[Federal Register Volume 70, Number 5 (Friday, January 7, 2005)]
[Proposed Rules]
[Pages 1403-1407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-338]


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DEPARTMENT OF COMMERCE

37 CFR Part 404

[Docket No. 040305084-4084-01]
RIN 0692-AA19


Assistant Secretary for Technology Policy; Licensing of 
Government Owned Inventions

AGENCY: Assistant Secretary for Technology Policy, Department of 
Commerce (DOC).

ACTION: Notice of proposed rule making; request for comments.

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SUMMARY: This proposed rule incorporates several changes made by the 
Technology Transfer Commercialization Act of 2000 with respect to the 
granting of licenses by Federal agencies on Federally owned inventions. 
It also streamlines the licensing procedures to focus primarily on 
statutory requirements.

DATES: Comments must be received no later than February 7, 2005.

ADDRESSES: Comments on the proposed revisions must be submitted to: Mr. 
John Raubitschek, Office of the Chief Counsel for Technology, Room 
4835, HCHB, Department of Commerce, Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Mr. John Raubitschek, Patent Counsel, 
at telephone: (202) 482-8010.

SUPPLEMENTARY INFORMATION: Summary of the Proposed Amendments:
    1. DOC proposes to revise the index of sections to remove Sec.  
404.9 which would become reserved and to modify the title of Sec.  
404.7 to add ``co-exclusive.''
    2. DOC proposes to revise Sec.  404.1 to change the effective date 
of the regulation and remove the reference to the first licensing 
regulation in 1981. Other proposed changes include the adding of 
additional examples of licenses which would not be subject to the 
regulation, including exchange of rights in settlements of patent 
disputes, licenses and assignments of certain joint inventions as 
authorized by 35 U.S.C. 202(e) or of inventions under cooperative 
research and development agreements (CRADAs) as authorized by

[[Page 1404]]

