The current manufacturing requirements are specified in the Bayh-Dole Act of 1980, which enabled universities, national laboratories, and researchers to patent, license, and collect royalties on inventions developed with federal funding. The law sparked the tech transfer revolution of the 1990s. It also specifies that if a patent holder enters into an exclusive licensing agreement with a company to make a technology that will be marketed in the United States, then the product also must be “manufactured substantially in the United States.”
There is some wiggle room, however. If no domestic manufacturer can be found—a common occurrence, tech transfer experts say—the licensor can apply to the funding agency for a waiver. And the domestic manufacturing requirement doesn’t apply to nonexclusive licenses—which a patent holder can sign with multiple companies—or for products sold overseas. That exception enables an inventor to collect royalties while still allowing a U.S. manufacturer, should one eventually emerge, to make the product, says Allen, who helped draft the law as a staffer for Senator Birch Bayh (D–IN), who died in 2019. “The thought of the statute was that it’s better to have it made somewhere than have it made nowhere,” he says.
However, the Biden administration’s new executive order directs various departments and agencies to consider extending the domestic manufacturing requirement to nonexclusive licenses—which according to Bayh-Dole can be done through a “determination of exceptional circumstances,” or DEC. The White House order gives the departments of Defense, Health and Human Services, Transportation, Energy, and Homeland Security as well as the National Science Foundation and NASA 90 days to think it over.
The executive order’s instruction comes close to, but does not follow, the precedent set by DOE. In June 2021 it issued a DEC extending the domestic manufacturing requirement to nonexclusive licenses of all future patented technologies developed with DOE funding. Noting that since 2001 the number of manufacturing jobs in the U.S. shrank by one-third, or 12 million jobs, the agency stated that “we have seen the manufacturing for countless federally funded technologies (ranging from solar technologies to semiconductors to energy storage) increasingly offshored to locations other than the United States.” Now, those looking to license any DOE-funded innovation must find a U.S. manufacturer or request a waiver.
That move is putting a damper on the development of DOE-funded technology, tech transfer experts warn. That’s because DOE’s move ignores a fundamental fact that, for many emerging technologies, no suitable U.S. manufacturer exists, says Stephen Susalka, CEO of AUTM, formerly the Association of University Technology Managers. “The average number of licensees for a technology is somewhere between zero and one,” he says. “It’s not like there are 17 and you pick the one in Bangladesh.” In January 2022, AUTM found that half of 46 members polled said they would definitely reduce investment in trying to patent DOE-funded innovations.
Not only does the executive order allay, at least for the moment, tech transfer experts’ biggest fear, it also does several things they like. Most important, it aims to standardize and improve the process for applying for a waiver when a domestic manufacturer cannot be found, a process that tech transfer experts say has been broken. This spring, a different AUTM survey found that of 33 tech transfer offices that applied for waivers, eight waited a least 1 year to hear back from the funding agency and 22 received no reply. A waiver application “goes into a black hole,” says Kate Hudson, associate vice president at the Association of American Universities. “You don’t even know if they’ve received it, you don’t know how it was evaluated.”
The new executive order decrees, “The heads of agencies … shall ensure the wavier process of their agency is rigorous, timely, transparent, and consistent.” It instructs agencies and departments to consult outside stakeholders. However, the order also says agencies judging waiver applications should include factors beyond simply whether a U.S. manufacturer can be found—such as the work conditions and the unionization status of the overseas factory where a licensed technology would be made.
Exactly how widely the Biden administration will expand the domestic manufacturing requirements should become clearer in the coming months. Allen hopes the system will remain more or less as it is now, except with a much-improved waiver system. However, the executive order does raise the prospect that the administration will impose the domestic manufacturing requirement far more broadly—and erect a new bureaucracy to handle the ensuing flood of waiver requests.
Regardless of what the administration does, tech transfer experts say stricter licensing requirements won’t do much to reverse the loss of U.S. manufacturing capability. No matter how much researchers might wish it, Susalka says, “You can’t create domestic manufacturers out of thin air.”