Federal Research: Additional Actions Needed to Improve Licensing of Patented Laboratory Inventions
Released: 2018-06-19T00:00:00

Letter

Background

This section outlines the legal framework under which agencies and federal labs license patents and general stages of the patent licensing process.

Legal Framework for Patent Licensing

Prior to 1980, federal agencies generally retained title to any inventions developed through federally funded research—whether extramural, that is, conducted by universities and contractors, or intramural, conducted by federal agencies in their own facilities. By the late 1970s, there was increasing debate in Congress over ways to allow the private and public sectors better access to federally owned inventions by, among other things, creating a uniform policy for those seeking to license inventions developed in federal labs. In the 1980s, Congress began passing a series of key laws that have provided the foundation for federal technology transfer activities, including patenting and licensing inventions that are developed in federal labs and funded by federal dollars. One of the first technology transfer laws, the Stevenson-Wydler Act, established technology transfer as a federal policy and required federal labs to set up Offices of Research and Technology Applications (which, for our purposes, we refer to as technology transfer offices) and devote budget and personnel resources to promoting the transfer of federal technologies to the private sector. In 1980, another key law, the Bayh-Dole Act allowed not-for-profit corporations, including universities, and small businesses to retain title to their federally funded inventions. In 1984, through amendments made to the Bayh-Dole Act, Commerce became responsible for issuing regulations to implement the act.

The Stevenson-Wydler Act was amended by the Federal Technology Transfer Act of 1986, which (1) established the Federal Laboratory Consortium (FLC); (2) required that technology transfer efforts be considered positively in employee performance evaluations; and (3) empowered federal agencies to permit the directors of government- owned, government-operated labs to enter into cooperative research and development agreements (CRADA) and to negotiate license agreements for inventions created in the labs. The FLC began largely as a forum for the education, training, and networking of federal technology transfer officials to promote the integration of technical knowledge that federal departments and agencies developed into the U.S. economy. Over time, the FLC’s role would include serving as a clearinghouse—a central point for collecting and disseminating information—for federal technologies and assisting outside entities in identifying available federal technology. Within Commerce, NIST is the designated host and financial administrator of the FLC.

Additional laws were adopted to help further the development of federally owned inventions for commercial use. Among them was the National Competitiveness Technology Transfer Act of 1989, which directed federal agencies to propose, for inclusion in contracts, provisions to establish technology transfer as a mission of government-owned, contractor- operated labs and permitted those labs, under certain circumstances, to enter into CRADAs. In addition, the Technology Transfer Commercialization Act of 2000 required Commerce to provide Congress with summary reports on agencies’ patent licensing and other technology transfer activities. Since 2007, Commerce has delegated to NIST the role of providing to Congress an annual report summarizing technology transfer at federal agencies. NIST’s role as the lead in an interagency collaborative effort in federal technology transfer grew further when Commerce delegated to the agency the additional responsibility of coordinating the Interagency Working Group for Technology Transfer. Commerce also has delegated to NIST its authority to promulgate implementing regulations pertaining to patenting and licensing at federal labs. In 2011, Congress passed the Leahy-Smith America Invents Act (AIA) that further affected technology transfer activities by federal labs through comprehensive changes made to the U.S. patent system.

Federal Labs

Federal labs are typically managed under either a government-operated or a contractor-operated model. Commerce regulations prescribe the terms, conditions, and procedures that government-operated labs are to use to license their inventions for commercial use or other practical applications. Government-operated labs are usually owned or leased by the federal government and are predominantly staffed by federal employees. Contractor-operated labs, on the other hand, operate facilities and equipment that are owned by the federal government, but the staff is employed by a private or nonprofit contractor that operates the lab under a contract with the federal government. Contractor-operated labs typically license their technologies under the authority of the Bayh-Dole Act, applicable regulations, and their contracts, which generally give contractor-operated labs more flexibility in licensing their technologies. Contractors that manage and operate labs include universities, private companies, nonprofit organizations, or consortia thereof. As discussed below, whether a lab is government-operated or contractor-operated will affect how that lab licenses inventions because each type operates under a different set of licensing regulations and requirements.

The Federal Licensing Process

The pathway of an invention from lab development to commercial product can end at any point, and products may not always reach, or find success in, the marketplace. Figure 2 shows the seven general areas of the patent licensing process at federal labs.

The patent licensing process begins with researchers identifying inventions—a process that primarily relies on researchers disclosing their inventions to lab officials, mostly through the lab director or directly to an agency’s technology transfer office. Various laws and regulations establish a uniform policy for determining who holds the rights to government employees’ inventions. Some government-operated labs allow or encourage researchers to publish their research, including research describing inventions, for public dissemination, such as in research journals. Contractor-operated labs are required to disclose inventions to the agency within 2 months after notifying contractor personnel responsible for patent licensing activities. Labs must then decide within 2 years after the disclosure whether to retain title to the invention. The contract then must file its initial patent application on the invention to which it elects to retain title within one year after election of title. If the contractor-operated lab does not disclose the invention or elect to retain title within the times specified in the law and regulations, it will convey title to the invention to the funding agency upon written request.

Keeping Track of Inventions

Once an invention has been identified and disclosed, federal agencies and labs keep track of the invention. How they do so varies in degree of automation and centralization. For example, systems that keep track of lab inventions can range from spreadsheets to automated software that tracks all patent licensing and other technology transfer activities. Also, such systems can be centralized, with oversight at the agency level, or decentralized, with independent oversight at the lab level—which is generally the case at contractor-operated labs. Some contractor-operated labs manage their federally funded inventions through the Interagency Edison (iEdison) reporting system, which is owned and managed by NIH.

Selecting Inventions to Patent

Before applying for patent protection through USPTO, agency and lab officials review the invention—often using evaluation committees and patent attorneys—to consider a number of factors, including whether it is patentable, it furthers the lab’s mission, and patenting the invention is likely to bring it to commercial use or practical application. The agency must file a patent application within 1 year of the first publication, public use, sale, or offer for sale of the invention or lose U.S. patent rights to that invention. Not all patents will be licensed out to companies for a variety of reasons, including national security considerations. The average time from filing to issuing a patent, or when an application is abandoned, is about 2 years, according to USPTO. Patent applications are often rejected, modified, and refiled, and various fees are associated with filing and prosecuting a patent application. However, according to USPTO, patent maintenance fees that allow federal labs to maintain their patents in force are among the most significant fees.

Attracting Potential Licensees

Agencies and labs use a variety of methods to attract potential licensees, including those from industry, universities, and nonprofits. For example, agencies may post their inventory of patented inventions online, publish them in academic journals, or highlight them at public events. Agencies and labs actively engage with the private sector by, for example, attending conferences where companies can network with federal researchers and federal technology transfer officials. In addition, technology transfer offices often work with partnership intermediaries— such as local or state entities and nonprofit organizations—to support their efforts, including reaching out to potential licensees. Labs have other mechanisms to help attract potential licensees to further develop their inventions. For example, CRADAs can help facilitate licensing or the transfer of knowledge from a lab to a licensee, and new inventions that arise under a CRADA are typically made available to the partner via an option to license.

