UW’s Fast Start template, another bad bureaucratic idea gone bad, 6

The University of Washington recently “rolled out” a “FAST start” template license agreement for university spinout companies–companies started by inventive researchers at the university to develop their inventions as commercial products. For spinout companies, the UW’s practice is to demand that the researchers give over their rights in their inventions so the university can license those rights back to their company. The university then will go off and patent the inventions (whether the researchers want that or not) and as part of the license deal require the startup to reimburse the university for its patenting expenditures.

Beyond this encumbrance on the spinout, the university packs in all sorts of provisions on payment, an equity stake, audit, indemnification, insurance for the university, sublicensing, and infringement. Most of this UW licensing baggage would not be necessary if the inventors placed their inventions directly in their spinout company. The university would have no ownership interest in the invention or the company, and so would not have any basis for worrying money, equity, risk, or contract. If the university wanted to encourage and support spinout efforts, this would be the route it would take. If, conversely, the university’s purpose was to be parasitic on spinouts for the money, or to serve some administrative shoelace ironing so that all spinouts were proper by institutional standards, then a FAST start template might be just the thing to formalize the parasitism–allowing no spinout to avoid the requirements placed on any spinout, regardless of circumstances. Well now.

Problem is, UW by its own accounting has got about ten spinouts in the past five years (fewer than that still functioning)–hardly something requiring a template agreement–and not the 73 in five years that GeekWire reports that UW claims. Worse, UW makes a big virtue out of treating all spinout companies the same. If by “the same” the UW meant, “each spinout is considered for its circumstances in light of the university’s public mission,” we would all be happy. But no. The UW means, apparently, something rather different: “university administrators now do not have to consider the circumstances of each spinout, and can make a take-it-or-don’t-spin-out offer because a panel of attorneys specially chosen by the university has approved the template.” Templates of this sort are a bad bureaucratic idea.

H. Holden Thorp, a former university chancellor and now editor-in-chief at Science magazine, has published an editorial that sheds some light on UW’s FAST start scheme. We have been working through his argument. Broadly, Thorp appeals for help from the federal government to build an alternative to what he calls “the financial short-sightedness of industry collaboration.” It’s not clear at all whether those being financially short-sighted are university administrators or the company officials willing to “collaborate” with universities. If “collaborate” means “take an exclusive patent license,” then it may well be that those with the greatest immediate financial need are the university administrators hoping to clear patenting expenses from their books and dreaming of a windfall profit.

For spinouts, however, working this short-sighted scheme creates personal conflicts of interest for the researchers involved because, as Thorp has it, the researchers’ interests are not “completely aligned” with the university’s interests. But what if Thorp has it backwards?–administratively, the university in general, in pursuing a short-sighted financial interest in companies started by researchers, has not aligned its interests with those of the researchers. Or, worse, has interests where it should have none.

For universities, this problem of competing interests is even odder. Universities typically assure faculty of freedom of research and publication. Such provisions are prefaced by a statement that such freedoms are fundamental to the university. In effect, a university making this proclamation asserts that it does not have an interest in how faculty conduct research, with whom, and where they choose to disclose or not disclose their work. Nothing exempts inventive work from these assurances of freedom. Indeed, inventive work would be front and center in such freedoms. The statements don’t read: “faculty have freedom of research and publication for everything but the most important things they might discover or invent or author and for these other valuable things the university insists on control and a financial interest and has a program in place to increase the likelihood that it will realize that financial interest by focusing on companies and investors who are motivated especially by exploiting patent rights for money.” So universities don’t have an interest in researchers’ findings, and so there’s no basis for Thorp’s worry that researchers’ interests are not aligned with the university’s.  The university by its own formal written policy has disclaimed any such interest.

This apparent personal conflict of interest on the part of researchers, and not the organizational conflict of interest that a university creates for itself by demanding ownership of inventions and then as default practice looking to monetize patents on those inventions through exclusive licensing deals then leads Dr. Thorp toward his major theme. The university must spend money to manage researcher conflicts of interest, and when researchers start companies, this conflict of interest expresses itself in sour relationships as the university seeks, like a rushed orthodontist, to completely align the researchers’ interests with its own, and in the shortest possible time, at the least cost to itself. The reasoning appears to be “if this doesn’t hurt us, then it cannot possibly hurt you.”  A Bugblatter Beast of Traal kind of reasoning.

This fuss over conflict of interest, depicted as a race for dollars for everyone involved, then leads Dr. Thorp to worry about all the technology that does not elicit this race for dollars. What about that? Dr. Thorp appeals for some public approach, not depending on this “marketplace,” to develop these other inventions for which no speculators can be found.

