoft, and now
Hewlett-Packard. For the past three years, I have been working
on the cross-industry, cross-university efforts at GUIRR, the
Government University Industry Research Roundtable, part of the
National Academies here in Washington. I have been leading one
of the efforts at BASIC, the Bay Area Science and Innovation
Consortium in California, and I am a founding sponsor of the
UIDP, the federal University Industry Demonstration
Partnership, also here in Washington. The goal of these efforts
has been to remove the barriers that prevent universities and
industry from working together, and to understand deeply the
partnership models and operating parameters that will work
successfully, given the myriad of challenges that both parties
face.
Personally, I care deeply about U.S. universities and their
ability to work with industry. I believe that ability of these
two types of partners to come together around important
problems and interesting research areas is a very important
part of our future, and our ability to be successful and to
lead the world in innovation.
Now, you can hear me. I have three key points and two
recommendations for you to consider. First, my key points.
My first point is that the information technology or IT
industry does not believe in ``home run patents.'' Last week,
one of my colleagues went to a nearby office supply store, and
purchased an HP Color printer, color copier, scanner, and photo
printer all in one for $79.99. Today's products, such as PCs,
PDAs, printers, and cell phones, et cetera, are sophisticated,
complex aggregations of hardware, software, systems, and
services. Each one contains literally hundreds of patented
concepts and implementations. And yet, no single concept or
implementation makes or breaks the success of the product. Each
key concept can be designed around or implemented differently.
Therefore, the sort of home run patents, which have high
commercial value, rarely exist, and do not drive innovation in
the IT industry.
My second point is, one of the key original goals of the
Bayh-Dole legislation was to ``promote collaboration between
industry and universities.'' I am here to tell you today that
unfortunately, it has had the opposite effect. One of my
research colleagues has told me at HP Labs that he has been
able to set up research collaboration with elite universities
in Russia within a few days and just a few phone calls. Our
experience in negotiating collaborative agreements with U.S.
universities is that it can take as long as two years or more,
if indeed, we ever reach such an agreement over IP rights.
These types of situation have led to what we call a silent
breaking, where many companies in our industry simply walk
away, because it is too costly and takes too long to reach an
agreement.
My third point is that while intellectual property rights,
patents, and strong IP position have been critical to our
success in the past, it is innovation and collaboration,
together with strong relationships and interactions between
U.S. universities and industry, that will drive our future
success.
Our success depends on the ability of universities to
cultivate and develop world class talent through high quality
education of students, and this, in turn, depends on the
relevant and challenging educational experiences between
universities and industry. The shift away from collaboration is
one of the reasons why the silent breaking represents such a
threat to our long-term success in the IT industry and to the
health of our innovation system in the United States. And Bayh-
Dole in its present form does not address the particular issue
of interaction, collaboration, and strong relationships.
Here are my two recommendations. My first recommendation is
that we don't feel that Bayh-Dole should be changed, for two
reasons. Bayh-Dole provides IP protection for industry and
business models that depend on a few enabling key patents for
competitive advantage, and as has been mentioned previously,
certainly in the pharmaceutical industry. It also establishes a
uniform approach to ownership and licensing of intellectual
property, superior to the IPA process that it replaced.
In addition, my second recommendation is to launch a new
focus on innovation, one that makes this country a hotbed of
collaboration, one that highlights the differences between
invention and innovation, and that understands that superior
value can be created through innovation, one that enacts
policies to bring innovation to the forefront, both for our
industry's success and America's success for the next 25 years.
When we look into the future from an IT company perspective, we
believe that the focus on patents will wane over time, and many
of the things that drive innovation, from our experience, are
in the details, and those details are not about technology
licensing.
Thank you for your attention and the opportunity to testify
here today.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of Wayne C. Johnson
Introduction
Good afternoon Mr. Chairman and distinguished Members of the
Committee. Thank-you for the opportunity to speak with you today on the
subject of ``Bayh-Dole--The Next 25 Years.''
I'm Wayne Johnson, Vice-President of University Relations,
Worldwide, from Hewlett-Packard Co. My focus is on bringing
universities and industry together to work collaboratively, for mutual
benefit and for our innovation system.
I've been working in this area for over 20 years, representing
companies such as Raytheon, Microsoft, and now Hewlett-Packard. For the
past three years, I've been working on the cross-industry, cross-
university efforts at GUIRR (the Government University Industry
Research Roundtable), part of the National Academies here in
Washington. I've been leading one of the efforts at BASIC (the Bay Area
Science and Innovation Consortium in California), and I'm a founding
sponsor of the UIDP (the federal University Industry Demonstration
Partnership, also here in Washington.) The goal of these efforts has
been to remove the barriers that prevent universities and industry from
working together, and to understand deeply the partnership models and
operating parameters that will work successfully, given the myriad of
challenges that both parties face.
Personally, I care deeply about U.S. universities and their ability
to work with industry. I believe that ability of these two types of
partners to come together around important problems and interesting
research areas is a very important part of our future, and our ability
to be successful and to lead the world in innovation.
Outline of Key Points and Recommendations
Key Points
Before getting into the details of my testimony this afternoon,
there are three key points and two recommendations that I'd like for
you to consider.
Please note the opinions expressed here are from an information
technology industry perspective, and are not intended to reflect the
issues and concerns of other industries such as Life Sciences, etc.,
which we understand to have very different needs.
1. We in the information technology (``IT'') industry do not believe
in ``Home-Run'' Patents
Today's products are sophisticated, complex
aggregations of software, systems and services (such as the
personal computer, PDA or cell phone)
Each one contains literally hundreds of patented
concepts and implementations
Yet no one concept or implementation ``makes or
breaks'' the success of the product
``Home-Run'' patents do not drive innovation in the
IT industry
2. One of the key, original goals of the Bayh-Dole legislation was. .
.to promote collaboration between industry and universities. . .
Unfortunately, it has had just the opposite effect of
what was intended
3. While intellectual property (IP) rights, patents, and a strong IP
position have been critical to our success in past,
It is innovation, collaboration, and strong
relationships and interactions between U.S. universities and
industry that will drive our future success
And Bayh-Dole, in its present form, does not address
the particular issues of interaction, collaborations, and
strong relationships
Recommendations
1. At this time, we recommend that Bayh-Dole not be changed.
Bayh-Dole provides IP protection for industries and
business models that depend on a few enabling patents for
competitive advantage
It also establishes a uniform approach to the
ownership and licensing of intellectual property, far superior
to the IPA process that it replaced
2. In addition, we recommend a new focus on innovation--one that makes
this country a ``hot-bed'' of collaboration
One that distinguishes the differences between
invention and innovation, and that understands the superior
value that can be created through innovation
And one that enacts policies to bring innovation to
the forefront, both for our industry's success and for
America's success during the next 25 years
When we look into the future from the IT industry
perspective, we believe that the focus on patents will wane.
Many of the things that drive innovation, from our experience,
are in the details, and those details are not about technology
licensing.
Innovation & the IT Industry Perspective
The information technology (``IT'') industry has followed a unique
evolution throughout the past five decades.
Initially, the efforts of university researchers and companies were
largely decoupled, with universities focusing on basic research, and
companies working to develop ``stand-alone'' products. Innovation
efforts were typically focused on creating technologies that would
enable new categories of products, such as printers, calculators,
computers, etc.
As technology advanced and products grew more sophisticated in
their capability, the focus of innovation moved to combining these
products into systems. An example of such a system is the personal
computer which integrates processors, memory, and video into an
extremely useful, powerful, and low-cost system.
And as these systems became more advanced, they became linked
together into networks, creating a widely available information
infrastructure. The emphasis in innovation is now on how to create
services that make sophisticated tasks both possible and pervasive,
creating a whole new wave of communication and information capabilities
enabling the Internet, cell phones, iPods, etc.
Innovation in today's world requires the combined efforts of
multiple companies, partnering across multiple industries to bring a
competitive offering to the customer. Even the seemingly simple printer
shown here involves multiple research disciplines and numerous sciences
in its creation, design, and development.
In this new model of product development, ``goodness'' is equated
with the success of many varied players in the resulting ecosystem,
all-the-while competing with each other to make contributions to and
gain the loyalty of the end-consumer. Their primary mode of operation
is innovating, creating more novel and unique value, and driving prices
down so that more people can benefit from the products and services
being offered. For example, printers that once only printed black &
white text and sold for hundreds of dollars, can now print color
documents and photographs, make color copies, and scan documents, all-
in-one, and sell for $79.99. People using printing services enjoy the
experiences of sharing photos with family and friends anywhere in the
world, as their printer interfaces with the Internet and uploads their
favorite photos automatically for sharing with others.
The pace of innovation in the IT industry is accelerated, marked by
very rapid time-to-market. Product development cycles are 9-15 months
and product life times are in the range of three to six months. The
phrase that probably best characterizes this industry and its
unrelenting pace of new value creation is ``innovate or die.''
The Myth of ``Home-Run'' Patents
``Home-run'' patents are those which are key enablers for unique
products or spawn whole new industries, and represent massive potential
licensing revenue windfalls for a university. Some universities have
built their technology transfer offices (TTOs) around the belief that
the next ``home-run'' patent is imminent, eager to capture a
significant windfall. Other universities have been driven by the fear
of being known as the TTO that let the ``big one'' get away. This set
of beliefs is reinforced by the universities' TTO focus on licensing
revenue as a measure of their success.
These beliefs are driving the universities to behave as if the
major, if not only, mechanism for transferring new knowledge is through
patenting and licensing. However, there are many mechanisms for
disseminating new knowledge out from universities, including student
hiring, publications, conferences, informal exchanges, visiting
researchers, etc.
For IT companies, the perspective about intellectual property is
quite different. Most IT products involve the combined use of hundreds
of patented ideas. Many of these patents are incremental advances and
concepts for which there is no single patent that defines a key
enabling technology. Due to the large number of patents in a typical IT
product, companies will not pursue royalty-bearing licenses with
universities. Also, the IP in IT products is unlikely to be clearly
unique and defensible, since other approaches are generally feasible,
making it difficult and expensive to protect. For many IT companies,
the role of IP is to accelerate product development, rather than to
enable it. It's not about the value of a single patent (since it is
relatively easy to design around any IP that might present a problem);
it's more about the exchange of ideas and collaborative research that
builds out an ecosystem which utilizes the technologies being
developed.
As a company in the IT industry, we don't believe in ``home-run''
patents, and we don't believe that they exist (for us). Innovation is
driven by the knowledge that is created through collaboration and the
flow of ideas, by working with leading research centers and doing good
research, and by hiring well-educated students into the research and
development activity.
Bayh-Dole: Its Goals and Results
As we have reviewed the original intent of the Bayh-Dole
legislation, three of its major goals are identified as--
1. to promote the utilization of inventions arising from
federally supported research and development,
2. to encourage maximum participation of small business firms
in federally supported research and development efforts,
3. to promote collaboration between commercial concerns and
nonprofit organizations, including universities
Promoting Industry-University Collaboration
In this testimony, we will take an in-depth look goal #3 (above),
from the perspective of the IT industry.
How well did Bayh-Dole do in terms of its objective to promote
collaboration? From the results that have been observed over the past
10 years, we would have to give it a poor-to-failing grade.
Unfortunately, much of what has actually happened has been exactly the
reverse of what was intended, when the legislation was written.
1. Bayh-Dole has contributed to shifting the focus and
attention of joint research towards rights, ownership, and the
licensing of intellectual property, and away from
collaboration, partnership, and innovation.
2. Bayh-Dole has accelerated the building of a bureaucracy--
the technology transfer offices in U.S. universities. Since the
inception of Bayh-Dole in 1980, more than 65 U.S. universities
have put into place technology transfer offices as a way of
dealing with the increasing emphasis on monetizing intellectual
property, the belief in ``home-runs,'' and the shortfalls in
university funding.
3. The existence of these technology transfer offices has, in
turn, constrained (not amplified) the flow of knowledge and
research outward from universities. The TTOs have focused
almost exclusively on patenting and licensing revenues, and in
many cases operate independently of the industrial liaison
offices, the sponsored projects offices, and other mechanisms
that universities use to promote engagement and interaction
with industry. One notable exception to this phenomenon is
where the TTOs have been combined with Industrial Liaison
Offices to provide a more comprehensive engagement model
between universities and industry (e.g., the UC-Berkeley IPIRA
model.)
4. The increased focus on rights, licenses, and revenues has
strained the already challenging and tenuous relationships that
have existed between U.S. companies and universities. This
shift in focus towards ``intellectual property'' has made it
more difficult for these two parties to work together. It has
fueled mistrust, escalated frustration, and created a misplaced
goal of revenue generation, which has moved the universities
and industry farther apart than they've ever been.
5. The process of negotiating agreements that specify how to
work together in joint research areas have turned into
disagreements over IP rights and ownership, and taken up to 2+
years to converge, if indeed both parties ever come to mutual
agreement. Often, both parties give up, disengage from the
negotiation process, and resolve never to try and engage with
each other again in joint collaborations.
6. The inability to reach agreement, and the frustration,
mistrust, and damaged relationships over IP rights have
contributed to a ``silent breaking,'' where companies decide
that it's too costly and too much trouble to try and work with
universities. Companies then ``walk away'' and find other
partners such as the elite universities in Russia, India, and
China, who are more flexible in their working arrangements, are
easier to work with, and are more agile and speedy in their
negotiations.
7. If effect, what Bayh-Dole has done, is rather than create a
congressionally-mandated reason for universities and industry
to work together for mutual benefit and increased societal
benefit, is to organize a ``shot-gun wedding,'' where both
parties are trying to do the right thing, but it simply doesn't
work because the focus is misplaced on rights, ownership, and
revenue generation.
While the overall practice of collaboration has eroded
significantly in the past decades, it's important to note that not all
universities have jumped on the IP bandwagon and focused on IP solely
as a source of revenue for their institutions. In our experience there
are some universities that can strike an appropriate balance between
fostering collaborative relationships with industry, and at the same
time managing the rights and patents associated with IP development.
Universities such as Purdue, Georgia Tech, UC-Berkeley, and Stanford
seem to know how to balance all of these needs, and still keep a focus
on becoming the partners of choice for U.S. companies.
Innovation, Globalization, and New Interaction Models
While universities and the IT industry have been experiencing
increasing relationship difficulties during the past decade, the world
situation has been changing dramatically.
When Bayh-Dole was created, it was enacted to address a particular
situation and need, at the time. Now, 27 years later, the U.S. IT
industry (as well as others) is challenged with a new set of
circumstances--the forces of globalization, rapid time-to-market,
increasing sophistication of products and services, and the need for
both rapid technological and market innovation.
With the Internet and the ready availability of global supply
chains, we are experiencing an unprecedented ``flattening'' of the
world and a ``leveling of the playing fields'' which before were
thought to be the exclusive purview of U.S. industry. The expanded
information and communications technology (ICT) infrastructure,
together with the increased emphasis on science, technology,
engineering, and math (STEM) education globally, has created a
situation where literally anyone anywhere can create an innovative
product or service, and bring it to market quickly. In this modern,
interconnected world, new companies, new industries, and whole new
ecosystems are created in a fraction of the time that it used to take
for them in past to become established.
The ``speeding up'' of the world's rapid pace of development is
requiring that we find new models and ways of working together, to
match the accelerating pace of global innovation.
In light of this, we observe the following situations:
1. Today, most new information and communications technology
(ICT) companies (even small ones of 5-10 employees) are
structured to be ``global,'' from the outset. One does not have
to be a big company, to be a global company anymore. For
example, every university graduate with entrepreneurial
aspirations can start out their career, linking with fellow
students from other countries, and is enabled to access design,
development, and manufacturing facilities on a global basis.
2. Global companies can work with anyone, anywhere on the
planet, and are not constrained to working with university
partners in a single country, region, or location. They can
choose partners who have knowledge, ideas, insights, and
interesting research to offer, and who are not constrained or
slowed down by bureaucracies focused on rights, IP ownership,
and licensing revenues.
3. As the need for speed and rapid innovation has increased,
university TTOs have slowed down and impeded the process of
collaboration, and made their institutions increasingly more
unattractive and difficult to work with. This has, in turn,
encouraged companies to find other university partners to
engage with, typically outside the U.S. It has shifted the
sponsorship of research, the vigorous multi-disciplinary
interactions, and the flow of ideas to universities in other
countries. In terms of innovation and the future of success of
U.S. industry, this is a most distressing development.
4. The decreasing interaction and engagement of U.S.
universities with companies threatens to reduce the relevance
of their research and the quality of their students, and
therefore erodes one of the major foundations of the U.S.
national innovation ecosystem.
The Technology Transfer Model
While companies go in search of willing partners who are easy to
work with on a global basis, universities find that they are becoming
increasingly isolated from industry engagement, and are more reliant
than ever on government funding and sponsorship.
Perhaps even more worrisome is that the focus on intellectual
property of the past two decades has had the unintended effect of
institutionalizing an engagement model which is now obsolete in the
modern world.
In the old way of operating, research ideas were conceived of,
developed, prototyped, and then shown to industry partners for
evaluation, further engagement, and hopefully transferred into one or
more product development efforts. Usually, universities worked
independently during the early years of technology research, and then
when they ``had something'' that was tangible and interesting, they
went searching for industrial partners.
This research-then-transfer model (more commonly referred to as
``technology transfer'') worked well 20+ years ago when the pace of
innovation was a lot slower than it is today, when globalization was
relatively unheard of, and when the world was a lot less competitive in
the drive to bring valuable products and services to market quickly.
Back then, we were afforded the luxury of creating something first, and
then searching for an application of what was hoped to be a ``valuable
technology.''
Collaborative Engagement Models
As the pace of innovation has quickened, particularly in the past
decade, the research-then-transfer model has been quietly rendered
obsolete. Today, the development and engagement models of choice favor
multiple partners from the outset, engaging in the free-flow of ideas,
simultaneously envisioning many different applications for their work,
and creating different types of products and systems that the
technologies might be used in.
These new collaborative interaction models are inherently more
parallel, more vigorous and engaging, and involve multiple partners
(even competitors) working in tandem on their own ideas of what
particular idea or innovation that will provide new value to the
marketplace. They can't want for a single contribution to be
researched, perhaps with a wrong or misguided target application in
mind, and then have to redo the research later.
Some of the key points around innovation and interaction models
are:
1. Technology transfer is an inherently serial process, takes
too long, usually directs research along a single vector of
target application, and runs the risk of missing the more
useful applications of technology, when the work is at a
``transferable stage.''
2. The idea of ``valuable technology sitting on the shelf'' at
major research universities is flawed. Much of the value coming
out of the innovation process lies in the targeting of early
stage ideas to target applications and uses of the technology.
This is not where universities can engage from a position of
strength.
3. Technology transfer focuses institutions on ``things''--
rights, patents, licenses, etc. These are late-stage, after-
the-fact indicators that something valuable has been going on
between interested parties.
4. Collaborative models are more parallel, intensive, open
processes that generate a flow of ideas, and calibrate
directions and likely results quickly. They involve multiple
research perspectives, and often result in a particular idea or
concept being effectively utilized in multiple places, across
multiple disciplines, and enabling multiple commercialization
efforts to be undertaken simultaneously.
5. Collaborative models engage universities and industrial
partners at the beginning of the process, there ideas are soft
and malleable, and could go in a myriad of directions. With
multiple partners present, concepts and ideas can be developed
in many different directions, simultaneously from the
beginning.
6. Collaborative models are more efficient--they minimize the
risk of developing a research work on one particular line of
application, and then finding out late in the process that the
wrong path was chosen.
7. Collaborative models focus on people, capability
development, the flow of ideas. They foster relationship-
building, help to build trust, and avoid the traps of
negotiating who owns what, and what monies should flow to whom,
before the work is ever done.
This shift to more interactive and engaging research and
development models favors the processes of rapid knowledge creation,
the free flow of ideas and concepts, the parallel development of
multiple target applications of an idea or technology. In this new
model, no single idea or concept becomes the driving force behind
compelling new value--it now takes a whole array of new ideas and
concepts woven together in such a way as to make the new product or
system revolutionary at the time it's interested. As we stated earlier,
no single idea can be a ``home run,'' and the value of a single patent
without a whole series of others that complement it, is essentially
trivial.
University-Industry Relationships
Another important consequence of becoming overly focused on IP,
rights, and ownership, is the damage that is done to long-term
industry-university relationships. Universities have a wide range of
support needs. As mentioned earlier, the IP-focused negotiations which
impede collaboration, and the escalating frustrations, mistrusts, and
ill-will that result from not being able to reach agreement, have
caused incredible damage to these relationships. Yet the damage goes
far beyond the bounds of the sponsored research agreement itself.
In actuality, the funding that sponsored research generates for
many universities, is usually only a very small portion of their total
income. Yet the negative perceptions, the ill-will, and the memories
that are generated from failed negotiations--the silent breaking, and
the walk-away behaviors--have significant spill-over effects into other
sources of sponsorship for the university. Long after a single
negotiation has failed, the reluctance to participate in other areas of
support such as gifts, grants, endowments, research contracts,
consulting arrangements, and others lives on. The negative consequences
to the universities on a long-term, aggregate basis dwarf any amount of
money that could ever be recouped through IP licenses and royalties.
Summary
For the IT industry to be successful in the coming decades, we must
distinguish between inventions (which take us quickly into IP rights,
ownership, patents, and licensing discussions) and innovation which is
the life-blood of the IT industry. We must recognize that there are
different business models operating across different industry sectors,
and while a strong IP position may adequately cover the needs of some
industries, the need for a focus on innovation, collaboration, and new
ecosystem development goes largely unaddressed.
To make the IT industry competitive, we need to begin by creating
strong support for industry-university collaboration, and begin to put
into place what I call Innovation 3.0--the next version of a rapid,
vigorous, and healthy innovation environment.
We must help make U.S. universities the global partners of choice,
in this new, global and ``flattened'' world, and shift the focus of
attention back to people, the flow of ideas, and mutually beneficial
interactions. Bayh-Dole, as it is presently written, does not
accomplish this, but rather shifts attention away from people and ideas
(the raw materials of innovation) to IP, rights, licenses, and the
ownership of things.
Bayh-Dole also makes a dangerous leap, in that it confuses
invention with innovation, and reinforces a language and a vocabulary
solely around rights and ownership. These elements are late-stage
artifacts of an obsolete technology transfer model, which runs the risk
of putting America out of the loop of a competitive, global marketplace
where value is created and true innovation takes place independent of
any country, policy, region, or institution.
With Bayh-Dole and other legislation we've tried to address the
protection of inventions through a strengthening of IP policy. It's
time to do something for the other half of the equation--Ignite
Innovation, the life-blood of new industries and the foundation of
economic development.
And that time is now!
Thank-you for your attention, and for the opportunity to testify
here today.
References
Augustine, Norman R. (2005), ``Rising above the Gathering Storm:
Energizing and Employing America for a Brighter Economic
Future,'' The National Academies, Washington, D.C.
Florida, Richard, (2007). ``The Flight of the Creative Class--The New
Global Competition for Talent,'' Harper Collins Publishers, New
York, N.Y.
Friedman, Thomas L., (2005). ``The World is Flat, A Brief History of
the Twenty-First Century,'' Farrar, Straus, and Giroux, New
York.
Johnson, Wayne C., (2006). ``The Collaboration Imperative,'' Weber &
Duderstadt (eds.), Universities and Business: Partnering for
the Knowledge Society, Economica, London.
Johnson, Wayne C., (2006). ``Challenges in University-Industry
Collaborations,'' Weber & Duderstadt (eds.), Universities and
Business: Partnering for the Knowledge Society, Economica,
London.
Johnson, Wayne C., (2007). ``Innovation 3.0: Creating the Next Level
Twenty-First Century Innovation Ecosystem Platform,'' Kauffman
Thoughtbook 2007, Ewing Marion Kauffman Foundation, Kansas
City, MO.
Johnson, Wayne C., (2008). ``Partnering on a Global Scale,'' Weber &
Duderstadt (eds.), The Globalization of Higher Education,
London. (to be published)
Litan, Robert E., Lesa Mitchell, and E.J. Reedy (2007).
``Commercializing University Innovations: Alternative
Approaches,'' Working Paper, National Bureau of Economic
Research, Cambridge, MA.
Mowery, David C., (2005). ``The Bayh-Dole Act and High-Technology
Entrepreneurship in U.S. Universities: Chicken, Egg, or
Something Else?'' Colloquium on Entrepreneurship, Education,
and Technology Transfer, University of Arizona, AZ.
Thursby, Jerry and Thursby, Marie, (2006). ``Here or There,'' The
National Academies Press, Washington, D.C.
Yarris, Lynn, (2007). ``The Future of Innovation: A BASIC Roundtable
Symposium and Networking Event,'' Menlo Park, California (to be
published)
Biography for Wayne C. Johnson
Wayne C. Johnson is the Vice President for Hewlett-Packard
Company's University Relations Worldwide, located at HP Laboratories in
Palo Alto, California. He is responsible for higher education programs
in research, marketing and sales, recruitment, continuing education,
public affairs and philanthropy.
Johnson joined HP in 2001 from Microsoft's University Relations
department where he managed Program Managers and administrative staff
across a customer base of 50 tier-one universities. From 1967 to 2000,
he held a variety of positions at the Raytheon Company in Waltham,
Massachusetts, including National Sales Manager for Wireless Solutions,
Manager of International Financing and Business Development, Manager of
Administration and Strategic Planning for Raytheon's Research Division,
and Manager of Program Development and Operations for Technical
Services.
Johnson received his B.A. from Colgate University, Hamilton, NY and
his M.B.A. from Boston College's Carroll School, Boston, MA. He was an
Adjunct Professor of Management at Boston University from 1977 to 1999.
Johnson currently manages a worldwide organization of Program
Managers and administrative staff working across 94 universities
worldwide.
Johnson serves as a board member of:
Anita Borg Institute for Women and Technology (ABIWT)
MentorNet Advisory Board (MN)
Industrial Advisory Board, the International
Conference on Engineering Education (ICEE)
Wentworth Institute of Technology (WIT)
Alliance for Science and Technology Research for
America (ASTRA)
His memberships include:
The Glion Colloquium
Olin College's President's Council-Chair
Government-University-Industrial Research Roundtable
(GUIRR)
Association of American Colleges and Universities
National Leadership Council (AACU)
Accreditation Board for Engineering and Technology
Industrial Advisory Council (ABET)
Bay Area Science and Innovation Consortium (BASIC)
University-Industry Demonstration Partnership (UIDP)
Founding Sponsor
Chairman Wu. Thank you very much, Mr. Johnson. Professor
Lemley, please proceed.
STATEMENT OF DR. MARK A. LEMLEY, PROFESSOR OF LAW, STANFORD LAW
SCHOOL; DIRECTOR, STANFORD PROGRAM IN LAW, SCIENCE, AND
TECHNOLOGY
Dr. Lemley. Thank you, Mr. Chairman, distinguished Members
of the Subcommittee. I am Mark Lemley. I teach at Stanford Law
School. I want to make it clear that I am here speaking on my
own behalf, and not Stanford's. In fact, I suspect I will say
at least a few things that will horrify them.
Bayh-Dole fundamentally changed the way universities
approach technology transfer, and you can see that best in the
statistics. Universities obtain 16 times as many patents today
as they did in 1980. Now, everybody is getting more patents,
but still, universities' share of all patents in the United
States is more than five times greater than it was before Bayh-
Dole.
Universities license those patents for upwards of $1
billion a year. The effects of this surge in university
patenting, I think, have been both good and bad. On the
positive side, I think that the Bayh-Dole Act has had the
effect, has achieved the goal, of encouraging university
inventors to patent inventions, and to license patents to
private companies that can make use of them. So, the risk that
inventions were languishing in universities, that they were
never commercialized, has I think been addressed in significant
measure by Bayh-Dole. And particularly in the biomedical area,
these university-private partnerships have been responsible for
a number of significant breakthroughs, and I think we are going
to hear about at least one in a moment.
On the negative side, universities, I think, too often look
to the short run bottom line, how do I maximize my revenue from
licensing fees, and setting their licensing priorities, not to
the broader picture of how can I best improve technology
transfer for the benefit of society. Particularly in the
information technology industries we have just heard about,
there is a sense that university patents are interfering with,
rather than promoting the dissemination of technical knowledge
to the world at large, that universities are filing lawsuits to
try to restrict the use of this technology, and that they are
adversaries, not partners, in the deployment of technology.
There is, in fact, the situation has gotten so bad that one
information technology official has publicly referred to
universities as ``crack addicts,'' driven by ``small-minded
tech transfer offices addicted to patent royalties.'' Now, I
don't think the situation is as bad as all that, or at least
not as bad as all that most of the time, but the fact that
there is this widely divergent view between different
industries suggests that we have got an issue, or a problem we
need to address, and the testimony here, the very different
approaches we have heard so far, I think, is evidence of that.
The need for Bayh-Dole is greatest in the biomedical
industry, where the FDA approval process, and the hundreds of
millions of dollars, and the years of regulatory approval that
are required to develop new drugs, mean that just coming up
with an idea for a drug is only the very beginning of the
process, and that if there isn't exclusivity associated with
that drug, no one is going to take it all the way through the
regulatory environment. By contrast, in a field like computer
software, exclusivity not only often isn't necessary, but it
can actively interfere with the use of the technology.
The solution, I think, is largely in the hands of
universities, rather than legislative response to Bayh-Dole.
Universities need, I think, to take a broader view of their
role in technology transfer. Technology transfer from
universities ought to have as its goal maximizing the social
impact of technology, not simply maximizing a university's
licensing revenue.
Sometimes, that means patenting an invention and granting
an exclusive license. That is going to be true in a lot of
cases, in which there is a long, expensive commercialization
process that has to happen after the invention has been made.
Sometimes, it will mean patenting the invention but granting
nonexclusive licenses to all comers. That is especially true of
keystone or enabling technologies, the kinds of technologies
that open up an entirely new field. So, university patenting
was responsible for breakthroughs in chimeric DNA and in DNA
manipulation, in monoclonal antibodies. Those patents were all
licensed on a nonexclusive basis to all comers, and I think the
industry benefited from that. If we decided that one and only
one company can have control over recombinant DNA technology,
or one and only one company can have control over monoclonal
antibodies, I think the biotechnology industry would not be as
vibrant and as diverse as it is today.
