U.S. Department of Energy 

Office of Inspector General 

Office of Audit Services 

Special Report 

Allegations of Conflict of Interest 

Regarding Licensing of PROTECT 

by Argonne National Laboratory

DOE/IG-0819 August 2009 
Department of Energy 

Washington, DC 20585 

August 5, 2009 

MEMORANDUM FOR THE SECRETARY 

FROM: Gregory H. Friedman 

 Inspector General 

SUBJECT: INFORMATION: Special Report on "Allegations of Conflict of 

 Interest Regarding Licensing of PROTECT by Argonne 

 National Laboratory" 

SUMMARY

In February 2009, the Office of Inspector General received a letter from Congressman 

Mark Steven Kirk of Illinois, which included constituent allegations that an exclusive 

technology licensing agreement by Argonne National Laboratory was tainted by 

inadequate competition, conflicts of interest, and other improprieties. The technology in 

question was for the Program for Response Options and Technology Enhancements for 

Chemical/Biological Terrorism, commonly referred to as PROTECT. Because of the 

importance of the Department of Energy's technology transfer program, especially as 

implementation of the American Recovery and Reinvestment Act matures, we reviewed 

selected aspects of the licensing process for PROTECT to determine whether the 

allegations had merit. In summary, under the facts developed during our review, it was 

understandable that interested parties concluded that there was a conflict of interest in 

this matter and that Argonne may have provided the successful licensee with an unfair 

advantage. In part, this was consistent with aspects of the complaint from Congressman 

Kirk's constituent. 

BACKGROUND

PROTECT was developed in response to the 1995 sarin gas attacks in Tokyo. In 1997, a 

five-year effort was initiated between the Departments of Energy, Transportation, and 

Justice to develop a chemical/biological warning system. Three of the Department's 

National Laboratories -- Argonne, Sandia and Livermore, were involved in developing 

various aspects of PROTECT. The effort concluded with the commencement of tests of 

the system at the Washington Metropolitan Area Transit Authority. Argonne National 

Laboratory applied for a copyright of PROTECT's intellectual property in November 

2002. Argonne, operated for the Department under contract with UChicago Argonne 

LLC, subsequently installed PROTECT at other transit systems to demonstrate its 

capabilities. 

In 2006, Argonne concluded that PROTECT had commercial application and decided to 

transfer the technology to the private sector. In October 2006, based on consultations 

with its own research staff, Argonne sent out solicitations to eight potential licensees.
2 

Argonne announced the successful offeror in February 2007 and, in July 2007, awarded 

an exclusive license for PROTECT. Beginning in 2002 through the award of the license, 

the winning firm had been a sole-source subcontractor employed by Argonne in direct 

support of PROTECT. As a condition of the award, Argonne agreed to transfer the 

technology to the licensee by providing access to its expertise through "work-for-others" 

arrangements. 

RESULTS OF REVIEW

We found that: 

• Despite a contractual requirement that it provide "fairness of opportunity" in its 

licensing activities, Argonne did not list the licensing opportunity on its web site 

and instead relied only on personal knowledge of Laboratory employees when 

deciding what firms would be provided the opportunity to compete for the 

exclusive PROTECT license; 

 Argonne's actions to avoid or ameliorate conflicts of interest prior to awarding the 

license were less than satisfactory. Specific conflict of interest mitigation 

measures were not applied in spite of Argonne's long-standing business 

relationship with the firm that was ultimately awarded the exclusive license for 

PROTECT; 

 Researchers at Argonne provided officials at two transit agencies interested in 

installing PROTECT the option of awarding work to the subcontractor to which 

Argonne had not yet granted the PROTECT license. In one instance, before the 

competition and award of the exclusive license, an Argonne official went so far as 

to recommend that an interested transit agency contract directly with Argonne's 

subcontractor so it could avoid Laboratory overhead and indirect costs. Under the 

proposal, the transit agency would have avoided a portion of the overhead and 

indirect costs because Argonne would have provided technology, advice and 

assistance necessary for system installation indirectly through a work-for-others 

arrangement with its subcontractor; and, 

 Once it became aware of the complaint related to unfair competition, Argonne 

informed the Laboratory's ombudsman of the issue but chose not to use his 

services to help resolve the issue. This action could not be explained to our 

satisfaction and appeared to undermine one of the basic purposes of having 

ombudsmen at the Department's laboratories. 

Under these circumstances, we concluded that the competition and licensing process for 

PROTECT had not completely satisfied Department objectives related to ensuring that 

technology partnering programs provide fair opportunities to interested parties. Further, 

as a result of Argonne's actions to permit the subcontractor to enter into direct agreements 

with transit system customers for PROTECT-related work prior to the award of the 
3 

license, the Department was not reimbursed for overhead and indirect costs expenditures 

incurred by Argonne. Such reimbursements would have appropriately benefited the U.S. 

taxpayers by absorbing relevant costs of Argonne National Laboratory operations. 

The Department's oversight of Argonne's competition and licensing activities was 

limited. The Department's directive, DOE Facilities Technology Partnering Program, 

DOE Order 482.1, requires reviews and appraisals of facilities contractors, like Argonne, 

to ensure they carry out their technology partnering activities in accordance with 

applicable laws, regulations, policies, and delegations of authority. Officials at the 

Department's local offices, the Argonne Site Office and the Chicago Office, informed us 

that the Department does not require that the laboratories document their "fairness of 

opportunity" procedures, and, thereby, relies on the contractors to decide what 

mechanism they should employ to meet this requirement. We noted, however, that the 

contract with the Department specifically required that Argonne prepare such procedures. 

