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portion of the delay was attributed to obtaining the program office's assessment of DOE's plans for further funding and concurrence in the waiver.

In the third case (selected by the Subcommittee), Stanford University requested a waiver in November 1976 to a fast transient digitizer device developed by an employee at the Stanford Linear Accelerator Center. In its petition, Stanford claimed that the device was not a subject invention. The University, however, had not previously informed DOE of this in its invention disclosure report. In response to a Department inquiry, Stanford advised in April 1977 that it wanted full domestic and foreign rights to the invention but was not sure whether filing patent applications would be economically justified. During the same month, DOE's California patent office recommended to its General Counsel's office that the waiver be granted. The office noted that the invention was being fabricated and tested for potential use in the Department's weapons testing program under a contract with EG&G, Inc., at a DOE-owned, contractor operated facility. EG&G, however, was not developing the device to the point of commercial application and did not plan to commercially manufacture the device.

In August 1978, DOE informed Stanford that its refusal to file a patent application on the invention until after the waiver determination could be viewed as a lack of intent to commercialize. DOE subsequently denied the waiver without prejudice on January 3, 1979, on the basis that it was still funding the invention. Case records indicate that nothing occurred on this case for a ten month period (October 1977 through July 1978), and the invention was being developed by ĒG&G largely due to the inventor's efforts. Over 25 months elapsed between Stanford's request for waiver and DOE's denial.

The second case identified by the Subcommittee for our review involved Purdue University. Purdue requested a waiver on September 29, 1977, to an invention made under a DOE contract and a National Science Foundation (NSF) grant. The invention consisted of a selective solvent extraction process utilizing cellulosic materials.

In October 1977, Dow Chemical expressed commercial interest in the solvent involved in the process. In a letter to the inventor in January 1978, Dow reaffirmed its interest in the solvent technology, but stated that it would prefer to wait until it had a clearer definition of the patent situation from DOE and NSF before beginning work. Purdue did not inform DOE of Dow's interest in the solvent.

In January 1978, DOE's Chicago patent office, recommended to the General Counsel's office that the waiver be granted. However, in February 1978, the Division of Solar Technology objected because the Division had awarded Purdue a new $220,000 contract to further develop the invention.

NSF released its interests in the invention to DOE in April 1978. Congressman Fithian of Indiana informed DOE in April 1978 of the State of Indiana's interest in the invention and urged that the waiver be granted. Also, in April 1978, an Indiana based firm informed DOE that it had indicated to Purdue that it would commit $3.8 million to build a plant to prove the commercial feasibility of the invention. According to Congressman Fithian, this firm had also applied for a Federally guaranteed loan for this purpose.

In June 1978, Congressman Fithian informed DOE that the State of Indiana would make $750,000 available to Purdue on July 1, 1978, to pursue scaled-up research on the invention. On July 24, 1978, or 10 months after Purdue petitioned, DOE granted the waiver contingent upon the State of Indiana granting the $750,000. Purdue accepted the terms of the waiver on August 21, 1978. Dow Chemical had informed Purdue on August 11, 1978, that it was no longer interested in licensing the solvent technology.

Delays on the remaining 9 cases were attributed as follows:

For 5 cases, after requesting waivers, the petitioners submitted unsolicited proposals to DOE for funding to further develop the inventions.

In 2 cases the petitioners failed to provide the required information.

In 1 case there were problems in getting the Department of Defense to lift a secrecy order imposed by the Navy on the patent application.

In another case the inventor failed to obtain invention release from his employer, file a complete petition, and notify DOE of change of address.

LICENSING DOE does not actively promote licensing of its 4,244 domestic patents and patent applications. As of March 31, 1979, 435, or about 11 percent of its inventions, had been licensed. The Department had issued 1,211 nonexclusive and 2 exclusive licenses. Because DOE does not follow-up with its licensees, the Department does not know how many of its inventions are being developed and marketed.

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Foreign patent applications are filed by DOE on less than 20 percent of its domestic patents. The Department maintains approximately 2,000 foreign patents on about 500 of its inventions. In calendar year 1978 DOE's royalties from foreign licenses on eight inventions totaled about $174,500. Domestic patents are licensed royalty-free.

MARCH-IN RIGHTS The Nonnuclear Energy R&D Act specifies the minimum rights DOE must acquire under each waiver. These include the following march-in rights:

The right to require the contractor to license others at reasonable royalties if the invention is required for use by Government regulation, or is necessary to fulfill health, safety, or energy needs;

The right to terminate the waiver in whole or in part if the contractor is not taking effective steps necessary to commercialize the invention, or will not take such steps within a reasonable time; and

The right to require licensing at reasonable royalties, or to terminate the waiver in whole or in part if it is shown at a public hearing held 4 years after the grant of a waiver that the waiver had tended to violate the antitrust laws, or the contractor has not taken, and is not expected to take, effective steps to commercialize the invention.

