4
Findings and Recommendations

THE PURPOSE AND CONTEXT OF IP-BASED TECHNOLOGY TRANSFER

Discovery, learning, and promotion of social well-being are mutually supportive core university missions. Transfer of new knowledge to those in society who can make use of it for the general good contributes to each of these missions. These transfers occur through publications, employment of graduates, conferences, consultations, and collaborations as well as by obtaining patents on inventions and discoveries that meet the U.S. Patent and Trademark Office’s tests for patentability and licensing their use on terms negotiated with private enterprises. Often these mechanisms are complementary and operate in tandem. It is also important to recognize that none of these avenues is a one-way street. Science, technology, and business information flowing back from other sectors adds to the stock of academic knowledge and helps to inform faculty and students about opportunities to apply their research findings. This is especially true of mechanisms that enable or depend on repeated personal contact, as is often the case with licensing. Moreover, several of these mechanisms probably exceed licensing in economic and social impact. And the United States has a history of successful, mutually beneficial relations between public and private universities and the private sector long predating the prominence of intellectual property (IP) in those relationships.

It is nevertheless the case that only patenting and licensing by universities are regulated by national policy related to the dominant role of the federal government in funding academic research. Thirty years ago, after considerable debate, this policy underwent a major change with passage of the Bayh-Dole Act, accelerating this activity and bringing about greater uniformity in the way research agencies treat inventions arising from the work they sponsor. The change also led many universities for the first time to organize how they handle IP stemming from both publicly and privately sponsored research. Although the post-1980 system has remained stable, it has nevertheless generated a good deal of debate about whether it is as effective as it could be and more effective than alternatives, and whether it has produced unintended effects that are adverse to other modes of technology transfer and even to the norms of the research



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4 Findings and Recommendations THE PURPOSE AND CONTEXT OF IP-BASED TECHNOLOGY TRANSFER Discovery, learning, and promotion of social well-being are mutually supportive core university missions. Transfer of new knowledge to those in society who can make use of it for the general good contributes to each of these missions. These transfers occur through publications, employment of graduates, conferences, consultations, and collaborations as well as by obtaining patents on inventions and discoveries that meet the U.S. Patent and Trademark Office’s tests for patentability and licensing their use on terms negotiated with private enterprises. Often these mechanisms are complementary and operate in tandem. It is also important to recognize that none of these avenues is a one-way street. Science, technology, and business information flowing back from other sectors adds to the stock of academic knowledge and helps to inform faculty and students about opportunities to apply their research findings. This is especially true of mechanisms that enable or depend on repeated personal contact, as is often the case with licensing. Moreover, several of these mechanisms probably exceed licensing in economic and social impact. And the United States has a history of successful, mutually beneficial relations between public and private universities and the private sector long predating the prominence of intellectual property (IP) in those relationships. It is nevertheless the case that only patenting and licensing by universities are regulated by national policy related to the dominant role of the federal government in funding academic research. Thirty years ago, after considerable debate, this policy underwent a major change with passage of the Bayh-Dole Act, accelerating this activity and bringing about greater uniformity in the way research agencies treat inventions arising from the work they sponsor. The change also led many universities for the first time to organize how they handle IP stemming from both publicly and privately sponsored research. Although the post-1980 system has remained stable, it has nevertheless generated a good deal of debate about whether it is as effective as it could be and more effective than alternatives, and whether it has produced unintended effects that are adverse to other modes of technology transfer and even to the norms of the research 59

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60 FINDINGS AND RECOMMENDATIONS university community. It is for these reasons that this study focused on the university’s management of IP but in the context of all of the strategies and mechanisms for transmitting knowledge and in recognition of their interactions and role in the core mission of the university. Finding 1: The first goal of university technology transfer involving IP is the expeditious and wide dissemination of university-generated technology for the public good. The public good might include inputs into further research; new products and processes addressing societal needs; generation of employment opportunities for the production, distribution, and use of new products. Although the transfer methods will vary among institutions depending on the history, location, and composition of the institution’s research portfolio, the goal of expeditious and wide dissemination of discoveries and inventions places IP-based technology transfer squarely within the research university’s core missions of discovery, learning, and the promotion of social well-being. Finding 2: The transition of knowledge into practice takes place through a variety of mechanisms, including but not limited to 1. movement of highly skilled students (with technical and business skills) from training to private and public employment; 2. publication of research results in the open academic literature that is read by scientists, engineers, and researchers in all sectors; 3. personal interaction between creators and users of new knowledge (e.g., through professional meetings, conferences, seminars, industrial liaison programs, and other venues); 4. firm-sponsored (contract) research projects involving firm- institution agreements; 5. multifirm arrangements such as university-industry cooperative research centers; 6. personal individual faculty and student consulting arrangements with individual private firms; 7. entrepreneurial activity of faculty and students occurring outside the university without involving university-owned intellectual property; and 8. licensing of IP to established firms or to new start-up companies. All eight mechanisms, often operating in a complementary fashion, offer significant contributions to the economy. The licensing of IP, although not the most important of these mechanisms, is more often discussed, measured, quantified, and debated than all of the other mechanisms combined and is the subject of our remaining findings and recommendations.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 61 THE BAYH-DOLE SYSTEM AND ALTERNATIVES Finding 3: The system put in place by the Bayh-Dole Act, that is, university ownership of inventions from publicly funded research and latitude in exercising associated IP rights subject to certain conditions and limitations, is unquestionably more effective than its predecessor system— government ownership subject to waiver in circumstances that varied from agency to agency—in making research advances available to the public. This is a widely accepted judgment, but it is important to understand why this is the case. In the pre-1980 system of government ownership of inventions arising from federally funded research—whether in government laboratories, universities, or companies—the incentives to pursue further development and commercialization were severely attenuated and the capacity to do so severely limited. Government agencies, in particular, had no incentive and negligible capacity. And where research performers had the possibility of persuading federal agencies to transfer rights to them, the uncertainty of success and the complexities of obtaining waivers of government ownership under different agency rules were often high. Most institutions had no reason to hire specialized personnel and create administrative units to handle these matters. The Bayh- Dole Act substituted a system of university and small business ownership and removed the inconsistencies and uncertainties in agency policies with respect to performer rights, a considerable achievement. The change was followed by a surge not only in patenting and licensing activity but also in universities creating internal capacity to undertake this new level of activity. These developments since implementation of Bayh-Dole were no doubt encouraged by broad scientific advances, many of which were the result of significant increases in the NIH budget, a rise in activity in the fields of molecular biology and bioengineering, an overall increase in domestic outlays for biomedical research, and other policy changes that strengthened and extended IP rights generally and patent rights in particular. Finding 4: The Bayh-Dole legal framework and the practices of universities have not seriously undermined academic norms of uninhibited inquiry, open communication, or faculty advancement based on scholarly merit. There is little evidence that IP considerations interfere with other important avenues of transferring research results to development and commercial use. The potential for adverse effects exists, but countervailing pressures have largely protected the norm of open scientific communication. The most obvious example is the resolution of the tension between the need for secrecy to protect proprietary advantage and the norm of timely disclosure of research results. The fact that academic reputation depends heavily on publication means that there is strong resistance to demands on the part of corporate research sponsors and