The position expressed to us by responsible Federal officials was inconsistent with the 

plain language of the contract. 

Local Federal officials told us that they were familiar with PROTECT and Argonne's 

working relationship with its subcontractor, and had reviewed the work-for-others 

agreements to verify that there was no competition with the private sector. While these 

same officials indicated that they were briefed on the exclusive license after it was 

awarded, they pointed out that they were not required to and did not review or approve 

the licensing agreement prior to award. The Argonne Site Office did, however, approve 

Argonne's work-for-others request to engage in PROTECT work with the subcontractor 

that ultimately would be awarded the exclusive license. However, these Federal officials 

asserted that they were unaware that the subcontractor was presenting itself as the 

licensee and "business partner" before Argonne competed the PROTECT license. As 

best we could determine, Argonne did not inform the Federal officials of this fact. In our 

judgment, this sequence of events was one of the most troubling aspects of this matter 

and may have contributed to the concerns raised by the complainant. 

Collaboration with and technology transfer to the private sector will increase 

substantially through continued growth of the Department's patent portfolio, and as the 

Department implements the science elements of the American Recovery and 

Reinvestment Act of 2009. The Department's National Laboratory system, including 

Argonne, is heavily involved in this taxpayer-funded effort. As such, it is essential that 

the Department's "fairness of opportunity" doctrine, a practice that embodies the 

requirement to widely disseminate information on technology transfer opportunities, is 

rigorously adhered to. As noted in the Department's policy statement on technology 

transfer, this doctrine, among other things, is a guiding principle to help improve the 

deployment of energy technology and applications that address both public and private 

needs. Under the circumstances, we made several recommendations designed to help 

improve the safeguards associated with technology transfer license competitions. We 

also recommended that the cognizant contracting officer evaluate Argonne's actions as 

they relate to the relationship with the subcontractor and license award and make 

performance fee and/or other adjustments, as appropriate. 
4 

MANAGEMENT REACTION

Management indicated that it shared our concern regarding ensuring "fairness of 

opportunity" at all of the Department's laboratories. Although it supported the 

development of formalized procedures for applying this doctrine and agreed that more 

robust standards of conduct could help prevent the appearance of conflicts of interest, 

management disagreed with a number of the conclusions contained in the report. 

Management's comments are included as Appendix 3. Specific reasons for management's 

disagreements and our responses are summarized in the body of the report. 

Attachment 

cc: Deputy Secretary 

 Under Secretary for Science 

 Chief of Staff 

 Director, Office of Science 

 Acting Technology Transfer Coordinator 

 Assistant General Counsel for Technology Transfer and Intellectual Property 

 Manager, Argonne Site Office 
SPECIAL REPORT ON ALLEGATIONS OF CONFLICT OF INTEREST 

REGARDING LICENSING OF PROTECT BY ARGONNE NATIONAL 

LABORATORY 

TABLE OF 

CONTENTS 

Licensing of PROTECT 

Details ofFinding ..............................."" ....... ..... ............... .... ........... ........... .............. ....... .... I 


Recommendations ............................................................................................................. . 6 


Comments ....................................................................... , .................. , .......................... ,...... 7 


Appendices 

1. Objective, Scope, and Methodology ............................................................................. 9 


2. Related Audit Reports .................................................................................................... 10 


3. Management Comments .....__ ....____ ...____ ..______________ ..__ .________ .__________ ..________ ..______________ ...____ . 11 

LICENSING OF PROTECT 


Transparency in 

Competition and 

Licensing 

As a Government-funded entity, it is important that actions at 

Argonne National Laboratory (Argonne or Laboratory), a 

contractor-operated facility, meet the Department ofEnergy's 

(Department) standards for fairness and accountability. We 

identified several issues related to Argonne's competition and 

licensing ofPROTECT (Program for Response Options and 

Technology Enhancements for Chemicallbiological Terrorism) 

that, in our opinion, rendered Argonne's process less than 

satisfactory. 

Fairness of Opportunity 

While Argonne appeared to generally follow procedures used by 

other Departmental Office ofScience laboratories, its actions may 

have been insufficient to ensure that its license offering provided 

adequate notice to potential bidders. Argonne's prime contract 

with the Department requires that: "In conducting its technology 

transfer activities, the Contractor shall prepare procedures and take 

all reasonable measures to ensure widespread notice of availability 

oftechnologies suited for transfer and opportunities for exclusive 

licensing .... " This requirement, referred to as "fairness of 

opportunity," is included in the technology transfer clause of 

Argonne's contract. 

Despite such language, our review disclosed that Argonne had not 

developed specific, documented policy regarding how it would 

provide "fairness of opportunity" in its licensing methods. In fact, 

we observed that there were no specific, documented policies 

related to ensuring that interested parties were provided the 

opportunity to bid or compete for licenses. Technology Transfer 

officials at the Laboratory told us, and we confirmed, that there is 

no requirement for Argonne to abide by the licensing regulations 

that the Federal government is required to follow, as contained in 

35 U.S.c. 209, when it engages in licensing activity. In particular, 

officials noted that they were not specifically required to publish 

the intent to license technologies or the actual award of exclusive 

licenses. In the absence of a documented and approved 

methodology, Laboratory officials used ad-hoc or informal 

approaches for identifying firms that were permitted to compete 

for licensing opportunities. 

