U.S. Technology Made in China: The Role of Federal Technology Licensing Policies

U.S. Technology Made in China: The Role of Federal Technology Licensing Policies

INSIGHTi

U.S. Technology Made in China: The Role of
Federal Technology Licensing Policies
September 20, 2022
A recent news report questioned why a potentially revolutionary battery technology discovered at a
Department of Energy (DOE) national laboratory was licensed to a firm that manufactures the batteries in
China. U.S. competitiveness and national security concerns often focus on Chinese acquisition of critical
U.S. technologies. This Insight outlines current federal technology licensing policies and agency actions
intended to further the domestic manufacturing of federally funded innovations.
U.S. Breakthrough Batteries Made in China
In 2011, a group of scientists working at DOE’s Pacific Northwest National Laboratory (PNNL)—a
federally funded research and development center (FFRDC) that is managed and operated for DOE by
Battelle—developed two innovations in the chemistry of vanadium redox flow batteries that greatly
improved their efficiency and viability for grid-scale energy storage. Capable of storing enough energy to
power a house, vanadium redox flow batteries have been hailed as a breakthrough in stationary energy
storage technology because they may be capable of recharging for up to 30 years without performance
degradation. In 2012, Battelle and PNNL entered into a licensing agreement with a Washington state-
based firm, UniEnergy Technologies LLC, “intended to advance and commercialize ‘redox flow’ battery
technology.” According to National Public Radio (NPR), the CEO of UniEnergy Technologies reported
difficulty securing capital from U.S. sources to commercialize the batteries and subsequently pursued
Chinese investment funds and eventually agreed to sublicense with a company that currently
manufactures the batteries in China—a violation of the original licensing agreement. The sublicense has
since been terminated.
Federal Technology Licensing Policies
Technology and expertise generated using federal funding often has application beyond the immediate
goals or intent of the original R&D. Congress has established various mechanisms—primarily through the
Stevenson-Wydler Technology Innovation Act of 1980 (P.L. 96-480) and the Bayh-Dole Act of 1980 (P.L.
96-517)—to encourage the commercialization of technology and research resulting from federal funds.
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One mechanism involves licensing federally funded technologies and patented inventions to private
businesses for commercialization. Under Section 6 of the Bayh-Dole Act (35 U.S.C. §202) and Executive
Order 12591, federal contractors, including FFRDCs, businesses, and universities, may seek intellectual
property (IP) rights to inventions made with federal support and license those inventions to industry
partners. Thus, a federal contractor (e.g., Battelle)—and not the government—typically obtains the patent
rights to inventions made under a federal contract or grant. Bayh-Dole, however, requires that the federal
government receive a non-exclusive, royalty-free license to use the invention, and imposes other
conditions on the contractor’s IP rights, such as the U.S. manufacturing preference discussed below.
Limits of the U.S. Manufacturing Preference in the Bayh-
Dole Act
Section 6 of the Bayh-Dole Act (35 U.S.C. §204) also prohibits contractors who received title to a patent
under Bayh-Dole and their assignees from licensing the exclusive right to use or sell a covered invention
in the United States unless the licensee agrees it will be “manufactured substantially in the United States.”
Some observers argue that this “Preference of U.S. Industry” clause has been too easily evaded. For
example, according to DOE, “while Bayh-Dole has been one of the most impactful pieces of legislation
for economic growth over the past century, the U.S. Preference provision contains textual limitations that
allow recipients to easily maneuver around it.” Others support the law in its current form.
The law authorizes federal agencies to waive the requirement in individual cases when “domestic
manufacture is not commercially feasible” or “reasonable but unsuccessful efforts” have been made to
find licensees who would manufacture substantially in the United States. It is unclear how often agencies
grant such waivers. From 2009 to 2014 the National Institutes of Health included the number of waivers
issued as part of its technology transfer data collection and reporting, but comparable data is generally not
available for other years and other agencies.
DOE’s Determination of Exceptional Circumstances
DOE recently highlighted the statutory limitations of the U.S. manufacturing preference clause,
explaining that the clause applies only to inventions “exclusively licensed to a third party” and to licenses
for “use and sale in the U.S.” Citing “inadequate safeguards” of the U.S. preference provision and “the
hypercompetitive race to develop several critical and emerging technologies,” the DOE letter outlined the
need to “take action to support critical domestic supply chains and protect the rights of American
taxpayers.”
In June 2021, DOE issued a Determination of Exceptional Circumstances Under the Bayh-Dole Act to
Further Promote the Manufacture of DOE Science and Energy Technologies, authorizing the inclusion of
a “U.S. Competitiveness Provision” in future DOE funding agreements. Per the Bayh-Dole Act (35
U.S.C. §202), a Determination of Exceptional Circumstances is necessary if a federal agency wants to
restrict IP rights under a funding agreement. DOE’s competitiveness provision extends the U.S.
manufacturing requirement to cover non-exclusive licenses as well as the use and sale of subject
inventions outside the United States, among other changes. It does not, however, preempt DOE’s ability
to grant U.S. manufacturing waivers to companies who can demonstrate feasibility concerns, or for other
reasons.

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Policy Considerations
The highly publicized example of vanadium redox flow batteries that incorporated technology developed
at PNNL and originally licensed to a U.S. firm being manufactured in China could raise several questions
about the efficacy of current technology transfer and licensing requirements that Congress may consider:
 Should DOE’s 2021 Determination of Exceptional Circumstances, which goes beyond
current statutory requirements related to U.S. manufacturing preferences, be codified and
applied to all federal agencies and their technology transfer and licensing activities?
 Do DOE and the contractors that manage and operate its national laboratories adequately
enforce the terms of licensing agreements? If not, what additional resources or
authorities, if any, would be needed to enable adequate enforcement?
 How do other federal agencies monitor and enforce the implementation of the U.S.
manufacturing preference clause?
 How often do DOE and other federal agencies grant waivers of the U.S. manufacturing
preference clause in licensing agreements? Should waivers be reported to Congress?
 Could DOE’s Determination of Exceptional Circumstances, which restricts contractors’
use of IP developed with federal support, deter future public-private collaborations?

Author Information

Emily G. Blevins
Marcy E. Gallo
Analyst in Science and Technology Policy
Analyst in Science and Technology Policy

Disclaimer
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