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									    Intellectual Property:
Universities, Corporations and
 Finding a Common Ground




         The American Society
       for Engineering Education
           February 13, 2006
OVERVIEW

     There is, according to Wayne C. Johnson, executive director of Hewlett-

Packard University Relations Worldwide, “an intensified need for collaboration

between universities and corporations.” As many companies now use in-house labs

primarily for product development and exploring advanced technologies, they are

increasingly turning to research universities “as a source of . . . applied research,”

Johnson told the Engineering Deans Institute in March 2004. And clearly, many

schools welcome this development. As notes Mark Crowell, associate vice

chancellor for economic development and technology transfer at the University of

North Carolina at Chapel Hill, and current president of the Association of

University Technology Managers (AUTM): industrial research money is becoming

more important on campuses in light of a “flattening” of National Institutes of

Health funding. Certainly there is much room for growth. National Science

Foundation figures show that of the $40 million of research money channeled into

U.S. research schools in 2003, only 5.4 percent came from industry -- mainly in the

form of single contracts -- while 61.7 percent came from the federal government.

Given their mutual needs, increasing collaboration between universities and

industry should flow naturally.

     But it doesn‟t.

     Difficulties in negotiating intellectual property (IP) rights can lead to long



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delays antithetical to the fast product turnaround demands that many companies

labor under in today‟s world. Contract talks often drag on for many, many months.

Moreover, once they‟ve paid for the research, companies balk when they're then

told that if it results in an invention, the IP belongs to the university and all they‟re

entitled to is the first shot at negotiating (and paying for) a license to use it. Here‟s

what R. Stanley Williams, director of HP Quantum Science Research, told a U.S.

Senate committee in September 2002: “Typically at present, negotiating a contract

to perform collaborative research with an American university takes one to two

years of exchanging e-mails by attorneys, punctuated by long telephone conference

calls involving the scientists who wish to work together. All too often, the

company spends more on attorneys‟ fees than the value of the contract being

negotiated.” Additionally, Williams told the Senate committee, many schools take

the position “that a company needs to pay for research that is being done up front

in a collaborative project, to pay the costs for any patents that are filed as a result

of the research and then to enter into a separate negotiation with the university to

license the intellectual property that is created . . . Companies take the view that

they are thus forced to pay three times for their own intellectual property.” Many

engineering school deans -- who would like to see their faculty and graduate

students working more regularly with industry -- are sympathetic to and agree with

industry‟s interpretation of the issue.



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     Meanwhile, Gerald Barnett, director of the Office for Management of

Intellectual Property at the University of California, Santa Cruz, says the

technology transfer officers at most schools do indeed consider all IP coming out

of their laboratories as the university‟s property -- for a variety of legal reasons. As

a result, negotiations often start with the two sides on different wavelengths, he

says: to universities, it‟s about licensing; to industry, it‟s simple procurement. Too

often the upshot of such opposing views is, unsurprisingly, difficult, drawn-out

negotiations that regularly engender animosity. Says Joe O‟Brien, HP‟s University

Relations Program Manager: “Negotiations can be so contentious, it is easier to go

someplace else.” Many companies are already availing themselves of top-notch

labs at foreign research universities, particularly those in the developing world,

where IP rights typically and automatically belong to the sponsoring company.

And, companies warn, if difficulties with American universities persist, that trend

will certainly continue.

     This paper will look at some of the key reasons why sponsored research

contracts are so often hard to negotiate. It will also address possible solutions, most

of which have merit, but none of which is likely to work for all situations. A one-

size-fits-all formula won‟t work largely because the needs of each industrial sector

are often at odds with one another. The information technology (IT) industry, for

example, wants to speed up the negotiating process. So do bioengineering



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companies; but they also say they‟re too often pressed to make decisions on

licensing much faster than they‟re able to.



