Management Guide to Intellectual Property for State Departments of Transportation (2015)

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81 7.1 IP Revenue Management and Revenue Sharing Typically, an organization must own the IP rights to collect a royalty or licensing fee. If, however, a state DOT has funded a project that results in a protectable asset, a revenue stream may be established in the initial agreement with a party (e.g., employee, contractor) that will take ownership of the IP. The agreement can mandate a percentage of the financial returns that would be given to the state DOT. The risk in this model is that the state DOT’s revenue stream from IP completely depends on the marketing and commercialization efforts of the IP holder. In many cases, placing the burden and risk of the commercialization on another party is in the best interest of the state DOT and the IP. However, it is recommended that if the state DOT intends to establish a revenue stream from a particular IP asset, the state DOT should take title in order to control the process (e.g., commercialization, march-in rights). For example, the Texas Department of Transportation (Texas DOT) reportedly licenses and receives revenue for the trademark “Don’t Mess with Texas®.” The state DOT has control over its use and only gives permission for uses that fit with their plans in exploiting this IP. When IP that is sponsored or owned by a state DOT generates a financial return, it is important to have a policy in place for sharing the revenue. In the event that the IP is of no interest to the state, the technology may be released to an employee-inventor, who then is allowed to pursue IP protec- tion. Effective IP management can create a win-win situation in economic development for both the general public and the state. Many university and federal laboratory-based technology management offices have policies that mandate the percentage of any revenue earned by the IP asset to be shared with the inventor or creator of the IP assets. Some of these policies have distribution sharing as high as 40 percent, after IP registration and processing costs have been deducted. Common practices found in private companies are less-often based on a percentage of licensing revenue. Rather, they are based on specific amounts. For example, if an invention is awarded a patent, the inventor may receive $10,000. When the distribution to the inventor/creator is attached to a licensing revenue stream, however, the total distribution value may be capped (e.g., the policy might state that the amount of money paid to the inventor/creator will not exceed $1,000,000). Unlike companies in private industry, public agencies need to manage licensing revenue in a way that returns this economic value back to the state. Figures 12 and 13 show flowcharts of an IP management framework and revenue-sharing process suggested by the California Council on Science and Technology. For those state DOTs that view their research and development as the highest potential opportunity for IP, Figure 14 shows the interdependencies between the funding and the trans- fer of technology at the National Renewable Energy Laboratory (NREL). In this model, NREL is funded by taxes via the federal government. Researchers at the lab develop technologies and C H A P T E R 7 Managing Revenue Earned from IP

82 Management Guide to Intellectual Property for State Departments of Transportation Source: California Council on Science and Technology Intellectual Property Study Group. Figure 12. IP management framework for state-funded research. create publications that are released to the public. For some technologies, IP is pursued by the technology transfer office. The transfer office subsequently attempts to license the technology to companies who will then commercialize the technology. If revenue is received by the technology transfer office, it is shared with the researcher. These examples demonstrate the coexistence of a new knowledge-creation model through research and publishing with the commercialization and exploitation of any resulting IP. This model could be used by state DOTs developing IP management revenue management programs. The model also demonstrates how a state DOT could expand its support for economic develop- ment through more proactive IP management. 7.2 Future Investments In 2008, FHWA, AASHTO, and NCHRP sponsored a scan of international transportation research programs to assess international practices and identify ways to make transportation research programs in the United States more effective. A common theme identified in other

Managing Revenue Earned from IP 83 Source: California Council on Science and Technology Intellectual Property Study Group. Figure 13. Revenue sharing for state-funded research. Note: Model of technology transfer used in many federal laboratories. Figure 14. IP management.

84 Management Guide to Intellectual Property for State Departments of Transportation countries was the conclusion that the U.S. needs to “figure out its IP issues” with respect to government-funded transportation research (177). This comment appeared to be directed largely at the lack of patents issued as a result of government-funded transportation research in the United States. In the European and Asian countries surveyed, patents were one measure of the effectiveness of transportation research programs and were seen as keys to national economic growth. The idea that the United States still needs to “figure out its IP issues” with respect to government- funded research may at first come as a surprise, because the U.S. government now has decades of experience with technology transfer and commercialization of federally funded IP. For example, considerable thought and effort have been put into the federal acquisition regulations (FARs) governing IP ownership for federally funded research. In the transportation arena, however, much R&D is performed at the state level or funded by state governments, in which case the federal mechanisms may not apply. It is fair to consider whether the federal framework is well suited for transportation R&D and improvement projects, many of which are conducted at the state DOT level. Many federal, state, and local government entities support technology transfer from academic and nonprofit research institutions to private businesses. They may do so through technical assistance to establish and enhance small businesses, technology transfer through partnerships among businesses, academic, and nonprofit research institutions, or by helping small businesses apply for funding and technical assistance. A review of a state DOT’s website quickly reveals the on-going projects sponsored by that state DOT. States sponsor projects related to materials, sensors, traffic analysis, traffic data, and various software applications. Because state DOTs are major investors in the creation and development of IP, they undoubtedly view IP as a key asset. As noted in the discussion of public domain in Chapter 6, there need not be a conflict between IP ownership by the state and dedicating the IP to public domain. Even if IP is not considered a significant revenue stream for the state DOT, proactive management can help establish and clarify issues of ownership and accessibility, and also support and encourage innovation by sharing the results and outcomes of state DOT projects. State DOTs’ responsibilities include managing the risks associated with investment in their many transportation products. Risks may be associated with the expectation to have continued access to innovations developed with state DOT funding; becoming captive to incumbent con- tractors with proprietary technology; ensuring consistent use of proper procedures to shield state DOT contractors from potential IP infringement claims by other state DOT contractors or third-party patent owners; and/or encouraging the most efficient methods of technology transfer. Ample examples—including the case studies presented in Chapter 9 of this Guide—suggest that these risks are real. Additionally, research shows that proactive IP management may be able to mitigate some risks. Although risk management is a very important motivator, some state DOTs also may be motivated to use their IP as a revenue generator. Some of the best practices in IP management from federal laboratories, universities, and the private sector may provide adaptable models for state DOTs. Also, as state governments move toward more privatization, IP issues may become more prominent, and the need for effective IP management will be pertinent.