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

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