The first part of this series commented on the primary findings of Walter Valdivia’s new Brookings Institution report calling for universities to look at startups as a way to “transfer technology.” I appreciate Valdivia’s work. It’s good to have a discussion about these issues, and the Brookings report offers that chance. If you want my summary, it’s in a list at the end. If you want to see how I get there, then read on.
Let’s take the Brookings Report summary sentence by sentence.
University technology transfer has been largely dominated by a business model of licensing university patents to the highest bidder.
The opening premise is true but for the last four words. University administrators have indeed come to think of technology transfer as the licensing patents. This fixation pre-dates Bayh-Dole and as David Mowery and others have made clear, the idea of Bayh-Dole arises from this fixation rather than creating it. Put another way, Bayh-Dole confirmed the fixation and changed the balance of practice away from instruction and extension activities, away from the placement of graduates free to practice, and the role of open publication, and instead put tremendous emphasis on proprietary dealings, institutional control of inventions, and made acting on published scholarship uncertain, because one could not tell whether a university was filing patent applications on the reported work or not. University administrators, ignoring past practice, and even the big hits of the Cohen-Boyer and Axel biotech patents on the early margin of Bayh-Dole, have come to imagine patent licensing as a matter of exclusive deals that should generate huge profits, mostly in biotech.
Thus, universities emphasized research, not instruction. The growth in university technology transfer offices after Bayh-Dole does not point to the growth of patent licensing so much as the taking of business away from Research Corporation and other patent agents and placing it with university administrators. The great insight of Bayh-Dole, apparently, was that university bureaucrats have a better nose for technology transfer than professional invention management agents, and that the thing that would really help them out is if there was a federal law that could be construed to mean that universities, not inventors, owned inventions made with federal support, so the bureaucrats wouldn’t even have to negotiate for ownership. Thus was created an environment in which discussion of innovation “models”–creatures of administrators–become a necessary ordeal for anyone trying to get something done it the world.
Profits from patents, not benefits from advanced training, have become the focus of university work. All the new growth at universities is in research administration, not in expert, resource-rich instruction. If anything, instruction has been reduced to part-time staff (three quarters of all university instruction) and recorded celebrity lectures, converging toward TED-style morsels. Left out are the “middle class” faculty, who now are expected to delight in foraging for research dollars with which to buy out their teaching duties. University political swagger is in lots of research dollars, not in talented students entering civic life. One wonders whether the propagation of science, if not the creation of new science, might benefit more from resources supporting instruction, rather than from more and more research funding following the same problematic and expensive protocols.
The biggest problem by far in this opening sentence of the Brookings report summary, however, is those last four words, “to the highest bidder.” There is no bidding in university licensing. There is no auction, no receipt of multiple offers. Where does the report get the notion that university licensing offices receive multiple offers on their patents, and choose the “highest” offer? I have no idea. It’s fine to have analysis of the problems of university licensing conflated with technology transfer, as if these are one and the same thing, but the analysis should be grounded in reality. The reality is: there is no bidding, there is no highest bidder. There rarely is anyone at all interested in taking a licensing deal, and of those very few that are, most are insiders, research sponsors, or speculators. There is no bidding.
University licensing offices will take most any deal that presents. These are few and far between. 95% of a university’s patent portfolio likely will get no offers whatsoever, let alone an offer that’s higher than others. In terms of “technology transfer” meaning licensing resulting in a commercial product on the market, one University of California report put the chance at 99.8% against. Stanford reports three big hit deals (over $50m cumulative) in 36 years and 6400 inventions reported.
The university patent licensing “business model” consists of a statement of process (inventions owned by the university, on which patents are filed, to stimulate private investment that leads to commercial products and royalties paid to the university, which shares generously with the inventors). This process statement does not hold up in practice. To understand practice–what is actually happening, one has to examine actions and outcomes, not statements of aspiration and process. Reason from actions, not labels. While such statements are also part of a process, it is not the process by which discoveries come to be used by others: it is a different process, one by which a university administration struggles to justify its decision to take ownership of faculty and student inventions and try to profit from patent licensing.
