Five Steps to Restoring an Effective University IP Practice, Step 4

We are working through five steps to getting a university back to an effective IP practice, a practice aligned with academic values and focused on actual technology transfer. The idea of “technology transfer” is bureaucratic in origin. As a concept directed at research, “technology transfer” arose as federal officials in the mid-1960s  tried to figure out how to make federal research appear relevant to the general public. “How do we get industry to adopt what our researchers have discovered, and by doing so make our research appear relevant, so we get more money for research?” Here’s an n-gram for “technology transfer”:

Nothing until about 1965, and then “technology transfer” is all the rage, peaking around 1990. While there’s all sorts of things we might say about the “diffusion” of technology or the adoption of anything new by companies, the idea of “technology transfer” carries with it a sort of psyops effort to persuade companies–thought of as rather brutish, backward-thinking things–to adopt the bright shiny new discoveries of federal research spending.

The federal government tried all sorts of things–publication of findings, setting up regional centers to assist companies in finding things bouncing about at federal laboratories, and eventually devising new contracting instruments, such as CRADAs–cooperative research and development agreements–to authorize use of federal resources to assist companies coaxed into using those resources. If companies are too dull to adopt the latest federal technology toys, maybe they can be persuaded to use expensive equipment so at least a federal agency can pitch for more of that. CRADAs haven’t worked out all that well. Nor has the SBIR program, with its tiny bits of funding to small companies set up to mimic the progress of commercialization in big companies, starting with Phase 1 “feasibility” and moving to Phase 2 “research and development,” and from there to Phase 3 “commercialization.” It’s just that it is easier for small companies to get more Phase 1 and 2 grants than to bother with commercialization. You never see  federal statistics for the number of commercial products resulting from SBIR funding. There’s a reason for that.

In the midst of all this worry about technology transfer comes Norman Latker, patent counsel at the NIH and former patent examiner, who sees an opportunity to use the problem of technology transfer to promote the exploitation of patent monopolies by federal contractors and federal agencies. The problem with technology transfer efforts, argued Latker, was that federal policies disenfranchised inventors by reserving ownership of patentable inventions (ones for which practice could be excluded by means of a patent) to the federal government, which then by policy released the invention, whether patented or not, for open public access. It was, so Latker’s argument went, this federal release of inventions for all to use that prevented companies from adopting any of these inventions. Don’t try to make much sense of Latker’s argument. It wasn’t constructed for you, but for federal officials and legislators. American companies would not adopt open federal technology because they demanded patent monopolies. Meanwhile, Latker also argued that Japanese companies were eating our cake–those same open technologies–manufacturing cool neat products, and selling them back to us, and the way to stop that was by using the patent system to make the Japanese companies pay a royalty for their use of federally supported inventions. It doesn’t work as logic, though it clearly worked as rhetoric.

It gets more twisted. The patent system reserves exclusive rights in inventions to inventors, but the federal problem involved agencies and contractors. So rather than reserving rights to inventors, Latker’s solution was to disenfranchise inventors working at federally supported nonprofits and force the rights to go to the contractors, who then would license–exclusively (or Latker’s argument is even more screwed up)–to companies willing to “commercialize” the inventions. Never mind the other uses of inventions that do not require commercialization or if there’s to be commercialization that effort is preceded by companies collaborating to build a workable common platform–research uses, production uses, standards uses.

The idea was crudely simple, as is necessary for political rhetoric–without patent monopolies, American companies would not adopt inventions made in federally supported work, and inventors at nonprofit, brilliant as they might be at science and technology, were stupid and lazy and cheap about everything else in their lives and would be incapable of lifting a finger to exploit their own patent rights. Thus, it was only fitting that the patent rights should be taken over by the nonprofits and pushed over to patent management firms that then would find exclusive licenses, make money, and share some portion of that money back with nonprofits, which would then share a bit of their share with the inventors.

Back of the envelope, it worked out that inventors got about 20% of what the patent management firm brought in (if anything–licensing for any significant money was a rare thing), and university policies scaled that down as the value of the license deal went up. The upshot–embedded perhaps in your patent policy’s royalty-sharing schedule, is that the greatest “incentive” for your inventor is the mediocre invention–worth just enough to get licensed for a few $Ks, for which the inventor got the maximum policy share. Stuff that was truly valuable, an inventor would find a way to take private. Stuff that wasn’t valuable as commercial property would just get published. Even your royalty-sharing schedule is a lousy “incentive” for inventor initiative. All the more so, given that only a few of your inventors ever see enough in royalties to do more than have a dinner out. The “incentive” then turns out to be more like buying a lottery ticket with a really low chance of “winning” anything, at the cost of a whole lot of personal time dealing with patent attorneys and TLO marketing staff. The “incentive” really works out, rather, to a bureaucratic notion that inventors participate in TLO program so that the university can make big money–maybe– on a few inventions each decade. It’s a weird idea of “incentive”–like Latker’s other ideas. It sounds good because that’s what political spin has to do. But in practice, it’s closer to stupid, if not offensive. Once it is in your patent policy, of course, it looks official and gets rationalized with platitudes because that’s what the genre of university policy has to do.

