Three Key Protections for Intellectual Property
The Center for Regulatory Effectiveness
Charles J. Fromm
Executive Director, CRE
As part of the FY 1999 Omnibus Appropriations Act (P.L. 105-277), Congress directed the Office of Management and Budget (OMB) to revise Circular A-110 to allow for public access, through the Freedom of Information Act, to all data produced under federal awards. Critics of the statute, sometimes referred to as the Shelby Amendment, have asserted that the new federal policy significantly impinges on intellectual property rights, including researchers' rights to publish their study results, universities' rights to patent inventions created through federal research, and private companies' rights to protect data shared with researchers during public-private joint research projects.
OMB took a major step toward protection of intellectual property rights in its February 4, 1999 proposed revision to Circular A-110, which limited the public disclosure requirement to data relating to "published" research findings. This limitation significantly diminished criticism from some members of the research community who had feared that data would be susceptible to public disclosure before the researchers had an opportunity to publish their work.
This paper examines three additional sources of protection for intellectual property -- two statutory and one procedural -- that continue following passage of the new law. The first protection, which the data access statute expressly incorporates, is the Freedom of Information Act. Under FOIA, not all data the government obtains are available to the public. FOIA contains nine statutory exemptions to disclosure, including exemptions for medical/personal privacy, national security, pre-decisional information, and other exemptions. This paper focuses on the third exemption (material exempted by statute) and the fourth exemption (trade secrets and commercial or financial information). The paper concludes that these exemptions and court interpretation of FOIA's public policy goals offer considerable protection against objectionable disclosures and the release of data potentially harmful to intellectual property rights.
The second key protection the paper addresses is the Bayh-Dole Act. That statute provides that universities and other researchers may elect to retain title to inventions developed through government funding. The statute contains certain confidentiality provisions for the protection of the intellectual property prior to and during the patenting process. Significantly, the Bayh-Dole Act contains a "precedence of chapter" section stating that the Act will take precedence over all future legislation unless the later law expressly overrides Bayh-Dole. This paper concludes that the Bayh-Dole Act, which is not mentioned in the 1998 data access law, will continue to convey the same confidentiality and intellectual property protections that were in effect prior to passage of the new data access statute.
Finally, the paper discusses an important blanket protection that the current regulatory process affords against harmful data disclosures and the other "unintended consequences" that critics of the law have envisioned. That protection is the process by which each federal agency will implement its own individually tailored conforming regulations, consistent with -- but more detailed than -- OMB's revised Circular A-110. These conforming regulations may extend, but may not restrict, the non-disclosure protections included in OMB's Circular A-110.
I. FOIA -- Exemptions 3 and 4
The two exemptions under FOIA that most directly concern intellectual property rights are exemptions 3 and 4. FOIA exemption 3 excludes from disclosure matters "specifically exempted from disclosure by statute" provided that the other federal statute (a) gives an agency no discretion on the issue, or (b) establishes specific criteria for withholding or refers to particular matters which must be withheld. 5 U.S.C. § 552(b)(3). One such statute that would bar disclosure of data under FOIA exemption 3 is the Patent Act, 35 U.S.C. §§ 1-307. Patent office regulations promulgated under 35 U.S.C. § 122 explicitly grant secrecy to pending patent applications. 37 C.F.R. § 1.14a. Both the Ninth Circuit and the D.C. Circuit have held that 35 U.S.C. § 122 meets the criteria of FOIA exemption 3. Irons and Sears v. Dann, 606 F.2d 1215, 1220 (D.C. Cir. 1979), cert. denied., 444 U.S. 1075 (1980); Lee Pharmaceuticals v. Keeps, 577 F.2d 610, 615-617 (9th Cir. 1978), cert. denied, 439 U.S. 1073 (1979).
FOIA's fourth exemption states that the disclosure provisions of the FOIA statute do not apply to:
"trade secrets and commercial or financial information obtained from a person and privileged or confidential."
