Thoughts on the role of sale in licensing

I am working through some more history of academic inventions and their subsequent deployment.  This article provides a useful perspective on the Cohen-Boyer gene splicing patents.  The article points out the role of the Stanford OTL in making companies aware of the invention and setting up licensing terms and relationships that allow widespread access at very low cost to the patents.

But the article has some odd points. One comes early on in considering Stanford’s use of patents in Cohen-Boyer:

“To summarize, engaging in commercial activity encourages higher education institutions to act like for-profit entities. Intellectual property has no value unless it is defended.”

The first bit of this quote misses everything to state a truism.  Yes, if a university is engaged in commercial activity, then it will act a lot like entities that do that sort of thing.  But that’s not the point.  Universities in licensing inventions are not engaging in commercial activity.  The whole idea of a royalty is a passive return from a grant of rights to practice under the patent.  That there is a grant at all is not itself “commercial activity” unless by that one means “dealing with organizations engaged in commerce”.  I suppose, if one wanted to get snippy, that interpretations of the commerce clause of the Constitution provide for most any sort of exchange, and someone might consider this as well going after establishing a trademark in a university context.  But that sort of commerce isn’t the thing here:  what matters is the relationship universities have with industry.  For that, we are talking about university administrators and university faculty and university staff and students.  And we’re talking about industry in the form of doing research, industry in the form of making and doing stuff, and industry in the form of developing new things to sell.  There are multiple relationships, and it’s not a simplification to push them all into a single thing; rather, it’s a conflation, an ambiguation, that obscures what matters.

There is a problem with universities getting into the idea of “commercialization”.  First, it focuses on that part of industry making new products.  Second, it fixates on royalties from sales.  Third, when it can’t get those, it is more than happy to slip to licensing to speculators, whether existing or in the form of one’s own start up.   The idea of “commercialization” tends to slip, then, from encouraging development leading to a first commercial sale of product enabled by patent rights to finding any way of making money–at least enough to cover patenting costs–by means of granting licenses.

In this sense of “engaging in commercial activity” one might say that it leads university administrators to hire folks who exhibit some of the traits that we associate with “for-profit” entities, but aren’t necessarily the kind of folk who were any good in those entities, or worse if they merely imitate some of the less desirable traits of those entities.  That is, within the world of for-profit entities, not all behaviors are uniform.  Given the outpouring of books trying to help for-profit managers figure out how to get profits, especially from innovation, I would expect that the overall skill set can be markedly improved.

Thus, setting up the idea that there is a “for-profit” behavior, and that by licensing inventions, a university’s administrators are “encouraged” to adopt that “behavior”, I’m really at a loss to know what the “lesson learned” is.  Is it that university administrators, in looking for licensing income as a top priority, end up acting like pigs and bullies?   And what does the “encouraging”?  Do the administrators encourage each other to forget their organizational mission and rush the food bowl?   Does the mere idea of talking to company representatives give one piggy and bully cooties?   I don’t follow.  I am not seeing a lesson here, but rather a random statement hung out on a line that I can’t parse into experience, other than to play with stereotypes and then attribute those to abstractions like “university” and “for-profit entity”.   Perhaps one should expect that articles on lessons learned should play to prejudices of the inexperienced.  It’s not working for me.

The second sentence makes even less sense.  “Intellectual property has no value unless it is defended”.  What does that mean?  Why not, intellectual property has no value unless it is used?  or respected?  or made broadly available for practice if one isn’t going to practice oneself?   I know, it’s a truism that floats around, usually used by folks who are pigs and bullies about this kind of thing, but really, in the context of Cohen-Boyer, where the effort was to make a right broadly available (over 400 companies took a license), the first effort was not to “defend” the patents.

The lessons to be learned are in how intellectual property’s role adapts to the purposes of science and university mission.   In a university, a patent does not “protect” an invention.  The whole point of university work is to make inventions available.  “Protect” is pig and bully talk from companies, where the idea is to use an invention to support one’s own business activities and keep it from one’s competitors.  Anyone using “protect” for inventions in a university setting–well, see the discussion of the first sentence, I guess.

