We started an investigation into university IP practice with this question:
Should university management of patents be any different from any other owner of patents?
The answer we found is “yes.” University patents not only should be different–they clearly are different as a consequence of a combination of university policy statements, university contractual obligations, and federal law and regulations.
But judging from what university administrators do, the ideological answer in practice is–no, there’s no difference whatsoever. Any way to make a buck is fine, tempered only by the warm feelings of university administrators and their legal advisors. Federal agency oversight appears to agree–selectively ignoring the law is an acceptable outcome.
What differences there are come are in the reasons university administrators give for doing whatever it is they do with their patents. Instead of “I’m suing for infringement to get a lot of money” or “I’m suppressing use because it’s in my business interest to do so,” university administrators say something like “I’m suing for infringement to protect the public’s investment in research” or “I’m promoting the public good but selfish industry won’t cooperate in taking the exclusive deal I have offered.” Or, in the words of an infringement lawsuit just filed by Harvard against Micron:
Harvard has a long history of benefiting the public through its research programs. Harvard recognizes that the public benefits from new products and processes resulting from discoveries and inventions made by individuals connected with Harvard in the course of their scholarly and research activities. Harvard protects and manages the intellectual property that results from the efforts of its researchers, to the benefit of, among others, the researchers, Harvard, and the public.
Do such moralizing rationalizations mean anything? Any shyster–even ones at Harvard–can make up nice-sounding reasons for what happens. That’s the whole point of being a shyster–cover dirty deeds done dirty cheap with something nice-sounding, and people who react to what gets said rather than to what gets done get firmly anchored in the idea that everything is going well, if not wildly successfully. University patent administrators appear to think that university patents are just like ordinary patents but universities are special patent owners who have a public mandate to sue infringers–not for the money but out of principle, to “protect” the university as a public institution. Such thinking is happily self-serving, but runs against the written obligations that attend to university patent ownership.
Universities do not report the relevant metrics regarding their management of patents. They report activity, effort, intention–but not the status of each property they have taken, nor the outcomes of their ownership positions, nor the net income (if money is the goal), nor the use of that net income (if there even is any). For all their fuss over litigation (and universities have got a bee up their butt to be out suing companies right now), university income from patents is so utterly uninteresting that no university bothers to account for how the money has been spent and how that spending has benefited any part of the public.
If we turn to university patent policies, we find that many contain statements that would appear to require the conclusion that a university cannot do just anything with patents it owns. That by policy there is a difference, and should be a difference. A patent policy that states that patents are to be managed in the public interest is not a statement of fluffy intention, not a rationalization for the policy–but rather is a requirement placed on university administrators delegated with authority to represent the university in patent matters. To be clear: a patent policy statement of public interest is not a premise for the existence of the patent policy, within which university administrators can do anything they want with patents. A patent policy statement of public interest is a limitation on what university administrators can do with the patents they acquire in the name of the university.
The problem–and it is a big one–is just what those policy limitations and delegations of authority are. If there are none, if statements of public interest don’t mean anything, then clearly we are back to the land of shysters, of behaviors without accountability other than money, perhaps. If so, then an accurate university patent policy would state something along the lines of “We recognize no difference in university ownership and control of patents from any other patent owner. The university manages patents to maximize income from its positions by whatever legal means are available to do so.” After that, the policy is a matter of making sure the university gets everything it wants to manage, and that university officials have the delegations of authority to stick it to the man, the little men, and everything else.
But let’s turn the discussion to what should be. Let’s start with the premise that a university’s public statement in policy of public good means something. Thus, when a university patent policy contains a statement of public interest, then that statement matters in practice, not just in theory. For example:
Patentable inventions or discoveries may result from research or educational activities performed by members of the academic community. Northwestern University is committed to disclose and utilize ideas and discoveries for the greatest possible public good; to protect the rights of the University faculty, staff, and student body, as well as those of the institution itself; and to abide by the regulations of agencies providing funds for sponsored programs. (Northwestern University)
(Notice the drafting in multiples: (i) greatest possible public good, (ii) protect rights, and (iii) abide by regulations of agencies; (i) rights of faculty, (ii) staff, (iii) student body, and (iv) institution itself. It’s an open question how to construe the various options–all can’t operate as if they were stated independently–how does the “greatest possible public good” get modified by the “protection of rights” and the “abiding by agency regulations”?)
