Managing Intellectual Property
Rights within the University
The United States Experience
Dennis S. Karjala
Jack E. Brown Professor of Law
Sandra Day O’Connor College of Law
Arizona State University
[email protected]
Goals of the University
• Universities exist to create and transmit
knowledge
• By “knowledge,” we mean not just science
and technology but also the humanities –
literature, art, history, philosophy, and
much more
• All universities want more money, but in
seeking it we must not lose sight of our
basic reason for existence
Technology Transfer (TT)
• Much useful, and sometimes economically
valuable, technological knowledge is developed
at universities
• A number of universities have participated in the
development or licensing of these technologies
(TT) and have received significant income
therefrom
• Many universities are hoping to duplicate these
results and are establishing technology transfer
offices (TTOs).
Goals of University TT
• Profit to subsidize university operations,
and perhaps further research, is clearly a
major goal
• Getting knowledge usefully implemented
for the betterment of society is also within
the traditional university purposes,
whether or not the university makes
money
• A less recognized goal can be new and
different student education
Problems with University TT
Programs
• Many do not make money – even lose money
• Conflicts with traditional dissemination of
knowledge through scholarly publication
• Overemphasis on science and technology vis a
vis the humanities
• Overemphasis on “practical” science and
technology as opposed to basic research
• Dependence on an established income stream
Some Financial Figures
• Total annual revenue to US universities
from TT has been estimated at $1.5 billion
• 10% of the universities accounted for 42%
of the royalty income in 2003
– Average for 1997-2003
• University of California $100 million
• Stanford
$50 million
• MIT
$33 million
Most TTOs Make Little/No Money
156 US Universities Ranked in Order of Net Licensing Income FY04
(after Legal Expenses, but not even accounting for Operating Expenses)
**
$65,000,000
$55,000,000
$45,000,000
$35,000,000
46 out of 156 universities
have zero or negative net income
(i.e., patent costs alone
exceed licensing revenue)
$25,000,000
$15,000,000
$5,000,000
-$5,000,000
Source: AUTM 2004 data
* Note that NYU is $107M net income per annum (not shown to scale), Columbia is ~$100M net income (not shown to scale)
AUTM mean:
$7M
AUTM median:
$0.7M
Successful TTOs Driven By “Blockbusters”
Gross Licensing Income FY04
$120,000,000
NYU
Functional antibodies (with Columbia)
$100,000,000
Stanford
Google IPO($334M)
Functional antibodies (with Columbia)
$80,000,000
Memorial
Sloan-Kettering
Granulocyte colony stimulating factor (GCSF)
$60,000,000
WARF
Blood thinner
Stem cell technology (will dominate in the
future)
$40,000,000
Yale
$20,000,000
Florida State
Taxol ($200M over the past decade)
Emory
Emtriva (sold for $525M in 2005 as a
royalty stream)
$0
SUNY
Chldrns' Hosp
Florida State
U Utah
Mayo
Emory
Harvard
U Washington
U Mass
MIT
U Rochester
U Colorado
Wake Forest
Michigan State
U Florida
Research
U Minnesota
City of Hope Nat.
U Wisconsoin
Stanford
NY Blood Center
Gen. Hosp.
Sloan Kettering
U Cal (all)
NYU
Columbia
Zerit (royalty stream valued at $164M)
Michigan State
Cisplatin and carboplatin – cancer drugs
Generate ~90% of total revenue
Worth noting: many commercial industries also driven by blockbusters
(pharma, biotech, music, publishing, venture capital, etc)
Source: AUTM 2004 data
“Blockbusters” are Rare
Number of Licenses at 156 US Universities: FY2004
Number of Licenses
25,000
22,465
20,000
15,000
10,000
40%
8,920
5,000
0.5%
111
0
Active Licenses
Revenue
at Universities
Generating
('04)
Licenses ('04)
Total Licenses
Generating
$>1M annually
('04)
Source: AUTM data, contains 96% of top 100 Research Universities responses (2004 is the most recently published data)
Factors Associated with Successful
TTOs
• Private universities with a medical school
appear to have greatest success in net
licensing returns
• Public universities with no medical school
have the least success
• Public universities with a medical school
and private universities without one seem
roughly equal (Bulut & Moschini 2006)
Other Factors
• Higher royalty shares for faculty members
have been associated with higher
licensing income and more effective TT
• Rates of start-up company formation have
been associated with faculty quality
(measured by publications) and
expenditures on IP protection
TTOs
• In 1980 there were some 25 TTOs at US
universities – primarily major research
institutions like MIT, Columbia, and
Stanford
• In 2006 there were over 300 university
TTOs, including virtually every university
that does research and (apparently) even
some that do no research
TTO Costs
• TTOs in 2003 averaged about 10 full-timeequivalent (FTE) employees, roughly double the
size in 1996
• Obtaining a single patent costs over $100,000
• Many TTO activities do not generate revenue –
such as reviewing material transfer and
sponsored research agreements
• No one wants to miss a “blockbuster,” but they
are rare and universities should be realistic
about the chances of winning the patent “lottery”
TTO Strategies
• 1) Maximize long-term upside by patenting
and marketing aggressively, be willing to
wait as much as 10 years for payout –
improves chances of hitting the
“blockbuster”
• 2) Minimize annual costs, patent only
when certain of return, invest less in
marketing
Pros and Cons
• 1) More chance of hitting “blockbuster,”
higher operating and patent costs, larger
TTO operation
• 2) Less chance of losing money in any
given year, higher chance of losing the
“blockbuster” in the long run
University IP Policies – the ASU
Example
• The policy gives the University all rights in
IP developed in “University-assigned” and
“University-assisted” projects
• “University-assisted” projects are those
