oversight

Technology Transfer: Agencies' Rights to Federally Sponsored Biomedical Inventions

Published by the Government Accountability Office on 2003-07-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Committees




July 2003
             TECHNOLOGY
             TRANSFER
             Agencies’ Rights to
             Federally Sponsored
             Biomedical Inventions




GAO-03-536
                                                July 2003


                                                TECHNOLOGY TRANSFER

                                                Agencies’ Rights to Federally Sponsored
Highlights of GAO-03-536, a report to           Biomedical Inventions
Congressional Committees




The Bayh-Dole Act gives federal                 Federal agencies and their authorized funding recipients are eligible to use
contractors, grantees, and                      the government’s licenses to federally funded inventions for the benefit
cooperative agreement funding                   of the government. Government researchers can use the technology without
recipients the option to retain                 paying a royalty, and federal agencies can authorize their funding recipients
ownership rights to inventions                  to use the government’s licenses for specific contracts, grant awards,
they create as part of a federally
sponsored research project and
                                                or cooperative agreements meeting a federal government need. The
profit from commercializing                     government is not entitled to automatic price discounts simply because it
them. The act also protects the                 purchases products that incorporate inventions in which it happens to hold
government’s interests, in part by              a license. Furthermore, the government’s rights attach only to the inventions
requiring that federal agencies and             created by federally funded research and do not necessarily extend to later
their authorized funding recipients             inventions based on them. Thus, the government may have no rights in a
retain a license to practice the                next-generation invention that builds on federally funded technology if the
invention for government purposes.              new invention were not itself created by federally sponsored research.
GAO examined (1) who is eligible
to use and benefit from the                     Few of the biomedical products that federal agencies most commonly buy
government’s license to federally               appear to incorporate federally funded inventions. In 2001 the government
funded biomedical inventions,
(2) the extent to which the federal
                                                had licensing rights in only 6 brand name drugs associated with the top 100
government has licenses to those                pharmaceuticals that VA procured and in 4 brand name drugs associated
biomedical inventions it procures               with the top 100 pharmaceuticals that DOD dispensed. GAO was unable to
or uses most commonly, and                      determine the extent to which the government had rights to other types of
(3) the extent to which federal                 biomedical products because there are no databases showing the underlying
agencies and authorized federal                 patents for most of these products and such products may incorporate
funding recipients have actually                numerous components that might not be covered by identifiable patents.
used or benefited from these
licenses. GAO focused its work on               The federal government uses its licenses to biomedical inventions primarily
the Department of Veterans Affairs              for research; however, researchers generally do not document such usage.
(VA), the Department of Defense                 These licenses are valuable because researchers can use the inventions
(DOD), and the National Institutes
of Health (NIH).
                                                without concerns about possible challenges for unauthorized use. Neither
                                                VA nor DOD has used the government’s licenses to procure biomedical
NIH commented that the report                   products because they cannot readily determine whether products use
implies that the government’s right             federally funded technologies and they believe they already receive
to use its license is more limited              favorable pricing through the Federal Supply Schedule and national
than it actually is. GAO recognizes             contracts. Furthermore, neither VA nor DOD has used the government’s
that the right of federal agencies              license to manufacture a biomedical product for its use.
and their funding recipients to use
a federally funded invention is                 Rights to Federally Sponsored Inventions
unrestricted. However, GAO
believes that these license rights
can be used only to meet needs                  •   Federal agencies and their authorized funding recipients can use the
that are reasonably related to the                  government’s license to federally funded inventions without paying
requirements of federal programs.                   a royalty.
                                                •   Federal agencies can authorize their contractors to make products that
                                                    incorporate federally funded inventions for government use without
www.gao.gov/cgi-bin/getrpt?GAO-03-536.
                                                    risking patent infringement.
To view the full product, including the scope   •   The government’s license does not entitle federal agencies to automatic
and methodology, click on the link above.           price discounts just because a product incorporates a federally funded
For more information, contact Robin Nazzaro
at (202) 512-3841 or nazzaror@gao.gov.              invention.
Contents


Letter                                                                                 1
               Results in Brief                                                        2
               Background                                                              3
               The Government’s License Has Limited Applicability                      5
               The Government Appears to Hold Few Licenses to the Biomedical
                 Products It Purchases                                                 8
               The Government Has Used Its Biomedical Licenses Primarily
                 for Research                                                         9
               Observations                                                          12
               Agency Comments and Our Evaluation                                    13

Appendix I     Objectives, Scope, and Methodology                                     15



Appendix II    The Top 100 Pharmaceuticals Procured by VA on
               the Basis of Dollar Value, Fiscal Year 2001                            18



Appendix III   The Top 100 Pharmaceuticals Dispensed by DOD
               on the Basis of Dollar Value, July 1, 2001–
               June 30, 2002                                                          21



Appendix IV    Comments from the National Institutes of Health                        24



Table
               Table 1: DOD’s and VA’s Expenditures on Drugs Incorporating
                        Federally Sponsored Inventions, Fiscal Year 2001               9




               Page i                                     GAO-03-536 Technology Transfer
Abbreviations

AIDS        acquired immunodeficiency syndrome
DOD         Department of Defense
FDA         Food and Drug Administration
HHS         Department of Health and Human Services
HIV         human immunodeficiency virus
NIH         National Institutes of Health
USPTO       U.S. Patent and Trademark Office
VA          Department of Veterans Affairs




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Page ii                                                 GAO-03-536 Technology Transfer
United States General Accounting Office
Washington, DC 20548




                                   July 1, 2003

                                   Congressional Committees

                                   Since 1980, the Bayh-Dole Act and subsequent executive actions generally
                                   have given federal contractors, grantees, and cooperative agreement
                                   funding recipients the option to retain ownership rights to, and profit
                                   from, commercializing the inventions they create as part of federally
                                   sponsored research projects. In return for these rights, they are required to
                                   file for patent protection, pursue commercialization of the inventions, give
                                   preferences to small businesses in licensing, ensure that any products
                                   resulting from the inventions are substantially manufactured in the United
                                   States, and comply with certain reporting requirements. The Bayh-Dole
                                   Act also provides federal agencies and their authorized funding recipients
                                   with a “nonexclusive, nontransferable, irrevocable, paid-up license” to
                                   practice these federally funded inventions for government purposes.

                                   We assessed (1) who is eligible to use and benefit from the government’s
                                   licenses to biomedical inventions created under federally sponsored
                                   research, (2) the extent to which the federal government has licenses
                                   to those biomedical inventions it procures or uses most commonly, and
                                   (3) the extent to which those eligible have actually used or benefited
                                   from these licenses. We focused our work on the Department of
                                   Veterans Affairs (VA) and the Department of Defense (DOD)—which are
                                   responsible for the bulk of the government’s biomedical procurements—
                                   and the National Institutes of Health (NIH), within the Department of
                                   Health and Human Services (HHS), which funds most biomedical
                                   research.