According to Argonne officials within the Office ofTechnology 

Transfer, the primary means of providing notice ofopportunities 

are through website postings, various media sources, and contacts 

made at conferences. While we confirmed that Argonne had 

posted information seeking collaboration on PROTECT on its 

Details of Finding Page 1 
website as early as 2003, it never posted information regarding the 

opportunity to compete for the exclusive license. As noted earlier, 

actions taken by Argonne appeared to be generally consistent with 

the practices ofother Office of Science laboratories we contacted. 

However, with regard to PROTECT competition, Technology 

Transfer officials told us that they did not maintain records of who, 

if anyone, had contacted the Laboratory regarding collaboration 

opportunities, and instead developed the list of eight firms that it 

permitted to compete for the exclusive license solely by canvassing 

its principal investigators. These same officials believed that these 

individuals were in the best position to know the market and know 

who might be interested in competing because oftheir attendance 

at trade shows and conferences. The complainant in this case 

indicated Argonne's approach was not completely effective in that 

it did not identify his firm, an organization he claimed to be 

interested in competing. Argonne stated that its primary intent of 

the competition was to maximize the application ofthe technology 

in the private sector and to maximize the value to Argonne. 

We evaluated the actual process Argonne employed to select the 

firm granted the PROTECT exclusive license. Our review 

disclosed that Argonne officials, independent ofthe actual 

developers/inventors ofthe system, performed a comparative 

evaluation of the proposals it received in response to the limited 

solicitation. We found no reason to take issue with the specific 

evaluation and selection procedures in this case; and, we noted that 

after consideration of a number of evaluation factors, the firm 

selected for the exclusive license outscored other bidders by a wide 

margin. As with any situation in which an incumbent bids for 

related contracts or follow-on work, such a firm may have some 

unavoidable, inherent advantage over other bidders because ofits 

previous involvement with PROTECT. Such was the fact pattern 

in this case. Officials at Argonne expressed their view that the 

practice of having officials independent ofinventors/researchers 

perform the bid evaluations helped neutralize the impact of any 

advantage that may have existed. 

Conflict offuterests 

The complainant in this case also alleged that Argonne unlawfully 

competed with the private sector in that it referred to the firm to 

which the PROTECT license was awarded as a "business partner." 

The complaint also indicated that Argonne permitted the firm to 

refer to itself in advertisements and solicitations as an Argonne 

"business partner." The complainant believed that such references 

permitted its competitor to unfairly leverage the significant 

Page Details of Finding 2 
investment made by the Government (Le., taxpayer provided 

funds) in Argonne's research to its advantage. In 2002, the flnn 

which was eventually granted the exclusive license was awarded a 

sole-source contract by Argonne to provide equipment and 

implementation assistance for PROTECT. This finn provided 

cameras, software for accessing and controlling the cameras, and 

assisted Argonne in the PROTECT demonstration installations in 

several major public transportation systems. In various literature 

and business communications, the flnn referred to its relationship 

with Argonne as that of a "business partner." Laboratory officials 

were also alleged to have used the same tenn when describing the 

finn. Argonne officials, in discussing the "business partner" 

reference, indicated that the true nature ofthe relationship was that 

of a licensee. Argonne officials did, however, concede that the 

reference to "business partners" may have been inappropriately 

used and indicated that they had advised researchers and program 

officials to be more judicious in their descriptions in the future. 

Consistent with the tenninology used to describe its relationship 

with its subcontractor, we also found that Argonne may have 

improperly become an advocate for its subcontractor during 

negotiations with a Federal transportation agency interested in 

PROTECT. In partiCUlar, we identified two situations in which 

Argonne suggested to potential clients that the Laboratory could 

install PROTECT directly or that the system could be procured 

through one ofArgonne's subcontractors. In one instance a 

researcher went as far as to recommend contracting directly with 

the subcontractor, noting that using Argonne would most likely 

add additional time and cost to the contracting process. In the 

second instance, Argonne allowed its subcontractor to enter into an 

agreement with a transit authority before it had received the 

exclusive license for the technology. The fact that the 

subcontractor was perfonning the work for the transit authority 

was subsequently published in a prominent periodical. In our 

opinion, these actions, taken before Argonne competed and 

awarded the exclusive license, essentially gave the subcontractor 

exclusive access to the work without providing the same 

opportunity to other finns. 

Argonne officials told us that one factor that influenced their 

decision to pennit the subcontractor to contract directly for 

PROTECT in the second instance was one ofindemnification. 

They stated that the transit system customer with which they were 

dealing demanded that Argonne provide indemnification in the 

event ofterrorist attacks. Argonne explained that the issue 

sometimes came up with States or other local government entities, 

Page Details of Finding 3 
however, Federally-funded organizations are prohibited from 

providing indemnification. We were told the finn that ultimately 

received the exclusive license was willing to provide the requested 

coverage. However, the evidence we examined did not mention 

the indemnification issue. On the contrary, the evidence showed 

that the subcontractor was eager to start work on the project and 

was concerned about the financial impacts resulting from further 

delays. 

