NIH Cuts and Potential Impacts on Intellectual Property

By Jason Gersting, Gabriela Berigan, and April Wurster

Background

On January 27th, the Trump administration issued an order (the January 27th order) freezing all federal grants and loans, which would have cut billions of dollars of federal funding, largely to research universities. Immediately after the issuing of this order, universities paused federal grant spending for travel, new research projects, and other costs, like scientific equipment. Two days later, on January 29th, President Trump rescinded the January 27th order; however, by this point, universities had already started pausing spending.

While the administration tried to clarify the federal spending that would be impacted, the clarification remained silent as to science-related funding. The potential decrease on science-related federal grants caused institutions like the National Institute of Health (NIH) and National Science Foundation (NSF) to review federal funding distributions.

NIH Funding Cut

On February 7th, the NIH announced a new Policy (the NIH Policy) which would cut research overhead, or indirect costs, to 15 percent, which became effective as of February 10th. The NIH Policy can be found here: Supplemental Guidance to the 2024 NIH Grants Policy Statement. In explaining its decision to cut indirect costs, the NIH Policy explained that the United States should have top tier medical research and “[i]t is accordingly vital to ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead.”

The NIH Policy explained that a 15 percent budget on indirect costs was 50 percent higher than the required 10 percent set out in 45 C.F.R. 75.414(f). Historically, around 40 percent of the budget has gone towards indirect costs; however, this budget ranges from 25 to 75 percent. As further justification for the budget cut, the NIH Policy included a sample list of foundations that had indirect cost funding budgets of 15 percent or lower. As further justification, the policy explained that in a recent survey, most universities were willing to accept research grants, even with zero percent indirect cost coverage.

Indirect Costs

Indirect costs include costs associated with facilities and administration (F&A). F&A costs typically support maintaining facilities and equipment, information technology services, and administrative support. Further, indirect costs may also include biocontainment for hazardous waste and blood banks testing. As defined by the NIH, intellectual property (which includes invention, copyright, patent, or licensing costs) is an indirect cost unless specifically authorized by a particular grant. Because of the various ways in which indirect costs are allocated, there is potentially a significant impact on scientific research as well as intellectual property that flows from the research. As of February 11th, several research universities and higher education organizations requested a temporary restraining order from a Massachusetts federal court that would prevent the NIH from cutting the indirect cost budget. In the request, institutions said that the NIH Policy would be a “disaster for science” and noted that research would be halted because many institutions typically allocate significantly more than 15 percent of anticipated spend to be covered by indirect costs.

Implications Moving Forward

As this situation continues to unfold, it is difficult to know what future developments will occur. In the meantime, even with a temporary restraining order, budgets for indirect costs will likely be impacted and in particular, budgets for intellectual property are likely to be impacted as this is typically an indirect cost.

For clients that collaborate with institutions or organizations that receive federal funding, this may impact funding allocation towards licensing, patenting, and other intellectual property costs, which in turn may impact development of intellectual property in years to come. Strategic forward-looking planning for intellectual property spending could be beneficial, particularly for start-ups where intellectual property is an important early stage asset.

*Any opinions expressed are those of the authors and not the firm or their colleagues.