[Federal Register Volume 59, Number 215 (Tuesday, November 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27576]


[[Page Unknown]]

[Federal Register: November 8, 1994]


-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

SUMMARY: The National Institutes of Health (NIH) published a proposed 
draft of ``Developing Sponsored Research Agreements: Considerations for 
Recipients of NIH Research Grants and Contracts'' (hereafter referred 
to as Considerations) in the Federal Register on June 27, 1994. The 
document is to provide recipients of NIH grants and contracts 
(hereafter referred to as Recipients) with issues and points to 
consider in developing sponsored research agreements with commercial 
entities, where such agreements may include research activities which 
are fully or partially funded by NIH. Comments on the document were 
requested by July 27, 1994. In response to that Notice, NIH received 
comments from 18 respondents, two of whom represented a large number of 
research intensive institutions.
    In general, the comments were favorable and supportive of the NIH's 
action to assist its grantees and contractors in administering their 
activities in accordance with public law and the terms of their awards. 
There were a number of minor editorial comments that have been given 
consideration and for the most part accepted. A summary of the comments 
and the NIH response are presented below. The full text of the final 
document is also presented.

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, MD 20852-3804, (301) 496-
7057, ext. 203 (not a toll-free number).

Summary of Comments

    In response to the June 27 Notice, NIH received 18 comments, 
including two from organizations representing a large number of 
research intensive institutions. Below are the substantive comments 
offered and NIH's response, broken down by the section of the 
Considerations to which they pertain.

Introduction

    In order to limit confusion as to requirements that may apply to 
grantees and contractors, the term Grantee has been replaced by the 
term Recipient.
    One entity questioned the need for the issuance of the 
Considerations. As was stated in the document, the NIH, as a steward of 
Federal funds, has the responsibility to advise Recipients as to the 
requirements that attach to the receipt of NIH funds and to offer 
technical assistance in adhering to those requirements. Recipients have 
varying levels of sophistication in their technology transfer 
activities and the NIH is trying to assist those institutions in 
addressing substantive issues based on an extensive review of sponsored 
research agreements. In keeping with its belief that:

    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,

the NIH has developed the Considerations to encourage Recipients to 
address issues such as fair and open competition, dissemination and 
commercialization of research results, and the maintenance of academic 
freedom in developing sponsored research agreements with commercial 
entities.

Purpose

    Several institutions sought greater clarification as to the 
universe to which the Considerations were addressed, e.g. NIH awards, 
all Federal awards, or any sponsored program agreement. The Bayh-Dole 
Act applies to all Federal agencies. However, the NIH can only provide 
guidance to Recipients within its jurisdiction. The INTRODUCTION and 
PURPOSE sections of the document have been modified to clearly indicate 
that the requirements of the Bayh-Dole Act and its implementing 
regulations apply to all NIH sponsored research, whether fully or 
partially funded. The document provides information on the Act and the 
regulations and guidance to institutions when situations arise where 
NIH has fully or partially funded research activities that may be 
included in a sponsored research agreement.
    Three respondents commented on the definition of a sponsored 
research agreement. The existing definition in the INTRODUCTION section 
has been modified to more clearly state what is meant by the term. One 
respondent proposed that the definition be used with NIH funding only. 
This was not accepted because the term is one of general applicability 
while the guidance will deal with only those types of agreements that 
may involve NIH funded activities.
    One respondent urged that NIH point out that sponsored research 
agreements differ from one another and must be viewed on a case by case 
basis. While it was our opinion that we had provided that sense, we 
have modified the last paragraph of the PURPOSE section to reflect that 
proposed sponsored research agreements should be reviewed on a case by 
case basis and that provisions of those documents should be reviewed 
both individually and in their totality.

