Patent Baristas

The San Francisco Business Journal ran a feature suggesting that biotech companies are running into hurdles in doing deals with universities, specifically the University of California System in this case. The article writes that the problem is that it simply takes too long to get the deal done — that agreements took months rather than weeks to complete. From the Journal:

“Most of us would prefer not to work with” the UC System, [Don] Francis [chairman and executive director of the South San Francisco nonprofit Global Solutions for Infectious Diseases and co-founder of Vaxgen, Inc. of South San Francisco] said at a recent UCSF forum on product development partnerships.

Another issue is (at least the perception) that the University is too risk-adverse:

Deals must pass “the Chronicle test,” said Jack Newman, a UC Berkeley graduate and now senior vice president of research at Amyris Biotechnologies Inc. in Emeryville. In other words, UC system lawyers want to be sure no one — those pesky media types, in particular — can accuse them of giving away too much value.

As with most axioms, there is some truth to these assertions. But, as they say, there are always two sides to every story. Since I used to direct patents and licensing at a major university technology transfer office and now work in private practice helping biotech companies deal with universities, I have the unique distinction of having been on both sides of the fence. And, like many things in life, it’s always easy to criticize the other side.

So, what is true?

1. Universities are risk-adverse. True. Now get over it.

Trying to get a nonprofit research institution — especially a public funded university subject to state laws and regulations, union agreements, freedom of information act requests, and general, all-around status as public punching bag — to strive to take business risks in the hopes of a big payoff is just not going to happen.

Take a look at the UC System Mission Statement:

The distinctive mission of the University is to serve society as a center of higher learning, providing long-term societal benefits through transmitting advanced knowledge, discovering new knowledge, and functioning as an active working repository of organized knowledge.

Note that nowhere does it say anything about its mission being “making money for commercial ventures.”

Although, neither does Google’s but most mission statements are not terribly useful. As Guy Kawasaki noted:

The ultimate test for a mantra (or mission statement) is if your telephone operators (Trixie and Biff) can tell you what it is. If they can, then you’re onto something meaningful and memorable. If they can’t, then, well, it sucks.

In a university, there is very much an environment where no one gets fired if the deal doesn’t happen. You get fired when the deal causes a loss. In some public universities, there are even state laws that prevent the university from taking on any unfunded liabilities. All this aside, there is, in fact, always a fear of being at the center of an i-Team investigation for having given valuable university assets to a for-profit company — a loss at taxpayers expense. There are some newspapers that take particular pride in the sport of skewering public officials and employees be they in government or universities.

2. Universities take too long to get deals done. Half-true. Now get over that, too.

There are generally two causes of this effect: procedures and staff.

First, universities are risk adverse (see point 1) and hence, agreements have to be signed-off on by all the various stakeholders. This is where universities’ and private companies’ interest and expectations diverge the most. At a company, you have one stakeholder, the company (shareholders). At a university, there are many. For starters, any royalty received in a licensing deal is split between the inventor(s) and the university. In terms of the university’s portion, that revenue is generally split among the university, the college, and the department (or some sort of fee split). Hence, all of those parties are (usually) asked to initial their acceptance of the terms. Mostly, this is done because no one wants one of the parties involved to come back later to contest the deal.

Second, but perhaps more importantly, universities are typically not over-staffed. This has to do with mission priorities (see No. 1 above) and with budget restraints. University budget surpluses, like unicorns, sound nice but I haven’t seen one yet. This means that the personnel that must draft, review, negotiate and manage university licenses and contracts have an overflowing in-box. That’s just the way it is. Many universities are certainly improving and putting more resources into licensing and technology transfer but I would expect hiring to lag need.

However, there are ways to speed this up on both sides. Mainly, it helps to recognize university restraints and not try to negotiate points they won’t (or, more likely, can’t) negotiate like indemnification, disclaimer of warranties, retention of ownership, governing law, waiver of liability, and oh, did I mention indemnifications? Trying to argue over these types of provisions is, like cursing the darkness, a futile exercise (see No. 1 above).

3. The parties often have unrealistic expectations. True. Now let’s fix it.

Keeping the above points in mind, it is critical that companies and universities come into the process knowing the limitations of a university and work with the system, not against it. If you know it takes longer to get the deal done, start earlier. The number one offense? Waiting until the last minute to get a deal done. Don’t stop in on Friday afternoon saying you need this done before the weekend.

Also, as above, don’t come in expecting to get everything and give nothing. Too often, complaints about tech transfer offices come down to “They won’t give me everything I want! That’s so unfair!” Taking too long is often the result of too many back and forth negotiations as the parties try to get their way.

Of course, unrealistic expectations are a perennial problem with universities, too. There are still some universities that think that every invention is worth a fortune (“Why else would you be interested in it?“). Furthermore, tech transfer personnel are notoriously bad at understanding the realities of product research and development and the fact that a mere lead on an eventual product is not the total value of the end product.

University inventions are often early stage, undercooked ideas that more often than not fail to deliver and, even when things work out, need lots of development and still fail to deliver a big hit. Universities often fail to fully appreciate the tremendous costs and risks involved with taking on a raw, undeveloped idea and trying to turn it into a viable product on the marketplace.

There is a lot of money to be made so I think it’s in everyone’s best interest to work well together. My number one tip for those working with universities is to be pleasant and treat the other side with the respect and dignity you would want to receive in return.  People are human and — while it may not be right — will often respond to a demanding jerk by acting the same.

If others have ideas on how to deal with universities and the length of time to get deals signed, please let me know.

See also:

Biotech Companies Running into Roadblocks in Entering into Deals with the UC System

Trouble With Tech Transfer…Or Expectations?