Voyage of the beagles

It’s not that I wanted to take a hiatus from posting ideas here at the Research Enterprise blog, but other writing tasks and various gusts of the life winds took me away from this forum. But I intend to be back at it now, with plenty of new material.

The management of intellectual property continues to be an area of importance for universities, and one that from the looks of things they haven’t got figured out. The University of California is putting $250M into a venture fund for “its” startups, run by the owner of a professional basketball team. Somehow, that doesn’t appear to be a formula for success, but then speculation is about gaming a system, not about supporting the development of new public services. As universities become rentiers rather than entrepreneurs–as Piketty predicts happens as capital grows and ages–we might expect that the prevailing metaphor for university IP management will move even further toward the rentier model, which will just seem “natural”–especially if each university vice provost for research sees most other university vice provosts for research trying the same set of things.

Dog breeds can be classified by trainability, with some breeds, such as poodles, requiring five or fewer repetitions to learn a new task. Beagles, on the other hand, may require up to a hundred reps to learn a new behavior, and even then perhaps only if they see other beagles doing the same thing. Universities appear to be beagles when it comes to IP management. It takes a university a long time–years–to learn a behavior, and then years more to unlearn the behavior as circumstances change, or, as in the case of the new, modern IP management model, it dawns on people that it is simply not working out as claimed.

There’s an arc to university IP management. A hundred years ago, patents were outside academics, and university faculty worked to keep it that way by creating the idea of nonprofit corporate foundations to present faculty-created inventions to industry. Research Corporation, the most successful of these foundations, encouraged universities to create “technology transfer” offices–people assigned the task of helping faculty move (or “transfer”) their inventions to the Research Corporation for review and possible management. Then the Bayh-Dole Act arrived and destroyed the model, replacing it with a straw muffin muddle that used much of the same vocabulary but operated on a cleverly different set of ideas. It wasn’t that the Bayh-Dole Act itself did the destroying–on its surface, it permits the old, reasonably successful model, to continue. But Bayh-Dole was designed to kill off the national model of faculty engaging agents to present their inventive ideas to industry and replaced it with a provincial model, in which each university took ownership of inventions and turned its policy from support for faculty entrepreneurs to enfranchising itself as the master rentier, taking a share of every potential good thing as a tax for allowing those good things to see the light of day.

University royalties from patent licensing now represents the extent of the shakedown of faculty (and student, and staff) entrepreneurs, not the extent to which university research provides a stimulus to the nation’s economy. But the political rhetoric does not acknowledge such signs. The rentier prefers to remain in the shadows. The University of California, then, demands ownership of faculty (and student, and staff) inventions, and having thus consigned most of those inventions to economic oblivion, makes a show of creating “incubators” for shell companies that live off research funding and need state-supported subsidies to remain viable (sold to the public as “economic development”). That support, however, is not enough for startups owned by a rentier–so now the University reroutes some portion of its endowment funds (only a few hundred million!) to take a further ownership interest in these startups, and to keep them lingering on for a few extra years. The idea is: if only someone will buy up these “early-stage” companies, then the speculative middle men will make a fortune selling off their shares–and so will the University.

The basis of the come-on in these university startup companies is that somehow associating the name of the university with the startup will induce the next round of investors–speculators–to assume the “technology” must be “elite” because the university is “elite.” What a pile of crap, but apparently university administrators have been persuaded by the speculators who have targeted them that there are people out there with money who are so stupid that they will think that if a big research university “is behind” the technology, then it’s a sure bet that the technology is going to be a giant. The speculators may indeed be right. Perhaps there are potential investors that stupid. But if that’s the game, then the business model the university and its speculator friends is pursuing is this:

  1. start companies on “research technology” confiscated by the university;
  2. induce faculty inventors to operate the company to lend credibility;
  3. use an ancillary fund run by a friendly speculator to “invest” in these companies, to add “social proof” of the company’s potential;
  4. sell off the companies at inflated values to the next round of gullible investors;
  5. advertise to state and federal politicians the new glorious economic relationship between basic research and company formations, to gain more research funding;
  6. ignore the fact that most of these companies fail and the investors lose everything and no new products based on the research technology reach the public.

The University of Washington just burned through this model in six years, blowing more than $100 million and for that getting virtually nothing back in return, not financially, not in terms of jobs for the state, not in terms of new products benefiting the public. Perhaps $100 million was not enough. Let’s see how $250 million at the University of California does. Piketty has looked at American university endowments. The returns at $250 million are nothing compared to the returns at $25 billion (for which, see Piketty, Capital in the Twenty-first Century, pp. 447-452).

In a centrally controlled scheme to relieve wealthy investors of their money, the number of university startups means nothing. The amount of university seed fund investment attracted by these companies means nothing. The connection between basic research and these companies is almost but not entirely fraudulent–the research is not producing public benefit. Rather, it is producing a betting parlor for speculators–just what a rentier would see as a favorable environment for making money from dumb wealthy folk who think a technology is somehow better, truer, and safer because a university name is attached to it, more like a forced branding than a history of entrepreneurial decisions.

Presently, university administrators are being sold the model of adding a venture fund to extend the life of their indentured startups, in the hope of finding eventually some dumb but wealthy investors to buy out the university and its initial speculative partners. Sure, there’s a veneer of truth about it all–and the faculty entrepreneurs are all the more compelling if they are true believers in the “value” that the university brings to the technology by owning it, patenting it, and kindly licensing it back to the folks who invented it (for an upfront fee, for equity, for milestone payments, for a royalty, for sublicensing fees, for diligence, for taking all risk and indemnifying the university, for paying for infringement actions)–and then being so caring as to put the university’s own money into the company (for more equity, for research funding from the company). For faculty inventors who think this is a pretty peachy arrangement (patents and startups on one’s CV for little out-of-pocket expense, plus a second–or third–source of income), consider that this rentier scheme benefits from recruiting *sincere* folks to stand between the rentier and the mark. One portion of that sincerity is the *manager* and the other is the credulous faculty inventor who believes that this scheme actually works. It sure sounds good–and that, apparently, is enough.

Developing any other approaches to intellectual property management in a university world populated by more beagles than poodles is a daunting task. One purpose of this Research Enterprise forum is to present those alternatives. Some time, some place, poodles will arise again, and chase off the beagles and their speculative friends. Then we might see a renaissance in both research and the development of new technology that benefits more than a few clever speculators.

This entry was posted in Bozonet, History, Policy, Startups, Technology Transfer. Bookmark the permalink.