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Inside a University’s Technology Transfer Office: Purposes and Goals for Protecting a University’s Intellectual Property

Randi B. Isaacs

©2016. Published in Landslide, Vol. 8, No. 3, January/February 2016, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Every day one comes across products, food, medical treatments, etc., using innovations that were based on research conducted at a university. These innovations have not only saved lives, like the seatbelt (which was created at the University of Minnesota) and HIV antiviral therapies (which were created at Emory University), but have improved our daily lives, like Google (which was created at Stanford University) and strawberry varieties (which were created at University of California, Davis). In fact, the majority of the basic research in the United States is conducted by colleges and universities and funded by federal agencies.1

University technology transfer offices (TTOs) service the universities by facilitating the transfer of university innovations to private companies for commercialization, for example, by translating the inventions to products and services. Obtaining patent protection and licensing university inventions are the primary mechanisms for the commercialization of these innovations. Without appropriate intellectual property protection, there is a low likelihood of university inventions becoming available for the public. This is especially true for those inventions requiring high costs and a considerable amount of risk to develop commercial products, like life science and biotechnology technologies. For those inventions, patent protection is paramount to commercialization.

Bayh-Dole Act: Emergence of Technology Transfer

Most TTOs and university patenting practices were established after the passage of the Bayh-Dole Act of 1980.2 The Bayh-Dole Act transferred the ownership of government-funded intellectual property from the federal government to the universities. Before the Bayh-Dole Act, the government retained the rights to all inventions produced by universities using government funding. At that time, fewer than 5 percent of the 28,000 federally funded patents had been commercially licensed.3 Congress enacted the Bayh-Dole Act to address the lack of advances attributable to federally funded university-based research.4 The Bayh-Dole Act created a uniform federal patent policy that allowed universities to retain rights to any patents resulting from government funded research and to license these patents on an exclusive or nonexclusive basis.

In exchange for these rights, the Bayh-Dole Act obligates universities to:

  • File for patent protection;
  • Comply with reporting requirements to the federal government, including electing title to invention;
  • Provide notice of the government support and rights in any issued patents;
  • Attempt to commercialize the inventions, with certain preferences to small business firms and manufacturers in the United States;
  • Grant a nonexclusive, nontransferable, royalty-free license to the U.S. government;
  • Share royalty income with the inventors and use the remaining royalty income for laboratory purposes; and
  • Not assign their ownership of inventions to third parties, except to patent-management organizations.

The Bayh-Dole Act also provides that the federal government retains “march-in rights,” which allow the federal government to require a university to grant a license to a third party or to take title and grant licenses itself under certain circumstances (e.g., when universities fail to take appropriate steps to make an invention available to the public). However, no federal agency has yet to exercise its march-in rights.

By providing universities with incentives to pursue patents and to license those patents, the Bayh-Dole Act has dramatically stimulated the commercialization of federal government–supported research and has generated a return on investment for economies. The Biotechnology Industry Organization (BIO) found that during the period from 1996–2013, academia-industry patent licensing bolstered U.S. gross industry output by up to $1.18 trillion, U.S. gross domestic product (GDP) by up to $518 billion, and supported up to 3,824,000 U.S. jobs.5 Because of its success, there are approximately 40 countries around the world that have enacted their own version of the Bayh-Dole legislation.

Technology Transfer Offices

TTOs perform various functions related to transferring technology. In addition to patenting and licensing inventions, many TTOs provide assistance to inventors and entrepreneurs in starting new companies to develop inventions; in obtaining research funding and/or translational funding; and in negotiating the exchange of research materials and research tools.

TTOs are staffed with licensing associates to identify which inventions to pursue patents and licenses for according to that particular TTO’s procedures. While there are many different models, the technology transfer process traditionally starts when a faculty member, graduate student, or staff (i.e., inventor) of a university submits an invention disclosure to the TTO. The TTO then typically performs an evaluation of the technology, for example, with respect to the invention’s economic and intellectual property prospects. For example, the TTO typically evaluates the invention to determine whether to accept ownership and pursue patent protection, as well as the other forms of intellectual property—copyright, trademark, and/or a trade secret. Often, a committee of members knowledgeable in patenting and licensing, which can include TTO staff (e.g., licensing managers), faculty members, and/or members from the private business community, makes the decision on whether to pursue patent protection for a technology.

