Harbridge House on university exclusive licensing, 2

There’s one more thing raised by the Harbridge House report–the metrics on those patent development firms.

Patent applications are filed on approximately 10 to 15 percent of the disclosures submitted and, if present circumstances continue, only one-quarter of these patents will ever be licensed.

In this approach, patent development firms were highly selective. Most university inventions were rejected for management. That meant those inventions were published and entered the public domain or were acquired by the federal government and made available through “dedication or licensing”–open access, without a patent or with. Thus, most results were not constrained by patent monopoly withholdings. By contrast, universities now report filing patent applications on about half of the reported inventions, and licensing rates are 20% at the best of university licensing offices.

It should be pointed out that licensing has little to do with eventual use of an invention. If an invention is licensed exclusively–so that it may be “developed” by a single organization–that invention is necessarily unavailable to anyone else for adoption, research, in-house use, or commercial use. The use is suppressed. If of course no one could ever use the invention without “development,” then there’s no particular reason for exclusivity anyway. The IP that will exclude others will be generated in that “development” work. And if “development” does not involve anything else inventive, then one might wonder exactly what all the big bucks are spent on. Other than expensive clinical trials–themselves a result of government regulation–what other areas of commercial activity are there in which “development” of an invention that otherwise cannot be used at all does not result in additional inventive activity?

Just because an invention is licensed does not mean the development activity will be successful. Often it fails. Universities deal with this sort of thing by getting upfront fees, annual license maintenance fees, and milestone achievement fees. These payments front-load royalties and provide income even if there is no product. The effect is both to pass the interest in success of development to the licensee and to relieve the licensee of any liability if it fails to create a successful commercial product. All this gets wrapped up in a blab called “high risk, high return.” When the licensee is a startup, universities hedge their bets even more by taking a financial interest in the company’s equity. Then it does not matter if the licensed invention is ever developed–what matters is whether the licensee becomes more valuable through any means, even unrelated new products or being bought out in a raid on skilled employees or to remove it from a competitive pathway.

According to the invention narrative in the Harbridge House report,

A university invention, on the other hand, is a one-shot patent., Even if the patent specification discloses an ingenious invention, the patent claims which define the scope of the monopoly are likely to be narrowly drawn. Whereas industry will add to its patent arsenal as a product is improved, a university patent, if it is to be licensed at all, must be licensed on the initial effort.

Another generic account that in my experience in university licensing does not fit the facts, if it were ever true. Patent counsel for universities tend to draw broad claims, not narrow ones. There could be multiple applications, methods of implementation, variations on compounds and processes and the like. The idea of a “one-shot” patent is itself a licensing narrative that lacks substance. Yes–that is exactly what university licensing administrators tell themselves and everyone else. It is the standard narrative. Repetition does not make truth, it makes blinders.

If industry as it develops a product adds patents, then industry as it takes up any given university-generated invention can be expected to add its own patents as well. No? We are working generically here because that’s the form of argument that Harbridge House presents, repeating its university survey respondents. If industry expects to pack any invention with improvement patents, then the university-licensed invention is unlikely to have anything to do with the exclusive position of any eventual product. 

What value then does that patent exclusivity have? To the university, it is a matter of administrative convenience. The university gets a greater payment for an exclusive license than for a non-exclusive license, and does not have to continue to promote the invention, once it is bound up with a “commercialization partner.” The exclusive licensee then is free of competition for development and also free of competition in the form of direct local use, product free, of the invention. The effect of the exclusive license is to prevent other companies from exploring any part of the claimed invention that the company has licensed. This is very different from gaining relief from “free riders” waiting for the company to move through expensive development and then copy the resulting product at low cost, underselling the first company and making the recovery of development funds more difficult. This free-rider scenario is possible only if development does not involve anything inventive or regulatory. If development requires some non-obvious figuring out, then there will be more inventive work, and the developer will establish new patent rights. Those will be the rights that free-riders will have to deal with.

There is a somewhat natural progression involving patent rights that the exclusive licensee wants to avoid. If everyone has access, and everyone works on development, then everyone develops additional patent rights in each of their bits of improvement and variation. Look at early aircraft development or more recently carbon nanotubes. If this development takes place in industry, then the companies involved recognize that there will be gridlock and so work out ways to cross-license or create standards, so that everyone can get on with commercial activity without beating each other up over patents. I’ve heard of one situation in which companies with so little interest in patents that to cross license, they weighed their stacks of patents, negotiating then over the type size, margins, and the weight of the paper on which the patents are printed. They don’t bother reading or claims analysis.

