(page 1) (page heading, in box) PERKINS COIE HIGH-TECH NEWS (end box) February 1988 (section heading) EDITOR'S COLUMN Major changes in the laws regarding transfers and patents of technology developed with federal contracts or grants took place between 1980 and 1986. The effect of some of these changes is only now becoming clear. Attorney Cassie Phillips, in her article, "Transfers and Patents of Federally Funded Technology," describes the major changes in the law and exciting possibilities for acquisition of technology. In the December 1987 issue of Perkins Coie High-Tech News, attorney Bruce Dick discussed the proper selection, use and registration of federal trademarks and service marks. In this issue, his follow-up article, "Infringement Claims Between Users of Similar Registered Versus Unregistered Trademarks," addresses how the right to use similar trademarks will be determined between two companies, one of which federally registered its mark. A calendar of events completes this issue. (cursive signature) Richard R. Rohde Richard R. Rohde Editor (section heading) CALENDAR OF EVENTS March 24-25 Seminar: "Artificial Intelligence: Understanding the Impact of Knowledge." Battelle, Seattle. $725. Registration, (206) 527-0542. 31 World Trade Club Seminar: "Foreign Trade Data." Trade experts to discuss sources, meaning and use of trade data. Further information, Margaret Oliver (206) 624-9586. April 11-12 Seminar: "Writing Better User Manuals." Battelle, Seattle. $725. Registration, (206) 527-0542. (section heading and article title) Transfers and Patents of Federally Funded Technology by Cassie Phillips (portrait of Cassie Phillips) Cassie Phillips is an associate in the Perkins Coie Seattle Office. Until 1980, patents developed by government researchers or by private researchers under government contract or grant generally belonged to the federal government. Because they had been procured with taxpayer dollars, it was government policy that these patents be disbursed as widely as possible, by open publication and grants of nonexclusive licenses. The problem with this philosophy was that it was generally not worthwhile for a business to invest in developing a patent licensed from the federal government because that patent could then be issued to the business's competitors. The result was that the government stock-piled thousands of patents over the years and licensed only a small fraction of them. Between 1980 and 1986, major changes in the law have revolutionized federal patent policy. Congress passed four statutes, the Bayh-Dole Act of 1980, amendments to it in 1983, the Stevenson-Wydler Act of 1980, and the Federal Technology Transfer Act of 1986; the President issued two Executive Orders; and the Department of Commerce promulgated regulations—all designed to speed the transfer of patentable technology developed with federal funding into the private sector. These changes put institutions doing federally funded research and development—universities, federal laboratories, companies under R&D contracts with the government—in a better position than ever before to gain rights to technology they have developed. (article section heading) Universities The federal government will spend over $60 billion in 1988 on research and development. Of this, approximately $10 billion will go to universities. Most of this funding is in the form of grants for basic research from agencies such as the National Science Foundation and the National Institute of Health. Despite the emphasis on basic (as compared to applied) research, universities have been rich sources of patentable inventions. Before 1980, universities had no general right to patent technology developed by their scientists and engineers. This changed with the enactment of the Bayh-Dole Act, which gave nonprofit entities and small businesses the right to retain patents for technology developed with government funding. The major (page 2) (page heading, in box) HIGH-TECH NEWS (end box) Technology Transfers (continued from page 1) beneficiaries of this legislation are universities, which have become aggressive brokers of their intellectual property rights. The University of Washington and Washington State University, for example, license technology and promote commercial development both on their own and through the Washington Research Foundation. (article section heading) Small Businesses Private businesses conduct research and development for the federal government under contracts and grants. Although major research projects tend to be associated with large companies, each federal agency sets aside 1.25% of its R&D budget for small businesses under the Small Business Innovation Development Act. The Bayh-Dole Act gave small businesses the same right as universities to retain rights to patent technology developed under federal contracts. The effects of Bayh-Dole on small businesses has not been as dramatic as on universities. The costs of filing and defending patents and complying with the reporting requirements of Bayh-Dole are considerable, and a small business is unlikely to elect to retain patent rights unless it is convinced of the commercial value of the