Broken Symmetry

Sichelman and O'Connor on The Guild Origins of Patent Law in the Venetian Republic

Presented yesterday at the IP Scholars Conference:

A key assumption of today’s standard account of patents is that, absent patent protection, all products would generally be purchased in a competitive market. However, the first regularized patent system appeared during the Renaissance in the Venetian Republic, which was a highly regulated economy. In the Venetian economy, many types of products - particularly, artisanal or technological products - could typically be produced and sold only by artisan and merchant guilds. One important exception to the guilds’ monopolies were 'patents,' which initially provided non-guild members - particularly foreigners - the privilege of being able to sell products and practice methods that were otherwise within the sole province of the guilds. Directly contrary to the view that patents tend to diminish competition, patents in the Venetian Republic enabled a new kind of competition from outside of the guild system. This article explores the role patents played in promoting competition in the Venetian Republic. This exploration is important for understanding not only the historical genesis of the patent system, but also in gaining a deeper understanding of the patent system today.

SSRN link here.

According to their account, the patent system in Venice was setup initially to give talented foreigners a chance at competing with the entrenched guilds. The same agency responsible for immigration was also responsible for examining and granting patents.

Meanwhile, in Silicon Valley, we're sending talented immigrants home after we're done educating them.

Supreme Court Affirms the Priority of Individual Rights under the Patent Act

Stanford v. Roche decided today:

Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor. The question here is whether the University and Small Busi-ness Patent Procedures Act of 1980—commonly referred toas the Bayh-Dole Act—displaces that norm and automati-cally vests title to federally funded inventions in federal contractors. We hold that it does not.

As noted in the Sotomayor concurrence, footnote 2 on page 5 expressly reserved the questions that would have been raised by consideration of the Federal Circuit's precedents regarding interpretation of patent assignments. Thus, the guidance on choice of law that seemed possible after oral arguments have been reserved for future consideration. It is notable, however, that even the dissenters (Breyer and Ginsburg) who addressed the Federal Circuit precedent were silent as to the choice of law question.

Patent Reform through the Creation of Economic Facts

This piece by Hernando de Soto on the "Destruction of Economic Facts" caught my eye not long ago:

During the second half of the 19th century, the world's biggest economies endured a series of brutal recessions. At the time, most forms of reliable economic knowledge were organized within feudal, patrimonial, and tribal relationships. If you wanted to know who owned land or owed a debt, it was a fact recorded locally—and most likely shielded from outsiders. At the same time, the world was expanding. Travel between cities and countries became more common and global trade increased. The result was a huge rift between the old, fragmented social order and the needs of a rising, globalizing market economy.

To prevent the breakdown of industrial and commercial progress, hundreds of creative reformers concluded that the world needed a shared set of facts. Knowledge had to be gathered, organized, standardized, recorded, continually updated, and easily accessible—so that all players in the world's widening markets could, in the words of France's free-banking champion Charles Coquelin, "pick up the thousands of filaments that businesses are creating between themselves."

The result was the invention of the first massive "public memory systems" to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: "economic facts."

The patent system is an example of one of these "public memory systems," which has facilitated transactions in intangible (exclulsionary) rights.

The focus of de Soto's attention is on the financial services industry, and in particular on how innovation in financial services has destabilized and undermined the consistence of public memory systems. On his view, this is a root cause of our ongoing recession:

Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don't know and can't prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

Go ahead and click through to read the whole piece. His is profound insight. Note one earlier link on BS to a similarly thought provoking piece by de Soto.

What about the patent system? Has the patent system undergone a similar destruction of economic facts over the last twenty years?

Not really. More the opposite seems to be true, in fact. At least since the Federal Circuit was established, and especially lately since patent office records worldwide are now available online, the patent system has never functioned more effectively.

And yet, even with all of these improvements, it seems to me that the patent system has not yet been able to provide enough "economic facts" for the market to transition from litigation to transactional norms in handling the allocation and reallocation of patent rights. In effect, there has been no destruction of economic facts within the patent system because the patent system never created economic facts to begin with.

The production of "economic facts" in the sense that de Soto describes should be the ultimate goal of any patent reform. We have seen many incremental and even discontinuous leaps in that direction over the past few decades. But we are not there yet.

Problems with ascertaining title and encumbrances on title are foundational to any economic facts about patents. The systems for handling these economic facts with respect to real property and even copyright are more highly developed than they are for patents, even though title goes to the very root of how patents are valued now because problems with standing can result in zero returns to enforcement.

All of the issues that have been addressed lately, including Therasense yesterday, will help move us incrementally closer to a world in which patent rights transact without litigation. But a focus on the creation and maintenance of a "public memory system" -- a source of "economic facts" about patent valuation -- will get us there quicker.

At the end of the day, valuing patent portfolios is not more complex than the valuation of collateralized debt obligations, currency derivatives, or interest rate swaps. The difference is that those intangibles have (or at least had) a foundation of "economic facts" to facilitate transactions.

Federal Circuit Upholds District Court Interpretation of Contract Assigning Non-exclusive Licenses

The Rembrandt Techs. opinion includes the following diagrams of chain of title and licensing of the asserted patents:

At issue was the question of whether the assignment of the licenses from Old Rockwell to New Rockwell were valid, such the sublicense from New Rockwell to Conexant was sufficient to exhaust the patent rights.

Transferability of licenses presents thorny choice of law issues in many cases because different states have different presumptions when it comes to the validity or enforceability of any kind of restrictions (encumbrances, covenants, or licenses) on personal property. Compare Cadtrak Corp. with Superbrace.

There is nothing in the Opinion to indicate what law was applied in interpreting the relevant contracts.