Decisions to pursue a patent application take into account the economic prospects, such as the commercial and/or public value of the invention, because obtaining patent protection can be costly and most TTOs have limited budgets. Also, patent reimbursement received for licensed technologies can be fairly modest. Patent reimbursement for licensed products only accounted for about 5 percent of the total license income during an 18-year period (1996–2013).6

If the TTO decides to pursue a patent application, then the TTO will engage a patent attorney to prepare, file, and prosecute a patent application in the U.S. Patent and Trademark Office. For fiscal year 2013, the Association of University Technology Managers (AUTM) reported that U.S. institutions accounted for:

  • Filing 24,555 total U.S. patent applications, out of which 14,995 were new patent applications;7
  • Filing 1,472 non-U.S. new patent applications;
  • Receiving 24,052 disclosures; and
  • Receiving 5,714 issued U.S. patents.8

Most universities engage outside counsel for the preparation and prosecution of patent applications for their technologies. However, Emory is one of a handful of universities with an in-house patent counsel group. Emory’s in-house group includes a life science patent attorney who handles life science–related technologies, an attorney who handles medical device and software technologies, and a patent paralegal. Their role is to assist the licensing managers in commercializing innovations that are available for license by determining a patent strategy that aligns with the business strategy and to handle the patent application process for those innovations.

Emory started its in-house patent group in fiscal year 2010 to address potential budget-cut scenarios requested by the Office of Research Administration (ORA) at Emory. As a result, they have reduced patent costs while increasing patent filings. Emory’s model as well as other in-house patent groups would not make sense for all TTOs. About 90 percent of technology in Emory’s Office of Technology Transfer is related to biomedical research. Universities with more diverse technological portfolios may find it difficult to hire in-house attorneys with the corresponding breadth of expertise.

After filing the patent application and/or securing the other forms of intellectual property, the TTO will market the technology to companies and entrepreneurs to find a potential licensee. For example, marketing may include targeting specific companies or organizations, advertising the technology on the university’s website and/or social media outlets, and using technology listing services. If a potential licensee is found, the TTO will then work with the organization or entrepreneur to negotiate a licensing agreement.

On the other hand, if the TTO chooses not to pursue the disclosed technology, the TTO may release the technology to the inventor.

University Licensing and Related Challenges

University license agreements typically include a royalty to the university, an equity stake in the startup, or other such compensation. Royalty rates and license fees are typically lower than those between commercial companies licensing from one another. The royalties are often specified as a percentage of sales of the product or service covered by the patent. Shares of stock may be offered to the university as an equity stake. Not all universities, such as state institutions, however, have policies allowing them to accept such an equity stake.

For fiscal year 2013, AUTM reported that institutions accounted for the following licenses/options:

  • Executing 5,198 licenses;
  • Executing 1,356 options;
  • Executing 469 licenses containing equity; and
  • 43,295 active licenses and options.9

TTOs face unique challenges in their efforts to license university technologies. Most scientific research conducted at universities can be considered early stage technologies and have no immediate commercial benefit. For example, the inventions may require significant further development because (1) they lack a prototype and/or proof of principal, and/or (2) the research may be directed toward gaining a better understanding of nature. Often, the results of the university research may have great scientific significance but not immediate commercial success. Therefore, it can be difficult to determine the commercial value of these technologies when disclosed.

This often can be further compounded by the academic researchers’ need to disseminate their findings of research to maintain or improve their standing at the university, improve their stature in the related field of study, and obtain grant funding. Researchers generally submit their research in abstracts and/or papers for peer-reviewed publications or conferences, and in applications for grant funding. The security of a researcher’s position may be based on the amount of funding received. Researchers often neglect or overlook to provide TTOs with timely notice of their submissions for grant funding or publication. Unlike the United States, which has a limited one-year grace period for filing a patent application after a public disclosure, a patent application must be filed prior to any public disclosure to be able obtain patent protection in most foreign countries. This can result in the TTOs needing to file patent applications much earlier than their private industry counterparts to avoid losing patent rights. Therefore, TTOs may weigh filing a patent application to obtain an early filing date against filing a patent application with a more thorough disclosure that better covers the commercial embodiments and that potentially impacts foreign patent rights.

TTOs have different motivations for licensing intellectual property than their private counterparts. Companies are generally motivated to license intellectual property for purely financial benefits (e.g., competitive advantage and/or for profit) while universities are motivated to license patents for social benefits. University licenses provide a mechanism to translate research into a practical application for the public benefit; address the needs of sponsors of university research; build research partnerships with industry (which enhances the research and educational experience of researchers and students); and generate royalty income for the further support of research and education (which is an important incentive for faculty retention and support of the TTOs).

