Risky business

Academe, Sep/Oct 2001 by Liebeskind, Julia Porter

Universities and Intellectual Property

Academic institutions and individual professors can profit from patenting faculty research, but they may be endangering the future of science.

In 1980 the U.S. Congress gave universities the right to seek patents for scientific discoveries made by their faculty and staff with support from federal funds. The main motive for the legislation, the Bayh-Dole Act (Public Law 96-517), was economic-to facilitate the commercialization of potentially valuable discoveries. Without clear intellectual property rights, firms have few incentives to invest in developing new products. Before Bayh-Dole, the government owned patents stemming from federally funded research; universities could obtain these rights only through an arduous and time-consuming process, and little licensing took place. Bayh-Dole devolved the power both to seek and to own patents to universities and allowed universities the right to license their patents to firms.

The ownership rights of universities were further expanded under Public Law 98-620, passed in 1984. Since the enactment of these two laws, patenting by universities has risen sharply, especially in the life sciences. In tandem with this increase, licensing agreements and revenues have also jumped. Almost all large research universities now have special offices devoted to patenting and, frequently, to licensing and other forms of university-industry technology transfer.

Many people have hailed this surge in patenting and licensing as a great benefit to society. Universities have come to be seen as "engines of economic growth," supplying industry with basic research and new products and processes. Nowhere has this role been more apparent than in the biological sciences, where discoveries made by university scientists have spawned an entire new industry, the biotechnology industry, comprising over a thousand firms and billions of dollars in revenue. On a more altruistic level, increased patenting and licensing has also provided new drugs for previously untreatable diseases, new approaches to managing and reversing pollution, and other socially valuable innovations.

And yet many people worry about the long-term effects of this expanded patenting on the university. In 1984, for example, not long after passage of Bayh-- Dole, the American Academy of Arts and Sciences commissioned a report on the effects of granting universities intellectual property rights to the fruits of academic research. This widely read and important report, prepared by Dorothy Nelkin and titled Science as Intellectual Property: Who Controls Research?, made the following observation:

Academic science has been a public resource, a repository for ideas, and a source of relatively unbiased information. Industrial connections blur the distinctions between corporations and the university, establishing private control over a public resource. Problems of . . proprietary rights are inherent in these new relationships and hold serious implications for both academic science and the public interest.

Many other groups have voiced similar concerns in many other forums. Historically, the university has provided an "intellectual commons" in which the ideas and discoveries of scholars have been made available for the use and benefit of all members of society. Will university ownership of intellectual property rights eventually shrink that commons? Will it undermine its value to society in other ways? In the comments that follow, I discuss three specific areas of concern in this debate: faculty incentives, the conduct of university research, and faculty-university relations. Financial Incentives

The first concern raised about the growth of patenting is that it will intensify incentives for faculty to work on commercially viable projects. Traditionally, worries about faculty's interests being swayed by industry funding have focused on grants and consulting. But because most universities share a substantial proportion of the royalty income generated from patent licenses with faculty, patents offer an additional incentive for researchers to pursue commercial projects.

The rules universities use for allocating royalties vary widely. A typical payment scheme gives a first "cut" from royalty income to the university to recompense it for the costs of filing the patent. After costs are recovered, the income is then divided among the university's technology transfer office, the faculty members listed as inventors, the faculty members' departments, and other departments in the university. Many ot these agreements are generous to faculty, who can receive as much as 50 percent of the total royalty revenue after patent costs are recouped. Indeed, universities often design royalty-- sharing schemes to encourage faculty to disclose their inventions.

Some people have argued that profitable patents are so rare that faculty members are unlikely to be influenced by financial considerations when choosing which avenue of research to pursue. Although evidence does reveal that few patents make large amounts of money, some patents provide substantial sums to faculty inventors. Research by David Mowery and colleagues shows that in 1995 the University of California system earned $58.5 million in licensing income (fees and royalties). Of this total, $38.7 million (66 percent) was earned by only five licenses, an average of $7.7 million for each license. At Stanford University total licensing revenue was $35.8 million in 1995, and the top five licenses accounted for $30.3 million (85 percent) of that amount. It can be said, therefore, that despite the small probability of large payoffs, high-powered financial incentives exist for faculty to find "winning" patents.