Federal Research: Information on the Government's Right to Assert Ownership Control over Federally Funded Inventions
Published: 2009-07-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Bayh-Dole Act, passed in 1980, allows recipients of federal research funds the option to retain patents on any inventions they create using those funds. At the same time, the act provides the government with rights intended to ensure that the public benefits from these federal research investments. One of these rights is known as the "march-in" authority, which allows federal agencies to take control of a patent when they have credible information that certain conditions described in the act have been met. Until March 2009, the Bayh-Dole Act required GAO to report periodically on its implementation. To meet that requirement, for select federal agencies, GAO reviewed (1) the policies and procedures used to determine whether march-in authority should be exercised; (2) how the march-in authority has been used; and (3) what barriers and disincentives have been encountered in exercising the march-in authority. GAO selected four agencies for this review that accounted for 89 percent of the federal research funding for fiscal year 2006. These were the Departments of Defense and Energy (DOD and DOE), the National Aeronautics and Space Administration (NASA), and the National Institutes of Health (NIH). GAO is not making any recommendations in this report. DOE, NASA, and NIH provided technical comments on this report that GAO incorporated, as appropriate.
section_title: What GAO Found
paragraphs: Officials at DOD, DOE, NASA, and NIH rely on Commerce regulations for the Bayh-Dole Act and on their agencies' interpretations of the act to determine whether to exercise their march-in authority. Agency officials said that the administrative processes developed by Commerce are detailed and time-consuming, and may make it difficult to initiate and exercise a march-in proceeding. However, some officials said the detailed regulations ensure that appropriate and fair processes are followed during march-in proceedings. The agencies have chosen not to develop agency-specific guidance for a variety of reasons. For example, none of the officials believe that the regulations are onerous enough to warrant the development of agency-specific guidance and agency-specific guidance would reduce the flexibility agencies have to examine the specific circumstances of each case. In addition, an array of agency-specific regulations could hinder the transfer of research results to the market by increasing the regulatory burden on recipients of federal research funds. None of the four agencies has chosen to exercise march-in authority. DOD, DOE, and NASA have neither discovered nor received information that would lead them to initiate a march-in proceeding or exercise their march-in authority during the last 20 years. In contrast, NIH has been petitioned formally three times, but in each case determined that the statutory requirements for march-in proceedings had not been met. Nevertheless, officials at DOD, NASA, and NIH said they value the authority because it provides leverage to promote commercialization of federally funded inventions. DOE officials disagree, in part, because no agency has ever exercised the authority. Agency officials said they do not have ongoing efforts to identify potential candidates for a march-in proceeding and primarily rely on the public, including potential competitors, to provide information that could lead to a march-in proceeding. According to these officials, their agencies would have to expend significant additional resources to track federally funded inventions because of the large number of inventions and because commercialization can take many years. Officials at DOD, NASA, and NIH said they value the march-in authority because it helps ensure that federally sponsored research results are commercialized. Also march-in authority is not the only tool to achieve the goals of the Bayh-Dole Act. For example, the government can take a patent without a license subject to reasonable compensation being paid to the patent owner or licensee that may allow for more timely interventions than would occur under the Bayh-Dole march-in process. Federal and technology transfer officials identified four disincentives to the use of march-in authority. One of these is that the use of the march-in authority could have a "chilling effect" on federal research. These officials said that if a march-in occurred, investors would be less likely to provide the funds to commercialize federal inventions for fear of losing their investments. Also, because the march-in process can be long, these officials believe that it would have limited utility in an emergency situation. For example, the time to complete the fact-finding process in the three cases NIH reviewed ranged from 5 to 8 months.

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.  Patent rights give inventors, or other patent owners, exclusive control  over the use of their inventions for about 20 years, which promotes  commercialization of new ideas and allows inventors to profit from their  ideas. Patent rights ownership encourages the additional, and often  substantial, investment of time and money needed to transform the  technological innovations developed in the laboratory into goods, services,  and processes available in the marketplace. Patent owners—including  individuals, companies, and universities—may grant licenses to one or  more businesses to complete this transformation and, in return, receive  payments in the form of license fees or royalties.
The federal government supports technological innovation through a wide  range of research activities that focus on the mission needs of various  departments and agencies. In addition, it supports work in areas where a  specific need has been identified that the private sector has not addressed.  Although the largest share of research funding comes from the private  sector, the federal government funds a majority of the nation’s basic  research, which produces the innovations that drive technological  progress. Moreover, federal support accounts for over half of the research  conducted at colleges and universities in the United States. Because the  public benefits when technological advances are transformed into new  goods and services in the marketplace, the federal government has an  interest in facilitating the commercialization of new inventions that arise  from the research that it funds.