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62 FINDINGS AND RECOMMENDATIONS commercial licensees for delays in research publication. As a general matter, universities have acceded to delays that are reasonably short. Many of the concerns that have been expressed from time to time—about publication delays, shifts in research priorities, and especially about the potential of upstream patenting to interfere with the conduct of research—have been investigated, sometimes repeatedly, by empirical researchers. Where they have found changes in behavior, for example, in the sharing of unique research materials among researchers in the life sciences, these seem associated more with reputational competition and with prior commercial involvement that may or may not have involved formal IP rights. Of course, the deepening of commercial ties in some fields may have subtle adverse effects on communication of research results. As some potential for unintended adverse effects on the academic research system remains, we do not suggest that these issues can be safely ignored in the future. Rather, the watchword in university management of IP should be “First, do no harm.” The question of the effectiveness of the current system of university ownership and management of most IP arising from research is difficult to address for at least 3 reasons 1. As always, the question “relative to what other system or systems?” needs to be answered. 2. Despite a uniform overarching policy, universities have wide latitude even in managing federally sponsored research, and there is great heterogeneity in universities’ resources, capacities, and practices. 3. Empirical research on universities’ patenting and licensing activity has relied almost entirely on what we consider to be a seriously deficient set of criteria represented by the metrics used in the annual survey of technology transfer offices by the Association of University Technology Managers (AUTM)—the number of patents relative to the number of invention disclosures or the amount of research funding, the number and charter of licensing agreements, and the amount of revenue collected by royalty-bearing licenses and related income sources (e.g., sales of IP, successful patent enforcement actions or settlements)— rather than any direct measure of public availability of the patented technology and benefit from it, economic, social, or otherwise. Studies have also paid little attention to different roles of patents in different fields of technology. There is considerable anecdotal evidence of such benefits, for example, in AUTM’s “Better World” compilation of cases, but there is no systematically collected evidence enabling reasonably firm conclusions about the sources of variation in institutions’ performance on the important dimensions. No one has seriously suggested returning to the pre-1980 regime. The only alternative to the status quo that has attracted support from some observers and academic scholars is one giving university faculty inventors much greater

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 63 leeway and autonomy from university central authorities in managing their own inventions. In many institutions, faculty are encouraged to explore possible applications of their technology; seek out and recruit potential investors and licensees; advise the negotiations; and participate actively in the ensuing enterprise, whether as a principal in a start-up company or as a consultant to an established firm that licenses her or his technology. This is commonplace and should be standard practice. Faculty initiative in seeking licensing opportunities is not the systemic change that critics of the status quo advocate. Nor does this refer to instances in which university officials evaluate an invention, decide for whatever reason not to pursue its commercialization, and allow a willing university inventor to retain rights. That, too, is accepted practice consistent with the Bayh-Dole Act, 35 USC 202(d), subject to the funding agency’s approval. The proposed changes are more far-reaching, either to permit inventors routinely to assume ownership and pursue commercial opportunities on whatever terms they wish or to create a hybrid system in which faculty are to pursue licensing or business creation opportunities through entities outside their institutions, either other university technology transfer offices or private service providers. In the latter but not the former version, the home institution would retain ownership and the right to receive any revenue from a resulting agreement. Faculty ownership has been the traditional practice in a number of countries abroad, where it is commonly known as “professor’s privilege,” and in the past in a few institutions in the United States. It is fair to say that it has progressively given way to university IP ownership and management in both U.S. and non- U.S. settings. That by itself is not evidence that faculty ownership is inferior, as local conditions may account for the change in some cases. Unfortunately there has been little comparative research on changes over time or differences across countries, but one Swedish-U.S. comparative study suggests that faculty ownership and exercise of IP is not more effective in commercializing academic research results.124 The relevant question that we considered is whether claims that faculty ownership is superior to the status quo are at this point sufficiently persuasive to consider changing the current system, a step perhaps requiring changes to the Bayh-Dole Act and certainly to its implementing regulations. Those arguments revolve around the alleged superior faculty knowledge of critical elements of the technology transfer process and stronger faculty incentives relative to those of technology transfer personnel. It is also argued that these personnel are strongly motivated to raise revenue for their institutions and thus focus their efforts on the few inventions with very large royalty potential. Finally, there is also a scale argument—that significantly more technology will be commercialized through the efforts of thousands of entrepreneurial faculty than by the fewer number of staff employed by university technology transfer offices. 124 B. Goldfarb and M. Henrekson. 2003. Bottom-up vs. top-down policies towards the commercialization of university intellectual property. Research Policy 32(4):639-658.

