Technology Transfer: public subsidized R&D to privatized profits

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Like all advanced societies, the U.S. has relied on state intervention in the economy from its origins, though for ideological reasons, the fact is commonly denied. During the post-World War II period, such "industrial policy" was masked by the Pentagon system, including the Department of Energy (which produces nuclear weapons) and NASA, converted by the Kennedy administration to a significant component of the state-directed public subsidy to advanced industry.
By the late 1940s, it was taken for granted in government-corporate circles that the state would have to intervene massively to maintain the private economy. In 1948, with postwar pent-up consumer demand exhausted and the economy sinking back into recession, Truman's "cold-war spending" was regarded by the business press as a "magic formula for almost endless good times" (Steel), a way to "maintain a generally upward tone" (Business Week). The Magazine of Wall Street saw military spending as a way to "inject new strength into the entire economy," and a few years later, found it "obvious that foreign economies as well as our own are now mainly dependent on the scope of continued arms spending in this country," referring to the international military Keynesianism that finally succeeded in reconstructing state capitalist industrial societies abroad and laying the basis for the huge expansion of Transnational Corporations (TNCs), at that time mainly U.S.-based.
The Pentagon system was considered ideal for these purposes. It imposes on the public a large burden of the costs (research and development, R&D) and provides a guaranteed market for excess production, a useful cushion for management decisions. Furthermore, this form of industrial policy does not have the undesirable side-effects of social spending directed to human needs. Apart from unwelcome redistributive effects, the latter policies tend to interfere with managerial prerogatives; useful production may undercut private gain, while state-subsidized waste production (arms, Man-on-the-Moon extravaganzas, etc.) is a gift to the owner and manager, who will, furthermore, be granted control of any marketable spin-offs. Furthermore, social spending may well arouse public interest and participation, thus enhancing the threat of democracy; the public cares about hospitals, roads, neighborhoods, and so on, but has no opinion about the choice of missiles and high-tech fighter planes. The defects of social spending do not taint the military Keynesian alternative, which had the added advantage that it was well-adapted to the needs of advanced industry: computers and electronics generally, aviation, and a wide range of related technologies and enterprises.


The Pentagon system of course served other purposes. As global enforcer, the U.S. needs intervention forces and an intimidating posture to facilitate their use. But its economic role has always been central, a fact well-known to military planners. Army Plans Chief General James Gavin, in charge of Army R&D under Eisenhower, noted that "What appears to be intense interservice rivalry in most cases...is fundamentally industrial rivalry." It was also recognized from the outset that these goals require "sacrifice and discipline" on the part of the general public (NSC 68). It was therefore necessary, Dean Acheson urged "to bludgeon the mass mind" of Congress and recalcitrant officials with the Communist threat in a manner "clearer than truth," and to "scare hell out of the American people," as Senator Vandenberg interpreted the message. To carry out these tasks has been a prime responsibility of intellectuals throughout these years.


The decline of the traditional form of industrial strategy is a serious matter. To convince the taxpayer to subsidize advanced industry by the methods designed in the early postwar years is becoming increasingly difficult. It is not surprising, then, that we now hear open discussion of the need for "industrial policy" -- that is, new forms, no longer masked by the Pentagon system.


The old methods were running into difficulties for reasons beyond the loss of the standard pretext and the erosion of tolerance on the part of people suffering the effects of Reaganite spend-and-borrow abandon. The Pentagon system of industrial subsidy and planning has obvious inefficiencies. These were tolerable in the days of overwhelming U.S. economic dominance, less so as U.S.-based corporations face serious competitors who can design and produce directly for the commercial market, not awaiting possible spin-offs from high tech weapons or space shots. Furthermore, the cutting edge of industrial development is shifting to biology-based technology. That is one reason why the West, with the U.S. in the lead, is insisting that GATT agreements and NAFTA (North American Free Trade Agreement) provide enhanced protection for patents ("intellectual property"), thus locking the Third World into dependency on high-priced products of Western agribusiness, biotechnology, the pharmaceutical industry, and so on. It is important to ensure that TNCs control seeds, plant varieties, drugs, and the means of life generally; by comparison, electronics deals with frills. Public subsidy and state protection for biology-based industries can not easily be hidden behind a Pentagon cover. For such reasons alone, new forms of state intervention are required (see Year 501, South End Press).


