NIH Guide: A "20-20" VIEW OF INVENTION REPORTING TO THE NATIONAL INSTITUTES OF HEALTH

NOT-95-003 ***********************************************

A "20-20" VIEW OF INVENTION REPORTING TO THE NATIONAL INSTITUTES OF
HEALTH

NIH GUIDE, Volume 24, Number 33, September 22, 1995

P.T. 34; K.W. 1014006

National Institutes of Health

INVENTION REPORTING TO THE NIH

TABLE OF CONTENTS

"20" QUESTIONS
1.  What Federal statutes and regulations cover patent and invention
issues?

2.  What is the Bayh-Dole Act and why is it important?

3.  What are the principal features of the Bayh-Dole Act, as
implemented by 37 CFR 401.14, the "Standard Patent Rights Clauses?"

4.  Why patent?

5.  Do the requirements for invention reporting and compliance with
Bayh-Dole vary for different types of organizations?

6.  What are the responsibilities of a prime awardee organization
vis-a-vis flowing down Bayh-Dole requirements to subgrantees/
subcontractors under Federal awards?

7.  What is the first step in the invention reporting process and who
takes that first step?

8.  What additional steps are included in the invention reporting
process and when are they to be taken?

9.  What happens if the organization decides not to elect title on
the invention?

10. What if the NIH also decides not to elect title?  Can the
inventor get title?

11. How does the Government benefit, if the organization elects to
retain title to an invention?

12. Is there any harm in an inventor publicly disclosing an invention
before reporting it to the technology transfer office?

13. What is the purpose of the annual invention utilization report?

14. Why would an awardee organization not properly report subject
inventions to the Government and what are the consequences of failing
to comply with Bayh-Dole reporting?

15. When an awardee licenses a company to use an invention developed
with Federal funds, what information or requirements must be included
relative to the Government rights in the invention?

16. Who has the rights to data developed under NIH awards?

17. What happens to an invention when the inventor/principal
investigator transfers to a new institution?

18. Are royalties from patented inventions considered program income?

19. How do organizations satisfy the Federal law that requires
awardees to report inventions and patents that result from NIH
funding agreements and what is NIH doing to ensure and facilitate
compliance?

20. What if an inventor is unsure that he/she has made a subject
invention?  What if the inventor and/or organization official have a
question of a general nature?  Whom can they contact for additional
information?

"20" TERMS
1.  Assignment
2.  Bayh-Dole Act
3.  Confirmatory License
4.  Edison
5.  Election of Title
6.  Extension of Time
7.  Federal Support Clause
8.  Filing
9.  Final Invention Statement and Certification
10. First to File
11. Intellectual Property Law
12. Invention/Subject Invention
13. Invention Disclosure
14. Invention Utilization Report
15. License
16. March-in-Rights
17. Patent
18. Reduction to Practice
19. Standard Patent Rights Clause
20. Technology Transfer

A "20-20" VIEW OF NIH EXTRAMURAL INVENTION REPORTING

20 QUESTIONS ABOUT EXTRAMURAL INVENTION REPORTING:

1.  WHAT FEDERAL STATUTES AND REGULATIONS COVER PATENT AND
INVENTION
ISSUES?

The regulations codified at 37 CFR Part 401, "Rights to Inventions
made by Nonprofit Organizations and Small Business Firms" apply to
all grantees and contractors, including universities and other non-
profit entities, and for-profit organizations such as small business
firms.  The Department of Commerce has been designated the
responsible Federal agency for these regulations as they emanated
from Public Law 98-620 (November 8, 1984), which amended Public Law
96-517 (December 12, 1980), more commonly known as the Bayh-Dole Act. 
This law amended Title 35 USC, by adding Chapter 18, Section 200-212.

Other regulations that address these issues are OMB Circular A-124
(February 10, 1982) and a February 18, 1983 Presidential Memorandum
on "Government Patent Policy" in 37 CFR 401.  The Presidential
Memorandum was incorporated into the text of OMB A-124 on March 24,
1984.  It was not until 1987 that all of these provisions were
finalized in rulemaking and published by the Department of Commerce.