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64 FINDINGS AND RECOMMENDATIONS Finding 5: A persuasive case has not been made for converting to an inventor ownership or “free agency” system in which inventors are able to dispose their inventions without university administration approval. If evidence is developed suggesting that either would be more effective than the current system, other significant practical consequences and policy issues would have to be considered, such as the potential for conflicts of interest and adverse effects on public accountability. Finding 6: Nevertheless, proposals to empower faculty and other university-based inventors by giving them ownership or rights to market their inventions independent of university oversight reflect a feeling in some quarters that in the current system of university management, inventor initiative is not sufficiently valued and encouraged. In fact, successful commercialization often depends upon active inventor engagement and, in some cases, the inventor playing a lead role. Previous research together with research supported by this committee strongly suggests that expertise and experience in the multiple diverse sets of expertise involved in formal technology transfer transactions vary greatly across university technology transfer offices. One can presume that the same is true of faculty inventors, although they have been less studied. In general, faculty are neither trained nor expected to be knowledgeable about the complex array of economic and legal issues and technical matters that are involved in determining how an invention can best be licensed. In principle, the expertise of faculty and that of technology transfer personnel are somewhat complementary, with, for example, inventors usually having a better grasp of their technology and its potential applications, and technology transfer personnel usually having a better grounding in the process of obtaining patent protection and negotiating licensing terms. That distribution of expertise is probably the norm, but no doubt it varies from case to case. It should lead to cooperation, but it can also lead to misunderstandings and conflict. What is crucially missing from arguments for changing the current system, however, is any evidence of the degree to which faculty inventors would be motivated to commercialize their inventions if their institutions did not provide internal support in the form of hiring professional personnel and paying or securing payment of the costs of patenting and negotiating licenses. In the absence of such evidence, it is reasonable to presume that the incentive structure of the academic system, with its emphasis on building a scholarly reputation, weighs heavily on most research faculty as do the opportunity costs of time spent in other, often unfamiliar pursuits. Evidence for the assertion that an inventor ownership system would generate much more commercialization activity than the current system is lacking. In the event that evidence is developed strongly supporting inventor ownership or disposition of IP rights derived from sponsored research, then other possible effects of changing the current system should be examined. Most

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 65 university inventions are the products of research collaborations, and resulting patents list co-inventors. Disagreements between faculty members or between faculty members and students about how to commercialize a joint invention could hobble their efforts. By the same token, commercial value is often associated with combinations of technology from different inventors. Single inventors, even more than single universities, could be handicapped in assembling related IP for licensing because they would ordinarily not have rights in the related IP. Aside from these practical considerations, the committee has strong public policy reservations about any proposal to assign IP to inventors: • Compliance with the Bayh-Dole Act’s limitations and conditions on publicly funded inventions, including the requirement that a share of any resulting revenue be directed back into support of research, may be harder to monitor and achieve from individual inventors than from research institutions accustomed to ensuring compliance with the variety of federal requirements associated with research funding. • Similarly, with inventor ownership it could become much more difficult to encourage observance of the good licensing practices evolved by members of the university community and supported by AUTM and by this committee. • The exercise of IP rights has the potential to create either institutional or individual faculty conflicts of interest and commitment; the institution needs to be able to anticipate these circumstances and resolve cases uniformly. As noted above, some critics of the current system have proposed a hybrid model combining home university ownership with inventor “free agency” or autonomy to seek assistance outside the university in patenting and licensing their technology or creating a new firm to commercialize it. The inventor’s options could include his or her “home” technology transfer office, the technology transfer of another institution, or a private service provider. Clearly, such a change would require some thought about the payment systems that would incentivize competition among the potential “agents” for the technology. In addition to stimulating more commercialization activity, the intended benefit of this arrangement is to create competition among technology transfer offices for faculty clients and thus give offices an incentive to improve their performance. Although preserving some of the current system’s accountability, this compromise raises several practical questions in addition to the payout arrangement. Should the university restrict the set of potential agents and, if so, on what grounds would they be selected? To the extent that there are concerns about undue focus on revenue generation by technology transfer offices, is there any reason to expect that faculty inventors and their external agents would be less preoccupied with that objective? Why would any external agent or prospective licensee pursue an agreement if the owner of the technology could,

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66 FINDINGS AND RECOMMENDATIONS in the end, veto its terms? It may be possible to address these questions satisfactorily. The point here is simply that that has yet to be done. IMPROVING THE SYSTEM OF UNIVERSITY IP MANAGEMENT The system of IP management that has evolved in nearly all U.S. research universities is certainly not immutable and in many ways could be improved. The committee’s findings point in particular to the need for greater • clarity and balance in what goals are to be served and how performance is judged; • flexibility in how technology transfer offices are organized and conduct their business; • observance of community-generated “good practice” guidelines, such as the Nine Points to Consider in Licensing University Technology; • flexibility in the terms of research sponsorship, licensing agreements, and exchanges of research tools and materials; • recognition of the limited role of university-owned IP in transferring technology to established firms; • development and use of broader measures of performance and new modes of evaluation of technology transfer; and • transparency and accountability to the public. The remainder of this chapter recommends approaches to achieving these needs. INSTITUTIONAL TECHNOLOGY TRANSFER MISSION AND PRINCIPLES Few universities give a clear policy mandate to their technology transfer offices and personnel, or they give equal emphasis to multiple objectives.125 The four mandates most commonly articulated are (1) knowledge dissemination, (2) regional economic development, (3) service to faculty, and (4) generation of revenue for the institution. More recently, a fifth goal has been advanced by some groups: addressing humanitarian needs, especially food and health needs in developing countries but also therapies for diseases affecting small populations underserved by commercial markets. These goals are often in tension with one another, making patenting and licensing decisions difficult, performance hard to evaluate, and possibly distorting effort. Recommendation 1: The leadership of each institution—president, provost, and board of trustees—should articulate a clear mission for the unit responsible for IP management, convey the mission to internal and external 125 M. Sharer and T.L. Faley. 2008. The strategic management of the technology transfer function – aligning goals with strategies, objectives, and tactics. Lew Nouvelles 43(3)170-179.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 67 stakeholders, and evaluate effort accordingly. The mission statement should embrace and articulate the university’s foundational responsibility to support smooth and efficient processes to encourage the widest dissemination of university-generated technology for the public good. Whether the primary emphasis is on global, national, regional, or local benefits is likely to depend significantly on the nature of the IP and vary with the type of institution (public or private), its history, research intensity, primary sources of financial support, and educational characteristics. This places IP-based technology transfer squarely within the university’s core mission to advance discovery and learning and to contribute to the well- being of society while recognizing institutional differences. Also, industry research sponsors should explicitly allow requests by other academic scientists for materials developed in the course of studies they have sponsored at a university. The licensing of technology to the private sector can yield financial returns to the university and faculty in many forms, including opportunities for faculty involvement in further development of the technology; follow-on corporate- sponsored research agreements with the institution; donations to the institution from successful entrepreneurs; and direct revenues from licenses, infringement litigation, and sale of IP rights. Although it is reasonable to seek to defray the cost of technology transfer operations, patenting and licensing policies and practices should not be predicated on the goal of directly raising substantial, positive net revenue for the institution. Not only is the likelihood of very significant payoff from IP-based transactions slim and disappointed expectations high, but also that misplaced priority may divert universities from their mission to advance social welfare. More specifically, it unduly risks narrowing the focus and elevating the effort to commercialize those few inventions that appear to offer the greatest prospect of financial return to the neglect of others that may yield equal or greater social benefits. As with research itself, it is exceedingly difficult in technology transfer to predict with confidence what the successes will be. This does not mean that institutions, especially ones with substantial biomedical research portfolios, should be unprepared in the event that an opportunity for substantial revenues arises. This should involve consideration of what distribution of revenue (among the investors, the originating laboratory or department, and the institution) is appropriate in such circumstances.

