(This is the second part of a two-part guest post written by Anthony Cova, who serves as the Corporate Counsel at Addgene, Inc., a nonprofit plasmid repository, where he handles the company’s legal and technology transfer matters. The views expressed in these posts are solely those of the author and do not necessarily reflect the views of Addgene.)
In Part I, I discussed the origins of technology transfer, or transfer of university innovations to the public in a commercially available form. Since the 1787 Constitution, the federal government and most universities have shared a common objective of promoting the general welfare by encouraging, supporting and sharing innovations. Nonetheless, many innovations, such as the cybernetics technology that enabled Aunt May and Flash Thompson to walk again, fail to reach the public. Many innovations may perish in the Valley of Death (the “Valley”), because they lack the necessary funding. Others fail because companies like Parker Industries (“PI”) choose to shelve the innovation.
In Part II, I will discuss how Empire State University (“ESU”) and the federal funding agencies (collectively, the “FED”) can rescue the cybernetics technology from PI on the public’s behalf. For the purposes of this discussion, I make the following assumptions: Octavius’s cybernetics technology, as researched and developed at PI, is (i) federally funded (ii) patentable technology (iii) that was assigned to, and (iv) retained by, Empire State University and (v) exclusively licensed to PI.[1]
PART II. ESCAPING THE VALLEY OF DEATH
ESU: With Great (Patent) Power, Comes Great (Contractual) Responsibilities
- Power of Assignment
Universities and other organizations electing to retain title to federally funded inventions (“FFIs”) must comply with several provisions under the Bayh-Dole Act (“BD”). Otherwise, they may lose not only title to those FFIs but possibly federal funding as well. Given the dwindling pool of federal research dollars and the increasing need for license derived revenue, few universities can afford to mismanage their innovations. For most U.S. universities, proper management begins well before an invention’s conception—it starts with the inventor.
Under U.S. patent law, the owner of an invention is the individual inventor. However, due to the pervasive nature of federal funding in university research and its various obligations, many university policies, as a prerequisite to hiring or enrollment, often require faculty, graduate students and other researchers to assign to their university all patent rights in any future inventions. Even non-university members may be subject to such assignment provisions if they make use of substantial university resources. In the event that federal funding has contributed to an invention, these provisions help universities avoid practical challenges (such as engaging a reluctant or adverse inventor-owners), comply with BD obligations, and, ultimately, facilitate the dissemination of university innovations to the public.
By enrolling at ESU to pursue a Ph.D., Octavius would have agreed to ESU’s intellectual property policy, which, based on similarly situated New York universities, such as Columbia, NYU, and SUNY,[2] likely stated that any patentable technologies Octavius developed while at ESU or using ESU resources were assigned to ESU. Accordingly, the cybernetics technology[3] was likely assigned to ESU.[4]
2. Power of Fees and Payments
If a university elects to retain title to a FFI,[5] it must comply with several BD obligations. These include: (i) sharing an invention’s technical specifications with the public by filing a patent application within a year; (ii) favoring U.S. manufacturers for invention products; (iii) favoring small businesses in licensing deals; and (iv) reinvesting any FFI derived income into further university research. More importantly, universities have an obligation to (v) ensure that their licensees diligently work toward making licensed FFIs, and their practical benefits, available to the public on reasonable terms. In order to ensure diligent pursuit of these obligations, the FED requires universities to provide periodic reports on FFI development. These and other obligations are intended to protect a twice-charged public’s[6] investment and to facilitate public availability.
While university-industry licenses will inevitably vary, universities concerned with the possibility of FFI shelving by an exclusive licensee can safeguard the public’s interest through proper contract drafting. For example, many university technology transfer offices (“TTOs”) use annual fees to motivate licensees to diligently commercialize a FFI. If a fee becomes prohibitively expensive to carry year to year and the licensee is not expected to recoup any costs through FFI commercialization, the licensee would be expected to end the agreement. The TTO could then market the FFI to more diligent licensees. A TTO could also include license milestone payments. Not only do these payments incentivize FFI commercialization, they also provide less financially stable licensees with additional research and manufacturing funds. In either case, these payments and fees are more likely to work for smaller licensees with a good faith intention of making the FFI publicly available. With larger licensees who can afford to carryover such fees, or, in Parker’s case, where shame outweighs commercialization, these solutions may fail to deter intentional shelving.
