[Federal Register Volume 59, Number 122 (Monday, June 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15466]


[[Page Unknown]]

[Federal Register: June 27, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
National Institutes of Health

 

Office of Science Policy and Technology Transfer; Developing 
Sponsored Research Agreements: Considerations for Recipients of NIH 
Research Grants and Contracts

AGENCY: National Institutes of Health, Public Health Service, DHHS.

ACTION: Notice.

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SUMMARY: The National Institutes of Health (NIH) intends to publish a 
document which provides institutions which receive funding from the NIH 
a number of issues and points to consider when they review proposed 
sponsored agreements with commercial organizations. The document is 
presented below.

DATES: Comments on the document must be received on or before July 27, 
1994.

ADDRESSES: Comments should be sent to 6011 Executive Boulevard, Suite 
325, Rockville, Maryland 20852-3804.

FOR FURTHER INFORMATION CONTACT: Theodore J. Roumel, Assistant to the 
Deputy Director for Science Policy and Technology Transfer, NIH, 6011 
Executive Boulevard, Suite 325, Rockville Maryland 20852-3804, (301) 
496-7057, ext. 203 (this is not a toll-free number).

    Dated: June 20, 1994.
Daryl A. Chamblee,
Acting Deputy Director for Science Policy and Technology Transfer, 
National Institutes of Health.

Developing Sponsored Research Agreements

Considerations for Recipients of NIH Research Grants and Contracts

Introduction

    The National Institutes of Health (NIH) is the principal biomedical 
and behavioral research agency within the Federal Government. Its 
mission is to improve human health by increasing scientific knowledge 
related to health and disease through the conduct and support of 
biomedical and behavioral research. The NIH advances its mission 
through intramural research activity and the award of research grants 
and contracts to institutions of higher education, research institutes 
and foundations, and other non-profit and for-profit organizations. 
Entities funded through NIH research grants, contracts, and cooperative 
agreements (hereafter collectively referred to as Grantees) are 
required to maximize the use of their research findings by making them 
available to the research community and the public at large and through 
their timely and effective transfer to industry for development.
    In general, interactions between Grantees and industry take many 
forms, including industrial liaison programs, spinoff companies, 
consortia, commercial licenses, material transfers, consultations, and 
clinical trial agreements. This document addresses one form of Grantee/
industry interaction, sponsored research agreements, on which the NIH 
has focused a substantial amount of its recent attention. Sponsored 
research agreements are agreements between Grantees and commercial 
entities in which Grantees receive funding or other consideration to 
support their research in return for preferential access and/or rights 
to intellectual property deriving from their research results.
    In developing sponsored research agreements, Grantees must consider 
the Bayh-Dole Act of 19801 (hereafter referred to as ``Bayh-Dole'' 
or ``the Act'') and NIH funding agreements and refrain from engaging in 
activities which undermine a Grantee's ability to fulfill its 
responsibilities and obligations to the Federal government. Although 
Grantees are primarily responsible for the implementation of the Act, 
NIH, as a steward of Federal funds, has a responsibility to provide 
guidance on issues regarding sponsored research agreements which may 
put Grantees at odds with the Act or NIH funding requirements.
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    \1\Public Law 96-517, enacted December 12, 1980, Chapter 38--
Patent Rights in Inventions Made with Federal Assistance.
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Purpose

    The purpose of this document is to provide Grantees with issues and 
points to consider in developing sponsored research agreements with 
commercial entities. The intent is to assist Grantees in ensuring that 
those agreements comply with the requirements of the Act and NIH 
funding agreements while upholding basic principles of academic 
freedom.
    This document represents the culmination of various activities, 
under the aegis of the NIH Task Force on Commercialization of 
Intellectual Property Rights from NIH Supported Extramural Research, 
which included the review and analysis of 375 sponsored research 
agreements from 100 Grantees, meetings with industry, academia, and 
other Government agencies, and a specially convened public forum 
involving subject matter experts from outside of the NIH.
    The NIH recognizes that sponsored research agreements are unique, 
creative devices which reflect the needs and interests of the parties 
involved and require a delicate balance of risks and benefits to all of 
the parties. Although this document identifies a number of points to 
consider, with some necessitating more scrutiny than others, no single 
point or issue is so dominant that it is likely to be fatal to an 
agreement. Rather, the juxtaposition of multiple factors or clauses in 
an agreement and their synergy needs to be assessed. Therefore, 
Grantees should review the provisions of proposed sponsored research 
agreements both individually and in their totality.