What is the “greatest possible public good” when it comes to patent management? That’s quite a question–but what help do we get from a patent policy about how to answer these question in practice? Not a lot.
Even if a university patent policy does not contain a statement of public purpose–and the trend appears to be one to remove such statements–other university policies often contain statements that lay out requirements that pertain to purpose, to property, to academic freedom and these statements extend to patents as well. Universities also may contract to commit themselves to courses of action–by employment contract, procurement contract, sponsored research contract, or technology transfer agreement. Additionally, those federal agencies have three key requirements on management of patents acquired by universities based on inventions made with federal support–the property trust relationship (2 CFR 200.316), the Bayh-Dole Act (35 USC 200-212), and the standard patent rights clause authorized by Bayh-Dole (37 CFR 401.14). The combination–the patent policy, broader university statements of policy, contracts, and federal regulations (often conveyed through federal funding agreements)–creates an argument that indeed university patent management must be different from the ordinary opportunities available to any patent owner.
Let’s work through some of the things that should be inappropriate for a university to do with its patents and see what’s left that ought to be promoted by policy delegations of authority and creation of procedure.
A university cannot take ownership of inventions to use patents to prevent use, unless of course, the invention is evil. Evil inventions–weapons of mass destruction, recipes with poison mushrooms, methods for building bridges that will collapse, more effective computer malware–sure, keep those off the market. But what about the rest?
Universities routinely assert that their social role includes the “dissemination of knowledge.” Here’s NCSU:
The University’s mission includes the dissemination of knowledge and technology to the private sector and the development of new and improved products and services, which stimulate further research and promote local, state and national economic development.
If that’s the mission, then using patents to prevent use of knowledge lies outside any delegation of authority in the university. Yes, a patent is a publication of knowledge–but it’s hardly the instrument needed to induce faculty to publish their findings. Publish or perish, and that sort of thing comes into play, for better or worse. It is not the publication aspect of the patent that matters–it is what the patent teaches and what people can do, having read the patent. A dissemination of knowledge or technology “to the private sector” is pointless if “the private sector” cannot use the knowledge or technology. So nonuse is out as a university patent management strategy.
What does this mean? A university cannot use its patent positions to prevent use. But that means, also, that a university cannot set itself to licensing inventions exclusively and failing to find a licensee: the result is that the patent has been used to prevent use. Similarly, a university cannot contract with another to prevent use. A university cannot license or assign a patent to a company who pays money (say) to have the right to prevent all use. A university cannot even threaten to prevent use as leverage to increase the perceived value of a patent. Once a university has acquired a patent, nonuse is not an option.
Here’s the general principle:
A university is never damaged by use of an invention on which it owns a patent.
A university has no standing under its policy burden to sue for infringement of its patents. This is a huge point and one that stumps the conventional wisdom on patents. We will get to how this works, but first take the point–nonuse is not a university patent management option. Not directly, not from threats to prevent use, not in exclusive licenses that permit nonuse, not in assignments, not from incapability to license, not from indifference, not from ineptitude of licensing staff or university attorneys.
This is simple. No trolling. A troll doesn’t practice the underlying invention. The troll uses the patent to extract payments from others who do use the invention, or appear to use the invention. Trolling may be a legitimate activity of an ordinary patent owner (with all the rationalizations for why that one might want), but a university is not an ordinary patent owner and trolling has no policy authority.
If an industry has adopted the use of an invention made within the context of a university and a university owns the patent, then a university has no standing–and no business–suing for infringement or handing the patent to someone who will sue for infringement. There may be reasons for litigation–breach of contract, sale of defective product, false representation, predatory pricing, or other bad business behaviors. Such litigation might legitimately “protect the public” and accomplish “the greatest possible public good.” But not litigation for infringement. This is simply mindblowing for the conventional university patent administrator. “If we can’t sue for infringement, then what’s the point of owning the patent?!!!” And this, too, is a fundamental question that has a good answer consistent with an understanding that a university-owned patent is simply different from the ordinary patent. This is one way.
Here’s another way to put it:
Invention use is university patent management success.
Everything else about a university patent starts with this realization.
So, no trolling, no licensing to trolls, no assignment to trolls, no suing for infringement simply to sue for infringement. For subject inventions, ones made with federal support, there’s an argument that Bayh-Dole’s statement of objectives is exhausted once there is use and a non-practicing patent owner has no legal right to sue to stop use or to shake down users for money. Any money that comes from a university patent license, then, has to be based on something other than permitting use. We will get to this.