Split within Federal Circuit on Federal Preemption of State Law in Ownership Disputes

[Below is the text of a case note submitted by me to the MWE IP Update Newsletter, which is recommended reading for anybody interested in keeping up with new developments in patent, trademark, copyright, and trade secret law. Eventually, they should have it up in blog format. In the meantime, I'll "crosspost." -MFM]

Last November, a split panel of judges on the U.S. Court of Appeals for the Federal Circuit vacated a district court finding of infringement by generic drug maker Navinta on the grounds that the plaintiff Abraxis had not properly transferred ownership of the asserted patents prior to the filing of the complaint. Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Nov. 9, 2010) (Gajarsa, Linn for the Court) (Gajarsa, opinion) (Newman, dissenting). The recent per curiam denial of petition for rehearing by the Court en banc was occasion for the delivery of spirited opinions concurring (Gajarsa, Linn, and Dyk) (Gajarsa, opinion) and dissenting (O'Malley, Newman) (O'Malley opinion). Abraxis Bioscience v. Navinta LLC, Case No. 09-1539 (Fed. Cir., Mar. 14, 2011). Although without consequence to the original panel decision, the concurrence and dissent from rehearing en banc expose a subtle, but potentially momentous difference in opinion on the choice of law for interpretation of patent assignments.

The problem with title arose from a series of mergers and asset acquisitions carried out in relatively quick succession. In chronological order, the inventors assigned ownership to Astra Lakemedel Aktieboag ("Astra L") and AB Astra. AB Astra then merged into AstraZeneca AB ("AZ-AB"). Astra L and AZ-AB later (in late 2007) assigned ownership to their parent, AstraZeneca ("AZ-UK"), but not before plaintiff Abraxis had entered (on April 26, 2006) into an Asset Purchase Agreement ("APA") with AZ-UK. Thus, even at closing on June 28, 2006, when AZ-UK made a present assignment of its ownership to Abraxis in an IP Assignment Agreement included in the closing documents, AZ-UK did not have legal title to the patents, which had not yet been assigned to AZ-UK by its subsidiaries Astra L and AZ-AB. When the oversight was corrected in late 2007, Abraxis had already filed its complaint against Navinta.

Although patent law is often thought to be exclusively federal, in fact many disputes over patent ownership turn on common law rules of contract and property that, at least since Erie v. Tompkins, have been considered state rather than federal. Notwithstanding that history, the panel majority at least have recognized limited federal preemption of state law in interpreting contracts of assignment. Unfortunately for Abraxis, the APA provided only that AZ-UK "shall cause" the assignment of ownership to Abraxis. In accordance with the precedent of DDB v. Techs. (Fed. Cir. 2008), Federal Circuit law applies to the interpretation of such an assignment, and Federal Circuit law holds that such an assignment does not operate as a present assignment of rights, but rather as a promise to assign in the future. The dissent from the panel opinion by Judge Newman, and the dissent from rehearing en banc by Judge O'Malley (joined by Judge Newman), argue that the application of New York state law by the district court (which upheld Abraxis's claim to ownership) was correct, and that the majority was overextending the reach of federal jurisdiction.

Interestingly, the precise rule of law invoked by the panel majority is now under consideration by the Supreme Court in Stanford v. Roche. In that case, the Federal Circuit vacated a judgment against Roche because the inventor had made only a promise to assign to Stanford. The Supreme Court agreed to review the decision because of the questions it raised about whether the Bayh-Dole Act (which permits transfer of title of federally funded inventions to universities) trumped common law rules of property. The Federal Circuit decision applied the rule of DDB without comment on the preemption of state by federal law. The Supreme Court decision in Stanford v. Roche could, therefore, have a substantial impact on the advice given clients in transactions requiring assignment of ownership, even in non-Bayh-Dole settings.

Practice Note: In advising buyers in a merger, lawyers should make closing contingent upon clear documentation of chain of title from any subsidiaries to the seller, so that a present assignment at closing includes all the bargained-for rights. Stay tuned for the Supreme Court opinion in Stanford v. Roche.

A $900 Million Question of Federal Common Law?

Google today announced that it was selected to serve as the stalking horse in the bankruptcy auction of Nortel's patent portfolio. Its stated purpose:

we hope this portfolio will not only create a disincentive for others to sue Google, but also help us, our partners and the open source community—which is integrally involved in projects like Android and Chrome—continue to innovate. In the absence of meaningful reform, we believe it's the best long-term solution for Google, our users and our partners

Not insignificant to this logic, and hence to Google's $900 million bid, is the question of whether any patent licenses to Nortel would be assignable to Google if Google is successful in its bid. (Note: the value of such licenses would be considered separately from the value of any patents owned by Nortel.) Does Google's $900 million expressly include the assignment of licenses to Nortel?

Even if the parties' agreement says yes, the answer is non-trivial. The authority on the question of whether and when non-exclusive licenses should be assignable is split, and even the authority on what authority should apply to the question of whether and when non-exclusive licenses should be assignable is split!

To wit, the Ninth Circuit has ruled that federal common law applies to the question of whether licenses are assignable. See in re CFLC, Inc. v. Everex Sys., Inc.. By contrast, California state courts have applied California law. See Superbrace v. Tidwell and Dopplmaier.

What law applies is kind of, um, important. The Ninth Circuit avoided the transfer of patent licenses to a buyer in bankruptcy after ruling that federal common law applied. If California law had applied, the transfer would have been completed.

Nortel filed for bankruptcy in federal court in Delaware. Have Delaware courts or the Third Circuit ruled on this question? Not yet.

