Biden Administration Research and Development Executive Order May Impact University, Academic Medical Center, and Independent Research Institute Technology Transfer Processes

On July 28, 2023, the Biden administration issued “Executive Order on Federal Research and Development in Support of Domestic Manufacturing and United States Jobs” (the “Executive Order”). How federal agencies implement certain of the Executive Order’s provisions may have a meaningful impact on the existing university, academic medical center, and independent research institution technology transfer processes. Moreover, when viewed in conjunction with other recent actions, the Executive Order is further indicia of the administration’s ongoing assessment and evaluation of the Bayh-Dole Act's technology transfer model. Universities and other research institutions should therefore continue to closely monitor technology transfer-related developments and weigh in when offered an opportunity to participate in rule-making or other legislative or regulatory processes.

Key takeaways from the Executive Order:

• The Executive Order directs the Department of Defense, the Department of Health and Human Services, the National Aeronautics and Space Administration and the National Science Foundation, among other agencies, to take the next 90 days to consider, under the Bayh-Dole Act’s “exceptional circumstances” provision, whether to restrict the right of recipients of federal funding to retain title to “subject inventions,” i.e., those conceived or first actually reduced to practice under a federal funding agreement. Notably, language in the Executive Order suggests this element of the Executive Order is focused on large, for-profit businesses as opposed to universities and other non-profits.
• In 2021, the Department of Energy (DOE) made a Bayh-Dole Act “determination of exceptional circumstances” that applied a domestic manufacturing requirement to non-exclusive licenses. The impact of that decision on the successful commercialization of DOE funded inventions remains open to question. Despite significant concern within the technology transfer community, the administration opted not to apply the so-called “DOE Model” across the entire government, at least not right now. The determination described above, however, must include consideration of whether to apply a domestic manufacturing requirement to non-exclusive licenses.
• In a move that should be welcomed by the research community, the Executive Order seeks to standardize the process used to seek a waiver from the Bayh-Dole Act’s requirement that products embodying a subject invention must be “manufactured substantially in the United States” unless “reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States” or “under the circumstances domestic manufacture is not commercially feasible.”
• In another move that will likely be welcomed by the research community, the Executive Order pushes all federal agencies to use the iEdison system for invention-related reporting.
• Finally, the Executive Order “encourages” but does not require agencies to adopt domestic manufacturing requirements in Other Transaction Authority (OTA) agreements, as well as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards.

Potential Restrictions on Taking Title to Subject Inventions and Application of a Domestic Manufacturing Requirement to Non-exclusive Licensees

A hallmark of the existing technology transfer process under the Bayh-Dole Act is that universities and other non-profit research institutions have the option to elect title to subject inventions and subsequently commercialize those inventions through licenses with industry partners. This statutory and regulatory technology transfer framework has led to substantial technological and economic development, including significant support for start-up enterprises founded by members of the university community.

More specifically, the Bayh-Dole Act implementing regulations require disclosure of subject inventions to the cognizant government sponsor but provide that the “[c]ontractor may retain the entire right, title, and interest throughout the world” while the government obtains “a nonexclusive, nontransferable, irrevocable, paid-up license” to be used for governmental purposes. 37 C.F.R. 401.14. Deviation from that default requires that the sponsoring agency make a “determination of exceptional circumstances” that restricting the right to elect title will advance the Bayh-Dole Act’s objectives. 37 C.F.R. 401.3(a)(2).

The Executive Order directs principal federal agencies to take the next 90 days to consider whether exceptional circumstances exist that would support restricting the ability of the recipient of federal funding to elect title to subject inventions and whether to impose a domestic manufacturing requirement on non-exclusive licenses of subject inventions. The Executive Order directs agencies to consider the following in their deliberations:

• Those technologies that are “important to the United States economy and national security, including critical and emerging technologies such as energy storage, quantum information science, artificial intelligence and machine learning, semiconductors and microelectronics, and advanced manufacturing.”
• Whether terms could be narrowly tailored such that they would “enhance” domestic manufacturing while continuing to support tech transfer and commercialization and allowing small businesses and nonprofits to retain ownership of subject inventions.