In the 1980s and 90s as more universities took their IP operations away from Research Corporation and university-affiliated “foundations,” they found that licensing patents exclusively was “hard.” So they did the next best thing, which was to create the companies to license to, do the license, and then see if anyone could raise money to fund the companies, and so have the money to pay for the university license. When the TLO’s found that that didn’t work (the University of Washington burned through tens of millions of dollars being led by their administrative noses by someone who was absolutely sure that she could flip university startups for millions of dollars–and of course didn’t and left just as the money ran out, surprise surprise), then they shifted to getting states to set up “seed” funds to fund these university paper companies, prolonging the time until it would be obvious that these companies were generally worthless as a way to “commercialize” university inventions. Meanwhile AUTM counted all these startups and put out the idea that they showed just how “productive” university licensing was. But it was licensing theatre, designed to keep folks like you from taking any action to undo the infestation of patent management that had taken over universities.

Yes, this all sounds a bit cynical, but at least that puts an edge on it so you don’t think it’s just so obvious that technology, if you  have it, must be transferred, and ought to be transferred with an exclusive patent position, and as you fail in that endeavor you ought to grow all the more desperate to make things look good so you don’t have to rethink the road you are on.

Thus, step 4:

4. End the practice of offering sponsors of research a first right to negotiate an exclusive license

Yes, you do it. You know you do. Here’s Washington University:

Subject to any rights the U.S. Government may have as a result of funding aspects of the Project, WU grants to CORPORATION: (a) a non-exclusive, worldwide, royalty-free license to make, use, have made, and import WU Project Inventions for CORPORATION’s research purposes only (“Purpose”), and (b) an exclusive option (the “Option”) to obtain an exclusive, worldwide license, with the right to grant sublicenses, to make, use, sell, have made, have sold, offer to sell, and import under WU’s rights in WU Project Inventions and Joint Project Inventions on terms to be negotiated in good faith between the Parties.

Given that the Option, here, is for a “license” that will convey all substantial rights to an invention, we are looking at an option to assign the invention to the sponsor. It’s just that university administrative folks don’t know all that much of what they are doing. All the more reason to get rid of the Option.

Here’s Harvard, with a weird worry about NIH “guidelines” at the end:

6.1. Grant. With respect to each Invention, Harvard hereby grants to Company an option to negotiate in good faith with Harvard (an “Option”) for a non-exclusive or an exclusive (at Company’s discretion), royalty-bearing, worldwide license under Harvard’s interest in Harvard Patent Rights and Joint Patent Rights to develop, make, have made, offer for sale, sell, have sold and import products in [a field or fields to be agreed upon by the Parties] on terms that are commercially reasonable to the industry; provided, however, that no such license will include any grant of exclusive rights that would be inconsistent with the National Institutes of Health’s Principles and Guidelines for Recipients of NIH Research Grants and Contracts on Obtaining and Disseminating Biomedical Research Resources, as published at 64 Fed. Reg. 72090, and as may be amended from time to time.

These sponsored research templates are such a study in fussy attention to details that are cocked up while blissfully creating awfulness with their “options.”

One more, Utah, with plenty of fussiness before getting to it:

In consideration of Sponsor’s support of University in performance of the Research and subject to receipt of compensation as provided for under Section 3 of this Agreement, and provided Sponsor is compliant with all of its obligations to University under this or any other agreement between the parties, or any agreement between Sponsor and the University of Utah Research Foundation, University hereby grants to Sponsor an option for an exclusive license to said Invention, which shall expire six months after University has provided written notice to Sponsor of any such Invention (“Option Period”).

What’s the problem with a first right to negotiate an exclusive license? Plenty. First, the university has to own the IP to have standing to grant an exclusive license. That means the university has to insist on owning all IP made in sponsored research work–and everything else, just in case, in the 10% or so of its research program that’s “industry sponsored” the university can deliver on its offer of an exclusive license. The university has to own all other IP created by university personnel just in case any of that IP has been used in a particular sponsored research endeavor. Second, if the university has granted anyone else a license or even a first right to negotiate that covers the same subject matter, then the university will have double obligated the IP. Such things often don’t end well, as the University of Arizona, among others, found out. Once a university starts down the road of licensing, and exclusively, then that little tail of a university standard offer in industry-sponsored work wags the entire institution in its search for administrative convenience and a plausible arrangement under which it can offer exclusivity and still be in a position to try to make money from the sponsor. Yes, the university aims to exploit a scheme by which sponsors pay once for the research and then pay again to gain access to the results of the research. There’s also a big ugly gobbet of fallacy here having to do with the monopoly meme–that only by patent exclusivity will new things reach the public–but we won’t touch it for now.