15 U.S.C. 3710a or by a treaty, or licenses where the agency has 
acquired rights under 35 U.S.C. 207(a)(3) to facilitate the licensing 
of a federally owned invention, sometimes referred to as ``bundling 
inventions.''
    3. DOC proposes to revise Sec.  404.3(a) to remove the limitation 
that the invention must be described in a patent or application to be 
licensable in view of the change to 35 U.S.C. 207 made by Public Law 
106-404. The only requirement would be that the invention is or may be 
patentable or protectable subject matter although it may be covered by 
a patent or patent application. Since ``invention'' is defined in 35 
U.S.C. 201(d), this is included in subparagraph (a) with the additional 
reference to foreign patent law. Under this authority, agencies may now 
license computer software and biological materials as inventions 
without filing a patent application because they are patentable subject 
matter. In addition, the phrase ``in whole or in part'' is added to 
make it clear that an agency can license its undivided interest in a 
joint invention.
    4. DOC proposes to revise Sec.  404.4 to require each agency to 
notify the public of its inventions which are available for licensing. 
Such notification was encouraged by the House Committee on Science in 
H.R. Report 106-129, Part I, 106th Cong., 1st sess. Previously, notice 
was required only if the agency was going to exclusively license the 
invention. See Sec.  404.7(a)(1). However, the form of notification is 
left to the discretion of the agency, which is strongly encouraged to 
use the internet or other electronic means to notify the public. Also, 
DOC proposes to move the substance of Sec. Sec.  404.5(b)(2), (7) and 
(11) to this section.
    5. DOC proposes to add a sentence in Sec.  404.5(a)(1) to permit an 
abbreviated development plan for a non-exclusive research license 
because 35 U.S.C. 209(a) requires that all applicants for a license 
submit a plan even though the applicant may have no present intent to 
commercialize the invention. Such a license would be appropriate for a 
party working with an agency under a CRADA on the agency's pre-existing 
invention(s), which may now be included in the CRADA under Public Law 
106-404 if a patent application was filed prior to the CRADA.
    6. DOC proposes to add a sentence to Sec.  404.5(a)(2) to provide 
guidance for an agency to waive or modify the domestic manufacturing 
requirement. This proposal is based substantially on 35 U.S.C. 204, 
which applies to inventions made by nonprofit organizations and small 
business firms with federal funds.
    7. As mentioned in paragraph no. 4, DOC proposes to move Sec. Sec.  
404.5(b)(2), (7) and (11) to Sec.  404.4, which is more directed to 
policy. This will result in a renumbering of Sec.  404.5. A new Sec.  
404.5(b)(2) is being added to permit any licensee to enforce a licensed 
patent. As noted in Nutrition 21 v. U.S., 930 F.2d 867, 871, 18 USPQ2d 
(BNA) 1351, 1354, n.7 (Fed. Cir. 1991), the authority for enforcement 
in 35 U.S.C. 207(b)(1) is not limited to exclusive licensees. Editorial 
changes are proposed to Sec.  404.5(b)(4) as well as adding a 
requirement that copies of sublicenses and modifications be promptly 
provided to the agencies. Sec.  Sec.  404.5(b)(5) and (b)(6) are being 
slightly modified to adopt the language from Public Law 106-404.
    8. DOC proposes to modify Sec.  404.5(b)(9), now renumbered as 
404.5(b)(8), to include the language of Public Law 106-404, which 
specifically mentions terminating for a breach of the domestic 
manufacturing requirement in Sec.  404.5(a)(2) and the new requirement 
in Sec.  404.5(b)(8)(v) that a license be terminated if a court 
determines that it violates the antitrust laws.
    9. DOC proposes to remove the exclusion in Sec.  404.6(a) for 
publishing the availability of an invention for licensing, which is 
subsequently licensed non-exclusively. This is not necessary in view of 
the proposed change described in paragraph no. 4 that the public will 
be notified of all inventions which are available for licensing. In 
addition, the suggestion in Sec.  404.6(b) that after expiration of a 
specific time period, the field of use be limited to where the licensee 
has commercialized the invention is being deleted because it implies 
that non-exclusive licenses should contain such a clause. In fact, few 
agencies use such a clause because most nonexclusive licenses are for 
the full term of the patent. However, an agency may still use such a 
clause if it so chooses.
    10. DOC proposes to add co-exclusive licenses to Sec.  404.7 to 
specifically recognize that an agency may grant an exclusive license to 
more than one company to better achieve commercialization or to resolve 
disputes with competing license applications.
    11. DOC proposes to remove the requirement in Sec.  404.7(a)(1) to 
publish in the Federal Register a notice of availability of an 
invention for licensing prior to granting an exclusive license on that 
invention. However, agencies will be required to make the public aware 
of their inventions through use of the Internet or other electronic 
means in accordance with the revised Sec.  404.4.
    12. DOC proposes to delete Sec.  404.7(a)(1)(ii)(B) because the new 
law does not contain a preference for nonexclusive licenses. Sec.  
404.7(a)(1)(ii)(C) would be renumbered as (B) and contain the slightly 
different language from the new law for the justification for an 
exclusive license. Similarly, the justification in Sec.  
404.7(a)(1)(ii)(A) is being slightly revised in view of the language in 
the new law. The antitrust consideration in Sec. Sec.  404.7(a)(1)(iii) 
and (b)(1)(iii) is being revised in view of the new law although a 
positive determination by the agency is not required. Similarly, the 
small business preference in Sec.  404.7(a)(1)(iv) is being revised 
slightly because of the new law.
    13. DOC proposes to change the semicolon to a colon at the end of 
Sec.  407(a)(2) and delete Sec. Sec.  404.7(a)(2)(iv) and (b)(2)(iii) 
in view of the new Sec.  404.5(b)(2), which permits all licensees to 
have the right to enforce licensed patents.
    14. DOC proposes to delete Sec.  404.9 since review by the Attorney 
General of an exclusive license notice is not required by statute. It 
is noted that the license may be terminated if there is a violation of 
the antitrust law. See proposed 404.5(b)(8)(v).
    15. DOC proposes to delete the second reference to a sublicensee in 
Sec.  404.10 because there is no need to give a sublicensee the right 
to be involved in the modification or termination of a license to which 
it is not a party. However, many agencies allow a sublicensee to become 
a direct licensee if the license is terminated.
    16. DOC proposes to modify the appeal rights in Sec.  404.11 to 
remove a dispute over the interpretation of a license from being 
appealable except as it may relate to the termination of a license, 
which is appealable. DOC also proposes adding a right for a hearing 
when a license has been modified or terminated if there is a dispute 
over any relevant fact. Alternate Dispute Resolution is now being 
authorized instead of an appeal, if the parties agree.
    17. DOC proposes to corrects the misspelling of ``owned'' in Sec.  
404.12.
    18. DOC proposes to make the FOIA exemption in Sec.  404.14 
mandatory in accordance with the new law.

Classification

Executive Order 12866

    This rule has been determined not to be significant for purposes of 
E.O. 12866.

[[Page 1405]]

Executive Order 13132

    This rule does not contain policies with Federalism implications as 
that term is defined in E.O. 13132.

