UW’s Fast Start template, another bad bureaucratic idea gone bad, 7

We have been working through the arguments for universities implementing one-size-fits-all licensing templates for their spinout companies, so that all spinouts are treated the same–as if university spinouts are all the same, or should be made to become all the same through a process that university administrators call “negotiation.”

Consider these different university spinout situations.

(1) university employees expressly hired to invent by the university and working under university direction. Under patent law, any inventions produced in such an arrangement are equitably the university’s. Why should these inventors get the same terms as others if they choose to spin out a company?

(2) faculty or student envisions a business idea that has nothing directly to do with any invention they have made at the university. They spin out a company. Why should the university assert any interest in anything they have done that they place in that company?

(3) inventions are made in work that’s been identified by the researchers and the university as for the public. Why should the results of that work be sequestered for the exclusive benefit of any spinout company? And why should the university be complicit in helping the company secure exclusive control?

(4) researchers want to spin out a company that provides public services related to their research that are easier to provide as a company than as a project within the university. Why should the university demand an equity stake in such a company, or a royalty?–all these demands do is raise the cost of providing the service.

(5) researchers spin out a company based on work that they have done with other university researchers who object to the spin out company getting exclusive rights. Why should the university take title to the rights of all researchers and then offer the standard deal via template to the ones wanting the spinout?

(6) researchers want to gain access to SBIR or STTR funding and so they create a company to apply for these grants and subcontract work back to their university lab. Should the university even allow such a spinout (many do)? and if so, why should such a deal look just like any other?

You get the idea–there are all sorts of situations that call for special treatment rather than a single template agreement that makes all spinouts the same, makes a virtue of doing so, and gives as the “intention” to decrease costs, speed up deals (because no review is necessary), and somehow make things better. One imagines then beat down researchers giving up to accept administrative dictates. Continue reading

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UW’s Fast Start template, another bad bureaucratic idea gone bad, 6

The University of Washington recently “rolled out” a “FAST start” template license agreement for university spinout companies–companies started by inventive researchers at the university to develop their inventions as commercial products. For spinout companies, the UW’s practice is to demand that the researchers give over their rights in their inventions so the university can license those rights back to their company. The university then will go off and patent the inventions (whether the researchers want that or not) and as part of the license deal require the startup to reimburse the university for its patenting expenditures.

Beyond this encumbrance on the spinout, the university packs in all sorts of provisions on payment, an equity stake, audit, indemnification, insurance for the university, sublicensing, and infringement. Most of this UW licensing baggage would not be necessary if the inventors placed their inventions directly in their spinout company. The university would have no ownership interest in the invention or the company, and so would not have any basis for worrying money, equity, risk, or contract. If the university wanted to encourage and support spinout efforts, this would be the route it would take. If, conversely, the university’s purpose was to be parasitic on spinouts for the money, or to serve some administrative shoelace ironing so that all spinouts were proper by institutional standards, then a FAST start template might be just the thing to formalize the parasitism–allowing no spinout to avoid the requirements placed on any spinout, regardless of circumstances. Well now. Continue reading

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UW’s Fast Start template, another bad bureaucratic idea gone bad, 5

We have been discussing GeekWire’s account of the UW FAST start one-size-fits-all template agreement for startups. We showed that UW’s figures for startups were incorrect and there was little need for such a template. We then turned to H. Holden Thorp’s recent editorial in Science magazine that provides insight into the administrative thinking behind the desire for a startup template patent license. We are in the middle of Thorp’s argument that there ought to be a public alternative to universities’ pushing all their research inventions toward profit-seeking ventures.

I’m all in on this point, but disagree that universities need anything from the White House to motivate them to change their practices. Claiming that Bayh-Dole has been successful (when it hasn’t) makes it all the more difficult for university administrators to make changes. If a program is held to be successful, then the only changes allowed must take the form of improvements, of progress. The bureaucratic approach to getting rid of a bad program is to try to improve it–i.e., mitigate its badness. Continue reading

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UW’s Fast Start template, another bad bureaucratic idea gone bad, 4

H. Holden Thorp, editor in chief at Science magazine and formerly chancellor at Washington University and before that the University of North Carolina, published an editorial in Science, “An opportunity to improve innovationthat provides insight on the UW FAST start scheme. The thrust of the editorial is that Bayh-Dole has been successful, won’t be repealed or amended, and so the new administration should change policy in some unspecified way so that university research does not depend “on the marketplace to spur the kind of research that benefits society–a stated rationale for passing the act.” Thorp’s editorial is garbled in places, but it might best be viewed as a plea for help from a former university leader. We will look first at Thorp’s main argument about technology transfer and then look at what Thorp has to say about FAST start schemes.

I will be critical of Dr. Thorp’s premises but I am sympathetic to the core point that Thorp makes–that there should be some public alternative to the patent-licensing-for-commercial-development-profit-seeking model.

My point in response is that universities don’t need any change in federal law or policy to pursue public alternatives. They need administrators with brains and spines, however, and that’s proven to be more difficult to come by. Instead, administrators compensate for a lack of ability by changing organizational structures, rebranding tired old licensing operations with sparkly new names, and creating dopey things like “express” patent licenses for startups so that administrators don’t have to think and don’t have to have any capability to be responsive to the particulars of any given startup.

Dr. Thorp treats as fact that Bayh-Dole has been “successful.” But Bayh-Dole has not produced such “economic success and progress”–there’s no evidence for that. Bayh-Dole keeps any such evidence secret, and universities report bogus model output as fact and metrics that do not track either economic success or innovation. Universities think so little of Bayh-Dole that they don’t even report their outcomes with Bayh-Dole subject inventions separately from other inventions–even though Bayh-Dole’s standard patent rights clause requires separate accounting.

Dr. Thorp claims that “spurring” research that benefited the public was a “stated rationale for passing” Bayh-Dole. Dr. Thorp doesn’t bother with who did all that stating, but it’s not in Bayh-Dole. Benefiting the public might be said to be a necessary rationale for all federal legislation, but Dr. Thorp’s implication is that Bayh-Dole was intended (by Congress, or by someone else who at this point is secret and doesn’t matter) to alter the direction of university research rather than to disrupt federal open access to inventions made in research or development judged worthy of public subvention.

There’s nothing to support Dr. Thorp’s assertions. Continue reading

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UW’s Fast Start template, another bad bureaucratic idea gone bad, 3

GeekWire published an article about what UW calls its new scheme to shorten negotiations with its spinout teams–UW personnel who have invented in their research labs and want to start a company to develop applications and products for their inventions. UW labels this scheme FAST Start and the GeekWire makes it sound like faster negotiations at lower cost is the primary driver. The idea is, according to this scheme, that a template license agreement that takes an equity position and expects royalty payments, milestone payments, and patenting cost reimbursements in exchange for licensing back to the inventors their rights will make things easier. In other words, if you hammer folks with an agreement they don’t have a chance to negotiate, then no one really has to do any more thinking about it. It’s the bureaucrat’s dream and the entrepreneur’s nightmare.

An odd thing about it. A template assumes a high volume of transactions that cannot be bothered with or that, even with a low volume, somehow administrators must be kept from being responsive to each situation involving a spinout effort. We are not talking here about having base-form agreements that can be modified to reflect discussions about how to set up a given spin out company for success. We are talking about a kind of adhesion contract, a take-it-or-screw-you kind of offer from your nonprofit employer, who cannot be bothered with differences among situations and fears the use of administrative judgment. Continue reading

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UW’s Fast Start template, a bad bureaucratic idea gone bad, 2

We are working through a GeekWire article about the University of Washington’s “new” template-based deal for startups, so that all startups are treated alike, and doing so the university claims will shorten negotiations and reduce costs–as if these are the big program goals for university technology transfer.

Here’s what UW says about its FAST process:

In keeping with University of Washington’s mission as a public university, CoMotion is committed to a fair and transparent process that treats all UW startup teams* equally, whether founding teams are comprised of new students or award-winning senior professors, and independent of their business or legal experience and resources.

This is bureaucratic fantasy. Nothing in UW’s standing as a public university means that all “startup teams” must be treated “equally.” Such “equally” is the stuff of the greatest unfairness, blind to circumstances, ignoring unique opportunities, and unable to move resources where they might make a great impact. Startup teams without experience might need more help than those who have plenty of experience. Efforts that are capital intensive might need a different deal structure than efforts that can flip product almost immediately. And on and on. It’s one thing to say, “we don’t play favorites” and quite another to say “we ignore differences among startup teams.” The former statement is one that asserts that merit of the opportunity is the driver, however it might be addressed. The latter statement is one of bureaucratic fastidiousness, not to be bothered by differences in situation and opportunity. One template to rule them all. Convenient, but not responsive. Continue reading

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UW’s Fast Start template, a bad bureaucratic idea gone bad, 1

GeekWire ran an article recently announcing that the University of Washington has “unveiled” a new licensing scheme for startups: “Univ. of Washington rolls out new licensing process to streamline negotiations with spinouts.” Let’s work through this article and see what GeekWire has to say.

The University of Washington is aiming to make it easier for spinouts to get out of the research lab and into the market.

