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WhitePaperonUniversity-IndustryRelations
UncorrectedDraft
May2002
ChristopherNewfield
fortheAdvisoryGrouponUniversity-IndustryRelations
UniversityofCalifornia,SantaBarbara
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White Paper on Industry-University Relations
Table of Contents
PART I. INDUSTRY RELATIONS BEFORE THE BAYH-DOLE ACT (1980)
1. The Industrial Roots of Basic Research 4
2. Basic Research and University Independence 7
3. Applied on the Rise 10
PART II: THE NEW POLICY ENVIRONMENT
4. The Patent Watershed 15
5. Open Research in Proprietary Markets 20
6. Regularizing Tech Transfer 25
7. The Post-Cold War Environment 31
PART III: THE STRUCTURE OF CURRENT POLICY
8. The Tech Transfer Process 389. Research Partnerships 48
10. Sponsored Research 55
11. Consulting Relationships 57
12. Spin-Off Companies and Equity Positions 61
13. Managing Conflicts of Interest and Commitment 69
14. Limits to Commercialization 75
PART IV: SUMMARY OF FINDINGS 80
NOTES 84
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University-IndustryRelations
In recent years, relations between the university and industry have started to
receive serious public attention. Some commentators have been enthusiastic about
them, believing that university-industry partnerships benefits research, the economy,
and the consumer all at the same time. Others have argued that industrys bottom-line
values and management techniques damage both curiosity-driven research and the
teaching of students. While some liken universities to businesses, others liken them to
churches, comparing the presence of corporate logos in student centers to putting
Calvin Klein briefs on the statue of Jesus.1
This paper describes a central aspect of university-industry relations -- the varied
and complex process whereby the universitys basic research enters the commercial
marketplace. The most important form of this process is known as technology
transfer, a term that refers to the transference of research findings to goods that are
made available to the general public via the for-profit activities of private industry. In
tech transfer, as it is frequently called, a scientific discovery is developed into a
saleable and useful product. This long and complex process includes the funding of
research, the discovery or invention; the disclosure of the invention to university
officials; record keeping, communication, and the evaluation of the invention for
patenting potential; patent prosecution; negotiation and drafting of license agreements
with industry; product development; production, marketing, and sales; and the
management of active licenses. This paper considers three other, closely related aspects
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of industry-university relations: research partnerships, faculty consulting, and start-up
companies founded by university personnel.
The American version of capitalism assigns virtually all product development
and sales to private enterprise. The movement from a university invention to an
available product will therefore always involve relationships between the university
and industry. This is how the investigation of behavior will yield, after eight
to twelve years, the Hepatitis-B vaccine, or how research on electrical conduction in
polyacetelyne produces the conducting polymers used in cell phone displays.2
University-industry relations offer many public benefits, and in any case they are
inevitable. But these facts neither resolve the conflicts that arise nor determine the best
forms for these relationships to take. And while most people assume that industry can
look after itself, there is much concern about the protection of the publics and the
universitys interest. In its partnerships with industry, how can the university serve the
general public as well as its specific business partners? And how can it preserve its
distinctive features in the process?
This paper explores these questions in the following stages. It reviews the
history of university-industry relations and describes how the way watershed changes
in patent law, initiated by the Bayh-Dole Act of 1980, changed the universitys role in
bringing discoveries to market. It then examines current procedures for managing
university-industry relations in the University of California, providing an overview of
five major types of university-industry interaction. It offers a series of provisional
findings and suggests areas of concern and further rearch.
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PART I: A SHORT HISTORY OF INDUSTRY RELATIONS
1. The Industrial Roots of Basic Research
While the American college has generally centered on liberal arts education, the
American university has not. Its first federal funding emerged from the Morrill Act of
1862, which allowed scientific and classical studies while defining the leading
object as teaching such branches of learning as are related to agriculture and the
mechanic arts.3 Its worth noting that science was initially classified with classical
studies as somewhat to one side of the applied learning on which land-grant
universities were to focus. The public university was to focus especially on knowledge
with a clear economic payoff.
The research university could generally afford teaching but had a much harder
time funding research. State funds were never enough, and the scramble for extramural
funds has been a constant of university life. Before World War I, American
universities were largely on their own when it came to finding patrons to support their
research aspirations. After the war, the large general-purpose foundations led the way
in providing voluntary philanthropic support explicitly for university research.4
These foundations were generally private, and often worked closely with industry.
Universities worked to increase their own financial resources during this period, and
enjoyed much success. During the first two decades of the twentieth century,
[research universities] regular incomes expanded by a factor of five, and they used this
economic muscle to enhance their institutional resources and their capacity for
research.5 But even this rapid growth was not enough to allow universities to fund
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their own research; to the contrary, research was among other things a way to attract
external funding.6 The composition of external funding has changed over time but its
importance has remained steady or increased.
Industry had started to fund university research as early as 1900, and its financial
presence increased consistently after that. One leading historian of university research
discovered that cooperation between universities and industry became the urgent
message of the science-based industries, the engineering profession, and technical-
school educators from roughly 1906 on.7 Another has noted that "an examination of
corporate donations to individual research universities during the interwar years . . .
reveals that they were commonplace by the early 1920s and became more frequent as
the decade progressed."8 Industry was most interested in sponsoring research in
particular specialties with tangible benefits: "while American business in general could
not be convinced of its vested interest in pure science, individual firms made thousands
of investments in specific aspects of university science.9
University-industry ties took a variety of forms. Among the earliest were
research institutes, which were affiliated with universities but were funded largely with
industry support. The first and most important of these was the Mellon Institute at the
University of Pittsburgh, established in 1913.10 Another kind of tie was the Industrial
Fellowship system, instituted at the University of Kansas in 1907. Under this plan, a
member of the chemistry staff [of the university] was appointed for a two-year period
to work exclusively on a problem defined by the sponsoring company, which would
underwrite the cost. Any discoveries made during the fellowship period became the
property of the company, and all patents were assigned to it.11
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As the years passed, an infrastructure was developed to support a range of
university-industry collaborations. In the first decades of the century, academic
scientists, lead by Vannevar Bush and his MIT colleagues, created models for academic
consultation (the one-fifth rule), patenting, and firm formation.12
The ties between industry and universities are particularly venerable in
engineering. MIT, for example, established its department of electrical engineering in
1884. Three years later, Thomas Edison donated materials, machines, and dynamos for
departmental instruction, and additional equipment was secured from
Westinghouse.13 University-industry interactions became increasingly common as MIT
and similar institutions saw their graduates staff university and industrial laboratories,
making it more likely that each side would recognize mutual interests. In 1907, MITs
electrical engineering department established the Visiting and Advisory Committee,
whose membership included representatives of GE, AT&T, Westinghouse, Chicago
Edison, Boston Edison, and similar firms. A 1910 departmental brochure described the
department as ready to undertake both basic research and some of the more
distinctively commercial investigations under the patronage or support of the great
manufacturing or other commercial companies.14 In 1920, the EE department instituted
its Technology Plan, whereby industry could take advantage of the resources of the
Institute in exchange for a standard fee. Under the Plan, MIT was obliged to function
as a clearinghouse of information for industry, providing ready access to both technical
knowledge and the possessors of that knowledge.15
In most cases, the university was reaching out to industry as industrys junior
research partner. Industry has generally performed the large majority of the countrys
total research and development. Even at the height of the Cold War boom in the federal
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funding of universities, industry conducted about 70% of R&D (this figure is from
1960). Some significant portion of industrys R&D was long-term and could be defined
as basic. In the 1990s, the NSF estimated that universities accounted for about 61% of
the basic research performed within the United States in 1995.16 This is a high
proportion, but it still leaves industry in the position of providing over one-third even
ofbasic research.17 Its safe to conclude that business predominance in scientific research
is a venerable American tradition.