The lack of profits is what Valdivia focuses on, as have others. The Kauffman Foundation, for instance, has argued that universities need to improve at being a source for new drugs in development. My own study of over 100 university licensing operations for 2006 indicated that those with 3 to 1 returns on licensing (less payments to inventors–so roughly breakeven) typically had been in operation for 25 years on average and were at universities with nearly $500m in annual extramural research funding. Offices under breakeven were younger and at universities with on average half the annual research funding of those doing the best. But even these numbers have to be taken with caution: patent licensing income is something that develops from a portfolio over one or two decades, and a single year snapshot looks only at costs and income booked in that year. A big hit license can turn a decade and a half of bungling into “success” and a decade of highly competent service to the faculty and the public, but a year before the big hit, will look like an under-performing program in need of re-organization, or a leader with more “industry” experience, or more insider trading to please wealthy boosters. All this leads to the next sentence of the summary.
This model is unprofitable for most universities and sometimes even risks alienating the private sector.
In university licensing, it is difficult to establish what makes a licensing model “unprofitable.” A patent license is not a creature of incremental, regular returns, nor is a patent portfolio. A few years ago, Emory sold its interest in a future royalty stream for over $500m. If it reports that income in one year, then any sample of income from any years that include that year will be dominated by that one-time payment, and the office will appear profitable. Any sample that does not take that year into account may show Emory to be losing money on its patent licensing activities.
Patent licensing income, as something that plays out over decades, is a matter for accrual accounting, not a cash-flow analysis of any single year. All a snapshot cash flow tells one is whether there is at least one big-hit license deal in the office. Everyone wants one of these, of course, but I haven’t seen a good discussion yet of how one gets the first such deal by creating an administrative “process” that imitates the superficial practices of an office that already has got their big hit. A number of first big hits appear to have been luck combined with goodwill and personal initiative–by someone, maybe not an inventor, maybe not an administrator.
The fallacy for university “managers” of technology is that to sell administrators on support for a program of management, they have to present it as a process they control–and a number of them it appears come to believe that they can make the university rich by following the process, or at least that is how they believe they will keep their jobs.
What is disconcerting in all this is that until a university has got itself a big hit–something that appears to happen maybe once every couple of decades, regardless of what a university spends on trying–there is no good way to disentangle the idea of “investment” in some hoped-for future pile of money from “throwing money down a black hole.” Aspirations to public benefit and puffy rhetoric about “industry credentials” do not appear to have much to do with getting a big hit. So how can anyone say that a tech transfer office in its first two decades of existence is wasting money, and why would one say it is “unprofitable”? It’s like complaining that nearly all venture-backed startups lose huge amounts of money. In the first two years?–well, of course. It’s just that with patents, especially on inventions made in university research, which may be far afield from corporate technology roadmaps, the time to relevance and adoption is often way longer than two years. More like five years, just to know what stuff might shake out into relationships, and maybe a decade for bioactive compounds. So we have to take the unprofitable assertion with a dose of humility: we have no way of knowing. One year’s lack of profits cannot be the basis for the critique.
What may be true to say, however, is that folks who think a lot of money could be made immediately by licensing patents, and it hasn’t been made, will be upset. Some university administrators apparently think that merely getting a patent is like getting a ticket to $100m in royalties. These folks are no doubt beside themselves with bother about the unexpected wait and the added cost to cash in those tickets. State legislators, who have been hearing now for two decades how technology transfer is the salvation for regional economic development, and how university licensing income will save the taxpayers money, have found it reasonable to cut state subsidies to public universities, figuring that such rhetoric was true, coming from university administrators, and not just unfounded bluster. I suppose legislators might feel pretty upset that they have been led to undermine funding for instruction thinking that universities had everything in hand with a potful of patents.
However, a new and smarter model has emerged and is being increasingly adopted.