HISTORY

     Hewlett-Packard, of course, like many other top IT firms, sprung to life in a

campus lab at Stanford University. O‟Brien recalls: “Fifteen or 20 years ago, we

could have a collegial dialogue with faculty,” and deals were struck over a casual

cup of coffee. That era ended, he adds, when tech transfer administration grew in

scope and began focusing on making money through funded research and IP

licenses. Back in the late 1950s and early '60s, federal research spending for the

physical sciences and engineering amounted to 2 percent of GNP. But that kind of

spending ended in the 1970s, while research money for the health and biological

sciences mushroomed. NSF figures show that federal spending for engineering

research remained fairly flat between 1970 and 2000 at around $5 billion to $7

billion; research money for the physical sciences hovered between $3 billion and

$5 billion. During the same period, however, research money for the life sciences

soared from about $5 billion to around $20 billion. And, according to Williams,

over the last 10 years, one result of that trend is that schools are now attempting to

seek large amounts of money from industry through licensing.

     It should be noted here that U.S. research universities have been grappling



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with issues involving industrial research and IP patents since at least 1928,

according to the University-Industry Partnership. (The partnership is a project of

the Government-University-Industry Research Roundtable (GUIRR) -- which is a

unit of the National Academies -- that‟s working to craft general principles to

guide and ease IP negotiations between universities and industry. It released a draft

set of Guiding Principles for University-Industry Endeavors in July 2005.)

[For charts and more information on R&D trends, see Appendix 3.]



THE BAYH-DOLE PATENT AND TRADEMARK ACT OF 1980

     The Bayh-Dole Act was an effort by the U.S. government to help release and

commercialize potentially valuable research from university labs that might

otherwise remain on the shelf. It was also, ironically enough, Congress‟ intention

with the act to “promote collaboration between commercial concerns and nonprofit

organizations, including universities.” The act‟s basic premise was simple:

universities could, if they so desired, assume ownership of the IP resulting from

any federally funded research in their labs and seek to license it to businesses. But

the widespread view in industry is that schools have since assumed an overly

liberal -- not to mention unreasonable -- interpretation of Bayh-Dole and concluded

it allows them to own all intellectual property coming from their labs, including IP

resulting from industry-funded research. Crowell says Bayh-Dole is relevant



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because even if only a dollar of federal money is involved -- in paying for, say,

equipment or a salary -- then the act kicks in. That said, he adds, even if Bayh-Dole

didn‟t exist, other laws would require most schools to retain IP ownership. Indeed,

the tech transfer regulations at the Massachusetts Institute of Technology (MIT)

predate Bayh-Dole and assume ownership of industry-sponsored IP. “Bayh-Dole

has absolutely nothing to do with it,” states John Preston, former head of MIT‟s

technology transfer office and now a senior lecturer at the school‟s

Entrepreneurship Center. What does matter is federal tax law. IP rights can‟t be

assigned to for-profit entities when they originate from a building constructed with

funds raised from tax-exempt bonds.

     The other major complaint critics aim at research schools is that they have

become overly enamored with a business model that assumes royalties can

generate huge amounts of revenue. “More and more universities are trying to hit

home runs from IP,” says Dale Parker, director of Intellectual Asset Management

at Northrop Grumman Corp. To be sure, a handful of universities do earn big

money from royalties, though most of them result from discoveries in the life

sciences, primarily pharmaceuticals. It is the rare engineering patent that has much

individual value, however. “In a piece of hardware that may straddle technology

covered in a hundred patent claims, the strategic value of a single patent is low,

(according to) David Mowery, a Haas School of Business professor at the



                                                                                     7
University of California, Berkeley,” Fortune magazine reported last September.

O‟Brien makes the same point about engineering patents that come from university

labs, adding: “The really killer-ap innovations we do in-house.” And Williams

points out that in the IT industry, the relatively short shelf life of engineering ideas

also reduce their monetary value because the products they‟re used for often aren‟t

around for long. Moreover, most engineering patents can be sidestepped by doing

the same function in a different way, Williams adds. In short, critics say, treating

every single patent as a potential gold mine is delusional and a waste of time.