2.  WHAT IS THE BAYH-DOLE ACT AND WHY IS IT IMPORTANT?

The Bayh-Dole Act encourages researchers to patent and market their
inventions by guaranteeing patent rights.  This Act automatically
grants first rights to a patent for an invention fully or partially
funded by a Federal agency to the awardee organization.  To obtain
these benefits, however, the inventor and the organization have
several reporting requirements that protect the rights of the
Government.

This landmark legislation is important because it gives nonprofit
organizations and small business firms the right to elect to retain
title to inventions.  The objectives are to:  use the patent system
to promote utilization of inventions arising from Federally supported
research; encourage maximum participation of small business firms in
Federally supported research and development efforts; promote
collaboration between commercial and nonprofit organizations; ensure
that inventions made by nonprofit organizations and small business
firms are used in a manner that promotes free competition and
enterprise; promote commercialization and public availability of
inventions made in the United States by United States industry and
labor; and ensure that the Government obtains sufficient rights in
Federally supported inventions to prevent the unreasonable use of
inventions.

3.  WHAT ARE THE PRINCIPAL FEATURES OF THE BAYH-DOLE ACT, AS
IMPLEMENTED BY 37 CFR 401.14, THE "STANDARD PATENT RIGHTS CLAUSES"?

37 CFR 401.14 requires organizations to establish a written agreement
with all employees to disclose promptly each subject invention made
under a Federally sponsored program and to execute all papers
necessary to file patent applications.  By its acceptance of an NIH
award, a grantee or contractor organization agrees to obtain written
agreements from its employees and:
o  Promptly report inventions to the NIH.
o  Elect, in writing, within two years, whether or not to retain
title.
o  File a patent application within one year of electing title.
o  Acknowledge Government support in the patent application and send
page of application containing Federal support clause.
o  Provide the Government with a royalty free license to the
invention; the confirmatory license should be sent to the Office of
Policy for Extramural Research Administration (OPERA), NIH.
o  Make reasonable efforts to attract small business licensees.
o  Provide annual reports on the utilization of the invention,
including date of first commercial sale or use and gross royalties
received.
o  Agree that exclusive licensee will manufacture the invention
substantially within the United States, if it is to be used or sold
in the U.S.

4.  WHY PATENT?

Patent protection gives the owner of the patent the right to exclude
others from making, using, offering to sell, selling, or importing
into the United States the invention during the lifetime of the
patent, thus protecting the incentive for commercial development of
the invention.  However, it does not give the public the right to use
the invention if it is claimed by another's patent.  A company will
be more willing to make the investment needed to commercialize an
invention if it can eliminate or decrease competition.  When a patent
is licensed and successfully commercialized, it can lead to royalties
for the organization and the inventor, economic development for the
Nation, and improvements in the public health.

Patent protection is the key component of technology transfer.  Of
the legal options available, including trademarks, trade names,
copyrights, and licensing, patenting is probably the most crucial to
commercializing research results.

More than 200 years ago, the Constitutional Convention included in
the U.S. Constitution the power "to promote the progress of science
and useful arts by securing for limited times to authors and
inventors the exclusive right to their respective writings and
discoveries."  Almost 90 years later, President Lincoln addressed the
importance of patenting, when he said, "the patent system has added
the fuel of interest to the fire of genius."

5.  DO THE REQUIREMENTS FOR INVENTION REPORTING AND COMPLIANCE WITH
BAYH-DOLE VARY FOR DIFFERENT TYPES OF ORGANIZATIONS?

Bayh-Dole legislation, which was also extended to large businesses by
the 1983 Presidential Memorandum, applies to all grantees and
contractors funded by the U.S. Government.  Non-profit organizations
are subject to three provisions in addition to those that apply to
all organizations:
o  Nonprofit organizations cannot assign rights to an invention to a
third party, unless it is an invention management organization,
without permission from the Federal funding component;
o  Royalties must be shared with the inventor and the remainder used
for scientific research and education; and,
o  Nonprofit organizations must give preference to small businesses
when licensing the inventions.

6.  WHAT ARE THE RESPONSIBILITIES OF A PRIME AWARDEE VIS-A-VIS
FLOWING DOWN BAYH-DOLE REQUIREMENTS TO
SUBGRANTEES/SUBCONTRACTORS
UNDER FEDERAL AWARDS?

