Promoting "academic entrepreneurship" in Europe and the United States: creating an intellectual property regime to facilitate the efficient transfer of knowledge from the lab to the patient.
TABLE OF CONTENTS INTRODUCTION I. THE GLOBAL PHARMACEUTICAL SUPPLY CHAIN II. THE EU INNOVATIVE MEDICINES INITIATIVE AND THE ACTION PLAN AGAINST THE RISING THREATS FROM ANTIMICROBIAL RESISTANCE A. Goals and Structure of the Innovative Medicines Initiative B. Ownership of IMI-Funded Inventions C. Action Plan Against the Rising Threats from Antimicrobial Resistance III. THE U.S. NATIONAL CENTER FOR ADVANCING TRANSLATIONAL SCIENCES AND OTHER U.S. PROGRAMS IV. UNIVERSITY TECHNOLOGY TRANSFER A. Laws Regulating Technology Transfer in the United States 1. The Bayh-Dole Act 2. Employers' Rights to Inventions Created by Employees Hired to Invent and Contractual Assignments of Inventions 3. Compensation for Inventors 4. University Technology Transfer Offices B. Laws Regulating Technology Transfer in the European Union 1. Allocation of Ownership Rights Between the University and Its Researchers 2. Compensation for Inventors 3. University Technology Transfer Offices 4. Recent Changes to the EU Patenting Regime C. Comparative Data on Academic Patenting in the United States and Europe V. PUBLIC POLICY CONCERNS RAISED BY UNIVERSITY LICENSING IN THE UNITED STATES AND THE EUROPEAN UNION VI. CREATING A NEW TECHNOLOGY TRANSFER MODEL FOR THE EUROPEAN UNION A. Ensuring a Clear and Efficient Allocation of Intellectual Property Rights 1. Harmonization with Flexibility 2. Understanding the Differing Utility Functions of Three Dyads in the EU a. The EU and the Member State b. The Member State and the University or Industrial Firm c. The University and Its Industrial Partner and the Research Scientists B. Navigating the "Anticommons" 1. Create a Broad Experimental Use Exemption 2. Establish a Compulsory Licensing Regime and Provide a Safe Harbor for Patent Pools 3. Require More Complete Enabling Descriptions 4. Promote Open Innovation Collaborations 5. Other Recommended Changes to the Bayh-Dole Regime C. Complying with the EU State Aid Restrictions CONCLUSION
"[P]atent protection strikes a delicate balance between creating 'incentives that lead to creation, invention, and discovery' and 'imped[ing] the flow of information that might permit, indeed spur, invention.'" (1)
To improve industry competitiveness (2) and address unmet health needs, government agencies in both the European Union ("EU") and the United States ("U.S.") are working with public universities and for-profit pharmaceutical firms "to foster translation [of medical discoveries] from the university to the healthcare sector through the generation and support of start-ups, spin-offs, university-industry consortia, and other platforms[.]" (3) The goal: facilitating the movement of discoveries from "bench to bedside." (4)
One example is the Precision Medicine Initiative ("PMI"), a $215 million public-private project announced by President Obama in 2015, which presents "one of the greatest opportunities for new medical breakthroughs that we have ever seen." (5) Under the PMI, research universities, for-profit pharmaceutical firms, and others will collaborate to collect genetic, health, and environmental information from one million Americans in an effort to promote treatments tailored to individual patients. (6) Britain launched a similar initiative--the Precision Medicine Catapult--in 2015. (7)
In 2014, the European Commission launched a study of knowledge transfer by public research organizations and other institutions of higher learning (8) "to determine which additional measures might be needed to ensure an optimal flow of knowledge between the public research organisations and business thereby contributing to the development of the knowledge based economy." (9) The study was designed to help implement Horizon 2020, a 80 billion [euro] program for research and innovation approved by the European Parliament and Council in December 2013. (10) Regulators in the EU have already identified public-private and public-public partnerships as "key elements" of the "Innovation Union," a feature of Horizon 2010. (11) Slated to run from 2014 to 2020, the Innovation Union "aims to improve conditions and access to finance for research and innovation, to ensure that innovative ideas can be turned into products and services that create growth and jobs." (12)
But notwithstanding such initiatives to promote "academic entrepreneurship," (13) most university technology transfer offices are not profitable; the few that are generate an income stream that "is still a relatively small percentage of the total research volume." (14) For example, of the 734 licensing deals entered into by the University of California system between 1981 and 1999, only 188 resulted in positive royalty payments. (15) Similarly, between 1980 and 2004, only 358 of 2,270 inventions developed at the Max Planck Society (16) yielded positive royalty income. (17) In 2007, total licensing income represented just one percent of the Max Planck Society's annual budget. (18) The European Commission recognized the problem these statistics illustrate, stating: "We need to get more innovation out of our research. Cooperation between the worlds of science and the world of business must be enhanced, obstacles removed and incentives put in place." (19) Yet, as Guido Buenstorf and Matthias Geissler explain:
Commercializing academic inventions is non-trivial because they are often far from being readily marketable. Prior work suggests that commercialization is complicated by uncertainty stemming from the early-stage character of most university inventions, information asymmetry between inventor and potential licensee, and also the noncodified nature of important elements of the knowledge base underlying the traded technology. (20)
For example, although researchers at universities have worked with for-profit pharmaceutical firms to commercialize discoveries flowing from the successful mapping of the human genome, (21) barriers to commercialization remain. Extensive research in expensive facilities is required to convert the findings of pharmacogeneticists (22) into a treatment regime. A pharmaceutical company may spend an estimated $5 billion bringing a new drug to market, a figure that includes the cost of unsuccessful drug candidates. (23) While pharmacogenomic products offer "personalized medicine," a benefit to the patient receiving the drug, pharmaceutical companies lack incentive to develop pharmacogenomic products because of (1) small sample sizes in clinical trials, which can increase the cost of the already expensive new drug approval process by requiring extra trials and research; (24) (2) lack of coverage by Medicare and private insurers for the companion genetic tests; (25) and (3) concern about limiting the pool of people who will receive their drug. (26)
Another costly area is microbiotics, the study of the microbial cells in the human body. Microbial cells outnumber human cells roughly ten to one and are thought to interact with the human host to support health or trigger disease. (27) Scientists are now applying many of the tools developed for pharmacogenetics to study the human microbiome, the genes of the several hundred microbial species in the human body. (28) Many scientists believe that this "second genome" can affect one's health more than one's inherited genes and that it may be possible to "reshape" or "cultivate" microbiota. (29) Developments in metagenomics have already made it possible to examine the ways the microbiome and human host interact without having to cultivate bacterial strains in the laboratory. (30)
Microbiotics offers possible treatments for certain autoimmune diseases and other ailments. (31) Scientist Jeff Gordon predicts that disorders of the microbiome will eventually be treated with "synbiotics," next-generation probiotic microbes that patients will take with prebiotic nutrients, as well as with new "therapeutic foods" that will heal various intestinal issues. (32) Both Big Pharma and Big Food will likely have a large stake in "repairing the microbiota of people who can't or don't care to simply change their diets." (33) Because of their extensive research requirements, macrobiotics and metagenomics as well as pharmacogenetics are important areas for public-private cooperation.
To promote research in this area, the U.S. National Institutes of Health ("NIH") created the five-year Common Fund Human Microbiome Project ("HMP") in 2007, allocating $217 million to fund research on human microbiota and to develop "metagenomics datasets and computational tools for characterizing the microbiome in healthy adults and in cohorts of specific microbiome-associated diseases." (34) A second phase of HMP began in 2013, was funded with $15 million from the NIH Common Fund, and will focus on the microbiome and its role in pregnancy and birth, diabetes, and inflammatory bowel disease. (35) Another endeavor, the American Gut Project, is an open-source project involving researchers across the globe that seeks the participation of tens of thousands of "citizen scientists" to provide specimens for study. (36) The project hopes to sequence the microbiome of the participants and to "uncover patterns of correlation between people's lifestyle, diet, health status and the makeup of their microbial community." (37)
Patents and exclusive licenses of patented technology are the primary legal tools used to recoup a firm's investment in the commercialization of a new pharmaceutical compound, biologic, synbiotic, or genetically engineered therapeutic food. (38) Although patents spur investment, they also reduce competition, leading to higher prices. (39) And they can impede further innovation. As the U.S. Supreme Court stated in Association for Molecular Pathology v. Myriad Genetics, Inc.: "[P]atent protection strikes a delicate balance between creating 'incentives that lead to creation, invention, and discovery' and 'imped[ing] the flow of information that might permit, indeed spur, invention.'" (40) These are not only hotly contested contractual issues, (41) but matters of social and governmental import. Accordingly, "[p]olicy-makers must ... determine, through the patent system, how to balance the promotion of downstream pharmacogenomic [and other pharmaceutical] research while protecting the rights of innovators." (42)
The purpose of this article is to advance the public policy and academic debate in both the EU and the United States concerning the intellectual property issues inherent in drug development collaboration among government, academia, and private industry--what has been dubbed the "triple helix." (43) We propose solutions that build on aspects of both the European Innovation in Medicines Initiative ("IMI") and the Bayh-Dole Act, (44) the U.S. statute governing the patenting and licensing of government-funded university technology. We also extend the game theory analysis of public-private partnerships we presented in an earlier article (45) to include the incentives necessary to persuade academic researchers to share their tacit knowledge with the commercial partner in a PPPP.