Administrative Procedure Act

    This rule involves rules of agency practice and procedure under 5 
U.S.C. 553(b)(A) and prior notice and an opportunity for public comment 
are, therefore, not required by the Administrative Procedure Act, or 
any other statute or regulation, for this rule.

Regulatory Flexibility Act

    Because a notice of proposed rulemaking and an opportunity for 
public comment are not required to be given for this rule pursuant to 5 
U.S.C. 553(b)(A), or by any other law, this rule is not subject to the 
analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 
et seq.).

Paperwork Reduction Act

    The proposed rule does not impose any new collection of information 
requirements under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et 
seq.). However, OMB approval for the application for a license in 404.8 
and the utilization reports in 404.5(a)(6) (number 0692-0006) expired 
on June 30, 2003, we are resubmitting the package to OMB. The time to 
complete the license application is estimated to be 2 hours and the 
utilization report 1 hour. These estimated response times include the 
time for completing and reviewing the collections of information.
    Comments are invited on (a) whether the collections of information 
are necessary for the functions of the agencies; (b) the accuracy of 
the estimates on the time to complete and review the collected 
information; (c) ways to enhance the quality, utility and clarity of 
the information to be collected; and (d) ways to minimize the burden on 
respondents to collect the information.
    Notwithstanding any other provision of law, no person is required 
to respond to, nor shall any person be subject to a penalty for failure 
to comply with, a collection of information subject to the requirements 
of the PRA, unless that collection of information displays a currently 
valid OMB control number.

List of Subjects in 37 CFR Part 404

    Inventions, Patents, Licenses.

    Dated: January 4, 2005.
Benjamin H. Wu,
Assistant Secretary of Commerce for Technology Policy.

    For the reasons set forth in the preamble, 37 CFR Part 404 is 
proposed to be amended as follows:

PART 404--LICENSING OF GOVERNMENT OWNED INVENTIONS

    1. The authority citation for Part 404 is revised to read as 
follows:

    Authority: 35 U.S.C. 207-209.

    2. Section 404.1 is revised to read as follows:


Sec.  404.1  Scope of part.

    This part prescribes the terms, conditions, and procedures upon 
which a federally owned invention, other than an invention in the 
custody of the Tennessee Valley Authority, may be licensed. This part 
does not affect licenses which:
    (a) Were in effect prior to [INSERT FINAL RULE EFFECTIVE DATE];
    (b) May exist at the time of the Government's acquisition of title 
to the invention, including those resulting from the allocation of 
rights to inventions made under Government research and development 
contracts;
    (c) Are the result of an authorized exchange of rights in the 
settlement of patent disputes, including interferences; or
    (d) Are otherwise authorized by law or treaty, including 35 U.S.C. 
202(e), 35 U.S.C. 207(a)(3) and 15 U.S.C. 3710a, which also may 
authorize the assignment of inventions. Although licenses on inventions 
made under a cooperative research and development agreement (CRADA) are 
not subject to this regulation, agencies are encouraged to apply the 
same policies and use similar terms when appropriate. Similarly, this 
should be done for licenses granted under inventions where the agency 
has acquired rights pursuant to 35 U.S.C. 207(a)(3).
    3. In Sec.  404.3, paragraph (a) is revised to read as follows:


Sec.  404.3  Definitions.

    (a) Federally owned invention means an invention, whether or not 
covered by a patent or patent application, or discovery which is or may 
be patentable or otherwise protectable under title 35, the Plant 
Variety Protection Act (7 U.S.C. 2321 et seq.) or foreign patent law, 
owned in whole or in part by the United States Government.
* * * * *
    4. Section 404.4 is revised to read as follows:


Sec.  404.4  Authority to grant licenses.

    Federally owned inventions shall be made available for licensing as 
deemed appropriate in the public interest and each agency shall notify 
the public of these inventions. The agencies having custody of these 
inventions may grant nonexclusive, co-exclusive, partially exclusive, 
or exclusive licenses thereto under this part. Licenses may be royalty-
free or for royalties or other consideration. They may be for all or 
less than all fields of use or in specified geographic areas and may 
include a release for past infringement. Any license shall not confer 
on any person immunity from the antitrust laws or from a charge of 
patent misuse, and the exercise of such rights pursuant to this part 
shall not be immunized from the operation of state or federal law by 
reason of the source of the grant.
    5. In Section 404.5, paragraph (a), paragraph (b)(2) and paragraphs 
(b)(4) through (b)(9) are revised to read as follows:


Sec.  404.5  Restrictions and conditions on all licenses granted under 
this part.