However, if nonprofits do this patent fragmentation in early development, they do not cross-license or form standards. They each hold out for their exclusive license, and the terms of those exclusive licenses poisons the licensee’s ability to contributed licensed inventions to a standard or a cross-license. Any such use of a university-licensed invention will require a financial payment. The proper university response should be the non-exclusive license–that is the form of cross licensing or standard between nonprofit organizations. But it doesn’t happen. The result is that no one in industry can gain access to all the patent rights they need–and they need only non-exclusive rights. Universities don’t offer non-exclusive rights (unless they are forced to, such as in NSF cooperative research centers) and universities once they have licensed exclusively have no other rights to offer.

When universities or federal agencies adopt exclusive licensing as the default position, they poison their invention management programs. First, they deny access to researchers, early adopters, and visionaries at a crucial point when these people have an interest–and that opportunity, once lost, is rarely recoverable. Creating a patent paywall and considering only exclusive licenses destroys that early interest in use and development, creating a need for some other form of “marketing” to other “developers.”

By seeking “commercialization” development ahead of other uses, universities and federal agencies refuse to break up patent rights to permit local implementations that do not have any need to wait for a commercial, mass-produced product version. A university or federal agency could license the rights to make and use non-exclusively, even royalty-free, and hold back only the right to sell in commercial product form. But they don’t. To allow making and using would undermine–to their way of thinking–the prospects for an exclusive deal. They would not attract the most speculative, competition-averse companies. In real practice, a growing user community lays the foundation for commercial product development, as the 3d printing industry demonstrates. University and federal agency default exclusive licensing practice suppresses these user communities and thus suppresses a normal, workable route to industry adoption and commercial products.

And in seeking exclusivity, universities and federal agencies do not restrict the scope of licenses to only those parts of an invention that the licensee timely works–develops as a product. Nor do they limit the term of exclusivity in the parts not worked. Thus, if a patent on a class of compounds specifies a hundred compound variations and fifty applications and an exclusive licensee chooses one compound and two applications, our licensing friends do not terminate the exclusivity on the other 98 compounds and 48 applications. This is scorched earth licensing–the licensee not only gets the advantage of the patent monopoly in the market that the licensee exploits, the licensee also suppresses anyone else working the same invention for other alternatives and applications. That’s reprehensible, its way–not that a licensee would take what’s on offer, but that universities and federal agencies would offer such a deal in the first place. There’s no necessary reason to do so, other than that it is convenient and all a licensee needs to say to get it is that they won’t invest in development otherwise.

Each of these poisons of a default exclusive license approach destroys the value of inventing in research as a publicly supported effort. Denying early adopters access. Suppressing user communities. Failing to limit the scope and term of exclusivity. Pandering to speculative monopolists rather than looking more widely in industry and the nonprofit community for development support. Failing to use cross-licensing, standards, and neutral ground to encourage the formation of cumulative, pre-competitive technology platforms. If university and federal inventions seem stuck in holes, it is because university and federal exclusive licensing default practice has put them there. It then is pathetic to watch organizations such as NIST put on conferences to try to figure out how to make the default approach somehow work “better.”

The mindset on university exclusive licensing reflected in the Harbridge House report is deeply messed up. The narrative that university inventions are different does not hold up. What’s different is that university inventors are often not embedded in an organization that is prepared to act on their work and don’t have access to the design and market requirements that would focus their development. The need for exclusivity also doesn’t hold up. While it is clear that some companies will not get involved without exclusivity–because that is there chosen model of operation–there is nothing that compels a general conclusion that universities, as a matter of public policy, should prefer to deal with just these companies. This preference for universities and other nonprofits to deal with priority with companies that require exclusivity poisons their invention management practice.

Why work with these companies and not others that are open to non-exclusive access?

Why exclude everyone hoping for an exclusive deal rather than encourage making and using without the blocking requirement for a mass-produced commercial product version first?

Why  assume that a single wealthy company working without competition will be more effective than multiple companies competing or collaborating?

Why force development into private hands without bothering to see if a community will develop the invention, with foundation or donor (even corporate donor) or government support?

