Many entities engaged in federally funded R&D have closely monitored the efforts of the National Institute of Standards and Technology (“NIST”) over the last year as it has studied strategies for maximizing U.S. innovation through government-funded research. Last week, NIST published its findings in NIST Special Publication 1234, Return on Investment Initiative for Unleashing American Innovation Green Paper (“Green Paper”).
Benefiting from information received from an initial Request for Information, public meetings, a summit, consultations with interagency working groups, stakeholder engagement sessions, and comments received on a draft version of the Green Paper, NIST’s findings are designed to inform future policy decisions throughout the Federal Government. These future decisions could have tremendous impact: the Federal Government invested approximately $150 billion in R&D in 2017 alone, representing about one-third of all U.S. R&D spending.
After discussing the Green Paper at a high level, we highlight below a few of NIST’s findings which may be of particular interest to many government contractors.
Five Strategies; Fifteen Findings
The Green Paper presents fifteen findings, organized under the umbrella of five strategies from the President’s initiative to promote U.S. economic growth and national security by improving the transfer of technology from federally funded R&D to the private sector. Those five strategies are:
- Identifying regulatory impediments and administrative improvements in Federal technology transfer policies and practices;
- Increasing engagement with private sector technology development experts and investors;
- Building a more entrepreneurial R&D workforce;
- Supporting innovative tools and services for technology transfer; and
- Improving understanding of global science and technology trends and benchmarks.
“Government Use” and “March-In Rights”
Government contractors who engage in federally funded R&D may consider the first two findings to be of particular significance:
1. Government Use License
- Federally funded inventions produced by contractors and grantees are subject to a government use license, which generally provides that the U.S. Government has a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention or have the invention practiced throughout the world by or on behalf of the Government. Government use includes, for example, direct use by the agency for its own acquisition purposes, potentially even with a different contractor. But questions have been raised about the scope and purpose of the government use license, including whether the government use license could potentially be used to obtain discounts on products, such as pharmaceuticals, developed from federally funded R&D.
- Indeed, NIST found that: “According to stakeholders, the scope of the ‘government use license’ is not well-defined. Market uncertainty is created by the lack of a clear definition of ‘government use’ that is limited to use directly by the government—or a government contractor in the performance of an agreement with the government—for a government purpose only, including continued use in research and development by the government. The scope of the government use license should not extend to goods and services made, sold, or otherwise distributed by third parties if the government—or a government contractor in the performance of an agreement with the government—does not directly use, provide, or consume those goods and services.” This recognition of the limited scope of the government use license is a positive development that will further underscore the limited scope of the Government’s license in federally funded inventions.
2. March-In Rights
- These are the Government’s rights, in certain circumstances, to require a contractor, assignee, or exclusive licensee of a subject invention to grant a license to a third party if necessary to achieve “practical application” of the subject invention. “Practical application,” in turn, includes utilizing the invention and making its benefits “available to the public on reasonable terms.” March-in rights are subject to a number of conditions and an extensive regulatory process, and since established in 1980 have never been exercised. While the Government has traditionally interpreted “reasonable terms” to mean reasonable licensing terms, some commentators have argued that it should include reasonable price terms such that march-in rights could be used as a price control mechanism, particularly with pharmaceuticals.
- NIST found that: “According to stakeholders, the circumstances under which the government may exercise march-in rights are not well-defined. Market uncertainty is created by the lack of a clear definition of the use of march-in rights that is consistent with statute, rather than as a regulatory mechanism for the Federal Government to control the market price of goods and services.” NIST also mentioned the potential opportunity to change regulations to permit an agency to conduct an informal consultation with a contractor or licensee in order to better understand the nature of the issue and consider potential alternatives before deciding to proceed with a potential march-in action. Similar to NIST’s findings regarding the Government use license, NIST’s analysis of march-in rights is largely a positive development that demonstrates the importance of ensuring that march-in rights remain limited to the enumerated statutory bases and that such rights are not expanded in a way that could curtail future private investment in Government-funded inventions.
As NIST has noted, the Green Paper “informs, but does not prescribe, policy decisions.” Still, the Green Paper provides valuable insight into potential priorities and may serve to spur future regulatory, legislative, or administrative action—presenting continued, significant opportunities for input from industry and other interested parties along the way.
 The fifteen findings discuss (1) government use license; (2) march-in rights; (3) preference for U.S. manufacturing; (4) copyright of software; (5) proprietary information; (6) strengthen technology transfer at federal laboratories; (7) presumption of government rights to employee inventions; (8) streamlined partnership mechanisms; (9) expanded partnership mechanisms; (10) technology commercialization incentives; (11) technology entrepreneurship programs; (12) managing conflicts of interest; (13) federal IP data reporting system(s); (14) access to federal technologies, knowledge, and capabilities; and (15) benchmarking and metrics.