- Power of Termination
Many universities consider the dissemination of knowledge integral to their academic mission, notwithstanding any federal obligations. Any failure by the university or its licensees to pursue such dissemination circumvents this mission and, in the case of FFIs, may lead to BD noncompliance. Accordingly, TTOs often require licensees to provide periodic reports on FFI development and commercialization. These reports may include production milestones, estimated availability and first sales. A licensee’s failure to diligently pursue FFI public availability is often treated as a material breach of the license, which becomes subject to termination.
Assuming ESU patented the cybernetics technology, PI would have had to license the technology from ESU. Moreover, assuming the technology was federally funded, such ESU-PI license likely required PI to comply with certain diligence obligations, including reports on achieving public availability of the cybernetics technology. Because Parker has publicly announced that PI would cease developing the technology, ESU could terminate the license for material breach and save the cybernetics technology.
March of the FED
- Promoting the General Welfare
A constitutional objective of the federal government is to promote the general welfare. This objective is reflected in the taxing and spending clause, which allows Congress to collect taxes to “provide for the common defence [sic] and general welfare,” and the intellectual property clause, which allows Congress to grant patents and copyrights to “promote the progress of science and the useful arts.” Given their economic, academic and societal benefits,[7] the FED’s funding of university research and its granting of patents are instrumental in furthering that objective; provided that these powers are not misused or abused. Intentional FFI shelving forces the public to suffer through a constitutionally protected patent term without benefitting from a FFI’s practical applications and robs the public of the fruits of its tax derived, federally-invested, research dollars.
- Promoting Public Availability
A primary objective of BD is to promote “the utilization of inventions arising from federally supported research or development” and their “commercialization and public availability.”[8] To determine whether effective steps have been taken to achieve a FFI’s public availability, the FED requires federally-funded universities and/or their licensees to submit periodic reports on a FFI’s utilization and development,[9] including its production status and date of first commercial sale. If the FED determines that the university or licensee has not taken the necessary steps to achieve practical application of the FFI within a reasonable time, the FED has a duty to the public to exercise its march-in rights and license, or force the university or its licensee to license, the FFI to someone else.
While the FED has yet to enforce its march-in rights under BD, previous march-in petitions were focused on product pricing rather than utilization and public availability. For example, in CellPro, the National Institutes of Health (“NIH”) determined that a FFI licensee had achieved practical application because it had licensed the FFI and was manufacturing and operating publicly available FFI products. Additionally, the licensee’s decision to allow petitioner’s continued sale of unlicensed FFI products, which met particular public needs that licensee’s products did not, also evidenced practical application. According to the NIH, granting petitioner compulsory licenses to the FFI would “influence the marketplace for the benefit of a single company” and would have “far-reaching repercussions.”[10] For similar reasons, the NIH refused to march-in on a licensee that offered FFI-based drugs at different prices in different countries. According to Xalatan, the “issue of whether drugs should be sold in the United States for the same price as they are sold in Canada and Europe has global implications and, thus is appropriately left for Congress to address.”[11] The FED’s unwillingness to exercise its authority under BD to alleviate pricing concerns has been echoed in other determinations.[12] However, in each case, the NIH found that the FFI was publicly available or would be made publicly available within a reasonable time.
- Marching in
In the event that ESU refuses to take action against Parker and PI, the FED has a duty to exercise its march-in rights against ESU and/or PI. It is clear that public availability of the cybernetics technology has not and will not be achieved in a reasonable time. Unlike previous petitions to the NIH/FED, this is not about product pricing. Parker has publicly declared that PI would be putting the cybernetics technology line on hold indefinitely. There is no question that the “licensee [i.e., Parker Industries] has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the [FFI].” To my knowledge, the cybernetics technology has yet to be developed for public “availability” or “use” and neither Parker nor PI have sublicensed the technology to another. Given the technology’s life-changing benefits and potential, the FED should not allow Octavius’s technology to gather dust on PI shelves and should exercise its march-in rights.
