Intellectual property has a broad range—anywhere from inventions, to technological enhancements, to methods of doing business, to computer programs, to literary and musical works and architectural drawings. Government-sponsored research has an equally broad range—from research in mathematical and physical sciences, computer and information sciences, biological and environmental sciences, and medical sciences, to research supporting military programs of the Department of Defense (DOD) and the atomic energy defense activity of the Department of Energy. The objective of some of this research, for example, cancer research, is to gain more comprehensive knowledge or understanding of the subject under study, without specific application. According to the National Science Foundation, about 3 percent of DOD’s R&D funding and 41 percent of R&D funding by other agencies goes toward this type of study. Other research is directed at either gaining knowledge to meet a specific need or to develop specific materials, devices, or systems—such as a weapon system or the International Space Station. About 97 percent of DOD’s R&D dollars and 55 percent of R&D dollars from other agencies supports applied research. The primary vehicles for funding research efforts are grants, cooperative agreements, and contracts. Today, our focus is largely on intellectual property rights that the government acquires through research done under contracts, which primarily fund applied research. As illustrated in the figure below, the R&D landscape has changed considerably over the past several decades. While the federal government had once been the main provider of the nation’s R&D funds, accounting for 54 percent in 1953 and as much as 67 percent in 1964, as of 2000, its share amounted to 26 percent, or about $70 billion, according to the National Science Foundation. Patents, trademarks, copyrights, and trade secrets protect intellectual property. Only the federal government issues patents and registers copyrights, while trademarks may also be registered by states that have their own registration laws. State law governs trade secrets. Anyone who uses the intellectual property of another without proper authorization is said to have ‘infringed’ the property. Traditionally, an intellectual property owner’s remedy for such unauthorized use would be a lawsuit for injunctive or monetary relief. Prior to 1980, the government generally retained title to any inventions created under federal research grants and contracts, although the specific policies varied among agencies. Over time, this policy increasingly became a source of dissatisfaction. First, there was a general belief that the results of government-owned research were not being made available to those who could use them. Second, advances attributable to university-based research funded by the government were not pursued because the universities had little incentive to seek use for inventions to which the government held title. Finally, the maze of rules and regulations and the lack of a uniform policy for government-owned inventions often frustrated those who did seek to use the research. The Bayh-Dole Act was passed in 1980 to address these concerns by creating a uniform patent policy for inventions resulting from federally sponsored research and development agreements. The act applied to small businesses, universities, and other nonprofit organizations and generally gave them the right to retain title to and profit from their inventions, provided they adhered to certain requirements. The government retained nonexclusive, nontransferable, irrevocable, paid-up (royalty-free) licenses to use the inventions. A presidential memorandum issued to the executive branch agencies on February 18, 1983, extended the Bayh-Dole Act to large businesses. It extended the patent policy of Bayh-Dole to any invention made in the performance of federally funded research and development contracts, grants, and cooperative agreements to the extent permitted by law. On April 10, 1987, the president issued Executive Order 12591, which, among other things, required executive agencies to promote commercialization in accordance with the 1983 presidential memorandum. Below are highlights of requirements related to the Bayh-Dole Act and Executive Order 12591. In addition to the traditional categories of intellectual property protections, government procurement regulations provide a layer of rights and obligations known as “data rights.” These regulations describe the rights that the government may obtain to two types of data, computer software and technical data, delivered or produced under a government contract. These rights may include permission to use, reproduce, disclose, modify, adapt, or disseminate the technical data. A key feature of the DOD framework for data rights, and one implicit in the civilian agency framework, is that the extent of the government’s rights is related to the degree of funding the government is providing. In some cases, the government may decide that it is in its best interest to forgo rights to technical data. For example, if the government wants to minimize its costs of having supercomputers developed exclusively for government use, it could waive its rights in order to spur commercial development. At the same time, situations arise where the government has a strong interest in obtaining and retaining data rights—either unlimited rights or government-purpose rights. These include long-term projects, such as cleanup at nuclear weapon sites, where the government may want to avoid disrupting the program if a change in contractors occurs. These also include projects that affect safety and security. For example, the Transportation Security Administration recently purchased the data rights for an explosives detection system manufactured