Background

    Several of the respondents raised concerns about individual 
situations and whether or not the Considerations should be used in 
those situations. In developing the Considerations, it was the intent 
of the NIH to provide some general guidance for developing agreements 
and not to specify how an agreement should be written, how an 
institution should respond in certain situations, or prescribe any 
special language that should be used other than that which is already 
required by law and existing policy applicable to NIH funded projects. 
In addition, it was not the intent of the guidance to interpret or 
otherwise explain the Bayh Dole implementing regulations, which were 
issued by the Department of Commerce. Issues regarding the regulations 
and its requirements need to be addressed to the Department of 
Commerce.
    One respondent questioned how far the Federal rights extend to 
sponsored activities not specifically funded by the Federal government. 
If research results from an NIH funded activity or a piece of equipment 
purchased under an NIH funding agreement was later used in a sponsored 
research agreement which was being funded solely by the sponsor and 
this led to the development of a new invention, would Federal rights 
apply to any new invention made under that sponsored research 
agreement? In general, Federal rights attach only if an invention is 
conceived or first actually reduced to practice under a Federal funding 
agreement. Mere use of equipment, data, or pre-existing inventions does 
not mean that all work under the sponsored research agreement is 
subject to the requirements of the Bayh Dole Act.

Universal Points for Consideration

Dissemination of Research Results

    Several respondents commented on the time frames related to 
possible delays in disclosure of research findings and the period for 
consideration of a license option. Comments were mostly supportive, 
however, there were several comments that the time frames offered might 
be too tight. It is of the utmost importance to the NIH to have 
research results disseminated and innovations brought to 
commercialization as rapidly as possible. Time frames were provided as 
guidance to institutions which need to exert their best efforts to 
accommodate this important objective. The Considerations recognize that 
different situations may dictate a shorter or longer period of time. To 
protect intellectual property it may be necessary to grant longer 
periods of time. However, each situation must be reviewed on a case by 
case basis and the institution must determine the appropriateness of 
the time frames for those particular circumstances.
    On the basis of comments received, we have modified the time frame 
for review under Dissemination of Research Results to read thirty (30) 
to sixty (60) days, rather than thirty (30) days which was viewed by 
several respondents as being too constraining.

Utilization

    One respondent agreed with the idea of providing a commercial 
sponsor of the research an option to license resulting intellectual 
property with no second chance to license. However, the respondent 
believes that it would seem appropriate that the sponsor should be 
given an equal opportunity with its competitors to make a bid on the 
license when the terms of the license offered to a competitor differed 
from the terms offered to the sponsor.
    The rationale for the language in the Considerations was that if 
negotiations, within a reasonable period of time, do not end in a 
license with the sponsor, the Recipient should be free to negotiate 
with others to ensure the rapid transfer of technology to 
commercialization. This would not preclude a Recipient, at its 
discretion, from entering into new negotiations with the sponsor, 
especially when the Recipient has modified the terms of the license 
being offered to a competitor from that which it previously offered to 
the sponsor.

Notification Requirements and Records

    In response to one comment, the listing of timeliness 
considerations has been revised to reflect more accurately the language 
in the Bayh-Dole Act and the implementing regulations. One additional 
consideration has been added, i.e., the specification in patent 
applications that the invention was made with government support. This 
is an important requirement which was omitted in the original document.
    Two respondents expressed concern over the requirement that a 
Recipient disclose an invention to the NIH prior to the publication of 
any description of the invention. One of those respondents stated that 
the language was incorrect. The language cited in the Considerations is 
a grants policy requirement, has been in place for a number of years, 
and is consistent with the Bayh-Dole requirements for notification of 
inventions. However, since this appears to have raised a concern, we 
have deleted the subject sentence and inserted information stating the 
source of the requirement.
    The comments related to notification requirements and records 
reinforce the need for institutions to have adequate systems to meet 
Federal requirements. Those institutions which have separated their 
technology transfer activities from their sponsored research 
administration activities may have difficulty in assuring coordination 
of actions, submission of reports, and retention of appropriate 
records. Institutions need to ensure that they have systems in place 
which coordinate actions involving technology transfer and sponsored 
research administration to preserve the rights of the government and be 
responsive to requests for information and reporting.

