University inventions that aren’t exactly worthless-2

Companies, it turns out, are pretty good at evaluating inventions that are “worth” something to them. Companies with large research enterprises appear to be less good than others, however. The story at Xerox PARC was that inventors hoped that their inventions would not be judged “strategic” by Xerox executives. If “strategic,” then Xerox would take ownership, form a division around the invention, and there it would usually suffocate. If non-strategic, then the inventor was free to do whatever. Thus, we have ethernet and postscript and graphical user interfaces, among other things. Inventions that clearly have had “worth” but only if not controlled exclusively by an organization hoping to “realize” that “worth.”

Universities have almost no capacity to judge the “worth” of an invention, even to themselves as a source of money. They don’t have products and markets and areas of development from which to reason about any given invention. Instead, they ask only (and often with some degree of ignorance) whether they can get anyone to pay them for their taking out a patent position. All they require, then, is posturing in a legal document to put a veneer on the transaction that it is in the public interest to grant an exclusive license. A few states have passed laws that purport to limit what an employer can require in an employment agreement by way of assignment of inventions. Actually, these laws tend to expand what an employer can demand, since they include the employer’s business and future business, and use of employer resources, non of which matters to common law invention ownership. University administrators take it to 11, however, and argue that since they intend to make money on any invention that an employee makes, their future business is always redefined to be any invention on which they can practice their arts. Any company could adopt the same scheme. The law is essentially useless in protecting employee inventors from predations, if this interpretation is permitted.

One of the great problems is the insistence that the “worth” of an invention be monetized through a patent licensing contract. A great deal of university “value” flows through other channels–in donations, in the hiring of graduates, in offers to support research, in collaboration with faculty, in government subsidies arising because there is great public support for the work a university is doing.

In a more technical development, any license agreement involves a grant of rights and a commitment of services. The grant of rights involves a release from claims of infringement. The grant enables activity that otherwise would be actionable for infringement. But that part of the relationship merely selectively undoes what the claim of ownership (plus patent) created. The services component is the key to transfer–services may be limited to provision of a patent application (which otherwise generally is not public until published by the USPTO) or may extend to providing backing data, assistance with understanding the invention or replicating an experimental set up, provision of specialized tools for making or handling or analyzing the invention, and the like. Services can be more extensive–personal consulting offered by the inventors or others on the inventive team, fully fledged research projects, custom development of things helpful to the company obtaining a license.

In a typical university patent license, the value of the grant is set at 100% and the value of services at 0%. That is, a university licensing office does everything it can to have the value of the relationship follow the grant of rights rather than the services provided ancillary to the grant. To show the contrast, where university licensing offices chaff at situations in which they must grant a royalty-free license to research sponsors. In such cases, such as in the NSF Cooperative Research Center program, the value of the relationship is 100% membership fee (consortium fee, sponsored research fee, donation) and 0% grant of rights.

Licenses for software and other assets handled generally under copyright follow a similar analysis. Open source software has a grant of rights at 0% of the relationship, and personal consulting or contract work to make custom versions or offer of a warranty at 100%. Other software developed in research or instruction may involve a charge for a license, but this license is rather a delivery of the work in a copy (physical media or more often a download)–a service, if you will, that carries the value of the relationship, rather than the grant of rights (“also, we won’t sue you for using what we have offered you the opportunity to use”). Support services–updates, answering technical questions, training, agreeing to include user suggestions in the next release–actually may carry the premium value.

This distinction between value of the grant and value of the services is often lost on those who deal in patents and aim to make the grant carry most if not all of the “worth.” Why? Because the university licensing office generally gets a share of licensing income and not other services income. If an inventor held a workshop to announce an invention and teach industry all that the team knew about the invention, how to make it, use it, analyze it, the inventor might charge $2,000 a person and get 50 people–gross income of $100,000. The inventor could make the grant of rights entirely free–“come to the workshop, learn what you can, and take back a free license for your company to do whatever it wants.” There would be no complications for drafting the license. It could be a one sentence deal: “We hereby grant your company has a royalty-free, paid up, irrevocable, non-exclusive worldwide license to our invention _______________.” There are all sorts of complications that a company might want to address–what about improvements, what about subsidiaries, what about successors interest, what about transferability of the license–but if a company wants a bigger, fatter license, or wants a commitment of services, then it might expect to pay for the service of the university preparing such things.

Otherwise, the point is–the inventor could pocket (personally, or to a university account), $100,000 per workshop, less costs of putting on the event–so call it $80,000 a pop, taking into account patenting expenses. If the research is on-going and the invention will be developed, then there can be a workshop every year. Or quarterly updates (with data and as-available assistance by subscription newsletter). To get a comparable amount available to the inventor from placing the “worth” of the invention in the grant of rights, a university would have to see a commercial product (at 5% royalty) selling $1.6M, and given the inventor share is typically 1/3 or less of the total licensing income received, the sales figure would be more less than $4.5M. What’s the likelihood that the university can find an exclusive licensee that will commit to fielding a commercial product? How long will people have to wait for such a product to be “developed”? If it is more than a few months, then everyone who doesn’t have the exclusive license will look for alternatives–design around the invention, undermine its worth, keep it out of standards, ignore it. The university may get paid for the grant of rights, but it also, almost always, loses much more than it gains by demanding that the license carry the primary value of the relationship, of the transfer of the capability to practice any given invention. Productization generally matters (or should matter) for a university only after broad access. Call it “crossing the commons.”

The idea is silly if not pernicious and self-defeating that the primary value to a university should be the money made in the granting of rights under a patent. In almost all cases of invention, the money made in anything but the grant of rights is better money, faster money, money consistent with university purposes and values (such as providing instruction, not discriminating among those seeking to learn, and providing assistance upon request, as may be made available).

It is strange, then, to see university administrators insist that the greatest income they can get is from exclusive licensing. It just isn’t true. It may be true that the greatest income they have received has come from an exclusive license. But that fact alone does not make the general case. If you hold out only for exclusive licenses, then whatever you make, it will be by means of exclusive license. What’s worse, this mindset ignores the income (if income is the thing) from non-exclusive licenses. Cohen-Boyer was over $250M. Axel was way more than that. Hall right up there. All non-exclusive. Worser still, this mindset ignores the income and potential for income that arises from things other than the grant of rights–services, opportunities, donations, attracting talent, placing students. And beyond all of this, we still have not got past income for the university to public benefit, to benefits arising from access and use, and even productization, all which may come about without exclusivity or even without patenting and its complications, legalities, expenses, delays, implied threats, and bitternesses.

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