Five Steps to Restoring an Effective University IP Practice, Step 3

We are working through five steps to restoring your university IP practice to something effective and conscionable.

The third step involves a fundamental, but again simple, change in policy. Current IP policy at most universities does not address non-exclusive and exclusive licensing, so TLOs do non-exclusive licensing when they are forced to, such as in NSF Cooperative Research Center grants, and for biomaterials and software, and default to exclusive licensing to most everything else. But policy ought to push TLOs to adopt non-exclusive practice. Policy restrictions provide a TLO with support to resist requests for exclusivity. Otherwise, a TLO will be helpless in the face of a request for an exclusive license. Getting a deal–any deal–is important in a TLO land in which deals don’t much happen. That will change if most TLO deals are non-exclusive.

3. Make non-exclusive licensing the policy default for anything the university does accept for management

You have shed your university’s support for AUTM and all the adverse practices it stands for, and you choose freedom. That’s the wake up call for your TLO to follow a new path. Now comes the fun. Make your IP policy start with default non-exclusive licensing/distribution. Not everything has to go that way in end, but a great start is to offer everything non-exclusive. Better, FRAND–fair, reasonable, and non-discriminatory non-exclusive. Consider royalty-free, too. There’s good money in royalty-free, if you need to hear that. And there’s all sorts of open that are possible that don’t require bespoke license drafting. It is all there for you already. Gosh, that’s a huge advantage.

University IP policies are remarkably silent on exclusive vs non-exclusive licensing. Federal policy makes a big deal out of the choice, but that deal is usually presented as timid officials worrying about what the public would think if everything openly was offered on exclusive terms. The implication is that exclusive terms are necessary for anything new to be used or “developed” into commercial products, and only commercial products truly benefit the public. All this is nonsense, though it might sound plausible. And it is especially damaging nonsense to universities. Many, if not nearly all, university-based inventions have utility without being first made into a commercial, mass-produced product. They have uses in research, including industry-based research; in production of other products; in the formation of technology platforms and for standards that may follow on the adoption of those platforms. In short, many university inventions have a “make” and “use” profile that is independent of whether one or more commercial products might be made.

Even where commercial products are possible, it is often possible to get companies to pay for platform development collectively before they each go their ways to compete in the production of products versioned for their chosen customer bases. It fuzzes the mind why a university would allow its TLO to hold out for an exclusive license for a single company to make the entire investment in “commercializing” an invention, to make perhaps a single product (if any at all), while excluding all others to maximize the licensing fees (that is, the TLO happily taking money to exclude all the other companies that otherwise would work with your university).

Add a sentence, then, to your IP policy that stipulates that the university will engage in non-exclusive licensing, preferably royalty-free, whenever that’s all that is needed to transfer technology under its management. Here are some examples, with additions in square brackets.

Boston University

The University will endeavor to license its intellectual property in ways that transfer technology for public use. [To that end, the University will offer any technology brought under its management on a non-exclusive basis.] If necessary, the University will vigorously defend and enforce its intellectual property rights through appropriate business and legal channels. In keeping with recommendations of the Association of American Universities, however, Boston University will seek to avoid selling or licensing patents to patent assertion entities whose sole business strategy is to extract fees or licenses through threat of patent infringement rather than to foster active use of the technology or enable the development of new products and services.

The enforcement language, sounding like a growling kitten, could also be removed. The point is not to suppress the use of university technology, but to enable that use, assist in making that use impactful. What a strange counter-productive fuss Boston University puts in its policy.

University of Pittsburgh

The University recognizes that proceeds generated by the licensing of the
University’s IP [together with related technology transfer services] can provide a strong incentive for a University Member’s or University Members’ participation in technology licensing and support of the creation, pursuit, and sharing of knowledge.

The Office of Innovation and Entrepreneurship (OIE), in partnership with the University Member(s), is responsible for administering the commercialization of IP owned by the University, in accordance with applicable law and terms set forth by any governing contracts, grants, or cooperative agreements. The objective of OIE is to pursue the best opportunities to transfer the University’s IP consistent with the objectives and principles of this Policy and the interests of the University and the public. [OIE will make IP owned by the University available on a non-exclusive basis for research and site-based uses.] OIE shall have the authority for [other] decisions concerning the route of commercializing or transferring a specific University IP, as well as the selection and use of outside resources, consistent with other University Policies.

The University of Pittsburgh, having spent many paragraphs on the subtleties of demanding ownership for various sorts of assets, then subordinates its entire policy on management to the “incentive” of making money from licenses. But the policy gives no guidance whatsoever with regard to how the OIE is to make that money. The OIE will just decide, whimsically or otherwise, on how to make money with IP, other than that whatever it does must be consistent with other university policies–apparently not important enough to recite here. Consistency–such a bureaucratic virtue. What about effectiveness in transferring technology? What about broadening access? Crickets. That’s why Pittsburgh needs a statement that grounds licensing practice in non-exclusive access. If there are exceptions to the policy, then work out who reviews and with what standard (such as, we have offered this technology non-exclusively for five years and no one has bothered to take a license or request assistance, should we offer a time-limited exclusive license to see if there is interest in such a deal?)

