The push to free intellectual property (IP) from the management hands of the federal government actually began in the era of World War II. The great industrialist, inventor, MIT professor, and founder of Raytheon, Vannevar Bush, published a report for President Truman called “Science—The Endless Frontier.” It was apparent to government leaders and the nation at the time that academic researchers were critically important to the success of the Manhattan Project and defense of the country. The prescient Bush also recognized the possibilities for universities bolstering the economy by transferring its understanding of basic science to industry for application. Bush’s report was instrumental in the formation of the National Institutes of Health (NIH) and the National Science Foundation (NSF), and provided substantial increases in funding by the federal government for basic research at universities [1]. As a result of the increased funding for basic scientific research, universities began to emphasize cutting-edge research programs and recruit faculty members capable of securing federal research grants. By the 1960s and 1970s, it was apparent research and inventions developed under federal grants were not being commercialized as efficiently as possible. Without a unified federal policy and with the reluctance of the federal government to cede ownership of inventions to the funded organizations, flow of government-funded inventions to the private sector was very limited. Furthermore, government would only grant nonexclusive licenses to inventions created under its funding. In such an environment, companies were hesitant to invest in and develop new products if competitors could also obtain licenses and sell the same products, especially in the pharmaceutical sector. While taxpayers supported the federal research enterprise, they were not benefiting from products developed with federal research dollars or the economic development that could have occurred with the manufacture and sale of those products.

Bayh–Dole Act

The topic of commercializing academic drug discoveries cannot be properly treated without at least a minimal understanding of the seminal piece of legislation that spawned the university technology transfer industry, the Bayh–Dole Act. Codified on December 12, 1980, the Bayh–Dole Act (also known as P.L. 96-517 and The Patent and Trademark Law Amendments Act) provides the legal framework for which federally funded university technologies are commercialized. Prior to implementation of the Bayh–Dole Act, the federal government retained title and ownership of any inventions that were developed with federal grants. The federal government did not grant exclusive licenses to patents that were filed on such inventions, only nonexclusive licenses. One can imagine the pharmaceutical industry’s reluctance to license patents from the federal government under the pre-Bayh–Dole conditions, and the data supports the industry’s hesitancy. In a 1968 study, it was found that not a single pharmaceutical patent owned by the federal government had ever been licensed, and by 1980, only 5% of the government’s 28,000 patents had ever been licensed [1, 2].

By 1980, the time was ripe for a policy that permitted universities and small businesses to elect ownership of inventions made under federal funding and to become directly involved in the commercialization process. Importantly, the new policy would also permit exclusive licensing of federally funded IP. Thus, the Bayh–Dole Act was born.

Quantitatively, the results of the Bayh–Dole Act have been astonishing [3]. In 1980, U.S. universities were granted approximately 200 patents and executed a negligible number of licenses. According to the 2010 AUTM Licensing Survey, in 2009, universities filed over 18,000 patent applications, executed over 5000 license and option agreements, witnessed the formation of 651 new companies, saw the introduction of 657 new products on the market, and realized $2 billion in income from licensing activity [1–3]. Some of the more significant university inventions commercialized over the past 30 years include Emtriva, which was developed by Emory University researchers and is taken by 94% of HIV patients, Lyrica, which was developed by researchers at Northwestern University for fibromyalgia and is Pfizer’s second leading drug, and Remicade ®, which was developed by researchers at New York University and is a leading therapy for patients with rheumatoid arthritis.

To achieve the same level of success as some of the products listed above, it is important for universities and their respective licensees and collaborators such as pharmaceutical and biotechnology companies to be cognizant of some of the important regulations of the Bayh–Dole Act. First, the provisions of the act apply to all inventions conceived or first reduced to practice in the performance of a federal grant or contract [4]. This is true even if the Federal government is not the sole source of funding for either the conception or the reduction to practice. Therefore, if an invention is developed with both federal and corporate funding, the presence of the corporate funding does not alleviate or attenuate the obligations and regulations under Bayh–Dole. Second, any company that obtains an exclusive license to a patent that involves sales of a product in the United States must substantially manufacture the product in the U.S [4]. Waivers of this rule may be available, but the company and university must demonstrate that reasonable but unsuccessful efforts have been made to find a company that will manufacture the product in the US, or that manufacture in the US will not be economically feasible. Third, universities must give licensing preference to small businesses (fewer than 500 employees) [4]. However, if a large company has provided research support for the development of the invention, that company may be granted the license. Fourth, universities may not assign their ownership of inventions to third parties, with few exceptions [4]. Finally, under certain circumstances, the government can require the university to grant a license to a third party or the government may take title and grant licenses itself (called “march-in rights”) [4]. In the history of Bayh–Dole, no federal agency has ever exercised its march-in rights.