Background

    While NIH policies on the use of research results have been in 
effect for some time, commercial development of research results took a 
major step forward with the passage of the Bayh-Dole Act. Congress 
passed the Act in response to significant concerns about the United 
States' competitiveness and data indicating that rights to many 
inventions developed under Federal grants and contracts and assigned to 
the Federal government were not being commercialized. In general, the 
Act authorizes Grantees to retain title to inventions resulting from 
their Federally funded research and to license such inventions to 
commercial entities for development.
    Specifically, the policy and objective of the Bayh-Dole are to:
     Promote collaboration between commercial concerns and 
nonprofit organizations, including universities;
     Promote the utilization of inventions arising from 
Federally supported research or development;
     Encourage maximum participation of small business firms in 
Federally sponsored research and development efforts;
     Ensure that inventions made by nonprofit organizations and 
small business firms are used to promote free competition and 
enterprise;
     Promote the commercialization and public availability of 
inventions made in the United States by United States industry and 
labor;
     Ensure that the Government obtains sufficient rights in 
Federally sponsored inventions to meet the needs of the Government and 
protect the public against nonuse or unreasonable use of inventions; 
and
     Minimize the costs of administering policies in this area.
    The provisions of the Act have been implemented through regulations 
issued by the Department of Commerce and adopted by the Department of 
Health and Human Services2.
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    \2\The Department of Commerce regulations are at 37 Code of 
Federal Regulations (CFR) Part 401 and supersede applicable portions 
of 45 CFR Parts 6 and 8.
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    The Act serves the public not only by encouraging the development 
of useful commercial products such as drugs and clinical diagnostic 
materials, but also by providing economic benefits, and enhancing U.S. 
competitiveness in the global market place.
    Since its passage, the Bayh-Dole Act has been effective in 
promoting the transfer of technology from Grantees to industry as 
evidenced by the aggressive pursuit of patenting and licensing and the 
proliferation of university/industry collaborations.3 In addition, 
the development of many new and important drugs and devices have been 
facilitated by increased industrial support for academic research4 
and the explosion in the licensing of university owned 
inventions.5 Furthermore, statistics indicate that the Act has 
provided significant economic benefits which are projected as 
increasing between 25 to 30 percent per year.6
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    \3\Approximately one in every four university patents issued in 
the late 1980s was for a biomedical or health related invention. In 
the early 1970's, the ratio was one in eight. Source: Science and 
Engineering Indicators, 1993, National Science Foundation.
    \4\While still representing less than 10 percent of the total 
funding for academic research, it is estimated that nearly 2 percent 
of United States industry's expenditures for R&D now goes to 
academic institutions, as compared with less than 1 percent in 1971. 
Source: Science and Engineering Indicators, 1993, National Science 
Foundation.
    \5\Over 1000 licenses or options were executed in Fiscal Year 
1992 by 260 academic institutions surveyed. The institutions also 
reported that they had over 5000 active licenses in place at the 
time of the survey.
    Source: Association of University Transfer Managers Licensing 
Survey FY 1991-1992, published October, 1993.
    \6\In FY 1992 sales and employment attributable to the Act were 
estimated to be as follows: between $9 and $13 billion in sales and 
50-100,000 jobs, with an annual increase of between 25 and 30 
percent. Source: Dr. Ashley J. Stevens, Director, Office of 
Technology Transfer, Dana-Farber Cancer Institute, Association of 
University Technology Managers Winter Meeting, 1994.
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Grantee Responsibilities

    In keeping with the objectives and policy of Bayh-Dole, it is 
incumbent upon Grantees to effectively and efficiently transfer 
technology to industry for commercial development. However, in doing so 
Grantees must also comply with the specific terms of the Act, its 
implementing regulations, and the terms and conditions of each NIH 
award and ensure that such compliance is reflected in their agreements 
with commercial entities.
    In carrying out that responsibility, at a minimum, Grantees need to 
concern themselves with issues involving maintenance of academic 
freedom for institutions and investigators, fair access to information, 
timeliness of notification and other requirements, rational licensing 
to commercial entities, and adherence to the specific requirements of 
the Act and NIH funding agreements.
    While sponsored research agreements frequently are used where basic 
research is involved and no invention exists to disclose nor 
intellectual property to license at the time the agreement is executed, 
Grantees should anticipate such issues to arise and use the following 
points for consideration in developing a sponsored research agreement.
    The first section, Universal Points for Consideration, highlights 
several requirements and issues that Grantees should consider in all 
proposed sponsored research agreements. The second section, Points for 
Special Consideration, delineates circumstances which suggest 
heightened scrutiny. The third section, Other Points for Consideration 
by Non Profit Grantees, contains additional considerations which apply 
only to non profit Grantees.