                                   To determine who is eligible to use and benefit from the government’s
                                   licenses to biomedical inventions, we reviewed the Bayh-Dole Act, other
                                   statutes, federal agencies’ implementing regulations, applicable case law,
                                   and the positions taken by federal agencies in interpreting these laws. To
                                   assess the extent to which the government has licenses to the underlying
                                   inventions for the biomedical products it uses, we primarily analyzed the
                                   patents behind the top 100 pharmaceuticals that VA procured and DOD
                                   dispensed during 2001. For our analysis, we used databases maintained
                                   by the Food and Drug Administration (FDA) and the U.S. Patent and
                                   Trademark Office (USPTO) as well as VA, DOD, and NIH. Finally, to
                                   assess the extent to which eligible parties have used or benefited from
                                   the government’s licenses, we determined (1) whether VA and DOD


                                   Page 1                                         GAO-03-536 Technology Transfer
                   contracting personnel used them in procuring pharmaceuticals and
                   medical devices and (2) whether VA, DOD, and NIH research personnel
                   used them in conducting research. We conducted our review from
                   April 2002 through April 2003 in accordance with generally accepted
                   government auditing standards. Additional details on our scope and
                   methodology are included in appendix I.


                   Federal agencies and their authorized funding recipients are eligible to
Results in Brief   use the government’s licenses to federally funded inventions for the
                   benefit of the government. Specifically, government researchers can use
                   the technology without having to pay a royalty, and a federal agency can
                   have a contractor produce the item for its use without obtaining a separate
                   license. Third parties—contractors, grantees, and cooperative agreement
                   funding recipients—can use the government’s licenses when granted this
                   authority for a specific contract, grant award, or cooperative agreement
                   meeting a federal government need. The government is not entitled to
                   automatic price discounts simply because it purchases products that
                   incorporate inventions in which it happens to holds a license. In addition,
                   the government’s rights attach only to the inventions created by federally
                   funded research and do not necessarily extend to later inventions based
                   on them. Thus, the government may have no rights in a next-generation
                   invention that builds on federally funded technology if the new invention
                   were not itself created by federally sponsored research.

                   Few of the biomedical products that the federal government most
                   commonly buys appear to incorporate federally funded inventions. We
                   found, for example, that federally funded inventions were used to make
                   only 6 brand name drugs associated with the top 100 pharmaceuticals that
                   VA procured for use by veterans and 4 brand name drugs associated with
                   the top 100 pharmaceuticals that DOD dispensed in 2001. We could not
                   determine the extent to which the federal government holds rights to other
                   types of biomedical products, such as hospital beds and wheelchairs,
                   because (1) there are no databases showing the underlying patents for
                   most of these products and (2) the products may incorporate numerous
                   components that might not be covered by identifiable patents. However,
                   we found no federal government rights to the selected medical devices we
                   examined; and VA and DOD officials told us that the government would
                   rarely have patent rights in such products.

                   The federal government uses its licenses to biomedical inventions
                   primarily for performing research; however, the extent of such usage
                   cannot be determined because researchers generally do not keep records,


                   Page 2                                        GAO-03-536 Technology Transfer
             according to VA, DOD, and NIH officials. Citing a generally accepted
             practice among government and university scientists, government
             researchers have typically used the patented technologies of others
             without obtaining permission or a license. However, patent law does not
             appear to provide for such use without obtaining permission or a license
             from the patent owner. Agency officials said that when their scientists’
             use of federally funded inventions is challenged, they inform the patent
             holders of the government’s license. Neither VA nor DOD has used the
             government’s licenses to procure biomedical products because they
             cannot readily determine if products incorporate federally funded
             technologies and they believe they already receive favorable pricing
             through the Federal Supply Schedule and national contracts. Furthermore,
             neither VA nor DOD has used the government’s license to hire a contractor
             to manufacture a biomedical product for its use.

             In commenting on a draft of this report, NIH stated that because we tie
             the exercise of the government’s license rights to the needs of the federal
             government, we give the impression that the government’s license rights
             are more limited than they actually are. While we agree with NIH that
             federal agencies and their funding recipients have unrestricted rights to
             use a federally funded invention for federal government purposes, it is
             important to recognize that they can use these rights only to meet needs
             that are reasonably related to the requirements of federal programs.


             Prior to 1980, federal agencies generally retained title to any inventions
Background   resulting from federally funded research—whether the research was
             conducted by contractors and grantees or by federal scientists in their
             own laboratories—although specific policies varied among the agencies.
             Increasingly, this situation was a source of dissatisfaction because of a
             general belief that technology resulting from federally funded research
             was not being transferred to U.S. businesses for developing new or
             improved commercial products. For example, there were concerns that
             biomedical and other technological advances resulting from federally
             funded research at universities were not leading to new products because
             the universities had little incentive to seek uses for inventions to which
             the government held title. Additionally, the complexity of the rules and
             regulations and the lack of a uniform policy for these inventions often
             frustrated those who did seek to use the research.




             Page 3                                         GAO-03-536 Technology Transfer
In 1980, the Congress enacted two laws that have fostered the transfer of
federal technology to U.S. businesses.1 The Stevenson-Wydler Technology
Innovation Act of 1980 (P.L. 96-480, Oct. 21, 1980) promoted the transfer of
technology from federal laboratories to the private sector. The Bayh-Dole
Act (P.L. 96-517, Dec. 12, 1980) gave universities, nonprofit organizations,
and small businesses the option to retain title to inventions developed
with federal funding. It also authorized federal agencies to grant exclusive
licenses to patents on federally owned inventions that were made at
federal laboratories or that federal agencies patented after a federal
funding recipient opted not to retain title.

To protect the public’s interest in commercializing federally funded
technology, the Bayh-Dole Act required, among other things, that a
contractor or grantee that retains title to a federally funded invention
(1) file for patent protection and attempt commercialization and
(2) comply with certain reporting requirements.2 The act also specified
that the government would retain “a nonexclusive, nontransferable,
irrevocable, paid-up license to practice or have practiced for or on behalf
of the United States any subject invention throughout the world.”3

The Bayh-Dole Act did not give large businesses the right to retain title
to their federally funded inventions. Subsequently, in February 1983,
President Reagan issued a memorandum on patent policy to executive
agency heads stating that, to the extent permitted by law, the
government’s policy is to extend the policy enunciated in the Bayh-Dole
Act to all federally funded inventions arising under research and
development contracts, grants, and cooperative agreements. In April 1987,
President Reagan issued Executive Order 12591, which, among other
things, requires executive agencies to promote the commercialization of
federally funded inventions in accordance with the 1983 memorandum.




1
 Technology transfer is a process through which research results, including inventions,
computer software, and technical information, are provided to potential users in a manner
that encourages and accelerates their evaluation and use.
2
 See 35 U.S.C. § 202(c)(1)-(3). In addition, 35 U.S.C. § 203 protects the public interest by
authorizing a federal agency to “march in” and reassert control over a federally funded
invention if, for example, a patent owner fails to take steps to commercialize the invention.
If the government invokes its march-in rights, which is believed never to have happened, it
could license a third party to commercialize the invention.
3
35 U.S.C. § 202(c)(4).