Negotiating the License Agreement

The technology transfer offices and legal counsel are generally responsible for crafting and negotiating the terms of the patent license, sometimes with input from other lab officials. Negotiations are often an iterative process in which both the lab and the licensee request adjustments to the terms of the license. Laws and regulations specify some terms that government-operated labs must include in their licenses. Among others, a typical license includes terms related to (1) financial compensation (if applicable), (2) the degree of exclusivity of the license, (3) the U.S. manufacturing requirement, (4) retained rights for the government, (5) termination of the license, and (6) enforcement of licenses.

Financial terms may include up-front fees; minimum payments; royalties, usually based on sales; and milestone payments, among others. Federal labs typically establish financial terms on a case-by-case basis that are tailored to the specifics of the technology, licensee, and market conditions. License agreements may be nonexclusive, partially exclusive, or fully exclusive, and may be limited to some fields of the invention’s use or to specific geographic areas.

Government-operated labs must publicly announce their intent to grant an exclusive license for at least 15 days. After this period, comments and objections are considered. Negotiations then begin with the proposed licensee or, if the licensee has changed, another public announcement of the new licensee may be required. Government-operated labs are required to obtain a commercialization plan from a potential licensee regardless of the degree of exclusivity. Contractor-operated labs, which typically retain title to their inventions under the authority of the Bayh-Dole Act, are not subject to the requirement to obtain a commercialization plan from a prospective licensee before granting a license; however, they are subject to requirements specified in their contracts regarding patent licensing. In addition, they are not subject to the same notification requirements as government-operated labs.

The law also contains some other provisions pertaining to patent licenses originating from federal labs. For example, the law generally gives preference to small businesses that are capable of bringing the invention to practical application. There is a general preference for products that incorporate federal inventions to be manufactured substantially in the United States; however, on a case-by-case basis, agencies may waive this requirement. Applicable law also reserves certain rights for the government to protect the public’s interests in federally funded inventions. For example, the government retains a royalty-free license to use inventions that are contractor owned or that are licensed exclusively. In addition, the Bayh-Dole Act provides the government march-in authority when certain statutory conditions have been met. Under this authority, an agency may grant a license to an invention developed with federal funding even if the invention is exclusively licensed to another party if, for example, it determines that such action is needed to alleviate public health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensee. A federal lab can also terminate a license when the licensee is not meeting its commitment to achieve practical application of the invention. The lab can also, through the license, grant permission to a licensee to pursue patent infringement cases.

Monitoring Licensee Performance

Federal license agreements generally require licensees to report periodically on their commercialization. For instance, labs generally put specific monitoring requirements in the license agreements, including milestones and reporting requirements. Through the agreements, government-operated labs have the right to terminate or modify licenses if certain requirements are not met. Government-operated labs must submit written notices to the licensees and any sublicensees of their intentions to modify or terminate licenses, and allow 30 days for the licensees or sublicensees to remedy any breach of the licenses or show cause why the licenses should not be modified or terminated. Contractor-operated labs also monitor licensee performance in much the same way; however, they are subject to a different set of regulations.

Measuring Licensing Outcomes

Federal labs are responsible for measuring the outcomes of their activities in all areas of the patent licensing process by developing metrics and evaluation methods. Measuring licensing outcomes help labs assess the effectiveness of their patent licensing efforts. Soon after the passage of AIA, President Obama issued a memorandum in October 2011 to the heads of executive departments and agencies calling for, among other things, (1) developing strategies to increase the usefulness and accessibility of information about federal technology transfer opportunities; (2) listing all publicly available, federally owned inventions on a public government database; and (3) improving and expanding its collecting of metrics for Commerce’s annual technology transfer summary report.

Technology Transfer and Agency Mission

Federal law states that it is Congress’s policy and objective to use the patent system to promote the commercialization and public availability of inventions, and that technology transfer, including federal patent licensing, is the responsibility of each laboratory science and engineering professional. No single federal agency is responsible for managing technology transfer activities government-wide. Rather, each federal agency involved in technology transfer designs its own program to meet technology transfer objectives, consistent with its other mission responsibilities.

Federal Labs and Stakeholders Identified Challenges in Patent Licensing, and Agencies Have Taken Some Steps to Address Them, but NIST Has Not Fully Reported Such Challenges

Federal agency and lab officials and external stakeholders have identified challenges across the federal patent licensing process, but NIST has not fully reported such challenges. Specifically, DOD, DOE, NASA, and NIH officials at the agency and lab levels, as well as external stakeholders, cited challenges related to all seven areas of the patent licensing process. In addition, officials and stakeholders cited challenges in one area that cuts across the entire process: prioritizing patent licensing as part of agencies’ missions. In its annual reports to Congress on federal labs’ performance in patent licensing activities, NIST has discussed some challenges identified by agency and lab officials and external stakeholders but has not fully reported on the range of challenges they have experienced.

Federal Labs and Stakeholders Identified Challenges across the Patent Licensing Process, and Agencies Have Taken Some Steps to Address These Challenges.

DOD, DOE, NASA, and NIH officials at the agency and lab levels, as well as external stakeholders, identified challenges in all seven areas of the patent licensing process, including identifying inventions, keeping track of inventions, and negotiating license agreements. They also cited challenges in prioritizing patent licensing as part of agencies’ missions. Based on our analysis of relevant literature and on interviews with external stakeholders, many of these challenges are occurring government-wide. DOD, DOE, NASA, and NIH have taken some steps to address the challenges in each area of the patent licensing process.

Challenges in Implementing the Patent Licensing Process

DOD, DOE, NASA, and NIH officials at the agency and lab levels, as well as external stakeholders, identified challenges in all seven areas of the patent licensing process, including not identifying inventions, keeping track of inventions in inadequate systems, and difficulty negotiating license agreements. For example, several DOD, DOE, NASA, and NIH officials stated that some researchers do not have adequate training in identifying potentially patentable inventions. When a federal researcher does not disclose to lab officials an invention developed in a federal lab, the opportunity to assess the invention’s potential for commercial use may be lost. Federal officials cited various reasons why researchers do not disclose inventions. Navy officials, for example, stated that researchers are often intimidated by the overall invention disclosure process and tend to focus on their research rather than consider what could be patentable. Officials at one NASA lab noted that they have come across a few contractor employees who do not see the benefit of filing invention disclosures, and sometimes researchers are too busy to engage in the patenting process.

Our analysis of relevant literature and interviews with stakeholders also showed that researchers not identifying and disclosing inventions is a government-wide challenge. For example, one stakeholder stated that researchers at federal labs generally have limited understanding of the patenting process, including an understanding of what constitutes patentable subject matter and how to conduct a prior art search on the technology to determine whether it is patentable.

DOD, DOE, NASA, and NIH officials stated that they are taking a variety of actions to help address this challenge. For example, some agency and lab officials stated that labs conduct training to educate researchers about the patenting process, inform researchers about requirements to disclose inventions, and incentivize them by acknowledging their efforts through awards and monetary incentives—such as potential royalty distributions— when their inventions reach commercial success.

In addition, DOD, DOE, and NIH officials described their agencies’ systems for keeping track of inventions developed in the labs as inadequate or in need of improvement. How agencies and labs keep track of such inventions can range from spreadsheets to sophisticated databases that manage all technology transfer activities, including keeping track of patented inventions and licenses. Currently, DOD has a decentralized approach to keeping track of inventions, which, according to DOD officials, needs improvement given how large the agency is.