Much depends on what is meant by “smarter.” The primary criticism of licensing programs is that they were not profitable for their universities. The critique of that criticism is that profit is a tough thing to determine, since it appears most all profits from university patent licensing come from a handful of deals, out of the thousands and thousands of reported inventions, spread over decades. Thus, the open question is whether “smarter” is supposed to mean “more profitable to universities” or something else, such as “better at moving discoveries to public availability” or “easier to sell to administrators and legislators to get funding for more research” or “more profitable at the expense of inventors and university administrators, who should back off and let investors and entrepreneurs harvest what they will.”
Not to be too cynical about it, but the cleverest model I have experienced is the one used by the Alfred Mann Foundation. This model is clearly not nearly so profitable to universities as it is to the Alfred Mann Foundation, but it does appear to produce new products from new companies. If “profitable” rather than “smarter” was actually the appropriate comparative adjective–if the numbers supported it–then I expect the Brookings report would have used “profitable.” The report uses “smarter” because there are not financial figures to support it. “Smarter” appears to mean something akin to “trendy” or “what persuades lemming administrators to change directions, toward a new and better cliff.” The emerging model of producing university-generated startups shows little sign of being “profitable” and does not routinely produce new products. It does create new vehicles for speculative investors, and where no private investor is willing to take the deal, it begs for state and federal governments to stand in as the money bags. Is the lack of private investors because of “market failure” or is it because governments can be induced to speculate where even clever speculators turn away? There is an important discussion embedded in this question, but we have other work to do here.
In this new model universities nurture their own start-ups and make available their patents to them.
Perhaps this is a reference to the University of Utah model. One might call it smarter, but one could also say that it is a response to the failure of the model in which one tries to license to a company, any company, and insists that the license be exclusive, and for the purpose of commercialization. If there are no takers, then one alternative is to create one’s own companies, do the license with them, and then wait for investors to come in and take the deal. This approach hasn’t worked much either. One gets a lot of paper shell companies, tied up with monopoly deals, and not much afterward.
In this “new model”–which is not new at all and can be traced back twenty years–universities prefer to license exclusively to vestigial companies often lacking even the most basic capabilities rather than to license to established companies with proven capabilities. Thus, this smarter model prefers to do monopoly business with companies closer to bankruptcy, or further from having any sort of funding. I boggle at trying to figure out how such a model is “smarter.” It has more risk, it ties up inventions with companies that have little or no investment, and it does not appear amenable to a bureaucratic process. That is, starting a lot more such companies does not improve outcomes. The new, smarter model takes a staff of just as expensive licensing folks–actually more expensive, if one has to hire CxO types with a staff of attorneys to do all the drafting and negotiating. The university is still left holding the bag for the patenting costs, even if these have been shifted by contract to the startup. The startup will have to pay the patenting costs, and these may well be higher than if the startup had handled the patent work itself.
This new model also has another effect, which is not highlighted by advocates. A focus on startups may de-emphasize the underlying intellectual property created by the research program. A start up can form around any business idea. There is no need to wait for a patentable invention. Thus, faculty and students can be encouraged to start a company, any company, and find the technology as they go. There is of course something to this–to tell faculty that they ought to be working on a company rather than research or teaching. And that might be the best advice to give, really, for many of them. Being involved at the ground level in a company can sharpen one’s wits, greatly improve one’s focus, and enhance one’s appreciation of the concept of “execution” relative to jaw-jaw about potential significance. The result, though, is that a university licensing operation looks to make money from redirecting talent rather than managing inventions. This is far afield from, say, the federal effort under Bayh-Dole, that aims to develop federally funded inventions. The new, smarter model says, skip the invention part, just recruit in talented faculty and students, and then get them to start companies rather than invent or study. The premise is, we need more entrepreneurs and new companies than we need folks doing basic research and teaching, and the best and the brightest should be amenable to the flash and money of startups more than these other humdrum university activities.
Thus, an emphasis on university startups easily can mean a disregard for managing inventions. This shift would be fine, if universities then gave up their stranglehold on claiming ownership of IP, and actually focused on helping folks start companies, when those folks decided that starting a company was the thing to do. Universities would be relieved of worrying about patents entirely–just help folks start companies, and work for an equity stake as part of the conflict of interest review, or for a research contract to do supporting work, or donations from the principals when they become filthy rich. These all sound like smart things to do. It’s just that none of them appear to have much to do with “technology transfer” in the form of encouraging use of what has been discovered in university research.
