Prepared Statement of Senator Chuck Grassley
Senate Committee on the Judiciary
“The Role of Federally-Funded University Research in the Patent System”
Wednesday, October 24, 2007
Chairman Leahy, I appreciate your willingness to hold this hearing on the Bayh-Dole Act, and to include in the hearing’s discussion a patent issue that concerns Iowa State University. You said you’d hold a hearing, and you kept your word. I very much appreciate your consideration.
This is an important hearing that you’ve noticed today, because of the many benefits that have been derived since enactment of the Bayh-Dole Act. The Bayh-Dole Act promotes the utilization of inventions arising from federally supported research and development. This law has proven to be a very effective incentive for small businesses and nonprofit organizations, including universities, to collaborate in researching and developing new products and technology with the support of the federal government. Ultimately, promoting university based innovation and technology transfer to industry helps boost the nation’s economy and make this a better world through new cures and inventions.
Chairman Leahy, you’ve assembled an impressive panel of witnesses to testify on the Bayh-Dole Act today. In particular, I’m pleased to welcome to the Senate Judiciary Committee Elizabeth Hoffman, who is the Executive Vice President and Provost of Iowa State University. She will discuss Iowa State’s patent royalty concern and the legislative fix they’d like to see to the Bayh-Dole Act.
As you know, in the 109th Congress, the House of Representatives passed a bill that would have changed the royalty formula under the Bayh-Dole Act for smaller non-profits, because they saw a basic issue of fairness. I agree with that assessment - in fact, I circulated the same language in that bill as an amendment to the comprehensive patent reform bill that was considered by the Judiciary Committee earlier this year.
The change ISU is seeking to the Bayh-Dole law would allow for a modest increase in royalty threshold for smaller budgets, thus preserving the necessary incentive for smaller institutions and laboratories to continue investing in cutting edge research and development. Currently, the Bayh-Dole Act allows non-profits to patent any discoveries, sell and license the inventions, and keep a portion of profits. The law places a limitation on the amount of royalty income that can be retained in a given fiscal year – once a ceiling of 5 percent of a government-owned, contractor-operated laboratory budget has been reached, 75 percent of the remaining income is paid to the U.S. Treasury. The remaining 25 percent is shared between the laboratory and the university/non-profit.
Unfortunately, this one size fits all ceiling creates a situation where smaller institutions end up paying royalties back to the government a lot sooner than institutions with much larger budgets. Smaller contracts should not be penalized for their successes just because they naturally will reach the current statutory ceiling much more quickly than the larger contracts in the hundreds of millions of dollars.
The bill that the House of Representatives passed last year would have allowed small government-owned, contractor-operated labs and their affiliated universities or non-profits to receive a fair percentage of revenue from a successful patent they license. Specifically, the legislation raised the threshold for smaller annual budgets ($40 million or less) from 5 percent to 15 percent under the Bayh-Dole Act. The bill left in place the current 5 percent threshold for budgets over $40 million. In this way, everyone would pay back into the federal treasury once revenues reached a certain amount, as is appropriate.
I know this is just one small issue in the scheme of things, but I do think that such a tweak to the Bayh-Dole Act will produce an equitable result for small entities that perform research in many scientific and technological fields. This small but important modification in the law will allow these institutions to continue to reinvest in their research and educational operations, which, of course, also greatly benefit the American public.
I look forward to Provost Hoffman’s more detailed testimony on this issue and how a modest change in the law will improve the incentive for the little guys to continue reinvesting in their research and development activities. I also look forward to hearing the testimony of the other witnesses on their views on the Bayh-Dole Act.
Again, thank you, Mr. Chairman, for holding this important hearing.