Testimony Before the House Committee on Science,
Subcommittee on Technology
Washington, D.C.
May 2000
Chairwoman Morella and other Members of the Subcommittee, I thank you for the opportunity to testify on the report the Department of Commerce’s Technology Administration recently completed on federal agency technology transfer activities under the Bayh-Dole and Stevenson-Wydler Acts. I am particularly pleased to have the opportunity to discuss these issues with this Subcommittee, which has been such a positive force in the creation of federal policies and programs in the technology transfer field.
Allow me to say a few words of appreciation for the leadership of Chairwoman Morella and other members of the Science Committee and Technology Subcommittee in providing the federal government with effective technology transfer tools. We had the privilege of working with the Subcommittee earlier in the Clinton Administration in the development of legislation that became the Technology Transfer Improvement Act of 1995. That act addressed the most perplexing challenges then facing the agencies and their industry partners, providing helpful clarification concerning the minimum rights to be accorded to industry partners and other important aspects of the practical application of CRADAs.
More recently, we have had the pleasure of working with the Chairwoman and the Subcommittee staff on the development of H.R. 209, a bill amending and improving the procedures for agency invention licensing. We were pleased by the willingness of the Subcommittee to consider our comments and suggestions for the bill and we expressed the Administration’s support for that bill during its consideration in the House. We believe the bill would improve procedures for agency licensing of inventions by shortening and focusing the procedures applicable to exclusive licensing, and by clarifying the application of the Freedom of Information Act to licensing information submitted by a license applicant. It also provides the agencies with important additional authorities that would enable them to “bundle” their inventions with other related inventions, producing a more effective package for licensing. We hope that passage of this important piece of legislation can be accomplished during this session.
Review of DoC Report: Tech Transfer 2000: Making Partnerships Work
I will turn now to our report entitled, Tech Transfer 2000: Making Partnerships Work. It was prepared pursuant to the Department’s responsibility, under the Stevenson-Wydler Act, to report to the President and to Congress on the federal government’s use of its technology transfer authorities. In my testimony today, I would like to summarize some of the major themes in the report and some of the specific issues it addresses.
Integrating Technology Transfer with Agency Research Missions
The first, and most important, point is that the federal technology transfer mechanisms created by this subcommittee have taken root and are flowering in the federal research agencies. There is still much work to be done and many challenges to be met, but technology transfer has become a part of the laboratory culture and has been widely accepted by industry as an effective means of tapping the knowledge base of the federal laboratories. It is important to recognize, however, that the specific shape that technology transfer takes is greatly influenced by the nature of an agency’s science and technology mission and by the relevance of that mission to the technology interests of business.
As the Subcommittee is certainly aware, the National Institutes of Health (NIH) and the Agricultural Research Service (ARS) have extremely active and productive technology transfer programs that work closely with the pharmaceutical, biotech and agricultural sectors. Their agency missions, of improving the public health and improving agricultural productivity respectively, are often achieved through the commercial development and use of their research, and technology transfer plays an important role in helping them to accomplish their missions.
In other agencies, broader research missions and large and complex laboratory systems produce a different approach to technology transfer. The laboratories of the Departments of Defense and Energy conduct research in many different areas of science and technology as part of their respective agency missions. Because of the breadth of their research, many different industry sectors are interested in specific aspects of the work of their laboratories, but there is not the simple congruence of agency mission and commercial interests of specific sectors as found at NIH and ARS.
Where a match exists between agency research and industry interest, however, the missions of Defense and Energy may be advanced both by the production of items needed by the agencies and by the honing of technical skills in mission-related fields. At the Department of Defense, for example, these mission benefits from technology transfer are spelled out as “spin-off,” “dual-use” and “spin-on.” “Spin-off” technology transfer activity helps to make DoD-developed technologies available for commercial or other uses. “Dual-use” activity involves the cooperative development of technologies that have both defense and commercial applications. “Spin-on” activity enables the development of defense applications for technologies originally developed for nondefense applications. All of these activities are viewed as benefiting the agency mission by controlling the costs of developing defense applications for new technologies. (Of course, there are many other types of partnerships among federal and industry partners, including the effective partnering mechanism provided by the Remediation Technologies Demonstration Forum (RTDF), which fosters partnerships between the public and private sectors to undertake research, development, demonstration, and evaluation efforts to address mutual environmental cleanup needs.)
Update on Agency Input and Output Data
With this perspective in mind, let me turn to the data we have received from the agencies concerning their technology transfer activities through FY 1998. (We will be updating this information with FY 99 data from the agencies and will make the updated information available on our web site.) As you will note, most of the types of information we have collected over the years are measures of agency activity levels in the technology transfer field. In terms of the Government Performance and Results Act (GPRA), the information is essentially input and output data and does not directly address the question of outcomes from the activity. The creation of appropriate outcome measures for these activities is one of the important issues that we believe needs to be addressed by the agencies and their industry partners and I will come back to it later in my testimony.