Points for Special Consideration

    Three respondents commented on their concern regarding the 
suggestion that Recipients should avoid any other unusual practice or 
stipulation that might generate public concern or undermine rather the 
serve the public interest. With innovation and creativity being a major 
part of the evolving field of technology transfer, it is not possible 
for this document to cover every specific problem, concern or 
consideration that may occur in the future. Therefore, this language 
was written to encourage institutions to be constantly alert in their 
review of potential agreements with special attention to conformity 
with the Bayh-Dole Act, implementing regulations, and NIH funding 
requirements.

Other Points for Consideration by Nonprofit Recipients

    Three respondents expressed concern regarding the language on small 
businesses. One had general concerns about the small business 
preference and offered some additional language. A second also had 
apprehensions with the small business preference being interpreted as a 
``must use'' requirement. A third respondent was concerned that the 
form and level of documentation be specified.
    In the section on special provisions for nonprofit organizations, 
the regulation states that such organizations will make efforts to 
execute a license with small businesses and, in certain circumstances, 
provide a preference for such businesses. However, the decision to give 
a preference in any specific case is at the discretion of the 
Recipient. Additionally, the regulation states that Recipients must be 
satisfied that the small business firms have the capability and 
resources to carry out plans or proposals. Having documentation 
sufficient to support its decisions on small business preferences is a 
key Recipient responsibility.
    As noted above, these Considerations have been prepared for use by 
Recipients; the regulations implementing the Bayh-Dole Act are issued 
by the Department of Commerce and the NIH does not have authority to 
modify their content.
    The NIH appreciates the effort taken to provide comments on this 
document and is pleased that the document is viewed as being a valuable 
technical assistance tool.

    Dated: October 28, 1994.
Daryl A. (Sandy) 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 
(hereafter referred to as Recipients). Whenever a Recipient's research 
work is funded either in whole or in part through NIH research grants, 
contracts, and cooperative agreements, that activity is subject to the 
requirements of Public Law 96-517, known as the Bayh-Dole Act of 
19801 (hereafter referred to as ``Bayh-Dole'' or ``the Act''). 
Those Recipients 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.
---------------------------------------------------------------------------

    \1\Public Law 96-517, enacted December 12, 1980, Chapter 18--
Patent Rights in Inventions Made with Federal Assistance.
---------------------------------------------------------------------------

    Recipients also have interactions with industry which may 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 
Recipient/industry interaction, sponsored research agreements. The NIH 
has focused a substantial amount of its recent attention on this 
relationship when NIH funds may also be involved. The term sponsored 
research agreement means a written document which describes the 
relationship between Recipients and commercial entities in which 
Recipients receive funding or other consideration to support their 
research in return for preferential access and/or rights to 
intellectual property deriving from Recipient research results.
    Although Recipients are primarily responsible for the 
implementation of the Bayh-Dole requirements, NIH, as a steward of 
Federal funds, has a responsibility to provide guidance on issues which 
may place Recipients at odds with Federal law and/or NIH funding 
requirements.

Purpose

    The purpose of this document is to provide Recipients with issues 
and points to consider in developing sponsored research agreements with 
commercial entities, where such agreements may include research 
activities which are fully or partially funded by NIH. The intent is to 
assist Recipients in ensuring that those agreements comply with the 
requirements of the Bayh-Dole 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 Recipients, 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, 
Recipients should review each proposed sponsored research agreement on 
a case by case basis, and the provisions both individually and in the 
context of the entire agreement.

