How we got here in twelve chapters, 2

Posted on December 26, 2014 by Gerald Barnett

2. The equities

University faculty develop an approach to patents—mostly, keep them out of the university, use Research Corporation or a local research foundation. Agents provide services, take on the costs and risks, and share upsides with inventors and institutions. Most universities do not take ownership, but rather ask that equities be considered. The federal government commits to reimburse universities for releasing faculty and resources to work on federal government, so there are no obvious equities involved in federally supported research.

As Cottrell’s idea of using the structure of the corporation in a non-profit configuration as an intermediary between university faculty and the commercial world, universities also work out the implications. Cottrell’s patents and Steenbock’s patented way of circumventing federal regulations on adding things to milk (such as vitamin D) were both lucrative licensing situations, and that got university administrators as well as faculty thinking about income. Faculty thought about building funds to support independent research. A few no doubt thought about becoming wealthy, too. But few patents made money. Much of the early discussion among faculty was about how to prevent patents from blocking the adoption of research findings by the creation of monopolies. Both Research Corporation and WARF licensed patents non-exclusively. Some universities, notably medical schools, created policies that banned patents on medical inventions. Harvard went so far as to offer financial assistance to faculty seeking to overturn medical patents.  Continue reading →

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How we got here in twelve chapters, 1

Posted on December 26, 2014 by Gerald Barnett

A few days ago I sat down to work on a curriculum for innovation and found myself distracted by the outline of a book-length treatment of the development of university “technology transfer.” I emerged a few hours later with a sketch of the idea. I will post things here, in twelve segments. Yeah, for the days of Christmas. Partridges in pear trees and all that.

1. The great experiment

In 1912 Frederick Cottrell creates The Research Corporation, “an experiment in public administration of patent rights.” University inventors assign rights to Research Corporation, which works with industry to develop the inventions and uses royalties to fund research nationwide. University of Wisconsin faculty copy the model a decade later with the Wisconsin Alumni Research Foundation, which plays to faculty inventors’ institutional affiliation. The WARF model was then copied by many other universities. By the 1960s, there were two main approaches, one involving Research Corporation and the other using  institutionally affiliated research foundations. The key to Cottrell’s approach is independent, cooperative, national invention management, coupled with double selectivity of inventions. Most of Cottrell’s insight is now lost amid bureaucratic rationalization of institutional self-interest.

In 1905, Frederick Cottrell at the University of California invents the electrostatic precipitator to remove soot from industrial smoke. With support from his faculty colleagues and with industry encouragement, Cottrell files patents and works out how to make his invention a practical reality. Cottrell finds no resources available to faculty inventors and sets out to do something about it. In 1912, he creates The Research Corporation, one of the first public corporations in the country. Cottrell publishes an account of his thinking in The Journal of Industrial and Engineering Chemistry, calling The Research Corporation “an experiment in public administration of patent rights.” Continue reading →

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The Dag Wagging the Dog, Part 2

Posted on December 20, 2014 by Gerald Barnett

In Part 1 of “Dag Wagging Dog,” we looked again at Rev Proc 47-2007 and how university administrators have used this tax guidance to create an artificial barrier to industry-sponsored research. Now let’s turn to how the universities have used this same tax guidance to manipulate faculty research. In Part 3, to follow, I provide three alternatives to the usual university tech transfer office position on the Tax Reform Act of 1986 and Rev Proc 47-2007. As always, this is management advice, not legal advice. For legal advice, consult your legal counsel–but you might ask if your university legal counsel has already decided to support the conventional university administration approach. If so, getting help supporting a faculty or industry or innovation-favorable or public service orientation will take a courageous and informed legal advisor willing to rethink the situation.

Faculty “Employment”

The issue in university copyright used to be simple until it was gummed up by administrators on the hunt for ways to own and profit from what was never theirs. Faculty owned their scholarship of all sorts. Faculty members are appointed; they join the faculty of a school or college. They were and are “members.” They are paid a salary or stipend. They are provided with facilities and supplies to do their work. They teach and conduct research and study and interact with members of the community. This activity, taken as a whole, is in the public interest.

