Newco and its discontents

Technology Transfer Tactics has an article out on UCLA’s Newco, but they don’t seem to have reviewed the Newco documents.  I don’t have a subscription, so I won’t try to link to it.  I expect the purpose of the story is to spin up some controversy for readers.  I get quoted as the token “critic” of the effort.  Perhaps it would help if folks actually read the documents backing Newco.   They might also take a look at the apparent insider conflicts of interest at play, as the East Bay Express has documented.  Newco is not like any sort of conventional “research foundation.”  It is utterly unlike WARF.  Or, more accurately, it is almost but not quite entirely unlike WARF.

Newco is a non-profit company set up to operate outside UCLA, but with UCLA oversight.  Unlike a research foundation like WARF, Newco does not take ownership of inventions and is not responsible, or liable, for invention licensing or management.  What then is the purpose of Newco?  According to the documents provided to the UC Regents, Newco will decide what UCLA does with its IP.  Apparently, Newco may operate a private fund to pay for patenting of UCLA inventions, and perhaps—it is not clear from the documents—get a share of income from UCLA for its investments in patents.  Also, according to the documentation to the Regents, Newco will be subject to all the accountability presently in place for UCLA’s own campus IP office.

Nowhere in the documents describing Newco do I see any discussion about how this new structure will improve UCLA’s ability to disseminate inventions for public use, nor how to commercialize these inventions through industry investment, nor how even to move these inventions into the hands of investors seeking to make products (and “create wealth” for themselves).  The discussion is all about how UCLA sucks at making money from inventions now, and how Newco with its money-smart backers will make tons of money.  So, yes, there are assertions that Newco is new and better.  Just nothing to back it up.  There is no reasoning, no epiphany moment.

The clear, overt, express object of Newco is making money by exploiting patent rights.  That part is easy. That part is like WARF, and like a lot of other organizations that have worked to make institutional licensing a pre-condition of innovation.  There is not even a pretense of commercialization in the form of companies making new products more effectively because Newco exists, not a vestige of using the patent system to promote the use of inventions without the baggage of “commercialization” as a pre-condition rather than an externality.  There is no indication that there ever was an invention agent approach at UCLA, and that the obligation was to develop each invention accepted for management (now, claimed and taken for management) or give it back.  The idea of Newco, apparently, is that by buying up the patent rights for the cost of filing the applications, the folks behind Newco can insure a robust stream of inventions are never returned to their inventors, and thus get in front of private investors working with Newco to use the patent system to make money for themselves.

The deal they have offered UCLA is that, since they have made money in the past through speculative investments (and it appears that they have worked some wonderful schemes to make money), then they must be really good at making money generally, and will continue to make money in the future no matter what they do.  Essentially, they argue that luck and insider deals have not played any role in their success—it’s all been, just, you know, their smarts and big noses for money—and some people were born with big noses like that, and others, like the poor folks previously running UCLA’s tech transfer office, weren’t.  Which I don’t believe for a moment.  The deal is, in other words, “let us have control of all the inventions which you take from faculty, and in return we will share with you some bit of what we make on them.”  Put another way, “We are willing to pay to keep UCLA inventions out of the hands of folks competing with us for access to them—but we aren’t willing to pay a whole lot, or take much personal risk in the matter—we will use UCLA’s liability screen and reputation as our front.”

Why the UCLA faculty senate is in favor of Newco is beyond my understanding.  What are they smoking in LA these days?  Probably the same stuff that UC Berkeley just started smoking:  a desire to make money on patents, forget the university purpose of doing open, public research.  These days it’s about suing big companies for hundreds of millions of dollars, and playing games with speculators drawn in by the reputation of the university, and when that doesn’t work, one can always fall back on the Utah-Washington foolishness of creating a paper company puppy mill and selling it to the state legislature for millions in economic development funds to “build on the success.” Of course, there is no success.  There are few jobs from such startups.