Technology Transfer Office Philosophy

Ask ten different universities for a philosophy on technology transfer and one is likely to receive ten different answers. In fact, if ten members of the administration, faculty, and staff within one university are asked the same question, one is probably destined to receive ten different responses. A university’s technology transfer office philosophy is often shaped by the composition and vision of the administration, the research strengths of the faculty, the local and regional economic and entrepreneurial environment, the leadership of the technology transfer office, and historical successes and failures.

While the emphases vary between and within universities, most university technology transfer offices share a similar core mission—to disseminate knowledge through competent transfer of technology into the marketplace for the benefit of society and to support the university in its research and educational endeavors by providing an unrestricted source of income through licensing and commercialization of the university’s intellectual assets [5–9].

Practically speaking, the technology transfer office accomplishes its mission by engaging in the following activities:

1. Serve the Faculty as Customers.  Take a poll of the major research university technology transfer offices and many of them will express that outstanding customer service to the faculty is a primary goal of the office. Great customer service often yields more and higher quality invention disclosures as well as fosters the entrepreneurial spirit of the research community.
   
2. Negotiate and Execute License Agreements and Other Contracts.  A core function of the technology transfer office is the negotiation, drafting, revising, and execution of IP license agreements, confidentiality agreements, material transfer agreements, inter-institutional agreements, and occasionally, research collaboration agreements. The licensing professional typically negotiates both the financial and legal terms to be incorporated in the agreement.
   
3. Expedite Local or Regional Economic Development.  Many universities, especially state and public universities, are charged with spurring and improving local and regional economic development. Federal, state, and local governments often translate economic development as company formation and job creation. In fact, the Bayh–Dole Act requires universities to give IP licensing preference to small businesses or start-up companies. Furthermore, the Bayh–Dole Act obligates licensees of federally funded inventions to manufacture substantially such inventions in the United States.
   
4. Facilitate Start-Up Company Formation.  The technology transfer office plays an essential role in the creation of new companies. The office can help in the actual company formation (e.g., drafting and filing the articles of incorporation), advise on the creation of a business plan, identify entrepreneurs, consultants, and board members that can help initiate and grow a fledgling company, and locate funding sources suitable for the company’s business. Given the early-stage nature of university inventions, and oftentimes, the unknown or ill-defined market opportunity, a start-up company can be an attractive, and perhaps, only avenue for incubating and cultivating a new, unproven technology.
   
5. Protect University Intellectual Assets.  The technology transfer office is responsible for ensuring that new inventions are protected appropriately, be it through patents, copyrights, or material control. The office usually manages prosecution of patents from initial filing to expiration, registers copyrights when necessary, and organizes transfer of tangible materials to other entities through material transfer agreements or nonexclusive licenses.
   
6. Generate Revenue.  While university administrators often stress the importance of revenue generation, the topic can be quite challenging and complex for the technology transfer professional. University technology transfer offices agree that revenue generation is important, but they also acknowledge that revenue is a lagging indicator of an office’s performance and that the office has the least control over the amount of revenue that is generated in a given year. Large revenue-generating deals are frequently completed years before any actual revenue is realized, and many times by a professional who no longer works for the office.
   
7. Disseminate of Knowledge through New Product Creation.  Universities are centers of knowledge creation and discovery. While the traditional route of knowledge dissemination at a university is through peer-reviewed publication, the technology transfer office can disseminate knowledge in a more practical way—by creating and developing opportunities for new products that incorporate university research. The taxpayer realizes a return on his or her tax dollars when federal research money is used in the development of new pro­ducts that benefit the public. The university technology transfer office improves the probability that such products make it to market by requiring licensees to commercialize diligently inventions developed with federal research dollars.
   
8. Explore Business Development and Marketing Opportunities.  Unlike companies that can create opportunities around markets, universities must find or create markets for their opportunities. Technology transfer offices spend a significant amount of time marketing their technologies, trying to find the best opportunity to develop and commercialize the invention. The marketing process includes direct contact to companies and indirect advertisement on websites such as the technology transfer office’s webpage or third party hosts such as the Kauffman Foundation’s iBridge^SM Network or yet2.com.
   
9. Support Translational Funding Infrastructure.  Many major research universities now have translational funding sources to fund projects that have commercial potential or that may not be suited for traditional NIH or other basic science funding. The translational funds can be supported by the schools, private foundations, or local or state governments. Similar to a study section that reviews grant proposals for the NIH, these translational funds have boards or executive committees that review submissions for technical merit, IP position, and potential for significant market penetration. The technology transfer office generally participates on these boards and provides important due diligence and market analysis to ensure that the funds go toward the most deserving and promising projects.
   
