Thinking about projects, small and big–4

Let’s repeat, for the sake of emphasis. If a sponsor supports a project, and that project is part of a larger project, then the sponsor necessarily also supports the larger project. It doesn’t matter that there is separate accounting for the project and the other projects that comprise the larger project. It also doesn’t matter that a sponsor supports a small project first, and that project is followed later by the next projects in the larger project. The small projects are parts of a whole project, regardless of how the money is booked and regardless of the sequencing.

University administrators insist that there is always a larger project, one of commercialization, that all university inventors must participate in. Any sponsor who supports a small project in a university with such policy claims–and public claims, and established practices–necessarily also supports these bigger projects of commercialization. Small projects must support these bigger projects. Sponsors of small projects necessarily support later commercialization projects. They do so because university policy demands that they do so.

If you see this point, then you will also recognize that if a sponsor expects deliverables from its support, it is entirely reasonable for the sponsor to expect deliverables from the larger project, not just from the small project that it directly supports–access to data, to software, to inventions, to reports. University administrators may think that there are no such sponsors with these expectations. But if they do think this way, they are wrong.

Much of the university problem in negotiating sponsored research agreements with companies arises from university administrators systematically creating big commercialization projects while attempting to isolate company sponsored research to small projects that exclude company sponsors from the results of the linked big projects. University administrators want to find a way to pass rights off to a “greedy” company and cut off access to results for any earlier sponsors of the project.

Here is another way to think about this situation. A consortium is often depicted as a set of companies that support common research at university. But that company support does not have to take place at the same time, though many consortia are set up this way. That is, in a typical consortium, participating companies each pay an annual fee and have a seat on an advisory committee that considers research directions and tasks.

Imagine, by contrast, a consortium in which only one sponsor at a time works with a university. Each sponsor in turn supports a different phase of work rather than all sponsors supporting all phases of work at the same time. But in this alternative consortium, each sponsor still also supports the overall goals of the work by supporting a given slice of the work, regardless of which phase each company happens to support. One sponsor might support an investigatory task, another the acquisition of needed equipment, a third the development of a prototype, and a fourth the design of a commercial-grade product. At any point, there might be data or inventions or software developed that matter for the overall project being accomplished. Any sponsor involved ought to have access to any asset created, regardless of whether the sponsor’s support came early or late, regardless of whether the sponsor’s money was used to explore, purchase, build, invent, test, or configure.

The common tie is that the university owns the results at each phase–administratively–and formally, by policy–it’s one big project intending commercialization, no matter how it is represented to any given sponsor or expressed in any sponsorship agreement. If a sponsorship agreement appears to disclaim a big project, the disclaimer runs counter to institutional fact–something we might otherwise call deception or fraud. A university cannot have a policy that requires institutional ownership and commercialization of inventions (enforced systematically on university inventors) and then systematically disclaim that policy in every industry sponsored research agreement. Well, actually, a university can have such a practice, because many do. It’s just that there’s a big, ahem, problem with it.

Just because administrators don’t choose to identify an action with a recognizable name does not mean that the action does not exist, does not happen. There is an aphorism in contracting that it is not how an instrument is labeled but what it does that defines it. A written document that offers a security is a prospectus, even if it is labeled “Not a Prospectus.” A written instrument that conveys all substantial rights in an invention is an assignment, even if it is labeled “Exclusive License.” Similarly, just because sponsors are arranged in a chronological sequence does not mean they are not acting as a consortium and ought to obtain the rights in research findings that arise during the activity of the consortium. The purpose of the project is the element that binds the various sponsors together. Let’s work through the consequences of creating such extended, “big” projects.

The justification for funding research includes the institutional construction of projects. Similarly, the scope of rights granted in inventions made in small projects must include the reality that small projects often are made part of big projects and a sponsor’s rights in fundamental “early stage” inventions includes rights in downstream IP positions that may be developed to complete the big project. We are working through the implications.

Let’s take it one more step. The university is clever and committed to inducing a sponsor of a small project pay all the university’s costs for the university’s big project (commercializing the small project’s invention)–or be penalized for not paying for everything required for commercial development. So the university grants the sponsor of a small project a royalty-free non-exclusive license only “under its patent rights” and disclaims any license under other patents unless those patents claim priority from the licensed patent (or some such thing). This is a bait and switch. The sponsor has a right to a license to all inventions that its funding has supported–and that means a license to all inventions made with the support of inventions (and anything else) developed in the small project that has received direct sponsor support (such as funding or test equipment or whatever).

The sponsor has a right to insist that the license to an invention be just that–a promise by the university not to assert any future right that excludes the sponsor from practicing the invention as broad as invention is defined in university policy and employment contracting, regardless of whatever intellectual property or other right the university subsequently acquires in the invention as a result of moving the invention into new phases of the “big” project to create a commercial product from the small project invention.

Now universities often do not allocate the money to create a commercial product, even though many universities have more than enough money in their endowment to do so. For inventions that are methods, or primarily research tools, or are materials–often not much needs to be done for the invention to be used commercially. Thus, while a university may formally announce that any small project that creates an invention (however defined) is necessarily joined by university policy to a big project that seeks to create a commercial product from that invention for the public benefit, a university often seeks a “commercialization partner” to complete the project. A university does not have to do so–but often it chooses to do so. Regardless of who does the work, the big project is still the university’s big project. It is a matter of whether the university finds more sponsors to support the work at the university (“to bridge the funding gap”) to “develop” the invention, or whether the university licenses the invention to a partner who does the development work.

Thus, we might have the following scenarios, once I support a small project to develop that new cookie, a 3d cookie.

  1. I provide additional funding so that the university can develop a commercially suited product, OR
  2. I decline to provide additional funding (or the university refuses my offer) and the university self-funds further development, with the intent of creating a commercial product, OR
  3. The university finds another sponsor (or sponsors) willing to fund further development, with the intent of creating a commercial product, OR
  4. The university licenses the invention to a company willing to self-fund further development, sharing an intent to create a commercial product.

In each of these alternative futures, the university persists in its effort to accomplish the big project that its policy documents set out as a necessary goal, the commercialization of the invention made in my small project–with or without me as a sponsor. It is clear that in three of these scenarios, the university could cut me out of the results of the big project unless I hold an exclusive license to the invention made in my small project–and then, according to the university’s licensing documents, I must commit to self-funding the university’s big project of creating a commercial product from the invention and pay the university’s patenting costs, incurred on the premise that patents are necessary to achieve the university’s big project goal of producing a commercial product. Isn’t university policy here just nasty?

If I don’t make such a commitment, then university administrators hold that they can then exclude me from the remainder of the project and from any intellectual property positions they subsequently take out. I might get a non-exclusive license “under” a university patent on the initial invention, but may well be excluded from practicing a potentially broad swath of improvements and supporting methods that are part of the broader invention but not directly addressed by the initial patent. I can practice a part of the invention, but not in any way that’s later “developed” as an improvement, even if the improvement is within the claims of the initial patent. In essence, I am left with an empty, hollowed out, useless right. I’ve been had. What I bargained for has been pulled back. I get an empty shell of a license. I discover that the university claims I was licensed only the right to practice the unimproved, undeveloped invention, and not any subsequent improvements or developments of the invention–I get a license to an incomplete version of the invention. My license gets broken apart by subsequent university IP positions that are then withheld (unannounced) from my license. More nasty practice.

This is the problem a university creates in refusing to license “improvements” to an invention when a sponsor is not allowed (or chooses not to) fund further “research” at the university. Universities handle improvements with their own shell startup companies by simply shifting research to the company while providing the research facilities. Thus, a research lab can “start a company” and the university “papers over” the transfer of technology to the company by means of an exclusive license. Then the “company” applies for SBIR funds or state economic development funds or seed funds and continues to develop the invention (with more research). The aim is to make enough “progress” toward a commercial product that investors will buy into the company or a bigger company will come along and acquire the startup. That’s often, too, what the early investors want–buy in for a low price early and sell out for a much higher price later, having financed a share of the work for a couple of years. That is, the company is the asset, not the invention under license. As long as the value of the company increases, the progress toward a commercial product need not be anywhere near complete.

Regardless of investor intentions, you see the approach in terms of the big project. University administrators use the big project–eventual commercial product–to justify creating a startup company and seeking investment for the product through the startup rather than through the university’s own research programs. That’s because the university is set up to receive donations and grants, not to sell stock or sell a research lab to a company. But if a university can license an invention exclusively, it can then participate in the financial upside when a “commercialization partner” finishes the university’s big project. And for that matter, a university can participate also in the financial upside involved in speculation on the future value of the commercialization partner’s stock even if no commercial product is ever produced. Unfinished but lucrative big projects are also acceptable to university administrators.

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