Since its enactment in 1980, the Bayh-Dole Act has provided recipients of  federal research and development funding—often referred to as  contractors—the option to retain patents on the inventions they create,  provided they adhere to certain requirements. A main goal of the act is to  promote the utilization of inventions arising from federally supported  research or development, and observers have judged the act a success in  this regard. Prior to 1980, when the government routinely retained the  patents on federally sponsored inventions, only 5 percent of these patents  were ever used in the private sector. In contrast, some stakeholders,  including federal and technology transfer officials, today believe  inventions that arise from federally funded research are routinely  commercialized, although comprehensive data are not available on how  often this happens. Each federal agency that enters into funding  agreements subject to the Bayh-Dole Act is responsible for administering  the act’s requirements and the implementing regulations developed by the  Department of Commerce.
The Bayh-Dole Act also provides the federal government with certain  rights to protect the public against nonuse or unreasonable use of  federally funded inventions. One of these rights, known as the “march-in”  authority, authorizes federal agencies, at their discretion, to require the  contractor or licensee to grant a license to any responsible entity or  entities when credible information exists that certain statutory conditions  in the act have been met. For example, an agency may march in if it  determines that an inventor is not taking the necessary steps toward  commercialization of the technology, or that such action is needed to meet  public health or safety needs.
Until recently, the Bayh-Dole Act also contained a requirement that GAO  issue a report on how agencies have implemented the act’s provisions at  least once every 5 years. In consultation with your offices we began work  on this review to meet that reporting requirement. However, subsequent to  our initiating this review, the Omnibus Appropriations Act for fiscal year  2009, eliminated the recurring study requirement on March 11, 2009. As  agreed with your offices, we have completed this review and addressed  the following objectives: (1) what policies and procedures have federal  agencies with significant research budgets established to determine  whether march-in authority under the Bayh-Dole Act should be exercised;  (2) to what extent have these selected federal research agencies used  Bayh-Dole march-in authority and what do they believe are its benefits;  and (3) what barriers and disincentives, if any, have these agencies  encountered to the exercise of their march-in authority under the Bayh- Dole Act.
To determine which agencies to focus our review on, we analyzed federal  research and development budgets for all federal research agencies. We  selected the Department of Defense (DOD), the Department of Energy  (DOE), the National Aeronautics and Space Administration (NASA), and  the National Institutes of Health (NIH) within the Department of Health  and Human Services because together they accounted for 89 percent of  the total federal research funding for fiscal year 2006—the most recent  year for which complete data were available. For each of the objectives,  we reviewed key agency documents and interviewed officials from the  technology transfer offices of each agency. In addition, for each of the  objectives we spoke with officials in stakeholder groups such as the  Association of University Technology Managers, the Biotechnology  Industry Organization, and the American Intellectual Property Law  Association, as well as academics who have evaluated the Bayh-Dole Act.
We conducted our work from November 2008 to July 2009 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: The Bayh-Dole Act was enacted in 1980, in part, to address the low  utilization rate of federal patents. At the time the bill was considered, 26  different federal agency policies existed regarding the use of results from  federally funded research. Prior to Bayh-Dole’s enactment, agencies  frequently retained title to inventions made with federal support whether  the research was performed in federal laboratories, in universities, or by  individual companies. Licenses to use and further commercialize the  patents on federally funded inventions were then negotiated with firms  typically on a non-exclusive basis or, more rarely, for the exclusive use by  one manufacturer. The Bayh-Dole Act established a governmentwide  policy that gave contractors the opportunity to retain ownership of  federally funded inventions. In addition, it was designed to use the patent  system to promote the utilization of inventions arising from federally  supported research or development and to encourage maximum  participation of small business firms in federally supported research and  development efforts, among other things. Many experts continue to  believe that certainty in the ownership of patents and exclusivity in the  right to develop the related technology are important for both large and  small firms.
In exchange for the right to retain ownership of federally sponsored  inventions under the Bayh-Dole Act, contractors must agree to certain  reporting requirements. More specifically, contractors agree to notify the  funding agency within 2 months after the contractor learns that an  invention has been created and to notify the funding agency within 2 years  after this notification of the contractor’s decision to retain title to the  invention. In addition, contractors agree to apply for a patent on the  invention typically within 1 year of the election of title, attempt to  commercialize the invention, and to provide additional reports. These  additional reports, if requested by the agency, can provide such  information as utilization of the invention and patent-related information  such as the filing date, patent application number and title, and patent  number and issue date for the invention in any country in which the  contractor has applied for a patent. Failure by the contractor to disclose  the invention, elect title to it, or file a patent application within the times  specified, or failure to follow through with the patent application process,  allows the relevant federal agency to obtain ownership of the invention.
