Federal Research: DOE Is Addressing Invention Disclosure and Other Challenges but Needs a Plan to Guide Data Management Improvements
Published: 2015-01-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOE provides funding to contractors for research and development of new technologies. To incentivize participation in federal research projects and promote the use of federally funded inventions, the 1980 Bayh-Dole Act and other laws and regulations allow contractors receiving federal research and development funds to retain ownership of inventions they create so long as they adhere to certain requirements, including disclosing inventions developed with agency funding. DOE's ability to protect its interests in these inventions—including their utilization and domestic manufacture—depends on its knowledge of their existence.
GAO was asked to review DOE efforts to protect its interests in agency funded inventions. This report examines: (1) DOE funding for contractor research for fiscal years 2009 through 2013 and how DOE ensures that contractors disclose agency funded inventions, (2) the challenges DOE faces in ensuring invention disclosure and actions it is taking to address them, and (3) the challenges DOE faces in protecting its interests in these inventions and the actions it is taking to address them. GAO reviewed laws, regulations, and other documents and interviewed DOE patent counsel responsible for intellectual property issues, representatives of organizations that facilitate the development of federally funded technology, and others.
section_title: What GAO Found
paragraphs: The U.S. Department of Energy (DOE) provided at least a total of $11 billion ($12 billion in fiscal year 2014 dollars) in research and development funding to contractors for fiscal years 2009 through 2013. Contractors reported about 5,800 inventions and 700 patents developed with DOE funding during this time period. To ensure disclosure of these agency funded inventions, DOE relies primarily on contractor self-reporting and financial assistance award closeout procedures. Contractors are generally required to adhere to specific time frames for invention disclosure. Following contractor invention disclosure, DOE patent counsel monitor the invention through the end of a financial assistance award to ensure contractor compliance with time frame requirements for electing to retain ownership and applying for patent protection of the invention.
DOE faces challenges in (1) ensuring that contractors disclose agency funded inventions and (2) managing information related to these disclosures and is taking steps to address them.
Limited ability to ensure invention disclosure after funding ends: DOE does not have a documented process to ensure contractors disclose inventions after financial assistance awards end. To address this, DOE recently began two pilot efforts to determine the extent of undisclosed inventions. One is an audit of a sample of previously completed financial assistance awards and the other involves cross-referencing U.S. Patent and Trademark Office data against DOE information on inventions it funded. DOE is still implementing these efforts but reported identifying more than 100 potential undisclosed inventions. DOE will assess the results of the pilots to determine whether to continue them, according to DOE patent counsel.
Data management limitations: DOE faces a challenge in managing information related to agency funded inventions because it relies on two different data systems that are outdated, unable to communicate with each other, and do not allow for electronic reporting. Under federal internal control standards, information should be recorded and communicated to management and others within the entity who need it and in a form and within a time frame that enables them to carry out their responsibilities. DOE is in the process of updating its data systems and is planning the development of an electronic reporting function but has not established an implementation plan with milestones against which it can track its progress toward completing these efforts. By developing such a plan, DOE would have greater assurance that it is making timely progress toward these efforts.
In addition, DOE faces challenges in its ability to monitor and influence the utilization and domestic manufacture of inventions it funded to protect its interests in them. DOE has proposed regulatory changes to address these challenges that would (1) require contractors to report on the utilization and domestic manufacture of agency funded inventions, (2) allow DOE to assess manufacturing plans as criteria for funding decisions, and (3) require contractors to obtain DOE authorization for changes in their control—including ownership—under certain circumstances. According to patent counsel, DOE expects to finalize these regulatory changes in fiscal year 2015.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOE develop an implementation plan with milestones for improving its data management systems. DOE agreed with this recommendation.

section_title: Letter
paragraphs: Technological innovation is widely seen as responsible for much of the  economic growth and increased standard of living in modern societies.  Federal departments and agencies, such as the U.S. Department of  Energy (DOE), support technological innovation through a wide range of  research activities that focus on their mission needs. For example, DOE  annually funds billions of dollars toward the nation’s research in support  of its mission to ensure America’s security and prosperity by addressing  its energy, environmental, and nuclear challenges through transformative  science and technology solutions.