A flip is an exclusive license or assignment of title in a patent. Typically a university exclusive license functions as an assignment, but in a document labeled (somewhat deceptively) “exclusive license.” We can start out by making the point that what a university cannot do itself with a patent it cannot flip to another to do. If a university cannot use a patent to suppress use, it cannot flip the patent to another who does so. If a university cannot troll industry, it cannot flip the patent to another who does the trolling on the university’s behalf (or so that the university gets a share of the financial gain).
Essentially, for a university to comply with its own mission statements, policy, contracts, and federal laws and regulations, it must require a public interest covenant that “runs with the patent” in any licensing deal that flips ownership of the patent to another person (or organization). One may construe such a covenant as a form of “equitable servitude”–so that the patent (the property) carries with it promises that can be enforced by anyone with privity in the covenant.
A licensing agreement or assignment can provide the basis for creating a public interest covenant. The licensee or assignee then shares with the patent owner a mutual interest in the patent. Unlike the mere terms of a licensing agreement, however, a covenant that runs with the patent attaches to the ownership of the property, and is not simply a term or condition of a contract. A covenant is a promise that does not require consideration to be enforced. A covenant in the public interest is a promise that any member of the interested public could enforce, even if there was no consideration paid by that member of the public for the promise that had been made. The presence of a covenant that runs with a patent is where to look for evidence that a university patent is not like any ordinary patent. No covenant, and all we have is fluffy statements of public good covering business as usual.
A public interest covenant in a patent must run with any ownership of the patent, for the life of the patent. The covenant must be both affirmative and restrictive. The owner of a patent carrying a public interest covenant must promise to use the invention so that there’s a public benefit on reasonable terms and promise to give notice of the covenant to any successor in interest to the exclusive license agreement or assignment (whether by assignment of the license agreement, exclusive sublicense, or assignment). And the the owner of the patent with a public interest covenant must agree not to troll or to use the patent to suppress use.
For subject inventions (ones made with federal support) owned by universities (and other nonprofits, but not for-profit small companies), the standard patent rights clause must follow any transfer of ownership, whether labeled assignment or exclusive license. “All right, title, and interest” necessarily references the rights that have the “attributes of personal property” under US patent law, and these rights, in turn, are necessarily shaped by the definition of a “subject invention,” which brings the use of the patent system within the public benefit objectives expressly set out in US patent law by the Bayh-Dole Act. A subject invention is not merely one that may be owned by a university regardless of what federal officials might think–it also creates a covenant that runs with the patent regarding beneficial public use of the property right–the patent. The apparatus of Bayh-Dole–the law, the standard patent rights clause, embedded in funding agreements, with a further requirement that certain requirements pass through to technical employees and all requirements pass through to subcontractors and assignees–creates a covenant that runs with patents on subject inventions, not merely a fuster of regulatory clucking.
Federal grants to universities carry an additional requirement, the property trust relationship. If a university acquires or improves a patentable invention (or other intangible property) with federal funds, then the university is required to act as a trustee for the beneficiaries of the research program. This, too, sets up as a covenant that runs with the intangible property. Given that the federal government pays the salaries of those working on the grant, pays for their supplies and equipment, and pays the the university the indirect costs of the facilities involved, if a university policy demands ownership of inventions made in federal grants as a condition of (and in consideration of) employment or use of resources, then the university has used federal funds to acquire ownership. A university does not have to use such methods, but when it does, it triggers the property trust relationship, and must be a trustee, and must include such a restrictive covenant on anyone who subsequently becomes an owner of the patent rights.
The idea of a covenant that runs with a patent is essential to university patent management. Any flip of university patent rights in the public interest must carry with it such a covenant. This covenant makes all the difference between a university acting in the public interest, “for the greatest possible public good,” and a university acting in its own self-interest. A university cannot agree to the standard patent rights clause authorized by Bayh-Dole and then flip a patent on a subject invention without the covenant that runs with subject inventions. A university cannot agree to serve as the trustee on behalf of beneficiaries of a federally supported project and then flip a patent acquired or improved with federal funds without also requiring the new owner of the patent to serve as the trustee. A university cannot make formal statements in policy regarding the public purpose served in acquiring and managing patents and not requiring that same public purpose for those entities subsequently acquiring an ownership interest in the university’s patents via exclusive license or assignment.