If you end the practice of offering exclusive rights in industry sponsored research, you free up huge tracts of IP policy elsewhere. The background rights problem all but disappears. Want other rights? Of course they are available because we make what IP we own available non-exclusively! (See #2, above). You don’t have to worry about faculty consulting because faculty, if they invent in that consulting, don’t owe the university anything, and the university isn’t left offering to license something that it represented that it ever had.

Many companies are fine with a non-exclusive license. They don’t much care whether they get that license from the university or from the researchers themselves, as long as the license isn’t fussy, doesn’t have stupid conditions, and leaves them alone. Think: quiet possession. It’s easy enough, then, for the university to ask researchers involved in a given sponsored project to agree to make their results available to the sponsor non-exclusively, royalty-free, and provide researchers with a simple legend to place on or with any deliverables to the sponsor to document their grant. There are hairy details running under such things, of course, but these details are also manageable, if at times inconvenient for university administrators. What if the researchers incorporate work copyright by others? That could be fine for university work–fair use, perhaps, or licensed for educational use. But such conditions would not apply to most sponsors of research–companies, especially. So, as in publication agreements, everyone would want to come clean on what stuff they have included in deliverables that isn’t original with the researchers–even if it comes from other researchers. And this coming clean is a good practice, with strong academic values in citing the work of others to back it up. That should be the case for inventions as well.

Consider–there are typically five issues to manage around IP: ownership, control, attribution, money, and liability. If the university does not own, and asserts only so much control as to ensure equitable access for research sponsors, with attribution, then it can step aside the fuss over ownership, concerns over liability, and, yes, the money. If the university needs money, look to donations, look to provision of research-related services, look to making an attractive environment for research and learning. Good money there. Better money there.

If a research sponsor wants an exclusive deal for results–and there are situations in which this is perfectly reasonable–then the university should leave that to the researchers involved to decide. If they agree, then it’s on them. But then, too, there has to be a right to publish or the university is going to have to comply with U.S. export control law (see “deemed exports” and how the fundamental research exception can fail). So the university should stipulate the freedom to publish, or the investigators should take the work off campus. If you don’t like that, consider then how a compulsory, overreaching IP policy acts as a covert non-compete covenant. Is the driver for this non-compete anything more than some administrators wanting to run up their sponsored research numbers so they come off looking better in national rankings? Is that all? If so, then definitely get rid of the exclusive option provision in industry sponsored research agreements. Step that provision down to faculty investigators, acting in their personal capacity, exclude the use of students for the work, and isolate the research from other work at the university. It’s a bother, but it is a much better bother, a more well behaved bother, a bother that is not cruel to many to cover for the desires of a few.

If you need to see all this in simple terms, think of it this way. The foundation of university technology transfer (if we must use the term) is instruction. Inventors are people who have realized something really new, and the university interest is to provide resources so these inventors (and those around them) can show others what they’ve realized and help them to use it, if that’s what those others want to do. The fundamental question of university technology transfer, then, is “who should we help inventors teach this new stuff to?” There it is. The aim is to provide new audiences for instruction in new technology. That’s what university technology transfer is. Licensing is a mechanism that comes along for the ride. In terms of instruction, the word “license” is similar to “metastasis.” You don’t want to hear it.

Now the interesting part. If your university then offers an exclusive license to something new, it is in effect agreeing to take money not to teach that something new to others. Oh, yes, of course a patent is a publication that lays out formal elements of an invention, and so others will come to know something of the invention. But that’s not what your university does. By entering into an exclusive license contract, the university takes on a good faith duty to work to achieve the aims of the contract. The university cannot then teach the invention to others–that would smack of inducing others to infringe the patent, which has been licensed along with the invention to some company. That would be bad faith, would violate the very premise of the exclusive license. Furthermore, the university is also tacitly agreeing not to teach ways of working around the invention. That too would be incredibly bad faith, given the exclusive license. (Of course, that’s just what UCLA did with a series of compounds that were related to the series of compounds from Xtandi was developed–and they got sued for it, but won–thank goodness, they said, for technicalities.) But do you see it? Your offer of an exclusive patent license to a research sponsor–to anyone–amounts to a formal, contractual university commitment not to teach the invention to others, and not to help others work around the patent. 

You don’t want to do that. You don’t want to make that a matter of contract. You don’t want to take money for that. So don’t. Just stop–now, cold turkey. It’s necessary. Yes.

If you run a TLO operation based on augmented resources for teaching inventive work to non-traditional audiences, you will find amazing ways to make money, or have money offered, or do decent things in the world even if you don’t make money. That TLO operation will be aligned with fundamentals of your university mission and academic freedoms, even while freeing up your inventors and developers to work with their inventions and other new stuff.


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