Here we must pause. Dr. Thorp’s argument ignores the idea that perhaps there are circumstances in which there should be public approaches to technology development even in the presence of “market” interests or financially short-sighted university administrators. There’s not even a suggestion that it might be better for the public, for the research, for industry that there could be a delay before exclusive ownership positions are established and asserted, during which delay research from any number of directions might explore variations and applications–a kind of research and early development commons, a pre-exclusionary zone in which a technology might accumulate to form a platform from which competitive (and collaborative) actions might spring: new products, industry standards, interoperable systems, and the like. If a delay might often be just the thing, then it would serve no good at all to do a rush job on researchers’ spin out companies with a one-is-good-for-all license template so wonderfully prescient that it will be automatically agreed to. Here, it’s not the terms approved by a panel of attorneys but the fact that the template is placed on offer to all university spinouts, regardless of the circumstances that might indicate the public (and technology, and industry, and even the researchers) might be better served by moving more slowly toward exclusivity by starting with non-exclusive access.

Dr. Thorp puts forward, however, that the university approach to commercial dealings works great for university administrators, except when there’s no companies willing to take the university administration’s short-sighted financial offer of an exclusive patent license.

Now we can see the framework of Thorp’s problems with university licensing:

Still, the maintenance of technology transfer offices and conflict monitoring have introduced costs to conducting research that are not fully compensated for by the federal government—costs that have taken resources away from other important university priorities.

When a university decides to demand ownership of inventions made in work it hosts, it concocts a cloud of personal conflicts of interest for those inventive researchers while creating for itself organizational conflicts by which it abdicates its public position. But it’s the cost of dealing with technology transfer and conflict of interest associated with technology transfer that Thorp calls out. And then he complains that these costs are not “fully compensated for by the federal government.” Let me try to help Dr. Thorp here.

Under Bayh-Dole’s standard patent rights clause, universities don’t have to much of anything–they must educate inventors on the importance of timely reporting of inventions, and requiring inventors to make a written agreement under which the inventors become parties to the federal funding agreement and doing certain things to protect the government’s interest in inventions, and um, really nothing else. And even *both* of those things aren’t in Bayh-Dole! They are added on nonsense, and one might argue as well that they violate Bayh-Dole, which sets out what is to be in the standard patent rights clause. Congress stipulates what must be in the uniform patent rights clause and the executive branch promptly drafts a patent rights clause that stuffs more into the clause than Congress authorized. How does that work?

If inventors don’t report their inventions, there’s no consequence. If the university doesn’t take ownership of inventions, then Bayh-Dole doesn’t apply and a university doesn’t have to do anything because whatever inventions there are not subject inventions. No disclosure to federal agencies. No electing to retain title. No filing patent applications. No reporting of utilization. None of that. The only thing that a university might seek federal compensation for would be the education of inventors on timely filing and requiring the written agreement. These are not major costs, and both ought to be covered in negotiations that set a university’s federal Facilities & Administration rate. If a university doesn’t have the money to cover these costs, it’s on the university for failing to negotiate these costs into their F&A rate.

As for the technology transfer offices, since they are not required by federal grants, there’s no reason for the federal government to reimburse universities for such costs. The idea, I think, was that universities, motivated by the thought of making money from patents, would have incentives to pick inventions that they could profit from, and fund their licensing operations from that income. There’s no place in Bayh-Dole practice for patents released non-exclusively and royalty-free. For that, we are back to the AG’s report from 1947 and the Kennedy patent policy of 1963 that formalizes federal agency open access practices. There are good arguments that universities have a role to play in patenting for open access (to support cumulative technology, to participate in standards, to keep research open for a longer time, to decline to play favorites, to decline to take a money interest in suppression of the use of research, to decline to police contracts or take action in patent litigation, to keep research relationships open with many companies rather than a select few). But none of these arguments are effective with administrators fixated on exclusive patent licenses as the default. It is as if they are determined to exploit the corner cases in Bayh-Dole as if that is what Bayh-Dole mandates, and the law does nothing of the sort.

Put it simply. In the Bayh-Dole reasoning (if it can be called that), universities should patent only what they can make money on by patenting, or at least not lose money, but only if they make their patent money from promoting the use of inventions and from royalties based on reasonable pricing and availability, and from reasonable licensing terms.

The federal government, then, has no need to subsidize university patent practice. If universities are making money on their subject invention licensing, then they should allocate that money to recover their costs. If they are too stubborn or inept to do that, why should the federal government have to step in and throw more money at them? And if they are not making money on their subject invention licensing, there’s even more reason for the federal government not to reward their stupidity in the choice of what to patent and try to license.

Back in the day, before Bayh-Dole, there were two methods to limit the university’s costs in technology transfer. The first was to use an outside patent development firm as an agent. The firm would take on the cost of patenting, “marketing” the invention, and managing contracts and income. The university was out next to nothing, and stood to receive 60% of any licensing income after the firm’s direct costs. The second was to shop new inventions under NDA to prospective companies and file patents only on those inventions that at least one company indicates that it wants to license. File only on those inventions that companies are willing to pay to acquire rights to. The cost is covered before it is incurred.  I know, these two methods are genius! Not like administrators now, for the most part, who complain that the federal government won’t cover their non-genius patent practices.

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