And sometimes, I think, promoting social technology
transfer means foregoing patent protection altogether. So,
universities have an obligation, a role, to try to figure out
not just what maximizes the bottom line, but what actually is
going to achieve the goal of commercialization.
The government has an important oversight role in this
process. I think the Bayh-Dole Act contains various provisions
designed to limit exclusive licensing of federally owned
inventions, and to step in to require reasonable licensing of
university owned inventions, so-called march-in rights in
particular circumstances. So, my recommendation, at the end of
the day, is not that we rewrite Bayh-Dole, not that we change
it in fundamental ways, but that universities need to pay
attention to the characteristics of the invention and the
technology, and that if they don't, there is an oversight role
for government to step in and make sure that the licensing
occurs on the most reasonable and most favorable terms.
Thank you.
[The prepared statement of Dr. Lemley follows:]
Prepared Statement of Mark A. Lemley
Summary of Testimony
The Bayh-Dole Act was enacted in 1980 in order to make it easier
for universities to transfer technology to the private sector, and to
solve the perceived problem of inventions made in universities
languishing there, rather than being deployed to solve real world
problems.
Bayh-Dole fundamentally changed the way universities approach
technology transfer. Universities obtain 16 times as many patents today
as they did in 1980, and their share of all patents is five times
greater than it was before Bayh-Dole. They license those patents for
upwards of $1 billion a year in revenue.
The effects of this surge in university patenting have been both
good and bad. On the positive side, it seems clear that the Act has
achieved its goal of encouraging university inventors to patent those
inventions and to license those patents to private companies that can
make use of them. Particularly in the biomedical area, these
university-private partnerships have been responsible for a number of
significant breakthroughs.
On the negative side, universities have too often looked to the
short-run bottom line in setting their licensing priorities, granting
exclusive rights to breakthrough technologies to businesses that may
not be best suited to exploit them for the benefit of society as a
whole. Particularly in the information technology (IT) industries,
there is a sense that university patents are interfering with rather
than promoting the dissemination of technical knowledge to the world at
large. The growing number of university-filed and university-sponsored
patent lawsuits in the IT industries, many in association with non-
practicing entities (or so-called ``patent trolls''), has added to the
sense in those industries that universities are often adversaries, not
partners, in the deployment of technology.
The problem in my view is not with Bayh-Dole per se, but with the
way it has sometimes been implemented without sufficient sensitivity to
the very different characteristics of different industries. The need
for Bayh-Dole is greatest in the biomedical industry, where the FDA
approval process and the hundreds of millions of dollars required to
develop new drugs means that few will see an idea through to fruition
without the promise of exclusivity. By contrast, in a field like
computer software, exclusivity not only isn't necessary but may
actively interfere with the use of the technology.
Universities should take a broader view of their role in technology
transfer. University technology transfer ought to have as its goal
maximizing the social impact of technology, not merely maximizing the
university's licensing revenue. Sometimes this will mean patenting an
invention and granting an exclusive license. Sometimes it will mean
granting nonexclusive licenses to all comers. And sometimes it should
mean foregoing patent protection altogether. For Bayh-Dole to work as
intended, universities must look beyond their short-run profit and
think about what is best for society as a whole.
The government has an important oversight role in this process.
Bayh-Dole contains various provisions intended to limit the exclusive
licensing of federally owned inventions (35 U.S.C. 209) and to step
in to require reasonable licensing of a university-owned invention (35
U.S.C. 203). To date, those provisions have not been used to exercise
effective oversight over university licensing. But they could be. What
is required, then, is not new legislation as much as greater vigilance
on the part of both universities and federal funding agencies to ensure
that university patenting serves its intended purpose and is not
misused. Congress should exercise its oversight function to ensure that
this happens, but it does not need to change the Act.
If Congress were to rewrite Bayh-Dole, the one change I would
encourage is the removal of the provisions (such as 35 U.S.C. 204)
that discriminate against foreign businesses and international trade.
They are the product of an earlier era of protectionism, and seem out
of place in the global marketplace in which we find ourselves.
Doubtless American universities have ample incentive to support local
businesses; they should not be precluded from licensing their
inventions to whoever can best provide the benefits of those inventions
to the American consumer.
Are Universities Patent Trolls?\1\
---------------------------------------------------------------------------
\1\ 2006 Mark A. Lemley.
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Mark A. Lemley\2\
---------------------------------------------------------------------------
\2\ William H. Neukom Professor of Law, Stanford Law School; of
counsel, Keker & Van Nest LLP. I am particularly grateful to a large
number of people who read this and gave me comments, even though simply
asking the question is anathema to many of them. In particular, thanks
are due to David Adelman, Ann Arvin, Robert Barr, Linda Chao, Michael
Cleare, Peter Detkin, Brett Frischmann, Carl Gulbrandsen, Rose Hagan,
Joel Kirschbaum, Kathy Ku, Gary Loeb, Lita Nelsen, Alan Paau, Arti Rai,
David Simon, and Janna Tom, and to participants in conferences at
Washington University School of Law and the Licensing Executives
Society/Association of University Technology Managers joint meeting for
comments on this topic. Not only don't they necessarily agree with what
I've said, in many cases I'm sure they don't. This is an edited
transcript of a speech, and reads like it.
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I. Complaints About University Patents
The confluence of two significant developments in modern patent
practice leads me to write a paper with such a provocative title.\3\
---------------------------------------------------------------------------
\3\ So I don't give anyone a coronary, the general answer to the
question in my title is no.
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A. The Rise of Patent Holdup
The first development is the rise of hold-up as a primary component
of patent litigation and patent licensing. You can call this the troll
problem if you like.\4\ I prefer to think of it as the hold-up problem.
But whatever we call the problem, it seems quite clear that more and
more patent litigation is being filed, and significant money is being
made, by non-manufacturing entities--entities that don't themselves
actually make the product and in many cases don't actually engage in
developing the technology very far at all. Many of these entities also
engage in tactics that allow them to lay low and then take a mature
industry by surprise once participants in the industry have made
irreversible investments.\5\ The holdup or troll problem is
particularly significant in component-driven industries, notably
information technology (IT), where the problem is compounded by the
fact that a product developer such as Intel that must aggregate
thousands of different inventions into its semiconductor chip is
vulnerable to hold-up by any one of the thousands of inventors. Patent
owners in those component industries can capture far more than the
intrinsic value of their invention, because under long-standing patent
law patent owners have the right not just to sue and get paid the
percentage of the value contributed by their invention but to enjoin
the sale of Intel's entire chip until it can design a new chip that
avoids infringing that patent, something that might take years and
require investing billions of dollars in a new fab.\6\ These factors
have combined to produce the growth industry of the new millennium:
patent hold-up. Hundreds of companies are engaging in efforts to
capture not just the value of what you contributed to as an invention,
but a disproportionate share of somebody else's product.
---------------------------------------------------------------------------
\4\ The term ``patent troll'' was coined in the late 1990s by Peter
Detkin, then assistant general counsel at Intel, to refer to patent
owners who hide under bridges they did not build to pop out and demand
money from surprised passers-by. I'll talk about some definitions of
``patent troll'' at the end of this paper.
\5\ For discussions of this problem, see, e.g., Mark A. Lemley, Ten
Things To Do About Patent Holdup of Standards (And One Not To), 48 B.C.
L. Rev. 149 (2007); Mark R. Patterson, Inventions, Industry Standards,
and Intellectual Property, 17 Berkeley Tech. L.J. 1043, 1048-51 (2002).
\6\ On this problem and how it leads to settlements well in excess
of the intrinsic value of the patent, see Mark A. Lemley & Carl
Shapiro, Patent Holdup and Royalty Stacking, 85 Tex. L. Rev.
-- (forthcoming 2007); Carl Shapiro, A Model of Patent
Bargaining With Holdup (working paper 2006).
---------------------------------------------------------------------------
B. The Rise of University Patenting
The second development in the last three decades is the massive
surge in university patenting.\7\ Universities obtained sixteen times
as many patents in 2004 as in 1980,\8\ and universities had 1000 times
as many technology transfer offices.\9\ In significant measure this is
a result of the Bayh-Dole Act,\10\ which not only permits but
encourages university patenting of federally-funded inventions. But it
is also a reflection of the growth in importance of patents more
generally. Those university patents don't sit dormant; universities
license them to companies for over $1 billion a year in revenue.\11\
Patents are now a significant contributor to some university bottom
lines. And importantly, more and more university patents are patents on
the very earliest stages of technology. It is universities, perhaps not
surprisingly given their role in basic research, who are patenting the
basic building blocks in new technologies. We see this with particular
force in nanotechnology, an area I have studied in detail.\12\
Universities, which account for one percent of patents on average
across all fields, account for 12 percent of all patents in
nanotechnology, and more than two-thirds of what I identify as the
basic building block patents in nanotechnology.\13\ The other area in
which university patents are significant is biotechnology, where they
represent about 18 percent of all patents.\14\ As a result,
universities have met a much bigger role in patenting than they ever
have before.
---------------------------------------------------------------------------
\7\ For a discussion of the growth of university patenting and its
potential risks, see DAVID C. MOWERY ET AL., IVORY TOWER AND INDUSTRIAL
INNOVATION: UNIVERSITY-INDUSTRY TECHNOLOGY TRANSFER BEFORE AND AFTER
THE BAYH-DOLE ACT 4 (2004); John R. Allison et al., University Software
Ownership: Trends, Developments, Issues (working paper 2006); Katherine
J. Strandburg, Curiosity-Driven Research and University Technology
Transfer, in University Entrepreneurship and Technology Transfer:
Process, Design, and Intellectual Property 93 (Gary D. Libecap, ed.,
2005).
\8\ Before 1980, universities worldwide obtained about 250 U.S.
patents a year. In 2003, they obtained 3933 patents, an almost sixteen-
fold increase. See Bernard Wysocki Jr., College Try: Columbia's Pursuit
of Patent Riches Angers Companies, WALL ST. J., Dec. 21, 2004, at A1.
\9\ Lorelai Ritchie de Larena, The Price of Progress: Are
Universities Adding to the Cost?, 43 Hous. L. Rev. 1373, 1412 (2007)
(``There were only 25 active technology-transfer office in the United
States an the time the Bayh-Dole Act was passed. By the twenty-fifth
anniversary of the Act, there were 3300'').
\10\ 35 U.S.C. 200 et seq.
\11\ Jerry G. Thursby & Marie C. Thursby, University Licensing and
the Bayh-Dole Act, 301 SCI. 1052, 1052 (2003); The Big Ten:
Universities That Made the Most Licensing Dollars Last Year, IP L. &
BUS., Jan. 5, 2005, at 14 (estimating $1 billion in 2004); Bernard
Wysocki Jr., Columbia's Pursuit of Patent Riches Angers Companies, Wall
St. J., Dec. 21, 2004, at A1, A12 (estimating $1.3 billion per year).
\12\ Mark A. Lemley, Patenting Nanotechnology, 58 Stan. L. Rev. 601
(2005).
\13\ Id. at 616 & Table 2.
\14\ See David E. Adelman & Kathryn L. DeAngelis, Patent Metrics:
The Mismeasure of Innovation in the Biotech Patent Debate, 85 Tex. L.
Rev. -- (forthcoming 2007), available at http://
papers.ssrn.com/sol3/papers.cfm?abstract-id=881842
---------------------------------------------------------------------------
C. Are Universities Engaged in Holdup?
At the confluence of these developments is a growing frustration on
the part of industry with the role of universities as patent owners.
Time and again, when I talk to people in a variety of industries, their
view is that universities are the new patent trolls. One even referred
publicly to universities as ``crack addicts'' driven by ``small-minded
tech transfer offices'' addicted to patent royalties.\15\
---------------------------------------------------------------------------
\15\ Comments of Chuck Fish at the Fordham International IP
Conference, April 22, 2006.
---------------------------------------------------------------------------
Why such a vehement reaction? One important reason is that
universities are non-manufacturing entities. They don't sell products.
I don't think that necessarily means they're bad actors. But it does
mean that their incentives in dealing with the patent system align in
many ways with those of private-sector patent licensing shops. One of
the assumptions corporations in patent-intensive industries (such as IT
or increasingly biotechnology) make about patenting is symmetry: that
if a competitor sues you for infringement you can sue them back. That
symmetry deters patent litigation in the industries in which it
operates.\16\ But that symmetry doesn't exist for non-manufacturing
entities. Universities aren't going to cross license. They aren't going
to trade their patents away in exchange for a cross-license, because
they don't need a license to other people's patent rights.\17\ Instead,
they want money. And to an IT general counsel who deals with dozens of
threats of suit every year, any patent owner in that position looks an
awful lot like a patent troll. In short, there's definitely a sense
among industry representatives that universities are greedy when it
comes to licensing patents.
---------------------------------------------------------------------------
\16\ See, e.g., John R. Allison et al., Valuable Patents, 92 Geo.
L. J. 435, 474 (2004) (finding that semiconductor patents are litigated
only one-third as often as other patents, and offering the symmetry of
relationships as an explanation). To be sure, other factors, such as
industry concentration and large patent portfolios, may play a
significant role in causing disputes in this industry to be resolved
without litigation. See Gideon Parchomovsky & R. Polk Wagner, Patent
Portfolios, 154 U. Pa. L. Rev. 1 (2005).
\17\ Theoretically universities could be sued for infringement, but
they aren't--there is only one reported decision involving an
infringement suit against a university between 1983 and 2004. See Tao
Huang, The Experimental Purpose Doctrine and Biomedical Research, 11
Mich. Telecomm. & Tech. L. Rev. 97, 111-12 & tbl. 1 (2004). For reasons
this might be true, see Rowe, supra note --, at 940-44.
---------------------------------------------------------------------------
Compounding the perception of greed is that university patent
licensing offices have strong institutional incentives to grant
exclusive rather than non-exclusive licenses, for various reasons.
First, exclusive licensing royalty rates are almost always higher than
non-exclusive rates. That's not surprising, since the licensee is
getting more from an exclusive license than from a non-exclusive
license. From the perspective of a tech transfer office focused on this
quarter's bottom line, that higher royalty rate is hard to turn down.
Second, the companies with which they are negotiating often want
exclusivity.\18\ They are especially likely to get it if the company in
question is a faculty-organized startup.\19\ Finally, exclusive
licensees often pay the cost of patent prosecution, a relatively small
savings but an immediate one that impacts the tech transfer office's
bottom line. The result is that the overwhelming majority of university
patent licenses are exclusive. In the nanotech licenses I studied (just
a few dozen, admittedly), between 95 and 100 percent of the university
licenses granted were exclusive.\20\ One example from the biotechnology
field of an exclusive license to an enabling technology is WARF's
field-exclusive license to Geron of all stem cell patents, granted
shortly before those stem cell patents became extraordinarily valuable
because the Bush administration obstructed the development of new stem
cell lines.\21\
---------------------------------------------------------------------------
\18\ See, e.g., William J. Holstein, Putting Bright Ideas to Work
Off Campus, N.Y. Times, Nov. 5, 2006, at 11 (quoting William R. Brody,
president of Johns Hopkins University) (``Companies, on the other hand,
want exclusive licenses.'').
\19\ Ritchie de Larena, supra note --, at 1415
(referring to ``tacit favoring'' of such companies).
\20\ Lemley, supra note --, at 627; ETC GROUP,
NANOTECH'S ``SECOND NATURE'' PATENTS: IMPLICATIONS FOR THE GLOBAL SOUTH
14 (June 2005), http://www.etcgroup.org/documents/
Com8788SpecialPNanoMar-Jun05ENG.pdf (last visited Oct. 28, 2005). See
also Allison et al., supra note --, at --
(discussing exclusive licenses of software patents by universities).
\21\ See, e.g., Amy Rachel Davis, Patented Embryonic Stem Cells:
The Quintessential ``Essential Facility''?, 94 Geo. L.J. 205 (2005);
Ryan Fujikawa, Federal Funding of Human Embryonic Stem Cell Research:
An Institutional Examination, 78 S. Cal. L. Rev. 1075 (2005). Those
patents are now under reexamination at the PTO, however, and WARF has
significantly eased its licensing restrictions, particularly for
academic research. For a discussion, see Antonio Regaldo & David P.
Hamilton, How a University's Patents May Limit Stem-Cell Research, Wall
St. J., July 18, 2006, at B1.
---------------------------------------------------------------------------
In fact, however, this higher royalty rate may or may not translate
into a higher revenue stream for the university. Whether it does
depends on the nature of the technology being licensed. For certain
basic building blocks--what I call ``enabling technologies''--opening
up licensing to many innovators who can develop different uses will
generate substantial improvements, while giving an exclusive license to
only one person will generate fewer improvements.\22\ And exclusive
licenses can block any development of a technology if the licensee
doesn't deliver.\23\ Even if in the long run non-exclusive licensing of
many technologies actually increases university revenue, in the short
run a university tech-transfer office seeking to maximize the amount of
money that the office generates will tend to grant exclusive licenses.
Exclusive licenses aren't necessarily bad--a point I discuss below--but
they raise concerns about the effective diffusion of new technologies.
---------------------------------------------------------------------------
\22\ I have made this argument in detail elsewhere, see, e.g., Mark
A. Lemley, Property, Intellectual Property, and Free Riding, 83 Tex. L.
Rev. 1031 (2005), and I won't repeat it here.
\23\ Rochelle Dreyfuss relates the story of Johns Hopkins' ill-
fated exclusive license to Baxter for a patent that it didn't use. The
exclusivity of the license prevented CellPro, which independently
developed a commercial use for the invention, from licensing it from
the university. See Rochelle Dreyfuss, Unique Works/Unique Challenges
at the Intellectual Property/Competition Law Interface 5 (working paper
2005), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract-id=763688
---------------------------------------------------------------------------
A final reason for industry concern about university patenting is
that universities are increasingly enforcing their patents. Recent
years have seen high-profile cases litigated to judgment by the
University of California, the University of Rochester, Harvard, MIT,
Columbia and Stanford, and suits filed by many other universities. One
notable example is Eolas Technologies v. Microsoft,\24\ in which the
University of California licensed a software patent to a company that
really does look like a patent troll however you want to define that
term, and then shared with that company a jury award of $535 million
against Microsoft.\25\
---------------------------------------------------------------------------
\24\ 399 F.3d 1325 (Fed. Cir. 2005).
\25\ Id. at --. A more recent high-profile case involved
the Harvard-MIT patent successfully enforced against Eli Lilly for $65
million. See Brian Kladko, Ariad, research institutes win patent-
infringement case against Eli Lilly, http://boston.bizjournals.com/
boston/stories/2006/05/01/daily48.html. For documenting of other cases,
see John R. Allison et al., University Software Ownership: Hold-Up or
Technology Transfer (working paper 2006); Rowe, supra note
--, at 936-37.
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Universities, recognizing patent licensing and litigation as an
important revenue source in the modern environment, have been active in
politics, largely in alignment with the life sciences industries (from
which most university patent revenue comes) in opposing most of the
effective pieces of draft patent reform legislation. Universities
helped argue for eliminating from the 2005 patent reform bill any
restrictions on both injunctive relief and continuation applications.
The most recent version of the patent reform bill\26\ also faced
attacks from some universities seeking to eliminate the move to first
inventor to file, which doesn't benefit them because they tend to file
later than commercial entities, and eliminate the creation of prior
user rights, which also don't benefit them since they aren't generally
using the inventions. These university preferences shouldn't be
surprising, at least if we view the university as a profit-maximizing
entity rather than one concerned with the social good. Like other non-
manufacturing entities, after all, universities are first and foremost
intellectual property (IP) owners, not IP licensees.
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\26\ The Coalition Draft of H.R. 2795, 109th Cong., 1st Sess.
(2005).
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The result is a felt sense among a lot of people that universities
are not good actors in the patent system. Given the difficulty anyone
has had in defining a patent troll, it is easy to move from that
conclusion to the idea that universities are trolls too. I think it is
worth questioning that leap. There is something going on here, but I'm
not sure that it is reasonable to equate university patents with
private troll behavior. The common refrain in complaints about patent
trolls is that they are not contributing anything to society, but
rather obtaining and asserting patents covering technology
independently developed by defendants. The question remaining to be
answered is whether the same is true of university patents. In other
words, it's worth asking whether society needs or wants university
patents at all.
II. Do We Need University Patents?
From the perspective of the university, one justification for
university patents may be to fund universities. More money is better
than less money, and the billion dollars a year in licensing is a
substantial new revenue source for universities, most of which goes to
research and some of which goes to education. If you think those things
are under-funded in our society today, as I tend to believe, generating
that additional revenue sounds useful in a way that paying for-profit
licensing shops doesn't. But that additional revenue is not costless.
It's money that comes out of industry pockets, and at least some of
that money otherwise would have gone into industry research and
development, or to selling better products, or to providing products
more cheaply. So it's worth thinking about the costs of patents as a
pure wealth transfer mechanism. And most economists would agree that if
our goal is to adequately fund higher education, patent litigation is
an inefficient way of doing so.\27\ Further, there are some who claim
that a culture of patenting imposes costs on the university or on
academic research more generally.\28\ University scientists focused on
patenting may delay or even forego publication in favor of IP
protection.\29\ And there is a substantial literature on how the shift
to university patenting has actually moved universities away from basic
research and towards more applied research in ways that are arguably
bad for society in the long run.\30\ The risk is not so much that
individual professors will change their research habits as that the
departments that grow and the hiring slots that become available will
go to those who engage in revenue-generating applied research. Of
course, government and private foundation grants can come with
conditions attached, and can also direct research to particular ends,
so in practice they aren't perfect funding mechanisms either.
---------------------------------------------------------------------------
\27\ A general tax is a cheaper method of wealth transfer than
specific assessments. See, e.g., Alan J. Auerbach & Lawrence J.
Kotlikoff, Dynamic Fiscal Policy (1987).
\28\ See generally Jennifer Washburn, University, Inc.: The
Corporate Corruption of Higher Education (2005).
\29\ See Mowery et al., supra note --, at --.
Margo Bagley has documented this problem and proposed giving university
inventors more time to file patent applications after publishing
articles in the hopes of eliminating it. See Margo A. Bagley, Academic
Discourse and Proprietary Rights: Putting Patents in Their Proper
Place, 47 B.C. L. Rev. 217 (2006).
\30\ Mowery et al., supra note --, at --;
Arti Kaur Rai, Regulating Scientific Research: Intellectual Property
Rights and the Norms of Science, 94 Nw. U. L. Rev. 77 (1999); Arti K.
Rai & Rebecca S. Eisenberg, Bayh-Dole Reform and the Progress of
Biomedicine, 66 L. & Contemp. Probs. 289 (2003); Rebecca S. Eisenberg,
Proprietary Rights and the Norms of Science in Biotechnology Research,
97 Yale L.J. 177 (1987); Brett M. Frischmann, Commercializing
University Research Systems in Economic Perspective: A View From the
Demand Side, in Libecap ed., supra note --, at 155, 176-78.
---------------------------------------------------------------------------
Why else might society need university patents? The classic
justification for patents--creating incentives to innovate--arguably
isn't nearly as important in the university context as in the private
sector. I think it unlikely that university scientists would not do
research or invent in the absence of patent protection. There are
plenty of other incentives for university scientists to engage in
research, including curiosity, academic prestige, and tenure and
promotion. Further, university inventors are generally funded by grants
or departmental revenue, must assign their rights to the
university,\31\ and don't necessarily see any tangible benefit from
university patenting of their inventions. Now, this doesn't necessarily
mean that patents have no additional effect. It may be that patents
generate some revenue which is refunded to the researcher's department
and supports further research, and even that the prospect of that
additional funding motivates some research. But the contribution of
patents to university incentives to innovate seems smaller than in
profit-driven companies.
---------------------------------------------------------------------------
\31\ See generally Corynne McSherry, Who Owns Academic Work?
Battling for Control of Intellectual Property (2001).
---------------------------------------------------------------------------
The final reason we might want university patents--and the argument
that actually prevailed in the Congressional debates over Bayh-Dole--is
the commercialization argument. Unlike the classic incentive story,
commercialization theory argues that it is not so much the act of
invention but the act of turning that invention into a marketable
product that requires investment and therefore the exclusion of
competition.\32\ According to this theory, university inventions will
languish and not be commercialized unless we give someone--initially
the university, but presumably eventually a private company to which
the right is licensed or transferred--control over the invention and
therefore incentive to invest in developing and marketing it. This
argument seems particularly strong with respect to university
inventions, since we can reasonably expect those inventions involve
more basic research, and therefore to be made at an earlier stage, than
private inventions.
---------------------------------------------------------------------------
\32\ See, e.g., F. Scott Kieff, Facilitating Scientific Research:
Intellectual Property Rights and the Norms of Science, 95 Nw. U. L.
Rev. 691 (2001); Edmund Kitch, The Nature and Function of the Patent
System, 20 J. L. & Econ. 265 (1977); John F. Duffy, Rethinking the
Prospect Theory of Patents, 71 U. Chi. L. Rev. 439 (2004); Michael
Abramowicz, The Problem of Patent Underdevelopment, http://
papers.ssrn.com/sol3/papers.cfm?abstract-id=873473
---------------------------------------------------------------------------
There is some debate as to whether the commercialization theory is
actually true of university inventions. Mowery, Nelson, Sampat, and
Ziedonis have a very interesting book in which they suggest that Bayh-
Dole was based on concerns that were mis- or at least overstated. They
argue that there was a good deal of technology-transfer without
university patents in the decades before Bayh-Dole, and that even today
there is plenty of university technology transfer that occurs in the
absence of patents.\33\ By contrast, the prevailing wisdom seems to be
that university patents increase commercialization, and therefore that
Bayh-Dole has been a success.\34\ Certainly they increase
commercialization deals between universities and companies,\35\ though
it is hard to know the extent to which that simply reflects the fact
that once a patent issues the company in question needs a license in
order to commercialize the technology.
---------------------------------------------------------------------------
\33\ Mowery et al., supra note --, at --.
Inferential empirical evidence for this is provided by Daniel
Elfenbein, who shows that the majority of technologies developed at
Harvard are licensed before the grant of patent rights, and often
without a patent application. Daniel W. Elfenbein, Publications,
Patents, and the Market for University Inventions 2, 4-5 (working paper
2005). See also Rebecca S. Eisenberg, Public Research and Private
Development: Patents and Technology Transfer in Government-Sponsored
Research, 82 Va. L. Rev. 1663 (1996) (discussing ways in which patents
do and do not promote commercialization of university research). One of
the leading objections to university patenting comes from Katherine J.
Strandburg, Curiosity-Driven Research and University Technology
Transfer, in 16 Advances in the Study of Entrepreneurship, Innovation,
and Economic Growth: University Entrepreneurship and Technology 97
(2005). By contrast, others--led by university organizations
themselves--cite data claiming that Bayh-Dole has been an enormous
success. See, e.g., Chester G. Moore, Killing the Bayh-Dole Act's
Golden Goose, 8 Tulane J. Tech. & Intell. Prop. 151, 155-57 (2006). For
an analysis of both the benefits and costs, see Siepmann, supra note
--, at 230-38.
\34\ See, e.g., Wendy H. Schacht, Congressional Research Service
Report: The Bayh-Dole Act: Selected Issues in Patent Policy and the
Commercialization of Technology, available at http://
www.ncseonline.org/NLE/CRSreports/07Jan/RL32076.pdf
\35\ Daniel W. Elfenbein, Publications, Patents, and the Market for
University Inventions, working paper (April 30, 2006), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract-id=739227
---------------------------------------------------------------------------
My own view is that the validity of commercialization theory
depends a great deal on the industry in question and the particular
nature of the technology. In the pharmaceutical and biotechnology
industries, where coming up with an invention is only the first step
down a very long road of regulatory process that's going to take
hundreds of millions of dollars and several years, the
commercialization argument makes some sense. The university generally
isn't going to engage in that regulatory process, and arguably we need
to give somebody exclusive rights to induce them to make the regulatory
investments that the university itself isn't going to make. We give the
right to the university, but we do so expecting that they will transfer
or exclusively license that right to a private company that will recoup
the hundreds of millions of dollars they spend in clinical trials,
product development, and marketing.\36\ Other industries might also
have a long post-invention development cycle and therefore be good
candidates for commercialization theory. That might be true of basic
building block technologies like nanotechnology, where we expect a very
long road between the development of the invention and the ultimate
commercialization,\37\ though it is likely too early to say for sure
how nanotech will develop. In these industries, Bayh-Dole is probably a
good thing.
---------------------------------------------------------------------------
\36\ Interestingly, though, even industry players in the
pharmaceutical industry sometimes lament university reliance on
exclusive licensing. See Thomas J. Siepmann, The Global Exportation of
the U.S. Bayh-Dole Act, 30 U. Dayton L. Rev. 236 (2004) (quoting Joshua
Kalkstein, corporate counsel for Pfizer).
\37\ Lemley, supra note --, at 628-29.
---------------------------------------------------------------------------
On the other hand, I'm quite confident that central control is not
necessary to produce commercialization in the majority of other
industries.\38\ Bear in mind that the commercialization story is at
base anti-market: it assumes, contrary to centuries of economic
learning, that ordinary profit motives will not produce efficient
allocation of resources and that we need to vest exclusive control of a
technology or market in one actor in order to get that efficient
allocation.\39\ Even if we think that's true in the pharmaceutical or
biotechnology industries because of the regulatory barriers to entry in
those markets, we should not conclude exclusivity is always or even
generally required to encourage a company to bring a product to
market.\40\ In the IT industries, and even in industries like medical
devices, there is no reason to believe that exclusive rights are
necessary to encourage commercialization of the technology. It is true
even in those industries that when an inventor has gotten to the point
where she can patent something, there may still be development and
marketing work to be done. But we get plenty of both in a competitive
marketplace because the companies who engage in product development and
marketing can reap enough of the benefits of that investment to make it
worthwhile. And indeed we have seen an enormous number of technologies
commercialized out of universities throughout the 20th Century without
need of university patents. Think of the computer, the world-wide-web,
search engines, relational databases, and any number of software
programs.\41\
---------------------------------------------------------------------------
\38\ Empirical evidence supports the conclusion that patenting
reduces rather than increases technology diffusion overall. Murray and
Stern find that patenting is associated with reduced citation to an
academic publication associated with the patent. Fiona Murray & Scott
Stern, Do Formal Intellectual Property Rights Hinder the Free Flow of
Scientific Knowledge? An Empirical Test of the Anti-Commons Hypothesis
(working paper 2005), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract-id=755701. Were commercialization theory
true, it should be the opposite.