2. Basic Research and University Independence
The current belief that the university offers a church-like haven for pure or
basic research was reinforced during the boom in federal funding after World War II.
The eras sacred text was Vannevar Bushs Science: the Endless Frontier (1945), a work
that called for the creation of a National Research Foundation. Bush wrote that what
we now call basic research is the exploration of the unknown and is necessarily
speculative. It is inhibited by conventional approaches, traditions, and standards. It
cannot be satisfactorily conducted in an atmosphere where it is gauged and tested by
operating or production standards. Basic research was clearly distinct from applied
research, by which Bush meant the application of existing scientific knowledge to
practical problems with possible economic consequences.
In identifying the proper environment for basic research, Bush looked to
institutions that received public funding. It is only the colleges, universities, and a few
research institutes, he wrote, that devote most of their research efforts to expanding
the frontiers of knowledge.18 University research offered a clear contrast to most
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research in industry and in Government, in which the discovery process was directed
by specific military, social, or commercial goals. Bush valued both applied and basic
research, but he wanted to keep them separate and give each the most effective possible
environment. Internal cash flow could support applied research in industry, but
government revenues should support basic research in universities.
In the 1950s, many universities moved to specify and regulate their distinctive
mission, and the University of California was among these. The cornerstone of this
effort was University Regulation No. 4. Established in June 1958 and widely viewed as
the major policy framework for UC industry relations, it affirmed a clear distinction
between basic and applied research while identifying the university as the privileged
setting for the former.19
Basic research was defined, first, as seeking new knowledge. University
participation in tests and investigations shall be limited to activities which lead to the
extension of knowledge or to increased effectiveness in teaching. Routine tasks of a
commonplace type will not be undertaken.20 New knowledge was the terrain of the
University and the application of existing knowledge was not.
The second feature was the open publication of results. It is longstanding
University policy that freedom to publish or disseminate results is a major criterion of
the appropriateness of a sponsored project, and particularly of a research project.21
The Universitys Contracts and Grants manual offered examples of commercial
restrictions on publication that would be unacceptable in university research, and these
included assigning the final decision as to what may be published to the extramural
fund source. Although limited exceptions were granted for a reasonable interval of
time, basic research placed its results squarely in the public domain. Basic research, in
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other words, might eventually lead to proprietary products, but the knowledge itself
would remain public.
These two features were associated with a general principle that was often
implicit but nonetheless pervasive. This principle was that the University would
remain independent of all particular interests, be they financial, political, familial, or
personal. The University could only perform research and public service if it could offer
impartial evidence and analysis on all the subjects with which it was concerned. Its
staff and faculty could not remain impartial if their self-interest influenced the research
at hand. As conflicts of interest arose, University officials tried to make this principle
more explicit. By the late 1970s, UC President David Saxon felt called upon to note that
Universities serve all kinds and manners of interests, but the central truth is that, by
serving each of these interests, the University serves the interest of all and is the
handmaiden of none.22 The research university was to serve the entirety of the public
interest, and it would do so by safeguarding its independence.
3. Applied on the Rise
On the eve of World War II, the federal research role had been quite small. The
total federal funding for research and development in 1940 was a mere $74 million, of
which agriculture accounted for 40 percent. The rest, chiefly for military research, was
carried out in government and industrial laboratories.23
The war, and then the Cold
War, changed everything. The NSFs budget grew from $100,000 in 1951 to
$100,000,000 ten years later, that is, by a factor of 1000. Measured in constant 1992
dollars, overall federal funding to universities grew from $738 million in 1953 to nearly
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14 billion in 1998, an increase of nearly twenty fold.24 Federal funding transformed the
infrastructure of scientific and technological research, and was arguably the single most
important factor in producing American leadership in science and technology in the
post-war years.
Historians agree that the post-war boom in federal spending changed the
American research university. But this story shouldnt eclipse the subtler fact that in
critical ways, federal funding raised the same issues as industry funding. Academic
investigators sought both competitively and had to show the same entrepreneurial
energy some had used in courting business. Administrators had the same concerns for
keep the university in charge of its destiny.25 Security and secrecy were major concerns
around much unclassified as well as classified defense research. Furthermore, much
federal funding derived from mission agencies like the Department of Energy and the
Department of Defense, which sought specific technological capacities rather than basic
research findings. The NSF was explicitly devoted to fundamental science, but its
expenditures stayed in the range of 14-16% of the federal total for most of the post-war
period.26 The DOD accounted for 80% of academic research in the 1950s, still
contributed nearly 50% of the total in 1970, and declined to about 10% of the total only
in 1999.27 It is true, certainly, that an undetermined but probably quite large proportion
of DOD, DOE, NASA, and similar mission funding wound up in basic research.28
Nonetheless, most federal funding sought to apply basic research.29
In addition, basic research did not seem ideally suited to the critical problems of
the 1970s. The profitability of large-scale routine production had been in decline for
years, and business was increasingly interested in high technology as a new source of
higher profit margins. The 1970s recession was attributed in large part to a decline in
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economic competitiveness; this may have meant a deficit in basic science, but it more
obviously meant a deficit in commercial applications.
Furthermore, conceptual separation between basic and applied research was
somewhat artificial. Basic and applied research were in practice continually mixed
together; personal motives were similar in basic and applied fields, as could be told
with a comparison of astronomers with chemical engineers. Basic research yielded
breakthrough knowledge, but so might applied work that addressed a production
problem. Applied research was frequently as challenging and exciting as basic
research. The craft labor behind each was similar. Though the operations and
outcomes of university and industrial systems were different, the experience and
motives of the intellectual craftwork were the same.30
Universities began to take more official notice that much industrial research was
as good as the universitys and that some was better. Industrial R&D not only
continued to greatly overshadow university research in dollar terms, but was showing
dynamism, innovation and in some cases conceptual leadership; much of it was
anything but routine. Industries based on semiconductor technology, for example,
were conducting research and offering scientific opportunities that were hard to
duplicate at most research universities. Commercial biotechnology was on the scientific
cutting-edge. Intellectual as well as financial reasons led academic fields that were
historically close to industry to deepen their ties, and areas of science with little
previous commercial contact developed subfields with commercial potential.
Educational leaders could also observe a connection between industry
partnerships and academic success. Many standout universities, ones that enjoyed both
financial wealth and academic prestige, were those that had synthesized government
and industry funds in systems of interlocking science and engineering departments,
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specialized research centers, university-sponsored business parks, faculty-led start-ups
and spins-offs, and far-flung capital networks, all aiming at warp-speed
transformations of basic science into valuable technology.
As the decade worn on, university administrators were again focusing on
relations with industry, relations that had been veiled by Cold War federal funding.
Universities had a parallel need to find additional revenue streams: public funding for
education had become more uncertain even as educational expenses steadily increased.