Berkeley Professor Laura Tyson as Chairperson of the Council of Economic Advisors. Tyson was a founder and codirector of the Berkeley Roundtable on the International Economy, a corporate-funded trade and technology research institute that advocates unconcealed state industrial policy. She has "longstanding relationships with Silicon Valley companies that stand to benefit from the policies she advocates," Times business correspondent Sylvia Nasar notes. In support of these policies, Roundtable co-director Michael Borrus cites a 1988 Department of Commerce study showing that "five of the top six fastest growing U.S. industries from 1972 to 1988 were sponsored or sustained, directly or indirectly, by federal investment," the only exception being lithographic services. "The winners" in earlier years, he writes, "computers, biotechnology, jet engines, and airframes were each the by-product of public spending for national defense and public health." The record goes back to the earliest days; "defense" and "public health" are the familiar Newspeak disguises, perhaps a shade less deceptive than "free market neoliberalism."
Such familiar lessons of economic history can no longer be concealed, as the Pentagon system and the Cold War ideology have eroded. The interventionist measures of the Reaganites reflect these needs, as does the increasingly open discussion of "industrial policy." A recent study of the National Academy of Sciences and Engineering proposed a $5 billion quasi-governmental company "to channel federal money into private applied research"; that is, publicly-funded research that will yield private profit. Another report, entitled The Government Role in Civilian Technology: Building a New Alliance, calls for new efforts to extend "the close and longstanding" government-industry relationship that has "helped to establish the commercial biotechnology industry." It recommends a government-funded "Civilian Technology Corporation" to assist U.S. industry to commercialize technology by encouraging "cooperative R&D ventures in pre-commercial areas"; "pre-commercial," to ensure that profit is restricted to private wealth and power. The ventures will be "cooperative," with the public paying the costs up to the point of product development. At that point costs change to gains, and the public hands the enterprise over to private industry, the traditional pattern.


"America cannot continue to rely on trickle-down technology from the military," Clinton stated in a document issued by his campaign headquarters in September 1992 ("Technology: The Engine of Economic Growth"). The old game is ending. In the "new era" planned by the Clinton administration, Times science writer William Broad reports, "the Government's focus on making armaments will shift to fostering a host of new civilian technologies and industries" -- just as in the "old era," but then behind the Pentagon mask. "President Clinton proposes to redirect $76 billion or so in annual Federal research spending so it spurs industrial innovation" in emerging technologies -- which, in unmentionable fact, were largely funded through the Pentagon system (and the National Institute of Health) in the "old era." A minimum of $30 billion is to be taken from the Pentagon's research budget as a "peace dividend" over four years for these purposes, Broad writes, noting that: "Significantly, the initiative would spend the same amount of money as Star Wars, $30 billion, in half the time. "
Also significantly, Clinton's advisers knew all along that Star Wars was "only tangentially related to national defense" that its prime function was to serve as "a path to competitiveness in advanced technologies," as publicly explained in Congressional Hearings (Clinton's close associate Robert Reich, now Secretary of Labor, writing in 1985 in the New York Times under the heading "High Tech, a Subsidiary of Pentagon Inc."). As noted earlier, the function of Star Wars as part of the system of public subsidy, private profit, was made clear to the business world from the start, though largely concealed from the general public by the doctrinal managers.

a 1985 OECD study found that the Pentagon and Japan's state planning ministry MITI were distributing R&D funds much the same way, making similar guesses about new technologies. A major Pentagon funnel was SDI ("Star Wars"), which was openly advertised as a state subsidy to the "private sector," and lauded by the business press for that reason.

Roundtable co-director Michael Borrus cites a 1988 Department of Commerce study showing that "five of the top six fastest growing U.S. industries from 1972 to 1988 were sponsored or sustained, directly or indirectly, by federal investment," the only exception being lithographic services. "The winners" in earlier years, he writes, "computers, biotechnology, jet engines, and airframes were each the by-product of public spending for national defense and public health." The record goes back to the earliest days; "defense" and "public health" are the familiar Newspeak disguises, perhaps a shade less deceptive than "free market neoliberalism."

