Institutional conflict of interest. (Commentary).
Competing interests of faculty members in academic and research institutions have attracted increasing attention during the past two decades following the 1980 passage of the Bayh-Dole Act (P.L. 96-517) and the Stevenson-Wydler Technology Innovation Act (P.L. 96-480) that allowed non-profit recipients of federal grants and contracts to manage the commercialization of intellectual property created by their employees (Danforth, 2001, p.4). The Bayh-Dole Act stipulated that inventors share in the revenues generated by commercialization of their intellectual property, providing an incentive for faculty members to redirect a portion of their effort to product development. In order to enhance this new revenue stream for the mutual benefit of the faculty and the institution, universities established intellectual property offices to protect and market their portfolio of inventions (Pramer, 1998, p. 447; Rogers et al., 2000, p. 47). Faculty members were encouraged to develop closer relationships with industry to more effectively pursue this source of revenue. Although the Bayh-Dole Act and related legislation stimulated the practical application of fundamental discoveries, these successes were accompanied by less applauded changes in the academic culture (Bradley, 1990). Two frequently cited adverse effects of the university-industry partnership are a decreased openness in sharing ideas and data among investigators at different institutions, and an increased emphasis on research with short-term goals leading to product development rather than gains in basic knowledge (Martin & Kasper, 2000, p. 1648). Currently, the financial interests of investigators engaged in clinical research involving human participants are being scrutinized (Agnew, 2000; Shalala, 2000, p. 808; Coyle, 2002, p. 399) because it is believed that these conflicts of interest lead to loss of objectivity and perspective, and to poor decisions on selection of results to be reported (Bodenheimer, 2000, p. 5542), and even to endangerment of human participants in research (Spicer, 2000).
Federal agencies and academic institutions developed policies for managing personal financial conflicts of interest (Boyd & Bero, 2000, p. 2210; Cho et al., 2000, p. 2204). But the leadership of academic institutions were reluctant to acknowledge and address institutional conflicts of interest (Amdur, 2000, p. 719). A spectrum of institutional financial conflicts of interest has now been identified, based primarily upon the party placed in a disadvantaged position. One subset is internal to the institution and is most often a conflict between the institution and its faculty. The other major subset involves parties external to the institution, and is seen as acting in opposition to the public good. The governing body of an academic institution, which has the responsibility to establish the institution's mission, is often faced with new challenges in program funding and actively seeks new revenue streams from university/industry partnerships, without much attention to managing the conflicts of interest inheren t in these business arrangements (Angell, 2000, p. 1516).
Conflict of Interest Between the institution and Its Employees
University research is more oriented toward creation of fundamental knowledge than toward the details of product development. The university intellectual property office has the responsibility to use due diligence in protecting and marketing the intellectual property reported to it, and the creators have the obligation to continue to work to establish that the material has merit. Credit for a patent or a copyright remains with the creator but management of commercialization and decisions on distribution of royalty income are assigned to the institution. One strategy in developing university technology is to find third parties who will fund the commercial development of novel findings but established industry is reluctant to invest in early discoveries. Thus efforts to license early-stage inventions are generally unsuccessful. This situation often leads to a conflict between the university and the inventor because the university faces the choice of becoming a partner in the further development of the inventio n or relinquishing its assignment to the inventor. The university is limited in its ability to underwrite the costs of patenting and developing faculty discoveries, but it is also reluctant to relinquish its rights to manage an invention out of concern that it may lose a major future revenue stream.
A university invention review committee should evaluate invention disclosures and advise on strategies for management of intellectual property. For example, this committee, made up of individuals experienced in commercialization of new technologies, drawn from inside and outside the institution, would recommend to the appropriate university authority (e.g., the vice president for research) that the university invest in the intellectual property or return it to the inventor. Written documentation from the committee is recommended when the university and the faculty inventor agree that the university has no claim to manage an invention. This same committee would also have the expertise to review those instances in which a faculty member attempts, privately or with a third party, to patent an invention made with university resources in an effort to deprive the university of its share of the revenue from licensing and royalty payments. The burden of proof that an invention is unrelated to the scope of employment lies with the employee.
Conflict of Interest at the Institutional Level
Research institutions have a financial interest in the commercialization of the intellectual property created by their employees (Bradley, 1995, p. 173). Institutions may commit some of their discretionary resources to enhance the likely economic success of the commercialization strategy, diverting these funds from educational initiatives, or away from other efforts to develop promising technologies. Institutions stand to gain not only from revenue streams but also from enhanced reputations that attract additional gifts and investments in research.