    (a)(1) A license may be granted only if the applicant has supplied 
the Federal agency with a satisfactory plan for development or 
marketing of the invention, or both, and with information about the 
applicant's capability to fulfill the plan. The plan for a non-
exclusive research license may be limited to describing the research 
phase of development.
    (2) A license granting rights to use or sell under a federally 
owned invention in the United States shall normally be granted only to 
a license who agrees that any products embodying the invention or 
produced through the use of the invention will be manufactured 
substantially in the United States. However, this condition may be 
waived or modified if reasonable but unsuccessful efforts have been 
made to grant licenses to potential licensees that would be likely to 
manufacture substantially in the United States or if domestic 
manufacture is not commercially feasible.
    (b) * * *
    (1) * * *
    (2) Any patent license may grant the licensee the right of 
enforcement of the licensed patent without joining the Federal agency 
as a party as determined appropriate in the public interest.
    (3) * * *
    (4) The license may provide the licensee the right to grant 
sublicenses under the license, subject to the approval of the Federal 
agency. Each

[[Page 1406]]

sublicense shall make reference to the license, including the rights 
retained by the Government, and a copy of such sublicense with any 
modifications thereto, shall be promptly furnished to the Federal 
agency.
    (5) The license shall require the licensee to carry out the plan 
for development or marketing of the invention, or both, to bring the 
invention to practical application within a reasonable time as 
specified in the license, and continue to make the benefits of the 
invention reasonably accessible to the public.
    (6) The license shall require the licensee to report periodically 
on the utilization or efforts at obtaining utilization that are being 
made by the licensee, with particular reference to the plan submitted 
but only to the extent necessary to enable the agency to determine 
compliance with the terms of the license.
    (7) Where an agreement is obtained pursuant to Sec.  404.5(a)(2) 
that any products embodying the invention or produced through the use 
of the invention will be manufactured substantially in the United 
States, the license shall recite such an agreement.
    (8) The license shall provide for the right of the Federal agency 
to terminate the license, in whole or in part, if the agency determines 
that:
    (i) The licensee is not executing its commitment to achieve 
practical application of the invention, including commitments contained 
in any plan submitted in support of its request for a license and the 
licensee cannot otherwise demonstrate to the satisfaction of the 
Federal agency that it has taken, or can be expected to take within a 
reasonable time, effective steps to achieve practical application of 
the invention;
    (ii) Termination is necessary to meet requirements for public use 
specified by Federal regulations issued after the date of the license 
and such requirements are not reasonably satisfied by the licensee;
    (iii) The licensee has willfully made a false statement of or 
willfully omitted a material fact in the license application or in any 
report required by the license agreement;
    (iv) The licensee commits a substantial breach of a covenant or 
provision contained in the license agreement, including the requirement 
in Sec.  404.5(a)(2); or
    (v) The licensee has been found by a court of competent 
jurisdiction to have violated the Federal antitrust laws in connection 
with its performance under the license agreement.
    (9) The license may be modified or terminated, consistent with this 
part, upon mutual agreement of the Federal agency and the licensee.
* * * * *
    6. Section 404.6 is revised to read as follows:


Sec.  404.6  Nonexclusive licenses.

    Nonexclusive licenses may be granted under federally owned 
inventions without a public notice of a prospective license.
    7. Section 404.7 is revised to read as follows:


Sec.  404.7  Exclusive, co-exclusive and partially exclusive licenses.