One final pragmatic accounting point. If one pins profits on equity value, then one has to adopt an accrual method of accounting. Equity does not pay out (but for dividends) on an annual basis. One sells stocks when one chooses to, based on market signals, contractual obligations, policy requirements, and star-crazed foolish urges.
For equity that goes big, one needs an IPO or other venture exit. These are one-offs, and the income will be booked by university cash-based accounting systems in the year received. Before the exit, the university’s equity holdings in a company might not be booked at all (despite GASB Statement 51), or if booked, at only par value of the stock when issued. Thus, the exit that creates the opportunity to sell at a huge upside comes as a shock to the books, a big spike. If one chooses that year for analysis, the tech licensing program is a roaring success. Pick any other year, and it’s likely a gloomy, money-sucking wasteland.
The only way the equity model works for any given single-year analysis of reported cash flows is if there are big upside exits every single year, or a university deposits the money from big hits and amortizes it over the number years until the next big hit–which might be decades away. And that assumes that university accountants know about when the next big hit deal will come in. If so, then why not just let the accounts do the deals? In one licensing office at a major university, they worked hard to do licenses with equity interest, and did get a big exit–just that the university pocketed that income and the licensing office operation never saw a dime. Despite the financial success that it had arranged, it was still depicted in accounting statements as an under-performing operation. Other offices are in the same predicament–holding equity, but running on a cash accounting analysis. So, is it realistic to set up a licensing office around equity exits, so that any one equity exit produces enough cash to fund the office until the next big equity exit? Is that what the Brookings report thinks is possible? is smarter?
This ought to improve technology transfer.
Yes, apparently so, if the import of “technology transfer” is to shift patent rights from a university to a private concern. If a university places each disclosed invention in a shell company, then technically that is a transfer of the technology, and in a way, it is “improved” over approaches that rarely license their patents. Given that the university does not have to negotiate with anyone very hard, it is an improvement, just as self-dealing is often much easier than finding someone at arm’s length.
But in practice, it is not an improvement in the development or use of technology, and may even be worse than not licensing at all. Placing unknown inventions with monopoly privileges in a company shell does not get at development or public use. It does not improve economic vitality and does not result in making research findings broadly available. Rather, it ties up research findings in an exclusive deal, often with unknown prospects for funding, often with creditors more interested in recovering their cash any way they can, such as through infringement litigation, than in building the anticipated product that would produce income from sales. An insider license deal with the startup may as easily act as a poison pill to dissuade investment as it might serve as an attractant. Much depends on the terms of the contract rather than the fact of a contract. Royalty rates, equity interest, demands for best efforts to create a commercial product of what has been licensed (rather than what is economically possible or attractive), and the prospect of intrusive audits to check on diligence and under-reporting– all of this may make investors queasy enough to walk away. Getting investors to pay for a company with a bad deal does not appear much better than offering companies a chance to pay for unproven technology. Certainly not much “smarter.” The clever thing in creating “startups” is that, apparently, university administrators think they can snooker state legislatures with the sheer volume of reported activity: “Look at all these new companies! This means we are sparking the regional economy! This means we should be the center of attention! Provide more funds and we can build on this success!” It is, of course, pure bullshit (that is, having no regard for the truth). But it appears to be working, as it appears that sufficient numbers of legislators are taken in, don’t care, or are at home in such a register of deliberation.
Pretty much *any* model, if carried out by capable people who know what they are doing, can be described as “smarter” than any model run as an administrative process to please administrators. This is not because any one model is itself smarter, but because competent folks happen to be able to overcome many of the most incredible limitations and bureaucratic barriers placed in front of them. In the area of innovation, however, it is not all that easy to determine who is “capable” and who isn’t. Well, sometimes it is easy to rule folks out. “Capable” often appears to be an attribute given to those who have made a claim to success. The designation then happens afterwards, and has more to do with luck, or association, or wheedling climbers than it has to do with some innate ability to see the future and act on it with beneficial outcomes. For that, one needs phronesis, but like other virtues, it’s difficult to find it in a person until after the fact.