The Bayh-Dole Act also reserved certain rights for the government to  protect the public’s interests. Specifically, the government retains   “a nonexclusive, nontransferable, irrevocable, paid-up license to practice  or have practiced for or on behalf of the United States any subject  invention throughout the world,” also known as a nonexclusive royalty- free license. In addition, the act provides the government march-in  authority. Under this authority, the federal agency that funded the  development of an invention has the right to require the contractor or  exclusive licensee to grant a license in any field of use to a responsible  applicant upon terms that are reasonable under the circumstances, if the  agency determines that:  the contractor has not made, and is not expected to make, efforts to  commercialize the invention within an agreed upon time frame;    public health or safety needs are not reasonably satisfied by the contractor  the use of the invention is required by the federal government and the  contractor or licensee cannot meet the government’s requirements; or  the owner of an exclusive license is not ensuring that the invention is  “manufactured substantially” in the United States and has not obtained the  necessary waivers to do so.
Implementation of the Bayh-Dole Act is decentralized across the federal  government. Each federal agency that enters into funding agreements  subject to the Bayh-Dole Act is responsible for administering the act’s  requirements. However, the act directs the Department of Commerce to  develop regulations to implement the provisions contained in the act,  including procedures for agencies to follow regarding the exercise of the  march-in authority. The regulations Commerce issued in 1987 also allow  agencies to develop supplemental procedures regarding their march-in  authority. Although Commerce does not maintain any overall Bayh-Dole  databases, other agencies rely on Commerce as a coordinator and  consultant for Bayh-Dole related issues.
The regulations established by Commerce detail the procedures an agency  must follow when it receives information that it believes might warrant the  exercise of march-in rights. Specifically, the agency must notify the  contractor, in writing, that it has information it believes might warrant the  exercise of its march-in authority. As part of this notification, the agency is  to provide the contractor 30 days to respond informally, either verbally or  in writing, with relevant information. Once the agency has received the  contractor’s response, it may initiate the march-in procedures within 60  days through written notice to the contractor and its assignee or exclusive  licensee, as appropriate and if known to the agency. The notice must  include the reasons for the proposed march-in and the specific uses of the  invention for which the agency may require licensing. Within 30 days after  receiving written notice of the proposed march-in proceeding, the  contractor may submit information opposing the proposed march-in to the  agency in person, in writing, or through a representative. If the agency  determines that the contractor’s information raises a dispute over the facts  of the case, it must undertake a fact-finding process that gives the  contractor the opportunity to appear with counsel, submit documents,  present witnesses, and question individuals presented by the agency. The  results of the fact-finding process and a recommendation are presented to  the head of the agency (or his or her designee) as well as to the contractor.  Both the agency and the contractor have 30 days to submit written  arguments to the head of the agency or designee. In addition, the  contractor may request to present oral arguments. Within 90 days after the  completion of the fact-finding or oral arguments, whichever is later, the  agency must provide a written decision regarding whether march-in rights  will be exercised. Any decision unfavorable to the contractor will be held  in abeyance pending the exhaustion of the contractor’s administrative and  judicial appeals. At any point, the agency may terminate the fact-finding  process if it decides not to exercise its march-in authority.
The time from when an agency announces a funding opportunity to the  time a viable commercial product reaches the marketplace may take many  years and substantial financial investment. During the period of agency  funding, which may last 8 to 10 years for drugs and biologics, the agency’s  program, procurement, and/or grants office monitors the progress of the  research and maintains contact with the contractor. In fiscal year 2007  federal agencies devoted $116 billion to conduct research on various  topics related to their respective missions. Pharmaceutical-related  inventions, which may arise from research sponsored by NIH, may require  an additional 10 to 15 years after the invention is made to obtain the  federal approvals necessary to reach the market. According to industry  officials, pharmaceutical-related inventions may require an investment of  between $800 million and $1.3 billion to conduct the safety and other  studies required for approval.
