Federal Research: Additional Actions Needed to Improve Licensing of Patented Laboratory Inventions

The federal government spends approximately $137 billion annually on research and development—mostly at DOD, DOE, NASA, and NIH—to further agencies' missions, including at federal labs. Multiple laws have directed agencies and labs to encourage commercial use of their inventions, in part by licensing patents, to private sector companies and others that aim to further develop and bring the inventions to market.

GAO was asked to review agency practices for managing inventions developed at federal labs, with a particular focus on patent licensing. This report examines (1) challenges in licensing patents and steps taken to address and report them and (2) information to guide establishing financial terms in patent licenses at DOD, DOE, NASA, and NIH. GAO reviewed relevant literature, laws, and agency documents, including patent licenses from 2014, to match the most recent NIST summary report when the licenses were requested, and GAO interviewed agency officials and knowledgeable stakeholders, including organizations that assist federal labs in licensing patents.

Federal agency and laboratory (lab) officials identified challenges in licensing patents across the federal government, and agencies have taken some steps to address and report them. Patent licensing is a technology transfer activity that allows, for example, federal inventions to be legally transferred to the private sector for commercial use. Specifically, officials at the Departments of Defense (DOD) and Energy (DOE), National Aeronautics and Space Administration (NASA), and National Institutes of Health (NIH), as well as external stakeholders, noted challenges in having researchers identify potentially patentable inventions. DOD, DOE, and NIH officials also cited having inadequate internal systems to keep track of inventions developed in the labs. In addition, several stakeholders stated that licensing patented inventions can be lengthy and bureaucratic, which may deter companies from licensing. The agencies reported taking steps to address these challenges, such as implementing model license agreements across labs to expedite the process.

The Department of Commerce has delegated to its National Institute of Standards and Technology (NIST) to annually report agencies' technology transfer activities, including patent licensing. Although NIST has reported some challenges, it has not fully reported the range of challenges identified by agency and lab officials and stakeholders. NIST officials stated that they were generally aware of the challenges but had not considered including them to a greater degree in their annual reports to Congress. By fully reporting the range of challenges in federal patent licensing, NIST has the opportunity to further ensure that Congress is more aware of challenges that limit agencies' efforts and ways for potentially addressing those challenges.

Federal agencies and labs have limited information to guide officials when establishing the financial terms of patent licenses. For example, while federal labs can use comparable licenses to help establish financial terms, their access to information on comparable licenses from other labs varies, and such information is not formally shared among the agencies. Based on its established interagency role, NIST is best positioned to assist agencies in sharing information on comparable licenses, in accordance with leading practices for interagency collaboration. By doing so, NIST would provide federal agencies and labs with useful information that can help them better establish financial terms and successfully license inventions.

GAO is making seven recommendations, including that Commerce instruct NIST to fully report the range of challenges in federal patent licensing in its annual reports to Congress and facilitate information sharing among agencies. Commerce, DOD, DOE, NASA, and NIH generally agreed with GAO's recommendations and are taking steps to implement them.

The federal government spends approximately $137 billion annually on  research and development (R&D) to help further agencies’ missions,  including at federal laboratories (lab). The intellectual property generated  by this research—including inventions—has application beyond federal  agencies’ immediate, mission-related goals if the private sector can bring  the inventions to market. For example, government research has led to  new products and processes for the commercial marketplace, including  antibiotics, plastics, airplanes, computers, microwaves, and  bioengineered drugs. However, a 2013 Office of Science and Technology  Policy report raised concerns that only a small portion of the inventions  arising from government research have been commercialized by the  private sector, and that the United States is potentially missing critical  opportunities to improve the nation’s standard of living, create new jobs,  maintain international competitiveness, and enhance the overall  economy, among other things.

Technology transfer is the process of transferring scientific findings from  one organization to another for the purpose of further development and  commercialization. A series of federal laws and executive orders  spanning nearly 40 years have directed federal agencies to enhance their  labs’ beneficial impact on society through technology transfer. For  example, the Stevenson-Wydler Technology Innovation Act of 1980  (Stevenson-Wydler Act) states that its purpose is to improve the  economic, environmental, and social well-being of the United States by,  among other things, stimulating improved utilization of federally funded  technology developments by nonfederal entities. Accordingly, the act  provides that the federal government, where appropriate, shall transfer  federally owned or originated technology to state and local governments  and to the private sector.

From fiscal years 2015 to 2017, four federal agencies consistently had  the highest annual federal R&D spending: the Department of Defense  (DOD), the Department of Energy (DOE), the National Aeronautics and  Space Administration (NASA), and the National Institutes of Health (NIH)  within the Department of Health and Human Services (HHS). Together,  these four agencies accounted for nearly 90 percent of total federal R&D  spending on average, as shown in figure 1.

One way federal agencies transfer technology is by licensing patents on  inventions generated by R&D at federal labs. This licensing aims to put  federal inventions in the hands of those equipped to further develop the  inventions into marketable products accessible to the public or to find  other practical applications for them. Examples of inventions developed  at DOD, DOE, NASA, and NIH labs can be found in appendix I.  Numerous statutory and regulatory requirements have been established  to help ensure that agencies commercialize inventions arising from R&D  at federal labs. The Department of Commerce (Commerce) is responsible  for government-wide functions related to patenting, including granting  patents through the United States Patent and Trademark Office (USPTO).  Commerce is also responsible for functions related to licensing of  federally owned inventions, including reporting federal agencies’  technology transfer activities to Congress and issuing regulations, both of  which it delegated to the National Institute of Standards and Technology  (NIST).

Over the years, we and others have reported on a range of challenges  that agencies face in commercializing inventions arising from R&D at  federal labs. You asked us to review agency practices for managing  intellectual property developed at federal labs, with a particular focus on  the licensing of patented inventions (patent licensing) to nonfederal  parties that might use the patented inventions to manufacture products.  This report examines, for DOD, DOE, NASA, and NIH and their labs, (1)  challenges that federal labs face in patent licensing, steps taken to  address those challenges, and the extent to which NIST has reported  them and (2) the extent to which federal agencies and labs have  information on processes, goals, and comparable licenses to guide  establishing patent license financial terms.

For both objectives, we reviewed statutes and regulations applicable to  patent licensing to describe the legal framework governing federal patent  licensing and license financial terms. To obtain views on patent licensing  practices across the federal government, we conducted 60  semistructured interviews, including 38 with agency and lab officials. We  interviewed officials from DOD, DOE, NASA, and NIH, as well as from  nine federal labs across these agencies. We interviewed officials at  multiple labs at each agency and selected them to obtain a variety of  perspectives on patent licensing, including variation in whether they were  contractor-operated (two labs) or government-operated labs (seven labs);  the volume and type of licensing activity; and other agency-specific  considerations, such as whether they use a service center model.

In addition, we conducted 22 interviews with external stakeholders— including academic researchers (4), partnership intermediaries (11) (i.e.,  organizations that assist federal labs and businesses in licensing federal  patents), industry representatives and companies (3), and professional  trade organizations and universities (4)—that were knowledgeable about  federal patent licensing practices. Partnership intermediaries were  selected based on lists of partnership intermediaries associated with the  selected labs and agencies that the agencies submitted and referrals  from other partnership intermediaries. To select other stakeholders, we  used snowball sampling based on referrals obtained from prior  engagements, our review of academic literature, and referrals from  stakeholder interviews during the engagement. We also interviewed  officials from NIST and USPTO. The information we obtained from these  interviews is not generalizable to all agency and lab officials and external  stakeholders, but we determined that our selection of interviewees was  appropriate to obtain varied perspectives on the patent licensing process  and related challenges and that the selection would generate valid and  reliable evidence to support our work.

To understand the level of patent licensing activity and the terms in patent  licenses at federal labs, we requested data from each agency on licenses  that were active as of the end of fiscal year 2014. To assess the  reliability of the data on active patent license agreements, we asked  agency and lab officials questions about the accuracy and completeness  of the data and asked them to confirm specific information. Based on  these steps, we found the data to be sufficiently reliable for understanding  the overall level of licensing activity in the labs, for identifying licenses  that became effective in fiscal year 2014, and as a source of information  for those licenses. We also requested from each agency and reviewed  the subset of licenses that became effective in fiscal year 2014.

To address the first objective, we first conducted a literature search. We  broadened our search beyond articles published in peer-reviewed  journals to identify studies, such as dissertations, conference  proceedings, and organizational studies issued by research institutes or  studies issued by government agencies. For example, we conducted  both subject and keyword searches related to patent licensing in various  databases. We performed these searches and identified 23 studies from  2000 to 2016—2016 was the year for which the most recent information  was available at the time of our review.

