The universities expressed the concern that the proposed regulations discriminated against them in requiring that universities not only have an approved technology transfer program, but that they also meet all of 74/ the other considerations required for a waiver. Instead, the univer sities suggested that the existence of an adequate technology transfer program should be an overriding factor justifying the grant of a waiver to a university, rather than merely one of a number of considerations. It was recommended that a policy utilizing an Institutional Patent Agreement, such as used by DHEW and NSF for granting universities the first option to acquire exclusive commercial rights to inventions, should also be adopted by ERDA where ERDA determined that a university had a satisfactory technology transfer program. b. Revocable Nonexclusive License to the The proposed regulations provide that where ERDA obtains title to resulting inventions, the inventing contractor may retain at least a revocable license in such invention. The comments on this provision generally reflect a desire on the part of the contractor for greater security than that offered by a revocable license. Substantially, all the comments on this 741 42 U.S.C. $5908(a) sets forth eleven factors for consideration by the Administrator in determining whether to grant or waive request at the time of contracting. The eleventh factor relates to nonprofit educational institutions and whether they have a transfer capability. Proposed ERDA-PR $9-9.109-6(b) includes these eleven factors for consideration in granting waivers plus the small business status of the requestor. The latter provision is included in subsection 9(j) of the Nonnuclear Energy Act. 75/ Proposed ERDA-PR $ $9-9.107-3(a), and 9.107-4(e). subject urged that the contractor should never be denied the right to utilize an invention made by its personnel. Most preferred to retain title to their inventions; failing that, the view was strongly expressed that they should be entitled to retain at least an irrevocable license. Further, it was argued that the conditions of revocation, i.e., the possibility that a nonexclusive license might be revoked so that the Government could grant an exclusive license, was mere speculation and unduly complicated the regulations with revocation procedures, reports and other documents. It was urged that greater benefit in the form of attracting more competent contractors and reducing negotiating time would be achieved by permitting the contractor to retain an irrevocable non exclusive license. Concern was expressed that a contractor will not invest the necessary risk capital to develop an invention where there is a possibility that some of its rights would be revoked at some future date. It was In also argued that many contractors package license their technology. order for an invention made under government funding to be a part of the license package, the contractor needs irrevocable rights with the right to grant sublicenses. The point was also made that there rarely would be any benefit in revoking the license anyway, since if the originating contractor is unable to commercialize the invention it is unlikely that another firm could do so, even with an exclusive license. A large number of comments were received opposing the background patent rights provisions on the ground that the Government should not This re require a contractor to license private background patents. quirement, it was argued, would work against the best interests of the Government and the public. This is for the reason that the most technically qualified parties would most probably have the greatest investment in background patented technology, hence the most to lose by this provision. Such parties will probably be unwilling to contract with ERDA for fear of endangering their investment. Accordingly, this policy will tend to result in only the less qualifed firms seeking ERDA contracts. On the other hand, some of the larger contractors, particularly an oil company, stated no objection to licensing their background patents as called for in the proposed regulations. There were several objections to including foreign patents in the definition of background patents. This position was based on the premise that the Nonnuclear Energy Act did not require any background patent provision and that requirement to license foreign patents in the proposed ERDA-PR would diminish the property rights of U.S. firms in foreign countries for no valid reason at all. It was also pointed out that the Government's rights in background patents could have an adverse tax consequence. Under the Internal Revenue Code, in order for the contractor to transfer such patents in a tax-free exchange or to obtain favorable capital gains tax treatment on the income from the sale of, or the exclusive licensing of a patent, the contractor must be able to transfer, sell, or license "all substantial rights" in the patents. In view of the various rights the Government obtains under a contractor's background patents by the proposed regulations, questions may arise on the tax consequence of these provisions. It was also proposed that the showing a contractor must make to avoid 77/ having to license his background patents should apply prospectively. That is to say, the contractor should be given a reasonable time, after ERDA has indicated that background patents should be licensed, to show that it can supply an item covered by the patents in sufficient quantities and at reasonable prices or that a competitive alternative could be developed. 78/ March-in Rights d. The "march-in" rights, retained by the Government whenever exclusive rights to an invention are waived, permit the Government to require the contractor to license others on a nonexclusive, exclusive, or partially exclusive basis in some situations, and to revoke the contractor's exclusive rights under certain circumstances. The objections received as to these provisions are similar to the objections received on the revocable license retained by a contractor; namely, that raising risk capital to commercialize an invention is difficult where there is the possibility that the exclusive rights of the patent could be lost through ERDA's exercise of its "march-in" rights. 77/ 78/ Paragraph (k) (4) of the proposed Patent Rights clause of ERDA-PR $9-9. 107-5(a). 42 U.S.C. §§5908 (h) (5)-(7) and proposed ERDA-PR $9-9.109-6(i) (Terms and Conditions of Waivers) paragraphs (9), (10). Further, some felt that the proposed regulations were too vague as to when and how "march-in" rights might be exercised since this decision is largely made on a unilateral basis by ERDA. It was pointed out that industry will be unsure in this area until ERDA has demonstrated just what its practice will be as to "march-in" rights. 5. ERDA's Commentary on the Public Comments Although the provisions and clauses of ERDA's proposed patent regulations were designed for ERDA's normal day-to-day contracting and subcontracting activities, the policies are equally applicable to special contracting situations such as a government-owned contractor-operated (GOGO) facilities, and joint ERDA/ industry demonstration facilities. is recognized, however, that these special contracting situations do have special sets of circumstances which will require some modifications of the clause language and policies set forth in these regulations. It As indicated above, there were four major issues in the proposed patent regulations and patent clauses which raised the greatest amount of public comment. ERDA elected an approach to waivers somewhat different from that utilized by NASA under the Space Act. Under NASA's waiver policy, a request for waiver is made directly to NASA's Inventions and Contributions Board in Washington, D.C. This Board considers the waiver outside of, and apart from, the negotiations concerning and surrounding the contract involved |