What then might a flip of a university-owned patent require? A flip must require as affirmative obligations that the acquiring entity to either make and use the invention (so that the benefits of such use are available to the public on reasonable terms) or make and sell the invention (so that the invention is available to the public at a reasonable price). The covenant must also require the new owner to require these same obligations of any successor in title to the patent, whether by merger or acquisition of the company, sale or assignment of the patent, or exclusive sublicense. The affirmative elements guard against non-use of the invention and ensure that the covenant runs with the patent. A flip must also require, as restrictions, that any owner of the patent will not use the property to suppress the making, having made, and using of the invention, and will not troll industry–that is, while not practicing the invention sue others for practicing the invention. A covenant must make clear that any subsequent owner of a university patent has no standing to bring such litigation.
Now it is clear what sorts of flips are possible once a university acquires ownership of a patent. A university may flip in exchange for making and using with public benefits or making and selling with public benefits, but no owner can use the patent to suppress the making and using of the invention by others. The rights that an owner of a flipped university patent may control are those of selling, offering for sale, and importing. In this sense, then, a university may target a form of “commercialization” with a flip–a new owner may (but does not have to) exclude others from selling product covered by the patent, but only on the condition that the new owner is itself selling such product. Otherwise, the new owner is trolling. Clearly, it is in the new owner’s interest to get a product on the market as quickly as possible.
These are remarkable limitations on the management of university patents, limitations I am sure many university patent administrators find objectionable. And I am also sure these administrators will find lawyers more than happy to concoct arguments against any such restrictions. Lawyers, often, figure that any public policy must come down to a trial of funding and wills, to be decided by a court, or on appeal by another court, or on appeal by yet another court. Even then there are university lawyers known to claim that having lost two or three times on the same issue, the cases are still “wrongly decided” and they ignore those judgments in their subsequent practice.
The better road–the public-spirited road, the defensible road, the road that these days requires courage and foresight and knowledge–is to recognize that university patents indeed are different, do and should carry covenants that run with the patents, and that the university opportunities to make money from such patents is not only limited but also subordinated to public purposes that the university has endorsed and formalized in its policy documents and in its contracts with the federal government, employees, and others.
A university does not acquire a patent so that the university may use the invention while excluding all others from such use. To do so would indicate that the university intends to compete not only with all other universities but also to deny the broader public access to the invention for their use. Certainly if the invention is evil (weapon of mass destruction, say) there’s no point in the university working itself up to practice the invention. Even if the purpose of the university’s desire to exclude others is to compete on matters of research, such suppression of research by others runs against the university’s public claims regarding the dissemination of knowledge and transfer of technology. Such suppression also would violate one or more of the stated objectives of the Bayh-Dole Act, especially “to promote free competition and enterprise without unduly encumbering future research and discovery.” Excluding all others from research on the invention or research conducted with the invention would surely be an undue encumbrance of future research and discovery. Thus, a university cannot generally exploit a patent position to make and use an invention only for its own benefit while suppressing all other uses of the invention.
While universities are not generally set up to manufacture and sell product based on a patent position, it can happen–for instance, in the case of a cell line or software package with patented elements. A university can manage such things, and might even use a patent to prevent others from selling their own versions of the cell line or software. Such use of a patent might even make sense and be appropriate, where the university is meeting the demand, has developed a workable product, and makes it available on reasonable terms. Thus, it is entirely possible for a university to make and sell product and exclude others from selling equivalent product. Even here, the university must not prevent others from making and using the claimed invention. The issue of exclusion concerns only matters of “commercialization,” not making and using the invention, even in for-profit settings.
The nice thing about allowing broad use of an invention is that it creates a natural form of price control. A university cannot generally sell at a price higher than what an organization might spend to make the invention for itself. That is, the university cannot use its monopoly to charge whatever amount desperate folk might be willing to pay–not even “highest bidders” (mostly in the form of speculators). The price ceiling is what one is willing to pay for the convenience of having something in an established form rather than making it for oneself. And that is, generally, the condition of most retail pricing of commodities. If one is willing to pay $1.69 a pound for apples, he goes to a store. If one wants to grow one’s own apples, she plants a seed. The retailer of apples might dream of having the power to destroy all apple trees not owned by him or his suppliers of apples, but it is not a dream that public policy based on liberty endorses.
