[Senate Hearing 110-470]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-470
 
 THE ROLE OF FEDERALLY FUNDED UNIVERSITY RESEARCH IN THE PATENT SYSTEM

=======================================================================



                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 24, 2007

                               __________

                          Serial No. J-110-58

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
      Michael O'Neill, Republican Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     2
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   107

                               WITNESSES

Hoffman, Elizabeth, Executive Vice President and Provost, 
  Professor of Economics, Iowa State University, Ames, Iowa......     6
Louis, Charles F., Vice Chancellor for Research, University of 
  California, Riverside, Riverside, California...................    10
Rai, Arti K., Professor of Law, Duke University School of Law, 
  Durham, North Carolina.........................................     4
Weissman, Robert, Director, Essential Action, Washington, D.C....     8

                         QUESTIONS AND ANSWERS

Responses of Elizabeth Hoffman to questions submitted by Senators 
  Leahy, Grassley and Hatch......................................    24
Responses of Charles Louis to questions submitted by Senators 
  Hatch and Grassley.............................................    41
Responses of Arti K. Rai to questions submitted by Senators 
  Leahy, Hatch and Grassley......................................    59
Responses of Robert Weissman to questions submitted by Senators 
  Grassley and Hatch.............................................    64

                       SUBMISSIONS FOR THE RECORD

Biotechnology Industry Organization, Washington, D.C., statement.    71
Gulbrandsen, Carl E., Managing Director, Wisconsin Alumni 
  Research Foundation, Madison, Wisconsin, statement.............    77
Harkin, Hon. Tom, a U.S. Senator from the State of of Iowa, 
  prepared statement.............................................    92
Hoffman, Elizabeth, Executive Vice President and Provost, 
  Professor of Economics, Iowa State University, Ames, Iowa, 
  statement and attachments......................................    94
Latham, Hon. Tom, a Representative in Congress from the State of 
  Iowa, letter...................................................   108
Louis, Charles F., Vice Chancellor for Research, University of 
  California, Riverside, Riverside, California, statement........   110
Rai, Arti K., Professor of Law, Duke University School of Law, 
  Durham, North Carolina, statement and attachments..............   126
Weissman, Robert, Director, Essential Action, Washington, D.C., 
  statement......................................................   158


 THE ROLE OF FEDERALLY FUNDED UNIVERSITY RESEARCH IN THE PATENT SYSTEM

                              ----------                              


                      WEDNESDAY, OCTOBER 24, 2007

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Committee met, Pursuant to notice, at 1:40 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Cardin, and Grassley.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. Thank you all for being here. Senator 
Cardin, thank you, and I know that Senator Grassley will be 
joining us.
    As we know, universities conduct much of the research that 
advances our understanding of the world around us. Since the 
passage of the Bayh-Dole Act in 1980--and I remember that one 
well--they have played an increasingly important role in the 
patent system and commercializing innovation.
    Under Bayh-Dole, universities may take title to inventions 
developed with Federal funds, and they can retain all the 
profits from licensing those inventions, without reimbursing 
the Government. There is, of course, one exception to that 
rule, and that is when the university's work is being done in a 
facility that is actually owned by the Federal Government. Then 
the university has to return a portion of the royalties from 
the invention if those royalties exceed 5 percent of the 
facility's budget.
    Iowa State University operates such a Federal facility--
Ames Laboratory--and they showed a great deal of ingenuity and 
commercialization. Ames last year exceeded the 5-percent mark 
and, as a result, repaid the taxpayers nearly $1 million. They 
actually became the first such facility to do that. At the 
close of the last Congress, the House had hoped to raise the 
threshold to 15 percent, so Iowa State would not have had to 
make any reimbursement. The bill was introduced on December 8th 
and it was passed on December 9th. I said at the time that 
regardless of whether the threshold should be 5 percent or 15 
percent, we should not make that kind of a step at the 11th 
hour, because process is important. It will illuminate and let 
the public know if we are going to make such substantive 
changes.
    So this hearing gives us that kind of process. It will give 
us a long overdue opportunity to begin an examination of the 
successes, as well as any shortcomings, of the tech transfer 
provisions.
    In saying that, I do want to acknowledge that American 
research universities are the envy of the world. I hear about 
them everywhere I go in the world. Patented inventions 
developed at these universities with Federal dollars have 
created businesses and jobs; they have boosted local economies. 
Medicines developed there have saved lives. Federal taxpayers 
fund more than 60 percent of research at universities, however, 
so it is proper to ask whether the taxpayer is getting an 
adequate refund.
    At the end of the 109th Congress, I introduced the Public 
Research in the Public Interest Act to ensure that medical 
product innovations created with Federal funds were available 
in developing countries at the lowest possible cost. I imagine 
that will be a matter of debate here.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    We were speaking of Ames, Iowa, and as we spoke of Iowa 
State University at Ames, in walked the senior Senator from 
Iowa. Senator Grassley, I will yield to you for any kind of a 
statement you wish to make. Of course, Dr. Hoffman, the Vice 
President and Provost of Iowa State is here.

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. Thank you very much.
    Well, first of all, I appreciate your willingness to hold 
this hearing on the Bayh-Dole Act and include in that hearing a 
discussion of a patent issue that has been before Congress for 
a few years now concerning Iowa State University. You said you 
would hold a hearing, and I know you always keep your word, and 
you surely have and I think you need to know that I really 
appreciate that very much.
    This is an important hearing that you have noticed today 
because of the many benefits that have been derived since 
enactment of the Bayh-Dole Act. The Bayh-Dole Act promotes the 
utilization of inventions arising from federally supported 
research and development. This law has proven to be a very 
effective incentive for small businesses and nonprofit 
organizations, including universities, to collaborate in 
researching and developing new products and technology with the 
support of our Federal Government. Ultimately, promoting 
university-based innovation and technology transfer to industry 
helps boost the Nation's economy and gives us a better world 
through new cures and inventions.
    The Chairman has assembled an impressive list of witnesses. 
I thank all of you for being present. In particular, I am 
pleased to welcome, as has already been mentioned, Dr. 
Elizabeth Hoffman, who is Executive Vice President and Provost 
at Iowa State University. She is going to discuss the patent 
issues around Iowa State's concerns and the legislative fix 
that they would like to see in the Bayh-Dole Act.
    As you know, in the 109th Congress, the House of 
Representatives passed a bill that would have changed the 
royalty formula under Bayh-Dole for small or nonprofits because 
they saw a basic issue of fairness. I agree with that 
assessment. In fact, I circulated the same language of that 
bill as an amendment to a comprehensive patent reform bill that 
was considered by the Judiciary Committee earlier this year. 
The change that Iowa State University is seeking to the Bayh-
Dole law would allow for a modest increase in the royalty 
threshold for smaller budgets, thus preserving the necessary 
incentive for smaller institutions and laboratories to continue 
investing in cutting-edge research and development.
    Currently, the Bayh-Dole Act allows nonprofits to patent 
any new discoveries, sell and license the inventions, and keep 
a portion of the profits. The law places a limitation on the 
amount of royalty income that can be retained in a given fiscal 
year once a ceiling of 5 percent of a Government-owned, 
contractor-operated laboratory budget has been reached. 
Seventy-five percent of the remaining income is paid to the 
U.S. treasury. The remaining 25 percent is shared between the 
laboratory and the university nonprofit.
    Unfortunately, this one-size-fits-all ceiling creates a 
situation where smaller institutions end up paying royalties 
back to the Government a lot sooner than institutions with much 
larger budgets. Smaller contracts should not be penalized for 
their successes just because they naturally will reach the 
current statutory ceiling much more quickly than the larger 
contracts of hundreds of millions of dollars.
    The bill that the House of Representatives passed last year 
would have allowed small Government-owned, contractor-operated 
labs and their affiliated universities or nonprofits to receive 
a fair percentage of revenue from successful patents that they 
license. Specifically, the legislation raises the threshold for 
smaller annual budgets, $40 million or less, from 5 percent to 
15 percent for Bayh-Dole. The bill left in place the current 5-
percent threshold for budgets over $40 million. In this way, 
everyone would pay back to the Federal treasury once revenues 
reached a certain amount, as is appropriate.
    I know this is just one small issue in the scheme of 
things, but I do think that such a tweak to the Bayh-Dole Act 
will produce an equitable result for small entities that 
perform research in many scientific technological fields. This 
small but important modification in the law will allow these 
institutions to continue to reinvest in their research and 
educational operations, which, of course, greatly benefit our 
public.
    I look forward to Provost Hoffman's more detailed testimony 
on this issue and how a modest change in law will improve the 
incentive for little people to continue reinventing in their 
research and development activities. I also look forward to all 
the testimony of witnesses on Bayh-Dole, and I ask permission, 
Mr. Chairman, for the Congressman that includes Story County 
and Ames, Iowa, where Iowa State University is, Congressman 
Latham, for a statement of his to be inserted in the record.
    Chairman Leahy. Without objection, it will be.
    Senator Grassley. Thank you, Mr. Chairman.
    Chairman Leahy. Professor Rai, we will start with you.
    Did I pronounce that correctly? Is it ``Ray''?
    Ms. Rai. ``Rye,'' as in the bread.
    Chairman Leahy. Thank you.