Several stakeholders we interviewed also noted that the challenge of keeping track of inventions exists government-wide. According to some stakeholders, federal labs not only have inadequate systems to keep track of their own inventions but also limited information on the kinds of inventions being developed in federal labs across the government. The result is that agencies risk being unaware of research across the labs, which can limit their ability to leverage other federal research efforts. For example, one stakeholder stated that there can be research conducted independently at three or four labs under different agencies but little interaction among those labs about the research.

DOD, DOE, and NIH officials stated that they have made efforts to improve their current systems for keeping track of inventions. Specifically, DOE officials reported that they have developed a plan to leverage the capabilities of the iEdison reporting system to unify the agency’s data management process. Air Force and NIH officials stated that they have contacted NASA, which has a centralized system for tracking inventions, about leveraging its expertise. NASA officials reported that they have been hosting regular webinars with other agencies to determine whether NASA’s tracking system could help meet other agencies’ needs.

Furthermore, agency and lab officials and stakeholders noted that federal labs face challenges in negotiating license agreements because the licensing process is lengthy and uniquely regulated, which can deter companies from licensing federal inventions. Stakeholders stated that the federal licensing process can take anywhere from about 3 months to more than 2 years. Some stakeholders stated that from their point of view taking a year to negotiate a license agreement is too long. One stakeholder said that such lengthy processes are particularly difficult for start-ups, which often need to finalize license agreements in 3 months.

DOD, DOE, NASA, and NIH officials said they are taking steps to address companies’ concerns about the time it takes to negotiate a license agreement. For instance, NASA, NIH, and Navy officials told us that they have developed model license agreements to help guide companies through the process, and NASA and NIH have special license agreements for start-ups to shorten the licensing process.

For more detail on challenges in the seven areas of the patent licensing process that agency and lab officials and external stakeholders identified, see appendix II.

Challenges in Prioritizing Patent Licensing

DOD, DOE, NASA, and NIH face challenges in prioritizing patent licensing as part of their agency missions. For example, DOD and DOE officials stated that an agency’s mission affects patent licensing activities. DOD officials stated that the agency’s primary mission is protecting the warfighter and that patent licensing is a secondary benefit to the agency. According to DOE officials, the nuclear security labs do not focus on patenting but instead on developing technologies associated with a weapons program.

In addition, several stakeholders we interviewed stated that some agencies and labs do not have a culture that prioritizes patent licensing. In particular, one stakeholder stated that at some federal labs, patent licensing is not reflected in performance evaluation management plans, which can help incentivize lab personnel to engage in patent licensing activities. A few stakeholders stated that at some labs where management does not prioritize patent licensing activities, researchers’ careers can be negatively affected if they engage in patent licensing activities.

Some agency and lab officials stated that they have taken steps to overcome such challenges. For example, officials at one Navy lab stated that the lab has management support and nine patent attorneys to assist in the reviews of researchers’ invention disclosures. Also, officials at one NIH lab stated that the lab has strong management support and a good royalty stream from successful inventions that pay for patenting and other reinvestments, which allows the lab to not draw from its appropriations.

NIST Has Reported Some Challenges Faced by Federal Labs in Areas of Patent Licensing but Has Not Fully Reported on the Range of Such Challenges

In its three most recent fiscal year summary reports to Congress, NIST identified some challenges faced by federal labs in areas of patent licensing and has assisted agencies in addressing challenges in their patent licensing activities. However, NIST does not fully report on the range of challenges that agency and lab officials and stakeholders identify.

NIST collaborates with agencies to gather patent licensing data for its summary reports to Congress. For example, according to agency officials, NIST engages with agencies to inform them about new requirements in technology transfer and helps them identify their successes in conducting technology transfer activities. NIST also provides administrative support to the FLC, which offers training to federal technology transfer specialists through workshops; publishes a desk reference on federal patent licensing, laws, and regulations; and has commissioned studies on efforts to develop federal inventions for commercial use. Further, NIST developed a survey in 2016 on agency technology transfer processes. NIST officials stated that the survey is aimed in part at improving federal labs’ decisions on whether to spend money on applying for patents, whether patents will facilitate the commercialization of technology, and what data are needed to make those determinations. NIST officials stated that the agency continues to analyze the survey data and currently plans to report its findings in fiscal year 2018.

While NIST has identified in its annual summary reports to Congress some challenges that federal labs face in patent licensing and other technology transfer activities, it has not fully reported the range of challenges that agencies and labs face in patent licensing. For example, in its fiscal year 2015 summary report—its most recent report—on federal technology transfer, NIST reported that the federal intramural research budget has been relatively consistent over the years but not that DOD, DOE, NASA, and NIH face challenges in prioritizing patent licensing as an agency mission. The report also mentions that there is no uniform federal system for tracking research that employees in federal labs published but not that DOE, for example, has faced challenges in keeping track of inventions developed in its labs. In addition, we found that although the report mentions that the Department of Veterans Affairs is facing challenges with its labs disclosing inventions, it does not mention similar challenges at DOD. NIST officials stated that they were generally aware of the challenges identified by agency and lab officials and external stakeholders but had not considered including such challenges to a greater degree in the summary reports to Congress.

We have previously reported on Congress’s goal to make the federal government more results oriented through reporting of agency performance information to aid decision making by agency executives, Congress, and program partners. Specifically, we have reported how the effective implementation of good governance can help address government challenges in five key areas involving agency performance and management: (1) instituting a more coordinated and crosscutting approach to achieving meaningful results, (2) focusing on addressing weaknesses in major management functions, (3) ensuring that agency performance information is useful and used in decision making, (4) sustaining leadership commitment and accountability for achieving results, and (5) engaging Congress in identifying management and performance issues to address. By fully reporting the range of challenges in federal patent licensing—such as those outlined in this report—and including that information in its annual summary reports to Congress, NIST has the opportunity to further ensure that Congress is more aware of challenges that limit agencies’ efforts in patent licensing and ways for potentially addressing those challenges. To identify these challenges, NIST could, for example, leverage its survey, past FLC studies, and agency reports.

Federal Agencies and Labs Have Limited Information on Processes, Goals, and Comparable Licenses to Guide Establishing Financial Terms in Patent Licenses

Federal agencies and labs have limited information on processes, goals, and comparable licenses to guide establishing the financial terms in patent licenses. DOD, DOE, NASA, and NIH labs generally do not document their processes for establishing the financial terms of patent licenses and instead rely on the expertise of technology transfer staff. Furthermore, existing agency and lab guidance does not consistently link the practice of establishing license financial terms to the statutory goal of promoting commercial use of inventions. In addition, although many federal labs rely on comparable licenses to aid them in setting the terms of new licenses, labs have varying levels of access to information about such licenses.

Federal Agencies and Labs Have Limited Documentation of Their Processes for Establishing the Financial Terms of Patent Licenses

DOD, DOE, NASA, and NIH labs have limited documentation of their processes for establishing the financial terms of patent licenses. Such documentation is limited at both the agency level and the lab level.