No, inventions are not “protected” by patents.  The invention in a university does not need “protection”.   A patent does other things for universities.  It marks the invention with ownership.  One does not say, the title to my house and yard protects my house and yard.   Yes, in a dispute, it might do that, sort of as a magic charm that affects lawyers and judges in a particular way, often predictable.  But otherwise, title enables transactions–such as, obligations to pay property taxes, or in a lost civilization, to borrow against one’s equity in the property.

A patent provides a statement of provenance, functions as an emblem for respect, acts to nominate an inventor or organization to lead a line of development, and serves as a basis for building a working relationship.

Consider this last bit.  If I am in a company, and I want to work with a university lab, I have some choices.  I can call them up and see how much work and information I can get out of them without paying anything.  Sometimes a lab is nice this way and will blurt for hours, all very helpfully, for which thanks and an occasional dinner out may be enough.  But if I need to put some resources into the lab to motivate and guide the work, then I’ll need to make a justification for doing so within my company.  What are my options?

Of course, I could make a donation.  That’s pretty political within a company, and folks will ask, what are you getting, besides warm feelings, by just giving money away?  (See the Merchant Banker skit, if you are not clear here).   Universities try to help this out by creating industry affiliates programs, in which one can purchase a membership, which provides all the same benefits one would have without the purchase, except packaged for the purchaser as an affiliates program.  Invitations to research review meetings, and a listing on the department (or other program’s) web site.  In essence, one purchases convenience and association.

Otherwise, one might purchase something–sponsored research services is the typical thing.  However, to get into a sponsored project, one is usually talking $30K or more.  It’s really difficult to find something worth doing for much less that that.   Worse, a sponsored project is not a purchase, but rather involves, generally, a negotiated contract, and frankly, those are a huge pain in the arse for everyone.  It’s like having a relationship that requires the Cone of Silence.   Folks are working to make things more “efficient” but that’s like trying to improve the Cone of Silence–it just doesn’t get any better.

What I really want to do is buy something, something that I need, so that the lab has me as a customer, pays attention to me, and has some resources to work with to stay in business.  This is the same attitude one takes to restaurants one likes.  If you don’t go eat there from time to time, and pay for the meals, then if everyone skips out, the place closes and you get a fast food chain.  But it’s hard to find labs in the business of selling.  Instead, we have technology transfer offices, encouraged to behavior like for-profit entities, offering licenses.

This would be fine, with qualifications already mentioned, if there could be a sale transaction, but a license is worse than a sponsored research agreement–except for sponsored research agreements with an embedded license, which is much worse, except if one is working for a startup founded by someone from the university, in which case, that’s much worser yet because there’s a conflict of interest fuss on top of everything else, so we won’t go there.  A license offered in the usual way is almost impossible for me, in a company, to contemplate.  It’s not that it’s a license, but what the usual expectation of the license is.

First, the license expects commercial development and sales, and all I want to do is work with a lab and push some resource to it so it will notice me and stay in business and be helpful from time to time.  Second, the license sets up all sorts of payment obligations–for the cost of the patents, for milestones toward commercialization, for royalty payments on any products.  There are people in the company who are paid to keep this kind of badness from happening, and they don’t appreciate me trotting in with my little happy laboratory relationship proposal suggesting that they all drop their value propositions and hand over an above-line share of income to the university.  No, I don’t want to be laughed out of the company.  Third, a license sets up all sorts of liabilities and penalties.  There are reports, threats of audits of the reports, demands for indemnification and insurance and naming the university as a co-insured and providing copies of insurance certificates attesting to this fact, and recovery of attorneys’ fees in disputes and possible termination of the agreement if one misses an insurance certification copy update delivery date.  And then there are the licenses written by the pigs and bullies, that build from this platform to ensure that once I sign, they can roast me over an open fire if they feel the need for additional calories.