Part I briefly describes global trends in pharmaceutical research, development, and commercialization before outlining the role pharmaceutical public-private partnerships can play in this process. Parts II and III discuss the EU IMI and three U.S. NIH translational medicine initiatives. Part IV discusses technology transfer from academia to industry, including the ownership of inventions, licensing and patent considerations, the role of university technology transfer offices, and recent changes to the EU patent regime. Part V presents public policy concerns raised by university licensing to private firms. Finally, Part VI concludes by proposing an intellectual property regime for the EU designed to promote the commercialization of technology developed in university laboratories with government funds without jeopardizing either the historic role of universities in Europe or the goals of the common market reflected in the restrictions on State aid.
I. THE GLOBAL PHARMACEUTICAL SUPPLY CHAIN
The existing productivity challenge in the pharmaceutical industry is a result of increasing research and development ("R&D") costs, decreasing production, a lack of administrative approval of new products, reduced public funding, and empty or exhausted pipelines. (46) In 2012, the "year of all patent-cliff years," the patents on AstraZeneca's Seroquel IR, Bristol-Myers Squibb's Plavix, and Merck's Singulair all expired. (47) Pfizer's patent on Lipitor had expired in late 2011. (48) Table 1 reflects the resulting financial pressure on pharmaceutical companies around the world. (49)
Research published in 2015 in the Journal of the American Medical Association found that while "[m]edical research in the United States remains the primary source of new discoveries, drugs, devices, and clinical procedures for the world ... the U.S. lead in these categories is declining." (50) In 2011, for instance, the United States' share of total medical research spending (both academic and commercial) had decreased to forty-four percent, while Europe--the second largest sponsor--maintained a thirty-three percent share. (51) Between 2000 and 2009 the number of biomedical research articles published by U.S. scientists increased by only 0.6% annually. In contrast, the number of articles published by Chinese scientists during that same period increased by more than 18% annually. (52)
Similarly, while the U.S. share of global government and industry funding for medical research has decreased in recent years, spending has markedly increased in Asia, especially in China, India, Japan, Singapore, and South Korea. (53) Since 2004, the U.S. share of industry funding has dropped from nearly 50% to 41%, (54) and, during that same period, Japan has increased its share of industry funding by 3.9%. (55) In 2011, China filed 30% of global life sciences patents, up from just 1% in 1991. But the United States' share grew comparatively slowly, increasing from 11% to 24% in that time. (56) Additionally, between 1991 and 2011, the percentage of "highly valuable patents," measured by subsequent citation counts, decreased for patents issued to U.S. inventors by the U.S. and European patent offices. (57)
Between 2003 and 2013, the European Medicines Agency ("EMA") received on average more drug applications (fifty-five per year) and approved more drugs (forty-two per year) than the U.S. Food and Drug Administration ("FDA"), which averaged twenty-six approvals per year in the same period. (58) In 2013 alone, the EMA received twenty-two more applications and approved sixteen more drugs than the FDA, suggesting that, at least in terms of number of new drugs approved for use, Europe is continuing to outpace the United States. (59) A study involving patenting by 492 tenured engineering academics working in the United Kingdom between 1996 and 2007 showed that "UK researchers receiving funding from industry are more likely to produce patents, controlling for a variety of individual and departmental characteristics," (60) than UK researchers not receiving industry funding, suggesting the important role industry can play in academic entrepreneurship.
The reduction in the U.S. government share of spending on medical research may be one reason why private firms have, since 2003, increasingly focused on later-stage clinical trials and product development, reducing their "discovery-level investment" in activities such as target identification and validity. (61) This shift has widened the "so-called 'valley of death,'" which separates "upstream research on promising genes, proteins, and biological pathways" by government-funded academic researchers from "downstream drug candidates" (62) outside firms fund in hopes of commercializing the researchers' discoveries. (63) This gap is particularly difficult to bridge given not only the cost of commercializing a compound, biologic, or symbiotic, but also the inherent tension between the goals of academia and the commercial sector. Whereas universities (a term we use to include research institutes) focus primarily on the public dissemination of new knowledge and discoveries, the private sector is often more concerned with capturing the revenues available to the patent-holding firm or an exclusive licensee.