They acknowledged that industry contact enhanced future job prospects for students at
a time when employment was becoming increasingly difficult.31 They heard top faculty
threatening to leave either for industry or for a university with more flexible corporate
connections (U-I 1982). In 1980, UCs president David Saxon, concerned that the
University could lose its best professors and graduate students to industry,
inaugurated a University-Industry Relations Project designed to improve the
relationship.
Lets recall some of the main themes of the story thus far: the universitys
intellectual independence had always coexisted with dependence on extramural
funding. Creating equitable relationships with outside funders, whether business or
industry, was a central task of university administration. Federal funding offered many
of the same opportunities and risks that industry funding had -- opportunity for a new
scale and intensity of research, and risks of reduced autonomy. Universities developed
their identity as the special site of basic research even as their funders and researchers
mingled these. Federal funding was not, in short, inherentlymore conducive to the
universitys independence than was industry funding. In relations between the
university and industry, the attraction was generally mutual.
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PART II. THE NEW POLICY ENVIRONMENT
4. The Patent Watershed
The culmination of the 1970s discussions of university-industry relations was a
striking change in the proprietorship of federally funded research. Up through the
1970s, patentable inventions and processes developed in part through federal funds
remained in the possession of the federal government. Universities that had conducted
the research could negotiate intellectual property agreements (IPAs) with the federal
agency. But title was the federal governments to license or transfer and not the
universitys or the individual researchers. Different federal agencies had different
patent policies. IPAs were negotiated on a case-by-case basis and with a variety of
outcomes. The government held patent rights as the trustee of the public, and research
funded by the public would remain in the public domain to be licensed for public
benefit. Statutory law also required that the government prevent any one contractor
from getting a preferred position. 32
Industry was not satisfied with this situation, but the same was true of many
academics. One of the major participants in the 1970s discussions, Richard C.
Atkinson, describes the motive behind changing in patent law.
It was clear to us in the late seventies that the process of transforming
ideas into applications was not working as well as it should. We assembled a
number of working groups at NSF to see what could be done to improve matters.
A particularly thorny issue was the federal policy requiring that patents
generated from government-supported research at universities reside with the
government. This was a clear impediment to transfer. What is the incentive to
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move ideas into the marketplace if government reaps the rewards? But could the
federal government actually give up intellectual property rights? No one knew
for sure, but we began to draft legislation in the late seventies. By 1982, Congress
had passed the Bayh-Dole Act, which transferred patent rights to universities.33
The Bayh-Dole Patent and Trademark Amendments Act of 1980 established a
uniform invention policy for all agencies and universities. It gave the institutions that
conducted federally-funded research the right to patent and license the results. It
explicitly encouraged the commercialization of federally-supported university
research.34 As Atkinson and others envisioned, universities now had direct financial
incentives to patent and license research findings. In subsequent years, the federal
judiciary strengthened the legal position of patent-holders and thus the securability of
financial returns.35 In 1983, the acts provisions were extended by Ronald Reagans
executive order from universities and small businesses to large corporations.36
Bayh-Dole was passed over vehement objections from some quarters. In his
congressional testimony, Ralph Nader argued that easier corporate access to university
research would damage academic and democratic values. The corporate model
concentrates power, restricts the production and application of knowledge, and
increases uniform behavior, self-censorship and when neededoutright
suppression.37 Interestingly, Admiral Hyman Rickover, spearhead of the nuclear navy
and veteran of decades of industry contracting, felt much the same way.38
Pro or con, most observers regard the Bayh Dole Act as the beginning of a new
era in university-industry relations. The Act did not initiate relations with industry, as
we have seen. It did not initiate the research universitys interest in industry
sponsorship or patent revenues, for the universitys preexisting experiences with
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industry, catalyzed by a changing economic climate, were more the cause of the Bayh-
Dole Act than its effect. Nonetheless, the Act is often credited with greatly expanding
university-industry relations, and with shifting the balance of power in favor of
industry. We will have to distinguish several simultaneous trends in order to identify
Bayh-Doles actual effects.
Bayh-Dole encouraged a general reversal of policies that had allowed patents to
remain in the hands of the government or the inventor. UC regularized its ownership
of patent rights to the research results of all its employees; UC policy will be discussed
in detail below. Columbias new policy, effective July 1, 1981, the same day Bayh-Dole
became effective, retained all rights of patent ownership for research conducted with its
resources and to share some royalties with the individual inventors. Stanford,
interestingly, did not retain patent title on its personnels inventions until 1994. In that
year, however, its policy became similar to UC and Columbias in its retention of patent
ownership by the university.39
In short, research that was supported with federal money and by faculty and
graduate student labor became the property of the host university. Corporations had
long claimed title to its employees inventions. On this point, Bayh-Dole moved
universities closer to the corporate model.
A second outcome followed from the first. Universities now had direct financial
incentives to see basic research overlap with applied, science turn into technology,
and the discovery process lead to commercial products. As weve seen, the 1970s
university had already become more likely to describe industry partnership as public
service. With Bayh-Dole, they could justify these partnerships as financial prudence
and, in addition, entrepreneurship. Although universities continued to have
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institutional, intellectual, and cultural stakes in their difference from business, they also
had stakes in closer ties with it.
These stakes could not be measured only in dollar revenues. A deeper cultural
shift was taking place, one that was changing definitions of administrative foresight,
leadership, and prowess. Industry partnership became the measure of all these things.
It was slowly but inexorably becoming harder for administrators, even at public
universities, to say that they were truly advancing the institution if they was not
involved in fundraising and partnering with the private sector. The university had an
interest in making money through these partnerships. It also wanted to be seen as
interested in making money, as interested in doing whatever it took to become a
player.40
This second outcome led directly to a third. As we have seen, the post-war
research university had distinguished itself through three conceptual contrasts, and we
have seen that the contrast between basic and applied research, and that between
service to society and service to industry, become increasingly qualified in the 1970s.
The Bayh-Dole Act posed a challenge to the third contrast, that between open and
proprietary research results.
This was a supremely sensitive issue. The value of open publication came as
close to being a universal belief as any feature of higher education. It was arguably the
universitys single most important feature to a wide range of social opinion that
included academics, students, administrators, legislators, industry managers, and the
general public. Truth, enlightenment, progress, functionality -- however one defined
the value of knowledge, open publication of results was the one sure way to achieve it.
Virtually all researchers saw it as the heart and soul of scientific knowledge, and
virtually all administrators recognized it as a preeminent public virtue.
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The universitys open publication of impartial research became even more
important as industry seemed to respond to the crises of the 1970s by going farther
down the other, proprietary road. Technology secrets appeared increasingly to define
the margin between success and failure, and secrecy became an even more important
part of company policy. Industry also continued the 1960s trend of the marketing of
everything,, which meant selecting, pitching, manipulating, and spinning information
that was often presented as independent research (3 out of 5 doctors recommend Bayer
to their patients). Marketing intensified in socially sensitive industries like
pharmaceuticals that required the recovery of high development costs. As advertizing
for everything from Alka-Seltzer to cigarettes became increasingly sophisticated,
ubiquitous, and intimate with its targets, the university seemed an increasingly
distinctive safe haven of accurate data and impartial analysis.41 The stakes were raised
further by 1970s revelations that industry had distorted or suppressed studies of the
negative health effects of pesticides, leaded fuel, automobile gas tanks, waste disposal,
among others. Public skepticism only increased in the 1980s with controversies about
AIDS research, Bhopal, and similar disasters. In a world of pseudo-research, wall-to-
wall product hype, soaring medical costs, and constant economic anxiety, the public
could use a university that remained above the fray, uncompromised by financial and
other self-interests, beholden to no great power, always ready to tell the truth.