Here is the simple logic.  Folks doing work at universities, like other folk, get ideas and act on them.  Sometimes that involves creating companies, and some of those companies get mighty big.  The fact that new companies form and grow or don’t grow or fail in all sorts of ways does not mean that if one starts lots more companies as an administrative enterprise, any of them will grow into monsters, or that starting still more companies means even more future monsters.  No, you get zombie companies.  And you take good people and push them into situations that are not right for them. And you take stuff that is not ready, or suited, to company formation and stuff it in there anyway, and zip it up with articles of incorporation and advertise to the public that jobs and products and prosperity are right around the corner.  It’s laughable.  It’s Bugblatter Beast of Traal stupid.  More than that, universities that do this steal resources that ought to go elsewhere, to commons, to infrastructure, to students, to better governance.  So it’s not laughable at all.  It’s terrible.

It is not starting a lot of companies that creates jobs, it is companies that are selling product at a profit and therefore must grow that create jobs.  More companies selling crappier things or not selling at all but merely pitching for support to develop things they would sell if they could make them less crappy is not a precondition for companies to create jobs.  Yet university administrators think only that more companies are better, that if Utah can start 18 puppy mill companies in a year, well then Washington had better start even more.  Why the competition?  Why the desire for more without regard to consequences? It is hype, spin, or in recent cases, flat out deceit.  Doesn’t matter—it’s about making a public virtue out of chasing windfall money.

There are ways to augment efforts to place research inventions in the hands of others for use and development.  Some of these ways are tried and true—and largely forgotten by universities after the Bayh-Dole Act was passed to gut public accountability for management of patents held by universities and put in the hands of professional brokers.  After 30 years of no oversight, no accountability, no credible reporting of metrics, there’s a quiet civil war going on in university circles.  The folks that have been managing university inventions as if there is an agent approach in place, that each invention if it is to be held by the university should be developed and put into play—these folks are being run out by a new class of broker that is only in it for the money, not the impact, doesn’t give a fig about being a responsible agent or dealing with the social standing of public institutions.  They gin up a quack story about how they will make tons of money for the university, they disparage the folks doing a good job, they re-write history, they ignore academic norms and expectations of public spiritedness, they self-promote, and having spent millions of dollars and wasted opportunities, they move on like locusts to the next gullible, envious, uninformed, newly avaricious university administration with a hole through the nose looking for a gold ring.

Now I don’t begrudge the speculators their living.  They have a role to play, and at times it is a useful and even an essential role.  They put up big money, and sometimes it is even their own money, and they seek out where there are opportunities for those with some derring-do.  Fine.  What I find abhorrent is the foolishness and weakness of university administrators—and some faculty, too—to wrap themselves so thoroughly around the idea of chasing money to the exclusion of their public mission.  And worse, making it out that their chasing of money is now their new public mission.  Maybe every generation has to have this fight.  If there are academic values, then folks need to stand up for them, and show that it is by keeping universities open that research discoveries will become available for use and development.  This is not the idealist argument about academic norms and academic freedom.  That’s a good argument, too.  This one is hard-nosed pragmatics, about money, about reputation, about opportunity.  It is also about honesty, accountability, and responsibility in actions and discourse.

Newco is another gold ring for UCLA administrators.  If wealthy investors were just in it to pay for patents on inventions that they wanted to exploit, they could simply show up and request licenses.  UCLA would be happy to file patent applications, and the wealthy investors would be happy to cover the costs of the patent work.  There is absolutely no reason for Newco to exist if this is all that is going on.  The wealthy investors do not need it.  UCLA does not need it.  Why then does Newco exist?  Why is it looked on lovingly and without, apparently, any misgivings by the UCLA Faculty Senate?  I have no idea, really.  It doesn’t stand up to reason, so I assume the fix is in and something else is driving it.

On one hand, Newco sort of represents an effort to move UCLA patent management away from UC central control, requirements, and practices.  In that way, it has coarse similarities with the research foundation approach.  But Newco is not an independent agent.  It does not take assignment of inventions, but rather aims apparently to raise a private fund by which it will have access to inventions claimed by UC which Newco can choose to have patented and dictate to UCLA’s TLO how to manage.  Newco is a financial and business orchestrator, not a research foundation.  It depends on UC continuing to require assignment of all inventions rather than make such assignment voluntary, or provide faculty inventors with a range of choices for invention management.

