Institutional Patent Licensing–One of the least “direct” ways to obtain new technology

A few weeks ago I was involved in a discussion about how a region might import new technology developed at distant universities. One of the participants, with a background in AUTM-style technology transfer, made the off-hand comment that if we wanted to acquire technology, licenses were “the most direct way” to do it. I’ve been thinking about that comment. On the face of it, one might think it makes a lot of sense. But the more I thought about it, the more it bothered me. I could think of many more “direct” ways to acquire new technology and not a lot of less “direct” ways.


A really direct way is to be given a new technology. “Here, have at it.” That’s much more direct than licensing patents. Or read an article that describes clearly how to use it, and then just use it. Or work with someone who knows the technology cold and teaches it to you. “Here, let me show you.” That’s direct. Even adding, “If you want to use what I’ve showed you how to do, I’ll send you a note confirming that I’ve given you permission to do whatever you want. Will that work?” is more direct than licensing–even if that permission is something like a license.

Technology in the public domain may be acquired more directly than technology that comes with proprietary claims. Technology acquired under a formal standard may be more directly obtained than technology one has to custom negotiate for. Technology acquired via an open source license, same thing–at least the license is standard and there’s no negotiation necessary, and the primary limitation is not to be a jerk with IP that would block the use of the shared technology.

Otherwise, if a technology is proprietary, then purchasing it is more direct than licensing it. With a purchase, you are free of someone else riding on your back, sticking their fingers in your eyes from time to time. A purchase is more direct. If not that, then designing around a proprietary technology is more direct, actually. You end up with something you control, and something that might block the development of that proprietary technology in a direction that matters, and you may have a better technology for all that. Rather than working for some IP owner (and probably with some sort of grant-back clause on improvements), you work for yourself and obsolesce the IP that blocked you. Or, if you find you still need that IP, if you have improvements with blocking IP of your own, then you can cross license–a simple exchange without the bother of being in a dependent position going into a negotiation. Negotiation between peers is more direct than begging an IP owner for a license.

In short, almost any way of acquiring a new technology is more direct than licensing. For that matter, not asking and just using a new technology is more direct than licensing it. Yeah, infringe–more directly, don’t go check for patents. Just use it. If the patent owner is diligent and wants to come after you, then settle up then. Likely they’ll fire a shot across your bow first, identifying the technology and suggesting you need to stop or take a license. Then you can size up whether you are actually within their claims, or whether you should settle up. The downside is the bother of stopping what you are doing, if only to deal with paying a parasitic owner of a privilege. The upside is that you might get away with it (more direct by far!). In this context, even challenging the validity of a patent may end up being more direct than licensing. Hit them with a re-examination request. They’ll have to spend money dealing with that, at little expense for you. Or wait for them to threaten to sue and then hit them with a request to declare their patent invalid–patent misuse, fraud on the patent office, prior art–whatever it takes. Sure, that takes more bother–a lot more bother–and that may seem less “direct.” But if the patent *is* invalid or the licensing terms are draconic, then the direct route suggests fighting rather than paying a tribute that’s not fair or legal. In this sense, it is less “direct” to get a job by becoming a slave than by fighting for your freedom and finding a livelihood without masters.

What’s less direct than licensing? I suppose obtaining a technology on horrible license terms, or obtaining rights to a technology but not getting good help in learning how to implement and use the technology. Or getting access to the technology but not being told about background rights or improvements or even better ways to do something, any or all of which the technology owner has held back from telling you (you know, like UCLA cleverly did to screw Medivation). If “direct” means “in the best possible way for the transfer of the technology to a new user,” then almost any way is more “direct” than licensing. Even if “direct” means “with the least amount of effort,” then any of the gifting, open, and purchase methods are better.

Here’s the deal. The owner of IP decides the degree of difficulty in how others gain access to that IP. An owner of IP doesn’t have to give anyone else access. For some, that’s the whole point of IP–to exclude others, to your advantage and their envy and failure. Even patenting, which in the U.S. has as its public policy basis the publication of an invention so that others with ordinary skill can practice the invention without undue effort, an owner of an invention can make the patent application sufficiently obtuse that a plurality of readers of said application may encounter adverse interpretative conditions obtaining in the specification of said invention, including but not limited to the statement of the best mode by which the invention may be practiced known to the inventors at the time of said application, absent assistance from technical expertise already having become acquainted with the details of the inventive subject matter or a functional equivalent thereto. Ahem.

The owner of IP, in contemplating a license, can make the negotiation difficult or easy–direct or less direct. The easiest negotiation is the one that’s without conditions: “use our technology as you wish–here, we’ll even help you.” The next easiest is one that only involves payment: “pay a nominal fee that everyone pays and go away and do what you will.” Things get less direct from there–make the payment a percentage of sales, make the definition of “sales” all technical (gross receipts less allowable costs–but is it receipts or is it what’s due regardless of whether it has been received?), break the deal structure into upfront payments, milestones, equity, patenting reimbursements, half the cost of any litigation, indemnification, oh, and a running royalty on sales and an added penalty if any audit finds a royalty miscalculation greater than 10% or for late payment. Do the same thing for scope of license, conditions of use, reporting, sublicensing, venue and governing law, arbitration, and the like, and an IP owner can make a negotiation into a nightmare.

