IG questions Energy technology transfer program

The Energy Department must be more transparent in how it transfers to the private sector licensing rights to technologies developed by national laboratories, the department's watchdog said in a report issued on Friday.

Energy Inspector General Gregory Friedman found the government-owned, contractor-operated Argonne National Laboratory in Illinois gave the appearance of a conflict of interest in issuing an exclusive license in 2007 to commercialize chemical-detection technology without adequately publicizing the opportunity.

Technology transfer from the national labs to the private sector is expected to increase significantly under the 2009 American Recovery and Reinvestment Act, the IG noted. "As such, it is essential that the department make the process as transparent as possible by ensuring 'fairness of opportunity,' thereby permitting a full-range of interested and capable firms to participate in activities designed to stimulate research and decrease dependence on foreign energy sources."

The fairness of opportunity doctrine requires national labs to widely disseminate information on technology transfer opportunities and is a guiding principle to help improve the deployment of energy technology and applications that address public and private needs, the IG said.

Friedman's staff investigated the circumstances surrounding the license issued by Argonne at the request of Rep. Mark Kirk, R-Ill., in response to a constituent's allegation of a conflict of interest in the lab's award of an exclusive license for a chemical and biological monitoring system called the Program for Response Options and Technology Enhancements for Chemical/Biological Terrorism, or PROTECT.

PROTECT was developed after the 1995 sarin gas attacks in Tokyo through a joint effort by the Energy, Transportation and Justice departments to build a chemical/biological agent warning system. The effort involved three of Energy's national laboratories, including Argonne, which is operated by UChicago Argonne LLC under a contract with Energy.

In 2002, Argonne National Laboratory applied for a copyright of PROTECT's intellectual property and issued a sole-source contract to a subcontractor to directly support PROTECT. In 2006, the lab concluded that PROTECT had commercial application and decided to transfer the technology to the private sector. But instead of announcing this decision in a public forum, staff at the lab sent solicitations to eight potential licensees, including its subcontractor, based on staff knowledge of the contractors' capabilities.

In February 2007, the lab announced the successful offeror, and in July 2007 it awarded an exclusive license for PROTECT to the subcontractor employed by Argonne in direct support of PROTECT since 2002, according to the IG.

The IG report did not name the subcontractor and ultimate winner of the exclusive license, but Smiths Detection announced in a May 2007 press release that it had received the license. The press release also announced that a month earlier the company had been awarded a $3.2 million contract to install PROTECT at New York train stations through its LiveWave business unit.

"In this case, the technology had not yet been licensed, however, the ultimate licensee was permitted to represent itself as the owner or licensee of PROTECT," the IG reported. "These actions serve to perpetuate the appearance that there was indeed a conflict of interest in this case and that the company was preselected."

Officials at Smiths Detection were unaware of the IG report and declined to comment.

The IG found that even before the company won the exclusive license, it was representing itself as the licensee and "business partner" of the lab. In addition, Argonne researchers provided officials at two transit agencies the option of bypassing the lab and working directly with the contractor to install the monitoring system.

"In one instance, before the competition and award of the exclusive license, an Argonne official went so far as to recommend that an interested transit agency contract directly with Argonne's subcontractor so it could avoid laboratory overhead and indirect costs," thus denying taxpayers a return on their investment, the IG wrote.

The IG did not name the lab official, but clearly there were strong ties between lab officials and the contractor. In August 2008, Smiths Detection announced it had hired Anthony J. Policastro, the former director of PROTECT at Argonne, to serve as chief scientist of its PROTECT Solutions team.

The IG recommended that Energy's director of the Office of Science, which oversees the laboratory system, review the findings and determine if Argonne's actions were appropriate, and if not, make adjustments in the performance fee or take another appropriate action against UChicago Argonne LLC.

In addition, the IG said the Office of Science should develop clear policies on how labs should disseminate licensing opportunities, especially regarding Recovery Act technology transfers.

"Our review disclosed that the practices used by Argonne during the competition for the PROTECT license may be similar to those employed by other Office of Science-managed laboratories," the IG found.

Energy officials agreed in principle with the facts presented by the IG, but disagreed with the assertion that Argonne did not meet the department's "fairness of opportunity" objectives and said contractor-operated laboratories are not bound to the same strict licensing requirements as federal-operated laboratories.

Rep. Kirk's office did not respond to a request for a comment on the IG's findings.