The University Conversion Experience, Part 2

In Part I of “The University Conversion Experience” I described the problems faced when an organization supported by a university becomes trapped in claims by the university administration that the university owns the organization for having supported it. In Part II, we look at the nature of informal organizations, and get at why it is that university administrators could do much better at getting things right–and doing the right thing.

Informal Organizations

An informal organization is one that is formed without incorporation or registration. As such, it does not have certain “formal” characteristics provided by law–though it may be construed as a legally recognized organization (such as a partnership).

The nature of informal organizations has been discussed in connection with internet activities such as “co-blogging.”  What happens when two or more individuals contribute to a web site’s materials and activities?   A discussion of the law by Eric Goldman is here. A broader discussion of informal groups is here.  One upshot is that if a group of individuals works together on a web site such as a blog and makes some money doing so (such as from ads or a “tip jar”), then they may be construed as having formed an implied general partnership–each of them is responsible for the acts of any and all of them. That sounds like a demotivator caption.  Individuals can also enter into “co-blogging” agreements that describe what they are doing, who is responsible, and the like, and use these agreements to preclude a finding of an implied partnership, leaving them a semi-formal group–one with some arrangements but lacking a corporate legal structure.

People may assemble and associate without being required to incorporate. Their associations may be stable and come to have social and economic identity–as is the case with a web site, or a blog, or an acting company. Depending on the arrangements among them, and whether the group participates in commerce, they may have also formed a partnership. Such groups are all over the place, from quilting clubs to the class of 1968 to hacker spaces. For all the “small businesses” around, there are perhaps even more non-businesses, with expense accounts, regular activities, organizing committees, and public identities.  Just because there are laws dealing with various legal forms of business structure does not mean that people are required to use them each time they choose to associate with one another.

This same principle has been true with regard to towns.  A town can be anything we decide to call a town, regardless of its “incorporation” as a city. There are such things as charter cities, governed by their own charter rather than by state law.  Even when a city exists as an incorporated body, we routinely draw a distinction between the civic identity of a place (“I live in Seattle”) and the corporate machinations of the city government (“the City of Seattle manages the area it designates as Seattle”).  Of course, Seattle is comprised of neighborhoods, which in many cases used to be cities before being swallowed up. One might say, “I live in Ballard”–and Ballard, a city for a brief period a century ago, has a civic identity that is at once bound up with Seattle and yet stands apart from Seattle. Folks in Ballard can do things under the banner of Ballard without consulting the City of Seattle.

Consider another situation, that of a church. A church may be part of a religious organization that itself has a legal standing, such as by means of incorporation. Here’s a useful discussion (my emphasis):

Many churches are considering the advantages of incorporation. It is a means of protecting church members from any liability beyond the liability insurance coverage of the church. An incorporated church becomes a legal entity and is separated from the members who formed and make up the membership of the church. When the church is incorporated, lawsuits filed against the church are filed against the church itself which has become a legal entity. Incorporation is another financial protection that is both desired and appreciated by many church members. An unincorporated church is known as an “association”. An association church means that the members are “associated” together in being and doing church. This means every member is a significant part of the church. As the church body, the members are collectively responsible for the liabilities and obligations of the church. Dr. Lynn Buzzard, Campbell University School of Law, stated that an association church “does not have its own independent rights. Rather the association’s rights and obligations are simply the cumulative rights and obligations of members.” Therefore, the major difference between an “association” church and an incorporated church is simply this: every member is responsible for the liabilities and obligations of an “association” church. In an incorporated church, the church itself is a legal entity, and is responsible (not the members) for any liabilities or obligations.

The implication of Dr. Buzzard’s point is that if someone is seeking redress in the context of an informal group, the law permits going after everyone who has been associated with the group. That’s not the same as working through the logic of why the law permits such an attack–or even what it means to be a “member” of an informal group so as to create a “responsibility” for the acts of other “members.” Of course, why expect laws, or university policies, to be rational? This distinction between association churches and incorporated churches follows the same pattern as that of informal groups (which may also be general partnerships if there’s commerce involved) and for cities.