     Certainly Bayh-Dole has unleashed the commercial potential of American

academic research labs. In 1979, just 264 patents were awarded to U.S.

universities. By 2003, according to AUTM, America‟s universities had inked 4,516

licensing deals, and their total licensing income was an impressive $1.3 billion.

However, the lion‟s share of the benefits was reaped by just 10 schools. Those top

10 institutions achieved about a third of the new discoveries and raked in more

than half of that $1.3 billion. And after accounts are settled, even big winners

aren‟t left with much. In 2001, gross licensing revenue at the University of

California System totaled $74 million. But its net revenue after expenses and other

costs were subtracted was just $5 million.

     AUTM figures indicate that a good many schools barely earn enough to

support their technology transfer offices. And a significant number actually spend



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more on administration costs than they earn in revenues. “There is a lot of

mythology out there” concerning the so-called benefits of royalty income, says

Don Giddens, dean of the engineering school at the Georgia Institute of

Technology. Adds Nino A. Masnari, dean of the College of Engineering at North

Carolina State University: “I believe it‟s the universities with stars in their eyes.” If

a school is earning only enough to cover the costs of its tech transfer office, “What

are the benefits of that?” Masnari asks.

     MIT‟s Preston agrees that too many tech transfer offices are overly

preoccupied with elusive licensing revenues. “Royalty income is such a horrible

means of measuring success,” he says. Wealth creation, economic development,

job creation (especially for graduate students), goodwill (especially good relations

with industry) and reputation are much better yardsticks for assessing how well a

tech transfer office is working. Schools whose research successfully achieves those

kinds of results become magnets, attracting the best faculty and students.

Moreover, if a school is willing to trade income for economic development,

Preston says, it can make a lot more money in the long run off of the resulting

goodwill. Even though, he adds, MIT‟s royalty earnings are admittedly quite

healthy, the amount is nevertheless dwarfed by the money it receives from

corporate donations.

     The NSF‟s John C. Hurt has said that IP rights should be seen as a “means for



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interacting with industry,” not as a source for revenue. AUTM‟s Crowell does not

disagree and says most universities no longer see IP rights as a quick path to

riches. “That‟s not true today, though 10 years ago was,” he says. For most public

and private schools, Crowell says, “economic development is now considered part

of their mission, as well as teaching and service.” Nevertheless, the perception

within industry that too many schools continue to treat technology transfer as a

lottery remains widespread.

     Preston cautions industry to not get too hung up on ownership of IP, saying it

shouldn‟t be an issue. The industry notion of " 'We funded it, we should own it‟ is

b.s.” The problem, Preston says, is too many universities concentrate on income.

“Universities should focus on getting the technology out there.” And none of the

laws involved, including Bayh-Dole, say anything about what the license price of

the IP should be, he says. “A university could own the IP and license it for a

dollar,” or some other token amount. Schools that become too greedy lose the best

and brightest industrial customers, leaving schools to deal instead with the second-

tier ones, Preston says. He recalls that when he ran MIT‟s transfer office, he felt it

was better to take small bites out of large deals than massive chunks out of small

ones.

     Crowell agrees that licensing fees should be kept as low as possible but says

industry needs to recognize that no matter what it paid for the research, it doesn‟t



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take into account the total cost of the lab‟s infrastructure. As Barnett explains it,

sponsored research draws off of a school‟s base of knowledge, which was

accumulated over decades and required billions of dollars of investment in

facilities, faculty and equipment. “It is not just the professor you‟re hiring, it is the

entire infrastructure.” That‟s a valid point, Preston says: “Obviously a company is

going to a university lab because the lab is uniquely capable of solving a problem

the company has not solved.” But again, Preston stresses the need for schools to

keep fees low. When he was negotiating for MIT, he would seek out the middle

pricing ground, then go 10 percent toward the other side, and that would be his

starting point.