As we explain in our article "Pharmaceutical Public-Private Partnerships: Moving from the Bench to the Bedside," (64) a properly structured pharmaceutical public-private partnership ("PPPP") (65) can help bridge the "valley of death." Used more commonly in the United States than in Europe, a PPPP is an arrangement between a university (whether governmentally or privately funded) and one or more private pharmaceutical firms to develop new medicines that can be sold by the firms for a profit. (66)
The parties in a PPPP must combine long-form contracting, relational governance, properly aligned incentives, and transparency to move from the Nash prisoners' dilemma equilibrium to the Pareto Optimal Frontier, that is, to create joint utility that gives each party more utility than it would have been able to generate acting alone. (67) This is depicted in Table 2.
As explained in our earlier article:
If both parties agree to a well-drafted binding contract and abide by relational norms, then they both have a positive utility of 5. These payoffs are arbitrary numbers whose importance is their relative value and sign. If the parties cannot agree on a contract but abide by relational norms then the joint utility (2, 2) would still be positive, that is, greater than it would be if there was no cooperation at all but lower than what would result for a binding contract supplemented by relational governance (5, 5). The same is true if there is a contract but relational norms are violated (3, 3). Given the critical importance of allocating intellectual property rights by contract, we are assuming that the joint utility is less in this situation, though that may not always be the case. If, however, a party breaches the contract, unless the other party waives its contract rights, this opportunistic behavior results in a loss to the non-breaching party (say, -2), which may be compensable at least in part by damages, and ill-gotten gain by the breaching party (say, 4). (68)
But that is not enough to convert the "dead capital" (69) created in university laboratories by academic researchers into commercially viable products. Success requires three additional elements: (1) crafting an intellectual property regime that facilitates both new upstream discoveries and the development of tools of broad application by academic researchers; (2) giving the pharmaceutical firms funding commercialization the robust returns necessary to justify the expense of developing and testing multiple compounds and biologics, knowing that only about fifteen percent will ever move past clinical trials to governmental approval; (70) and (3) offering university researchers adequate incentives to justify their participation in the commercialization process.
II. THE EU INNOVATIVE MEDICINES INITIATIVE AND THE ACTION PLAN AGAINST THE RISING THREATS FROM ANTIMICROBIAL RESISTANCE
The European Union ("EU") has enacted a variety of initiatives to facilitate the flow of discoveries from the bench to the bedside, including the Innovative Medicines Initiative ("IMI") and the Action Plan Against the Rising Threats from Antimicrobial Resistance. As Maire Geoghegan-Quinn, then-EU Commissioner of Research, Innovation and Science explained, the "Innovation Union" contemplated by Horizon 2020 requires "(i) excellent science, (ii) industrial leadership and (iii) [the ability to address] societal challenges." (71)
A. Goals and Structure of the Innovative Medicines Initiative
The IMI is Europe's largest public-private pharmaceutical development partnership. It is designed to provide socio-economic benefits to European citizens by (1) improving drug development, thereby generating faster access to better medicines, and (2) increasing investment in the European pharmaceutical R&D industry, thereby establishing Europe as the most attractive place for pharmaceutical R&D. (72) The public party is the EU, represented by the European Commission ("EC"). The private party is the pharmaceutical industry, represented by the European Federation of Pharmaceutical Industries and Associations ("EFPIA") and its members. Among other projects the IMI supports the European Lead Factory public-private partnership, an international consortium comprising thirty partners that have agreed to pool 500,000 chemical compounds; 300,000 compounds came from AstraZeneca, Bayer Pharma, Merck, Sanofi and three other member companies, and the balance will come from academia and smaller firms. (73)
Each IMI call for a project proposal involves open competition for funding as well as multiple stakeholders, including EFPIA, private pharmaceutical and biotechnology enterprises ranging from large to small, universities, hospitals, patient organizations, and public authorities. Thus, universities and firms bid for government and industry funds to support research in areas of high medical need. All IMI contracts are subject to EU regulations, including those pertaining to the ownership of any resulting discoveries and the State aid rules, which are both discussed in Part VI.