The license, as typically conceived by a university technology transfer office, drives much too deep into my organization to look like anything good.  No, I don’t want a license unless it can be packaged as a sale.  That is, with a known fee up front, a clearly defined package of goodies, and a convenient and reliable means of delivery, with some prospect that if it is not what it is said to be, I can return it.  And I want this all for under my discretionary spending limit, so I don’t have to ask for authorization from anyone else.

This is my sweet spot.  If I could buy a license from a lab, and get some fun materials, some software, a data set or two, a non-assert for internal use of whatever patent rights are attached to lab stuff, and for that, I get a one-year relationship with the lab, then I’m pretty happy.   I do not need to be threatened by the IP, nor does the university have to “defend it” to derive value.  The IP provides a point of contact by which I, in a company, engaging as I do in “commercial activities” can have a pleasant and useful relationship with a lab doing things I’d like to know more about.

The IP is a relationship tool.   The smarts are in using it to build relationships that work.  The stupidness is in using a license as a hammer or a veiled threat, drafted by piggies and bullies who lost their way in crudding up for-profit entities and now have been happily recruited by encouraged university administrators to crud up university relationships with industry.  Oh, I know, that isn’t the *intent* or the *aspiration*–but get over it.  I’m in a company, I’d like a simple relationship with a lab, and all I get are folks with a chronic paranoia about defending their IP to make it have value, and lord knows if I were to get a non-assert to work with the lab and find some bit of IP helpful, why they would be losing value out the gazoo, and thus I must be intent on ruining their chances to find someone willing to pay big bucks and allow them to push their license all the way to the heart of the business concern.  Well, there are those folks, and they don’t worry about a push of a license to the heart of their business, because they typically don’t have a heart, or if they do, they are desperate or foolish.  When their business fails, or they are driven out of it, they will have good opportunities in academic licensing. [not all academic licensing folks are this way–please–I am in character, I am describing this from the company side].

Thus, if one wants to get at a lesson learned, it is that one needs to package lab IP in a form that looks like a sale.  A “sale” is a powerful concept regarding the transfer of things of value.  A license without a sale is for special occasions, like a marriage when all one wanted was a nice evening out with good conversation.   A “sale” is a form of “commercial activity”.  It’s what the pigs and bullies in university technology transfer offices want me and my company to do once we are charged up with their stuff, but it’s not the thing they want to do with their own relationships.   But it’s just this “engaging in commercial activity” that would help me build a relationship with the research groups I would like to work with.

One does not have to be “for-profit” to “sell”.   I am not asking, in my company, that the lab run up the bill, charge huge mark-ups and the like.   I am just asking that the lab find a way to allow me to buy something, because that often is what I am most able to do, with the lowest overhead in my company, so I have a relationship with a lab.  If in that relationship I find something of significant value, then I can take that up the line and poke free some research dollars or goose some folks to consider a license–both challenging things that I’d better have some pretty good evidence to support before folks go off and get hurt dealing with university negotiators.

The article on lessons to be learned about Stanford’s handling of the Cohen-Boyer patents makes some really good points.  It’s worth the read, especially since so many university tech transfer offices don’t do anything like what Stanford did.  Stanford created a point of relationship that companies understood and could work with, and that in turn served the purpose of moving the rights, and the new technology, into all sorts of use and development, without being a pig or bully about it.  Even if the university is not going to engage in selling behaviors, it can use intellectual property to present acquisition opportunities to companies in the form of purchases.  That’s what a reasonable and non-discriminatory licensing protocol can do.  Folks just have to be creative:  a license, and licensing mindset at the university, to enable adoption and use; and a purchase from the company perspective, to create a simple, direct relationship with a laboratory.  One relationship, but with a different set of naming conventions at each end.  Purchased, non-exclusive license and great relationship with lab, quantity 1, to be repeated as needed.

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