5. Open Research in Proprietary Markets
The Report of the University-Industry Relations Project, UCs major statement in the
immediate wake of Bayh-Dole, recognized the value of openness. It noted the special
need of the University of California, a major public research university, to maintain its
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public trust. Also, it continued, the University has a social responsibility to assure a
diversity of research activities and to continue its tradition of independence from undue
influence by a single source.42 The Reports fourth recommendation reads as follows:
Maintaining an open and collegial environment for teaching and research
is a fundamental principle of the University. The Universitys publication policy,
I.e., freedom to publish and to disseminate research results, is also fundamental.
Limited periods of delaying publication are permissible only to permit filing of
patent applications or to enable the sponsor to comment. Campuses, the
Academic Senate or faculty in fields where openness may be strained should take
steps to see that norms that assure an environment of openness are upheld. The
University should continue its consistent and forceful application of publication
policy.43
Openness, the report claimed, must remain central to the Universitys operation.
The 1982 UC report seeks a reconciliation of open and proprietary systems. The
Reports first and foremost recommendation is that The University community should
take a positive stance in expanding involvement with industry.44 It also recommended
that mechanisms be established to maintain an open and collegial environment,
including freedom to publish and to disseminate research results (recommendation
4).45
The Universitys patent policy was front and center in the task of synthesizing
diverse priorities. These included achieving reasonable revenues for the University,
the development of inventions for the marketplace, maintaining good relations with
industry, and protecting against the use of public funds for private gain.46 The
University founded its attempted harmonization on the belief that none of these goals
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actually contradicted any others. It assumed, for example, that it could prevent public
money from subsidizing private profit even as it licensed publicly-funded inventions. It
assumed that its patent policy could protect open publication while offering firms
proprietary knowledge.
How could the University do these competing things at once? First, its patent
policy required every employee to agree to disclose inventions arising from University
research and to assign patents to The Regents.47 The University would act as a trustee
for the public by preventing, for example, individual employees from arranging side
deals for their intellectual property with private companies.
Second, the University would license its inventions non-exclusively. The only
exceptions would be firms that have funded the total cost of research leading to the
invention. These firms could expect an exclusive license, but only if they also satisfied
a further condition of due diligence in development and payment of royalties.48 If the
research rested entirely on private money then it could result in private gain. But if
public money were involved, then the publics interest would be protected by allowing
open access to the patent and blocking strict proprietary use.
Third, the Report defined patent application as open publication. Because
patent applications, with some national security exceptions, are public, the Universitys
patent policy contributes to the dissemination of research results.49 The University
would tolerate short delays in publication that permit a sponsor to comment or to
permit filing of patent applications, but it would not allow a private sponsor to obtain
long delay in or the suppression of publication.50 While a private firm would might
own the license to manufacture a product based on an invention, the knowledge, the
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art, the principles, the science underlying the invention would be public information.
In this sense, open publication and proprietary could be made compatible.
But fourth, and perhaps most crucially, the Report changed the definition and
scope of openness. A central paragraph is worth citing at length.
One problem of some immediacy is that the licensing of tangible research
products may depend on maintaining some degree of secrecy, i.e., not making
materials available to all upon request. Tangible research products refer to cell
lines, plasmids, mechanical structural drawings, etc., which are either not
patentable or have not yet been patented. Firms, in exchange for research
support, are often interested in having access to this type of product through
licensing arrangements including the expectation of the University protecting the
know-how associated with the tangible research product. The position taken by
the CRIP committee [the Committee on Rights to Intellectual Property], we
believe, is a sensible one. It would permit licensing of tangible research
products, but only under the condition that such agreements include provisions
clearly stating that the results of the research project are publishable and that
there are no restraints on publication or exchange of information among those
participating in the research process. The assumption of the CRIP
recommendation is that a restriction on dissemination of tangible research
products is not the same as restricting publication because detailed information
on the tangible research product is not usually included in scholarly publicationsnor presented at professional meetings. However, the CRIP committee makes it
clear that the University cannot take responsibility to prevent disclosure of such
information.51
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Here the Report accepts the fact that proprietary use requires restrictions on
open publication. It suggests that the publication of the results of sponsored research
are sufficiently open if it occurs among those participating in the research process,
which on its face at least excludes the public. The Report champions open publication
while restricting the relevance of openness to the point that it is compatible with secrecy
about aspects of research with potential market value. One could imagine cases where
the content of publication would be utterly unaffected, and other were it would. At the
very least, the university was demonstrating its willingness to tailor open publication to
fit patenting prospects.
There is no doubt that the 1982 UC Reports authors wish to keep the University
distinct from and independent of industry. There is also no doubt that this distinction
continued to rest on three contrasts -- basic v. applied, public v. commercial service,
open v. proprietary knowledge -- which had been oversimplified in theory and were
hard to disentangle in practice. We can fully credit the good intentions of the Reports
authors, and their devotion to the Universitys special role, and their belief in public
service, and still note that the project of disentangling commercial from non-commercial
functions had ground to a halt. The University community would continue to define
itself in terms of these contrasts, and invoke basic research, public service, and open
publication as its watchwords. At the industry interface, the participants in university-
industry collaborations accepted that the contrasts were outmoded or untenable. The
lines would be drawn on a case-by-case basis. This meant that industry was a partnerin defining the functional meaning of terms like basic research and open
publication, and was in effect a partner in defining the universitys basic identity.
This is alarming for those who feel that curiosity-driven research thrives in very
special, protected circumstances. But as we evaluate the current situation, we should
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recall that the protection provided by the concept of basic research funded by the public
was in large part an illusion. Present and future protections are emerging from the
current entanglements of public with private, open with proprietary, basic with applied
research. They will make use of the forms of independent discretion that, ironically, also
seem so problematic.
6. Regularizing Tech Transfer
In the twenty years that have elapsed since the passage of the Bayh-Dole
patenting act, technology transfer has become increasingly central to science policy and
general university administration. University science has come to seem distinctive less
in kind than in degree. The research university not longer defines itself, even in the
abstract, by placing itself and industry on opposite sides of a dichotomy. Many
research universities have replaced fixed distinctions with administrative
decentralization and enlarged discretion in defining boundaries and limits.
UCs 1982 Report set the stage for this new era. It concluded that research
activity must be appropriate to the mission and character of the University while
adding that there is no hard and fast definition of appropriateness. This meant that
the regular faculty have a central and continuous role in deciding on the
appropriateness of research within an administrative structure that assures review of
these decisions (recommendation 3).52
In putting decisions in the hands of faculty, the
report also claimed that the major policy framework for UC industry relations,
Regulation No. 4, was in part out of date and needs revising. Twenty years later this
revision is still in the offing, as several academic generations continue to conclude that
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Regulation No. 4s framework, including the distinction between public and
commercial service, may be too restrictive.