I guess we'll have to see how Nortel's licensors feel about having Google as a licensee before we find out whether the Delaware Bankruptcy Court agrees with the Ninth Circuit on this point of law.

In a pure accident of fate, the Supreme Court is right now in Stanford v. Roche considering how the Federal Circuit's application of federal common law to a question of contract interpretation should be decided. Interestingly, not every Judge on the Federal Circuit agrees that there should be federal common law, or at least that state law should be preempted, on these issues. I wonder whether those judges would change their minds if they took also the federal system of bankruptcy law into consideration.

Tech Transfer "Professional"?

I wish I could say that the author means the whole thing tongue in cheek, but he appears to actually mean it:

It is super easy to spot the overtly "bad" academic inventors: no funding, no data, surly disposition, body odor, etc. Even a brand new technology commercialization professional can spot these jokers their first week on the job.

The overtly bad inventor is also great because no one blames you for not working with him/her. Their chairperson things that he/she is a mediocre scientist --- a true "hiring mistake" --- and wishes they would go away. And, you don't have to worry about them complaining to the upper university administration because they hate the guy/gal too.

...

Even though you won't have any creative control, you should protect their idea because (a) it is a good idea and (b) a technology commercialization person has never lost their job for patenting inventions from well-regarded faculty members who publish is great journals.

One could not fabricate a better piece of evidence that we are wrongly managing the disclosures, patenting, and marketing of university technology. Supreme Court, are you listening?

The Future of Technology Transfer in the United States

-- hanging in the balance. From yesterday's transcript in Stanford v. Roche:

JUSTICE BREYER: My point is that it's somewhat remarkable because of this new statute, now that happens to only to inventions in those areas that are inventions of the contractor who, by the way, invents nothing. Human beings invent things, not entities like universities.

MR. FLEMING: That's quite so.

Based on the transcript, I am hopeful that the Supreme Court gets what is so important about this case. So much hangs in the balance.

For a good background on the case, see this note by Ronald Mann on the Scotusblog.

Pam Karlan taught me Constitutional Law at Stanford Law School. I spent an uncomfortable amount of time arguing with her in front of the class. I have the highest respect for her advocacy, but evenhandedness was not one of her strengths, at least when I took her class.

When have undergraduates ever had more privileges than faculty?

From Tusher Rae at the Chronicle of Higher Education:

An iPhone app designed by a team of students for a contest at the University of Missouri at Columbia has helped lead the institution to rewrite its intellectual-property policies.

...

Mr. Brown and his team, made up of fellow students Zhenhua Ma, Dan Wang, and Peng Zhuang, decided to stay in, despite their concerns. When they won the competition with an app called NearBuy, the students decided to contact the university to assert their ownership and to ask the university to waive any intent to assert ownership.

...

Michael F. Nichols, vice president for research and economic development for the Missouri system, led the initiative to rewrite the rules, and he found that his peers at other institutions had little advice on how to deal with student work.

Via AUTM Newsbrief.

Chicago Innovating in Technology Transfer

From the UChicagoTech blog:

One of the biggest challenges to early stage innovation is that it most needs experienced advice when it is least able to attract it, says Alan Thomas, director of UChicagoTech, the University of Chicago’s Office of Technology and Intellectual Property. “A structural problem in Chicago is that at this embryonic point there have been very few resources to turn to,” he says.

...

Start-up ventures are more likely to thrive when advised by multiple mentors with proven skills and experience. “Collectively we are stewarding discoveries flowing from between a billion and a billion and half dollars per year of basic research,” Thomas says.

Thomas and his team have a more clear-eyed view of the landscape than some of the more established tech transfer offices. The potential weak points I see in the plan are (1) that mentors won't have enough skin in the game to do more than provide very early and general advice; and related: (2) adverse selection resulting from more experienced inventors and mentors never opting into the program. Both might be alleviated if they can get a handful of high-profile anchor tenants signed up immediately. Still, it looks promising, and I look forward to hearing more as the plan is implemented.

Square Cofounder an Omitted Coinventor of Patent Apps Owned by Wash. U. Professor?

Techcrunch reports:

In or about February 2009, Mr. McKelvey contacted his friend of 20 years, Mr. Robert Morley, Jr., to help build a prototype magnetic card reader that could be plugged into a cell phone input jack. Mr. Morley, a professor at Washington University, had previous experience working with magnetic card readers.

Over a period of several days, working in Mr. McKelvey’s glass studio and Mr. Morley’s laboratory at Washington University, Mr. McKelvey and Mr. Morley exchanged ideas regarding the design of the prototype card reader.

Square is one of the hottest startups in Silicon Valley, backed by Khosla Ventures GP (and former Facebook and YouTube CFO) Gideon Yu, and cofounded by Twitter cofounder Jack Dorsey. A recent hire was Keith Rabois, an early PayPal exec who had a successful exit at Slide most recently. Keith was also an IP litigator back in the day.

Based only on the allegations in the complaint, it looks to me like Square has a potentially viable claim for co-inventorship and co-ownership here. I got curious to see just how deep the rabbit goes by looking up to see whether Morley had any federal funding for his research at Wash U. His CV doesn't show any recent federal funding, which is lucky for him, since whatever he might get from Square in resolving this dispute could escheat to Wash. U. depending on how Stanford v. Roche gets decided.

Robert Martin on University-Industry Relations

From Inside Higher Ed:

Rather than a commercialization model to explain higher education’s woes, a better analogy is a political campaign, where the focus is to raise all the money you can and spend all the money you raise to create an image that may or may not accurately reflect reality. The conflict of values is between public relations expediency and the academy’s traditional regard for quiet substance. As faculty, we acquiesced in this takeover because it was in our financial interest to comply; more fund-raising meant more money for salaries and perks.