     But for many industry negotiators, paying anything beyond the cost of the

research remains a source of irritation. “We don‟t feel that we should pay for a . . .

license for IP we‟ve already paid for,” O‟Brien flatly states. When fees are paid,

companies tend to prefer lump-sum payments rather than royalties. Adds O‟Brien:

“The cost of tracking royalties through product cycles and derivatives costs more

than the value of the invention.” Deborah Kilpatrick, director of New Ventures at

Guidant Corp., a California bioengineering firm, also prefers one-time, lump-sum

payments. “Downstream royalties give us serious concern in early-stage research

and technology development.” It is, she explains, very difficult to commit to them

so far upstream of any commercial product. Crowell says he considers payment



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options case by case and seldom rules out a single payment before negotiations

commence. “There have been many cases where I‟ve taken a lump-sum.”

     If a patent is filed, control of the process can also be contentious. Crowell

complains that if a company exercises an option, it often wants its own counsel to

write the patent, “and we can‟t let that happen.” The university owns the patent and

letting a corporate lawyer handle the process is akin to letting that lawyer represent

the university, he says. But HP‟s Williams argues that patents filed by universities

“are often too weak to defend” because they‟re provisional and don‟t have

“carefully crafted” claims sections. Schools also tend to overvalue engineering

patents because they erroneously consider them analogous to drug-discovery

patents, he says. And O‟Brien says it also rankles companies that they‟re usually

told from the start that not only will the university make all patenting decisions, but

the company must still pay all patent costs. HP, he says, wants oversight of the

patent process if it is paying the bill.

     Industry and academia can also disagree over where ideas for corporate-

funded research came from. Barnett says many universities will define sponsored

research as “financial support for a university-supplied proposal.” Williams, in his

Senate testimony, stated: “In many cases, the root idea originated with the

sponsoring company in the first place, not the university.” Crowell says there‟s no

typical source for a research idea. “It‟s all over the map.” But, he adds, a lot of



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research that interests industry was originally funded by the federal government or

other sources.



DIFFERENCES WITHIN INDUSTRY

     Industry is not, of course, monolithic. And each sector tends to approach IP

rights negotiations with different -- and sometimes conflicting -- goals. What

causes problems in one sector can be the complete opposite of what‟s a stumbling

block in another. To be sure, as Susan B. Butts, director of external technology at

Dow Chemical Co. notes, there are diverse opinions within universities, too. She

hears engineering researchers complain that their school‟s technology-transfer

policies are too geared toward drug discoveries and don‟t take into account that IP

within the physical sciences rarely has huge moneymaking potential; they only

know the policies are possibly costing them research work they would like to have.

Meanwhile, Butts says, if you bring up the issue with life sciences researchers,

"they‟ll say: 'What problem?' "

     To illustrate how industrial needs vary, let‟s take a look at four sectors: IT,

bioengineering, aerospace and chemical/plastics.



INFORMATION TECHNOLOGY

     In the IT world, companies don‟t dispute a school‟s ownership of the IP. “We



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are often not concerned with ownership,” O‟Brien says. In fact, the IT industry --

where large amounts of technology are shared -- would prefer to place most

inventions in the public domain, and any company that sees a commercial use for a

discovery is free to run with it. It's true, Williams says, schools and academic

researchers would not receive any royalties, but the likely increase in direct

research support that should instead flow to universities would more than

compensate for that loss (because significant royalty income is seldom realized

anyway). If there is a license involved, IT companies almost always prefer

nonexclusive rights. “Many universities attempt to sell only exclusive licenses to

companies, again following the false analogy of drug companies,” according to

Williams.

     Paul Peercy, dean of the engineering school at the University of Wisconsin,

Madison, and the former president of SEMI/SEMATECH, an Austin, Texas,

nonprofit consortium of more than 160 semiconductor manufacturers, suggests that

the IT industry‟s approach to IP contracts could in some instances be germane in

other sectors where computing technology has become widespread, such as the

automobile industry. Thirty years ago, he notes, a car was basically a mechanical

engineering device with very few electronic components. Today‟s cars, however,

are essentially IT platforms on wheels, Peercy says.