Universal Points for Consideration

Academic Freedom

    Academic research freedom based upon social collaboration within 
the scientific community and the scrutiny of claims and beliefs by its 
members is at the heart of scientific advancement within the United 
States. Primarily through Federal funding, academic institutions have 
contributed to fundamental knowledge and techniques upon which current 
and future scientific discoveries and technological innovations depend. 
Therefore, the preservation of academic freedom for Grantee 
institutions and researchers is of considerable concern to the NIH.
    Grantees should be aware that their interest in the scientific 
endeavor covered by a sponsored research agreement and the interest of 
the industrial sponsor may not be totally consonant. As a result, in 
general, Grantees should ensure that sponsored research agreements 
preserve the freedom for academic researchers to select projects, 
collaborate with other scientists, determine the types of sponsored 
research activities in which they wish to participate, and communicate 
their research findings at meetings, and by publication and through 
other means.7 Academic researchers also should be made aware of 
any agreements executed by their institutions which may restrict their 
ability to pursue research activities and publish research results. 
Grantees also should maintain their independence to pursue their own 
mission without undue influence or restraint by their industrial 
sponsors. For example, an agreement which gives an industrial sponsor 
the ability to direct the research mission of a Grantee would be 
inappropriate.
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    \7\The NIH recognizes that there may be certain instances when 
it may be reasonable for a Grantee institution to agree to minimally 
restrict a researcher from collaborating with another industrial 
partner when the subject matter of such collaboration overlaps with 
that of the sponsored research agreement.
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Dissemination of Research Results

    Grantees must ensure that the timely dissemination of research 
findings is not adversely affected by the conditions of a sponsored 
research agreement. For example, the PHS Grants Policy Statement, 
incorporated as a condition of each NIH research grant, details 
policies on publication of research results, responsibilities to 
disseminate information on unique research resources, and standards of 
conduct for Grantee employees. Although an industrial sponsor's 
consideration of the commercial applicability of specific research 
findings and/or the filing of a patent application to secure 
intellectual property rights may justify a need to delay disclosure of 
research findings, a delay of up to thirty (30) days is generally 
viewed as a reasonable period for such activity. Depending upon the 
individual circumstances, Grantees could consider a shorter or longer 
period of time, as they deem appropriate. In addition to the timing, a 
sponsored research agreement which requires the disclosure of 
inventions and research findings developed with NIH funds to an 
industrial sponsor prior to submission of the invention disclosure to 
the NIH, may be inconsistent with the terms and conditions of the NIH 
grant or contract.

Utilization

    The NIH also has a concern that Federally funded technology be 
developed and commercialized in an expedited and efficient manner. In 
deciding to enter into an agreement with an commercial entity, Grantees 
should consider whether the organization has the experience, 
capability, and commitment to bring its likely inventions to commercial 
status.
    Additionally, Grantees should not enter into sponsored research 
agreements that permit a sponsor to tie up the development of a 
technology by acquiring exclusive licensing rights to the product of 
given research results before deciding whether or not it will actively 
develop and commercialize that product. Grantees should provide a 
sponsor with an option to pursue licensing rights. It is reasonable for 
such options to be limited to no more than six (6) months. However, 
individual circumstances may dictate a shorter or longer period of 
time. After the option period expires, the technology should become 
available for licensing to other entities. Moreover, once a sponsor 
decides not to exercise its option, it should not be given a second 
opportunity to obtain licensing rights by matching other parties' 
offers for the rights. Such requirements enable Grantees to license to 
companies presenting a bona fide commercialization plan, thus 
expediting the availability of products to the public.
    In order to ensure that technology is developed rapidly and is not 
being subjected to delays, Grantees should also establish, maintain, 
and actively administer policies and procedures which ensure that 
licenses arising from sponsored research agreements contain due 
diligence requirements and benchmarks to monitor performance. When 
future rights to as yet undiscovered inventions are included in a 
sponsored research agreement, benchmarks for development of each such 
invention should be established as it becomes available for commercial 
development. In addition, Grantees should actively monitor licensees in 
accordance with those requirements and benchmarks to assure compliance 
with Grantee obligations under the Act.