While Argonne had conflict ofinterest policies and had developed 

a conflict ofinterest management plan for the license, it had not 

documented standards of conduct to guide employee actions when 

developing and promoting intellectual property. The standards of 

conduct, for example, could address how Argonne employees are 

to interact with and refer to potential customers, subcontractors, 

sponsors, and end-users; define acceptable outreach activities; 

describe authorities for negotiating agreements, and establish 

periodic reviews. Such standards could serve to educate 

researchers about their responsibilities to protect the interests of 

Argonne and the Department and help to prevent the appearance of 

and actual conflicts ofinterest during the commercialization of 

Laboratory inventions. 

Complaint Resolution 

As we observed in our Audit Report on Management ofPatent and 

Licensing Activities at Department-Owned, Contractor-Operated 

Laboratories (DOEIIG-0479, August 2000), expanded technology 

transfer activities were likely to give rise to complaints that 

Laboratories were competing with the private sector. To address 

those issues, the Department's Technology Transfer Working 

Group recommended the laboratories establish ombudsmen to help 

resolve disputes or complaints. We noted, however, that for 

complaints it received regarding the PROTECT licensing 

agreement, Argonne did not involve its ombudsman, other than to 

infonn him ofthe complaint. Instead, according to an official we 

spoke to, the Laboratory noted that since the matter was political in 

nature and had been referred by a Congressman, they decided to 

route the complaint through the Government Affairs Office. While 

Argonne's responses provided a good deal ofinfonnation and we 

found no reason to question their veracity, Argonne did not involve 

the nonnal presumptively impartial, collaborative, and 

participative resolution style nonnally associated with actions 

handled by ombudsmen. There is no guarantee that these issues 

would have been resolved differently had the ombudsman been 

Page Details of Finding 4 
Departmental 

Oversight 

Need for Increased 

Transparency 

more directly involved, however, the interaction with an impartial 

individual may have facilitated resolution ofthe issue. 

The Department's oversight ofArgonne's competition and 

licensing activities was limited. The Department's directive, 

DOE Facilities Technology Partnering Program, DOE Order 

4821.1, requires reviews and appraisals of facilities contractors, 

like Argonne, to ensure they carry out their technology partnering 

activities in accordance with applicable laws, regulations, policies, 

and delegations of authority. Officials at the Department's local 

offices, the Argonne Site Office and the Chicago Office, informed 

us that the Department does not require that the laboratories 

document their "fairness ofopportunity" procedures, and thereby 

relies on the contractors to decide what mechanism they should 

employ to meet this requirement. As noted earlier, however, such 

is not the case in that Argonne's contract with the Department 

specifically requires that it prepare such procedures. 

Local Federal officials stated that they were familiar with 

PROTECT and Argonne's working relationship with its 

subcontractor. They had reviewed, for example, the work-forothers agreements for developing and demonstrating PROTECT to 

verify that Argonne was not competing with the private sector. 

They were also briefed on the exclusive license after Argonne had 

aw~ded it. These officials pointed out that they were not required 

to review or approve licensing agreements prior to enactment. As 

a result, they did not review or approve Argonne's process for 

competing PROTECT nor the licensing agreement prior to award. 

Our review established that the Argonne Site Office did, in fact, 

approve Argonne's work for others request to engage in PROTECT 

work with the subcontractor that ultimately would be awarded the 

exclusive license. However, these Federal officials apparently 

were unaware, because Argonne did not inform them, that the 

subcontractor was presenting itself as the licensee and "business 

partner" before Argonne competed the PROTECT license. In our 

judgment, the sequence of events was problematic and may have 

contributed to the concerns raised by the complainant. 

Collaboration with and technology transfer to the private sector 

will increase substantially through continued growth ofthe 

Department's patent portfolio and as the Department moves to 

implement the requirements ofthe American Recovery and 

ReinvestmentAct of2009. As such, it is essential that the 

Department make the process as transparent as possible by 

ensuring "fairness ofopportunity," thereby permitting a full-range 

ofinterested and capable firms to participate in activities designed 

Page 5 Details of Finding
to stimulate research and decrease dependence on foreign energy 

sources. In this particular case, permitting the subcontractor to 

contract directly for PROTECT related work prior to the award of 

the license also resulted in the Department and Argonne not 

receiving overhead and indirect costs which would have benefited 

the U.S. taxpayer by absorbing relevant costs ofLaboratory 

operations. Further, Argonne did not receive royalties that would 

have been paid had the licensing agreement been in effect. 

RECOMMENDATIONS 	 We recommend that the Director, Office ofScience, direct the 

Argonne Site Office Contracting Officer to: 

1. 	 Make a determination as to whether Argonne's actions 

relating to PROTECT development and licensing were 

appropriate. lfnot, make performance fee and/or other 

adjustments, as appropriate. 