Thus, a university cannot use a claimed invention and use its patent position to suppress all other users of a claimed invention, nor can it license or assign the patent on that invention to another for the purpose of use while suppressing all other users (except, perhaps, the university itself). One might suppress sales, but not uses. Use, to repeat, is success. Sales are different.
A university may choose to use its patent position to suppress sales by others to the advantage of its own sales, and it may license its patent to another to do the same. There are two primary methods. In a sole license, the university continues its sales program, but permits another organization to have the only license to do the same. The university version of the product might be more attractive to research personnel, and the licensed version might be more attractive to consumers who prefer to have warranties, return policies, customer service after the sale, and the like. In an exclusive license or assignment, the university gives up its right to sell and relies on the affirmative obligation of the new owner of the patent to sell product incorporating the invention. The key in such arrangements is that the license is not exclusive with regard to making and using the claimed invention or if the transaction is an assignment, the assignment carries with it a covenant that runs with the patent and prevents the new owner from suppressing the making and using of the claimed invention by all others.
Even where making and using of a university’s claimed invention is permitted, a university should also consider the strategy reflected in the old Institutional Patent Agreement requirement that exclusive licenses become non-exclusive three years from the date of first commercial sale or eight years from the effective date of the exclusive license, whichever comes first. Such a requirement provides incentives for a new owner of rights in a patent to get on with it and sell product, recognizing that it has a limited time in which to establish its presence in the market, attach goodwill to its brand, and develop its customer base.
When a university licenses a patent exclusively, it in effect issues its own university version of a patent. The university version of a patent, however, carries with it specific public purposes not necessarily required of patent owners by federal patent law. The university-issued patent plays a distinctive role, engaging development and sales of product, but not necessarily for the life of the federal monopoly, and not to the exclusion of all other users of the invention. Commercialization, for a university, does not mean the provision of a product while preventing anyone from creating their own (the equivalent of destroying all privately owned apple trees). Rather, commercialization means supplying a product in commodity form for those who don’t want to make their own for their own use. Commercialization rides atop of use, and often comes about because of such use, and even though commercialization may compete with personal development and use (or such use local to a company), the covenant running with a university patent does not disrupt this competition by suppressing local use. “Free” competition, as Bayh-Dole puts it, is and ought to be the objective.
The share mode of university patent management is the most challenging. When people hear “share,” they likely think we are talking fluffiness and feel-good, which translates into indifference and getting played for the weak fool by business interests. University patent administrators don’t much care for sharing. They hate the idea of non-exclusive licenses, and they are mystified about how they are going to make money on a patent if they must share with everyone. I spent nearly two decades in university technology transfer working out how to share IP, make money on doing so when appropriate, and in general focusing on university public mission goals rather than playing the usual fussy monopolist wearing a public cloak. What I write here comes from experience, not some blue sky hope for the future (though I have some hope for the future, too, or I wouldn’t be writing).
Not all forms of sharing patents have been met with approval. For a time in the first half of the twentieth century, especially, patents were used by corporations to create pools that dominated an industry. Schemes were created for cross-licensing, for price-fixing, for barriers to entry, to gain access to competitors’ technology, and to create a fund to be used to sue anyone who attempted to escape the pooling requirements or operate outside them. It took the courts a while to sort out anti-trust, anti-competitive patent pools from standards and other approaches to sharing that did benefit an industry as well as the public served by the industry.
Universities share patent rights to allow broad access to inventions, to pre-empt fragmentation of ownership claims across universities, to encourage collaborative development, to participate in standards formation, to allow companies obtaining licenses to university patents to convey the technology to others, and to develop around a new technology many relationships rather than just one. Universities also may share patent rights because they have policies that commit them to doing so, even if a clever university administrator sees an opportunity to make a quick buck by threatening not to share, or flipping a patent to a speculator all the while wallowing in bubbly but silly words about serving the public interest. Finally, universities may share patent rights to shift the value of their work from formal IP positions (such as patents and copyrights) to NIPIA–non-IP intangible assets, which also may have great value and benefit the university.