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 Recipients to retain title to inventions resulting from 
their Federally funded research and to license such inventions to 
commercial entities for development.
    Specifically, the Act states that:

    It is the policy and objective of the Congress to use the patent 
system to promote the utilization of inventions arising from 
Federally supported research or development; to encourage maximum 
participation of small business firms in Federally sponsored 
research and development efforts; to promote collaboration between 
commercial concerns and nonprofit organizations, including 
universities; to ensure that inventions made by nonprofit 
organizations and small business firms are used to promote free 
competition and enterprise; to promote the commercialization and 
public availability of inventions made in the United States by 
United States industry and labor; to ensure that the Government 
obtains sufficient rights in federally supported inventions to meet 
the needs of the Government and protect against nonuse or 
unreasonable use of inventions; and to minimize the costs of 
administering policies in this area.2
---------------------------------------------------------------------------

    \2\Public Law 96-517, Chapter 18, Patent Rights in Inventions 
Made With Federal Assistance, Sec. 200.

    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 Services.3
---------------------------------------------------------------------------

    \3\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.
---------------------------------------------------------------------------

    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 Recipients to industry as 
evidenced by the aggressive pursuit of patenting and licensing and the 
proliferation of university/industry collaborations.4 In addition, 
the development of many new and important drugs and devices has been 
facilitated by increased industrial support for academic research5 
and the explosion in the licensing of university owned 
inventions.6 Furthermore, statistics indicate that the Act has 
provided significant economic benefits which are projected as 
increasing between 25 to 30 percent per year.7
---------------------------------------------------------------------------

    \4\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.
    \5\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.
    \6\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.
    \7\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.
---------------------------------------------------------------------------

Recipient Responsibilities

    In keeping with the objectives and policies of Bayh-Dole, it is 
incumbent upon Recipients to effectively and efficiently transfer 
technology to industry for commercial development. However, in doing so 
Recipients 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, Recipients need 
to concern themselves with issues involving maintenance of academic 
freedom for institutions and investigators, fair access to information, 
timeliness of notification and reporting 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, 
Recipients should anticipate such issues and consider the following 
points in developing a sponsored research agreement.
    The first section, Universal Points for Consideration, highlights 
several requirements and issues that Recipients 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 Nonprofit Recipients, contains additional considerations which apply 
only to nonprofit Recipients.

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 Recipient 
institutions and researchers is of considerable concern to the NIH.
    Recipients 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, Recipients 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.8 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. 
Recipients 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 Recipient would be 
inappropriate.
---------------------------------------------------------------------------

    \8\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.
---------------------------------------------------------------------------

Dissemination of Research Results

    Recipients must ensure that the timely dissemination of research 
findings is not adversely affected by the conditions of a sponsored 
research agreement. For example, in the case of research grants, 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 the organization's 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 thirty (30) 
to sixty (60) days is generally viewed as a reasonable period for such 
activity. Depending upon the individual circumstances, Recipients 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 a commercial entity, 
Recipients should consider whether the organization has the experience, 
capability, and commitment to bring its likely inventions to commercial 
status.
    Additionally, Recipients 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. Recipients could 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 after 
disclosure to the authorized representative of the sponsor. 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, normally, the agreement should not 
provide for a second opportunity to obtain licensing rights by matching 
other parties' offers for the rights. Such actions 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, Recipients 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 they become available for commercial 
development. In addition, Recipients should actively monitor licensees 
in accordance with those requirements and benchmarks to assure 
compliance with Recipient obligations under the Act.
    Recipients also need to ensure that they have internal systems to 
provide required utilization reports to the NIH on each invention. 
Those reports are required by Department of Commerce regulation and 
include such items as the status of development, first commercial sale, 
and amount of gross royalties received. Detailed information about the 
precise utilization report requirements can be obtained from the NIH 
Office of Extramural Research.