Why does non-exclusive licensing matter to a university? First, non-exclusive does not play exclusive favorites. Everyone in the same situation gets the same terms and those terms can be made public, so there’s also no secrecy involved. Or–put in the positive–things are transparent. Second, non-exclusive does not exclude a bunch of companies that otherwise might think well of your university. But the moment your TLO does an exclusive deal with one company, the rest–maybe hundreds–are excluded from practicing your invention. What do they do? Slump away dejected for 20 years while your chosen favorite cleans up the market with monopoly pricing and planned scarcity? No, not hardly. They design around your invention, they exclude your invention from standards, they form alliances to develop other things to compete with your invention, they ignore your invention or talk it down. They even may infringe, or take their development outside the U.S. to jurisdictions in which you didn’t think to get patent rights, or couldn’t afford to.

What’s the upshot? Your TLO’s current exclusive licensing habit isolates your university at just those points where something really interesting has happened. Instead of using that excitement to create a lot of relationships, the TLO’s default exclusive licensing habit pushes everyone away, locks down the invention in a patent process, and delays uptake for months to years, right at the critical moment of first announcement of something important enough to consider an invention. The TLO sees its exclusive practice as expedient. But for the university, it’s a disaster. Industry shies away or works to circumvent the TLO practices with consulting deals or collaborative research, while the TLO tries to push more policies that gum up those relationships, too.

You want any IP your university manages to default to non-exclusive licensing, if there needs to be any licensing at all. There are times for exclusive deals, but mostly those times should not generally involve your university’s TLO. If your inventors decide that it’s best to push their inventions exclusively to a company, then they may want to use an express assignment rather than an exclusive license. In any case, an agreement made by the inventors will have way less baggage than one made by the university. Any competent law firm can help the inventors out with the details of licensing and assignment transactions.

Think of non-exclusive in the context of services and you will start to see how non-exclusive works. Any technology transfer deal involves a rights component and a services component. In the exclusive patent deal, the TLO insists that the license carry all the “value” and services–explaining how the invention works, providing documentation and data, and the like–are added at no charge. For a TLO driven by money, it has to be this way, since the TLO typically gets a share of licensing fees but not services fees. That’s why TLOs hate faculty consulting–which values the services and tends to ignore the value of patents. But placing the value on the rights and devaluing services changes how a company considering adopting some new technology you have views the deal. If they are going to pay for rights (a patent license, for instance), then they want to know that the patent is valid (has it even issued yet?), that the claims will be useful (will they cover product the company aims to produce?), and whether the company can design around the claims (do things a different way to achieve a similar goal?). That’s all before they get to what they are willing to pay, how to structure what they are willing to pay, and whether it is worth paying for exclusive rights to keep the university from offering exclusive rights to competitors or worse a patent troll posing as a startup or invention management service. A TLO will insist that it’s not doing either–that it is just trying to find a company willing to “invest” to make a product based on the invention, and shouldn’t be held responsible for anything else that might happen. It’s just this sort of thinking, though, that is a disaster for a university.

Now consider what happens if we reverse the “value” and make the IP free and place the value in services, such as instruction and delivery of materials or documentation. Companies are in the habit of paying for services they desire. That’s not a problem. Can they get these services elsewhere? Maybe not for something that is a new invention or discovery–best to get it from the people who have figured it out, while they are ready to help. But, the TLO might argue, the university cannot charge nearly as much for services as it can for licensing fees and royalties on sales. This part is often true. But what the TLO leaves out is that in a non-exclusive licensing program, it’s not what one company will pay but what a whole lot of companies will each pay for similar services and, as it were, free access. One hundred non-exclusive relationships at $5K a year has a great deal going for it over maybe one exclusive relationship with a company willing to pay $500K a year–and that sort of company is going to be very difficult to find. Maybe one such company every five or ten years, out of 1,500 to 3,000 invention reports.

A computer science professor put this point to me most lucidly. “Look, Gerry,” she said (I paraphrase), “Any time I want to, I can announce a three-day workshop in my area of expertise [software security] and I will get 50 people signed up happily paying $2,000 each to attend. After my costs, I clear $80,000. How long will I wait for you to make me that sort of money?” Well, let’s see. There’s the patenting work, and then even if we find a licensee, it’s going to take two or three years of development work before there’s a product, and for you to get $80,000 in royalties–that would take $250,000 royalty check because you get only a third, and since the royalty rate will be like 2%, that means sales of $12.5M–so, yeah, maybe five years from now, if we are hugely over-optimistic.