The European Union committed to contribute 1 billion [euro] to the first phase of the IMI research program ("IMI 1"), which will be matched by private in-kind contributions of at least 1 billion [euro] from the EFPIA member companies and their affiliates. (74) The public funding is directed primarily to academic and non-profit institutions. As of November 2014, forty-seven IMI 1 projects were underway with a combined budget of 2 billion [euro]. (75)
Phase two of the Innovative Medicines Initiative ("IMI 2") commenced in July 2014 and is slated to run for ten years. (76) Building on the successes and lessons learned during IMI 1, IMI 2 seeks to develop next generation vaccines, medicines, and treatments, such as new antibiotics. (77) IMI 2 has a total budget of 3.276 billion [euro], of which the EU will contribute up to 1.638 billion [euro] from the funds authorized for Horizon 2020. (78) EFPIA has committed to provide 1.425 billion [euro] through in-kind contributions, (79) and other life science industries may contribute an additional 213 million [euro], either as partners in individual projects or as IMI 2 members. (80)
B. Ownership of IMI-Funded Inventions
Article 41 of Regulation (EU) No. 1290/2013 provides that the results of an IMI-funded research project are owned by the participant that generated them. If, however, the participants make joint contributions to the final result that cannot be differentiated, then the participants will jointly own the results. (81) Similarly, if it is not possible to separate the jointly-owned results for the purpose of applying for, obtaining, or maintaining the relevant intellectual property rights protection, then the participants will jointly own the intellectual property rights. (82) Article 41 requires joint owners to enter into an agreement regarding the allocation of rights and the terms governing the exercise of their joint ownership in accordance with their obligations under the grant agreement. (83) The joint owners may elect not to continue to hold the rights jointly. They may, instead, enter into an alternative contractual arrangement by, for example, transferring their ownership shares to a single owner who agrees to grant access rights to the other participants once the results are available. (84)
In contrast with the multi-participant IMI framework, the Pfizer Centers for Therapeutic Innovation (85) and other comparable PPPPs in the United States involve a single private pharmaceutical firm that solicits proposals from academic scientists for research to be funded by the private firm. The private firm forms an assessment committee that evaluates the proposals with the goal of developing the firm's business without the involvement or intervention of competitors or pharmaceutical industry trade associations. Often, the pharmaceutical firm becomes the sole owner of the pharmaceutical patent through an assignment of inventions or, if the patent belongs to the researcher or the university, the firm becomes the exclusive licensee of the invention.
C. Action Plan Against the Rising Threats from Antimicrobial Resistance
In 2011, the European Commission launched another type of pharmaceutical development initiative called the Action Plan Against the Rising Threats from Antimicrobial Resistance. In response, AstraZeneca and GlaxoSmithKline announced that they would jointly contribute a total of 224 million [euro] to develop new antibiotics. (86) Both firms agreed to share information and to contribute compounds to the venture. This private joint venture involving two direct competitors collaborating to meet the public demand for new antibiotics offers a possible model for the horizontal private-private pooling of resources. (87)
III. THE U.S. NATIONAL CENTER FOR ADVANCING TRANSLATIONAL SCIENCES AND OTHER U.S. PROGRAMS
Like the European Union, the United States has created several vehicles to promote translational medicine. The National Institutes of Health in the United States established the National Center for Advancing Translational Sciences ("NCATS") in 2011, which for fiscal year 2015 had a budget request of $657 million. (88) The NCATS Strategic Alliances Office is designed "to make it easy for industry and academia to interact and partner with NCATS laboratories and scientists" by, among other things, "negotiating standard forms and model agreements between NCATS and outside parties, including universities, pharmaceutical companies and biotechnology companies" in the United States. (89) According to the European Federation for Pharmaceutical Sciences (EUFEPS), which "represent[s] the interests of scientists in industry, academia, government and other institutions engaged in drug research, development, regulation and policymaking through Europe," (90) Europe will need to pursue similar initiatives to support the IMI research agenda and to retain its competitive advantage in pharmaceutical innovation. (91)
In 2014, the NIH announced the Accelerating Medicines Partnership between the NIH and ten major pharmaceutical firms that agreed to share tissue and blood samples as well as data in hopes of identifying targets for new drugs to treat Alzheimer's, lupus, rheumatoid arthritis, and type 2 diabetes. The five-year collaboration, which is supported by $230 million in federal funding, is dedicated to decoding the biology behind these diseases. As NIH Director Francis Collins explained: "A drug company really wants to know where it should put its next billion-dollar bet in a new area of therapeutics." (92)