We reviewed relevant agency documentation and interviewed the agency  and lab officials and external stakeholders identified above to obtain their  perspectives on areas of the patent licensing process identified from our  review of relevant federal statutes and regulations. Using information  obtained from the interviews, we conducted a content analysis of  responses. Challenges in each area were identified from the content  analysis based on the frequency and consistency of responses from  agency and lab officials and stakeholders. We also examined other  relevant agency documentation, including NIST’s fiscal year summary  reports to Congress from fiscal years 2013 through 2015—the most  recent reports available—to determine the extent to which challenges in  federal patent licensing had been reported.

To address the second objective, we reviewed relevant economic  literature on establishing the financial terms of patent licenses and other  related licensing terms. From the literature, we identified economic  principles that apply to structuring financial terms to promote the  commercial use of inventions. We reviewed all relevant documentation  describing licensing practices at the agency and lab levels that DOD,  DOE, NASA, and NIH provided. This included documentation describing,  among other things, processes and goals for establishing license terms,  including financial terms. We reviewed each document to identify (1)  factors considered in establishing financial terms; (2) data sources used  in the process; (3) methods, such as calculations or guidelines, for setting  financial terms; (4) guidance on when or how to use various types of financial terms; and (5) goals applicable to financial terms. We also  reviewed narratives and written responses describing lab practices for  establishing financial terms in patent licenses that the agencies and labs  provided in response to our requests. To identify patents at the labs under  the four agencies we reviewed and the extent to which they patent in  similar technology fields, we searched the assignee field in USPTO’s  PatentsView database for patents issued since 2000 using search terms  associated with the four agencies and their contractor labs, if applicable.  The list of assignees for the patents from the initial search was reviewed  to eliminate patents that may not have been assigned to the four  agencies. In total, the search yielded 20,612 patents assigned to the four  agencies. To examine similarities across technology areas, we used  PatentsView data on technology sectors and fields classified according to  the World Intellectual Property Organization (WIPO) international  classification system for patents.

We conducted this performance audit from June 2016 to June 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

This section outlines the legal framework under which agencies and  federal labs license patents and general stages of the patent licensing  process.

Prior to 1980, federal agencies generally retained title to any inventions  developed through federally funded research—whether extramural, that  is, conducted by universities and contractors, or intramural, conducted by  federal agencies in their own facilities. By the late 1970s, there was  increasing debate in Congress over ways to allow the private and public  sectors better access to federally owned inventions by, among other  things, creating a uniform policy for those seeking to license inventions  developed in federal labs. In the 1980s, Congress began passing a series  of key laws that have provided the foundation for federal technology  transfer activities, including patenting and licensing inventions that are  developed in federal labs and funded by federal dollars. One of the first  technology transfer laws, the Stevenson-Wydler Act, established  technology transfer as a federal policy and required federal labs to set up  Offices of Research and Technology Applications (which, for our  purposes, we refer to as technology transfer offices) and devote budget  and personnel resources to promoting the transfer of federal technologies  to the private sector. In 1980, another key law, the Bayh-Dole Act  allowed not-for-profit corporations, including universities, and small  businesses to retain title to their federally funded inventions. In 1984,  through amendments made to the Bayh-Dole Act, Commerce became  responsible for issuing regulations to implement the act.

The Stevenson-Wydler Act was amended by the Federal Technology  Transfer Act of 1986, which (1) established the Federal Laboratory  Consortium (FLC); (2) required that technology transfer efforts be  considered positively in employee performance evaluations; and (3)  empowered federal agencies to permit the directors of government- owned, government-operated labs to enter into cooperative research and  development agreements (CRADA) and to negotiate license agreements  for inventions created in the labs. The FLC began largely as a forum for  the education, training, and networking of federal technology transfer  officials to promote the integration of technical knowledge that federal  departments and agencies developed into the U.S. economy. Over time,  the FLC’s role would include serving as a clearinghouse—a central point  for collecting and disseminating information—for federal technologies and  assisting outside entities in identifying available federal technology. Within  Commerce, NIST is the designated host and financial administrator of the  FLC.

Additional laws were adopted to help further the development of federally  owned inventions for commercial use. Among them was the National  Competitiveness Technology Transfer Act of 1989, which directed federal  agencies to propose, for inclusion in contracts, provisions to establish  technology transfer as a mission of government-owned, contractor- operated labs and permitted those labs, under certain circumstances, to  enter into CRADAs. In addition, the Technology Transfer  Commercialization Act of 2000 required Commerce to provide Congress  with summary reports on agencies’ patent licensing and other technology  transfer activities. Since 2007, Commerce has delegated to NIST the  role of providing to Congress an annual report summarizing technology  transfer at federal agencies. NIST’s role as the lead in an interagency  collaborative effort in federal technology transfer grew further when  Commerce delegated to the agency the additional responsibility of  coordinating the Interagency Working Group for Technology Transfer.  Commerce also has delegated to NIST its authority to promulgate  implementing regulations pertaining to patenting and licensing at federal  labs. In 2011, Congress passed the Leahy-Smith America Invents Act  (AIA) that further affected technology transfer activities by federal labs  through comprehensive changes made to the U.S. patent system.

Federal labs are typically managed under either a government-operated  or a contractor-operated model. Commerce regulations prescribe the  terms, conditions, and procedures that government-operated labs are to  use to license their inventions for commercial use or other practical  applications. Government-operated labs are usually owned or leased by  the federal government and are predominantly staffed by federal  employees. Contractor-operated labs, on the other hand, operate facilities  and equipment that are owned by the federal government, but the staff is  employed by a private or nonprofit contractor that operates the lab under  a contract with the federal government. Contractor-operated labs  typically license their technologies under the authority of the Bayh-Dole  Act, applicable regulations, and their contracts, which generally give  contractor-operated labs more flexibility in licensing their technologies.  Contractors that manage and operate labs include universities, private  companies, nonprofit organizations, or consortia thereof. As discussed  below, whether a lab is government-operated or contractor-operated will  affect how that lab licenses inventions because each type operates under  a different set of licensing regulations and requirements.

The pathway of an invention from lab development to commercial product  can end at any point, and products may not always reach, or find success  in, the marketplace. Figure 2 shows the seven general areas of the patent  licensing process at federal labs.

The patent licensing process begins with researchers identifying  inventions—a process that primarily relies on researchers disclosing their  inventions to lab officials, mostly through the lab director or directly to an  agency’s technology transfer office. Various laws and regulations  establish a uniform policy for determining who holds the rights to  government employees’ inventions. Some government-operated labs  allow or encourage researchers to publish their research, including  research describing inventions, for public dissemination, such as in  research journals. Contractor-operated labs are required to disclose  inventions to the agency within 2 months after notifying contractor  personnel responsible for patent licensing activities. Labs must then  decide within 2 years after the disclosure whether to retain title to the  invention. The contract then must file its initial patent application on the  invention to which it elects to retain title within one year after election of  title. If the contractor-operated lab does not disclose the invention or elect  to retain title within the times specified in the law and regulations, it will  convey title to the invention to the funding agency upon written request.

Once an invention has been identified and disclosed, federal agencies  and labs keep track of the invention. How they do so varies in degree of  automation and centralization. For example, systems that keep track of  lab inventions can range from spreadsheets to automated software that  tracks all patent licensing and other technology transfer activities. Also,  such systems can be centralized, with oversight at the agency level, or  decentralized, with independent oversight at the lab level—which is  generally the case at contractor-operated labs. Some contractor-operated  labs manage their federally funded inventions through the Interagency  Edison (iEdison) reporting system, which is owned and managed by  NIH.

Before applying for patent protection through USPTO, agency and lab  officials review the invention—often using evaluation committees and  patent attorneys—to consider a number of factors, including whether it is  patentable, it furthers the lab’s mission, and patenting the invention is  likely to bring it to commercial use or practical application. The agency  must file a patent application within 1 year of the first publication, public  use, sale, or offer for sale of the invention or lose U.S. patent rights to that  invention. Not all patents will be licensed out to companies for a variety  of reasons, including national security considerations. The average time  from filing to issuing a patent, or when an application is abandoned, is  about 2 years, according to USPTO. Patent applications are often  rejected, modified, and refiled, and various fees are associated with filing  and prosecuting a patent application. However, according to USPTO,  patent maintenance fees that allow federal labs to maintain their patents  in force are among the most significant fees.

Agencies and labs use a variety of methods to attract potential licensees,  including those from industry, universities, and nonprofits. For example,  agencies may post their inventory of patented inventions online, publish  them in academic journals, or highlight them at public events. Agencies  and labs actively engage with the private sector by, for example,  attending conferences where companies can network with federal  researchers and federal technology transfer officials. In addition,  technology transfer offices often work with partnership intermediaries— such as local or state entities and nonprofit organizations—to support  their efforts, including reaching out to potential licensees. Labs have  other mechanisms to help attract potential licensees to further develop  their inventions. For example, CRADAs can help facilitate licensing or the  transfer of knowledge from a lab to a licensee, and new inventions that  arise under a CRADA are typically made available to the partner via an  option to license.