A large portion of DOE funded research is performed outside of the  network of its 17 national laboratories through financial assistance awards  with private sector or academic researchers, among others. The 1980  Bayh-Dole Act and other laws and implementing regulations provide the  legal framework for the ownership of inventions developed by nonfederal  recipients of federal research and development funding, commonly  referred to as contractors. To better transfer the results of federally  funded research to the public, this framework allows contractors—rather  than the government—to manage invention utilization by retaining  ownership of inventions they develop with federal funds. At the same  time, this framework requires contractors to take steps to protect the  government’s interests in these inventions. Specifically, DOE has an  interest in facilitating the utilization of inventions resulting from the  research it funds because the public benefits when technological  advances become new goods and services in the marketplace.  Additionally, DOE generally has an interest in federally funded inventions  being made in the United States. To help protect these interests, the  Bayh-Dole Act and DOE’s large business patent waivers establish time  frames in which contractors must disclose the development of federally  funded inventions, determine whether to retain ownership, and apply for  patent protection, among other things. Contractor compliance with these  requirements provides information on federally funded inventions that  agencies can use to protect the government’s interests in them.
In recent years, some congressional hearings raised concerns about  whether inventions funded by agencies, such as DOE, are being used to  support U.S. economic growth and competitiveness. For example, a  December 2012 congressional hearing raised several concerns about  whether taxpayer-funded research and development benefits foreign  entities when such entities purchase U.S companies or their technology  assets. about U.S. firms that relocate their manufacturing efforts overseas,  particularly when federal agencies helped to fund the technologies used  by those firms.
The Impact of International Technology Transfer on American Research and  Development, Before the House Committee on Science, Space, and Technology,  Subcommittee on Investigations and Oversight, 112th Congress, 3-10 (2012).
You asked us to review DOE’s efforts to protect its interests in agency  funded inventions. This report examines (1) the extent to which DOE  funds contractor research and how it ensures that contractors disclose  inventions they develop with agency funding; (2) the challenges DOE  faces in ensuring contractors disclose inventions, as well as the actions it  is taking to address them; and (3) the challenges DOE faces in protecting  its interests in agency funded inventions, as well as the actions it is taking  to address them.
To examine how DOE ensures that contractors disclose inventions they  develop with agency funding, we identified and reviewed laws,  regulations, and agency documents associated with invention disclosure  requirements and DOE’s process to monitor contractor compliance with  these requirements. We also interviewed DOE patent counsel  responsible for monitoring contractor compliance with invention disclosure  requirements. To examine the extent to which DOE funds contractor  research, we collected and analyzed data on the extent to which DOE  funded research by contractors subject to the provisions of the Bayh-Dole  Act and other relevant laws and regulations from fiscal years 2009  through 2013. Additionally, we collected information from DOE on the  number of contractor-disclosed inventions and patents during this same  time period. We reviewed DOE’s practices for recording this data and  information and determined they were sufficiently reliable for our  purposes. To examine the challenges that DOE faces in ensuring that  contractors disclose inventions they develop with agency funding and any  actions it is taking to address them, we reviewed applicable regulations,  as well as DOE processes, procedures, and data systems for monitoring  contractor compliance. We also reviewed documentation of DOE efforts  to address the challenges it faces, and we interviewed DOE patent  counsel. To examine the challenges that DOE faces in protecting its  interests in agency funded inventions as well as the actions it is taking to  address them, we reviewed laws, regulations, and agency documents  associated with DOE’s interests in these inventions and interviewed DOE  patent counsel. To understand issues associated with the development  and patenting of federally funded inventions that underlie our objectives,  we interviewed officials from the U.S. Patent and Trademark Office,  representatives from several industry organizations involved in facilitating  the development of federally funded technology, and academic  researchers who study the topic.
We conducted this performance audit from October 2013 to January 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Prior to the Bayh-Dole Act, the government generally retained ownership  of federally funded inventions regardless of whether the research was  performed in federal laboratories, at universities, or by individual  companies, and only 5 percent of the patents on these inventions were  ever used in the private sector, according to a Congressional Research  Service report. The Bayh-Dole Act allows nonprofits, small businesses,  and universities to retain ownership of federally funded inventions to  promote the utilization of inventions created through federal research and  development programs, and to provide an incentive for contractors to  commercialize federally funded inventions for sale in the marketplace.  The Bayh-Dole Act applies to universities, nonprofit organizations, and  small businesses that receive federal research funding. Federal agencies  that enter into financial assistance awards with these types of entities  must adhere to the requirements of the Bayh-Dole Act and its  implementing regulation developed by the Department of Commerce.particular, the Bayh-Dole Act requires agencies, including DOE, to  incorporate specific provisions into research and development financial  assistance awards that contractors must comply with to help protect the  government’s interests in any resulting inventions.