Additional time may be required to obtain a patent on the invention and to  develop a market ready process or product.  More specifically, the U.S.  Patent and Trademark Office issues a patent in 32 months, on average, but  the time ranges from 28 months for inventions in the fields of  semiconductors and electrical items to almost 44 months for computer  software and communications inventions. Once a patent is granted, the  patent owner has, in most instances, a period of 20 years from the date the  application was filed during which time the patent owner has the right to  exclude others from making, using, or selling the patented invention.
section_title: Federal Agencies Use Department of Commerce Regulations to Implement the March- in Authority under the Bayh-Dole Act
paragraphs: Officials at DOD, DOE, NASA, and NIH rely on Commerce regulations for  the Bayh-Dole Act and on their agencies’ interpretations of the act to  determine whether to exercise their march-in authority. These officials  told us that the administrative processes developed by Commerce for  agencies to use when considering whether marching-in may be warranted  are detailed and time-consuming, and may make it difficult to initiate a  march-in proceeding. However, some officials also acknowledged that  because the regulations are detailed, they ensure that appropriate and fair  processes are followed during march-in proceedings. One official noted  that there is no way to pre-empt the process and retain the necessary legal  protections for all of the participants in the process. According to this  official, the regulations, while detailed and time-consuming, allow  everyone to be heard during the process. For example, during the fact- finding procedure the contractor has the opportunity to appear with  counsel, submit documentary evidence, present witnesses, and cross- examine witnesses who the agency presents. Moreover, both the  contractor and agency staff have an opportunity to rebut an agency’s  decision and contractors may appeal adverse decisions to the federal  courts, which delays action on the agency’s decision until the appeals  process is concluded.
However, according to agency officials we spoke with, the agencies have  chosen not to develop agency-specific guidance for a variety of reasons.  First, none of the agency officials we spoke with believe that the  regulations developed by Commerce are onerous enough to warrant the  development of agency-specific guidance. Second, both agency and  technology transfer officials told us that agency-specific guidance would,  in essence, pre-define how the federal government would exercise its  march-in authority and reduce the flexibility agencies have to examine the  specific circumstances of each individual case. Third, federal officials—as  well as officials from organizations that represent technology transfer  offices in colleges and universities—told us that creating an array of  agency-specific regulations could hinder the transfer of research results to  the market by increasing the regulatory burden on contractors. For  example, one technology transfer official said that many universities  receive funding concurrently from more than one federal agency. In such  cases, these contractors could be required to follow a different set of  regulations from each of their agency partners. As a result, these officials  believe that Commerce should remain in charge of developing march-in  regulations, rather than have individual agencies issue their own policies  and procedures. Finally, technology transfer officials we spoke to also said  that march-in regulations should be centralized at a high enough level to  ensure consistency among federal research agencies in their march-in  decisions.
Until August 2007, if federal agencies or contractors had any questions  concerning Bayh-Dole Act implementation issues, including march–in  procedures, they generally coordinated with officials in Commerce’s  Technology Administration. However, since August 2007, as a result of  changes mandated by the America COMPETES Act, the Technology  Administration has been disbanded and Commerce has shifted  responsibility for the Bayh-Dole Act to the National Institute of Standards  and Technology (NIST). Officials from two technology transfer  organizations told us that, as a result of this change, the department  currently has little expertise on the march-in process. Specifically,  technology transfer officials told us they were concerned that NIST did not  have the knowledge and experience of the Technology Administration  with regard to oversight of march-in procedures and officials at one  organization believed that this might cause some ambiguity in facilitating  agencies’ implementation of the act.
NIST officials acknowledged that no one currently in their office has any  experience with the march-in authority and said the process appears to be  very time-consuming and complex. However, these officials told us that  when the Technology Administration was disbanded, the same lawyers  who worked on Bayh-Dole issues continued to provide their services,  which allowed continuity in the overall legal aspects of oversight for the  act. They also noted that most of the questions they have addressed for  agencies concern aspects of the act other than the march-in authority.  They also believe that because agencies are not required to contact NIST  with questions related to the Bayh-Dole Act, that NIST’s role in any future  march-in proceedings will likely be very limited.
section_title: None of the Agencies We Reviewed Has Used March-in Authority, but Three Value It as a Way to Promote Commercialization of Inventions
paragraphs: None of the four agencies we reviewed has chosen to exercise march-in  authority under the Bayh-Dole Act. DOD, DOE, and NASA have neither  discovered nor received information that would lead them to initiate a  march-in proceeding or exercise their march-in authority during the last 20  years. In contrast, NIH has been petitioned formally to exercise its march- in authority three times, but in each case determined that the statutory  requirements for march-in proceedings had not been met. Nevertheless,  officials at three of the four agencies told us they value the authority  because, together with other tools, it provides them leverage to promote  commercialization of federally funded inventions. In contrast, DOE  officials do not believe march-in authority has significant value as  leverage, in part, because no agency has ever exercised the authority.