The technology transfer offices and legal counsel are generally  responsible for crafting and negotiating the terms of the patent license,  sometimes with input from other lab officials. Negotiations are often an  iterative process in which both the lab and the licensee request  adjustments to the terms of the license. Laws and regulations specify  some terms that government-operated labs must include in their licenses.  Among others, a typical license includes terms related to (1) financial  compensation (if applicable), (2) the degree of exclusivity of the license,  (3) the U.S. manufacturing requirement, (4) retained rights for the  government, (5) termination of the license, and (6) enforcement of  licenses.

Financial terms may include up-front fees; minimum payments; royalties,  usually based on sales; and milestone payments, among others. Federal  labs typically establish financial terms on a case-by-case basis that are  tailored to the specifics of the technology, licensee, and market  conditions. License agreements may be nonexclusive, partially  exclusive, or fully exclusive, and may be limited to some fields of the  invention’s use or to specific geographic areas.

Government-operated labs must publicly announce their intent to grant an  exclusive license for at least 15 days. After this period, comments and  objections are considered. Negotiations then begin with the proposed  licensee or, if the licensee has changed, another public announcement of  the new licensee may be required. Government-operated labs are  required to obtain a commercialization plan from a potential licensee  regardless of the degree of exclusivity. Contractor-operated labs, which  typically retain title to their inventions under the authority of the Bayh-Dole  Act, are not subject to the requirement to obtain a commercialization plan  from a prospective licensee before granting a license; however, they are  subject to requirements specified in their contracts regarding patent  licensing. In addition, they are not subject to the same notification  requirements as government-operated labs.

The law also contains some other provisions pertaining to patent licenses  originating from federal labs. For example, the law generally gives  preference to small businesses that are capable of bringing the invention  to practical application. There is a general preference for products that  incorporate federal inventions to be manufactured substantially in the  United States; however, on a case-by-case basis, agencies may waive  this requirement. Applicable law also reserves certain rights for the  government to protect the public’s interests in federally funded inventions.  For example, the government retains a royalty-free license to use  inventions that are contractor owned or that are licensed exclusively. In  addition, the Bayh-Dole Act provides the government march-in authority  when certain statutory conditions have been met. Under this authority, an  agency may grant a license to an invention developed with federal  funding even if the invention is exclusively licensed to another party if, for  example, it determines that such action is needed to alleviate public  health or safety needs which are not reasonably satisfied by the  contractor, assignee, or their licensee. A federal lab can also terminate  a license when the licensee is not meeting its commitment to achieve  practical application of the invention. The lab can also, through the  license, grant permission to a licensee to pursue patent infringement  cases.

Federal license agreements generally require licensees to report  periodically on their commercialization. For instance, labs generally put  specific monitoring requirements in the license agreements, including  milestones and reporting requirements. Through the agreements,  government-operated labs have the right to terminate or modify licenses if  certain requirements are not met. Government-operated labs must  submit written notices to the licensees and any sublicensees of their  intentions to modify or terminate licenses, and allow 30 days for the  licensees or sublicensees to remedy any breach of the licenses or show  cause why the licenses should not be modified or terminated.  Contractor-operated labs also monitor licensee performance in much the  same way; however, they are subject to a different set of regulations.

Federal labs are responsible for measuring the outcomes of their  activities in all areas of the patent licensing process by developing metrics  and evaluation methods. Measuring licensing outcomes help labs assess  the effectiveness of their patent licensing efforts. Soon after the passage  of AIA, President Obama issued a memorandum in October 2011 to the  heads of executive departments and agencies calling for, among other  things, (1) developing strategies to increase the usefulness and  accessibility of information about federal technology transfer  opportunities; (2) listing all publicly available, federally owned inventions  on a public government database; and (3) improving and expanding its  collecting of metrics for Commerce’s annual technology transfer summary  report.

Federal law states that it is Congress’s policy and objective to use the  patent system to promote the commercialization and public availability of  inventions, and that technology transfer, including federal patent  licensing, is the responsibility of each laboratory science and engineering  professional. No single federal agency is responsible for managing  technology transfer activities government-wide. Rather, each federal  agency involved in technology transfer designs its own program to meet  technology transfer objectives, consistent with its other mission  responsibilities.

Federal Labs and Stakeholders Identified Challenges in Patent Licensing, and Agencies Have Taken Some Steps to Address Them, but NIST Has Not Fully Reported Such Challenges

Federal agency and lab officials and external stakeholders have identified  challenges across the federal patent licensing process, but NIST has not  fully reported such challenges. Specifically, DOD, DOE, NASA, and NIH  officials at the agency and lab levels, as well as external stakeholders,  cited challenges related to all seven areas of the patent licensing process.  In addition, officials and stakeholders cited challenges in one area that  cuts across the entire process: prioritizing patent licensing as part of  agencies’ missions. In its annual reports to Congress on federal labs’  performance in patent licensing activities, NIST has discussed some  challenges identified by agency and lab officials and external  stakeholders but has not fully reported on the range of challenges they  have experienced.

Federal Labs and Stakeholders Identified Challenges across the Patent Licensing Process, and Agencies Have Taken Some Steps to Address These Challenges.

DOD, DOE, NASA, and NIH officials at the agency and lab levels, as well  as external stakeholders, identified challenges in all seven areas of the  patent licensing process, including identifying inventions, keeping track of  inventions, and negotiating license agreements. They also cited  challenges in prioritizing patent licensing as part of agencies’ missions.  Based on our analysis of relevant literature and on interviews with  external stakeholders, many of these challenges are occurring  government-wide. DOD, DOE, NASA, and NIH have taken some steps to  address the challenges in each area of the patent licensing process.

Challenges in Implementing the Patent Licensing Process

DOD, DOE, NASA, and NIH officials at the agency and lab levels, as well  as external stakeholders, identified challenges in all seven areas of the  patent licensing process, including not identifying inventions, keeping  track of inventions in inadequate systems, and difficulty negotiating  license agreements. For example, several DOD, DOE, NASA, and NIH  officials stated that some researchers do not have adequate training in  identifying potentially patentable inventions. When a federal researcher  does not disclose to lab officials an invention developed in a federal lab,  the opportunity to assess the invention’s potential for commercial use  may be lost. Federal officials cited various reasons why researchers do  not disclose inventions. Navy officials, for example, stated that  researchers are often intimidated by the overall invention disclosure  process and tend to focus on their research rather than consider what  could be patentable. Officials at one NASA lab noted that they have come  across a few contractor employees who do not see the benefit of filing  invention disclosures, and sometimes researchers are too busy to engage  in the patenting process.

Our analysis of relevant literature and interviews with stakeholders also  showed that researchers not identifying and disclosing inventions is a  government-wide challenge. For example, one stakeholder stated that  researchers at federal labs generally have limited understanding of the  patenting process, including an understanding of what constitutes  patentable subject matter and how to conduct a prior art search on the  technology to determine whether it is patentable.

DOD, DOE, NASA, and NIH officials stated that they are taking a variety  of actions to help address this challenge. For example, some agency and  lab officials stated that labs conduct training to educate researchers about  the patenting process, inform researchers about requirements to disclose  inventions, and incentivize them by acknowledging their efforts through  awards and monetary incentives—such as potential royalty distributions— when their inventions reach commercial success.

In addition, DOD, DOE, and NIH officials described their agencies’  systems for keeping track of inventions developed in the labs as  inadequate or in need of improvement. How agencies and labs keep track  of such inventions can range from spreadsheets to sophisticated  databases that manage all technology transfer activities, including  keeping track of patented inventions and licenses. Currently, DOD has a  decentralized approach to keeping track of inventions, which, according  to DOD officials, needs improvement given how large the agency is.

Several stakeholders we interviewed also noted that the challenge of  keeping track of inventions exists government-wide. According to some  stakeholders, federal labs not only have inadequate systems to keep  track of their own inventions but also limited information on the kinds of  inventions being developed in federal labs across the government. The  result is that agencies risk being unaware of research across the labs,  which can limit their ability to leverage other federal research efforts. For  example, one stakeholder stated that there can be research conducted  independently at three or four labs under different agencies but little  interaction among those labs about the research.

DOD, DOE, and NIH officials stated that they have made efforts to  improve their current systems for keeping track of inventions. Specifically,  DOE officials reported that they have developed a plan to leverage the  capabilities of the iEdison reporting system to unify the agency’s data  management process. Air Force and NIH officials stated that they have  contacted NASA, which has a centralized system for tracking inventions,  about leveraging its expertise. NASA officials reported that they have  been hosting regular webinars with other agencies to determine whether  NASA’s tracking system could help meet other agencies’ needs.