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BIOENGINEERING

     Guidant‟s Kilpatrick says that IP negotiations within the realm of medical

research and technology often breakdown in two main arenas: 1.) the distinction

between data ownership versus IP ownership; and 2.) academic contract offices

insisting on decisions from companies too quickly about licensing university

inventions derived from the funded work. Regarding the former, Kilpatrick

suggests that her most streamlined and successful academic contract negotiations

draw clear lines between ownership of results of the research and IP generated

from it. As an example, if Guidant invests in a preclinical or clinical study using a

new diagnostic tool, it needs exclusive use of that study‟s diagnostic data for a

substantial period of time in order to develop therapies. A second example involves

the discoveries of molecular pathways that are then used to develop therapeutic

compounds targeted at their inhibition. Ownership and use of such research

findings are separate contractual issues from who actually invents, or owns

inventions, based on that data. As such, if university negotiators lump data rights

into arguments about IP rights in the contract language, negotiations inevitably

stall out of the gate. “We have seen this happen so often in our business that we

now prefer to initiate any research contract by separating the two issues up front,”

Kilpatrick says.

     Other factors driving the complexity of research contract negotiations involve



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the timelines for industry decisions about university IP licensing. “Demanding an

answer in a few weeks is often moving too fast for us,” Kilpatrick says, adding that

this time period often becomes a serious point of negotiation. Bioengineering firms

often go to universities for early-stage technology research, which is still quite

“applied” in the academic sense. And at that stage, the regulatory process an

invention still faces can, by itself, limit how fast it can get to the healthcare market.

“Ten to 20 years is not a long time if you consider what it takes to understand

disease and develop appropriate medical therapies,” Kilpatrick explains. So unlike

the IT industry, “ownership (of IP) is really, really important to us in early stage

biomedical research” because its ultimate value cannot always be immediately

ascertained. Typically, her modus operandi in dealing with academic labs is: if we

invent it, we own it; if you invent it, you own it. But if you invent it while working

on a research project or collaboration exclusively funded by us, give us first rights

to an exclusive license.



AEROSPACE

     Like bioengineering, an aerospace company would prefer to own any useful

discoveries it funds. Like IT companies, aerospace firms think negotiations drag on

too long. Absent ownership of IP, aerospace tends to seek exclusive rights.

Explains Northrop Grumman‟s Parker: “We prefer exclusive use of the data and IP



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to develop discriminating technology” over rivals. If he were to go to his board of

directors saying he wanted $3 million to pay a university to develop a new

technology, but that the IP would then be made immediately available to Lockheed

Martin, Raytheon and Boeing, and Northrop also had to then pay for the license,

“that would be a tough sell to the board.” An executive at another aerospace

company agrees, saying any solution “where our funded research was arbitrarily

placed in the public domain would cause problems for us. If the innovation is of

substantial value to our business, we would prefer the option to get an exclusive

license.” This executive says his company has used university researchers for both

basic and applied research. “If we are looking for developing new products for

non-existing but potential future markets,” he says, “big breakthrough stuff could

show us what direction to go.” And, he adds, there are times when an individual

researcher, usually the primary investigator, stalls talks. He recalls one contract

that was delayed for a year while the researcher, who feared he would lose control

of his “future” IP ownership, was coaxed into signing.

     Another issue that consumes time, Parker says, is that Northrop‟s negotiators

often find they are dealing with academic negotiators who “have no power to

negotiate the terms of the IP clause and don‟t understand the policy behind them.”

Overall, Parker says, the primary benefits an aerospace company looks for when it

contracts research from a university are “new and discriminating technology and



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qualified college recruits.”



CHEMICAL/PLASTICS INDUSTRY

     “Intolerably long” negotiations are an issue with Dow Chemical, too, Butts

says. An internal Dow study found that the average time to negotiate a sponsored

research contract with an American university was six months, with the range

stretching from 43 days to 500 days. The trouble is, after six months have lapsed,

often the original idea is no longer of much use or value, Butts says.

