Recent Updates to Bayh-Dole Obligations May Require New License Terms and Reporting Procedures for Federally-Funded Inventions
Effective October 1, 2023, certain aspects of reporting obligations under the Bayh-Dole Act changed, and further changes are potentially on the way. Frequent recipients of federal funding, such as universities and research organizations, should be aware of these updates and should consider updating their agreement forms and reporting procedures to account for these changes. This Law Alert covers recent developments concerning Bayh-Dole reporting obligations and provides recommendations on how frequent licensors of federally-funded inventions should respond.
Reporting Requirement for Funding Recipients
Among a variety of other topics, the Bayh-Dole Act (at 35 U.S.C. § 202) mandates that research funding agreements between a federal agency and a recipient of federal funds must give the agency the right to receive periodic reporting on the utilization of a subject invention. The Bayh-Dole Act and its implementing regulations also provide that their terms can be modified in “exceptional circumstances” when a federal funding agency determines that a change will better promote the policy and objectives of the law. In 2016, the Secretary of Commerce delegated rulemaking authority to the National Institute of Standards and Technology (NIST) for regulations that implement Bayh-Dole Act requirements (including for reporting obligations). NIST currently manages and updates the general implementation of the Bayh-Dole Act, although individual funding agencies still have some discretion (e.g., with respect to determining whether “exceptional circumstances” exist).
Foreign Commercialization of U.S. Inventions Motivates Change
In 2021, the Department of Energy (“DOE”) issued a Declaration of Exceptional Circumstances, in which it introduced a “U.S. Competitiveness Provision” to be incorporated into certain research funding awards from the Department of Energy. This “U.S. Competitiveness Provision” was motivated in large part due to a concern about federally-funded innovations being “exported” to foreign countries for implementation, and made several sweeping changes. For example, the “U.S. Competitiveness Provision” included requirements that “any products embodying any subject invention or produced through the use of any subject invention will be manufactured substantially in the United States,” that all licenses, assignments, and other transfers are subject to the U.S. manufacturing requirement, and (at least initially) requiring DOE approval of certain transfers of title or exclusive rights in the invention(s), among other things. These requirements represented a significant change from the standard requirements typically included in funding agreements under the Bayh-Dole Act, which generally required substantial manufacture in the U.S. only for exclusive licenses, only for products that wound up actually used or sold in the U.S., and with more vague standards for having the requirement waived. The “U.S. Competitiveness Provision” set forth in the Department of Energy’s Declaration of Exceptional Circumstances received heavy criticism, which resulted in some of its provisions being walked back, most significantly the DOE approval requirement.
Despite industry push back on the DOE’s “U.S. Competitiveness Provision,” the concern motivating its promulgation persists, and the federal government remains focused on addressing the exportation of U.S. inventions. For example, in Summer 2023, U.S. Senators Tammy Baldwin and J.D. Vance introduced a proposed bill aimed to require products practicing federally-funded inventions to be manufactured within the United States. Additionally, on July 28, 2023, President Biden signed an Executive Order directing certain actions be taken to better ensure “that when new technologies and products are developed with support from the United States Government, they will be manufactured in the United States whenever feasible and consistent with applicable law.” In this Executive Order, dubbed the “Invent It Here, Make It Here” Order, President Biden called on the heads of executive departments and agencies to implement the order and directed that funding agencies should require funding recipients to annually report the names of licensees and manufacturing locations of subject inventions. The Order further called for the development of standard invention utilization questions to be used by all agencies by May 1, 2024, with agencies having the option to add their own agency-specific questions. Finally, the Order directed the heads of executive departments and agencies to consider whether “exceptional circumstances” existed that warranted a determination that the substantial domestic manufacture requirement be extended to non-exclusive licensees and uses or sales outside the United States and called for a standardization of the waiver process for this requirement.