Imagine, then, an informal group, say a Bible study group. Here’s a story about one, picked at random, near Chicago. Two parishioners decide to hold a study group, their church leadership agrees, and they use church resources and facilities to do so. What is the status of their study group? Does the church “own” it?  Can the church “shut it down”?  If the study group creates a web site, is it the church’s?  If the study group creates a newsletter or study materials, or a day book, or a calendar, do any of these become the church’s, on the premise that the study group is hosted by the church, or receives support from the church, or is conducted under the auspices of the church?  One might answer “no” to all of these questions–the church does not own the study group simply for hosting or supporting the group.

If one asked about liability, however, the answer might change:  if someone were injured on church property, or a fight broke out at the study group, or the study group downloaded some copyright protected inspirational songs and made them available on their website.  Then an enterprising attorney might claim the church was responsible for the problems. That would be the “deep pockets” angle, and a church’s leadership might be happy to have an insurance policy that covered these sorts of things–even if the activities themselves are not under the direct control of the church’s officers. Indeed, one might argue that a church has no reason, and should have no desire, to require officials or “employees” of the church to control every activity that might be undertaken by members of the church. One might argue that the concept of “official uses” only of church facilities makes little sense. “Appropriate use” yes; “official use” no.

Consider then money, “the root of all evil today.” What if the study group’s materials become popular on the internet, and the study group starts offering paid subscriptions, using the income to offset the costs of the web hosting and paying a web specialist to maintain the site?  If there’s money left in a bank account–maybe even an account managed by the church–is that money “the church’s” too?  If the church decides that the study group has gotten too big for its facilities, and asks it to leave, does the church get to keep the money, or is it the “study group’s” money–even if the study group is an informal group, or maybe also an implied partnership, depending on how its income is treated?

There is, then, this interplay between the incorporated things–things with a legal standing to manage liability, assets, taxes, and governance–and informal things–things that have identity, stability, activities, and perhaps implied or common law privileges and structure. Just because an incorporated thing exists does not mean that informal things cannot exist in the same domain. Just because an incorporated thing provides support to an informal thing, it does not mean that the informal thing becomes a part of the incorporated thing, or is “owned” by the incorporated thing, or that the assets of the informal thing are converted into assets of the incorporated thing.  In any of these situations, there are five elements in play–identity, ownership, control, liability, and money.  These are versions of the Big Five from IP relationships. What one chooses to emphasize from these elements makes a difference in what lines of reasoning one follows.

The University Does Not Own Simply Because It Supports

Providing support for activity is not a sales deal in which a university buys all outcomes. Nor is university support not resulting in university ownership of all outcomes somehow a private theft of university resources, to be punished by confiscation of outcomes.

Returning to Shakespeare Santa Cruz, we find there was an informal group with its own identity, web site, logo, materials, leadership, and governance. The group was started by individuals who also happened to be faculty at the University of California, Santa Cruz, but those pitching the idea were not hired to pitch the idea, to teach Elizabethan drama, and not to act in such things. That is, Shakespeare Santa Cruz was not within the scope of their employment at UCSC. UCSC officials chose to support Shakespeare Santa Cruz–offering the use of the Glen, providing funding, allowing the use of the UCSC Foundation as a fiscal agent to receive donations for Shakespeare Santa Cruz, and providing funding. There would be no need to offer the use of the Festival Glen (which, before Shakespeare Santa Cruz, apparently was just a bare patch in the trees above a parking lot)—if university personnel wanted to gather there, as they might at other spots on campus, they do not need special dispensation to do so. The development of Shakespeare Santa Cruz has been the stuff of amazing goodwill, from which has grown an acting company with a solid reputation, bringing people from the community onto campus every summer to enjoy a good play, the view, and incidentally, the hospitality of UCSC. It does not matter, then, that some of those involved in producing Shakespeare Santa Cruz are also paid by means of donations handled by the UCSC Foundation and dispersed through the mechanism of UCSC paying SSC personnel from those funds.

This is one of those areas where the law fails to support social reality–or rather, the law leaves those working in good faith exposed to those having the money to exploit the law, or threaten to. One can impose a law on a social reality, to force people to conform to an assertion of law, but that is remote from adapting the law–the rules of engagement–to provide support for an activity that is perfectly natural, understandable, and everyday. Eric Goldman’s write-up of co-blogging law experiences this same difficulty. Goldman takes available law, applies it to emerging co-blogging situations, finds that the law does not fit all that well, but emerges with observations about how the law, when imposed in various ways, may well “blindside” co-bloggers:

Blogger blindsiding can be avoided only by readjusting bloggers’ expectations so that they better appreciate the significance of their decisions. Well ­publicized legal incidents have this effect, but at significant personal cost for the subject bloggers. Perhaps this essay can help some bloggers avoid being the unlucky test cases.