Page 4                                                    GAO-03-536 Technology Transfer
                           Our 1999 report noted that federal agencies were not always aware of
                           the government’s licenses and could not tell us the circumstances under
                           which these licenses had been employed.4 Nevertheless, agency officials
                           said that the government’s license to practice federally funded inventions
                           is important because agency scientists could use these inventions without
                           being concerned that such use would be challenged.


                           Federal agencies and their authorized funding recipients have the right
The Government’s           to benefit from the use of a federally funded invention without risk of
License Has Limited        infringing the patents. Government scientists can use these inventions
                           in their research without having to pay royalties. Federal contractors,
Applicability              grantees, and cooperative agreement funding recipients may use the
                           government’s license if they are authorized to do so. For example,
                           federal agencies can contract with a third party to manufacture products
                           containing such inventions. However, the government’s license to use a
                           federally funded invention does not automatically entitle the government
                           to price discounts when purchasing products that happen to incorporate
                           the invention. The government’s license also does not necessarily extend
                           to later inventions related to or based on the federally funded invention.


The Government’s License   The Bayh-Dole Act gives the government the right to “practice”—or use—a
Protects Its Right to      federally funded invention without being liable for patent infringement.
Practice the Invention     There are two primary ways in which the government can use its right
                           to practice an invention in which it has retained a license. First, the
                           government can contract with a third party to make a product that
                           incorporates the invention for or on behalf of the government without
                           either the government or the contractor being liable for patent
                           infringement. It is our understanding that this right has never been
                           invoked for biomedical products. Second, the government can use the
                           invention itself without obtaining a license from or paying a royalty to
                           the patent owner. As discussed later in this report, federal research
                           officials say that this is a common occurrence in the research arena,
                           making the license to use federally funded inventions a valuable asset to
                           the government.




                           4
                            See U.S. General Accounting Office, Technology Transfer: Reporting Requirements for
                           Federally Sponsored Inventions Need Revision, GAO/RCED-99-242 (Washington, D.C.:
                           Aug. 12, 1999).




                           Page 5                                                GAO-03-536 Technology Transfer
The Government’s License   The government’s right to practice an invention is limited to federal
Is Available to Federal    agencies and their funding recipients specifically authorized to use the
Agencies and Authorized    invention for federal government purposes. The Bayh-Dole Act provides
                           that the license is “nontransferable,” which means that the government
Funding Recipients         may not sell or otherwise authorize another to practice an invention in
                           its stead. This concept is not unique to the Bayh-Dole Act. Such language
                           appears frequently in patent practice, where nonexclusive licensing
                           agreements are typically construed as restricting assignment of the
                           license without the licensor’s consent. In the Bayh-Dole Act, the term
                           “nontransferable” is followed immediately by qualifying text—language
                           that allows the government to authorize others to practice the invention
                           for or on its behalf but which restricts the purposes for which it may
                           do so.

                           Federal agencies typically have authorized contractors to use the
                           government’s license to develop and produce mission-critical hardware,
                           such as a weapon system. This use of the government’s license satisfies
                           a legitimate federal governmental need in support of a congressionally
                           authorized program.

                           Such linkages to an agency’s mission are less prevalent when grants or
                           cooperative agreements are used, as is typically the case with NIH, which
                           sponsors biomedical research to benefit the public health. This research
                           serves the public good through biomedical advances from publishing
                           scientific results and developing new technology that improve people’s
                           life. This good may represent a sufficient government need for NIH to
                           authorize its grantees to use the government’s license as a basis for using
                           federally funded inventions in their research. However, according to a
                           senior NIH attorney, NIH does not use this rationale to authorize grantees
                           to exercise the government’s licenses and has not included a clause in
                           its grant agreements authorizing the use of federally funded inventions
                           as part of the research. As a result, NIH’s grantees might be sued for
                           infringement and must negotiate any licensing agreements they believe
                           they need to support their work. Furthermore, the government’s license
                           to use a federally funded invention generally does not apply to HHS’s
                           purchases of drugs and vaccines because (1) HHS has never contracted
                           for the manufacture of a pharmaceutical made with federal funds for the
                           government’s use and (2) HHS’s funding assistance for acquiring drugs or




                           Page 6                                         GAO-03-536 Technology Transfer
                            vaccines for distribution is intended to assist the states’ public health
                            services, rather than to meet a federal agency’s need.5


The Government Is Not       The “paid-up license” that the Bayh-Dole Act specifically confers on the
Automatically Entitled to   federal government6 is often referred to as a “royalty-free license.” The
Price Discounts             term “royalty-free” license (and even “paid-up license”) has sometimes
                            been misinterpreted in a way that effectively eliminates the conditions set
                            forth in the statute. The license for which the federal government is “paid
                            up” entitles it to practice an invention itself, or to have others practice the
                            invention on the government’s behalf. The statute does not give the federal
                            government the far broader right to purchase, “off the shelf” and royalty
                            free (i.e., at a discounted price), products that happen to incorporate a
                            federally funded invention when they are not produced under the
                            government’s license.


The Government’s License    An invention rarely represents a completely new form of technology
May Not Extend to Related   because the inventor almost always has used “prior art” in developing
Inventions                  the ideas that led to an invention. Prior art is the intellectual basis—the
                            knowledge base—upon which the novelty of an invention is established
                            or the basis that determines whether the “invention” would have been
                            obvious to one skilled in the art. In making an invention, an inventor
                            typically would build on the prior art in the particular technology, and
                            some of this prior art might have been developed by either government
                            scientists or federal funding recipients. However, an intellectual property
                            interest in prior art does not in and of itself give one an interest in
                            someone else’s subsequent invention.

                            Also, an invention often is part of a family of related inventions. One
                            research project may spawn multiple inventions that, for example, are
                            separate and distinct or are further developments of a basic invention
                            for specific applications. Similarly, the idea on which the original
                            invention is based may trigger new inventions.7 The question of whether
                            the government has an interest in later inventions also arises in instances


                            5
                            For example, HHS provides funding for the states’ pediatric vaccine program.
                            6
                            See 35 U.S.C. § 202(c)(4).
                            7
                             The patent application for the first invention is referred to as the “parent” if a second
                            application is filed on the basis of the same disclosure and at least one person is named as
                            the inventor on both applications.




                            Page 7                                                    GAO-03-536 Technology Transfer
                      involving the same technologies when the patents to these inventions are
                      related in some fashion. Patents may be related because they protect
                      inventions springing from the same essential technologies or scientists
                      discover additional uses for an invention. For example, while a patent
                      application is pending at USPTO, the applicant may decide to clarify the
                      description of an invention because what initially was viewed as a single
                      invention is found to be two or more inventions or because the USPTO
                      patent examiner determines that patent application claims must be
                      separated and independently supported.