Universities, despite the standard line from patent administrators, share invention rights all the time. The typical method of doing so involves sponsored research agreements. A university’s sponsored projects office routinely will use a template research agreement that assures the sponsor of a royalty-free non-exclusive license in any inventions made in the funded research project. For federal funding, the requirement for non-exclusive government rights comes from the standard patent rights clause authorized by Bayh-Dole. Non-exclusive licensing is sharing–the university patent owner agrees not to sue others (the licensing part) while not giving up the ownership of the patent.
If one thinks of a university as an association of people under a common management, then university ownership of a patent means that all those people may practice the invention claimed by the patent while at the university–the university won’t sue itself for infringement. Similarly, if a university makes its patent position available to a broader community than just university faculty, students, employees, and visitors, then one might think that the university has expanded its idea of the university community rather than thinking that the university has given up on the value of holding a monopoly position against the interests of all those others. The share mode of patent administration is a means to expand the community of the university by sharing a benefit, teaching new technology, offering assistance, and building goodwill. Sharing in this way is utterly unlike suppressing or threatening to suppress use of new technology and expanding the reach of the university as a legally empowered monopolist.
The foundation of university sharing of patent rights is the make-use commons. Use of an invention by others is the standard of success for a university technology transfer program. Not the number of licenses, not the amount of royalties, not the cost recovery of patents, not the number of startups. If an invention isn’t used, then the rest is rot. If an invention is not used, then no technology was “transferred.” If an invention is not used, then whatever value the patent had, it wasn’t concerned with use so much as with speculation about use. The difference is the one between playing football and betting on how others play football. It’s a fine line, but one that’s not too difficult to discern if one has any rudimentary smarts.
A make-use commons forms when a university permits anyone to make, have made, and use a claimed invention. A university may create such a commons by including in policy a commitment never to sue for infringement of a university patent’s make, have made, and use rights–there must be some other compelling public purpose that accompanies the infringement, such as abuse of the technology or use of the technology for nefarious purposes. The policy constrains university administrators and their legal advisors–and that’s a start at building out how university patents aren’t like ordinary patents. It’s not that university patents should be litigated even more strictly for moralizing reasons
In addition to a policy of non-assertion of certain rights, a university might also grant a royalty-free non-exclusive license to anyone who makes and uses a claimed invention covered by a university patent. The grant of such a license is contingent on the acceptance of the grant. And this brings up an important point. In the relationship between a university patent owner and the user of a patented invention, it is the user that needs a formal document confirming the grant, not the university. The grant of make-use rights may be as simple as a statement identifying the patent right, stating what rights are granted, and disclaiming any warranty or liability for use made of the invention. If a company wanted their name included and a signature from a university authorized representative, that would require an additional step.
A structured make-use commons can involve a more sophisticated relationship between users and the university, and indirectly as well among the various users. One such structured make-use commons is based on the Apache open source software license, which deals with both copyright and patent rights. In an Apache-style arrangement, each user is granted a license in the patent rights of other users to use and develop the software code, on the condition that the user does not assert any of its patent rights against any other users of the software code. The result is a mutual covenant not to assert patent rights against other co-developers or co-users, even if other claims of any given patent might be enforced for other applications or against non-users of the code (such as someone writing an independent code that was functionally equivalent but did not start with an Apache-licensed code base).
Such an approach is readily adapted to a situation in which the invention is other than an algorithm expressed in software code. Algorithms may be as well embedded in electrical or optical circuits or in chemical or biochemical processes. Systems can be based in software or in physical steps or in hardware architectures. Prototypes may be code or material objects or detailed plans for material objects (as in the case of something too big or complicated or expensive to build in university lab). IBM and others implemented such a commons around environmental technologies–the Eco-Patent Commons (which announced recently it was ending operations after eight years).
In either unstructured or structured make-use commons, the point is to encourage platform building–contributing to a library of tools and techniques, building on a common base of technology, enabling interoperable functions. A commons itself becomes a valuable intangible asset, even if it cannot be any one organization’s property.
A second form of structured make-use commons involves the idea of registration. If a university permits (by a covenant of non-assertion, say) anyone to make and use under a patent on a claimed invention, then there is no record of who is indeed operating in reliance on that covenant. If a university wants to document the use of a patented invention, then it can implement a registration component. At the simplest, a registered user can obtain a formal confirmation of the license–useful to mitigate uncertainties of practice. But there’s more that can be placed within a commons registration:
- Updates to the technology
- Access to the inventors and developers
- Invitations to workshops and briefings
- Assistance with implementation
- Input into university development
- Escrow of the technology so it is never bought out by a competitor
- Visibility within the project and association with university
- Neutral forum in which to communicate with competitors
- An option to sell product based on the university-owned patent(s)
- Right to sublicense common rights
A structured commons can also add benefits available through affiliates programs, such as free campus parking permits, library privileges, access to students looking for internships and jobs.
