Category Archives: intellectual property

(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

1. 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.

3. 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

1. 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.

2. 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.

3. 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.

[7] Discussed in Part I.

[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.

(This fantastic guest post, the first of two parts, was 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.)

Since regaining control of his body from Dr. Otto Octavius following the events of The Superior Spider-Man, Peter Parker has had his hands full reconciling with family, friends and co-workers, and restoring Spider-Man’s credibility with the public and other heroes. Yet, despite all the harm Octavius caused during his tenure as Peter Parker/Spider-Man, he still managed to obtain a Ph.D., found a company and restore Parker’s loved ones’ ability to walk.

Now, the cybernetics technology that freed Aunt May from her cane and Flash Thompson from his wheelchair is at risk. In a recent public address, Parker announced that Parker Industries would be putting its cybernetics line “on hold” to research and develop technologies focused on capturing, imprisoning and depowering super villains. Parker, who does not possess Octavius’s cybernetics knowledge, would rather shelve a proven technology than carry out another’s work. Given the benefits of Octavius’s cybernetics technology, can Parker simply halt its research and development (presumably indefinitely) out of pride and insecurity? Will the public be deprived of invaluable cybernetic prosthetics? Who can rescue the technology from the crumbled shelves of Parker Industries?[1]

In Part I, I will provide a brief overview of technology transfer—its history, objectives, and barriers. Part II will then describe the powers and objectives of Empire State University and the federal government and whether they are sufficient to rescue the cybernetics technology on the public’s behalf.

PART I. TECHNOLOGY TRANSFER

The Origin Story

In the sweltering summer months of 1787, a conclave of demigods[2] assembled behind bolted doors and shuttered windows at the Pennsylvania State House. Their task: to bandage a hobbling federal government. However, rather than patching the Articles of Confederation, the demigods chose to create an entirely new constitution. Unlike its penniless, toothless predecessor, the 1787 Constitution empowered the federal government to collect taxes “to provide for the common defence [sic] and general welfare;”[3] to grant inventors an exclusive right (a patent) to exclude others from using their inventions for limited periods of time “to promote the progress of science and the useful arts;”[4] and to make all laws “necessary and proper” to “carry[] into execution the foregoing powers.”[5] While these powers strengthened the federal government, they were intended to be exercised to “promote the general welfare.”[6]

Since the conclave’s end, the U.S. has grown into a global, economic power. Recognizing the benefits of “promoting the progress of science and the useful arts” and the need to remain competitive internationally, the federal government, through its various agencies (collectively, the “FED”), began funding university research. Similar to the FED, universities are “conducted for the common good.”[7] They are committed to the education of their students, the pursuit of unbiased research and the dissemination of knowledge to the public. Moreover, as institutes of higher learning, universities have historically served as centers of innovation. Indeed, many products today can be traced back to a university lab notebook or chalkboard.[8] When innovations are transferred from universities to commercial partners and, ultimately, the general public, this process is referred to as “technology transfer.” Unfortunately, despite FED objectives and university academic principles, technology transfer is not always successful.

The Bayh-Dole Act and the Rise of the Technology Transfer Offices

Prior to 1980, title to any patentable innovations developed through government-sponsored contracts or federally funded research (a federally funded invention or “FFI”) typically vested in the FED. This reflected the rationale that research funded by the public belonged to the public. Ironically, only a handful of FFIs ever reached the public. Neither the FED nor the university possessed the necessary resources to develop and commercialize FFIs for public use, and obtaining developmental help from the private sector was often a slow, circuitous process due to the number of funding federal agencies and/or their inconsistent intellectual property policies.[9] Exacerbating FFI unavailability was the fact that some FED agencies offered FFIs on a non-exclusive basis only, believing that non-exclusivity provided the public potentially with greater access. Unsurprisingly, this deterred many in the private sector from investing in and commercializing a FFI. If the public was ever to benefit from the fruits of its tax dollars, legislative and systematic changes were needed.

In 1980, Congress passed the Bayh-Dole Act (“BD”) in order “to promote [FFI] commercialization and public availability” and “to protect the public against [FFI] nonuse or unreasonable use.”[10] By granting universities the right to retain title to FFIs, BD allowed universities to facilitate technology transfer transactions on behalf of the FED and to streamline the licensing process. Revenue from these licenses also provided universities additional funds to be reinvested into further research. Since its passage, BD has created thousands of jobs, generated billions of dollars and significantly increased the number of FFIs reaching the public. Nonetheless, the right to retain title is not absolute. BD requires universities to timely file patent applications, to prefer certain licensees and, most importantly, to promote a FFI’s utilization, commercialization and public availability. Universities that fail to comply with these and other obligations risk losing title to FFIs and even future research funds.[11]