Federal Nonnuclear Energy Research and Development Act of 1974 § 9, 42 U.S.C. §  5908.
3.  apply for a patent on an invention, typically within 1 year of electing to  retain ownership.
DOE generally requires similar actions from large businesses in order to  retain ownership of agency funded inventions, but the time frames can  vary depending on the specific provisions of an individual financial  assistance agreement.
Compliance with these provisions informs agencies, such as DOE, of an  invention’s existence, and helps ensure that a contractor takes timely  steps to patent the intellectual property embodied in the invention, should  the contractor wish to retain ownership of it. If a contractor does not  comply with these requirements, agencies have the authority to demand  ownership of a federally funded invention to provide the government the  opportunity to take steps to protect its interests in it. Once contractors  own a patented invention, they are generally free to use or transfer their  patent rights at their discretion, in compliance with applicable laws, such  as those regarding export control.
The Bayh-Dole Act also identifies certain interests the government has in  federally funded inventions, including their utilization and domestic  manufacture. DOE’s Patent Waiver Regulation does not explicitly identify  these interests with regard to inventions developed by large business  contractors, but the waivers themselves generally will outline specific  requirements related to invention utilization and domestic manufacture as  shown below.
Utilization. DOE can use the authority, known as march-in authority,  to require a contractor or licensee to grant a license to any  responsible entity or entities when an agency determines that certain  conditions identified in the act have been met. Additionally, the  government has a nonexclusive royalty-free license to practice, and  have practiced on its behalf, any invention created with federal  funding.
Domestic manufacture. Under the Bayh-Dole Act and DOE  regulations and policy, DOE has established certain requirements in  financial assistance awards for contractors to manufacture federally  funded inventions in the United States. These requirements vary  depending on the type of contractor involved in a financial assistance  award. Domestic manufacture requirements for federally funded  inventions include:
U.S. Preference. U.S. Preference provisions generally require  small business and nonprofit contractors’ exclusive licensees to  substantially manufacture federally funded inventions domestically  in order to use or sell the inventions in the United States. These requirements apply only to a contractor’s exclusive licensee; the  contractor that developed the invention faces no limitations on  manufacturing location. Federal agencies may use their march-in  authority in instances where contractors’ licensees do not comply  with U.S. Preference requirements.
U.S. Competitiveness. U.S. Competitiveness provisions  generally require that the manufacture of inventions developed by  large businesses must occur substantially in the United States  unless otherwise approved by DOE. DOE may require forfeiture of  invention ownership or refund of its investment when contractors  do not comply with these requirements if such penalties are  included in the patent rights clause of the financial assistance  award.
U.S. Manufacturing Plan. U.S. Manufacturing Plan provisions  generally require that contractors submit plans as part of a funding  application specifying how they intend to domestically  manufacture any potential inventions developed in the course of  the financial assistance award. Where this provision is part of a  financial assistance award, DOE may take ownership of the  invention, require refund of its investment,reporting requirements in instances of noncompliance.
In addition, DOE may include provisions within a financial assistance  award that require reports from contractors to provide information on how   Specifically, DOE programs can  federally funded inventions are utilized. request that contractors provide periodic reports with information  regarding patent status (e.g., filing date, application number and title, and  patent number and issue date), and invention utilization (e.g., the status  of development, date of first commercial sale or use, and gross royalties  received). DOE may request these reports at its discretion but not more  than annually.
section_title: DOE Relies on Contractor Self- Reporting and Agency Procedures to Help Ensure Disclosure of Agency Funded Inventions During Fiscal Years 2009 through 2013, DOE Initiated Nearly 6,000 Financial Assistance Awards
paragraphs: During fiscal years 2009 through 2013, DOE initiated nearly 6,000  financial assistance awards. DOE relies primarily on contractor self- reporting and financial assistance award closeout procedures to ensure  that contractors disclose agency funded inventions.