\39\ See Mark A. Lemley, Ex Ante Versus Ex Post Justifications for
Intellectual Property, 71 U. Chi. L. Rev. 147 (2004) (making this
point).
\40\ More and more property rights scholars seem to forget the
benefits of a market economy. Michael Abramowicz, for instance, claims
that we may not get efficient entry of Indian restaurants into
particular neighborhoods unless we grant some sort of regional
exclusivity. Abramowicz, supra note --, at --.
Maybe he's right, but I doubt it. The market has worked pretty well in
the past, and we should be reluctant to forego its benefits unless
we're quite sure that the alternative will be better.
\41\ For a detailed discussion of one example, Apache, see Jay P.
Kesan & Rajiv C. Shah, Shaping Code, 18 Harv. J. L. & Tech. 320, 394-96
(2005).
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The need for university patents, in short, depends critically on
the technology at issue. I think much of the industry frustration with
the role of university patents stems from the failure of some
university technology transfer offices to recognize and adapt to these
technology differences. As noted above, technology transfer offices
have strong incentives to maximize revenue from patent licensing. To
achieve this, they have adopted the life sciences model, where
exclusive rights and patents seem to make sense because of the
regulatory delays, as their general approach to patent licensing. But
they are increasingly using it in software and other information
technologies.\42\ The result is frustration on the part of industry
counterparts in industries like computers or telecommunications that
are more interested in freedom to operate than in exclusive rights over
a new technology. It may also be frustration on the part of tech
transfer offices; less than one percent of all university patent
licenses generate over $1 million in revenue.\43\ And efforts to
commercialize the rest is what leads to a lot of the more worrisome
patent licenses in cases like Eolas.
---------------------------------------------------------------------------
\42\ See John R. Allison et al., University Software Ownership:
Hold-Up or Technology Transfer (working paper 2006) (documenting the
growth in university software patenting).
\43\ Jerry G. Thursby & Marie C. Thursby, University Licensing and
the Bayh-Dole Act, 301 Sci. 1052, 1052 (2003) (0.56 percent).
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III. Lessons From the University Patent Experience
A. Towards an Enlightened University Patent Policy
Universities should take a broader view of their role in technology
transfer. University technology transfer ought to have as its goal
maximizing the social impact of technology, not merely maximizing the
university's licensing revenue.\44\ A university is more than just a
private for-profit entity. It is a public-regarding institution that
should be advancing the development and spread of knowledge and the
beneficial use of that knowledge. Sometimes those goals will coincide
with the university's short-term financial interests. Sometimes
universities will maximize the impact of an invention on society by
granting exclusive licenses for substantial revenue to a company that
will take the invention and commercialize it. Sometimes, but not
always. At other times a non-exclusive license, particularly on a basic
enabling technology, will ultimately maximize the invention's impact on
society by allowing a large number of people to commercialize in
different areas, to try out different things and see if they work, and
the like.\45\ Universities can still earn revenue from nonexclusive
licenses, and for enabling technologies they might even maximize their
revenue in the long-term by granting nonexclusive rather than exclusive
licenses.\46\ University policies might be made more nuanced than
simply a choice between exclusive and nonexclusive licenses. For
example, they might grant field-specific exclusivity, or exclusivity
only for a limited term, or exclusivity only for commercial sales while
exempting research,\47\ and they might condition continued exclusivity
on achievement of certain dissemination goals.\48\ Finally,
particularly in the software context, there are many circumstances in
which the social impact of technology transfer is maximized either by
the university not patenting at all or by granting licenses to those
patents on a royalty-free basis to all comers.\49\ Open source software
development is one example, but hardly the only one.\50\
---------------------------------------------------------------------------
\44\ For a similar view, see Robert E. Litan et al.,
Commercializing University Inventions: A Better Way, NBER Working Paper
(April 2007).
\45\ See Lemley, Nanotechnology, supra note --, at
--; Ted Sabety, Nanotechnology Innovation and the Patent
Thicket: Which IP Policies Promote Growth?, 15 Alb. L.J. Sci. & Tech.
477, 510-12 (2005) (both making this argument).
\46\ The key university patents on enabling technologies in
biotechnology, issued to Cohen and Boyer for the creation of chimeric
organisms and to Axel for methods of inserting genes into a cell, were
licensed nonexclusively because of NIH requirements. See Wysocki, supra
note --, at A1. They made enormous sums of money for
Stanford, UC, and Columbia, arguably because, not in spite of, the
nonexclusivity of the licenses. See Sally Smith Hughes, Making Dollars
Out of DNA: The First Major Patent in Biotechnology and the
Commercialization of Molecular Biology, 1974-1980, 92 ISIS 541, 570 &
n.77 (2001); Wysocki, supra note --, at A12. Amy Kapczynski
has argued that open licensing may be profitable for universities more
generally, not just with enabling technologies. Amy Kapczynski et al.,
Addressing Global Health Inequities: An Open Licensing Approach for
University Innovations, 20 Berkeley Tech. L.J. 1031, 1040 (2005). I am
less persuaded by this broader argument.
\47\ For examples of such approaches, including Stanford's and
WARF's, see Ritchie de Larena, supra note --, at 1420.
\48\ Stanford University has a relatively enlightened university
technology transfer policy that uses all of these intermediate
mechanisms. Conversations with Linda Chao, Stanford Office of
Technology Licensing (May 2006). Stanford's official policy is at
http://otl.stanford.edu/inventors/resources/otlandinvent.html
\49\ For a general argument along these lines, see Brett M.
Frischmann, An Economic Theory of Infrastructure and Commons
Management, 89 Minn. L. Rev. 917 (2005). See Stanford Office of
Technology Licensing Policies, http://otl.stanford.edu/inventors/
policies.html#research (``Inventors may place their inventions in the
public domain if they believe that would be in the best interest of
technology transfer''). And some have argued for open licensing of
university pharmaceutical inventions in the developing world. See,
e.g., Amy Kapczynski et al., Addressing Global Health Inequities: An
Open Licensing Approach for University Innovations, 20 Berkeley Tech.
L.J. 1031 (2005). By contrast, Arti Rai documents the difficulties
scientists have had persuading universities to build an open source
model for collaborative biotechnology research. See Arti K. Rai, ``Open
and Collaborative'' Biomedical Research: Theory and Evidence 29, 35-36
(working paper 2005).
\50\ For a useful step in this regard, see http://www.kauffman.org/
entrepreneurship.cfm?topic=innovation&itemID=662 (setting out
principles agreed to by corporations and several major universities for
making software inventions freely available).
---------------------------------------------------------------------------
If we are to achieve the goal of maximizing the social benefit of a
university invention to society, universities must first recognize
their proper role in society and how that role affects patent policies.
An important first step in that education process is to end the
isolation of university technology transfer or licensing offices from
the rest of the university.\51\ If universities treat licensing offices
as revenue generation devices, evaluated on how much money they bring
in each quarter, the result will be university patent policies that are
not always or even often consonant with the ultimate public
interest.\52\ The problem is even worse if universities outsource their
technology transfer functions altogether to private licensing
shops.\53\ If a university thinks of its role in society as a whole, if
it treats patent licensing as one aspect of a broader technology
transfer policy, it can and should develop more enlightened policies. A
number of universities have taken significant steps in this regard, but
more remains to be done.
---------------------------------------------------------------------------
\51\ For a discussion of the various ways in which university tech-
transfer offices are organized today, see Ritchie de Larena, supra note
--, at 1413.
\52\ See Ritchie de Larena, supra note --, at 1416-17
(``One point that most technology-transfer managers agree upon is that
it is not wise to judge a university's technology-transfer office
solely on licensing income.'').
\53\ For example, the University of Colorado has outsourced much of
its patent licensing to Competitive Technologies Inc.
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B. Legal Constraints on Unenlightened Universities
If universities don't develop such policies voluntarily, society
may have other mechanisms to ensure that university patents don't
impede innovation. Federal funding agencies can play a role. The
National Institutes of Health has at various times in the past imposed
mandates requiring universities to grant certain types of licenses to
their work.\54\ The Bayh-Dole Act permits the government to exercise
``march-in rights,'' requiring that particular patents be licensed on
non-exclusive terms.\55\ Alternatively, as universities become more and
more vulnerable to patent infringement suits themselves,\56\ private
sector patent owners may be able to create some of the symmetry that
drives cross-licenses in industries like semiconductors by obtaining
patents that universities infringe and threatening to assert them
against any university who sues them for patent infringement.\57\ These
measures might turn out to be necessary, but I'd like to see us try
first to solve the problem not by imposing a solution, but by
encouraging universities to take the first step in recognizing their
social responsibility associated with their patents.
---------------------------------------------------------------------------
\54\ See Bernard Wysocki Jr., College Try: Columbia's Pursuit of
Patent Riches Angers Companies, WALL ST. J., Dec. 21, 2004, at A1
(noting that the NIH required Professor Axel at Columbia to license his
fundamental patents on methods of inserting genes into cells
nonexclusively and at a reasonable royalty).
\55\ 35 U.S.C. 209.
\56\ See, e.g., Madey v. Duke University, 307 F.3d 1351 (Fed. Cir.
2002).
\57\ There may be practical reasons why this last option is
unlikely, however. See Elizabeth A. Rowe, The Experimental Use
Exception to Patent Infringement: Do Universities Deserve Special
Treatment? 57 Hastings L.J. 921, 940-44 (2006).
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C. Broader Lessons: Who Is a Patent Troll?
Finally, I think we can learn something about the raging debate
over who's a patent troll and what to do about trolls by looking at
university patents. Universities are non-practicing entities. They
share some characteristics with trolls, at least if the term is broadly
defined, but they are not trolls. Asking what distinguishes
universities from trolls can actually help us figure out what concerns
us about trolls. One of the differences between universities and
private licensing shops is that universities are by and large not
engaged in hiding the ball, waiting until people have developed an
industry and then popping up and demanding a disproportionate share of
royalties based on irreversible investments.\58\ There are occasional
examples of that,\59\ and they should be condemned, but it's not the
ordinary case with a university license. Instead, most university
licenses have a major technology transfer component. A nonexclusive
patent license is effectively nothing more than forbearance from suit
in exchange for money.\60\ By contrast, most university licenses give
the licensee not just the right to avoid a lawsuit, but also provide
valuable know-how. Indeed, many also involve continued work by the
inventor, particularly if the license is to a start-up and is
exclusive. That sort of technology transfer is something we want to
encourage for reasons Rob Merges has explained: granting IP rights
allows us not to be constrained by a particular definition of the firm
and forced do all of our innovation in house. It allows us to have
markets for technology.\61\ Markets for technology contribute more to
society than markets for litigation rights.\62\ University patent
owners aren't trolls in my view when they contribute previously unknown
technology to society, rather than just imposing costs on others by
obtaining and asserting legal rights over inventions independently
developed by others.\63\
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\58\ On this problem, see Lemley, supra note --; Lemley
& Shapiro, supra note --.
\59\ For a discussion of a submarine patent strategy employed by
Columbia University, see Ritchie de Larena, supra note --,
at 1417-18.
\60\ See, e.g., Intellectual Prop. Dev., Inc. v. TCI Cablevision,
248 F.3d 1333, 1345 (Fed. Cir. 2001) (describing a nonexclusive license
as nothing more than a ``covenant not to sue'').
\61\ See Robert P. Merges, A Transactional View of Property Rights,
20 Berkeley Tech. L.J. 1477 (2005).
\62\ See generally Ashish Arora et al., Markets for Technology
(2001) (noting the contributions of technology markets).
\63\ Indeed, Jerry and Marie Thursby argue that the continued role
of the inventor in technology transfer is critical to the success of
university licenses. Jerry G. Thursby & Marie C. Thursby, Are Faculty
Critical? Their Role in University-Industry Licensing (NBER Working
Paper 2003).
---------------------------------------------------------------------------
In the abstract, I think we could successfully define patent trolls
by distinguishing between cases in which non-manufacturing entities
license only the right not to be sued from cases in which the patent
owner actually engages in technology transfer. But that's only in the
abstract. Were a court ever to announce such a definition, it would
immediately be gamed. All true trolls would start passing on some
mandatory know-how along with their patent licenses, in order to avoid
being categorized as trolls.
What we ought to do instead is abandon the search for a group of
individual companies to define as trolls. We shouldn't focus on the
question of who is per se a bad actor. In my view, troll is as troll
does. Universities will sometimes be bad actors. Nonmanufacturing
patent owners will sometimes be bad actors. Manufacturing patent owners
will sometimes be bad actors. Instead of singling out bad actors, we
should focus on the bad acts and the laws that make them possible. We
will solve the troll problem not by hunting down and eliminating
trolls, but by hunting down and eliminating the many legal rules that
facilitate the capture by patent owners of a disproportionate share of
an irreversible investment. We should focus on reform of current
continuation practice, which allows patent owners to hide the true
nature of their invention until late in the process and facilitates
their later claiming to have invented something they did not.\64\ We
should focus on reform of the willfulness doctrine, under which a
patent owner can get treble damages from an independent inventor merely
by telling them about the patent and which has the perverse effect of
causing people to try to avoid learning of patents.\65\ We should focus
on reform of royalty calculation rules that give a disproportionate
award of damages to patent owners in component industries because they
don't adequately take account of the contributions of other aspects of
the invention.\66\ And we should take the opportunity presented by the
Supreme Court's eBay decision\67\ to craft intelligent standards for
deciding when to grant injunctive relief. If we change the rules that
make patent hold-up such an attractive revenue generator, we won't have
to worry about the question of whether or not universities--or anyone
else--are patent trolls. We will have eliminated the problem of
opportunistic behavior that interferes with innovation, something we
want to stop regardless of what we call it.
---------------------------------------------------------------------------
\64\ See, e.g, Mark A. Lemley & Kimberly A. Moore, Ending Abuse of
Patent Continuations, 84 B.U. L. Rev. 63 (2004). The Patent and
Trademark Office has proposed to take significant steps to limit
continuations, though whether the proposals will be implemented is
uncertain at this writing. See United States Patent and Trademark
Office, Changes to Practice for Continuing Applications, Requests for
Continued Examination Practice, and Applications Containing Patentably
Distinct Claims, 71 Fed. Reg. 48 (Jan. 3, 2006).
\65\ See, e.g., Mark A. Lemley & Ragesh K. Tangri, Ending Patent
Law's Willfulness Game, 18 Berkeley Tech. L.J. 1085 (2003) (identifying
this problem and proposing changes to deal with it). H.R. 2795, pending
at this writing, would make it much more difficult to plead
willfulness.
\66\ See Lemley & Shapiro, supra note --.
\67\ eBay, Inc. v. MercExchange LLC, 126 S.Ct. 1837 (2006).
Biography for Mark A. Lemley
Widely recognized as a preeminent scholar of intellectual property
law, Mark Lemley is a prolific writer, having published over 70
articles and six books, and an accomplished litigator, having tried
cases before the U.S. Supreme Court, the California Supreme Court, and
federal district courts. His major contributions to legal scholarship
focus on how the economics and technology of the Internet affect patent
law, copyright law, and trademark law. Professor Lemley has testified
numerous times before Congress and the California legislature on
patent, trade secret, antitrust, and constitutional law matters and
currently serves as of counsel at Keker & Van Nest in their
intellectual property and antitrust divisions. Before joining the
Stanford Law School faculty in 2004, he was a Professor of Law at the
University of California at Berkeley School of Law (Boalt Hall) and at
the University of Texas School of Law, and served as of counsel at Fish
& Richardson. He clerked for Judge Dorothy W. Nelson of the U.S. Court
of Appeals for the Ninth Circuit.
Chairman Wu. Thank you very much, Dr. Lemley, and I will
not relay your comments to your colleagues at Stanford. Dr.
Allen, please proceed.
STATEMENT OF DR. MARK G. ALLEN, JOSEPH M. PETTIT PROFESSOR;
REGENTS PROFESSOR, GEORGIA INSTITUTE OF TECHNOLOGY; CO-FOUNDER
& CHIEF TECHNOLOGY OFFICER, CARDIOMEMS, INC., ATLANTA
Dr. Allen. Chairman Wu, Ranking Member Gingrey, and Members
of the Subcommittee, my name is Dr. Mark Allen. I am a
Professor of Electrical and Computer Engineering at Georgia
Tech, and I am pleased to be here to address you today.
As we have heard, this hearing has focused on the next 25
years of technology transfers governed by the Bayh-Dole Act,
and in order to comment on the next quarter century, I would
like to focus on my past experiences as a researcher and
transferor of technology, and what this, perhaps, has taught
me. And I think that this experience also reflects upon some of
the questions the subcommittee has asked.
Some years ago, I was sponsored in my Georgia Tech capacity
by the Department of Defense on the topic of intelligent
turbine engines. This was a university interdisciplinary
research program administered by the Department of Defense, and
my portion of the project was to develop a pressure sensor that
could be used in particular locations in jet engines to allow
optimal engine performance. I worked with a Ph.D. student, and
we designed, fabricated, and tested a new type of pressure
sensor that was small. It would operate in harsh environments,
and able to be communicated with in a wireless fashion.
The results of my research were provided to the Department
of Defense, and are currently being built upon by NASA, and in
addition, the research results were patented by Georgia Tech,
in accordance with the provisions of the Bayh-Dole Act.
Conference publications, journal publications, and a Ph.D.
thesis were all written on this work, and were all disseminated
as an ongoing part of the academic research, and the patenting
did not interfere with that in any way.
I began discussions a few years later with a medical
doctor, who was interested in adapting new technologies to
create the next generation of medical devices, and after
several discussions, we noted that the pressure sensor that we
developed for harsh environments in engines might also be
applicable in another harsh environment, the human body.
We formed a company called CardioMEMS, dedicated to
commercialization of this technology. CardioMEMS licensed some
of the key patents, including the two cited from this DOD
program, exclusively in a specific field, that of medical
devices. Based on these patents, CardioMEMS engineers further
developed wireless sensors to monitor aneurysms that have been
repaired by physicians, and the sensors are used to provide
information to the physicians, so they can monitor whether
aneurysm repair is working.
The government funding provided by DOD, that was directed
to the development of the sensor, was approximately half a
million dollars, and today, CardioMEMS has received
approximately $50 million in private equity investment, so that
is a ratio of about $100 of private investment for each dollar
of government investment. The company currently employs over
100 people. Its sensors are FDA approved, and in fact, we are
cited in the 2005 FDA annual report as an example of a device
``that we believe will have a particular impact on patient
care.''
Having clear access to the intellectual property developed
in the academic laboratory, through the mechanism of the Bayh-
Dole Act, was the prerequisite for CardioMEMS' success, because
as many of us know, in order to secure venture funding, it is
necessary to have clear intellectual property rights to the
inventions being developed.
Speaking more generally, the benefits of Bayh-Dole are
numerous and well documented. One of the most significant
contributions in the Act may be that it ensures
nondiscriminatory access to and benefit from the technologies
that result from our public investment in university research.
This allows the creation of, in the United States, of new
products, new companies, and new markets. In 2003, the
President's Council of Advisors on Science and Technology
affirmed the success of the Bayh-Dole Act, and noted that other
nations are attempting to replicate this model.
Another significant benefit of Bayh-Dole, and one that we
might think about in our discussions of industry-wide
differentiation, is the flexibility of the law. By not
constraining the use of Bayh-Dole, a variety of approaches,
including exclusive and nonexclusive licensing, exclusive
licensing in fields of use, such as the CardioMEMS example,
which did not preclude further licensing in areas such as jet
turbine engines, and also, the use of territories, universities
and companies are able to tailor their agreements for specific
industries, technologies, and applications, under the existing
legislation.
Today, U.S. industry continues to face competitive
pressures globally, and the need for basic research as the
foundation of innovation still exists. While cultural
differences sometimes strain collaboration between industry and
academia, I firmly believe the Bayh-Dole Act has helped foster
a new and highly successful era of collaboration, by
establishing a uniform federal invention policy, encouraging
universities to develop relationships with industry through
commercialization of inventions, and establishing preference
for manufacturing of products in the United States.
Based on the objective numerical successes of the Act, as
well as my own personal experiences with CardioMEMS, I feel
strongly we should not alter in any significant way the
legislation that has been so successful, and that the rest of
the world is using as a model of innovation.
In summary, thank you again for the opportunity to comment
on my experiences, and on the topic of Bayh-Dole, and I would
be happy to answer any questions.
[The prepared statement of Dr. Allen follows:]
Prepared Statement of Mark G. Allen
Mr. Chairman, Ranking Member Gingrey and Members of the
Subcommittee, my name is Dr. Mark Allen and I am pleased to be able to
present testimony to the Subcommittee on the topic of Bayh-Dole--The
Next 25 Years. I received the SM and Ph.D. degrees from the
Massachusetts Institute of Technology (M.I.T.) in 1986 and 1989
respectively, and joined the faculty of the Georgia Institute of
Technology\1\ (Georgia Tech) after a postdoctoral appointment at M.I.T.
Currently I am Regents' Professor of Electrical and Computer
Engineering at Georgia Tech, with a joint appointment in the School of
Chemical and Biomolecular Engineering, and hold the J.M. Pettit
Professorship in Microelectronics. Georgia Tech was founded in 1885 and
is one of the Nation's top research universities, distinguished by its
commitment to improving the human condition through advanced science
and technology. Georgia Tech's campus occupies 400 acres in the heart
of the city of Atlanta, where more than 17,000 undergraduate and
graduate students receive a focused, technologically-based education.
Georgia Tech also has satellite campuses worldwide. Georgia Tech's
vision and mission is to define the technological research university
of the 21st century, and educate the leaders of a technologically-
driven world.
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\1\ http://www.gatech.edu
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This hearing is focused on the next 25 years of technology transfer
governed by the Bayh-Dole Act. In order to comment on the next quarter
century, I will rely upon my past experience as a researcher and
transferor of technology. This experience also reflects upon the
questions the Subcommittee has asked of me.
In the mid to late 1990s and in my capacity as a Georgia Tech
professor I was involved with a Multi-disciplinary University Research
Initiative (MURI) program on Intelligent Turbine Engines. As defined by
the Department of Defense, ``The MURI program is a multi-agency DOD
program that supports research teams whose efforts intersect more than
one traditional science and engineering discipline. Multi-disciplinary
team effort can accelerate research progress in areas particularly
suited to this approach by cross-fertilization of ideas, can hasten the
transition of basic research findings to practical applications, and
can help to train students in science and/or engineering in areas of
importance to DOD.'' \2\
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\2\ http://www.acq.osd.mil/ddre/research/muri/muri.htm
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The particular program was sponsored by the Army Research Office
and was on the topic of ``Intelligent Turbine Engines.'' My portion of
the project was to develop a pressure sensor that could be used in
particular locations in the engine to provide control signals to ensure
optimal engine performance. Working with a Ph.D. student, we designed,
fabricated, and tested a new type of pressure sensor that was (1) small
in size; (2) capable of operating in harsh environments, such as high
temperature; and (3) capable of wireless interrogation.
The results of my research were provided to the Army. In addition,
the research results were patented by Georgia Tech\3\ in accordance
with the provisions of the Bayh-Dole Act. Conference publications\4\,
journal publications\5\, and a Ph.D. thesis\6\ were written and
disseminated as an ongoing part of this academic research.
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\3\ U.S. Patents 6,111,520 and 6,278,379.
\4\ English, J.M.; Allen, M.G., ``Wireless micromachined ceramic
pressure sensors,'' Technical Digest, Twelfth IEEE International
Conference on Micro Electro Mechanical Systems, pp. 511-16 (1999).
\5\ Fonseca, M.A.; English, J.M.; von Arx, M.; Allen, M.G.,
``Wireless Micromachined Ceramic Pressure Sensor for High Temperature
Applications,'' IEEE/ASME J. Microelectromechanical Systems, v. 11, no.
4, pp. 337-43 (2002).
\6\ English, J.M., ``Wireless micromachined ceramic pressure
sensors for high temperature environments,'' Ph.D. Thesis, Georgia
Institute of Technology (2000).
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In the 2000-2001 timeframe, I began discussions with a medical
doctor who was interested in exploiting microelectromechanical systems
(MEMS)-based manufacturing technologies to create a new generation of
medical devices. Wireless sensors, that could sense disease states from
within the body, were a particular interest area of both of us; from
his perspective as a clinician and from mine as an engineer. After
several discussions, we noted that the turbine engine sensor developed
for harsh environments under the MURI research program might also be
applicable in another harsh environment, the human body. We formed a
company, Cardiomems\7\, dedicated to the commercialization of this
technology. Cardiomems licensed key patents, including the two cited
from the MURI project, exclusively in the field of medical devices.
Based on these patents, Cardiomems engineers developed wireless sensors
as monitors of endovascularly-repaired abdominal aortic aneurysms. The
sensors are integrated with an external measurement antenna. A real-
time waveform of the pressure environment of the excluded aneurysm is
extracted and provided to the physician to diagnose the state of the
aneurysm repair.
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\7\ http://www.cardiomems.com
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The government funding provided by the Army Research Office that
was directed to the development of this sensor was approximately
$500,000. To date, Cardiomems has received approximately $50 million in
private equity investment, a ratio of approximately $100 of private
investment for each $1 of government investment. Cardiomems currently
employs over 100 people. Its wireless pressure sensors for aneurysm
sensing were cleared for sale in the United States by the FDA in late
2005 and to date thousands of people have received them.
One of the key due diligence reviews prior to any private equity
investment is a thorough review of the intellectual property licensed
by the company, and it was clearly stated by investors that a strong
intellectual property position would be a prerequisite for any
investment. Without this strong position, enabled by licensing the
critical technologies from Georgia Tech, in my opinion it would have
been impossible for the company to have raised funding for this
product. Due in part to the strong IP position the company holds as
enabled by the Bayh-Dole Act, the medical community now has available a
commercial device that has helped thousands of people, won multiple
awards, and was cited in the 2005 annual report of the Food and Drug
Administration as a device ``that we believe will have a particular
impact on patient care.'' \8\
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\8\ Office of Device Evaluation, Center for Devices and
Radiological Health, U.S. Food and Drug Administration, 2005 Annual
Report, pp. 1-4.
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To summarize this portion of my testimony, what these experiences
have taught me is that the commercialization process has many
challenges. By far the largest challenge is the development effort
required to transform academic discoveries into useful, commercial,
salable products (as I mentioned above, this effort at least for
Cardiomems was in dollar terms approximately a 100:1 ratio), and
includes not only further technical development, but also legal issues,
raising funds, liability protection, and securing regulatory approval.
However, before embarking on any of these additional challenges, and
before raising the first dollar from private investments, Cardiomems
negotiated for licenses to the intellectual property with the
university holders. Having clear access to the intellectual property
developed in the academic laboratory through the mechanisms of the
Bayh-Dole Act was the prerequisite for Cardiomems' success.
Although I have spoken previously from my viewpoint as an academic
researcher and given a single example of Bayh-Dole-enabled success, it
is clear that the Bayh-Dole Act has had a broad and profound effect on
academic technology transfer more generally. In the first twenty-five
years after its passage, there was a ten-fold increase in academic
patent portfolios according to statistics maintained by the Association
of University Technology Managers. If, as some have said, innovation is
the intersection of invention and opportunity, this wave of innovation
created 5,000 new businesses, 3,641 new products, and generated 300,000
jobs.\9\ Annually, U.S. research universities and institutions receive
about sixty-seven percent of their research funding from the Federal
Government).\10\ Inevitably, simply because the vast majority of
inventions in universities arise in the course of federally-funded
projects, universities' obligations under Bayh-Dole will shape
administrative systems for handling intellectual property, irrespective
of the funding source.
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\9\ Data from the Association of University Technology Managers:
www.autm.net
\10\ Association of University Technology Managers' 2005 U.S.
Licensing Survey.
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In the State of Georgia the economic impact of technology transfer
activities at universities is profound. Georgia Tech ranked 9th on the
U.S. Patent and Trademark Office's List of Top 10 Universities
Receiving the Most Patents in 2005 (April 6, 2006). In announcing the
list, Jon Dudas, Under Secretary of Commerce for Intellectual Property
noted that ``America's economic strength and global leadership depend
on continued technological advances. Ground-breaking discoveries and
patented inventions generated by innovative minds at academic
institutions have paid enormous dividends, improving the lives and
livelihoods of generations of Americans.'' That certainly seems to be
the case in Georgia. In our most recent fiscal year, Georgia Tech
executed 42 licenses and options, most for more than one patent. In
fiscal year 2006, ten new companies were formed based Georgia Tech
technologies; between 2001 and 2006, that list includes 53 companies.
Since 1999, companies from the Advanced Technology Development Center
(ATDC)\11\, a business incubator that is part of Georgia Tech's
Enterprise Innovation Institute, have raised over one billion dollars
in venture capital. In 2006, 10 of the top 25 largest venture capital
deals in Georgia--including the two largest--went to ATDC companies,
representing 21 percent of investments in Georgia.
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\11\ http://www.atdc.org/overview.asp
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The most significant contribution of the Act may be that it ensures
non-discriminatory access to and benefit from the technologies that
result from the public investment in university research. Small
businesses receive preference under Bayh-Dole but the marketplace
establishes the consideration for the license. As a condition of
federal awards, universities are obligated to take steps to make
nascent technologies available to the public by licensing them to
entities that have the ability to bring them to the marketplace.
Universities must ensure that licensees meet milestones for development
of the technologies or products. Universities provide the government
with a royalty-free right to use the technology for government
purposes. Finally, in the relatively rare event that the university
receives royalties under a license, its share of the funds may only be
used to further research and the education of students. This
reinvestment in research and education benefits both industry and the
public through building research capacity in the public space and
expanding the high tech workforce.
The impact of the Bayh-Dole Act varies across industry sectors.
Biotechnology, medical device, and pharmaceutical companies typically
must have the ability to obtain exclusive licenses to intellectual
property. In this sector, new products tend to have fewer components.
They also must meet expensive, time-consuming, but necessary regulatory
requirements to bring a product to market. By comparison, in the
electronics sector, where the long-term value of specific intellectual
property is variable, access to a wide portfolio of patents may be
necessary to develop a product. Product realization tends to be more
rapid. Similarly, different licensing strategies may apply in dealing
with small companies, in particular start-ups, than with larger
companies. And, in a number of circumstances, the competitive advantage
afforded through exclusivity may be absolutely critical to justify the
risk undertaken by a company in developing a product from a promising
early-stage university technology, as it was in the case of Cardiomems.