  STATEMENT OF ARTI K. RAI, PROFESSOR OF LAW, DUKE UNIVERSITY 
             SCHOOL OF LAW, DURHAM, NORTH CAROLINA

    Ms. Rai. Good afternoon, Mr. Chairman and distinguished 
members of the Committee. Thank you for the opportunity to 
speak on the role of federally funded university research in 
the patent system.
    I am Arti Rai, a law professor at Duke Law School. I have 
studied technology transfer issues for the last 10 years. 
Currently, I am funded by both the NIH and the Kauffman 
Foundation to study these issues in both the life sciences and 
in information technology. So my current research is examining 
both sides of the life sciences versus information technology 
divide that we sometimes see in debates over patent issues.
    Before I delve into the details of my testimony, let me 
state my bottom-line conclusions.
    First, although I do not think that we need a major 
overhaul of the current system, we do need to recognize that a 
patent and exclusive licensing model is not necessarily 
appropriate for all technologies.
    Second, one mechanism of ensuring that universities pay 
attention to the idea that ``one size does not fit all'' might 
involve bolstering particular provisions of Bayh-Dole that 
allow funding agencies to be attentive to differences between 
technologies.
    Third, we need to be cautious about efforts to recoup 
royalties from technology transfer efforts. I understand that 
the immediate catalyst for the hearing today surrounds this 
question of royalties. In the context of Government-owned, 
contractor-operated facilities, there is a recoupment 
provision. In general, however, there are no recoupment 
provisions in Bayh-Dole, so this is an important question.
    In order to understand whether we should have more or less 
recoupment by the Government, I think it is important to 
understand why we have Bayh-Dole and Stevenson-Wydler. Both of 
these statutes aim, one, to promote university-industry 
collaboration and, two, to commercialize federally funded 
research through the use of patents. The theory is that if 
federally funded research is patented, then private sector 
firms will have a powerful financial incentive to collaborate 
and to commercialize.
    For certain types of inventions, this commercialization 
theory makes a lot of sense. Drugs are the classic example. 
Outside of the life sciences, however, the importance of 
patents for collaboration and commercialization is not as 
clear. And even within the life sciences, commercialization of 
certain basic scientific research tools might be achieved 
through the lure of more downstream patents on specific 
applications of those tools.
    So one size does not fit all. Unfortunately, it is not 
clear that universities always pay attention to these 
differences. In fact, there have been some recent court cases 
in which it appears that the university patent did not so much 
aid in technology transfer as it allowed the university to 
extract money from an entity that had already commercialized.
    In the recently settled case of Eolas v. Microsoft, for 
example, Microsoft and various other firms did not need an 
exclusive license to commercialize the Web browser software 
that was the subject of the patent dispute. Of course, one 
never knows how representative litigated cases are. 
Universities may generally be doing a good job, with these 
litigated cases being the exception.
    A more troubling indicator emerges from some research I 
have done which indicates that the most important predictor of 
the number of university software patents that are sought is 
simply how many other patents the university tech transfer 
office has. In other words, large tech transfer offices just 
patent a lot of what comes in the door. They do use a one-size-
fits-all approach to their invention. And so it should come as 
no surprise that some prominent information technology firms 
are somewhat troubled by what universities are doing.
    Even so, I would not endorse taking the decision about 
patenting away from universities. The question is always a 
comparative one, and Federal agencies are not always or even 
generally better placed to make these decisions.
    There is also reason to believe that universities are 
beginning to understand that technologies differ from one 
another and that not all of them should be promoted through a 
patent and exclusive licensing model.
    Still, it might be worth doing some tweaking of particular 
provisions of Bayh-Dole and giving Federal agencies a little 
more authority in certain circumstances to work with the 
universities in determining situations in which one size does 
not fit all.
    Let me conclude by returning briefly to the issue of 
royalty recoupment. Currently, outside of special circumstances 
like GOCOs, Bayh-Dole does not provide for such recoupment. One 
might argue that the Federal Government should get a return on 
its investment. However, there is little evidence to support 
the idea that the Federal Government would be making large sums 
of money even if it did have a general recoupment provision.
    More importantly, part of the problem that I see with 
current university tech transfer efforts is that there is 
sometimes too much focus on generating revenue. I have 
mentioned, for example, some cases in the software context 
where these patents appear to be used as a mechanism for 
revenue extraction rather than a mechanism for promoting 
collaboration and commercialization. So anything that gets 
universities to pay even more attention to their revenue 
generation seems to me a bad idea.
    In sum, I think there is little reason to do a major 
overhaul of the current mechanism for technology transfer that 
we have. However, universities should be educated about the 
reality that one size does not fit all, and some tweaks in 
Bayh-Dole might help with that education. Relatedly, I think 
because we do not want universities to focus on generating 
revenue but, rather, on commercialization and collaboration, we 
should be cautious about using technology transfer as a 
mechanism for raising revenue.
    Thank you very much.
    [The prepared statement of Ms. Rai appears as a submission 
for the record.]
    Chairman Leahy. Thank you. And, Professor Rai, your full 
statement and the appendage you had for it will be part of the 
record.
    I should have noted that Professor Rai is a Professor of 
Law at the Duke University School of Law, where she teaches 
courses in administrative and patent law. Her publications have 
concentrated on intellectual property law, and her current 
research focuses on IP issues raised by collaborative research 
and development.
    Dr. Hoffman, as Senator Grassley pointed out, is the 
Executive Vice President and Provost of Iowa State. She earned 
her Ph.D. in history from the University of Pennsylvania, and a 
Ph.D. in economics from the California Institute of Technology. 
Prior to coming to Iowa State, Dr. Hoffman served as the 20th 
President of the University of Colorado System. I know Senator 
Harkin also wanted to be here today. He is down at a place 
where I am going to be leaving for in a few minutes, in the 
Senate Agriculture Committee, where we are trying to mark up a 
farm bill. I will place a statement from Senator Harkin in the 
record.
    Dr. Hoffman, please go ahead.
    Incidentally, I should note that at some point I will have 
to leave. When I do, I will turn the gavel over to Senator 
Grassley, who has had as much experience as I have had in 
handling a gavel and will continue the hearings.