Other Report recommendations follow suit. Industry partnerships require speed
and responsiveness. Thus patent administration should in part be moved to individual
campuses, and the Chancellors authority [on each campus] should be expanded to
provide for increased flexibility and effectiveness in negotiations with industry
sponsors (recommendation 5).53 The University should pursue innovative
organizational approaches to industry, with the proviso that the University, including
the Chancellors and President, be a major participant in designing these approaches
(recommendation 7). The University should assist federal, state and local officials in
developing the necessary tax incentives, that is, tax flexibility, that would subsidize
high-tech research (recommendation 8). Each campus should develop ways of
supporting faculty efforts to partner with industry that are suited to particular
circumstances; these might vary from school to school on one campus (recommendation
10). The University should develop a handbook on University-industry relations, one
that describes relevant University policies. The handbook should also make clear that
no bias against cooperation with industrial firms and associations exists
(recommendation 11). This can be taken to mean that no particular policy should be
read as presenting a fixed, a priori barrier to a reasonable partnership.
Discretion was also enlarged around the sensitive issue of financial conflict of
interest. A faculty member might be conducting research which is funded by a firm in
which he or she has substantial financial involvement.54 The question of secrecy
emerged here again: there was a danger that, as a result of service to the competitive
advantage of the firm, the faculty member would suppress information or material
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normally available to colleagues and students, thereby undermining the integrity of the
teaching and research process.55 A conflict of interest might also lead a faculty member
to improperly remove patentable inventions or licensable tangible research products
from the University to the firm. University supplies, equipment, and staff time might
be siphoned off to the faculty members firm, or the faculty member might subordinate
his or her University responsibilities to the needs of the firm.56
Any of these would represent a significant loss to the University and the public
that supports it. The State of California, faced with similar issues for employees that
handle contracting, vending, and other relations with outside parties, addressed them
by prohibiting any employee participation in the making of a decision if there exists for
him or her a foreseeable financial gain.57 The relevant legislation, the California
Political Reform Act of 1974, required all public official to reveal all sources of income
that might come in conflict with their responsibilities as elected or appointed
governments servants. But the Act specifically exempted decisions on the selection of
teaching and other program materials and decisions about research. (the Academic
Freedom exemption) [sic].58 The Report used the exemption to allow faculty to make
university decisions about firms in which they have a financial interest. The University
required disclosure of these interests, but did not prohibit them.59
When the University rejected a prohibition on faculty having a financial interest
in the outcome of their research, they had a major intellectual reason. The Report noted
that faculty with financial interests in a research program may be exactly those faculty
uniquely qualified to pursue it. But the University had another reason as well. It was
worried that such a prohibition would induce good faculty -- and faculty with good
industry connections -- to jump ship either for a more lenient university or for industry
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itself. The Report warned that if appropriate modes of relationships that reasonably
accommodate the incentives of the situation are not found, academia may lose a
generation of people to industry.60 It advocated the development of university
research centers and other means to accommodate the pressures and incentives.
In lieu of a prohibition on commercial research, the Report recommended two
mechanisms for regulating the facultys relations with industry. The first was that
industry-sponsored research be peer-reviewed by official committees composed of
other faculty on each campus (recommendation 6).61 Industry relations would be
allowed in every case that did not violate university standards as interpreted by ones
colleagues. This was a mechanism of professional self-policing with a rationale similar
to those of the American Medical Association and similar professions.
The second alternative to prohibition was to class many forms of relations with
industry as faculty consulting. Many of these relations already were consulting
relations, and other relations -- service on corporate boards, off-campus collaboration
with industry scientists, and so on -- could be placed under this heading.62 Regulation
No 4. gave the University had a much smaller burden of enforcement with the
consulting relationships of its individual faculty. Faculty could not solicit
employment of their services by outside parties, nor could such employment interfere
with their University duties.63 But the Regulations core requirements that activities
lead to the extension of knowledge or increased effectiveness in teaching and that
they never be of a purely commercial character applied only to activities where the
university was an official participant.64 When the contracting party was an individual
faculty member, arranging the disposition of his, personal time, commercial activity
was allowed.
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This opened things up for both the University and the researcher. The
University could limit itself to enforcing requirements that the individual fulfill his or
her university obligations and disclose outside relationships. The University need only,
in other words, enforce the contract between the faculty member and itself. The
contract between the faculty member and a commercial firm could then be regarded as
a private matter. This in turn opened up possibilities for the individual, whose right to
privacy and to engage in contracts would take precedent over institutional statutes and
practices as long as they did not affect the university directly.
The Report thus notes that It is the policy of the University to separate an
employees university and private interests.65 It argues that both intellectual and
financial motives are in play, observing in passing that the perceived opportunities to
make money are great and involve not only the sale of products but more likely the
speculative returns to an equity investment and the salary possibilities.66 The Report
puts the financial opportunities in the context of the pressure on the University to
accommodate the pressures and incentives. It puts individual financial opportunities
in the context of the Universitys own. The ensuing recommendation states that the
University should pursue innovative organizational approaches to industry funding,
ones that would lead to a framework in which the University as an institution is a
major participant. Consulting offers a situation in which the work and the legal
responsibilities devolve to the faculty entrepreneur, who is compensated in the form of
financial returns, which in turn may flow to the university that has in a sense ridden the
facultys coattails into an industry relationship.
The post-Bayh-Dole framework for university-industry relations rested on
several basic features. First, the university would systematically deny any taint about
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industrial connections in general, and would instead encourage its faculty to seek them.
Second, conflicts of interest would be handled not by categorical or statutory
distinctions but by peer-review. Third, financial and other personal investments were
generally thought to require disclosure but not prohibition. Specific policies varied
from campus to campus and university to university, but few banned a scientist from
participating in a study where he had stakes in the outcome.67 Fourth, some forms of
faculty relations with industry were defined as belonging to the employees non-
university time, and were protected on grounds of privacy: the university neither
prevented nor endorsed them. In short, the university would protect its integrity and
pursue a wide range of industry relations. No type of industry relation would be
categorically ruled out, and each would be given a hearing by faculty and
administrators on its own terms. At the same time, the university would continue to
insist on its distinct identity and mission, a distinction that rested on traditional
features: its devotion to basic research, the open publication of results, and public
service.
7. The Post-Cold War Environment
By the 1990s, the Bayh-Dole framework was firmly in place, but it was also
ambiguous. Did it mean that the university would compete with business or become
more like one? Did it mean nothing would change very much? Would the university
remain independent and sustain a distinctive mission? Several features of the 1990s
climate shaped the possibilities.
The first of these consisted of a series of public scandals that damaged the
universitys reputation for impartial public service. Some of these occurred outside of
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science - the culture wars that began over the alleged decline of Western civ
offerings at Stanford suggested to some citizens that universities were becoming
hotbeds of political advocacy. Stanford was also in quite visible trouble for a more
serious reason: the federal government claimed that Stanford had overcharged it for
indirect cost recovery, the fees universities charge federal contractors for the indirect
costs -- building maintenance, staff salaries, utility bills, legal fees, etc. -- involved with
conducting federally funded research. Taxpayers were regaled with stories about the
government being charged for yacht rentals and floral arrangements at fundraising
dinners. The federal government ultimately claimed in 1992 that various universities
had overcharged it by $350 million.68 The general implication was that some of the
nations most respected universities were siphoning off public money for private gain.