Furthermore, agency and lab officials and stakeholders noted that federal  labs face challenges in negotiating license agreements because the  licensing process is lengthy and uniquely regulated, which can deter  companies from licensing federal inventions. Stakeholders stated that the  federal licensing process can take anywhere from about 3 months to  more than 2 years. Some stakeholders stated that from their point of view  taking a year to negotiate a license agreement is too long. One  stakeholder said that such lengthy processes are particularly difficult for  start-ups, which often need to finalize license agreements in 3 months.

DOD, DOE, NASA, and NIH officials said they are taking steps to address  companies’ concerns about the time it takes to negotiate a license  agreement. For instance, NASA, NIH, and Navy officials told us that they  have developed model license agreements to help guide companies  through the process, and NASA and NIH have special license  agreements for start-ups to shorten the licensing process.

For more detail on challenges in the seven areas of the patent licensing  process that agency and lab officials and external stakeholders identified,  see appendix II.

Challenges in Prioritizing Patent Licensing

DOD, DOE, NASA, and NIH face challenges in prioritizing patent  licensing as part of their agency missions. For example, DOD and DOE  officials stated that an agency’s mission affects patent licensing activities.  DOD officials stated that the agency’s primary mission is protecting the  warfighter and that patent licensing is a secondary benefit to the agency.  According to DOE officials, the nuclear security labs do not focus on  patenting but instead on developing technologies associated with a  weapons program.

In addition, several stakeholders we interviewed stated that some  agencies and labs do not have a culture that prioritizes patent licensing.  In particular, one stakeholder stated that at some federal labs, patent  licensing is not reflected in performance evaluation management plans,  which can help incentivize lab personnel to engage in patent licensing  activities. A few stakeholders stated that at some labs where  management does not prioritize patent licensing activities, researchers’  careers can be negatively affected if they engage in patent licensing  activities.

Some agency and lab officials stated that they have taken steps to  overcome such challenges. For example, officials at one Navy lab stated  that the lab has management support and nine patent attorneys to assist  in the reviews of researchers’ invention disclosures. Also, officials at one  NIH lab stated that the lab has strong management support and a good  royalty stream from successful inventions that pay for patenting and other  reinvestments, which allows the lab to not draw from its appropriations.

NIST Has Reported Some Challenges Faced by Federal Labs in Areas of Patent Licensing but Has Not Fully Reported on the Range of Such Challenges

In its three most recent fiscal year summary reports to Congress, NIST  identified some challenges faced by federal labs in areas of patent  licensing and has assisted agencies in addressing challenges in their  patent licensing activities. However, NIST does not fully report on the  range of challenges that agency and lab officials and stakeholders  identify.

NIST collaborates with agencies to gather patent licensing data for its  summary reports to Congress. For example, according to agency officials,  NIST engages with agencies to inform them about new requirements in  technology transfer and helps them identify their successes in conducting  technology transfer activities. NIST also provides administrative support  to the FLC, which offers training to federal technology transfer specialists  through workshops; publishes a desk reference on federal patent  licensing, laws, and regulations; and has commissioned studies on efforts  to develop federal inventions for commercial use. Further, NIST  developed a survey in 2016 on agency technology transfer processes.  NIST officials stated that the survey is aimed in part at improving federal  labs’ decisions on whether to spend money on applying for patents,  whether patents will facilitate the commercialization of technology, and  what data are needed to make those determinations. NIST officials stated  that the agency continues to analyze the survey data and currently plans  to report its findings in fiscal year 2018.

While NIST has identified in its annual summary reports to Congress  some challenges that federal labs face in patent licensing and other  technology transfer activities, it has not fully reported the range of  challenges that agencies and labs face in patent licensing. For example,  in its fiscal year 2015 summary report—its most recent report—on federal  technology transfer, NIST reported that the federal intramural research  budget has been relatively consistent over the years but not that DOD,  DOE, NASA, and NIH face challenges in prioritizing patent licensing as  an agency mission. The report also mentions that there is no uniform  federal system for tracking research that employees in federal labs  published but not that DOE, for example, has faced challenges in keeping  track of inventions developed in its labs. In addition, we found that  although the report mentions that the Department of Veterans Affairs is  facing challenges with its labs disclosing inventions, it does not mention  similar challenges at DOD. NIST officials stated that they were generally  aware of the challenges identified by agency and lab officials and external  stakeholders but had not considered including such challenges to a  greater degree in the summary reports to Congress.

We have previously reported on Congress’s goal to make the federal  government more results oriented through reporting of agency  performance information to aid decision making by agency executives,  Congress, and program partners. Specifically, we have reported how  the effective implementation of good governance can help address  government challenges in five key areas involving agency performance  and management: (1) instituting a more coordinated and crosscutting  approach to achieving meaningful results, (2) focusing on addressing  weaknesses in major management functions, (3) ensuring that agency  performance information is useful and used in decision making, (4)  sustaining leadership commitment and accountability for achieving  results, and (5) engaging Congress in identifying management and  performance issues to address. By fully reporting the range of  challenges in federal patent licensing—such as those outlined in this  report—and including that information in its annual summary reports to  Congress, NIST has the opportunity to further ensure that Congress is  more aware of challenges that limit agencies’ efforts in patent licensing  and ways for potentially addressing those challenges. To identify these  challenges, NIST could, for example, leverage its survey, past FLC  studies, and agency reports.

Federal Agencies and Labs Have Limited Information on Processes, Goals, and Comparable Licenses to Guide Establishing Financial Terms in Patent Licenses

Federal agencies and labs have limited information on processes, goals,  and comparable licenses to guide establishing the financial terms in  patent licenses. DOD, DOE, NASA, and NIH labs generally do not  document their processes for establishing the financial terms of patent  licenses and instead rely on the expertise of technology transfer staff.  Furthermore, existing agency and lab guidance does not consistently link  the practice of establishing license financial terms to the statutory goal of  promoting commercial use of inventions. In addition, although many  federal labs rely on comparable licenses to aid them in setting the terms  of new licenses, labs have varying levels of access to information about  such licenses.

Federal Agencies and Labs Have Limited Documentation of Their Processes for Establishing the Financial Terms of Patent Licenses

DOD, DOE, NASA, and NIH labs have limited documentation of their  processes for establishing the financial terms of patent licenses. Such  documentation is limited at both the agency level and the lab level.

At the agency level, the four agencies we reviewed had some  documentation on patent licensing in general, such as policies,  procedures, guides, and handbooks, but had limited information on how  to establish financial terms. For example, the Air Force and the Navy  had handbooks on technology transfer that include brief passages on  financial terms. However, agency officials noted that these handbooks  were either outdated or under revision. At DOE, labs collaborated to  develop two agency-level documents on patent licensing: one for lab  officials on using equity in licenses and a licensing guide for licensees.  These documents describe the general structure of various types of  financial terms and, in the document on using equity, factors to consider  regarding its use in a license, but do not discuss methods for establishing  financial terms. NASA and NIH have policies and procedures for patent  licensing that mention the types of financial terms that are normally found  in licenses but do not cover other aspects, such as methods for  establishing financial terms. All four agencies reported that they gave  their labs discretion to develop their own processes for establishing  financial terms.

At the lab level, DOD, DOE, NASA, and NIH generally had not  documented their processes for establishing financial terms in patent  licenses. Based on documentation provided by NASA, NIH, and DOD,  few labs at these agencies had issued additional documentation on the  patent licensing process. DOE labs had documented the patent  licensing process in general, and 6 out of 17 DOE labs provided  documentation that covered aspects of establishing financial terms. For  example, one DOE lab document contained a set of licensing principles  that help clarify what financial terms a license usually contains, their  purpose, and how to structure the financial terms in patent licenses. In  addition, agency and lab officials at NASA and DOE reported using tools,  such as financial term calculators, at some of their labs, which aid  technology transfer staff in valuing technologies.

Agency and lab officials reported that they generally rely on the expertise  of technology transfer staff to establish and vet appropriate financial  terms. Accordingly, agencies and labs reported that they have taken  some steps to develop, share, and retain expertise among staff in their  technology transfer offices. The agencies we reviewed reported that  some technology transfer staff participate in training opportunities  provided by professional organizations like the Association of University  Technology Managers (AUTM) or the Licensing Executives Society  (LES), as well as the FLC and the agencies. In addition, some agencies  and labs reported that internal working groups and regular meetings are  opportunities to share licensing expertise. At DOD, officials stated that on  a case-by-case basis, labs may use the expertise of their partnership  intermediary to help establish financial terms.

