Universities and Commercialization (or Peanut Butter II)

A few weeks ago I wrote about a Statistics Canada report concerning commercialization of research in universities. The report was vague and began with the implication that a university’s capacity for creativity and innovation can be judged by its intellectual property holdings. Meaning, the number of patents and copyrights to its name. Earlier this week, Doug Lederman for Inside Higher Education described a report by the National Research Council (United States) concerning the merits of technology transfers between academia and industry. The prepublication version of the report is freely available here.

The report is titled Managing University Intellectual Property in the Public Interest and uses the passage of the Bayh-Dole Act* in 1980 as its starting point. This Act paved the way for American universities to take ownership of the intellectual property which arose from publicly funded research, for the express purpose of facilitating commercial development and licensing of the work. The practice prior to Bayh-Dole placed ownership in the hands of the funding agencies and commercial development of university research was infrequent.

American universities were given broad latitude in how they facilitated commercialization, but were held to some conditions including that they:
i) give preference in licensing to small businesses, with special consideration to those that develop and manufacture domestically.
ii) provide a royalty-free paid-up license for government use of inventions.
iii) share royalties with the faculty inventors and devote any remaining income to research and education.
As the report states: “Congress sought to protect important public interests rather than leave them entirely to the discretion of inventors or their institutions (p.21).”

The conditions that accompanied Bayh-Dole were consistent with the utilitarian slant of the American justification for intellectual property as a whole. Article One, Section Eight, Clause Eight of the United States Constitutions allowed Congress “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” From that, in 1790, stemmed the first American copyright and patent laws.

Interestingly so, while early American copyright law followed closely in the model of its British forbears, this emulation did not extend to the system of patenting. In The Democratization of Invention: Patents and Copyrights in American Economic Development (2005), B. Zorina Khan speaks of the unusually democratic underpinnings of the American patenting system: “The creators of supposedly heroic inventions were lauded in the European nations; inventors and innovators of all classes were universally celebrated in the United States (p.2).” Indeed, the British were quite dismissive of the American system, until the Crystal Palace Exhibition of 1851 where it became evident that the former colony had outshone the former masters.

With this historical snippet in mind, one aspect of the NRC report is curious. The committee staunchly rejected a call to permit individual faculty members to license their work independently – without using the university as an intermediary – while still allowing the university’s share of royalties. A criticism of the current model is that university industrial liaison office staff do not understand the application as well as the original inventor, and therefore have inadequate knowledge of the market potential. The rebuttal is given: “there is no systematically collected evidence that inventors have knowledge and skills superior to those of technology transfer personnel (p.58).” Nevertheless, it seems odd that a nation which prides itself on competition, and has seen the value of it, should disallow introducing competition for the innovative thinking that arises on its campuses.

[Aside: Khan points out the speed with which the United States raised its standard of living, and that it did so by relying on the ingenuity of its population and facilitating the widespread dissemination of that ingenuity.]

Granted, the NRC report makes continued reference to public well-being throughout its report and there is a risk that if decisions are made entirely by private individuals, the outcome may be concentrated in private hands. But conditions could be imposed – perhaps a partial repayment of the labour and facilities used up to that point? Or, if a faculty member is so inclined, he or she could choose to publish the initial findings through Creative Commons’ licensing with conditions placed upon how their work may be exploited. Interested third parties will come to them, and then negotiations can begin. The possibilities for widespread dissemination are much broader if every option is on the table. And options are needed, because the status quo looks unpalatable.

As the modest Canadian data illustrates, and the extensive American data supports, few universities enjoy healthy profits from their UILO offices. It is not enough to have a good idea. A number of stars have to align: the sheer slogging it takes to succeed, the need for commitment from all parties, and a clear understanding of both the realities of the market and the realities of research. The report devotes some space to the less-than-ideal dialogue between academia and industry (p.55-57); it brought to mind my prior experiences of hand-holding researchers through the shift from the orderly ivory tower to market mayhem.

Opening up the means of transfer of knowledge does not imply a reduced role for university administration. Oversight is even more important, particularly to raise the profile of what the private sector will miss. From the opening pages:

Universities have a lengthy track record of providing dynamic environments for generating new ideas and spurring innovation, and for moving advances in knowledge and technology into the commercial stream where they can be put to work for the public good. These endeavors collectively are referred to as “technology transfer.” … universities arguably have an obligation to organize themselves effectively to facilitate the transition of knowledge into practice (p.16).

The term, technology transfer, has multiple meanings. The report gives eight definitions including: development of skills/education of students; publication in academic literature; personal interactions amongst scientists, scholars, and users; entrepreneurial activity of university staff (without involving proprietary IP); and licensing of intellectual property. Yet, it is the last item “that is more often discussed, measured, quantified, and debated than the other mechanisms combined (p.17-18).”

While the report further supports this trend, it provides a comprehensive look at the last 30 years of commercialization in the United States.

More to come another day…

*Bayh-Dole Act of 1980 (P.L. 96-517, the Patent and Trademark Act Amendments of 1980)

But can you take peanut butter?

A new academic year is underway, but for D. it is more than just a change of grade. A new school, a new routine, and renewed exploration into the all important question: Can you take peanut butter to school?

