NIH's Senate Testimony On Commercialization Of Funded Research

[James Love <love@cptech.org>]

>From techno-l
jl


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Subject: NIH's Senate Testimony On Commercialization Of Funded Research
   Date: Thu, 14 Jan 1999 15:27:49 -0500
  From: "Ferguson, Steve (OD)" <FERGUSOS@od6100m1.od.nih.gov>
    To: 
       "'techno-l@erg.sri.com'" <techno-l@erg.sri.com>
To all -

Earlier this week the NIH OTT Director, Maria Freire was one of the panelists
called for testimony before the Senate Appropriations Subcommittee on Labor,
Health and Human Services, Education & Related Agencies.  As an follow-on of
earlier hearings on the Hopkins/WARF/Geron stem cell projects, the committee
members have become increasing interested in how patent rights & licensing
affect basic research product development.  For federally-funded technology this
means, of course, patenting & licensing practices of universities and Federal
labs derived from the Bayh-Dole Act & the Federal Technology Transfer Act.

The NIH testimony on this subject at the hearing (which included a discussion of
the potential adverse effects of restrictive licensing/MTA practices for
research tools) is appended below.  

Regards,

Steve Ferguson
NIH Office of Technology Transfer


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Statement of Maria C. Freire, Ph.D
Director, National Institutes of Health Office of Technology Transfer
before
 the Senate Appropriations Subcommittee on Labor, Health and Human Services,
Education and Related Agencies

January 12, 1999


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

I understand that the subcommittee is particularly interested in how patent
rights and commercialization strategies operate in the context of the recent
findings on pluripotent stem cells reported by Drs. John Gearhart from Johns
Hopkins University and James Thomson from the University of Wisconsin.  You have
previously heard from a panel of experts, including the Director of NIH, Dr.
Harold Varmus, on the scientific implications of these findings.  Given the
complexity of these issues, it is important to understand how the transfer of
federally funded technology from the not-for-profit sector -- be it university
or Federal laboratory -- to the private sector, is accomplished.  To do so, I
direct you to 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)

Nearly 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, 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 that
might otherwise not be developed into products due to the lack of incentives.
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 these goals have been achieved and expectations have
been surpassed.  Indeed, in the biomedical arena, the impact of these statutes
has been dramatic.  Many experts believe that the biotechnology industry was
spawned from the close interaction between academia and industry.  The Bayh-Dole
Act and the FTTA continue to contribute to the global leadership of the U.S.
biomedical enterprise.  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.  The NIH intramural
program alone has over 150 products on the market, including diagnostic kits,
vaccines, therapeutic drugs and dozens of antibodies, cell lines and other
research tools.  Statistics on the remarkable success of university-based
technology transfer activities are also available and I have submitted a recent
survey for the record. 

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.  Patents provide the right to exclude
others from making, using, or selling 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 party is permitted to benefit from the use of the technology, or
non-exclusive, when more than one party is allowed to benefit from such rights. 

As this subcommittee well knows, new drugs and vaccines are costly to develop;
companies will not 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.

The University of Wisconsin provides us with a good example of how the Bayh-Dole
Act is implemented.  Early work by Dr. Thomson on non-human primates, such as
Rhesus monkeys, was federally funded and therefore, the patent obtained on stem
cells arising from this work is governed by this Act.  In accordance with the
law, the invention was disclosed to the NIH, a patent application was filed by
the University, through the Wisconsin Alumni Research Foundation (WARF), and
WARF licensed the technology to a small company (Geron).  Because federal funds
were used for this non-human primate work, the government has a non-exclusive,
royalty-free right to use the patented cells by or on behalf of the government.
This would allow the government laboratories and contractors the right to use
the patented cells for further research.  In addition, in handling this
invention the University 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
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.   This is the case for the Geron sponsored work conducted by Dr.
Gearhart on human pluripotent stem cells derived from fetuses. 

It is usually not the existence of a patent that raises concern for the
biomedical research community.  The concern arises when the patent holder
chooses to exercise its rights through licensing 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
these 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 widely available to scientists.

Mr. Chairman, I cannot emphasize this point strongly enough. Preserving research
uses is extremely important to the advancement of science.  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.  Dr. Varmus convened a national
workgroup to study the issue and make recommendations to the NIH.  The report of
the workgroup is on the NIH web site
(www.nih.gov./news/researchtools/index.htm), and NIH expects to publish
guidelines for NIH supported investigators this spring, in accordance with the
report.

Stem Cell Research

How does this relate to pluripotent stem cells?  Pluripotent stem cells provide
the research community a springboard to launch numerous inquiries into the most
fundamental processes of cellular growth and differentiation that underlie human
development.  Elucidating these mechanisms provides the foundation for the next
generation of biomedical discovery.  Such discoveries will be directed toward
treatment of human developmental abnormalities, regulation of uncontrolled
cellular growth associated with cancer, a source of differentiated cells and
tissues for transplantation therapy, and a means to identify new drug targets
and test potential therapeutics, among others.  Realizing the fullest potential
from this new stem cell technology for the American people deserves and requires
further inquiry. 

Stem cells are a research tool today; hopefully, they will also be developed
into therapeutic products in the future.  The issuance of patents on these new
discoveries by the Patent and Trademark Office may not necessarily have an
adverse effect on continuing research, provided that the patent owners devise a
licensing strategy that will allow basic research to continue unencumbered while
preserving commercial value.  We understand that both the Johns Hopkins and
Wisconsin licenses to Geron are exclusive at this time, but may allow for the
use of these cells by non-profit researchers under certain terms and conditions.
These terms and conditions 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.  While most MTAs are simple, 1 to 2-page
agreements, MTAs can sometimes pose problems due to the type of obligations or
restrictions imposed by the provider of a material on the recipient.  Such
obligations 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 options to exclusive rights to
any new intellectual property arising from recipient's use of the material.  The
NIH has minimal authority with regard to the stem cell patent and patent
applications at issue today, and it would be inappropriate for me to try to
comment on specific terms and conditions that may be imposed by these parties
under the MTAs contemplated.

At NIH, our view is 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, our strategy is to negotiate non-exclusive licenses
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 requires 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 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.     
 
Summary

Congress has enacted legislation for recipients of federal funding that
encourages the utilization, commercialization and public availability of
federally funded inventions.  Grantees have exercised broad discretion and
appropriately seek to achieve these goals through the patenting and licensing of
new inventions that arise through the use of federal funds.  If the research is
entirely funded by the private sector, the government has no 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 under terms that do not limit basic research or
encumber future products.  

Mr. Chairman, I am grateful to you for providing a forum to present information
about the effects of patents and licenses on this promising new area of science
and medicine.  I would be pleased to answer any questions you may have.





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