University Patent Policy for Effective Technology Transfer, 9: Booking transfer income

We are considering scenarios that involve patentable inventions as a way to get at what a university patent policy should look like to support effective technology transfer. We compared two scenarios. In the first, a university offers a non-exclusive patent license. In the second, the university offers a research review workshop and the patent license is a free extra. We then could see that these two scenarios lead to very different transfer pathways and relationships.

Technology transfer may be hard, but university bureaucrats choose methods that make it even harder. Then they ask for more money to try to make their methods work and have to make up metrics to make it seem they are right. One thing about bureaucrats–they cannot tolerate being wrong, or even accused of being wrong. That’s why we get such silliness as NIST discussing in the same breath how successful Bayh-Dole has been and the need to find new bureaucratic techniques to “unleash innovation” and make Bayh-Dole even more successful. Success, as it were, means screwed up in ways we cannot admit. The hard lesson for bureaucrats, however, is that “even more successful” does not mean unwinding all the screwed uppedness but rather means “screwing things up even more, but now with less accountability or transparency or right of appeal.”

Oh, but you say that universities don’t bother offering non-exclusive patent licenses, so it’s a worthless comparison. That’s true! University administrators don’t default to non-exclusive patent licenses. They default to exclusive licensing. If someone wants a non-exclusive license, that’s will be an exclusive license with “non-” added before exclusive. All the same costs, requirements, intrusions, shifting of risk. And university patent policy lets them do this. One reason that they do so is that they cannot understand how they can afford to pay to patent an invention ($15,000) if they cannot get a licensee to pay back that expenditure. They see how an exclusive licensee might accept the obligation to repay the university its patenting costs. If the exclusive licensee is put in the position as owner of the invention, as if company employees had made the invention, then the company would have had to pay for the patenting anyway. Thus, it stands to reason that if the university grants an exclusive license, then the company will not contest paying the patenting costs.

Do you like that argument? Well, it’s bureaucratic fantasy too. Companies that routinely patent don’t need to use outside patent attorneys at $15,000 a U.S. patent, and they also can craft claims that read directly on their own products and on the potential products and applications of the competitors. A university does not usually have the insight to know how to draft those claims. Furthermore, when it comes to the patent process, universities can be amazingly sloppy and derelict. They miss deadlines, they screw up responses to the PTO, they miss swatches of claims, they mix patent work with legal advice about licensing or other patent work. All that shows up on legal bills, and when a company’s legal department reviews those bills, someone often pops up and says–“We shouldn’t have to pay for that!” Thus follows another negotiation.

University administrators are stuck with the idea that patenting costs should be billed out separately from other license payment requirements. Even when there is a non-exclusive licensing program–as is all but required by the NSF cooperative research centers, for instance–universities draft silliness like each licensee will pay a pro-rata share of the patenting costs. Just try to figure out how to bill this out if there are three licensees in year one (some legal bills paid 1/3 each) and then four more licensees in year two (oops, now those first legal bills should have been split 1/7 each so there’s got to be credits or refunds), and then two more licensees in year three (darn, more refunds or credits). So it goes. A much easier route is to set a total budget for legal–say, $15,000–and then ask whether one can get, say, three companies to pay a one-time $5,000 fee to take a paid up non-exclusive license. If not–then what the heck is one doing with a patent anyway?

Another way, the measure of whether one ought to seek a patent is the number of companies that would use the invention if it were made available on reasonable terms. If there aren’t any, then the alternative is not then to make the invention available on unreasonable terms, such as exclusively (if the licensee pays off the university’s patenting bill). It’s not that these terms are unreasonable to the patent administrators or the company’s legal department–the terms are unreasonable to everyone else. Publicly unreasonable. Unreasonable to other researchers. Unreasonable to everyone who would use the invention (at some point, in the next five years, say) but who would not pay $5,000 to take a license–because, say, they are in research, or they are DIY gadgeteers, or they are small companies that don’t have that kind of money to throw at mere promises not to sue.