A commons registration need not be free of charge. Unlike a license to use, for which people might raise objections, people expect a university to charge tuition, recognize that membership in a program may require a budget that has to come from somewhere, and can figure out that whatever they contribute to the commons has a return that is a multiple of all the others who also contribute to the commons.
In conventional university patent management thinking, an administrator has to find a single company willing to pay the patenting costs, upfront fees, a royalty on sales, front the insurance costs naming the university as a co-insured, as well as to allocate all the costs of development of commercial product based on the invention and deal with the potential for university audits and uncertainties over the interpretation of the contract, possible breaches and their consequences, and even the process by which the license contract may be transferred as part of the sale of all or part of the company. Consider how such a license generates $1m for the university. If the deal is for a 5% royalty on sales, then sales have to reach $20m for the university to receive $1m. Let’s say the university shares 1/3 of royalties with the inventor(s)–then sales have to be $60m. To go after a million dollar exclusive license, a university patent administrator has to see $60m in sales in any given patent. Sure, there are markets with sales orders of magnitudes greater than $60m–but what is the likelihood that one’s patent will get one there. Of course, if the negotiated royalty rate is more like 2%, then the total sales will have triple to $180m or so. The time to create a commercial product is often more than three years, and for biotech much longer–more like ten years–often with a low chance of success. That million dollars is years away, if ever.
Now consider the patent management thinking in a share approach. Rather than thinking about future sales of a commercial product that may never be, a manager asks how many companies would want to be taught how to use a new technology. If 50 companies have an interest, and are willing to pay $5k a year for four years of registration to a project, there’s $1m of income. Are there 50 people in companies that want to learn how the invention works, get help implementing the invention, have access to updates, and walk away with a confirming written license to the patent with an option to sell? That’s a different question entirely than one asking whether there’s a single company willing to pay out a 5% royalty on sales (plus other obligations) in exchange for an exclusive license. In one of our biggest programs, we had 200 company sites (a small company or single geographic location or integrated work group constituted a site) ready to pay $4k a year to be a member of a commons–about $800k a year, created around sharing. Much of the income was put back into the development work. Each company saw a return on their investment of better than 100 to 1. These are figures that get people’s attention–except for university patent administrators fixated on exclusive licensing without public interest covenants that run with the patents.
Non-exclusive licenses, so the conventional dismissive thinking goes, are “just a tax” on industry. But in share mode, non-exclusive licenses are not even priced. They cannot be a tax. What is priced is the effort in the relationship that provides things of value to a company–updates, assistance, confirming documentation, seat at the table, visibility, neutral forum, 100 to 1 return on investment, access to students to hire at graduation or before. Most of these assets are NIPIA–intangible assets that aren’t the IP, the patent rights. This result consternates the conventional university patent administrator, who has come to believe that the effort must result in income based on the patent right, not based on services or NIPIA.
Here, then, is another use for intellectual property acquired by a university: use IP to create value in non-IP, in NIPIA. NIPIA includes network effects such as
- critical mass
- marketing channel
- qualified leads
- repeat business
- strength of weak ties
- referral of opportunity
- standards development
These intangible assets are mostly the roaring of great waters to the conventional university patent administrator. They are trained to extract inventions from such a swirl of confusion, set title to patent rights, and then find a buyer (they use the term “licensee”) for those rights. Theirs is an extraction industry, separating an invention from its context, from its laboratory, from its early audience of collaborators, competitors, users. Sharing is an inclusion industry–gain relationships, gain friends, gain opportunity.
Here is a way to think about the differences between the exclusive licensing mindset and the sharing mode mindset. A conventional university view of the value of a patent license is that the value is distributed over the exclusive rights granted (i.e., assigned, often), less the value of the rights reserved by the university or licensed only non-exclusively. Thus,
Flip Value = Reserved Rights + Exclusively Licensed Rights
To gain the maximum value for a given exclusive license, a conventional university patent manager aims to make reserved rights as small in scope as possible. Thus, often a university reserves only the right for its own “educational and research noncommercial use.” That’s because conventional university patent managers, committed as they are to maximizing the value from the grant of an exclusive license, see no way to create income from the rights they reserve. So they don’t think to reserve broader rights, such as making the right to make and use the claimed invention a general public right and part of the covenant that runs with the patent. Even more so, they could not imagine then releasing the reserved rights royalty-free and upfront as a way to make money. It runs against their training, their conditioning, their preferred blinders.