 STATEMENT OF ELIZABETH HOFFMAN, EXECUTIVE VICE PRESIDENT AND 
 PROVOST, PROFESSOR OF ECONOMICS, IOWA STATE UNIVERSITY, AMES, 
                              IOWA

    Ms. Hoffman. Thank you, Mr. Chairman, Senator Grassley, 
distinguished members of the Committee. I am Elizabeth Hoffman, 
Executive Vice President and Provost of Iowa State University. 
I am here first to convey our emphatic support for the Bayh-
Dole Act. I am here also to propose a limited, technical fix 
that would eliminate a restriction we believe has an 
inequitable impact on small, Government-owned, contractor-
operated laboratories--namely, the current limit imposed on 
retaining royalties that result from tech transfer activities.
    My colleague Charles Louis will address the broader 
benefits of Bayh-Dole, and we have included our support in our 
written testimony. I will speak to the experience of Iowa State 
and Ames Laboratory.
    The effectiveness of Bayh-Dole incentives can be seen in 
the upward trend in technology disclosures and licenses at Iowa 
State University. Technology disclosures increased from 46 per 
year in the 1970s, prior to the adoption of Bayh-Dole, to 118 
per year from 2000 to 2007. In 2005, Iowa State University was 
second in the Nation--behind the entire University of 
California System--in licenses and options with 218, and we 
were sixth nationally in the total number of active licenses, 
with 245. In the past 8 years alone, fully 20 new companies 
have been started on the basis of 41 licensed technologies, 
contributing to the economy of our State and our Nation.
    Now I would like to turn to look more closely at the Ames 
Laboratory. No better illustration of the success of Bayh-Dole 
can be found than the example of lead-free solder, a result of 
Federal support that has been developed jointly at the Ames 
Laboratory and Sandia National Laboratory. The research team 
that created this remarkable and remarkably marketable 
innovation was led by Ames metallurgist Iver Anderson. You are 
all familiar with the environmental impact of leaded solder in 
landfills. By removing the lead, we protect the environment and 
avoid a serious health risk.
    The so-called Iver Patent for this lead-free solder is 
licensed by Iowa State to 28 companies under very reasonable 
financial terms, and over 60 companies around the world--
including a small company in Iowa--use the patent. Thus, our 
experience has been that the principles, practice, and impact 
of Bayh-Dole are sound.
    However, we want to discuss with you today one technical 
concern that we believe can have an unfair impact on small GOCO 
Federal laboratories and that has had an inequitable impact on 
the Ames Laboratory.
    As mentioned before, Bayh-Dole, as modified in 1984, limits 
the earnings from royalties for these laboratories to 5 percent 
of their annual budget; and then after reaching the 5 percent 
threshold, 75 percent of additional royalties are returned to 
the Federal Government. All royalties retained by the 
contractor must be expended for research, education, and 
technology transfer purposes.
    Because of its small budget and successful patent 
portfolio, as the Senator mentioned, the Ames Laboratory is 
alone in the Nation in coming up against the 5-percent royalty 
cap. Last year, we returned nearly $1 million to the Federal 
Government, and we anticipate returning about the same amount 
per year for the foreseeable future.
    My contention today, which I respectfully offer for your 
consideration, is that the authors of Bayh-Dole and subsequent 
modifying legislation did not intend to incorporate a provision 
that would have a disparate and deleterious impact on the 
smallest of the DOE laboratories. Therefore, we ask you to re-
examine this technical clause and to modify the limitation in 
accord with the spirit of Bayh-Dole.
    To bring home the inequitable impact of this technical 
limitation on small, successful, federally funded research 
centers, let me point out that Ames Laboratory's partner in the 
development of lead-free solder--Sandia National Laboratory--
has not had to return any of their royalty stream to the 
Government. Sandia has a much larger budget--$2.27 billion--as 
compared to Ames's approximately $30 million. In this 
successful, partnership, then, is a case illustration of our 
contention that the 5-percent royalty cap is a discriminatory 
tax on small, successful, nonprofit laboratories. Accordingly, 
I propose for your consideration that the royalty limitation in 
the House legislation be increased to 15 percent of the annual 
budget for GOCO contractors with annual budgets of less than 
$40 million. If the Committee, in its wisdom, feels that these 
exact numbers are not the right ones but accepts our basic 
argument and request for relief from inequitable impact, we 
will be immensely gratified.
    Thank you for your attention and for your leadership here 
in Washington. Thank you, Mr. Chairman.
    [The prepared statement of Ms. Hoffman appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much, Doctor.
    Mr. Robert Weissman is Director of Essential Action, a 
nonprofit advocacy organization that works to promote access to 
medicines. Through Essential Action, he has experience 
petitioning the NIH and other Government agencies to exercise 
their rights under provisions of the Bayh-Dole Act. A graduate 
of Harvard College, Harvard Law School, Mr. Weissman, please go 
ahead, sir.

   STATEMENT OF ROBERT WEISSMAN, DIRECTOR, ESSENTIAL ACTION, 
                        WASHINGTON, D.C.

    Mr. Weissman. Thank you, Mr. Chairman. Thank you for 
inviting me to be here today.
    At the time of passage of Bayh-Dole and the years leading 
up to passage, there was even by proponents a recognition that 
there were serious risks in the proposal to enact the Bayh-Dole 
approach. There were concerns about whether the Government 
would get a fair return on its investment, about whether there 
would be reasonable pricing of Government-sponsored inventions 
and access to the fruits of Government-sponsored inventions. 
There was concern about windfall profits for those who gained 
exclusive rights to Government-funded inventions, and concern 
about whether those exclusive rights might lead to market 
concentration and anticompetitive behavior.
    The final bill included safeguards to deal with many of 
these concerns, not so much on recoupment but on many of the 
other key issues. Unfortunately, it has been our experience and 
I think the global experience that the Government has failed to 
exercise the safeguards that were included.
    In the area of pharmaceutical products, the result is that 
the Government uses taxpayer money to develop important new 
medicines. It gives away the inventions. Then the companies 
that take the federally sponsored inventions charge very high 
prices, price-gouge the very taxpayers that have paid a 
considerable part of the development, and even the Government 
itself, which is the largest buyer of pharmaceuticals in the 
world. Our experience is that even in the worst cases of abuse, 
the Government has failed to exercise the safeguards designed 
to limit these kinds of problems.
    Our organizations have requested that the National 
Institutes of Health use its rights to license inventions to 
the World Health Organization to enable access to cheap 
medicines in developing countries. That request was declined. 
We have requested that the Office of Management and Budget use 
the Government rights to purchase generic versions of 
pharmaceuticals that it helped develop. That request went 
unanswered. And we petitioned on two occasions for the NIH to 
exercise march-in rights where there were particular cases of 
pricing and market concentration abuses.
    One example involved an Abbott Laboratories product, the 
generic name of which is ritonavir. That is an anti-AIDS drug. 
It went on the market in 1996. The company in 2003 suddenly 
announced a 400-percent price increase for the drug, which 
would have made it as a stand-alone drug cost $45,000 a year 
per person. However, ritonavir's main role is not as a stand-
alone drug but as a booster to be used in conjunction with 
other pharmaceutical products. As a booster, the price went 
from roughly $1,500 a year per person to more than $8,000 a 
year per person. However, Abbott did not apply the price 
increase uniformly. It did not apply if the booster ritonavir 
was to be used in conjunction with Abbott's own product. As a 
result, the combination of Abbott's drug with this ritonavir 
booster is much cheaper than competitors in the same class who 
want to combine with ritonavir. The effect is a massive price 
increase for all other medications except for the Abbott 
product. It has tilted buying and prescription decisions, and 
it has, unfortunately, limited investment by other 
pharmaceutical companies in this category of medicine because 
they know they cannot compete with the Abbott product.
    We petitioned in this circumstance for NIH to exercise its 
march-in rights. The Abbott product was developed with a high 
degree of Federal support, and the Government does have Bayh-
Dole rights in the invention. The National Institutes of Health 
declined our petition. They said in their written response that 
Abbott was meeting its requirements to achieve practical 
application of the invention by simple virtue of putting the 
product on the market. Whatever price Abbott charged from NIH's 
point of view was irrelevant.
    Unfortunately, NIH read out of the statute the definition 
of practical application, which specifies that it means putting 
a product on the market on reasonable terms available to the 
public. There is no way, in our view, that the Abbott pricing 
arrangement could be considered reasonable. It is not clear 
that NIH thinks it reasonable either. They did not address the 
issue at all.
    As I discuss in my written testimony, we think there are a 
number of reforms that should be made to the Bayh-Dole Act to 
address this and other concerns. Generally, there needs to be 
much more purposeful management of the Government's patent 
portfolio and the products in which it holds intellectual 
property rights. The basic principle should be that there 
should be some reciprocity for the Government's funding of R&D. 
It does not need to be in the form of royalties. Much more 
important from our point of view is the area of pricing and 
access.
    The requirement for reciprocity should apply in more than 
the worst-case circumstances as well. In our petition on the 
march-in, we proposed a standard that the march-in should be 
exercised where U.S. Government-funded inventions were priced 
more for U.S. consumers who paid for them than they are for 
other consumers in other high-income countries. Whatever is 
done in this area, we think there needs to be specific 
direction on the use of the march-in right.
    Finally, one other point. There are other areas that need 
careful investigation, as Dr. Rai suggested, besides 
pharmaceuticals. There are going to be major increases in 
Federal research money devoted to climate change-related 
technologies. It will be hugely important to consider how those 
resulting technologies are managed and licensed to look for 
ways to promote open and collaborative means of development 
rather than relying exclusively on exclusive models.
    Thank you very much.
    [The prepared statement of Mr. Weissman appears as a 
submission for the record.]
    Chairman Leahy. Thank you, Mr. Weissman.
    Dr. Charles Louis is the Vice Chancellor for Research at 
the University of California, Riverside, holds an appointment 
as professor of cell biology and neuroscience. As Vice 
Chancellor, he is responsible for advancing the research 
mission of the university, including technology 
commercialization. He received degrees from Trinity College in 
Ireland--the only one of my colleagues whom I know of that 
studied at Trinity is Senator Cochran.
    Mr. Louis. I was unaware of that.
    Chairman Leahy. The senior Senator from Mississippi.
    He reminds me of that any time we have been in Dublin 
walking by Trinity. Dr. Louis also received a degree from 
Oxford University in England, and received his postdoctoral 
training at Stanford University. Doctor, the floor is yours. 
And as with everybody, your whole statement and any additional 
material you have will be put in the record as though read.