patent. Nevertheless, small businesses have opportunities to conduct federally funded research and development and to exploit inventions arising out of that research. (article section heading) Big Businesses Before 1983, the beneficial effects of Bayh-Dole were restricted to small businesses and nonprofit organizations. In 1983, President Reagan issued an Executive Order requiring agencies to extend the coverage of Bayh-Dole to all government contractors, including big businesses, to the extent permitted by law. The result of this Executive Order is, in general, that a business of any size operating under a government contract may elect to retain rights to patents for technology developed under the contract. "To the extent permitted by law," however, has proven to be a large loophole through which some federal agencies have refused to allow industry to retain rights developed under classified, "sensitive," or certain other research. Although bills have been introduced in Congress to codify the Executive Order and give all government contractors the same rights to patents, they have not yet passed. (article section heading) Contractor-Operated Federal Laboratories The federal government "buys" approximately half of its research and development from outside sources such as universities and private industry. It spends the other half of its R&D funding "in-house" at over 700 federal laboratories. These laboratories range in size from the giant Los Alamos National Laboratory to small laboratories at, for example, Veterans Administration hospitals. They employ one-sixth of the nation's scientists and engineers and conduct some of the country's most advanced research, including research on superconductivity, advanced materials, and biotechnology. There are two major types of federal laboratories: those operated by federal agencies themselves and those operated by contractors. Although the vast majority of federal laboratories are operated by the government, some of the largest and best known laboratories are so-called "GO-COs": government-owned, contractor-operated. These include the Pacific Northwest Laboratory in Richland, Washington, operated by Battelle, and the Idaho National Engineering Laboratory, operated by E, G & G. Contractors operating federal laboratories did not come under the Bayh-Dole Act as it was originally passed. In 1984, Congress amended Bayh-Dole to allow those laboratories operated by nonprofit organizations and small businesses to come under its effect. The result of these changes is that a laboratory operated by a nonprofit contractor should be in as good a position as a university to retain rights to patent technology developed with federal funding. The laboratories, like the universities, can license these patents directly to outside parties interested in developing the technology. "GO-COs" operated by profit-making, large businesses are not in as favorable a position as those operated by nonprofit entities. Nevertheless, these laboratory operators, like other government contractors, are able to negotiate patent licenses and waivers from federal agencies, and some have done so with great success. Martin Marietta, for example, which operates Oak Ridge National Laboratory in Tennessee, has a class waiver from the Department of Energy for many of the patents for technology it develops at the laboratory. (article section heading) Government-Operated Federal Laboratories Most federal laboratories are operated by government agencies and employ federal scientists and engineers. Because there are no contractors involved, the technology transfer issue for these laboratories is not one of putting the rights to inventions into the hands of the contractors. Instead, the tasks are to identify research with commercial potential and bring it to industry's attention, to license technology, and to make the laboratories more accessible for joint or cooperative research. In an effort to harmonize agency policies and open up the federal laboratories to cooperative research, Congress enacted the Federal Technology Transfer Act of 1986. It gives federal agencies clear authority to let their laboratories do cooperative research with outside parties. In April 1987, President Reagan issued an Executive Order entitled "Facilitating Access to Science and Technology" to implement the Federal Technology Transfer Act. It orders federal agencies to delegate authority to the laboratories to do cooperative research and development, which is defined as an agreement between the laboratory and one or more nonfederal parties to do specific research and development. The research must be consistent with the mission of the laboratory, and the federal laboratory may provide personnel, facilities, equipment, or other resources, but not funds. Perhaps the most important contribution a federal laboratory can make to a cooperative research and development project is to give up in advance rights to patent technology developed under the project. The Technology Transfer Act and the Executive Order implementing it also order agency heads to delegate to the laboratory directors the authority to negotiate licensing agreements for patents