10. Solicit Invention Disclosures.  A pipeline of invention disclosures is vital for the health of a technology transfer office. Faculty researchers can sometimes be confused as to what merits an invention. The licensing professional not only stays in close contact with faculty and remains up-to-date on inventive activity at the university, he or she can also advise researchers on the standards for what comprises an invention. He or she can also encourage them to add value to the invention by performing specific experiments, for example.
    
11. Make strategic Investments in the Patent Portfolio.  What do IBM, GE, and university technology transfer offices have in common? They all want more money to spend on patents! Unfortunately for all, the patent budget is finite, and at universities, it is usually severely limited. Universities make extensive use of the provisional patent filing system to save on costs upfront, but at some point, decisions have to be made as to which opportunities will receive patent funds. The technology transfer office does its best to keep as many opportunities alive as long as possible. However, the harsh reality is that some opportunities will be dropped. The office is responsible for making these decisions, and they are primarily based on the strength of the IP covering the opportunity, the market potential, and prospects for further development.
    
12. Provide IP and Compliance Support to University Administration.  As the primary expert on all things IP at a university, from patents and copyrights to infringement and export controls, the technology transfer office aids university administrators when IP issues arise. Offices at the university that may receive advice include the office of sponsored programs and research compliance, the office of general counsel, and the conflict of interest office. Issues that appear commonly range from IP disposition in a research contract sponsored by a corporation to resolution of a conflict in a faculty start-up company.

The above is certainly not an exhaustive list, but it should give the reader a flavor for what the university technology transfer office does and what it emphasizes as important for its mission.

The University’s IP Policy

The university’s IP policy governs the ownership and disposition of IP created by faculty, staff, and students. While there is great diversity among the details in university IP policies across the country, most policies address at least the following three issues: treatment of different categories of IP and ownership of each type, disclosure obligations, and distribution of royalties.

Because of the Bayh–Dole statute, universities treat patentable inventions developed with federal funds very similarly—the university typically asserts ownership in such inventions and elects title from the federal government. Likewise, universities usually will not take ownership in IP that is commonly referred to as scholarly works. Examples of scholarly works include textbooks, plays, music, and scientific articles.

Unfortunately, the bright lines of university ownership begin to blur when one examines ownership of nonscholarly copyrightable works, software, IP developed under a consulting agreement, or IP created outside the area of expertise of the university researcher. In large part, universities assert ownership in nonscholarly copyrightable works and software assuming that university funds, facilities or resources are used. The university treats such works as “works made for hire” under the U.S. Copyright Act.

IP created under the scope of a consulting agreement can be difficult to manage and philosophies on the disposition and ownership of such IP vary significantly among universities. Generally, the university is not a party to the consulting agreement—it is entered into between a researcher and a company. Some universities review consulting agreements and others do not. Likewise, some schools will assert ownership in consulting IP if substantial university resources are used, and many others will allow ownership to vest in the individual inventor (who may assign ownership to a company through a consulting agreement). Since each school is different, it is advisable to check the school’s respective IP policy [5–9].

Along the same lines, universities differ in their view of inventions developed by researchers that fall outside their area of expertise or are created with external funds. Often, it falls to a senior administrator or committee, such as the vice president for research or a university-wide IP committee, to make ownership determinations of inventions that fall within these gray areas.

Another important aspect of the university IP policy is an express description of the disclosure obligations of faculty and employees. Because much of the research at universities is funded by the federal government or corporate entities, and because the federal government and corporate partners require prompt disclosure of any inventions developed under their respective funding, universities obligate researchers to disclose any and all inventions to the university technology transfer office. The university IP policy also may direct where and how such invention disclosures are to be made.

Section 202(c)(7)(B) of the Bayh–Dole Act requires universities to share any royalties received from federally funded inventions with the inventor. Like most aspects of university IP policies, exact distribution of royalties varies from school to school. However, a cursory survey of university IP policies reveals that most universities give 25–40% of royalties received from commercialization of IP to inventors. The remainder is split among the university, and the inventor’s respective lab, department, and school, with the university receiving the lion’s share of the remainder. Some universities implement a sliding scale where the percentage distribution changes as the royalties received increases [5–9].

Ownership of IP (Stanford v. Roche)

Major research universities assert ownership of IP developed by faculty and staff in two ways. First, like corporations, universities take ownership by virtue of the employment agreement between the faculty or staff member and the university. Second, most universities and research institutions are funded by grants from the federal government. The Bayh–Dole Act allows universities and other nonprofit entities to elect title to inventions developed under the sponsorship of a federal grant, contract or cooperative agreement.

There are several issues for universities to consider with respect to the ownership avenues listed above. Unfortunately, many universities do not have “airtight” employment agreements with their faculty and staff. Creating new IP is considered a passive activity at universities and therefore, securing ownership of IP is not of primary concern. The shortcoming of these “soft” ownership arrangements between universities and their faculty and staff was highlighted in the case of Stanford v. Roche, which was decided by the Supreme Court in 2011.