Universities sometimes take equity interests in start-up companies based on the intellectual property of their faculty inventors. Most start-up companies are under-capitalized; granting equity to the university is a way for the company to conserve its resources for business development. When a company thrives, the university benefits greatly but most often start-up companies do not mature into profitable businesses and the university is deprived of modest returns for its contributions to the technology transfer.
The management of equity assets also presents complex ethical issues. Institutions should distance themselves from decisions regarding the sale or disposition of stock by establishing a business relationship with an independent third party or by developing a predetermined schedule for the sale of the equity interests. This asset management plan should be developed in consultation with reputable financial advisors to minimize the likelihood of subsequent charges of mismanagement. It is also important for the institution to ensure that the sale of any equity holding be conducted in a manner consistent with applicable insider trading rules (Bradley, 2000, p. 145) because the Securities and Exchange Commission is likely to consider an equity holder with detailed information about the development and evaluation of the faculty member's invention as an insider trader.
Some universities have entered into umbrella agreements that provide the commercial sponsor with first right to examine the research reports of investigators (Harrington, 2001, p. 778). One of the first such agreements was between the Massachusetts General Hospital, an affiliate of Harvard Medical School, and the German chemical company Hoechst. A.G. Hoechst paid $70 million for the rights to obtain exclusive options to market any product developed during a ten-year period in the laboratories of Howard Goodman. These umbrella grants may pose significant problems such as: (a) the potential to disclose proprietary information of another company to the sponsor, (b) the limitation of additional work through barring industrial support of research by competitors, (c) the adjustment of an institution's priorities to favor work of interest to the sponsor of the umbrella agreement and (d) the sponsorship of the umbrella agreement may be a foreign commercial entity and consequently U.S. taxpayers' money is providing a n international business competitor privileged access to research resources. For these reasons, the scope of umbrella contracts needs to be carefully determined.
Managing Institutional Conflict of Interest
Whereas academic institutions have policies and procedures for managing individual conflicts of interests, a parallel policy for the institution itself is often lacking. The perceived loss of objectivity as a result of the effort to commercialize the intellectual property of faculty has led to calls for more oversight of individuals and their institutions (McCrary et al., 2000, p. 1621). Some academic institutions address the question of significant equity ownership in companies by developing or marketing the intellectual property created by their faculty members. Other institutions most concerned with product liability, obligations for unrelated business income, or the appearance of bias in managing assets, have elected to forego equity interests in the development of the faculty's inventions. Some institutions have elected to create research foundations that manage the university's portfolio of intellectual property, including the decisions to accept and to sell equity holdings. The timing of the decision to sell equity holdings is not trivial. Early investors anticipate a substantial appreciation in the value of the holdings and therefore may advocate holding the stock for some time. There are tax implications for both the faculty member and the institution. In a scenario in which the product is commercially successful, the sale of a large amount of stock may generate substantial income that is taxed at a very high rate. In a more negative scenario, the institution and the faculty member may receive stock having a modest value established in open trading, only to have the stock precipitously lose value. The recipients of the stock may be taxed at the initial valuation of the stock and discover that sale of the stock will not even cover their tax obligation.
Universities must develop procedures for disclosing and managing institutional conflicts of interest. A deliberative body with broad-based membership drawn from the public and the university should formulate a management plan for each disclosed conflict (Sample & Smith, 2001, p. 13). The goal is to manage the disclosed conflict; elimination of the conflict should be a last resort. The cost of implementing and monitoring individual and institutional conflicts of interest can be high. But the failure to do so runs the risk of endangering public trust in academic and research institutions and, in the case of clinical research, exposure to large liability judgments. The primary incentive for careful management of conflicts of interest, however, is to maintain an environment that minimizes extrinsic inducements and nurtures free inquiry and dissemination of information (Cech & Leonard, 2001).
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Gaylen Bradley, PhD, is Senior Associate Director of Research Affairs and Visiting Professor of Humanities and Pharmacology, at Penn State College of Medicine. Prior to that, he was Vice President for Academic Affairs at the University of Maryland Biotechnology Institute. He has been writing and teaching about the responsible conduct of research, and conflict of interest in particular, since 1986.
Author's Note: The author gratefully acknowledges the assistance of the editorial reviewers.
Address correspondence to Gaylen Bradley, PhD, Senior Associate Director of Research Affairs, Penn State College of Medicine, Mail Code H-138,500 University Drive, Hershey PA 17033. E-mail: firstname.lastname@example.org.
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|Title Annotation:||conflicts between research institutes and corporations|
|Publication:||Journal of Research Administration|
|Date:||Jul 1, 2002|
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