5 U.S.C. § 552(b)(4). In Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1288 (D.C. Cir. 1983). the D.C. Circuit defined "trade secret" to mean, for the purpose of FOIA Exemption 4, "a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort." Id., 704 F.2d at 1288.1
In National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), the D.C. Circuit defined "confidential commercial information" for purposes of FOIA exemption (4) as follows:
[C]ommercial or financial matter is 'confidential' for purposes of the exemption if disclosure of the information is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained."
Id., 498 F.2d at 770.
According to the U.S. Supreme Court, "In evaluating whether a request for information falls within the scope of a FOIA exemption, the Court must balance the public interest in disclosure against the interest Congress intended the exemption to protect." Department of Defense v. Federal Labor Relations Auth., 510 U.S. 487 (1994). The only relevant public interest in disclosure to be weighed in this balancing test is the extent to which disclosure would serve the core purpose of FOIA of contributing significantly to public understanding of the operations or activities of the government. Bibles v. Oregon Natural Desert Ass'n, 519 U.S. 335 (1997).
It is the value of understanding government operations that is at the heart of FOIA and FOIA's necessarily flexible exemptions. Thus, courts interpreting FOIA exemptions 3 and 4 would weigh the value of the data in understanding the operations of the government against the interests of the possessor of the data in keeping the data confidential. Where the FOIA request is driven by a competitor's commercial interest, for example, as opposed to a concern over the basis of a proposed federal regulation, the value of disclosure would be outweighed by the need to preserve confidentiality.
Opponents of the Shelby Amendment have asserted that private companies may be unwilling to enter into joint research projects with federally funded researchers because the private companies' trade secrets and confidential commercial data could be obtained by competitors through FOIA requests. These concerns ignore the many protections for third party data provided through FOIA and other statutes.
To the extent that private companies collaborate with federally funded university researchers in developing innovative products or processes, and the universities maintain the confidentiality of such research, a "trade secret" disclosure protection may apply. See Public Citizen Health Research Group, supra. In Washington Research Project v. Dept. of Health, Education and Welfare, 504 F.2d 238 (D.C. 1974), cert. denied, 421 U.S. 963 (1975), the D.C. Circuit recognized the possibility that an individual engaged in profit-oriented research could be shown to have a commercial or trade interest in his research design. Id., 504 F.2d at 244 n.6. For example, genetic engineering discoveries often qualify for trade secret protection. See, e.g., Pioneer Hi-bred Int'l v. Holden Foundation Seeds, 35 F.3d 1226 (8th Cir. 1994) (finding "trade secret" interest in corn seed genetic messages); Charles E. Lipsey, "Protecting Trade Secrets in Biotechnology," 2 Trade Secret L. Rep. 42, 44 (1986). Where information falls within FOIA exemption 4, it is also protected by the Trade Secrets Act, 18 U.S.C. § 1905, which provides criminal penalties for the release of trade secret information.
Intellectual property created under Cooperative Research and Development Agreements ("CRADAs") between private parties and federal agency government laboratories is also protected from disclosure pursuant to statute. Under CRADAs, the government is granted certain rights to use inventions or other intellectual property of the private party. Pursuant to the National Technology Transfer Act of 1995, the non-disclosure provisions of FOIA exemption 4 apply to these agreements. The Technology Transfer Act, which amended the Stevenson-Wydler Technology Innovation Act of 1980, provides that where the government exercises its license to use an invention:
the Government shall not publically disclose trade secrets or commercial or financial information that is privileged or confidential within the meaning of [FOIA exemption 4], or which would be considered as such if it had been obtained from a non-federal party.
15 U.S.C. § 3710a(b)(1). A separate provision of the Stevenson-Wydler Act states the matter even more plainly:
No trade secrets or commercial or financial information that is privileged or confidential, under [FOIA exemption 4], which is obtained in the conduct of research or as a result of activities under this chapter from a non-Federal party participating in a cooperative research and development agreement shall be disclosed.
15 U.S.C. § 3710a(c)(7).
Thus, trade secret and other commercially sensitive of data of private entities that are contributed to federal research projects are also exempt from disclosure under the Shelby Amendment, through FOIA and other statutory protections.