                      Whether the government has the right to practice an invention because it
                      retains a license to use it under the Bayh-Dole Act depends upon whether
                      the invention was developed with federal funding and is, therefore, subject
                      to the act. An invention is a “subject invention” if it is conceived or first
                      actually reduced to practice “in the performance of work under a funding
                      agreement” (contract, grant, or cooperative agreement) to which the act
                      applies. Rights to the parent patent do not automatically generate rights
                      vis-à-vis related subsequent patents. In this regard, the government is not
                      entitled to any different protection than other entities that fund research.

                      There is one exception to the general rule that inclusion depends upon
                      whether each invention was itself conceived or first actually reduced to
                      practice in performing federally funded research. This exception holds
                      that while the owner of a “dominant patent” can block the unlicensed
                      use of that patent and related patents, the owner may not assert that
                      patent either to deprive its licensee’s right to a “subservient patent” or,
                      similarly, block the government’s license to use a subservient patent for
                      a federally funded invention. Thus, if the owner of a dominant patent
                      subsequently makes a new invention in the course of work under a federal
                      contract or other federal assistance, the owner cannot assert the dominant
                      patent to frustrate the government’s exercise of its license to use the
                      second invention.


                      Although determining the extent to which the government has licenses
The Government        in biomedical products is difficult, the number appears to be small. For
Appears to Hold       pharmaceuticals, one of the largest sectors of the biomedical market, we
                      found that the government had an interest—either because of its license
Few Licenses to the   under the Bayh-Dole Act or as the owner or “assignee” of the patent—in
Biomedical Products   only 6 brand name drugs associated with the top 100 products, by dollar
                      value, that VA procured in fiscal year 2001 and 4 brand name drugs
It Purchases          associated with the top 100 products, by dollar value, that DOD dispensed
                      from July 2001 to June 2002. (See apps. II and III.) All four of the DOD


                      Page 8                                          GAO-03-536 Technology Transfer
                                                       drugs were among the six federally funded pharmaceuticals that VA
                                                       purchased. As shown in table 1, VA and DOD spent about $120 million on
                                                       these six drugs in fiscal year 2001.

Table 1: DOD’s and VA’s Expenditures on Drugs Incorporating Federally Sponsored Inventions, Fiscal Year 2001

 Dollars in millions
                                                                                                                                    DOD’s and VA’s
 Drug name                            Use                                                                                             expenditures
 Procrit (epoetin alpha)              Treats severe anemia caused by such conditions as cancer, acquired                                     $45.5
                                      immunodeficiency syndrome (AIDS), or surgery
 Xalatan (latanoprost)                Treats eye conditions, including glaucoma and ocular hypertension, in which                                 21.8
                                      increased pressure can lead to a gradual loss of vision
 Epogen (epoetin alpha)               Treats severe anemia caused by such conditions as cancer, AIDS, or surgery                                  15.6
 Neupogen (filgrastim)                Decreases the chance of infection in patients with cancer by promoting the                                  14.2
                                      growth of white blood cells
 Taxol (paclitaxel)                   Treats metastatic breast and ovarian cancer and Kaposi’s sarcoma, as well as                                12.2
                                      head and neck cancer, non-small-cell lung cancer, small-cell lung cancer, and
                                      bladder cancer
 Zerit (stavudine)                    Treats infection caused by the human immunodeficiency virus (HIV)                                          10.2
 Total                                                                                                                                         $119.5
Sources: DOD and VA (data), GAO (analysis).

                                                       Note: Drug names are presented in terms of brand name products, and the corresponding generic
                                                       drug name is included in parentheses.


                                                       We could not determine the extent to which the government holds
                                                       rights to other types of biomedical products because (1) no databases
                                                       exist showing the underlying patents for most of these products and
                                                       (2) products such as hospital beds and wheelchairs may incorporate
                                                       numerous components that might not be covered by identifiable patents.
                                                       Our examination found no government rights to any of five medical
                                                       devices for which the VA Medical Center in Milwaukee, Wisconsin, had
                                                       spent more than $1 million during fiscal year 2002. The medical devices
                                                       we analyzed included electric hospital beds, closed circuit televisions,
                                                       blood pressure monitors, low-air-loss and air-pressure mattresses, and
                                                       wheelchairs. Officials from VA and DOD believe that the government
                                                       would rarely have patent rights to such products.


                                                       Officials from VA, DOD, and NIH said that their agencies use the
The Government Has                                     government’s licenses to biomedical inventions primarily in performing
Used Its Biomedical                                    research. These officials could not tell us the extent of such usage,
                                                       however, because researchers generally do not keep records. Instead,
Licenses Primarily                                     government researchers often use the technology and inform the patent
for Research                                           owner of the government’s rights only if there is a claim of infringement



                                                       Page 9                                                      GAO-03-536 Technology Transfer
                          or other question regarding the government’s use. In fact, government
                          scientists usually do not obtain licenses for any patented technology they
                          may use in research. They told us that using technology for research
                          purposes without obtaining permission is a generally accepted practice
                          among both government and university scientists.

                          VA and DOD officials said they do not consider the government’s licenses
                          for procurements because they (1) would not be able to determine
                          readily which products incorporate patented technologies or whether the
                          government helped fund the technology’s development, (2) believe they
                          already receive favorable pricing through the Federal Supply Schedule and
                          national contracts, and (3) are not required by law to do so. Similarly, the
                          VA and DOD officials said they had not used the government’s licenses to
                          have a contractor manufacture biomedical products for federal use.


Biomedical Licenses Are   DOD and NIH attorneys told us that the government primarily uses its
Primarily Used for        biomedical licenses for research. According to these officials, the
Research                  government’s licenses are valuable because they allow researchers to use
                          the inventions without concern about possible challenges alleging that the
                          use was unauthorized. However, no governmentwide database exists to
                          track how often government researchers actually use the licenses, and
                          agencies did not have records showing how often or under what
                          circumstances these licenses have been employed.

                          NIH officials said that their agency does not routinely document its
                          researchers’ use of patented technologies. Thus, they have no way to
                          readily determine which patented technologies have been used or whether
                          the government had an interest in them. However, the NIH officials cited
                          additional reasons why NIH researchers seldom obtain licenses to conduct
                          research: First, NIH researchers may not really need a license because
                          they can work with the underlying principles behind the technology simply
                          by using the information that has been published. Second, there is a
                          prevailing practice not to enforce patent rights among federal agencies
                          and nonprofit organizations that conduct academic research. Third, under
                          28 U.S.C. § 1498, federal agencies cannot be enjoined from using patented
                          technology in conducting research; the patent owner’s only recourse is to
                          sue the government for a reasonable royalty.

                          An Army patent attorney told us that he advises researchers to inform him
                          of any patented technologies they are using in their research. He also said,
                          however, that this does not always happen in practice and that he and the
                          researchers generally are not aware of a potentially infringing use until the


                          Page 10                                         GAO-03-536 Technology Transfer
                        patent owner informs them. At that time, he researches the matter and
                        seeks permission, obtains a license, or informs the patent owner of the
                        government’s interest if there is one. Because the attorney does not have
                        records on government licenses, he has to research each case individually.
                        He added that he had invoked the privileges of the licenses for research
                        purposes but could not readily tell us how often this had occurred.