It is as if co-bloggers live in one land, and find themselves, when money or liability or events get in the way, forced to another land, where what they do is controlled by lawyers, money, and courts. It’s not that Goldman gives bad advice–no, his advice is good. But Goldman’s point drives at the problem:  he expects the law to be made by breaking some poor co-blogging relationship already in trouble on the rocks of litigation, forcing a court to come up with some outcome who knows what. It’s a tough route to innovation, when the law cannot change until there are paying clients for lawyers to work for.  One might think that there could be common law for the such activities, internet or otherwise–something that would force lawyers and disputants alike to recognize what is actually happening rather than applying theories from the past, from other countries as it were, to impose a kind of argumentative order on a situation.

If one chooses to reason from identity and history, then Shakespeare Santa Cruz and UCSC were distinct entities, as the old Shakespeare Santa Cruz web site made clear. UCSC is a campus that is operated by The Regents of the University of California (UCSC has its own tax ID number, as do other campuses, among other differentiators–so UCSC is itself a semi-formal division of a larger entity, The Regents, operating with a public identity as part of the University of California, which The Regents are designated to control).

Shakespeare Santa Cruz by contrast was an informal group that developed its own identity, program activities, and assets, such as a name, logo, connections, marketing materials, and reputation. Shakespeare Santa Cruz was hosted by UCSC, so it did not need to form itself as a legal entity (though perhaps, following Goldman’s advice, it should have done so). Shakespeare Santa Cruz was provided the use of a UCSC clearing in the redwoods, accounts managed by UCSC and its Foundation, and received financial support from UCSC. Shakespeare Santa Cruz had phone numbers that were part of UCSC’s telephone exchange, and individuals working for Shakespeare Santa Cruz were paid from funds managed by UCSC, and UCSC for its own purposes may classify these individuals as “employees”–but when they work on Shakespeare Santa Cruz programs, they apparently were doing work for Shakespeare Santa Cruz.

From this perspective, it is rather easy to untangle UCSC and Shakespeare Santa Cruz, the host and the guest, the steward and the beneficiary. Even if UCSC might be exposed to liability if someone is injured while building a set in the Festival Glen, UCSC did not own Shakespeare Santa Cruz, did not own the assets of Shakespeare Santa Cruz, had no ownership standing by which to “shut down” Shakespeare Santa Cruz–though UCSC did just that.

The IP Question

When it comes to intellectual property, such as the name “Shakespeare Santa Cruz” and the Shakespeare Santa Cruz logo, there’s a challenge, because the old Shakespeare Santa Cruz had no formal legal structure–but it did have a social structure, it did have a board, and it did have officers, and it did have donors, and it did have participants.  Another analogy might be apt–that of musical groups such as bands. Here, there are often problems with names as members of the group come and go, as Seattle rock band Queensryche discovered. Here is a discussion of the general issue of band names (my emphasis):

Most groups start out as informal general partnerships of their original members, who select a name under which their group will publicly appear. Use in commerce commences when the group actually begins advertising, promoting themselves, or performing under that name and, if the group is thereafter signed to a record label and releases recordings under that group name, commercial use is deemed to continue thereafter for so long as the recordings remain available or are promulgated in any media, regardless of trademark registration in any class.

Such self-chosen group names are usually the propertyof the original group, subject to contractual considerations as between the original group members.Most commonly, the name is retained by the group as a whole, with departing members relinquishing their rights to the name at the time of leaving the group, while replacement members generally do not automatically acquire an equivalent interest in the name upon joining.

In some instances, the name is held by one or two “lead” members, and licensed exclusively to the group.This is particularly true with respect to groups which formalize their capacity by incorporation or by forming an LLC or equivalent entity, as an alternative to having the partnership or other entity own the name directly. Where there is merely a general partnership, and no formal license or partnership agreement, state partnership laws will govern, often mandating dissolution upon the departure of any partner and precluding any of the partners from commercial use of the name thereafter absent a settlement agreement between them.

Here again we have the elements present in Goldman’s analysis:  informal groups may hold a name, and when used in commerce they become, in the eyes of the law something of a general partnership, absent any agreements among the members (“co-blogging agreements”) otherwise. The advice is, form a legal structure to hold the rights, so that the law doesn’t have to imply and guess, or end up serving those with the most money and most aggressive attorneys.

