D0804054 Attachment

4. Intellectual Property

Parties all expressed interest in the disposition of IP rights, or revenues generated therefrom, arising from the proposed work of the Institute. Consumer groups, utilities and, to some extent, environmental groups indicated that the benefits from patents or other intellectual property should flow directly to ratepayers in the form of royalties. PG&E requests that a "clear path" provide benefits for electric and gas utility customers from their investment in the Institute's programs, suggesting incorporation of "`benefit-sharing'" mechanisms that provide free access to and licensing of technologies, information and research results generated by the Institute, as well as royalties and revenues generated by patents and licenses granted by the Institute to third parties."⁴¹

Of primary concern in this matter is the effect of the federal Bayh-Dole Act, officially titled the University and Small Business Patent Procedures Act ("Bayh Dole"). [35 U.S.C. § 200-212.] The academic and research institutions strongly recommend that the practices of the Institute be fully compatible with the provisions of the federal Bayh-Dole Act" because "failure to comply with the Bayh-Dole Act would assure that CICS funds could not be used to leverage any federal funding and would thus significantly reduce the effectiveness of the Institute."⁴² CCST for example, recommends "that to the fullest extent possible, the state's IP policies reflect the federal Bayh-Dole Act, and that royalty income earned by universities from profitable technologies ... be reinvested in ongoing research."⁴³ USC urges that technology transfer "be a decentralized activity assumed by each participating institution to accelerate the impact of CICS' research."⁴⁴

CSU argues that the benefits of the Institute will be largely non-financial and suggests that Bayh-Dole be used as the basis for any policies related to revenue sharing from profitable technologies.⁴⁵ DRA suggests that it may be possible to structure a sharing mechanism that both ensures ratepayers a return on their investment and addresses the universities' concerns regarding consistency with Bayh-Dole.

The California Institute for Regenerative Medicine specifically provides for revenue sharing in its governing regulations, which require grantee organizations to pay the State 25 percent of net revenues above a threshold amount unless such action violates any federal law. PIER's standard agreement with UC requires royalty payments of 10% of net revenues to the CEC.⁴⁶ SDG&E and SoCalGas offered joint comments that suggest a secondary aim of the Board "should be to create additional incentives for research institutions to competently and efficiently patent inventions by introducing the potential for the Board to confiscate ownership" of an unpatented invention and to retain "march-in rights" to prevent abuse of monopoly power by patent holders benefiting from CICS funded research.⁴⁷ Finally, they argue that "[s]ince United States IP law does not provide for an automated devolution of IP profits or licensing by virtue of providing funding contributions, the Board ought to be granted a non-exclusive license" for inventions coming out of the CICS program.⁴⁸

Caltech expresses the concern, echoed in written comments and during the December workshop, that "[t]he addition of a new layer of regulation on this process [the Bayh-Dole Act] would create significant, sometimes insurmountable, disincentives for the robust research partnerships that redound so greatly to California's benefit at present."⁴⁹ UC's presentation at the workshop indicated that the financial benefits from any inventions developed as a result of Institute grants were likely minimal and would be far overshadowed by more qualitative benefits, while also pointing out the potential difficulty in then qualifying for federal funds under Bayh-Dole.⁵⁰ In general, the UC presentation made a strong case for complying with Bayh-Dole. Stanford's presentation at the workshop also supported the UC proposal, particularly in the context of indirect costs and accounting procedures used for federal funding.

We recognize that Bayh-Dole's public purpose is generally consistent with the mission of the CICS. Furthermore, it appears that there is sufficient flexibility around the elements of Bayh-Dole that the programmatic objectives of CICS can be fully met without being at cross-purposes. It would be imprudent to discourage participation by other universities and researchers by prematurely restricting the open framework established in Bayh-Dole. We are convinced that leveraging federal funds is crucial to the success of the Institute and California's ability to meet the State policy goals established in the EAP and AB 32. Nonetheless, it will be necessary, when bringing in federal funds, to create grant agreements that are in the interest of California and its ratepayers. One possible approach to the question of revenue sharing might be to require that grantees reinvest a portion of their net licensing revenues in research related to climate solutions, though other solutions are possible as well. It is too early to tell what form such agreements may take.

Accordingly, we require that the Governing Board establish a Technology Transfer Subcommittee (TTS) responsible for: (1) reviewing the existing policies and practices pertaining to IP, inventions, and technology transfer of the hub's host institution or entity, (2) identifying any barriers to technology transfer the host institution's policies present and bringing them to the attention of the Executive Committee, (3) if necessary, developing IP and technology transfer

policies and protocols specific to the Institute, in consultation with stakeholders, (4) advising the Institute and Executive Director regarding IP and technology transfer matters, and (5) reviewing all proposed agreements for additional non-ratepayer funding for the purpose of identifying potential technology transfer issues. Because these are complex issues, requiring specialized knowledge and experience, the TTS will be expected to establish a means of seeking input from professionals with relevant expertise.

In order to ensure that ratepayers receive a benefit from this IP and technology transfer, we direct the TTS to require that at least 10% of net revenues revert to ratepayers, unless such an action is violative of existing laws.

Prior to the establishment of IP and technology transfer policies and protocols specific to the Institute, however, all grant agreements shall be consistent with the framework established by Bayh-Dole. Once IP and technology transfer policies and protocols specific to the Institute are set up, they are to be submitted to the Commission's Executive Director for placement on a Commission agenda for Commission approval.