     If one looks at research as a spectrum -- with the most basic, blue-sky stuff at

the far left and the most highly applied lab work at the far right -- Dow uses

university labs for research across the entire spectrum. That said, Butts says that

while she has no data to back it up, her “impression” is that Dow tends to look to

campus researchers for projects toward the basic end of the spectrum. “It doesn‟t

do us much good to use their resources to do a lot of the really applied stuff.” In-

house scientists are usually working on deadlines to advance the launch of a

product or update and rarely have time to look at the underlying basic science

behind a discovery. For example, a chemical reaction occurs by some type of

molecular mechanism. Dow would like to know what it is, but its own people

haven‟t time to devote to it. “But it‟s a good project for a grad student.”

     Moreover, a fair amount of research Dow contracts out to schools falls in the



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spectrum‟s middle gray area, and that can make negotiations hard because neither

side knows what -- if anything -- will turn up. So Butts says she tries to write

contracts that give Dow protections -- an “assured right to practice” -- in the

unlikely event a useful invention results. Her “nightmare scenario” is sponsoring

research that has some value, but she‟s unable to reach an agreement with the

university, so it licenses the IP to a competitor. If there is to be a license, she

prefers an exclusive one.

     The easiest contracts to hammer out, Butts says, are for basic research

because control of the IP isn‟t an issue. In those cases, not only is a discovery

unlikely, it‟s not expected. So Dow developed a “fast-track template” that has

worked very well in speeding up negotiations for basic research projects.

     Like its brethren in the bioengineering field, Dow finds that too often

universities want a decision on licensing faster than it‟s willing to give one because

it‟s too soon to understand the true value of the IP. And that can snag contract

talks. Another issue that frequently causes delays is when a school places more

value on an invention than Dow thinks it‟s worth, Butts says.



ISSUES THAT CAN CAUSE NEGOTIATIONS TO DRAG ON

     “Speed is a bigger issue than cost,” Wisconsin's Peercy says. And as we‟ve

already seen, it‟s easy to understand how negotiations can become prolonged given



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the differing attitudes and assumptions industry and academia bring to the table.

“GM says it is easier to merge one of its units with a company from Japan than to

do IP negotiations with an American university,” says Peercy, who has had many

dealings with the huge automaker, as General Motors has funded an engine

research center at Wisconsin. Schools and industry can come into negotiations with

differing time expectations. Says Barnett: “University sponsored-research offices

usually work with a proposal and future deadline, while companies work with a

„need it now‟ approach.” MIT‟s Preston says that universities do not always

appreciate industry‟s limited time horizons, that many industries are pushed to

shorter and shorter windows of opportunity by stock markets that want continuous

performance. “Too many universities are too used to taking their time,” Preston

says.

        Certainly industry negotiators tell many horror stories of academic foot-

dragging. But delays can likewise be caused by industry, too, Crowell says.

“Companies can match us with delays in ways that are just phenomenal.” He

recalls a recent round of talks with a major pharmaceutical company. Although the

negotiators agreed on a payment of royalties, the corporate team had to take the

draft agreement to its management committee, which included several lawyers.

“But I had signing rights. I was authorized to do a deal,” Crowell says. Contracts

often have to be vetted by multiple layers of authority within a company, he says.



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“In a lot of cases, our processes are more streamlined.”

     One thing industry and academia agree on is that lawyers are often to blame

for endurance-testing negotiations. “It‟s become so legalized,” O‟Brien says. “The

lawyers are so much a part of it, and they take so much time . . . acrimony develops

when lawyers get between industry and university researchers and slow the process

down to a crawl.” Barnett admits that “both sides sometimes lose control of their

legal counsel, which can lead to gridlock.” And, he adds, “Legal counsel may have

a different mandate (and line of reporting) from that of the technical or

administrative points of a contract. Some negotiators simply „want to win‟ rather

than create an exchange of value.” Crowell agrees: “Either side can become so

obsessed with winning, it loses sight of the objective.” He counsels that legal teams

should be kept on the periphery of talks; “they should speak when spoken to.”

