Patent Baristas » Technology Transfer

Professor Gets 4 Years In Prison For Exporting Technical Information on UAVs

Stephen Jenei — Thu, 17 Sep 2009 21:12:05 +0000

University of Tennessee (UT) Professor John Reece Roth, 72, of Knoxville, Tennessee, was sentenced to 48 months in prison for violating the Arms Export Control Act by conspiring to illegally export, and actually exporting, technical information relating to a U.S. Air Force (USAF) research and development contract. (See indictment here)

Prof. Roth was convicted by a jury in the U.S. District Court for the Eastern District of Tennessee of conspiring with Atmospheric Glow Technologies, Inc. (AGT) to unlawfully exporting fifteen different defense articles to a citizen of the People’s Republic of China, in violation of the Arms Export Control Act (AECA), 22 U.S.C. § 2778.

Roth and Atmospheric Glow Technologies (a licensee of UT technology) were indicted in connection with violations of the Arms Export Control Act. AGT had two contracts with the U.S. Air Force to conduct research and hired Professor Roth in connection with the contracts. The technology under development was controlled by the Department of State.

The illegal exports by Dr. Roth of technical information, known as “technical data,” related to his illegal disclosure and transport of restricted military information associated with the USAF contract to develop specialized plasma technology for use on an advanced form of an unmanned air vehicle (UAV), also known as a drone.

The illegal exports by Dr. Roth of military technical information involved specific information about advanced plasma technology that had been designed and was being tested for use on the wings of drones operating as a weapons or surveillance systems. The Arms Export Control Act prohibits the export of defense-related materials, including the technical data, to a foreign national or a foreign nation.

The AECA prohibits the export of defense-related materials, including the technical data, to a foreign national or a foreign nation. These defense articles related to different specific military technical data that had been restricted and was associated with the USAF project to develop plasma technology for use on weapon system drones.

Exports include “deemed exports,” defined as an unauthorized release of technology or services to a foreign national (defined as an natural person who is not a U.S. citizen, a lawful permanent resident or a political refugee/asylum holder under 8 U.S.C. §1324(b)(a)(3)), either domestically or overseas. Deemed exports occur when access to defense technology or services is provided to a foreign national.

The government alleged that Roth did not obtain permission to take the sensitive documents to China and lied to the Defense Department about his employment of Chinese foreign national Xin Dai and Iranian foreign national Sirous Nourgostar. Both graduate research assistants were given unrestricted access to information about the technology developed for use in the Air Force drones. Roth was also accused of ordering Xin Dai to e-mail to another Chinese citizen a report that also contained military defense secrets

A jury found that Dr. Roth violated the deemed export rules when he assigned a Chinese national in his laboratory to work on the plasma research project without first obtaining the appropriate license from the State Department and when he used a Chinese colleague’s workstation to download export controlled data.

What seemed to have sunk Roth’s boat was that he was advised by a UT export control officer to not disclosure the information. Violation of the Act requires willful conduct and specific intent (“voluntary, intentional violation of a known legal duty”). But, according to the government’s trial brief, Roth knew what he was doing and forged ahead anyway:

On May 3, 2006, AGT, through Project Manager Briggs, advised Roth that, “for obvious security reasons, your Iranian student is not going to be acceptable” as a replacement for Dai. Roth responded that he did not feel it was AGT’s position to tell him who he could use on the project.

On May 5, 2006, Roth met with Robin Witherspoon, the Contract Administrator and Export Control Officer at UT, and attempted to add Nourgostar to the Phase II contract and requested UT to seek an export license to accomplish this. Witherspoon then learned from Roth that Chinese national Dai had been working on the Phase II project since May 2005 without a license from the State Department. Three days later, on May 8, 2006, Witherspoon e-mailed Roth advising him that the Phase II contract was export controlled and providing him with the text of the clause so stating. She warned Roth to be cautious about what he took with him on his forthcoming trip to China and not to disclose anything about the Phase II project. Witherspoon called Roth on May 11, 2006, and advised him that she spoke to the State Department and found out that both Iran and China are prohibited countries for export control purposes.

Apparently, Dr. Roth believed that his research qualified for a fundamental research exclusion. Roth traveled to China and presented a lecture at Fudan University titled “Subsonic Plasma Aerodynamics for Flight Control of Aircraft.” On return to the US, his USB drive storage device and laptop were found to contain reports and the entire AGT Proposal to the Defense Advanced Research Projects Agency (DARPA). The DARPA proposal and the
reports were certified as a defense articles, i.e., technical data as defined in the U.S. Munitions List.