However, according to agency and lab officials and stakeholders, federal  labs face challenges in acquiring, developing, and retaining expertise in  patent licensing for their technology transfer offices. Specifically, some  agency officials, lab officials, and stakeholders cited issues such as losing  experienced technology transfer staff to retirement or to the private  sector, having difficulties in hiring staff with expertise in part because of  limited funding, and facing a limited pool of prospective employees to hire  with the expertise to value and license inventions. A few stakeholders  said that government training in the business aspects of patent licensing  is inadequate and not widespread. In addition, some stakeholders had  concerns about consistency in licensing practices both within the labs and  across labs. For example, some of these stakeholders said that the  outcome of license negotiations can depend on the specific licensing  professional handling the license. Varying levels of expertise may lead to inconsistency in licensing practices, including establishing financial terms,  as can undocumented processes.

Under the federal standards for internal control, management should  design control activities by, for example, clearly documenting them in  management directives, administrative policies, or operating manuals, to  achieve objectives and respond to risks. Furthermore, documentation  can act as a means to retain organizational knowledge and provide some  assurance that an approach is operational across the lab or agency.

Agency and lab officials stated that they had not documented their  processes for establishing financial terms for various reasons. For  example, lab officials stated that establishing financial terms is often  complex and varies based on the specific circumstances applicable to  each potential license, which may limit what can be documented. Some  agency and lab officials stated that labs need flexibility in negotiating  terms to make adjustments based on the circumstances and therefore  officials do not want to be prescriptive. A few agency and lab officials also  noted that there are benefits to having streamlined processes.  Furthermore, a few agency and lab officials described negotiating license  terms as a craft or art that requires expertise and said that documenting  this will not enhance licensing by itself.

However, some agency and lab officials and stakeholders said that it is  possible to document some aspects of the process. A few stakeholders  we interviewed noted that even if each agreement is unique, it is still  possible to develop guidelines or outline a methodology for establishing  financial terms. A few agency and lab officials stated that they are  investigating opportunities to standardize their processes or would be  open to documenting them. For example, one agency official told us that  the agency plans to update existing documents with specific information  about royalty ranges so labs do not have to constantly “reinvent the  wheel.” Some labs also described steps that they take to establish  financial terms, such as methods for valuing inventions, without being  prescriptive. By documenting processes for establishing the financial  terms of licenses while maintaining enough flexibility to tailor the specific  terms of each license, the four agencies could have more reasonable  assurance of consistency across their labs regardless of the expertise of  staff.

Federal Agency and Lab Documentation Does Not Consistently Link Financial Terms to the Goal of Promoting Commercial Use

Agency and lab documentation does not consistently link establishing  financial terms in patent licenses to the goal of promoting commercial use  of inventions. As noted above, federal law states that it is Congress’s  policy and objective to use the patent system to promote the  commercialization and public availability of inventions, and that  technology transfer, including federal patent licensing, is the responsibility  of each laboratory science and engineering professional.

Agency-level documentation at NASA contains a provision that clearly  links establishing financial terms to the goal of promoting commercial use  of inventions—that is, “terms should be negotiated that provide the  licensee incentive to commercialize the invention.” NIH’s documentation  mentions financial terms in the context of protecting the public from  nonuse, which is one aspect of promoting commercial use, and also  mentions the goal of obtaining a fair financial return on investment from  the licensed invention. DOD and DOE agency-level documents mention  the general goal of promoting the commercial use of inventions without  specifically linking it to the financial terms. At the lab level, DOD  documents generally do not address the goals for financial terms. Of 17  DOE labs, 4 had a statement in their documentation to link financial terms  to the goal of promoting commercial use of inventions.

DOD, DOE, NASA, and NIH officials we interviewed stated that getting  the technology into the marketplace is their primary goal in licensing but  also mentioned other goals related to financial terms that support their  mission. In addition, some agency and lab officials described using  revenues from licenses as a means to provide a reward to inventors for  their work or to obtain a fair return on investment for research conducted  by federal agencies. Furthermore, lab officials we interviewed mentioned  the flexibility of revenues from licenses as helpful in funding activities,  such as additional research, training, and patent prosecution.

Some agency officials and stakeholders we interviewed expressed  concerns about competing goals for establishing financial terms. For  example, a few stakeholders stated that licensing professionals may be  motivated to negotiate for increased license revenue because it reflects  positively on them professionally. Further, some stakeholders expressed  concerns about labs taking a short-term view of some licensees,  particularly small companies, because they have less ability to pay initially  and thus may offer less certain revenues.

Our review of relevant economic literature and interviews with  stakeholders suggest that license financial terms set with goals other than  promoting commercial use in mind, such as short-term revenue  maximization, may undermine that longer-term goal. For example, high  up-front license fees typically provide more guaranteed short-term  revenue to the licensor than other forms of payment but can also reduce  the capital available to develop a product successfully. Labs with other  goals in mind when establishing financial terms may be at risk of  establishing them in ways that run counter to the goal of promoting  commercial use.

NIST plays an important role in providing regulations and guidance to  agencies regarding patent licensing. Commerce has delegated to NIST  the authority to promulgate implementing regulations pertaining to  patenting and licensing at federal labs—that is, regulations that indicate  how agencies are to implement statutory provisions, including the goal of,  among other things, promoting commercial use of inventions. NIST has  developed regulations, but they do not link the financial terms of federal  patent licenses and the statutory goal of promoting commercial use of  inventions.

As the host of the FLC and a coordinator for the Interagency Working  Group for Technology Transfer, NIST also plays a role in supporting the  development of interagency guidance on patent licensing that covers,  among other topics, establishing financial terms in licenses. However,  existing interagency guidance provides limited information regarding the  goals for financial terms. For example, the FLC desk reference contains a  statement that links royalty rates to the goal of promoting commercial use  but does not clarify how the goal applies to other financial terms.  Furthermore, the FLC desk reference states that labs are entitled to  market-based compensation for their intellectual property. However,  licenses are structured differently to accomplish different goals and a  primary focus on obtaining market-based compensation may undermine  the goal of promoting commercial use.

As the lead agency on the government-wide effort to find commercial  uses or practical applications for federally funded inventions, NIST has  been delegated the responsibility to promulgate regulations pertaining to  patenting and licensing at federal labs, including implementing the  statutory goal of promoting commercial use. NIST officials stated that a  change to the regulations could be made as part of an upcoming rule- making process. However, in doing so, a stakeholder and agency officials  noted that any changes to the regulations should avoid prescriptive  language that mandates specific practices. NIST officials also stated that  they could update relevant guidance on this issue through one of their  current efforts. By clarifying the link between establishing federal patent  license financial terms and the goal of encouraging commercial use,  through the upcoming rule-making process and updating relevant  guidance, NIST would have better assurance that financial terms in  patent licenses are targeted to that goal.

Federal Agencies and Labs Have Varying Amounts of Information on Comparable Licenses, but Such Information Is Not Shared across Agencies

According to agency and lab officials, comparable license information can  be used as a point of reference to guide establishing financial and other  terms in new patent licenses. Just as real estate agents look at sales of  comparable houses when setting the selling price of a house, patent  licensing professionals can look at licenses for comparable inventions  when determining what financial terms to include in a new license.

However, federal labs have varying amounts of information on  comparable licenses when establishing financial terms. NASA and NIH  each have an agency-wide system that enables each lab to access  information from other labs at the agency, including the financial terms in  previous licenses. NIH agency officials reported that technology transfer  offices have access to thousands of previous licenses and refer to such  information frequently to help establish the financial terms of new  licenses. Labs at DOE and DOD are generally responsible for tracking  their own licenses and do not have access to information on comparable  licenses from other labs in their agencies. According to DOE officials,  under DOE contracts and relevant law, license information at the  agency’s contractor-operated labs is considered business sensitive and a  contractor-owned record that resides at the labs, which limits DOE’s  ability to share it. Officials at DOE and DOD’s military departments  reported that they have investigated and continue to investigate systems  that would provide greater access to information on financial terms but  have encountered some obstacles, such as network security  requirements, that they have not yet overcome.

To bolster their access to comparable license information, some federal  labs obtain private sector license information. For example, some lab  officials we interviewed said that they have occasionally purchased  benchmarking guides and access to other private sector license  information through organizations such as AUTM and LES. According to  some lab officials and stakeholders, private sector license information is  useful for understanding acceptable royalty rates in industry and may  cover certain technology areas or inventions that are new to the lab.  However, access to private sector license information is typically ad hoc  and can be limited by its cost, according to agency and lab officials. Some  agency and lab officials stated that they would like increased access to  private sector information on comparable licenses. For example,  according to agency officials at DOE, there is an effort under way to  obtain benchmark financial terms from labs and universities with  comparable R&D portfolios.