U.S. Manufacture

    The Bayh-Dole Act requires that products developed with Federal 
funds and used and sold in the United States, be substantially 
manufactured here. In granting exclusive rights to use or sell any 
subject invention in the United States, Grantees must ensure that each 
agreement requires that any products embodying the subject invention or 
produced through the use of the subject invention will be manufactured 
substantially in the United States. In individual cases, a request for 
waiver may be considered by the NIH. A determination will be made based 
upon a showing by the Grantee that reasonable but unsuccessful efforts 
have been made to grant licenses on similar terms to potential 
licensees that would be likely to manufacture substantially in the 
United States or that under the circumstances domestic manufacture is 
not commercially feasible. In granting a waiver of the U.S. manufacture 
requirement, the NIH may consider other benefits conferred on the 
United States by the potential license including the rapid availability 
of a product of benefit to the health of the American people.

Notification Requirements and Records

    In sponsored research agreements, as in other contexts, Grantees 
must also ensure that invention, patent and license notification 
requirements are adhered to in a timely manner. Timeliness 
considerations include prompt (1) employee notification to Grantee 
administrators of an invention made under NIH funding, (2) written 
disclosure to NIH of an invention and the intent to retain or convey to 
the Government title to the invention, (3) adherence to time frames for 
initial filing of patent applications in the United States and the 
filing of foreign patent applications, (4) execution and confirmation 
throughout the world of NIH license rights in the results of the 
research, and (5) notification to the NIH of any decision not to 
continue patent prosecution, pay fees, or defend the patent in 
reexamination.
    Specifically, as conditions of NIH grants and cooperative 
agreements, Grantees must fully notify the NIH in a timely manner when 
an invention has been developed. In any event, disclosure to the NIH 
must be prior to the publication of any description of the invention. 
When applying for continued funding in each subsequent funding period, 
the institution must also provide either a listing of all inventions 
made during the preceding budget period or a certification that no 
inventions were made during the applicable period. A final invention 
statement and certification listing all inventions that were conceived 
or first actually reduced to practice during the course of work under 
the funding agreement is required within ninety (90) days following the 
expiration or termination of support on an applicable project. 
Additionally, Grantees need to adhere to the specific requirements 
contained in the patent clauses of their contracts as well as the 
general provisions of the Federal Acquisition Regulations.
    Furthermore, Grantees must also document their compliance with the 
requirements of the Act, regulations, and terms and conditions of NIH 
awards, generally and as related to sponsored research agreements. Such 
Grantee records must be available for review by authorized Federal 
officials in accordance with the terms and conditions of the award. For 
example, concerning access and retention of records under NIH grants 
and cooperative agreements, regulations require grantees to retain 
financial and programmatic records, supporting documents, statistical 
records, and all other grantee records which may reasonably be 
considered pertinent to a grant or subgrant.8
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    \8\The regulations are set forth at 45 CFR Part 74, Subpart D 
and 45 CFR 92.42.
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Points for Special Consideration