    (a)(1) Exclusive, co-exclusive or partially exclusive domestic 
licenses may be granted on federally owned inventions, only if;
    (i) Notice of a prospective license, identifying the invention and 
the prospective licensee, has been published in the Federal Register, 
providing opportunity for filing written objections within at least a 
15-day period;
    (ii) After expiration of the period in Sec.  404.7(a)(1)(i) and 
consideration of any written objections received during the period, the 
Federal agency has determined that;
    (A) The public will be served by the granting of the license, in 
view of the applicant's intentions, plans and ability to bring the 
invention to the point of practical application or otherwise promote 
the invention's utilization by the public.
    (B) Exclusive, co-exclusive or partially exclusive licensing is a 
reasonable and necessary incentive to call forth the investment capital 
and expenditures needed to bring the invention to practical application 
or otherwise promote the invention's utilization by the public; and
    (C) The proposed scope of exclusivity is not greater than 
reasonably necessary to provide the incentive for bringing the 
invention to practical application, as proposed by the applicant, or 
otherwise to promote the invention's utilization by the public;
    (iii) The Federal agency has not determined that the grant of such 
a license will tend substantially to lessen competition or create or 
maintain a violation of the Federal antitrust laws; and
    (iv) The Federal agency has given first preference to any small 
business firms submitting plans that are determined by the agency to be 
within the capability of the firms and as having equal or greater 
likelihood as those from other applicants to bring the invention to 
practical application within a reasonable time.
    (2) In addition to the provisions of Sec.  404.5, the following 
terms and conditions apply to domestic exclusive, co-exclusive and 
partially exclusive licenses:
    (i) The license shall be subject to the irrevocable, royalty-free 
right of the Government of the United States to practice or have 
practiced the invention on behalf of the United States and on behalf of 
any foreign government or international organization pursuant to any 
existing or future treaty or agreement with the United States.
    (ii) The license shall reserve to the Federal agency the right to 
require the licensee to grant sublicenses to responsible applicants, on 
reasonable terms, when necessary to fulfill health or safety needs.
    (iii) The license shall be subject to any licenses in force at the 
time of the grant of the exclusive, co-exclusive or partially exclusive 
license.
    (b)(1) Exclusive, co-exclusive or partially exclusive foreign 
licenses may be granted on a federally owned invention provided that;
    (i) Notice of the prospective license, identifying the invention 
and prospective licensee, has been published in the Federal Register, 
providing opportunity for filing written objections within at least a 
15-day period and following consideration of such objections received 
during the period;
    (ii) The agency has considered whether the interests of the Federal 
Government or United States industry in foreign commerce will be 
enhanced; and
    (iii) The Federal agency has not determined that the grant of such 
a license will tend substantially to lessen competition or create or 
maintain a violation of the Federal antitrust laws.
    (2) In addition to the provisions of Sec.  404.5, the following 
terms and conditions apply to foreign exclusive, co-exclusive and 
partially exclusive licenses:
    (i) The license shall be subject to the irrevocable, royalty-free 
right of the Government of the United States to practice and have 
practiced the invention on behalf of the United States and on behalf of 
any foreign government or international organization pursuant to any 
existing or future treaty or agreement with the United States.
    (ii) The license shall be subject to any licenses in force at the 
time of the grant of the exclusive, co-exclusive or partially exclusive 
license.
    (iii) The license may grant the licensee the right to take any 
suitable and necessary actions to protect the

[[Page 1407]]

licensed property, on behalf of the Federal Government.
    (c) Federal agencies shall maintain a record of determinations to 
grant exclusive, co-exclusive or partially exclusive licenses.


Sec.  404.9  [Removed and reserved]

    8. Section 404.9 is removed and reserved:
    9. Section 404.10 is revised to read as follows:


Sec.  404.10  Modification and termination of licenses.

    Before modifying or terminating a license, other than by mutual 
agreement, the Federal agency shall furnish the licensee and any 
sublicensee of record a written notice of intention to modify or 
terminate the license, and the licensee shall be allowed 30 days after 
such notice to remedy any breach of the license or show cause why the 
license shall not be modified or terminated.
    10. Section 404.11 is revised to read as follows:


Sec.  404.11  Appeals.

    (a) In accordance with procedures prescribed by the Federal agency, 
the following parties may appeal to the agency head or designee any 
decision or determination concerning the grant, denial, modification, 
or termination of a license:
    (1) A person whose application for a license has been denied;
    (2) A licensee whose license has been modified or terminated, in 
whole or in part; or
    (3) A person who timely filed a written objection in response to 
the notice required by Sec.  404.7(a)(1)(i) or Sec.  404.7(b)(1)(i) and 
who can demonstrate to the satisfaction of the Federal agency that such 
person may be damaged by the agency action.
    (b) An appeal by a licensee under paragraph (a)(2) of this section 
may include a hearing, upon the request of the licensee, to address a 
dispute over any relevant fact. The parties may agree to Alternate 
Dispute Resolution in lieu of an appeal.
    11. Section 404.12 is revised to read as follows:


Sec.  404.12  Protection and administration of inventions.

    A Federal agency may take any suitable and necessary steps to 
protect and administer rights to federally owned inventions, either 
directly or through contract.
    12. Section 404.14 is revised to read as follows:


Sec.  404.14  Confidentiality of information.

    Title 35, United States Code, section 209, requires that any plan 
submitted pursuant to Sec.  404.8(h) and any report required by Sec.  
404.5(b)(6) shall be treated as commercial or financial information 
obtained from a person and privileged and confidential and not subject 
to disclosure under section 552 of title 5 of the United States Code.

[FR Doc. 05-338 Filed 1-6-05; 8:45 am]
BILLING CODE 3510-18-P