During fiscal years 2009 through 2013, DOE initiated a total of nearly  6,000 financial assistance awards worth at least $11 billion with  contractors, according to data provided by DOE. During this period,  according to DOE patent counsel, contractors reported approximately  5,800 inventions, elected to take ownership of about 2,800 inventions,  and were issued more than 700 patents.
37 C.F.R. § 401.8. DOE’s large business patent waivers may contain similar reporting  requirements. amount and number of financial assistance awards DOE established with  different types of contractors for fiscal years 2009 through 2013. In fiscal  year 2013, the most recent year data were available, DOE provided a  majority of funds to universities and nonprofits (nearly $1 billion across  580 agreements), followed by large businesses (approximately $304  million across 79 agreements) and small businesses (approximately $290  million across 370 agreements).
subsections: section_title: DOE Relies on Contractor Self-Disclosure and Agency Procedures to Help Ensure Disclosure of Agency Funded Inventions
paragraphs: Contractors disclose agency funded inventions to DOE through a variety  of reporting mechanisms including e-mail, regular mail, and Interagency  Edison (iEdison)—which is an electronic reporting system that allows  federal grantees and contractors to report federally funded inventions,  patents, and utilization data.contractor discloses an invention developed with DOE funds, patent staff  create a file for that invention. According to DOE procedures, patent  counsel then monitor compliance with time frames related to the  contractor’s determination of whether to retain ownership and pursue   According to DOE procedures, when a  patent protection. From this point forward, according to DOE procedures,  whenever a contractor submits additional information about an invention,  DOE patent counsel review the invention’s file to ensure compliance with  all invention disclosure provisions. If DOE patent counsel determine that a  contractor has not met the specified time frames for disclosing and  electing ownership of an invention, they send the contractor a letter— known as a demand letter—demanding that the contractor give DOE  ownership of the invention.
DOE patent counsel told us that they recently upgraded one of the agency’s data  management systems—IP Master—to a new system called IP Manager, which became  operational in November 2014. noncompliance with invention disclosure requirements during closeout.They added that nondisclosure, particularly from contractors with more  limited resources, is generally inadvertent. They told us that  nondisclosure is more often due to limited contractor familiarity with the  legal requirements or experience in working with the federal government  than an intentional attempt to avoid disclosing an agency funded  invention. DOE patent counsel said if a contractor failed to disclose an  agency funded invention but did so inadvertently, they would generally  work with the contractor to meet disclosure requirements rather than  demand ownership for noncompliance with disclosure requirements. They  said that approach better meets their view of the intent of the Bayh-Dole  Act to commercialize federally funded inventions, while ensuring the  government protects its interests in them.
The closeout of a financial assistance award is also the point when DOE  monitors whether contractors have patented agency funded inventions.  For example, according to DOE procedures, a contractor must send DOE  patent counsel a patent certification form—a document that discloses all  inventions that resulted from the financial assistance award. In turn,  according to DOE procedures, patent counsel use this information to  ensure contractor compliance with the terms of the financial assistance  award before issuing a patent clearance letter—a document in which  DOE acknowledges the contractor’s ownership of the patented invention.  In addition to the required certification form, upon request from DOE,  contractors must provide information about patents for any invention they  elected to own. When a contractor submits such information, DOE patent  counsel verify that the reported patents include a statement of  government interest—standard language in a patent that acknowledges  the government’s role in funding its development—and that the  invention’s file is complete and up-to-date in the relevant data system.
section_title: DOE Faces Challenges in Ensuring that Contractors Disclose Agency Funded Inventions and Is Taking Actions to Address Them
paragraphs: DOE faces challenges in ensuring that contractors disclose inventions  they develop with agency funding and is taking actions to address them.  Specifically, one challenge DOE faces is not having a documented  process for ensuring that contractors disclose agency funded inventions  after financial assistance awards end, and the agency has initiated two  pilot projects to identify the extent of potentially undisclosed inventions.  Additionally, DOE faces a challenge in managing invention disclosure  information because its data systems for doing so have limited  capabilities. While the agency has begun to upgrade those systems, DOE  has not developed an implementation plan with specific milestones for  certain key steps to guide these efforts.
