The following article appears in the journal JOM, 45 (9) (1993), p. 72. JOM is a publication of The Minerals, Metals & Materials Society

Cooperative Federal Research—A Source for R&D Funds

Research and development are essential to the long-term financial health of many businesses. Yet, in this tough economy, freeing funds for large R&D expenses that may not necessarily lead to commercial products is very difficult. Basic research further compounds the funding issue, since a resulting commercial product can be many years away.

Frequently, companies will look to outside sources of technology in order to keep the company on the "cutting edge." One outside source that may be overlooked, but that has lately become very attractive, is the U.S. government, especially federally owned, contractor-operated laboratories (e.g., Sandia National Laboratories and Lawrence Livermore National Laboratory). Although these laboratories have traditionally focused on defense-related research, the dissolution of the Soviet Union and the end of the Cold War have sparked a distinct movement to funnel government research and researchers into civilian commercial applications. Thus, much opportunity exists for companies to benefit from the research resources available from government laboratories.

The impetus for technology transfer from research laboratories to the private sector came from the Federal Technology Transfer Act (FTTA) of 1986. The FTTA permits agencies (e.g., the U.S. Department of Energy) to allow their laboratories to enter into cooperative research and development agreements (CRADAs). The FTTA authorizes a broad range of cooperative research. Under most CRADAs, a private entity and a government-owned, contractor-operated laboratory contribute relatively equal amounts of resources (e.g., personnel, computer time, and laboratory services) in order to pursue a research project. The research project must coincide with the missions of the agency; otherwise, there are no restrictions. Only the private entity provides monetary funding.

Federal regulations stipulate that federal agencies must give preference to small businesses. Also, there is a requirement that any product manufactured or covered by a federally funded invention must be manufactured in the United States to preserve jobs for U.S. workers. Although this "U.S. competitiveness" requirement can be waived by the agency, the approval process proceeds much more smoothly if a U.S. industry employing U.S. workers in a U.S. facility will be the beneficiary of the federal resources.

A starting point for pursuing a CRADA is the U.S. Department of Commerce, which can provide information on CRADA opportunities with the various laboratories. Once a participant is matched with a laboratory and the laboratory shows interest in the project, a "statement of work" is jointly produced by the parties. This statement sets forth the specific objectives of the project, as well as a division of the tasks, milestones, and specific deliverables involved. The statement of work also specifically enumerates such contributions from the laboratory and the participant to the project as personnel, equipment, and computer time. The statement should clearly delineate the responsibilities of each party to avoid conflicts once research under the CRADA begins. Finally, it is usually in the statement of work that the U.S. competitiveness aspect is brought out, as well as the potential for commercialization. The statement of work should set forth how the research will benefit the U.S. economy and provide jobs for U.S. workers or maintain the competitive advantage a U.S. company has over other companies in the world.

The statement of work is then submitted for approval to the federal agency that funds the laboratory. The agency will review the statement to confirm that an approximately even match of contributions exists between the laboratory and the participant and will also assess the U.S. competitiveness aspects of the project. If these conditions are approved, the laboratory is then authorized to enter into formal negotiations of a CRADA.

Most of the laboratories use a standard model CRADA that is the starting point for negotiations. Certain provisions of the CRADA, however, are mandated by the FTTA (such as a U.S. competitiveness clause) or by government regulations. One provision mandated by government regulations is the so-called "March-in-Rights" clause, which provides the federal government the right to grant licenses to other companies under federally funded inventions if, after a period of time, the CRADA participant is not employing the invention commercially.

Two main provisions of a CRADA affecting the participant concern confidential information of the participant and ownership of inventions.

Some CRADAs might require the participant to disclose confidential business information or trade secrets. Under the terms provided in most CRADAs, proprietary information (i.e., information that embodies a trade secret or sensitive commercial or financial information developed at private expense outside of the CRADA that is properly marked "confidential") will be protected from disclosure by the laboratory to third parties for as long as the participant keeps the information secret.

A second category of information, "protected CRADA information," is information that is proprietary, but which is produced in the course of performance of the CRADA and marked by the participant as protected. Protected CRADA information cannot be disclosed for up to five years from the date the protected information is produced.

The third and final category is "generated information," which is any information produced under the CRADA that is not marked as "protected CRADA information." Neither party is obliged to keep this information secret.

The second major provision of concern concerns the rights to inventions made under the CRADA. The FTTA created an exemption to conventional federal cooperative research so that inventions made solely by the participant under the CRADA can be owned solely by the participant, with the laboratory receiving a royalty-free, nonexclusive license to use the invention for government purposes. If the invention is made jointly by the laboratory and the participant, each party will own an undivided one-half interest in and to the invention. Finally, an invention made solely by laboratory employees will be owned by the government, and the participant has the right to obtain a license to the invention. Such relaxed invention ownership provisions make it attractive to enter into CRADAs with the federal government.