On the other hand Newco represents the worst possible entrenchment of the biotech licensing model–really the patent monopoly model adjusted for biomedical–just when UC and UCLA in particular might benefit from diversifying their approach, especially in areas aloof from biomedical things.  By placing control of UC’s portfolio with a coterie of biotech investors who have created their wealth from a set of fortunate past biotech investments, UCLA puts its portfolio in the hands of the personal investment strategies of a few individuals who benefited during a speculative window for biotech.  One need only look at Taleb’s Fooled by Randomness to recognize that successful speculators are often lucky, not smart, and that success, like failure, is hard to repeat and instead regresses toward the mean.  The difference, only, is that those who have apparent success may be allowed to work with more funds, at greater risk, than those with a visible failure, though it may well be that those who have failed have learned more from their experience and may be better positioned for prudence and new approaches.

There is little about Newco’s structure that recommends it as an exciting new platform to support university-hosted innovation.  UC’s compulsory policies remain in place. UC’s TLO continues to be burdened with reams of policy requirements and is subject to state public disclosure laws, conflict of interest requirements, and tax issues.  UC’s licensing practice, rather than diversifying, appears poised to be handed to a group of wealthy biotech speculators looking to create what amounts to a betting pool operated on their behalf by a public university.  The financial bargain appears to be to buy in on the relatively minor cost of obtaining patents for an opportunity to direct licensing into pathways where there are opportunities for follow-on investment with privileged or first-mover access.  It’s not insider trading, but rather creating a pipeline of investment opportunities configured for a particular of interests and patterns of investment.

This sort of scheme has been known to create wealth for investors.  It is a portfolio scheme in which one big hit is sufficient to create a financial success that covers the cost of the others.  Such a scheme works well when a range of assets appears undervalued relative to future chance of any one of them becoming tremendously valuable.  In a portfolio model, only a few patents have to be placed and flipped to create substantial wealth.  No products have to be created for this windfall. There need not be any benefit to the general public.  All that is required is the premise of the possibility of future products.  What better place to draw from than an elite American research university, where the reputation of the university and its faculty inventors can be used to advantage to attract new investors, speculators, and companies?  It remains in doubt whether such a scheme will also promote broad use of UCLA research inventions, or accelerate the adoption, or development of inventions so that the benefits of use reach the public in a meaningful way.  Indeed, I expect such issues will be swept aside as the very stuff that has held back “success”–as if an unseen hand were at play, which will make everything right if only folks pursue their own self-interest, even if the only ones allowed to do so are privileged, wealthy speculators.

Again, if this were all about monetary benefits to UCLA, there would be no need for Newco, and no need for the affiliation, the intrusion of  private profit interests into the work of the university.   Rich folks could make money and donate it at their whim, the old fashioned way.  It still works, as far as I know.  And universities devote on average 10 times more people to donations than to licensing patents.  Of course, public benefit equals financial return to UCLA will be the banner raised over all of Newco’s activities.

The proof, however, is in outcomes, not in statements of intent, which are easily composed to be whatever rhetoric permits the scheme to move forward.   To gauge the performance of the program, UCLA and Newco will have to report more than their efforts and their “successes.”   Reporting must be at the standard of Bayh-Dole, but without the secrecy:  each year, for each invention claimed by UCLA, show its current status of development, its licensing status, the date of first commercial use or sale, and the income received against the costs expended.  This information can be reported in ways that do not compromise patenting or confidential information received from licensees.  The measure of any agent based program is the number of inventions accepted for management that are not licensed, or if licensed are not worked to the point of practical application, regardless of whether there is a commercial product, lucrative royalties, and the like.

Without such a clear, regular accounting, it will never be clear, even with a few financial successes, at what cost to the broader community those successes have come–costs in lost opportunities for collaboration, for platform development, for leading in areas in which networked, non-market development might move rapidly and with great success but for patents demanded and held by UCLA administrators on behalf of the investment interests of the wealthy backers of Newco.

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