New Utilization Reporting Requirements
The interagency Edison platform, or “iEdison” will now require more information be reported by federal funding recipients as a result of the Order. iEdison is an online relational database for the reporting requirements of the Bayh-Dole Act and its implementing regulations that is managed by NIST. Many federal agencies use iEdison for monitoring Bayh-Dole compliance, including without limitation, the Centers for Disease Control and Prevention (“CDC”), the Department of Homeland Security Science and Technology (“DHS”), the Defense Advanced Research Projects Agency (“DARPA”), the Department of Energy (“DOE”), the Department of Transportation (“DOT”), the Food and Drug Administration (“FDA”), the National Institutes of Health (“NIH”), the National Institute of Standards and Technology (“NIST”), and the National Science Foundation (“NSF”). A full listing of the federal agencies that use iEdison can be found here. Following President Biden’s Invent It Here, Make It Here Order, NIST, working with the Interagency Working Group for Bayh-Dole (IAWGBD), developed a standard set of utilization questions to be asked by every agency that uses iEdison, but even those agencies that do not use iEdison are “strongly encouraged,” according to NIST, to also ask these questions to recipients of their funding.
The new utilizations reporting questions begin with a question asking about the latest stage of development of a product arising from a subject invention. The subsequent questions that a reporter will have to answer depend on the answer to that first question.
- A funding recipient that answers “Not Licensed or Commercialized” in response to the first question will be required to answer a follow-up question concerning commercialization plans. This question will have specific status options to choose from, though a funding recipient will have an opportunity to provide additional context in a “Notes” field at the end of the utilization questions. (It is presently unclear whether NIST or any funding agency would or could take action based on an “insufficient” reason for why a technology is Not Licensed or Commercialized.)
- A funding recipient that answers “Licensed” in response to the first question will then need to answer several questions concerning licensing activity, such as questions concerning the number and nature of licenses or options to license, including the identities of licensees, whether any licenses or options were to small businesses, and the gross income received from the licenses or options. Funding recipients will also be required to answer a yes or no question directed to whether an invention is subject to domestic manufacturing requirements other than the standard requirement under the Bayh-Dole Act. Depending on the answer to this yes or no question, one of two follow up questions will be asked, each of which concern requirements to manufacture products substantially in the United States. An answer of “No” will result in a question directed towards whether exclusive licenses granting rights to use or sell an invention in the United States includes a requirement that products embodying such invention be manufactured substantially in the United States, while an answer of “Yes” will result in a question directed towards whether any license (exclusive or non-exclusive) includes a requirement that all products (regardless of whether used or sold in the U.S.) be manufactured substantially in the United States.
- A funding recipient that answers “Commercialized” in response to the first question will then need to answer the above licensing questions, as well as several questions concerning commercialization activity, such as questions directed towards whether products are manufactured substantially in the United States (with follow up questions depending on whether there are manufacturing requirements other than those required in the Bayh-Dole Act, similar to above), the timing of the first commercial sale of any product(s), and an identification of products made through or embodying a subject invention, including the name(s) of the manufacturer(s) and their state(s) (if domestic) and/or country(ies).
Importantly, the above information concerns the standard questions to be used by all agencies that use iEdison, but specific agencies may require additional utilization questions or details. Additional details about these standard utilization questions and instructions on how to answer them can be found here.
The iEdison system’s notifications for new utilization reports was previously paused since October 2, 2022, but it was resumed on October 1, 2023 with the new utilization reporting requirements. 2023 utilization reports should currently be live, but generally will not be considered “overdue” until January 1, 2024. Therefore, most recipients of federal funding will have through December 31, 2023 to identify and report the necessary information. Recipients of federal funding should review these new utilization questions, as well as any agency-specific questions that could apply via funding awards or agency-specific guidelines, and begin collecting this information from any licensees.
Review of Licensing Agreements and Internal Record-Keeping Procedures Recommended
Frequent licensors of federally-funded inventions should also consider updating their agreements to address these recent developments. For example, such licensors should consider broadening license agreement provisions dealing with Bayh-Dole Act requirements: (i) to account for the possibility that all products, regardless of where used or sold, may need to be manufactured substantially in the United States, (ii) to update the licensee’s reporting obligations to include the new information required by iEdison’s utilization reporting questions and any additional agency-specific questions, and (iii) to specify that these requirements may be imposed by executive order or funding award terms (not necessarily the Bayh-Dole Act statutes themselves). And, in addition to requiring this information from licensees, funding recipients will also need to implement practical record-keeping procedures to ensure the information is being collected, stored, and provided to the funding agency in accordance with applicable law.
If you have any questions about these updates or would like assistance in updating your licenses for federally-funded inventions, please contact your Quarles & Brady attorney or: