ADVISORY OPINION 03-06
Application of the Ethics in Public Service Act’s Financial
Interests Provisions to Non-Federal Grants
References: RCW
42.52.030, Financial interests in transactions; RCW 42.52.901,
Construction
ISSUES
Do the alternate conflict of
interest provisions provided for higher education in the Ethics Act’s financial
interests in transactions section apply to both federal and non-federal grants
or contracts?
OPINION
Yes
– The alternate conflict of interest provisions under RCW 42.52.030(2)
generally apply to research grants and licensing contracts, including
technology transfer agreements, funded with both federal and non-federal
sources, such as foundations, industry, state and local governments, and other
private sources.
FACTS
The
federal agency guidelines that are referenced in RCW 42.52.030(2) [National
Science Foundation (GPM 510) 1995 and Public Health Service regulations, 42
C.F.R. Part 50 and 45 C.F.R. Subtitle A] apply to grants and contracts
associated with research activities. The
1.
Grants and contracts
from federal sources for research. The
bulk of research funding at the University comes in the form of grants and
contracts with federal agencies. In
FY2002, for example, approximately $620 million (77%) of the $809 million
received in research funding came from federal sources.
2.
Grants and contracts
from non-federal sources for research.
The University also receives research funding from foundations,
industry, state and local governments, and other private sources. In FY2002, funding from these sources
accounted for 23% ($189 million) of the total research funding received. The vast majority of the projects funded from
these sources are parts of larger research programs that are also supported by
federal sources.
3.
Contracts for
technology transfer. Under the terms of
the Bayh-Dole Act (PL 96-480; codified at 35 U.S.C. §§200 et seq.), universities and colleges were granted rights to
inventions resulting from federally sponsored research and required to pursue
patenting and licensing activity.
Consequently, the University enters into licensing contracts with
commercial entities with the goal of bringing the fruits of research to market.[1] Although the Bayh-Dole Act applies only to
patentable inventions developed under federal funding, the technology transfer
procedures it requires are generally applicable to other forms of intellectual
property (such as copyrights and biological materials) and to non-federally
sponsored research. In FY2002, the
University filed 100 patent applications, executed 93 licensing agreements, and
received $17.2 million in gross revenue from previous technology transfer
contracts.
Occurrence and Nature of Beneficial Interests in
Research-related Activity
Very
few of the roughly 5,000 research-related grants and contracts entered into
each year at the University raise questions of beneficial interests by its
employees. The number of cases the
University reviews each year under federal guidelines is small in comparison to
the total grant and contract activity; typically 55-65 cases per year.
The
financial interests that are subject to review under federal guidelines are:
1.
Salary or other
payments for services (e.g., consulting fees or honoraria).
2.
Equity interests
(e.g., stock, stock options or other ownership interests).
3.
Intellectual property
rights (e.g., patents, copyrights, and royalties from rights).
4.
Royalties from the
University.
The
most common situation involves cases relating to consulting fees or honoraria
from research sponsors for activities that are not directly related to the
research contract in question. A faculty
member may, for example, receive an honorarium from a pharmaceutical company
for a continuing medical education talk on kidney disease and then be named as
an investigator in a research study that is sponsored by that same
company. Although University employment
obligations are primary, the University recognizes that a limited amount of
outside consulting activity is beneficial both to the University and to the
state as a whole. These activities
provide faculty "opportunities to disseminate expert information outside
of the traditional university employment structure while simultaneously
providing individuals additional experiences, augmenting their ability to carry
out their University responsibilities" (University Handbook, Policy on Outside Professional Work).
Written Administrative Procedure
The
administrative procedure for reviewing and managing financial interests in
research and licensing contracts is embodied in the University's Grants
Information Memorandum 10 (GIM 10). The
process requires disclosure of financial interests, review by one or more
levels of the University, and the institution of a plan for eliminating or
managing potential conflicts of financial interest. These plans typically include provisions for
public disclosure of financial interests as well as review and oversight of
research and administrative activities by independent parties. In order to avoid conflicts of financial
interest, the University may also remove financially involved parties from
sensitive research and administrative roles, require divestiture of financial
interests, or severance of relationships that create conflicts of
interest. The reviews are conducted by
the Associate Vice Provost for Research with assistance and advice from others
within the University community, and with the added assistance in non-routine
cases of a Conflict of Financial Interest Advisory Committee.
These
procedures are subject both to state audit and to federal oversight. In the last three years, for example,
specific contracts have been audited by the state and the University’s overall
program has been federally reviewed by the National Institutes of Health and by
the General Accounting Office.
ANALYSIS
The Ethics Act prohibits state officers
and employees from holding a beneficial interest in certain contracts or grants
made by, or under the supervision, of the officers or employees. In 1996, the Legislature amended the Ethics
Act to exempt some officers and employees of certain institutions of higher
education from these provisions. RCW
42.52.030(2) provides:
(2) No officer or employee of an
institution of higher education or of the Spokane intercollegiate research and
technology institute, … , may be beneficially interested, directly or
indirectly, in a contract or grant that may be made by, through, or is under
the supervision of the officer or employee, in whole or in part, or accept,
directly or indirectly, any compensation, gratuity, or reward from any other
person beneficially interested in the contract or grant, unless the institution
of higher education or the Spokane intercollegiate research and technology
institute has in effect a written administrative process to identify and
manage, reduce, or eliminate conflicting interests with respect to such
transactions as adopted pursuant to the national science investigator financial
disclosure (GPM 510) 1995 and the public health service regulations, 42 C.F.R.
Part 50 and 45 C.F.R. Subtitle A as each of those regulations existed on June
6, 1996, and the state employee or state officer has complied with such policy.
When
proposed to the Legislature in 1996, the amendments to RCW 42.52.030 were
intended to allow the state’s institutions of higher education to compete for
and implement technology transfer agreements, including those under the
Bayh-Dole Act. The University, however,
receives a significant amount of research grants and contracts from non-federal
sources such as foundations, industry, state and local governments, and other
private sources. The issue before the
Board is the scope of the provisions provided under RCW 42.52.030(2), which do
not specifically address the source of the applicable grants and
contracts.
In
resolving issues of first impression when the Ethics Act is either silent or
unclear, the Board is guided by RCW 42.52.901, which provides that “(t)his
chapter shall be construed liberally to effectuate its purposes and policy and
to supplement existing laws as may relate to the same subject”. In this matter, it
appears that the exemptions were enacted to reconcile differences between
federal and state conflict of interest laws regarding university research
grants in favor of the federal statutes.
The amendments also simplify the rules under which the state’s institutions
of higher education administer research grants and contracts. While the Ethics Act is silent as to the
source of grants and contracts, a narrow interpretation limiting the
application to federally funded grants would undermine the purpose of these provisions. Specifically, a narrow interpretation would
require the University to implement separate conflict of interest policies
depending on the funding source of a research grant or contract.
Accordingly,
the Board finds that the alternative conflict resolution procedures described
in RCW 42.52.030(2) may be broadly applied to research grants and licensing
contracts, including technology transfer agreements, funded with both federal
and non-federal sources.
The Board’s advisory opinion is
based on the general facts as stated above.
The Board does not investigate the facts. Please be aware that modification of the
facts, or knowledge of more specific facts or circumstances, might cause the
Board to reach a different conclusion.
In addition, Board advisory opinions are narrowly drawn to interpret the
Ethics in Public Service Act. They do
not address whether the proposed action is prudent, good public policy or
effective management practice.
Approved by the Executive Ethics
Board, this 10th day of October 2003.
___________________________________
Executive Director
[1] Licensing agreements are explicitly included under the definitions for "contract" and "grant" in RCW.42.52.010(7).