Although lab officials and stakeholders said that private licensing  information can be helpful for understanding financial terms acceptable to  the market, using private license information may not always be  appropriate for government licenses. Private licenses are often structured  to maximize revenue for the licensor—not necessarily to promote  commercial use or practical application, according to stakeholders. Our  review of economic literature and interviews with stakeholders and  agency officials suggest that licenses are structured differently to  accomplish different goals. For example, a few stakeholders and agency  officials noted that federal licenses would typically be less exclusive and  have different financial terms than those in the private sector, where there  is a greater emphasis on generating revenue from R&D investments.  Some stakeholders and agency officials also stated that in general the  value of a government license may be different from that of a private  license for a similar technology because of the rights the government  retains on its licenses. In addition, according to agency and lab officials  and stakeholders, government inventions tend to be in an earlier stage of  development than those in the private sector, potentially making it more  difficult to find licenses for comparable inventions in the private sector.

Some agency and lab officials and a few stakeholders stated that it would  be valuable for federal labs to have greater access to information on  financial terms in government licenses to help establish a benchmark for  financial terms. Our analysis of approximately 21,000 patents assigned to  DOD, DOE, NASA, and NIH and issued since 2000 shows that different  agencies may patent inventions in similar technology fields. All four  agencies we reviewed had patented inventions in 26 of 35 technology  fields covered by the patents, and all had 10 or more patents in 9 of the  35 technology fields. DOD and DOE, including DOE contractor-operated  labs, had more patents in a wider range of fields than the other agencies.  On the other hand, HHS’s patents are more focused on fields such as  biotechnology and medical technology. However, even in the area of  biotechnology, there were hundreds of patents issued to the other three  agencies. Although other information would be needed to determine  whether the agencies’ inventions are truly comparable, their having  patents in the same technology fields suggests that some government- wide information on financial terms could be useful to federal labs.

Under internal control standards for the federal government, management  should externally communicate the necessary quality information to  achieve the entity’s objectives; this includes communicating with and  obtaining quality information from external parties using established  reporting lines. The four agencies we reviewed communicate and share  information through several collaborative efforts to improve federal patent  licensing, including the FLC and the Interagency Working Group for  Technology Transfer. For example, agency officials said they share  experiences, ideas, and best practices related to patent licensing  informally through these groups. However, there is no formal sharing of  information on financial terms in patent licenses among federal labs,  according to NIST officials.

We have previously reported that federal agencies engaged in  interagency collaborative efforts should identify and address needs by  leveraging their resources to obtain additional benefits that would not be  available if they were working separately. NIST plays a leading role in  these interagency collaborative efforts on patent licensing, including  gathering and sharing information among the labs. As the administrative  host for the FLC, NIST has already supported an effort to share  information about available technology. NIST is also responsible for  gathering information from technology transfer agencies, including gross  license income, and submitting summary reports to Congress annually  and sharing them with the public. Furthermore, NIST has initiated a  survey of practices at federal technology transfer offices and shared  some preliminary information with the agencies. By facilitating the formal  sharing of comparable license information, NIST could help provide  agencies and labs with benchmarks for evaluating which financial terms  are best suited to licensing inventions successfully.

NIST officials stated that gathering and sharing comparable license  information could be done as part of their existing efforts but that there  are obstacles to doing so. Specifically, NIST officials stated that this effort  would add to the reporting burdens of agencies, may require additional  resources, and would need to take into account data security and  proprietary information considerations. Agency officials also stressed that  any effort to share license terms would have to ensure that confidential  and proprietary information from licensees, including specific financial  terms from a particular license, is not divulged.

Federal labs under DOD, DOE, NASA, and NIH face challenges at  various stages of the patent licensing process, and agencies have taken  some steps to address such challenges. For example, ensuring that  researchers identify and disclose inventions is a government-wide  challenge, according to interviews with external stakeholders and our  analysis of relevant literature. However, such challenges in federal patent  licensing are not fully reported by NIST, the lead agency delegated by  Commerce to provide annual summary reports to Congress on federal  technology transfer activities. By fully reporting the range of these  challenges that agencies and labs face, NIST can ensure that Congress  has greater awareness of these challenges. To help identify these  challenges, NIST could, for example, leverage its survey of practices at  federal technology transfer offices, past FLC studies, and agency reports.

In addition, DOE, DOD, NASA, and NIH documentation does not  consistently link establishing financial terms in patent licenses to the  statutory goal of promoting commercial use. As the lead agency on the  government-wide effort to find commercial uses or practical applications  for federally funded inventions, NIST has been delegated the  responsibility to promulgate regulations pertaining to patenting and  licensing at federal labs, including implementing the statutory goal of  promoting commercial use. By clarifying the link between establishing  patent license financial terms and the goal of encouraging commercial  use, through the upcoming rule-making process and updating relevant  guidance, NIST would have better assurance that financial terms in  patent licenses are targeted to that goal.

Further, federal labs have varying amounts of information on comparable  government licenses when establishing financial terms. However, there is  no formal sharing of information on financial terms in patent licenses  among federal labs, according to NIST officials. NIST plays a leading role  in interagency collaborative efforts on patent licensing, including  gathering and sharing information among the labs. By facilitating the  formal sharing of comparable license information, NIST could help  provide agencies and labs with benchmarks for evaluating which financial  terms are best suited to successfully licensing inventions.

To establish financial terms, DOD, DOE, NASA, and NIH labs rely on the  expertise of their technology transfer staff and take a number of steps to  build and share expertise, but had limited documentation of their  processes for establishing the financial terms of patent licenses. Agency  and lab officials explained that there is a need for flexibility, and thus not  every aspect of their processes can be documented in detail. By  documenting processes for establishing the financial terms of licenses  while maintaining enough flexibility to tailor the specific terms of each  license, the four agencies could have more reasonable assurance of  consistency across their labs regardless of the expertise of staff.

We are making seven recommendations, including three to Commerce  and one each to DOD, DOE, NASA, and NIH:

The Secretary of Commerce should instruct NIST to fully report the  range of challenges in federal patent licensing, such as those outlined  in this report, by, for example, leveraging its survey of practices at  federal technology transfer offices, past FLC studies, and agency  reports and including that information in its summary reports to  Congress. (Recommendation 1)

The Secretary of Commerce should instruct NIST to clarify the link  between establishing patent license financial terms and the goal of  promoting commercial use, through appropriate means, such as the  upcoming rule-making process and updating relevant guidance.  (Recommendation 2)

The Secretary of Commerce should instruct NIST to facilitate formal  information sharing among the agencies to provide federal labs with  information on financial terms in comparable patent licenses, as  appropriate. (Recommendation 3)

The Secretary of Defense should ensure that the agency or its labs  document processes for establishing license financial terms, while  maintaining flexibility to tailor the specific financial terms of each  license. (Recommendation 4)

The Secretary of Energy should ensure that the agency or its labs  document processes for establishing license financial terms, while  maintaining flexibility to tailor the specific financial terms of each  license. (Recommendation 5)

The Administrator of NASA should ensure that the agency or its labs  document processes for establishing license financial terms, while  maintaining flexibility to tailor the specific financial terms of each  license. (Recommendation 6)

The Director of NIH should ensure that the agency or its labs  document processes for establishing license financial terms, while  maintaining flexibility to tailor the specific financial terms of each  license. (Recommendation 7)

We provided a draft of this report to Commerce, DOD, DOE, NASA, and  NIH for review and comment.  All provided written responses, which are  reproduced in appendixes IV-VIII.  Commerce and NIH also provided  technical comments, which we incorporated as appropriate.

Commerce agreed with all three of our recommendations to the agency.  In general, the agency stated that it will work through interagency groups,  such as the Interagency Working Group for Technology Transfer and the  FLC, to address our recommendations, including by creating a specific  section in its annual reports to Congress with more details on challenges  agencies and labs face in patent licensing and by examining and  implementing solutions to facilitate the sharing of information among  agencies. According to Commerce, such solutions could include  identifying licensing officers who have expertise and creating a  community of practice in which they can share best practices and  approaches for establishing license terms.

DOD, DOE, and HHS agreed, and NASA partially agreed, with the  recommendation that they or their labs document processes for  establishing financial terms in patent licenses. In its written response,  DOD said it will direct the military departments and appropriate defense  agencies to have their labs establish documentation of their licensing  processes as appropriate. In their written comments, DOE, HHS, and  NASA noted the complexity and nuances associated with negotiating  license agreements, such as understanding the market for the technology  and the level of risk involved. Further, DOE and NASA noted challenges  that limit their ability to document processes and emphasized the  importance of maintaining flexibility in establishing financial terms in  patent licenses. We agree that some flexibility in establishing financial  terms of patent licenses is important. DOE, HHS, and NASA all identified  steps they would take to ensure that at least some processes for  establishing financial terms are documented.

We are sending copies of this report to the appropriate congressional  committees; the Secretaries of Commerce, Defense, and Energy; the  Administrator of NASA; and the Director of NIH. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-3841 or neumannj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IX.

Appendix I: Examples of Inventions Developed in Federal Labs

Figure 3 presents examples of inventions developed in federal  laboratories under the Department of Defense, Department of Energy,  National Aeronautics and Space Administration, and National Institutes of  Health.

