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NIH Policies, Procedures, and Forms

    Developing Sponsored Research Agreements

 

Reprinted from the Federal Register, Vol. 59, No. 215, Tuesday, November 8, 1994, pp. 55674-55679.

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Contents
  1. Introduction
  2. Purpose
  3. Background
  4. Recipient Responsibilities
  5. Universal Points for Consideration
  6. Points for Special Consideration
  7. Other Points for Consideration by Nonprofit Recipients
  8. Conclusion


INTRODUCTION

The National Institutes of Health (NIH) is the principal biomedical and behavioral research agency within the Federal Government. Its mission is to improve human health by increasing scientific knowledge related to health and disease through the conduct and support of biomedical and behavioral research. The NIH advances its mission through intramural research activity and the award of research grants and contracts to institutions of higher education, research institutes and foundations, and other nonprofit and forprofit organizations (hereafter referred to as Recipients). Whenever a Recipient's research work is funded either in whole or in part through NIH research grants, contracts, and cooperative agreements, that activity is subject to the requirements of Public Law 96+517, known as the Bayh-Dole Act of 1980* (hereafter referred to as "Bayh-Dole" or "the Act"). Those Recipients are required to maximize the use of their research findings by making them available to the research community and the public at large and through their timely and effective transfer to industry for development.

Recipients also have interactions with industry which may take many forms, including industrial liaison programs, spinoff companies, consortia, commercial licenses, material transfers, consultations, and clinical trial agreements. This document addresses one form of Recipient/industry interaction, sponsored research agreements. The NIH has focused a substantial amount of its recent attention on this relationship when NIH funds may also be involved. The term sponsored research agreement means a written document which describes the relationship between Recipients and commercial entities in which Recipients receive funding or other consideration to support their research in return for preferential access and/or rights to intellectual property deriving from Recipient research results.

Although Recipients are primarily responsible for the implementation of the Bayh-Dole requirements, NIH, as a steward of Federal funds, has a responsibility to provide guidance on issues which may place Recipients at odds with Federal law and/or NIH funding requirements.

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PURPOSE

The purpose of this document is to provide Recipients with issues and points to consider in developing sponsored research agreements with commercial entities, where such agreements may include research activities which are fully or partially funded by NIH. The intent is to assist Recipients in ensuring that those agreements comply with the requirements of the Bayh-Dole Act and NIH funding agreements while upholding basic principles of academic freedom.

This document represents the culmination of various activities, under the aegis of the NIH Task Force on Commercialization of Intellectual Property Rights from NIH Supported Extramural Research, which included the review and analysis of 375 sponsored research agreements from 100 Recipients, meetings with industry, academia, and other Government agencies, and a specially convened public forum involving subject matter experts from outside of the NIH.

The NIH recognizes that sponsored research agreements are unique, creative devices which reflect the needs and interests of the parties involved and require a delicate balance of risks and benefits to all of the parties. Although this document identifies a number of points to consider, with some necessitating more scrutiny than others, no single point or issue is so dominant that it is likely to be fatal to an agreement. Rather, the juxtaposition of multiple factors or clauses in an agreement and their synergy needs to be assessed. Therefore, Recipients should review each proposed sponsored research agreement on a case by case basis, and the provisions both individually and in the context of the entire agreement.

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BACKGROUND

While NIH policies on the use of research results have been in effect for some time, commercial development of research results took a major step forward with the passage of the Bayh-Dole Act. Congress passed the Act in response to significant concerns about the United States' competitiveness and data indicating that rights to many inventions developed under Federal grants and contracts and assigned to the Federal government were not being commercialized. In general, the Act authorizes Recipients to retain title to inventions resulting from their federally funded research and to license such inventions to commercial entities for development.

Specifically, the Act states that:

"It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in Federally sponsored research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used to promote free competition and enterprise; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area."*

The provisions of the Act have been implemented through regulations issued by the Department of Commerce and adopted by the Department of Health and Human Services.*

The Act serves the public not only by encouraging the development of useful commercial products such as drugs and clinical diagnostic materials, but also by providing economic benefits, and enhancing U.S. competitiveness in the global market place.