DOE's nuclear activities are also covered because similar provisions are a basic part of the Presidential Memorandum and Statement of Government Patent Policy and the Federal Procurement Regulations.

DOE's regulations stipulate that the normal exercising of its march-in rights requires the licensing of others rather than terminating the waiver. Contractors have maintained that the possibility of DOE terminating the waiver serves as a deterrent for investing risk capital in commercialization. DOE believes, however, that if the contractor is investing money in the development of the invention, it should feel assured that the waiver cannot be terminated unless there is a violation of the antitrust laws. DOE said that, overall, its contractors have not found marchin rights retained by the Government particularly objectionable and declared that these provisions are not a serious impediment to the Department's contracting function.

DOE said that march-in rights to protect the public's interest were developed to take care of and address the patent policy issues of contractor windfall profits, suppression of technology, and the detrimental effects to competition from granting contractors rights to inventions. The Department believes that march-in rights, although available to the Government for more than 10 years, have not been utilized because such problems are illusionary and not actual. If and when negative effects result from allowing a contractor to retain title to an invention of commercial importance, march-in rights are there to address them. Otherwise, DOE believes they will never be used.

ENCLOSURE II.- DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, PATENT

POLICIES AND PROCEDURES On April 11, 1953, the Federal Security Agency and other related agencies were consolidated into the Department of Health, Education, and Welfare (HEW). The patent regulations of the Federal Security Agency served as the model for the Department's existing regulations (45 C.F.R. Parts 6-8). Although the Department's regulations have been revised to incorporate the objectives of the Presidential Memorandum and Statement of Government Patent Policy and other special provisions affecting HEW, the regulations have not changed philosophically from their early years.

In general, HEW's regulations provide discretion to the Assistant Secretary for Health to

(1) Permit an organization (whether or not for profit) to retain rights to inventions identified during the performance of either HEW grants or contracts.

(2) Enter into an Institutional Patent Agreement (IPA) with a nonprofit organization whose patent policies are consistent with HEW's aims and the public's interest. An IPA provides the organization first option to future inventions made under HEW grants.

In 1958 the Department's regulations were amended to permit commercial concerns to retain the first option to future inventions when conducting cancer chemotherapy drug research under HEW contracts. This step was needed to help ensure the participation of the best qualified pharmaceutical firms, following indications that the industry would not participate without such an amendment. This exception, however, has been denied to newer drug development programs in the National Institute of Drug Abuse and the National Institute of Child Health and Human Development. According to HEW, industry participation has been difficult to obtain because of the Institutes' inability to guarantee rights to future inventions.

The Department's regulations also parallel and incorporate by reference Executive Order 10096, which governs allocation of Government employee inventions. Disposition of substantially all HEW employee inventions results in Government ownership. These inventions comprise a major portion of the Department's patent portfolio and are available for licensing.

GAO REPORT ON HEW PATENT PRACTICES A long period of HEW uncertainty over the discretionary allocation to the innovating organization of inventions resulting from Department funded grants and contracts was brought to a close by GAO's report to the Congress, “Problem Areas Affecting Usefulness of Results of Government Sponsored Research in Medicinal Chemistry”, August 14, 1968.

GAO reported that HEW's practice of retaining title-in-the-Government for inventions resulting from research in medicinal chemistry was blocking development of these inventions and cooperative efforts between the university and commercial sectors. GAO found that hundreds of new compounds developed at university laboratories had not been tested and screened by the pharmaceutical industry because these manufacturers were unwilling to undertake the expense without some possibility of obtaining on a timely basis exclusive rights to further development. GAO criticized HEW for its failure to use the discretion permitted by its regulations in either entering into IPAs or making timely determinations on requests for greater rights after identification of inventions.

In response, the Department reinstated its IPA program, revising and standardizing its agreement to ensure uniform treatment of institutions. In September 1975 the Federal Council for Science and Technology endorsed a modified HEW IPA program for discretionary use by all Executive Branch R&D agencies and a July 1978 Federal Procurement Regulation provided guidance on IPA use. As of December 1978 the Department had implemented IPAs with 75 institutions.