As noted previously, our review disclosed that the practices used 

by Argonne during the competition for the PROTECT license may 

be similar to those employed by other Office of Science-managed 

laboratories. To address concerns at Argonne and those that may 

also exist at other Office of Science and Departmental laboratories, 

we recommend that the Technology Transfer Coordinator, in 

conjunction with cognizant program offices, direct the laboratories 

to: 

2. 	 Develop policies on how they intend to disseminate 

licensing opportunities to provide "fairness of 

opportunity" during competitions, especially as a part of 

the American Recovery and Reinvestment Act Process; 

3. 	 Maintain records ofthe requests for individual inventions 

and the actions taken regarding collaborations/technology 

licensing; 

4. 	 Develop standards ofconduct to guide employee actions 

when developing and then promoting intellectual 

property; and, 

5. 	 Involve ombudsmen in complaint resolution activities 

where practical and possible. 

Page Recommendations 6 
MANAGEMENT 

AND AUDITOR 

COMMENTS 

Management indicated that it shared our concern regarding 

ensuring "fairness ofopportunity" at all ofthe Department's 

laboratories. It expressed support for the development of 

formalized procedures for applying the "fairness ofopportunity" 

doctrine (Recommendation 2) and agreed that more robust 

standards of conduct could help prevent the appearance of conflicts 

of interest (Recommendation 4). Management, however, disagreed 

with a number ofthe conclusions contained in the report and did 

not specifically indicate whether it agreed with Recommendations 

1, 3 and 5. To that extent, we consider management's comments to 

be non-responsive. 

Management did not agree with the report's assertion that Argonne 

did not satisfy Department objectives in providing "fairness of 

opportunity" in that Argonne took several steps to ensure fair 

dissemination ofPROTECT -related licensing. While we do not 

disagree that Argonne took a number of actions in this regard, its 

process could have been strengthened by developing and 

publishing the procedures it would follow when offering 

inventions for licensing. In our opinion, publishing the licensing 

procedures and the opportunity specific information on Argonne's 

web site could have provided a relatively easy and inexpensive 

means to widely disseminate needed information. We also note 

Argonne's contract specifically requires it to develop procedures 

for satisfying the "fairness ofopportunity" doctrine. 

Management also asserts that contractor-operated laboratories such 

as Argonne are not required to follow the same strict licensing 

requirements as Federal laboratories. We recognize that this is the 

case, as noted in the body of our report, but point out that absent 

controlling Federal standards and a formal policy for the 

Department's laboratories, that Argonne relied on ad-hoc or 

informal procedures to identify firms that it would permit to 

compete. 

While management recognized that references to the ultimate 

licensee as a "business parmer" were inappropriate and agreed to 

strengthen conflict of interest procedures, it nevertheless disagreed 

with our conclusion that Argonne's efforts to avoid or ameliorate 

conflicts ofinterests were less than satisfactory. We do not find 

management's comment to be persuasive in this area, particularly 

since it noted that, "The use ofthe term business parmer is clearly 

erroneous and may have contributed to an appearance that the 

eventual PROTECT licensee may have had an advantage during 

the selection process." 

Comments Page 7 
Management also noted that statements in the report regarding 

Argonne's actions to permit the ultimate licensee to use and install 

PROTECT technology prior to the award ofthe exclusive license 

were misleading. Management noted that ifwork can be 

performed by the private sector, then that is the appropriate and 

preferred course of action. We do not dispute, in general, this is 

the preferred course of action. ill this case, the technology had not 

yet been licensed, however, the ultimate licensee was permitted to 

represent itself as the owner or licensee ofPROTECT. These 

actions serve to perpetuate the appearance that there was indeed a 

conflict of interest in this case and that the company was preselected. 

With regard to fees or royalties discussed in the report, 

management indicates that since both of the transit agencies were 

Federal organizations, costs to the Govenunent as a whole would 

have been reduced by having the subcontractor perform the work. 

We concede that the Laboratory's contracting fees may have been 

greater than those charged by the subcontractor, resulting in greater 

costs to the transit agencies by contracting with the Laboratory, but 

note that funds appropriated for one agency may not be expended 

to support another. The other fees and license royalties should 

have been paid by the subcontractor. It is unknown or arguable as 

to whether these costs would have been passed on to the transit 

agency. 

Finally, management believed that our report infers that Argonne 

had a duty to use the services ofthe Technology Transfer 

Ombudsman. Management noted that the Technology Transfer 

Commercialization Act of2000 created the position and that the 

Laboratory could have enlisted the services ofthe ombudsman but 

was under no obligation to do so. Again, we do not dispute 

management's interpretation of the law in this area. As noted in 

our report, however, having and ombudsman and not utilizing the 

services ofhis office, in our opinion, appears to defeat the purpose 

and intent ofthe law. . 

Page 8 Comments
Appendix 1 

OBJECTIVE 

SCOPE 

METHODOLOGY 

Our objective was to review selected aspects ofPROTECT 

(program for Response Options and Teclmology Enhancements for 

Chemicallbiological Terrorism) to determine whether allegations 

that the licensing ofPROTECT was tainted by inadequate 

competition, conflicts ofinterest, and other improprieties had 

merit. 

The review was performed from March 2009 through July 2009 at 

Argonne National Laboratory, and the Office of Science's Chicago 

and Argonne Site Offices in Argonne, Illinois. In particular, the 

review examined the licensing competition held for PROTECT as 

well as the events leading up to the competition. 

While reviewing the complainant's allegations we: 

• 	 Reviewed Federal and Department ofEnergy (Department) 

rules and regulations related to licensing activities; 

• 	 Reviewed documents related to subcontracting 


relationships for PROTECT; 


• 	 Evaluated documents related to the licensing competition 

and the resulting license; and, 

• 	 Held discussions with Departmental and Laboratory 

officials. 