...

An individual faculty member’s ability to influence governance is dependent on his or her academic reputation and alternative employment opportunities. Established scholars have alternatives; they can vote with their feet. Established teachers have little opportunity to vote with their feet.

Very interesting and candid take. [This Robert Martin is of no relation. -MFM]

Korean Sentry Gun, U.S. Patent Pending

From Tech Reviews:

South Korea’s military has deployed machine-gun-toting robots along the heavily fortified border with North Korea, and a related promo video delivers more shock and awe than Kim Jong-Il singing the blues.

From the published U.S. patent application:

Note the correspondence address. A colleague of mine is prosecuting the application.

The Separation of Ownership and Control of IP at Universities

Listening to a bit at the beginning of the House testimony on commercialization of university research, I was struck by one panelist's remark about the problems with separating ownership and control of property.

He's right about that being a problem, but doesn't seem to see that the status quo is almost the worst case scenario. Before Bayh-Dole, there was no separation of ownership and control because there was (in effect) no ownership. Patent rights were mostly ignored.

If instead faculty and student inventors had ownership, encumbered only by a shopright and some share of prospective royalties for overhead to the university, then again there would be no problem with separation of ownership and control.

It is only in the status quo that we really suffer from this problem. The panelist who made this remark clearly meant that tech transfer offices had ownership, and thus should also have control. What he does not seem to grasp is that this control is only an illusion. Faculty inventors are free to come and go from the university, to disclose or not, to cooperate or not.

Many of the biggest strategic mistakes in business are opportunity costs, costs not of doing the wrong thing, but of not doing the right thing. How many more invention disclosures, patents, and jobs would exist today if the people who best know the ideas had more control of the commercialization of their ideas?

PTO Commissioner David Kappos on University Tech Transfer

Available here:

The methodologies universities use to facilitate IP transfer are currently in flux, as traditional models evolve and new best practices emerge.

Universities on the cutting edge of this field realize that the long accepted choice between maximum diffusion of innovation and maximum revenue capture is a false choice. Put simply, universities need not sacrifice their societal obligation to disseminate knowledge in exchange for research funding. In fact, when executed well, diffusion-focused technology transfer generates more net aggregate funding, not less.

Now, royalty generation from university innovation will continue to play a role in the commercialization life cycle. But it will synergize with diffusion-focused tech transfer. And we will see less conflict between the models, because astute university innovators realize that when royalty generation comes into conflict with diffusion, it inhibits the fundamental mission of educating researchers and conducting research to produce breakthroughs that create American jobs and economic opportunity. Astute university innovators are already working to a better end.

Via Tech Transfer Tactics. I couldn't agree more at this level of generality. Now let's see whether the theory gets put into practice with more inventor and industry-friendly institutions.

AUTM Letter to OSTP on Commercialization of University Research

The AUTM letter is as good as the AAU letter was bad. Although the proof-of-concept centers cited in the letter have not been the unmitigated success that the letter suggests, the AUTM at least has acknowledged the problem, its scope, and identified the categories of solutions that seem to be providing limited success. It will be interesting to see what the OSTP does with the feedback it received from this RFI. I'm skeptical that the AUTM will get the additional funding that it wants from the federal government. But perhaps a structural change that would open up new sources of private funding might be in the offing.

Recommended reading.

AAU Responds to OSTP on Commercialization of University Research

The OSTP extended the deadline for responses to its RFI, and at least part of the reason may have been because of this letter, posted by the Tech Transfer Tactics blog.

The introductory remarks, sadly, play right into the obsolete cultural norm I excoriated in my own letter. Specifically, the AAU says "increased commercialization must not come at the expense of our universities' primary education, research, and public service missions." Why does the AAU think that increased commercialization would come at the expense of these things when there is overwhelming evidence that increased interaction with industry promotes all three?

The AAU then states mysteriously that "It is, in fact, these [public service?] missions that have led to universities' most important contributions to economic development, job creation, and technology commercialization." Huh? Unless I misunderstand the argument, the AAU is saying that we should not promote commercialization at the expense of teaching, research, and public service because teaching, research, and public service are the best way to promote commercialization. Do you want more commercialization or not?

The AAU is abundantly clear, however, on the importance of maintaining unencumbered ownership of its IP. The only sentence that appears underlined and in boldface in their entire letter states: "The current legal framework for university technology commercialization, as set forth by the Bayh-Dole Act of 1980 and implementing regulations, is effective and needs to be maintained."

A flat denial that any improvements could be made to the overall Bayh-Dole framework is an embarrassment to their cause. (Note: the letter actually does say that improvements could be made, but without explaining what improvements, by whom, how, or why. I consider this equivalent to denial.) The only reasoning they offer here (namely, that a one-size-fits-all solution isn't likely to work) seems to cut against their stance since Bayh-Dole does apply to every university the same way!

Let's turn to the numbers they cite from the AUTM, of which they seem proud. They're proud, of course, because their benchmark was tech transfer before Bayh-Dole. According to the AAU (citing the AUTM), fewer than 250 patents issued to universities annually before Bayh-Dole, whereas 3,280 issued in 2008.

Number of patents is a poor measure of innovation, but even by that measure this is nothing to boast about. Over a decade ending in the late 1990s, IBM invested about $2 billion per year into R&D and produced approximately 3,000 patents per year. The AUTM, by contrast, had over ten times that much (over $20 billion per year). Nobody expects AUTM members to be as efficient as a public corporation. (Not that that is such a high bar either.) But couldn't the AUTM have at least done 20% of what IBM did?

