[Ip-health] Royalties on Sale of Products Licensed under Bayh-Dole to Government Agencies

[James Love]

Interesting discussion on the government's royalty free license in
federally funded inventions.  One might ask, why doesn't the government
exercise its royalty free rights for drugs like ritonavir or d4T?  Jamie

---------------------------- Original Message ----------------------------
Subject: RE: [techno-l] Royalties on Sale of Products Licensed under
Bayh-Dole to Government Agencies
From:    "Betten, Paul R." <Betten@anl.gov>
Date:    Wed, January 3, 2007 1:45 pm
To:      techno-l@techno-l.org
--------------------------------------------------------------------------

Dear Jenne,

For US govt. licenses, the govt. goes have a royalty free license and
the  licensee is required to discount the product by the amount of the
royalty.  So a 5% royalty on a $100 product, would result in a product
sale to the VA of $95.  The licensee could discount it more than $95 if
there is strong competition.  We have this situation often and have a
separate sales summary in the license appendix indicating sales to govt.
agencies.  Strictly speaking, unless your license with the licensee spells
out that govt. sales are due you no royalty, then they owe you a royalty.
It's a contract ... so follow it, and it is fair.  I suspect that they are
still making a profit of the VA sales although the margin may be less.

For instances when we know the major licensee will be the US govt., a
licensing strategy is to ask for a bigger upfront fee as no royalties will
be coming from US agency sales.  You may want to reconsider re-negotiating
with the licensee, with a no royalty due for govt. sales, then the upfront
fee should be adjusted upward to accommodate this loss of royalties, and
an appendix for govt royalties should be added to indicate US govt. sales.
 Otherwise, they owe you a royalty on govt. sales.   (If they discounted
the product due to competition, would they say that no royalty is due?

Again, they are still probably making money on the sale.  This is royalty
loss is just like lowering their price because a competitor's product
being available.)

Paul Betten, Ph.D.
Office of Technology Transfer, Bldg 201
Argonne National Laboratory
9700 S. Cass Avenue
Argonne, IL 60439
Tel: (630) 252-4962	fax-5230
e-mail: betten@anl.gov





-----Original Message-----
From: bounce-15736-3347@listserver.techno-l.org
[mailto:bounce-15736-3347@listserver.techno-l.org] On Behalf Of Jennifer
(Phend) Nock
Sent: Wednesday, January 03, 2007 10:19 AM
To: techno-l@techno-l.org
Subject: [techno-l] Royalties on Sale of Products Licensed under
Bayh-Dole to Government Agencies

Dear All,

In a recent negotiation for a medical device technology, a would-be
licensee has requested not to pay royalties on products sold to
government agencies, given that our patent rights were developed using
government funds. The licensee's contention is that government agencies,

notably the VA, require discounting of the product price by the amount
of royalty normally paid to the licensor for patent rights in which the
US government has rights. The licensee claims that the VA will not pay
royalties because the US government already has a non-exclusive license
to practice under the patents per Bayh-Dole. I thought that the
non-exclusive license to the US government gave government agencies the
right to practice the patent rights themselves, but not to refuse to pay
royalties on patented products sold to them. Has anyone else come across

this argument?

My initial response was that the company can discount products as it
chooses, but that the university is still owed the royalty on Net Sales
set forth in the license agreement. The licensee insists this is unfair.

I appreciate hearing others' thoughts on this!

Thanks,
Jenne

--
Jennifer Nock
Sr. Licensing Associate
Tufts University / Tufts-New England Medical Center
Office for Technology Licensing & Industry Collaboration

US Post Address:			FedEx/Courier Address:
136 Harrison Avenue, 75K-950		75 Kneeland St., Suite 950
Boston, MA 02111			Boston, MA 02111

Phone: 617 636 0338
FAX: 617 636 2917
Web: http://techtransfer.tufts.edu