Appendix II: Selected Descriptions of Challenges Federal Labs Face in Patent Licensing

The following are additional descriptions of challenges in the seven areas  of the patent licensing process as well as challenges in prioritizing patent  licensing faced by federal laboratories (lab) that were identified by  external stakeholders and by agency and lab officials at the Department  of Defense (DOD), Department of Energy (DOE), National Aeronautics  and Space Administration (NASA), and the National Institutes of Health  (NIH)—as well as steps agencies and labs have taken to address those  challenges.

Challenges in the Seven Areas of the Patent Licensing Process

DOD, DOE, NASA, and NIH officials reported challenges in identifying  inventions that lab researchers developed. When a federal researcher  does not disclose to lab officials an invention developed in a federal lab,  the opportunity to assess the invention’s potential for commercial use  may be lost.

Federal officials cited various reasons why researchers do not disclose  inventions. For instance, several DOD, DOE, NASA, and NIH agency and  lab officials stated that some researchers do not have adequate training  in identifying potentially patentable inventions. Some agency and lab  officials pointed to other reasons why invention disclosures may not be  filed, such as researchers not having enough incentive to disclose their  inventions. Navy officials stated that researchers are often intimidated by  the overall invention disclosure process and tend to focus on their  research rather than consider what could be patentable. Officials at one  NASA lab noted that they have come across a few contractor employees  who do not see the benefit of filing invention disclosures, and sometimes  researchers are too busy to engage in the patenting process. According  to National Institute of Standards and Technology (NIST) officials, some  researchers decide not to disclose an invention because they believe  filing a patent application, which includes a filing fee, could take away  money from the research itself, and most federal researchers are not  motivated by the potential for receiving royalty distributions.

Our analysis of relevant literature and interviews with stakeholders also  showed that researchers not identifying and disclosing inventions is a  government-wide challenge. One stakeholder stated that researchers at  federal labs generally have limited understanding of the patenting  process, including an understanding of what constitutes patentable  subject matter and how to conduct prior research on the technology to  determine whether it is patentable.

DOD, DOE, NASA, and NIH agency and lab officials stated that they are  taking a variety of actions to help address these challenges. For example,  some agency and lab officials stated that labs conduct training to educate  researchers about the patenting process, inform researchers about  statutory requirements to disclose inventions, and incentivize them by  acknowledging their efforts through awards and monetary incentives  when their inventions reach commercial success.

DOD, DOE, and NIH officials described their agencies’ systems for  keeping track of inventions developed in the labs as inadequate or in  need of improvement. How agencies and labs keep track of such  inventions can range from spreadsheets to sophisticated databases that  manage all technology transfer activities, including keeping track of  patented inventions and licenses.

Currently, DOD has a decentralized approach to keeping track of  inventions, which, according to DOD officials, needs improvement given  how large the agency is. Each military department has its own systems to  track and store information on inventions developed in the labs. Officials  from DOD and the departments describe the systems as inadequate to  keep track of the agency’s inventions. For example, Navy officials  described the department’s in-house system to track inventions as  “plagued by outages” and thus ineffective. According to officials, the Army  funds systems that track inventions, but these systems are different from  each other and not connected to headquarters and have been suspended  since 2015.

We have previously reported on federal agencies’ challenges in  monitoring technology transfer activities, including tracking inventions  developed in the federal labs. Several stakeholders we interviewed also  noted that keeping track of inventions is a government-wide challenge.  According to some stakeholders, federal labs not only have inadequate  systems to keep track of their own inventions but also limited information  on the kinds of inventions being developed in federal labs across the  government. The result is that agencies risk being unaware of research  across the labs, which can limit their ability to leverage other federal  research efforts. One stakeholder specifically noted that the Interagency  Edison (iEdison) reporting system—which allows federal grantees and  contractors to report federally funded inventions to the agency that issued  the funding award, including inventions developed by some contractor- operated labs—is difficult to navigate and needs improvement. Another  stakeholder stated that there can be independent research at three or  four labs under different agencies but little interaction among those labs  about the research. Information on federal lab inventions can also be  accessed publically through the Federal Laboratory Consortium (FLC)  website; however, NIST officials stated that the website’s information on  inventions relies on agencies to submit accurate information, which may  be limited by the agencies’ tracking systems.

DOD, DOE, and NIH officials stated that they have made efforts to  improve their current systems. For example, since our 2015 report on the  agency’s challenges with its data management systems that track  federally funded inventions, DOE officials reported that they have  developed a plan to leverage the capabilities of the iEdison reporting  system to unify the agency’s data management process. While DOD  officials stated that the agency has been unsuccessful in purchasing  software to track inventions across the agency, Air Force officials said  they are developing a pilot program and seeking new software to manage  the Air Force’s inventions, and they expect the pilot program to increase  the number of invention disclosures. Air Force and NIH officials stated  that they have contacted NASA, which has a centralized system for  tracking inventions, about leveraging the agency’s expertise. NASA  officials reported that they have been hosting regular webinars with other  agencies to determine whether NASA’s tracking system could help meet  other agencies’ needs.

DOD, DOE, NASA, and NIH agency and lab officials cited selecting  inventions to patent as a challenge because of the expense of patenting  fees. According to some agency and lab officials we interviewed, fees  paid to the United States Patent and Trademark Office (USPTO) affect  their decision on whether to patent an invention. For example, DOE  officials stated that budget constraints force them to make decisions  about whether they should file a patent or engage in other agency  activities. NIH officials stated that the agency maintains fewer patents  because of the patent maintenance fees and the agency’s tight budgets.

NASA officials reported that one step the agency is taking to deal with the  costs of maintaining its issued patents is to identify technologies with low  licensing potential and allow the patents to expire if they fail to attract  licensees. NASA has created a searchable database that catalogs  thousands of expired NASA patents already in the public domain, making  them freely available to industry for unrestricted commercial use.

Federal labs under DOD, DOE, NASA, and NIH face challenges that limit  their ability to attract potential licensees, according to agency and lab  officials. Even officials at NASA, described by NIST officials as one of the  best agencies in promoting its inventions to industry, said the agency is  not selecting among multiple licensees and would like to have more  companies license its patents.

There are various reasons why federal labs struggle to attract companies  interested in licensing their inventions, according to agency and lab  officials we interviewed. First, several agency and lab officials cited that  the number of entities that want to license inventions is generally not  large. Second, some agency and lab officials identified inadequate  promotion of federal inventions and licensing opportunities to companies,  including start-ups, as a factor. Third, some agency and lab officials also  noted that their inventions are often in the early stages of development  and thus pose more of a risk for companies to license.

Based on our analysis of relevant literature and interviews with  stakeholders, difficulty in attracting industry to license inventions  developed in federal labs is a government-wide challenge. According to  several stakeholders, industry perceives federal labs as not friendly to the  private sector when it comes to patent licensing, especially for start-ups.  For example, one stakeholder said that it is rare that federal agencies  want to license to a start-up, and that more often the labs want a “safer  route” by licensing inventions to large companies that already have a  steady revenue stream. Another stakeholder said that DOE’s contractor- operated labs in particular tend to not issue exclusive licenses to start-ups  and prefer to license to large companies because the agency sees those  companies as presenting less of a risk. In addition, stakeholders stated  that federal inventions are often not yet commercially viable, which can  deter companies from licensing federal inventions. One stakeholder, for  example, stated that NASA officials may think that NASA technology is  more developed than it is and therefore underestimate how long it will  take a company to develop it for practical application, the millions of  dollars needed to develop it, and whether it can be manufactured for  commercial use.

DOD, DOE, NASA, and NIH officials stated that they are taking steps to  attract potential licensees by, for example, conducting local outreach to  attract companies and working on improving their databases so that  companies can learn about federal inventions available for licensing. For  instance, NASA officials stated that the agency’s comprehensive  database accessible to potential licensees uses a wide variety of search  criteria and attracted 6 million unique visitors in 2016.

Agency and lab officials and stakeholders noted that federal labs face  challenges in negotiating the license agreement because the process is  (1) lengthy and (2) uniquely regulated, which can deter companies from  licensing federal inventions.

Stakeholders stated that the federal licensing process can take anywhere  from about 3 months to more than 2 years. Some stakeholders stated that  from their point of view taking a year to negotiate a license agreement is  too long. One stakeholder said that such lengthy processes are  particularly difficult for start-ups, which often need to finalize license  agreements in 3 months. Another stakeholder noted that the federal  government in general does not understand how urgent it is for  companies to complete the licensing process in a timely manner.  Although actions on the part of both the labs and companies can cause  delays, if the overall process is time-consuming, prospective licensees  will tend to move onto something else instead, according to agency and  lab officials and stakeholders.