Officials at all four agencies included in our review acknowledged that  their agencies have not conducted any march-in proceedings. They further  acknowledged that while they monitor contractors’ compliance with  reporting requirements, their agencies do not have ongoing efforts to  identify potential candidates for march-in proceedings from the wide-array  of federally funded inventions. These officials told us that they primarily  rely on public and private sources of information, including news reports,  interest groups, and potential competitors, to provide them with  information that could lead to a march-in proceeding. For example,  according to one official, participants in the science and technology  market are very aware of emerging technologies and information on  patents is publicly available, which allows interested entities to know what  inventions and technologies are being developed. In addition, companies  employ technology scouts to report on the technologies being produced by  other companies. Officials told us that one source of information regarding  a potential march-in proceeding could be a person or business that wants  to enter into a licensing agreement but is unable to negotiate agreeable  terms. However, they also acknowledged that such instances are generally  uncommon because most contractors are very interested in licensing their  inventions.
According to the agency officials we spoke with, relying on the public for  information is a more efficient and effective mechanism for tracking  federally funded inventions, which would otherwise require federal  agencies to expend significant additional resources to monitor a large  volume of federally funded inventions for possible situations that might  lead to march-in proceedings. In fiscal year 2008, NIH provided 50,980  awards, worth about $21 billion, to 2,606 institutions. The agency’s awards  for the previous 5 fiscal years were steady at about this same level.  Monitoring such a large number of awards and institutions would be very  resource intense. Moreover, because many inventions require substantial  investments of time to produce a market-ready product or process,  agencies would need to monitor awards and their subsequent inventions  over a number of years. For example, NIH officials said that  pharmaceutical inventions may take as many as 14 years to reach the  marketplace. In addition, although contractors report information on  inventions that result from federally funded projects, they are not required  to report information on progress toward commercialization of those  inventions or other details of the licensing agreements they enter into,  which are considered proprietary information. Consequently, agencies do  not always receive information on the extent to which licensees are  making progress toward commercialization of the inventions the agencies  have funded. Officials also told us that proactive efforts to track federally  funded inventions are further complicated by the fact that a single  invention may result in multiple licensing agreements for different uses.  For example, a contractor who owns a cancer treatment could license the  technology to one entity to treat eye cancer and to another to treat liver  cancer.
Since Congress enacted the Bayh-Dole Act in 1980, only NIH, of the four  agencies we reviewed, has received formal march-in petitions—one in  1997 and two in 2004. In each of these cases, the agency determined after a  5- to 8-month fact-finding process that the circumstances did not meet any  of the statutory conditions under which march in could occur. Specifically,  in 1997, NIH received a petition in which the petitioner alleged that the  invention’s owner and exclusive licensee had failed to take reasonable  measures to bring a stem cell separation device to market and that doing  so would alleviate patient health and safety needs. NIH found no basis to  initiate a march-in proceeding because it determined that the invention’s  owner and exclusive licensee had taken effective steps to develop the  device and that it was already being marketed. In 2004, NIH received two  more petitions, in which the petitioner expressed concern that the price of  two drugs—one to treat HIV/AIDS and the other to treat glaucoma—made  them unaffordable for many people living with these diseases, posing a  threat to their health and safety. However, NIH determined that the drugs  were already on the market and widely prescribed, and therefore marching  in would not alleviate health and safety needs that were not already being  satisfied by the producer. NIH also stated in its decisions that drug pricing  is an issue more appropriately left to the Congress. Furthermore, as NIH  noted in its decision on the 1997 petition, the agency is “wary of forced  attempts to influence the marketplace for the benefit of a single company.”
Although DOE has not been petitioned to exercise its march-in authority  nor has it used the authority on its own, the department used the Bayh- Dole march-in framework to review a dispute brought by a company  against a contractor and its exclusive licensee over the use of two  inventions that could identify gene sequences. According to the company,  the contractor and its licensee had not taken effective steps to achieve  substantial utilization of the inventions, and had not given the requisite  preference to small businesses. While this dispute did not arise under the  Bayh-Dole Act, DOE suggested, and all parties agreed, to settle the dispute  using the march-in procedures detailed in the Commerce regulations.  During a 30-month fact-finding process, both parties to the dispute  submitted evidence and counter evidence and reviewed the draft decision  prior to its release. DOE decided not to march in based on its  determination, among other things, that the terms of the exclusive license  were fair and that the company making the allegations had failed to offer  sufficient evidence to support its contentions.
Although none of the agencies we reviewed has actually used its authority  to march in, officials in three of the four agencies we contacted said they  value the authority and they do not want it eliminated because it helps to  ensure that federally sponsored research results are commercialized.  These officials told us that the march-in authority is particularly valuable  as leverage in informal discussions between contractors and sponsoring  agencies and in license negotiations between contractors and potential  licensees to encourage commercialization of technologies developed with  federal funding. However, neither the agencies we reviewed nor the  technology transfer organizations we contacted maintain data on the  extent to which the potential for a march-in proceeding is discussed  informally during negotiations.