 STATEMENT OF CHARLES F. LOUIS, VICE CHANCELLOR FOR RESEARCH, 
        UNIVERSITY OF CALIFORNIA, RIVERSIDE, CALIFORNIA

    Mr. Louis. Thank you so much. Good afternoon, Chairman 
Leahy and Senator Grassley, and thanks for this opportunity to 
speak before you today.
    Thanks to the support of Congress, I have been very 
fortunate over 25 years of continuous NIH funding to support a 
biomedical research program that has allowed me to train a 
large group of graduate students and postdoctoral fellows. I 
would also like to thank the U.S. Senate, and this Committee in 
particular, for its hard work in passing the Bayh-Dole Act 
almost 30 years ago, which first allowed universities to take 
title in federally funded inventions and translate them into 
good and useful products for the public. It is a privilege to 
be able to thank so many of the original sponsors of this law 
in person here today, including yourself, Mr. Chairman, because 
I am also an inventor of a patent with colleagues at the other 
Iowa University--the University of Iowa--and also the 
University of Minnesota, where I spent many years.
    According to the Economist magazine, the Bayh-Dole Act is 
``perhaps the most inspired piece of legislation to be enacted 
in America over the past half-century.'' The piece goes on to 
state that ``[m]ore than anything, this single policy measure 
helped to reverse America's precipitous slide into industrial 
irrelevance.''
    The benefits of this Act are well recognized by our 
economic competitors around the world for converting early 
stage inventions into products. My written testimony documents 
many of the well-known products that have resulted from these 
inventions.
    Prior to Bayh-Dole, few of the federally funded patents, 
less than 5 percent in 1980, were ever licensed for 
development, in part due to the Government's prior practice of 
issuing only non-exclusive licenses. This practice failed to 
provide an incentive for a company to risk investing its own 
money in resources in commercializing a technology because its 
competitors could reap the benefits of its development efforts 
for free. Bayh-Dole established a consistent and uniform policy 
across agencies, allowing universities to elect to retain title 
in inventions created by their researchers in the course of 
federally funded research, on the condition that the 
universities diligently work with private industry to ensure 
that the technology is developed in a timely and beneficial 
manner.
    This shifted development of the technology from distant 
Federal agencies with little knowledge of the applicability of 
the invention, to the local university which possessed the most 
knowledge about the technology and could more effectively 
determine what inventions to patent or not.
    While U.S. universities have a mission of conducting 
research and furthering human knowledge, they are neither 
positioned nor equipped to develop their discoveries into 
commercial products that can be used by the general public, and 
this is where the partnership with industry comes in.
    As a result of the Bayh-Dole Act, university technology 
transfer activities skyrocketed. More than 230 universities 
have technology transfer offices. The University of California 
is very proud to have one of the top offices in the country. 
Indeed, 4,300 new products were introduced between 1998 and 
2006, with over 5,700 new spin-off companies created in the 
U.S. since 1980 as the result of university technology transfer 
efforts.
    A personal example. At the University of California, 
Riverside, Dr. David Bocian has been doing research in creating 
molecular-scale features that can function as the circuit 
elements in microelectronic chips. The technology will lead to 
significant advances in memory capability, playing a key role 
in new generations of electronic devices, both large and small. 
And UC Riverside has licensed this technology to a startup 
company.
    Dr. Rai suggests that universities focus on making money, 
and many outside observers make the erroneous assumption that 
technology transfer is undertaken by universities to do just 
this. Well, at the University of California, Riverside, like 
the majority of university technology transfer offices, 
licensing income rarely covers the costs of the office. In 
fact, we view technology transfer in both the licenses we issue 
and the students we train as an important means to advance the 
university's mission and serve the public interest. 
Universities do not have the resources to file patents on 
everything that is discovered by their researchers, and we have 
to pick and choose the ones which have the potential for 
commercialization. I would love to have so much money I had the 
flexibility to license everything that came in the door, but we 
have to be far more sensitive.
    Any policy changes that would make it harder for 
universities to engage financially in technology transfer 
efforts or reduce the certainty that the public currently has 
in a patent's validity would serve to undermine the Bayh-Dole 
Act's effectiveness. Any legislative or regulatory actions that 
increase a company's risk or uncertainty or reduce their 
incentive to invest in a university's inherently early stage 
technology, such action would certainly undermine the current 
success of the Bayh-Dole Act. The Bayh-Dole Act lays a solid 
foundation for the success of technology transfer, including 
elements that ensure that the public interest is preserved, 
while at the same time providing recipients of Federal funding 
with tremendous flexibility to craft the best business approach 
to maximize utilization of a federally funded invention.
    The Act was an inspired piece of legislation that has 
provided incentives and rewards for risk taking that has led to 
successful products. I am speaking for all of the University of 
California in asking the Congress to continue to nurture its 
success.
    Thank you.
    [The prepared statement of Mr. Louis appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much, Doctor. And before I 
leave, Dr. Hoffman, you said in your testimony that the 5-
percent limitation for small laboratories means, and I quote, 
``an atrophied incentive for innovation.'' Has Iowa State ever 
decided not to commercialize an invention because it might have 
to reimburse a portion of the royalties to taxpayers?
    Ms. Hoffman. No, Senator, but much of our technology 
transfer is not through the Ames Laboratory. The lead-free 
solder technology is the first time that Iowa State or, as far 
as we know, any other federally funded laboratory has run up 
against the 5 percent. So we really view this as a future 
disincentive, especially for the Ames Laboratory.
    Chairman Leahy. Well, if it gets even more successful--say 
the next time it is--say we changed it to 15 percent; and then 
you run up against the 15 percent, won't you want to change it 
again?
    Ms. Hoffman. Senator, I hope we are so successful. At this 
point in time, we would be happy with the 15 percent.
    Chairman Leahy. At this point.
    [Laughter.]
    Chairman Leahy. I understand. Of course, I always ask the 
obvious question, and I was one of the people voting for Bayh-
Dole in the first place that as the taxpayers put money into 
this, shouldn't they have some reimbursement of that, just so 
you understand. But I am going to turn the gavel over to 
Chairman Grassley, who I am sure has a number of questions. 
Chuck, thank you for requesting this hearing.
    Ms. Hoffman. Thank you, Senator.
    Senator Grassley. [Presiding.] First I will start with Dr. 
Hoffman. The Trademark Clarification Act of 1984 amended Bayh-
Dole, requiring return of royalties from Government contractors 
that exceed 5 percent of a contractor's operating budget. That 
law also stipulated how royalties retained shall be reinvested. 
Can you explain how the law functions in this regard and how 
Iowa State University specifically uses royalty income from 
federally funded research?
    Ms. Hoffman. Thank you, Mr. Chairman. As mentioned, we are 
required to use the funds for scientific research, education, 
and further technology transfer. Under our contract with the 
Department of Energy, the royalties that have been earned by 
the Ames Laboratory in the last few years of approximately $7 
million have been used, about $6 million, to support research, 
about $120 thousand to support education, and about $670 
thousand to support further tech transfer.
    To give you a few examples, one of the things that Ames 
Laboratory is doing now is teaming up with our biofuels group 
in our Plant Sciences Institute to provide seed funding for 
research in biomaterials to replace the use of petroleum in the 
development of things like plastics.
    We also are testing materials for photonics, and this has 
been very important in retaining one of our key faculty 
members, Dr. Costas Soukoulis, who is one of the world's 