As technology transfer within U.S. universities has matured over the
past twenty-five years, this need for different licensing strategies
across and within industry sectors has become widely recognized.
Fortunately, the authors of the Act anticipated this need and provided
universities with the flexibility to pursue exclusive or non-exclusive
licensing strategies.
Challenges do exist in the relationship between American companies
and universities. The primary cultural differences between them stem
from their divergent missions and result from differences in their
research agendas and positions on the dissemination of knowledge. In
2004, the National Academies of Sciences' Government University
Industry Research Roundtable served as the neutral convener for a
collaborative effort of the National Council of University Research
Administrators and the Industrial Research Institute that would lead to
an open dialogue about these cultural differences. It was hoped that
the conversation would lead to new approaches that could respect the
missions of higher education and private industry and their respective
contributions to innovation. In April 2006, this group published
Guiding Principles for University-Industry Endeavors\12\ which examines
the perspectives of universities and industries and identifies the
common ground and the symbiotic relationship between American companies
and universities. These Guiding Principles can serve as a roadmap for
building collaboration and have the potential to foster stronger ties
among those with common interests. However, an examination of this
document reveals that the treatment of inventions that arise from
federally-funded research at universities is not a factor in the
relationship between industry and universities.
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\12\ National Council of University Research Administrators (NCURA)
2006.
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The Subcommittee asks about the possible effects of the
globalization of research.
Universities in the United States have traditionally welcomed
students from around the world. Faculty members have for many decades
engaged in open collaborations in research and educational programs
with colleagues in other countries. Universities have, therefore, had
long experience in competing globally for talented students and faculty
and competing globally in scholarship and intellectual output. For the
last half of the twentieth century, the United States was undoubtedly
the world's leader in science and technology. Even as European
universities rebuilt following World War II, other nations' research
institutions have emerged and grown along with R&D investment in those
countries. Scientific and technological research as a global phenomenon
has been studied intensively in recent years by a number of
organizations including the National Academies of Sciences, The
President's Council of Advisors on Science and Technology (PCAST), and
the National Science Board.
The Committee on Science, Engineering and Public Policy of the
National Academies stated in 2006\13\, ``Many international comparisons
put the United States as a leader in applying research and innovation
to improve economic performance''. However, both this report and the
PCAST report, Sustaining the Nation's Innovation Ecosystems: A Report
on Information Technology Manufacturing and Competitiveness\14\, noted
that other nations are catching up to U.S. leadership in information
technology research and development. In its Science and Engineering
Indicators 2006\15\, the National Science Board characterized the link
between innovation and economic competitiveness by asserting that,
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\13\ Rising Above the Gathering Storm: Energizing and Employing
America for a Brighter Future. National Academies Press, 2007.
\14\ Sustaining the Nation's Innovation Ecosystems: A Report on
Information Technology Manufacturing and Competitiveness, January 2004.
\15\ Science and Engineering Indicators 2006, Volume 1, Chapter 4.
Increasingly, the international competitiveness of a modern
economy is defined by its ability to generate, absorb, and
commercialize knowledge. Although it is no panacea, scientific
and technological knowledge has proven valuable in addressing
the challenges countries face in a variety of areas such as
sustainable development, economic growth, health care, and
agricultural production. Nations benefit from R&D performed
abroad, but domestic R&D performance is an important indicator
of a nation's innovative capacity and its prospects for future
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growth, productivity, and S&T competitiveness.
This report also found that the majority of research and
development in the world is still performed by a small number of
wealthy nations but that, as in many sectors, emerging economies are
investing increased resources in research. The National Science Board
identified the following factors in assessing a country's R&D
performance and innovation capabilities:
The culture of cooperation between R&D performing
sectors
The ability of a country to train and retain its
highly skilled scientists and engineers
Strong intellectual property laws and a strong patent
system
Governmental, legal, and cultural restrictions
The presence of a sophisticated, demanding, and
wealthy domestic market for innovation
The quality of research institutions (universities
and government facilities) as quantitatively assessed by
objective measures of research output and peer rankings
Research infrastructure including facilities and
instrumentation.
The Bayh-Dole Act is a key element in several of these factors. The
Act is part of strong protections for intellectual property that arises
from federally-funded research and helps ensure that entrepreneurs can
find the sophisticated, wealthy, demanding investors and, ultimately,
markets for new technologies. Bayh-Dole also contributes to the
strength and quality of U.S. research universities. In 2003, PCAST
affirmed the success of the Bayh-Dole Act and noted that other nations
are attempting to replicate this model. As Senator Birch Bayh commented
in a speech last year to the Licensing Executives Society, ``It is no
accident the rest of the world is copying the Bayh-Dole model. The
European Union, Japan, China, India and many others hope to tap their
own cutting edge university research to win the future economic race.
We in the United States cannot afford to rest on our laurels.'' For
example, Japan, clearly recognized as a world economic leader with a
focus on technology markets, began implementing laws in the 1990's that
contained provisions similar to the U.S. Bayh-Dole Act. Other countries
throughout the world now recognize the importance of protecting
intellectual property, having laws that allow their universities to
assert rights in employee created intellectual property, and of
benchmarking the system that resulted from the passage of Bayh-Dole. As
Senator Bayh further noted, ``When India decided that it wanted to
start being a creator of technology and not an exporter of scientists
to the West, it began protecting intellectual property.''
Finally, the Subcommittee has asked what changes might be
appropriate as we look forward to the next 25 years of Bayh-Dole.
The President's Council of Advisors on Science and Technology
undertook a year-long study of the results of the federal investment in
research and development. Their Report on Technology Transfer of
Federally Funded R&D: Findings and Proposed Actions\16\ was submitted
to the Office of Science and Technology Policy on May 13, 2003. I
commend this report, which offers a thorough analysis of technology
transfer by a panel representing both higher education and industry, to
the Subcommittee and have included it as an appendix to this written
testimony. While PCAST made a number of recommendations to the
Department of Commerce and others regarding education and
implementation, their conclusion is:
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\16\ Report on Technology Transfer of Federally Funded R&D:
Findings and Proposed Actions.
``Existing technology transfer legislation works and should
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not be altered.''
By almost any objective standard, the Bayh-Dole Act has been an
exceptional success. More compelling than the 4,932 new licenses
signed, the 527 new products introduced into the market or the 628 new
companies formed in 2005 according to the AUTM's U.S. Licensing Survey
are the individual technology realization stories captured in their The
Better World Report first published last year. This report takes an in-
depth look at twenty-five innovations derived from academic research
that has had a dramatic impact on the world. Whether it is the story of
Taxol and the more than two million women worldwide who have taken the
drug to fight ovarian and breast cancer, the SpeechEasy device that
has helped thousands of individuals affected with stuttering, GoogleTM
and its more than 10,000 employees, or countless others, including the
Cardiomems story, the success of academic technology realization is
clear. This is a significant improvement from when intellectual
property resulting from federally funded research was available to all
non-exclusively and nearly 30,000 patents laid dormant.
Over twenty-five years ago, Senator Birch Bayh opened the hearings
on the legislation with the following statement:
``The United States has built its prosperity on innovation.
That tradition of unsurpassed innovation remains our heritage,
but without continued effort it is not necessarily our destiny.
There is no engraving in stone from on high that we shall
remain No. 1 in international economic competition. In a number
of industries we are no longer even No. 2. New incentives and
policies are needed to reverse this trend.''
Today, U.S. industry continues to face competitive pressures
globally. The need for basic research as the foundation of innovation
still exists. And, while, cultural differences sometimes strain
collaboration between industry and academia, the Bayh-Dole Act has
helped foster a new and highly successful era of collaboration by
establishing a uniform federal invention policy, encouraging
universities to develop relationships with industry through
commercialization of inventions, and establishing preference for
manufacturing of products in the United States.
Based on the objective, numerical successes of the Act as well as
my personal experiences with Cardiomems, I feel strongly we should not
alter in any significant way the legislation that has been so
successful, and that the rest of the world is using as the model of
innovation.
Thank you again for this opportunity to comment on my experiences
and the topic of Bayh-Dole. I am pleased to respond to any requests the
Subcommittee may have for additional information regarding my
testimony.
Attachment: Technology Transfer of Federally-Funded R&D, PCAST
2003.
Biography for Mark G. Allen
I. EARNED DEGREES
Ph.D., 1989, Massachusetts Institute of Technology, Microelectronics
S.M., 1986, Massachusetts Institute of Technology, Chemical Engineering
B.S.E.E., 1988, University of Pennsylvania, Electrical Engineering
B.S.Ch.E., 1984, University of Pennsylvania, Chemical Engineering
B.A., 1984, University of Pennsylvania, Chemistry
II. EMPLOYMENT
Regents' Professor, Georgia Institute of Technology--7/05-present
Professor (with tenure), Georgia Institute of Technology--7/99-present
Associate Professor (with tenure), Georgia Institute of Technology--7/
94-6/99
Visiting Professor, Swiss Federal Institute of Technology--6/00-8/00
Visiting Professor, Swiss Federal Institute of Technology--6/98-9/98
Visiting Professor, Swiss Federal Institute of Technology--6/94-9/94
Postdoctoral Associate, Massachusetts Institute of Technology--5/89-9/
89
III. RESEARCH INTERESTS
Professor Allen's research interests focus on the development and
understanding of fabrication technologies for microelectromechanical
and nanoelectromechanical systems.
IV. MOST RELEVANT PUBLICATIONS (SELECTED FROM APPROXIMATELY 200)
1. Frazier, A.B., Olson, C.S., Turner, S.P., and Allen, M.G.,
``Characterization of Graphite-Filled Polyimide Thin Films Using
Micromachining Techniques,'' International Journal of Microcircuits and
Electronic Packaging, vol. 17, no. 1, pp. 37-49, 1994.
2. Frazier, A.B., Ahn, C.H., and Allen, M.G., ``Development of
Micromachined Devices using Polyimide-Based Processes,'' Sensors and
Actuators A (Physical), vol. A45, no. 1, pp. 47-55, 1994.
3. Lagorce, L.K. and Allen, M.G., ``Magnetic and Mechanical
Properties of Micromachined Strontium Ferrite/Polyimide Composites,''
IEEE/ASME Journal of Microelectromechanical Systems, vol. 6, no. 4, pp.
307-312, 1997.
4. Frazier, A.B. and Allen, M.G., ``Uses of Electroplated Aluminum
for the Development of Microstructures and Micromachining Processes,''
IEEE/ASME Journal of Microelectromechanical Systems, vol. 6, no. 2, pp.
91-98, 1997.
5. Taylor, W.P., Brand, O., and Allen, M.G., ``Fully Integrated
Magnetically Actuated Micromachined Relays,'' IEEE/ASME Journal of
Microelectromechanical Systems, vol. 7, no. 2, pp. 181-191, 1998.
6. Seriburi, P.; Kercher, D.; Allen, M.G., ``An Experimental Study of
Microfabricated Spark Gaps: Wear and Erosion Characteristics,'' J.
Micromechanics Microengineering, vol. 11, no. 3, pp. 165-74 (2001).
7. Kercher, D.S.; Lee, J.B.; Brand, O.; Allen, M.G.; Glezer, A.,
``Microjet cooling devices for thermal management of electronics'' IEEE
Transactions on Components and Packaging Technologies, vol. 26, no. 2,
June 2003, pp. 359-66.
8. Chang, S.P.; Allen, M.G., ``Capacitive pressure sensors with
stainless steel diaphragm and substrate,'' Journal of Micromechanics
and Microengineering, vol. 14, no. 4, April 2004, pp. 612-18.
9. Park, J.W.; Cros, F.; Allen, M.G., ``Planar spiral inductors with
multi-layer micrometer-scale laminated cores for compact-packaging
power converter applications,'' IEEE Transactions on Magnetics, vol.
40, no. 4, pt. 2, July 2004, pp. 2020-2.
10. DiBiaso, H.H.; English, B.A.; Allen, M.G., ``Solid-phase
conductive fuels for chemical microactuators,'' Sensors and Actuators A
(Physical), vol. A111, no. 2-3, March 2004, pp. 260-6.
11. Fonseca, M.A.; English, J.M.; von Arx, M.; Allen, M.G., ``High
temperature characterization of ceramic pressure sensors,'' 11th
International Conference on Solid-State Sensors and Actuators, Digest
of Technical Papers, pp. 486-9, vol. 1 (2001).
12. Marquordt, C.; Allen, M.G., ``Fabrication of micromechanical
structures of titania and titanium with electrophoretic deposition,''
11th International Conference on Solid-State Sensors and Actuators,
Digest of Technical Papers, pp. 616-19, vol. 1 (2001).
13. Yoon, Y.K., Allen, M.G., ``A Pt heater/sensor microarray for
distributed fluidic cooling assessment,'' Micro-Electro-Mechanical
Systems (MEMS). 2001 ASME International Mechanical Engineering Congress
and Exposition, 2001, pp. 669-75.
14. Choi, Y.; Kim, K.; Allen, M.G., ``A magnetically actuated,
electrostatically clamped high current MEMS switch,'' Micro-Electro-
Mechanical Systems (MEMS). 2001 ASME International Mechanical
Engineering Congress and Exposition, 2001, pp. 83-7.
15. English, B.A., Allen, M.G., and DiBasio, H.H., ``Microcombustors
Based on Controllable Solid Fuel Elements,'' Proc. American Society of
Mechanical Engineers Winter Annual Meeting, vol. 5, pp. 725-733 (2003).
16. Yanzhu Zhao; English, B.A.; Yoonsu Choi; DiBiaso, H.; Guang, Yuan;
Allen, M.G., ``Polymeric microcombustors for solid-phase conductive
fuels,'' 17th IEEE International Conference on Micro Electro Mechanical
Systems, Technical Digest, pp. 498-501 (2004).
V. HONORS AND AWARDS
1. Member, Tau Beta Pi (Engineering Honor Society), 1984
2. Member, Phi Lambda Upsilon (Chemistry Honor Society), 1984
3. Arthur K. Doolittle Award, American Chemical Society Division of
Polymeric Materials: Science and Engineering, 1988
4. Georgia Tech Packaging Research Center, Research Faculty Award,
1996
5. Fellow, College of Relay Engineers, National Association of Relay
Manufacturers, 1997
6. Georgia Tech College of Engineering Faculty Research Award, 2000
7. J.M. Pettit Professorship Georgia Institute of Technology, July
2001 (initial five-year term); renewed indefinitely 2005.
8. School of Electrical and Computer Engineering Sustained Program
Development Award, 2002
9. Regents' Professorship, University System of Georgia, 2005.
10. Outstanding Leadership Award for Development of Graduate Research
Assistants (for the period 2001-2003), Georgia Institute of Technology,
2005.
Discussion
Chairman Wu. I thank all of the witnesses for your very
illuminating testimony, and now, we will turn to questions. And
at this point, we will open for our first round of questions,
and the Chair recognizes himself for five minutes.
Mr. Pradhan, you believe that Bayh-Dole has stimulated
technology transfer, and also, done a reasonable job of
encouraging productive university-industry partnerships. It
appears from our panel of witnesses that this view is not
universally shared, and I would like to give you and the other
witnesses an opportunity to discuss this issue in this forum,
and then, to drill down, and get a little bit more granularity
on that discussion, about where the problems exist, and where
they do not, whether it applies uniformly across different
fields.
And Mr. Pradhan, let me turn it over to you, and then, we
will do this first four minutes in a discussion format.
Mr. Pradhan. Mr. Chairman, thank you. I do believe that
there are more collaborations, effective collaborations that
are occurring between universities and industry at this
juncture than there have been before. My personal experiences
in this have been very positive. At every institution that I
have been at, the amount of industry collaborations has
progressively increased.
I have been at Oregon Health and Science University for
three years, and even in the three years that I have been
there, the number of collaborations has doubled, and the amount
of research funding changing hands has tripled. And this is
across all sectors. We have effectively partnered with
companies in the IT industry. We continue to effectively
partner with companies for drug development, for clinical
trials, and for basic research.
I think one of the fundamental aspects that one has to keep
in mind are the different cultures that each industry brings to
the table, and the culture of collaboration at a university.
Intellectual property itself is not a stumbling block, in my
opinion. Access to intellectual property is determined by the
nature of the project. It is determined by what outcomes are
being sought, and it is also determined by what relative
contributions are made prior to the research project actually
coming together between a company and a university.
So, I think the fundamental aspect of being pragmatic, and
approaching this in a collaborative way, tends to alleviate a
number of the problems that we have heard. It is true that you
can't rely on patents in the IT industry to generate royalties.
In fact, if you take a look at a printer or at a computer,
there is upwards of 500 patented technologies that go into
that. The price pressure for those in the marketplace is to
keep the prices down, and----
Chairman Wu. Arun, I am going to ask you to summarize your
comments. I will extend the same courtesy to other members who
are here. We will permit panelists to finish comments on the
same question asked, but I am going to run over my first five
minutes, but the prerogative of the chair, we will stay here as
long as we need to to run through all of my questions in cycle.
Mr. Pradhan. I will be brief. In summation, I think the
problem are not insurmountable.
Chairman Wu. Dr. Butts and Mr. Johnson, your comments,
perhaps, and then, perhaps Dr. Lemley, you would like to clean
up on this, and Dr. Allen, I don't mean to exclude you, if you
have something you need after that also, please.
Dr. Butts. Yes, just a couple of thoughts to share. The
growth in the number of partnerships is really a general
phenomenon. In fact, as companies have moved from the old model
of having the big, central research organization, to
recognizing that it is more productive to use external
resources, I think in general, the number of collaborations
happening is increasing. So, not just between companies in the
U.S. and U.S. universities, but around the world, in other
sorts of collaborations. So, I don't think that is necessarily
the best metric for the state of the relationship.
But I would also say that in negotiations, my experience
has been that universities and companies are both trying to do
the right thing for their institutions, and so, what they are
trying to do is live by their expectations, or in some cases,
of the universities' patent policies, that dictate how
intellectual property should be handled.
And where we see the difficulty, often, is in the timeline.
So, the difference in the university mission and the sense of
time, versus a corporate mission, and the sense of time. So,
for instance, within Dow, our projects are all on a project
timeline, with milestones and decision points, and when we
spend five months negotiating an agreement, it may be that the
research project, when it finally gets started, delivers its
results too late to be useful. So, to me, it is a very
important issue around how long it takes to reach agreement,
even if we eventually get there.
Chairman Wu. Thank you. Mr. Johnson, your comments.
Mr. Johnson. I have three of them. Well, one of the things
that is, I think, apparent so far is that the IT industry is
really different than some of the others that we have been
talking about. In fact, you know, if you look at what we do as
a practice, we actually cross-license even our own inventions
to our competitors, otherwise, we don't have a product. So, I
think in any kind of situation where you are dealing with a
certain vertical industry, the universities, I think, need to
take into account the fact that that is, you know, our
expectation. Our time to market is three to six months. Our
cost per unit keeps doing down, so to be competitive, we really
need to do that.
I would also say that there is a difference between
universities. I mean, I manage the entire strategic university
portfolio across Hewlett-Packard, so I have an insight into a
broad range of universities here and overseas. I think it
differs between universities even in the U.S. We have
universities where we are more able to negotiate these patents
more quickly, or licenses, and ones that don't. So, I think to
some degree, it is a function of the leadership and the
strategic thinking of the university.
I would also comment that I don't think industry is
blameless in this. There are some companies that haven't
developed the right strategy, and don't understand the
difference in cultures. If you don't figure out what the
cultural differences are, you are not going to have a very good
relationship, and you are not going to work quickly to get
something done.
And I would say, from an IT industry perspective, the fact
that we are a global, clearly a global activity, we need to go
places where the technology, the localization, so we are
constantly looking for opportunities to go somewhere else that
we can get the work done as quickly as possible.
From a U.S. perspective, I don't think this is necessarily
bad, but if we end up going only outside the U.S., it would
clearly be. So, I think the issue of the global industries, and
Dow, I think, is another example, we go where the information
is, where the talented people are, and the ability to get the
work done more rapidly.
So, I think all of those are factors that makes the IT
industry somewhat different.
Chairman Wu. Thank you for your comments, Mr. Johnson, and
I think that something that you said triggered in my mind that
perhaps one of the ignored factors in competitiveness for the
long term is our visa policy, and we will hold hearings in the
Science Committee on that issue later.
Dr. Lemley or Dr. Allen, any comments on this, and then, we
will turn it to Dr. Gingrey.
Dr. Lemley. Well, so, I think that the most successful
examples of university-private collaboration have been in what
Mr. Johnson called the home run patents, the very successful
new inventions that can then form the basis of a product that
is sold in the marketplace. Those are the ones where the patent
needs to be turned into a product that is commercialized. They
tend to be in the biomedical space, though there are exceptions
to that.
And the problem comes about when universities take that
lucrative licensing model for home run patents, and they try to
apply it to the patent that is one component out of 500 in a
product. There, not only are you having to deal with the other
patents, but you have also got the problem, you have less need
for this commercialization. You are not building a product
around this patent. It is one piece in a much larger puzzle.
Dr. Allen. So, one thing that I heard from all of our
panelists was that perhaps it is not so much changes in the
Bayh-Dole legislation itself that is important, as it is
education of some of the universities and technology transfer
offices to these differences.
And we do have, within the current legislation, this
flexibility available to us to do both kinds, the home run kind
of licensing and the nonexclusive licensing to all comers. I,
personally, as a researcher, have been involved in both, where
appropriate, and I think that would be a good model, perhaps,
for us to consider.
Chairman Wu. We will return to this topic, but my time has
expired long ago. Dr. Gingrey.
Mr. Gingrey. Mr. Chairman, thank you. And it really is a
segue into my question, and I am going to address it first to
Dr. Lemley, because he commented on it first.
You were talking in your testimony, Dr. Lemley, and you
mentioned biotech and pharmaceutical companies benefit from
patents due to the high R&D costs, and the lengthy process of
commercialization. And I want to know, and we will start with
you, and then, the other witnesses may comment, are you
suggesting that Congress might consider creating product-
specific or industry-specific patent regulations that are
different? And we will start with you, Doctor.
Dr. Lemley. I think that is a possibility, though I would
look at it as a last resort, in part, because it is very
difficult to draw lines that cleanly divide technologies, so
there are all sorts of examples. One that comes to mind
immediately is bioinformatics, which is this interesting
crossover of biotechnology and computer software in the service
of trying to kind of mine and rationalize biotechnology data.
I do think it is a problem. I think it is a problem, the
industry specificity, that we ought to try to solve at the
university level. It is something that we could solve at the
government level, if need be, though my preference would be,
rather than industry-specific rules and legislation, having the
PTO or some other agency with enough authority to make a case
by case decision, that here is a circumstance in which we want
to march in and require nonexclusive licensing.
Mr. Gingrey. I think, maybe Dr. Allen, you had mentioned
something in your last comment, if you would like to pick up on
what Dr. Lemley just said.
Dr. Allen. That is right, and I do agree that different
industries, as I mentioned, do need different treatments, so to
speak, but I really don't believe that treatment at the level
of legislation is required. I think it is more, perhaps, in the
regulation and implementation or interpretation of the
legislation where that might be most useful.
Otherwise, we will wind up with situations where companies
are struggling to define their products in one area or another,
in order to receive favorable treatment, perhaps, under certain
differentiating patent rules or what have you.
Mr. Gingrey. Dr. Pradhan, and then, we will go to Dr. Butts
and Mr. Johnson.
Mr. Pradhan. I agree with Drs. Lemley and Allen. It is very
hard to legislate patent policy by industry sector. In fact,
the example that Dr. Allen used, where the original invention
occurred for smart turbine engines is now being applied in
healthcare, is very illustrative of how widely some university
inventions can be applied, and from the university perspective,
we actually cross a lot of industry sectors with any particular
invention.
Dr. Butts. I am concerned that a legislative remedy that
involved defining industries or technologies would only
complicate the situation, and I would prefer to see more
flexibility, so that individual companies and universities felt
that they were freer to negotiate and agreement that made sense
for the particular circumstances of the project.
Mr. Johnson. I would agree also with Susan's point on
trying to figure out what industry specifically to add up and
put in a certain column. I would, however, say that our typical
interaction with a university, where we walk in to try to
sponsor research, we are looking to find some of the best
people in the world which are there. They have already done the
research, that is why we know that they are there. We come in,
we say we want to sponsor you with, say, $100,000, and the
first comment out of the other side is well, it has got to be
an exclusive license, and we own all the rights.
This idea that our major negotiating position is to have a
nonexclusive, royalty-free license, especially when we are
funding the research, we think that is reasonable. That is a
win-win. So, even though Bayh-Dole provides for the possibility
of both, I will tell you that the conversation, 90 percent of
the time, does not go there. And that is what often takes the
six months, nine months, a year, year and a half, 18 months,
for us to get done. So, even though the flexibility is there,
that isn't where the negotiation starts.
Chairman Wu. Thank you, Dr. Gingrey. Let me follow up on
that before I turn to a related topic.
Mr. Johnson, you said that when you come in with
potentially $100,000 on the table for sponsored research,
frequently the goal is to have a nonexclusive, royalty-free
license from any resulting technology. I would like to hear
from you, and perhaps some of the other folks who are familiar
with university policy, what prevents that particular deal from
working quickly, when there are potentially other revenue
opportunities from that particular sponsored research?
Mr. Johnson. I think it starts out from the premise that
the blockbuster patent or the pharmaceutical way of doing
business is the best way to do business. I think there is an
expectation there will be more outcome or wealth for the
university if that is the approach that is taken. I also think,
based on our experience, that when we negotiate these things,
it often ends up with an individual researcher, or an HP
attorney, and the technology transfer office in the university,
that no one has thought about the broader implications, both
strategic and business, that need to be thought about as we are
discussing this. So, our remedy, that we have worked on in
California, which has actually moved in the right direction, is
to move the whole conversation upstream, to understand why is a
company coming to this university. Yes, it is about the
technology, but typically, it is about a long-term strategic
partnership.
At the Provost level, this conversation goes great. At the
legal or lawyer level, it goes downhill quickly, and so, our
remedy for that is really to get people engaged at a much
higher level in understanding why the two organizations are
coming together. That is often much more effective, and is the
only effective way to get this to happen more quickly, so it is
almost a conditioned response. Here is some money, oh, I want
an exclusive license. You don't get the nonexclusive, royalty-
free license, which is effectively what the IT industry does
among itself. This isn't something new. This is how we build
our industry. IBM, HP, Microsoft, we all cross-license.
Chairman Wu. Thank you very much, Mr. Johnson, and we will
let other folks comment on this, if folks have a comment, in
one moment. Mr. Johnson, and this is related to the question of
what works and what doesn't. In your written testimony, you
list Purdue, Georgia Tech, University of California, and
Stanford as institutions that perhaps do a better job of
striking a balance to promote technology transfer. What is
different in the practices among what you would characterize as
successful institutions, versus some others that you negotiate
with? And Dr. Allen, you referred to, we don't need
legislation, we need better behavior, so let us circle in on
what that, what the behavior is, and what the mechanisms might
be for any potential improvements.
Mr. Johnson. So, I would say, generally speaking, that the
licensing offices at those universities are staffed with some
of the best people that we know in the university community.
They are able to, there is a philosophy of staffing at that
level, meaning very high level kind of capability. I would also
say that as I mentioned before, that there is an understanding
of the strategic partnership in all of those universities, all
the way up to the President level, of what combining with HP
means from their perspective. I would also say that we have
been engaged in that process in all of those universities for
maybe 10 or 15 years, so long-term strategic partnerships have
been developed.
And in the case of Berkeley, recently, we have worked on
this very long activity of looking at what are the strategic
reasons that we are engaged with Berkeley, and then, we filter
that all the way down into the licensing office. So, again, it
is not a one decision, one license negotiation. It is done at a
very high strategic level. And it seems that all of those
universities more or less operate under those circumstances.
Chairman Wu. Thank you. Arun, I believe you had some
comment on this, or the prior exchange.
Mr. Pradhan. This, as well as the prior exchange. I tend to
agree with Mr. Johnson, with respect to establishing strategic
alliances between universities and industry. However, taking
the IT model and drilling down a little further, as you
suggested, most universities would be willing to grant
nonexclusive licenses, but oftentimes, where the communication
breakdown occurs is that even in the cross-licensing realm, for
example, universities need to be able to license other
practitioners in the IT industry, if they are to derive
revenue.
And so, there is an issue with respect to sublicensing
rights that often comes up. A nonexclusive, irrevocable,
royalty-free license that is sublicensable does nothing for an
academic institution at that point. And it is hard to comment
on the aspects of any one particular negotiation, but these are
just some of the principles that we try to keep in mind as we
move forward. Where if we understand what the needs are, and
the company understands what the institution needs are, then we
can often arrive at an amicable resolution.
Chairman Wu. I want to let the other three witnesses
comment on this particular exchange, and for the next five
minutes that I have, Dr. Allen, you mentioned that statutory
approaches may not be appropriate, but that perhaps a
regulatory approach or something more flexible might work. What
I have been racking my brain about since you made that comment
is that we do not have an SEC, we do not have an FDA. We might
not want to have any of those things in this particular arena,
but I will save that for the next round of questions.
Do any of the other witnesses have comments on what Mr.
Johnson and Mr. Pradhan have commented on?
Dr. Butts. I would like to comment on the options that are
on the table in licensing, and actually, contrary to Wayne's
experience, typically, when we are working with a university,
what they are comfortable offering us is an option to negotiate
a license to foreground inventions, with no certainty that we
will be able to come to terms or no, really, indication of what
we might have to pay to get the license. And for us, that is
really the biggest problem. We would be happy often to have the
exclusive, but it is a difficult decision for our management to
justify, to go into a very open-ended situation, especially if
we have contributed more than just money to fund the project.
If we have provided background research results, we may be
providing noncommercial samples or prototypes, plus input from
our researchers. So, in that case, we have made a pretty
significant investment, and having an open-ended situation is
really very difficult for us to live with.
Chairman Wu. Well, what Mr. Johnson said earlier makes me
think that this course of dealing, a long course of dealing
between a private entity and a university, helps establish some
parameters, and it makes me think that, perhaps, if there were,
shall we say, a range of reason, that if you were getting a
license to license, that if one had a range of reason set of
expectations, I mean, that is one of the problems, that there
might not be that.
