More DOE Bureaucracy Equals Less Innovation

“Rather than undermining the most successful technology commercialization system in the world, we should find effective ways to make more products here. Discouraging commercialization doesn’t do that.”

DOEYou have to give them credit. The Department of Energy (DOE) bureaucracy doesn’t give up. For more than 40 years, they’ve been resisting the Bayh-Dole Act’s mandate cutting Washington out of micro-managing the commercialization of federally funded inventions. And under the guise of increasing domestic manufacturing, they’re well on their way to reasserting control.

Before 1980, federally funded inventions were strangled under laborious case by case reviews to determine whether ownership would be waived from government agencies to the inventing organization. As a result, few inventions were ever developed. Bayh-Dole cut the Gordian knot, mandating that universities, contractor operated federal laboratories and small companies could own and license their discoveries. American innovation took off, and we regained our lead over our foreign competitors.

The law mandates that in granting exclusive licenses for the U.S. market, preferences must be given to those pledging to manufacture resulting products domestically. If that can’t be done, the funding agency must be asked for a waiver. The law felt that it’s better to have a product made somewhere, with royalties coming back here, than for it to waste away, benefiting no one.

A Nasty Surprise

In late 2020, universities and contractor-operated labs receiving DOE funding got a nasty surprise. Attached to their funding agreements was a new provision mandating that any license, exclusive or non-exclusive, for foreign or domestic markets, would have to be manufactured here or it would trigger a headquarters review. This change was imposed without input from anyone involved in commercialization at the universities, the labs or the private sector and without explanation.

The Bayh-Dole Coalition, which I lead, set up a conference call with DOE to discuss the situation. We learned that DOE had exercised the “exceptional circumstances” provision of the law, which allows agencies to exempt specific programs from its provisions when doing so will “better promote the policy and objectives of this chapter.” The purpose of Bayh-Dole is “to promote the utilization of inventions  arising from federally supported research and development…”

What Congress had in mind was unusual circumstances when a technology might be sufficiently developed with federal funds that the commercialization incentives of the law were not required. However, Senators Bayh and Dole recognized that this provision could be abused, particularly by DOE, so the law requires the Secretary of Commerce to validate that an exception is justified.

No one ever imagined that an agency would attempt to exempt all of its R&D programs in this manner, until now. That is not an “exception,” it is an attempted escape from the law. Over the years, Commerce’s oversight authority was delegated down to the National Institute of Standards and Technology, one of its laboratories, which rolled over rather than standing up to DOE.

The Broken Waiver Process

Under pressure, DOE finally issued a  “Frequently Asked Questions” paper explaining the rationale behind their action. It included this statement:

“DOE’s experience has been that owners of DOE-funded subject inventions may design their licensing strategy to focus more on non-exclusive licensing to avoid the U.S. Preference requirement.”

That’s an extraordinary accusation, particularly when offered without evidence, implying that universities are sneaking technologies out the back door. But perhaps DOE thought something untoward was going on, as so few waivers are sought under Bayh-Dole when a domestic manufacturer can’t be found. But the reason isn’t that universities are working around the law. Rather, it’s because most times their waiver requests are completely ignored. So, instead of seeking permission to have these products made somewhere, they‘re left to gather dust.

AUTM, which represents the academic technology management profession surveyed  its members about their experiences seeking domestic manufacturing waivers. Of the 51 offices that replied, only 22 waivers were filed in the past five years. Of the 33 institutions that filed them, eight said it took over a year to hear back from the funding agency. A staggering 22 said they never received a reply at all.

Here’s how two respondents characterized their experience:

“The waiver process is completely busted. Not only did we spend precious non-profit dollars on requesting legal help in navigating the waiver process, it was useless. The end result is that because the company could not get a US waiver, the availability of the product for US patients was blocked. The product is available globally except in the US because of this issue. So, US patients are suffering.”

“We have had prospective licensees who avoided licensing or substantially changed the terms of a licensing agreement because of their concern for the length of time it would take/uncertainty of getting a waiver.”