                        A VA official said that, like NIH, VA researchers usually do not know
                        whether the technology they use for research is patented. Furthermore,
                        information about the government’s interest in the development of
                        products is difficult to obtain because extensive research would be
                        required. She said that VA procures some research materials using
                        Material Transfer Agreements with universities. For the most part,
                        however, VA simply goes about its research assuming it has the right to
                        use the technologies of others unless there is a challenge. She was
                        unaware of any patent infringement cases that had been filed against VA.


The “General Research   VA, DOD, and NIH have each relied, to some extent, on the concept that
Exception” Is Cited     a researcher could use patented technology for research as long as the
in Using Patented       research is for purely scientific endeavors. According to agency officials,
                        such use is a generally accepted practice within the research community
Technologies            on the basis of what some believe is a “general research exception.”
                        However, some agency officials questioned how this exception might be
                        viewed in light of the decision rendered by the Court of Appeals for the
                        Federal Circuit in Madey v. Duke University, 307 F.3d 1351 (Fed. Cir.
                        2002). Concerning the availability of the experimental use exception to a
                        university, the court ruled that the experimental use exception is very
                        narrow and strictly limited, extending only to experimental uses that are
                        not in furtherance of the infringer’s legitimate business and are solely
                        for the infringer’s amusement, to satisfy idle curiosity, or for strictly
                        philosophical inquiry. The court also stated that the profit or nonprofit
                        status of the user is not determinative of whether the use qualifies for the
                        experimental use exception. Experimental use may infringe a patent when
                        the use furthers the infringer’s business. For example, the business of a
                        research institution includes conducting research.

                        Some patent owners believe that allowing others to use their patented
                        technologies for research purposes may pose no threat and may actually
                        be to their benefit. In fact, representatives from corporations involved in
                        the research and development of products in the biomedical area told us
                        that they welcome additional research that will continue to advance the
                        state of the art as long as such use is not merely an attempt to use the


                        Page 11                                         GAO-03-536 Technology Transfer
                         patents for commercial purposes without obtaining a license. They
                         said that there has been an unstated “gentlemen’s agreement” among
                         researchers in this regard that will not be affected by the Madey case. If
                         true, government researchers may, as a practical matter, be able in many
                         cases to continue using the patented technologies of others without
                         obtaining licenses.


Licenses Have Not Been   VA and DOD procurement officials were unaware of any instances in
Used for Biomedical      which a federal agency had used the government’s licenses to have
Procurements             contractors manufacture products that incorporate federally funded
                         inventions. Furthermore, these procurement officials said that, as
                         discussed above, the government’s license does not provide an automatic
                         discount for federal government procurements. They added that even if
                         they wanted to use the license for procurements, they would not know
                         which products incorporate federally funded inventions.

                         The VA and DOD officials also said that the government’s licenses would
                         probably not significantly reduce their procurement costs because they
                         believe they already receive favorable pricing through the Federal Supply
                         Schedule and national contracts. In particular, for a branded
                         pharmaceutical to be listed on the Federal Supply Schedule, the
                         manufacturer must agree to give the government a 24-percent discount
                         over the nonfederal average manufacturer price.8 Furthermore, the federal
                         government has negotiated national contracts that provide even greater
                         discounts for some pharmaceuticals.


                         The government’s license under the Bayh-Dole Act provides protection
Observations             against claims of patent infringement when federal agencies or their
                         authorized funding recipients use federally funded inventions. Scientists
                         working for federal agencies and their contractors generally are
                         authorized to use federally funded inventions; however, agencies have not
                         necessarily provided similar authorization in their grant agreements for
                         scientists at universities and other institutions. The decision rendered by
                         the Court of Appeals for the Federal Circuit in Madey v. Duke University
                         calls into question the validity of the general research exception that many




                         8
                          The Veterans Health Care Act of 1992 (P.L. 102-585) established a 76-percent ceiling for
                         Federal Supply Schedule prices.




                         Page 12                                                  GAO-03-536 Technology Transfer
                     scientists have cited as a basis for using the patented technology of others
                     in their research.


                     We provided NIH with a draft of this report for its review and comment.
Agency Comments      NIH stated that because our report ties the exercise of the government’s
and Our Evaluation   license rights to the needs of the federal government, we give the
                     impression that the government’s license rights are more limited than they
                     actually are. While we agree with NIH that federal agencies and their
                     funding recipients have unrestricted rights to use a federally funded
                     invention for federal government purposes, it is important to recognize
                     that they can use these rights only to meet needs that are reasonably
                     related to the requirements of federal programs. NIH also provided
                     comments to improve the report’s technical accuracy, which we
                     incorporated as appropriate. (See app. IV for NIH’s written comments
                     and our responses.)


                     We will send copies of this report to interested Members of Congress; the
                     Secretary of Defense; the Secretary of Health and Human Services; the
                     Secretary of Veterans Affairs; and the Director, Office of Management and
                     Budget. We will also make copies available to others upon request. In
                     addition, the report will be available at no charge on the GAO Web site at
                     http://www.gao.gov.

                     If you have any questions about this report, please contact me at
                     (202) 512-3841. Key contributors to this report were Richard Cheston,
                     Deborah Ortega, Bert Japikse, Frankie Fulton, and Lynne Schoenauer.




                     Robin M. Nazzaro
                     Director, Natural Resources
                      and Environment




                     Page 13                                        GAO-03-536 Technology Transfer
List of Congressional Committees

The Honorable Orrin G. Hatch
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate

The Honorable Sam Brownback
Chairman
The Honorable John B. Breaux
Ranking Minority Member
Subcommittee on Science, Technology,
  and Space
Committee on Commerce, Science,
  and Transportation
United States Senate

The Honorable Lamar Smith
Chairman
The Honorable Howard L. Berman
Ranking Minority Member
Subcommittee on Courts, the Internet,
  and Intellectual Property
Committee on the Judiciary
House of Representatives

The Honorable Sherwood L. Boehlert
Chairman
The Honorable Ralph M. Hall
Ranking Minority Member
Committee on Science
House of Representatives




Page 14                                 GAO-03-536 Technology Transfer
              Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
              Methodology



Methodology

              We examined the manner in which federal agencies administer, use,
              and benefit from intellectual property created under federally sponsored
              research programs related to public health, health care, and medical
              technology. Our objectives were to assess (1) who is eligible to use and
              benefit from the government’s licenses to biomedical inventions
              created under federally sponsored research, (2) the extent to which the
              government has licenses to those biomedical inventions it procures or
              uses most commonly, and (3) the extent to which those eligible have
              actually used or benefited from these licenses.

              To determine who is eligible to use and benefit from the government’s
              licenses, we reviewed the applicable laws, regulations, and procedures,
              including an examination of relevant case law. We also obtained the views
              of a senior attorney responsible for handling these cases in the Office of
              General Counsel of the Department of Health and Human Services.