At the agency level, the four agencies we reviewed had some documentation on patent licensing in general, such as policies, procedures, guides, and handbooks, but had limited information on how to establish financial terms. For example, the Air Force and the Navy had handbooks on technology transfer that include brief passages on financial terms. However, agency officials noted that these handbooks were either outdated or under revision. At DOE, labs collaborated to develop two agency-level documents on patent licensing: one for lab officials on using equity in licenses and a licensing guide for licensees. These documents describe the general structure of various types of financial terms and, in the document on using equity, factors to consider regarding its use in a license, but do not discuss methods for establishing financial terms. NASA and NIH have policies and procedures for patent licensing that mention the types of financial terms that are normally found in licenses but do not cover other aspects, such as methods for establishing financial terms. All four agencies reported that they gave their labs discretion to develop their own processes for establishing financial terms.

At the lab level, DOD, DOE, NASA, and NIH generally had not documented their processes for establishing financial terms in patent licenses. Based on documentation provided by NASA, NIH, and DOD, few labs at these agencies had issued additional documentation on the patent licensing process. DOE labs had documented the patent licensing process in general, and 6 out of 17 DOE labs provided documentation that covered aspects of establishing financial terms. For example, one DOE lab document contained a set of licensing principles that help clarify what financial terms a license usually contains, their purpose, and how to structure the financial terms in patent licenses. In addition, agency and lab officials at NASA and DOE reported using tools, such as financial term calculators, at some of their labs, which aid technology transfer staff in valuing technologies.

Agency and lab officials reported that they generally rely on the expertise of technology transfer staff to establish and vet appropriate financial terms. Accordingly, agencies and labs reported that they have taken some steps to develop, share, and retain expertise among staff in their technology transfer offices. The agencies we reviewed reported that some technology transfer staff participate in training opportunities provided by professional organizations like the Association of University Technology Managers (AUTM) or the Licensing Executives Society (LES), as well as the FLC and the agencies. In addition, some agencies and labs reported that internal working groups and regular meetings are opportunities to share licensing expertise. At DOD, officials stated that on a case-by-case basis, labs may use the expertise of their partnership intermediary to help establish financial terms.

However, according to agency and lab officials and stakeholders, federal labs face challenges in acquiring, developing, and retaining expertise in patent licensing for their technology transfer offices. Specifically, some agency officials, lab officials, and stakeholders cited issues such as losing experienced technology transfer staff to retirement or to the private sector, having difficulties in hiring staff with expertise in part because of limited funding, and facing a limited pool of prospective employees to hire with the expertise to value and license inventions. A few stakeholders said that government training in the business aspects of patent licensing is inadequate and not widespread. In addition, some stakeholders had concerns about consistency in licensing practices both within the labs and across labs. For example, some of these stakeholders said that the outcome of license negotiations can depend on the specific licensing professional handling the license. Varying levels of expertise may lead to inconsistency in licensing practices, including establishing financial terms, as can undocumented processes.

Under the federal standards for internal control, management should design control activities by, for example, clearly documenting them in management directives, administrative policies, or operating manuals, to achieve objectives and respond to risks. Furthermore, documentation can act as a means to retain organizational knowledge and provide some assurance that an approach is operational across the lab or agency.

Agency and lab officials stated that they had not documented their processes for establishing financial terms for various reasons. For example, lab officials stated that establishing financial terms is often complex and varies based on the specific circumstances applicable to each potential license, which may limit what can be documented. Some agency and lab officials stated that labs need flexibility in negotiating terms to make adjustments based on the circumstances and therefore officials do not want to be prescriptive. A few agency and lab officials also noted that there are benefits to having streamlined processes. Furthermore, a few agency and lab officials described negotiating license terms as a craft or art that requires expertise and said that documenting this will not enhance licensing by itself.

However, some agency and lab officials and stakeholders said that it is possible to document some aspects of the process. A few stakeholders we interviewed noted that even if each agreement is unique, it is still possible to develop guidelines or outline a methodology for establishing financial terms. A few agency and lab officials stated that they are investigating opportunities to standardize their processes or would be open to documenting them. For example, one agency official told us that the agency plans to update existing documents with specific information about royalty ranges so labs do not have to constantly “reinvent the wheel.” Some labs also described steps that they take to establish financial terms, such as methods for valuing inventions, without being prescriptive. By documenting processes for establishing the financial terms of licenses while maintaining enough flexibility to tailor the specific terms of each license, the four agencies could have more reasonable assurance of consistency across their labs regardless of the expertise of staff.

Federal Agency and Lab Documentation Does Not Consistently Link Financial Terms to the Goal of Promoting Commercial Use

Agency and lab documentation does not consistently link establishing financial terms in patent licenses to the goal of promoting commercial use of inventions. As noted above, federal law states that it is Congress’s policy and objective to use the patent system to promote the commercialization and public availability of inventions, and that technology transfer, including federal patent licensing, is the responsibility of each laboratory science and engineering professional.

Agency-level documentation at NASA contains a provision that clearly links establishing financial terms to the goal of promoting commercial use of inventions—that is, “terms should be negotiated that provide the licensee incentive to commercialize the invention.” NIH’s documentation mentions financial terms in the context of protecting the public from nonuse, which is one aspect of promoting commercial use, and also mentions the goal of obtaining a fair financial return on investment from the licensed invention. DOD and DOE agency-level documents mention the general goal of promoting the commercial use of inventions without specifically linking it to the financial terms. At the lab level, DOD documents generally do not address the goals for financial terms. Of 17 DOE labs, 4 had a statement in their documentation to link financial terms to the goal of promoting commercial use of inventions.

DOD, DOE, NASA, and NIH officials we interviewed stated that getting the technology into the marketplace is their primary goal in licensing but also mentioned other goals related to financial terms that support their mission. In addition, some agency and lab officials described using revenues from licenses as a means to provide a reward to inventors for their work or to obtain a fair return on investment for research conducted by federal agencies. Furthermore, lab officials we interviewed mentioned the flexibility of revenues from licenses as helpful in funding activities, such as additional research, training, and patent prosecution.

Some agency officials and stakeholders we interviewed expressed concerns about competing goals for establishing financial terms. For example, a few stakeholders stated that licensing professionals may be motivated to negotiate for increased license revenue because it reflects positively on them professionally. Further, some stakeholders expressed concerns about labs taking a short-term view of some licensees, particularly small companies, because they have less ability to pay initially and thus may offer less certain revenues.

Our review of relevant economic literature and interviews with stakeholders suggest that license financial terms set with goals other than promoting commercial use in mind, such as short-term revenue maximization, may undermine that longer-term goal. For example, high up-front license fees typically provide more guaranteed short-term revenue to the licensor than other forms of payment but can also reduce the capital available to develop a product successfully. Labs with other goals in mind when establishing financial terms may be at risk of establishing them in ways that run counter to the goal of promoting commercial use.

NIST plays an important role in providing regulations and guidance to agencies regarding patent licensing. Commerce has delegated to NIST the authority to promulgate implementing regulations pertaining to patenting and licensing at federal labs—that is, regulations that indicate how agencies are to implement statutory provisions, including the goal of, among other things, promoting commercial use of inventions. NIST has developed regulations, but they do not link the financial terms of federal patent licenses and the statutory goal of promoting commercial use of inventions.