The NIH announced in 2015 that the patients and patient advocacy organizations involved in the Precision Medicine Initiative ("PMI") will be invited to work with "academic medical centers, clinicians, scientists from multiple disciplines with creative ideas about how to make this unique opportunity successful, pharmaceutical companies and medical product developers, scientific societies and research coalitions, privacy experts and medical ethicists." (93) Among the larger genome sequencing companies that could benefit from the PMI announced in 2015 are Roche Holding AG; Illumina Inc., which has an alliance with defense contractor Lockheed Martin for genomics development; and Thermo Fisher Scientific. (94) Meanwhile, both IBM and Google are among large firms expected to help store and interpret genomic and other data as well as electronic health records. (95)
IV. UNIVERSITY TECHNOLOGY TRANSFER
Understanding the benefits and challenges of public-private cooperation in the development and commercialization of new drugs requires an appreciation of the roles played by governments, universities, and private firms. The first step in the development of a new drug in both the United States and Europe is frequently R&D done by a university and supported by government funds. (96) Universities in both the United States and the EU frequently work with the private sector to commercialize their researchers' discoveries. (97) This is done both informally and formally. Informal mechanisms include scientific publications and presentations, as well as social networking between scientists and practitioners, (98) which results in the exchange of ad-hoc advice and academic access to industrial know-how and facilities. (99) Formal mechanisms include research contracts, professorial consulting engagements, licenses, and patent agreements. (100)
The European Technology Transfer Offices circle ("European TTO circle") likened European technology transfer to "an emerging industry: many valuable product ideas; a highly fragmented landscape; a lack of critical mass; wide disparities in terms of performances and developing practices." (101) This lackluster performance is due in part to an academic culture that has not historically valued commercialization (102) and to uncertainty concerning who actually owns intellectual property stemming from government-funded research. (103) As the European Commission recognized, the EU needs to take action to "unlock the potential of IPRs [intellectual property rights] that lie dormant in universities, research institutes and companies." (104) We agree.
Although the U.S. Bayh-Dole Act, (105) which facilitates the transfer of technology from U.S. universities to private industry, would give needed clarity to the ownership of inventions created by public institutions in the EU, we believe that wholesale copying of the Bayh-Dole approach in the EU would be a mistake. Indeed, there are aspects of the EU licensing regime for biotechnology patents that are instructive for U.S. policy makers. Accordingly, we discuss both the U.S. and European technology-transfer regimes and compare academic patenting in the United States and EU before making our recommendations in Part VI.
A. Laws Regulating Technology Transfer in the United States
Prior to the enactment of the U.S. Bayh-Dole Act in 1980, (106) neither scientists nor universities in the United States could patent federally funded inventions. (107) "Under the 'commons' model, the federal government sponsored basic research and encouraged its widespread publication in the public domain without regard for potential commercial applications." (108) Accordingly, the results of research funded with government grants became part of the public domain or were subject only to nonexclusive licenses. (109)
1. The Bayh-Dole Act
The purpose of the Bayh-Dole Act was to facilitate the commercialization of government-funded research by establishing a uniform set of rules for designating ownership of federally funded inventions. The Act creates a presumption "that universities own inventions that are developed under their watch." (110) To promote commercialization, especially of inventions that require substantial additional R&D and testing to get to market, (111) Bayh-Dole requires universities (and other non-profit grantees) to seek to commercialize federally funded research through patents and licensing or to offer to give the exclusive rights to the invention back to the government. (112) "[N]onprofit organizations may retain exclusive title to inventions developed with federal funding, and may freely license such inventions, so long as all resulting profits are used to fund additional scientific research and development." (113) In short, in exchange for patenting government-funded inventions, both public and private universities in the United States can charge and retain licensing fees and royalties. (114) Thus, if a university elects to retain title to a government-funded invention, "the individual inventor (who is typically employed by the institution) has no further rights." (115) As discussed below, the university is, however, required to share royalties with the inventor. (116)
The Act requires that all universities that enter into research funding contracts with a federal agency "disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters." (117) To meet this requirement, universities generally require all researchers to disclose all inventions to the university's technology transfer office. The institution has two years from the time it discloses the government-funded invention to the federal agency to decide whether the institution wants to retain title. (118) If the institution decides to retain title, it must make a written election to that effect. (119) The Act also states "[t]hat the Federal Government may receive title to any subject invention in which the contractor does not elect to retain rights or fails to elect rights within such times." (120)
Although the government has a "march-in" right to circumvent a patent when a product is "potentially lifesaving," it has apparently never been exercised. (121) In addition, federally funded researchers are required to grant the federal government a nonexclusive license to use federally funded inventions. (122) Once the patent expires, the invention becomes part of the public domain.