Throw in poorly experienced legal counsel (at many universities), lousy drafting and inept negotiators, and there’s nothing much “direct” about the transaction. Add in institutional conservatism (thus, a template agreement full of licensor self-interest and setting up future litigation against the licensee, and full of dink-fail details only an institution would think of that imply that the licensee’s primary motivation will be to find a way to slip the license or otherwise limit its exposure to payment).

Not done. Throw in as well an owner of IP being fixated on preserving the monopoly of the patent, so any license must be exclusive until it’s apparent that the invention is not all that interesting–so to acquire the technology, you also have to agree to “commercialize” it–to turn it into a product and sell that product, or risk not having the license. What if you merely want to use the technology? Or use it and share improvements with others to create a commons that grows the market and the industry? Ah, but the diligence requirements of the IP owner’s license will prevent such a thing–payment for sublicenses will reflect the “value” of each sublicense even if the licensee gives away rights. And the like. How is such dealing “direct” at all?

It’s not even true that offering exclusive licenses is the most “direct” way for a university IP owner to realize a financial return on its inventions. There are instances of big payouts, to be sure. But there are also big payouts from inventors and companies that have obtained technology without a license but have chosen to acknowledge the contributions of the university. In such a case, the university may decline to demand an ownership position in an invention, allowing the inventor (or inventors) to deal directly–there’s that word direct again–with a company and not pass their ownership through the institution to be borged up into a patent license. One might argue it is more direct to deal directly with inventors on any patent transaction than to deal with an institutional borg. And it is more direct to deal with an agent working for the inventors than to deal with an institution working for itself, having divorced the invention from its inventors. And it is more direct to hire the inventors directly and have them design around their past invention and break it than to deal with an institution pursuing its best self interest (and typically moralizing about it all the while).

“I have been required to assign my invention rights to my university” are among the saddest words a university inventor can speak. In that meaning are subtexts: “my invention is not worth enough to me to quit to develop it” and “I have such a weak position in the university that I am unwilling to contest their policy claims” and “I am indifferent to the outcome of the patenting work so long as I get more funding for research” and “I don’t value my own inventive work enough to make arrangements upfront with the university to ensure they don’t screw things up.” Or, “the process of technology transfer established by university policy is the best possible way to develop my invention for public use, and even if it isn’t, it is better to follow policy for the sake of conformity than to follow any better path–say, one that is more direct–for making my invention available.” Sad subtexts for sad words.

Institutional control combined with exclusive licensing is what advocates of Bayh-Dole identify as favored by public policy, though it is the near worst possible form of making research inventions available for public use. All this was known clearly as early as the Harbridge House report in 1968–contractors owning patent rights but with no prior experience in the technology were 25% as effective as contractors who owned and did have prior experience. The IPA figures for university efforts to license federally supported inventions were roughly the same (just a bit lower). It didn’t matter. Bayh-Dole exists to give pharmaceutical companies an end-run around public policy in the matter of drug discovery. Federal patent policy, to the pharmas and to patent brokers alike, was like declaring vast swaths of organic chemistry to be a national park when the pharma companies were happily in the middle of a gold rush, intent on staking claims to most everything and then mining those claims at leisure for whatever they chose (thus, UCLA’s patents claim over 160 distinct compounds, but only one becomes Xtandi–the rest are waste, like mine tailings, not to be reworked or used for two decades).

The Bayh-Dole workaround said that organic chemistry could be a national park (as it were), so long as patent brokers could fence off whatever parts of it that any pharmaceutical company wanted exclusive control of–or any biotech company hoping to be bought out by a pharmaceutical company (or become a pharmaceutical company)–or any speculators hoping to create a startup company to be acquired by a biotech company, etc.)–or any state economic development fund would fund further research on hoping to create a regional startup company, etc.–or just on the fuzzy general hope that someday any one of these possibilities might happen, even if unlikely, because it would be a wonderful, always positive social good if any one of these possibilities were to happen, and in its way enclosing the best parts just in case is a way of showing the public how badly the university wants these parts to be acquired by someone, anyone, with money rather than to allow these parts to be used by just anyone, you know, “directly” without the need for a license, negotiation, payment, diligence, and the like.

In my university IP practice, we had a few expressions–“Don’t use the ‘L’ word” and “License = metastasis” and “Metastasis is an ugly word–and so is license.” The last thing we wanted to do was license a technology–teach people, assist them, help them become members, or subscribers, or purchasers, give them access, sign them up for a workshop. Give permission, approve, allow, enable, deliver, explain, encourage. Yeah, technically there was often a “license” involved, but the goal was not to lead with IP, was to find forms of transaction more direct than bare naked IP licensing. Embed the IP in the things that people really wanted–only speculators only wanted the patent rights. Most everyone other than speculators wants to use and develop technology. And most of them are willing to support the lab and inventors that help them do this.

Thus institutionally controlled patents offered primarily for exclusive license are among the least direct, least desirable, least workable of all possible ways that a new technology might be transferred from lab to industry.

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