Patent Baristas

A recent article in The Scientist criticized the results from university technology transfer offices (TTOs). The article points to researchers who have discoveries that they believe have commercial promise but who run into “a proverbial brick wall” with the TTO. One researcher said “the TTO failed to recognize the potential value, balked at the cost of filing a patent application, and didn’t pursue any leads, which ended up scuttling a chance to cut a licensing deal with a company.”

The article definitely has a certain slant to it stating:

Such episodes reflect a growing concern about university TTOs. No one keeps data on the number of opportunities that die on the vine, but tech transfer officials are fending off growing criticism from various directions – frustrated faculty, corporate licensing specialists, and venture capitalists – resulting in their efforts to bolster university treasure chests sometimes having the opposite effect.

In a long litany of accusations from incompetence to greed, the author believes that tech transfer officials often bargain such a hard deal on royalties that some companies find the terms onerous and withdraw. I previously ran a TTO and now represent many small to large companies in negotiating deals with various universities. While it’s true that universities have become more difficult to strike a deal with, this has more to do with universities and faculty members caring more about intellectual property than apathy or incompetence of the TTO personnel.

From my experience, complaints that the TTO is demanding unreasonable terms can often be translated as “They won’t give me everything I want.” That’s not to say this is always the case. I’ve come across TTOs demanding terms that were completely unreasonable — even if they weren’t particularly great for the TTO either. I’ve also come across companies that were shocked — shocked, I tell you — that they should be required to pay at all.

As some of the commenters have pointed out, the article focuses more on anecdotal evidence than fact (my favorite line: “the plural of anecdote is NOT data”). The article points to a study of technology transfer put together by The Milken Institute but acknowledges that the report “doesn’t specifically mention tech transfer as an obstacle.”

In reading the report, it seems the study points out the obvious. It shows the importance of research to a university’s – and region’s – bottom line, especially those universities with a strong biotech component, a well-functioning office of technology transfer and proximity to clusters of biotech firms willing to pay for the research. In comparing university technology transfer processes, they found the following:

• Research activity (as measured by publications and citations) has a high rate of return. Each 10-point increase in the Institute’s score for published research contributes an additional $1.7 million to a university’s annual licensing income.
• For every $1 invested in OTT staff, the university receives more than $6 in licensing income.
• For each additional year that an OTT is in operation, $228,000 of incremental licensing income is generated for the university.

Also noteworthy is that the top 10 percent of universities accounted for 42 percent of the university-generated total licensing income in 2003.

Besides pointing out the dire need for early-stage funding and venture capital, the report did point out the following some key ingredients for TTO success:

(1) incentives (including ownership of innovation by universities, rewards to faculty and a motivating division of revenues among scientists, students, laboratories, departments and universities);
(2) funding (oh, really?!?);
(3) well-trained human capital (especially personnel with work experience that has taken them in and out of academia, industry and associations);
(4) a culture of leadership, support and commitment from top-level university administrations; and
(5) benchmarking and evaluation procedures to learn from one another.

Interestingly, the report shows that, in general, most TTO’s are small, young operations, and few are profitable. In the United States, based upon information through 2003, the median age of TTOs was 17 years. In that same year, on average, about 10 full-time-equivalent (FTE) staff (median statistic 8.2) were in place, double the size from 1996 data (5 FTEs and a median of 3.7.)

In the end, the article points out the obvious that TTOs are working to get better deals and the reasons are varied, including a push from higher up to increase royalty streams. Part of the pressure comes from the increasing awareness of the need to get the best patent protection — protection that can cost upwards of $100,000 or more for a single invention. That’s on top of the increasing costs of running a TTO that is responsible for many non-revenue generating activities, e.g., reviewing material transfer agreements and sponsored research agreements.

The article connects all sorts of dots to come up with a conclusion that hard-driving TTOs are driving companies to license inventions overseas because some foreign universities are perceived as more willing to agree to industry terms. While I agree that there are more offshore deals being done, this has more to do with domestic companies broadening their view than a problem here at home. Companies want to make money and be successful. To do so, they need the best technology. Period.

I find that the best deals are where the university and the company approach the deal as a partnership and structure the terms where it’s not one-sided — where both share some of the risk and then, if and when the technology is successful, both parties share in the reward.

Disturbingly, the article ends with a note about a UCLA researcher who claims “I have zero dealings with that office,” he says, “and when I do invent something, next time I’ll find a way to patent it myself, not through UCLA.” No mention if someone pointed out that he could go to jail. See here.