Judge Learned Hand:
Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.
Now let’s consider IP at public universities. University administrators are fond of taking ownership of all IP for which they believe they can make others pay a fee to license. In many ways, it is almost but not quite entirely like a tax. It is a fee imposed by a governmental organization if one wishes to practice certain results of research.
We may postulate that there is absolutely no public duty for anyone in industry or the community to pay licensing fees to public universities. It is a matter of arranging one’s affairs to as to minimize one’s exposure to an unwanted license fee.
Let’s be clear: there are reasons to pay a licensing fee, or to pay for services. Companies do this all the time. Sure, one can dream of everyone offering their goods and services to your company for no charge, but we know that technology deals are about trade, not tribute. And trade means exchange of things that represent acceptable value to each of the trading partners. While a company may arrange its affairs to reduce its expenses, it does not plan to reduce those expenses to nothing. Even in dealing with faculty investigators, a company incurs costs–travel costs to visit, time working through the literature, yakking at conferences and on the phone and over the internet. And all this is minor to anything like trying to replicate experiments, reprocess data, or come up to speed with a new technique.
At $200K per engineer per year fully loaded cost, a company can drop $50K by having two engineers look at something for six weeks. Imagine if a university could shorten that to a week–a savings of $40K. Company might be willing to pay $20K for the service of getting in, getting clear answers, collecting good data, finding out what doesn’t work, what’s iffy, and what does–even when they aren’t about to pay for a “license”, which may go through a different part of the company, with different review on different criteria than simply getting fast help with a look-see to validate.
This point is often lost on university technology transfer offices. It is all too easy to get fixated on making a licensing transaction the centerpiece of transfer. A license often is not needed and not helpful. There is little basis to the claim that without a license, technologies “sit on the shelf”. The truth of it is, that many technologies sit on the shelf because technology transfer offices demand a license transaction. Or, more accurately, they demand a paying license transaction. They aren’t smart enough (yes, I’ll put an edge on it) to figure out that companies pay all the time for stuff–just not, generally, for licenses to unproven new technology.
Three concepts are at play. Permission is an affirmation that one approves an action, or at least will not oppose an action–one might not even have an IP position in play to give permission. A license is an agreement not to enforce a right one otherwise has. A contract is an exchange of binding promises, here with regard to a license, so folks cannot change their minds at whim. If a university gives permission, or even grants a license, that’s fine and good. A recipient of a grant of rights may even desire to package that up in a contract to keep it stable and well documented. That transaction is not the big deal. The big deal comes with the payment and the apparatus of the deal–all the terms and conditions that go with a contract, but not necessarily with permission or a license.
[There is a fourth concept lurking here: standstill. The university agrees to do nothing with its IP rights–no licensing, no litigation, nothing, nothing, nothing at all. Sounds like the end of the world!]
Often it is not the license that is objectionable. Not even the payment. But rather, the apparatus–all the demands and requirements that go with a contract–demands for business plans, diligence, for reporting, the right to inspect books or audit, penalties for underpayment, threats to cancel the license, indemnification, choice of law, venue for disputes, alternative dispute protocols, to be followed by non-alternative dispute protocols, restrictions on assignment, on termination, on use of names…. Any one of these may stall out a contract, but wouldn’t have any bearing on a permission. In one university, a license is a contract that runs to 30+ pages in its template form, while a non-assert can be as simple as a sentence and a sale as short as an invoice.
Payment by itself need not be that awful, especially if it is under the discretionary spending limit of the company folks who want something–and for something they are authorized to acquire (technology, software, or data, say, not patent rights), and the money they hand over goes to support something that they want to support. Companies pay for things all the time. In a tech transfer situation, there are plenty of things that any company pays for all the time–the service of delivery, consulting and training with expert personnel from another firm, help with installing and configuring the technology on-site, update service. While folks may in a weak moment get a dreamy-eyed look and hum a few bars of “Imagine” when the thought strikes them this could all be for free, everything comes back to earth when they realize that if that were so, then they wouldn’t be working for a company, and they wouldn’t need the technology in the first place.
There are good reasons to develop a paying relationship with faculty researchers or their university. Sometimes IP does, and should, figure into the arrangements. But a lot of time, university tech transfer offices are just on the hunt, and the typical human response is to learn them a lesson about wanting too much, at the wrong time, in the wrong way. And for that, one arranges one’s affairs so they don’t have to pay. As one pretty keen big company negotiator told me–I think he was trying to help me understand his tactics–“Here’s the deal: my job is to take everything I legally can, and your job is to try to stop me.” It was a fun negotiation after that. At least it boiled down to what he was going to license and when we were going to lift a finger to help him do anything other than what we were already doing.
Technology transfer deals with mixed university interests. The administration may have taken ownership of the invention and wants to make money, but the inventors may be conflicted in any number of ways. Making money may be fine, if the university can indeed make money, but not fine if administrators screw up all the inventors’ other relationships and opportunities in the process. Inventors, too, can have unrealistic expectations. They may feel that their present invention is the cash cow of their dreams. It may be, but it doesn’t mean your company has to be the patsy. Some inventors are reasonable and want to be recognized for what they have done. Any company that values talent and insight should find a way to do that–it may not be in royalties, but it ought to be something that demonstrates that good value, and good will, count for something. Beyond that, administrators, too, can be conflicted–some want to make money, but others may want to build relationships or visibility. Some only want to make money if it goes to their unit, not to someone else’s. These conflicts are the ones that university policy writers try to resolve in one swell foop. Typically, this means institutional self-interest, review of everything by folks distant from the deal, and a division of proceeds that makes most deals uninteresting to everyone involved, with the assumption that there will and must be proceeds.
