A CHALLENGING MATCHUP

Time-consuming wrangling over intellectual property issues is affecting the relationship between academia and industry.

With a hint of nostalgia in his voice, Joe O'Brien recalls an era that ended some, 20 years ago. He remembers when corporate-sponsored research contracts with university labs were casually reached over a cup of coffee with th,e faculty member who would lead the investigation. Back then, "we could have a collegial dialogue with faculty," and deals were quickly agreed upon, recalls O'Brien, university relations program manager at Hewlett-Packard, an information technology giant that can trace its lineage back to campus labs at Stanford University.

The reality today is that research negotiations often get hung up on issues involving intellectual property (IP) rights: Who owns them? Will they be licensed nonexclusively or exclusively? And at what cost? Difficulties in resolving questions like these can lead to negotiations lasting a year, or even two. For industry, that's much too long and costly a wait. Notes R. Stanley Williams, director of HP Quantum Science Research: "All too often, the company spends more on attorneys' fees than the value of the contract being negotiated." Companies complain that too many university technology transfer administrators have an unrealistic notion that they can make money off of all research.

Moreover, companies say, although they paid for the research, if any useful IP results from it, schools claim it's university property and sponsors are entitled only to first crack at negotiating (and paying for) a license to use it-which smacks of being asked to pay for it twice. Research schools, however, say companies fail to take into account sunk costs needed to build a lab's infrastructure and body of expertise. The problem, says Gerald Barnett, director of the Office for Management of Intellectual Property, University of California, Santa Cruz, is that industry considers IP contracts another form of procurement; but to schools, they're licensing deals.

The upshot is that Corporate America is increasingly moving academic research programs to schools overseas, particularly to the developing world, where results are outstanding, costs are low and arguments over IP are nonexistent. That certainly is a cause for worry among America's engineering school deans, many of whom are sympathetic to industry concerns. They fret that the negotiations impasse means that too many of their faculty and student researchers are losing opportunities to work on useful and lucrative corporate research.

To be sure, there is ongoing dialogue to bridge the differences and speed the pace of IP deals. Indeed, the American Society for Engineering Education (ASEE) is sponsoring an all-day workshop on intellectual property negotiations in February in Washington, D.C., that will bring together engineering deans, industry officials and tech transfer administrators to talk about problems and possible solutions. But the issues are complex and, in some circumstances, based on varying interpretations of federal law. Another hurdle is a lack of unanimity within industry on what the problems are and what fixes are needed. Notes a white paper, commissioned by ASEE to coincide with its workshop and also the basis of this article: "... each sector tends to approach IP rights negotiations with different-and sometimes conflictinggoals. What causes problems in one sector can be the complete opposite of what's a stumbling block in another."

Certainly, the trend in federal spending for research and development in engineering and the physical sciences can make one sympathetic to the plight of research schools and their need to find new sources of revenue. According to the National Science Foundation, federal spending has been essentially flat for about 30 years, fluctuating between $5 billion and $7 billion. What critics say is a mistake, however, is when schools try to compensate for lost federal funding with revenues from IP royalties- particularly in the area of engineering. Only very few schools gross large sums from royalties. And most of the winners hit the jackpot with discoveries in the life sciences, particularly pharmaceuticals. Individual engineering patents rarely have much value -particularly in the IT world. As University of California, Berkeley, business professor David Mowery recently told Fortune magazine, a single piece of hardware often comprises about a hundred different patents, which diminishes the worth of just one. But critics charge that too many technology transfer offices fail to distinguish between engineering and the life sciences and too often apply to engineering the "big hit" royalty model of pharmaceutical patents.

According to the Association of University Technology Managers (AUTM), many schools earn only enough from IP royalties to cover the costs of running a technology transfer office, and a significant number don't even manage to do that: They're in the red. "There is a lot of mythology out there" concerning royalties, says Don Giddens, dean of the Georgia Institute of Technology's engineering school. And even if a tech transfer office's overhead is only just covered by royalty revenues, "What are the benefits of that?" asks Nino A. Masnari, dean of the College of Engineering at North Carolina State University. In 2003, AUTM figures show that U.S. research schools completed 4,516 licensing deals and total licensing income reached an impressive $1.3 billion. But just over half of that cash went to just 10 schools. And even big grossers don't have much left after expenses.