     A number of other issues can also lead to negotiation snags:

     • Value. “Negotiation agreements . . . can break down or be delayed when the

parties cannot agree on the value of the research or technology,” notes the

GUIRR‟s University-Industry Partnership‟s draft principles.

     • Background rights. According to Barnett, companies sometimes want to

license not only IP rights derived from research they sponsor, but rights to other

relevant IP a university might hold. “So if one research lab uses inventive stuff

from another lab, the company wants a license to that work -- even though it has



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not supported the other lab -- for the price of the research materials.” HP‟s O‟Brien

says his company does expect all background IP to be disclosed upfront and “to be

included in the agreement, or we will enter into a separate negotiation prior to

completing this one.”

     • Risk. Talks can go pear-shaped because a corporate sponsor declines to

indemnify the school for commercial uses of an invention. And, Barnett says,

“product liability and related liabilities can easily be greater than the value of the

research contract.” Kilpatrick suggests that in her experience at Guidant, “we don‟t

necessarily have a problem indemnifying academic partners in appropriate

collaborations . . . but negotiations go south quickly if universities question mutual

indemnification for third party claims associated with our funded projects in their

labs.”

     • Pipeline. When companies ask for not only the results of the research they‟re

sponsoring, but information that later arises about improvements or related

inventions, schools sometimes balk. Barnett says industry fears that research it

sponsors may turn up not only the results it sought but additional findings that

could later be used for other potentially useful inventions or ways to work around

the sponsored work.

     • Upfront licenses. Sometimes companies, before the research commences,

ask for a grant of rights for all future applications and fields of use. This can put



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researchers who collaborate on the sponsored research, but who are also working

on other projects with other funding, into a bind, Barnett says. “While an upfront

license is convenient for the company, there is virtually no way to track what is

and what isn‟t included in the license.” But Northrop‟s Parker says restrictions are

typically by field of use -- military, commercial and automotive, for example -- and

often are also limited to a geographical area. “The smaller the field of use or

general use limitation, the more license -- and revenue -- a university may squeeze

out of IP. This is true of companies, as well. I don‟t see this as a unique issue,”

Parker adds.

     • Publication. Academic researchers, both faculty and graduate students, need

to publish the results of their lab work. But industrial sponsors often need time to

first assess and make use of a discovery, so they seek delays in publicizing results.

In most cases, this is probably one of the less thorny issues, since most schools can

accommodate short delays of three to six months, a time lag that is usually

sufficient for industry. “It can be a problem,” Dean Masnari says. “But not as big

as people make it out to be.” As Dean Giddens points out, a delay of up to six

months is usually acceptable to a university, and if a company hasn‟t used an

invention within six months, “it probably won‟t use it.” Adds O‟Brien: “We don‟t

have problems with it, although we might ask for a delay, three to six months

usually. It‟s not a killer thing with us.” Barnett says if companies ask for approval



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over publication of findings or data, schools usually “agree to a prepublication

review but typically only for company-supplied proprietary information and to

protect prospective patent rights in any inventions of interest to the company.”



HEADING OVERSEAS

     Frustrated by the hassles endemic in negotiating sponsored research contracts,

many American companies are taking a growing amount of their research work to

foreign academic labs -- often in the developing world -- where costs are not only

low, but there‟s no desire on the part of most schools to own the IP. And, as

Wisconsin‟s Dean Peercy says, the companies get excellent results. China, he

notes, expects to have 10 world-class research institutions up and running in the

near future. And across the developing world, these burgeoning schools are using

faculty educated and trained in the United States, “and they are top-notch,” Peercy

says. Taking research to foreign schools is decidedly a growing trend among many

Fortune 500 companies, Kilpatrick says. And why not, she asks. “The levels of

talent and domain expertise are extremely high, and you very often have outright

access to the IP that gets created.” HP‟s Williams told the Senate committee that

“many high-quality foreign universities are very eager to work with American

companies, and by keeping attorneys out of the discussion completely, they have

streamlined the processes.” A successful negotiation can take place within a few



                                                                                    24
minutes, over the phone, he testified. Dow‟s Butts says that, on average, it

typically takes three weeks to negotiate a sponsored-research contract with a

foreign school, as opposed to the six months it takes in the United States. And, of

course, she adds, that time savings is a cost savings, too. Dow has yet to make a

corporate decision to begin favoring foreign universities over American ones, “but

I can easily envision a time when we actually encourage our (in-house)

researchers” to seek overseas research partners. As Williams warned the Senate

panel: “American universities will either have to modify their behavior or lose

their industrial customers.”