So when the advice of Learned Hand rises to the forefront, and one does not want to deal with a university’s contract apparatus, or doesn’t want to–or has no means to–pay for the license the university has on offer, what to do?
Here are some strategies to avoid what it is perfectly legal to avoid.
Call the dean. A dean will often be able to tell you whether the licensing is important or it’s getting in the way. If the dean wants a relationship with your firm–say, showing up at the job fair or the research review meetings–then the licensing will show up as a problem. If the inventors are on your side, then let the dean do the legwork to beat up the tech transfer office. Provide some leverage: “The tech transfer folks are holding up our work with you–we would a) donate money or equipment b) join an affiliates program c) sponsor research d) offer internships e) share facilities f) team up on new grant proposals [pick one or more]–if only we could get those folks off our backs. Can you help?” Given that there are always conflicts within the university on this stuff, put the dean to work for you.
Ask the lab to go “open”. Whether the university owns IP or not, if the lab goes to an open innovation model–open source software, open hardware, open wetware–then you will get what you need on a standard FRAND license, such as the new Mozilla Public License v2. “Open” can also be limited, such as with a make-use commons, where practice is under a non-assert and the only right that requires the overhead of a license contract is the “sell” right. If you don’t need the right to sell, then all you need is open practice.
Check for prior art. University patents are some of the leakiest when it comes to prior art. It may be that you can find a web site or a grant proposal or a paper or an abstract or a statement on a grad student’s on-line resume that anticipates the invention and sets a priority date that will undermine an application or issued patent. If you can find serious prior art, then the university’s ownership claim is compromised, the licensing part of the relationship is done for, and you have saved the university needless expense in pursuing a patent application that would have never issued or would have been overturned if challenged by a re-examination request. Get the technology and invent improvements. File on those. All yours!
Design around. Tried and true. Most university patent claims are full of holes. Most university tech transfer offices don’t have the money to do a decent job of drafting to capture all the ways of doing things. They did an experiment, got a result. They then wrote up a patent application that tries to generalize from the result to a class of such stuff. They may get the 85% effective version, but may well miss the 75% effecgive version–which may be plenty good enough, and may be less costly to put into practice. It doesn’t hurt to ask the researchers how they could do things more simply, or differently, given what they reported to the university. Often, especially if the researchers don’t think much of the tech transfer office, they are happy to explain other ways of doing the same thing.
Roll out a dominant position. Some universities have policies that say that they may forgo licensing if there’s a company with a dominant patent position that would make licensing impossible. If the technology the university has is interesting, your company may already have a position that would give the university pause in its efforts to license to others. Work a deal for a limited cross license–the company won’t sue the university, and the university will grant a royalty-free non-exclusive to the company.
Sponsor research leading to improvements. If you can spend some money on research but not on IP acquisition, then roll the two together. Sponsor research that might lead to improvements, and ask for a non-assert on background rights. That is equivalent to paying for those rights, but the transaction involves research, not licensing. And by using “non-assert” rather than “license” it might be as simple as a sentence in a sponsored research agreement. Better yet, define the statement of work to include close collaboration between the university principal investigator and a company technical contact. Close collaboration means joint inventing is highly likely, and that means no license is needed to practice. Don’t forget your CREATE Act language.
Creating blocking improvements. For most university inventions, there is a long road of other inventions to get from the lab to any marketplace. If you like the tech, and want to use it, then you are on that same road. Why not walk it a little faster for a while, and pick up a few of the easier improvements or related inventions that have to be made anyway. The university will sooner or later putter its way to these same things. You can save them the trouble by filing first on a few improvements. Then you have an opportunity to point out the advantages of working together. With first to file, the less you can show you know about the university situation, the easier it will be to overcome any objection that your work is derivative.
Sponsor a “clinical trial”. If the IP is still there to be created, then set up a collaboration in the form of a clinical trial, even if it doesn’t involve anything clinical. Universities routinely do not take ownership positions with regard to IP in clinical trials. The reasons include: the sponsor has a dominant IP position, the sponsor has provided the testing protocol, the service is provided to the company as an independent evaluation of quality on behalf of the public, and the results will be published. Establish this same kind of procedure: identify your patents and other IP, establish the protocol, and insist on publication of results after reporting the results to your company for invention review. The university may cede ownership of inventions to you. You may have to explain the parallel with clinical trials slowly and clearly.
Cross-license. Supply something proprietary for collaboration–software, a device, data, an invention, access to facilities–and seek to trade for access to patent rights. University administrators don’t generally cross-license, and they often won’t admit even understanding the deal, but your in-kind access might trigger some sense of reciprocity in a dean, or even in inventors or associated faculty. Pitch the idea that if you are using their technology, that’s a big plus in their efforts to find paying companies. Just not you. This works best if you are the first company showing an interest. Forget it if you are the sixth in line for a non-exclusive.
Wait it out. Universities have only so much money to spend on patent applications. If you are not working with one of the few really big operations with a lot of money to throw at every invention they see, then it’s possible things won’t get past the provisional filing. Don’t show up all hot and excited if they’ve just filed a provisional. That will persuade them to convert it–they would rather waste money to spite you than to open things up. Especially if it’s a method patent, use the time to find prior art, workarounds, and complications. If the invention involves anything technical, then ask to see if anyone has replicated the results. Often, it can’t be done. That will take the wind out of the patenting sails.