As the host of the FLC and a coordinator for the Interagency Working Group for Technology Transfer, NIST also plays a role in supporting the development of interagency guidance on patent licensing that covers, among other topics, establishing financial terms in licenses. However, existing interagency guidance provides limited information regarding the goals for financial terms. For example, the FLC desk reference contains a statement that links royalty rates to the goal of promoting commercial use but does not clarify how the goal applies to other financial terms. Furthermore, the FLC desk reference states that labs are entitled to market-based compensation for their intellectual property. However, licenses are structured differently to accomplish different goals and a primary focus on obtaining market-based compensation may undermine the goal of promoting commercial use.

As the lead agency on the government-wide effort to find commercial uses or practical applications for federally funded inventions, NIST has been delegated the responsibility to promulgate regulations pertaining to patenting and licensing at federal labs, including implementing the statutory goal of promoting commercial use. NIST officials stated that a change to the regulations could be made as part of an upcoming rule- making process. However, in doing so, a stakeholder and agency officials noted that any changes to the regulations should avoid prescriptive language that mandates specific practices. NIST officials also stated that they could update relevant guidance on this issue through one of their current efforts. By clarifying the link between establishing federal patent license financial terms and the goal of encouraging commercial use, through the upcoming rule-making process and updating relevant guidance, NIST would have better assurance that financial terms in patent licenses are targeted to that goal.

Federal Agencies and Labs Have Varying Amounts of Information on Comparable Licenses, but Such Information Is Not Shared across Agencies

According to agency and lab officials, comparable license information can be used as a point of reference to guide establishing financial and other terms in new patent licenses. Just as real estate agents look at sales of comparable houses when setting the selling price of a house, patent licensing professionals can look at licenses for comparable inventions when determining what financial terms to include in a new license.

However, federal labs have varying amounts of information on comparable licenses when establishing financial terms. NASA and NIH each have an agency-wide system that enables each lab to access information from other labs at the agency, including the financial terms in previous licenses. NIH agency officials reported that technology transfer offices have access to thousands of previous licenses and refer to such information frequently to help establish the financial terms of new licenses. Labs at DOE and DOD are generally responsible for tracking their own licenses and do not have access to information on comparable licenses from other labs in their agencies. According to DOE officials, under DOE contracts and relevant law, license information at the agency’s contractor-operated labs is considered business sensitive and a contractor-owned record that resides at the labs, which limits DOE’s ability to share it. Officials at DOE and DOD’s military departments reported that they have investigated and continue to investigate systems that would provide greater access to information on financial terms but have encountered some obstacles, such as network security requirements, that they have not yet overcome.

To bolster their access to comparable license information, some federal labs obtain private sector license information. For example, some lab officials we interviewed said that they have occasionally purchased benchmarking guides and access to other private sector license information through organizations such as AUTM and LES. According to some lab officials and stakeholders, private sector license information is useful for understanding acceptable royalty rates in industry and may cover certain technology areas or inventions that are new to the lab. However, access to private sector license information is typically ad hoc and can be limited by its cost, according to agency and lab officials. Some agency and lab officials stated that they would like increased access to private sector information on comparable licenses. For example, according to agency officials at DOE, there is an effort under way to obtain benchmark financial terms from labs and universities with comparable R&D portfolios.

Although lab officials and stakeholders said that private licensing information can be helpful for understanding financial terms acceptable to the market, using private license information may not always be appropriate for government licenses. Private licenses are often structured to maximize revenue for the licensor—not necessarily to promote commercial use or practical application, according to stakeholders. Our review of economic literature and interviews with stakeholders and agency officials suggest that licenses are structured differently to accomplish different goals. For example, a few stakeholders and agency officials noted that federal licenses would typically be less exclusive and have different financial terms than those in the private sector, where there is a greater emphasis on generating revenue from R&D investments. Some stakeholders and agency officials also stated that in general the value of a government license may be different from that of a private license for a similar technology because of the rights the government retains on its licenses. In addition, according to agency and lab officials and stakeholders, government inventions tend to be in an earlier stage of development than those in the private sector, potentially making it more difficult to find licenses for comparable inventions in the private sector.

Some agency and lab officials and a few stakeholders stated that it would be valuable for federal labs to have greater access to information on financial terms in government licenses to help establish a benchmark for financial terms. Our analysis of approximately 21,000 patents assigned to DOD, DOE, NASA, and NIH and issued since 2000 shows that different agencies may patent inventions in similar technology fields. All four agencies we reviewed had patented inventions in 26 of 35 technology fields covered by the patents, and all had 10 or more patents in 9 of the 35 technology fields. DOD and DOE, including DOE contractor-operated labs, had more patents in a wider range of fields than the other agencies. On the other hand, HHS’s patents are more focused on fields such as biotechnology and medical technology. However, even in the area of biotechnology, there were hundreds of patents issued to the other three agencies. Although other information would be needed to determine whether the agencies’ inventions are truly comparable, their having patents in the same technology fields suggests that some government- wide information on financial terms could be useful to federal labs.

Under internal control standards for the federal government, management should externally communicate the necessary quality information to achieve the entity’s objectives; this includes communicating with and obtaining quality information from external parties using established reporting lines. The four agencies we reviewed communicate and share information through several collaborative efforts to improve federal patent licensing, including the FLC and the Interagency Working Group for Technology Transfer. For example, agency officials said they share experiences, ideas, and best practices related to patent licensing informally through these groups. However, there is no formal sharing of information on financial terms in patent licenses among federal labs, according to NIST officials.

We have previously reported that federal agencies engaged in interagency collaborative efforts should identify and address needs by leveraging their resources to obtain additional benefits that would not be available if they were working separately. NIST plays a leading role in these interagency collaborative efforts on patent licensing, including gathering and sharing information among the labs. As the administrative host for the FLC, NIST has already supported an effort to share information about available technology. NIST is also responsible for gathering information from technology transfer agencies, including gross license income, and submitting summary reports to Congress annually and sharing them with the public. Furthermore, NIST has initiated a survey of practices at federal technology transfer offices and shared some preliminary information with the agencies. By facilitating the formal sharing of comparable license information, NIST could help provide agencies and labs with benchmarks for evaluating which financial terms are best suited to licensing inventions successfully.

NIST officials stated that gathering and sharing comparable license information could be done as part of their existing efforts but that there are obstacles to doing so. Specifically, NIST officials stated that this effort would add to the reporting burdens of agencies, may require additional resources, and would need to take into account data security and proprietary information considerations. Agency officials also stressed that any effort to share license terms would have to ensure that confidential and proprietary information from licensees, including specific financial terms from a particular license, is not divulged.

Conclusions

Federal labs under DOD, DOE, NASA, and NIH face challenges at various stages of the patent licensing process, and agencies have taken some steps to address such challenges. For example, ensuring that researchers identify and disclose inventions is a government-wide challenge, according to interviews with external stakeholders and our analysis of relevant literature. However, such challenges in federal patent licensing are not fully reported by NIST, the lead agency delegated by Commerce to provide annual summary reports to Congress on federal technology transfer activities. By fully reporting the range of these challenges that agencies and labs face, NIST can ensure that Congress has greater awareness of these challenges. To help identify these challenges, NIST could, for example, leverage its survey of practices at federal technology transfer offices, past FLC studies, and agency reports.