Consider how things might work if the question your TLO asked was whether there were at least three companies in the world willing to send a representative to a workshop on a given invention, and if they came, they would receive a royalty-free non-exclusive license to make and use the stuff that’s been invented, along with a free option to sell, subject only to their notice that they have decided to sell (not all companies need to sell, or want to sell (“why should we sell what we have figured out to our competition?”)). Charge $2,000 for the workshop. Offer a year of support for another $2,500, with a free license to any improvements or additional things made by the people in the same lab.

At the companies, the question then is whether anyone wants to learn what has been done, or should they remain ignorant of it. That’s a legitimate question to ask. Not all things new are relevant. But the question isn’t a legal one about whether to risk not taking a license, and whether it is worth taking the exclusive license on offer. Not all companies that want access are ready to commit to making product (they may want to play around with it, or use it internally, as for research or production of other products). Instead, it’s about whether to learn stuff now or wait. That’s in the category of professional development, not whether to pay for a license. These are often different budget categories at a company, with different standards for approval. Perhaps you see it now–that the ask for an exclusive license goes to a different set of company decision-makers than the ask to attend an invited workshop on something new and interesting, plus a free non-exclusive license documenting the university’s commitment not to enforce its IP position against adopters.

It’s a different set of decision makers. It’s a different pool of funds. It’s a different set of people in companies that are interested in the relationship. The decision to go see something technically interesting and come away with assistance in setting it up at the company to see how it works runs toward work groups rather than toward CEOs and VPs of Marketing or Legal Affairs. How many more work group leads are there in industry than CXOs? Broaden your audience, find a way to engage them, transfer tech they are interested in. This stuff is grounded, practical, and aligned with the teaching mission of a university. Everyone is used to paying for instruction. Instruction in new technology is not much different.

If your university can support ten non-exclusive services and licensing programs, each with, say, twenty companies participating at $5K per year, then your TLO will see $1M in income–there’s a license involved in each relationship, so call it “licensing” income, even though the asset that carries the “value” is the service of teaching–a “non-IP intangible asset.” Do a great job teaching the new tech and the asset likely will increase in value. From the company perspective, the company gets the benefit of $100K (20 companies at $5K) of university additional work and support for its $5K commitment. Rather than trying to get one lucrative exclusive patent license every decade or nothing, the TLO aims to create each year one or more on-going technology transfer commons that can scale from three companies to twenty (we have had more than 100 in some projects). Instead of a handful of exclusive license relationships the university has 200 or more non-exclusive relationships. Instead of saying “no” to everyone who didn’t get that exclusive license or doesn’t want an exclusive deal, the university has relationships that can continue to scale–more companies may participate, and the companies that do participate may ask for additional help, sponsor research, or be ready to adopt other technology made in other university laboratories and projects–repeat business, something that you won’t here in your current TLO.

If a TLO is going to do an exclusive license, it should be to an organization that will then make the invention available non-exclusively, much like what would be done for a publication or distribution deal. But even in these situations, there’s no point (other than getting money for allowing access to an invention to be restricted, or administrative laziness) in granting all substantial rights in an invention (make, use, and sell), or granting those rights for longer than a few years. It’s a much better IP practice at a university to grant sole licenses–a non-exclusive license done once for a given area. So, perhaps a licensee gets a sole license to sell product in the U.S., but gets only a non-exclusive license to make and to use. Anyone else can make and use, too. But maybe only one company gets to sell, for a time. This strategy forms the basis of creating make-use commons and postponing any discussion of exclusivity for handling commercial product development, if commercial product is even a desired goal (think about standards as possible outcomes of a patenting strategy, rather than commercial products directly).

If a given inventor or author doesn’t want non-exclusive distribution (leave them alone, it’s their choice, freedom remember), then they are free under university policy to choose other way to do it. Their choice, their problem, their costs. Nothing like making things personal to get persons to face up to what they really can do, and what they feel they ought to do. Never take that away, at the peril of your effectiveness. There are plenty of organizations that are willing to help out with exclusive arrangements. Leave your inventors and authors that need exclusivity to figure out how to get there. Have a great referral network to help them find good people. Don’t try to do it yourself. It isn’t worth it, and you end up back in a compulsory policy regime trying to fix all the hot mess that comes of dealing in exclusivities. And even then, you can’t fix them all. It’s just a matter of time before you burn off your good will, can’t fake the metrics any more, and all you have–if you have been lucky–is a pile of cash from one or two deals over thirty years and a lot of people who are disgusted. Maybe you can dodge the ugly truth by retiring at just the right time, but it is a whole lot more fun to be surrounded by people who respect you for ensuring their freedom.

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