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For universities that are losing money on their patents, a solution is staring them in the face

A recent report from the Washington DC-based Brookings Institution suggests that many leading US universities are failing to profit from technology transfer. In fact, universities are not even generating enough of a return on their patents and technology to cover the operating costs of their tech transfer functions, including employment and patenting costs.

University Start-Ups: Critical for Improving Technology Transfer’ analysed licensing data from 155 US universities. The report found that most of the universities studied are losing money from licensing. During 2012, the top eight universities in terms of licensing revenue accounted for 50% of the total licensing income of all 155 universities, with the top 16 taking 70%.

Furthermore, the report estimates that 130 universities did not generate enough revenue from licensing during 2012 to cover the wages of their tech transfer staff and the costs of filing patents. In 2012, 84% of universities failed to break even on tech transfer; that figure goes up to 87% when calculating an average for the past 20 years.

Walter Valdivia – the author of the report – suggests that misdirected patenting strategies could in part be to blame for these deficiencies. He acknowledges that after the passage of the Bayh-Dole Act in 1980 – which enabled universities to take legal ownership of inventions developed from public funds and thus increased the opportunities to commercialise those inventions – “overly eager TTOs [technology transfer offices] were at that time not sufficiently discriminating about what they were patenting; they simply incurred the costs”. Simply filing and owning patents does not mean that you are going to make money from them. Such a simplistic approach is highly likely to end up costing the patent owner, rather than generating revenues. However, Valdivia goes on to state that “there is increasing evidence that entrants to the patenting business learned quickly to be as selective as long time incumbents” and he suggests that the failure to profit from tech transfer may have more to do with an imbalance between the commercial objectives of tech transfer offices and the research goals of universities.

Valdivia writes that, as a result of the failure to profit from patent licensing, many universities are moving away from the archetypal out-licensing model of tech transfer, towards a model in which they encourage the creation of start-up companies in order to commercialise their R&D. In this ‘nurturing start-ups’ model, universities allocate resources for partnering with local investors and incubators, and introducing career incentives for their inventors and entrepreneurs. Of course, patents are going to be just as crucial to making this model work to attract outside investors and potential buyers for these fledgling businesses.

However, there is another possible solution for universities seeking to maximise the value of their R&D that Valdivia does not mention. As reported by IAM last month, Professor Robin Feldman of the University of California Hastings College of Law suggested that universities are increasingly partnering with NPEs in order to license their patents. Such hook-ups make a lot of sense; a university hands over the responsibility for licensing its patents to a third-party with expertise and a track record in conducting licensing campaigns, leaving the university itself to get on with what it does best – further research and development. NPEs are more likely to have the right contacts in industry, and will be able to draw on past experiences in order to apply the right pressure points on a prospective licensee. All of this means that the NPE is in a better position than the university to save time and keep costs down, thus creating even more value for the original patent owner.

Obviously, teaming up with an NPE is no guarantee of success; and the proportion of any licensing revenues generated by an NPE that will actually make it back into university coffers is something that will presumably be decided on a deal-by-deal basis. Nevertheless, it is a wonder that more universities are not already exploring the NPE option.

Jack Ellis
IAM Magazine
29 November 2013

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IP management, Licensing, IA management, Patents, IP business

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