Complexity that serves the intermediaries

In a recent article in Vanity Fair, Michael Lewis discusses the premise behind Flash Boys. Lewis argues that the stock market had become “complicated beyond belief.” Flash Boys chronicles the efforts of a group of traders to figure out what was going on and try to fix it:

In the end they figured out that the complexity, though it may have arisen innocently enough, served the interest of financial intermediaries rather than the investors and corporations the market is meant to serve. It had enabled a massive amount of predatory trading and had institutionalized a systemic and totally unnecessary unfairness in the market and, in the bargain, rendered it less stable and more prone to flash crashes and outages and other unhappy events.

I’m interested in this passage for what it suggests (quite without intention) about the rise of university technology licensing. According to the federal funding agreements backing grants made to universities, any intangible asset–including patents and patent applications–acquired with federal funds is to be held in trust by the university for the beneficiaries of the project (see 2 CFR 200.316). When a university claims ownership of patent rights in an invention made with federal funding as a condition of employment, then the university is expressly using federal funds to acquire the patent rights. That simply has to be the case, since the inventors are paid, while working on the federal grant, with federal funds, and their scope of employment while doing so is the work on the grant. 

University administrators, however, in general do not act as trustees on behalf of some expectant public. In short, they simply ignore the funding agreement. If they argue that somehow it does not apply, they reveal how little they are disposed to find ways to serve the public anyway. Or if they do insist that by owning and selling off patent rights they do in some twisted way serve the public, they must make a convoluted argument that gets stuck in the university’s lower digestive track: if the university pursues its own self-interest and tries to make as much money as it can by holding ownership of any research assets that possibly could be converted to money, then the public benefits from the university developing this new source of revenue, so the public can turn its attention to funding other activities.

Lost in this version of the argument is the idea that the university might assist others–inventors, companies, other research organizations–to gain access to research discoveries. For this, there is no need for the university to take an ownership position. The government pays both direct and indirect costs for the research to be conducted. The faculty propose the research, and request a release from university duties to do the research. A university could easily assist the “beneficiaries” in obtaining and using research inventions without all the bother of demanding ownership, filing patent applications, and seeking wealthy but gullible speculators willing to buy up patent rights in the hope that there will be a demand for these rights later. (Any smart speculator knows better than deal with a university licensing office–unless the university shamelessly allows the speculators to own the office, as appears to be the case now at UCLA).

The rise of the university technology licensing office infrastructure appears to be–to use Michael Lewis’s words–“to serve the interest of financial intermediaries.” The university administrators operate technology licensing offices for university benefit, not public benefit. Any money received from licensing beyond costs is promptly spent by the university on itself. No university has been known to get enough in royalties to start thinking about using royalty income to do something nice for others outside the university. Isn’t that odd?

While university licensing operations are not finely tuned Flash Boys trading ahead of the uniformed market by milliseconds, they do step between university inventors and those who would be the best next collaborators. In doing so they have build an infrastructure that is dedicated primarily to advancing itself. There’s nothing in the statement of objectives in the Bayh-Dole Act that indicates that university licensing offices were to be the big–if only–beneficiaries of the Act:

promote the utilization of inventions

encourage the maximum participation of small business firms

promote collaboration between commercial concerns and nonprofit organizations

ensure inventions are used to promote free competition

promote commercialization and public availability of inventions made by United States industry

ensure that the Government obtains sufficient rights

to meet the needs of the Government and

to protect the public against nonuse or unreasonable use of inventions

to minimize the costs of administering policies

Do you see anything there about growing big licensing operations? Or that the Act intends that universities should own everything and become the great bottleneck? Or it is the policy and objective of Congress that universities should try to make money on patents any way they can, more power to them?

Nah. It’s not there. But you would not know that from looking at university technology licensing policy and practice. Aside from the superficial and often nonsensical statements of public spiritedness, most university IP policies dive right into how to ensure the university has all the rights it needs to set about trying to make money for itself. One might argue that such policies are an “unreasonable use of inventions” as worried by the Bayh-Dole statement of objectives. It is no wonder that the most restrictive conditions in Bayh-Dole are placed not on inventors (they get it easy) and not on small businesses (they get reasonable requirements) but rather on nonprofits–universities and their affiliated research foundations. Some university licensing folks hop around talking about how wonderful Bayh-Dole has been for them, but those folks don’t know Bayh-Dole. Bayh-Dole was not established for them, no matter what they say.

Again, to appropriate Michael Lewis’s words, we find instead a “systemic and totally unnecessary unfairness in the market.” Unlike the problems on Wall Street, there are no regulatory bodies moving to consider how universities have disrupted research innovation, broken the marketplace for ideas and discoveries, and replaced it with a tangle of repressive ownership policies, vast swaths of university-held, unlicensed patents, and faux startup companies holding exclusive licenses, waiting for bankruptcy that never comes because they have no debt from which to seek protection other than that held by their university licensors.

For any invention management organization, it is entirely appropriate for its principals to look out after their own financials. Any university tech licensing professional must do as much. However, if one is committed to the university mission and the objectives stated by Bayh-Dole rather than to self-interest, then there has to be, for the university licensing professional, more than university self-interest. In the lost, forgotten days of university technology transfer–you know, the ones cited by the advocates of Bayh-Dole, to get the law passed, the days where faculty chose what to patent and who to work with, and licensing clicked along at a 30% hit rate–back in those days, people chose to reward the licensing office for its services. They wanted the university to benefit more than university administrators wanted to benefit. That was a nice arrangement, one that kept administrators focused on supporting research and instruction, and kept faculty working on behalf of the public mission. Halcyon days, those.

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