There’s an implication here: present UW practices for spinouts are *not so easy* and thus need to be “easier” than they are now. But wait, those not-easy practices developed in the re-organization of UW’s patent licensing program into the clownshow called C4C, which was singularly focused on startups. Startups, so C4C’s formal written five-year plan argued, would allow the university to speculate on stock valuations and make so much money it would change the university’s whole financial structure. Didn’t happen. Furthermore, C4C whacked away UW’s former approach to startups, called LaunchPad, led by Janis Machala, one of Seattle’s gurus of startups. LaunchPad created twice as many startups at half the cost, compared to C4C. And those startups were legit university startups, not like now. Eventually, the director of C4C–she who won’t be named–resigned after the negotiation with a startup took so long that a  UW regent complained. Yeah, “easier.” Continue reading

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Necessary Federal Exclusive Licensing

The Harbridge House report in 1968 mused that based on survey responses from nonprofit patent administrators,

. . . the inventions must frequently arise from basic research and require substantial private development before reaching the stage where they are commercially useful. Some measure exclusive rights appears necessary motivate licensees invest the work necessary commercialize these inventions.

The report ignores the idea that companies might work together to develop inventions, as they do in research consortia or standards organizations. The report also ignores the role of government in funding development (even the the report points out that various federal agencies had a 100% commercial utilization rate when they funded development “to the point of practical application”). Same for the role of nonprofit foundations and wealthy donors or community donations (now we would talk about crowd sourcing rather than fun runs to raise money).

The report also hold back–“some measure” of exclusive rights is not granting the exclusive right to make, use, and sell for all instances of a claimed invention (which may run to tens to thousands of instances, only some of which have been demonstrated and only some of which might ever be used by a single developer). “Some measure” indicates limitations–the exclusive right to sell, but not the exclusive right to make or to use; a limitation on field of use; a limitation on territory; a limitation on the duration of exclusivity. “Some measure” may be necessary (if nothing else works), but it’s the “some measure” that’s necessary, not a wholesale trade in the entire patent monopoly.

Continue reading

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The Turning Point in Federal Patent Policy

1971.

Here’s where things started to go bad. In 1963, President Kennedy issued a memorandum setting forth executive branch patent policy. When the federal government acquired inventions, the policy stipulated that patents would be made available “through dedication or licensing”–that is, open access. The 1947 Attorney General’s report on federal patent policy had argued that while the government technically had the right to enforce patents that it held, there were compelling public policy reasons that the government not do so.

Here’s the AG’s first finding (p. 114, my emphasis):

The public interest will best be served by opening Government-owned inventions to general public use without discrimination or favoritism among users.

Here’s the AG’s first recommendation (p. 130, my emphasis):

As a basic policy, all Government-owned inventions should be made fully, freely and unconditionally available to industry, science and the public. This should be done either by offering royalty-free, nonexclusive licenses to all applicants, or by public dedication of the invention.

There was an argument that federal exclusive licensing required an act of Congress. In effect, then, government licensing was non-exclusive. The Kennedy patent policy then picked up the language of the AG’s report (more of my emphasis):

Government-owned patents shall be made available and the technological advances covered thereby brought into being in the shortest time possible through dedication or licensing and shall be listed in official government publications or otherwise.

It’s clear that the licensing involved is that royalty-free, unconditional, non-exclusive sort of licensing. Kennedy also stipulates a time element to government access programs. Bayh-Dole entirely drops rapidity of utilization as an objective for federal licensing–see 35 USC 209.

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proto Bayh-Dole march-in, c. 1976

Bayh-Dole was the banana that finally stuck on wall, but Norman Latker had tried any number of schemes to circumvent federal policy requiring default open access to the inventions arising in work for which the federal government provided funding.

People sometimes think that pharmaceutical companies corrupted federally supported science. Not so. The explanation is more banal–and in its way, horrifying. Latker, patent counsel for the NIH, believed that patent exclusivity was the only way (or primary way, or in any event a necessary way) by which the public might benefit from NIH research. Without that public benefit, perhaps NIH funding would be reduced, or redirected from nonprofits to company contracts. There’s something odd to the argument–won’t go into it here and instead dangle it for you–but it appears that the effort to undermine, and then change, executive branch patent policy came from government attorneys and research officials. All pharma had to do was sit on its hands and accept what was on offer.

It’s difficult to fault pharma for doing so, or for the efforts by PhRMA and BIO to keep the woefully defective Bayh-Dole Act in place, with its non-operational march-in procedures and other failed, waived, ignored, and unenforced public protections. Fault PhRMA and. BIO for repeating the fake history, fake law, and fake metrics attributed to the law, but not for the offer that Latker and others made to pharma in the hopes that doing so would motivate Congress to allocate more research funding to the NIH.

Among Latker’s papers is a draft of march-in provisions dated 9/24/76–four years before Bayh-Dole. Latker’s draft is word for word what ends up in 35 USC 203, with some notable exceptions. Continue reading

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