Faculty are much like state legislators–provided with resources of the state to perform a public function, but not prevented from having their own livelihoods and even representing their private interests and the private interests of those they represent in the conduct of their public “duties.” Their public duties include the representation of private interests, including their own. Continue reading →

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The new university zombie IP policies

Posted on November 30, 2014 by Gerald Barnett

Migitating Private Business Use

In a recent on-line article, Peter H. Serreze at Ropes & Gray, discusses private business use. The article offers strategies to mitigate the effect of the 5% limit on private business use (PBU) for the proceeds of a bond issue. Serreze points out an approach that universities could take that would prevent private research arrangements from ever reaching private use limits:

A nonprofit research organization can promote simplicity by including, in addition to tax-exempt debt, some taxable debt or other equity in the plan of finance for any construction project. Typically, only a relatively small portion of the organization’s research funding is derived from commercially sponsored arrangements. A relatively small equity financing component— say, 20 percent of the plan of finance — may be sufficient to enable all industry-sponsored and quasi-commercial activity to be allocable to equity. If so, the organization may entirely avoid the need to structure those activities in a manner that avoids PBU, which would reduce its compliance burden and potentially expand the range of business opportunities it could pursue. (734)

In other words, if the administrators responsible for building research facilities actually wanted to attract industry-supported research on flexible terms not dictated by strange IRS safe harbor guidelines, they could readily do so. The reality, though, is that administrators apparently either don’t want to or don’t care.  Continue reading →

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The Dag Wagging the Dog, Part 1

Posted on November 30, 2014 by Gerald Barnett

I have previously discussed Rev Proc 2007-47 and its forerunner Rev Proc 97-14. These “revenue procedures” set out an explanation by the Internal Revenue Service of how the research use of facilities financed with tax-free bonds could result in a determination of the IRS of “private use” that might threaten the tax-free standing of a bond issue. Clearly, if a company were to set up to do research (such as under a lease agreement) in such a facility financed with tax-free bonds, that would be a private business use. But then, putting a cafeteria operated by a private company in the same facility also may well be a private use. And, just to put a point on it, as far as the IRS is concerned, the federal government is a non-qualified user, too, so its research “uses” of tax-free supported facilities is also, apparently, a “private use.”

The question then arises, if a company (or the feds) cannot send their personnel to use a facility financed with tax-free bonds without threatening the tax-free standing of the bonds, what happens if a company supports research done by, say, university personnel? The point of this series of articles is not so much to deal with the complexities of US tax law as it is to point out how those complexities have been exploited by university administrations to undermine freedom to innovate by faculty and students. It is something more than an irony that construction of new university research facilities, under the banner of discovery, innovation, economic development, and collaboration with industry, is often financed in a manner that thwarts these very activities. Continue reading →

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Rekindling

Posted on November 27, 2014 by Gerald Barnett

photo-1-e1417103056720It’s Thanksgiving Day, and here I am up at 6am, taking care of the dog. She’s an early riser, so I am too. I’ve got a fire in the fireplace, and the espresso is brewing. I have been busy, so the blog entries have slowed over the past three or four weeks, but I have more to add to the discussion regarding tax treatment of research facilities.

The big challenge in all of this discussion is finding the right starting points. Some folks have decided that innovation is a system, and all that is required is for the inputs–reports of inventions–to be processed by trained technical professionals, and the factory of university benefit to society will turn those inventions into patents, the patents to licenses, the licenses to products, and the products to big fat royalty streams that will buy hot cars for the happy faculty and students who cooperate with the factory, more research funds for all the rest, and economic development for the regions lucky enough to have such university programs in them–and smart enough to subsidize those programs with extra cash.

I’m not one of those folks. I don’t see that historically innovation has operated like a factory. Even Vannevar Bush’s quest to find new technology involved pulling people from factory-like settings–from the universities, from government, from industry–and letting them focus on building, doing, making without any of the “establishment” oversight and expectations. Continue reading →

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University claims on non-supported inventive work

Posted on October 19, 2014 by Gerald Barnett

In a note on the Guide to Bayh-Dole, a reader asks:

One point I have been particularly concerned with is the position taken by virtually all of the universities that if a university employee is hired as a consultant to a private company to work on research and development activities, the sponsoring entity will not own any invention made by that employee resulting from that work unless a company coworker is a joint inventor. In such situations the university will give the company a right of first negotiation for a license but refuses to set pre-determined terms of the license or to other include any new patent as a part of the original licensed patents. They routinely claim such restrictions are imposed under the Bayh Dole Act. I have never been able to find an authority for this position.

Have you found this situation to be common and is there any real basis for such a rule other than the desire of the university to control all development and make such deals difficult if not impossible to consummate?