Dr. Roth probably didn’t set out with the intent of organizing an international spy ring. I could imagine that, as a professor with his reputation at stake, he let his ego and his need to report cutting edge research cloud his judgment.

The case is a reminder that universities need to be careful in complying with the the Arms Export Control Act in doing sponsored research. Anyone working with export controlled technology should review their access protocols before booking that next trip abroad.

The goods and technical data subject to control under AECA are articulated at the U.S. Munitions List, which can be found at 22 C.F.R. § 121, the International Traffic in Arms Regulations (ITAR). Technical data includes information required for the design, development, production, testing, or modification of defense articles. Defense services are also regulated, examples of which are furnishing of assistance to foreign persons in the design, development, testing or use of defense articles, whether this takes place in the U.S. or elsewhere.

You can see the Government’s Trial Brief here.

SBIR Funding Under the Gun

Stephen Jenei — Wed, 18 Mar 2009 03:41:25 +0000

The Small Business Innovation Research program, and the related Small Business Technology Transfer program, were created to help small companies work with government agencies and large contractors to bring new technologies to market.

The program is set to currently operating under a continuing resolution (CR) with re-authorization due for re-upping on March 20. Now, the House and the Senate have reached a compromise on legislation that will amend PL 110-235 (the current CR) to extend the SBIR Program from March 20, 2009 to July 31, 2009. This means that there will be yet another urgent need for re-authorization in just a few months.

On another front, SBIR availability appears to have dodged a bullet after President Barack Obama’s stimulus package lacked support for the SBIR program. The current stimulus bill has a section granting $7.5 billion to the National Institutes of Health to fund research. But that funding comes with a stipulation that it cannot be used for certain projects, including the SBIR program (15 U.S.C. 638(f)(1) and 15 U.S.C. 638(n)(1)) — a stipulation added by the NIH.

The SBIR and STTR programs have provided small tech companies with more than $26 billion in funding since the programs were launched in 1982. Nearly 18,000 firms have participated, with 6,244 currently active in at least one project. Those companies have also obtainedmore than 67,500 patents. SBIR accounts for over half of all the federal R&D awards that small companies receive.

The Senate Committee on Small Business & Entrepreneurship (SBE) Chair, Mary Landrieu (D-LA) and ranking member Olympia Snowe (R-ME), sent a letter to Mr. Charles E. Johnson, Acting Secretary of Health and Human Services to express their concern over the $8 billion in ARRA funding exempted from SBIR. They are asking for a response from Secretary Johnson by March 24, 2009.

Senators Russell Feingold (D-WI) and Benjamin Cardin (D-MD) have sent their own letter to NIH stating:

Thus, notwithstanding passage of the ARRA, HHS remains responsible for allocating 2.5 percent and .3 percent of its research and development funds to SBIR and STTR, respectively. Since the ARRA provided $8.2 billion to the NIH for research and development, HHS must ensure that an amount equivalent to 2.8 percent of this total, or $229 million, is allocated to these two programs. We look forward to HHS’s explanation of how it will meet these requirements.

Basically, the NIH claims that there are not enough “high quality” SBIR proposals from small businesses to fund with ARRA dollars before the expiration date. The NIH also claims that it can use some ARRA monies for SBIR/STTR where appropriate, and contend that their new NIH Challenge Grants in Health and Science Research, will have $200m available for 200 or more grants up to $1m each (see here).

For now, SBIR money should remain available.

You Invented It So You Own It, Right?

Stephen Jenei — Wed, 18 Feb 2009 19:52:57 +0000

Professors are a dedicated lot who are, if nothing else, passionate about their work. This is especially true of research professors who come up with the seeds of a new technology. Universities welcome and encourage research that can be commercialized and actively engage in technology transfer to put new inventions in the hands of companies that can fully exploit the technology. The universities — and the professors themselves — receive money by way of royalty payments. It’s pretty routine and occurs every day.

Last year, the University of Missouri spent $1.4 million commercializing intellectual property while bringing in $6.2 million in licensing income. Now, the university has filed a lawsuit in district court against chemical engineering professor Galen Suppes to regain rights to his research relating to renewable energy.