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68 FINDINGS AND RECOMMENDATIONS INVOLVEMENT OF STAKEHOLDERS In addition to university administration support and guidance, a successful technology transfer program depends on consultation with and involvement of three stakeholder communities: investors, business, and faculty. Faculty generally knows the characteristics of their inventions and possible applications better than university administrative personnel and may well be more familiar with potentially interested investors and business partners. Where this is the case it is appropriate for faculty to assume a lead role in identification of and discussions with prospective licensees or with prospective investors in a new start-up enterprise, subject to university approval of formal agreements. It is also appropriate for faculty inventors to have the option of taking title if the university decides not to pursue transfer of an invention. Finally, anticipating that disputes will arise between inventors and their institutions’ administrations over patenting and licensing matters, the university should establish a fair and transparent process for appealing technology transfer office decisions,126 as well as consulting with the funding agency that has residual rights before the inventor. Recommendation 2: Universities with sizable research portfolios should consider creating a standing advisory committee composed of members of the faculty and administration; representatives of other business development units in or affiliated with the institution such as business incubators, research parks, proof-of-concept centers, and entrepreneurial education programs; members of the relevant business and investment communities; and, if appropriate, local economic development officials. The committee should meet regularly to help the technology licensing unit elaborate practices consistent with the institution’s goals and policies, consider how best to exploit inventions where the path to wide availability and broad public benefit is not clear, and identify new opportunities. A separate committee of faculty, employee, and administration representatives (who may or may not also serve on the advisory committee) should be charged with advising on university policy regarding technology transfer and hearing and helping to resolve disputes between inventors and the technology transfer office with respect to the protection and commercialization of inventions. Both the full advisory committee and the internal committee should make recommendations to the provost or other executives of the university. Rules of confidentially would apply to particular cases. Generally speaking, this is not to suggest that the advisory committee consider individually how to handle particular invention disclosures, a process that could occasion counterproductive delays. But there may be exceptional cases that are 126 Because these disputes will involve employees of the institution and thus personnel matters, the most appropriate composition of the internal panel is one composed of university personnel.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 69 precedent-setting or pose particularly difficult issues in design of a development strategy and these cases may benefit from a broader perspective than that of the technology transfer office personnel. The internal committee should not be charged with investigating disputes over inventorship, which is a legal matter. ORGANIZATIONAL GUIDELINES AND USE OF EXTERNAL RESOURCES The principle of university management of IP does not necessarily dictate one mode of organization or locus of the function. These can vary with the characteristics and needs of institutions and the mandate given to the technology transfer office. Each university should determine, however, who the responsible party would be (e.g., the technology transfer office, the office of sponsored research, or university general counsel) for submitting any of the required reporting under Bayh-Dole with respect to disclosure of new inventions, decision on whether to retain title to the invention, and information regarding the utilization of the invention. Recommendation 3: There is a strong theoretical case and some empirical evidence that the technology licensing unit is more effective when exposed to broader issues in the financing and conduct of research. That objective is best served by locating the technology transfer office in proximity and making it accountable to the university’s research management, for example, reporting to the provost or vice provost for research and allied or integrated with the office of sponsored research. Whether technology transfer and research administration functions are formally combined is less important than whether technology transfer personnel carry out the fundamental purpose of maximizing transfer for productive use for societal benefit and understand that their responsibility is first and foremost to serve the institution’s core missions, perceive the institution’s stake in productive long-term relationships with private and public research sponsors, and cultivate fair and open relationships with faculty and staff who generate the inventions being managed. The principle of university ownership does not mean that the responsible unit must perform internally all of the functions typically associated with current technology transfer offices.127 Indeed, some of these must be conducted cooperatively within the institution—with faculty, other administrative offices, and academic units–and may be more effective if shared with or outsourced to entities outside the institution, for example, contract consultants, local economic development agencies, and even other universities or groupings of institutions. Despite the scarcity of research findings on the comparative effectiveness of technology transfer activities across institutions, one set of differences is strikingly obvious: Institutions vary greatly in size, composition, and resources; 127 See below for our preliminary effort to distinguish technology transfer office functions appropriate for outsourcing from those that may not be appropriate to delegate.