II. The Bayh-Dole Act, 35 U.S.C. §§ 200-212
Critics of the new data access law have asserted, both in comments filed with OMB and in briefing materials submitted to Congress, that the Shelby law will facilitate theft of intellectual property and will "interfere with the principles of the Bayh-Dole Act". See, e.g., Association of American Universities' letter to F. James Charney, OMB (March 23, 1999). These criticisms of the new law misinterpret both the Bayh-Dole Act itself and the interplay between Bayh-Dole and the public disclosure requirements of the new data access law.
The policy objective of the Bayh-Dole Act is "to use the patent system to promote the utilization of inventions arising from federally funded research." 35 U.S.C. § 200. Under the Act, universities may elect to retain title to inventions "conceived or first actually reduced to practice in the performance of work" under a federal award. 35 U.S.C. § 201(e), 202(a). A contractor2 electing to retain title to an invention must "file a patent application prior to any statutory bar date that may occur under [federal patent law] due to publication, on sale, or public use. . . ." 35 U.S.C. § 202(c)(3).
Under Bayh-Dole, the federal agency retains a nonexclusive, nontransferable, irrevocable, paid-up license to practice the subject invention throughout the world. 35 U.S.C. § 202(c)(4). The government also retains certain march-in rights where, for example, the contractor has not taken reasonable steps to achieve practical application of the invention in the relevant field. 35 U.S.C. § 203(1).
The Bayh-Dole Act provides protections against disclosure of confidential information pertaining to the subject invention while the university (or other "contractor") is pursuing a patent. Section 205 of the Act states in part:
35 U.S.C. § 205.
Once a patent application is filed, patent office regulations promulgated under the Patent Act, 35 U.S.C. § 122, explicitly grant secrecy to pending information contained therein. 37 C.F.R. § 1.14a.3 The Bayh-Dole Act also provides that federal agencies shall not be required to release copies of any document which is part of an application for patent filed with the United States Patent and Trademark Office or with any foreign patent office. 35 U.S.C. § 205.
Significantly, the Bayh-Dole confidentiality provisions above are wholly unaffected by the passage of the new data access law. Unlike FOIA exemption 3 (5 U.S.C. § 552(b)(3)), which defers to the non-disclosure protections of other statutes, the Bayh-Dole Act contains its own statutory trump card. Section 210 provides:
Precedence of chapter
35 U.S.C. § 210 (emphasis added). In that the Shelby Amendment neither references the Bayh-Dole Act nor states that the confidentiality provisions above shall be overridden, the new data access law can hardly be said interfere with the intellectual property protections of the Bayh-Dole Act.
III. Conforming Regulations of Individual Agencies
In evaluating the effect of the new data access policy, one must bear in mind that the OMB revision process currently underway is only an intermediate step in the full implementation of the Shelby Amendment.4 OMB's revisions to Circular A-110 should be seen as the creation of an umbrella regulation or framework within which each awarding agency will be required to issue its own conforming regulations. This subsequent round of agency-level rulemaking represents the third blanket protection for intellectual property rights.5
Issuance of the individual agencies' conforming regulations will have the following features:
Agency level rulemaking will be conducted under the provisions of the Administrative Procedure Act, 5 U.S.C. 500, et. seq. Researchers, universities, industry, other stakeholders and the public will afforded additional opportunities through these procedures to raise concerns regarding the proper scope of data access. This process will vary from agency to agency and may involve public meetings, multiple proposals and reproposals, and all other procedural aspects attendant with APA rulemaking.
Many of the obstacles to implementation of the Shelby Amendment that opponents of data access now cite are in fact better left to the individual awarding agency to resolve. Critics, for example, often cite the OMB's failure to define "data" in its February 4, 1999 proposed revision to A-110 as one hurdle to implementation. The specter of a "data" definition so broad as to require the production of lab notebooks, "Post-It" notes, videotaped study interviews of family members, and the like has occasionally been invoked. In that data gathering and research practices may vary from one scientific discipline to another, and from one category of research award to another, addressing the meaning of "data" at the agency level likely represents effective regulatory approach to addressing this concern.