In addition, DOE, DOD, NASA, and NIH documentation does not consistently link establishing financial terms in patent licenses to the statutory goal of promoting commercial use. As the lead agency on the government-wide effort to find commercial uses or practical applications for federally funded inventions, NIST has been delegated the responsibility to promulgate regulations pertaining to patenting and licensing at federal labs, including implementing the statutory goal of promoting commercial use. By clarifying the link between establishing patent license financial terms and the goal of encouraging commercial use, through the upcoming rule-making process and updating relevant guidance, NIST would have better assurance that financial terms in patent licenses are targeted to that goal.

Further, federal labs have varying amounts of information on comparable government licenses when establishing financial terms. However, there is no formal sharing of information on financial terms in patent licenses among federal labs, according to NIST officials. NIST plays a leading role in interagency collaborative efforts on patent licensing, including gathering and sharing information among the labs. By facilitating the formal sharing of comparable license information, NIST could help provide agencies and labs with benchmarks for evaluating which financial terms are best suited to successfully licensing inventions.

To establish financial terms, DOD, DOE, NASA, and NIH labs rely on the expertise of their technology transfer staff and take a number of steps to build and share expertise, but had limited documentation of their processes for establishing the financial terms of patent licenses. Agency and lab officials explained that there is a need for flexibility, and thus not every aspect of their processes can be documented in detail. By documenting processes for establishing the financial terms of licenses while maintaining enough flexibility to tailor the specific terms of each license, the four agencies could have more reasonable assurance of consistency across their labs regardless of the expertise of staff.

Recommendations for Executive Action

We are making seven recommendations, including three to Commerce and one each to DOD, DOE, NASA, and NIH:

The Secretary of Commerce should instruct NIST to fully report the range of challenges in federal patent licensing, such as those outlined in this report, by, for example, leveraging its survey of practices at federal technology transfer offices, past FLC studies, and agency reports and including that information in its summary reports to Congress. (Recommendation 1)

The Secretary of Commerce should instruct NIST to clarify the link between establishing patent license financial terms and the goal of promoting commercial use, through appropriate means, such as the upcoming rule-making process and updating relevant guidance. (Recommendation 2)

The Secretary of Commerce should instruct NIST to facilitate formal information sharing among the agencies to provide federal labs with information on financial terms in comparable patent licenses, as appropriate. (Recommendation 3)

The Secretary of Defense should ensure that the agency or its labs document processes for establishing license financial terms, while maintaining flexibility to tailor the specific financial terms of each license. (Recommendation 4)

The Secretary of Energy should ensure that the agency or its labs document processes for establishing license financial terms, while maintaining flexibility to tailor the specific financial terms of each license. (Recommendation 5)

The Administrator of NASA should ensure that the agency or its labs document processes for establishing license financial terms, while maintaining flexibility to tailor the specific financial terms of each license. (Recommendation 6)

The Director of NIH should ensure that the agency or its labs document processes for establishing license financial terms, while maintaining flexibility to tailor the specific financial terms of each license. (Recommendation 7)

Agency Comments

We provided a draft of this report to Commerce, DOD, DOE, NASA, and NIH for review and comment. All provided written responses, which are reproduced in appendixes IV-VIII. Commerce and NIH also provided technical comments, which we incorporated as appropriate.

Commerce agreed with all three of our recommendations to the agency. In general, the agency stated that it will work through interagency groups, such as the Interagency Working Group for Technology Transfer and the FLC, to address our recommendations, including by creating a specific section in its annual reports to Congress with more details on challenges agencies and labs face in patent licensing and by examining and implementing solutions to facilitate the sharing of information among agencies. According to Commerce, such solutions could include identifying licensing officers who have expertise and creating a community of practice in which they can share best practices and approaches for establishing license terms.

DOD, DOE, and HHS agreed, and NASA partially agreed, with the recommendation that they or their labs document processes for establishing financial terms in patent licenses. In its written response, DOD said it will direct the military departments and appropriate defense agencies to have their labs establish documentation of their licensing processes as appropriate. In their written comments, DOE, HHS, and NASA noted the complexity and nuances associated with negotiating license agreements, such as understanding the market for the technology and the level of risk involved. Further, DOE and NASA noted challenges that limit their ability to document processes and emphasized the importance of maintaining flexibility in establishing financial terms in patent licenses. We agree that some flexibility in establishing financial terms of patent licenses is important. DOE, HHS, and NASA all identified steps they would take to ensure that at least some processes for establishing financial terms are documented.

We are sending copies of this report to the appropriate congressional committees; the Secretaries of Commerce, Defense, and Energy; the Administrator of NASA; and the Director of NIH. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-3841 or neumannj@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 IX.

Appendix I: Examples of Inventions Developed in Federal Labs

Figure 3 presents examples of inventions developed in federal laboratories under the Department of Defense, Department of Energy, National Aeronautics and Space Administration, and National Institutes of Health.

Appendix II: Selected Descriptions of Challenges Federal Labs Face in Patent Licensing

The following are additional descriptions of challenges in the seven areas of the patent licensing process as well as challenges in prioritizing patent licensing faced by federal laboratories (lab) that were identified by external stakeholders and by agency and lab officials at the Department of Defense (DOD), Department of Energy (DOE), National Aeronautics and Space Administration (NASA), and the National Institutes of Health (NIH)—as well as steps agencies and labs have taken to address those challenges.

Challenges in the Seven Areas of the Patent Licensing Process

Identifying Inventions

DOD, DOE, NASA, and NIH officials reported challenges in identifying inventions that lab researchers developed. When a federal researcher does not disclose to lab officials an invention developed in a federal lab, the opportunity to assess the invention’s potential for commercial use may be lost.

Federal officials cited various reasons why researchers do not disclose inventions. For instance, several DOD, DOE, NASA, and NIH agency and lab officials stated that some researchers do not have adequate training in identifying potentially patentable inventions. Some agency and lab officials pointed to other reasons why invention disclosures may not be filed, such as researchers not having enough incentive to disclose their inventions. Navy officials stated that researchers are often intimidated by the overall invention disclosure process and tend to focus on their research rather than consider what could be patentable. Officials at one NASA lab noted that they have come across a few contractor employees who do not see the benefit of filing invention disclosures, and sometimes researchers are too busy to engage in the patenting process. According to National Institute of Standards and Technology (NIST) officials, some researchers decide not to disclose an invention because they believe filing a patent application, which includes a filing fee, could take away money from the research itself, and most federal researchers are not motivated by the potential for receiving royalty distributions.

Our analysis of relevant literature and interviews with stakeholders also showed that researchers not identifying and disclosing inventions is a government-wide challenge. One stakeholder stated that researchers at federal labs generally have limited understanding of the patenting process, including an understanding of what constitutes patentable subject matter and how to conduct prior research on the technology to determine whether it is patentable.

DOD, DOE, NASA, and NIH agency and lab officials stated that they are taking a variety of actions to help address these challenges. For example, some agency and lab officials stated that labs conduct training to educate researchers about the patenting process, inform researchers about statutory requirements to disclose inventions, and incentivize them by acknowledging their efforts through awards and monetary incentives when their inventions reach commercial success.