2. Employers' Rights to Inventions Created by Employees Hired to Invent and Contractual Assignments of Inventions
U.S. patent law's "hired-to-invent" doctrine gives an employer the right to all inventions developed by employees specifically hired to invent. The hired-to-invent doctrine requires that the employee-inventor assign the invention to the employer, even in the absence of a written agreement requiring such an assignment. (123) In the case of inventions by employees not hired to invent, the employer may still obtain the rights to employee inventions as a matter of contract through an assignment of inventions, (124) which employees are often required to sign before beginning work.
Many U.S. universities require that researchers assign their inventions to the university regardless of the source of funding. For example, the Technology Licensing Office at the Massachusetts Institute of Technology ("M.I.T.") issued the following policy statements:
Patents, copyrights on software, maskworks, and tangible research property and trademarks developed by faculty, students, staff and others, including visitors participating in M.I.T. programs or using M.I.T. funds or facilities, are owned by M.I.T. when either of the following applies:
1. The intellectual property was developed in the course of or pursuant to a sponsored research agreement with M.I.T.; or
2. The intellectual property was developed with significant use of funds or facilities administered by M.I.T.... (125)
It goes on to provide:
PATENTS: Research contracts sponsored by the Federal Government are subject to statutes and regulations under which M.I.T. acquires title in inventions conceived or first reduced to practice in the performance of the research. M.I.T.'s ownership is subject to a nonexclusive license to the government and the requirement that M.I.T. retain title and take effective steps to develop the practical applications of the invention by licensing and other means.
Contracts with industrial sponsors provide that M.I.T. retain ownership of patents while the sponsor is granted an option to acquire license rights. (126)
Universities aggressively protect their rights to employees' inventions, as illustrated by Fenn v. Yale University. (127) Yale University Professor and Nobel laureate in Chemistry John B. Fenn was issued United States Patent No. 5,130,538 ('538 patent) on July 14, 1992 for a chemical mass spectometry invention. In 2003, the U.S. District Court for the District of Connecticut concluded that Fenn had breached Yale's internal patent policy, under which he was "contractually bound and which gave the university right of first refusal to patent any faculty inventions." (128) The court found that Fenn's failure to be "straightforward" with the university induced Yale not to assert its ownership rights, giving Fenn the opportunity to secretly file the application himself. In 2005, the court went further, holding that Yale was entitled to treble damages because Fenn had committed conversion and statutory theft. (129) In addition, the Court ordered Fenn to assign his interests under the '538 patent to Yale, as required under Yale's 1989 patent policy. The court wrote that Fenn could not profit from his own wrongdoing and that the patent could be reassigned to Yale, its rightful owner. (130) Fenn was ordered to pay Yale $545,000 in royalties as well as Yale's legal costs of almost $500,000. (131)
State labor laws impose some limits on an employer's ability to require employees to assign all inventions. For example, California law provides that an employer may not require an employee to assign an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either (1) relate to, at the time the invention was conceived or reduced to practice, the employer's business or the actual or demonstrably anticipated research or development of the employer; or (2) result from any work the employee performed for the employer. (132) However, this limited carve-out will not prevent universities from laying claim to most university researchers' inventions.
3. Compensation for Inventors
The Bayh-Dole Act includes a provision requiring a non-profit contractor to share royalties with the inventor. (133) However, it neither dictates the percentage of royalties that must be paid to the inventor, (134) nor prescribes a minimum payment. (135) Instead, "[t]he provision that non-profit institutions share royalties was included merely to ensure that inventors were provided with an adequate incentive to engage in scientific research." (136) Congress intended that "any sharing ratio should be left to the supply and demand of the market." (137)
It is, therefore, not surprising that royalty agreements vary by university or research institute. Certain institutions share a fixed percentage of the revenue (after deducting specified costs) generated from licensing the technology, while others implement a sliding scale system whereby the percentage of revenues paid out declines as the amount of revenue increases. (138)
For example, Sloan-Kettering Institute for Cancer Research pays its inventor-employees five percent of the royalties it receives from their inventions pursuant to a sliding scale set forth in the Institute's patent policy. (139) Meanwhile, Stanford University's
royalty-sharing policy provides for the distribution of cash net royalties (defined as gross royalties less 15% for OTL's [Office of Technology Licensing's] administrative expenses, minus direct expenses) to inventors, their departments, and their schools. In 2012-13, inventors received personal income of $21.7M, departments received $19.4M, and schools received $18.8M. The University assessed an infrastructure charge on the department and school shares of royalty income. (140)
Thus, of the $87 million in gross royalty revenues received by Stanford in 2012-2013, the individual inventors received 25%. (141)