Part of the explanation for the discrepancy is right in the intro to the letter: "[I]t is important to recognize that the transfer of new knowledge from universities to the public domain and marketplace occur through a wide range of mechanisms, including publication and the movement of people both into and out of our institutions. (My italics.) Yup, that's right, your patents are headed out the back door.

The rest of the letter is a mixed bag. The AAU seems to have felt obligated to offer affirmative suggestions since it rejected the need for a change to Bayh-Dole. Thus, it blames a "focus disproportionately on revenue generation as opposed to moving new knowledge into the public domain for the public good." (What public good does knowledge do that nobody cares about?! Again, the premise is that making money is mutually exclusive with research and teaching.) This argument is incoherent.

The AAU do make a good point about state policies, however. Some state universities face a huge disadvantage to their local private counterparts (what's up, California?). But other states seem to give public universities a leg up on their private competition, if for no other reason than local alumni don't provide a reliable source of revenue for private endowments.

Then, of course, there is the bogeyman of conflicts trotted out again. I have commented on this point many times before, and so won't repeat what I have to say on this again here. Suffice it to say that if you don't see commercialization as mutually exclusive with teaching and research, than conflicts no longer seem fatal. Transparency and accountability are the tools for handling conflicts, not isolation and (feigned) independence.

Still I would be remisss if I didn't praise the AAU for this modicum of sense that creeps in at page 5:

The human capital aspect of technology transfer is often undervalued, but it is a fact that the students our universities educate and the faculty who conduct our research are usually the most effective means through which translation and technology transfer occurs. For example, many of the most successful university-industry interactions are based on the education and training of students who have the specific skills to meet industry needs, or on relationships that top-notch faculty members have with particular companies. These interactions do not center on intellectual property (IP) at all. Therefore, as new models for commercialization are developed, an emphasis should be placed upon fostering new interactions, relationships, and linkages, both formal and informal, that help to facilitate these efforts. Education and training must also be considered to be major components of such models.

Right. So how again would amending Bayh-Dole to give faculty and students more input into how and when IP is commercialized make tech transfer less effective?

UC Davis Chancellor Katehi on the Future of University and Industry Relationships

From an excellent report and interview by Gene Quinn:

That’s where I’m going to when I speak about public/private at the early stage where people who have the knowledge and interest come and make an assessment. They assess and they look at the landscape intellectually speaking. Considering there are 10 institutions they can even do it in a way that gives them an economy of scale....

And they could bundle together, that’s what we’re trying to do with the Department of Commerce. To tell them what’s the point of going for one patent individually and then cutting the cost of one patent instead of having many in the same area together as a bundle. Because then the research the discovery that they’re doing in the department of commerce and the PTO can be the same. You don’t need to do 5 different independent discoveries for 5 similar things. A lot of patents are in areas and they are interrelated and every time there is a whole new wave of patents there is new discovery with a different examiner and that’s why the cost is very high. So somebody could come and bundle them and then send them.

There are many good reasons for universities to start bundling IP by subject matter. I wish I'd been there to hear her talk. Something I didn't see mentioned is that most (at least research) universities already have organizations setup to manage resources over the time horizons necessary for successful industry collaboration. Endowment offices routinely sign 10-year or longer contracts with private equity funds. Universities already have the personnel and resources they need to transform the way they manage industry relationships. With people like Katehi leading, it's just a matter of time.

Commercialization of University Research

[Submitted today to the OSTP. -MFM]

The Office of Science and Technology Policy (OSTP) explains in its Request for Information (RFI) that “the Administration is interested in working with all stakeholders (including universities, companies, Federal research labs, entrepreneurs, investors, and non-profits).” I write to share my experience as a person who has been in the shoes of five out of six of these stakeholders. In addition to having worked as paid research intern at Pacific Northwest National Laboratory, I have worked as a research and teaching assistant at the University of Chicago, a CFO for a consumer Internet venture capital fund in San Francisco, and as an entrepreneur. At present, I practice patent law at the law firm of Drinker Biddle & Reath LLP, representing a mix of small and large clients, from individuals to large multinational companies, in both transactions and litigation relating to intellectual property. Notwithstanding all that, the views expressed here are mine alone, and should not be attributed to any of institutions with which I have been or am associated.

The most important and difficult problem for commercialization of university research is the financing gap between curious exploration and venture capital startups. Because new businesses provide the only sustainable mechanism for the United States to create jobs and wealth, this is also the most important and difficult problem for the United States to solve in its long-term bid to compete in the global economy.

If we want to increase the flow of inventions from our universities and laboratories into commerce, then academics must have more contact with — and inevitably, more dependence upon — people in commerce. No intangible or inanimate thing can create. Although intellectual property rights can and do facilitate multilateral agreements among universities, researchers, and industry, we must never forget this basic fact of nature.

Given that fact, one might ask the following: What is the biggest obstacle to increasing communication between universities and industry? Although there are many practical answers to this question, on my view the ultimate answer is cultural. An obsolete cultural norm is at the core of our difficulty in promoting technology transfer.

This obsolete cultural norm holds that academics must be independent from and disinterested in the consequences of their research. This norm is an ideal, which has never been realized in practice. But even as an ideal it is obsolete.

Louis Menand, in his recent treatise, The Marketplace of Ideas, explains how this cultural norm coevolved with the specialization of academics into departments and professional schools, each of which was self-regulated and, to an approximation, autonomous from the rest of the university. As a result, academics had been sequestered, both from each other and from the rest of society.

More recently, a norm of cross-diciplinarity, or interdisciplinarity, has emerged within the research university. Many academics have come to appreciate the benefits of communicating with and learning from colleagues in other departments and schools. Whereas specialization and sequestration led to stable consensus and uniform doctrine, cross-disciplinarity has brought about a Cambrian explosion in new theory. Although, like anything new at a university, cross-disciplinarity has its critics, they are few.