A recent study of the National Academy of Sciences and Engineering proposed a $5 billion quasi-governmental company "to channel federal money into private applied research"; that is, publicly-funded research that will yield private profit. Another report, entitled The Government Role in Civilian Technology: Building a New Alliance, calls for new efforts to extend "the close and longstanding" government-industry relationship that has "helped to establish the commercial biotechnology industry." It recommends a government-funded "Civilian Technology Corporation" to assist U.S. industry to commercialize technology by encouraging "cooperative R&D ventures in pre-commercial areas"; "pre-commercial," to ensure that profit is restricted to private wealth and power. The ventures will be "cooperative," with the public paying the costs up to the point of product development. At that point costs change to gains, and the public hands the enterprise over to private industry, the traditional pattern.
"America cannot continue to rely on trickle-down technology from the military," Clinton stated in a document issued by his campaign headquarters in September 1992 ("Technology: The Engine of Economic Growth"). The old game is ending. In the "new era" planned by the Clinton administration, Times science writer William Broad reports, "the Government's focus on making armaments will shift to fostering a host of new civilian technologies and industries" -- just as in the "old era," but then behind the Pentagon mask. "President Clinton proposes to redirect $76 billion or so in annual Federal research spending so it spurs industrial innovation" in emerging technologies -- which, in unmentionable fact, were largely funded through the Pentagon system (and the National Institute of Health) in the "old era." A minimum of $30 billion is to be taken from the Pentagon's research budget as a "peace dividend" over four years for these purposes, Broad writes, noting that: "Significantly, the initiative would spend the same amount of money as Star Wars, $30 billion, in half the time. "
Also significantly, Clinton's advisers knew all along that Star Wars was "only tangentially related to national defense" that its prime function was to serve as "a path to competitiveness in advanced technologies," as publicly explained in Congressional Hearings (Clinton's close associate Robert Reich, now Secretary of Labor, writing in 1985 in the New York Times under the heading "High Tech, a Subsidiary of Pentagon Inc."). As noted earlier, the function of Star Wars as part of the system of public subsidy, private profit, was made clear to the business world from the start, though largely concealed from the general public by the doctrinal managers.

The Wall Street Journal reports a study by Battelle Memorial Institute showing that research spending will remain sluggish because of "a slowdown in weapons development." "Government spending over the past five years has swung toward space and energy programs, and away from weapons development" the principal author of the report said. That is government spending (the public subsidy) shifted from one component of the Pentagon system to the others.
http://www.thirdworldtraveler.com/Chomsky/PentagonSystem_Chom.html

The Bayh–Dole Act or Patent and Trademark Law Amendments Act is United States legislation dealing with intellectual property arising from federal government-funded research. Adopted in 1980, Bayh-Dole is codified in 35 U.S.C. § 200-212[2], and implemented by 37 C.F.R. 401[3]. Among other things, it gave U.S. universities, small businesses and non-profits intellectual property control of their inventions and other intellectual property that resulted from such funding. The Act, sponsored by two senators, Birch Bayh of Indiana and Bob Dole of Kansas, was enacted by the United States Congress on December 12, 1980.

Perhaps the most important change of Bayh-Dole is that it reversed the presumption of title. Bayh-Dole permits a university, small business, or non-profit institution to elect to pursue ownership of an invention in preference to the government.

Recipient requirements

Small businesses and non-profit organizations can retain the title in a federally funded "subject invention." In exchange, the organization is required to

Report each disclosed invention to the funding agency
Elect to retain title in writing within a statutorily prescribed timeframe
File for patent protection
Grant the federal government a non-exclusive, non-transferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world
Actively promote and attempt to commercialize the invention
Not assign the rights to the technology, with a few exceptions
Share royalties with the inventor
Use any remaining income for education and research
Give preference to U.S. industry and small business


Subject inventions

A subject invention is defined as "any invention of the contractor that is conceived or first actually reduced to practice in the performance of work under a funding agreement."[2] In Stanford v. Roche, the US Supreme Court made clear that "of the contractor" means "owned by or belonging to the contractor."[3] Thus, subject inventions represent a subset of all inventions that may be made under a federal funding agreement; namely, those for which the contractor has obtained ownership:

"The Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.... Only when an invention belongs to the contractor does the Bayh-Dole Act come into play."[4]

The CFR addresses the relationship between federal funding and other funding that may supplement the federally supported research. If an invention is made outside the research activities of the federally funded research "without interference with or cost to the government-funded project," then the invention is not a subject invention. Similarly, an invention is not a subject invention if it arises in closely related research outside the "planned and committed activities" of the federally funded project, and the closely related research does not "diminish or distract from the performance" of the federally funded project.[5]

Many institutions have assumed that where federal funds have been used anywhere in a lab, a subject invention exists.