Do any of the other witnesses have a comment on this,
before I turn to the next set of--please proceed.
Dr. Lemley. Just briefly, I think part of the problem is
one of bureaucratic structure and incentives. If you are
dealing with an office of technology licensing that is judged
at the university by how much money it generates in licensing
revenue at the end of the day, their incentives are different,
and not necessarily aligned with the incentives of the broader
university. And one of the things, I think, that distinguishes
Mr. Johnson's more enlightened or easier to deal with
universities, and I am delighted to see mine on the list, is
that the relationship is a broader one. It is not just with a
discrete office of technology licensing. It is with a broader
group. It is with individual departments, and the office of
technology licensing has an understanding that maximizing
revenue is one goal, but it is not the only goal.
Chairman Wu. And Dr. Allen, feel no compulsion to comment,
but if you would like.
Dr. Allen. So, very briefly, I would just point out that of
the vast majority of industry contracts that I have in my lab
at Georgia Tech, they are either donations from industry, who
have given money for support of students or what have you
without any concern for intellectual property issues, or they
are exactly the type of contract that are being discussed
where, in consideration for the sponsorship of the research
contract, a nonexclusive, royalty-free license is given for the
foreground intellectual property.
So, I know it is possible.
Chairman Wu. Thank you. Dr. Gingrey.
Mr. Gingrey. Mr. Chairman, thank you, and I hope my
question is not the same question. I think when you got into
your second five minute round, you may have touched on what I
wanted to give Dr. Allen an opportunity to discuss. Georgia
Tech is one of those that were mentioned, the five or six
research universities that industry, whether it is Dow Chemical
or Hewlett-Packard, has been fond of the relationship, if you
will. I want to specifically ask Dr. Allen, because you
mentioned some with Georgia Tech that moved a number of
innovations from the lab into real commercial products.
What do you think are the characteristics of Georgia Tech
that allow it to be so effective at this process?
Dr. Allen. I think that----
Mr. Gingrey. And like universities?
Dr. Allen. Yes, of course. I believe that one of the things
that Georgia Tech has always had a history of is a long
relationship with industry, a relationship that has been
focused on being able to do the applied end of engineering
research in terms of a broad spectrum, so we certainly have our
basic science departments, but we span a broad spectrum all the
way to applied engineering, and even to work that is done not
with students, of course, but work for the government, which is
kept classified.
As a result, I think that there has been a value, placed on
the faculty, or the faculty have felt that there is value in
commercialization, so in, and it is certainly not a universal
sentiment. Some faculty feel that commercialization is
something that should be left to others. I believe at the
universities that are cited by Mr. Johnson, there is a feeling
that commercialization is part and parcel of what at least the
engineering faculty are supposed to be doing. In some sense, it
is a final validation of the engineering research that we are
doing, if at the end of it, someone is willing to pay for using
that particular product.
I also think that one of the things that we don't do at
Georgia Tech is that we don't look to the value of licensing
revenue as adding to a huge percentage of the industry income.
And I hesitate to read these numbers into the Congressional
Record, because I am doing them from memory, but I believe that
annually, the Georgia Tech does about $80 million of industry
research, which represents about 21 percent of Georgia Tech's
total research budget, and of that, about 1 percent is revenue
from licensing.
And so, if you look at these numbers, and say well, I am
going to double the licensing revenue, perhaps, and cut the
industry contracts by a factor of two, I don't think that
anyone at Georgia Tech would be very happy with that. So, I
think that that is another piece of what we do, is to make sure
that the technology licensing is serving the industry contract
piece, rather than the other way around.
Mr. Gingrey. Any other comments from witnesses? Yes, Dr.
Butts.
Dr. Butts. I would like to make a comment. I think what we
are seeing at an institution like Georgia Tech is very
enlightened leadership around the whole process of working with
industry, and the recognition that quickly coming to an
agreement is really beneficial to both parties, and that both
benefit more by doing that than by either one holding out to
try to get the best possible deal. So, I think institutions
where there is a recognition that this is a good thing, to have
these research projects go forward, and have these
collaborations occur, and all the benefits that come from
those, including opportunities for students and things, is
worth not worrying about, perhaps, losing a little bit on the
financial side.
Mr. Gingrey. Mr. Chairman, thank you, and I will yield
back, and look forward to the next round.
Chairman Wu. Thank you very much. Dr. Allen, you refer to
perhaps regulatory oversight, and Dr. Lemley, you refer to,
essentially, important Congressional oversight function in
making Bayh-Dole and technology transfer in general work a
little bit better. What kind of oversight do you all have in
mind, and I would like to have the other witnesses comment on
this, to the extent that you all have some thoughts on this
also. Dr. Lemley or Dr. Allen.
Dr. Allen. I think oversight can be performed at many
levels, and one of the ones that comes to mind immediately to
me is whether or not, and I almost hesitate to use this term,
the trade association, if you will, or perhaps, the Association
of University Technology Managers, might not be a place where
there is peer pressure based oversight to make sure that these
sorts of favorable intellectual property provisions that we
have talked about, are implemented in the appropriate places. I
think that that is certainly a place to start, rather than,
perhaps, immediately leaping to Congressional oversight.
There is a motion to do this. My understanding, we heard
mentioned earlier the Nine Points to Consider of the AUTM, and
perhaps, that is a place that we can start, and build upon
within the university community.
Dr. Lemley. Mr. Chairman, what I was referring to in my
testimony is something that is already in the Bayh-Dole Act,
Section 203 of the Patent Code, which leaves open the
possibility that federally funded inventions that are patented
and licensed under Bayh-Dole, are subject to what are called
march-in rights, in circumstances in which the agency doing the
funding determines that the invention is either not being
licensed appropriately, or has been licensed exclusively to
someone who is not, in turn, commercializing it. That
provision, I think, gives the government, and the agencies who
are most directly responsible for funding the invention, a
decent amount of discretion and power to solve problems as they
arise, at least in theory.
It has, in practice, never been used. Perhaps that is
because we have never run into one of these situations, but I
think it may also be that there is a bit of unnecessary
timidity on the part of the agencies to be the first one to
actually exercise this right.
Chairman Wu. Well, Dr. Lemley, since you are speaking, let
me invite you to continue. Stanford did some interesting
nonexclusive licensing, starting, I believe, in the late '70s
and maybe early '80s. The shape of our biotechnology industry
would be very, very different had those licenses been
exclusive, rather than nonexclusive. To the extent that you are
familiar with the history, can you tell us how Stanford, or the
tech licensing folks at Stanford, went about the university's
decision to make those nonexclusive, and therefore, broadly
practicable licenses?
Dr. Lemley. As I understand it, and this is secondhand, my
understanding, in particular, of the licensing of the licensing
of the Cohen-Boyer patents on DNA, which were the fundamental
California and Stanford patents, was that they were
nonexclusive, and available to all comers, in significant part
because the National Institutes of Health required that they
be, or at least, strongly encouraged it. This was in the time
prior to Bayh-Dole, so there weren't rules with respect to
university patenting that were across the board. Individual
government departments set up their own rules, and the National
Institutes of Health strongly encouraged nonexclusive
licensing.
I don't know, I wasn't around, and I haven't talked to the
people at Stanford at the time, whether that is something they
would have done anyway in the absence of that government
encouragement.
Chairman Wu. I am afraid I am showing that I am getting
long in the tooth. I was a student hanging around during those
days, but of course, I didn't know any of that was going on.
Actually, there were some professors, saying that they had
something interesting, but they didn't think that there would
ever be any commercial value to it.
Following up on that, if we do have, in some respects, a
divide between some of the life sciences and some of the
chemical compounds, and let us just say, call it the world of
electronics and software, where there is a lot of cross-
licensing, and cycle times are a lot higher, would a parallel
approach, where individual agencies that are grant-giving
agencies, have some more leeway, and have some more influence
over setting up some guidelines for tech licensing, would that
be helpful to some of the problems that Dr. Butts and Mr.
Johnson, you all have experienced from, you know, sitting from
your perspective. And Arun, we will get you your chance to
comment on that, too.
Dr. Butts. Actually, our problems don't really occur when
we try to license inventions that came from federal funding. I
think we understand how that process occurs. It is more when we
want to invest in the research, and make sure that we
understand what rights we will have to the resulting
intellectual property. And I think it would be hard, there, for
the federal agencies to have very much constructive impact.
In fact, my belief is that Bayh-Dole really shouldn't apply
in cases where the company is funding that research, and I
think what would be helpful is a clarification that that really
was not the intention of Congress that Bayh-Dole would apply to
every research project going on in the university, regardless
of the source of funding.
Chairman Wu. We will come back to that in the next round.
Mr. Johnson or----
Mr. Johnson. So, I have--well, I have a different industry,
but I would say that the whole issue around the understanding
of this as an issue needs to get raised. You know, we have done
work for three or four years at GUIRR, under the National
Academies. I think there needs to be a National Academy level
discussion about what the needs of these two industries are,
and that people would better understand what good approaches
would end up with, when we would go about this.
I just think the conversation ends up at the wrong level.
Our work in the Bay Area, we found there were a lot of belief
systems that operate below the radar screen, that basically
make people feel that this is a money-maker, and in fact, when
you look at our industry, it is not. So, it is a lose-lose. So,
I think a discussion needs to go on at some place. Maybe the
National Academies would be the right place, but some convening
power, where everybody would really understand what the issues
are here. It is really a lack of understanding.
Chairman Wu. We are starting that conversation today, but
you are right. We may need to take it somewhere else. Mr.
Pradhan, if you have any comments, and then, we will flip it
back over to Dr. Gingrey.
Mr. Pradhan. Just a very brief comment that, as Dr. Butts
suggested, that the role of federal agencies is not necessarily
to determine what happens to inventions from industry-
university collaborations. That actually falls on different
shoulders, and has to do with tax laws and what is defined as
unrelated business income tax. And so, there are multiple
issues, as always, that come into a decision-making process,
and it is not just one regulation or one set of policies or the
other.
Chairman Wu. Thank you. Dr. Gingrey.
Mr. Gingrey. I was discussing with my staff, earlier today,
in regard to preparation for this hearing, and I asked them a
question, and I think that they satisfactorily answered my
question, and I know that you will do the same. So I already
anticipate the answer, but it may be that some of the people
that are in the room today would like to hear this question.
The Federal Government, through its various and sundry
programs, sponsors research in our public and private colleges
and universities across the country, and it is not an
insignificant amount of money, whether it is coming through the
National Science Foundation's budget or wherever. And then, one
of these home runs occur.
My question to them was, how does the taxpayer, that is
generating all this revenue, the $3 trillion or so that we seem
to spend every year, how do they get reimbursed? Why don't they
have an exclusive license or a royalty position in regard to
one of these home run discoveries? And I would just like to
hear you comment on that, and your general impression of maybe
a misperception in regard to that, and we can start from my
left to right with Dr. Pradhan.
Mr. Pradhan. Thank you, Mr. Gingrey.
It is--every invention that gets licensed out of an
academic institution needs substantial development that needs
to happen, and there is an issue of taking the revenues from
that licensing and reinvesting it, and universities have
effectively done that, so any amount of income that comes in is
reinvested into the system. Bayh-Dole requires that we share
those revenues with the inventors, which we do, and then, we
reinvest a majority, if not all of it, into the research and
education enterprise, and the training enterprise of the
university. So, I think that the public has a net benefit that
arises from that.
Dr. Butts. I think the foundation behind Bayh-Dole is that
the public benefits, because the product gets into the
marketplace, and you know, the question, I think you were
raising is, is that fair, because the company that gets the
license gets a lot of benefit, but I think that was really the
concept, that in order to get products into the marketplace,
you had to provide a business benefit, so that companies would
take the risk and make the investment to do it.
Mr. Johnson. I guess I would similarly. I think, you know,
the ability for companies like Hewlett-Packard to create jobs,
and to create new industries in the United States, where people
pay taxes, and have, you know, a viable economic sense of
being, is really a result of this. I think innovation is the
key to our world economic competitiveness, and this sort of
research allows us to stay ahead of the curve. You know,
everybody else in the rest of the world has really benchmarked
us, China, India, Singapore, they have taken our best
practices, they have gone off, and now, they are competing, and
they are competing very well.
So, I think the degree to which we can benefit U.S.
companies in the U.S., creating jobs, is really the way this
gets paid back.
Dr. Lemley. Everything that the three witnesses have just
said is true, but of course, it is true only in the
circumstances in which we wouldn't have gotten the
commercialization of the invention that was federally funded
without Bayh-Dole and university patenting. If we had a
circumstance in which we would have gotten the technology to
the public without the patenting, and they would have paid less
money for it, then the public is contributing money, but they
are not getting the full benefits of it. And that, I think, is
why there is a greater opportunity or role for the government
to have this occasional oversight, to make sure that the
results, the fruits of federally funded inventions aren't
locked up unfairly, or in ways that might damage public health.
Dr. Allen. I have a slightly different view than my four
colleagues. I think that it is very rare that the home run
invention is worked on and available in the academic
laboratory, to the point where it is ready to be lifted
directly from the laboratory and put into commercialization. I
quoted what turns out to be relatively inexpensive factor of
$100 of private investment required for every dollar of public
investment, and I heard quoted, The Economist, $10,000 of
private investment for every dollar of public investment.
Certainly, it is true that this is going to be industry
specific, but I think that unless we have the capability of
exclusive access to some of these home run patents, we will
never get through, in my particular case, the regulatory
hurdles associated with a new medical device. And I would point
out as well that the companies that are commercializing these
are not only benefiting themselves, but also, all of their
employees, all of the new jobs that are created, and so forth,
a very important factor.
Mr. Gingrey. And I thank all of the panelists. And
obviously, the more jobs, the more people pay in taxes, the
multiplied effect of that, making our country more globally
competitive, and I hope, if we have another round, that I will
get an opportunity to come back, and maybe ask the question
about that global competitiveness as well.
Thank you.
Chairman Wu. Dr. Gingrey, I can guarantee you another
round.
I understand, Dr. Lemley, that you may have a flight this
afternoon, and we want to be sensitive to your schedule. And
so, I think that I have one further inquiry, based on comments
that you made earlier, and I think I, and the rest of the
committee would dearly appreciate your sticking with us as long
as you possibly can.
You mentioned that one of the challenges, one of the
opportunities or challenges, is to get universities to take a
broader view of their role in society, and in tech transfer, to
maximize all of the different roles, which a major research
university should be playing in our society. What are some of
the things that can be done, culturally, within a university,
or statutorily, or through financing mechanisms, to encourage
that kind of shift? What are some of the things that might be
helpful in reorganizing the tech transfer function within a
university, to try to serve that broader societal function?
Dr. Lemley. It is an important question, and I want to
start by confessing a fair bit of ignorance, so I will offer
some suggestions, but there are people far more qualified than
I to talk about the kind of organizational structure of
universities.
But I think one thing that clearly can be done is the kind
of best practices benchmarking among universities that we have
heard discussed here today. If it is, in fact, the case that
from the industry's perspective, there are some universities
that are perceived as hard to deal with and others that are
perceived as easier to deal with, and that as a result,
university collaborations with private sectors are flowing to
those universities, then I think there is an opportunity for a
trade association, like AUTM, to sit down and figure out what
does make that work, do that kind of best practice
benchmarking.
The other thing I would suggest, with respect to the
organization of the universities is that the more isolated the
technology transfer office is from the mainstream life of
research in the university, the more likely I think we are to
see the kind of short run, profit maximizing mentality that I
was concerned about. And so, anything you can do to build the
technology transfer office more clearly into the Vice Provost
for Research or whatever the departmental structure is, to make
sure that those technology transfer offices are rewarded not
just by how much money did you get, but also, by some other
measure of number of collaborations or university satisfaction,
and probably, I think, also, the sort of logical endpoint of
that is to discourage what I have seen some universities from
doing, which is to entirely outsource the function of
technology transfer to a private company, that is just in the
business of holding and licensing university patents.
Chairman Wu. Before we broaden that discussion to the rest
of the panel, let me ask you, Dr. Lemley, is there a problem
with the metrics? Because one of the easy things to do when you
are running a business or running any kind of enterprise is to
count dollars, and you know, sometimes, you just count what you
can count, and then, you wind up with a metric that doesn't
serve anyone well.
Is there a problem with metrics in this arena?
Dr. Lemley. Yeah, I think there is, because as Mr. Johnson
indicated, in the information technology industries, a lot of
the value of patents to private companies comes not in the form
of revenue that they generate, but in the form of cross-
licensing or freedom to operate, and that is the sort of value,
those inventions have the sort of value that easily gets lost
if all we are counting is what is the percentage of the
royalty, or what is the total number of dollars that are coming
in at the end of the day.
Chairman Wu. Do any of you have suggestions about
alternative metrics, or as a best practices suggestion? Arun?
Mr. Pradhan. Thank you, Mr. Chairman.
AUTM has been engaged in an effort to look at the metrics
and surveys that currently get published in the AUTM licensing
survey. Just as a brief point of history, the licensing survey
began in the early '90s, as a means of benchmarking
institutions with each other, to take a look at what activities
were being performed by the respective technology transfer
offices.
Seventeen years later, the role of technology transfer, as
we have heard in this panel and in this discussion, has
changed. We participate much more in economic development. We
participate much more in strategic alliances. The models for
industry, the models for the way that industry does business,
have changed, and over the last year, our Vice President for
Metrics and Surveys has been engaged in an activity with the
funding from the Kauffman Foundation and others, to review what
additional measures need to be looked at, what outcomes need to
be looked at, not just activity.
Chairman Wu. Mr. Johnson.
Mr. Johnson. You know, I think it comes back, so you get
what you measure, and if you are measuring licensing income,
then people will be eager to do that. I think that is 90
percent of what is at the difficulty of the licensing offices
that we have trouble negotiating with. One of the major a-ha
moments that I had in our work out in the Bay Area centered
around, when I finally realized that the average amount of
industrial or sponsored research is somewhere between 5 and 7
percent of the total research or the university budget,
depending on how you define it.
In the cases that have been mentioned previously, Georgia
Tech, and MIT would be another example, their amount of
industry funding is on the order of 20, over 20 percent. So,
again, you see the difference in philosophy of engaging as a
strategic partner, where that is a viable outcome of the work
that faculty are supposed to be doing. It is part of the
mission statement, but in the case of the average, it is 5 to 6
percent, so you might ask well, what else could you measure?
Well, companies give money in many ways. There are grants that
go without any licensing requirements at all. There is
philanthropy. There are gifts from companies. If you measure
all the places along this continuum, you can see that if you
pick one specific area that generates 5 percent, it might
impact all of the others. And the others are actually much
bigger, so in the cases that work, Berkeley would be a good
example, the Provost there has actually pulled the industry
sponsored research and the licensing office together, and they
are measured on the net outcome of both. So, I think that is a
best practice. That has actually substantially reduced the
amount of time that we take to negotiate with UC Berkeley.
Dr. Butts. I agree there are two ways to win, then, either
to secure a license, or to have a sponsored research agreement.
So, I certainly feel that having, because there are typically
two separate offices in universities that deal with those
things, so if you have both technology transfer and sponsored
programs reporting to the same person, then there is the
ability to measure that bigger impact, whether it is in money
coming in for research or money coming in for licensing. So, I
definitely feel that that is what distinguishes some of the
universities that are easiest to work with.
Chairman Wu. Thank you very much. Dr. Gingrey.
Mr. Gingrey. Mr. Chairman, thank you.
I want to have Dr. Pradhan comment a little bit about the
Nine Points, in regard to licensing university technology.
Because I think in his written testimony, that is a very
interesting concept. But before that, I want to turn to Dr.
Butts and Mr. Johnson, and ask this basic question.
What are the reasons your companies, maybe Mr. Johnson
feels more strongly about this, Dr. Butts, than you do, that it
is easier to deal with foreign universities, and seek
partnerships there? Where is there such a roadblock, as it
seemed that Mr. Johnson had a lot of heartburn over? Let us cut
to the chase on that, and tell us what the problems are, and
maybe Dr. Pradhan can say how the Nine Points recommendation
could solve those problems.
Mr. Johnson. Well, I think if you look at the reasons why
companies actually do research overseas, it is many faceted.
Matter of fact, referenced in my testimony is the Thursby study
called ``Here or There,'' sponsored under GUIRR, and with
Kauffman, about why do we actually go to do this. So, part of
the answer around why the fact that our competitors out there,
these are governments driving university investments, as I have
said before, have benchmarked us, have looked at our best
practices, and by the way, I don't think they think Bayh-Dole
is a best practice, per se. I think what they are looking at is
the level of investment, the encouragement of engineering
graduates in the technology field of science.
So, when we go there, they are eager to collaborate. They
are eager to compete. We have significant presences in all
those countries, manufacturing and R&D. We go there for access
to talent, the access to the resources provided, and the
marketplace that we are trying to sell in. So, it is a
combination of factors as to why we are there in the first
place. Then, when we get there, and we develop the
partnerships, we find that this eagerness allows them to want
to participate with Hewlett-Packard or Microsoft or IBM. They
really move rapidly to complete the research agreements. And it
is not really encumbered by any of the issues that we find in
the U.S.
So, we are there for certain purposes that are strategic to
our company, and then, the ease of doing business is much
better, and then, we run into the roadblock in the U.S. at some
places, so the natural answer is to go there instead of here.
Dr. Butts. Well, I welcome the chance to address this
question, because I would like to mention something that hasn't
come up in our discussion today, and that is that useful
inventions are rare outcomes from sponsored research at
universities. So, in fact, one of the reasons why foreign
universities are easier to collaborate with is that what they
really want is the partnership. They would like to have the
funding for their research, and they would like to have the
opportunity for their faculty and students to work with
companies who are providing interesting problems for them, and
recognize that the chances, let alone a home run invention, but
even just an invention that is useful, are small.
So, I think that what we see outside the U.S. is that there
is a heavy focus on the value of the research partnership, and
all the benefits that flow from that, and very little concern
about what if there is a patent. So, the whole approach outside
the U.S. is different, and it is really focused on the research
and the partnership, and not on potential value of investments
that might come from the research.
Mr. Gingrey. Dr. Pradhan.
Mr. Pradhan. Thank you, Mr. Gingrey. The Nine Points
document is something that establishes consistent guidelines
across institutions. It is meant to be flexible. It is meant to
promote licensing approaches, as the introduction suggests, for
comparable technologies, and does vary considerably from
industry sector to industry sector.
What it does establish are the protection of certain core
values that a university, or an academic institution has. For
example, the right to publish. For example, the making research
tools broadly available across industry sectors, as well as to
other institutions. The right to practice the licensed
technology, and allow other academic institutions to practice
that technology, as well.
So, then, extrapolate that to also successful practices,
and working with companies on research. In terms of using
similar approaches, which is taking a look at things by, sector
by sector, preserving rights to use it ourselves, and then,
moving forward. So, I think it starts the process of consistent
implementation of Bayh-Dole.
Chairman Wu. Thank you, Dr. Gingrey.
I would like, in a few minutes, to turn to whether some of
the Nine Points would be basis for more of a guideline focus.
Now, we have just spent some time talking about changes that
one might make in the university enterprise. I would like to
focus now on the phenomenon of going overseas with sponsored
research, and to what extent is this driven by sort of, if you
will, free market hunger for collaboration, and to what extent
are there sometimes, I just read about this at times, if you
want to sell airplanes in certain places, there is a co-
production requirement at times. Are we facing some of those
issues in sponsored research, as we look at Russia, China,
India, or some other places around the world? Do we run across
that kind of conversation?
Dr. Butts. We have not encountered that, Chairman Wu. In
fact, our research with universities is often so far upstream
that it is not really tightly linked to our manufacturing, so I
think the issue comes up more when companies want to market,
sell, or manufacture in a foreign country. For the most part,
our research is really driven by the more fundamental side, and
so, we have not encountered those sorts of requirements.
Mr. Johnson. I would say we encounter those from time to
time, and I think it is more about if you fall into the role of
corporate responsibility, being a good corporate citizen. If
you are HP, and you are only selling in that country, and they
have a broader objective, we want to be their partner, their
long-term partner.
Chairman Wu. So, it may not be expressly said, but it is
one of the, perhaps, understandings of life.
Mr. Johnson. It is implicit that you are investing, I mean,
the best partnerships, and this includes the supply chain
business, the success of supply chains.
Chairman Wu. Please proceed.
Mr. Johnson. The success of supply chains is sort of not
throwing it over the wall and asking people to come up with the
lowest price. It is investing in your other, in the other
ecosystem. So, I think that is true in countries around the
world. I also would tell you that there are many countries
coming to us with research investments, laboratory facilities,
saying please come here, we want HP or Microsoft or IBM to be
part of this.
And there is a third situation that I can cite in Brazil,
where the tax law gives an incentive to work with universities.
Instead of paying taxes, we are allowed to invest as a tax
nonpayment, to pay it into research that we fund and we direct
inside university systems. So, I mean, that is a win-win. We
didn't pay tax, but we funded research inside a university. So,
we have an extensive amount of university research in Brazil,
but it was an incentivization through the tax system, as one
example.
Chairman Wu. Does anybody else want to comment on this
factor, before we move on?
There was some mention of Tax Code issues, and I want to
ask about that, and then, Arun, I want to turn to you for other
potential barriers to tech transfer. There was some mention of
tax issues, the treatment of bonds that are used to finance
buildings and limitations on unrelated business income.
For those who choose to or want to, can you address that
issue for me briefly, clearly?
Dr. Butts. I would like to give it a try. I will do my
best. I am not a tax expert, but as you have already mentioned,
many universities use tax exempt bonds to finance building
facilities, and in order to preserve the tax exempt status of
the bonds, they have been given a safe harbor by the IRS with
regard to doing collaborative research. And basically, as long
as they stay within that safe harbor, they know that their
bonds are protected.
And the safe harbor is actually, from an industry
standpoint, pretty small, and it says that you cannot give
preference to a research sponsor in licensing foreground
inventions, and that for universities to stay in that safe
harbor, they have to be careful that they are making sure that
they can show that they are licensing an invention at a fair
market value. If you don't know what the invention is, it is
hard to show that if you agree up front what the invention is
going to cost, that it is a fair market value. So, that
provision really makes it extremely difficult for a company
like mine to have the assurance that we would like that we are
going to be able to execute a license that we feel is done at a
reasonable cost, if the university has to stay in that safe
harbor.
Chairman Wu. Anyone else wish to address that issue, before
we--Mr. Pradhan, I believe that in your written testimony, you
mentioned that there are some barriers to technology transfer.
Can you, can we come back to that, and address what barriers
you are talking about, what can be done to eliminate some
barriers, whether they are real or perceived, what federal
statutes there might be, what State statutes there might be?
Mr. Pradhan. Thank you, Mr. Chairman.
I think some of the real barriers are exactly what we have
referred to here. The Tax Code, for example, is a potential
barrier in effective collaborations and licensing. There are
perceived barriers with respect to positions that a particular
entity might take in the negotiation process, and are
attributed to Bayh-Dole. I don't think that a negotiation is
anything more than that. It is a negotiation, and also, from my
perspective, from my personal experience in working with
companies, and we have discussed this a little bit, when you
are able to sit down with them and articulate to them some of
the issues with respect to, for example, the tax laws, the
business model, that would derive benefit for an academic
institution versus, so, for example, nonexclusive, royalty-free
licensing versus exclusive licensing, that those barriers tend
to go away.
So, at the end of the day, one of the most effective means
of achieving success is education, but not only at the academic
institution level, but also, at a company level. I think we
understand some of the issues that relate to us. We are not as
cognizant of some of the issues, as they relate to companies.
And the flip side of that is also true, that they understand
some of the issues that are very important to them, but don't
completely understand the issues as they relate to academic
institutions.
So, in very brief summary, I think it is a matter of
educating both sides, with respect to effective means of
establishing licensing partnerships, as well as research
partnerships.
Chairman Wu. Thank you very much. I think I heard most of
that, but the rest of it, I will read from the written record.
My apologies to you all, or perhaps you will be relieved. We do
have a series of seven or eight votes coming up, and I think
that the right thing and the humane thing to do is to recess
the panel in about ten minutes.
A couple of you have obliquely, or perhaps a little bit
more than obliquely, referred to issues where despite the fact
that research may be privately funded, that the direct research
is privately sponsored research, that there is a line drawing
challenge in negotiating with universities, and that this is
probably a challenge on both, for both parties, but what a
university takes title to, versus what is, shall we say,
sponsored research uncontaminated by federal funds. For those
who choose to address this issue, can you illuminate the
outlines of that issue a little bit more for the Committee?
Dr. Butts. I would like to address that issue. I think that
we see a whole range of ways of looking at how Bayh-Dole should
apply, and one that I frequently hear from universities is the
statement, if one federal dollar touches your project, then
Bayh-Dole has to apply. And I think in reading the implementing
regulations that that clearly was not the intention, and that
what you really need to do is look at the statement of work for
the program that is being funded privately, and if, in fact, it
is not overlapping with any work that is being funded by the
Federal Government, then I think Bayh-Dole should not apply.
But I think there is some concern in the university
community about not doing something that will cause difficulty
with their federal sponsors, so the easy answer is take a very
broad interpretation, and say because we have so much federal
money in our laboratories, there is no way that your project
cannot somehow be, can run without being impacted by federal
dollars.
Mr. Johnson. I agree with Susan's comments. It is sort of a
mine, yours, or ours kind of thing. I mean, this ought to be
just common sense, but when you look at the complexity of
looking at prior background IP across, say, the entire
University of California system, to determine whether they have
looked at, and you have made sure that any possible connection
to your research has been identified, it is a daunting task by
itself.
So, if you are making a bet on this, and you have got a
large institution, and there is all this uncertainty, then what
do you do? And that, again, causes a breakdown. So, it is more
common sense that well, this is fundamentally mine, or mostly
yours, and I am just trying to buy into it. Those are the sort
of conclusions we would like to make rapidly, but this thing
overhangs it, and it is difficult.
Chairman Wu. Would legislative clarification be helpful in
this arena?
Mr. Johnson. I will go out on a limb, and say I think it
might be, in this particular case, just because, you know, the
idea, as Susan pointed out, just touching something. I mean,
the Federal Government funds just about every kind of research
that I know, so I am sure I am going to touch some of it. So,
some clarity there, I think would be helpful.