Our data reflect the following parameters of agency activities:
- Number of inventions disclosed
- Number of patent applications filed
- Number of patents issued
- Number of invention licenses by Federal laboratories and agencies
- Number of new CRADAs initiated
- Number of active CRADAs
Invention Disclosures – The number of inventions disclosed by the agencies does not appear to have increased markedly since 1987 and, of course, there is no reason why the rate at which inventions occur should have been affected by the introduction of new technology transfer mechanisms. Some increases do appear to have occurred at Agriculture and at Energy, where the GOCO laboratories were given responsibility for intellectual property management in the late 1980s.
Patent Applications – The information concerning patent applications does reflect a significant increase in the patenting activities of the agencies following passage of technology transfer legislation. Following early increases, however, the patenting activity appears to have leveled off. As might be expected, the Energy and Defense Departments are the most active in patenting, perhaps reflecting the tradition of “defensive patenting” at those agencies–patenting in order to preserve the ability of those agencies to protect their sensitive techniques.
Patents Issued and Patent Licenses Granted – We have the “patents issued” information for only two years but it suggests a substantial number of patents are being issued to the agencies. (1243 in FY 97 and 1446 in FY 98). More importantly, our information reflects a sharp increase in the number of inventions licensed by the agencies over the years since 1987 and there is every indication that licensing is becoming an essential element of laboratory activity.
Income from Patent Licensing – The data concerning licensing income also suggests increasingly effective and productive licensing activities at the laboratories, with revenues increasing more than ten-fold over the twelve year period. As you might expect from our discussion of the interaction of agency missions and technology transfer goals, the Department of Health and Human Services contributed the largest share of this revenue and was responsible for more than 68 percent of the revenues received in FY 1998. The Department of Energy contributed approximately 18 percent of that year’s total. Additional data from the agencies shows that approximately 65 percent of the royalties received by the agencies were for earned income from the sale or use of licensed inventions, suggesting a healthy commercial impact from the licensed technologies.
Number of Active CRADAs – The number of CRADAs also shows a sharp increase over the period, with a leveling off in the last three years reported. One of the reasons for this leveling off appears to be the drop in DOE agreements, which in turn appears to be a consequence of the phasing out of the Department’s Technology Transfer Initiative beginning in 1996 and continuing through 1998. The Department of Defense has replaced Energy in recent years as the agency with the most CRADAs in operation.
CRADA Projects Initiated – Although available only for a two-year period, this information suggests a level rate of CRADA formation across the agencies. Some agencies have suggested that their laboratories may be reaching the saturation point in terms of their ability to perform additional work with industry partners at existing levels of appropriated funding.
Challenges to Effective Technology Transfer Agreements
With that data in mind, let me now turn to some of the issues we believe need to be addressed to maximize the effectiveness of these technology transfer mechanisms.
More Help Needed in Finding the Right Laboratory
One challenge that has been present from the start is the identification of the right laboratory to help with a specific problem. The individual agencies have put considerable effort into the creation of web sites, printed documents and other types of outreach efforts designed to make their competencies known to industry. For example, the Department of Defense operates a single web site that identifies the elements of its laboratory system, enables an interested party to search for laboratories with relevant expertise and provides a point of contact for each of the laboratories. Many of the other agencies have developed similar tools to assist industry in accessing their laboratories.
However, it remains difficult for a business unfamiliar with the federal laboratory system to look across agencies to find the laboratories that may have the expertise needed to address a specific problem. The Federal Laboratory Consortium attempts to meet this need through its Laboratory Locator service and its web site with links to the individual agencies, and a database search capability based on agency missions. While this system has been useful to many parties, more needs to be done to simplify the task of identifying federal laboratories with expertise in specific fields.
We have suggested that consideration be given to the creation of a more comprehensive and integrated web-based system, spanning the agencies and providing linkage to all relevant federal research sites and databases. The creation of such a system poses many problems, but this challenge has been present since CRADAs were first created and information technology should now provide a means of addressing it.