Finally, one might wonder why discussion of alternatives for universities in the matter of technology transfer should be tied up with choosing some one “model” for the country, let alone for any given university. Why is a puppy mill of startups “smarter” than a mix of various strategies, such as open innovation, licensing to create standards, licensing to established companies, licensing to small companies, licensing to startups at arm’s length, doing some clever insider deals, and declining to become involved with a lot of stuff? Why have a single model at all at the national level, for universities, for any one university? Why should a College of Engineering have to deal with folks fixated on School of Medicine licensing practices? Why should bioinformatics folks in a School of Medicine have to beg for exceptions to policy so they aren’t forced into big pharma style deals by default? Why should the bioinformatics people working with open methods be told they have to start companies to provide deal flow for local venture capital firms, which apparently cannot find enough deals on their own and need university help?
Or, if one is going to have a single model, why claim administrative ownership of everything that faculty and students might make if one is only interested in, say, whatever speculative investors or governments are willing to fund?–which at present means, bits of biotech, some things billed as “green,” and software of various sorts, the patents on which are often good for a trolling expedition later. So, why do university administrators insist on having a single model? And why must one unproven model be proposed to replace one that has been discredited? Is it just a struggle for attention among the minorlings at court? If one is going to propose a model, why not look at Germany and China for instances, rather than at whatever happens to be the next new thing that us American lemmings are rushing for? Why not propose independent institutes (like Germany) or companies financed and operated by the military (as in China)? Why not do something that appears to be working?
But universities cannot do it alone, they operate within a larger innovation ecology and the government can help foster an adequate environment for entrepreneurship.
This sentence packs in a great deal. First, there’s the implicit assumption that somehow universities have to “do it alone.” This assumption is not well grounded. If the “it” in “do it alone” is to “transfer technology” then of course universities must have others to transfer the technology to. And university might be happily construed to mean more than “university administrators” or “university patent licensing folks charged with making a profit every year or they are out on their losing duffs.”
For technology transfer to happen, there have to be others who want the technology on offer. What if the university idea of new technology is defective? What if all that government funding is producing scads and scads of just barely legally arguably patentable inventions that are doomed from the start–irrelevant and silly, like phials of hermetically sealed sunbeams extracted from cucumbers in Book III of Gulliver’s Travels? Then no amount of government money to help university administrators spin out new companies from their swollen dark bodies where such inventions go to die will help. Rather, government funding will hurt (no, actually, this link), as it will delay any evaluation that this new smarter model hasn’t been and isn’t working either. It is not that some folks, and even some universities, have not gotten rich from playing with early venture stocks. It is that an administrative model for doing so, as a process, to transfer technology, on the premise of turning a profit, is stark raving mad. Getting the government financially involved, after getting the universities financially involved, means that there’s no one in an institution of public trust to look at tech transfer things independently and evaluate them for their actual outcomes. Instead of a lot of eyes on the street to keep friends and strangers alike safe, those who would keep watch have been bought out. Everyone who should be independent and impartial has thrown their wad in with some model, where they hope to make money and show themselves to be smarter than others, and not fools of chance circumstances, like perhaps we all mostly are. Like Gladwell and Taleb and Kahneman in their rather different ways suggest.
This last sentence of the summary is doing something else, too. Having discussed the defects in the conventional patent licensing approach, and suggesting a smarter model involving startups is being adopted, the summary here turns to make a pitch for something very different–an “environment for entrepreneurship.” The idea of an “environment” for entrepreneurship is a concept that deserves its own discussion. The summary is not calling on the government to pay entrepreneurs to entrepreneurp (or whatever it is they should prendre); rather, the government’s role is one to give entrepreneurs a happy place to play. Perhaps that means regulatory reform, or money from investors, or some reconciliation for past abuse perpetrated on entrepreneurs. In calling for support of such an environment, the report summary is not calling for government support for other things, such as open access journals, or support for an environment for rapid adoption of discoveries, or for rewarding university faculty and students who teach what they discover–no licensing apparatus necessary. An environment favorable to entrepreneurs has to be an environment with some difficulty in it, or entrepreneurs would not be needed–no real risk taking, no courageous leadership, no working with passion and smarts against odds, no unfair competitive advantage by which to catch the attention of wealthy investors.