In accordance with 37 CFR Part 401.14g, prime grantees and
contractors are required to include the Standard Patent Rights Clause
(401.14) in all subcontracts, regardless of tier, for experimental,
developmental, or research work to be performed.  That clause
requires subawardees to report directly to NIH on any inventions
developed with Federal funding.  It is suggested that the prime
awardee include a clause in its written agreement with the subawardee
that also requires notification to the prime when an invention is
made.  This will ensure that prime awardees have accurate information
to complete questions concerning inventions on the competing and
noncompeting applications and the final invention statement.

7.  WHAT IS THE FIRST STEP IN THE INVENTION REPORTING PROCESS AND WHO
TAKES THAT FIRST STEP?

The first step, if the inventor believes he/she has an
invention/discovery, is to report it promptly to the organization's
technology transfer office, the office of sponsored research, or the
institutional administrative official responsible for technology
issues.  The employee/investigator is required to report any
invention in accordance with the terms of the employee agreement
he/she signed.  (Note: Organizations are required, as a condition of
Federal funding, to enter into employee agreements with all
appropriate staff.)

After the inventor reports the invention in-house, the appropriate
office is then responsible for reporting the invention to the
Government, as well as providing support to the inventor for
fulfilling the administrative requirements for securing a patent and
negotiating license agreements if the invention is deemed to have
commercial value.

8.  WHAT ADDITIONAL STEPS ARE INCLUDED IN THE INVENTION REPORTING
PROCESS AND WHEN ARE THEY TO BE TAKEN?

The awardee organization is responsible for the following:

o  Invention disclosure to the NIH, in writing, within 2-months of
the inventor's initial report to the organization
o  Election of title to invention -- within 2-years of disclosure to
NIH.  Sometimes election is made at the time of disclosure of the
invention.  (For inventions disclosed to the public, notification of
the NIH 60-days prior to the statutory bar date, which is usually one
year after the date of publication, sale, or public use.)
o  Non-election of title to invention (For inventions not disclosed
to the public, notification of the NIH at least 60-days prior to the
end of the 2-year period after disclosure.)
o  Patent application -- within one-year of election of title or
publication, whichever is earlier, provision to the NIH of the
confirmatory license and the page of the patent application that
contains the Federal support clause
o  Issued patent -- provision to the NIH of the patent number and
issue date at time of issuance of the patent
o  Annual utilization report (See Question 13./Page 5) -- every year
subsequent to filing a patent
o  Final invention statement -- prior to closeout of the NIH grant or
contract.  This form (HHS 568) is to be submitted directly to the
awarding component (See Term 9./Page 9)

Unless otherwise specified, the information should be sent to the
Office of Policy for Extramural Research Administration (OPERA), NIH.

9.  WHAT HAPPENS IF THE ORGANIZATION DECIDES NOT TO ELECT TITLE ON
THE INVENTION?

The awardee has two years after it discloses an invention to the NIH
to determine if it wants to take title and file a patent application. 
If the organization does not choose to elect title, it must notify
the NIH.  Under these circumstances, the NIH has the option to take
title.  The Government evaluates the invention to determine whether
patenting and further development is in the public interest, because
of potential commercial interest or health benefit.  If the NIH
chooses to elect title, the inventor is guaranteed a portion of any
royalties.

10.  WHAT IF THE NIH ALSO DECIDES NOT TO ELECT TITLE?  CAN THE
INVENTOR GET TITLE?

Under these circumstances, after NIH consults with the awardee title
may be given to the inventor if it is requested.  If the inventor
takes title, he/she must abide by the Patent Rights Clause.

11.  HOW DOES THE GOVERNMENT BENEFIT, IF THE ORGANIZATION ELECTS TO
RETAIN TITLE TO AN INVENTION?

The government must be granted a "nonexclusive, nontransferable,
irrevocable, paid-up license to practice or have practiced for or on
behalf of the United States the subject invention throughout the
world" (37 CFR 401.14.6.b; see also "Confirmatory License" in the
accompanying terms).  The Government does not get a share of the
royalties, but the public does benefit if a useful invention is
developed, reaches the market, and becomes accessible to those who
need it.

12.  IS THERE ANY HARM IN AN INVENTOR PUBLICLY DISCLOSING AN
INVENTION BEFORE REPORTING IT TO THE TECHNOLOGY TRANSFER OFFICE?