In a share mode, value is created as a function of the “reserved rights”–the value comes as a result of an expanding commons based on use. Use, one might say, creates value and opportunity. It’s just that one has to be prepared to realize the value and opportunity in ways other than consideration for a patent license, even when one has a patent and could hold it for a monopoly opportunity that might come but in most cases never does.
Share Value = Use + NIPIA arising from use + licensed sell rights
In share mode, use costs are kept to a minimum (and so use income is also kept low) and value is transferred to NIPIA arising from use–requests for help, instruction, delivery of prototypes or technical information, desire to meet other users, participation in common development. The NIPIA value can be connected with a confirming license, but the value also may come in based on registration, membership, subscription, or participation. The key idea is to use IP rights to create opportunities for relationship, and through relationships convey benefits consistent with a university’s commitment to public service. In return, in various ways, those receiving benefits help with the costs–paying membership fees, paying for instruction, buying research and development services, donating money, equipment, ideas, technology, and referring opportunities. Based on this conversion of IP to NIPIA, one sets up opportunities to manage the sell rights under university patents. And that’s where one might make some money with one or more companies willing to share the opportunity to sell product under license. The opportunity to sell comes from use transformed into NIPIA. “Commercialization” passes through a commons of use and intangible assets arising from use.
So what have we got to? Universities cannot use their patent positions to support nonuse of the claimed inventions. They cannot use their patent positions to support trolling of industry to suppress or penalize use. Universities cannot exclude all other use to create a monopoly for their own use of a patented invention. Any of these practices is available to an ordinary patent owner, but not to a university patent owner.
Universities must accept limitations on the exploitation of their patents, and must expect to receive less money in exchange for licenses to these patents–if only because they refuse to take money for practices that are inconsistent with their public missions. It is by these practices that a university demonstrates what it means by managing patents for the “greatest possible public good” and other such aspirations.
Universities must include public interest covenants that run with the patents–both as a consequence of federal regulations (for federally supported inventions), and stemming from their own commitments and formal policies (for federally supported inventions and all others). Universities should thus not flip a patent, whether by assignment or exclusive license, without including such public interest covenants.
For their own licensing, universities should adopt the share approach, and use their patent positions to create non-IP intangible assets (NIPIA), and use NIPIA to accomplish their public mission and to make money. Exclusive patent licensing should be limited to the sell right, and then for limited times, such as three years from first commercial sale or eight years from the effective date of the license, whichever comes soonest.
If no-one could possibly use a patented invention without first engaging in extensive development, then a university might, after consulting with industry and other universities, declare exceptional circumstances and grant an exclusive license without a make-use commons–but even then, if no one could possibly use the invention without lots of development, what does it hurt to keep the make-use commons in place, must in case the university’s administrators are wrong?
University administrators must recognize that people pay universities in research enterprise settings because they want to pay, and they willingly pay for what has value. The university’s focus should be on creating that value, which often lies in NIPIA, in network effects, in services, and not in patent rights exploited to create a speculator’s monopoly.
To make this alternative approach work, universities must restore voluntary assignment of patent rights, and allow inventors to work with external invention management agents for inventions better matched to an agent’s approach–and even then, some university covenants may run with the patents if made with university support or in sponsored research.
The program I have outlined reduces university costs and the complexity of managing patents, including issues of background rights and improvements, double licensing, compliance with terms of research contracts and federal patent rights clauses. This program also has the prospect of restoring university patent management to a distinctive role in national research enterprise. That role involves filling the public domain with new technology available for use, using patent rights to focus attention first on use, then on network effect values, and finally then on prospects for selling commodity products based on the use of patented inventions. The present dominant approach to university patent management takes value at the expense of university relationships with industry–and with other universities, and with the international research community. The approach I outline here recognizes that university patents are different, that their use is constrained by policy, contract, and federal regulation, and that universities can again play an important role in supporting research enterprise, economic development, and innovation–and even make good money at it, if making good money is what they most need.