I do not believe the summary is asking the government to make “it” more difficult, so that petty poser entrepreneurs are weeded out and only the strong, authentic entrepreneurs remain to serve the unseen hand of public benefit from the pursuit of private fortune. But the summary does bring all the discussion to bear on the plight of entrepreneurs, as if the current environment does not favor them, and that the gift of many more university-created startups is somehow a boon to entrepreneurs that in turn requires more government help to keep going.
The image comes to mind of someone leaving many small, empty shells in the tide pools for the hermit crabs, and later realizing with dismay that small, empty shells are not the only things that hermit crabs might desire, and the crabs might be fine with the shells they have got, and many may be too big for the small shells on offer. In such a scenario, it would not be enough to announce that a very small hermit crab has finally adopted a small shell on offer, or even that once a decade a crab grows out of its first small shell to become huge, monster crab dominating the tide pools. One would have to show, first, that the empty shells were necessary for this final dominance to come about; second, that this dominance did not simply substitute one opportunistic outlier for another, and so favor an outlier in which the government or a university had a financial interest rather than an outlier in which others enjoyed the benefits); and third, that the success resulting in profits from a handful of dominant crabs is worth suppression of other activity–publishing, collaboration, instruction, personal initiative, and independent assessment for public reporting–that goes along with the model of granting monopolies in patent rights to university-created startups.
Walter Valdivia has done some good research. His figures show that the “model” of patent licensing for profits “works” for a handful of elite universities. That is, a monster hit license can make a patent licensing program successful for twenty years, especially if the program reports the income spread over a number of years. Programs that book a big payout in the year it is received–whether a milestone, an equity sale, a litigation settlement, or a one-off sale–will appear to be losing money in other years. If one runs the numbers, however, it is possible to show that for any but the largest and luckiest universities, the models being proposed, whether based on patent licensing to established companies or starting companies because one lacks connections with established companies, simply don’t work. Single models don’t work. Models don’t work. Administration of innovation doesn’t work. One model to rule us all is not appropriate to university work. What “works” for big universities smack dab in huge technology zones with access to investors, companies, is the random luck of big numbers, improved with competent licensing folks allowed to follow opportunity. If one doesn’t have big numbers, then falling back on some sort of nicely ordered administrative process that claims to emulate Stanford or MIT is plain foolishness. Worse and worse–claiming to emulate the poppycock at Utah or Washington.
A single model is no good. It is worse than no good: a single model does damage to the universities that try them, the regions that let them get away with trying, and the governments that nod with approval and aim to be complicit rather than staying independent, demanding for auditable figures to back anyone’s claims.
The time to start a technology transfer program is when one has a big hit in hand. That’s how a number of programs have started. Starting with a big hit means you have perhaps twenty years of profitability before one has to show another hit coming on. That has been difficult to do. For those with repeat winners, the second does not necessarily look at all like the first. Although Stanford did Cohen-Boyer as a complex, industry-engaged, non-exclusively licensed biotech tool–a model that Columbia emulated with variations for the Axel patents–with Google, Stanford licensed to a startup for equity without much expectation that this was going to be a “big hit” deal. As it turned out Google equity has made more money for Stanford than Cohen-Boyer royalties did. But neither deal would be within the “process” expectations of an administrative mandate to “start more companies.”
Is there any good reason to shift government and university resources toward startups, because a few universities made big profits from taking equity positions? Will many more startups on this model improve anyone’s good fortune? Will throwing government money into these companies improve their outputs? The NSF is presently trying to figure out why small businesses living off SBIR grants never seem to manage to produce product–they are very good at getting government funding, and live off that, but don’t seem to make the transition to selling product of their own. Perhaps the government money is too easy (though that’s hard to see–it’s small bucks, slow to get, and painful to spend). Perhaps, rather, the small companies use the government money to position themselves to bother other companies, who then feel motivated to buy them to get them out of the way. That makes for a better investor report–another potential competitor has been dealt with, the prospect of dominant market share is that much closer to realization.