The outcome of these deliberations may have a significant impact on university and research institution technology transfer processes. The language providing that any newly developed terms should be narrowly tailored to allow small businesses and nonprofits to retain ownership suggests that any ownership restrictions would apply only to large businesses. The scope of non-exclusive licensure requirements is less clear, although the DOE Model referred to above does apply to universities.

Application of a domestic manufacturing requirement to non-exclusive licensees may well create meaningful practical challenges for universities. DOE’s decision to implement such a requirement was the subject of criticism from the technology transfer community. In response, DOE issued a series of FAQs, one of which explained that as drafted the Bayh-Dole domestic preference provision (35 U.S.C. 204) “enable[s] recipients to easily maneuver around its domestic manufacturing requirements.”¹ The FAQ provides the following example:

If a university decides to non-exclusively license its new cutting edge battery technology developed with federal funding, the statutory U.S. Preference clause has no legal effect, since the clause only places obligations on exclusive licensees. These non-exclusive licensees are thus completely free to manufacture that U.S. taxpayer funded technology anywhere in the world even when the technology can be manufactured in the U.S. Id.

According to the FAQ, the above example is among those that “are not merely hypotheticals, but are based on actual factual scenarios DOE has witnessed multiple times over the past several decades.” Id. While there is no principled basis on which to question DOE’s assertion of having repeatedly seen such examples, it is likely that many research institutions would counter by making the point that it can be quite challenging to find any licensee let alone a suitable licensee for a risky technology that is located in the U.S. And, as discussed below, requiring additional waiver requests would add another administrative hurdle to efforts to commercialize subject inventions.

Waiver Standardization

Currently, the Bayh-Dole Act implementing regulations impose a domestic manufacturing requirement for exclusive licenses:

Notwithstanding any other provision of this clause, the contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject inventions in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by the Federal agency upon a showing by the contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. 37 CFR 401.14(i).

In practice, the process of seeking a waiver varies across agencies is often lengthy and confusing. The Executive Order seeks to remedy those challenges using a variety of methods.

• First, the Executive Order directs all agencies to consider development of a process under which the agency may waive domestic manufacturing requirements for certain subject inventions without receiving a request from a funding agreement recipient. Factors to be considered for such an “advance waiver” would include whether the waiver is in the economic or national security interests of the U.S.
• Second, the Executive Order directs agencies to ensure that their waiver process is, among other factors, rigorous, timely and transparent.
• Third, the Executive Order tasks the National Institute of Standards and Technology (NIST) with developing and providing guidance to agencies focused on determining whether domestic manufacturing is not commercially feasible.
• Fourth, the Executive Order lays out a series of questions that should be asked in applications going forward. These include why the subject invention should be brought to market; the potential economic and/or national security implications of manufacturing abroad; the manufacturing conditions abroad, i.e., health and safety standards, unionization and labor/wage laws; and the benefits that will accrue to the U.S. manufacturing and jobs if the subject invention is brought to market.

Domestic Manufacturing Requirement in OTAs, SBIRs and STTRs

The Executive Order encourages agencies participating in the SBIR and STTR programs to take steps to put forward a coordinated interagency approach to support the production of new technologies in the U.S. Relatedly, the Executive Order also provides that OTA agreements “should ensure that the product is substantially manufactured in the United States.” The Executive Order’s treatment of OTAs is particularly notable because the Bayh-Dole Act does not apply to such agreements, which has to date afforded both the government and technology developers with enhanced flexibility to develop a mutually agreeable approach to intellectual property developed under the agreement.

Looking Forward

The Executive Order does call for agencies to consult with stakeholders, specifically including universities, when assessing implementation of the order. Notably, however, the Executive Order does not require development and implementation of new regulations; rather it focuses on how implementation and administration of the existing Bayh-Dole Act could be changed. As a result, government action may occur with more speed than one might typically expect to see. Universities and research institutions should therefore be aware of, and indeed seek out, opportunities to participate in the Executive Order’s implementation process.

^{1 Frequently Asked Questions (FAQs) for Applicants and Awardees of DOE Financial Assistance and R&D Contracts regarding the Department’s Determination of Exceptional Circumstances (DEC) for DOE Science and Energy Technologies issued in June of 2021. Available at https://www.energy.gov/sites/default/files/2022-03/FAQs_03092022.pdf.}