that make “significant use of university
resources” and purports to cover even IP
developed by students making such
significant use of university resources
Significant Use of University
Resources
• Use of office space, library resources, or
personal computers is not “significant” use
• However, “assistance of support staff; use of
telecommunication services; use of university
central computing resources; use of instructional
design or media production services; access to
and use of research equipment and facilities, or
production facilities” purports to be a significant
use
Excluded Works
• Faculty keep the copyright in traditional
academic works (textbooks, articles, class
notes) and artistic works (music, dance)
• Academic software is excluded unless put
to commercial application
• On-line courses are considered on a caseby-case basis
Operation
• Each employee/creator of IP must disclose any
creations to the appropriate University official
• The University then must decide whether to
promote the IP or release it to its creator
• If the University decides to keep the IP, it pays
all the costs of obtaining and maintaining the
appropriate protection
• Employees are asked to “consider” delaying
publication until the IP is fully evaluated by the
University, to maintain worldwide patent rights
Revenue Sharing
• Creator of the IP gets 50% of the first
$10,000 in “net income” from the IP and
33% thereafter
• Another third goes to the lab or
departmental unit where the creator is
employed, and one-third goes to the
university
• “Net income” is gross revenues minus
15% and minus all direct costs of
maintaining the IP (e.g. cost of patenting)
Proposals in Lithuania
• One major difference seems to be that IPRs
arising from government-funded projects belong
to the government
• The US Bayh/Dole Act (1980) gave the right to
obtain and implement patent rights to
government-funded research to the research
institutions
• Before that, the were no IPRs in the fruits of
government-funded research
Proposals in Lithuania
• Reporting requirement and 1/3 revenue
sharing seems similar
• Who should own the IP – the university or
the creator?
– In general, faculty members are not well
equipped to exploit and promote inventions
– So, regardless of who owns it, it is likely that
most inventions will be assigned to the
appropriate TTO for development
– The big question is which approach has the
lowest likelihood of missing the “blockbuster”
The ASU TTO
• The ASU Foundation is a separate legal entity
that handles all charitable gifts and contributions
to the University
• The Foundation is the sole member
(shareholder) of a limited liability company called
Arizona Science and Technology Enterprises
(AzTE)
• AzTE operates as the exclusive intellectual
property management and technology transfer
organization for ASU
AzTE
• AzTE has around 16 employees plus a
number of student interns
• It has a managing director, a legal team
(two), a VP for venture development, a life
sciences team (three), and a physical
sciences team (three); six people work in
operations and finance
AzTE
• AzTE claims an impressive portfolio in the
life and physical sciences
• It also claims it has supported a number of
successful start-up companies in a variety
of promising technologies
• Perusal of the ASU Foundation’s Annual
Report (June 30, 2008) suggests about $1
million in income from AzTE
• AzTE itself apparently had $4 million in
revenues in 2006
Noneconomic Aspects of TTOs
• The issue of preferencing science and
technology over the humanities, as well as
“practical” over more basic research, has
already been mentioned and has been
discussed at some length in the literature
• A lesser known noneconomic aspect of
having a TTO is pedagogical – students
can receive important practical education
and experience
ASU Technology Venture Services
Group (TVSG)
• Consists of two groups of students
– The Technology Ventures Legal Clinic (TVLC)
consists of law students certified to render
“pro bono” legal services and supervised by
an experienced attorney
– Technology Ventures Consulting (TVC)
consists of business, science, engineering,
and other non-law students as well as
interested law students
TVSG
• TVLC and TVC work together to provide
services to Arizona entrepreneurs and small
businesses as well as TT professionals
• This year 35 students are participating and
assisting 26 clients in technology start-up and
commercialization efforts
• Annual budget is about $200,000, including fulltime director’s salary
Services Offered
• TVLC assists in business formation,
nondisclosure agreements, patent searches,
licensing agreements, trademark and copyright
consulting, employment agreements and the like
• TVC assists in technology assessment, market
research, ownership structures, strategy
formation, implementation plans, and similar
activities
TVSG Projects
• TVSG accepts only projects from AzTE,
other ASU-related organizations, and
“community partners” (e.g., law firms and
companies that contribute money to
TVSG)
• In choosing projects, TVSG looks to
potential experience and educational
value, relation to ASU and Arizona,
financial need, and its own competence
Benefits of TVSG
• Unique educational experience for students
• “Free” support for AzTE plus a pool of
specifically trained students for placement as
interns or full-time employees
• Community partners show themselves as
supporters of innovation in Arizona, have access
to a pool of specially trained students, participate
in TVSG referral network, and capture tax
advantages from contributing to ASU
Conclusions
• TT and TTOs are “hot” topics in the US
• The majority of universities do not make
significant money from them
• But all hope for the “blockbuster”
• Too heavy a focus on “bottom line” earnings
from TTOs can cause universities to lose their
traditional focus
• Done properly there can be noneconomic
advantages even where net income is low or
negative
Thank
You!
Questions?