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, Recipients 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 Recipient 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, Recipients 
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 Recipient 
administrators of an invention made under NIH funding, (2) written 
disclosure to NIH in sufficient technical detail to adequately describe 
the invention, (3) written election to the NIH of whether or not the 
Recipient will retain title to such invention, (4) adherence to time 
frames for initial filing of patent applications in the United States 
and the filing of foreign patent applications, (5) execution and 
delivery of all instruments necessary to establish or confirm NIH 
rights throughout the world in the subject inventions to which the 
Recipient has elected to retain title, (6) notification to the NIH of 
any decision not to continue patent prosecution, pay fees, or defend 
the patent in a reexamination or opposition proceeding on a patent, in 
any country, (7) conveyance of title to NIH when requested, and (8) 
specification in any United States patent applications and any patent 
issuing thereon covering a subject invention that the invention was 
made with government support.9
---------------------------------------------------------------------------

    \9\The regulation, 37 CFR 401.14(F)(4), requires that the 
following clause be used: ``This invention was made with government 
support under (identify the grant, contract, or cooperative 
agreement) awarded by (identify the Institute or Center), National 
Institutes of Health. The government has certain rights in the 
invention.''
---------------------------------------------------------------------------

    Specifically, as conditions of NIH grants and cooperative 
agreements, Recipients must fully notify the NIH in a timely manner 
when an invention has been developed. In addition, PHS grants policy 
requires that 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, Recipients 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, Recipients 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. 
Recipient 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.10
---------------------------------------------------------------------------

    \1\0The regulations are set forth at 45 CFR Part 74, Subpart D 
and 45 CFR Part 92.42.
---------------------------------------------------------------------------

Points for Special Consideration

    The NIH has identified several situations, outlined below, in which 
Recipients 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 Recipient concerns such as academic freedom, 
or shift control of the Recipient's scientific activities, management, 
and independence into the hands of the sponsor. While there is no 
requirement that Recipients submit proposed sponsored research 
agreements to the NIH for review, at the discretion of the Recipient, 
the NIH Deputy Director for Extramural Research may be consulted for 
additional clarification in instances where special considerations 
warrant.
    First, Recipients 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 percent of 
the Recipient's total research funding;
    (c) The sponsor's prospective licensing rights cover all 
technologies developed by a major group or component of the Recipient 
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 Recipient's research staff; or
    (d) The duration of the proposed agreement is for more than 5 
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 Recipient's 
Federally funded research activities and may delay or impede the rapid 
development and commercialization of technology.
    Second, Recipients 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 Recipient research findings and 
technologies that effectively exclude other organizations from 
reasonable access to a Recipient'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's contribution of funds is to support a 
Recipient's general operations rather than specifically defined 
research projects, the Recipient should consider the amount of the 
sponsor's general funding in relation to funds from other sources when 
determining what prospective intellectual property rights the sponsor 
will obtain from the results of the Recipient research. 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. Additionally, Recipients 
should also consider the level of risk that the sponsor will be 
assuming in order to obtain rights. In general, the greater the 
restrictions on a sponsor's rights, the higher the sponsor's risk in 
receiving benefit from its support. As an extreme example, a sponsor 
should not be able to provide 5 percent of the Recipient's total 
support, review 100 percent of the Recipient's inventions, and receive 
rights or a first option to 50 percent of the research results 
generated by the Recipient. Where general funding is involved, a 
Recipient may consider a number of alternative actions, including 
establishing some mechanism to limit the review and licensing rights of 
the sponsor to a particular segment or percentage of the inventions for 
a set period of time. For example, the Recipient may require the 
sponsor to select those research areas on 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, Recipients 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, Recipients 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 Recipients

    The following points are to aid non-profit Recipients in 
administering the Act and in complying with the requirements of NIH 
funding agreements.
    First, Recipients 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 Recipient.
    Second, Recipients 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, Recipients must employ reasonable efforts to attract 
licensees of subject inventions that are small business firms. 
Additionally, Recipients must provide a preference to small business 
firms when licensing a subject invention if Recipients 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, Recipients 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 
Recipient. However, since sponsored research agreements typically 
provide exclusive licenses or options to such rights to the sponsor, 
Recipients 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 Recipients to address 
the issues and apply the points for consideration identified in this 
document when developing sponsored research agreements with commercial 
entities.

[FR Doc. 94-27576 Filed 11-7-94; 8:45 am]
BILLING CODE 4140-01-P