At the agency level such matters can be clarified, and additional protections -- including those for intellectual property rights -- can be adopted. As with the definition of "data", the definition of "published" can also be appropriately tailored at the agency level to address the specific kinds of research each agency typically supports. The research community will advise each agency of the kinds of publication activities that researchers in that particular field engage in, and -- within the parameters set forth in OMB's Circular A-110 -- a functioning definition of "published" will be adopted to further protect intellectual property rights.
Opponents of the new federal data access law have voiced a number of concerns relating to protection of intellectual property rights and the threat to those rights that the new public assess requirements could pose. On close examination of the statutory protections and procedures for implementation, however, these concerns are not well grounded. The three blanket protections discussed above safeguard those rights.
The Freedom of Information Act, which is incorporated by reference in the Shelby Amendment, provides strong protections against mandatory disclosure of trade secrets and commercially sensitive data. Protections afforded by other statutes, such as the Patent Act, fall within one of FOIA's enumerated exemptions to disclosure. Cooperative Research and Development Agreements between private entities and government funded researchers contain additional confidentiality protections, and these "CRADA" provisions also fall within one of FOIA's nondisclosure exemptions.
The Bayh-Dole Act, which data access critics have warned could be undermined by the Shelby Amendment, is, in fact, unaffected by the new law. The Bayh-Dole statute contains its own confidentiality provisions protecting patent-related information for the benefit of both researchers and the federal government. Significantly, Bayh-Dole also contains a statutory "precedence of chapter" section mandating that the Act -- including its confidentiality and intellectual property protections -- will take precedence over all future statutes unless the future statute cites and specifically overrides Bayh-Dole, which the Shelby Amendment does not.
Finally, intellectual property rights are also protected through the regulatory implementation process. As individual agencies engage in APA rulemaking to codify their own conforming regulations, university researchers, industry and the public will have an opportunity to address their specific concerns to the awarding agency most directly affecting them. These agency level regulations, which cannot restrict the protections granted under OMB Circular A-110, will be tailored to serve as yet another protection for intellectual property rights.
1 Public Citizen Health Research Group concerned records of clinical studies of the safety and efficacy of corrective vision disks (IOLs) submitted to FDA and sought under a FOIA request. The D.C. Circuit addressed the question of whether the information submitted to the FDA was confidential within the meaning of Exemption 4. The court reasoned that information is confidential if disclosure would either (1) impair the government's ability to obtain necessary information in the future; or (2) cause substantial harm to the competitive position of the person from whom the information was obtained. Actual competitive harm need not be shown, only evidence of actual competition and of the likelihood of substantial competitive harm to the submitting manufacturers. According to the court, "If on remand the district court is persuaded that the release of these documents would cause substantial competitive harm to the manufacturers, it should authorize FDA to withhold them under the [confidential commercial information] prong of Exemption 4."
2 The term "contractor" is defined under the Bayh-Dole Act as "any person, small business firm, or non-profit organization that is a party to a funding agreement." 35 U.S.C. § 201(c). Pursuant to a 1983 Presidential Memorandum on "Government Patent Policy", OMB Circular A-124 extended the Act beyond universities and nonprofit organizations to for-profit grantees/contractors. The Circular was subsequently codified at 37 C.F.R. Part 401.
3 As noted above, courts have recognized that such information is exempt from disclosure under FOIA exemption 3, which exempts material that is exempt from disclosure other statutes. See, e.g., Irons and Sears v. Dann, 606 F.2d 1215, 1220 (D.C. Cir. 1979), cert. denied., 444 U.S. 1075 (1980); Lee Pharmaceuticals v. Keeps, 577 F.2d 610, 615-617 (9th Cir. 1978), cert. denied, 439 U.S. 1073 (1979).
4 OMB received over 9,000 comments in response to its proposed revision of Circular A-110. The agency is now in the process of reviewing those comments, and is expected to issue a revised proposal later this year.
5 Issuance of the conforming regulations presents an opportunity to address the other so-called "unintended consequences" of the new data access law in addition to perceived threats to intellectual property rights. Full consideration of these issues, including protection of medical research patient confidentiality, is beyond the scope of this paper.