As a brief summary of the case, Mark Holodniy was a professor at Stanford University in 1988, and he invented an HIV-detection kit with federal grant money. During his time at Stanford, he also served as a researcher at a company called Cetus (now Roche). Holodniy signed a confidentiality agreement with Cetus, and the confidentiality agreement contained assignment language for any IP developed during his time at the company. By signing the confidentiality agreement, he granted Cetus rights to anything he invented. Cetus/Roche commercialized the invention and the HIV test kits invented are now used in hospitals and clinics worldwide. In 2005, Stanford sued Roche claiming that, under Bayh–Dole, Stanford owned all of the IP invented by Holodniy. Stanford asserted that the Bayh–Dole Act should trump any other contract Holodniy signed. Unfortunately for Stanford, the Supreme Court disagreed and said that the assignment agreement Holodniy signed with Cetus/Roche took precedent. Stanford’s employment agreement turned out to be a major issue for them. At the time, Stanford’s employment agreement said that inventors “agree to assign” (future tense) inventions to Stanford, whereas Cetus’s assignment agreement said that the inventors “do hereby assign” (present tense). University ownership of faculty inventions does not vest automatically by way of the Bayh–Dole Act—universities must either elect title to federally funded inventions or take ownership by way of an employment agreement that explicitly assigns ownership of inventions to the university. Since the decision, universities have been modifying their IP and employment policies to assert ownership of IP. Many universities now have employment and IP policies that look like corporate policies [10, 11].

Other issues that arise for universities in asserting ownership of IP include ownership of inventions made by undergraduates, inventions developed under nonfederally funded research grants, and standards by which a university decides when to take ownership of IP. Typically, universities do not take ownership of any IP developed by faculty and staff that is considered a scholarly work. Textbooks are a primary example of scholarly works. Universities also do not ordinarily assert ownership in inventions developed by undergraduates. The rationale for such a position is that undergraduates pay to attend universities and therefore, it would be unfair for the university to take ownership of IP on top of tuition. The one possible exception is where an undergraduate is participating in a federally funded research project and the Bayh–Dole provisions apply. However, some universities still will not assert ownership in such circumstances. Each university has its own standard by which ownership in nonfederally funded inventions is determined. Often, these decisions are made by examining the funding source of the project or the facilities and resources used by the inventor. A university executive or committee is usually charged with making the final decision [5–9].

Staffing for Success

University technology transfer offices perform a wide variety of highly specialized functions related to the patenting and licensing of inventions. In addition, these offices also perform a vital responsibility at their institutions related to the formation of research partnerships with industry, and in negotiating the exchange of research materials and research tools (Figure 33.1).

A variety of skill sets are required of the technology transfer professional. He or she must be an expert in or have a working knowledge of all forms of IP (patents, copyrights, etc.), negotiating, contract drafting, government compliance, business development, marketing, valuation, and of course, science and technology. Because of the assortment of technologies managed by the university technology transfer office, the range of skills required for the job, and the “cradle-to-grave” business model that most offices employ, a very diverse composition of professionals make up the technology transfer industry. The vast majority of professionals have advanced degrees in science, law, or business, and many have specialized certifications such as registered patent attorneys or agents, Certified Licensing Professionals (CLP^TM), or Registered Technology Transfer Professionals (RTTP).

Protecting Drug Discoveries: Intellectual Property

Biological or Drug Targets

Arguably the first step in the drug development process is the identification of a target that in some way contributes to the pathology of a disease [17]. The target can be a protein, enzyme, or receptor with etiological significance. Universities are particularly adept at identifying biological targets of diseases for two reasons. First, university researchers are funded primarily for basic sciences through NIH, and identifying targets is mostly a basic science activity. Second, universities typically have strong research programs in basic biology, pathophysiology, and life sciences in general. Since the university is not trying to develop products, but to move the boundaries of knowledge space outward, it can focus intensely on target identification and disease etiology without concern for the risks of such research endeavors (i.e., “fishing expeditions”).

What does the university technology transfer office do with a newly identified disease target? This question has been the source of great controversy and debate over the past twenty years. A seminal case on the subject was concluded in 2004 that guides the decision making process for most universities. Researchers at the University of Rochester identified the COX-2 enzyme and its role in inflammation. Pfizer, and its acquiree Searle, developed the first COX-2 inhibitor, Celebrex®, for the treatment of osteoarthritis and other painful conditions associated with excessive inflammation. Rochester had filed a patent on the COX-2 target and mechanism and sued Roche asserting that its patent precluded Pfizer or any other company from developing and selling drugs that modulated the activity of COX-2. In the end, the courts concluded that Rochester’s “reach-through” claim to its drug target was invalid because it failed to identify and describe any drugs that could inhibit the COX-2 enzyme in its patent [18].

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