In lieu of an exit conference, Department officials indicated that 

they would work to resolve comments that we considered to be 

non-responsive. 

Page 9 	 Objective, Scope, and Methodology 
Appendix 2 


Related Audit Reports 

• 	 Management ofPatent and Licensing Activities at Department-Owned, Contractor-Operated 

Laboratories (DOEIIG-0479, August 2000). While the Department ofEnergy (Department) 

controls were operating as intended, we noted that the number ofcomplaints related to 

patents and licensing had increased in recent years. These complaints appeared to result, in 

part, from confusion and misunderstanding relating to patent infringement and competition 

with the private sector. The Department's Technology Transfer Working Group made a 

number ofimprovements, including two initiatives designed to assist the private sector when 

disputes related to the Department's technology transfer activities arise. First, each 

laboratory was to assign an ombudsman to serve as a focal point for industry and the public 

and to resolve complaints and disputes. Second, to facilitate resolution of complaints, the 

Working Group encouraged increased use ofcollaborative alternative dispute resolution 

techniques. Although these two initiatives are positive steps, we recommended that the 

Technology Transfer Working Group address these issues and propose administrative and/or 

legislative actions to clarify Government laboratories' role in interacting with the private 

sector. 

• 	 Management Controls over Patent and Royalty Income at Ames Laboratory (OAS-M-05-05, 

May 2005). The audit disclosed that Ames had not adequately controlled and accounted for 

patent and royalty revenues, nor expended such funds to further research, technology 

transfer, and education. These issues occurred because the Department had not provided 

guidance regarding the extent to 'which its laboratories were permitted to rely on third-party 

entities to assume fiduciary responsibility for patent and royalty revenues. Furthermore, the 

Ames Site Office did not provide adequate oversight to ensure that Ames established a plan 

for the use ofpatent revenues in a manner consistent with contract terms. As a result, 

approximately $3.5 million generated by technology transfer is at greater risk of loss and of 

not being productively used. 

• 	 Management Controls over the Technology Transfer and Commercialization Program at the 

Idaho National Laboratory (OAS-M-05-07, June 2005). Certain financial management 

activities associated with the Idaho National Laboratory's technology transfer and 

commercialization program were not managed by Bechtel BWXT Idaho, LLC (Bechtel) 

consistent with its contract terms. Specifically, Bechtel did not properly recognize royalties 

due from licensing activities and did not monitor expenditures to ensure they were within 

established administrative limits. This occurred because Bechtel did not take action to 

correct previously reported weaknesses and the Idaho Operations Office did not provide 

adequate oversight to ensure contract provisions were complied with and reported 

weaknesses corrected. Without adequate controls in place, the Department cannot ensure 

that certain financial aspects ofits technology transfer and commercialization program are 

adequately managed. The report made recommendations to the Manager ofthe Idaho 

Operations Office to improve oversight ofBechtel's financial controls over its technology 

transfer and commercialization program. 

Page 10 Related Audit Reports 
Appendix 3 

Department of Energy 

Washington, DC 20585 

June 25, 2009 

MEMORANDUM FOR RICKEY R. HASS 

DEPUTY INSPECTOR GENERAL 

FOR AUDIT SERVICES 

OFFICE O~SPECTO~GENE,-._RA_-. 

FROM: 	 ~EV~~~ . 

ACTING TECHNOLOGY TRANSFE 

SUBJECT: 	 Response to Inspector General's Draft Report, "Allegations or 

Conflict oflnterest Regarding Licensing of PROTECT by 

Argonne National Laboratory" 

Thank. you for the opportunity to review and comment on the Report entitled "Allegations of Conflicts of Interest 

Regarding Licensing PROTECT by Argonne National Laboratory." The following is a consolidated response, 

which reflects the views of the Assistant General Counsel for Technology Transfer and Intellectual Property, the 

Acting Technology Transfer Coordinator, and the Office of Science. 

DOE shares the IG's concern for ensuring "faimess ofopportunity" at all DOE laboratories. Technology transfer is 

an important mission of both DOE and our laboratories and DOE is committed to providing fair opportunities in 

conjunction with all of its technology transfer activities. DOE supports several ofthe Report's recommendations 

that will further strengthen the ability ofour laboratories to provide widespread dissem instion of technology 

transfer opportunities while limiting potential conflicts of interest. However, the Department respectfully disagrees 

with several ofthe Report's conclusions. 

DOE disagrees with the Report's assertion that Argonne National Laboratory (ANL) did not satisfy Department 

objectives in providing "fairness of opportunity" during licensing of PROTECT. In faer, ANL took several steps 

to ensure fair dissemination of information related to PROTECT including posting information about technology 

transfer opportunities regarding the technology on its website, soliciting at least eight potential licensees, and 

conducting II detailed and objective evaluation of the mUltiple proposals received.I 

The Report suggests that ANL's approach to "fairness ofopportunity" was not completely e.ltective since ANL 

failed to identify the complainant's firm as a party that might have been interested in the exclusive license. 