According to some agency and technology transfer officials, the parties to  licensing negotiations are usually sufficiently aware of the potential for  march-in that it may not be necessary to explicitly discuss this possibility  during meetings. However, neither could provide us with any metrics by  which they could measure this effect, and no data exist on the extent to  which contractors or licensees are aware of the potential for an agency to  march in and to what extent this influences their decisions. Executives  from two bio-technology firms told us that they are well aware of the  Bayh-Dole Act and its march-in provision. They consider the potential for  a march-in as one of several business risks, but said it is not a subject they  typically discuss during licensing negotiations. Nevertheless, according to  one technology transfer official, an explicit discussion of march-in  authority can provide effective leverage to push a company struggling to  meet its obligation to pursue commercialization of a federally funded  invention. DOE officials, on the other hand, said an awareness of the  march-in authority did not appear to have much influence on its  contractors and their licensees. DOE officials said their contractors  generally produce inventions, processes, and technologies that are  intended for the market and are already strongly motivated by potential  profits to move forward quickly. Consequently, these officials said it is  difficult to see how the potential for a march-in proceeding under the  Bayh-Dole Act would provide an additional incentive to these contractors.
Although most of the officials we spoke with value the leverage that the  march-in authority provides, they said they prefer to work with  contractors informally to resolve commercialization issues. For example,  NIH officials noted that contractors often resolve such issues—without  agency involvement—by reviewing the milestones in the licensing  agreement to determine whether the licensee has met its obligations, and  if it has not, the contractor may adjust the terms of the agreement based  on speed and results of the licensee’s efforts or revoke the license and  seek a new licensee. According to one NIH official, if NIH enters such  discussions its mere involvement often serves as enough leverage to  encourage resolution of the problem without resorting to an explicit  mention of march-in. Similarly, DOD officials said that in the early 1990s,  during a patent-related dispute between two defense contractors, one of  the companies raised the possibility of petitioning DOD for a march-in  proceeding to settle the disagreement. DOD entered into informal  discussions with both companies, then withdrew, and the companies  subsequently resolved their dispute without petitioning for a march-in.
Some officials also told us that the march-in authority is not the only  available tool to achieve commercialization goals for federal research  efforts or to meet the government’s needs. For example, NIH officials told  us that one useful tool is the agency’s guidance for contractors to use  when negotiating license agreements. Contractors can enter into such  agreements with parties who wish to commercialize an invention. The NIH  guidance recommends including specific commercialization milestones  and a termination clause to ensure that inventions are commercialized by  licensees. For example, if an invention has a potential therapeutic use, the  agreement may include requirements to reach federal approval for various  clinical trials by certain dates, as well as the anticipated date of first sale.  Technology transfer officials we spoke with said that the widespread use  of commercialization milestones and termination clauses reduces the  likelihood that an agency would need to march in because contractors are  already assuring that commercialization is achieved.
The government can also use patented technology without a license  subject to reasonable compensation being paid to the patent owner or  licensee, regardless of whether the invention had been developed with  federal funding. This allows the federal government to use an invention  without a license, if the use is “by or for the United States.” Further, under  federal law if the federal government uses a patent, the patent owner or  licensee may sue the government to recover reasonable compensation but  may not stop the government from using the invention. This option might  be of greater value than the Bayh-Dole march-in authority in the case of a  public health emergency because it allows for rapid action and it allows  the government to use inventions that incorporate federally funded  technologies as well as technologies that were not federally funded. In  addition, officials told us that the Bayh-Dole Act itself contains another  tool—the royalty-free license—that allows federal agencies to use  federally funded inventions without risk of infringing the ownership rights  of the contractor or licensee. For example, federal agencies may contract  with a third party to manufacture products containing such inventions for,  or on behalf of, the government. However, if the product or process  contained inventions that were not developed with federal funds, the  government would need to negotiate a license to use them. Finally, some  agencies, including DOD, DOE, and NASA, have been granted other  statutory tools that provide additional flexibility to negotiate ownership  terms with contractors. For example, all three have similar statutory  authorities—called “other transaction authority”—that apply to certain  research efforts conducted under contracts. DOD and DOE have used this  authority to obtain cutting-edge research and prototypes for their use and  NASA has used its authority to negotiate ownership rights that will foster  the commercialization of inventive work produced under collaborative  research projects that are not being conducted specifically for the agency.
section_title: Four Key Concerns May Create Disincentives to the Use of Bayh-Dole March-in Authority by Federal Agencies
paragraphs: Four key disincentives inhibit federal agencies use of Bayh-Dole march-in  authority. First, the potential “chilling effect” that such an action might  have could deter investors from investing in the commercialization of the  research results and some researchers from participating in federal  research efforts. Second, the lengthy march-in process could be  unworkable in an emergency or other time-critical situation. Third,  commercial products or processes based on federal inventions sometimes  employ multiple patents, some of which are not federally funded. Such  circumstances often pose difficult, if not intractable, issues that could  make marching in unattractive for federal officials seeking to  commercialize an invention. Finally, agencies might be disinclined to  march in if current licensees have specialized knowledge that makes them  particularly well positioned to bring a product to market, and if the loss of  such knowledge through a march-in proceeding might jeopardize the  commercialization of an invention. This section further describes these  four disincentives.