CONCLUSION
Patents, like many objects of power, are subject to those who wield them. Many patent holders use their period of exclusivity to recoup development costs or to break into an otherwise competitive space. Some patent holders, however, wield their rights like a troll—waiting in ambush for deep pockets and/or new innovations in order to reap financial gain. In the case of Peter Parker, the technology that enabled Aunt May and Flash Thompson to walk again is simply being ignored out of pride. His decision to shelve the technology robs the public of its financial investment and impedes the general welfare.
Fortunately, there is hope. ESU and the FED can rescue the technology from the Valley of Death and ensure that others may benefit from Octavius’s work. ESU not only has academic principles to uphold but, as a recipient of federal funding, has federal obligations to meet. If ESU does not terminate its exclusive license with PI and otherwise make the technology available to other licensees, ESU could lose its patent rights and subsequent federal funding. Should ESU fail to act, the FED is empowered by BD to promote the utilization of inventions arising from federally supported research and to protect the public against the nonuse or unreasonable use of such inventions. In the event that the public is deprived of access to a FFI for an unreasonable amount of time, the FED is authorized to exercise its march-in rights and to license the technology to a more diligent licensee.
Notwithstanding the wrath of an angry Sanjani, Parker’s failure to achieve practical application of the cybernetics technology will likely have other consequences beyond the termination (or loss) of the ESU exclusive license. PI might face damages for breach of contract, and Parker himself might be liable for mishandling company assets.[13] In any case, Parker’s hubristic decision to shelve Octavius’s life-changing cybernetics technology is not as simple as his public announcement suggests. Therefore, while Octavius may no longer be a part of Peter Parker’s world, ESU and the FED can ensure that Octavius’s superior legacy lives on.
[1] These assumptions describe typical technology transfers. Additionally, I am assuming that Sajani’s and Anna Maria’s continued work on the technology is irrelevant for the scope of this article. Their work has not been approved by Parker or PI. Indeed, they work in secret and have taken great strides to keep it hidden from Parker and the rest of the company. Accordingly, any discussions between Parker, ESU and the FED would be based on Parker’s understanding of the technology’s development, i.e., shelved and no longer pursued.
[2] See generally New York University, University Policies: Statement of Policy on Intellectual Property 1, 4-5 (2012), Columbia University, Appendix D – Statement of Policy on Proprietary Rights in the Intellectual Products of Faculty Activity, and The State University of New York Board of Trustees, Official Compilation of the Codes, Rules, and Regulations of the State of New York, Title J- Patents, Inventions and Copyright Policy § 335.28 (b) (2015).
[3] I am assuming that the technology developed by Octavius and subsequently developed at PI is not the exact technology that drove the villain-Octavius’s arms and that, for patent purposes, the current technology is sufficiently different to warrant patentability.
[4] There is a possibility that Parker was under a similar assignment provision as a Horizon Labs employee. Upon acquisition of Horizon Labs, Tiberius Stone told Octavius that all inventions in production, including Spider-Man technology, were the acquired property of Allan Chemical. However, the cybernetics technology was not then in production. Moreover, it is unclear if Octavius was conducting his research at Horizon Labs or on Spider Island II. Finally, because Stone was fired from Horizon Labs prior to Octavius’s acquisition of Parker’s body, Stone was likely unaware of any cybernetics-related technology Octavius was developing.
[5] Receipt of federal funding does not require universities to retain title. Universities can waive title back to the inventor or to the FED.
[6] The public has paid once in tax dollars and once in suffering a patent monopoly.
[8] 35 U.S.C. § 200 (2012).
[9] The information required by a university from a licensee in a diligence report often mirrors the information required by the FED.
[10] National Institutes of Health, Office of the Director, Determination in the Case of Petition of CellPro, Inc. 6 (1997).
[11] National Institutes of Health, Office of the Director, In the Case of Xalatan Manufactured by Pfizer, Inc. 6 (2004).
[12] See generally National Institutes of Health, Office of the Director, In the Case of Norvir Manufactured by Abbot Labs., Inc. 4 (2004), and National Institutes of Health, Office of the Director, Determination in the Case of Norvir Manufactured by Abbvie 7 (2013).
[13] Greater discussion of claims against an officer are beyond the scope of this article.
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