Chairman Wu. Other viewpoints on that particular question?
Mr. Pradhan. I think it would be possibly a wrong path to
go down, and provide legislative oversight along those lines. I
think the issue is more of----
Chairman Wu. Do you agree that there is an essential
problem here?
Mr. Pradhan. Yes, I do, but I don't think it is rooted in
Bayh-Dole. I think it is rooted in value allocation of what
has, or going to be created. I think it is also based on the
relative contributions that the two parties, or the three
parties make to whatever occurs.
It is a question of access, and it is a question of
control, and----
Chairman Wu. Mr. Pradhan, then, at what relative
contribution would you say this is sponsored research,
privately sponsored research, and not subject to, shall we say,
Bayh-Dole contamination, and at what percentage would you say
that this vests in the university?
Mr. Pradhan. I don't think--sorry.
Chairman Wu. Please proceed.
Mr. Pradhan. I don't think universities take, or all
universities take the position of Bayh-Dole contamination. I
don't believe that that is an issue here. We take a position,
where we have our faculty, who are our employees, and by
policy, need to assign to universities intellectual property
that is created as a result of their work. If the issue is,
then, assignment of that intellectual property back to a
particular company for further development, yeah, we need to
take a look at that carefully, and sometimes, we do, for
example, in clinical trials that we conduct, take into account
what is being brought to the table by the company. That is a
model that we can effectively use for other means, as well.
Chairman Wu. My apologies, Mr. Pradhan, but because there
is a vote clock ticking, I would like to move the discussion
along, but let us come back, perhaps, you all have some
written--things that you would like to submit in writing.
As I was reviewing this issue, one of the questions that
developed in my mind, for Dr. Butts and Mr. Johnson, we could
address this legislatively, but it seems to me that going into
the relationship of sponsored research, that to the extent
there is an issue here, if it is not taken care of by the
relationship, that a private entity, a sponsoring entity, could
get representations and warranties, and an undertaking from the
university. You can already tell that, you know, I am the kind
of guy that you don't like to get involved in technology
licensing, but you could get those reps and warranties from the
university, that this is sponsored research. Why doesn't that
take care of it up front?
Dr. Butts. I just think that the issue of being able to
clearly define when are federal dollars involved and when are
they not is difficult, and I have had people say to me, well,
in order to do what you are suggesting, Mr. Chairman, this
faculty member would have to move into a different building and
work in a separate laboratory, so that there was basically no
federal funding in the area, which I think is really more than
the Act requires, but it is that level of certainty that I
think many people want to have, in order to make sure that they
are not somehow failing to meet the obligations under Bayh-
Dole.
So I think, you know, some clarity about is it really that
necessary to totally segregate the research, or is there a way
that federal dollars and industry dollars can be funding
separate projects, and still be, not have Bayh-Dole apply, I
think would be very helpful.
Chairman Wu. Dr. Allen.
Dr. Allen. Briefly, I think that this is a very important
point. I think it is, in some sense, almost independent of
Bayh-Dole. I think if industry comes to my laboratory to do
some research, part of the reason is because I have built up,
or I, by extension, Georgia Tech, have built up over the years
expertise in an area that is very valuable to that particular
industry.
And so, I do agree with you, Mr. Chairman, that the way to
solve the issue of who is contributing 1 percent, or 99
percent, or whatever it is, to the ultimate collaboration, is
one to be negotiated between the private parties, as opposed to
bringing in the Bayh-Dole situation.
Chairman Wu. Perhaps you all are relieved, but I apologize
for needing to bring this hearing to a close. It would not be
fair to you, or to the other attendees, to recess for seven or
eight votes, and then to come back.
I do feel that we have just barely scratched the surface of
this very important, large topic. It is my intention to return
to this subject, and to try to get it right, rather than to get
it fast, and sometimes, one of the most difficult things to do
around this institution, do nothing. And we will consider
carefully what the right things are to do for the next
generation of Bayh-Dole, which will affect, I believe, several
future generations of Americans.
I did not have a chance to discuss some of my experiences,
either with domestic universities or, in particular, with
foreign universities, and whether the challenge is changing
American conduct, or whether the challenge is in, perhaps,
developing standards for conduct elsewhere in the world. We
will return to these subjects.
If there is no objection, the record will remain open for
additional statements from members, and I do hope that we will
be able to ask you all questions, and that you will continue to
help us in our consideration of these issues.
Without objection, so ordered. The hearing is now
adjourned. Thank you all very, very much.
[Whereupon, at 3:12 p.m., the Subcommittee was adjourned.]
Appendix 1:
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Answers to Post-Hearing Questions
Responses by Arundeep S. Pradhan, Director, Technology and Research
Collaborations, Oregon Health & Science University; Vice
President for Annual Meetings and Board of Trustees,
Association of University Technology Managers
Questions submitted by Chairman David Wu
Impact of Federal Statutes
Q1. Several witnesses commented in their testimony that Bayh-Dole is
only one of several federal statutes that play a role in shaping the
interactions and relationships between universities and industry. What
are other important statutes, and how, if in any way, do they
discourage technology transfer, and industry-sponsored university
research? Do you see bright line rules which would help universities
lower the perceived risk of the loss of non-profit status or federal
research funding?
A1. The impact of the Bayh-Dole Act on research and university-industry
interactions has been much more positive than negative. Comments made
by my colleagues on the panel seem to imply that the Bayh-Dole Act
discourages university-industry research relations. This is erroneous.
University-industry relations encompass a variety of relationships,
such as collaborations, multi-party consortia, material transfers,
government-university-industry partnerships, sponsored research
agreements, and licensing arrangements. Each relationship is defined by
a set of complex issues of which patent ownership (the issue addressed
by the Bayh-Dole Act) is one. Other issues relate to research conducted
in tax-exempt bond financed facilities; valuation of inventions that
have yet to be created; the nature of the industry sector; and, the
desire of companies to negotiate payment of the full burden of expenses
associated with research (reimbursement of Facilities & Administrative
costs). In addition, the mission of a company typically focuses on
generating revenue through commercialization of products and is
fundamentally different from that of a university that focuses on
research, education and public service. The Bayh-Dole Act remains
supportive and flexible to allow universities to address these issues
and the financial support of a particular university research
laboratory.
One of the other panelists raised the impact of the federal rules
governing tax-exempt bond financing. While these rules present
limitations to pre-determining the value for a future unknown
invention, they do not change the fundamental principles of
universities to retain ownership of their technology, determine
appropriate values for commercial use of federally-funded technology,
and ensure that these public assets are appropriately developed for
maximum utilization to benefit the public. Therefore, any changes to
such laws would not alter significantly the university-industry
relationship.
Even without the issues created by tax-exempt bond financing, there
are real problems in establishing a value for technology that is yet to
be created, as neither the company nor the university know the actual
market for the technology or what further development will be necessary
to bring the technology to market. Further, trying to pre-value the
unknown inventions would create greater contention between the
respective parties as each party would have an incentive to value
unknown inventions at either extreme of the spectrum. As I have stated
in my prior testimony, the issues are mainly based on the cultural
distinctions between the different industry sectors and that the nature
of the transaction is a negotiation which needs to be conducted in good
faith.
In addition, the Stevenson-Wydler Technology Innovation Act (15
U.S.C. 3710 et seq.) provides the basis for federal agencies and
laboratories to enter into Cooperative Research and Development
Agreements (CRADAs). CRADAs encourage technology transfer from federal
laboratories (including some managed by universities and some in
collaboration with universities) to the private sector.
In summary, I do not believe that federal statutes play a
significant role in discouraging university industry research
relations. Rather the opposite, federal statutes encourage and require
such beneficial relationships. In addition universities would and do
accommodate industry's desire to know the commitments for research
collaborations and follow-on licensing to the extent that we reasonable
can.
Impact of State Laws
Q2. You noted in your testimony that since 2005, 19 states have
launched initiatives targeting innovation by investing in university
R&D--including R&D incentives and tax incentives for the private sector
to partner with universities. How do State laws shape the university-
industry collaboration environment? Do these laws pose any additional
barriers, beyond those created by some federal statutes, for
university-industry collaboration? Please explain.
A2. Most State laws are flexible to encourage university-industry
collaborations in various fields of research. Very few states have
enacted legislation that requests a share of the licensing income and/
or require that technology developed be first licensed to local
companies or be the basis of start-up companies in the name of economic
development. Where such State laws and regulations exist, they may pose
obstacles in venturing with out-of-state companies and leveraging State
and federal funds together. On the other hand, States laws that provide
R&D tax credits to corporations who fund research in the state
encourage these important research investments.
The initiatives that I have outlined in my written testimony and
other initiatives of which I am aware, do not limit the interactions of
universities to local and regional economies. The initiatives
capitalize on the ability of universities to retain ownership of
intellectual property, function as engines for economic growth in the
region, and partner with companies across a wide range of disciplines.
I am not aware of any of these State laws creating additional barriers
for university-industry collaboration.
Overseas University-Industry Collaboration Trends
Q3. Industry witnesses expressed concern that policies at some
universities are discouraging university-industry cooperation, and, as
a result, companies are turning to conduct sponsored research overseas.
How are universities tracking these international developments and how
are universities responding? Are there changes to the Bayh-Dole statute
that are needed to respond to these developments?
A3. Policies at universities protect academic freedom, education of
students, integrity of the research enterprise, and utilization of
research results for the public benefit and do not discourage
university-industry research collaborations. The issue is one of
negotiation and a meeting of the minds to achieve a mutually beneficial
arrangement. Companies expand overseas due to pressures of
globalization, not merely because U.S. universities are hard to deal
with. As Mr. Johnson indicated in his testimony, there are multiple
factors that are taken into consideration; for example, building R&D
centers and working with overseas universities often are a response to
penetrating overseas markets. To blame U.S. universities for companies
outsourcing R&D to foreign universities is deceptive. The relatively
few firms that assert that U.S. universities are difficult to work with
claim that overseas universities are willing to agree to different
terms than U.S. universities, but overseas universities have different
histories, interests and drivers.
The approach of U.S. industry in chasing ``easy'' foreign
universities strikes me as the same short-sightedness that led to the
concerns that resulted in the Bayh-Dole Act. In addition, most major
foreign universities either have or soon will have policies similar to
U.S. universities. Many countries are investing heavily in their
universities to entice companies to establish bases there and to
benefit from subsidized research. As foreign universities gain more
experience they will recognize the importance of intellectual property
in preserving the integrity of their research programs as well as the
damage generated by giving away all of their valuable intellectual
property for quick revenue enhancement. These universities will become
less likely to assign away ownership of invention rights that are
critical to continuing their research, ensuring that graduating
students and collaborators can continue to utilize their research
results, attracting future research funding, and maximizing utilization
of their technologies in multiple fields of use. We are in fact seeing
these trends in Singapore, Taiwan, and Japan. AUTM is partnering with
universities and individuals, who are very interested in seeking to
replicate U.S. models of technology transfer in these countries and
others.
It also remains the case that, some countries' observation of
international agreements and intellectual property rights is limited at
best. Trying to enforce agreements for example in China, India and
other countries is challenging and costly.
In fact, many multinationals are coming from overseas to U.S.
universities! Foreign-based multinational firms are building R&D
centers near U.S. universities and entering into long-term
collaborations. Further, these relationships are established on terms
that both companies and the U.S. universities find acceptable! The
companies tell us our terms are different than they encounter with
universities overseas, but they understand the issues of academic
freedom, advancing research, protection of students, intellectual
property rights, and that this is the way that business is done in the
U.S. and they see the advantages.
I would also like to point out that Dr. Gary Schuster, Provost and
Vice President for Academic Affairs at Georgia Institute of Technology,
testified in the July 26, 2007 hearing before the House Committee on
Science and Technology on the impact of globalization of R&D and
innovation on American universities. Dr. Schuster stated that many
foreign companies are establishing research collaborations with U.S.
universities.
According to the National Science Foundation's 2006 Science and
Engineering Indicators, from 1997 to 2002, R&D investments made by
foreign firms in the U.S. grew faster than R&D investments made abroad
by U.S.-based multinational corporations. During 2002, while U.S.
affiliates of foreign companies accounted for 5.7 percent of the total
U.S. private industry value, R&D conducted by U.S. affiliates of
foreign companies accounted for 14.2 percent of the industry R&D
conducted in the U.S. This demonstrates that the process of
globalization is at work with companies investing and seeking
collaborations in other countries and that, foreign companies are able
to successfully enter into research collaborations with U.S.
universities.
Taken with the 28,000 active licenses in the U.S. between companies
and universities last year to develop useful products, the many more
R&D agreements in place between companies and U.S. universities
indicates an enormously active research enterprise. Even companies
espousing that U.S. universities are hard to deal with have active,
sizable research partnerships and licensing programs with U.S.
universities.
In summation, policies at universities do not discourage
university-industry partnerships; the Bayh-Dole Act plays a minimal
role in these types of collaborations; most universities would like to
establish ties with industry, but not at the expense of becoming
``company shops''; and companies would like to access the expertise at
the U.S. universities. An example of a common negotiation is that most
universities would be happy to grant non-exclusive licenses to
companies in the IT sector, as long as the universities retain the
ability to offer additional non-exclusive licenses. However, the
company's request for non-exclusive licenses is often accompanied with
the right to sub-license, no payments towards patent expenses, and the
license is irrevocable. Under such circumstances, if the university
were to grant such a license, it would not be fulfilling its obligation
as a steward of public resources and further, would be entering into a
relationship that was not mutually beneficial.
So I am concerned and deeply puzzled by the continuing profile
given to the erroneous viewpoint that U.S. universities are hard to
deal with, which is contrary to the facts and appears strictly based on
anecdotal evidence.
Foreign Legislation
Q4. We hear that other countries are copying Bayh-Dole. What are the
goals of the legislation in countries which have passed similar laws?
Have differences in goals lead to different metrics for universities in
technology transfer and university-industry collaboration? Are there
changes to the Bayh-Dole statute that are needed?
A4. The objective of the countries that are also emulating the Bayh-
Dole Act is to quite simply duplicate the astounding success of the
Bayh-Dole Act in their own territories. The effect of these new changes
overseas is too nascent to assess their impact at this time, especially
in achieving the respective objectives established by different
countries. One likely outcome will be more consistent treatment and
collaboration between faculty and students across the globe. As
policies enabling collaboration are regularized to respect research
teams' contributions to the public, university-owned intellectual
property is likely to be treated more similarly, as has been achieved
with intellectual property laws. This is likely to enable faster
validation of early-stage university technology, and easier entry into
foreign markets for U.S. companies.
I do not believe any changes to the Bayh-Dole Act are required at
this time to address this issue.
In the Public Interest
Q5. Dr. Lemley, in his testimony, said universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology. And you included in your testimony the
March 2007 white paper, In the Public Interest: Nine Points to Consider
in Licensing University Technology. How could technology transfer and
university-industry collaboration be conducted to better serve the
public interest? What might the impact be on industries with different
business models?
A5. The most effective technology transfer occurs when both parties
understand each other's needs and arrive at an arrangement that is
mutually beneficial. Negotiations and discussions between the parties
should not be confused with legislative, regulatory or policy issues.
Most universities do take a broad perspective when entering in to a
research relationship or a licensing transaction and remain cognizant
about different industry clusters and respective business models. Some
of the challenges that universities address during a research
negotiation include cultural differences between the academic and
corporate environments, ownership of university-developed intellectual
property, licensing rights to such intellectual property, background
rights, confidentiality and publication rights, tax issues, export
control (under certain circumstances), and access to research
materials.
The public interest is served best when universities enter into
research relationships that are consistent with the university mission
of research, education and public service. This includes retaining
ownership of technology that the university develops and consistently
ensuring that technology is transferred to the commercial sector in
many different ways--through education, training, source of employees,
and licenses to intellectual property. Part of the obligations under
the Bayh-Dole Act requires universities to ensure that inventions are
diligently developed for the public benefit. This requires negotiation
of terms for diligent development of federally-funded technology as
well as terms that permit universities to terminate licenses where
appropriate utilization is not taking place.
The ``Nine Points'' document serves as a guide for universities to
ensure that the public interests are taken into account and that any
arrangement between the university and a potential licensee is
effective in the utilization of the licensed technology. A number of
the points articulated in the document are currently part of policy
and/or widely practiced. This document consolidates these issues into a
succinct guide that provides a perspective on why such issues are
important and need to be considered. We hope that the Nine Points white
paper helps our industry collaborators to understand better the
academic environment.
Small Business Perspective
Q6. In the hearing we discussed both university and large corporation
perspectives on the impact of Bayh-Dole. How do you think the
experience of small business with Bayh-Dole differs from that of large
corporations? Please distinguish between experiences you think are
unique to individual industries from experiences you believe are common
to all small businesses.
A6. Many of the Nation's large corporations have significantly reduced
their efforts to engage in fundamental research and development. The
Economist recently observed, ``Companies tinker with today's products
rather than pay researchers to think big thoughts.'' Therefore, a
significant number of large firms are not themselves as engaged in
early-stage research, and therefore the Bayh-Dole technology transfer
process, as are small businesses. The issues related to this move away
from early stage research have very little to do with the nature of
university-industry relations and more so with the need for these large
corporations to continually meet targets established by Wall Street,
reduction of costs and overheads, and the introduction of the next
version of the product at a faster pace.
Small businesses, in contrast, are a vital part of the Bayh-Dole
technology transfer process. $42 billion was spent on R&D in U.S.
academic centers in 2005. With the support of Bayh-Dole, universities
transferred this technology primarily to small businesses. In a
majority of these relations, venture capital and angel investors
facilitated this process by providing ``risk capital'' to facilitate
this process. In 2006 alone, venture capitalists made over 3,400
investments and angel investors over 51,000 in small businesses, and
together investing over $50 billion in small businesses.
In return, small businesses make good stewards for the transferred
technology. The Small Business Administration recently said that
``small firm innovation is twice as closely linked to scientific
research as large firm innovation on average, and so substantially more
high-tech or leading edge.'' More notably, the same SBA study observed
that small businesses are necessary to ``maintain the diversity in our
country's innovative capacity which is a source of economic strength
over the long-term.'' That is because small business bring new, high-
risk technologies to market, they invest in new business methods and
models, and they provide competitive pressure on large corporations.
Therefore, it is my understanding that the small business
perspective on Bayh-Dole is fundamentally different than a large
corporation. Small businesses see the Bayh-Dole Act, partnerships with
universities, and other sources of federal research as vital to their
future business objectives and they act accordingly. Large
corporations, in contrast, invest proportionally less in university
collaborations, recognizing that, in anything, Bayh-Dole may represent
a source of competitive threat to an existing product or technology's
incumbent position.
Best Practices
Q7. During the hearing, the witnesses discussed a number of best
practices which improved university-industry collaboration on industry
sponsored research. Please summarize, in priority order, your top
recommendations to improve collaboration on industry sponsored
research.
A7. It is obvious that there cannot be a single set of ``Best
Practices.'' In fact, the term ``Best Practices'' implies a singular
approach to a situation, which as we are discovering is untrue. Even
within the industries represented by the other co-panelists
(information technologies and chemicals), there is a wide spectrum of
what each seeks in their respective interactions with universities.
Each technology and university-industry collaboration represent unique
sets of circumstances that must be carefully considered to ensure a
mutually beneficial relationship to all parties. This leads to a
negotiation of either a simple or complex set of issues to determine
the respective rights and obligations of the parties under either a
research agreement or an appropriate license agreement. The same issues
and drivers that apply to the case for negotiating license agreements
can be extrapolated to negotiations in university-industry research
collaborations. It is this search for a singular set of Best Practices
which often blocks effective collaborations, as the circumstances
regarding early-stage research vary greatly.
The following recommendations to improve collaboration on industry
sponsored research would apply equally to companies as well as
universities:
1. Understand the culture and needs of the other party.
2. Be aware of federal and State regulations that might play a
role in the nature of the relationship.
3. Don't negotiate the Facilities & Administrative rate
associated with the project.
4. Avoid pre-valuing intellectual property that has not yet
been created.
5. Negotiate separately the licensing rights to any background
intellectual property.
6. Ensure that companies as well as the faculty are aware of
issues related to conflict of interest.
7. Recognize that universities must continue to maintain their
academic principles and are not serving as a hired company
laboratory when participating in a research collaboration.
8. Recognize that industry sponsored research is not a source
of ``un-obligated money,'' i.e., faculty need to be aware of
the expectations of the company when entering into a research
relationship.
9. Operate with an open mind, in good faith and on a
reasonable basis to arrive at mutually beneficial arrangements
on issues concerning intellectual property; publications; and
confidentiality.
Federal Government Oversight
Q8. The Federal Government has an important oversight function for
Bayh-Dole to insure that university patenting serves its intended
purpose and is not misused. What specific oversight do you recommend,
including oversight by individual agencies funding federal research at
universities?
A8. One of the initial purposes of the Bayh-Dole Act was to ensure a
streamlined and uniform federal policy across all federal agencies with
respect to inventions arising from federally funded research. Differing
policies by individual agencies were ineffective, confusing and
administratively burdensome. It is extremely important for the Federal
Government to provide strong and consistent oversight and
implementation of the Bayh-Dole Act in order to continue the enormous
success of the Bayh-Dole Act into the next 25 years.
Over the years, a few agencies have needed clear guidance on the
proper implementation of the Bayh-Dole Act as they have strayed from
the standard clause and established regulations. With the recent
passage of the COMPETE Act and expected elimination of Technology
Administration in the Commerce Department, it is unclear who will
assume the oversight function of the Bayh-Dole Act. Because much of the
Commerce Department is focused in other areas and Commerce
organizations, such as NIST, is specifically designed to function as a
national research laboratory that also funds research, a more
appropriate placement would be the Office of Science and Technology
Policy (OSTP) which has a broad policy focus to ensure consistent
implementation across all federal agencies and laboratories. We
encourage Congress to transfer oversight function to such an office.
Answers to Post-Hearing Questions
Responses by Susan B. Butts, Senior Director, External Science and
Technology Programs, The Dow Chemical Company
Questions submitted by Chairman David Wu
Impact of Federal Statutes
Q1. Several witnesses commented in their testimony that Bayh-Dole is
only one of several federal statutes that play a role in shaping the
interactions and relationships between universities and industry. What
are other important statutes, and how, if in any way, do they
discourage technology transfer, and industry-sponsored university
research? Do you see bright-line rules which would help universities
lower the perceived risk of loss of non-profit status or federal
research funding?
A1. In addition to Bayh-Dole there are two other important federal laws
and regulations that impact technology-related interactions between
universities and industry: the Internal Revenue Code of 1986 (and the
clarifying Revenue Procedure 2007-47), and the cost principles,
specifically the cap on university overhead, described in OMB Circular
A21 Section G.8. Each of these impacts the university-industry
relationship in a different way which I will explain below.
There is a key distinction that I want to make before addressing
the specific laws and regulations. This is the distinction between
situations in which university inventions result directly from research
that is funded by the government versus research that is funded by
industry. In the former case no company has a vested interest in the
invention so the university should take the commercialization path most
likely to get the invention into use for the public good. In the latter
case the company that sponsored the research has made an investment and
should have preference in using patentable inventions that result from
the research. Industry sponsored university research is different by
nature and important to U.S. competitiveness. In contract to federally
funded basic research in which projects are proposed by faculty members
and competitive grants are awarded based on the funding agency's
judgment of technical merit, industry funded research projects
generally are framed by the sponsoring company based on its knowledge
of the technology and market and are intended to answer a scientific
question or solve a technical problem that may ultimately lead to a new
or improved product or manufacturing process.
In my opinion, the most significant legislative barrier to
university-industry research collaborations is the understandable
concern that universities have regarding their non-profit status and
the tax-exempt status of their bonds. The Internal Revenue Code of 1986
sought to prevent companies or individuals from deriving private
benefit from or making private use of non-profit institutions and tax-
exempt bonds. I am not qualified to comment on the specific language in
the tax code or how to interpret it. However, there is a concern on the
part of universities that giving preference to a industry research
sponsor in licensing inventions resulting directly from the research
funded by the sponsor may constitute private use and, therefore,
endanger their non-profit status as well as the tax-exempt status of
any bonds used to finance the facility in which the sponsored research
was conducted. Revenue Procedure 2007-47 (which recently superseded
Revenue Procedure 97-14) creates a safe harbor regarding tax exempt
bonds. It sets forth conditions under which a research agreement does
not result in private business use under the IRS Code of 1986. Section
6.02 in the Revenue Procedure describes these conditions for corporate-
sponsored research as follows: ``. . .if any license or other use of
the resulting technology by the sponsor is permitted only on the same
terms as the recipient would permit that use by any unrelated, non-
sponsoring party (that is, the sponsor must pay a competitive price for
its use), and the price paid for that use must be determined at the
time the license or other resulting technology is available for use.
Although the recipient need not permit persons other than the sponsor
to use any license or other resulting technology, the price paid by the
sponsor must be no less than the price that would be paid by any non-
sponsoring party for those same rights.''
This safe harbor is problematic for companies that wish to sponsor
research. First, it provides for no credit toward the cost of the
license to be given to the sponsor for the investment that the sponsor
made up-front in the research. This investment includes not only the
funds provided to pay for the research project but also other
contributions such as proprietary information (technical or business)
used to frame the research problem, use of company-developed
noncommercial materials or prototypes, and use of results of related
research and testing performed by the sponsor. Second, the university
alone determines the competitive price or market value of the license.
It has been our experience that universities tend to overvalue
inventions, and it is in the interest of the university technology
transfer office to make the royalty as large as possible. Third, and
most problematic for many potential sponsors, is that they cannot have
any assurances before entering into the research agreement that they
will be able to have reasonable access to inventions that may occur nor
that they can prevent these inventions from being licensed to a
competitor. It is very difficult for a potential industry sponsor to
justify the business risk involved in sponsoring research on the terms
specified in Revenue Procedure 2007-47.
Since these regulations are peculiar to the United States they
contribute to the pressure for potential industry sponsors to take
their research projects to foreign universities. I believe that the
barrier to university-industry research collaborations created by the
IRS Code and clarifying revenue procedures could be significantly
lowered by amending the tax code and regulations to allow the
university to include licensing terms (such as royalty rates or caps
for field-specific licenses) in the sponsored research agreement
without incurring the private business use penalties as long as the
research otherwise satisfies the university's non-profit mission (e.g.,
the research results will be published, the research provides an
educational opportunity, etc.). Such a change would not obligate
universities to include such terms in industry-sponsored research
agreements but it would allow them to do so without jeopardy to their
non-profit and tax-exempt status. Such pre-licensing terms would then
be subject to university policy and negotiation under appropriate
circumstances. This would not give an unreasonable private benefit to
industry sponsors and would level the playing field relative to
universities in the rest of the world.
The second barrier to technology transfer and industry sponsored
research is actually an indirect barrier stemming from the cap on the
overhead rate that universities can charge on their federally funded
research projects. The federal overhead cap as proscribed in OMB
Circular A21 Section G.8 (facilities and administration (F&A) costs are
limited to 26 percent of the modified total direct costs) has been in
place for more than a decade and is insufficient to cover the actual
F&A costs that universities now incur. Since the cap was first imposed
universities have been subject to numerous additional federal
requirements relating to health and safety as well as homeland security
(e.g., tracking foreign students and complying with export control
laws). This shortfall in government funding for real costs creates a
funding gap that universities have to make up from other sources. One
source is licensing revenue. This leads many technology transfer
offices to seek to maximize royalty income even though it may
jeopardize the relationship with potential industry licensees and
research sponsors. I believe that the basis for the federal overhead
rate cap should be re-evaluated and that F&A charges against research
grants and contracts should reflect reasonable costs for
administration, including federally-mandated compliance programs.
Impact of State Laws
Q2. Mr. Pradhan noted in his testimony that since 2005, 19 states have
launched initiatives targeting innovation by investing in university
R&D--including R&D initiatives and tax incentives for the private
sector to partner with universities. How do State laws shape the
university-industry collaboration environment? Do these laws pose any
additional barriers, beyond those created by some federal statutes, for
university-industry collaboration? Please explain.
A2. State initiatives generally have a positive but limited impact on
the university-industry collaboration environment. The impact is
positive because the incentives generally promote collaborations but
limited because the incentives usually pertain only to companies which
have research and/or manufacturing operations within the state. The
initiatives typically are directed toward creating new technology that
will ultimately lead to new jobs in the state. This is understandable
since the funding for these initiatives comes from the State's tax
payers. While these initiatives will foster more local research
collaborations they are unlikely to have a significant impact on
innovation since they fail to take into account the global character of
research and development. Large companies will choose to work with the
best research partners around the world, not the closest ones and
successful new products will come from the most competitive, market
aligned technology.
Foreign Legislation
Q3. We hear that other countries are copying Bayh-Dole. What are the
goals of the legislation in other countries which have passed similar
laws? Have differences in goals led to different metrics for
universities in technology transfer and university-industry
collaboration? Are there changes to the Bayh-Dole statute that are
needed?
A3. It is true that a number of countries have implemented (e.g.,
Japan) or are contemplating (e.g., India) legislation similar to the
Bayh-Dole Act. They generally have the same purpose as Bayh-Dole,
namely to facilitate transfer of government funded university
technology to businesses for development and commercialization but the
exact mode of operation reflects national circumstances and priorities.
The U.S. is unusual in that the Federal Government was the largest
source of research funding when Bayh-Dole was enacted, and it is still
the main source of research funding for universities. In some other
parts of the world industry is a more significant source of funding for
university research, and the nature of the relationship between
universities and industry is more symbiotic, less competitive. The
universities see their role to be education and research and industry's
role to be employment and innovation. It is still the norm outside the
U.S. that universities assign title to subject inventions (those
arising from the sponsored research project) to the sponsor since it is
the sponsor's role to develop and commercialize the inventions. I have
not yet seen an adverse impact on university-industry research
collaborations due to Bayh-Dole-type legislation in other countries
since the legislation is focused on transfer of government-funded
technology rather than industry sponsored research, and research
partnerships with industry, especially large or multinational
corporations, are seen as desirable and prestigious.