by one company. The agency believed data rights were necessary in order to expand production of these machines and meet the congressionally mandated deadline for creating an explosives detection capability at airports. We contacted multiple agencies responsible for $191 billion or 88 percent of federal procurements in fiscal year 2001. At these agencies, we met with those officials responsible for procurement, management and oversight of contractor-derived intellectual property. We also analyzed agency and industry studies as well as agency guidance and requirements. In addition, we met with representatives from (1) commercial enterprises that either contract with the government or develop technologies of interest to the government as well as (2) associations representing commercial firms doing business with the government. Both industry and agency officials covered by our review had concerns about the effectiveness and the efficiency of successfully negotiating contracts with intellectual property issues. These concerns include a lack of good planning and expertise within the government and industry’s apprehensions over certain government rights to data and inventions as well as the government’s ability to protect proprietary data. Industry officials were particularly concerned about the span of rights the government wants over technical data. Industry officials asserted that rather than making a careful assessment of its needs, some contracting officers wanted to operate in a “comfort zone” by asking for unlimited rights to data, even when the research built on existing company technology. This was disconcerting to potential contractors because it meant that the government could give data to anyone it chose, including potential competitors. Some companies mentioned specific instances in which they delayed or declined participation in government contracts. These situations occurred when companies believed their core technologies would be at risk and the benefits from working with the government did not outweigh the risk of losing their rights to these technologies. Most agency officials said that intellectual property issues were at times hotly contested and could become the subject of intense negotiations. While agency officials indicated that problems related to intellectual property rights may have limited access to particular companies, they did not raise or cite specific instances where the agency was unable to acquire needed technology. In some situations, agencies exerted flexibility to overcome particular concerns and keep industry engaged in research efforts. DOD officials viewed intellectual property requirements and the manner in which these requirements are implemented as significantly affecting their ability to attract leading technology firms to DOD research and development activities. This concerns DOD, which believes it needs to engage leading firms in joint research efforts in order to promote development of commercial technologies that meet military needs. Last, agency officials, particularly DOD officials, voiced concerns about having access to technical data necessary to support and maintain systems over their useful life as well as the ability to procure some systems competitively, especially smaller systems. These officials stated that if they did not obtain sufficient data rights, they could not use competitive approaches to acquire support functions or additional units. We have reported on the difficulties that occurred when appropriate data rights were not obtained. In one instance, when the Army tried to procure data rights later in the system’s life cycle, the manufacturer’s price for the data was $100 million—almost as much as the entire program cost ($120 million) from 1996 through 2001. We have recommended, among other things, that DOD place greater emphasis on obtaining priced options for the purchase of technical data at the time proposals for new weapon systems are being considered—when the government’s negotiating leverage is the greatest. Agency officials we spoke with generally agreed that some actions could be taken to address concerns about limited awareness of flexibilities and expertise without any legislative changes. Specifically, agencies could promote greater use of the flexibilities already available to them. DOD, for example, is advocating greater use of its “other transaction authority.” This authority enables DOD to enter into agreements that are generally not subject to the federal laws and regulations governing standard contracts, grants, and cooperative agreements. By using this authority, where appropriate, DOD can increase its flexibility in negotiating intellectual property provisions and attract commercial firms that traditionally did not perform research for the government. A second example of agency flexibility to address industry concerns over the allocation of rights under the Bayh-Dole Act is a form of waiver, known as a determination of exceptional circumstances. This waiver has been used, for example, to work out intellectual property rights between pharmaceutical companies and universities or other firms. In these cases, pharmaceutical companies provide compounds that NIH tests to identify whether these compounds are effective in treating additional diseases or ailments. Universities and other commercial firms perform these tests. The exceptional circumstances determination allows the pharmaceutical companies to retain the intellectual property rights to any discoveries coming out of these tests, rather than the performer of the tests. An NIH official explained that a determination of exceptional circumstances could be made in these cases because the program would not exist in the absence of such a determination. Agencies could also strengthen advance planning on data requirements.