leaders in photonics technology in the experimental area. We 
have a world-renowned theoretical group, and we are investing 
in further experimental work in photonics.
    The numbers, of course, do not tell the whole story. We 
purchase or create specialized equipment. We provide this broad 
seed funding. We support graduate students' and postdocs' 
education as a very important part of what we do. And, of 
course, we provide seed funding for additional technology 
transfer so that more faculty can bring their technology to the 
marketplace.
    So we have invested it as required by the law, and it has 
been immensely valuable in furthering technology transfer and 
research in the State of Iowa. Thank you, Senator.
    Senator Grassley. Thank you.
    Now I would turn to you once again and to Dr. Louis. You 
understand that an investor is looking for an optimal return on 
investment. How would you describe the public's return on 
investment for the Federal Government's investment in projects 
at your institutions? Dr. Hoffman first.
    Ms. Hoffman. Could you repeat that? I am sorry, sir.
    Senator Grassley. Yes. How would you describe the public's 
return on investment for the Federal Government's investment in 
projects at your university?
    Ms. Hoffman. The return has been very high. I do not have 
the exact numbers, but if you would like us to look into that, 
I would be happy to. But, of course, if you look at the 
Government's investment in Iowa State very broadly, one of the 
largest investments of the Federal Government in Iowa State has 
been through agriculture-related research. The Green Revolution 
really started at Iowa State with the research of Henry Wallace 
and the development of Pioneer seed. We have partnered with 
Monsanto, with many small ethanol producers. Hawkeye Renewables 
is relocating to the city of Ames in order to take advantage of 
Iowa State's technology in biofuels.
    Many of our faculty are very involved in working in 
developing new technologies for biofuels, new technologies for 
environmental protection, new technologies to improve land 
fertility, to sequester carbon in the land, all of which will 
have huge benefits to Iowa agriculture.
    We work very closely with industry bringing our technology 
to Iowa industries, and as noted, we were ranked second in the 
country behind the University of California System in bringing 
our technology to the marketplace.
    So that is the return on the investment. I do not have an 
exact figure for you. Thank you very much.
    Senator Grassley. That is good enough.
    Dr. Louis?
    Mr. Louis. Senator Grassley, the University of California 
obviously has been one of the leading universities in the 
United States. At the current time, it has 7,500 active 
inventions in its portfolio; 80 percent of these have generated 
interest, either the private or public sector. Of those 
interests generating inventions, over 50 percent have resulted 
in a financial investment in the development of a product. As 
of fiscal year 2003, over 700 products have been developed out 
of these discoveries. And I was looking earlier at a 2000 
congressional Joint Economic Committee report on the benefits 
of medical research and the role of the NIH where it estimates 
a return of as much as $240 billion in increased life 
expectancy benefits contributable to NIH-funded research, 15 
times actually the very large budget of the NIH, even as it is 
at this point in time. So I think the examples--and we could 
also quote many of the great discoveries such as a vaccination 
for potentially fatal hepatitis B disease and the Cohen-Boyer 
original DNA methodology. Our own campus actually has a 
fertilizer which has produced superior qualities for plant 
growth.
    So many, many inventions across the spectrum, from 
agriculture through engineering and human health.
    Senator Grassley. Dr. Hoffman, to take off from where 
Senator Leahy left off with a question, and that is in regard 
to changing the percentage from 5 to 15 percent for budgets 
less than $40 million. Could you explain the rationale behind 
the suggested cap? Is it kind of picked out of thin air, or is 
there a rational to 15 percent and the limit on the size of the 
operating budget?
    Ms. Hoffman. Well, the idea for the 15 percent and the 
limit on the size of the operating budget was to continue to 
respect many of the issues that have been addressed today; the 
need for the Federal Government to be able to recoup some of 
its investment, especially for Government-owned laboratories. 
And so by raising it from 5 to 15 percent, we felt that it 
would not have an extensive impact on the Federal Treasury, but 
would remove this serious inequity. By limiting it to $40 
million, you really are limiting it to small laboratories.
    The average size of the DOE laboratories is over $500 
million per year, so at $30 million, Ames is a very, very small 
laboratory. But we happen to have an extraordinarily successful 
patent portfolio in comparison. So when look at Sandia, for 
example, that is $2.27 billion, even if they are modestly 
successful, they are not going to run up against even the 15-
percent cap.
    So we were trying to balance the legitimate needs of the 
Federal Government to recoup their investment in the 
Government-owned laboratories against what we believe is an 
unfair tax.
    Senator Grassley. I think you have answered my next 
question. I will ask my staff to look at Question 4, but I 
think that that answers that. I would go back to you and to Dr. 
Louis again on how has Bayh-Dole affected opportunities at your 
two universities to partner with industry, and I think you have 
touched on this already with your examples of partnering with 
other industries. Do you hear concerns from your industry 
partners about the challenges in licensing and developing 
institution patents? How does the university strike an 
appropriate balance between partnering with and serving 
industry and preserving its core mission of research, service, 
and education?
    Ms. Hoffman. The only complaint we tend to hear is that it 
takes a long time sometimes to reach an agreement. But over 90 
percent of the time, research agreements are executed. In the 
last 5 years, we have executed 824 license agreements and 
options on Iowa State technology. So it is very, very rare not 
to reach agreement, and Bayh-Dole is generally not the problem. 
It is generally that we just simply cannot agree on which piece 
of the technology belongs to whom and how much should be paid 
for it rather than the issues surrounding Bayh-Dole.
    We do work very hard to balance research, education, and 
outreach with technology transfer. A lot of the royalty money 
goes to support graduate students. It goes to support the 
startup of new faculty members. It goes to seed new research 
funding. So there is a very important synergistic relationship, 
plus the young generation of scholars, particularly in 
engineering, life sciences, veterinary science, and 
agriculture, are very interested in being able to commercialize 
their technology. And by allowing them to do so, we retain them 
as researchers, teachers, and contributors, in our case to the 
Iowa economy; whereas, otherwise they might sever their ties 
with the university.
    Senator Grassley. Dr. Louis?
    Mr. Louis. Yes, I would mirror what Dr. Hoffman says. The 
vast majority of our contracts with industry are successfully 
negotiated. I think, you know, my experience in academy is that 
industry and universities are very different animals. They have 
very different cultures. Industry is there to make a profit, 
and that is its goal, to be a successful company. For a 
university, of course, it is education, research, discovery, 
and then communication to the general public of what that 
information is.
    So I think we do come from different backgrounds. If the 
industry with which we are negotiating understands that at the 
outset, the negotiations are always much easier. But I think I 
would mirror Dr. Hoffman's--the issues which tend to stick, and 
it is also publications. The University of California, we have 
a very strong belief that what is produced has to be published, 
and sometimes for an industry that may be restrictive and may 
break terms, but very, very rarely. Usually we can successfully 
negotiate.
    Senator Grassley. Can I ask all of you to listen to this 
question? Some of the witnesses feel that the Bayh-Dole Act has 
beneficially influenced university research, encouraged 
collaboration academically and with industry, and created 
productive partnerships. Others on the panel do not necessarily 
share the view. How do the panelists who support Bayh-Dole 
respond to those with concerns about it? And how do panelists 
who think there are issues respond? More specifically, has 
Bayh-Dole promoted innovation or created barriers? Would you 