I am not aware that other countries have established new or
different metrics for technology transfer. The U.S. is still considered
to be the leader in moving university technology out to the marketplace
so most countries that enact Bayh-Dole-type legislation will likely use
the same metrics that have been established in the U.S., namely, number
of licenses granted and amount of licensing revenue generated. This
could be counterproductive to university-industry research
collaborations since it focuses attention on licensing activity rather
doing research and than getting new technology to market. In my answer
to Question 5 below I have provided some suggestions for more
appropriate and meaningful metrics.
I believe that there are many positive features of the Bayh-Dole
Act and that minor changes could alleviate the barriers that it has
posed to university-industry research collaborations. The Bayh-Dole Act
was intended to promote the licensing of inventions made with federal
funding by universities to businesses for subsequent development and
commercialization. It recognizes the critical need for a company to
have a secure position with regard to the university's intellectual
property in order to risk making the large investment needed to develop
the invention and bring it to market. Bayh-Dole provides sufficient
flexibility in the various ownership and licensing options to
accommodate a wide range of business models and industry sector needs.
These options range from the university retaining title to the patent
and granting a royalty-free nonexclusive license (which is often
preferred by industry sectors such as information technology) or a
royalty bearing exclusive license (which is preferred by the
pharmaceutical industry as long as the royalty is reasonable), to
actual assignment of ownership of the invention to a company with
permission of the federal funding agency. Bayh-Dole does not require
universities to patent discoveries that can best be used for the public
good by putting them into the public domain through publication nor
does it require universities to charge the highest royalty that the
market will bear. Thus, Bayh-Dole is a sound piece of legislation that
reasonably addressed the key problem at the time of its enactment: that
the U.S. public saw little benefit from federally funded university
inventions because industry would not invest in developing and
commercializing inventions that were held in the public domain. Bayh-
Dole has had a negative impact on university-industry relations when
taken beyond its intended and stated purpose, namely, when used as a
means for universities to try to generate the maximum licensing income
which makes successful commercialization of inventions less likely and
when it is applied to privately funded (rather than federally funded)
research which discourages such private funding. The latter impact
could best be addressed by Congress clarifying that the Bayh-Dole Act
(and the rights and obligations of the university there under) does not
apply when private (e.g., industry) funds pay for a specific research
program. Such a clarification would not obligate universities to change
the way they deal with intellectual property from industry-sponsored
research. It would, however, allow those institutions that value
industry partnership to have more flexibility and a wider range of
options regarding ownership and licensing of foreground intellectual
property and, thus, attract more research collaborations with industry.
Preference for U.S. Industry Requirement
Q4. Dr. Butts--You commented on the ``Preference for U.S. Industry
requirement'' in Bayh-Dole (35 U.S.C. 204), and say that concerns
about this restriction have resulted in recommendations from both
government and industry that this be addressed. How do you think this
requirement should be changed and what would be the potential impact?
A4. My comment was made specifically in reference to the application of
Bayh-Dole to direct government funding of industry research. However,
the same issues can occur when federally funded university inventions
are licensed to companies. The preference for U.S. industry requirement
stipulates that any product embodying the subject invention will be
substantially manufactured in the U.S. This is problematic to companies
that have global markets or foreign affiliates or subsidiaries. A
company may not be able to satisfy global demand at a competitive cost
if most manufacturing must occur in the U.S. This could be due to a
lower cost of raw materials or labor outside the U.S. or to a high cost
of shipping manufactured products to other parts of the world. For
example, the extremely high cost of natural gas, a primary feedstock
for petrochemicals in the U.S., makes commodity chemicals produced in
the U.S. very expensive relative to those produced in other parts of
the world.
I believe that U.S. preference in manufacturing should be removed
or made a negotiable term rather than a requirement. This change would
make it more attractive for companies with foreign markets and
operations to work with the Federal Government to develop new
technology that could benefit the U.S.
In the Public Interest
Q5. Dr. Lemley, in his testimony, said universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology. And Mr. Pradhan included in his testimony
the March 2007 white paper, In the Public Interest: Nine Points to
Consider in Licensing University Technology. How could technology
transfer and university-industry collaboration be conducted to better
serve the public interest? What might the impact be on industries with
different business models?
A5. I agree with Dr. Lemley's statement but I do not believe that the
Nine Points document provides a reasonable approach for doing this. The
Nine Points document was written by representatives from eleven large
U.S. research universities and the Association of American Medical
Colleges. As the preamble points out, it reflects certain shared
perspectives that emerged from their brainstorming about university
technology licensing. It has a very strong focus on medical- and life
sciences-related research and licensing of inventions to companies that
manufacture pharmaceuticals or medical devices. The Nine Points
document does not address other areas of technology, such as the
physical sciences or engineering, nor does it include input from the
companies that receive the licenses for university inventions. The
perspective is one-sided and fails to recognize the business needs of
the commercial companies that must take the risks and make the sizable
investments needed to develop and commercialize the university
invention. In contrast, the Bayh-Dole Act is enlightened in its
recognition that industry must have a reasonable assurance of right to
practice and competitive advantage, which may require including
exclusive licensing, in order to make the investment needed to bring a
technology to market.
Going back to Dr. Lemley's comment that universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology, I believe that it is important to
recognize the difference between transfer of existing technology that
resulted from federally funded research on the one hand and industry-
sponsored university research which may or may not produce useful
results, let alone patentable inventions, on the other hand. Different
approaches are needed to encourage the two activities and maximize the
social impact. No ``one size fits all'' approach will work.
In the first case, technology transfer from federally funded
research, judicious patenting and licensing of useful inventions that
need protection for commercial development is appropriate. But where
does the societal benefit come from? Is it from maximizing licensing
revenues for the university or from getting new products to market?
Many universities concentrate on the former but the greater benefit to
society comes from the latter. This suggests that different metrics are
needed to support and promote the most beneficial outcome. It is better
to measure inventions in commercial practice since this reflects the
real societal benefit rather than to measure number of licenses or
amount of licensing revenue since both can occur without successful
commercialization of the invention. The down side of measuring the
number of inventions in commercial practice is that the time lag
between licensing and commercialization may be years or even decades
depending on the amount of technology development required. A more
immediate and meaningful metric than number of licenses is the
percentage of university inventions for which one or more licenses have
been issued. A higher percentage would indicate that useful inventions
have been patented and that the licensing terms are reasonable.
In the second case, industry-sponsored university research, the
societal benefit comes primarily from the opportunities provided by the
research interaction on a real-world problem between faculty and
students and the industry researchers. Such interactions can grow and
lead to other benefits such as employment for graduates and gifts from
the company. The amount of research funding from industry sponsors is
an appropriate and immediate metric. There is no guarantee that the
research effort will produce useful results and a patentable invention
is a rare outcome. Fewer than five percent of the university research
programs that my company has sponsored have produced an invention worth
patenting. This low success rate is common for early stage research.
Data from the Association of University Technology Managers Annual
Licensing Surveys shows that, over a ten year period of time, member
universities reported receiving $200 billion in research funding (from
all sources) and filed 50,000 patent applications. This corresponds to
a ratio of $4 million of funding to each patent application.
On the other hand, the U.S. realizes considerable benefit when
industry builds on the foundation of research performed at
universities. Two recent studies sponsored and published by the Council
for Chemical Research (www.ccrhq.org) show the annualized research
investment and returns for the chemical sector in the United States.
The Federal Government invests about $1 billion in research in the
chemical sciences at universities and national laboratories and
companies in the chemical sector invest an additional $5 billion in
their own research programs. Together, these investments yield $40
billion of growth in GDP and $8 billion in tax revenue for the Federal
Government.
Small Business Perspective
Q6. In the hearing we discussed both university and large corporation
perspectives on the impact of Bayh-Dole. How do you think the
experience of small business with Bayh-Dole differs from that of large
corporations? Please distinguish between experiences that you think are
unique to individual industries from experiences that you believe are
common to all small businesses.
A6. There are several differences between large and small companies,
regardless of industry sector, that can affect the impact of Bayh-Dole.
The first is that small companies have fewer research assets
(employees, facilities, equipment) and, therefore, less capability to
perform all steps in the process from idea generation to development of
a new product ready for commercial manufacturing and sales. This makes
them more dependent on external research and intellectual property
sources, including universities, than large companies are. The second
is that small companies are often less able to support interactions
with distant universities so they are more likely to work with local
universities. The third is that small companies usually have fewer
existing products to generate income so failure of even one new
development effort could put a small company out of business. This,
also, can make them more dependent on university partners for
continuing research and development since the company cannot afford to
walk away from a line of research in which it has invested heavily.
Large companies, by contrast, develop many new product ideas in
parallel. Their existing product lines provide profit to fuel the
development of new products. They can, and do, abandon product concepts
that do not meet technical or commercial milestones and targets. They
cut their losses and redirect their research investments. Successful
new products have to recover their own development costs as well as the
costs of the failures. While large companies value collaboration with
universities they usually have other options for achieving their goals
and can walk away from prospective collaborations that are too risky or
do not meet their business needs. They can do the work in-house, they
can contract the work out to a private research laboratory, or they can
find a capable research partner at another university somewhere else in
the world. The net result is that small companies are more negatively
impacted when universities are not responsive to their needs. One
complaint that I hear from my colleagues in small companies is that
U.S. universities take too long to negotiate licensing and research
agreements and hold out for terms that are unfavorable to the company.
Although both of these difficulties are damaging to the company's
business opportunities it may have no other good alternative.
Best Practices
Q7. During the hearing, the witnesses discussed a number of best
practices which improved university-industry collaboration on industry
sponsored research. Please summarize, in priority order, your top
recommendations to improve collaboration on industry-sponsored
research.
A7. Best practices need to take into account the needs and constraints
of both universities and industry. A recent project sponsored by the
Government-University-Industry Research Roundtable (GUIRR) in the
National Academies brought together high level representatives from a
range of industry sectors, types of universities, and various federal
funding agencies to suggest ways to lower the barriers, particularly
those involving intellectual property, to university-industry research
collaborations. The project team produced a document called Guiding
Principles for University-Industry Endeavors (available at http://
www.uidp.org/UIDP-PUBLICATIONS.html) which describes three
principles that should be followed in order to promote win-win
interactions. These principles require looking beyond individual
transactions toward the benefits of longer-term partnerships. The three
guiding principles are:
#1 A successful university-industry collaboration should
support the mission of each partner. Any effort in conflict
with the mission of either partner will ultimately fail.
#2 Institutional practices and national resources should focus
on fostering long-term partnerships between universities and
industry.
#3 Universities and industry should focus on the benefits to
each party that will result from collaborations by streamlining
negotiations to ensure timely conduct of the research and the
development of the research findings.
It is also important to recognize the circumstances leading to each
research collaboration, the nature of the proposed project, and the
contributions that each party makes to project. This is difficult to do
when standardized templates are used for research agreements and when
negotiations are policy based rather than principle based. The new
University-Industry Demonstration Partnership (www.uidp.org), which is
operating under the auspices of GUIRR, is developing a negotiation and
education tool that will guide prospective partners through set of
questions relating to the facts and circumstances of each project in
order to identify reasonable terms and conditions for the research
agreement. This consideration of circumstances and contributions is
particularly important when it comes to dealing with foreground
intellectual property that may result from the industry-sponsored
project. If the sponsor is making a large contribution (funding and
other resources) or has significant background intellectual property
then the standard U.S. university research agreement terms are
typically not acceptable to the industry sponsor.
Federal Government Oversight
Q8. The Federal Government had an important oversight function for
Bayh-Dole to insure that university patenting serves its intended
purpose and is not misused. What specific oversight do you recommend,
including oversight by individual agencies funding federal research at
universities?
A8. I believe that a light touch is best in the area of oversight so as
not to add unnecessarily to the administrative burden on universities.
A constructive approach would be for each agency to state its
intentions about how technology developed with its funding should be
licensed and used. The NIH has provided such guidance in the past.
Only some of the problems with university-industry interactions are
due to government laws or regulation. Other problems stem from
university and company policies or practices and cannot be fixed
through legislation or governmental oversight.
Answers to Post-Hearing Questions
Responses by Wayne C. Johnson, Vice President, Worldwide University
Relations, Hewlett-Packard Company
Questions submitted by Chairman David Wu
Impact of Federal Statutes
Q1. Several witnesses commented in their testimony that Bayh-Dole is
only one of several federal statutes that play a role in shaping the
interactions and relationships between universities and industry. What
are other important statutes, and how, if in any way, do they
discourage technology transfer, and industry-sponsored university
research? Do you see bright line rules which would help universities
lower the perceived risk of the loss of non-profit status or federal
research funding?
A1. There appears to be a complex interaction between the Bayh-Dole
legislation, tax-free municipal bonds, the IRS federal tax code, and
perhaps other legislation that leads to differing and uncertain
interpretations of what can and can't be done. I call it ``a perfect
storm'' of things that are working against our efforts to collaborate.
This complex confluence of laws, tax-exempt statuses, exemptions, and
obligations, causes universities to take a conservative approach and
declare that most, if not all, of the industry-sponsored research,
should come under the Bayh-Dole umbrella. While I'm not an expert in
this area, I believe that Susan Butts painted a pretty vivid picture of
some of the challenges presented by this in her testimony. Although
there are many challenging areas, I would like to briefly elaborate on
three examples to illustrate some of the problems.
Fair-market value and the inability to license up-front: One of the
major sticking points arises because universities feel that they cannot
determine (and hence license) the fair-market-value of a future
invention up-front, essentially before the work has begun. Rather, they
propose to their industry partners who sponsor research with them, to
provide only an option to negotiate for a license later in time, once
the IP is created and its fair market value has been determined. This
means that, in the best case, the industry partners who sponsor various
research activities are not assured access to the inventions that they
are funding. They are relegated to having only an option to negotiate
later (sometimes even a time-limited option) for a technology license,
which could in fact be declined. In the worst case, a company could
even be prevented from using a technology that they funded and
developed, while the university shops it around to competitors, at a
later date, presumably when the value is higher because the sponsoring
companies have invested time and money building products and services
that utilize the technology. Still, an even worse situation occurs when
patent aggregators (``patent trolls'') buy-up these licenses and then
prevent companies from bringing their own products to market--in effect
holding them ``hostage'' after significant investment has been made. In
these situations, Bayh-Dole is not only having a chilling effect with
respect to university-industry collaboration, it is also discouraging
investment and partnership in the very technologies that we desire to
bring to market, for public benefit.
Staying within the IRS-allowed safe-harbor: We've been told that,
in order to preserve their tax-exempt status and stay within allowable
guidelines for tax-exempt municipal bonds, industry sponsorship of
university research must stay below a certain threshold. (sometimes
only five percent, sometimes only 10 percent of a building or facility
is allowed for private use.) That threshold limits industry
participation, and reduces the amount of sponsored research that the
university can perform in these buildings. This immediately puts joint
collaborations into the positions described above, discourages industry
participation (other than philanthropic), has a chilling effect on
collaborative research, and prevents us from architecting the types of
partnered experiences that enrich the faculty, produce well-educated
students and give them a good experience of industry and universities
working together.
Intersection of concerns: When we look at this from a higher-level,
it doesn't make sense in aggregate form, and causes immense frustration
to industry. On one hand, we have tax-exempt bonds which lower the cost
of building university buildings and facilities--a good move. We want
private sector participation, so that the universities don't become
islands unto themselves, and provide rich, relevant experiences for
researchers and students--another desirable outcome. And then we
immediately get into an argument about whether or not we can work
together and do work in a particular lab that sits within a building or
facility. I'm wondering if there's a way to clarify all this into an
``acceptable use policy'' and provide operating parameters that foster
and encourage a collaborative environment.
Avoiding contact and seeking-out neutral territory: When an
industry researcher literally ``comes onto campus'' for the purpose of
interacting and collaborating with their university counterpart, there
is a built-in conflict of interest that comes about. When researchers
are hired by companies, they usually assign to the company they work
for the IP rights to works that they create, while employed there. On
the university side, there are laws that require universities to own
the resulting IP that is developed in buildings that are built with
tax-exempt funds. One of our researchers jokingly indicated that
whenever he wants to have a technical conversation with any of his
university colleagues, he invites them off-campus to Starbucks which,
in effect, creates a kind of neutral ``de-militarized zone'' for
collegial and collaborative discussions to take place. Here again, the
collection of laws, practices, and boundary conditions we are faced
with make it very difficult for universities and industry to
collaborate, which is exactly what me must do in order to ensure a
successful future.
To summarize, across the Nation, university technology transfer
offices and willing industry partners struggle greatly to determine
what they can and can't do, in the face of this increasingly complex
set of laws and obligations at the federal, State, and municipal
levels. Whether it's the laws themselves, the perception of what is
required, or simply the inability to determine what can work for both
sides, is irrelevant. What is relevant is that these types of
situations (of which I have described only four above) create a
bureaucracy that makes it extremely difficult to work with American
universities on research of mutual interest and benefit. What can take
as long as two years to never to negotiate in a research agreement with
an American university, is achievable in a matter of days with
universities in Russia, China, and other countries (ref: Stan Williams
testimony, Senate Committee on Commerce, Science, and Transportation,
Subcommittee on Science, Technology, and Space, Hearing on
Nanotechnology, September 17, 2002).
Impact of State Laws
Q2. Mr. Pradhan noted in his testimony that since 2005, 19 states have
launched initiatives targeting innovation by investing in university
R&D--including R&D incentives and tax incentives for the private sector
to partner with universities. How do State laws shape the university-
industry collaboration environment? Do these laws pose any additional
barriers, beyond those created by some federal statutes, for
university-industry collaboration? Please explain.
A2. I am not directly aware of any State laws that have been passed
addressing these issues. However, I am aware of State funded program
initiatives which began five or six years ago in California. These
included the major institute programs that provided matching funds with
the private sector, using an RFP process that picked the ``best of the
best.'' HP has participated in several of these institutes, including
CITRIS (Center for Information Technology Research in the Interest of
Society) and CNSI (California NanoSystems Institute). These types of
investments are exemplary, and they are directly tied to the states
becoming more competitive, as well as the U.S. becoming more
competitive. I think that those ought to be emulated. Furthermore, this
work needs to be a combination of State and federal programs that will
be successful in making us competitive, and one without the other
doesn't make sense. If we are talking about laws around R&D incentives,
I would be all for them.
Foreign Legislation
Q3. We hear that other countries are copying Bayh-Dole. What are the
goals of the legislation in countries which have passed similar laws?
Have differences in goals lead to different metrics for universities in
technology transfer and university-industry collaboration? Are there
changes to the Bayh-Dole statute that are needed?
A3. A number of countries, such as Austria, Canada, Denmark, France,
Germany, Ireland, and Spain, are considering or have enacted policies
with respect to innovation and intellectual property. While the goal of
Bayh-Dole was to transfer ownership for publicly funded inventions from
the U.S. Government to universities, the goal of the policies in these
countries is to change employment laws for university professors. They
are no longer exempt from laws that give employers the IP generated by
their employees--this new focus is on the retention of IP ownership for
the benefit of the universities.
Governments in countries such as Germany, Sweden, and Japan have
initiatives to encourage the formation of technology licensing
organizations in universities. In Brazil, their law is even stronger--
it requires (compels) universities to either form an agency to deal
with IP or to use one established by another university. Their intent
is to foster innovation and maintain R&D inside a productive
environment, in order to provide for Brazil's technological autonomy
and industrial development.
Goals in other countries are driven by the belief that the U.S.
university system has a big impact on our innovation economy. They are
copying our policies without completely understanding our context. For
example, UK universities like Oxford and Cambridge are not as well-
funded, so having the universities own and license IP does not make
sense. Some people like David Mowery of Stanford have postulated that
uninformed emulation of Bayh-Dole could be counterproductive in other
countries, because a focus on licensing as the primary channel for
technology transfer can have a chilling effect on the other (multiple)
channels for moving knowledge and technology out into society.
Although many university TTOs in the U.S. use gross licensing
revenue as a measure of success, developing countries like Brazil and
Mexico are having difficulty applying this metric. These countries
invest less in R&D overall, with much of their investments typically
accomplished through government funding. The lack of private sector
investment in R&D in developing countries makes it much more difficult
for TTOs in those countries to derive revenue through the licensing of
technology. Instead, Brazil is using as a metric the number of patents
and publications generated by a researcher.
In discussions in Europe that I've had two years ago in the Glion
colloquium, the practices that are similar to Bayh-Dole that have been
transferred seem to be impacting the ability to do technology transfer
in a negative fashion. Most every company that attended that consortium
(Nestle (USA), DuPont (USA), HP (USA), Hoffman-Laroche (Switzerland),
Fraunhofer-Gesellschaft (Germany) ) indicated that technology transfer
had become more complicated as a result of U.S. ``best practices'' that
center around Bayh-Dole. I do not know any specifics of Bayh-Dole being
implemented in Russia, India, or China--which have significant interest
by the major private sector area--but my work in other countries leads
me to believe that this is not the case.
In the Public Interest
Q4. Dr. Lemley, in his testimony, said universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology. And Mr. Pradhan included in his testimony
the March 2007 white paper, In the Public Interest: Nine Points to
Consider in Licensing University Technology. How could technology
transfer and university-industry collaboration be conducted to better
serve the public interest? What might the impact be on industries with
different business models?
A4. First, let me address the ``Nine Points to Consider'' document. As
I understand it, this was a document prepared by university vice-
provosts for research, research officers, and licensing directors for
university technology transfer offices (TTOs). Its purpose was to help
TTO staff understand the cumulative impact of their actions over time--
such as exclusive licensing, improvements, research tools, etc.--and
how certain types of actions can reduce the university's future
flexibility and freedom to operate. If not chosen wisely, actions taken
in the present by TTOs could, in some cases, paint the universities
into a corner which would be hard to remediate later.
The ``Nine Points'' document was not put forward as, nor was it
intended to be, a solution to the challenges in negotiating university-
industry collaborations, yet others have offered it as such.
Because the ``Nine Points'' document is one of the few tangible
expressions of detailed parameters having to do with technology
licensing, it is being broadly used in ways beyond what was intended. I
would like to point out that there are several examples of contract
terms and parameters in this document (as it presently stands) that are
simply unacceptable to industry and could not be used as a basis for
successful negotiation, neither in IP-focused cases, nor in
collaborative exchanges.
What is needed, from a collaborative viewpoint, is an equivalent
set of guidelines--let's call it ``Points to consider in fostering
collaboration and knowledge transfer via multiple parallel paths.''
There is a whole spectrum of ways that knowledge and information moves
outward from universities; licensing is just one of them. Consider the
impact of publishing, open source development, participation in
conferences, participation in professional societies, U-I
collaborations, consulting. For decades, it has been widely recognized
that the best method of knowledge transfer is students--highly
educated, well prepared students that move to industry and other career
destinations and utilize their knowledge for societal benefit. And this
is in keeping with the core mission and primary focus of the
university--to produce highly educated students.
What we are experiencing now is a shift in focus away from
knowledge and people (students) to licenses and things (``technology
that is presumably sitting on a shelf'') for which it is possible to
maximize revenue through technology transfer offices. Our experience is
that the goal of maximizing revenue is getting in the way of increasing
the transfer, dissemination, and utilization of knowledge and
information (for public benefit), and at the same time, taking us away
from the core mission and purpose of education.
In considering the original question, ``How could technology
transfer and university-industry collaboration be conducted to better
serve the public interest?'' I would submit that the metrics are
currently inappropriate and misguided. This has been written about by
several authors in various papers. They observe that university TTOs
are acting as if driven by a patent mentality, and a maximization of
revenue objective. Yet what is needed is a flow of knowledge and ideas
out to the public through multiple avenues (again, technology licensing
is only one), and an understanding of the benefits of working
collaboratively at multiple levels across the university-industry
space.
Even in the case of technology licensing and ``deals,'' the current
metrics are still misguided. As has been pointed out in the literature,
it would better serve our collective interests if TTOs were to maximize
the number of deals that they do (with a goal of maximizing the amount
of technology transfer), rather than maximizing the revenue that can be
gotten from the smallest number of deals. The dynamics that support
revenue maximization (as opposed to transfer maximization) force the
TTOs into the role of ``gate-keepers'' that slow the flow of knowledge
and information, which is again, directly in conflict with what Bayh-
Dole was intended to achieve. One research vice provost (whom I have a
lot of respect for) tells his staff repeatedly that, ``the worst deal
that we can make is `no deal,' '' thereby emphasizing the whole picture
of multiple contributions to society, and a focus away from revenue
maximization of a single deal.
From my point-of-view, Dr. Lemley's point is extremely well taken.
There is a much broader role that universities can play. The revenue
objective is taking us away from solid and productive university-
industry relationships and interactions, away from knowledge transfer
and collaboration, and is putting us on a dangerous path of ``go-it-
alone''--which is, again, the opposite of what Bayh-Dole was trying to
achieve. In terms of licensing, the lure of revenue maximization is
amplifying the ``home run'' patent mentality, which mostly applies to
the pharma and bio-tech industries. Studies have shown that, if one
removes the university licensing revenue received from pharma and bio-
tech ``home run'' patents, most university TTOs do not even recover
enough revenue to cover their own administrative costs. So, in effect,
what is happening is the dream of ``home run patents'' and revenue
maximization is being chased by a bureaucracy that slows the transfer
of knowledge and information, and erodes industry relationships and
partnerships, that should be the cornerstone of our society. Further,
it forces a ``one-size fits all'' treatment of intellectual property
using the pharma and bio-tech models across all university-industry
negotiations. On the industry-side, it feels like we are trading the
bio-tech and pharma industry for all others, and ignoring information
technology, information sciences, software, new media, clean energy,
etc., who do not rely on the ``home-run'' patent mentality.
Small Business Perspective
Q5. In the hearing we discussed both university and large corporation
perspectives on the impact of Bayh-Dole. How do you think the
experience of small business with Bayh-Dole differs from that of large
corporations? Please distinguish between experiences you think are
unique to individual industries from experiences you believe are common
to all small businesses.
A5. From a background perspective, intellectual property plays a key
role for entrepreneurial businesses, particularly in their early stages
of development where start-up capital is being sought. Venture
capitalists and other funding sources feel more confident about
investing in a company which has a defensible IP that can contribute to
a distinctive advantage, than they do in funding companies with
competencies that are un-established, unproven, and perhaps easily
duplicated. Even if their patents are not yet granted, but still
applied for, intellectual property ownership gives them an added
measure of credibility when seeking financing.
Since most of my career has been doing work involving larger
companies and universities, I don't have the additional perspective to
comment beyond this.
Best Practices
Q6. During the hearing, the witnesses discussed a number of best
practices which improved university-industry collaboration on industry
sponsored research. Please summarize, in priority order, your top
recommendations to improve collaboration on industry sponsored
research.
A6. From my experience, let me first say that the overarching theme of
best practice is to understand that it is a long-term strategic
multilevel partnership that develops the best results. I've been
working in the university-industry space for many years, and have found
that companies and universities need to understand this as a basis for
everything they do.
Second, universities and companies need to set an appropriate high-
level context and value the collaborative relationship more than they
do any single activity or opportunity, utilize their interpersonal
networks to advantage, and value research support as highly as license
revenue. These higher-level philosophies or operating parameters give
valuable guidance to individuals and departments acting on behalf of
the institution or company, in this space. We also need to recognize
that there are multiple paths for universities to get their knowledge
and information transferred for societal impact.
Third, I would recommend that we follow the Sponsored Research
Interaction Process (SRIP) which was developed under BASIC (the Bay
Area Science and Innovation Consortium). While the typical negotiation
begins at a difficult entry point--emphasizing draft agreements which
quickly lead to polarized positions, the SRIP model starts with the
leadership of each organization committing to the relationship and the
negotiating team focusing on the collaborative intent and the building
of a shared understanding. Our experience in using this process yields
a 10X improvement in negotiating a collaboration agreement--from 20+
months to two months! The essence of the SRIP model is:
Build a team. Convene teams with the appropriate
members on both the university and industry sides. Each team
member should have a clearly identified role. Have a lead
person in each team accountable for getting to timely
agreement. Have the principals and negotiators meet face-to-
face to build relationships and enhance rapport.
Set expectations. It should be possible to get to
agreement with 1-2 face-to-face meetings, a couple of phone
calls, and a final closing meeting, all in a few days, spread
over 3-4 weeks. Instill in the team a sense of urgency. This
activity shouldn't drag on, nor should it be overly burdensome
or time-consuming.
Work from the big picture (model). Set goals at the
right level to gain agreement, and establish metrics (such as
the total amount of research funding) that reflect
relationship-level thinking and not just transaction-level
thinking.
Utilize a process that the team commits to use
(secure ``buy-in''). Secure strong sponsorship and commitment
to making it work. Educate all team members about the process
that they will use to communicate.
Work the process creatively. All concerned must be
prepared to offer creative insights for working through tough
problems and navigating impasses.
Have an escalation path. When stuck, leaders must
elevate reasoning to a higher-level of intent, focusing on the
broader collaborative relationship and how the planned research
work will benefit both industry and university.
Federal Government Oversight
Q7. The Federal Government has an important oversight function for
Bayh-Dole to insure that university patenting serves its intended
purpose and is not misused. What specific oversight do you recommend,
including oversight by individual agencies funding federal research at
universities?
A7. I think that we ought to have a clear understanding of whether the
goals of the legislation are being met, from a technology transfer
point of view. Two key goals of the Bayh-Dole legislation are to
promote the utilization of inventions arising from federally supported
R&D, and to promote collaboration. Is it really accomplishing these
goals? In aggregate, or only in specific situations? How would we know?
While we've not been recommending changes to the legislation, many
times throughout my testimony, as well as in the testimony of others,
we've indicated that the exact opposite of what was intended to happen,
is what has happened. This legislation didn't get put into place
yesterday. It's 27 years old, and we've had plenty of time to figure it
out. The results we have now are the results we're likely to have in
the future. If it were up to me, I would focus on developing metrics to
ensure that the intent of the legislation is being met. In industry, we
understand the importance of having a closed-loop mandate for
organizations--including a goal/objective statement, a set of
operational parameters, and a set of metrics to ensure that things stay
on track.
In the world arena, knowledge exchange and collaborative
engagements/partnerships are now the norm. They are supplanting
technology transfer as the contemporary operating model for
accomplishing joint work. Technology-transfer, and the operating model
that lies beneath it, made sense 30 years ago. It is now obsolete in
the IT, information sciences, and software industries. The properties
of this operating model are such that it yields results that are poorly
targeted, takes too long in development, misses out on important
opportunity windows, encourages go-it-alone approaches, engages single
(vs. multiple stakeholders), does not have a collective amplifying
effect on innovation, nor does it support the development of broad
ecosystems of value delivery. Our industry has moved beyond the
technology-transfer paradigm, more into the collaborative arena with
multiple industry partners working with multiple universities, for both
individual and collective benefit.