Transcendent University Culture

My primary purpose in writing is to point out that the next logical step in the evolution of research universities is for this cross-disciplinarity to extend through the equally artificial walls that separate research universities from the rest of our economy. If we can accept that disciplinary boundaries are artificial, and that research can have both disciplinary prejudices and credibility, then we can accept researchers as a part of commerce, and researchers that have both economic interests and academic reputations.

For our system to change, the plurality of stakeholders must recognize and embrace this new conception of what it means to be an academic. To preempt the most common objection, we must not assume that more and more frequent communication with industry entails irreconcilable conflicts of interest. Conflicts of interest can be grave. But prohibiting close relations between academics and entrepreneurs is the clumsiest and costliest way that conflicts can be addressed. More importantly, research universities already have highly evolved mechanisms for dealing with conflicts of interests, which fellow faculty have a strong interest in regulating in order to preserve their own reputations.

I therefore earnestly encourage the OSTP to bear in mind the extensive negative influence of this obsolete cultural norm in evaluating the merits of the various proposals for reform of the technology transfer system. In my remaining remarks, I give a brief answer to Part I of the RFI.

I have nothing to say about Part II of the RFI except that prior to reading this RFI, I had never heard of the NSF Engineering Research Centers Program. Upon looking them up on the Internet, I realize this is because none are located in Silicon Valley, where I have spent the bulk of my professional life. Silicon Valley is also the startup and patent capital of the United States, and perhaps the world. One might justly wonder why, besides a need to appease special interest groups, a POCC had not been located here. Private POCCs, such as Paul Graham’s Y Combinator, seem to have flourished only in the technological fields where intellectual property rights are weakest.

Answers to Questions from Part I: Promising Practices and Successful Models

What do all promising practices and successful models of technology transfer have in common? High-bandwidth feedback loops between the university and industry, promoted by fast, easy negotiations with technology transfer offices over intellectual property rights. To be more specific, the most successful models seem to be subscription-based, nonexclusive licenses of intellectual property, sometimes sweetened for the university with backended payments, such as warrants or reach-through royalties.

If this model works, then why is it not the rule at most universities? The ultimate answer is that given above — namely, that university culture often forces faculty and students to choose between the university and industry. The proximate answer is that most universities handle technology transfers on a case by case basis. With limited administrative resources, inventors avoid the hassle either by ignoring their intellectual property rights or leaving to pursue them without interference by the university.

The latter claim might sound incredible, but even rough estimates show that universities now realize only a fraction of the potential value of their research through licensing or spinoffs of their intellectual property. Top research universities that employ thousands of researchers who publish thousands of papers file only a few hundred invention disclosures with their technology transfer offices. The same universities spend billions on buildings and equipment, pay only modest salaries, and see only about 2 or 3 percent come back through licensing revenue. Comparison against for-profit benchmarks suggests that this percentage could be doubled, tripled, or quadrupled with no additional capital expenditures. Public universities ought to pay attention to these numbers, given the impending credit crisis for many state and local governments.

Aside from an obsolete cultural norm of autonomy, plain envy prevents many universities from implementing subscription-based, nonexclusive licensing of university intellectual property. Whereas the most obvious compensation structure for technology transfer offices would be commissions based on the number of nonexclusive licenses closed, the total compensation paid successful employees would be too high a multiple of the average university employee salary to be tolerated by other employees. Many university endowments have effectively sidestepped this envy problem by physically and legally dissociating themselves from the rest of campus, and by hiring private investment managers. These are viable options, albeit politically unpalatable given the people already employed within most universities. Perhaps only the federal government has the authority necessary to bring about the large-scale radical changes necessary.

We have a host of spectacular successes, both old and new, to strengthen our resolve. The Stanford Electronics Research Laboratory spawned a host of semiconductor companies — so many that the area in which they were (and are) located is now known as Silicon Valley. Nonexclusive licensing of the Cohen-Boyer patent by Stanford’s then-nascent Office of Technology Licensing gave birth to Genentech and a biotechnology industry in both Northern and Southern California. More recently, the MIT Media Lab has given birth to a host of digital technologies, including the electronic ink in display technology used in the Amazon Kindle, and predictive analytics drawn from massive amounts of real-time location-specific data.[1]

What these successes have taught us is that when universities are easy to deal with, investors will risk money, and entrepreneurs time, to complete the customer discovery work necessary to identify commercial opportunities. There is no one-size-fits-all answer to the question of how research can be commercialized. Rather, commercializing research is an iterative process of asking and answering that question over and over again. Nobody bothers to ask when it’s none of their business.

Freedom to Discover and Invent

The lasting legacy of the cultural and institutional reforms prescribed here will be freedom. More freedom for faculty and students to do what they do best, which is discover and invent. Should universities open to industry, faculty and students would remain free to leave the university whenever their passion for business overtakes their passion for research. Streamlining licensing of intellectual property rights will only add to their freedom an ability to diversify into multiple sources of information and potential applications by partnering with a diversity of entrepreneurs and investors.

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[1] See "Need a Cab? Analysis Shows Where to Find One," New York Times, April 2, 2010 available at http://www.nytimes.com/2010/04/03/nyregion/03icab.html (describing products from MIT Media Lab spinoff Sense Networks).

Why Research Universities Should Start Offering their IP on a Subscription Basis

Over the past several years, I have heard many complaints (from graduate students and faculty on the one hand, and venture capitalists or licensing excecutives for large companies on the other) about the difficulties associated with negotiating licenses or sponsored research agreements. One might naively imagine that such agreements are routine, at least at research universities. Many have a staff of technology transfer employees whose job it is to facilitate these agreements.