start, Professor Rai? And then let's just go across the table.
    Ms. Rai. I think in many cases Bayh-Dole is the elephant 
and we are all blind men examining different parts of the 
elephant. So in the information technology industries, I think 
it is fair to say--and if you look at the testimony, for 
example, of Wayne Johnson from Hewlett-Packard before the House 
Committee on Science and Technology this past May, I think it 
is fair to say that in information technology there has been 
some frustration. IBM has specifically sponsored particular 
research collaborations with the explicit requirement that 
there be no patents because in information technology patents 
just have a very different role than they do in the life 
sciences. And so if you examine the part of the elephant that 
is information technology, you will think it is one thing. And 
if you examine the part of the elephant that is life sciences, 
you will think it is quite another.
    I have also suggested--and sometimes in the life sciences 
not everything is an end product drug that should be patented 
and exclusively licensed. But that is actually a relatively 
minor problem relative to the divide. And you have seen, I am 
sure you on the Judiciary Committee have seen this divide over 
and over again in the context of the patent system reform bill. 
The divide between the life sciences and information technology 
is quite acute when it comes to how they view patents.
    Thank you.
    Senator Grassley. Now Dr. Hoffman.
    Ms. Hoffman. Mr. Chairman, my experience at several 
different universities has been very strong partnerships 
between industry and the universities. I mentioned a number of 
the partners that Iowa State has. Pioneer, of course, grew out 
of Iowa State technology, in 1924 was formed by Henry Wallace, 
who had developed the new seeds with Iowa State technology. We 
have worked with Monsanto on the development of low-linolenic 
acid soybean oil, which is, of course, extremely important in 
the prevention of heart disease. While we have a little bit of 
dispute about that, we have worked it out, and we are very 
satisfied with the partnership that we have with Monsanto.
    As I noted, we have partnerships with many, many, many 
ethanol producers and bio-based product producers in the State 
of Iowa. At our Research Park, we have spawned many new 
companies. Engineering Animation, which was acquired by EDS, 
began--this is a good example of an information technology 
patent that created a very successful computer that was then 
acquired by another very successful company based on Iowa State 
patented technology.
    So while I am sure there are examples of instances where 
there are disputes between universities and the industry, our 
experience is that we work those out and that we continue to 
have extremely profitable and valuable relationship, 
longstanding relationships with our industrial partners.
    Senator Grassley. Mr. Weissman?
    Mr. Weissman. I think there is no question that the 
university contribution to innovation has been extraordinary 
and that the public investment from the United States has been 
extraordinary. It is really one of the great stories of 
American Government.
    It is not necessarily the case, though, that every 
university invention or federally sponsored invention would not 
have come to market but for Bayh-Dole. The Pioneer example, of 
course, predates Bayh-Dole. There are many examples that do. I 
think we would agree with Dr. Rai, thinking globally, that it 
makes sense to think that different industries and different 
industry sectors have different models of development, that 
whether you have exclusive or non-exclusive licensing 
arrangements makes sense in different contexts or less sense in 
other contexts.
    The pharmaceutical development sector is the best case, the 
strongest case for exclusive licensing, and it is one that we 
have focused on. And even there we feel like there are very 
severe abuses and a failure to exercise the checks that exist 
in Bayh-Dole to curb those abuses. I think an overriding 
principle, as I mentioned, should be that where the Government 
is making investments, even though the public may get some 
downstream return, there has to be some reciprocity from the 
recipient of the license, from the licensee. They, after all, 
are getting something of considerable value. In the area of 
pharmaceuticals, the most important kind of return is both 
restraints on price, ensuring access, and preventing 
anticompetitive behavior.
    And again, also to reiterate a comment from before, as the 
Committee looks forward on this matter and as the Congress 
looks forward to greater investment in the area of energy 
technologies, it is going to be, I think, quite important to 
think very carefully about whether exclusive licensing regimes 
are always the best way to proceed, and if there are maybe 
other models of development that could promote more open and 
collaborative sharing approaches to moving early stage 
inventions to the marketplace.
    Senator Grassley. Dr. Louis?
    Mr. Louis. Senator, many of the complaints stem from 
companies who want to be guaranteed university-developed 
technologies for free, including ownership, free licenses, and 
background rights. I can comment from the University of 
California that has entered into many agreements with for-
profit companies, and really it has only been a handful where 
there are contentious negotiations. And in a university 
environment where there is a commingling of funds in a research 
laboratory with various sponsors funding projects within the 
research laboratory to get differing results, it is difficult 
for a university to make such promises at the time a research 
agreement is negotiated. And I read that testimony too, and I 
was really amused by the individual from HP who commented, 
well, of course, the university should know exactly where 
everything is. And while that is true, usually there is a 
commingling, and so there has to be a very careful analysis 
before one could commit something that maybe, because of Bayh-
Dole, we already have committed.
    Finally, some foreign universities will either provide the 
sponsoring company with sole ownership, joint ownership, or 
guaranteed exclusive rights. But as foreign countries adopt 
Bayh-Dole laws--and increasingly now the numbers are--they are 
going to become more savvy in their licensing operations. 
Understanding the importance of retaining ownership of their 
invention, they may be less likely to assign away ownership. 
And because there has been a suggestion, well, the companies 
are, therefore, going overseas to do their research because it 
is easier to get the inventions, I would point out the 
University of California is seeing an increasing amount of 
foreign-sponsored research by industrial corporations on our 
campuses, which I think is an indication that they understand 
that the structure of Bayh-Dole is one that they can work very 
well with and will be to the advantage of those companies.
    Senator Grassley. Professor Rai and Mr. Weissman, in 
looking at your testimony, it appears to me that you make a 
distinction between biotech and pharmaceutical patents and 
those generated by tech and software companies. Is it your view 
that Congress should consider creating product-specific or 
industry-specific patent rules?
    Ms. Rai. I think in general, whether within the context of 
Bayh-Dole or within the context of patent reform more 
generally, industry-specific legislation is probably a bad idea 
simply because there are all sorts of ways that I think it 
cannot foresee the ways that industries will develop, because 
what may look like an information science industry 1 day may 
look like a nanotech industry the next day and so forth. So I 
don't think industry-specific legislation is the way to go. 
However, I do think that other actors in the system need to be 
sensitive to industry context, and in that way, I think that 
universities are beginning to do a better job. My research has 
indicated and I think there is some evidence that universities 
are doing a better job about being sensitive to context. It may 
be also that Federal agencies could work with universities to 
make them sensitive to context.
    I don't think that congressional legislation can adapt to 
the ways that industries adapt as quickly as it needs to. So I 
think it should be done at the private sector level in the 
case--the private-public sector level in the case of 
universities, and also in conjunction with the agencies that 
fund the research.
    Senator Grassley. What about Government oversight? Before I 
get to Mr. Weissman.
    Ms. Rai. I think that is very important. I think it is very 
important for the agencies that are funding this research to 
look to see how the research is being licensed out in the 
context--I am most familiar with NIH and in the context of 
certain research that it funds. For example, in software it 