Managing Intellectual Property Must Become an Agency Priority
One of the enduring challenges of federal technology transfer efforts is the treatment of intellectual property generated by or used in cooperative research. Of course, the agencies and their industry partners come to these transactions with different approaches to intellectual property. While the industry partner focuses on creating competitive advantage for itself, the agencies are more likely to be focused on how the transaction can help them accomplish their missions. For example, NIH will be concerned with whether the patenting and licensing of a new technology is needed to encourage the development and commercialization of new medical products that improve the public health. These differences in perception may result in different attitudes toward the creation and disposition of intellectual property (e.g., should an invention be licensed on an exclusive or non-exclusive basis). While the agencies and their partners do not share the same outlook on these issues, a decade of experience has helped to bridge the gap in perceptions and the parties now have a greater degree of understanding of one another’s priorities.
The report identifies several fairly specific intellectual property issues that have proven troubling. These include the procedures applicable to exclusive licenses (both within and outside a CRADA), the treatment of pre-existing inventions brought into a CRADA, the CRADA law’s provision for the confidential treatment of certain data, and the government’s general insistence on receiving licenses to their partners CRADA inventions. I won’t go into detail on these issues in my testimony. But I do want to note that these are issues that generally have no simple solution and are best addressed through improved understanding on both sides of the practical objectives and legal constraints of these partnerships.
CRADAs Are Proving to be Flexible Instruments Capable of Meeting a Variety of Technology Needs
A second issue relates to the manner in which CRADAs are used by the parties. CRADAs were designed by Congress to be a new and distinct type of agreement, outside the scope of conventional procurements, grants and cooperative agreements. Their use has been rejected in only a very few situations—such as those in which they appeared to be used to accomplish the purposes of a procurement. Outside of this problem area, the agencies and their industry partners have made good use of the CRADA’s flexibility. Today the agreements are used to structure a wide variety of research relationships, in which the principal variant is the degree to which proprietary data is either used in or produced by the research.
While the agencies and their partners have proven adept at creating such agreements on a transaction by transaction basis, we have suggested that the agencies consider a more formal recognition of this flexibility for the benefit of potential partners. This might involve an acknowledgment of the range of circumstances in which the agreements may be used and of the variety of terms and conditions that may be appropriate to those varying competitive circumstances. Finally, we have noted in the report the development of several types of CRADA agreements that have proven particularly useful in supporting local and regional efforts to use technology as a driver for economic development. These CRADAs include “blanket” or “umbrella” CRADAs, designed to encourage the development of relationships between a laboratory and businesses within a specific region, and “technical assistance” CRADAs that create a structure for the efficient delivery of technical assistance to individual businesses within a state or region. We think the agencies should consider adopting “model” agreements of this sort as a means of highlighting the availability of such agreements and promoting their use.
Domestic Manufacture Requirements Pose Problems for Global Companies
There are several specific legal requirements for CRADA and licensing agreements that have been identified as troublesome by industry partners. The most serious involves the “substantial manufacture” requirements of both CRADAs and licensing agreements. These provisions generally require that products ultimately produced by the use of the licensed technology be manufactured domestically.
Industry representatives have objected that such a requirement is difficult for many companies to meet because of the global nature of their supply chains and the need to preserve flexibility in the sourcing of their goods in order to promote competitive advantage. The fact that most federal technologies are far removed from commercial readiness and require years of development before incorporation into products or services provides an additional disincentive to acceptance of the requirements. Finally, the laws do not clearly specify the circumstances in which such requirements may be waived by the agencies and this element of uncertainty further diminishes the acceptability of the requirements.
A related issue that I should mention here is the question of the participation of foreign parties in technology transfer arrangements. We are working with the Committee on National Security of the National Science and Technology Council, as contemplated by the provisions of H.R. 209, in a review and assessment of the adequacy of the procedures applicable to such arrangements. The existing procedures of the law and of Executive Order 12591 are set out in our report.
Finally, let me mention another issue concerning the liability clauses used by agencies in CRADAs. Many agencies and laboratories argue that the government must be protected from any liability arising out of the commercial activities of the company. Industry representatives have difficulty understanding the need for such protection for the laboratories and we are aware of no litigation in which such liability has been asserted against an agency (though possibly due to the use of such a clause). We think this is an area in which the agencies should make a greater effort to clarify and explain the need for the clauses. The members of the Interagency Working Group on Technology Transfer need to discuss this issue with the involved agencies in more depth to explore what, if any, flexibility is available to the agencies and how this issue can most effectively be addressed in negotiations.
CRADAs Less Effective with State and Local Governments and Universities
Our survey of the current CRADA issues also revealed that CRADAs with state and local governments and universities have proven less popular than was anticipated at the time of passage of the CRADA laws. In the case of universities, intellectual property issues raised by the intersection of the Bayh-Dole Act and Federal Technology Transfer Act have sometimes stood in the way of such agreements, although some agencies have found ways to manage these issues. In any event, the variety of other partnership mechanisms available to the agencies for working with universities has proven more popular than the CRADA mechanism. In the case of state and local governments, CRADAs have been used mainly to advance economic development goals, by providing a vehicle for lab assistance to local and regional businesses. CRADAs have not proven effective as a mechanism for helping the labs to meet the technology needs of the state governments. State policies and practices applicable to such agreements and to the handling of intellectual property do not mesh well with federal policies and this problem may require further attention from the states and the laboratories.