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72 FINDINGS AND RECOMMENDATIONS in 2006 of research officers, licensing directors, and a representative from the Association of American Medical Colleges to discuss university technology transfer in the broader context of public policy. After much discussion over the course of the following year, in March 2007, representatives of the 12 participating organizations drafted a set of points for consideration by universities when making decisions regarding technology licensing. These “Nine Points” have since been endorsed by AUTM and over 70 other research organizations, including a number of non-U.S. universities. Recommendation 6: This committee reviewed the “Nine Points to Consider in Licensing University Technology” and endorses the guidelines most closely related to its charge128 • Universities should reserve the right to practice licensed inventions and to allow other nonprofit and governmental organizations to do so. In most cases this should not require a negotiated licensing agreement, although notice of intent to use the invention and awareness of any terms and limitations on use may be required through use of an online click-through license or other simple mechanism. • Universities should also endeavor to structure licenses, especially exclusive licenses, in ways that promote investment, diligent development, and use, with milestone criteria to back up such requirements. • Universities should strive to minimize the licensing of “future improvements.”129 • Universities should try to ensure broad access to research tools. • Universities should anticipate and do their best to manage or eliminate technology transfer–related conflicts of interest. • In cases where there is a market for the sale of unlicensed patents, universities should try to ensure that purchasers operate under a business model that allows for commercialization rather than a model based on threats of patent infringement litigation to generate revenue. • Universities should be careful to avoid working with private patent aggregators whose business model is limited to asserting patents against established firms rather than seeking to promote further development and commercial application of the technology. • Universities should try to anticipate which technologies may have applications that address important unmet social needs unlikely to be 128 Unlike the drafters of the “Nine Points,” this committee did not consider the relationship between licensing patents and compliance with national security export controls. 129 The “Nine Points” document points out that licensees often seek guaranteed access to future improvements on licensed inventions and that such access may effectively entangle a faculty member’s research program to the company. As such, the “Nine Points” discourage giving exclusive licensees rights to “improvement” or “follow-on” inventions and instead state that licensed rights should be limited to existing patent applications and patents and only to those claims in any continuing patent applications that are (1) fully supported by information in an identified, existing patent application or patent and (2) entitled to the priority date of that application or patent.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 73 served by terms appropriate for commercial markets and to structure agreements to allow for these applications. The principal examples are technologies suited to meeting the agricultural, medical, and food needs of developing countries. In considering enforcement of their IP, universities should be mindful that their primary mission is to use patents to promote technology development for the benefit of society and that involvement in legal disputes with outside entities can reflect poorly on an institution. Some observers have encouraged universities to see “gold in them thar patents” by enforcing patent rights through litigation and pointing to some lucrative outcomes.130 Others have cautioned that litigation is a two-edged sword, and universities can find themselves on the losing side.131 Caution seems particularly appropriate in enforcement of patents on far upstream basic research discoveries. In March 2010, the Court of Appeals for the Federal Circuit reaffirmed a three-judge panel decision in Ariad v. Lilly, invalidating patents of Harvard, MIT, and the Whitehead Institute for Biomedical Research on the cell signaling pathway NF-kappa-B for lack of sufficient written description. In a concurring opinion, Judge Pauline Newman wrote, “the subject matter is indeed basic research, which was taken to the patent system before its practical application was demonstrated.” In addition, prosecution of a patent infringement suit is usually exceedingly expensive and in most cases a drain on university resources with very substantial opportunity costs. Accordingly, enforcement through litigation is rarely the preferred option to resolve a dispute, although it is an option important for universities to retain. Recommendation 7: A university’s decision to initiate legal action against an infringer should reflect its reasons for obtaining and licensing patents in the first instance. Examples include • contractual or ethical obligations to protect the rights of existing licensees to enjoy the benefits conferred by the licenses; • disregard by infringer of scientific or professional norms and standards, such as use of medical technologies outside standards of care or professional guidelines; and • disregard by an infringer of the institution’s legitimate rights, for example, as evidenced by a refusal to negotiate a license on reasonable terms. FACILITATING MATERIAL TRANSFERS Although only partially related to protecting IP interests, evidence suggests a growing reluctance on the part of research scientists to share biological 130 A. Poltorak. 2009. Thar’s Gold in Them Thar Patents. University Business. Available at: http://www.universitybusiness.com/viewarticle.aspx?articleid=1408. 131 J Sarnoff and C Holman. 2008. Recent developments affecting the enforcement, procurement, and licensing of research tool patents. Unpublished Manuscript.

