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our work to safisfy your request. We are pleased to have been able to support your efforts toward a uniform Federal patent policy.

Sincerely yours,

Enclosures.

ELMER B. Staats.

ENCLOSURE I.-DEPARTMENT OF ENERGY, PATENT POLICIES AND PROCEDURES The Department of Energy's (DOE) patent policy is based on Section 152 of the Atomic Energy Act of 1954, as amended; Section 9 of the Federal Nonuclear Energy Research and Development Act of 1974; and, to the extent not inconsistent with these statutes, the Presidential Memorandum and Statement of Government Patent Policy as revised August 23, 1971. Title 41 of the Code of Federal Regulations, Part 9-9, implements these statutory and Presidential guidelines.

DOE patent polices require the Government to acquire title to subject inventions made under contracts, grants, and other arrangements for research, development, and demonstration, but also provide for waiver of certain rights. When the Government retains title, the contractor retains a nonexclusive, revocable, paid-up license in the invention and the right to file and retain title in any foreign country in which the Government does not elect to secure patent rights.

The Department's policies provide that the Secretary may waive the patent rights of the Government to any invention made or to be made under contract with DOE if he determines that the interest of the United States and the general public will best be served by such waiver. There are two types of waivers-advance and individual. An advance waiver is requested at the time of contracting. If granted, the waiver results in a contract provision in which DOE waives its patent rights to all inventions made or conceived under the contract. An individual waiver is requested when a particular invention is made or conceived under a contract.

DOE's legislation established four objectives in making waiver determinations: Making the benefits of the energy research, development, and demonstration programs widely available to the public in the shortest practicable time; Promoting the commercial utilization of such inventions;

Encouraging participation by private persons in DOE's energy programs; and, Fostering competition and preventing undue market concentration or the creation or maintenance of other situations inconsistent with antitrust laws.

DOE's regulations implementing its legislation also provide 13 specific criteria for the Secretary's consideration in granting advance waivers and 12 specific criteria for individual waivers.

WAIVER OF RIGHTS TO UNIVERSITIES AND SMALL BUSINESSES

Specific criteria in DOE's legislation and implementing regulations (issued July 13, 1977) provide for preferential treatment for small businesses and nonprofit education institutions. Waivers are generally granted to small businesses if the contract involves their privately developed technology.

For advnace waivers, DOE considers approved technology programs the equivalent of manufacturing and marketing capabilities, thus providing universities an equal footing with industry in requesting advance waivers. However, an approved program is not sufficient in itself to justify an advance waiver. The waiver request must be considered in light of the four objectives and 13 criteria established by the regulations.

DOE does not usually grant individual waivers to contractors, including small businesses, for identified inventions if DOE continues to fund development. The only basis for considering an exception is the extent to which the contractor will cost share development. DOE places great weight on cost sharing in making its waiver decisions.

For nonprofit educational institutions with technology transfer programs and capabilities that have been approved by DOE, the Department also generally grants individual waivers when it does not continue funding development after an invention is identified.

DOE's decision on each waiver request is supported by a "Statement of Considerations" which spells out the reasons for either granting or denying the waiver. Each statement cites at least one objective and the specific criteria mandated by the legislation, and explains the basis for the recommended determination. All waiver determinations are coordinated with and concurred in by the appropriate program division.

INSTITUTIONAL PATENT AGREEMENTS

DOE interprets its legislation as prohibiting the use of institutional patent agreements for waiving title to universities having approved technology transfer capabilities. The rationale for the Department's interpretation is founded on its waiver policies which are derived from the legislation discussed above.

However, for universities having DOE approved technology transfer programs, the Department adopted an abbreviated waiver petition in April 1979. This petition was developed to limit the information universities would have to submit when petitioning DOE for waiver of domestic patent rights to an identified invention.

PROCESSING ADVANCE AND INDIVIDUAL WAIVERS

As of December 31, 1978, DOE had received 422 petitions for waivers from about 5,600 invention disclosures made on more than 6,000 contracts. The Department granted 216, or 51 percent; denied 46, or 11 percent; and closed or had withdrawn 48, or 11 percent. The remaining 112, or 27 percent, were in process. These consisted of 54 petitions for advanced waivers and 58 for individual waivers.

Three hundred of the 422 petitions received by DOE were for advance waivers and 122 for individual waivers. DOE gives processing priority to advance waiver petitions because they usually are made prior to contracting and, therefore, could affect contract negotiations. Thus, only 18 percent of the advance waiver petitions were in process on December 31, 1978, while 48 percent of the individual petitions were in process. With a caseload of 112 waiver petitions in process at the end of 1978, DOE was about one year behind in processing.

We analyzed processing time on 30 individual waivers which DOE identified as calendar year 1977 cases. The Department's processing time for closed cases ranged from three to twenty-five months, averaging about 13 months. Determinations on seven cases had not been rendered as of December 31, 1978. These petitions had been outstanding from 14 to 29 months, averaging 19 months from the date the petition was received by DOE.

Analysis of DOE's 1977 and 1978 determinations disclosed that 121 waivers were granted and 49, or 40 percent, were to small businesses and universities. During this same period DOE denied 17 requests, of which 5, or 29 percent, were petitions of universities. Two university petitions were denied without prejudice because the Department was continuing to fund the invention. No small business petitions were denied.

CASE STUDIES

We reviewed 13 cases where contractors or inventors petitioned DOE for waiver of rights to identified inventions. Two cases were reviewed at the request of the Senate Subcommittee on the Constitution. The other 11 cases were selected because they were the oldest cases open when our review commenced in October 1978. During our review, 10 of the 13 petitions were approved, one was denied without prejudice (the contractor can petition again after DOE ceases project funding) and one was closed because the inventor failed to submit the required information. The remaining case also was closed because the petitioner did not submit required information but was reopened upon request for reconsideration. The time required to make determinations on the cases ranged from 10 to 41 months, averaging about 22 months from the time DOE received a formal petition.

We found the reasons for the delays in making determinations varied from case to case. In three cases the delays were attributable to DOE.

One case involved a vortex gas liquid heat exchanger developed by an employee of Sandia Laboratories. The inventor filed a waiver petition in February 1976. In June 1976, the Division of Military Applications informed the General Counsel's office at headquarters that the invention was not a subject invention conceived with DOE funding and that neither the Department nor Sandia planned to further develop or commercialize it. DOE, however, did not notify the inventor until almost two years later, in February 1978, that it would assert no rights in the invention. DOE personnel attributed the delay to an administrative oversight caused by the press of other business. They also pointed out that the inventor did not pressure DOE to resolve the case.

In another case, Texas Instruments, Inc. invented a material for solar absorption surface panels and petitioned for a waiver in September 1975. In November 1976, the Department's Chicago patent office recommended to the General Counsel's office that a waiver be granted. The Chicago office believed that a waiver would make the invention available to the public in the shortest time and would also promote the commercial utilization of the invention. However, the waiver was not granted until February 1979, or 41 months after it had been requested. A significant

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 EG&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 Nation

al 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

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