A sense of proportion–2

University administrators have engaged in a thirty-year effort of research invention management that creates patent gridlock for what amounts to a tiny bit of the overall inventive activity in the country. That’s the black border area on this nice blue circle:


This domestic block fest is particularly the case for federally funded inventions–but keep in mind we are talking about 0.8% of all US patents from 1981 to the present.

The federal government early on in its foray into funding research to advance the frontiers of science and whatnot constrained itself to avoid the concentration of economic power that might arise if only a few companies or regions gained the benefit of federal subsidies–as Vannevar Bush had done during World War 2, contracting with only select companies and universities to get the indicated work down. Instead, the government committed itself to spreading the work around. And in doing so, by design federal funding fragmented where inventorship would arise in its programs for any given field of scientific and technological inquiry. It wasn’t that much of a problem, however, because federal invention policy meant that the government would acquire inventions made under contract other than with companies who had established commercial positions and make those inventions available to all.

Put simply, companies with real business could keep their patents, subject to a government license, and non-profits and contract research organizations that just did research for doing research would treat inventions as contract deliverables, knowing that they would get a non-exclusive license to practice along with everyone else. Another way: the federal government aimed not to disturb the commercial marketplace by its contracting–it wanted companies to participate in a fashion so that no one company obtained a dominant position with regard to others merely for having latched on to a source of government subsidy not available to the rest.

Yet another way: the federal government maintained its commitment not to use the patent system to sue its own citizens for using what they had funded nor to take a financial interest–necessarily then conflicted with regard to regulation and justice–in anyone exploiting patent rights under a government license.

Thus, as long as university research inventions were treated as contract deliverables, available to all via the federal dedication of inventions to the American public, spreading the work around to various universities and regions of the country–research as a form of economic pork rather than for its timely and useful results–was not a big deal because the government in effect made inventors and their employers cooperate in the release of the inventions to all.

In all this meaninglessness, then, you might begin to see the outlines of what happened when university administrators got the idea that if they took ownership of inventions, they could make money for the university through patent licensing. The idea of using patent licensing to fund university research had been around since at least the formation of Research Corporation in 1912. But Research Corporation was a special sort of nonprofit run by industry representatives to assist university inventors to present inventions to industry–the expectation was non-exclusive licensing, with royalties going to the Smithsonian Institution to be used to support research in America.

Then there was the Wisconsin Alumni Research Foundation, formed in 1925 to manage Steenbock’s patents on end-running federal regulations to create Vitamin D in milk and other products through irradiation and thus not “adding” anything. WARF’s model, however, was to use royalty money to speculate on stocks, and thus made most of its money in the stock market, investing royalties from a handful of University of Wisconsin inventions–all voluntarily presented to WARF for management. WARF licensing, while mostly non-exclusive, also ended up getting dinged for antitrust rulings for discriminating in its licensing–such as refusing to permit margarine manufacturers from using the vitamin D technology, thus denying access to the poor who used cheaper margarine rather than expensive butter. The court that determined WARF’s patents on Vitamin D processes were invalid also ruled that denying access to health-directed inventions was against the public interest–a form of patent misuse, if you will.

Many other university administrators created their own affiliated “research foundations” on the models of Research Corporation and WARF, but skipped the industry-directed nature of RC and the stock investing of WARF and thought instead about the money for research to be had from any sort of licensing. Somehow, they fixated on exclusive licensing as the most effective way to make money. The University of California led the way in pioneering the exclusive patent license as the best way to make money for research. Non-exclusive licenses were, in their view, merely a “tax” on industry. They had no conception of a patent as a teaching document, or the transactions necessary to present something new to an industry for adoption. Even with the success of the Cohen-Boyer gene-splicing patents non-exclusive licensing program led by Stanford in the 1980s (for which the University of California was a joint patent owner), the University of California persisted in the idea that licensing non-exclusively was a tax and to license non-exclusively undermined exclusive licensing price points and represented a “race to the bottom” from which, once started, exclusive patent licensing would never recover.

The simplistic idea, then, in the heads of university administrators, came to be to induce university inventors to turn their inventions over to the research foundations for management. Most of these affiliated research foundations then had contracts with Research Corporation or other similar national organizations (e.g., Battelle, Competitive Technologies) to manage these inventions, undertaking the costs of patenting and “marketing,” and splitting any net revenues (such as 60/40) with the universities and their inventors. The foundations used their 40% to expand their services and the number (more) and quality (less) of inventions they could manage. The universities used their 60% to pay a share to inventors and put the rest into administrative funds for research and research infrastructure–more buildings and administrators.

