Mr. STURGES. Why?

Mr. LATKER. Because of the availability of necessary rights at a time when the industrial developer needs to commit capital. When those rights were not available the universities were not considered to be fertile grounds for therapeutic leads for industrial developers. Mr. STURGES. Well, has the same attention been paid in the past to drug development on campus as is being paid now?

Do you think it is simply a matter of the rights stimulating greater interest in making drug discoveries on campus?

Mr. LATKER. I do not think I follow your question.

Mr. STURGES. Well, could universities have been as big a factor in the 1960's in discoveries of new drugs as you appear to think they can be now?

Mr. LATKER. Well, the whole essence of the 1968 GAO report which I have attached to this presentation indicated that when GAO went out into the university sector and interviewed a number of investigators, they found that the inventors were stuck with hundreds. of potential therapeutic agents on their shelves. They advised the GAO that they were unable to make any interface with industry on the basis that industry would not utilize risk capital without some assurance of property protection.

Mr. STURGES. Well, of course, there was a huge backlog of chemical entities from the 1950's and early 1960's that people wished to have screened. Certainly, the cancer area was one in which people hoped for drugs showing promise. But a year ago in May in your statement you said you would conjecture that this number will increase in subsequent years, due to the opportunity of the pharmaceutical industry to capitalize on positive leads from the nonprofit sector. That made it sound as if you thought the pharmaceutical industry might be doing less of its own R. & D.

Mr. LATKER. I did not mean that at all. I think it suggests the opposite; that the HEW with some limited exceptions only sponsors basic research and then ordinarily stops at the point where the compound at most possibly may have shown some indication of potential in humans. That is where our resources and cooperation stops.

At that point it was always presumed that the drug industry would step in and do what you consider the developmental work which is the collection of the necessary clinical data to clear through the Food and Drug Administration. With more positive leads it was perceived industry would invest more in R. & D. especially development.

I would emphasize that we do have some programs such as cancer chemotherapy that you mentioned in which we do have funding that takes drugs past the point of showing a potential therapeutic value.

Mr. STURGES. Let me go back to page 7 of your prepared statement and your number 7 on that page, where you note from a cursory review of your files it appears the number of licenses granted to inventors or associates of inventors is quite small, if any.

There is nothing in the HEW patent agreement to prevent such a license being issued, is there?

Mr. LATKER. No.

Mr. STURGES. It is interesting that the National Science Foundation IPA, as far as I know, does have such a provision and that the

Government-wide IPA in its draft form had such a provision, which was deleted from the final. Can you tell us from your recollection of the subcommittee's action in working on that proposal why it was knocked out?

Mr. LATKER. Well, first I think that the NSF provision does not preclude the grant of licenses to inventors or inventor associated companies. It merely requires that when those individuals are involved there will be a clearance at NSF.

I have no indication that there has ever been a denial on the part of NSF to permit a university to license such an organization. As to your comment about that provision showing up in our first draft, if it did, I would suggest that you ask Jesse Lasken, who is from NSF, and served as our draftsman. I believe he was combining the provisions of the HEW and the NSF agreements, in order to arrive at a uniform agreement.

The membership at a later date determined that the NSF clause

was unnecessary.

Mr. STURGES. Well, could we explore that further? Why is it unnecessary? The draft as I recall indicated that agency approval would be required for such a license.

Mr. LATKER. Well, we felt that the information on whether there would be a conflict-I am speaking for the subcommittee now in that I was chairman and we did things by majority rule-was in the hands of the university. We felt that conflict questions were properly in the hands of the university as opposed to the Federal Government who probably would not be in as good a position to make a determination as to whether to license an inventor or an inventor-associated organization, on the basis of lack of appropriate information.

Mr. STURGES. Well, the upshot at any rate with respect to the HEW agreement is that there is no barrier, no bar to licensing.

Mr. LATKER. That is not exactly correct because I would point out that the overall HEW grant policy statement provides that every university shall have a conflict of interest provision in its own policy. Accordingly, they are required to include, or have an ability to identify, conflict of interest at the university level as required by the HEW grant policy statement. Conflicts are not limited to patents. It is supposed to be a university-wide type of capability, patents or otherwise.

Again, the decision to drop the clause was based on the concept that the university is established and required to take care of this problem.

Mr. STURGES. Does your agency accept as a statement on conflict of interest the 1962 or 1963-at least 15-year-old-statement by the American Council on Education and American Association of University Professors?

Mr. LATKER. I think you are way out of my area. I could not possibly comment on that.

Mr. STURGES. At any rate, in terms of grants, there is as far as you know, some kind of requirement?

Mr. LATKER. Yes, there is a requirement on managing conflict of interest.

Mr. STURGES. I have no further questions.

Chairman NELSON. Thank you very much, Mr. Latker.

[The prepared statement and attachments of Mr. Latker follow:]

Mr. Chairman and Members of the Subcommittee:

My name is Norman Latker. I am the Patent Counsel for the

Department of Health, Education, and Welfare.

In response to your invitation I will testify on the history and legal basis of the Institutional Patent Agreement (IPA) program in HEW. I will also endeavor to answer the specific questions with regard to IPAs which you stated in your letter of May 2.

History of IPA Program

The concept of the IPA first appeared in section 2 (b) of the Federal Security Agency Order 110-1 of December 30, 1952, copy attached as Item 1. Section 2 (b) was later adopted as 45 CFR 8.1(b) of the Department of Health, Education, and Welfare Regulations after the Department was established by Reorganization Plan No. 1 of 1953. During the years 1954-1958, 18 IPAS were executed. The terms of these agreements were not uniform,

and in some instances inconsistent. In 1968, the Department replaced these agreements with the uniform agreement in present

use.

In 1965, the Federal Council for Science and Technology's (FCST) Report on Government Patent Policy impliedly endorsed the Department's IPA program as being consistent with President Kennedy's October 10, 1962 memorandum on Government patent policy. Page 16 of the Report is attached as Item 2. A rationale for the IPA program is found in the July 1975 Report of the University Patent Policy Ad Hoc Subcommittee of the Executive Committee of the Committee on Government Patent Policy of FCST. The report is attached as Item 3.

Legal Basis for IPA Program

The legal basis for the IPA program since its inception has been the authority of the head of an executive department under 5 U.S. Code 301 to prescribe regulations for the governing of his department and for the performance of its business.

While there are no statutes or judicial decisions which establish precise criteria as to all the terms and conditions which a federal agency may include in its contracts and grants, judicial decisions and opinions of the Attorney General indicate that an agency has discretion to award contracts and grants upon the terms and conditions it deems appropriate to discharge its statutory duties. Among the cases supporting this proposition are Perkins v. Lukens Steel Co., 310 U.S. 113 (1940); King v. Smith, 392 U.S. 389 (1968); and Contractors Association of Eastern Pennsylvania v. Secretary of Labor, 442 F.2d 1959 (1971).