subsections: section_title: DOE Is Implementing Pilot Projects to Address Challenges in Identifying Undisclosed Inventions
paragraphs: One challenge that DOE faces is not having a documented process for  ensuring that contractors disclose agency funded inventions after  financial assistance awards end. DOE’s closeout procedures are  designed to, among other things, ensure that contractors disclose all  inventions developed during a DOE financial assistance award and that  DOE’s interests in them are documented. However, DOE has no  documented process to monitor inventions after award closeout. Due to  the time that may elapse between when a contractor files a patent  application and when a patent is granted by the U.S. Patent and  Trademark Office, DOE funded inventions may exist that are not  identifiable through public searches at the time a financial assistance  award ends. Under such a scenario, if the contractor did not voluntarily  disclose an invention, the invention would not be identifiable during  DOE’s closeout procedures. Instead, DOE patent counsel told us they  rely on contractors to voluntarily disclose such information following  financial assistance award closeout. As a result, the potential exists for  DOE to be unaware of inventions that it funded and in which it would  retain interests.
To address this challenge, DOE recently launched two pilot projects  aimed at better understanding the extent of undisclosed inventions. One  pilot project is an audit of a sample of previously completed financial  assistance awards to determine the extent to which contractors did not  disclose DOE funded inventions. The second pilot project involves cross- referencing U.S. Patent and Trademark Office data against DOE  information on inventions it funded.
In the first pilot project, which began in December 2013, DOE developed  draft audit procedures to sample previously completed financial  assistance awards and determine the extent to which contractors did not  disclose agency funded inventions. Under the draft audit procedures,  DOE patent counsel (1) audit contractor activities for any indication of  patents, patent applications, or inventions that might have been  developed with DOE funding but were not disclosed to DOE; (2) submit  demand letters to contractors to obtain ownership of any potentially  undisclosed inventions; and (3) work with contractors, depending on the  circumstances of nondisclosure, to allow them to retain ownership of the  inventions. The draft audit procedures set a target of annually sampling  100 randomly selected financial assistance awards completed during the  previous 5 years, which represents approximately 5 percent of the  agreements closed out during that period, according to DOE  documentation. As of December 2014, DOE patent counsel told us that  they had reviewed 99 financial assistance awards completed during the  previous 5 years and identified three undisclosed inventions for which  they sent demand letters to the relevant contractors. DOE patent counsel  told us that they granted one of the contractors an extension of time to  retain ownership of the undisclosed invention because DOE determined  that the nondisclosure was an oversight. DOE patent counsel said that  they resolved another as a data entry error. As of December 2014, DOE  had not received a response to the third demand letter. DOE modified its  draft audit procedures based on initial testing, and patent counsel told us  that they might conduct another phase of pilot testing before assessing  the overall results of the audit procedures and making a determination  about whether to implement the pilot project on a permanent basis. They  told us that this decision will depend on the extent to which the pilot  project identifies undisclosed inventions compared with the resources— principally staff hours—necessary to conduct it. For example, if the audit  procedures identify few undisclosed inventions, DOE could be less likely  to implement it permanently.
DOE’s second pilot project involves cross-referencing U.S. Patent and  Trademark Office data against DOE information on inventions it funded.  For this pilot project, DOE patent counsel analyzed data from a U.S.  Patent and Trademark Office database to identify inventions or patents  with a government interest clause indicating the patent stemmed from  DOE funding. Then, DOE patent counsel reviewed the data to determine  if information on issued patents or published patent applications also  existed in DOE’s PATMIS data system, with patent files not identified in  DOE’s data system representing possible unreported inventions or  patents. For the pilot, DOE patent counsel told us that they reviewed 549  patented inventions that they identified as absent from DOE’s data  system. Through this effort, DOE patent counsel told us they identified  100 patented inventions that may have been undisclosed and issued 40  demand letters covering 64 undisclosed inventions to contractors. As of  December 2014, they said DOE resolved 16 demand letters—covering 22  inventions—and is awaiting response from the other 24—covering the  remaining 42 inventions. According to DOE patent counsel, 11 of the  contractors had not properly disclosed the patented inventions, generally  due to misunderstandings regarding what their responsibilities were to the  government. They told us that, in each instance, DOE determined that the  contractor had acted in good faith and allowed an extension of time for  the contractors to file the required disclosure paperwork to retain  ownership. According to DOE patent counsel, the 5 other contractors to  which DOE issued demand letters demonstrated that they had not failed  to comply with invention disclosure requirements. DOE patent counsel  explained that the related inventions were either disclosed to DOE but not  logged into its data systems, or were logged incorrectly into its data  systems, among other reasons. DOE patent counsel said that this effort  helped DOE identify several inventions that were not properly disclosed.  DOE patent counsel also indicated that the pilot revealed that the  contractors’ failure to report inventions to DOE appeared to have been in  good faith, but that the contractors were unaware of all invention reporting  obligations. DOE patent counsel told us that, in turn, the agency is  reviewing the compliance assistance resources available to contractors  and periodically reminds them of their obligations to DOE. They also said  that, after these compliance assistance actions have been implemented,  DOE anticipates reevaluating the usefulness of the pilot audit project.
