VI. Pertinent government regulations and the law

A number of laws have been passed by the Congress which relate to TT, but perhaps the most significant is the Technology Transfer Act of 1986 (PL 99-502) [Appendix A], which actually amends the Stevenson-Wydler Act of 1980 [Appendix D]. The significance of PL 99-502 is that it authorizes a collaboration between the Government Laboratories and private industry that would have previously been considered a conflict of interest. In particular, the 1986 act permits each Agency to allow its local Federal Laboratories to:

1. Negotiate and enter agreements directly with private industry for the commercialization of a product of mutual interest;

2. Accept and use for specific purposes monies paid to the laboratory by collaborating party under such agreement;

3. Exchange personnel, expertise, equipment, and use of facilities with collaborating party or parties; and

4. Grant, even in advance, licenses to manufacture and market any patentable product which may result from this mutual effort.

In addition, a government employee-inventor can share in any royalties received by the Agency, and must by law receive at least 15% of such royalties off the top. This is in addition to salary and is not considered a conflict of interest. As of this date, the VA has been paying inventors at the rate of 50% of all royalties received.

This is all accomplished through the mechanism of a Cooperative R&D Agreement or CRADA. It is important to note that this is not a contract and therefore does not involve any government funds being paid out to the collaborating party. For this reason, it avoids most of the red tape, delays, and all competitive bidding, as well as many of the issues relating to conflicts of interest.

As for conflict of interest questions, the main issues are covered (for the VA) by an earlier regulation in Title 38 of the Code of Federal Regulations (CFR), Part 0 titled "Standards of Ethical Conduct and Related Responsibilities" (see Appendix F). Note that VA employees are to avoid both conflicts of interest and any appearance thereof. But PL 99-502 specifically encourages (both by words and rewards) the government employee-inventor to participate in the commercialization of a product that he/she may have developed for the government. This is a significant change from previous law regarding commercialization.

A word of caution regarding Cooperative R&D Agreements: Under the TT Act of 1986, the Department of Veterans Affairs has decided to require that the negotiated agreement cannot be signed by the VA Medical Director (i.e., the Federal Laboratory Director) until the entire agreement has been submitted to the Office of General Counsel in Washington, D.C., and has been officially approved by that office. This subject will be discussed further in Section XVII.

The VA has developed a generic CRADA to be used as a guide for all VA Medical Centers in entering such agreements. This generic agreement is presented in Appendix E, with some additions and modifications we have made here at Palo Alto. Please bear in mind that this agreement is simply a model, and should be modified as needed for any particular situation. Some items may be completely inappropriate in dealing with very small business firms who might not be able to supply any funds, but might be willing and able to furnish personnel, special marketing expertise and/or specialized facilities or know-how. Clearly, there are these and other areas which can be negotiated. Such deviations from the generic agreement should be pointed out and justified to GC when it is submitted for approval (see Appendix G).

It should also be noted that PL 99-502 [Appendix A] requires that all royalty income be sent directly to the agency, which first pays the inventors their share off the top, and then distributes the rest to various Agency laboratories, with the majority of the remainder going to the lab where the invention or discovery was made. This point is not mentioned in the generic agreement as written.

More recently, in March of 1996, the National Technology Tranfer and Advancement Act of 1995 (PL104-113) was signed into law to further facilitate the transfer of Federal technology to the private sector. From the viewpoint of the Federal employee, the highlights of this more recent Act are as follows:

1. Handling of income from royalties or other payments from collaborators in commercialization efforts:
   
   

   a. Such payments may be retained by the laboratory in which the invention was made

   b. Agency or laboratory shall pay each year the first $2000 and thereafter at least 15% to inventors or co-inventors.

   c. Laboratory may use such funds as incentives to reward other laboratory employees who are not inventors but have contributed significantly to the value of the invention.

2. Royalty income to inventors:Maximum limit of $100,000 per year (in addition to regular salary) is increased to $150,000 per year. Higher amounts can be paid only with approval by the President, as in PL99-502.

From the viewpoint of the collaborating parties, there are also some very important features which give those parties more and better defined licensing rights, as well as further protections against public disclosure of trade secrets. The entire text of the National Technology Transfer and Advancement Act of 1995 is included herein as Appendix N.