Prior to the enactment of Bayh-Dole, the U.S. government had accumulated 28,000 patents. Fewer than 5% of those patents were commercially licensed.[6]

After World War II, the government began spending a great deal of money to support public research in military, defense and medical technologies (through the newly founded National Science Foundation). However, the government did not have a unified patent policy. At one point, those interested in government intellectual property were faced with dealing with 26 different agency policies.

The government's steps towards unification began in 1963 with Jerome Wiesner, President John F. Kennedy's science advisor, and culminated in 1971 under President Richard Nixon. Nevertheless, all these policies directed title to the agencies and not to the public.

Many non-profit organizations, led by the University of Wisconsin–Madison, sought even more favorable policies. In 1968 and 1973, the University successfully lobbied for agencies to enter into Institutional Patent Agreements (IPA), which, among other things, allowed universities and non-profits with approved patent policies to retain title to their inventions. Although agreed to by only two agencies, the Health and Human Services (HHS) and National Science Foundation, the IPA laid the groundwork for enacting Bayh-Dole less than 10 years later.

Legal proceedings and case law

There has not yet been a considerable amount of case law covering the Bayh–Dole Act. However, 2011, the Supreme Court decided Stanford v. Roche[7] on whether a university's right under the Act "can be terminated unilaterally by an individual inventor through a separate agreement".[8], and held that this could be true in some instances.

Petitions for march-in rights

The government's march-in right is one of the most contentious provisions in Bayh-Dole. It allows the funding agency, on its own initiative or at the request of a third party, to effectively ignore the exclusivity of a patent awarded under the act and grant additional licenses to other "reasonable applicants." This right is strictly limited and can only be exercised if the agency determines, following an investigation, that one of four criteria is met[4]. The most important of these is a failure by the contractor to take "effective steps to achieve practical application of the subject invention" or a failure to satisfy "health and safety needs" of consumers.

Though this right is, in theory, quite powerful, it has not proven so in terms of its practical application — to date, no federal agency has exercised its march-in rights. Four march-in petitions have been made to the National Institutes of Health, however, and pharmaceutical companies occasionally instruct their legal departments to evaluate the risk of march-in prior to negotiating contracts for drugs licensed under Bayh-Dole. March-in petitions for inventions funded under the NIH are heard by the NIH Office of Technology Transfer.[5]

In In Re Petition of CellPro, Inc.[6], CellPro first argued that The Johns Hopkins University and Baxter Healthcare failed to take reasonable steps to commercialize certain patented stem cell technologies and that Johns Hopkins should be forced to license Cellpro the patent necessary to keep its machine on the market[7]. The NIH denied this claim citing:

Johns Hopkins's licensing of the subject invention
Baxter's use, manufacturing, and practice of the subject invention
Baxter's application to the Food and Drug Administration (FDA)

The NIH also denied Cellpro's claim that it needed Johns Hopkins's patents to keep its device on the market for health and safety reasons. The NIH also mentioned the adverse effects that a march-in decision would have on federal efforts to encourage firms to commercialize federally funded research.

In In the Case of NORVIR[8], the NIH received a request[9] from Essential Inventions, supported by the public and members of the United States Congress, to exercise march-in rights for patents owned by Abbott Labs covering the drug ritonavir, sold under the trade name Norvir, a prescription drug used in the treatment of AIDS. Abbott had recently raised the price of Norvir 400% for U.S. customers (but not for consumers in any other country), and had refused to license ritonavir to another company for purposes for providing protease inhibitors coformulated with ritonavir. The NIH denied the petition finding no grounds to exercise its march-in rights. The NIH cited:

The availability of Norvir to patients with AIDS
That there was no evidence that health and safety needs were not adequately met by Abbott, and
That the NIH should not address the issue of drug pricing, only Congress.

