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Senate Testimony Statement of National Inst

Statement of National Institutes of Health
Before Senate Appropriations Subcommittee on Labor,
Health and Human Services, Education and Related Agencies

Maria Freire
Director, Office of Technology Transfer

August 1, 2001

Mr. Chairman and members of the Subcommittee, I am Maria Freire, Director of the Office of Technology Transfer. I am pleased to appear before you today on behalf of the National Institutes of Health to address how intellectual property considerations affect basic science and the future development of products for public benefit.

Given the complexity of these issues, it is important to understand how the transfer of federally funded technology from the not-for-profit sector to the for-profit sector is accomplished. To do so, I will briefly discuss the successful process established by Congress in the 1980's that governs the commercialization of federally funded biomedical research.

The Bayh-Dole Act, Stevenson-Wydler Technology Innovation Act of 1980, and amendments, including the Federal Technology Transfer Act of 1986 (FTTA)
Over twenty years ago, Congress enacted a series of laws that encourage government-owned and government-funded research laboratories to pursue the commercialization of the results of their research. These laws are the Bayh-Dole Act of 1980 and the Stevenson-Wydler Innovation Act of 1980, including one of its amendments, the Federal Technology Transfer Act of 1986 (FTTA). The Bayh-Dole Act addresses intellectual property rights in federally funded grants, contracts and cooperative agreements, while Stevenson-Wydler and the FTTA address intellectual property of government laboratories. The goal of these laws is to promote economic development, enhance U.S. competitiveness and benefit the public by encouraging the commercialization of technologies developed with federal funding. Generally, these laws allow government laboratories and the recipients of government funding to elect to retain title to their inventions. They also impose certain obligations: promoting utilization, encouraging commercialization and ensuring public availability of these technologies.

I am pleased to say that the goals set by Congress under these laws have been achieved and that, in the biomedical arena, the impact of these statutes has been critical. In fact, many experts believe that the biotechnology industry was spawned from the close interaction between academia and industry. It is widely recognized that the Bayh-Dole Act and the FTTA continue to contribute to the global leadership of the U.S. biomedical enterprise, and governments around the world are emulating these laws in the hopes of promoting economic development in their own nations.

New products developed under this system benefit patients daily and provide hundreds of scientists with the tools required for further discovery in support of our public health mission. For example, inventions arising from the NIH intramural program alone have contributed to over 150 products on the market, including diagnostic kits, vaccines, therapeutic drugs and dozens of antibodies, cell lines and other research tools. Similarly, the transfer of technology arising from the NIH extramural program has contributed significantly to new products and fostered economic development.

To accomplish the transfer of technology, universities have relied on authorities granted to them by the Bayh-Dole Act. The Act permits the grantee to retain title to intellectual property developed with federal funds and to license its rights to for-profit entities. It should be noted that, as provided by the Act, the Government does not have any direct control over patenting and licensing activities related to discoveries resulting from NIH funded research.

Patents provide the right to exclude others from making, using, selling, offering for sale, or importing a new invention for the life of the patent. This is society's reward to the owner for teaching others how to make and use the invention claimed in the patent. In the biomedical field, patents are extremely valuable to companies, particularly small companies. They provide a means of securing investment income by establishing the company's preeminence in a particular area of technology. Parties interested in practicing an invention in which they have no ownership may obtain rights to the invention by entering into a licensing agreement with the patent owner. A license is a contract with binding commitments on each party, usually involving compensation. A license does not grant title to the invention. Licenses can be exclusive, when only one licensee is permitted to benefit from the use of the technology, or non-exclusive, when more than one licensee is permitted to benefit from such rights.

As this Subcommittee well knows, new drugs and vaccines are costly to develop, and companies are unlikely to invest in further research and development without some promise of future product exclusivity. When Congress gave federal grantees the ability to patent and exclusively license government-funded inventions, the private sector turned its attention toward publicly supported research as a new source of potential products. The value to the public resides in the generation of new drugs, vaccines, and medical devices. These activities have also stimulated economic development and the creation of new jobs in the United States.

Whenever federal funds are used to support a new discovery by contractors and grantees, the government has a non-exclusive, royalty-free right to use the patented technology by or on behalf of the government. This would allow the government laboratories and contractors the right to use the patented technology for further research. In addition, in dealing with this invention the federal grantee or contractor must ensure that the goals of the Bayh-Dole Act—utilization, commercialization, and public availability—are implemented.

When research is funded entirely by the private sector, the government has no statutory license, and it is strictly a private matter whether, and under what terms, new intellectual property is made available to others for commercial or research purposes.

Mr. Chairman, as we have discussed with this Subcommittee before, it is not merely the existence of a patent that raises concern for the biomedical research community. The concern mostly arises when the patent holder chooses to exercise its rights through licensing or other contractual agreements in a manner inconsistent with the advancement of basic research. For example, many new inventions are not final products. The discovery may be a research material or a new method or procedure, primarily useful as the means to conduct further research. Such discoveries are commonly known as research tools. There is little doubt that many research tools may be patentable and that they are of economic value to the holder of these rights. There is also little doubt that the value to society is greatest when such research tools are made widely available to scientists.

For example, a license that provides complete exclusivity to a technology that is also a research tool may result in some product development in the short-term, but it will close off opportunities to advance science and develop other products in the long-term. The only way to maximize the benefit to the public is to ensure that both research use and the potential for commercial development are preserved.