Agenda for the future: Setting goals for the next decade
Our work on this report convinces us that the CRADA and patent licensing mechanisms have become firmly established as a means of cooperative research between the labs and industry. Many of the initial problems of “cultural conflict” have eased, as the two sides have become more familiar with one another. We are now at a point where the labs and their partners need to take a step back from their work and consider what they wish to accomplish through these agreements in the next decade. Of course, there is a need for caution in setting additional goals for technology transfer at a time when the laboratories are oversubscribed in their duties. Increased technology transfer may involve tradeoffs in other areas of laboratory activity at existing levels of funding and agency complexity and the potential for such consequences must be considered in setting goals for these programs.
In our report, we have suggested four goals that we believe should be pursued to move these partnerships to the next level of effectiveness.
First Goal: Knowledge Management at the Labs
The first goal we have suggested relates to the management of knowledge at the laboratories. The management of research in the private sector has gone through a series of changes since the time of enactment of the technology transfer laws. Increasing emphasis is now placed on the effective generation and use of knowledge as a source of competitive advantage. The laboratories need to match their industry colleagues in this regard and begin to consider the knowledge resources they have at their disposal and the ways in which that knowledge can be used to advance agency missions and also to provide new technologies with commercial potential for the economy. As a part of this approach, we have suggested that the laboratories need to conduct regular reviews of the knowledge advances produced by their work and to assess the appropriate treatment of these advances. In some cases, the new knowledge is of a type that should be published promptly. In other cases, the potential applications of the knowledge may call for confidential treatment pending further development or, in a few cases, application for protection under the intellectual property laws.
Second Goal: Helping Industry Identify the Right Laboratory to Help with its Problem
As noted earlier, there continue to be challenges in helping businesses new to the federal system identify the laboratories best able to help with their problems. While the agencies have done a great deal to help industry understand the capabilities of their specific laboratories, there are still relatively few resources available on a system-wide basis to help businesses new to the federal laboratories identify labs with capabilities relevant to their technical problems. We have suggested that the agencies work with industry and the Federal Laboratory Consortium to address this need for a more comprehensive information system.
Third Goal: A Process for Continuing Dialogue with Industry
We believe there is a need for a process that brings the agencies and industry representatives together on a regular basis to identify and address barriers to collaboration under these mechanisms. Many of the agencies have established such processes with respect to their own laboratories. We have suggested that there are sufficient common concerns across agencies to warrant a broader discussion.
We have suggested that the Interagency Working Group on Technology Transfer, which we chair, might facilitate the creation of such a group and I want to tell you what we are doing to help build a broader dialogue with industry. In preparing the report, we sought the views of a number of industry partners in these mechanisms, some through interviews and some through meetings with the External Research Directors Network of the Industrial Research Institute. We were pleased with the willingness of industry representatives to work with us and to invest substantial time and effort in the improvement of these mechanisms.
We plan to continue and deepen this dialogue in the coming months. In March of this year, we brought an interagency group of technology transfer officials together with the IRI’s External Research Directors Network for another discussion of these issues. We all agreed on the need for government and industry to dig into some of these issues and determine what kinds of resolutions might be possible. We are now planning a summer meeting between agency and industry representatives to identify the specific issues that can most profitably be addressed through a series of government/industry meetings to be set for the fall. Of course, we hope to involve as broad a spectrum of industry representatives as possible.
Fourth Goal: Improved Output and Outcome Measures Must be Developed in Collaboration with Industry
Our final suggested goal relates to the development of measures for the technology transfer process. As noted at the outset of my testimony, we are currently collecting data that reflect the inputs and some of the outputs of the technology transfer process. We believe the agencies need to consider what other information needs to be collected to identify the “outcomes” of their activities, in terms of effects on the competitiveness of industry and on the economy generally. This is a difficult task and experience with the measurement of research activities suggests that it may be necessary to use some combination of measurements and case studies to accomplish this goal.
In closing, let me reiterate what I said at the beginning of my testimony– federal technology transfer has taken root in the laboratories and been accepted by industry as a means of accessing federal science and technology. Our report suggests a number of ways in which the agencies need to work with their industry partners, within the legal framework this Subcommittee has helped to create, to build on this success. The Department of Commerce is committed to helping in that work in whatever way we can. I would be pleased to answer any questions that you may have.