Yes, the situation is common, and there is no basis in Bayh-Dole for the university behavior. The administrators don’t want to make deals difficult to do–they just believe in unicorns and rainbows that companies should blandly and as a matter of course accept university ownership, university reimbursement for patenting work, and university demands for a share of the company’s income (even if the company might otherwise be *losing money*–as startups often are). A company’s acceptance of university-sided, draconic, policy-required, often silly terms is called a “negotiation.” The purpose of this “negotiation” is for the university administrators to recite policy requirements and explain to each clueless and wildly self-interested company that the company exists to feed a supply of its financial life-blood to the university administration, where whatever money is received will be thrown into a slush bucket and used for random administrative conveniences–stuff so inconsequential its use is almost never publicly reported.

“Problem” companies think a negotiation involves an exchange of views and interests, a seeking for common purposes, and an arrangement in which each side obtains something of sufficient value that it warrants giving up other things of value for the benefit of the other party. Such a wildly idealized and problematic view of “negotiation” rarely exists in university usage. Thus, even the term “negotiation” has special meaning among university administrators.

For those of you who already get it, or just want to know the basics, here they are:

  • There is no authority in Bayh-Dole for what the universities are claiming. It was bombast, but after Stanford v. Roche, it is more like contempt.
  • The refusal to set terms comes from a conservative reading of Rev Proc 47-2007 (or a failure to read it!). But those procedures are navigable.
  • There is a sordid history of deception for the sake of the cause, and the result is compulsory IP policies that are destroying university engagement with industry.

I will deal with Rev Proc 47-2007 objections in a separate article. Here, let’s focus on Bayh-Dole objections.  Continue reading →

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You Make the Call–NIH Version

Posted on October 19, 2014 by Gerald Barnett

It’s time for you to test your reading ability with that of the aces at the NIH. Let’s see how well you can do!

Here is NIH guidance on Bayh-Dole compliance for awardees of NIH grants:

The Bayh-Dole Act includes provisions for the grantee to assign invention rights to third parties. Grantees that are non-profit organizations must request NIH approval for the assignment. If the assignment is approved and the rights are assigned to a third party, invention and patent reporting requirements apply to the third party. The grantee should review existing agreements with third parties and revise them, as appropriate, to ensure they are consistent with the terms and conditions of their NIH grant awards and that the objectives of the Bayh-Dole Act are adequately represented in the assignment.

Continue reading →

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That's what we all expect from you anyway.

Posted on October 10, 2014 by Gerald Barnett

We have had a time of it exposing the disingenuous claims by the University of Washington’s startup program. There is much more going on than the bits I’ve pointed out. But some folks would rather live the lie than restate their numbers and correct their press releases. When bragging status and public money is on the line–not personal integrity or business fundamentals–I guess one grandstanding self-illusion is as good as another.

Why the UW faculty and the state legislature put up with it, though, I dunno. Perhaps because in the grand scheme of things, so little of it matters for them. Perhaps University of Washington startups and University of Washington spending on startups simply do not matter one flea turd to these folks. “Go ahead,” the faculty and legislature mutter, “make up statistics, get undeserved awards, plump for money, dupe investors, invite politicians to your events, and call any question about your claims bullshit. That’s what we all expect from you anyway.” Continue reading →

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Lock-in and Value-add in University IP Management

Posted on October 10, 2014 by Gerald Barnett

John Gruber at Daring Fireball points out a new article by Dave Winer, the developer of the RSS feed. The article is about “lock-in”–the effort to capture users to a particular technology product (and its infrastructure) as a way to monetize a commercial position. Winer wonders if young entrepreneurs focused on lock-in understand their situation (my emphasis):

They worry that, if they provide open access to the data their systems accumulate, no one will come to their website, therefore no one will be able to enjoy their lock-in, thereby justifying their multi-million dollar valuations. Why should we care? Problem isn’t that they’re young, the problem is they have a too-thin value-add to support the kind of investment they’ve taken on.

This is precisely what is happening with university startup bloat, when administrators try to take monopoly patent positions and force more “startups” through their big black hose of process. They create “startup” companies–and if they are honest and competent, they don’t even have to fake their counts!–that don’t have the “value-add.” Perhaps this is why a university administrator can make the straight-faced argument that his startups will have to sit in incubator space for two or three technology generations (what? a decade, perhaps?) before they have developed a technology that can escape the chains of university administrative support.  Continue reading →

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