Suppes, along with Dr. Rusty Sutterlin, co-founder and CEO, formed Renewable Alternatives, LLC to develop technology related to products that are an alternative to petroleum-based feedstock materials. Research activities focus on the synthesis of phase change materials, high-performance diesel fuel additives from vegetable oils and fats, development of advanced/integrated reactor systems, new uses for glycerin and glycerin conversion products and regenerative fuel cell technology.

According to the Associated Press, Suppes and Sutterlin formed Renewable Alternatives to commercialize their work on fuel cells and other fuel-related technologies because they thought the university had a poor track record in pursuing patents on professors’ research. Suppes said university officials had shown no interest in his efforts until he “informed them that royalties had been paid.”

“The Missouri tech transfer program is totally broken and basically beyond repair.” ~ Professor Suppes

The actions that led up to this case are quite convoluted but basically, Suppes, as a professor and university employee, is required under the university rules to assign to the the University of Missouri “all domestic and foreign rights to any invention made by the employee within the general scope of her/his duties as employee of the University, unless such requirement is waived in writing by the University.”

The complaint now alleges that since 2001, Suppes has invented several inventions within the scope of his duties at the University. But, “rather than disclose and assign those inventions as required, Suppes has on approximately 31 occasions submitted invention disclosure forms that were altered, usually by deleting or substantially modifying the specific assignment language contained in the forms such that Suppes did not in fact assign any meaningful rights to the University. On these occasions Suppes submitted the forms without bringing his alterations to anyone’s attention.”

In addition, Suppes has on other occasions denied that certain inventions were within the scope of his duties and services, asserting that they were conceived and reduced to practice without use of University facilities or resources or while Suppes was not working for the University, and Suppes and Sutterlin have since filed multiple patent applications, without acknowledging the University’s ownership. Suppes has since refused to execute assignment documents. The university is now suing in order to get rights more to than 30 inventions and 11 potential patents it says were developed in his Columbia campus labs.

See the entire complaint here.

From the Missouri Innovation Center Newsletter:

Q: What roadblocks have you encountered in starting your company here at the University of Missouri, and what improvements have been made?

Dr. Galen Suppes (GS): I initially met some resistance within the University when I sought permission to pursue my own company. However, that worked out. I found that clear advice regarding University procedures was somewhat lacking. For instance, I was not aware of the importance of the “Potential Conflict of Interest” form. I would strongly recommend that anyone starting their own business here at the University look into this form right away. Renting space for my company here on campus has been somewhat difficult, but the College of Engineering and MIC helped me in breaking ground. A thorough understanding of how the Office of Technology and Special Projects works would also be of great benefit in getting approved in a timely manner. At this point, it is becoming more clear that the University is supportive of faculty entrepreneurship and see that the commercialization of technology will create jobs for the community and the state. SBIR and STTR grants are now seen as quality funding mechanisms, and the University tends to be supportive of faculty spin-off companies, especially if this allows SBIR and STTR funds to be acquired.

Earlier, a District Court ordered Nobel Prize winner and former Yale University professor John Fenn, 87, to pay Yale $545,000 in royalties and penalties, and pay their legal bills of almost $500,000 for what the court called “fraud” and “civil theft” when he licensed the rights to U.S. Patent No. 5,130,538 to a company he partly owned. More on the Fenn case here.

In one of the few cases where the inventor went to jail, Petr Taborsky, a former student at the University of South Florida, went to jail as a result of a dispute over technology ownership. In that case, Taborsky was convicted of grand theft and theft of trade secrets and sentenced to probation. Read about the tale of Taborsky here.

More at IPBiz.

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Is the IRS Eyeing Tech Transfer Dollars?

Stephen Jenei — Mon, 27 Oct 2008 19:08:10 +0000

According to biotechTransfer week, the IRS set to look over the financial statements of public and private colleges and universities for unrelated income sources like tech transfer.

The Internal Revenue Service is looking to gather information from hundreds of US colleges, universities, and affiliated organizations such as foundations and academic medical centers about their financial practices, including those related to technology licensing, investments, and corporate sponsorship, according to the agency.

Last week, the IRS’ Exempt Organizations Compliance Unit began sending compliance questionnaires to approximately 400 U.S. colleges and universities as part of the agency’s focused effort to study key areas in the tax-exempt community. The EOCU addresses areas of noncompliance of exempt organization.

The college and university questionnaire will focus on unrelated business income, endowments and executive compensation practices. The questionnaires are being sent to a cross-section of small, mid-sized and large private and public four-year colleges and institutions. Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and, like state universities, are subject to unrelated business income tax.