The second feature of the 1990s climate was the end of the Cold War. The Cold
War had directly induced the federal funding boom in the 1950s; many naturally
assumed its end would mean a bust. This view was reinforced by widespread layoffs in
the early 1990s in defense-related industries, particularly areospace. In fact, aggregate
federal R&D funding, except for a bad year or two, continued to rise substantially.69
But the defense portion of that funding did not. While the health sciences and other
non-military research did well in the 1990s, funding for fields that were especially
dependent on DOD stagnated or declined. In general, science and technology
intensified their search for funding that could at least partially substitute for the federal
sources that everyone assumed were uncertain.
A third feature was what came to be called the new economy. Business was
increasingly focused on technological revolution, on increased competition, on the
shareholder demand for very high rates of growth. It came to assume that success
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depended on killer apps -- the breakthrough products that consumers had never seen
before but knew would transform their lives.70 This pursuit of the new was reflected in
the new Democrats Clinton and Gore, who sought to replace military with economic
competition as the center of federal policy. Their 1992 presidential campaign called for
greater emphasis on applied technology: The absence of a coherent technology policy
is one of the key reasons why America is trailing some of its major competitors in
translating its strength in basic research into commercial success.71 Similarly, the
Senate Appropriations Subcommittee that dealt with the NSF suggested in that year
that the agency take a more activist role in transferring the results of basic research
from the academic community into the marketplace.72 this widespread preoccupation
with the new meant that tech transfer was moving toward the center of federal science
policy. Confirming the trend, the Clinton-Gore administration introduced its major
policy statement on science revised by revising Vannevar Bushs title, Science: the
Endless Frontier. It was nowScience: the Endless Resource.73 Some observer felt that
the concern with commercial technology was eclipsing basic science.
Commercialization seemed irreversible since it offered large economic benefits:
This shift complemented a fourth feature of the 1990s, which was the decline in
basic, long-term research in industry. An earlier generation of very large corporations
had established labs that were justifiably famous for their basic research - AT&Ts Bell
Labs, Xeroxs PARC, GE Labs, Fairchild Semiconductor, among others. From the mid-
1980s on, each of these large operations was dismantled. Xeroxs PARC laboratories,
credited with inventing the mouse, the graphical interface, and any number of other
now-everyday features of our technological lives, was sold off in 2002. Though
businesss overall R&D expenditures continued to rise,74 they reflected less R and
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more D -- funds were shifted from fundamental science to product development. In
a age of deregulating monopolies (AT&T), white-collar downsizing, and increased
shareholder demand for high earnings, R&D came to be seen as a discretionary cost that
could be cut with little damage to immediate operations. Many companies acted on
their doubts about sciences real bottom-line value.75 Even those who recognized that
their survival depended on superb R&D (Genentech, Intel, Apple, etc.) were not so
inclined to set up large, central laboratories dedicated to blue sky research.
By the end of the decade, even high-tech industry stressed product research.
One of Silicon Valleys most thoughtful consultants, Geoffrey Moore, argued that Lou
Gerstner helped resurrect IBM in the 1990s by telling his labs to stop focusing on the
technologies of the future and start generating technologies for the present. Industry
now must manage R&D for shareholder value. This means that its continuous
innovations, the ones that differentiate its offers in the marketplace, should be
located in the divisions that make the products, not in the central labs.76 Moore notes
that centralized labs still make important contributions. But the shareholder payoff
from such work is very long term indeed, and there is some probability that the work
could be outsourced to universities and kept off the balance sheet altogether.77
This explains a fifth feature of the decade, which was strong industry support for
the basic research mission in universities. has become a component in this business
strategy. Testifying before the Commission on the Future of the National Science
Foundation in 1992, John McTague, vice-president for technical affairs at Ford Motor
Co., claimed that industry would get the best boost to its competitive edge in emerging
technologies if the NSF would continue to play a leading role in supporting non-
obvious research areas.78 Similarly, Dupont recommended continuation of the
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current trend that would allow industry [to] rely more heavily on universities to
conduct basic research.79 Applied technology routinely emerged from basic research,
and industry wanted the university to preserve its differences from industry that
supported it.80
Finally, the decade offered many spectacles of economic rejuvenation and
technology innovation through the proliferation of start-up companies. After
BayhDole, universities seemed particularly good at spawning start-ups, having
generated about 2500 since 1980, or about 300 per year on average.81 Start-ups seemed
ideally suited to incubate inventions that were still several steps away from successful
commercialization. They could convene the most appropriate, specialized expertise,
could operate in the academic and commercial worlds simultaneously, and could
shoulder risks that large, public companies were unwilling to take. Start-ups became
emblems of the harmony of technological innovation and large financial returns. They
attracted the best scientific talent who offered the highest chance of technological
success because of great intellectual and financial rewards. The enormous personal
wealth generated by some start-ups seemed the normal return for the unique skills,
enormous effort, breakthrough products, and high individual risk that characterized the
start-up environment.
These six features mingled together to produce a general consensus about the
universitys economic place. The university and industry would be partners rather than
competitors. The university would not go into business, nor would it reduce its
commitments to basic scientific research; to the contrary, it was now the only social
institution remaining with the mission to carry on basic, long-term research, and thus
its uniqueness was more important - and more economically valuable - than ever.82 The
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university and industry would divide up the value-chain and take opposite ends of it,
thereby preserving their informal non-competition agreement while enacting an
efficient division of labor: the university would conduct the fundamental science, which
it would transfer to industry, which would then develop the products. The university
would not stand in the way of the profit motive, even for its own personnel, since that
had come to seem so intrinsic to transferring technology to the public. The university
had financial and cultural incentives to develop industry partnerships: it could enhance
its revenue streams and overcome its image as a hidebound bureaucracy. The
university could also improve its image with the public. Having defined service to
industry as service to society, successful industry partnerships, some thought, might
restore some of the luster that had been lost. Recent years have seen a bumper crop in
images of peaceful symbiosis between basic and applied research, the lamb of science
lying down with the lion of commercial technology.83
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PART III. THE STRUCTURE OF CURRENT POLICY
8. The Tech Transfer Process
The university wanted to develop industry relations while maintaining its
independence, and much of industry wanted this too. But how would relations
between independent yet cooperating entities be articulated and accomplished? And
how would universities manage the inevitable complications?
In the last two decades, universities have gradually developed systematic
guidelines for working with industry. The University of Californias history offers one
representative case.
The first major type of industry collaboration is technology transfer. Technology
transfer is the process whereby inventions created by university employees and
facilities are disclosed to the university; in some cases, the inventions are patented and
licensed by the university to private firms with the intention of developing a product
for the marketplace.
Tech transfer is a constantly growing component of university research activity.
UC reports that At the present time, the University has over 2,000 inventions that have
commercial value and are available for licensing. These inventions span many fields
including health care and biotechnology, chemicals and advanced materials, computers,
electronics and engineering, and more. The University currently has over 600 activelicenses in place and employs over 60 licensing professionals who are skilled at working
with industry to arrive at approaches to commercializing the University technology that
meet the needs of both the University and its industrial partners.84
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The actual practices guiding the process can best be illustrated by examining the
stages of the process in their approximate order.
UCs tech transfer procedures are grounded in several unchanging principles,
including the old cornerstone Regulation No. 4.85 Current policy reaffirms its principle
of freedom of inquiry.86 For example, the Universitys Guidelines on University-Industry
Relations (1989) began by insisting that, in pursuing relationships with industry the
University must keep the pubic trust and maintain institutional independence and
integrity to permit faculty and students to pursue learning and research freely.87 In
turn, freedom of inquiry rests on the traditional principle of open publication, (though it
allows publication delays of normally . . . no more than 60 to 90 days).88 Freedom of
inquiry is also seen to rest on professional peer-review. The Guidelines invoked the
Faculty Code of Conduct in noting that the exercise of [faculty] self-discipline and
judgment, not external factors, should determine the content and timing of
publication. There remains a general university consensus that open publication and
peer review are essential defining features of the university environment, and will in all
relationships be non-negotiable.