With so much at stake, U.S. universities have established special administrative offices, generally referred to as technology transfer offices (“TTOs”), to manage regulatory compliance and advance university policies. TTO operations can typically be divided into three purposes: (1) generate revenue for the university to supplement federal grants; (2) support the university’s research community (e.g., facilitating industrial partnerships, assisting spinout companies, responding to student and faculty intellectual property queries, etc.); and (3) comply with external laws and regulations. While some TTOs may focus their operations on one purpose over another, most TTOs fulfill, to varying degrees, all three. More importantly, as stalwarts of their universities, TTOs are charged with defending and advancing their universities’ core academic principles. TTOs must be vigilant of any hazards that could interfere with a university’s ability to develop and disseminate innovations and knowledge to the public. For example, contract provisions that restrict publication or intellectual discourse amongst faculty are often immediately struck from any collaboration agreement. Licenses that restrict universities’ rights to use an invention for research purposes are often renegotiated, and any agreements that narrow or remove access to research tools are best avoided. Given these academic principles and the BD obligations described above, TTOs have a duty to promote public availability of FFIs and to ensure that the public will ultimately benefit from federally funded university research.

The Valley of Death

Across the commercial plain, nestled between academia and the consuming public, lies the Valley of Death (the “Valley”). Despite the best efforts of countless TTOs, the Valley has claimed many worthwhile innovations. Some FFIs perish along the way for lack of funding—having failed to attract investors or to maintain sufficient cash flows. Others—having been deemed commercially invaluable—may be immediately abandoned at the Valley’s edge. Although lack of funding and investment support are endemic to the Valley, those wishing to guide FFIs through the financial brambles have many tools at their disposal. Universities and local business groups often offer low cost spaces or business incubators for small businesses. Financial programs like the Small Business Innovation Research Program provide federal funds to support the research and commercial development of small business innovations. Even federal laws, such as the Orphan Drug Act, can incentivize commercial investment and development of less marketable technologies. While these and other tools may not always be sufficient to blaze a path through the Valley, TTOs can help FFI licensees appropriately equip themselves for the attempt.

More troubling within the Valley are the surreptitious barbs of patent trolls or the alluring facades of devious competitors. Patent trolls often use broadly written, and sometimes ambiguous, patents to poke at a company’s portfolio in hopes of spearing forced royalties and/or settlement payments. Although many companies may succeed in routing these attacks, they may find they have suffered significant financial lacerations to continue beyond the Valley. Devious competitors, looking to maintain or promote their own technologies, might approach a TTO with alluring exclusive license terms, only to later bury the competing technology within the Valley. While President Obama and various legislators have taken great strides to cull the patent troll population and professional technology transfer organizations have developed best practices to prevent the burying or intentional shelving of exclusively licensed technologies,[12] many innovations continue to languish in the Valley.

In the present case, Parker has simply decided that Parker Industries will no longer pursue the cybernetics technology. The decision to shelve the technology—thereby abandoning it in the Valley—stems from Parker’s hurt pride rather than for lack of funding. Unlike Aunt May and Flash Thompson who benefitted directly by Octavius’s hand, the public may have to wait years before the cybernetics technology finds its way out of the Valley, just because Parker is ashamed that he lacks the necessary cybernetics skills and knowledge. For some members of the public, access to such life-changing technologies may come too late.

To be Continued . . .

Next time, in Part II of this series, we will consider whether the powers and obligations of Empire State University, the university where Octavius earned Parker’s Ph.D., and/or the FED, are sufficient to rescue the technology from Parker Industries on behalf of a needy and ready public.

[1] This article was originally written shortly after the Ghost had destroyed Parker Industries.

[2] Letter from Thomas Jefferson to John Adams (Aug. 30, 1787), in Hilary, Prologue: Pieces of History, The National Archives, Dec. 5, 2012 (referring to the Framers of the Constitution as an “assembly of demigods”).

[3] U.S. Const. art. I, § 8, cl. 1.

[4] U.S. Const. art. I, § 8, cl. 8.

[5] U.S. Const. art. I, § 8, cl. 18.

[6] U.S. Const. pmbl.

[7] American Association of University Professors, 1940 Statement of Principles on Academic Freedom and Tenure 14 (1940).

[8] For example, Gatorade was developed at the University of Florida; the algorithms for Google were developed at Stanford University; and the components that produce high-definition television were developed at MIT.

[9] There were 26 different federal agency policies regarding the use of federally funded research at the time of the Bayh-Dole Act’s consideration. U.S. Gen. Accounting Office, GAO-09-742, Information on the Government’s Right to Assert Ownership Control Over Federally Funded Inventions 4 (2009).

[10] 35 U.S.C. § 200.

[11] For example, in Campbell Plastics, the Federal Circuit determined that a federal defense contractor had forfeited its right to retain title under BD for failure to comply with BD’s invention disclosure requirements. Campbell Plastics Engineering & Manufacturing, Inc. v. Brownlee, 389 F.3d 1243 (Fed. Cir., Nov. 10, 2004).

[12] See David Kravets, History Will Remember Obama as the Great Slayer of Patent Trolls, Wired (Mar. 20, 2014) (discussing the various implementations to combat patent trolls including five executive orders issued by President Obama and patent reform legislation introduced in Congress); and AUTM, In the Public Interest: Nine Points to Consider in Licensing University Technology (AUTM, Mar. 6, 2007).