Some agency, university, and industry officials we contacted said the  march-in authority could have a “chilling effect” on the willingness of  venture capital firms and other investors to provide funding for the further  commercial development of federally funded inventions. For example,  three of the technology transfer officials we contacted said the chilling  effect on investors would be increased if agencies used the march-in  authority under circumstances that were not well supported by the facts.  According to these officials, investors are looking for profitable  technologies and inventions that either have, or are close to obtaining, a  patent, which allows them to capture profits in relative safety. They said  that for some investors the mere existence of an agency’s march-in  authority makes such investments more risky because, should an agency  actually exercise its authority, investors may believe the value of their  investment could evaporate or decline significantly and these perceived  risks could increase significantly.
However, executives from two bio-technology firms—both of which hold  licenses to commercialize technologies developed in part with federal  funds and which must raise money from investors to pursue  commercialization—told us the perceived risk that an agency might march  in is far less important to investors than other risks they face. For  example, they cited the product’s likely efficacy as perhaps the key factor  for investors to consider in making such decisions. The executives added  that one of the greatest concerns of their potential investors is how soon  the product or process can be marketed and, as a result, return a profit on  their investment. These executives expressed confidence that if licensees  take care to follow the requirements of the Bayh-Dole Act, then march-ins  would be rare and should not negatively affect the flow of federally funded  inventions to the market. In addition, technology transfer officials noted  that at the time the act was passed companies were often unwilling to  enter into licensing agreements due to concerns about how agencies  would use the authority. They said such concerns have diminished, in part  because the small number of fact-finding proceedings has not led agencies  to march in.
The march-in authority would also have a chilling effect if researchers,  particularly private-sector researchers, were unwilling to apply for  federally funded projects because the potential for an agency to march in  creates uncertainty with regard to ownership of an invention. However,  none of the officials we contacted was aware of specific instances when a  researcher had declined to apply for federal funding and they said it is  impossible to know the extent to which researchers decide against  applying for federal funds due to such concerns. In contrast, officials at  DOE said they do not believe the potential for a march in is a concern for  their contractors. For example, DOE officials noted that following the  release of a recent solicitation, 60 small businesses called with questions  about the march-in authority. However, even after DOE officials explained  the march-in authority to these callers, overwhelmingly they submitted  applications.
Because the march-in process itself can be long and the outcome unknown  pending a possible appeal of the agency’s decision to the federal courts,  the NIH officials we contacted believe march-in authority could have  limited utility in an emergency situation, such as an important public  health issue, that required prompt federal action. More specifically, the  Commerce regulations that govern march-in procedures provide for a  quasi-judicial process that may require more time to complete than the  other legislative options mentioned above. The march-in procedures allow  for contractors to be represented by counsel, the opportunity to call and  confront witnesses, and the chance to introduce documentary evidence  and review the evidence others have presented. In the four fact-finding  instances we reviewed, the time to reach a decision not to initiate march- in proceedings ranged from 5 to 30 months. According to NIH officials, the  specifics of each Bayh-Dole fact-finding effort are likely to vary, but the  process to determine whether a march-in proceeding is warranted will  usually require at least several months to accomplish. Moreover, in the  event an agency decides to march in, action on the decision may be  delayed pending review by the federal courts if the contractor or licensee  appeals the decision. In emergency situations, NIH officials said the  government could use other legal authorities, discussed above, to obtain  the necessary rights.
Officials at NASA and NIH also reported that a march-in proceeding would  be complicated by the fact that most products and processes include  multiple technologies covered by multiple patents, and that in many cases  only some of them have been developed with federal funding. As a result,  federal agencies may only have the authority to march in on one aspect of  a product or process, yet marching in may negatively affect the value of all  the other patented inventions associated with the product or process. For  example, NIH officials described the development of a single genome test  that used 17 patents from 13 organizations (3 from outside the U.S.), some  of which used government funding and some did not. These officials said it  would be impossible for NIH to determine that 1 of those 17 patents is not  being commercialized fast enough, or not meeting a health need, in the  face of its dependence on 16 other patents. Any such effort would require  the cooperation of 12 other organizations, and an unknown number of  licensees. The officials concluded that it would be an impossible task for  NIH, or any agency, to decide to march in under those circumstances.