section_title: DOE Is Planning to Update Data Systems to Address Challenges in Managing Invention Disclosure Information but Does Not Have an Implementation Plan with Key Milestones
paragraphs: DOE faces a challenge in managing information on disclosed inventions,  which underpins its ability to protect its interests in agency funded  inventions. This is because, according to DOE patent counsel, the  department’s two older invention data management systems—IP Master  and PATMIS—are outdated, unable to communicate with each other, and  do not have functionality for electronically updating invention disclosure or  patent status, hampering their ability to manage information and data  related to inventions developed with DOE funding. For example, DOE  patent counsel told us that IP Master will soon be obsolete because,  among other reasons, the vendor is discontinuing support for it.  Additionally, DOE patent counsel told us that the existence of two  separate systems can lead to duplicative entries and make it difficult to  track invention disclosures on a department-wide basis. Further, DOE  patent counsel explained that the systems do not have the functionality  for electronic reporting. That means contractors submit information—such  as invention disclosure reports—in mail, faxes, and e-mails, and DOE  patent counsel must then manually enter that information in DOE’s  systems. The DOE patent counsel described this as a time-consuming,  labor-intensive process that can increase the likelihood of data errors.
DOE patent counsel stated that they recognized the need to transition to  a unified data tracking and monitoring system with functionality for  electronic reporting and have begun efforts to do so. Specifically, DOE  patent counsel told us that they recently upgraded one of the agency’s  data management systems—IP Master—to a new system called IP  Manager, which became operational in November 2014. DOE patent  counsel said they intend to migrate the agency’s other system— PATMIS—to the new IP Manager system in the near future so there will  be only one data tracking and monitoring system. However, prior to any  such migration of PATMIS, DOE officials told us that they want to ensure  that there are no technical problems with the new IP Manager system and  evaluate its performance in case modifications are necessary.
DOE patent counsel told us that integrating DOE’s existing systems into  the IP Manager system will provide a consolidated, DOE-wide invention  management database that will significantly reduce administrative costs  associated with invention management and improve data quality by  reducing duplicative entry of inventions. Also, according to documentation  DOE provided about the IP Manager system, some of its features may  help address DOE’s current data management challenges including  automated generation of legal forms to reduce the need to draft unique  documentation for every invention. Additionally, DOE plans to develop a  “one click invention reporting” capability that would be designed to,  among other things, give contractors the ability to electronically report and  update invention records directly from their own databases and provide  DOE with enhanced reporting functions to monitor contractor actions,  including invention disclosure. DOE patent counsel explained that this  would enhance DOE’s ability to share invention information across the  agency to better enable it to manage information to track contractor  compliance with financial assistance award provisions. DOE patent  counsel told us the agency has created a workgroup composed of  representatives from federal agencies and DOE laboratories to determine  the requirements for this new “one click invention reporting” capability and  tentatively plans to begin software development in the spring of 2015,  with an initial pilot capability scheduled for fall of 2015 and full deployment  in early 2016, subject to available funding.