For years I’ve laboured over lunch menus, thinking of tasty-and-healthy entrees that lent themselves to a packed lunch. Yet on numerous occasions we still relied on the ease of PB & J. But last year that was not an option as an allergy alert required that PB be banned from that classroom. I understood only too well; D. is at risk for anaphylaxis from other sources. In her case I’m just grateful that she has to eat the offending item before disaster can strike. How parents whose children react to airborn input ever find peace of mind, I don’t know…

In any case, the revived attention to peanut butter brought to mind U.S. Patent Number 6,004,596 for a “Sealed Crustless Sandwich.” The patent details are online (complete with sketches). Here are a few highlights:

Abstract:
… The sandwich includes a lower bread portion, an upper bread portion, an upper filling and a lower filling between the lower and upper bread portions, a center filling sealed between the upper and lower fillings, and a crimped edge along an outer perimeter of the bread portions for sealing the fillings there between. The upper and lower fillings are preferably comprised of peanut butter and the center filling is comprised of at least jelly…

Field of the Invention:
… some individuals do not enjoy the outer crust associated with the conventional slices of bread …Hence there is a need for a convenient sandwich which does not have an outer crust and is not prone to waste of the edible outer crust portions….

Description of Prior Art [meaning the other sandwich patents]
… While these sandwiches may be suitable for the particular purpose to which they address, they are not as suitable for providing a convenient sandwich without an outer crust which can be stored for long periods of time without a central filling from leaking outwardly….

This patent was applied for in 1997, issued in 1999, and canceled in 2007.

James Boyle describes these events in his work, The Public Domain: Enclosing the Commons of the Mind (2008), available for purchase, or, for free download here. He addresses the assumptions made of intellectual property, that by providing property rights to intellectual work, creativity will ensue.

In mathematics, when confronting a blanket proposition, the task is usually to “prove” or “disprove.” I am always tempted to reach for “disprove,” knowing that all I need is one counter-example. Boyle describes the absurdity of Patent #6,004,596 (p.xi) coupled with the aggressive behaviour of its owner (p.249-250) and it becomes evident that for the patent-owner this was not about creativity but an unashamed effort to undermine the competition.

It would be nice to simply add QED and pronounce this debate over.

But life is not as neat as mathematics. Statistics Canada recently posted the outcome of the 2008 Survey of Intellectual Property Commercialization in the Higher Education Sector. The survey is described as tracking “the progress of innovation in this area.”

That language is troubling, as if innovation is such that it can only be measured by the numbers of patents and copyrights established each year. With that convoluted logic, universities may hasten to increase their claims on IP, as evidence of their level of innovation. But is this wise either for the overall operation of a university or for the pursuit of creativity?

Looking more closely at the Statistics Canada analysis it shows that the cost of managing the IP infrastructure rose by approximately 20% in one year – $41.9 million in 2007 to $51.1 million in 2008. In part, this can be attributed to an increased need for staff; the number of full-time equivalent personnel involved increased from 285 in 2007 to 321 in 2008. [327, if you look at Table 5-1; I can’t explain the difference in reported numbers.]

However, for 2008, the income derived from IP was $53.2 million, which is just $1.9 million more than the costs associated to managing the IP operations. Based on the 125 institutions that responded to the survey, this breaks down to an average gain of $15,200 per institution.

Interestingly enough, the analysis does seem to draw the distinction between achievements in research, and an IP claim in research. It states that “In 2008, the number of new inventions disclosed to educational institutions increased by almost 20% to 1,613,” and that, “The number of patents issued to Canadian universities and teaching hospitals declined by a third between 2007 and 2008 to 346.” So it could be inferred that creativity is underway, even if IP claims are decreasing.

Something else that struck me as interesting is the reporting on copyright: “there were 361 new IP disclosures for copyrights in 2008.” Looking at Table 11-1, the previous copyright holdings appear to be only 19. Does that mean it was a blockbuster year for university presses?

Results such as these do not paint a clear picture of what is actually happening on university campuses and so it is difficult to make any accurate statements or predictions. However, even with an optimistic assessment that the current IP holdings will generate future profits, and that the cost of IP management does not rise, there is still a long way to go before Canadian higher education can claim that the costs of securing IP are offset by the expense. Table 3-1 is perhaps the most revealing; it shows that intellectual property revenue only accounts for 31% of the costs of operational expenditures. In 2008, the institutions carried the lion’s share of cost (43% by base funding plus 6% accounted for by one-time allocations.) Whereas external sources put in only 20%. Granted, rewards do not come without risk, but if this was a private sector business plan, I wonder which bank would be willing to provide financing? (And I do have some experience in this area…)

Universities already promote commercialization of research through partnerships with industry as a means of funding research and securing future income. This raises the uncomfortable question of how publicly funded basic research should be capitalized upon. And there are no easy answers there. But if the agenda is to focus on matters of IP capture, a measure of realism must be included. Boyle invokes (and later describes in detail) the risks associated to the idealized view of IP as a means to encourage creativity:

[IP] is not merely supposed to produce incentives for innovation by rewarding creators, though that is vital. Intellectual property is also supposed to create a feedback mechanism that dictates the contours of information and innovation production … The system that was supposed to harness the genius of both the market and democracy sometimes subverts both. Worse, it does so inefficiently, locking up vast swaths of culture in order to confer a benefit on a tiny minority of works (p.7-9).