The primary problem is that the exclusive pathway focused on wealth monopolist developers does not work. It’s outputs are mediocre. They always have been. The IPA program was a failure and got shut down in the 1978. Bayh-Dole practice has been even worse. Federal licensing outcomes don’t even get reported. Instead, we get from university administrators fake history, fake account of the law, fake metrics. They cannot bear to report squarely what they have been doing. From the little that gets out, it appears they get a commercial product from about 1,000 inventions. With a default offer of exclusive license, that means thousands of inventions are patented and suppressed in the effort to make this exclusive licensing approach work. It never has. It won’t suddenly start. No regulatory changes will unleash it, jump start it, make it better than the trash it presently is.

There may be a role for patents in commercial development. Let’s say they have a place. And one can argue that a patent without using its power to exclude all others is worthless. But that’s not so true. But for basic research–whatever that means–for university-hosted research, there’s almost no circumstance in which an exclusive patent license is necessary. Certainly not so when an invention is managed by the institution. Certainly not so when an invention is managed by the federal government. If the invention is worth acquiring to serve a public interest, then the idea must be renounced that this public interest served is by default to preserve a monopoly for some later to appear private interest, and that the university interest in all of this is to make money from the exploitation of that monopoly.

It has to be some other public interest. If the public interest is aligned with inventor exploitation of patent rights–if the patent system as implemented already serves the public interest, then universities should get out of the patent business–at least out of the compulsory ownership, monopoly licensing patent business. Their role may be to obtain patents to mark significant discoveries, but then to make those discoveries available open access. The value in any deal would be access to research talent, to data and experimental set up, to services to assist in the understanding, setup, and application of discovery. One can make as much hosting an annual workshop for industry with non-exclusive licenses thrown in as one can by holding out for an exclusive license which almost never happens and waiting five or ten years in the hope that development will result in a big-hit commercial product.

If there is some reason that university and federal research findings should not be a matter for inventors to deal in–expeditiously with the right professional resources at hand, as there are now–then the response cannot be that institutional administrators can do better deals than inventors but rather that everything that otherwise might be excluded from access ought to be made open. One researcher, having invented, should not be excluding other researchers working in the same area, even if at different institutions, even if at companies. One researcher should not be selling an invention to one company while forty other researchers are doing the same with forty other companies, with no one able to put the rights back together again for common use for two decades. If that’s the outcome to avoid by throwing huge amounts of public money at research, then open or non-exclusive access is the necessary default–and there really is no point in holding out the possibility that sometime, somewhere, exclusive licensing will just have to be used in the public interest. As the Attorney General Report put it in 1947

 In the occasional situation where the commercial use and exploitation of worth-while inventions are discouraged by the need for a substantial investment in promotional, developmental, and experimental work, with the attendant risk of loss, the Government should finance such operations, in whole or in part, to demonstrate or prove the commercial value of the invention. This method of encouraging use of the invention is preferable to the grant of an exclusive license. (114)

Imagine a situation in which, in addition to the National Science Foundation, we had a National Development Foundation that did the development work for worth-while inventions made in publicly funded work. The Harbridge House report observed that federal agencies that did just this had a 100% success rate in introducing patented inventions for commercial use. Maybe less research funding and more development funding is what’s needed from government. Maybe the IPA program, Bayh-Dole, and the failed narrative about exclusive licensing and the high cost of private development has been created to prevent the federal government or states from getting involved in development–and especially so in pharmaceuticals and public health.

At the core, the exclusive license on an invention arising in publicly supported work is about whether public health interventions are a public matter or are cordoned off as a matter for private financial exploitation, so that public support acts as a subsidy for private investment. Monopoly pricing in the cordoned off approach is a feature, not a failing. Objection to monopoly pricing of medicines is not about government price controls. It is about a fundamental failure of the government to finance development of medical interventions to the point of use–doing the clinical trials itself, involving those companies and nonprofits willing to work collaboratively and then compete once there’s an established, efficacious, generally safe product to compete over. Those that want public health to be a special safe zone for monopoly exploitation of health can go their own way. Their approach is not illegal, or immoral–it just has no place in public policy. If the only way that we might obtain some medical intervention was by agreeing to pay a monopoly price for it, we might do so. But there is no reason for public policy to make that our only choice when it is clear we have much more viable alternatives.


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