We know, anecdotally, that Bayh-Dole has broadly hurt
collaboration, and in the best of cases, at least made it more
difficult. We also know that, in many cases, Bayh-Dole has brought to
the forefront a university focus on licensing, at the expense of the
other forms of knowledge transfer and relationship development, not the
least of which is the education of students. Within this licensing
focus, we've seen that universities have been focused on maximizing
revenue from the few patents that have high potential value (the
``home-run'' patents, typical of the pharma/bio-tech industry), and not
the aggregate portfolio of technology that could be transferred and
gotten ``out-there'' for public benefit. They've been optimizing for a
return of total revenue, and not maximizing the total transfer of a
portfolio of technology (which, again, was what was intended by the
legislation.)
The goals of Bayh-Dole were right for the time. If we had also
created the companion metrics when the legislation was written, I
believe that we would have avoided many of the traps and pitfalls, and
would now know with certainty where we are, and how much we've fallen
short of the original intent.
Answers to Post-Hearing Questions
Responses by Mark A. Lemley, Professor of Law, Stanford Law School;
Director, Stanford Program in Law, Science, and Technology
Questions submitted by Chairman David Wu
Impact of Federal Statutes
Q1. Several witnesses commented in their testimony that Bayh-Dole is
only one of several federal statutes that play a role in shaping the
interactions and relationships between universities and industry. What
are other important statutes, and how, if in any way, do they
discourage technology transfer, and industry-sponsored university
research? Do you see bright line rules which would help universities
lower the perceived risk of the loss of non-profit status or federal
research funding?
A1. I do not know of other federal statutes that discourage technology
transfer and industry-sponsored university research. One set of federal
statutes and regulations that bear on this issue involve government
procurement, and particularly Department of Defense procurement.
Because the DOD often develops inventions in the course of designing
specifications for private companies to supply, DOD regulations
governing IP ownership and technology transfer are critically
important.
Impact of State Laws
Q2. Mr. Pradhan noted in his testimony that since 2005, 19 states have
launched initiatives targeting innovation by investing in university
R&D--including R&D incentives and tax incentives for the private sector
to partner with universities. How do State laws shape the university-
industry collaboration environment? Do these laws pose any additional
barriers, beyond those created by some federal statutes, for
university-industry collaboration? Please explain.
A2. State laws generally are aimed at encouraging, not discouraging,
university research and development and university-private sector
partnerships. But they can occasionally raise issues. For example, the
State of California has funded stem-cell research by public initiative.
Part of that initiative requires that inventions developed through
State funding be licensed in a way that benefits the State of
California. While this makes sense given the State funding, it may
impose barriers to broad licensing of the results of that research to
private companies outside California, depending on how the law is
interpreted.
Foreign Legislation
Q3. We hear that other countries are copying Bayh-Dole. What are the
goals of the legislation in countries which have passed similar laws?
Have differences in goals lead to different metrics for universities in
technology transfer and university-industry collaboration? Are there
changes to the Bayh-Dole statute that are needed?
A3. Foreign countries are generally seeking direct foreign investment
in research and development. While some foreign countries that pass
Bayh-Dole type legislation may be particularly interested in the
results of their own funding, my impression is that more commonly they
are seeking to eliminate any perceived barriers that prevent
multinational companies from investing in university research in their
countries and licensing the resulting innovations on an exclusive
basis.
Preference for U.S. Industry Requirement
Q4. You recommend in your testimony removing provisions in Bayh-Dole
which discriminate against licensing university inventions to foreign
businesses (35 U.S.C. 204). Would you please explain your
recommendation and its potential impact?
A4. I am a believer in free trade, particularly in IP. I think that in
the modern, globalized world, there is no reason to prevent
universities from licensing their technology to the company or
companies best positioned to maximize its impact in the world.
Sometimes--usually--those companies will be local, but not always. If
no good local alternatives are available, universities should not have
to choose an inferior licensing deal simply to encourage local
manufacture.
It is possible that eliminating section 204 will encourage some
licensing to move offshore, but I think any such effect is likely to be
minimal. And even if that happens, it will be offset by the benefits to
American consumers of having university technology licensed more
efficiently, and by the possibility that American companies can license
technology from foreign universities.
In the Public Interest
Q5. You recommended in your testimony that universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology. And Mr. Pradhan included in his testimony
the March 2007 white paper, ``In the Public Interest: Nine Points to
Consider in Licensing University Technology.'' How could technology
transfer and university-industry collaboration be conducted to better
serve the public interest? What might the impact be on industries with
different business models?
A5. I believe the nine points Mr. Pradhan offered are a sensible place
for universities to start in achieving what I believe must be their
overarching goal: to maximize the beneficial social impact of new
technology. Taking that goal seriously will, I suspect, mean that
licensing will look different in different industries. In particular, I
think it likely that exclusive licenses will make sense primarily in
the biomedical and nanotechnology industries, which require a lot of
time and effort to turn an invention into a marketable product
acceptable to regulators. By contrast, I think exclusive licenses in
the information technology industries would be quite rare under this
approach.
Small Business Perspective
Q6. In the hearing we discussed both university and large corporation
perspectives on the impact of Bayh-Dole. How do you think the
experience of small business with Bayh-Dole differs from that of large
corporations? Please distinguish between experiences you think are
unique to individual industries from experiences you believe are common
to all small businesses.
A6. I believe the effect on small businesses is bound up with the
industry-specific nature of the best practices I just noted. Small
businesses that are started around a university invention usually want
exclusive licenses to develop and practice that invention. Under the
approach I outlined, this will likely be common in some industries but
not others. On the other hand, an exclusive license benefits only one
business, large or small, and disadvantages all others. Small
businesses who do not need to invest large sums in making an invention
marketable will benefit from a non-exclusive license, because they will
all be free to compete to make the invention.
Best Practices
Q7. During the hearing, the witnesses discussed a number of best
practices which improved university-industry collaboration on industry
sponsored research. Please summarize, priority order, your top
recommendations to improve collaboration on industry sponsored
research.
A7. My top three priorities for university best practices are: (1)
adopt as a goal maximizing the social impact of the licensed
technology, not short-term revenue. (2) structure and reward university
licensing offices as part of the broader mission of technology
transfer, and not on their short-term bottom line. (3) avoid exclusive
licenses unless necessary to bring the technology to market, and if
exclusive licenses are necessary, set benchmarks and required practices
to ensure that the licensee is effectively commercializing the
technology and not merely interfering with the ability of others to do
so.
Federal Government Oversight
Q8. The Federal Government has an important oversight function for
Bayh-Dole to insure that university patenting serves its intended
purpose and is not misused. What specific oversight do you recommend,
including oversight by individual agencies funding federal research at
universities?
A8. I believe granting agencies should require reports on patents
produced as a result of their grants, to whom those patents were
licensed, and under what conditions. They should also require that
those licenses be made public. They should monitor progress under the
license periodically, and should have a mechanism to field and evaluate
complaints about the licensee if the licensee is interfering with the
implementation of the licensed technology. If necessary, agencies
should be willing to exercise their march-in rights under section 203
to revoke an exclusive license or compel broader licensing on
reasonable terms.
Answers to Post-Hearing Questions
Responses by Mark G. Allen, Joseph M. Pettit Professor; Regents
Professor, Georgia Institute of Technology; Co-founder & Chief
Technology Officer, CardioMEMS, Inc., Atlanta
Questions submitted by Chairman David Wu
Impact of Federal Statutes
Q1. Several witnesses commented in their testimony that Bayh-Dole is
only one of several federal statutes that play a role in shaping the
interactions and relationships between universities and industry. What
are other important statutes, and how, if in any way, do they
discourage technology transfer, and industry sponsored research? Do you
see any bright-line rules which would help universities lower the
perceived risk of the loss of non-profit status or federal funding?
A1. The relationship between universities and industry is broad and
multifaceted. Interactions range from universities providing a highly
skilled workforce for U.S. companies to private industry support for
the mission of universities through philanthropy. University research
is just one part of that relationship and even that is highly variable
depending on the nature of the research problem. Some research problems
center on fundamental inquiry, some build on background intellectual
property developed by one or both parties over an extended period of
time, and some are simply short-term tactical problems--just to name a
few. In many cases a program of research will proceed over a long
period of time and be funded by the U.S. Government, private industry,
and non-profit organizations that fund research. The Council on
Governmental Relations and the National Council of University Research
Administrators have both published documents identifying the many
federal statutes that control university research in all these
circumstances. I will not attempt to re-address those here but will
mention the area of law and regulation affecting university technology
transfer that is most often cited after the Bayh-Dole Act, the tax
code.
I am not an expert in tax law. It is my understanding that the
general framework for the treatment of tax exempt organizations that
perform research and transfer technology is that such institutions,
since they benefit from public investment by virtue of their tax exempt
status, must take steps to ensure that the public benefits from the
results of the research, including patents, by making them available on
a non-discriminatory basis. When universities take title to
intellectual property that results from research, regardless of the
sources of funds for that research, and licenses it to an entity that
has or can attract the resources necessary to develop it into a new
product, good or service, it seems to me it meets that test of public
benefit. Exclusive licensing may be necessary for early stage
technologies that require significant investment and require long lead
times to ensure that investors have incentive to develop the
technology. Non-exclusive licensing is a valid approach in industries,
such as some sectors of information technology, where cross-licensing
is common and the life of technologies is relatively short. The ability
of universities to accept funds from industry and once the research is
conducted license technology to industry on reasonable market-based
terms does not seem to be impeded by the tax code.
The roles and importance of the most common modes of technology
transfer, the education of students and the publication of research
findings, should not be overlooked or underestimated. Students that
graduate from the leading research institutions in the United States
carry with them to their eventual employers in private industry a
wealth of know-how gained from their participation in research.
Similarly, the robust body of peer-reviewed literature in each
discipline is a primary mode of dissemination of research results both
to industry and the public. The tax code supports these important modes
of technology transfer. Two of the purposes for which university
research may be considered to be in the public interest are the
education of university students and undertaking research that will be
published in treatises, theses, or other forms available to the public.
Taken together with a third purpose, discovering a cure for a disease,
the tax code supports the mission of research universities in serving
the public including all sectors of private industry.
Finally, the tax code anticipates that research will be undertaken
by tax exempt organizations such as universities to aid a community or
geographic area in attracting or retaining industry. This is consistent
with the mission of research and technology transfer by universities.
The existence of major research universities is an often-cited reason
for the success of localities where high-tech industries have
blossomed. This is likely to result from a combination of the
availability of exciting new technologies based on federally-funded
research and accessible to industry because of Bayh-Dole, a highly
educated workforce, and closely available research facilities to
address industry's questions through sponsored research and
collaboration with top scientists and engineers.
Impact of State Laws
Q2. Mr. Pradhan noted in his testimony that since 2005, 19 states have
launched initiatives targeting innovation by investing in university
R&D--including R&D incentives and tax incentives for the private sector
to partner with universities. How do State laws shape the university-
industry collaboration environment? Do these laws pose any additional
barriers, beyond those created by some federal statutes, for
university-industry collaboration? Please explain.
A2. States have a legitimate interest in promoting strong interactions
between universities and private industry for continued economic
development including creation of new ventures and building new or
existing industries. As noted above, strong research universities are
correlated with development of high tech industries. For example, in my
home state the Georgia Research Alliance (GRA), a public-private
collaboration between the State of Georgia and private industry, has
for a number of years fostered innovation through support for research
in Georgia's universities. GRA achieves its goals through strategic
investments at the state's leading research universities in eminent
scholars, research laboratories and equipment, national centers for
research and innovation and technology transfer programs. The support
through endowed chairs and funds for equipment has been invaluable in
expanding the research capabilities of institutions in Georgia. GRA
supports technology transfer by matching research funds for
translational research. Translational research occurs at the critical
stage of technology development between the laboratory and the working
prototype or demonstration of market feasibility.
State governments provide significant support for State
universities. Some State universities are State agencies or units of
State government and subject to the statutes and regulations that apply
to such agencies. State governments may seek to ensure that tax-payers
in the state benefit from the State's investment in research
infrastructure. Benefits to tax-payers may take the form of economic
development, new products or services, increased research revenue that
ultimately furthers the university's public benefit mission, or revenue
from intellectual property that can be reinvested in research and
education at the university where the discovery was made. The treatment
of intellectual property contemplated by Bayh-Dole addresses the needs
of State government to ensure public benefit and reinvestment in
research and education.
University requirements based on State laws that lead to protracted
negotiation of research agreements with industry are not generally laws
that deal with intellectual property matters. Rather, those cited by
industry as impediments are most often issues surrounding
indemnification provisions, dispute resolution, or open records. When a
State agency is one of the parties to an agreement, it is probably
reasonable for laws that apply to State contracts to be accommodated.
Foreign Legislation
Q3. We hear that other countries are copying Bayh-Dole. What are the
goals of the legislation in countries which have passed similar laws?
Have differences in goals lead to different metrics for universities in
technology transfer and university-industry collaboration? Are there
changes to the Bayh-Dole statute that are needed?
A3. I do not have detailed knowledge of the specific foreign
initiatives or legislation referred to in this question so it would be
inappropriate for me to speculate beyond my experience in this area.
However, I have also noted that in visits to universities in other
countries, specifically Japan, Korea, and Switzerland, that the
American model of university-based intellectual property creation,
protection, and licensing is being held forward as a model to be
duplicated.
In the Public Interest
Q4. Dr. Lemley, in his testimony, said universities should take a
broader view of their role in technology transfer, maximizing the
social impact of technology. And Mr. Pradhan included in his testimony
the March 2007 white paper, In the Public Interest: Nine Points to
Consider in Licensing University Technology. How could technology
transfer and university-industry collaboration be conducted to better
serve the public interest? What might the impact be on industries with
different business models?
A4. I agree that universities should be mindful of the public interest
in their research, education and technology transfer activities. In the
Public Interest: Nine Points to Consider in Licensing University
Technology enumerates the tenets of licensing in the public interest as
articulated by the signatory universities. However, licensing generally
involves patented intellectual property or software protected by
copyright. Technology transfer also takes place at universities in many
other ways including the education of undergraduate and graduate
students, publication of research findings in peer-reviewed
publications, continuing education programs, symposia and seminars.
Balancing these modes of dissemination of new knowledge is critical to
maximizing the social impact of research. The following practices in
the conduct of university-industry collaborations particularly tend to
serve the public interest:
Contractual assurance that researchers are able to
freely publish research results. Allowances for brief delay so
that patent protection can be obtained do not impede this
practice.
Supporting graduate student research as part of the
collaboration.
Encouraging the exchange of university and industry
scientists and their participation in symposia and seminars.
Encouraging a number of companies to support research
in university research centers focused on problems in a
particular industry or technology area such as the Engineering
Research Centers funded by the National Science Foundation
which requires that universities recruit industry members for
the center.
Patented intellectual property and copyright software are often
best brought into public use by commercial entities that develop
technology and the market for it. There are numerous examples of new
drugs, medical devices, telecommunications technologies, and
information technologies that resulted from university research that
have changed or even saved the lives of Americans. Licensing of such
technology serves the public interest. Milestone and diligence
provision in the license ensure that the companies that license such
technologies take the steps necessary to bring the technology to the
marketplace. Common license terms further protect the public interest.
By reserving the right to practice such technology in research and
permit other universities and non-profits to do so, universities ensure
that further development can take place. Granting exclusive rights to a
defined field of use in a license encourages development and
application of a transformational technology in more than one industry.
These and similar license provisions help in finding the balance
between broad access to technology and maintaining the value of the
business opportunity for licensees.
Small Business Perspective
Q5. In the hearing, we discussed both university and large corporation
perspectives on the impact of Bayh-Dole. How do you think the
experience of small business with Bayh-Dole differs from that of a
large corporation? Please distinguish between experiences you think are
unique to individual industries from experiences you believe are common
to all small businesses.
A5. Bayh-Dole is particularly valuable to small businesses in the
United States. Often lacking the infrastructure and funds to fully
exploit in isolation their inventions, small businesses rely on
partnerships with noncompetitive institutions such as universities that
have more infrastructure, expertise, and resources. Bayh-Dole helps
ensure that intellectual property can be created and protected during
this process. In many small business enterprises, especially in the
medical and pharmaceutical arenas, the ability to protect the
intellectual property created in a small business-university research
partnership (as opposed to allowing it to proceed into the public
domain) is essential to future funding and success of the business, as
I mentioned in my previous testimony. In other areas such as
telecommunications, where freedom to practice is often as important as
exclusivity, universities can still utilize the Bayh-Dole mechanism to
nonexclusively license intellectual property to multiple small
businesses, ensuring that the commercial potential of the federally-
funded research is not lost.
In addition to pre-existing small businesses, Bayh-Dole provides
impetus for the creation of small companies based on university-owned
intellectual property. In my experience, such spinouts are either based
on university-owned inventions previously created using federal funding
(and are therefore direct beneficiaries of Bayh-Dole), or are created
with the willing participation of industry sponsors of the research. In
the latter case, the originally-sponsoring industrial concern will
typically accept an equity stake in the new small business, usually in
return for an initial investment. It is typical that the new company's
intellectual property relies on background intellectual property held
by the university and created with federal funding. The Bayh-Dole act
allows this important background property to be both protected as well
as licensed to the new concern.
Finally, Small Business Innovative Research (SBIR) grants and
analogous directed federal funding are an essential resource for the
creation and support of small businesses. Often, for the
infrastructure, expertise, or other reasons cited above, small
businesses will partner with universities in the performance of these
grants. Bayh-Dole acts as a `regularizer' allowing straightforward
negotiation between federally-funded small businesses and universities
while simultaneously preserving the abilities of both parties to
protect the produced intellectual property essential for future company
growth.
Best Practices
Q6. During the hearing, the witnesses discussed a number of best
practices which improved university-industry collaboration on industry
sponsored research. Please summarize, in priority order, your top
recommendations to improve collaboration on industry sponsored
research.
A6. The relationship between universities and industries is best
facilitated by recognition and understanding of the respective
missions, needs, and intents of both parties. Universities exist to
create and transfer knowledge through their educational and research
programs. Companies focus on improving products and processes in order
to enhance shareholder value. In many cases these interests are aligned
and synergistic. Both parties serve the public best when new products,
services, cures for diseases are made available to the public and that
often leads to profitable business and economic growth. In the area of
human resources, universities provide an educated workforce and leaders
in science, technology and business while the private sector creates
jobs and opportunities for those highly skilled workers. Research needs
and technology transfer practices may vary from discipline to
discipline and among industry sectors. A best practice exists when
these differences in mission and role in society are recognized and
valued in the university research relationship.
Practices that enhance understanding and improve the research
relationship between universities and industries have been documented
several times. Most recently, the Council on Governmental Relations
published a brochure, University Industry Research Relationships, which
is available from that organization and discusses the context and
models for collaboration. The National Academies of Sciences convened,
under the auspices of the Government University Research Roundtable, a
group of companies and universities to examine the research
relationship between academia and industry. This group formed the
University-Industry Demonstration Partnership (UIDP) the purpose of
which is to nourish and expand collaborative partnerships between
university and industry in the United States. After much discussion
about the missions, values and constraints of both parties, the UIDP
published a document entitled Guiding Principles for University-
Industry Endeavors. That document is available on their website at
http://www7.nationalacademies.org/guirr/
Guiding-Principles.pdf. Best practices might be summed up in
terms of finding common ground and alignment of interests. As COGR
states in University Industry Research Relationships, ``many successful
relationships between universities and industry have been implemented
and many involve the parties reaching compromises regarding
intellectual property that satisfy the requirements of both parties.''
Federal Government Oversight
Q7. The Federal Government has an important oversight function for
Bayh-Dole to insure that university patenting serves its intended
purpose and is not misused. What specific oversight do you recommend,
including oversight by individual agencies funding federal research at
universities?
A7. It is my understanding that the oversight focal point for Bayh-Dole
has been shifted within the Department of Commerce to the National
Institute of Standards and Technology. I believe the Department of
Commerce should re-elevate the oversight function to the Secretary's
level or other high-level position to insure the necessary attention to
oversight within the Department and a high profile for the Bayh-Dole
issues within the business and university communities.
Appendix 2:
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Additional Material for the Record
Statement of the Biotechnology Industry Organization
Summary
The Biotechnology Industry Organization (BIO) appreciates this
opportunity to provide the perspective of its members on the Bayh-Dole
Act. BIO represents over 1,100 companies, universities and research
institutions using biotechnology to research and develop cutting edge
health care, agricultural, industrial and environmental products and
applications.
The biotechnology industry is one of the most R&D-intensive and
capital-focused industries in the world. The industry is primarily made
up of small companies that are unprofitable and that lose billions of
dollars annually. 'bet it holds the promise for a cutting edge cure for
Alzheimer's, drought resistant crops, or the next alternative energy
source. With over 1,400 companies, many of which spun out of university
research, the U.S. leads the world in biotechnology R&D. In 2005, the
U.S. biotech industry spent $20 billion on research and development,
and since its inception roughly two decades ago, has put into the hands
of the public more than 300 biotech products, including lifesaving and
life-enhancing health care treatments, and hundreds of diagnostic
tests. The industry has already developed dozens of insect-resistant
crops and environmentally friendly industrial applications.
All of this accomplishment has occurred despite the decades-long
development time, massive investment needs, and complex regulatory
process the industry must face before bringing its products and
applications to market. The Milken Institute, in a 2006 report entitled
``Mind-to-Market: A Global Analysis of University Biotechnology
Technology Transfer and Commercialization,''[i] identified five key
factors that contribute to the successful commercialization of
university biotechnology research: a consistent and transparent
national innovation policy that recognizes intellectual property
protection and promotes entrepreneurial capitalism; the availability of
funding and venture capital; biotechnology clusters not restricted by
geographic borders; robust university technology transfer mechanisms;
and patents and licensing.
The U.S. system of commercializing scientific discoveries has made
it the world leader in the area of biotechnology in large measure
because it takes into account the factors identified by the Milken
Report. However, this was not always the case. Indeed, rapid
commercialization of scientific discovery did not fully come about
until the enactment of the Bayh-Dole Act in 1980. Prior to enactment of
this legislation, publicly-funded research was owned by the government
and offered for licensing on a non-exclusive basis or simply dedicated
to the public. There was little incentive for businesses to undertake
the financial risk to develop a product. The result was that only five
percent of publicly-funded discoveries were ever developed into new or
improved products.[ii] The Bayh-Dole Act allowed universities and
research institutions to patent and retain title to their inventions.
Moreover, the Act allowed for flexibility in licensing of publicly-
funded inventions without excessive government intervention. The
motivation to license the technology in expectation of royalty payments
was created. This provided a necessary impetus for the transfer of
publicly-sponsored research to the private sector, thereby dramatically
stimulating the commercialization of Federal Government-supported
research. The result, among other things, is the existence of
innovative new therapeutics, diagnostics and tools, industrial
processes and agricultural products for the benefit of society.
From the perspective of the biotechnology industry, over the past
25 years the Bayh-Dole Act has accomplished more than its goal of
turning publicly-fielded research into useful, commercial products. It
has also served as a basic tool for economic development and job
creation in the United States. In its policy statement on July 24,
2007, the National Governors Association recognized the import of Bayh-
Dole and university technology transfer as catalysts for innovation and
R&D.
The Bayh-Dole Act has become a template for innovation and economic
development for other enterprising countries such as India and China.
The Milken report shows that, while universities in the United States
have clearly set the standard in commercializing research, other
countries, particularly in Europe and Asia, have recognized the role of
universities in spurring the biotechnology industry. The study suggests
that, in order for the U.S. to maintain its leadership in innovation,
it must continue to field research and university technology transfer
offices, encourage the transfer of innovative research to the private
sector, and ensure strong intellectual property (IP) protection.
BIO applauds this committee's oversight of this critically
important Act to ensure that the next 25 years of Bayh-Dole provide
even greater benefit to the American public and the world community. In
its oversight capacity, this Committee should carefully consider how
pioneering policies like the Bayh-Dole Act have helped to create the
biotechnology industry and U.S. leadership in this area, as well as the
broader economic and societal benefits from the Act.
The Role of Patents in Biotechnology
In BIO's view, efficient technology transfer is intricately linked
to strong IP protections and free market incentives. In the context of
the Bayh-Dole Act, patents serve as the legal instrument used in the
transfer of technology, information and know-how. Commercializing an
invention in the biotech sector is a lengthy process requiring
significant amounts of capital, often in the hundreds of millions of
dollars. While government funding and research is critical in biotech
R&D, substantial additional financing from the public and private
capital markets is required to actually take the product from the idea
stage to one that can be used by the public. Let's take as an example a
typical health care-related biotech discovery. A researcher, typically
in a publicly-funded laboratory, discovers a gene whose presence is
only found in a particular type of cancer. The researcher also
determines that the presence of this gene signals the presence of a
quantifiable amount of a particular protein. Translating this initial
discovery into a therapeutic application can take decades and hundreds
of millions of dollars. However, it is at this early stage when the
promise of a therapy is on the horizon that the researcher can seek
patent protection on the various aspects of the discovery. By way of a
patent, the researcher can generate interest in the further development
of this potential new product by, for example, out-licensing the
invention, or forming a spin-off company focusing on the R&D of this
early-stage discovery. In both cases, the patent is the asset that
creates a forward trajectory for the project. In the former case, an
interested company partner would, among other things, review the
strength and scope of the EP protecting the early-stage discovery to
determine the worth of the investment. In the latter case, the IP
generates the interest of institutional investors, venture capitalists,
or other partners encouraging the creation of an early-stage company.
In any event, the early-stage, publicly-funded discovery is now on its
way to development. Of course the road to development from this point
is long and torturous, and often fraught with set backs, but the
transfer of technology is complete and the wheels are set in motion.
From this point on, patents play a significant role in investment
of capital in the biotechnology markets. Investors measure
opportunities in the biopharmaceutical and pharmaceutical sector
through potential sales of the drug/product, the market exclusivity
prospect through patent protection, other forms of marketing
exclusivity (such as orphan drug exclusivity), or other means to gauge
the strength and predictability of patent protection.
The ancillary benefits of this ecosystem to the economy in the form
of jobs, tax revenue and new companies should not be overlooked.
According. to the Association for University Technology Managers'
(AUTM) annual report[iii], the Bayh-Dole Act continues to create
hundreds of companies and tens of thousands of new jobs annually.
Virtually every state has a biotechnology center or initiative.
If the major policy objective of the Bayh-Dole Act is to use the
patent system to promote the commercialization and utilization of
inventions arising from federally-supported research or development,
then the biotechnology sector is an exemplary measure of its success.
The Bayh-Dole Act provides the environment for biotechnology companies
to take the risk of investing in biotechnology R&D. It provides the
lure of market exclusivity as the incentive for companies to work 'in
cooperation with public institutions. There is little misunderstanding
of the primary obligation that companies have under Bayh-Dole to
commercialize the licensed technology. This point is solidified by the
statute's provision that failure to commercialize a licensed federally-
funded invention can be the basis for government march-in rights.
While BIO believes that the Bayh-Dole Act is working quite well,
there are ways to ensure that maximum benefit is continually derived
from its provisions. As an example, BIO urges that the patent system
should be kept strong and predictable. Congress is currently
considering patent reform legislation that, iii its current form, could
negatively impact commercialization of publicly-funded research by
undermining the strength, value, and predictability of patent
protection. This would, in turn, make it much less likely that
companies and venture capital companies would invest in risky, cutting-
edge research, resulting in publicly-funded research sitting on
laboratory shelves. BIO recently testified before the Senate Judiciary
Committee about its views on patent reform, and the university
technology transfer community has weighed in with similar concerns.[iv]
In addition, consistent and transparent implementation of the Bayh-
Dole Act, together with a cataloguing of ``best practices'' and
successful partnerships, would provide more efficient transfer of
technology. Congress should consider funding studies that would aid in
the identification and compilation of such best practices and identify
how best to support the technology transfer offices in their overall
mission.
In this spirit, BIO cautions against policies that would weaken
market incentives through excessive government intervention. We can
point to lessons learned in the 1990s in studying the Bayh-Dole Act.
Concerns that health care reform proposals from the early 1990s could
lead to price controls led to serious perturbations in the market for
biotechnology investment. The impact of potential price controls on the
biotechnology industry was immediate and powerful. The capital markets
crashed and investment in biotech research nearly dried up.
A similar result occurred in 1999 when President Clinton and Prime
Minister Blair were cited in the press as supporting the notion that
certain classes of patented genetic information should be freely
available to all at the time the human genome was ``unraveled.''
Despite a clear correction by the President the next day, it took six
months for the biotechnology capital markets to recover.
In both cases, a threat to free-market protection and undermining
intellectual property rights drove investors away froth biotechnology
research. The Bayh-Dole Act was designed to facilitate the transfer of
publicly-funded research to the private sector for further development
and commercialization. The careful balance set forth in the Act has
been hugely successful. We have learned from history that excessive
government intervention can disincentivize biotechnology companies from
undertaking the huge risks to bring innovative products and services to
all Americans.
Conclusion
The legislative framework of the Bayh-Dole Act has worked well over
these 25 years. The House Committee on Science and Technology is to be
commended for undertaking this examination of the Bayh-Dole Act. BIO
appreciates the opportunity to provide insight into the impact of Bayh-
Dole on the biotech industry and to describe the nature of the industry
and its contributions to the improvement of the human condition. BIO's
members are strong supporters of the Bayh-Dole Act, which has opened
the door to the creation of many biotechnology companies that have
developed important advances and cutting-edge solutions to some of the
world's most intractable problems. We caution against policies that
would weaken market incentives through excessive government
intervention. We urge Congress to continue its far-sighted approach to
innovation as it continues oversight of the effective implementation of
the Bayh-Dole Act.
Endnotes
i Mind to Market Study. http://www.milkeninstitute.org/
publications/publications.taf?function=detail&ID=576&cat=ResRep
ii Association for University Technology Managers, Annual Report,
2003
iii Association for University Technology Managers, Annual Report,
2005
iv BIO's patent reform statement. http://bio.org/ip/domestic/
20070606.asp