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CRADA’s Can Leverage Your Research and Development Capabilities

by nabelson on March 3rd, 2013

Cooperative Research and Development Agreements (CRADA’s) offer bioscience companies an opportunity to take advantage of federal resources to benefit their own research and development.   CRADA’s permit private companies to enter into a collaborative agreement with a federal government laboratory to conduct joint research and development, and acquire commercial rights to any resulting inventions.  CRADA’s offer private companies an opportunity to leverage their own capabilities to gain access to specialized federal personnel and technologies.

A federal laboratory can complement a private company’s own research capabilities in several ways.  For example, the federal laboratory may be able to conduct certain tests or studies that the company lacks the facilities or personnel to conduct in-house.  The company may also be able to use the technical expertise of a particular federal scientist or research team to support the company’s research.

Getting Started on a CRADA

CRADA’s were created under the Federal Technology Transfer Act of 1986, and the CRADA law is found in 15 U.S.C. section 3710a.  The CRADA program is, as federal programs go, relatively informal and flexible.  Any private company may initiate the CRADA process by identifying a federal laboratory or researcher with which it wishes to collaborate, and then contacting the agency or individual researcher.  The proposed CRADA project must be consistent with the mission of the applicable federal laboratory.  Information on current areas of federal research is usually readily available on the internet.  If the interest is mutual, the company can initiate negotiations for a CRADA with the relevant agency’s technology transfer office. Federal law requires federal agencies to give “special consideration” to small businesses in entering into CRADA’s.

Many agencies already have a standard CRADA agreement, which they like to utilize as the initial basis for discussions.  While there is no obligation to use the agency’s standard template, using the agency’s template as a starting point and then customizing it or adding additional provisions as needed can expedite the negotiating process.

Key Provisions in a CRADA

As in many collaborative research agreements, the private party should normally receive complete ownership of any new inventions invented solely by the private party in the course of the CRADA, and co-ownership of any inventions jointly developed by the private party and the government party. (Inventions made in the course of a CRADA are frequently referred to in CRADA agreements as “subject inventions” and are referred to as “subject inventions” in the rest of this article).

CRADA agreements are required to grant the private party a first option to negotiate an exclusive license with respect to a “prenegotiated field of use” for all commercial purposes to any federal ownership or co-ownership rights in subject inventions.  This “field of use” is handled differently in different agencies.   It is in the private party’s interest to define the field of use as broadly as possible (to cover as many potential uses of the subject invention as possible), and it is often possible to obtain a broad definition of the field of use as part of the CRADA agreement.   Several agencies use templates which generally define the field of use to include any areas of research within the scope of the CRADA.

In addition to this first option, it is usually possible, and desirable, to add provisions which further restrict the government’s ability to license any federally owned commercial rights in a subject invention to third parties.  For example, a CRADA agreement may create a period of exclusivity during which the government can negotiate a license only with its private partner in the CRADA.   In addition, if the parties to the CRADA are unable to reach a license agreement during this exclusivity period, the CRADA may specify that the government cannot offer better license terms to a third party then it offered to its CRADA private partner.  Government research laboratories are not looking to create disincentives to enter into a CRADA, so they are usually willing to provide reasonable assurances to a partner that the government will not attempt to license commercial rights in subject inventions to third parties in most circumstances.

Federal law authorizes agencies to assign their rights in subject inventions to the company, but in practice many agencies are reluctant to contractually assign such rights as part of the CRADA agreement.   Federal agencies generally prefer to license rather than assign CRADA subject inventions.

Federal agencies may also waive, in advance, any government rights to subject inventions which are made by the private party or its employees, subject to a license for government use as described below.   Furthermore, the federal agency may grant the private partner an exclusive license to pre-existing federal inventions (inventions for which the government had filed a patent application prior to the CRADA) which are directly within the scope of the CRADA.  A prospective CRADA participant can propose both of these possibilities to the agency when negotiating a CRADA.

The CRADA law requires the government to retain a “nonexclusive, nontransferable, irrevocable, paid-up license” to practice or have practiced any subjection invention which is invented or co-invented by government personnel, for research or other governmental purposes (including pre-existing government inventions which are licensed to the private party as part of the CRADA).  In essence, such a license permits the government to use such subject inventions for non-commercial purposes.   In practice, it is often possible to add language restricting the government’s license rights in subject inventions to “bona fide non-commercial uses” or other similarly restrictive language.   The law states that subject inventions made solely by the private party’s employees should also “normally” be subject to this license for governmental purposes, but the use of the term “normally” leaves room for negotiation.

 

Federal agencies participating in CRADA’s must protect the confidentiality of trade secrets or other confidential or proprietary information obtained in the conduct of CRADA research or obtained from the private partner in the course of performing the CRADA.  The government may not disclose this confidential information in the course of utilizing its license to use subject inventions for governmental purposes described above.  These confidentiality obligations are also typically included in the CRADA agreement.   It is also strongly advisable to require in the CRADA that any publication of research results be delayed for sufficient time to permit the filing of any related patent applications.

CRADA agreements should give the parties the right to terminate the agreement for any reason, usually with between 30 to 90 days advance notice.  This right to terminate without a reason (or “without cause”) is important, so that the private partner can avoid incurring unnecessary expenses if the CRADA research proves unsatisfactory or the private party’s business objectives shift away from the CRADA research.  Certain provisions of the CRADA agreement, such as confidentiality and ownership of intellectual property, should survive termination.

Statements of Work and Expenses

CRADA agreements generally contain a statement of work or research plan describing each party’s roles and responsibilities, as well as other provisions commonly found in traditional sponsored research agreements.  The agreement should also contain a budget, which lists any expenditures required of the private party and the time such expenditures are required.  It is possible to specify milestones along the way when the private party may make a go/no go decision about whether to pursue certain lines of research and incur certain expenses.

CRADA’s have their limitations.  Most significantly, they do not provide a direct source of funding for private companies.  In fact, in many cases the private company will have to finance a portion of the federal laboratory’s out-of-pocket research costs.  However, this is negotiable on a case-by-case basis; the CRADA law permits agencies to enter into CRADA’s “with or without” obtaining reimbursement for the government’s expenses from private parties.  In any event, even if reimbursement is required by the agency, the private party’s contribution should be limited to the federal agency’s out-of-pocket costs directly attributed to the CRADA.   While this may in some cases include a portion of federal research personnel’s time which will be spent working on the CRADA, the private party should not pay for federal expenses which are general in nature and not specifically dedicated to the CRADA.

Federal “March-In” Rights

Federal agencies which participate in a CRADA retain the right to require their private partner to license subject inventions assigned or licensed to it by the government (including pre-existing government inventions licensed as part of a CRADA) to third parties or, if the private party refuses, to directly license this technology to third parties, if the federal agency determines that the private partner is not adequately using the invention as defined in the law (if, for example, the private party has failed to failed to adequately address “health and safety needs” or failed to meet “public use” requirements specified in federal regulations).  This right is generally referred to as a federal “march-in right.”   The law states that agencies may exercise this right “only in exceptional circumstances.” While this possibility often raises concerns for companies contemplating a CRADA, the reality is that as of the end of 2012, the government had never utilized this authority.

Conclusion

While not a source of direct funding, CRADA’s represent an opportunity which is readily accessible for most bioscience companies to take advantage of federal laboratory and scientific resources.  Furthermore, private companies can normally acquire intellectual property rights for any commercial uses of inventions resulting from a CRADA.

 

Copyright © 2004-2013 Neil A. Belson

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