However, the standard for fairness of opportunity is 1I0t that a laboratory identify every firm that may be interested 

but rather is based on a reasonableness standard.· ANL's Prime Contract requires the laboratory to take "reasonable 

measures to ensure widesrread notice of availability oftechnologies suited for transfer and opportunities for 

exclusive licensing ...,,2.. OOE asserts that ANL made such efforts in this case. 

While DOE is committed to ensuring our laboratories pl'Ovide "fairness ofopportunity," such concerns must be 

considered in light ofOOE's entire technology transfer policy which includes encouraging the deployment of DOE 

IAlthough enticized in the Report ANl's practice of identifying potenlialliccnsc<:s from information provided by inventors and loch 1...lIsfer staff is. 


strakgy ulilill:d by many universities and fedemllab5. Menu of Best Practices in Technology Transfer (PIIl'I2). RQbcrt K. Carr. Tech T11II.8Ier. [992. 


'See. TechnologyTnm.~fCf Mission Clause Ll13 Ofl!lC ANI. Prime Contra<:l, DOE ('OUimet No. DFrAC02-{)6CHI1357, DEAR 970.5227-3 


'See aiso,SeClion 3133 of PL. 101-\89 
 *Printed wiTh soy Ink ()fl r8C)<cjOO paper 

Page 11 	 Management Comments 
Appendix 3 (Continued) 

technologies as expeditiously as possible to enhance the Nation's energy security, scientific discovery, economic 

competitiveness, and quality of life tbrough innovations in science and technology: DOE believes that the current 

reasonableness standard adequately addresses "fairness of opportunity" concerns while providing our laboratories 

some flexibility to ensure that technologies are deployed in the shortest time practicable. 

It is important to note that when licensing inventions, government-owned, contractor-operated federal laboratories 

such as ANL are not subject to the strict licensing requirements codified at 35 U.S.C 209 which require extensive 

publishing of exclusive licensing opportunities. Freeing contractor-operated federal laboratories from licensing 

new inventions under a strict licensing regime was clearly the intent of Congress when it amended the Bayh-Dolc 

Act, 35 U.S.C. 200 el seq in J984 to provide the contractors operating federal laboratories the same administrative 

freedom to license as had already been provided to Universities, non-profits and small businesses. This allows 

laboratories to transfer inventions to industry through licensing arrangements that can be as efficient as that 

accomplished by their university counterparts. As measured by the number of licenses issued and royalty revenue 

received, the result has been overwhelmingly positive. The flexibility to enter into licensing arrangements without 

overly burdensome government oversight Or cumbersome federal licensing requirements has and will continue to 

facilitate DOE laboratories' ability to transfer technology from our laboratories more efficiently, so that the 

technology can reach the marketplace for the bettennent of both the taxpayer and the U.S. economy. 

The Report repeatedly criticizes ANL for not developing a specific documented policy regarding how it provides 

"tairness of opportunity" in its licensing procedures. While ANL did not document its procedures, it is clear that 

ANL was cognizant of the "fairness ofopportunity" standard and took actions to ensure compliance. In fact, the 

Report recognizes that ANL "appeared to generally follow procedures used by other Departmental Office of 

Science laboratories including providing notice ofopportunities through website postings, various media sources, 

and contacts made at meetings.sNevertheless, DOE supports the recommendation that DOE laboratories develop 

more fonnalized "fairness ofopportunity" procedures. 

DOE respectfully disagrees with the conclusion that ANL's efforts to avoid or ameliorate conflicts ofinterests prior 

to awarding the PROTECT license were less than satisfactory. However, DOE concurs in principle with the 

concern aboutthe inappropriate use of the term "business partncr" by both ANL and the eventual licensee in 

describing their relationship during certain collaborations. While the Department does actively encourage its 

laboratories to develop technology partnering programs, OOE does not in any way condone the use of the tern] 

"business partner." The use of the tenn "business partner" is clearly erroneous and may have contributed to an 

appearance that the eventual PROTECT licensee had an advantage during the selection process. Despite the 

inappropriate use of the tenn "business partner" by both ANL and the eventual PROTECT licensee, the Report 

itself concludes that ANL was still able to perform an objectivc evaluation of the submitted proposals. 6 

DOE also agrees that more robust standards of conduct to guide employee actions when developing and promoting 

intellectual property will hel p prevent the appearance of conflicts of interest duri ng commercialization of laboratory 

inventions. 

The Report concludes that ANL permitted 1:\\'0 transit agencies interested in installing PROTECT the option to 

award work directly to its subcontractor thereby depriving the taxpayer ofthe benefit of overhead dollars that 

would otherwise have been collected by ANL. This is misleading for 1:\vo reasons. Most importantly, if certain 

work can be performed by the private sector, mther than by a federally-funded laboratory, it is appropriate and 

preferred to have the private sector perform the work. Additionally, transit agencies installing the PROTECT 

program were federally funded. Therefore, it is to the taxpayer's advantage to leverage the federal funds in this way 

to lower the cost to taxpayers. 

I So!\!, Sccrct&rial Policy Statement on Tt(;hno\ogy Transfer al Department of Energy Facilities. January 31. 2008, 


'See, 1'" and 4'" !I'IflIllT8Phs ofpllge I oftile Details of finding Section ofthe Report, 


'See, I" full paragraph of page 2 of Details of Findinll oftlw RllPort. 