As a result, we have a system where most agencies simply ignore their statutory duty to handle these waiver requests with an eye to ensuring that the technology is being developed. Instead, this dereliction of duty condemns useful discoveries to going to waste. And DOE is about to make this situation much worse.

One Lab’s Story

Last year, National Public Radio ran a story claiming that DOE’s Pacific Northwest National Laboratory (PPNL) allowed an important battery technology to be given away to China. As you can imagine, that set off a firestorm, with DOE vowing to get to the bottom of it.

But the other side of the story was never told. The laboratory showed DOE that the license included the domestic manufacturing preference even though it was non-exclusive—in other words, they had done exactly what DOE’s new policy requires.

Further, the technology was licensed for use in China, in exchange for royalties, and the deal was lauded at the time by the U.S. government “as an important activity to achieve atmospheric carbon reduction and advance U.S. government goals.” Further, when the licensee for the U.S. market missed important milestones, the license was terminated. PPNL was not faulted for its decisions, but that it needed to better document how they had been made.

While the lab was thrown under the bus, the Secretary of Energy launched a review of DOE licensing practices in the labs. The review was conducted by an all-headquarters team. One of the labs described the resulting process as “they talked, we listened.”

The report just issued, but DOE hasn’t yet made it public. While the recommendations of the need for more Washington supervision and more process were predictable, a few interesting nuggets slipped through.

  • “As expected, the laboratories had differing opinions on possible changes to the role of DOE/NNSA in monitoring and oversight of laboratory IP licenses.”
  • “Laboratory IP Licenses with Foreign Entities including those from Countries of Risk Are Very Rare…”
  • “Other laboratories expressed concern about increasing DOE/NNSA oversight and/or requirements on licensing activities at the laboratories. The three main concerns about increased oversight included its potential to limit private sector investment, reduce the attractiveness of laboratory IP, and encroach on the laboratory’s broad statutory rights.”

My personal favorite is the concluding sentence in the report about a possible result of its recommendations: “Small business licensees will have limited capacities to respond to complex compliance programs and may be discouraged from working with the labs.”

DOE Isn’t Helping

But one notable item is missing in all of DOE’s actions—how does any of this increase the U.S. manufacturing capability? The answer:  it doesn’t.

Here’s the crux of the problem: for many technologies, domestic manufacturers simply cannot be found. Now, think about asking a small company that nonexclusively licensed a DOE funded widget to find a domestic manufacturer for a product destined for Asian or African markets. It’s most likely an exercise in futility.

Even in the best circumstances, it’s hard to find companies willing to undergo the expense and risk needed to turn federally funded inventions into products. Our system is driven by small companies, who must raise venture funding to take new technologies to market. Time is of the essence to them. To arbitrarily make an already formidable task harder by sending hard pressed entrepreneurs on a wild goose chase makes no sense. And when it fails, they’re headed to a DOE headquarters review process that in the best circumstances will bring things to a halt for months—and even then, the answer could be “No!”

When DOE announced its new policy, some academic institutions said they would forgo taking ownership of inventions made with its funding, because they would be unlicensable. Universities pay their patenting and technology transfer costs,  which are considerable. They could not justify those expenses under the new policy. Many DOE laboratories fear that all their agreements will now be mired in long delays. Companies are already walking away from potentially important partnerships.

Rather than undermining the most successful technology commercialization system in the world, we should find effective ways to make more products here. Discouraging commercialization doesn’t do that. It also doesn’t prevent technologies from leaking abroad. Before Bayh-Dole, foreign competitors carefully scrutinized our scientific publications looking for important discoveries we were giving away without patent protection.

Turn American Innovation Loose

Our decentralized system of technology management runs rings around our competitors, including China. The best response to challenges to our leadership is turning American entrepreneurs loose—and engaging our best minds to expand our manufacturing base so it’s second to none.

Bayh-Dole works. Leave it alone. And no new Washington bureaucracy, please. If climate change and the need to produce clean, renewable energy is the “existential issue of our time,” as the Administration claims, then get the bureaucracy out of the way so we can go about solving it.

Image Source: Deposit Photos
Image ID: 22499437
Author: seb_ra


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