In 1974 HEW surveyed individual petitioning institutions and institutions with IPAs which had obtained greater rights to inventions in the performance of HEWfunded research since the GAO report. The institutions reported that 78 exclusive and 44 nonexclusive licenses had been negotiated under patents and applications filed on 329 inventions. HEW estimated that the licensees committed approximately $75 million of private risk capital to develop these inventions. By the end of fiscal year 1976 the number of HEW-funded inventions held by institutions had increased to 517.

The institutions also reported, however, that the rights to over 60 percent of the inventions they retained had not been licensed and may never be licensed. Thus, the retention of rights by institutions does not guarantee that the inventions will be developed and marketed.

Following the GAO report, the Department's regulations were amended to provide for exclusive licensing. As of December 1978, 19 exclusive and 90 nonexclusive licenses had been granted. HEW's Patent Branch said that, although it has done its best to license the Department's patent portfolio, it has not been able to duplicate the technology transfer accomplished by the universities. Successful technology transfer, the Branch said, requires the presence and cooperation of the inventor and/or inventing organization as an advocate of its invention or the possibility of licensing is severely decreased.

CASE STUDIES We reviewed five cases at the request of the Senate Subcommittee on the Constitution. One involved HEW's licensing of a small business firm. The other four cases concerned individual waivers to nonprofit institutions. Licensing case

American Science and Engineering (AS&E), a small business firm, petitioned HEW in September 1976 for an exclusive license to its circle array tomography (CAT) scanner system and associated cable handling mechanism. In November 1976 the National Cancer Institute (NCI), which had funded the project, favored issuance of a nonexclusive license to AS&E. In December NCI requested that an exclusive license be granted. This request followed a meeting between the HEW Patent Branch, NCI, and AS&E officials where the company contended that their new type CAT scanner could not be easily and cheaply adapted by other manufacturers. Also in December, AS&E petitioned HEW for foreign patent rights, which the Assistant Secretary for Health granted in January 1977.

In an internal memorandum dated February 1977, the National Institute of Neurological and Communicative Disorders and Stroke questioned the proposed issuance of an exclusive license to AS&E because another company had developed a similar system. The Office of the Assistant Secretary for Health, however, following the recommendation of the National Institutes of Health Inventions and Patents Board, advertised in the Federal Register on April 7, 1977, that it intended to grant AS&E an exclusive license unless, before June 6, 1977, the Department received either statements as to why the license would not be in the best interests of the United States or applications for nonexclusive licenses.

Although statements and/or license applications and notices of interest in filing applications were received from seven firms (none of which were small businesses), the National Institutes of Health Inventions and Patents Board recommended at a meeting on June 10, 1977, that a 3-year limited exclusive license be granted to AS&E. After granting the license on June 17, 1977, the Assistant Secretary for Health cancelled both the license and AS&E's foreign rights on July 21, 1977.

Regarding cancellation of the license, the Assistant Secretary wrote: “I am compelled to take this action because the limited exclusive license was granted in violation of the applicable policies and regulations. Under the Presidential Statement on Government Patent Policy (36 F.R. 16887, August 26, 1971) and the Federal Procurement Regulations (41 CFR 1-9.107-3 (a)) which implement that Policy Statement, the Department did not have authority to grant AS&E a limited exclusive license to practice the inventions developed under its contract with the National Cancer Institute unless that license was a necessary incentive to bring the inventions to the point of practical application or unless the Government's contribution to the inventions was small compared to that of AS&E. The responses to the notice of intent to grant an exclusive license to AS&E, which appeared in the Federal Register (42 F.R. 18151, April 7, 1977), established that an exclusive license was not a necessary incentive to bring the inventions to the point of practical application. The contract under which the inventions were made was fully funded by the National Cancer Institute and thus the Government's contribution to the inventions was not small compared to that of AS&E. The exclusive license to AS&E was therefore granted without authority and in violation of the Presidential Statement on Government Patent Policy and the Federal Procurement Regulations.”

The General Accounting Office believes the AS&E case demonstrates that an agency operating under the Presidential policy can move in almost any direction when determining rights to inventions. Waiver cases

One case involved two inventions by University of Texas scientists relating to the hormone thymosin used for treatment of malfunctioning immune systems which can make people susceptible to arthritis and several kinds of cancer. These inventions were made with National Institutes of Health (NIH) funding and reported to HEW in September 1977, when the University also petitioned for rights. This was over four months after the University obtained a patent on one invention and over 10 months after it filed a patent application on the second invention.

HEW's Patent Branch received NIH comments in October and November 1977 and sent a determination to the Assistant General Counsel for review in December. This determination granting rights to the University was not acted on by the Assistant General Counsel until August 30, 1978, when it was sent to the Assistant Secretary for Health, who signed it in September.