UC policy is also governed by California state law. One law is of particular
importance -- the Political Reform Act of 1974. The Act prohibits University
employees from participating in University decisions when personal financial interests
may be affected by those decisions.89 The Act makes exceptions for decisions
undertaken in the course of research and teaching, but such decisions are subject to
independent review. The ban on influencing ones financial interests applies fully to
other business situations that affect faculty, such as the funding of start-up companies,
and will be considered more fully below.
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In addition to these general principles, the tech transfer process aims to enhance
the universitys public service. Its goal is to make academic knowledge available to the
general public in useful form: The major purposes of licensing to industry the use of
technology resulting from University research are: 1) to provide a mechanism for
transferring, disclosing, and disseminating the results of University research to the
public for the public benefit; and 2) to meet obligations to research sponsors. Licensing
also provides a financial return to support further research and education. 90
Tech transfer is also used as a way of recruiting and rewarding desirable faculty:
US economic theory grants a large role to financial self-interest in shaping human
behavior.91 So far, however, the search for revenues cannot justify tech transfer:
licensing fees, on a nationwide basis, cover only 40% of the processs legal fees.92
Universities conduct tech transfer largely for the public, for the political community, for
industry, and for their faculty.
The tech transfer process itself begins when a university investigator determines
that research results constitute an invention. An invention is any new and useful
process, machine, manufacture, or composition of matter, or any new and useful
improvements thereof."93 The inventor(s) consist of those individual(s) who furnish an
idea, not the employer or the person who pays for the development of the idea; the
inventor is further defined as the one who first conceives of the invention in sufficient
detail that someone skilled in the art could reproduce the invention.94
Novelty, usefulness, and non-obviousness are all features of a genuine
invention. An inventor is the source of the idea for the invention rather than the one
who funded or conducted the work on the idea. At the same time, the invention
consists of two parts: the idea and the reduction to practice, which involves the
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testing and operation of the invention.95 Both parts will be important in the tech transfer
process.
The first step in the tech transfer process occurs when the inventor or inventors
submit a disclosure of an invention to the university administration. This disclosure
is a relatively elaborate act in itself, as it requires the detailing of the state of the art
prior to the invention; the essential features of the invention with a precision sufficient
to allow someone else in the field to reproduce it; and a discussion of the inventions
novelty, advantages, optimal use, and possible modifications. The disclosure seeks,
among other things, to distinguish the invention from all existing inventions that it may
resemble.
The disclosure of an invention is not exclusively technical. The research that led
to the invention may have involved a number of parties and funding sources. The
presence of some of these sources may involve special legal obligations or proprietary
materials, that is, materials that they own or license. As the Office of Technology
Transfer (OTT) puts it, funding and use of proprietary resources and materials often
carries patent obligations, the inventor must disclose all outside agencies,
organizations, or companies that actually provided any supply, or expense funding to
any inventor for the research that led to the conception or first actual reduction to
practice of the invention.96 A second crucial disclosure, then, is of the inventors
funding ties and use of proprietary materials. Financial disclosure will play a large role
later on in the transfer process.
A third aspect of the initial disclosure is equally important. The inventor must
disclosure past or present publication of the invention, whether it took or will take the
form of an article, an oral description to a colleague, a demonstration to visitors, or
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something similar. Publication directly affects the inventions patent prospects. The
United States Patent Office allows one year from publication to patent filing, and the
clock starts at firstpublic mention. Most foreign countries have an even more severe
requirement: public disclosure, in any manner, before the date a formal patent
application is actually filed in a national patent office, automatically destroys patent
rights. In general, the success of patent applications depends on their presentation of
a discovery that is non-obvious to someone practiced in the art in question. If some
part of a discovery is made public prior to its patent filing, it can become part of the
discoverys prior art. The patent can then be denied on the ground that it fails to
describe something new in relation to the prior art. Because an ill-timed public
disclosure can undermine the patenting of an invention, a successful patent filing
depends in some part on the secrecy of its research, and the university is often required
to enforce this secrecy. Thus the university treats the disclosure of the invention
confidentially, and asks the inventor not to disclose the invention to any sponsor. The
university and the inventor then collaborate to plan the further communications
regarding the invention so that U.S. and foreign patent rights will not be
compromised.97
The disclosure phase of tech transfer is complex in itself, involving as it does the
explication of the substantive, technical aspects of the invention as well as its financial
and publishing history. But this is still only the first stage of the process. The second
stage involves the evaluation of the invention. This evaluation is conducted by the
patent coordinator and related university administrators. This evaluation covers every
aspect of the inventions potential. It assesses the inventions technical merits, its
conceptual significance, its place in its field, and its patentability. The evaluation
considers the potential public value of the invention, that is, whether the invention
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address a recognizable public need in such areas as health, information management,
agriculture, and environmental support, among many others. The evaluation weighs
the inventions commercial potential, since commercialization has become one if not the
major route to public access. The evaluation also considers the inventions overall
history of development, meaning the external sponsorships, research partnerships,
consulting arrangements, visiting researchers, material transfer agreements, industry
gifts, any of which may give additional parties some claim to the invention. Though the
preliminary evaluation generally occurs within thirty days, it considers the whole
network of participants, institutions, and activities on which virtually every invention
depends.
This evaluation may turn up a variety of conflicts among the participants in an
invention, and we will return to this point later. But assuming that the invention is
relatively unencumbered with prior obligations, the administrators who have
conducted the evaluation can come to several conclusions. The most common is that
the invention is not commercializable. As many as 80% of disclosed inventions fall into
this category.98 In this case, the university must still disclose the invention to any federal
funding agency that covered a portion of research costs, and must do so within two
months of the disclosure by the inventor. When the universitys LPs decide not to
pursue patenting and commercialization, patent rights for inventions supported with
federal funding normally revert to the federal government.99
The licensing office decides to proceed with the patenting process for somewhere
between 20 and 50 percent of disclosed inventions. The university has one year from
the time at which the invention is published or publicly used. This process takes about
two years and costs at least $10,000 for the US patent, and considerably more for foreign
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filings. The university hires a patent attorney to write the applications and coordinates
the collaboration between the inventor and the staff involved with the filing. The
university, the attorneys, and the inventor must respond to questions and other office
actions coming from the patent examiner who works for the US Patent and Trademark
Office (PTO). Most university filings result in an issued patent. In FY 2000, the PTO
issued 384 patents to inventors in the UC system, as compared to 152 to MIT and 108 to
Cal Tech.100
As part of the patenting process, the inventor signs a Patent
Acknowledgement, which assigns the inventions title to the university. The
university becomes the legal owner of the patent, and aside for exceptional
circumstances retains title to the patent throughout any process that brings the
invention to market. This ownership is required by the Bayh-Dole Act, which
transferred patent ownership of federally-funded inventions from the federal
government to the non-profit organizations where the invention process took place.