While DOE transitioned its IP Master system to IP Manager, and has  developed an implementation plan with milestones for the additional  capability it wants to add to the IP Manager system, DOE patent counsel  said the agency does not have an implementation plan with milestones  for when PATMIS would be migrated to IP Manager. They said that  PATMIS contains the majority of the agency’s invention records and  estimated that, given the amount of data contained in the system, it could  cost as much as $100,000 to move the data from PATMIS into IP  Manager. According to DOE patent counsel, as of November 2014, DOE  had not prioritized funding to migrate the data and consolidate the  databases. DOE also has not established milestones for its efforts to (1)  identify requirements for the “one click invention reporting” capability it  plans to add to IP Manager or (2) evaluate any system modifications  necessary as a result of migrating IP Master to IP Manager and  associated system requirements.
Under federal standards for internal control, information should be  recorded and communicated to management and others within the entity  who need it and in a form and within a time frame that enables them to  carry out their internal control and other responsibilities. In addition, best  practices for information technology system acquisition emphasize  developing requirements, among other practices, to guide software  engineering investments. By planning to transition to a unified data  tracking and monitoring system with functionality for electronic reporting,  DOE is taking a step in the right direction. Also, the implementation plan  with milestones DOE developed for the additional capability it wants to  add to the IP Manager system will help it track and communicate  progress toward completing this effort. By developing a comprehensive  implementation plan with milestones that cover all aspects of the steps  DOE is taking to transition to a unified data tracking and monitoring  system with functionality for electronic reporting, DOE would have greater  assurance that it will be able to track progress toward completing all of  these steps in a timely manner.
section_title: DOE Proposed Regulatory Changes to Address Challenges to Monitoring and Influencing Contractor Utilization and Domestic Manufacture of Agency Funded Inventions
paragraphs: DOE faces challenges in monitoring and influencing contractor utilization  and domestic manufacture of agency funded inventions to protect its  interests in them, and the agency has proposed regulatory changes to  address these challenges. Specifically, DOE does not have a standard  for invention utilization and manufacture reporting, has a limited ability to  compel domestic manufacture of agency funded inventions, and has a  limited ability to influence changes in control of contractors receiving DOE  funds. In turn, DOE’s proposed regulatory changes address, with respect  to for-profit contractors, the frequency and duration of invention utilization  and manufacturing reporting, use of U.S. Manufacturing Plans, and DOE  influence over changes in contractor control.indicated that the agency anticipates issuing a final rule to implement  these changes in fiscal year 2015.
subsections: section_title: DOE Does Not Have a Standard for Invention Utilization and Manufacture Reporting
paragraphs: DOE faces a challenge in understanding how inventions it funds are  utilized and manufactured because it does not have a standard for  collecting such information from contractors. Currently, DOE can, at its  discretion, request such information, but DOE regulations do not specify  the duration of this reporting. DOE patent counsel told us that there are  no established procedures regarding the frequency and duration of  requests for information on invention utilization and manufacturing of  agency funded inventions, which could hamper DOE’s efforts to protect  its interests. To address this challenge, DOE’s proposed regulatory  change would require annual contractor reporting on the utilization and  manufacture of any products that use a DOE funded invention. This  reporting would include information on the status of technology  development, date of first commercial sale or use, gross royalties  received, and manufacturing locations of those products, and it would be  required for at least 10 years following invention disclosure. DOE patent  counsel said that requiring this reporting for all DOE financial assistance  awards to for-profit contractors would enhance the agency’s ability to  protect its interests by providing it additional information with which to  monitor compliance with financial assistance award provisions.
section_title: DOE Has Limited Ability to Compel Domestic Manufacture of Agency Funded Inventions
paragraphs: DOE faces a challenge in protecting the agency’s interest in the domestic  manufacture of agency funded inventions. DOE patent counsel stated  that the agency’s ability to compel domestic manufacture of agency  funded inventions is limited because the agency can only require  substantial domestic manufacture from certain contractors under certain  circumstances. In particular, they said that the process for determining an  “exceptional circumstance”—which DOE can use to broaden the domestic  manufacture requirements beyond those included in award provisions— can be difficult. Specifically, they noted that it is not a routine process and  often requires substantial internal agency analysis, as well as  coordination with other agencies, including the Department of Commerce.  Additionally, any broadened requirements apply only to the specific  programs or activities covered by the determination. For example, in  2011, DOE determined that an exceptional circumstance existed  regarding DOE’s SunShot Initiative. Specifically, DOE proposed  requiring a certain level of domestic manufacture for all inventions  developed under the SunShot Initiative by all contractors, as well as their  licensees.following a review to identify international trade and other issues,   However, this proposed requirement was not implemented  according to DOE patent counsel. DOE patent counsel also said that the  limitations of U.S. Preference provisions—which apply to small  businesses, academia, and nonprofits—constitute a challenge to  protecting the agency’s interest in domestic manufacture. Specifically,  such provisions require the exclusive licensees of contractors, but not the  contractors themselves, to substantially manufacture agency funded  inventions domestically. To address this limitation, DOE’s proposed  regulatory change would allow programs to require that potential for-profit  contractors submit a U.S. Manufacturing Plan as part of any funding  proposal. In turn, DOE would be able to use these plans as criteria in  assessing funding proposals and making financial assistance award  decisions. Under the proposed regulatory change, and consistent with  applicable law, DOE could make such plans binding for any licensee or  entity that subsequently acquired ownership of an invention or technology  developed under a DOE financial assistance award. DOE patent counsel  explained that requiring and enforcing U.S. Manufacturing Plans  increases the agency’s ability to influence the domestic manufacture of  inventions it funded.