Since its passage, the Bayh-Dole Act has been effective in promoting the transfer of technology from Recipients to industry as evidenced by the aggressive pursuit of patenting and licensing and the proliferation of university/industry collaborations.* In addition, the development of many new and important drugs and devices has been facilitated by increased industrial support for academic research* and the explosion in the licensing of university owned inventions.* Furthermore, statistics indicate that the Act has provided significant economic benefits which are projected as increasing between 25 to 30 percent per year.*

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RECIPIENT RESPONSIBILITIES

In keeping with the objectives and policies of Bayh-Dole, it is incumbent upon Recipients to effectively and efficiently transfer technology to industry for commercial development. However, in doing so Recipients must also comply with the specific terms of the Act, its implementing regulations, and the terms and conditions of each NIH award and ensure that such compliance is reflected in their agreements with commercial entities.

In carrying out that responsibility, at a minimum, Recipients need to concern themselves with issues involving maintenance of academic freedom for institutions and investigators, fair access to information, timeliness of notification and reporting requirements, rational licensing to commercial entities, and adherence to the specific requirements of the Act and NIH funding agreements.

While sponsored research agreements frequently are used where basic research is involved and no invention exists to disclose nor intellectual property to license at the time the agreement is executed, Recipients should anticipate such issues and consider the following points in developing a sponsored research agreement.

The first section, Universal Points for Consideration, highlights several requirements and issues that Recipients should consider in all proposed sponsored research agreements. The second section, Points for Special Consideration, delineates circumstances which suggest heightened scrutiny. The third section, Other Points for Consideration by Nonprofit Recipients, contains additional considerations which apply only to nonprofit Recipients.

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UNIVERSAL POINTS FOR CONSIDERATION

Academic Freedom

Academic research freedom based upon social collaboration within the scientific community and the scrutiny of claims and beliefs by its members is at the heart of scientific advancement within the United States. Primarily through Federal funding, academic institutions have contributed to fundamental knowledge and techniques upon which current and future scientific discoveries and technological innovations depend. Therefore, the preservation of academic freedom for Recipient institutions and researchers is of considerable concern to the NIH.

Recipients should be aware that their interest in the scientific endeavor covered by a sponsored research agreement and the interest of the industrial sponsor may not be totally consonant. As a result, in general, Recipients should ensure that sponsored research agreements preserve the freedom for academic researchers to select projects, collaborate with other scientists, determine the types of sponsored research activities in which they wish to participate, and communicate their research findings at meetings, and by publication and through other means.* Academic researchers also should be made aware of any agreements executed by their institutions which may restrict their ability to pursue research activities and publish research results. Recipients also should maintain their independence to pursue their own mission without undue influence or restraint by their industrial sponsors. For example, an agreement which gives an industrial sponsor the ability to direct the research mission of a Recipient would be inappropriate.

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Dissemination of Research Results

Recipients must ensure that the timely dissemination of research findings is not adversely affected by the conditions of a sponsored research agreement. For example, in the case of research grants, the PHS Grants Policy Statement, incorporated as a condition of each NIH research grant, details policies on publication of research results, responsibilities to disseminate information on unique research resources, and standards of conduct for the organization's employees.

Although an industrial sponsor's consideration of the commercial applicability of specific research findings and/or the filing of a patent application to secure intellectual property rights may justify a need to delay disclosure of research findings, a delay of thirty (30) to sixty (60) days is generally viewed as a reasonable period for such activity. Depending upon the individual circumstances, Recipients could consider a shorter or longer period of time, as they deem appropriate. In addition to the timing, a sponsored research agreement which requires the disclosure of inventions and research findings developed with NIH funds to an industrial sponsor prior to submission of the invention disclosure to the NIH, may be inconsistent with the terms and conditions of the NIH grant or contract.