In contrast, M.I.T. distributes one third of the Adjusted Royalty Income received from licensees to the inventors. (142) "Adjusted Royalty Income" is equal to the gross royalty income less (1) a 15% administrative fee and (2) out-of-pocket costs not reimbursed by the licensees, including patent filing, prosecution and maintenance fees, and certain marketing expenses. (143) If M.I.T. acquires from a company to which intellectual property is transferred "equity in lieu or partial lieu of royalties for intellectual property," any inventor who receives an equity position from that company does not share in M.I.T.'s equity. For all other inventors, M.I.T. distributes cash to the inventors upon occurrence of a liquidation event proportionate to what their cash share would have been had no equity been issued to the university. (144) Although Yale University increased the percentage of net royalties paid to academic inventors from 15% to 50% in 1975, (145) it reduced that amount in 1984 to 30% of net royalty income up to $200,000 and 20% of net royalty income in excess of $200,000. (146) The University of Wisconsin, which operates one of the most successful public university technology transfer operations in the United States, the Wisconsin Alumni Research Foundation ("WARF"), (147) gives academic inventors 20% of the royalties (before expenses) earned from their discoveries. (148) Although all faculty, staff, and students must disclose their discoveries and inventions to WARF, (149) it does not require academic inventors to assign their inventions to the university except where required by funding agreements, as where inventions are funded in whole or in part by federal research grants. (150) WARF also returns 15% of royalties to the inventors' departments to fund future research. (151)
4. University Technology Transfer Offices
University technology transfer offices function as the central clearinghouse for university-generated inventions, especially patents. (152) For example, M.I.T.'s Technology Licensing Office pursues
the licensing of technology by researching the market for the technology, identifying third parties to commercialize it, entering into discussions with potential licensees, negotiating appropriate licenses or other agreements, monitoring progress, and distribu-ting royalties to the inventors/authors in accordance with M.I.T. royalty policy. When it is appropriate to do so, M.I.T. may accept an equity position in partial lieu of cash royalties. (153)
The returns generated by the Stanford University and the University of Wisconsin technology transfer offices, discussed below, show how significant the financial returns can be.
Stanford's Office of Technology Licensing ("OTL") spent $9.3 million on patent and other legal expenses in fiscal year 2013, of which $4 million was reimbursed by licensees. (154) Excluding patent expenses, its operating budget was $6.6 million. (155) The OTL reported that in the period from 2012 to 2013 Stanford "received $87M in gross royalty revenue from 622 technologies, with royalties ranging from less than $10 to $55M. Forty-two of the 622 inventions generated $100,000 or more in royalties. Six inventions generated $1M or more." (156) As of August 31, 2013, Stanford held equity in 161 companies, issued pursuant to license agreements. (157)
In fiscal year 2013, Stanford's Industrial Contracts Office, a part of OTL, entered into 110 new specialized research agreements with industrial firms that "fund, and sometimes collaborate on, research projects in Stanford laboratories." (158) These agreements included (1) several projects funded by the global chemical company BASF with Stanford investigators in materials science using "plasma-enhanced atomic layer deposition to grow oxide layers with precise thickness control for electronics" and (2) projects funded by Boeing involving researchers in the School of Engineering "studying high-performance and reliable composite adhesive bonding for aerospace systems" and "researching fiber optical sensors and solar energy conversion for aerospace applications." (159)
In the fiscal year ending June 30, 2014, the Wisconsin Alumni Research Foundation earned $43.4 million in royalties and licensing fees and net income of $318.7 million from its investment portfolio. (160) WARF paid university inventors $11.5 million, awarded University of Wisconsin at Madison $59.3 million in grants, and provided a $14.3 million grant to the Morgridge Institute for Research, a private, non-profit research center that partners with the University of Wisconsin at Madison "to explore new, uncharted scientific territory." (161) Since its inception in 1925, WARF has provided more than $2.3 billion to the University of Wisconsin at Madison and the Morgridge Institute for Research "in the form of direct grants and more than $300 million to faculty inventors, all adjusted for inflation." (162) In addition, since 1999, it has provided more than $500 million of in-kind support. (163)
Although much of the empirical work on academic entrepreneurship has focused on patenting activities, it is important to keep in mind other forms of intellectual property protection, such as copyrights and trade secret protections, as well as open source initiatives and informal collaboration among academics and industrial researchers (164) when crafting public policy and university rules.
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|Title Annotation:||Introduction through IV. University Technology Transfer A. Laws Regulating Technology Transfer in the United States, p. 1-31|
|Author:||Bagley, Constance E.; Tvarno, Christina D.|
|Publication:||Duke Journal of Comparative & International Law|
|Article Type:||Author abstract|
|Date:||Sep 22, 2015|
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