But the agreements are not usually so easy to close. In fact, the agreements are so difficult that (at least in places like the Bay Area) the easiest solution for faculty or students intent on seeing their ideas comercialized is to leave the university, either temporarily or permanently, to launch a startup or consult with an established company on a new product or service.

The biggest loser is the university. Or at least that's true if you believe that there is no need to worry that greater university-industry relationships will somehow corrupt university culture. Therein lies the rub. The fact is that many people both within and without the university believe that academics should be independent from the allegedly corrupting influences of commerce.

Nevermind the hypocrisy inherent in holding that view but, at the same time, encouraging faculty to compete for federal grant money that is distributed based on political values that are directly or indirectly influenced by the same corrupting commerce. Focus on the key premise: Does an increased flow of information back and forth between university and industry hinder the growth of knowledge.

The answer to that question must be no. Facts are gathered proactively in response to practical problems. It is these facts that form the basis for academic theory. Academics can collect them on their own, and should be encouraged to do so. But there is no way that academic institutions can keep up with the scale of production of data already ongoing outside the academic system. University-industry collaborations are the future of our global economy, and the university must adapt to the new reality in which the polite fiction of academic independence can no longer be respected. Academic independence -- to the extent that it ever existed in research universities -- has been replaced with dynamic balance, detente.

Which brings us back to the original problem. Suppose the top-tier research universities, whose endowments (not coincidentally!) are often significant portions of the top-tier venture capital funds were to demand that each of those venture capital funds pay an annual subscription for (say all non-biotech or pharma) university intellectual property on a non-exclusive basis. Exclusive deals would remain subject to negotiation. The funds would go primarily to preparation and prosecution of patent applications.

Imagine the collaboration that might result from the lowered transactions costs of collaboration. The alignment of interests between the university and its industry subscribers now permits seamless communication without concern of loss of patent rights or trade secrets. Inventors have better feedback on what, if any, applications are worth filing from industry, rather than from other faculty or from tech transfer office employees alone.

The endowments see reduced expenses -- no more patent prep and pros fees -- and additional income (in whatever is leftover from the subscription fees). Inventors are more likely to stay at the University rather than leave. Only the venture capital funds and companies that aren't paying for the IP that now goes out the back door have something to complain about, and then only initially. In a new equilibrium, a portion of the University becomes a kind of Bell Labs for the economy. Renegotiated employment agreements with star inventors bring billions of capital gains to the University directly, rather than indirectly through the venture capital funds, which charge at least 20% in carried interest plus fees.

But you have to believe that it would be good for faculty and students to talk more with engineers and scientists in industry. For the time being, most people don't.

Myhrvold on Invention Capital

From HBR:

Outside the pharmaceutical and biotech industries, few companies consider inventing, or producing patented intellectual property, to be their primary mission. Corporate R&D has become mostly “D”: the development of products. Hardly any large corporations have “inventing” as a job category—even though it requires a different mind-set, has different goals, and must be managed differently than research and development positions. At universities and government agencies that fund academic research, patents typically don’t enter into tenure or grant decisions. Published research is rewarded, but invention usually is not. Indeed, these organizations primarily fund blue-sky programs aimed at expanding scientific knowledge. That’s a worthy thing to do. But it’s quite different from invention, which applies scientific knowledge in novel ways to create something useful, something that has economic value.

Via Zura. I have more to say about Menand's arguments in The Marketplace of Ideas, Myhrvold's "invention capital," and Kauffman's proposal for "free agents." But I'm buried in "discovery" -- a classic legal misnomer.

Flogging Tech Transfer? A Reply to David Schwartz

Tech Transfer Tactics provides a valuable service to the group of professionals active in the field, and I have often learned about something new from its pages. It's rare that the editor David Schwartz weighs in with any commentary, so I took a little extra time to digest what he had to say about a recent editorial piece in USA Today, titled "Lucrative inventions pit scientists against universities." The USA Today piece describes an internecine conflict, which is apparently still ongoing, between former faculty-member Renee Kaswan and the University of Georgia over the rights to a successful drug, which Kaswan invented while at the university.

Even without personal knowledge of Kaswan's case, I think it safe to say that something went wrong with the system for both her and the University of Georgia in this instance. Given that, I have had trouble seeing how or why David Schwartz should take exception to the fact that USA Today is calling attention to her case. If universities are doing right by their faculty, then there is nothing to worry about, and people like Dr. Kaswan are not likely to get much traction in arguing that faculty are not getting their due from universities. I certainly don't understand how Mr. Schwartz came to the conclusion that the piece was a "mass media flogging.":

I’m a little guy on the media stage. This e-zine will reach about 200,000 research commercialization professionals around the world — not millions. But I hope I reach a few that will make the effort to set things right, or balance this scorecard just a little bit. Tech transfer professionals have a hard enough job as it is, taking flack from both administrators and innovators while attempting to navigate valuable inventions through a maze of personal, political, legal, and financial hurdles. They are largely unheralded for this yeoman’s work, and don’t complain much about it. But damn it, they don’t deserve to be publicly flogged for their tireless work to bring technological solutions to global problems and help critical research from their labs become useful to the public, rather than sitting in a researcher’s beaker and lab notes.