To satisfy universities’ missions and federal regulations, universities typically mandate that exclusive licenses with a company include the following terms:

  • Diligence provision, which includes mandatory, time-dependent technical and/or financial diligence milestones to be met by the licensee to ensure that the licensee is working diligently to develop and commercialize the technology. Examples of diligence milestones include prototype development and/or testing milestones, sales milestones, funding milestones, and clinical trial milestones. These milestones may be based on a development plan provided by the licensee. If diligence provisions are not met, the university can cancel the license.
  • Reimbursement of the university’s patent costs.
  • Right to use the licensed technology for ongoing research and educational programs.
  • Nonuse of names provision, which prohibits the use of the university’s name to promote the company or the products made under the license.
  • Indemnification and insurance provisions, which provide that the licensee assumes all responsibility for any products liability arising from the licensee’s use of the invention. Many universities require the company to submit evidence of insurance.

Unlike their private counterparts, all U.S. research universities have instituted policies regarding the disposition of revenues earned from technology transfer activities. Most commonly, the policies dictate that the first revenues received from a license are used to repay the university for any outstanding patent costs. Thereafter, the university distributes the revenues to the inventors and the university according to the formula provided in the university’s policies. Generally, universities give about one-third of revenues earned from licensing their patents to the inventors (referred to as the “inventor share”). The university may distribute the inventor share among the inventors according to their individual contributions. Some universities may distribute the inventor share at a higher or lower percentage and may implement the inventor share on a sliding scale. For example, the inventor share may be higher for a number of years or until a certain monetary value is met. The university distributes the remaining revenues (referred to as the “university share”) between the inventors’ laboratories and/or departments, and the university’s general fund according to the proportions dictated in the university’s policy. The university is restricted in its use of its share from federally funded inventions under the Bayh-Dole Act. The university share must be used wholly for research and educational purposes, which can include supporting the cost of the technology transfer process.

Additionally, unlike private counterparts, TTOs must manage conflicts of interest when negotiating with inventors who may personally benefit from the license. Many universities have taken or have been pressured to take—by state legislatures and the business community—an active role in helping inventors create startup companies to develop their inventions because of the perceived economic development and job creation benefits. AUTM reported the percentage of startups as licensees increased to 15.7 percent in FY2013 from 11 percent in FY2012. When the inventor is involved with a startup company, TTOs do not directly negotiate with the faculty member. Rather, the faculty member must identify a representative to handle the licensing negotiations for the startup company. For example, this may be another person working for the startup who does not have a conflict of interest with the university or an attorney hired specifically to represent the startup company in the negotiations. On the other hand if there is no conflict, TTOs may consider and include input from the inventors when negotiating with a prospective licensee.

Conclusion

Overall, TTOs play a critical role in transforming research conducted in universities into innovations. For example, before the Bayh-Dole Act and the establishment of most TTOs, not a single new drug was commercialized from federally supported research. Since Bayh-Dole, university licensing commercialized at least 153 new drugs and vaccines.

Endnotes

1. Christine M. Matthews, Cong. Research Serv., R41895, Federal Support for Academic Research 7 (2012), available at http://fas.org/sgp/crs/misc/R41895.pdf.

2. Patent and Trademark Act Amendments of 1980, Pub. L. No. 96-517, 94 Stat. 3015. In 1979, the Association of University Technology Managers (AUTM) counted only 113 university members. Council on Governmental Relations, The Bayh-Dole Act: A Guide to the Law and Implementing Regulations (1999), Article no longer available.

3. U.S. Gen. Accounting Office, GAO/RCED-98-126, Technology Transfer: Administration of the Bayh-Dole Act by Research Universities 3 (1998), Article no longer available.

4. “It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; . . . to promote collaboration between commercial concerns and nonprofit organizations, including universities; . . . to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; [and] to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions . . . .” 35 U.S.C. § 200.

5. Lori Pressman et al., Biotechnology Indus. Org., The Economic Contribution of University/Nonprofit Inventions in the United States: 1996–2013, at 3 (2015), available at https://www.bio.org/sites/default/files/BIO_2015_Update_of_I-O_Eco_Imp.pdf.

6. Id. at 11.

7. The majority of the new patent applications filed were provisional applications. Highlights from the AUTM U.S. Licensing Activity Survey: FY2013, Ass’n of Univ. Tech. Managers (2014), Article no longer available. Of the 299 U.S. institutions that AUTM contacted, 202 responded, for a response rate of 68 percent. Respondents for FY2013 included 170 universities, 30 hospitals and research institutions, one national laboratory and one third-party technology investment firm.

8. Id.

9. Active licenses provide “a measure of the number of potential new products that could reach the market and benefit society in the future” because some licenses do not develop into commercial products and are terminated. Id.

Randi B. Isaacs

Randi B. Isaacs is patent counsel at Emory University, where she focuses on intellectual property counseling, including patent preparation and prosecution, for medical device and software technologies for the Emory Office of Technology Transfer.