Yes.  Inventions should be reported to the awardee organization prior
to publication or presentation at any open meeting, since failure to
do so may result in loss of the rights to the awardee organization,
inventor, and the Federal government in the invention.  Most foreign
patent rights are immediately lost upon publication or other public
disclosure, unless a patent application is already on file.  In
addition, statutes preclude obtaining United States patent protection
after one year from the date of a publication that discloses the
invention.

13.  WHAT IS THE PURPOSE OF THE ANNUAL INVENTION UTILIZATION REPORT?

An annual Invention Utilization Report is required for all inventions
for which a patent application has been filed or that have been
licensed, but not patented (e.g., biological material).  The
utilization reports must provide the status of development, date of
first commercial sale or use, and gross royalties received.  The NIH
cannot require a specific format for this report, but a suggested
format for this information is available upon request from OPERA and
on the world wide web (http://www.nih.gov).  The Invention
Utilization Report is used to document the implementation of the
Bayh-Dole Act and determine whether or not subject inventions are
being appropriately developed.  If the organization fails to properly
develop an invention, 37 CFR Part 401.6 gives the Government the
right to "march in" and, if the invention is deemed important for the
public good, develop it (see "March-In Rights" in accompanying list
of "20-20" terms).

14.  WHY WOULD AN AWARDEE ORGANIZATION NOT PROPERLY REPORT SUBJECT
INVENTIONS TO THE GOVERNMENT AND WHAT ARE THE CONSEQUENCES OF
FAILING
TO COMPLY WITH BAYH-DOLE REPORTING?

Failure to report inventions appropriately is usually caused by
"ignorance of the law" or a misunderstanding of the legislation and
its implementing regulations.  An additional concern that may
contribute to a failure to report is based on the incorrect premise
that the Government will inappropriately interfere with the
commercialization of subject inventions.  In fact, the Bayh-Dole Act
provides very few restrictions on commercial development.  As long as
Government funded inventions are reported and commercially viable
inventions are being reasonably developed by the organization (which
is in everyone's interest), Government involvement is limited to
retaining its confirmatory license.  On the other hand, failure to
comply with the reporting requirements of the Patent Rights Clause
can result in loss of the recipient's rights to an invention (37 CFR
401.14(d)) or the use of the Government's right to march-in.  In
addition, the latest version of the grant application form PHS 398
(rev. 5/95) includes a penalty clause for the improper reporting of
an invention or failure to report an invention.

15.  WHEN AN AWARDEE LICENSES A COMPANY TO USE AN INVENTION
DEVELOPED
WITH FEDERAL FUNDS, WHAT INFORMATION OR REQUIREMENTS MUST BE
INCLUDED
RELATIVE TO THE GOVERNMENT'S RIGHTS IN THE INVENTION?

The financial aspects of the license are between the awardee
organization and the licensee.  However, the awardee must inform the
licensee that the Federal government has a nonexclusive right to make
or use the invention for Government purposes.  In addition, if the
licensee is awarded exclusive rights to the invention, the awardee
must inform it that it is obligated to manufacture the invention
substantially in the U.S., if it will be sold or used in the U.S.

16.  WHO HAS THE RIGHTS TO DATA DEVELOPED UNDER NIH GRANTS?

Under the grant mechanism, recipient institutions have custody of and
primary rights to data developed, subject to the Government's right
of access.

17.  WHAT HAPPENS TO AN INVENTION WHEN THE INVENTOR/PRINCIPAL
INVESTIGATOR TRANSFERS TO A NEW INSTITUTION?

The invention belongs to the awardee organization.  The Bayh-Dole Act
requires that there be employee agreements in place at the awardee
organizations that obligate inventors to assign title to Federally-
supported inventions to the organization.  In return, the inventor
receives a portion of any royalties.  If the inventor moves to a new
organization, the rights to existing patents usually remain with the
former organization, although the inventor remains entitled to a
share of the royalties.  However, depending on the stage of
development of the invention, an inventor or the organization, with
NIH permission, may negotiate a transfer of rights to the new
organization.

18.  ARE ROYALTIES FROM PATENTED INVENTIONS CONSIDERED PROGRAM
INCOME?

Yes, but they are not considered general program income.  Thus, if no
specific footnote appears on the Notice of Grant Award pertaining to
royalty or other income from patents or inventions, its inclusion as
program income for the purposes of the financial status report is not
required.  However, such income must be reported on the annual
utilization report submitted each year by awardee organizations.  It
is important to note that, according to the Bayh-Dole Act, a portion
of royalties must go to the inventor and the balance must be used to
support scientific research and education.