will say this software has to be open-source software, which is 
a way of developing software without patents. I think that 
agencies should have that flexibility because they may know in 
certain cases that this is the type of research that would be 
better developed. I don't think they should have the only word. 
Universities should also have some input. But it seems to me 
that both sides, both the Federal agencies and universities, 
can show sensitivity to these contexts and work together to 
show sensitivity.
    Senator Grassley. OK. Mr. Weissman, back to my original 
question.
    Mr. Weissman. Well, I think in general it would be--it is 
quite a challenge for Congress to make those kinds of nuanced 
distinctions because it involves a kind of hands-on engagement 
with issues that are specific and technical and Congress is 
busy. But I do think that the oversight--very busy.
    [Laughter.]
    Mr. Weissman. The oversight issue is one that needs a lot 
of attention. In our experience with NIH, where the Congress 
has given significant authority to the agency to exercise 
march-in rights, the NIH has re-read the statute to not take 
into account the requirement that inventions be made available 
to the public on reasonable terms. For us that would be a 
priority area of oversight. It is a possible area for 
additional legislation or one where there should at least be 
some congressional engagement with the agency to ensure that 
the original language in the statute is acknowledged, 
implemented, and relied on. We think more direct tests about 
how the march-in rights should be used should be a priority 
area.
    There is one caveat to my statement, again, about focusing 
on specific industry areas. It is an inevitability that there 
will be major increases in Federal spending on energy-related 
technologies, and it is just going to be very important to 
think about those issues with an open mind rather than just 
relying on the historic Bayh-Dole framework, which may or may 
not make sense as Congress moves forward on a variety of 
programs that we cannot yet envision.
    Senator Grassley. Dr. Louis, do you want to comment?
    Mr. Louis. Yes, I would like to comment, and I think, you 
know, sometimes in these discussions it is forgotten that in 
1980, these sorts of discussions, as I understand from reading 
the literature and reading things that Senator Birch Bayh has 
written are exactly the discussions that went on at that time. 
And some of the concerns of march-in, for example, or some of 
the issues of price controls have sent fears through the 
community because of the concern that would weaken the strength 
of the patents and that, quite frankly, anything that weakened 
the security for what is often--as you know, with Bayh-Dole the 
goal is for small startup companies, small businesses such as 
the one I referred to from UC Riverside, those companies need 
to be very sure that the patent that they are licensing from 
the university is secure and that it will be defended and that 
that is certain. But if there is a possibility that, well, that 
might not be so and there might be situations where the 
Government or some agency would have to step in and set price 
or make some rules that could potentially minimize the value of 
that patent, that suddenly makes it a much weaker patent. And 
for the small business--and a very high percentage of the 
startups that come out of the University of California as 
result of patents and inventions in the university are to small 
businesses--they want that security.
    So I guess my word of caution would be that I would much 
prefer that--and I think it is an evolving situation. I think 
the nine points, the principles that the research universities 
and many of the professional organizations enunciated and have 
published now address some of these issues and sort of the 
philosophy that we hope is the way to go; in other words, that 
the universities are very sensitive to these types of issues. 
But the Bayh-Dole was brilliant and we would prefer that those 
issues not be further altered.
    Senator Grassley. OK. Professor Rai and Mr. Weissman, and 
other panelists ought to listen, and if you want to respond, 
and I want to ask specifically these two witnesses: Have patent 
ownership rights provided by Bayh-Dole interfered with 
traditional operation procedures of academia and led to 
conflicts of interest?
    Ms. Rai. That is an excellent question. There has been no 
systematic study, as far as I am aware, of exactly how 
conflicts of interest have been dealt with in some of these 
cases. One hears anecdotal reports of situations where 
professors or graduate students are asked to hold off on 
publication until a patent filing can be made, which is 
obviously an issue. It is not quite a conflict of interest 
issue, but it is an issue. It reflects a tension between the 
goals of academia and the goals of commercialization, but 
possibly inevitable and a tension we have to live with.
    The one piece that I am happy to say has been 
systematically studied and I think has come out in favor of 
Bayh-Dole is that it does not appear--as far as we can tell, 
anyway--that the emphasis on commercialization has changed the 
research agendas of faculty. In other words, the faculty that 
patent also tend to be faculty that are doing ground-breaking 
research, publishing in the best journals, et cetera, et 
cetera.
    One fear about Bayh-Dole was that it would make, you know, 
otherwise potential Nobel Prize winners into something else, 
which is not something we would want. And that does not appear 
to have been borne out. On the other hand, there are tensions, 
and I think those have to be monitored as well.
    Senator Grassley. Mr. Weissman?
    Mr. Weissman. I think there is pretty good data that 
concerns with secrecy have risen quite significantly since 
passage of Bayh-Dole, that the proprietary nature of patenting 
has changed the culture of university science in ways that are 
not for the better. This is not an area of my focus and 
expertise, so I cannot comment on ultimately how serious that 
is.
    I would highlight one area, though, where I think 
congressional attention is merited and where there are 
institutional conflicts that arise beyond those which may 
relate to any individual professor. That is university 
investment in the start-ups that then receive Bayh-Dole rights, 
and in massive corporate-sponsored research agreements, 
including one, for example, that the University of California, 
Berkeley, has proposed with BP. The $500 million investment by 
BP would involve BP building facilities on campus, having its 
own researchers on the campus engaged in proprietary 
undertakings that would not be published. They will be 
commingled and intermingling with university scientists who 
will be receiving Federal funds and engaged in Bayh-Dole-
implicated research.
    I think it is just very hard to see, assuming best 
intentions by everybody involved, how those arrangements cannot 
raise major challenges and institutional biases about how 
intellectual property is managed and rights are allocated. I 
think that would be an area worth further scrutiny. We are 
seeing a couple of these mega agreements on the order of half a 
billion dollars which are going to, of course, change the local 
university culture, but also directly implicate the patent 
issues and the control of Government-funded inventions.
    Mr. Louis. Senator Grassley, could I make one comment?
    Senator Grassley. Yes. I invited you to if you wanted to, 
and Dr. Hoffman, too. But go ahead, Dr. Louis.
    Mr. Louis. I was going to make the point that I have the 
privilege of being the institutional official in my university, 
which is the individual where the buck stops, because the 
conflict of interest committee, conflict of commitment, report 
to me. I want to assure you that I take that responsibility 
very, very seriously, and particularly when we have industry 
contracts and we have entrepreneurial faculty, there are 
challenging and more challenging issues that do require 
oversight.
    I make sure that the committees--when I appoint the 
conflict of interest committee, I make sure it has senior 
faculty who are very understanding of this issue. I closely 
oversee how they operate and function. We put management 
committees in place that meet with the faculty to discuss the 
students and the progress on the research, if it is Federal and 
if it is industry research. And we make sure that that conflict 
is effectively managed and does not impact the students, the 
faculty members' performance in the university.
    So I think I could speak certainly for all of the 
University of California and universities in the country. It is 
something that we are very sensitive to. But as the Vice 
Chancellor for Research, I can speak personally. It is 
something that I take very seriously, and my colleagues around 