              To assess the extent of the government’s licenses to biomedical
              inventions, we concentrated on pharmaceuticals because
              (1) pharmaceuticals represent a major component of the federal
              government’s biomedical procurements—an estimated $3.5 billion
              annually—and (2) government databases can be used to identify the
              underlying patents to pharmaceuticals approved by the Food and Drug
              Administration (FDA). In conducting our work, we first obtained data on
              the generic product name, total purchases by dollar amount, and number
              of prescriptions filled for the top 100 pharmaceuticals purchased by the
              Department of Veterans Affairs (VA) and the Department of Defense
              (DOD), which procure most of the government’s biomedical products
              for use by their hospitals and other medical facilities. VA’s data covered
              procurements for fiscal year 2001. DOD’s data covered the 12-month
              period from July 1, 2001, to June 30, 2002, because the agency began
              consolidating its pharmacy program sales data on July 1, 2001.

              For each of the VA and DOD pharmaceuticals, we used FDA’s Electronic
              Orange Book to identify the corresponding brand name product(s) and
              their patents. We focused on brand name products rather than generics
              because the former often utilize technologies with protected active
              patents and typically generate higher sales, whereas generic drugs often
              enter the market only after a product’s active patents have expired. We
              examined possible equivalent brand names to ensure that we identified the
              government’s licenses to available alternative products. FDA’s Electronic
              Orange Book included 210 of the 217 brand name products we reviewed.
              We also obtained patent numbers for three of the seven pharmaceuticals
              not included by examining their product Web sites. Using the patent


              Page 15                                        GAO-03-536 Technology Transfer
Appendix I: Objectives, Scope, and
Methodology




numbers, we then accessed the patent records in the U.S. Patent and
Trademark Office’s (USPTO) patent database to determine whether the
government held any rights to the patented technologies of each brand
name pharmaceutical. We identified any cases where the government was
the owner or assignee or had a license to use the invention because it
sponsored the research.

In addition to our own assessment, we examined the National Institutes of
Health’s (NIH) July 2001 report entitled NIH Response to the Conference
Report Request for a Plan to Ensure Taxpayers’ Interests Are Protected.
NIH assessed the return to the taxpayers for therapeutic drugs that use
NIH-funded technology and have sales of at least $500 million per year,
making them “blockbuster” drugs. From a survey of the pharmaceutical
industry, FDA, USPTO, and its own databases, NIH determined that the
government had rights to 4 of the 47 blockbuster drugs it identified for
1999—Taxol, Epogen, Procrit, and Neupogen. We found that all 4 of these
were among VA’s top 100 pharmaceutical procurements and all but Taxol
were among DOD’s top 100.

To determine the extent of the government’s ownership of or licenses to
use other biomedical products, we explored several methods to locate
relevant patent and licensing information for medical devices. However,
we found that (1) there are no databases showing the underlying patents
for most of these products and (2) products such as hospital beds and
wheelchairs typically incorporate numerous components that may or
may not be covered by identifiable patents. In addition, VA and DOD
procurement officials informed us that they do not have agencywide data
showing the most frequently purchased items because many devices are
purchased at the local level.

Because of these limitations, we identified five medical devices for
which the VA Hospital in Milwaukee, Wisconsin—a major procurer of
medical devices—had spent more than $1 million during fiscal year 2002.
This approach also provided only limited information. We examined the
government’s rights to each device by identifying it in the General Services
Administration’s on-line supply catalog, which includes the items on
the Federal Supply Schedule, and reviewing the corresponding item
descriptions. However, we found that the catalog does not provide patent
or licensing information for any of the products. We also were unable to
determine from the USPTO patent database the specific patents used for
each medical device. Finally, our examination of product Web sites found
that they do not provide information on the products’ patented



Page 16                                        GAO-03-536 Technology Transfer
Appendix I: Objectives, Scope, and
Methodology




technologies or address whether the government has license rights
to them.

To examine how the government has used its licenses to federally funded
inventions, we interviewed DOD, NIH, and VA officials who procure
biomedical products or who are involved in scientific research. Also, we
researched relevant statutes and case law and met with knowledgeable
officials in NIH and industry to determine whether a general research
exception exists regarding patent infringement that applies to government
and other researchers conducting research for purely scientific reasons.

We conducted our work from April 2002 through April 2003 in accordance
with generally accepted government auditing standards. We did not
independently verify the data that VA, DOD, or NIH provided or the data
obtained from the USPTO and FDA databases. However, agency officials
addressed each of our questions regarding their data.




Page 17                                      GAO-03-536 Technology Transfer
               Appendix II: The Top 100 Pharmaceuticals
Appendix II: The Top 100 Pharmaceuticals
               Procured by VA on the Basis of Dollar Value,
               Fiscal Year 2001


Procured by VA on the Basis of Dollar Value,
Fiscal Year 2001

               Dollars in millions
                                                                  Amount    Active
               Rank         Drug name                           procureda   government rights
               1            Simvastatin                            $121.7   No
               2            Olanzapine                               99.6   No
               3            Lansoprazole                             63.8   No
               4            Gabapentin                               61.2   No
               5            Metformin hydrochloride                  59.6   No
               6            Epoetin alfab                            53.3   Yes
               7            Risperidone                              49.9   No
               8            Sertraline hydrochloride                 49.3   No
               9            Glucose testc                            42.4   Unknown
               10           Fluoxetine hydrochloride                 39.3   No
               11           Felodipine                               36.5   No
               12           Clopidogrel bisulfate                    36.1   No
               13           Ipratropium bromide                      34.6   No
               14           Goserelin acetate                        34.3   No
               15           Lisinopril                               28.9   No
               16           Paroxetine hydrochloride                 27.7   No
               17           Albuterol sulfate and ipratropium        24.8   No
                            bromide
               18           Divalproex sodium                        24.0   No
               19           Rosiglitazone maleate                    23.9   No
               20           Bupropion hydrochloride                  22.0   No
               21           Amlodipine besylate                      20.8   No
               22           Atorvastatin calcium                     20.2   No
               23           Interferon alfa-2b and ribavirind        20.0   No
               24           Buspirone hydrochloride                  19.5   No
               25           Insuline                                 19.4   No
               26           Bicalutamide                             19.0   No
               27           Beclomethasone dipropionate              18.9   No
               28           Celecoxib                                18.8   No
               29           Finasteride                              17.4   No
               30           Salmeterol xinafoate                     17.2   No
               31           Enoxaparin sodium                        16.5   No
               32           Diltiazeme                               16.3   No
               33           Oxycodone hydrochloride                  16.0   No
               34           Latanoprostf                             16.0   Yes
               35           Donepezil hydrochloride                  15.7   No
               36           Lamivudine and zidovudine                15.4   No
               37           Nifedipine                               15.2   No
               38           Fexofenadine hydrochloride               15.1   No
               39           Cyclosporine                             15.0   No
               40           Fluticasone propionate                   14.9   No