It appears that development of the inventions was not impaired because the Assistant General Counsel delayed granting rights to the University. In July 1977 the inventor reported that a drug firm's studies of the invention showed that the compounds are not toxic.

In another case a Columbia University scientist with an NIH grant invented a solution for treatment of persons with severe burns. Although the University filed a patent application in December 1974 and the invention was published in International Surgery's June-July 1975 issue, the invention was not reported to HEW until March 1976.

Research Corporation, an invention management firm, together with Columbia petitioned HEW for rights in October 1976. Research Corporation estimated that it would take from 5 to 8 years and an investment of about $850,000 to market the invention. Therefore, a time limited exclusive license would have to be offered before a commercial firm would make such an investment.

NIH informed HEW's Patent Branch in December 1976 that it did not object to Columbia and Research Corporation retaining title, but the Patent Branch did not send such a determination to the Assistant General Counsel until October 1977. Patent Branch officials could not explain why this delay occurred.

The Assistant General Counsel then delayed the determination another 11 months until September 1978 when it was sent to and signed by the Assistant Secretary for Health.

A third case involved an invention entitled, “Undecapeptide and Tumor Assay." This invention, discovered by the Weizmann Institute of Science under an NIH contract, could be useful in a follow-up for post-operative diagnosis and prognosis on cancer patients. The Institute first reported the invention to HEW in 1974, when the Department decided that patent protection was not warranted. Subsequently, in June 1976, the full results of the research were published in scientific journals.

The following October a drug firm approached the Weizmann Institute indicating it would be willing to prepare, file, and prosecute a U.S. patent application as consideration for an option to an exclusive license for some limited period. The Institute requested HEW's permission to file a U.S. application in November 1976. The Department granted permission on December 1, 1976, and the application was filed later that month. Through Yeda Research and Development Company Ltd., its patent agent, the Institute petitioned HEW for rights in February 1977. In the petition, Yeda stated its intention to grant the drug firm exclusivity as an incentive to market the invention.

In response to a HEW Patent Branch request for additional information, Yeda informed the Department in August 1977 that from two to three years and from one to five million dollars would be required to develop the invention to the point of submission to the Food and Drug Administration. NIH, in its comments to the Patent Branch in September 1977, stated that it was virtually impossible to predict the usefullness of the invention and its role in diagnostic testing. NIH said that it had no objection to permitting Yeda to retain title and that it was unlikely that the invention would be developed without an exclusive license to a potential manufacturer. On November 4, 1977, the Patent Branch sent a determination granting rights to Yeda to the Assistant General Counsel for review.

However, on September 8, 1978, the Assistant General Counsel sent a determination retaining title for the Government to the Assistant Secretary for Health. The Assistant General Counsel found no legal justification for the waiver, noting that Yeda had not promoted the invention and would not supply any of the risk capital needed to develop it. The drug firm had assisted Yeda with the patent application and waiver petition and would develop the invention. The Assistant General Counsel further found that exclusive licensing appeared necessary and recommended retaining title for the Government. On January 24, 1979, the Assistant Secretary denied Yeda's petition.

In the remaining case two University of Arizona scientists invented a potential method for testing the effectiveness of drugs in individual cancer cases without administering the drugs to the patient. The University reported the invention to HEW's Patent Branch and requested a waiver in July 1977. The invention was also published in the July 1977 issue of Science.

NIH in September 1977 informed the Patent Branch that it did not object to the University retaining title to the invention, but added that it had contracts with other institutions for realted research and that commercial interest would be high enough that an exclusive license would not be needed to stimulate development of a marketable product. In reply to a Patent Branch request, the University in October 1977 provided additional information for NIH evaluation, estimating that development would take from 3 to 5 years and would cost a licensee from $2,250,000 to $5,000,000. In November NIH informed the Patent Branch that the University's petition should be granted even though many questions regarding the invention's clinical utility were still unanswered. The Patent Branch on December 29, 1977, sent a determination granting title to the University to the Assistant General Counsel for review.

The Assistant General Counsel's office advised the Patent Branch in April 1978 that the petition would not be favorably considered in the near future and in September 1978 returned the determination to the Patent Branch for further evaluation. Meanwhile, in July 1978 the Patent Branch had learned of a potential licensee's interest in funding development of the invention in return for an exclusive license. The Patent Branch returned the determination to the Assistant General Counsel in November 1978. This determination, granting title to the University, was approved by the Assistant Secretary for Health on March 23, 1979.

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