If government-supported companies (government research funding, government funding for entrepreneurship programs, government funding to create an environment conducive to more such companies) are being used by one set of speculative investors to position their rights, technology, and product to disrupt technology incumbents, not to compete with them by producing new and better products, but to be bought out, then we would have a truly strange national innovation system indeed. In such a case, the whole point of funding basic research, patenting inventions, and starting companies would be reduced to the fine activity of attempting to induce people with money to buy into initiatives that will threaten established interests, or on the other side to buy out initiatives that threaten market positions.
Innovation is an introduced change to an established order. In the above depiction, one does not need to go so far. All one has to do is introduce the prospect of change to an established order–that a new technology coming from a university lab has the potential to transform practice or product or market or whole industries. It could be graphene or nanotubes or quantum dots or 3d printing. The message in this genre of article is potential for change. While the public might wander to the prospects of flying cars and cheap energy, the actual, material audience is the status quo, the incumbents who are threatened with disruptive innovation and being pressured, Kodak-style, for not changing rapidly enough. The pitch to these companies is, “buy us if you fear us.” One merely has to know Schumpeter’s phrase “creative destruction” to reason that capitalists like to beat up capitalists in their jockeying for capital, and that as the dinosaurs crash above, the unseen hand of economic progress provides for all of us mammals scurrying for our caves.
No one proposes that universities create companies only to hype the potential for research to investors who play on the gullibility and fears of other investors, or who troll industry with patent rights, looking for an infringement payday. Then again, no one rules out these forms of profit-seeking. Not universities, in their policies or licensing practices, not the federal government in the form of the standard patent rights clause, which could have provided for this sort of accountability and inexplicably was drafted to do pretty much the opposite, not state governments, which could relieve public university administrators of the responsibility and cost for chasing profits in any number of ways. There is no question that from time to time, university faculty, staff, and students start companies that provide useful goods and services. I just haven’t seen this happen as a result of administrative processes, as part of an effort to churn out companies, as part of institutional profit-seeking, as part of any model.
To put it all in short form:
- There is no bidding process. There is no highest bidder.
- The present university patent licensing approach indeed fails to transfer technology.
- Licensing patent rights for profit doesn’t necessarily transfer technology.
- Patent licensing profits are a matter of decades, not single-year snapshots.
- Creating insider-dealt startups has no better track record.
- University startups are used as a front to induce more state funding for research.
- Models are a crappy way to think about innovation.
- Folks focused on wealth creation don’t generally share with universities or inventors.
- Running on equity exits requires cash to cover the time between exits.
- Still more government funding for universities to try to capture won’t help.
Instead, how about getting the government and university administrations back out of the profit-seeking business? There was a reason why states got fed up with the “public-private” partnerships proposed by the railroad companies–with the states putting up the money and the railroad barons starting the companies that they then contracted with to actually build the railroads. The states did the “investing” and the barons walked away with the land and the cash. What’s different about what is being proposed now, except that university administrators are mostly clueless as barons and really do need something like UCLA’s Newco as a way to attract folks who know how to exploit public funding and get away with it?
If the federal government is going to continue to buy out talented university folks, then how about leaving those folks alone to decide how best to pursue their interests? If there is going to be an unseen hand argument, how about it be based on the individuals doing the discovery and instruction deciding on the next steps, not bureaucrats demanding to own everything and appealing for welfare for investors, or government subsidies because there are no investors foolish enough to dive into what universities are putting on offer? At least then government and university administrations alike could monitor what is in fact “working” rather than being the rah-rah spinsters for whatever it is they happen to have “invested” in. At least then there would be stewards and arbiters and auditors who weren’t already bought in, or bought out. That would be refreshing. That might even contribute to the environment for entrepreneurship about which Valdivia rightly is concerned.