               Page 18                                           GAO-03-536 Technology Transfer
Appendix II: The Top 100 Pharmaceuticals
Procured by VA on the Basis of Dollar Value,
Fiscal Year 2001




Dollars in millions
                                                 Amount     Active
                                                        a
Rank         Drug name                         procured     government rights
41           Quetiapine fumarate                   $14.4    No
42           Citalopram hydrobromide                14.3    No
43           Carvedilol                             14.0    No
44           Fentanyle                              13.5    No
45           Venlafaxine hydrochloride              12.3    No
46           Albuterole                             11.6    No
47           Lovastatin                             11.3    No
48           Rofecoxib                              11.2    No
49           Levofloxacin                           11.1    No
50           Filgrastimg                            11.1    Yes
51           Triamcinolonee                         10.7    No
52           Fosinopril sodium                      10.7    No
53           Carbidopa and levodopa                 10.2    No
54           Terbinafine hydrochloride              10.2    No
55           Interferon beta-1ac                    10.1    Unknown
56           Sumatriptane                           10.0    No
57           Warfarin sodium                        10.0    No
58           Paclitaxelh                             9.5    Yes
59           Tramadol hydrochloride                  9.2    No
60           Nefazodone hydrochloride                9.2    No
61           Mycophenolate mofetile                  8.7    No
62           Amoxicillin and clavulanate             8.6    No
             potassium
63           Etanercepti                             8.4    No
64           Nitroglycerin                           8.2    No
65           Loratadine                              8.1    No
66           Stavudinej                              7.9    Yes
67           Fluconazole                             7.9    No
68           Alendronate sodium                      7.5    No
69           Lamivudine                              7.4    No
70           Efavirenz                               7.4    No
71           Irinotecan hydrochloride                7.3    No
72           Ranitidine hydrochloride                7.3    No
73           Tamsulosin hydrochloride                7.3    No
74           Cetirizine hydrochloride                7.2    No
75           Sotalol hydrochloride                   7.0    No
76           Phenytoine                              6.9    No
77           Terazosin hydrochloride                 6.9    No
78           Carbamazepine                           6.9    No
79           Clozapine                               6.7    No
80           Irbesartan                              6.7    No
81           Brimonidine tartrate                    6.7    No
82           Amiodarone hydrochloride                6.6    No



Page 19                                         GAO-03-536 Technology Transfer
Appendix II: The Top 100 Pharmaceuticals
Procured by VA on the Basis of Dollar Value,
Fiscal Year 2001




    Dollars in millions
                                                                  Amount       Active
                                                                         a
    Rank           Drug name                                    procured       government rights
    83             Glipizide                                         $6.5      No
    84             Mirtazapine                                        6.4      No
    85             Carboplatin                                        6.3      No
    86             Mesalamine                                         6.1      No
    87             Indinavir sulfate                                  5.8      No
    88             Potassium chloride                                 5.8      No
    89             Nelfinavir mesylate                                5.6      No
    90             Rituximabc                                         5.6      Unknown
    91             Nicotine                                           5.6      No
    92             Omeprazole                                         5.6      No
    93             Tacrolimus                                         5.5      No
    94             Alprostadil                                        5.4      No
    95             Sildenafil citrate                                 5.1      No
    96             Rabeprazole sodium                                 5.0      No
    97             Azithromycin dihydrate                             5.0      No
    98             Flutamide                                          4.2      No
    99             Ondansetrone                                       4.0      No
    100            Pioglitazone hydrochloride                         3.5      No
Sources: VA (data), GAO (analysis).

Note: The table provides each drug’s name on the basis of the active ingredients as they are listed in
FDA’s Electronic Orange Book.
a
    Based on VA’s prime vendor purchases, excluding any direct purchases.
b
Patent and licensing information about epoetin alpha was obtained from NIH. Two brand name
epoetin alpha products, Epogen and Procrit, appear to use federally sponsored technology.
c
A patent search for this item was not completed because we did not find a related listing in the
Orange Book or locate the product’s patent information.
d
 Interferon alpha-2b and ribavirin is not listed in the Orange Book. However, we obtained relevant
patent information from the Web site devoted to the interferon/ribavirin product, Rebetron,
http://www.rebetron.com/pro/rebetron/pi.html, accessed on August 26, 2002.
e
 Variations of the drug name appeared in the Orange Book, and we examined the patents underlying
each relevant product.
f
    Xalatan, a brand name latanoprost product, appears to use federally sponsored technology.
g
 Patent and licensing information about filgrastim was obtained from NIH. A brand name filgrastim
product, Neupogen, appears to use federally sponsored technology.
h
    Taxol, a brand name paclitaxel product, appears to use federally sponsored technology.
i
Relevant patent information was obtained from the Web site for the etanercept brand name product,
Enbrel, http://www.enbrel.com/hcp/about_enbrel/indications.jsp, accessed on August 1, 2002.
j
    Zerit, a brand name stavudine product, appears to use federally sponsored technology.




Page 20                                                          GAO-03-536 Technology Transfer
              Appendix III: The Top 100 Pharmaceuticals
Appendix III: The Top 100 Pharmaceuticals
              Dispensed by DOD on the Basis of Dollar
              Value, July 1, 2001–June 30, 2002


Dispensed by DOD on the Basis of Dollar
Value, July 1, 2001–June 30, 2002

                                                                               Active government
              Rank      Drug name                                              rights
              1         Omeprazole                                             No
              2         Simvastatin                                            No
              3         Atorvastatin calcium                                   No
              4         Celecoxib                                              No
              5         Rofecoxib                                              No
              6         Lansoprazole                                           No
              7         Loratadine                                             No
              8         Gabapentin                                             No
              9         Esomeprazole magnesium                                 No
              10        Clopidogrel bisulfate                                  No
              11        Alendronate sodium                                     No
              12        Fluoxetine hydrochloride                               No
              13        Sertraline hydrochloride                               No
              14        Paroxetine hydrochloride                               No
              15        Amlodipine besylate                                    No
              16        Pravastatin sodium                                     No
              17        Pioglitazone hydrochloride                             No
              18        Oxycodone hydrochloride                                No
              19        Fluticasone propionate and salmeterol xinafoate        No
              20        Metformin hydrochloride                                No
              21        Rosiglitazone maleate                                  No
              22        Venlafaxine hydrochloride                              No
              23        Olanzapine                                             No
              24        Zolpidem tartrate                                      No
              25        Amoxicillin and clavulanate potassium                  No
              26        Cetirizine hydrochloride                               No
              27        Lisinopril                                             No
              28        Fluticasone propionate                                 No
              29        Fexofenadine hydrochloride                             No
              30        Raloxifene hydrochloride                               No
              31        Tolterodine tartrate                                   No
              32        Estrogens, conjugated                                  No
              33        Bupropion hydrochloride                                No
                                      a
              34        Ciprofloxacin                                          No
              35        Pantoprazole sodium                                    No
              36        Rabeprazole sodium                                     No
              37        Levofloxacin                                           No
              38        Diltiazem hydrochloride                                No
              39        Donepezil hydrochloride                                No
              40        Citalopram hydrobromide                                No
                                    b
              41        Etanercept                                             No
              42        Montelukast sodium                                     No