The university must assign the government a non-exclusive, non-transferable,
irrevocable, paid-up right to practice or have practiced the invention on behalf of the
U.S. throughout the world.101 The government can recover title in extreme cases -- a
public health crisis, for example, or a military emergency. As part of its retention of
patent title, the university retains the right to practice the invention for research
purposes. The effect of the Bayh-Dole legislation was to make the university a trustee
for public ownership while giving it a financial incentive to manage the complex and
expensive process of commercializing inventions for public use. In nearly all cases
where the university elects to file a patent application, the university retains ownership
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of the intellectual property (IP) created or developed by its employees.102 It then seeks
industry partners to commercialize the patent.
Commercialization takes a major step forward in the next phase of the tech
transfer process, which is licensing the product. At this point, the University Licensing
Office contacts private firms to determine their interest in developing the invention into
a commercial product. The Licensing Office supervises a process that itself can become
complicated, involving lengthy searches for appropriate companies, the writing of
Secrecy Agreements and other protections to govern demonstrations of the invention to
interested parties, and the negotiation of licensing terms.
The university negotiates one of two general kinds of licenses. It may offer an
exclusive license with a company, meaning that no other company will have the right to
use that patent. An exclusive license is most commonly given to a sponsor who has
borne all of the costs of developing the invention. It is often deemed appropriate in
fields such as pharmaceuticals, where companies seek shelter from competition in part
because of the very high costs of bringing a new drug to market. Since an exclusive
license could potentially be used to restrain the use of the invention, and since the
purpose of licensing is public availability, the Bayh-Dole Act requires that a company
that has obtained an exclusive license must substantially manufacture that product in
the U.S.103 The university must monitor the manufacturing process to insure that the
company has made a good faith effort to put the product on the shelf. The university
may also negotiate non-exclusive licenses, in which case more than one company will
have access to the patent and may commercialize in competition with one another.104
Nationwide, university licensing activity is divided almost equally between exclusive
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and non-exclusive licenses. Licenses to start-up companies, however, are 90%
exclusive.105
In all cases, the federal government maintains pressure toward public use
through its retention of march-in rights, which allows it to take control of the patent
when public use is endangered or other serious problems arise. The use of these right is
very rare. The university generally retains title to the invention. The university also
retains the right to practice the invention for the purposes of research; the University of
California retains this right on behalf of other US universities as well. The purpose of
this right is to make sure that licensing obligations do not impair further research and
publication.
Once the university has licensed its invention to a particular company, that
company undertakes the commercialization process. The university normally has no
input into this process, although it does monitor the progress of holders of exclusive
licenses. The industry relationship takes the form of a handoff of the technology from
the university to the firm, which performs all of the work involved in bringing the
product to market. The university receives royalties on the sale of the product based on
the invention. The amount of these royalties are negotiated on a case-by-case basis, and
the negotiations take into account the industry standard, projected costs of
development, the licensees contribution to the invention, potential market size, and
similar factors. University royalties average 3% of (gross?) sales, depending on many
factors.106
Universities have established formulae for dividing the royalties they earn. They
generally deduct monies owed to external parties for services and preexisting
obligations, and then give a share to the inventor. The University of California gives
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35% of net royalties to the inventor,107 15% to the inventors campus or laboratory for
research purposes, and retains 50% for its own use. Where there are two or more
inventors, the inventors split the royalties equally.
Participants regard the tech transfer process as a win-win situation. Inventors
see their inventions become useful products and the public gets access to them. The
university, industry, and the inventors are all compensated financially, and the
university puts most of its revenues back into research. Because private firms can
generate profits by participating in the tech transfer process, they may increase their
support of basic research in its formative stages. Universities have incentives to make
the process more efficient, and the public can expect faster development of
breakthrough products for its use.
9. Research Partnerships
A second major form of university-industry relation is partnership between
academic and industry researchers. In most of these cases, researchers from different
organizations identify areas of common scientific interest, and are brought together by a
desire to pool their financial and intellectual resources.
Partnerships will most often appear in a field with large research and
commercial potential that is nonetheless in its early stages. Because the research is not
very far along, it will require a long-term investment in work whose outcome is largely
unknown. Given a long horizon and an uncertain outcome, most private firms will
regard this research as risky, and will be unable to use conventional financial
accounting to justify a substantial investment. In addition, basic research in advanced
fields is usually very expensive. Firms may also lack the highly
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specialized personnel that would allow them to pursue the research successfully.
Partnerships offer industry a kind of all-in-one solution. Rather than construct
their own facilities they can use existing ones. Rather than hiring new, permanent
expertise, they can save money by collaborating with existing university faculty, staff,
and students. Some estimates suggest that university partnerships cost industry as little
as ten cents for every dollar they would have spent constructing their own facilities.
Industry saves money, increases its flexibility, and participates in the most advanced
research.
On its side, the university has complementary interests. Universities have built
research infrastructures and can offer long-horizon environments. Yet they are
typically unable to fund research internally and must continuously seek outside funds.
They are also looking for advanced expertise that will extend that of their own
personnel. They have an interest in developing relationships with firms that are doing
pathbreaking research and that may employ their programs graduates. Universities
also regard the public use of inventions as central to their public service, and look for
potential future partners in commercializing them..
Research partnerships follow the same basic guidelines that apply to all research
activity. The work must contribute to new knowledge, protect the educational needs of
students, and otherwise conform to the universitys academic mission. The partnership
must support the open publication of scientific results (beyond a precisely defined
delay for sponsor review), and allow the university to retain patent rights to allinventions produced with the participation of university facilities or personnel. The
industry partner must also indemnify the university for any unsatisfactory research
results (industry is indemnified in turn).
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A good example of such a partnership is one recently established between the
UC Santa Barbara Materials Research Laboratory and the Mitsubishi Chemical Corps
US subsidiary. Several of Mitsubishis main divisions concentrate on functional
materials and plastic-based products, and the company has been interested in
developing these product lines: as specialty-use materials based on proprietary
technology, they offer high profit margins.108 UCSB has approximately 100 faculty
working in materials-related areas, and a number of them, including a recent Nobelist,
have done pioneering research in functional materials. In 2001, UCSB and MCC co-
founded a separate research unit called the Mitsubishi Center for Advanced Materials
(MC-CAM).
MC-CAM will focus on the two organizations interest in functional soft
materials. As described by the centers founding director, Chemical Engineering
professor Glenn Fredrickson, these materials are 'functional' because they do
something of value, such as a sensor responding to a stimulus in its environment. And
the materials are 'soft' in that they have at least one organic component, meaning the
presence of the element carbon as in a plastic (polymer) or biomaterial. Materials that
are physically soft tend to be easy to process and to exhibit transport and diffusion
properties that are controllable and therefore highly useful."109 Within this larger
domain, MC-CAM is focusing on several specific research areas of mutual interest.
Photonic band-gap materials, for example, could form a transistor for the switching of
particles of light or photons much as semiconducting materials can comprise switches
for electron flow.
Like most research partnerships, MC-CAM describes itself as a synergistic
alliance between distinct organizations. "As a College of Engineering, says Matthew
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Tirrell, UCSB dean of Engineering, we certainly want to influence technology. At some
point we can't carry our research developments further into the technological arena; so
industrial partners, with whom there is a good technical match, enable research results
to be put into practice. And I think that is what we have found in Mitsubishi
Chemical."110 The research funded by Mitsubishi would break new scientific ground,
and might have be