Fine Tuning the Trump Administration’s ROI Initiative

By Joseph Allen
January 14, 2019

“While it should be emphasized that overall the ROI Initiative is a solid step forward, review of the 122-page paper reveals some concerns, as articulated by the AUTM and ELDF comments.”

Fine Tuning the Trump Administration's ROI InitiativeAs previously discussed, the Trump Administration’s Return on Investment (ROI) Initiative, which is geared toward increasing the American taxpayer’s benefits from federally-supported R&D, is potentially a big step forward. The draft recommendations were contained in a “Green Paper” open for public comment until January 9, 2019.

The paper acknowledges the importance of a strong, dependable patent system and lauds the Bayh-Dole Act as the cornerstone of the U.S. technology transfer system, which leads the world in turning federally-funded inventions into new products, companies, jobs and even entirely new industries. Review of the 122-page paper confirms its overall value but also reveals some concerns.

The comments from AUTM provide an excellent analysis of the issues. Interestingly, its themes are reflected by those of the Eagle Forum Education and Legal Defense Fund (ELDF). ELDF is the education arm of Eagle Forum—an organization with a much different mission. ELDF has been active in this sphere as a conservative organization that sees recent assaults on the patent system as anathema to property rights and the Constitution.

ELDF prefaces its critique by listing some fundamental principles:

Importantly, the document affirms “the critical importance of private rights in innovation as an enduring, foundational principle” and reflects appropriate respect for what we called the “first principles” that underlie every attempt to turn an invention into something that is commercially viable, whether through tech transfer or otherwise. Effective technology transfer, notably as seen in the long, successful track record of the Bayh-Dole Act, relies on exclusive, enforceable, private property rights.

Further, the Green Paper recognizes the “intimate connection between a competitive economy and national security”.

That framework provides a good basis for reviewing the recommendations. Perhaps the most important is protecting the Bayh-Dole Act from being turned from a driver of our economy into a weapon establishing government price controls for important inventions.

Marching In

The march-in provision of the Bayh-Dole Act allows agencies to compel academic institutions making discoveries with federal funds to issue additional licenses if good faith efforts are not being made to commercialize an invention, or if sufficient quantities of a resulting product cannot be produced to meet a national emergency.

Twenty years after enactment, critics of the law floated the idea that this authority allows the government to march-in if a resulting product isn’t “reasonably priced.”  Numerous petitions have been filed asking the National Institutes of Health to march-in against prominent drugs. While each was appropriately denied, political pressure continues to build to misapply Bayh-Dole for price controls. Intended Action 2 of the Green Paper slams the door on such misuse through a proposed new regulation “specifying that march-in rights should not be used as a mechanism to control or regulate the market price of goods or services.”

AUTM writes:

This may be the most significant Intended Action in the report. As reported by Secretary Ross, the Bayh-Dole Act has
tremendously benefitted the public welfare both here and abroad…attempts to misapply the march-in provision of the Bayh Dole Act to regulate the price of successfully commercialized products undermines the intent of the law as evidenced by the quote from Senators Bayh and Dole in the Green Paper.

ELDF observes:

Regulatory clarification under Bayh-Dole of the statute’s march-in rights is badly needed, given the uncertainties injected by creative activists seeking to force change in the application of this emergency-only measure for extra-statutory purpose. Defining when march-in is appropriate, pursuant to statute, and clarifying the meaning of “reasonable terms” and “practical application” so as to definitively exclude price of goods and services — that is, to codify the original intent of the law’s authors, as stated by Sens. Birch Bayh and Bob Dole— would safeguard the ability of commercializers to rely on the IP exclusivity that is critical to achieving commercial success and ensuring that private investors will continue to assume the risk involved in bringing an invention to market. March-in must never be twisted into a means of enacting price controls.

New Partnering Mechanisms Must Comply With Bayh-Dole

When launching the ROI Initiative, Secretary of Commerce Wilbur Ross was brutally frank about the need to increase the technology transfer success rate of the federal laboratories, noting that it falls well behind that of universities.

One reason is the complexity of working with federal labs. There currently exists a bewildering array of partnering mechanisms across the agencies. Rather than culling them down, the Green Paper proposes creating a new “Research Transaction Authority” (RTA) through statute to boost agency deal making flexibility. Because its justifications are necessarily brief, we’ll suspend judgment on whether that’s the best solution, but what is clear is that the RTA is based on the wrong precedent.

One of the primary objectives of Bayh-Dole was to create a uniform patent policy across all federal agencies that decentralizes the management of inventions from Washington to the creating organization. Before the law, agencies had more than 20 varying policies for how inventions would be owned and managed. We can’t risk slipping back to that era.