In In the Case of Xalatan[10] Pfizer's glaucoma drug was sold in the United States at two to five times the prices in other high income countries. Essential Inventions asked the NIH to adopt a policy of granting march-in licenses to patents when the patent owner charged significantly higher prices in the United States than they did in other high income countries[11]. The NIH held that “the extraordinary remedy of march-in was not an appropriate means for controlling prices.”

In In the Case of Fabrazyme [12] patients with Fabry disease petitioned on August 2, 2010, for march-in rights in response to Genzyme's inability to manufacture enough Fabrazyme to treat all Fabry patients. In 2009, Genzyme rationed the drug to less than a third of the recommended dose as a result of manufacturing problems and FDA sanctions but did not anticipate being able to meet the market needs until late 2011. The patients had a return of their symptoms and were put at greater risk of morbidity and mortality at the mandatory reduced dosage. The petitioners contend that where a licensee of a public invention has created a drug shortage, the public health requirements of the Bayh-Dole act are not met and other manufacturers should be allowed to enter the market.

On November 3, 2010, the NIH denied the petition for March-in stating that the current FDA drug approval process would take years of clinical testing to bring a biosimilar of Fabrazyme to market.[13] Because of the long delay in the approval process even if March-in were granted, the NIH contends that the problem would not be solved. In a deviation from prior March-in requests, the NIH also stated that it would continue to monitor the situation and if Genzyme could not meet its production deadlines, or if a third party licensee requested a license, the March-in request would be revisited. NIH additionally required regular updates from Mount Sinai School of Medicine, the patent holder, which agreed to not seek injunctions for potentially infringing products being sold during the shortage.

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Technology Transfer also called Transfer of Technology (TOT) and Technology Commercialisation, is the process of transferring skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments or universities and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services. It is closely related to (and may arguably be considered a subset of) knowledge transfer.

Some also consider technology transfer as a process of moving promising research topics into a level of maturity ready for bulk manufacturing or production

Many companies, universities and governmental organizations now have an Office of Technology Transfer (TTO, also known as "Tech Transfer" or "TechXfer") dedicated to identifying research which has potential commercial interest and strategies for how to exploit it. For instance, a research result may be of scientific and commercial interest, but patents are normally only issued for practical processes, and so someone—not necessarily the researchers—must come up with a specific practical process. Another consideration is commercial value; for example, while there are many ways to accomplish nuclear fusion, the ones of commercial value are those that generate more energy than they require to operate.

The process to commercially exploit research varies widely. It can involve licensing agreements or setting up joint ventures and partnerships to share both the risks and rewards of bringing new technologies to market. Other corporate vehicles, e.g. spin-outs, are used where the host organization does not have the necessary will, resources or skills to develop a new technology. Often these approaches are associated with raising of venture capital (VC) as a means of funding the development process, a practice more common in the United States than in the European Union, which has a more conservative approach to VC funding.[2] Research spin-off companies are a popular vehicle of commercialisation in Canada, where the rate of licensing of Canadian university research remains far below that of the US.[3]

Technology transfer offices may work on behalf of research institutions, governments and even large multinationals. Where start-ups and spin-outs are the clients, commercial fees are sometimes waived in lieu of an equity stake in the business. As a result of the potential complexity of the technology transfer process, technology transfer organizations are often multidisciplinary, including economists, engineers, lawyers, marketers and scientists. The dynamics of the technology transfer process has attracted attention in its own right, and there are several dedicated societies and journals.

There has been a marked increase in technology transfer intermediaries specialized in their field since 1980, stimulated in large part by the Bayh-Dole Act and equivalent legislation in other countries, which provided additional incentives for research exploitation.

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Government-funded research
Main article: Science policy

Government-funded research can either be carried out by the government itself, or through grants to academic and other researchers outside the government.

Critics of basic research are concerned that research funding for the sake of knowledge itself does not contribute to a great return. However, scientific innovations often foreshadow or inspire further ideas unintentionally. For example, NASA's quest to put a man on the moon inspired them to develop better sound recording and reading technologies. NASA's research was furthered by the music industry, who used it to develop audio cassettes. Audio cassettes, being smaller and able to store more music, quickly dominated the music industry and increased the availability of music.