Keeping Track of Inventions

DOD, DOE, and NIH officials described their agencies’ systems for keeping track of inventions developed in the labs as inadequate or in need of improvement. How agencies and labs keep track of such inventions can range from spreadsheets to sophisticated databases that manage all technology transfer activities, including keeping track of patented inventions and licenses.

Currently, DOD has a decentralized approach to keeping track of inventions, which, according to DOD officials, needs improvement given how large the agency is. Each military department has its own systems to track and store information on inventions developed in the labs. Officials from DOD and the departments describe the systems as inadequate to keep track of the agency’s inventions. For example, Navy officials described the department’s in-house system to track inventions as “plagued by outages” and thus ineffective. According to officials, the Army funds systems that track inventions, but these systems are different from each other and not connected to headquarters and have been suspended since 2015.

We have previously reported on federal agencies’ challenges in monitoring technology transfer activities, including tracking inventions developed in the federal labs. Several stakeholders we interviewed also noted that keeping track of inventions is a government-wide challenge. According to some stakeholders, federal labs not only have inadequate systems to keep track of their own inventions but also limited information on the kinds of inventions being developed in federal labs across the government. The result is that agencies risk being unaware of research across the labs, which can limit their ability to leverage other federal research efforts. One stakeholder specifically noted that the Interagency Edison (iEdison) reporting system—which allows federal grantees and contractors to report federally funded inventions to the agency that issued the funding award, including inventions developed by some contractor- operated labs—is difficult to navigate and needs improvement. Another stakeholder stated that there can be independent research at three or four labs under different agencies but little interaction among those labs about the research. Information on federal lab inventions can also be accessed publically through the Federal Laboratory Consortium (FLC) website; however, NIST officials stated that the website’s information on inventions relies on agencies to submit accurate information, which may be limited by the agencies’ tracking systems.

DOD, DOE, and NIH officials stated that they have made efforts to improve their current systems. For example, since our 2015 report on the agency’s challenges with its data management systems that track federally funded inventions, DOE officials reported that they have developed a plan to leverage the capabilities of the iEdison reporting system to unify the agency’s data management process. While DOD officials stated that the agency has been unsuccessful in purchasing software to track inventions across the agency, Air Force officials said they are developing a pilot program and seeking new software to manage the Air Force’s inventions, and they expect the pilot program to increase the number of invention disclosures. Air Force and NIH officials stated that they have contacted NASA, which has a centralized system for tracking inventions, about leveraging the agency’s expertise. NASA officials reported that they have been hosting regular webinars with other agencies to determine whether NASA’s tracking system could help meet other agencies’ needs.

Selecting Inventions to Patent

DOD, DOE, NASA, and NIH agency and lab officials cited selecting inventions to patent as a challenge because of the expense of patenting fees. According to some agency and lab officials we interviewed, fees paid to the United States Patent and Trademark Office (USPTO) affect their decision on whether to patent an invention. For example, DOE officials stated that budget constraints force them to make decisions about whether they should file a patent or engage in other agency activities. NIH officials stated that the agency maintains fewer patents because of the patent maintenance fees and the agency’s tight budgets.

NASA officials reported that one step the agency is taking to deal with the costs of maintaining its issued patents is to identify technologies with low licensing potential and allow the patents to expire if they fail to attract licensees. NASA has created a searchable database that catalogs thousands of expired NASA patents already in the public domain, making them freely available to industry for unrestricted commercial use.

Attracting Potential Licensees

Federal labs under DOD, DOE, NASA, and NIH face challenges that limit their ability to attract potential licensees, according to agency and lab officials. Even officials at NASA, described by NIST officials as one of the best agencies in promoting its inventions to industry, said the agency is not selecting among multiple licensees and would like to have more companies license its patents.

There are various reasons why federal labs struggle to attract companies interested in licensing their inventions, according to agency and lab officials we interviewed. First, several agency and lab officials cited that the number of entities that want to license inventions is generally not large. Second, some agency and lab officials identified inadequate promotion of federal inventions and licensing opportunities to companies, including start-ups, as a factor. Third, some agency and lab officials also noted that their inventions are often in the early stages of development and thus pose more of a risk for companies to license.

Based on our analysis of relevant literature and interviews with stakeholders, difficulty in attracting industry to license inventions developed in federal labs is a government-wide challenge. According to several stakeholders, industry perceives federal labs as not friendly to the private sector when it comes to patent licensing, especially for start-ups. For example, one stakeholder said that it is rare that federal agencies want to license to a start-up, and that more often the labs want a “safer route” by licensing inventions to large companies that already have a steady revenue stream. Another stakeholder said that DOE’s contractor- operated labs in particular tend to not issue exclusive licenses to start-ups and prefer to license to large companies because the agency sees those companies as presenting less of a risk. In addition, stakeholders stated that federal inventions are often not yet commercially viable, which can deter companies from licensing federal inventions. One stakeholder, for example, stated that NASA officials may think that NASA technology is more developed than it is and therefore underestimate how long it will take a company to develop it for practical application, the millions of dollars needed to develop it, and whether it can be manufactured for commercial use.

DOD, DOE, NASA, and NIH officials stated that they are taking steps to attract potential licensees by, for example, conducting local outreach to attract companies and working on improving their databases so that companies can learn about federal inventions available for licensing. For instance, NASA officials stated that the agency’s comprehensive database accessible to potential licensees uses a wide variety of search criteria and attracted 6 million unique visitors in 2016.

Negotiating the License Agreement

Agency and lab officials and stakeholders noted that federal labs face challenges in negotiating the license agreement because the process is (1) lengthy and (2) uniquely regulated, which can deter companies from licensing federal inventions.

Stakeholders stated that the federal licensing process can take anywhere from about 3 months to more than 2 years. Some stakeholders stated that from their point of view taking a year to negotiate a license agreement is too long. One stakeholder said that such lengthy processes are particularly difficult for start-ups, which often need to finalize license agreements in 3 months. Another stakeholder noted that the federal government in general does not understand how urgent it is for companies to complete the licensing process in a timely manner. Although actions on the part of both the labs and companies can cause delays, if the overall process is time-consuming, prospective licensees will tend to move onto something else instead, according to agency and lab officials and stakeholders.

Based on our analysis of licensing information provided by the agencies, we found that the amount of time from receipt of an application for a license to signature of the license by the lab varies widely. Specifically, based on this measure of the length of the process, approximately 60 percent of 132 licenses effective in fiscal year 2014 took at most 6 months for DOD, DOE, NASA, and NIH labs to process. Officials at one Navy lab stated that issuing an invention license to a company within 6 months is “highly unusual,” and officials at one NASA lab stated that the fastest they have issued a license was a week because the start-up was prepared and ready to go. For more on our analysis of licensing information from DOD, DOE, NASA, and NIH, see appendix III.