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74 FINDINGS AND RECOMMENDATIONS research materials. Moreover, in a significant number of cases, institutions require the use of Material Transfer Agreements (MTAs) to handle requests for such exchanges. MTAs are intended to protect the institution’s ownership interest in the research material and impose conditions on distribution and use. In the committee’s judgment, the use and complexity of these agreements and the time consumed in negotiating them have become overly burdensome. Recommendation 8: To facilitate the exchange of scientific materials among investigators, especially those engaged in nonprofit sector research, research sponsors should explicitly encourage and monitor compliance with requests for materials. Moreover, technology transfer offices should in the future either • cease requiring use of Material Transfer Agreements when their investigators and colleagues at other nonprofit research institutions are exchanging non-hazardous or non-human biological material for in vitro research or • use only the Uniform Biological Material Transfer Agreement or the Simple Letter Agreement recommended by the National Institutes of Health (NIH). NIH should reiterate its support of these options; monitor the actions of grantees and contractors with regard to material sharing; and, if necessary, require their compliance with this policy. Industry sponsors should follow similar practices, encouraging material exchanges and refraining from demanding overly restrictive conditions. University technology transfer and sponsored research offices should discourage investigators from entering into sponsored research agreements where the terms governing material exchanges between nonprofit institutions deviate from this policy.132 LAUNCHING START-UP ENTERPRISES Launching a stand-alone new firm may be the best or only option for commercializing a new technology, particularly when its use would displace existing methods and disrupt established business models. Institutions that are inclined or encouraged to engage in launching new firms as a major part of their technology transfer mission need to recognize a number of conditions for success that universities traditionally have not provided and that licensing to established firms does not demand. 132 This recommendation is similar to a recommendation of the National Academies’ Committee on Intellectual Property Rights in Genomic and Protein Research and Innovation. NRC, 2006. This formulation was endorsed May 7, 2009, by 11 leading U.S. research universities including the California Institute of Technology, Columbia, Harvard, Johns Hopkins, MIT, Princeton, Stanford, University of Chicago, University of Pennsylvania, Washington University, and Yale.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 75 First, a technology or idea generated in the course of research, although at an early stage of development making it unattractive to established firms, nevertheless must have the potential to meet a market need that may not have been conceived. Formal protection of the idea or technology through patenting may or may not be critical to commercializing it; in any case, it is only the first step. Second, the need must better lend itself to exploitation by a new, small firm, than by an existing enterprise. Third, there must be a plan to develop the business, which may change radically as the enterprise develops but nevertheless focus attention on the pathway to commercialization. Fourth, the business needs investment capital. Finally, the enterprise requires skillful management to grow and provide returns to the investors. However important it is for the faculty inventor to provide ongoing technical advice to the new enterprise, rarely is she or he suited to the role of senior manager. Notwithstanding these conditions encountered in launching start-ups, in recent years a number of institutions have successfully launched start-ups based on their faculties’ technologies. The generally large institutions that have successfully spun off a number of companies have created a culture that recognizes and rewards entrepreneurial activity. Some are fortunate to be located in highly entrepreneurial business environments where angel and venture investors are seeking out new opportunities. In these localities, the institution can assist in connecting the researcher and her or his idea to a community of strategists, inventors, and managers. In other cases, universities have created assets that previously did not exist in the university or the community and that provide a supportive infrastructure for new business development and growth. The capabilities vary from institution to institution but include • on-campus and off-campus incubators and science and technology parks that enable start-ups to access expertise and share facilities and services; • entrepreneurial centers that train students and advise faculty on business plan development; • centers that provide funds for follow-on pre-commercial technology development; and • early-stage investment funds drawing from endowments, alumni, or other university-affiliated sources. When launching a start-up enterprise, the technology transfer office, which is able to acquire IP protection but usually not equipped to develop a business plan or marshal capital and managerial talent, tends to play a subordinate role in the process and sometimes is seen as a regulatory obstacle focused on licensing terms that may or may not reflect the risks and uncertainties entailed in taking an entirely new enterprise from formation to commercial success. Rarely embedded in the infrastructure created to support entrepreneurship, the technology transfer office may view the other elements as competitive, when there is a premium on effective collaboration if spin-offs are to succeed.

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76 FINDINGS AND RECOMMENDATIONS Two caveats require consideration: first, the development of an entrepreneurial culture in an institution and establishment of a suite of university services to support entrepreneurial ventures can be a lengthy and expensive process.133 Second, the return to the institution is rarely the payoff from an equity investment in a Google or a Yahoo! that has a successful initial public offering. Initial public offerings became increasingly rare following the dot-com crash of 2001134, and the university’s initial ownership stake is likely to be diluted in successive rounds of private financing before going public. Rather, the rewards can be the availability of a new technology, university association with the creation of new jobs, and the goodwill of successful entrepreneurs. Thus, the committee believes that best practices for the development of an entrepreneurial culture require the following Recommendation 9: Universities engaged in licensing technologies to a new enterprise should ensure that a process is in place not only for securing IP protection but also for evaluating whether the technology is more appropriate for development and commercialization by a start-up rather than an established firm and for determining that the requisite assets for the start-up’s viability are in place or in process. These assets generally include a clear conception of market need, a vetted business plan, investment capital, and management with appropriate skills. In some universities, diverse units might contribute to creating some of these assets. In other cases, they are largely handled externally. Regardless of the extent of the university’s involvement, the technology transfer office can increase the odds of a university spin-out company’s success by helping to ensure that such assets are available from internal or external providers. To the extent possible the university administration should try to ensure that the key inputs are available and coordinated. The technology transfer office can enhance the cooperation of faculty, staff, and student researchers and contribute to entrepreneurial success by streamlining the licensing of new ventures. Recommendation 10: Universities seeking to encourage entrepreneurship should consider instituting an expedited procedure and more standardized terms for licensing university-generated technology to start-up enterprises formed by faculty, staff, or students of the institution. The decision to extend such a license should depend on the existence of a vetted business plan, absence of conflicts of interest, and evidence that the principals, per Recommendation 9, have sought out competent managerial 133 See Jon Fjeld: The Challenges of Creating New Ventures to Commercialize University Technologies, presentation to the Committee on the Management of University Intellectual Property, The National Academies, August 28, 2008. 134 National Research Council. (2009) Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research. Summary of a Workshop. Washington, D.C.: National Academies Press.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 77 and other expertise to enhance the enterprise’s commercial viability. There may be circumstances justifying the university’s departure from the standardized, expedited procedure for specific inventions or inventors. However, both the conditions and the grounds for discrimination should be articulated ex ante to avoid arbitrariness in the process, align expectations, and make the process as efficient as possible. With respect to the university’s equity stake and/or royalty rates, these terms are likely to vary from institution to institution and from one technology field to another, but they should reflect sensitivity to the exigencies facing start-up enterprises in their earliest phases, and they should provide for predictability and simplicity with a view toward reducing transaction costs that may be especially burdensome for prospective entrepreneurs with limited time and resources. This recommendation is intended to support venture creation as a vehicle for technology transfer for social good and, to this end, is also intended to encourage staff cooperation with the technology transfer office, facilitate cooperation among elements of the support structure for entrepreneurship, and result in more accurate reporting of entrepreneurial activity. RELATIONS WITH PRIVATE RESEARCH SPONSORS Although privately sponsored research is largely unregulated, most universities have claimed ownership of the inventions derived from it and disclosed by faculty and staff. This is because it is in the financial interest to do so and because it makes for greater administrative simplicity, especially when a research area or research team has a mix of public and private support. For some public institutions, the practice may be dictated by state law. Licensing terms in the case of federally sponsored research are minimally constrained by the Bayh- Dole Act (e.g., small business preference, domestic exploitation preference) and to some limited extent by agency sponsor (e.g., NIH guidance on exclusivity versus nonexclusivity). In the case of privately sponsored research, licensing terms are set case by case by individual agreements. Accordingly, there is much greater heterogeneity. Negotiating the terms of IP arrangements with private sponsors often has been perceived by observers to be accompanied by friction and delays. These have not been systematically documented, but they have been the subject of ongoing discussion in various university-industry forums. Collective efforts to reduce the friction and delays perceived to be associated with many negotiations over the terms of research sponsorship agreements (e.g., discussions by the Government-University-Industry Research Roundtable at The National Academies, and the University-Industry Demonstration Partnership’s “turbo negotiator” software for streamlining IP negotiations) have focused on improving understanding and acceptance of the objectives and constraints on both sides of a relationship rather than on changing its terms. These efforts have had partial success, but complaints about the intransigence or ignorance of one