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Utilization

The NIH also has a concern that federally funded technology be developed and commercialized in an expedited and efficient manner. In deciding to enter into an agreement with an commercial entity, Recipients should consider whether the organization has the experience, capability, and commitment to bring its likely inventions to commercial status.

Additionally, Recipients should not enter into sponsored research agreements that permit a sponsor to tie up the development of a technology by acquiring exclusive licensing rights to the product of given research results before deciding whether or not it will actively develop and commercialize that product. Recipients could provide a sponsor with an option to pursue licensing rights. It is reasonable for such options to be limited to no more than six (6) months after disclosure to the authorized representative of the sponsor. However, individual circumstances may dictate a shorter or longer period of time. After the option period expires, the technology should become available for licensing to other entities. Moreover, once a sponsor decides not to exercise its option, normally, the agreement should not provide for a second opportunity to obtain licensing rights by matching other parties' offers for the rights. Such actions enable Grantees to license to companies presenting a bona fide commercialization plan, thus expediting the availability of products to the public.

In order to ensure that technology is developed rapidly and is not being subjected to delays, Recipients should also establish, maintain, and actively administer policies and procedures which ensure that licenses arising from sponsored research agreements contain due diligence requirements and benchmarks to monitor performance. When future rights to as yet undiscovered inventions are included in a sponsored research agreement, benchmarks for development of each such invention should be established as they become available for commercial development. In addition, Recipients should actively monitor licensees in accordance with those requirements and benchmarks to assure compliance with Recipient obligations under the Act.

Recipients also need to ensure that they have internal systems to provide required utilization reports to the NIH on each invention. Those reports are required by Department of Commerce regulation and include such items as the status of development, first commercial sale, and amount of gross royalties received. Detailed information about the precise utilization report requirements can be obtained from the NIH Office of Extramural Research.

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U.S. Manufacture

The Bayh-Dole Act requires that products developed with Federal funds and used and sold in the United States, be substantially manufactured here. In granting exclusive rights to use or sell any subject invention in the United States, Recipients must ensure that each agreement requires that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States. In individual cases, a request for waiver may be considered by the NIH. A determination will be made based upon a showing by the Recipient that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. In granting a waiver of the U.S. manufacture requirement, the NIH may consider other benefits conferred on the United States by the potential license including the rapid availability of a product of benefit to the health of the American people.

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Notification Requirements and Records

In sponsored research agreements, as in other contexts, Recipients must also ensure that invention, patent and license notification requirements are adhered to in a timely manner. Timeliness considerations include prompt (1) employee notification to Recipient administrators of an invention made under NIH funding, (2) written disclosure to NIH in sufficient technical detail to adequately describe the invention, (3) written election to the NIH of whether or not the Recipient will retain title to such invention, (4) adherence to time frames for initial filing of patent applications in the United States and the filing of foreign patent applications, (5) execution and delivery of all instruments necessary to establish or confirm NIH rights throughout the world in the subject inventions to which the Recipient has elected to retain title, (6) notification to the NIH of any decision not to continue patent prosecution, pay fees, or defend the patent in a reexamination or opposition proceeding on a patent, in any country, (7) conveyance of title to NIH when requested, and (8) specification in any United States patent applications and any patent issuing thereon covering a subject invention that the invention was made with government support.*

Specifically, as conditions of NIH grants and cooperative agreements, Recipients must fully notify the NIH in a timely manner when an invention has been developed. In addition, PHS grants policy requires that when applying for continued funding in each subsequent funding period, the institution must also provide either a listing of all inventions made during the preceding budget period or a certification that no inventions were made during the applicable period. A final invention statement and certification listing all inventions that were conceived or first actually reduced to practice during the course of work under the funding agreement is required within ninety (90) days following the expiration or termination of support on an applicable project. Additionally, Recipients need to adhere to the specific requirements contained in the patent clauses of their contracts as well as the general provisions of the Federal Acquisition Regulations.

Furthermore, Recipients must also document their compliance with the requirements of the Act, regulations, and terms and conditions of NIH awards, generally and as related to sponsored research agreements. Recipient records must be available for review by authorized Federal officials in accordance with the terms and conditions of the award. For example, concerning access and retention of records under NIH grants and cooperative agreements, regulations require grantees to retain financial and programmatic records, supporting documents, statistical records, and all other grantee records which may reasonably be considered pertinent to a grant or subgrant.*

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POINTS FOR SPECIAL CONSIDERATION

The NIH has identified several situations, outlined below, in which Recipients should exercise heightened sensitivity and scrutiny in the development of sponsored research agreements. Such an exercise should confirm that a sponsored research agreement does not adversely impact NIH funded activities and Recipient concerns such as academic freedom, or shift control of the Recipient's scientific activities, management, and independence into the hands of the sponsor. While there is no requirement that Recipients submit proposed sponsored research agreements to the NIH for review, at the discretion of the Recipient, the NIH Deputy Director for Extramural Research may be consulted for additional clarification in instances where special considerations warrant.

  • First, Recipients should subject their sponsored research agreements to heightened scrutiny when one or more of the following threshold criteria apply:
    1. The amount of financial support from the sponsor meets or exceeds $5 million in any one year, or, $50 million total over the total period of funding under the agreement;
    2. The proportion of funding by the sponsor exceeds 20 percent of the Recipient's total research funding;
    3. The sponsor's prospective licensing rights cover all technologies developed by a major group or component of the Recipient organization, such as a large laboratory, department or center, or the technologies in question represent a substantial proportion of the anticipated intellectual output of the Recipient's research staff; or
    4. The duration of the proposed agreement is for more than 5 years.

    If one or more of these criteria apply, it is more likely that the proposed sponsored research agreement will adversely affect open commercial access, especially for small businesses, to a Recipient's federally funded research activities and may delay or impede the rapid development and commercialization of technology.

  • Second, Recipients should be concerned if the scope of the sponsored research agreement is so broad that the subsequent exclusive licensing of technology under the agreement provides a single sponsor with access to a wide array of Recipient research findings and technologies that effectively exclude other organizations from reasonable access to a Recipient's technology. This type of arrangement can also delay commercialization if the sponsor does not have the interest or the capability to develop the technology.

  • Third, if the sponsor's contribution of funds is to support a Recipient's general operations rather than specifically defined research projects, the Recipient should consider the amount of the sponsor's general funding in relation to funds from other sources when determining what prospective intellectual property rights the sponsor will obtain from the results of the Recipient research. There should be a reasonable relationship between the amount of money contributed by the sponsor and the rights that it is granted both to review and license resulting technology or inventions. Additionally, Recipients should also consider the level of risk that the sponsor will be assuming in order to obtain rights. In general, the greater the restrictions on a sponsor's rights, the higher the sponsor's risk in receiving benefit from its support. As an extreme example, a sponsor should not be able to provide 5 percent of the Recipient's total support, review 100 percent of the Recipient's inventions, and receive rights or a first option to 50 percent of the research results generated by the Recipient. Where general funding is involved, a Recipient may consider a number of alternative actions, including establishing some mechanism to limit the review and licensing rights of the sponsor to a particular segment or percentage of the inventions for a set period of time. For example, the Recipient may require the sponsor to select those research areas on projects to which its general funding rights would attach in advance, thereby freeing up research areas that may be of interest to other commercial entities. Because, by its nature, general funding is less directed and its results more imprecise, Recipients should carefully monitor the impact on open competition and fair access by small business of the sponsor's licensing practices for technology supported by general funding.

  • Fourth, Recipients should avoid any other unusual practice or stipulation that might generate public concern or undermine rather than serve the public interest.

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OTHER POINTS FOR CONSIDERATION BY NONPROFIT RECIPIENTS

The following points are to aid nonprofit Recipients in administering the Act and in complying with the requirements of NIH funding agreements.

  1. First, Recipients must ensure that the rights to inventions resulting from Federal funding are not assigned without NIH approval. An exception to this is when the assignment is made to an organization which has as one of its primary functions the management of inventions, in which case, the assignee will be subject to the same provisions as the Recipient.

  2. Second, Recipients must share royalties collected on NIH supported inventions with the inventors and the balance of any royalties or income earned, after payment of expenses, including payment to inventors and incidental expenses to the administration of subject inventions, must be utilized for the support of scientific research or education.

  3. Third, Recipients must employ reasonable efforts to attract licensees of subject inventions that are small business firms. Additionally, Recipients must provide a preference to small business firms when licensing a subject invention if Recipients determine that small business firms have plans or proposals for marketing the invention which, if executed, are equally as likely to bring the invention to practical application as any plans or proposals from applicants that are not small business firms. However, Recipients must be satisfied that the small business firms have the capability and resources to carry out plans or proposals. The decision whether to give a preference in any specific case is at the discretion of the Recipient. However, since sponsored research agreements typically provide exclusive licenses or options to such rights to the sponsor, Recipients should seriously consider and provide for these issues when negotiating such agreements.

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CONCLUSION

Technology transfer is a vehicle through which the fruits of NIH funded research are transferred to industry to be ultimately developed into preventive, diagnostic and therapeutic products to advance human health. In a dynamic and multinational marketplace, if the United States is to remain a world leader in technological and scientific innovation, both the public and private sectors must work together to foster rapid development and commercialization of useful products to benefit human health, stimulate the economy, and enhance our international competitiveness, while at the same time protecting taxpayers' investment and safeguarding the principles of scientific integrity and academic freedom.

It is in this spirit that the NIH encourages Recipients to address the issues and apply the points for consideration identified in this document when developing sponsored research agreements with commercial entities.

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  • Public Law 96+517, enacted December 12, 1980, Chapter 18,Patent Rights in Inventions Made with Federal Assistance.
  • Public Law 96+517, Chapter 18, Patent Rights in Inventions Made With Federal Assistance, Sec. 200.
  • The Department of Commerce regulations are at 37 Code of Federal Regulations (CFR) Part 401 and supersede applicable portions of 45 CFR Parts 6 and 8.
  • Approximately one in every four university patents issued in the late 1980s was for a biomedical or health related invention. In the early 1970's, the ratio was one in eight. Source: Science and Engineering Indicators, 1993, National Science Foundation.
  • While still representing less than 10 percent of the total funding for academic research, it is estimated that nearly 2 percent of United States industry's expenditures for R&D now goes to academic institutions, as compared with less than 1 percent in 1971. Source: Science and Engineering Indicators, 1993, National Science Foundation.
  • Over 1000 licenses or options were executed in Fiscal Year 1992 by 260 academic institutions surveyed. The institutions also reported that they had over 5000 active licenses in place at the time of the survey. Source: Association of University Transfer Managers Licensing Survey FY 1991+1992, published October, 1993.
  • In FY 1992 sales and employment attributable to the Act were estimated to be as follows: between $9 and $13 billion in sales and 50+100,000 jobs, with an annual increase of between 25 and 30 percent. Source: Dr. Ashley J. Stevens, Director, Office of Technology Transfer, Dana Farber Cancer Institute, Association of University Technology Managers Winter Meeting, 1994.
  • The NIH recognizes that there may be certain instances when it may be reasonable for a Grantee institution to agree to minimally restrict a researcher from collaborating with another industrial partner when the subject matter of such collaboration overlaps with that of the sponsored research agreement.
  • The regulation, 37 CFR 401.14(F)(4), requires that the following clause be used: "This invention was made with Government support under (identify the grant, contract, or cooperative agreement) awarded by (identify the Institute or Center), National Institutes of Health. The Government has certain rights in the invention."
  • The regulations are set forth at 45 CFR Part 74, Subpart D and 45 CFR Part 92.42.


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