The administrative problem of patent cost recovery goes even deeper, and here we get to actual patent policy. Many universities set up their licensing operations with the requirement that they become self-sustaining. They are to make their operating costs as a share of licensing revenue. This policy is pernicious. It leads university licensing offices to try to run everything they can through a licensing transaction. That’s how they gain control of the money they need for their operations, and any left over they get credit for spreading around as a “new source of revenue.” Thus, in the second scenario, with the workshop, if the patent license is free, then the money coming in (so reason the patent administrators) is not licensing revenue and cannot go (without policy changes) to recover the cost of patenting. Thus, why patent in the first place? and other equally sound questions that a university patent office has trained itself not to ask.

A way to navigate this situation in patent policy is to base the technology transfer office’s cost recovery on the transfer relationship in which a license is predicated, not on the patent license itself–not on payment for the patent license, say. This makes sense. Even patenting cost recovery is not, technically, payment for the patent license. Rather, it is a payment that is required in order to get the patent license. It is a payment tied to the patent license by the contract in which the license is offered and accepted. Technically, the payment for patenting costs is consideration in the contract in which there is also a license. Consideration for a license itself is a royalty payment, such as a payment based on sales of product covered by the patent. If you feel this is splitting hairs, that’s fine. The point is that hairs are split and that patent policy may split these hairs any number of ways.

In a generalized transfer relationship, there will always be a service component–delivery of documents or materials, instruction, assistance with set up, consulting, and the like. There may also be a licensing component, if there is any patented invention or work of authorship or trademark. Two components, then: services and rights. Both have value, and both involve costs, but a university is free to decide which, if anything, to price.

One could price the patent license ($5,000!) and not price services (and call us if you have any questions–we might pick up–but it’s all free!). Or one could price services ($5,000 workshop fee!) and not price the license (free! free! free!). Nothing in patent policy requires a university to price the license part, and nothing requires a university to throw in services for free. So split hairs a different way. Price the things that people are used to paying for–workshops, tuition, purchase of things, equipment rentals–and don’t price things that force anyone to get special permission from legal or get people thinking about how to find a workaround.

Here is a blunt way of putting technology transfer propositions:

“Do you want to know now, or do you want to stay in the dark?”

Compare that with

“Do you want to take a license, or do you want to get sued?”

These are the implicit questions in scenarios 2 and 1, respectively. They are very different questions, with very different social and business responses. Why would one lead a technology transfer relationship with a question that is bound to put most people off? Or that is bound to attract people who see making the threat of litigation to be integral to their mode of operation?

A university, then, could price elements in a transfer relationship that a wide range of people are willing to pay for and even are used to paying for. People pay for workshops and seminars and conferences and job fairs all the time. People pay for subscriptions and memberships, they pay for meals and raffle tickets and concert tickets. They pay knowing that their payments, with those of others, goes to offset the cost of providing whatever it is they want, they need, they want to see succeed. That’s much of the idea behind crowd funding sites such as GoFundMe and KickStarter.

If one is going to fund a transfer relationship, then it also matters what the price is. For instance, if one aims to promote peer-to-peer, then no charge may not be so peer-to-peer as something. No charge may suggest indifference or no support services or not the current implementation. Something, by contrast, may suggest an invitation to help keep something useful going–and that’s especially important where people are grant-dependent. Grants fund new work–research, discovery–but don’t much fund maintaining anything or taking a pause from all that sweaty discovery to put things already done in a condition that others could make sense of them or use them or adapt them. A price of something that’s less than, say, $5,000, is generally within the discretionary spending limit of a typical company research unit team lead. And if the price is for a conference or a download and licensing is merely a matter of scope, not price (say, no resale or redistribution without talking with us first or exercising an option), then most anyone with any technical interest can acquire. The potential audience is as broad as the number of research team leads working in areas that could make use of whatever has been invented.

But if the $5,000 or less is the price of a license–then the legal department is involved, and we go down a much different pathway. Now consider, however, if a university instead offers a non-exclusive license for $50,000 or $100,000. That license may reflect a legitimate estimate of “value” for the invention, but the number of people in the world authorized to pay out that amount is much, much fewer than the number of research team leads who might have a reason to attend a workshop and get a free license. If 10 or 20 people attend that workshop, one has got that $50,000 to $100,000–but one has got it through a very different technology transfer pathway. Use some of that income to pay off the patenting expenses, and there you are.

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