Slop Dollars and the Bayh-Dole Character Test

A new bill to rewrite parts of Bayh-Dole is under review.  Here is a write up about it.   The idea is that a panel would be set up to explore some portion of royalties on government funded inventions would go back to the government to be spent on, apparently, more research.   Of course, the government already gets a return on inventions that are successful through the taxes paid on royalties by inventors and by companies that sell product based on the inventions, and for that matter the money paid to patent attorneys to do the patenting work, so taxing royalties again would appear to be an effort to go after the money that’s left to the universities after the recovery of expenses.

It’s not a good idea.  It’s a very bad idea as presently framed, akin to the problems that CIRM had with implementing an IP policy for stem cell research in California.  It is either a royalty stack (a government royalty on top of a private one) or a tax on the royalty stream (taxing, in the case of universities, non-profits–may as well call it unrelated business income and tax it that way).

Aside from thumping on the badness of it all, I’m interested in the quotes from folks regarding it the purpose of those royalties, such as they are, that some in government want to get a share of.  Robin Rasor calls the bill a “disincentive to the inventor.”   This is odd.  Universities already take around 2/3rds of any licensing income.  The government could take its share out of the *university portion*.  That wouldn’t affect the inventors much at all.  More than that, think about it:  if the government asking for a share–say, 10%–of royalties is a disincentive, what about the university claiming 66.6%, sort of a Mark of the Beast divided by 10?  Isn’t that an even bigger disincentive for inventors?  I would think so, at least on the same argument.

And, of course, under Bayh-Dole and the standard patent rights clause, a university could assign *all* the royalties after other costs incidental to managing subject inventions to the inventors.   There need be no funds remaining.  Furthermore, a university could set it up so that the default is that the inventors get all remaining funds after other costs, and that there is a protocol by which inventors could change this default to share some funds with whatever part of the university they might choose–their department, the dean, or another unit of the university.

Not to let folks choose is basically an argument that they are selfish folks and won’t be generous with their proceeds.  If true, no wonder the public has largely lost interest in what university researchers do.  If not true, then what a shallow, destructive move by administrators.

Robin goes on with her point:  “Those royalties are important to the universities.  They share a very large portion of it with the inventor, but then they reinvest a portion of it back to that inventor’s lab for further research and then in other research areas.”   Of course, “large portion” typically means 33.3% (100 – Mark of the Beast / 10) percent–and often that is after out of pocket plus an administrative fee (along the lines of 15% to 20%).  So not that much, really.    It  is  the rest of Robin’s comment, however, that carries my interest.  Under the standard patent rights clause, universities are to use remaining funds after costs for “scientific research or education.”   The clause does not say “only research” and does not require the university to spend the money on itself.  Yet I don’t know of a single university that designates any meaningful portion of royalty income for *instruction*.

Here at the University of Washington, awash in $1b in extramural funding per year while cutting instructional support everywhere, is it really all that important that another few million in excess royalty income goes entirely to *research*?   When I’ve asked folks what research has been done with these excess dollars, no one knows.  No one tracks it.  It’s slop money, what the bucket spills.  Momentarily wet ground.

These are the dollars that Robin says are so very important to the universities.  These slop dollars are what all the bitterness with industry is about, what all the effort to construct magically complete express licensing agreements is about, what annual conferences fussing over what to do with those darned selfish problem inventors are all about.  Slop dollars.  Not worth even reporting to the public.  Nothing to show for it.

It would be much, much more interesting if excess royalty money was allocated to scientific research or education *outside the university in the broader community*.  For work at community colleges, in small companies, at non-profits trying to make change happen–yes, still restricted to scientific research or education, but throughout the community.   Who would be advocates for the university getting royalty income then?  Rather than universities trying to sop up all the available resources, universities would have a role as supporters of community initiatives–and the money would not be slop at all–it would be good stuff making things happen.

Administrators, however, have a woeful track record setting anything up like this.   It falls to the faculty, staff, and students to do it.  It is easy to expand a protocol for allowing inventors to decide how a portion of the royalties after out of pocket expenses is going to be spent–just let them designate the recipients, and the proportion or amount for each.  Some could be at the university, and others could be in the community, and some could be far away, where the dollars might matter the most, and actually change lives.   Having that choice might be as inspiring as any for university inventors.  A royalty schedule that takes that choice away, under the guise of being “fair” but really showing up as a fearful administrative way of avoiding any discussion on the matter ruins the whole experience.  Instead, royalty schedules produce slop dollars that go nowhere.

No-one cares about royalty income unless there is some huge big hit–once every decade or so at a lucky university.  For all the rest, it’s a worthless exercise, at least the way it is done now.

In a very real sense, the Bayh-Dole Act was a character test.  We would see how universities chose to manage the opportunity to use the patent system to promote the public use of inventions made with federal support.  After 30 years, we have a good answer.  A lot of fussing and sniping at industry, a coterie of technology transfer folks who treat inventors as prison guards treat prisoners, and slop dollars that go nowhere but are made out to be the rationale for holding onto royalty income in the first place.

Universities have utterly failed the Bayh-Dole character test.   It’s about the money, but the money is slop, and so all the bitterness, complexity, and administrative salaries are wasted effort.   If folks want to revise Bayh-Dole, then here is a suggestion:  make the inventors responsible for deciding where any excess royalty income goes, if not to themselves.  Put that in the (f)(2) agreement, as another protection of the government’s interest–then the university cannot get at.

If the government wanted a share of that, federal agencies and programs could also be identified as possible recipients.  Inventors could be enticed to contribute with another gesture:  the government could pay the direct out of pocket patenting expenses (for the US and up to three foreign countries) in exchange for a share of the inventor’s royalties.   There would be some qualifications on the arrangement, of course, but then an inventor at a small or stingy school would have a way of funding the patenting process without the uncertainty of what the administration has chosen to spend the money on.

If one went this route, then the government could introduce other juicy things to sweeten it all further–such as an agreement with the inventors to grant a public research license to anyone practicing the invention in the US for research or self-implemented internal purposes.   Make the money off commercial sale, not suppression of local use.  That would open things up marvelously from where they are now, with university administrators in charge of things.

We would then have a second Bayh-Dole character test, this time of university inventors, and we could see whether, in the next 30 years, they do a better job of innovating and allocating the proceeds to make the licensing effort worth it for everyone involved.

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