Citing the same need for “flexibility,” in the 1990s the Department of Defense (DOD) created a new research funding mechanism called the “Other Transaction Authority” (OTA). Because it was not a grant, contract or cooperative agreement, Bayh-Dole did not apply. That meant the bureaucracy was again in charge of determining who owned resulting inventions. DOD sought to minimize concerns by pledging that it would normally grant Bayh-Dole rights to universities and small businesses through its regulations. The new Research Transaction Authority expands the OTA model to all agencies, including a similar pledge to honor Bayh-Dole rights through regulation.

Ironically, during the Green Paper’s comment period, DOD issued new guidance for the OTA. It emphasizes that Bayh-Dole does not apply “and negotiation of rights of a different scope is permissible and encouraged.” (emphasis in original)

As AUTM wryly notes: “It is hard to see how denying Bayh-Dole Act rights to academic institutions and small businesses so inventions can be given to prime contractors serves the public interest.”

AUTM continued:

We are also concerned that a proliferation of mechanisms, rather than holding agencies accountable for how they are
utilizing existing authorities, only adds to industry’s confusion with how to effectively partner with federal laboratories.

It is not clear from the description in the Green Paper why adding yet another authority allows agencies to be more efficient in completing partnering agreements with industry. It appears that one reason in the delay in processing CRADAs is due to the agencies’ own procedures rather than a lack of authority. Regardless, creating a new OTA type program raises serious concerns.

Streamlining Agency Reviews

While enacting Bayh-Dole, Congress emphasized the desire that federally-funded inventions be developed in the U.S. whenever possible. It also recognized that it was better to have a product developed than for an invention to sit on the shelf if a domestic developer could not be found through an exclusive license. In that case, academic institutions must apply for a waiver from the funding agency. Over the years, agencies developed various procedures for handling these waiver requests. Some are non-responsive for long periods of time. That contributes to the biggest complaint from industry: that deal making often takes too long.

The Green Paper proposes streamlining the waiver process, while making it more uniform across all agencies. Cutting back on unnecessary red-tape is always a good thing. However, the paper also proposes extending agency oversight to non-exclusive licenses to encourage their domestic development. That may seem appealing but is a solution in search of a problem.

For one thing, it is unclear that the authority exists for this action. The Bayh-Dole Act only requires a waiver for exclusive licenses, apparently recognizing that anyone can apply for a non-exclusive license, thus domestic manufacturers are not shut out. As far as I know, there’s no evidence that universities aren’t effectively managing their non-exclusive licenses without government “assistance.”

Similarly, the Green Paper calls for new regulations establishing licensing best practices. That is something the universities have done exceedingly well through professional societies like AUTM. Having the bureaucracy determine how inventions should be licensed, beyond the statutory requirements of Bayh-Dole, is a really bad idea.

The Most Important Ingredient: Oversight and Accountability

While reviewing these problematic areas, it should be emphasized again that, overall, the ROI Initiative is a solid step forward. That said, both AUTM and ELDF close citing a critically needed action. Here’s AUTM’s summation:

Congress enacted the Bayh-Dole Act to create a uniform patent policy across all agencies. In doing so, it recognized that this goal would unravel over time without oversight. That is why the law designated this critical role to the Secretary of Commerce. For too many years this function has been neglected and some agencies began denying Bayh-Dole rights inappropriately for grants and contracts by misapplying the exceptional circumstances provision of the law or promoting alternative mechanisms like the previously discussed OTA. AUTM applauds the renewed attention the Department is now giving to its statutory duties. Effective oversight is critical to the continued success of the Bayh-Dole Act which was appropriately lauded by Secretary Ross when launching the ROI Initiative.

ELDF concludes on a similar note:

The Missing Ingredient: Oversight and Accountability

The one ingredient we would suggest adding is to establish high-level technology transfer oversight and accountability. The Reagan Administration successfully supervised the implementation of the landmark 1980s technology transfer laws by establishing a high-level office in the Department of Commerce that worked in close coordination with the White House. Much of the success of Bayh-Dole and Stevenson-Wydler owes to implementation subject to close oversight and an overseer with the clout to hold other federal departments, agencies, and laboratories accountable for technology transfer congruent with the statutory requirements. The office stopped a number of international agreements that threatened to give away rights to taxpayer-funded R&D. As good as the recommendations in the Green Paper are, they are unlikely to achieve all that they ought absent high level oversight and the power to hold the rest of the government accountable for living up to the statutory standard of technology transfer being a priority of every entity of the federal government. NIST could fill this role. It would take the willingness to monitor and hold accountable other agencies and departments of the government when they stray from the statutory constraints of Bayh-Dole and Stevenson-Wydler.

We’re now getting down to where the rubber meets the road. Hopefully, when the final recommendations issue, the ROI Initiative will accomplish the objectives Secretary Ross set when it launched. If so, the lives of the American people—and those around the world—will benefit from what our entrepreneurs can do when they’re turned loose.

 

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The Author

Joseph Allen

Joseph Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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