              Page 21                                               GAO-03-536 Technology Transfer
Appendix III: The Top 100 Pharmaceuticals
Dispensed by DOD on the Basis of Dollar
Value, July 1, 2001–June 30, 2002




                                                              Active government
Rank      Drug name                                           rights
43        Epoetin alfac                                       Yes
                                  d
44        Blood sugar diagnostic                              Unknown
45        Tamsulosin hydrochloride                            No
                   a
46        Fentanyl                                            No
47        Azithromycin dihydrate                              No
48        Risperidone                                         No
49        Loratadine and pseudoephedrine sulfate              No
50        Estrogens, conjugated and medroxyprogesterone       No
          acetate
51        Tramadol hydrochloride                              No
52        Sumatriptana                                        No
                                          d
53        Interferon beta-1a and albumin                      Unknown
54        Somatropin recombinant                              No
55        Losartan potassium                                  No
56        Sildenafil citrate                                  No
57        Oxybutynin chloride                                 No
58        Carvedilol                                          No
59        Fenofibratee                                        No
60        Amlodipine besylate and benazepril hydrochloride    No
61        Acetaminophen and hydrocodone bitartrate            No
62        Topiramate                                          No
                     f
63        Filgrastim                                          Yes
64        Metoprolol succinate                                No
65        Nifedipine                                          No
66        Tamoxifen citrate                                   No
67        Quetiapine fumarate                                 No
68        Valsartan                                           No
69        Budesonide                                          No
70        Salmeterol xinafoate                                No
                        g
71        Latanoprost                                         Yes
72        Bicalutamide                                        No
73        Clarithromycin                                      No
74        Mometasone furoate                                  No
75        Warfarin sodium                                     No
76        Calcitonin, salmon                                  No
77        Methylphenidate hydrochloride                       No
78        Finasteride                                         No
79        Divalproex sodium                                   No
80        Mesalamine                                          No
81        Albuterol sulfate and ipratropium bromide           No
82        Mirtazapine                                         No
83        Amphetamine aspartate and amphetamine sulfate and   No
          dextroamphetamine saccharate and
          dextroamphetamine sulfate




Page 22                                           GAO-03-536 Technology Transfer
Appendix III: The Top 100 Pharmaceuticals
Dispensed by DOD on the Basis of Dollar
Value, July 1, 2001–June 30, 2002




                                                                              Active government
    Rank       Drug name                                                      rights
    84         Ipratropium bromide                                            No
    85         Lorazepam                                                      No
    86         Potassium chloride                                             No
    87         Hydrochlorothiazide and losartan potassium                     No
                         a
    88         Estradiol                                                      No
    89         Triamcinolonea                                                 No
    90         Verapamil hydrochloride                                        No
    91         Isotretinoin                                                   No
    92         Enoxaparin sodium                                              No
    93         Buspirone hydrochloride                                        No
    94         Risedronate sodium                                             No
    95         Meloxicam                                                      No
    96         Albuterola                                                     No
    97         Ethinyl estradiol and norgestimate                             No
    98         Ranitidine hydrochloride                                       No
    99         Valacyclovir hydrochloride                                     No
    100        Amiodarone hydrochloride                                       No
Sources: DOD (data), GAO (analysis).

Note: The ranking of the drugs is based on the dollar sales volumes for prescriptions filled through
national mail order pharmacies and the retail pharmacy network. Dollar sales volumes are not
provided here because, at the time of the data request, complete information regarding DOD’s
pharmaceutical-dispensing activities was not available. The table provides each drug’s name on the
basis of the active ingredients as they are listed in FDA’s Electronic Orange Book.
a
Variations of the drug’s name appeared in the Orange Book, and we examined the patents
underlying each relevant product.
b
Relevant patent information was obtained from the Web site for the etanercept brand name product,
Enbrel, http://www.enbrel.com/hcp/about_enbrel/indications.jsp, accessed on August 1, 2002.
c
Patent and licensing information about epoetin alpha was obtained from NIH. Two brand name
epoetin alpha products, Epogen and Procrit, appear to use federally sponsored technology.
d
A patent search for this item was not completed because we did not find a related listing in the
Orange Book or locate the product’s patent information.
e
DOD listed “fenofibrate, micronized,” while the Orange Book listed only “fenofibrate.” However, the
Orange Book provided additional information specifying which fenofibrate products are micronized.
Accordingly, we limited our work to such items.
f
Patent and licensing information about filgrastim was obtained from NIH. A brand name filgrastim
product, Neupogen, appears to use federally sponsored technology.
g
    Xalatan, a brand name latanoprost product, appears to use federally sponsored technology.




Page 23                                                         GAO-03-536 Technology Transfer
                            Appendix IV: Comments from the National
Appendix IV: Comments from the National
                            Institutes of Health



Institutes of Health

Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.




                            Page 24                                   GAO-03-536 Technology Transfer
                              Appendix IV: Comments from the National
                              Institutes of Health




See comment 1.




Note: Page numbers in
the draft report may differ
from those in this report.
See comment 2.
See comment 3.

See comment 4.




                              Page 25                                   GAO-03-536 Technology Transfer
                            Appendix IV: Comments from
                            the National Institutes of
                            Health




                 The following are GAO’s comments on the National Institutes of Health’s
                 letter dated April 22, 2003.

                 1. We agree with NIH that federal agencies have unrestricted rights to
GAO’s Comments      use a federally funded invention for government purposes. It has,
                    indeed, a “nontransferable, irrevocable, paid-up license” to practice the
                    invention. Or it may authorize someone to practice the invention on its
                    behalf. However, these rights cannot be taken so as to undermine the
                    rights that the Bayh-Dole Act clearly intends to accord to inventors.
                    Specifically, the government’s license permits it to practice the
                    invention to meet its needs, i.e., to meet needs that are reasonably
                    associated with the requirements of federal programs, not to act
                    outside of those constraints that normally distinguish public- from
                    private-sector activities.

                 2. We deleted the footnote.

                 3. We deleted “generally” from the sentence.

                 4. We disagree. Related issues have been discussed in several court
                    decisions. See, for example, AMP, Inc. v. United States, 389 F.2d 448,
                    454 (Ct. Cl. 1968), cert. denied, 391 U.S. 964 (1968). Regarding NIH’s
                    concern that adherence to these cases might have a chilling effect on
                    the willingness of private entities to participate as funding recipients,
                    we point out that the parties can negotiate intellectual property rights
                    dealing with these issues on a case-by-case basis. Moreover, the
                    scope of any exception is limited as required to permit use of the
                    government’s license in the subservient patent.




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                 Page 26                                         GAO-03-536 Technology Transfer
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