Among other things, the questionnaire will gather information from the schools about how they report revenues and expenses from their trade or business activities, classify their activities as exempt or taxable activities, and calculate and report income or losses on taxable activities. The questionnaire also will gather information regarding how the organization invests and uses its endowment funds and determines compensation of certain highly paid individuals.

The IRS said the voluntary questionnaire is part of an effort by the agency to better understand tax-exempt organizations and perhaps more intently scrutinize what it considers key areas in the tax-exempt community. The questionnaire is not an audit and schools will not be penalized for refusing to participate. But, the IRS reserves the right to open an investigation whether or not the universities participate.

In looking at technology-transfer, the questionnaire asks for information on the nature and amount of unrelated business income in categories such as other royalties, commercial research, patents, and copyrights and trade names or trade secrets. These are potential sources of unrelated-business income and revenues and expenses from taxable trade or business activities must be reported on Form 990-T, Exempt Organization Business Income Tax Return.

The 33-page-long questionnaire is similar to one that it sent out in 2006 to approximately 600 hospitals, which may have given the EOCU a good insight on reviewing such activities. The IRS said it expects to receive most of the responses within the next several months, analyze the results of the compliance questionnaire and conduct examinations of a sample of the organizations. The IRS said it expects to issue a report on the project in 2009.

Let us know if you’ve received a questionnaire and whether or not you intend to reply.

See here for the Compliance Questionnaire – Colleges and Universities.

Hold Up There On That Outsourcing of Patent Work

Stephen Jenei — Fri, 01 Aug 2008 02:43:44 +0000

The U.S. Patent and Trademark Office (USPTO) sent out a gentle reminder in the Federal Register to all patent applicants and registered patent practitioners that the export of subject matter (transfer of information) abroad under a foreign filing license is limited to purposes related to the filing of foreign patent applications.

The Notice states:

Applicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for the appropriate clearances.

Why?

If an invention was made in the United States, technical data in the form of a patent application, or in any form, can only be exported for purposes related to the preparation, filing or possible filing and prosecution of a foreign patent application, after compliance with the EAR or following the appropriate USPTO foreign filing license procedure. See 37 CFR 5.11(c). A foreign filing license from the USPTO does not authorize the exporting of subject matter abroad for the preparation of patent applications to be filed in the United States.

Exports of technology related to commercial and dual-use items are generally subject to the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS); exports of technology related to defense articles are subject to the International Traffic in Arms Regulations (ITAR), administered by the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). However, jurisdiction is granted to the USPTO under both the EAR and ITAR for technical data that is exported for limited the purpose of filing or possible filing and prosecution of a foreign patent application. The scope of a foreign filing license granted by the USPTO is set forth in 37 CFR 5.15.

It is noteworthy that foreign filing licenses (for the filing of a patent application in a foreign country) do not cover all information related to the invention — only that which is truly necessary for the preparation of the application. They also do not authorize the export of any technology that is not specifically submitted to the USPTO as part of a U.S. patent application or a petition for a foreign filing license. The USPTO explains:

For example, the USPTO has received short abstracts, PowerPoint® slides and even titles of inventions as the disclosure for which a foreign filing license is requested. Although the USPTO will usually process such requests, any foreign filing license granted under 37 CFR 5.15(a) or 5.15(b) on such short description may not authorize filing abroad the ultimate resulting patent applications and may not authorize any additional material added after the initial foreign filing license request. Such additional material that was not submitted to the USPTO for its review may be deemed to have altered ‘‘the general nature of the invention in a manner which would require such application to be made available for inspection under such section 181.’’

Furthermore, a foreign filing license does not permit transfers of technology that occur between employees of a company located in the U.S. and employees of an affiliated company overseas. A license must be obtained from the U.S. Department of Commerce or U.S. Department of State (depending on the technology) in order to report on new inventions to a foreign parent company. A foreign filing license also does not authorize the transfer of controlled technology to foreign nationals located in the U.S. as this is also classified as an export.

The USPTO has established a Licensing and Review web page that includes frequently asked questions regarding foreign filing licenses and related matters. Information regarding the EAR may be obtained from the BIS Web site here.

This notice does not change existing law or regulations so it doesn’t mean exports without a license before the Notice were OK. Now’s a good time to rethink outsourcing.

See: Outsourcing Legal Work (to the Midwest)