In this setting, the expansion of federal research funding for universities meant that universities had to deal with two systems. A system developed for fifty years that moved inventions from university inventors to management agents–and often to Research Corporation–and a federal system that had emerged in the 1950s and early 1960s as a major funder of university research, displacing university funds, foundation funds, and industry funds. The problem for the university administrators was how to deal with the competing demands of each system. The federal system treated university inventions as deliverables, and everyone got access–either through public domain or through government royalty-free, non-exclusive licensing, often done indifferently without formal tracking or even documents. The foundation system treated university inventions as portents of possible royalty income, if only an invention management agent would take up the patenting and licensing. It did not much matter how the invention management agent made money–all that mattered was that money got made and the university got a share of it to spend on more research and more research administrators. Thus, there would be a “virtuous cycle” (we are still speaking meaninglessly) of research producing patents producing money producing more research and research administrators. Simple as that.

Every federally supported invention, then, represented a lost opportunity to make money for the university, and for university administrators. Thus, the administrative desire to move federally supported inventions into the foundation system of invention agents. Executive branch policy provided for nonprofits to retain ownership of patents made with federal support, but to do so, the federal agency that funded the work had to determine that nonprofit ownership would better meet the public interest than the default of public access without any government financial interest in regulating use. The nonprofit had to make a case that its ownership of patents would be better for the public than the government’s approach.

To get there, university administrators made a number of arguments. One, that they were better positioned to enlist the assistance of inventors in helping companies evaluate and adopt new technology. Two, that inventions that weren’t patented and offered for exclusive license would not be used or developed and the public would therefore not benefit from federally supported research. Three, that the universities could offer exclusive licenses where federal agencies could not or would not or could do so only with tons of delay and bureaucracy and burdensome requirements. Four, that federal agencies had conflicting practices with regard to inventions, along with scores of specialty federal laws, and so created headaches for university administrators when an invention was made with funding from different agencies with different requirements and a university wanted to own the invention and exploit patent rights. Five, federal agencies took too long to determine that a university’s plan for patent exploitation would be better than the federal default, resulting in lost opportunities for university invention management agents to transact exclusive licenses and make money for the universities. Six, universities, by having a financial interest in the exploitation of patents, would be more motivated than federal agencies would be to find exclusive licensees and see that commercial product was created and sold.

Since I warned you that we were talking meaningless stuff here, it is worth pointing out that all of these arguments were and are meaningless. Despite that, they were effective. In 1968, the NIH revived its Institutional Patent Agreement program for nonprofits, creating master agreements under which a participating nonprofit was required to take ownership of each invention made under NIH contract that the nonprofit adminstration decided to patent. The effect of the IPA program, which at its peak had over 70 nonprofits signed up and more begging for their own IPA master agreement, was to allow university administrators to shift federally supported inventions from the federal non-exclusive system to the universities’ invention management agent system, which was largely rigged to license exclusively–find a major company to license to, and insist that the company do the development work necessary to field a commercial product.

But behind it all, the IPA program had another attraction for university administrators. It allowed–no, required–university administrators to take ownership of inventions as a matter of compliance with a federal contract. This requirement exploited a loophole found in nearly every university’s contracting policy that said that the terms of any contract accepted by the university would take precedence over the defaults of university patent policy. Thus, agreeing with the NIH (and later, with the NSF) to an IPA master agreement meant getting to change the university’s patent policy without having to persuade the faculty to accept the change. Since most universities had patent policies that allowed inventors to own their inventions except when specially directed to conduct research for the university or when specially permitted to use significant university resources not otherwise avaible in exchange for a university interest in any inventions. Signing the IPA meant that university administrators, whenever they saw an invention made with NIH funding, could require assignment of the invention to the university.

This was a wonderful result, as it prevented the invention from entering the federal non-exclusive system where the university could not make money from licensing, and it allowed the university to push the invention into its own invention agent management system for patenting and licensing, and especially for exclusive licensing–and it did all this without requiring a change in patent policy approved by the faculty. If a given faculty member did not accept the terms of the IPA, then the faculty member could not receive NIH (or, later, NSF) research funding. Simple as that. If patent policy were to change it would only be to add the factual statement that the IPA required university ownership of inventions made under an IPA agreement whenever the decision was made to seek a patent.

No one apparently bothered to challenge the authority of university administrators to enter into a contract (the IPA master agreement) without the approval of the faculty proposing the research and receiving the funding. The IPA effectively prevented faculty from participating in the terms under which they conducted their research. This was a huge boon to university administrators who wanted to push as many inventions as possible through their invention management system and wanted to prevent as few inventions as possible from going “out the back door” or “sitting on the shelf” or “going to the federal government to be made available to all.”

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