Covenants, Public Good, and Money

I’ve covered a great deal of ground in the last few articles. I’ll summarize and vent here.

Universities impose conditions on the use of the patents they acquire, and these conditions form covenants that run with the patents for the life of the patents. In some cases, the conditions are required by federal law and funding agreements; in other cases, the conditions arise as a result of the universities’ own formal statements of policy including but not only patent policy.

The public good served by university-acquired patents is communicated through the covenants that run with the patents. When there are no such covenants, perhaps an invisible hand still guides the economy of innovation–but there’s nothing in Adam Smith that suggests that public institutions abandoning their roles is the best thing for an economy. Let the butcher and baker seek their own best interests. But don’t let the universities sell out in favor of taking money from speculators and holding patents in spite or out of disinterest when no speculators show up at the door.

Money is the toughest thing in all of this. University administrators hit upon money for research as a public good that justified accepting ownership of patentable inventions made at a university. They then extended this idea to one of demanding that ownership and expanding their claim beyond patentable inventions to anything they decided had “commercial value”–anything they wanted, from anyone who came within reach.

Then the administrators found that most companies didn’t want to take their offer of an exclusive license, so they turned to speculators who might start companies, and when there weren’t enough speculators, the administrators turned to entrepreneurship and got faculty and students and friendly boosters to start shell companies, licensed rights back to these companies, and sold the idea as economic development.

It wasn’t really economic development. It was almost the opposite–co-opting entrepreneurial resources to make it appear that the university was being successful when it was really eating what was supposed to help independent entrepreneurs start companies and small businesses grow. When they couldn’t get anyone to invest in these shell startups, they started suing industry for infringement, often using the shell companies as a front, or acquiescing in speculative investors out to recover some of their investments through litigation. And that’s roughly where we are now–a string of failures stemming from the broken idea that the best and highest use of a university patent is an exclusive license to a company to do most anything it wants with the patent, so long as it makes a show first of trying to make a product and has paid the university enough to cover the costs of obtaining the patent and a bit more.

Universities cannot use their patent positions to promote nonuse, to set up trolling of industry, or to practice at the university while excluding use by all others. To manage the flipping of patents, universities must set up covenants that run with their patents to prevent any new owner of a university patent, whether by exclusive license or assignment, from doing these things. For their own licensing activities, universities should grant as a public license the right for anyone to make, have made, or use any claimed invention. They should rely upon such ease of access to convert their ownership positions into non-ownable intangible assets (NIPIA), and derive their primary benefit from programs based in the value of such NIPIA. Use IP to create NIPIA. Use NIPIA to fulfill your public mission. People will pay you because they want to pay you, because you offer them things of value without threats.

This is a doable approach. It is a workable. We showed that this approach could work for over a decade. It’s just that university patent managers feel threatened by it. It undermines what they have claimed is the technology transfer process. It undermines their claims on what university patent policy must be. It undermines their own claimed expertise in drafting exclusive license agreements. It undermines the metrics they put out to show how potentially successful their vision of university patent licensing might be.

But the approach I’ve mapped out represents the distinctive role that universities have, to feed a robust public domain, to serve all at need, not to play favorites or pick winners or side with wealth. To make this approach work, universities should restore voluntary assignment of inventions. Make it clear what the university does with its patents, and take inventions on that basis only. Stay true to the public mission, make the public good more important than getting huge settlements from patent infringement litigation.

Conventional university patent administration is a sad, dismaying turn that affects the university’s public standing. If the university will make millions off patent royalties (reflected in higher prices charged to the public), then why should the public keep paying subsidies to the university? Why donate?

Here’s the realization that patent administrators, once they backed themselves into a corner and started using the threat of litigation as the foundation for getting money, don’t see:

People give money to a university because they want to.

It doesn’t matter whether the premise is a patent license, a research agreement, a donation, or a payment for instruction. The heart of it is, people pay because they want to, and they want to because they see it as in their interest to pay. They might also be made to pay by threats, and because a court forces them to, but as a matter of technology transfer, as for the health of a program of managing patents, forced payments are a losing proposition. People pay in the context of inventions because they want the university to benefit. Inventors share with the university because they want the university to benefit. Companies using new technology share with the university because they want the university to benefit. Entrepreneurs, same thing. The challenge of university patent management is not how to make a pile of money from a patent position, but rather how to use the patent position to build goodwill, so that people realize where their benefit is coming from, and have a reason to want to keep that benefit going.

We choose our restaurants with a willingness to pay. We understand that good food and good service at a nice location is not free, much as we might love to be comped every time we show up. We choose to pay. We want to. We even might leave a generous tip, because we can, and because we want the place to be there for us for another evening out. We don’t foolishly use up every institution for our own gratification, try to cheat it, game it, ruin it no matter so long as we come away with more than we ought. Locust work that way, eating what’s green until it’s brown and then moving on. But a society that behaves that way is doomed. When a university uses its patent positions to encourage use (the make-use commons) and builds goodwill by offering access and assistance to early adopters, even ones potentially competitive with the university’s own research programs, the university builds goodwill and puts people in a condition where they want the university to benefit, are willing to share an upside, offer opportunities for benefit, support the university socially and politically as well as financially.

In a cynical world of university patent administration, the previous paragraph is wild idealism, the goofy world of the patsy naif ready to be taken by a deceitful, cheating, nasty world of companies, entrepreneurs, and investors who will do anything they can get away with. In this cynical world, only the whips and pistols of the university patent administrators hold the nasty world in check, force it to give up some of its hoarded treasure for the benefit of the struggling public.

My argument is that the patsy naifs are these cynical patent administrators, who would ruin the social standing of the university if they can make money by threatening to sue to stop use of inventions made in the context of university work. Their ideal world is one in which patent licensing income represents a major funding source for the university and so no one looks closely at what happens to all the inventions that never see the light of day as a result, no one looks closely at the distrust and bitterness their work creates in industry among small and large companies alike, no one asks why they don’t comply with federal regulations or at least with their own public policies regarding inventions and the public good.

These administrators are determined to show that exclusive patent licensing has significant financial value to the university, and if not exclusive licensing directly, then equity plays in startup companies, and if not those, then trolling industry with litigation to show that their patents really are worth millions. And from time to time, they make those millions. Once a decade, perhaps. But they lose sight of the social value that patents also may carry for universities, and have little understanding the ways that social value creates opportunities, including financial opportunities, that give a university the foundation to perform its public mission.

Not all university patent administrators are so cynical. But the few that aren’t fight an uphill battle with the conventional wisdom, with speculative “boosters” of patent licensing, with regents and deans who think that patents should make a pile of cash, whether from licensing, equity, or litigation, and from faculty inventors who think the university’s job is to make them rich, or from other faculty who think the university’s job is to keep faculty inventors from getting so rich without sharing some of it with the university.

The challenge, then, is showing a different way, one consistent with university values rather than undermining them, one that does lead to financial sustainability if not big upsides, but without the threats and bitternesses and suppression of use.

Here are the basics of such another way:

  1. restore voluntary assignment of inventions
  2. establish in policy covenants that run with university patents and flips of these patents
  3. comply with federal regulations regarding such covenants
  4. renounce infringement litigation for the making and using of patented inventions
  5. support programs based on sharing rights and building NIPIA
  6. limit exclusive licensing to the right to sell, and then only for limited times
  7. expect people will pay because they want to, even if that means less money

These basics capture the meaning of conducting university patent management in the public interest. The now conventional dual monopoly approach does not.

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