19.  HOW DO ORGANIZATIONS SATISFY THE FEDERAL LAW THAT REQUIRES
AWARDEES TO REPORT INVENTIONS AND PATENTS THAT RESULT FROM NIH
FUNDING AGREEMENTS AND WHAT IS NIH DOING TO ENSURE AND FACILITATE
COMPLIANCE?

All awardee organizations are to use Form HHS 568 - "Final Invention
Statement and Certification" to closeout a grant or contract.  The
completed Form should be sent directly to the grants or contracts
office of the awarding component.

The NIH is in the process of finalizing an on-line information
management system based on a client-server database in which common
files are established and data is viewed or modified.  The system has
been named 'Edison' (see "Edison" in accompanying list of "20-20"
terms) and includes features that will significantly decrease the
amount of work needed for an organization to fulfill the reporting
requirements.

NIH may obtain title to inventions that are not properly reported and
elected.

20.  WHAT IF AN INVENTOR IS UNSURE THAT HE/SHE HAS MADE A SUBJECT
INVENTION?  WHAT IF THE INVENTOR AND/OR ORGANIZATIONAL OFFICIAL HAVE
A QUESTION OF A GENERAL NATURE?  WHOM CAN THEY CONTACT FOR
ADDITIONAL
INFORMATION?

Inventors should be aware that publication prior to filing a patent
application will immediately destroy patent rights in most foreign
countries.  Also, if the awardee organization elects rights, but
neglects to file a patent application or tell the Government what
action has been taken, a loss of patent rights for the organization,
the inventor, and the Government may result.  NIH may obtain title if
the patent application is not timely filed.

An inventor should work closely with organizational technology
transfer personnel.  Awardee organizations are encouraged to obtain a
copy of 37 CFR 401, which is available through OPERA, NIH, or on the
world wide web (http://www.nih.gov/grants and contracts/Edison). 
Additional assistance can be obtained from the grants management and
contracts management offices of the awarding component.  For
situations beyond the scope of the organizational technology transfer
official or the grants or contracts management officers, OPERA, NIH,
should be contacted.

WORDS FOR THE WISE:

20 INVENTION REPORTING TERMS WITH WHICH EVERY NIH AWARDEE SHOULD BE
FAMILIAR

1.  ASSIGNMENT.  Transfer of title or ownership in patent rights in
the form of a written assignment document.  By law, an inventor has
initial ownership of an invention.  However, awardee organizations
are required by the Bayh-Dole Act to have in place employee
agreements requiring an inventor to "assign" or give ownership of an
invention to the organization upon acceptance of Federal funds.

2.  BAYH-DOLE ACT.  Enacted on December 12, 1980 The Patent &
Trademark Act (Public Law 96-517) created a uniform patent policy
among Federal agencies that fund research.  Bayh-Dole enables small
businesses and non-profit organizations, including universities, to
retain title to materials and products they invent under Federal
funding.  Subsequent amendments created uniform licensing guidelines
and expanded the law's purview to include all Federally-funded
contractors (Public Law 98-620).

3.  CONFIRMATORY LICENSE.  Acknowledges right of retention by the
U.S. government of a "nonexclusive, nontransferable, irrevocable,
paid-up license to practice or have practiced for or on behalf of the
U.S. the subject invention throughout the world."  Such a license is
always retained by the U.S. government when the awardee elects title
to an invention, regardless of the title holder's licensing strategy. 
License agreements for Federally-funded technology must include a
clause addressing the Government's rights and interests, i.e., "The
Licensee acknowledges that the U.S. Government has certain rights in
this invention under 37 CFR 401 including a non-exclusive, non-
transferable, paid-up license heretofore granted by the Licensor."

4.  EDISON.  The electronic system for invention reporting to the
NIH.  The system is based on a client/server database architecture in
which a common file is established and data is viewed or modified in
real-time.  The system allows input and updates of records and
includes features in its architecture that will significantly
decrease the amount of work presently done by awardee organizations
to fulfill invention reporting requirements.  The system has been
named 'Edison,' in recognition of the prolific American inventor. 
Grant recipients may request authorization from OPERA, NIH, to use
the electronic system for invention reporting.