The professionals working in the specialized field of biomedical licensing strive to promote a balance between commercial interests and the public interest. In those instances where a research tool can also become a therapeutic product, licenses can be, and are, carefully crafted by scope, application and field to allow use by the research community without destroying a company's commercial incentive to develop the product.

Careful licensing that preserves this balance, however, has not always been the case. The NIH has been concerned for some time about the potential adverse effects of restrictive licensing practices on access to research tools. In response to concerns from the scientific community, NIH has published guidelines on the sharing of biomedical research resources entitled "Principles and Guidelines for Recipients of NIH Research Grants and Contracts." This document helps ensure open sharing of research tools to maintain the robust research enterprise in this country.

Stem Cell Research

How do issues regarding intellectual property considerations relate to research on stem cells? The issuance of patents by the U.S. Patent and Trademark Office may not necessarily have an adverse effect on continuing research and often promotes the development of new therapeutics, diagnostics and research tools, including cells. If patent owners devise a licensing and sharing strategy that will allow basic research to continue unencumbered while preserving appropriate commercial value, they will help ensure that such research tools are broadly available to the research community. The terms and conditions on the use and the transfer of material, such as these cells, would be set forth in an agreement commonly called a Material Transfer Agreement, or MTA.

MTAs are vehicles used to transfer proprietary materials between and among the for-profit and not-for-profit sectors. Most MTAs are simple, 1- to 2-page agreements. MTAs can, however, impose obligations or restrictions that can stifle the broad dissemination of new discoveries, slow the technology transfer process and limit future avenues of research and product development. Examples of such obligations include so-called "reach-through" provisions that may: 1) give the provider of a material ownership of new inventions developed by the recipient; 2) require royalty payments by the recipient to the provider on inventions discovered by the recipient that are not covered by the provider's patent; or, 3) require the recipient to give the provider an option to exclusive rights to any new intellectual property arising from recipient's use of the material.

NIH's experience has shown, however, that conditions imposed by patent owners—whether in a license or an MTA—can be crafted to ensure both research uses and commercial development. For example, the NIH strategy is to negotiate non-exclusive licenses for its intramural technologies whenever possible. This allows more than one company to develop products using a particular technology, products that may ultimately compete with each other in the marketplace. We recognize that companies need an exclusive market to offset the risk, time, and expense of developing biomedical diagnostic or therapeutic products. However, companies do not necessarily need to achieve that position solely by exclusively licensing a government technology used to develop the product. Instead, companies are frequently able to add their own proprietary technologies to the invention licensed from the government to ultimately achieve some level of uniqueness and exclusivity for the final product.

If non-exclusive licensing does not provide enough incentive for the company to develop a product, and it often does not for a potential therapeutic application, NIH will award exclusivity for specific indications or fields of use, based on the license applicant's commercial development plans at the time of the application. NIH also provides for exclusive licensees to grant sublicenses to broaden the development possibilities when necessary for the public health. Finally, NIH insists on the continuing unencumbered availability of the licensed technology to the not-for-profit scientific community for further research.

Experience over the last 20 years has shown that to maximize public health benefit, the balance between exclusivity and access must be carefully maintained, and research uses of new technologies must be preserved. These concepts form the basis for the licensing policies of the NIH, as well as for the proposed guidelines for our grantees mentioned above.

Over the past few years, NIH has, however, faced situations in which the patent holder was willing to allow basic research to continue only under terms that were inconsistent with our research tools principles and guidelines. To resolve such a situation, NIH negotiated acceptable terms with the patent holder so that scientists could continue to use the tools for basic research while protecting the company's commercial rights. In fact, as part of these agreements, the terms and conditions were extended to NIH grantees, should they choose to take advantage of these more favorable terms.

The experience since the inception of the guidelines has been that, while the process between not-for-profit entities has been streamlined, there is still work to be done when transfer of tools happens between the for-profit and not-for-profit sectors. We are hopeful that continued dialogue between these two constituencies will eventually result in an understanding that would permit the research enterprise to continue to flourish without undue impediments.

Finally, it is important to remind the Subcommittee that the NIH has limited authority over the patenting and licensing activities of our contractors and grantees. Therefore, with regard to the stem cell patents and patent applications, it would be appropriate to address questions to the owners and licensees of this technology as to what conditions they may apply to those who desire to use the intellectual property.


Congress has enacted legislation for recipients of federal funding that encourages the utilization, commercialization and public availability of federally funded inventions. Grantees and contractors have exercised the broad discretion awarded them by the law and sought to achieve these goals through the patenting and licensing of new inventions that arise through the use of federal funds. The government has only limited authorities over these activities. If the research is entirely funded by the private sector, the government has no statutory license and is not involved in patenting or licensing decisions. Exclusive licensing, without regard to research uses, can impede rather than enhance utilization and public availability of certain types of inventions, such as research tools. Strategic licensing can alleviate potential problems. Indeed, many grantees provide for the continuing availability of exclusively licensed subject matter to researchers in order to ensure progress of biomedical research. The NIH has urged, and will continue to urge, patent owners and exclusive licensees to ensure continuing availability of a technology under terms that do not limit basic research or encumber future products. The key to the use of a technology is in the manner in which holders of existing patents exercise their rights through licensing and other contractual agreements.

Mr. Chairman, thank you for the opportunity to provide this broad background on the effects of patents and licenses on the advancement of science and medicine.