June 25, 2009 Page 2 of4 

Page 12 Management Comments 
Appendix 3 (Continued) 


The language in the Report paragraph titled "Complaint Resolution" infers that the laboratory had a duty to use the 

services oftbe Technology Transfer Ombudsman. That is 110t the case. The decision to use the services of the 

Ombudsman is completely voluntary. Furthermore, the laboratory is not obli&>ated to notify the Ombudsman of any 

complaint. 

The Technology Transfer C(lll1merciaJizatioll Act of2000 created the position of the Technology Transfer 

Partnership Ombudsman. Section 11 ofthe Act provides that the "Secretary of Energy shall direct the director of 

each nationallaborntory ofthe Department of Energy, and nlay direct the director ofeach facility under the 

jurisdiction of the Department ofEnergy, to appoint a technology partnership ombudsman (0 hear and help resolve 

complaints from ou/side organizations regarding the policies and actions of each such laboratory or facility with 

respect to technology partnership (including cooperative research and development agreements), patents, and 

technolOgy licensing" (emphasis added). The Technology Transfer Ombudsman positions were designed to provide 

outside organizations a forum for complaint resolution. The laboratory could enlist the services ofthe Ombudsman 

but is under no obligation to do so. 

Attached are DOE's responses to the faCts presented, proposed recommendations, and estimated potential monetary 

impact. 

Cc; Team Leader, Audit LiaiS(ln Group, CF-I.2 

Manager, Argonne Site Office 

Audit Liaison, Chicago Office 

Memo fur Rickey R. Hass 

June 25, 2009 Page 3 of4 

Management Comments Page 13 
Appendix 3 (Continued) 

Management Response to the Statement of Fads 

DOE agrees in principle with the facts presented. 

Management Response to Recommendations: 

Recommendation that the Diredor of the Office ofScience direct the Argonne Site Office 

Contracting Officer to make a determination as to whether ANL's actions relating to the 

PROTECT development and licensing were appropriate. If not, make performance fee and/or 

adjustments as appropriate. 

Management Response: The above recommendation puts the Contracting Officer in the position of 

either disagreeing with at least some of the IG's conclusions or disagreeing with Management's position 

that ANL abided by its contract. The situation is further complicated by the Report'S conclusion that 

ANL appeared generally to fo !low procedures used by other Departmental Office of Science laboratories. 

Recommendations for tlle Technology Transfer Coordinator to take actions and develop policies, 

specifically to direct the laboratories to develop polices on how the labs intend to disseminate 

licensing opportunities to provide "fairness ofopportunity" during competitions, especially as a 

part of the American Rec.overy and Reinvestment Act Proccs,,>, t~ maintain records of the requests 

for individual inventions and the actions taken regarding collaborations/teclinology licensing. to 

develop standards of conduct to guide employee actions when developing and tllen promoting 

intellectual property. and to involve ombudsmen in complaint resolution activities wbere practical 

and possible. 

Management Response: The Department asserts that the fonnal policy development and related 

procedural changes raised by the report and all its reconlmendations would be most appropriately 

considered and addressed by the new DOE Technology Transfer Coordinator expected to be identified by 

th.e Administration. Due to the change of Administration. a new Technology Transfer Coordinator is not 

yet in place. 

Management Response to Reasonableness of the Estimated Potential Monetary Impact etc. 

DOE agrees with the Report's conclusion that there was no quanti.fiable Potential Monetary Impact as a 

result of ANL's actions in.licensing the PROTECT technology. 

Memo for Rickey R. 1·lass 

June 25. 2009 Page 4 of4 

Page 14 Management Comments 
IG Report No. DOEIIG-0819 

CUSTOMER RESPONSE FORM 

The Office ofInspector General has a continuing interest in improving the usefulness ofits 

products. We wish to make our reports as responsive as possible to our customers' requirements, 

and, therefore, ask that you consider sharing your thoughts with us. On the back ofthis form, 

you may suggest improvements to enhance the effectiveness of future reports. Please include 

answers to the following questions if they are applicable to you: 

1. 	 What additional background information about the selection, scheduling, scope, or 


procedures ofthe inspection would have been helpful to the reader in understanding this 


report? 


2. 	 What additional information related to findings and recommendations could have been 


included in the report to assist management in implementing corrective actions? 


3. 	 What format, stylistic, or organizational changes might have made this report's overall 


message more clear to the reader? 


. 4. 	 What additional actions could the Office of Inspector General have taken on the issues 

discussed in this report which would have been helpful? 

5. 	 Please include your name and telephone number so that we may contact you should we have 

any questions about your comments. 

Name ______________ Date _______________ 

Telephone ____________ Organization ____________ 

When you have completed this form, you may telefax it to the Office ofInspector General at 

(202) 586-0948, or you may mail it to: 

Office ofInspector General (IG-I) 

Department ofEnergy 

Washington, DC 20585 

ATTN: Customer Relations 

If you wish to discuss this report or your comments with a staff member ofthe Office of 

Inspector General, please contact Judy Garland-Smith (202) 586-7828. 
The Office of Inspector General wants to make the distribution ofits reports as customer friendly and cost 

effective as possible. Therefore, this report will be available electronically through the Internet at the 

following address: 

u.s. Department ofEnergy Office ofInspector General Home Page 

http://www.ig.doe.gov 

Your comments would be appreciated and can be provided on the Customer Response Form 

attached to the report.