5.  ELECTION OF TITLE.  In accordance with 37 CFR 401 - Standard
Patent Rights Clauses, the notification of the decision to retain
title to an invention.  The election must be in writing, or sent
electronically, and is due within two years of disclosure of the
invention to the NIH.

6.  EXTENSION OF TIME.  In relation to disclosure, election, and
filing, requests for extension of the time needed to evaluate a
subject invention or identify a licensee, may, at the discretion of
the agency, be granted.

7.  FEDERAL SUPPORT CLAUSE.  Required language on a patent
application and any patent issued for an invention arising from
Federally funded activities:  "This invention was made with
Government support under (identify support) awarded by the PHS.  The
Government has certain rights in the invention."

8.  FILING.  The act of submitting a patent application to the Patent
Trademark Office or its foreign counterpart. Failure to file within
the one-year "grace-period" for public disclosure disqualifies the
invention from patent protection in the U.S.

9.  FINAL INVENTION STATEMENT AND CERTIFICATION.  Form HHS 568, due
prior to close-out of a grant/contract which lists all inventions
made under the grant or certifies that there were no inventions.

10.  FIRST TO FILE.  System used internationally for establishing who
has the right to patent an invention when more than one party is
claiming a single invention.  "First-to-Invent" is the system used in
the United States.

11.  INTELLECTUAL PROPERTY LAW.  A widely used term to designate a
field of law that encompasses products of the human mind or intellect
(e.g., patents, inventions, trademarks, copyrights).

12.  INVENTION/SUBJECT INVENTION.  An invention is anything made by
the "hand of man," that is a new, useful, and unobvious process,
machine, manufacture, or composition of matter, or any new and useful
improvement thereof.  The term "invention" means any invention or
discovery that is or may be patentable or otherwise protectable under
Title 35 of the U.S. Code.  The term "subject invention" means any
invention of an awardee conceived or first actually reduced to
practice in the performance of work under a Government funding
agreement (grant, cooperative agreement, contract).

13.  INVENTION DISCLOSURE.  A written report to the NIH that includes
the title, the name(s) of the inventor, a technical description of
the invention, the grant/contract number(s), and date of any public
disclosure.  Due within two months of inventor's initial report to
employer.

14.  INVENTION UTILIZATION REPORT.  Annual report to NIH regarding
status of commercialization of an invention for which a patent
application has been filed.  These reports are used to record the
status of development, date of first commercial sale or use, gross
royalties received by the awardee, and compliance with Bayh-Dole
legislation.  NIH is very lenient in accepting information in any
format, provided the basic required information is submitted.  A copy
of the suggested format is available on the world wide web in Edison
(http://www.nih.gov), or from OPERA, NIH.  Submission of this
information can be done electronically with NIH authorization.

15.  LICENSE.  The right to develop and practice a patent, invention,
trademark, or copyright.  A license is a written document granted by
the owner of a patent, giving permission to another to make, use or
sell articles embodying the invention.

16.  MARCH-IN RIGHTS.  The government's right to require that the
awardee provide nonexclusive, partially exclusive, or exclusive
license, under reasonable terms, to responsible applicants, if
necessary, because the awardee organization's licensee has not taken
(or is not expected to take) effective steps within a reasonable time
to achieve practical application of an invention or is necessary to
alleviate a health or safety need.

17.  PATENT.  A grant by the Federal Government to an inventor of the
right to exclude others from using, selling, or making an invention
during the lifetime of the patent.

18.  REDUCTION TO PRACTICE.  Actual reduction to practice is the
actual construction or working of the invention for its intended
purpose.  Constructive reduction to practice is the filing of a
patent application with the Patent Trademark Office.  An invention is
a subject invention if it is conceived or first actually reduced to
practice in the performance of work under the grant or contract.

19.  STANDARD PATENT RIGHTS CLAUSE.  Details awardee obligations and
responsibilities to the U.S. government with regard to Federally-
supported inventions.  Full text of the patent rights clause (37 CFR
401.14) can be found in the revised PHS Grants Policy Statement -
Appendix 9, or on the world wide web in Edison.

20.  TECHNOLOGY TRANSFER.  The transfer of research results to the
commercial sector or interchange between the private and public
sectors.

.
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