Managing Intellectual Property Rights within the University

The United States Experience

Dennis S. KarjalaJack E. Brown Professor of Law

Sandra Day O’Connor College of LawArizona State Universitydennis.karjala@asu.edu

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 MoneyMost TTOs Make Little/No Money

-$5,000,000

$5,000,000

$15,000,000

$25,000,000

$35,000,000

$45,000,000

$55,000,000

$65,000,000

46 out of 156 universities have zero or negative net

income (i.e., patent costs alone exceed licensing revenue)

156 US Universities Ranked in Order of Net Licensing Income FY04

(after Legal Expenses, but not even accounting for Operating Expenses) *

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 median: $0.7M

AUTM mean: $7M

Successful TTOs Driven By “Blockbusters”Successful TTOs Driven By “Blockbusters”

Source: AUTM 2004 data

StanfordGoogle IPO($334M)Functional antibodies (with Columbia)

NYUFunctional antibodies (with Columbia)

MemorialSloan-Kettering

Granulocyte colony stimulating factor (G-CSF)

WARFBlood thinnerStem cell technology (will dominate in the future)

YaleZerit (royalty stream valued at $164M)

Florida State Taxol ($200M over the past decade)

EmoryEmtriva (sold for $525M in 2005 as a royalty stream)

Michigan StateCisplatin and carboplatin – cancer drugsGenerate ~90% of total revenue

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

SU

NY

Ch

ldrn

s' H

osp

Flo

rid

a S

tate

U U

tah

May

oE

mo

ryH

arva

rdU

Was

hin

gto

nU

Mas

sM

ITU

Ro

ches

ter

U C

olo

rad

oW

ake

Fo

rest

Mic

hig

an S

tate

U F

lori

da

Res

earc

hU

Min

nes

ota

Cit

y o

f H

op

e N

at.

U W

isco

nso

inS

tan

ford

NY

Blo

od

Cen

ter

Gen

. Ho

sp.

Slo

an K

ette

rin

gU

Cal

(al

l)N

YU

Co

lum

bia

Gross Licensing Income FY04

Worth noting: many commercial industries also driven by blockbusters

(pharma, biotech, music, publishing, venture capital, etc)

““Blockbusters” are RareBlockbusters” are Rare

22,465

8,920

1110

5,000

10,000

15,000

20,000

25,000

Active Licensesat Universities

('04)

RevenueGenerating

Licenses ('04)

Total LicensesGenerating

$>1M annually('04)

Number of Licenses at 156 US Universities: FY2004

Source: AUTM data, contains 96% of top 100 Research Universities responses (2004 is the most recently published data)

Nu

mb

er

of

Lic

en

ses

0.5%

40%

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-time-

equivalent (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 case-by-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 full-time 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

ThankYou!

Questions?