Now it's true that a good journalist would have taken the time to get the other side to the story here. And it's true that tech transfer professionals have a hard job, and don't get enough recognition for the important work that they do. But I just don't see how this article could be the scourge that Mr. Schwartz makes it out to be. If anything, I think it's useful for calling attention to the important issues of IP ownership that are not even on the table in current debates over patent reform. Who gets what, at the end of the day, is often what matters most in getting people to cooperate toward our ultimate goal of more innovation. Some universities have been more generous than others with their faculty. The jury is still out as to what balance is right for promoting progress.

But there's another definition for "flogging" in English, which seems to fit better the circumstances: "To sell something." Everybody wants readers -- USA Today, Mr. Schwartz, and even I. We all need to be careful about falling into the trap of catering too much to our favorite audience. Even though I agree that USA Today did a poor job of researching its article, I think Mr. Schwartz has gone too far in dismissing the relevance of the Stanford v. Roche case, or of Dr. Kaswans's story. It's true that these are just one case, just one story. But these are cases worth considering. In tech transfer, everybody has a story to tell, and few are formulaic.

For the record, I don't agree that any publicity is good publicity. Bad publicity is indeed bad... but only when it's true.

Um. How is this different from any other kind of secured credit?

Financial engineering "news" from Tech Transfer Tactics:

An emerging paradigm called royalty-based financing — applied to early-stage start-ups — may be another, according to Gregory T. Huang of Xconomy Seattle. The concept is simple. Instead of buying equity in a young company, an investor agrees to receive a percentage of the company’s monthly revenues - but the upside is capped at a limit of, say, three to five times his or her investment.

It's a bond, folks. And people have been making venture loans in Silicon Valley for a long time.

From a Comment on PatentlyO on the Stanford v. Roche opinion

See original here.

Initial title rests with the inventors, and nothing in Bayh-Dole contradicts that fundamental principle, ie, Bayh-Dole does not transfer title of invention from the inventors to anyone else by operation of law alone. It is the University's obligation under Bayh-Dole to control its employees in accordance with the funding agreement at issue, ie, to force them to assign. If the University does not do that, the problem is between the University and the funding agency.

Commentary Worth Reading in view of Stanford v. Roche

From an interview of Dr. Gerald Barnett at the excellent ip-advocate.org, which I just discovered:

Bayh-Dole focused on harmonizing agency patent policies and distributing opportunities to promote inventions to universities across the country. It wasn't directly concerned with innovation, but with using the patent system to promote use of inventions, development of collaborative relations with industry, and support for U.S. small business and U.S. labor.

The law itself hasn't constrained innovation - but the way in which universities have implemented practice under it has had mixed outcomes. In response to the law, many universities established Technology Transfer Offices (TTOs) to act as a central reporting agency and to facilitate the selection of inventions that will benefit from use of the patent system. This mixed a regulatory function (reporting) with an invention management function (patents). The result was pressure to monetize patent rights rather than to create an environment that promoted innovation.

The TTO works great for paperwork reporting, but not so well when you have a diversity of inventions, from biotechnology and nanotechnology and software and composters, moving through a single office. Even if the TTO is well-funded and staffed, you still only have a one in a hundred chance of a monetary success worth talking about.

What universities haven't done well is the use of the patent system to build working relationships with industry, support the development of research and early adopting practice communities, or support inventor-based insights into commercialization directions. For this last bit, TTOs find themselves cornered between processes designed to identify inventions with great "commercial potential" and a demand that everyone get equal treatment. As a result, it's difficult, especially in public research universities, to mobilize resources in support of any particular invention - beyond filing a patent application.

Second, and just as important, many universities also established employment policies that compel inventors to agree to assign their inventions to the TTO. This is a subtle but huge transformation in how invention is managed within the context of university research. A hundred years ago, when Cottrell invented the electrostatic precipitator, he was working with a company, at the University of California. He used the patents to found Research Corporation, which then supported research throughout the country and served as an agent for other faculty who had inventions they felt could benefit from Research Corporation's expertise. The system was voluntary, not compulsory. And it gave rise to the idea of the research foundation, as later established as university affiliated at Wisconsin, Kansas, Washington State and elsewhere.

Bayh-Dole gave universities an incentive to wrap voluntary inventor interests with a process-based policy, anchored in contracting regulations. These were then extended for consistency, if not convenience, to cover all instances of invention, not just those made with federal support. As you know, this move to compulsory claims based on employment, rather than voluntary offer based on recognition of resources, has created tremendous issues.

When you think about it, Bayh-Dole set up a classic struggle between bureaucracy and innovation. After all, innovation threatens institutional norms that bureaucracy seeks to codify. Given the opportunity to do so, institutions - agencies and companies included - inadvertently bottleneck and suffocate bright ideas with process. It turns out that consistency, compliance, efficiency and avoidance of risk are the dominant virtues of a process approach to research innovation. Mobilization for a purpose, risk-taking to achieve an outlier advantage, and preparedness for rare events don't count for much.

A very Drucker-esque view of innovation. Here's an important question for tech transfer offices to consider: given the bandwidth issues they face in addressing the many demands on their time, wouldn't now be a good time to consider working with a private intermediary like the Research Corporation?

In economic terms, the Research Corporation acted as a market-maker in those early days of university patenting. The Bayh-Dole Act seemed to have disrupted that model when a handful of universities were successfully able to patent and license innovations without the help of such an intermediary. But what the last decade has shown, I believe, is that entities like the Research Corporation performed an even more important economic function than the provision of professional (even legal) services. Intermediaries like Research Corporation help close feedback loops between universities and industry that are difficult because of the Prisoners's Dilemma of incentives and the asynchronous time horizons of universities and for-profit industry. Without such intermediaries, the tech transfer market is going to become more and more like the patent secondary market, with its litigation-driven norms and valuations. We need more experienced and culturally sensitive intermediaries to foster transactional norms.