By: Gregory Arcuri
A recent determination
by the U.S. Department of Energy to require that all innovative products derived from federal agency funding must be substantially manufactured in the United States—drafted ostensibly to promote U.S. competitiveness—may instead stifle innovation by creating bureaucratic delay and uncertainty. If so, it risks undermining decades of work empowering federally funded research institutions, universities, and firms in bringing their inventions to market.
The Bayh-Dole Act of 1980 is a landmark piece of legislation that, among other things, reshuffles the relationship between the federal government and the researchers that they fund. Before Bayh-Dole, researchers who were even partially funded by the U.S. government essentially forfeited their right to commercialize or exclusively license the product or idea that they invented. As a result, by 1973, the government had accumulated
roughly 28,000 patents, of which only 4% were licensed out. Bayh-Dole reversed this, allowing federally contracted firms and research institutions
to reap the rewards of their innovations.
According to AUTM, an association of university technology managers, Bayh-Dole helped solidify universities as drivers of innovation and economic growth by giving them the rights to exclusively license inventions conceived under government R&D contracts. Today, since its passing, university technology transfer offices have spawned
over 4,000 startup companies, commercializing countless technologies which otherwise would have remained on government shelves with no plan for further development. In FY2012 alone, these companies generated
$36.8 billion in net product sales.
In June of 2021, however, the U.S. Department of Energy (DoE) issued a “Determination of Exceptional Circumstances
” (DEC) under the authority of the Bayh-Dole Act, requiring the inclusion of a “U.S. Competitiveness Provision” (USCP) in all DoE contracts with researchers and inventors. The USCP went into effect on October 1st
, 2021. The provision requires that:
- Any invention or product produced by the invention must be “manufactured substantially in the United States” unless proven infeasible.
- If DoE agrees to foreign manufacture, the Government’s support of the technology must be recognized.
- E.g., “alternative binding commitments to provide an overall net benefit to the U.S. economy.”
- The contractor may not transfer/license the technology to any other entity (foreign or domestic) unless that entity agrees to the Provision.
- If the contractor or licensee undergoes a change of ownership or sell/transfer the license of the invention, the license will be suspended pending written approval by DoE.
In support of this determination, the Department of Energy argues that the USCP is meant to secure U.S. supply chains in critical technologies by suspending a contractor’s rights to a federally funded invention unless they agree to significant domestic manufacture. However, research and industry stakeholders warn that the provision goes directly against the legislative objectives of the Bayh-Dole Act and may prevent federally funded firms, universities, and research non-profits from successfully commercializing their inventions.
How and Why Was this DEC Issued?
The term “Determination of Exceptional Circumstances” comes directly from the Bayh-Dole Act itself, specifically 35 U.S. Code § 202(a)(ii)
. This section of the Act stipulates that any federal agency [SS3]
may restrict or eliminate a contractor’s rights to intellectual property under “exceptional circumstances” when doing so would better promote the objectives of the Bayh-Dole Act.
When issuing this DEC, the Department of Energy cited Bayh-Dole's U.S. Preference Clause
, which prohibits the sale or license of an invention or technology unless the licensee agrees that it will be substantially manufactured within the United States. The U.S. Preference Clause, however, only applies to products bound for domestic use and sale, and ones under non-exclusive licenses.
The DoE issued the DEC essentially to prevent circumvention of the U.S. Preference Clause, which it claimed
was too broadly worded and allowed for too many exceptions. The DoE argued that, in the current geopolitical climate and amidst a heated technological competition with China, the U.S. must protect and expand the domestic manufacture of its technologies.
The June 2021 DEC is not the first time that the DoE has issued a Determination of Exceptional Circumstances. In fact, the Department of Energy has levied 10 DEC’s since the Bayh-Dole Act’s enactment in 1980, with the earliest covering sensitive technologies like uranium enrichment processes
and the most recent placing restrictions on technology in industries of strategic importance like quantum computing
. The 2021 DEC, however, is the first to apply to all
The Debate Surrounding the DEC’s Unintended Consequences
While the DoE asserts that the DEC falls within the spirit of the Bayh-Dole Act’s U.S. Preference Clause, the DEC’s detractors argue that it subverts the original intent of the bill as a whole.
The Bayh-Dole Coalition, a consortium of research and scientific organizations which advocates for Bayh-Dole, authored a joint letter
to the Department of Energy expressing concern and seeking clarification on certain elements of the U.S. Competitiveness Provision.
The authors call attention to the USCP’s requirement that all transfers of ownership of a technology or invention developed under a DoE contract must obtain express written approval from DoE, or else all rights are suspended. In essence, whenever the exclusive rights of the product are sold, the DoE must agree to it in writing. In the words of the Bayh-Dole Coalition, this leads to government micromanagement of private business decisions and injects a new element of uncertainty into the innovative process. This uncertainty, they suggest, will drive away firms, technology transfer offices, or investors looking to commercialize a technology. They claim this will have a chilling effect on innovation and invention coming out of DoE-funded programs going forward.
The Department of Energy released a clarifying document
addressing the objections raised, mentioning that the DEC will only affect DoE contracts agreed to after
the DEC goes into effect, and that the DoE is considering
limiting the review process to transactions that “include critical and emerging technologies and involve a transfer to a sensitive country or country of risk.” Ultimately, the DoE argues, inventions funded by American taxpayers should be manufactured in the United States and create jobs for Americans, especially in industries of strategic importance.
Given that the DEC has only been in force since October 2021, empirical data on its net effects is scarce and incomplete. In a press call, DoE officials argued
that previous DEC's in strategic industries like energy science have succeeded in coaxing some companies from offshoring the manufacture of their products and has kept hundreds of millions of dollars in revenue from going overseas, though the evidence they provided did not include concrete numbers or examples.
While it remains to be seen whether the USCP will have “chilling effects” on DoE-funded R&D, its consequences will likely be difficult to reverse. As Joseph Allen, chair of the Bayh-Dole Coalition, said
at the Renewing American Innovation project’s U.S. Innovation Competitiveness Summit
in September of 2021: inventors and investors thrive on predictability. “If the rules are unpredictable … it drives a wedge in our system. And once you lose that confidence, you’re not going to get it back.”
Gregory Arcuri is an intern with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, DC.
The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).