    The NIH has identified several situations, outlined below, in which 
Grantees should exercise heightened sensitivity and scrutiny in the 
development of sponsored research agreements. Such an exercise should 
confirm that a sponsored research agreement does not adversely impact 
NIH funded activities and Grantee concerns such as academic freedom, or 
shift control of the Grantee's scientific activities, management, and 
independence into the hands of the sponsor. While there is no 
requirement that Grantees submit proposed sponsored research agreements 
to the NIH for review, at the discretion of the Grantee, the NIH may be 
consulted for additional clarification in instances where special 
considerations warrant.
    First, Grantees should subject their sponsored research agreements 
to heightened scrutiny when one or more of the following threshold 
criteria apply:
    (a) the amount of financial support from the sponsor meets or 
exceeds $5 million in any one year, or, $50 million total over the 
total period of funding under the agreement;
    (b) the proportion of funding by the sponsor exceeds 20 per cent of 
the Grantee's total research funding;
    (c) the sponsor's prospective licensing rights cover all 
technologies developed by a major group or component of the Grantee 
organization, such as a large laboratory, department or center, or the 
technologies in question represent a substantial proportion of the 
anticipated intellectual output of the Grantee's research staff; or
    (d) the duration of the agreement is for 5 or more years.
    If one or more of these criteria apply, it is more likely that the 
proposed sponsored research agreement will adversely affect open 
commercial access, especially for small businesses, to a Grantee's 
Federally funded research activities and may delay or impede the rapid 
development and commercialization of technology.
    Second, Grantees should be concerned if the scope of the sponsored 
research agreement is so broad that the subsequent exclusive licensing 
of technology under the agreement provides a single sponsor with access 
to a wide array of Grantee research findings and technologies that 
effectively exclude other organizations from reasonable access to a 
Grantee's technology. This type of arrangement can also delay 
commercialization if the sponsor does not have the interest or the 
capability to develop the technology.
    Third, if the sponsor contributes funds to support a Grantee's 
general operations rather than specifically defined research projects, 
the Grantee should consider the amount of the sponsor's general funding 
in relation to funds contributed from other sources when determining 
what prospective intellectual property rights the (sponsor will receive 
in the results of the Grantee's entire research portfolio. There should 
be a reasonable relationship between the amount of money contributed by 
the sponsor and the rights that it is granted both to review and 
license resulting technology or inventions. As an extreme example, a 
sponsor should not be able to provide 5 percent of the Grantee's total 
support, review 100 percent of the Grantee's inventions, and receive 
rights or a first option to 50 percent of the research results 
generated by the Grantee. Where general funding is involved, a Grantee 
should consider establishing some mechanism to limit the review and 
licensing rights of the sponsor to a particular segment or percentage 
of the inventions and for a set period of time. For example, the 
Grantee may require the sponsor to select those research areas or 
projects to which its general funding rights would attach in advance, 
thereby freeing up research areas that may be of interest to other 
commercial entities. Because, by its nature, general funding is less 
directed and its results more imprecise, Grantees should carefully 
monitor the impact on open competition and fair access by small 
business of the sponsor's licensing practices for technology supported 
by general funding.
    Fourth, Grantees should avoid any other unusual practice or 
stipulation that might generate public concern or undermine rather than 
serve the public interest.

Other Points for Consideration by Non-Profit Grantees

    The following points are to aid non-profit Grantees in 
administering the Act and in complying with the requirements of NIH 
funding agreements.
    First, Grantees must ensure that the rights to inventions resulting 
from Federal funding are not assigned without NIH approval. An 
exception to this is when the assignment is made to an organization 
which has as one of its primary functions the management of inventions, 
in which case, the assignee will be subject to the same provisions as 
the Grantee.
    Second, Grantees must share royalties collected on NIH supported 
inventions with the inventors and the balance of any royalties or 
income earned, after payment of expenses, including payment to 
inventors and incidental expenses to the administration of subject 
inventions, must be utilized for the support of scientific research or 
education.
    Third, Grantees must employ reasonable efforts to attract licensees 
of subject inventions that are small business firms. Additionally, 
Grantees must provide a preference to small business firms when 
licensing a subject invention if Grantees determine that small business 
firms have plans or proposals for marketing the invention which, if 
executed, are equally as likely to bring the invention to practical 
application as any plans or proposals from applicants that are not 
small business firms. However, Grantees must be satisfied that the 
small business firms have the capability and resources to carry out 
plans or proposals. The decision whether to give a preference in any 
specific case is at the discretion of the Grantee. However, since 
sponsored research agreements typically provide exclusive licenses or 
options to such rights to the sponsor, Grantees should seriously 
consider and provide for these issues when negotiating such agreements.

Conclusion

    Technology transfer is a vehicle through which the fruits of NIH 
funded research are transferred to industry to be ultimately developed 
into preventive, diagnostic and therapeutic products to advance human 
health. In a dynamic and multinational marketplace, if the United 
States is to remain a world leader in technological and scientific 
innovation, both the public and private sectors must work together to 
foster rapid development and commercialization of useful products to 
benefit human health, stimulate the economy, and enhance our 
international competitiveness, while at the same time protecting 
taxpayers' investment and safeguarding the principles of scientific 
integrity and academic freedom.
    It is in this spirit that the NIH encourages Grantees to address 
the issues and apply the points for consideration identified in this 
document when developing sponsored research agreements with commercial 
entities.

[FR Doc. 94-15466 Filed 6-24-94; 8:45 am]
BILLING CODE 4140-01-P