section_title: DOE Has Limited Ability to Influence Changes in Control of Contractors
paragraphs: DOE faces a challenge in influencing the change in control—such as  ownership—of contractors engaged in DOE financial assistance awards.  A change in control may affect a contractor’s ability to carry out the  project that DOE is funding and, according to DOE patent counsel, the  agency currently does not require contractors to notify it of such changes.  DOE’s proposed regulation would require contractors to notify the agency  of changes in their control in certain circumstances.regulation would establish procedures for the change of control, including  ownership, of a contractor that received a DOE funding award of more   The proposed  than $10 million. The affected contractor would be required to notify the  agency within 30 days of a change of control, or within 30 days if the  contractor had a reason to know that such a change is likely. Failure to  notify DOE would be grounds for suspension or termination of the  financial assistance award. Further, without DOE authorization of the  change of control, the award funding could cease to continue.such penalties would only apply to the current award.
section_title: Conclusions
paragraphs: DOE is taking actions to update its data systems and move to a  consolidated, DOE-wide invention management database to improve its  ability to monitor and manage information regarding contractor disclosure  of agency funded inventions. Currently, its two data systems are  outdated, unable to communicate with each other, and do not have  functionality for electronically updating invention disclosure or patent  status, hampering DOE’s ability to manage information and data on  agency funded inventions. DOE recently upgraded one of its data  systems—IP Master—to a new system called IP Manager, which became  operational in November 2014 and has developed an implementation  plan with milestones for the additional capability it wants to add to the IP  Manager system. However, DOE has not developed an implementation  plan with appropriate milestones to help assess its progress toward  completing key steps, such as moving the data in its primary PATMIS  database—which contains the majority of the agency’s invention  records—into the new IP Manager system, or for defining the  requirements for planned or potential upgrades to that system. Without  such a plan, DOE may not have assurance that it is making timely  progress toward obtaining the information management capabilities it  needs to protect its interests in agency funded inventions by monitoring  information regarding contractor disclosure of these inventions.
section_title: Recommendation for Executive Action
paragraphs: To help provide greater assurance that DOE is making timely progress  toward obtaining the information management capabilities it needs to  protect its interests by monitoring contractor disclosure of agency funded  inventions, we recommend that the Secretary of Energy develop an  implementation plan, including appropriate milestones, to guide DOE’s  efforts to improve its data management capabilities.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Energy and  Department of Commerce for review and comment. In its written  comments, the Department of Energy agreed with our findings and  recommendation. The Department indicated that it would develop an  implementation plan to guide data management improvements. The  Department of Commerce neither agreed nor disagreed with our findings  but noted that it provided background information on intellectual property  issues related to the review. The Department of Energy’s and Department  of Commerce’s written comments are reproduced in appendixes I and II,  respectively. Both agencies also provided technical comments that we  incorporated, as appropriate.
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section_title: Appendix I: Comments from the Department of Energy
section_title: Appendix II: Comments from the Department of Commerce
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Christopher Murray, Assistant  Director; Richard P. Johnson; Gerald B. Leverich; Matthew D. Tabbert;  and Michelle R. Wong made significant contributions to this report. Cheryl  Arvidson and Kiki Theodoropoulos provided technical assistance.