Report 2011-106 Summary - November 2011

Intellectual Property

An Effective Policy Would Educate State Agencies and Take Into Account How Their Functions and Property Differ

HIGHLIGHTS

Our review of the State's management and protection of intellectual property revealed the following:

The State has not enacted a statutory framework nor implemented the recommendations we made in an audit report we issued in 2000.
Fifty-three percent of the state agencies that responded to our survey believe that the State should establish statewide guidance for managing and protecting intellectual property.
Four state control agencies we spoke to do not believe that they are responsible for providing policies or guidance to other state agencies for managing and protecting intellectual property.
The four state agencies we visited had only limited written policies, and the way in which they addressed their rights varied.
- The Department of Health Care Services generally retains the rights to intellectual property created by a contractor.
- Certain contracts the California Energy Commission has with its researchers gives the researchers the rights, but it can and has earned royalties—between fiscal years 2008-09 and 2010-11 it received $2.6 million in royalties.
- The California Department of Transportation sold licenses to its employee-developed intellectual property and generated $51,500 in revenue.
To move forward, the State will need to clearly articulate the goals of any policy related to intellectual property.

RESULTS IN BRIEF

In November 2000 the Bureau of State Audits issued a report titled State-Owned Intellectual Property: Opportunities Exist for the State to Improve Administration of Its Copyrights, Trademarks, Patents, and Trade Secrets (2000 audit report). The report noted that state-level guidance for administering intellectual property such as copyrights, trademarks, patents, and trade secrets was limited and recommended that the Legislature take certain steps to help state agencies manage and protect the State's intellectual property.¹ For example, guidance may help state agencies that produce photographs, maps, or other images to consider seeking formal copyright protection to prevent unauthorized or inappropriate use of these items. Similarly, guidance may help state agencies that conduct research understand how to obtain patents for inventions agency employees develop.

However, since the release of the 2000 audit report, the State has not enacted a statutory framework, nor has it implemented the recommendations made in the 2000 audit report or otherwise provided guidance to state agencies regarding the management and protection of intellectual property. In fact, we identified eight proposed bills related to state management of intellectual property that were not enacted since our 2000 audit report. In general, committee analyses suggest that the Legislature was unable to resolve certain questions and concerns the bills raised. However, 112 of the 211 state agencies responding to our survey, or 53 percent, believe that the State should establish statewide guidance for managing and protecting intellectual property, indicating that there is a need for guidance.

The four state control agencies we spoke to—the Department of Finance, the Department of General Services (General Services), the State Controller's Office, and the California Technology Agency—generally do not provide policies or guidance to other state agencies regarding the management and protection of intellectual property because they do not believe that they are responsible for providing this type of guidance. One exception involves General Services, which provides state agencies with standard contract language regarding intellectual property rights for use in information technology contracts. This language provides the State "government purpose" rights, which include a perpetual, royalty-free license to use and modify the intellectual property the contractor develops. Although the contractor retains ownership of the intellectual property rights, state agencies indicated in our survey that government purpose rights may adequately address their needs.

To determine how state agencies manage their intellectual property in the absence of statewide guidance, we visited four state agencies: the California Department of Transportation (Caltrans), the California Energy Commission (Energy Commission), the Department of Health Care Services (Health Care Services), and the Department of Food and Agriculture (Food and Ag). We found that these agencies had only limited written policies and instead generally relied on informal practices to identify and manage their intellectual property. Although these agencies provided their perspectives on their lack of written policies, we believe that until they appropriately inform and guide their staff regarding intellectual property issues, they cannot be sure that staff have the knowledge necessary to act in the State's best interest.

We found variation among the four state agencies' practices for managing and protecting the intellectual property they developed or funded. Although the four state agencies all had standard contract language related to intellectual property rights, the way in which they addressed their rights differed. For example, Health Care Services generally retains the rights to the intellectual property created by a contractor. In contrast, the Energy Commission oversees the Public Interest Energy Research (PIER) program, and its contracts with its researchers state that the researchers own the rights to any of the resulting intellectual property. We also noted differences in their processes for deciding whether or not to protect their intellectual property. For example, a Caltrans deputy attorney stated that Caltrans typically seeks formal protection of intellectual property with commercial value. Alternatively, a staff counsel at Health Care Services stated the agency makes its publications and data compilations available to the public and therefore it does not believe it is necessary to control the copyrights.

Further, two of the four agencies we visited had generated revenue from intellectual property, but the revenue resulted from different approaches. Caltrans sold licenses to its employee-developed intellectual property, with available records indicating such sales generated $51,500 in revenue. The Energy Commission, on the other hand, received $2.6 million in royalties between fiscal years 2008-09 and 2010-11 from intellectual property funded by its PIER program. PIER contractors retain ownership rights to works funded by the Energy Commission but owe a portion of any sales to the Energy Commission in the form of royalty payments. However, the Energy Commission's process for collecting royalties does not ensure that it receives all royalties due because the Energy Commission does not follow up with contractors who do not respond to the annual royalty notice. Further, the Energy Commission does not require that contractors submit documents that demonstrate the royalty calculated is correct. During the course of our audit, the Energy Commission began taking some steps to improve its royalty process.

The fact that more than half of the state agencies we surveyed would like guidance regarding intellectual property indicates that there is a need for the State to provide this information. At the same time, establishing a formal policy poses a number of challenges, and in the past, the Legislature has not been successful in passing proposed legislation related to the State's management of intellectual property. To move forward, the State will need to clearly articulate the goals of any policy related to intellectual property. We believe that an effective policy would educate state agencies on their intellectual property rights. It would also be flexible and take into account that state agencies perform different functions and work with different types of intellectual property. If the State does not act, it will be missing an opportunity to help agencies make informed, thoughtful decisions about their intellectual property.

RECOMMENDATIONS

Caltrans, the Energy Commission, Food and Ag, and Health Care Services should put in writing those policies and procedures related to intellectual property that they believe are necessary and appropriate to enable their staff to identify, manage, and protect their intellectual property.

The Energy Commission should strengthen its royalty process to ensure that it receives the proper amounts from contractors involved in the PIER program.

The Legislature and the governor should consider developing a statewide intellectual property policy that educates state agencies on their intellectual property rights without creating an administrative burden. Specifically, this policy should do the following:

Provide guidance to agencies that will give them the understanding necessary to identify when potential intellectual property may exist and that will provide them with specific information on intellectual property protections.
Recognize that not all state agencies have the same needs and that a one-size-fits-all approach may not be feasible. An effective policy should provide agencies with flexibility regarding ownership of intellectual property rights.

AGENCY COMMENTS

The four agencies we visited responded to the audit indicating that they agreed with the recommendations directed to each of them. Caltrans, Food and Ag, and the Energy Commission each outlined steps it has taken or will take to implement the recommendations. Health Care Services stated that intellectual property law is complex, and it believed statewide guidance would be helpful.

¹ Throughout this report, we use the term state agency to refer to any type of state entity, regardless of its formal name (e.g., agency, department, board, bureau, commission, etc.).