What has been the outcome in the case of Shakespeare Santa Cruz? It appears that the Shakespeare Santa Cruz association has indeed shut down. A community effort (i.e., not UCSC) called Shakespeare Play On led to the creation of a new organization, Santa Cruz Shakespeare,which has announced that it will be in the Festival Glen for the 2014 summer season. Many of the folks in Shakespeare Santa Cruz migrated to Santa Cruz Shakespeare during the swapping of acronym letters. So UCSC cratered the Shakespeare Santa Cruz “brand” and forced a former “startup” to “spin out” in order to continue to offer bardish services to the community. Here is how this “history” is constructed on the stub Shakespeare Santa Cruz website, now apparently controlled by UCSC:

Shakespeare Santa Cruz (SSC) was a program of the UC Santa Cruz Arts Division and presented Shakespeare and other classical at UCSC from 1981-2013. SSC’s three core programs were: a summer theater festival and two co-productions with the UCSC Theater Arts Department — an annual family holiday musical, and Shakespeare to Go, a community engagement program bringing Shakespeare plays to area schools. Shakespeare to Go continues to perform in schools across Monterey, Santa Cruz, and Santa Clara Counties.

Shakespeare Santa Cruz is depicted as if it were operated by UCSC, as if it were just another program of the university. The program is construed to include two other departmental programs, one of which, Shakespeare to Go, will continue–but not the overall program under the title “Shakespeare Santa Cruz.” It would appear that UCSC has re-written history–or rather constructed a history that provides itself with ownership of a project that was never UCSC’s. It would appear that UCSC has co-opted the name “Shakespeare Santa Cruz,” has caused the organization that was Shakespeare Santa Cruz to cease operations (though clearly the organization has not shut down but rather migrated to a formal organizational structure with a new name, confusingly similar to the old name). One might call it a “conversion” experience for UCSC. What’s left to see is what has happened to the endowment funds created to support the summer festival put on by Shakespeare Santa Cruz.

Re-Conversion

The story of UCSC’s takeover of a theater group is just an everyday thing, as university-project things go. However, it points to the great challenge that projects have in forming within university settings. Universities have been ideal places for the formation of projects–informal, opportunistic associations that span institutions, are led by the motivated individuals who form them, and do not require the approval of central administration. Such projects may develop intangible assets–starting with the roster of people associated with a given project–and may produce impressive results from their work.

When university administrators moved from an equity-based model of university patent management to one of ownership, and used the Bayh-Dole Act to rewrite policy, claiming ownership of most faculty and student intellectual property along the way, the administrators also destroyed a key element in the social idea of projects. Here, project is just another name for “stable, non-institutionally controlled collaboration.” The administrators turned a clear relationship into a murky one by changing IP policy framework and scope. What once was a key area of university strength–informal, opportunistic projects–was exposed to administrative claims of ownership–anything hosted by a university could be claimed as owned by the university.

The conversion of Shakespeare Santa Cruz illustrates what has happened across the country. Now university administrators can force “spin-outs” to go through a technology transfer program, to be counted and attributed to the work of the technology transfer program. Indeed some such spin-outs are the work of the tech transfer folks. And some of those are even real companies, with real investment, and with products. University policy–rather more a formalized administrative urge–has entrapped projects, forced them into administrative control, to be routed through a technology licensing program that then makes a virtue of appearing to expedite (such as with “express” licensing for startups) what previously the university had no need to expedite. Having imposed a bottleneck on project development, university administrators then create an alternative bottleneck that aims to address the defects in practice of the default IP policy. That is, the university numbers reported for startups track the result of moving entrepreneurial efforts through a series of administratively imposed bottlenecks for what used to be an open activity.

The reasons for the bottlenecking appear to have been an administrative desire for money (“new sources of revenue”) coupled with a fear of anyone succeeding with a startup without the tech transfer program getting credit (and payment) for being involved (“no one can outshine the master,” “an administrator’s thumb in every innovation pie”).

How can we recover and rebuild university projects as a way to foster innovation, economic development, and research collaborations? How do we bring to an end the university “conversion” experience? These are the fundamental questions for those who wish to support university “technology transfer” and research-enabled innovation.

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