Several agency and lab officials also noted that federal regulations associated with patent licensing can deter companies from licensing federal inventions. Such regulations include requirements that are unique to federally funded and federally owned inventions, including that products arising from the invention must be substantially manufactured in the United States and that the government may retain rights to the invention and terminate the license agreement if the licensee does not take steps to commercialize the technology. In particular, NASA officials stated that venture capital firms sometimes oppose the government retaining rights for federal technology used by start-ups that they fund. According to DOD and DOE officials, federal regulations require a level of documentation or explanation that can deter some companies from licensing inventions developed in federal labs. Based on interviews with stakeholders, as well as our analysis of relevant literature, company concerns about federal regulations is a government-wide challenge that federal labs face in licensing their inventions.

For example, according to NIST officials, the U.S. manufacturing requirement can influence whether companies consider licensing federal inventions, because manufacturing in the United States can be more expensive than manufacturing in other countries. NIST officials also stated that some prospective licensees initially become concerned when they are told about march-in authority, because it applies to federally funded inventions and contractors. However, once companies are told that it is a legal requirement and that the provision has never been exercised, they generally become more comfortable with it.

DOD, DOE, NASA, and NIH agency officials said they are taking steps to address companies’ concerns about the time it takes to negotiate a license agreement and their unfamiliarity with federal licensing requirements. For instance, NASA, NIH, and Navy officials told us they have developed model license agreements to help guide companies through the process, and NASA and NIH have special license agreements for start-ups to shorten the licensing process. Also, DOE created an agency-wide licensing guide to help prospective licensees navigate federal licensing requirements.

Monitoring Licensee Performance

DOD, DOE, NASA, and NIH agency and lab officials we interviewed identified limited resources and inadequate monitoring systems as factors that make it difficult to monitor licensee performance.

NASA and NIH officials reported that the number of license agreements has increased in their labs and that they do not have enough resources to monitor licenses. DOD officials stated that the agency’s technology transfer offices have traditionally been understaffed and that the agency’s monitoring systems are inadequate for tracking the status of issued licenses. Officials at one DOE lab stated that collecting royalties from licensees can be difficult because the lab does not have enough funds to support that activity. In addition, agencies may rely on the same systems they use to keep track of inventions to monitor licensee performance, and as previously discussed, these systems are in need of improvement.

Some stakeholders we interviewed noted that monitoring licensee performance is a government-wide challenge. They explained that sometimes licensees do not pay fees if they are not contacted, and a few stakeholders stated that federal labs have limited funding and resources to monitor contracts effectively. One stakeholder recalled one agency that did not communicate with a licensee for 2 years after the license agreement was signed. According to another stakeholder, ineffective monitoring of licensee performance may limit federal labs’ ability to determine whether a company is developing federal inventions for commercial use per the terms and conditions of the license agreement.

Some agency and lab officials stated that they have taken steps to regularly monitor licensees. In particular, at NASA and NIH—where monitoring of licensee performance is centralized at the agency level— officials have programed systems to remind staff to check on licensee performance.

Measuring Licensing Outcomes

Federal labs, including those under DOD, DOE, NASA, and NIH, also face challenges in effectively measuring patent licensing outcomes, based on our interviews with stakeholders and analysis of relevant literature. According to one stakeholder, labs need metrics to assess whether a licensee has made progress on developing the invention for commercial use and whether the lab needs to get the license back and give it to another company.

However, some stakeholders we interviewed stated that although the 2011 presidential memorandum on technology transfer called for strategies to establish metrics, federal labs are still struggling to implement metrics for measuring technology transfer outcomes, including patent licensing activities. Stakeholders we interviewed and our analysis of relevant literature have indicated that federal labs in general track the numbers of patents, licenses, and revenues instead of using metrics that identify direct economic impacts from patent licensing and other technology transfer activities. In agencies where such metrics do exist, they may be applied inconsistently across labs. For example, officials at one DOE lab stated that DOE metrics are generally not consistent across the agency’s labs.

DOD, DOE, NASA, and NIH agency officials stated that they are working to improve their metrics and incorporate metrics beyond tracking numbers of patents, licenses, and revenues. For example, in addition to measuring the numbers of patents and licenses issued, NASA and Air Force officials stated that they are also measuring factors that affect the length of time it takes for their labs to process licenses. Such information, officials said, will help them expedite the licensing process.

Prioritizing Patent Licensing as an Agency Mission

DOD, DOE, NASA, and NIH face challenges in prioritizing patent licensing as part of their agency missions, which can affect the entire patent licensing process.

For example, DOD and DOE agency and lab officials stated that an agency’s mission affects patent licensing activities. DOD officials stated that the agency’s primary mission is protecting the warfighter and that patent licensing is a secondary benefit to the agency. According to DOE officials, the nuclear security labs do not focus on patenting but instead on developing technologies associated with a weapons program.

In addition, several stakeholders we interviewed stated that some agencies and labs do not have a culture that prioritizes patent licensing. In particular, one stakeholder stated that at some federal labs, patent licensing is not reflected in performance evaluation management plans, which can help incentivize lab personnel to engage in patent licensing activities. A few stakeholders stated that at some labs where management does not prioritize patent licensing activities, researchers’ careers can be negatively affected if they engage in patent licensing activities.

DOD, DOE, NASA, and NIH agency and lab officials cited limited resources to conduct the range of activities related to patent licensing. For example, sometimes there is just one person at a DOD lab overseeing technology transfer activities, according to DOD agency and lab officials. Officials at one NIH lab stated that many labs across the agency do not receive enough royalties to offset their patent licensing costs. In its fiscal year 2015 report—its most recent report—to Congress on federal technology transfer activities, NIST reported that the federal intramural research budget, which include patent licensing activities, has generally not increased in the past 4 fiscal years. Several agency and lab officials stated that budget constraints affect the extent to which they can engage in patent licensing activities—including patent enforcement, which can cost millions of dollars and presents challenges for federal labs, according to DOE officials.

Some agency and lab officials stated they have taken steps to overcome such challenges. For example, officials at one Navy lab stated that the lab has management support and nine patent attorneys to assist in the reviews of researchers’ invention disclosures. Also, officials at one NIH lab stated that the lab has strong management support and a good royalty stream from successful inventions that pay for patenting and other reinvestments, which allows the lab to not draw from its appropriations.

Appendix III: Patent License Summary for Licenses Effective in Fiscal Year 2014

Tables 1 through 3 and figures 4 through 6 are based on 222 patent licenses that became effective in fiscal year 2014, and associated data, provided by the Department of Defense (specifically the Army, Navy, and Air Force), Department of Energy, National Aeronautics and Space Administration, and National Institutes of Health. They include both data provided by the agencies and information compiled directly from the licenses. The tables and figures are provided for informational purposes and are not generalizable to all patent licenses.

Appendix IV: Comments from the Department of Commerce

Appendix V: Comments from the Department of Defense

Appendix VI: Comments from the Department of Energy

Appendix VII: Comments from the Department of Health and Human Services

Appendix VIII: Comments from the National Aeronautics and Space Administration

Appendix IX: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Robert J. Marek (Assistant Director), James D. Ashley, Kevin S. Bray, Virginia A. Chanley, Ellen L. Fried, Sarah C. Gilliland, Cheryl M. Harris, Robert Letzler, Gregory A. Marchand, Christopher P. Murray, Emmy L. Rhine Paule, Dan C. Royer, Ardith A. Spence, Vasiliki Theodoropoulos, and Reed Van Beveren made key contributions to this report.

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