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78 FINDINGS AND RECOMMENDATIONS side or the other remain common. Systematic data on time to agreement and issues arising in negotiations have not been collected, although there is some survey evidence to suggest that the greater ease of negotiating IP terms with some non-U.S. institutions is a factor (cost is another) in U.S. multinational companies’ decisions to locate R&D activities offshore135. Less attention has been paid to the emergence of non-traditional types of agreements in part, perhaps, because neither the university nor the firm is eager to advertise its willingness to negotiate such terms. Universities generally insist on acquiring title to inventions resulting from foundation- and corporate-sponsored research for several reasons. Where publicly and privately sponsored research activities are so commingled that the source of funding for a particular invention cannot be identified, it may not be possible to hand title to the sponsors. Further, foundations and corporate sponsors often decline to pay anything near the university’s full research overhead costs or even the federal rate, thus imposing a financial burden on the institution. Nevertheless, there may be circumstances where exceptions are justified to promote commercialization. There are now several examples of arrangements that depart from the norm of university ownership and licensing for a fee.136 Although they have not been evaluated in operation, some of these appear to offer promise of reducing friction and delay in the negotiation of sponsorship agreements with private partners. Examples brought to the committee’s attention include the following: • Corporations offer and universities accept a percentage premium on research contracts in lieu of negotiating future royalty terms. • For work that does not represent leading-edge, knowledge-enhancing research, some universities give corporate sponsors title to results. • Universities grant corporate sponsors royalty-free nonexclusive licenses to research results where the company pays the full costs of the research in question. Recommendation 11: University technology licensing and sponsored research offices should explore arrangements with private research sponsors that promise to obviate the often protracted process of negotiating licensing terms, the principal source of friction and delay in reaching agreement. ENSURING EVALUATION AND ACCOUNTABILITY INSTITUTIONAL LEVEL Recommendation 12: Universities should periodically review the operations of their technology transfer offices in a manner similar to the 135 Thursby and Thursby, 2006, op. cit. 136 Some IP property arrangements with for-profit entities may call into question the eligibility for tax-exempt bond financing of facilities in which the research work is performed.

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 79 evaluation of academic and administrative units. This could involve the formation of a visiting committee with members drawn from other institutions’ technology transfer offices generally recognized as high performing; members of the relevant business and investment communities; and representatives of research sponsors, faculty, and economic development organizations. The reviewers’ evaluation should focus on the broader technology transfer environment of the university and the roles of various stakeholders in it. Care needs to be taken to ensure that outside evaluators understand the scope of the technology transfer unit’s responsibilities, the reasons for its location in the institution’s administration, and its relationships with other entities involved in the process. If possible, the process should entail efforts to ascertain the views of faculty members, research sponsors, and those responsible for related activities within the institution. Careful thought must be given to what performance measures should be posed to these constituents. Such measures should extend well beyond number of patents applied for and issued, number of formal licensing agreements, and revenue received. Appropriate process metrics include how long agreements take to negotiate, satisfaction with service among faculty and licensees, how many technologies are being promoted at any time, how well technology transfer personnel qualifications are suited to this diversity, how many contacts are made in the course of marketing the technologies, and whether the technology transfer office is imposing out-of-pocket costs on the institution that are unjustified or unsustainable. In addition, an effort should be made to develop outcome measures appropriate to the university’s mission, such as the number of people benefited or the extent of reduction in mortality and morbidity. Financial self-sufficiency should not be the pivotal criterion if the university sees as its mission ensuring that its research has the broadest utility and impact. NATIONAL LEVEL Because of the measures used, data regularly reported on university technology transfer activities can provide only a narrow window on the totality of knowledge transfer and exchange activities that are occurring in a university at any time. These data suffer from two major deficiencies. First, they largely ignore the principal avenues of transfer—publication, networking, teaching, student placement, consulting, conferences, public meetings, and collaboration—which are largely outside the remit of technology transfer offices. For these avenues, at least in the United States, there are no simple statistics for assessing changes, benchmarking institutions, or making international comparisons. The second deficiency is that the data used draw disproportionate attention to the volume of transactions—number of invention disclosures filed, patents issued, licenses concluded, spin-offs created—and the resulting revenue totals. Institutions fortunate to receive windfall income from

