White Paper Tech Transfer 2002

7/30/2019 White Paper Tech Transfer 2002

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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


29/97

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

White Paper Tech Transfer 2002

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