arising out of other, non-cooperative re- Continued on Page 4 (page 3) Technology Transfers (continued from page 2) search at the laboratory. The Technology Transfer Act should achieve for the federal laboratories what Bayh-Dole achieved for the universities because it "gives" the rights to patented inventions developed at the laboratory to the laboratory director who, like the president of a university, can then negotiate licenses and assignments. With such a decentralized approach, industry participation with individual laboratories will, of necessity, involve much trial and error. The Technology Transfer Act does not contemplate a single, uniform cooperative research agreement. Rather, it contemplates individualized transactions much as occur in the private sector or in university cooperative research. (section heading) How to Find Out More About the Federal Laboratories All of the federal laboratories, including those operated by contractors, have the duty to transfer technology. This duty was added to every laboratory's mission by the Stevenson-Wydler Act of 1980. Stevenson-Wydler also directed the laboratories to designate an Office of Research and Technology Applications, which is the contact point for outside parties for technology transfer. Businesses interested in licensing technology from a laboratory or in learning more about the research being done at the laboratory should contact the laboratory's "ORTA" officer. A list of the larger federal laboratories and the name of the laboratory contact can be obtained from Perkins Coie or from the Department of Commerce's National Technical Information Service. To find out what research is being done at all the federal laboratories, you can contact the Federal Laboratory Consortium. The Consortium has existed for 15 years as an informal network of researchers at the federal laboratories who communicate with one another to transfer technology and to avoid duplicative research. The Technology Transfer Act formalized the Consortium and provided it with funding and a home at the National Bureau of Standards. The Federal Laboratory Consortium does not act as a broker for federal technology and businesses interested in licensing patents from a laboratory negotiate with the laboratory, not the Consortium. The Consortium operates as a clearing-house for requests coming from outside parties for information, and it serves as an interagency communication system among technology transfer officials at the various laboratories. Perkins Coie can give you the names of representatives of the Consortium. The revolution in government patent policy represents real progress in assuring the commercial use of inventions arising from federal research and development. This progress is limited, however, to patents. Although important, patents represent only a part of the intellectual property resulting from research and development. Federal policy remains far more acquisitive when it comes to technical data and computer software that come out of government funded research. Nevertheless, at least for patents, those interested in the fruits of the enormous federal investment in research and development have never been in a better position.• Infringement Claims (continued from page 3) The results reached by the courts in determining whether two marks are confusingly similar vary greatly since the application of the above factors is dependent upon the particular factual situation. For example, in one case, the Trademark Trial and Appeal Board upheld the Examiner's refusal to register the mark "Epic" for computer software on the grounds it was confusingly similar to the registered mark "Epic Data" which is used with computer hardware. In another case, the court held that "Sleekcraft" was confusingly similar to "Slickcraft," two marks which were both used with recreation power boats. Given the good faith use of "Sleekcraft" by its owner and its attempts to avoid confusion by adding the logo "Boats by Nescher" with the mark, the court granted only a limited injunction prohibiting Sleekcraft Boats from using its mark without the logo. There are many other cases, however, in which the courts have found two similar marks not confusingly similar. For example, a court has held that the marks "Gibco" and "Gibbco" were not confusingly similar even though both marks were used with respect to scientific laboratory equipment used by common customers. As indicated above, the results of these "confusingly similar" mark determination cases vary with each factual situation. For this reason it is very difficult to accurately predict what a particular court or examiner might do with respect to two similar marks. PERKINS COIE ANCHORAGE BELLEVUE SEATTLE PORTLAND WASHINGTON, D.C. This Newsletter is a publication of Perkins Coie. Materials herein have been abridged from laws, court decisions and the like and should not be construed as legal advice or opinions on specific facts. Any questions regarding the contents may be directed to Senior Editor Richard R. Rohde or Assistant Editor Susan K. Donaldson at One Bellevue Center, Suite 1800, 411-108th Avenue N.E., Bellevue, Washington 98004, (206) 453-6980.