the country take very seriously.
    So something we are very aware of, and we deal with it 
increasingly.
    Senator Grassley. OK. Dr. Hoffman?
    Ms. Hoffman. Well, as a land grant university, Iowa State 
has a long tradition of partnering with industry, and, yes, it 
does predate Bayh-Dole. It goes back to the formation of the 
Extension Service, the Agricultural Experiment Stations under 
the Hatch Act in 1887, the Cooperative Extension Service under 
the Smith-Level Act of 1914. All of the various industry 
partnerships I have already enumerated have long traditions at 
Iowa State. So Bayh-Dole has not in any way changed the focus 
of the research. What it has done is to allow our innovative 
researchers to be able to take advantage of the fruits of their 
invention. It has provided them with an incentive to actually 
commercialize those inventions that they may not have had 
before. And as I mentioned, it is helping us to keep this young 
generation of faculty who want to be both the great scientists, 
as Professor Rai mentioned, and innovators.
    And as Dr. Louis indicated, every university with which I 
have been associated has had a very strong conflict of interest 
policy. We at Iowa State are in the process of reviewing our 
conflict of interest and our proprietary research policy to 
make sure that it is state-of-the-art and that the kind of 
safeguards that Dr. Louis mentioned are definitely in place. We 
believe they are. We think it is extremely important to 
maintain the publication of research, that any proprietary 
research should be published within a reasonable amount of 
time, that junior faculty, graduate students, and postdocs 
should be protected from any restrictions on their ability to 
publish.
    As Dr. Louis mentioned, sometimes the negotiations break 
down over the issue of publication, which we think is an 
extremely important part of our mission. So I do not see that 
Bayh-Dole has changed the mission of Iowa State or the other 
universities with which I have been affiliated.
    Senator Grassley. OK. I am going to have one last question. 
It is only half the questions I had to ask, but I have got to 
go where Senator Leahy just went, to the Agriculture Committee. 
So if all of you would take a whack at this one, and it may be 
an easy one to answer, but we still need this information.
    Are there any changes in Bayh-Dole that Congress should 
consider to improve the goals of this law? I will start with 
Professor Rai and go across the table.
    Ms. Rai. Sure. Let me just also add--I do not mean to take 
up more time than I should, but let me add one point about the 
conflict of interest issue. There is one study, just to note it 
for the record, by the Thursbys at Georgia Tech on provisions 
restricting publication in industry-sponsored research 
conducted in universities, and that is a little bit 
disappointing in terms of there is some--I do not recall the 
exact numbers, but the study does indicate some significant 
percentage of those agreements include restrictions on 
publication. And that just came to mind so I bring that up.
    Now, with respect to changes to Bayh-Dole, I do not think 
that anything needs to be done immediately. However, I do think 
that--and this goes back to something that Rob Weissman was 
talking about a little bit--that agencies should not be as shy 
about using their powers under Bayh-Dole as they currently seem 
to be, whether in the context of march-in rights or in the 
context of stating that certain types of research is not best 
commercialized through patents. So if agencies fund software 
research, for example, it might be the case that they should be 
emboldened and say, you know, this particular software research 
is best disseminated through an open-source model. And I would 
guess that those agencies would have a lot of support from 
industry on that score.
    Senator Grassley. Dr. Hoffman?
    Ms. Hoffman. Senator, I definitely do not want to keep you 
from the farm bill, which, of course, is extremely important to 
the State of Iowa, so let me just reiterate that the one change 
that we are requesting is increasing the cap on GOCO 
laboratories from 5 percent to 15 percent for the $40 million 
or smaller laboratories.
    Thank you very much.
    Senator Grassley. And for the record, I want you to say, 
``Chuck Grassley, you better get that bill passed or else.''
    [Laughter.]
    Ms. Hoffman. Thank you, Senator Grassley. I will let you 
read that into the record.
    Senator Grassley. Well, if you say it, that is for the 
benefits of my colleagues, see.
    Ms. Hoffman. For the benefit of your colleagues, please. 
Thank you.
    Senator Grassley. OK. Robert Weissman?
    Mr. Weissman. I do not want to delay you from your other 
engagements but a few suggestions, which may or may not be 
legislative. They certainly involve oversight and more 
direction to the agencies, and probably also some legislative 
reforms.
    First is that the march-in right has to not be a dormant 
right. It must be used in some circumstances, and I think there 
should be direction from Congress on guidelines for how the 
agency should use that.
    Second, relatedly, is the Federal Government has the right 
to use the inventions it pays for. At the time Bayh-Dole was 
passed, that was viewed, even by proponents, as the most 
important right to maintain for the Government. But it is not 
using that, at least on the biomedical side.
    Third is thinking intelligently about how to manage the IP 
portfolio of the Government to facilitate U.S. global health 
policy objectives. I think the legislation that Senator Leahy 
introduced is one very promising way to do that. There are 
other ways that one might do it, including better use of 
existing Bayh-Dole rights.
    A fourth area, probably not legislative, is there is very 
inadequate reporting, that is public at least, about what we 
get out of Bayh-Dole. There is quite good reporting, I think, 
to NIH, but it is all treated as proprietary for reasons that 
are not obvious to me.
    And, finally, I think it is worth the Committee examining 
the areas where there is substantial Government funding, but 
the Government funding does not directly lead to a patentable 
invention. Bayh-Dole is an on-and-off switch. Right now the 
Government gets no rights if its funding does not lead to the 
invention directly. There is a logic to that, but it is also 
useful to complement the existing Bayh-Dole rights with other 
rights, contractual or otherwise, where the Government is 
putting substantial moneys into R&D.
    Senator Grassley. OK. Dr. Louis? I am sorry I mispronounced 
your name. For a person like me who minored in French and 
cannot say a word, if I can say--
    Mr. Louis. Do not worry. I have been called far worse by my 
students. I will also strongly endorse Dr. Hoffman's comment of 
getting to the farm bill. California agriculture is still our 
No. 1 industry, so it is a very important bill for our State.
    I would say that--
    Senator Grassley. Make sure your congressional delegation 
votes that way.
    [Laughter.]
    Mr. Louis. Thank you, Senator. I think you will gather the 
University of California and I personally strongly support 
Bayh-Dole as it currently is. I think the modifications that 
Dr. Hoffman suggests, we would accept those because that 
certainly would be something we would support. But any march-in 
price controls or modifications that would undercut the 
strength of patents, which is the brilliance of Bayh-Dole, 
would, quite frankly, likely destroy what is its greatest 
ability. So that should be done with great, great caution, even 
thinking of it.
    And, finally, on the issue of pharma and drug control 
prices, I think the reminder is that of the nine points in the 
consider document, it encourages universities to consider in 
their licensing arrangements provisions that meet unmet needs. 
But university and research is just a tiny piece of the 
investment. For that invention to get to market, big pharma can 
invest $1 billion for a single drug and, you know, I think the 
argument is not with the universities, but maybe it is the cost 
of producing drugs, and we would love that to be less. But, 
again, that is not an issue with Bayh-Dole, I would argue.
    Thank you, Senator Grassley.
    Senator Grassley. Two things before you go. One, myself 
included, any members of the Committee will have some questions 
maybe for you in writing, and within a week you might get some 
questions, and then I presume the answer to how long to get the 
answers back is as fast as you can, but keep open your 
testimony.
    The second thing is for Senator Leahy, this Senator, and 
the whole Committee, thank you very much for your testimony.
    The hearing is adjourned.
    [Whereupon, at 3 p.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]
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