WHY UNIVERSITIES LIKE EXCLUSIVE LICENSES

If patents and exclusive licenses have such drawbacks, why do universities favor them? There are at least four reasons. The first reason is ideological. Congress passed the Bayh–Dole Act because it believed that industry would not develop university inventions unless it received IP rights. There is some evidence for this position. If you go out and ask companies if they would have done a particular investment without licensing rights, they sometimes tell you—and it may be an honest answer—that they would have said “no.” But there are also many cases where companies were already using the invention before the university got wind of it and demanded royalties. Now the university has gone from disseminating knowledge to taxing it. At least potentially, Bayh-Dole has become a drag on innovation.

The second reason that exclusive licenses are popular is that they have a powerful constituency. There is the licensing officer, who is praised for bringing in cash. There is the faculty entrepreneur, who would like to get rich. And there is the university administrator or state legislator, who hopes to make the university at least partially self-supporting. All of these groups want to maximize revenues. But the best way to maximize revenues is to act like a monopolist. In other words, stick with the exclusive licensing model.

The third reason that exclusive licenses are popular is that universities tend to produce embryonic ideas. University technology officers and faculty members frequently say that they have no way of knowing whether an individual idea will be valuable or not. So they obtain as many IP rights as they can. Now it is one thing to patent an idea because you plan to develop it. That is an investment. But it is quite another to patent an idea in case it later turns out to be valuable. That is a lottery. The result is overpatenting and a shrunken public domain.

The final reason is that many people think that “exclusive licenses” and “start-up companies” are evidence of economic development. This is misguided in my view and comes from the fact that it is much easier to count licenses than to track the number of people who use the public domain. Nevertheless, the fact remains that many universities subsidize patents and exclusive rights transactions. At the same time, hardly anyone subsidizes the Creative Commons or other efforts to expand the public domain. So the net effect is that society is paying people to shrink the public domain.

LOOKING AT THE ALTERNATIVES

I want to describe three categories of alternative transactions. I will argue that the first category consists of transactions that are unambiguously good for society. The second category consists of transactions where the “core” value of scientific data—the right to use, modify, and republish information—is unimpaired. I argue that this situation is always preferable to a conventional exclusive license. Finally, I will describe a variety of transactions that are usually preferable to an exclusive license. Even though these need to be judged on a case-by-case basis, we should probably encourage them. One way to do this is to put such transactions into some type of “favored” or “safe harbor” category.