Based on our analysis of licensing information provided by the agencies,  we found that the amount of time from receipt of an application for a  license to signature of the license by the lab varies widely. Specifically,  based on this measure of the length of the process, approximately 60  percent of 132 licenses effective in fiscal year 2014 took at most 6  months for DOD, DOE, NASA, and NIH labs to process. Officials at one  Navy lab stated that issuing an invention license to a company within 6  months is “highly unusual,” and officials at one NASA lab stated that the  fastest they have issued a license was a week because the start-up was  prepared and ready to go. For more on our analysis of licensing  information from DOD, DOE, NASA, and NIH, see appendix III.

Several agency and lab officials also noted that federal regulations  associated with patent licensing can deter companies from licensing  federal inventions. Such regulations include requirements that are unique  to federally funded and federally owned inventions, including that  products arising from the invention must be substantially manufactured in  the United States and that the government may retain rights to the  invention and terminate the license agreement if the licensee does not  take steps to commercialize the technology. In particular, NASA officials  stated that venture capital firms sometimes oppose the government  retaining rights for federal technology used by start-ups that they fund.  According to DOD and DOE officials, federal regulations require a level of  documentation or explanation that can deter some companies from  licensing inventions developed in federal labs. Based on interviews with  stakeholders, as well as our analysis of relevant literature, company  concerns about federal regulations is a government-wide challenge that  federal labs face in licensing their inventions.

For example, according to NIST officials, the U.S. manufacturing  requirement can influence whether companies consider licensing federal  inventions, because manufacturing in the United States can be more  expensive than manufacturing in other countries. NIST officials also  stated that some prospective licensees initially become concerned when  they are told about march-in authority, because it applies to federally  funded inventions and contractors. However, once companies are told  that it is a legal requirement and that the provision has never been  exercised, they generally become more comfortable with it.

DOD, DOE, NASA, and NIH agency officials said they are taking steps to  address companies’ concerns about the time it takes to negotiate a  license agreement and their unfamiliarity with federal licensing  requirements. For instance, NASA, NIH, and Navy officials told us they  have developed model license agreements to help guide companies  through the process, and NASA and NIH have special license  agreements for start-ups to shorten the licensing process. Also, DOE  created an agency-wide licensing guide to help prospective licensees  navigate federal licensing requirements.

DOD, DOE, NASA, and NIH agency and lab officials we interviewed  identified limited resources and inadequate monitoring systems as factors  that make it difficult to monitor licensee performance.

NASA and NIH officials reported that the number of license agreements  has increased in their labs and that they do not have enough resources to  monitor licenses. DOD officials stated that the agency’s technology  transfer offices have traditionally been understaffed and that the agency’s  monitoring systems are inadequate for tracking the status of issued  licenses. Officials at one DOE lab stated that collecting royalties from  licensees can be difficult because the lab does not have enough funds to  support that activity. In addition, agencies may rely on the same systems  they use to keep track of inventions to monitor licensee performance, and  as previously discussed, these systems are in need of improvement.

Some stakeholders we interviewed noted that monitoring licensee  performance is a government-wide challenge. They explained that  sometimes licensees do not pay fees if they are not contacted, and a few  stakeholders stated that federal labs have limited funding and resources  to monitor contracts effectively. One stakeholder recalled one agency that  did not communicate with a licensee for 2 years after the license  agreement was signed. According to another stakeholder, ineffective  monitoring of licensee performance may limit federal labs’ ability to  determine whether a company is developing federal inventions for  commercial use per the terms and conditions of the license agreement.

Some agency and lab officials stated that they have taken steps to  regularly monitor licensees. In particular, at NASA and NIH—where  monitoring of licensee performance is centralized at the agency level— officials have programed systems to remind staff to check on licensee  performance.

Federal labs, including those under DOD, DOE, NASA, and NIH, also  face challenges in effectively measuring patent licensing outcomes,  based on our interviews with stakeholders and analysis of relevant  literature. According to one stakeholder, labs need metrics to assess  whether a licensee has made progress on developing the invention for  commercial use and whether the lab needs to get the license back and  give it to another company.

However, some stakeholders we interviewed stated that although the  2011 presidential memorandum on technology transfer called for  strategies to establish metrics, federal labs are still struggling to  implement metrics for measuring technology transfer outcomes, including  patent licensing activities. Stakeholders we interviewed and our analysis  of relevant literature have indicated that federal labs in general track the  numbers of patents, licenses, and revenues instead of using metrics that  identify direct economic impacts from patent licensing and other  technology transfer activities. In agencies where such metrics do exist,  they may be applied inconsistently across labs. For example, officials at  one DOE lab stated that DOE metrics are generally not consistent across  the agency’s labs.

DOD, DOE, NASA, and NIH agency officials stated that they are working  to improve their metrics and incorporate metrics beyond tracking numbers  of patents, licenses, and revenues. For example, in addition to measuring  the numbers of patents and licenses issued, NASA and Air Force officials  stated that they are also measuring factors that affect the length of time it  takes for their labs to process licenses. Such information, officials said,  will help them expedite the licensing process.

Prioritizing Patent Licensing as an Agency Mission

DOD, DOE, NASA, and NIH face challenges in prioritizing patent  licensing as part of their agency missions, which can affect the entire  patent licensing process.

For example, DOD and DOE agency and lab officials stated that an  agency’s mission affects patent licensing activities. DOD officials stated  that the agency’s primary mission is protecting the warfighter and that  patent licensing is a secondary benefit to the agency. According to DOE  officials, the nuclear security labs do not focus on patenting but instead  on developing technologies associated with a weapons program.

In addition, several stakeholders we interviewed stated that some  agencies and labs do not have a culture that prioritizes patent licensing.  In particular, one stakeholder stated that at some federal labs, patent  licensing is not reflected in performance evaluation management plans,  which can help incentivize lab personnel to engage in patent licensing  activities. A few stakeholders stated that at some labs where  management does not prioritize patent licensing activities, researchers’  careers can be negatively affected if they engage in patent licensing  activities.

DOD, DOE, NASA, and NIH agency and lab officials cited limited  resources to conduct the range of activities related to patent licensing.  For example, sometimes there is just one person at a DOD lab  overseeing technology transfer activities, according to DOD agency and  lab officials. Officials at one NIH lab stated that many labs across the  agency do not receive enough royalties to offset their patent licensing  costs. In its fiscal year 2015 report—its most recent report—to Congress  on federal technology transfer activities, NIST reported that the federal  intramural research budget, which include patent licensing activities, has  generally not increased in the past 4 fiscal years. Several agency and  lab officials stated that budget constraints affect the extent to which they  can engage in patent licensing activities—including patent enforcement,  which can cost millions of dollars and presents challenges for federal  labs, according to DOE officials.

Some agency and lab officials stated they have taken steps to overcome  such challenges. For example, officials at one Navy lab stated that the lab  has management support and nine patent attorneys to assist in the  reviews of researchers’ invention disclosures. Also, officials at one NIH  lab stated that the lab has strong management support and a good  royalty stream from successful inventions that pay for patenting and other  reinvestments, which allows the lab to not draw from its appropriations.

Appendix III: Patent License Summary for Licenses Effective in Fiscal Year 2014

Tables 1 through 3 and figures 4 through 6 are based on 222 patent  licenses that became effective in fiscal year 2014, and associated data,  provided by the Department of Defense (specifically the Army, Navy, and  Air Force), Department of Energy, National Aeronautics and Space  Administration, and National Institutes of Health. They include both data  provided by the agencies and information compiled directly from the  licenses. The tables and figures are provided for informational purposes  and are not generalizable to all patent licenses.

Appendix IV: Comments from the Department of Commerce

Appendix V: Comments from the Department of Defense

Appendix VI: Comments from the Department of Energy

Appendix VII: Comments from the Department of Health and Human Services

Appendix VIII: Comments from the National Aeronautics and Space Administration

Appendix IX: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Robert J. Marek (Assistant  Director), James D. Ashley, Kevin S. Bray, Virginia A. Chanley, Ellen L.  Fried, Sarah C. Gilliland, Cheryl M. Harris, Robert Letzler, Gregory A.  Marchand, Christopher P. Murray, Emmy L. Rhine Paule, Dan C. Royer,  Ardith A. Spence, Vasiliki Theodoropoulos, and Reed Van Beveren made  key contributions to this report.

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Cell-phone cameras have their roots in a federal lab—thanks to laws encouraging commercial use of federal inventions.

The federal government spends about $137 billion a year researching and developing inventions. The government can license the patents on these inventions to private companies to further develop and bring the technologies to market.

Federal agencies and labs said that identifying patentable inventions was difficult, with some citing inadequate tracking systems. Stakeholders said that the bureaucracy and length of the patent licensing process could deter companies.

We made 7 recommendations to address these and other challenges.