Officials at NIH also said that agencies might be disinclined to march in if  current licensees have specialized knowledge about how to bring a  particular product to market. If the loss of such knowledge would  jeopardize the commercialization of an invention, agencies might be  reluctant to pursue a march-in. For example, licensees may possess  information such as trade secrets, other patented technologies related to  product development, experience with the federal approval process, or  marketing experience. If NIH were to force a contractor or licensee to  grant a license to another entity, it would have to consider whether the  other patented technologies would be available to the new licensee and  whether the new licensee would have the knowledge, resources, and  commitment needed to commercialize the product.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a copy of a draft of this report to DOD, DOE, NIH, and NASA  for their review and comment. In commenting on the draft, NASA stated  that the report provides a balanced view of the issues related to the  regulations associated with the Bayh-Dole Act. NASA also provided  technical comments that we incorporated, as appropriate. NASA’s overall  comments are included in appendix II. DOD, DOE, and NIH did not  provide overall comments, but NIH provided technical comments that we  incorporated, as appropriate.
We are sending copies of this report to the appropriate House and Senate  committees, interested Members of Congress, the Secretaries of the  Departments of Defense and Energy, the Administrator of NASA, and the  Director of NIH. The report will also be available at no charge on the GAO  Web site at http://www.gao.gov.
If you or your staffs have questions about this report, please contact me at  (202) 512-3841 or mittala@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to determine (1) what policies and  procedures federal agencies with significant research budgets have  established to determine whether march-in authority under the Bayh-Dole  Act should be exercised; (2) the extent to which these selected federal  research agencies have used Bayh-Dole march-in authority and what they  believe are its benefits; and (3) what barriers and disincentives, if any,  these agencies have encountered to the exercise of their march-in  authority under the Bayh-Dole Act.
We sought to focus our review on those federal agencies whose combined  research and development spending represent a significant portion of total  federal research and development spending. To identify the federal  research agencies that meet this criterion, we obtained and analyzed  research and development funding data from the National Science  Foundation (NSF) on preliminary federal obligations for research and  development for all federal research agencies. The top four agencies  receiving research and development funding were the Department of  Defense (DOD), the Department of Energy (DOE), the National  Aeronautics and Space Administration (NASA), and the National Institutes  of Health (NIH) within the Department of Health and Human Services. We  judgmentally selected these four agencies as the focus of our review. We  compared the combined percent of funding from the total research and  development allotment for these four agencies to the total allotment for  the federal government and found that these four agencies accounted for  approximately 89 percent of the total federal research funding for fiscal  year 2006—the most recent year for which NSF had complete data. In  assessing the reliability of the NSF data, we noted that it reports a 100  percent response rate, with responses to all items; thus, we determined it  was sufficient for the purposes of this analysis.
To gain insights into the history of the Bayh-Dole Act, including its  provision for march-in authority, as well as to understand the context in  which the law was enacted and its current environment, we reviewed the  act’s legislative history, including congressional hearing statements made  by the act’s sponsors and other stakeholders. We also reviewed the  available literature on the Bayh-Dole Act’s implementation and the effects  it has had on federal research. To understand the law’s requirements, we  reviewed all provisions of the act, giving special emphasis to those  sections that establish march-in authority. To understand how agencies  are to implement their responsibilities under the act, we reviewed the  Department of Commerce’s Bayh-Dole regulations.
For each of our three objectives, we interviewed officials from the  technology transfer offices and offices of general counsel at DOD, DOE,  NASA, and NIH, as well as officials from the National Institute of  Standards and Technology. In addition, we contacted officials in  stakeholder groups such as the Association of University Technology  Managers, the Biotechnology Industry Organization, the American  Intellectual Property Law Association, the Association of Public and Land- grant Universities, and Essential Inventions, as well as academics who  have evaluated the Bayh-Dole Act. We also contacted representatives from  the biotechnology industry who invest in and/or develop federally funded  technologies. We reviewed the three march-in petitions that NIH received,  and NIH’s determinations in these cases, to understand how NIH applies  the Commerce regulations. Finally, we studied NIH’s research tool  guidelines to determine their impact on agency decisions on whether to  conduct march-in proceedings.
We conducted our work from November 2008 to July 2009 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.
section_title: Appendix II: Comments from the National Aeronautics and Space Administration
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Cheryl Williams, Assistant  Director; Richard Johnson; Amanda Leissoo; Benjamin Shouse; Elizabeth  Wood; and Eugene Wisnoski made significant contributions to this report.