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80 FINDINGS AND RECOMMENDATIONS one or two inventions appear to be highly successful; institutions unable to cover their technology transfer operational expenses are likely to be considered underperformers. AUTM’s annual survey, although it provides much useful information, fails to put IP-based transactions in the context of knowledge dissemination broadly, ignores vast differences in capacity—not merely performance—among institutions, and distorts incentives especially for the least well-endowed and experienced institutions. AUTM has formed a committee to design a more comprehensive survey of university technology transfer. The Association of Public and Land-grant Universities is developing a similar template for individual public institutions to use in self-assessment. Both rely to a large extent on the U.K. measurement efforts described above as a model. Moreover, the National Science Foundation is considering adding a technology transfer module to its annual survey of university and college R&D expenditures. NSF has asked the university community to identify new measures that contribute to understanding of the role of universities in economic growth; lend themselves to statistically meaningful national characterizations; and can be collected by academic institutions. In responding to NSF’s request, over the past year considerable attention has been paid to identifying metrics other than traditional ones (such as patents, licensing, and revenues) that capture three broad areas of university activity: (1) development of human capital and the movement of knowledge; (2) entrepreneurial endeavors; and (3) partnerships and other means of faculty, staff, and student interactions. It is critical that the data collected are based on comparable measures across all institutions reporting so as to allow for effective analysis and evaluation. Recommendation 13: Principal university and professional organizations and federal science agencies should coordinate efforts to develop a more balanced set of measures of total university knowledge exchange with the private sector to improve understanding of the process and its performance. This should result in a manageable set of questions incorporated in National Science Foundation’s annual survey of higher education institutions’ expenditures on research and development and in other private surveys. To the extent possible, the responses should be capable of being linked to other data sets on research outputs, new business creation, and industrial performance. This effort will of necessity take into account the relative strengths of different survey instruments, mandatory data reporting requirements discussed below, the capacity of respondents within a single institution and across institutions to provide reliable comparable responses, and the costs of increasing reporting requirements. The Bayh-Dole Act is a sound and flexible framework for promoting the commercialization of university-developed inventions resulting from federally sponsored research. The committee has no reason to believe that either governmental retention of title or routine retention of title by individual inventors would yield more commercial applications or achieve a better balance

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MANAGING UNIVERSITY INTELLECTUAL PROPERTY 81 of the public’s stakes. Although the Act is effective in its primary purpose, successive administrations have not maintained an effective framework for government oversight, failing to assign oversight responsibility clearly; describe its components; and to establish a comprehensive, accessible data collection system to support it. As discussed in Chapter 2, the Bayh-Dole Act, at 35 USC Sec. 206, authorized the Department of Commerce to develop and, if need be, revise regulations to implement sections 202-204, and report annually to Congress on federal technology transfer activities. In addition, Department of Commerce representatives have served on an interagency working group on technology transfer and, on occasion, have reviewed agency Determinations of Exceptional Circumstances (DECs) with a view to encouraging consistency. The General Accounting Office (GAO) described this as a “coordinating” role.137 Within the Department of Commerce, these functions have been reassigned several times, ending up in 2007 delegated to the National Institute of Standards and Technology (NIST). The President’s Council of Advisers on Science and Technology has twice recommended that this function be upgraded and expanded. Recommendation 14: There should be a clear assignment of federal government oversight responsibilities, perhaps by Executive Order, including • ensuring consistent implementation of federal technology transfer laws by all agencies; • reviewing agency diligence and actions with respect to DECs, government use rights, and exercise of march-in rights; • revisiting the Department of Commerce regulations implementing several provisions of the Bayh-Dole Act, including the conditions for access to and use of data gathered about inventions; • heading an interagency committee on technology transfer that would, for example, evaluate and develop a government-wide position on proposed changes to the Act or system; and • reviewing with other agencies and with representatives of research universities and relevant professional groups the data that should be collected from universities. To play an effective role, the oversight unit needs to extend its outreach not only to other federal research agencies but also to the university research community. Effective oversight also depends on the availability of relevant data, and here there is an even more glaring deficiency. The Bayh-Dole Act requires institutions to provide data on actions with respect to federally funded 137 United States General Accounting Office. 1998. Resources, Community, and Economic Development Division, Technology Transfer: Administration of the Bayh-Dole Act by Research Universities. Washington, DC. RCED-98-126.

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82 FINDINGS AND RECOMMENDATIONS inventions to research-sponsoring agencies. In a progressive step, the data depository developed by NIH, iEdison, was made available to other agencies as a central depository for such data. However, GAO has found that institutional reporting is often incomplete and inaccurate, although the most recent review of the database occurred in 2003. Moreover, federal officials, who by regulation are the only parties allowed access to the data, are restricted to data or research supported by their agencies. These circumstances mean that even once there is a functioning oversight entity, it would be seriously handicapped in carrying out its charge. Recommendation 15: Federal research agencies should reinvigorate the requirement that institutions reliably and consistently provide data to iEdison on the utilization of federally funded inventions, including licensing agreements and efforts to obtain such utilization. Such data should be available for analysis by qualified researchers who agree not to disclose the parties to or terms of particular agreements. As a practical matter, government officials will have limited capacity to analyze the data required to be submitted; consequently, institutions’ incentive to make sure that the data are complete is attenuated. Access should therefore not be limited to the Commerce Secretary’s agents or other federal agency officials alone. To advance general understanding and public accountability of the university technology transfer system, qualified researchers should be allowed access to the data for analysis provided that the data are not publicly identified by institution, investigator, licensee, or other affected individual or entity. It does not appear that such access is barred by the Bayh-Dole Act,138 but will likely require a change in the Commerce Department-issued regulation restricting access to the data to anyone other than a government employee without the permission of the grantee or contracting institution. This limitation, instituted to prevent disclosure of proprietary information, overshot its mark, hampering use and interpretation of the data to improve the system’s functioning, including our own review. Approved researchers have for decades had access to equally sensitive government-held data—for example, personal and business proprietary information contained in Census records—without a serious breach of the non-disclosure conditions. 138 The Bayh-Dole Act in 35 U.S.C. Sec. 202(C)(5)(2009) protecting from disclosure information from grantees and contractors tracks closely the language of the Freedom of Information Act (FOIA), 5 U.S.C. (b)(3) and (4), which the Supreme Court has ruled did not remove an agency’s discretion to disclose information especially in de-identified form. Chrysler v. Brown, 441 U.S. 281 (1979). Further, case law suggest that information that is exempted from disclosure under FOIA exemption 4 and that therefore is governed by the Trade Secrets Act can be disclosed if release would not (1) damage the competitive position of the entity from which the information was obtained or (2) impair the agency’s ability to collect the information in the future. Access to iEdison data by qualified researchers agreeing not to release information identifying a university, firm, or individual is not likely to have either of these effects.