     And beyond hitting the pocketbooks of American research schools, this trend

could also affect recruitment of their graduate students. As U.S. firms develop

close working relationships with foreign schools, they‟re also bringing on board

their bright, young rising stars. “We are seeing a lot of impressive overseas talent

knocking on the door,” Kilpatrick says. “And if you consider foreign progress in

some of the newest medical research arenas, you get pretty excited to bring that

talent on board.” And as these foreign schools burnish their reputations and forge

links with U.S. industry, their appeal to prospective students should grow; over

time that could make it harder for American graduate schools to recruit the best

students from overseas. Says Dean Giddens: “There is concern that the U.S. is

losing ground in innovation, and that is central to the issue of recruitment. It might



                                                                                       25
be one way to get traction on this issue from the federal government.”

     To be sure, some sectors -- such as aerospace -- face federal constraints on

hiring foreign researchers. “In our industry, it‟s an issue because of security

clearances,” Northrop‟s Parker says. Moreover, there is some future risk to

American industry in migrating its research work overseas. Over time, the foreign

researchers they sponsor and train could eventually join homegrown rival firms, or

start their own. “It is enabling competition,” Parker admits. Kilpatrick agrees that

that danger is real. “Right now, in certain developing economies where biomedical

technology will play a big role in their growth, they can afford to more highly

value intellectual capital relative to the potential value of IP,” Kilpatrick says.

“They realize that their growth in this field will require a critical mass of expertise

to develop core competencies in bioengineering research for the 21st century. So

their strategies at the moment appear to be quite distinct in that they drive key

talent creation far more than IP creation.” Moreover, ideas can‟t be contained in a

global marketplace: Crowell says that some foreign schools are starting to

implement regulations that echo Bayh-Dole. Nevertheless, for the time being,

foreign universities offer a very attractive research alternative to American

industry. “And that,” Preston says, “should be a wake-up call to U.S. universities.”



ALTERNATIVE POLICIES



                                                                                       26
     As noted above, in large part because of the differing needs of industry, a one-

size-fits-all solution to the problem isn‟t a likely outcome. But used in concert with

one another, a number of proposals could perhaps ease many of the difficulties

now tying up IP negotiations. Here is a brief look at several of them:

     • Public domain and/or nonexclusive licenses. Both of these approaches are

the favorites of the IT industry, for reasons discussed earlier. But as also noted

above, for many other sectors, particularly bioengineering and aerospace, these

approaches are nonstarters.

     • Consortia. Again, the notion of several companies sharing costs and

discoveries is not appealing to all industries. But the approach can simplify things,

Barnett says. A master agreement using plenty of boilerplate may run only a page

or two and can often be wrapped up within a few hours. HP‟s O‟Brien says that, in

general, that‟s true. But he also recalls one consortium that HP was committing $2

million to: the memorandum of understanding took 18 months to hammer out; the

standard research agreement, another 15. A related idea is the research common

approach, in which a number of companies and universities pool their work, and

any resulting discoveries are freely shared by all involved.

     • Second-Generation Technology Transfer. An idea of Barnett‟s that

recommends schools use IP as tool to foster more and longer-term relations with

industry. Sponsors would get nonexclusive licenses.



                                                                                     27
     • Segregated labs. Wisconsin‟s Dean Peercy suggests that schools set aside

some labs as industry-funded only, using only equipment paid for by private

money, to skirt Bayh-Dole. In cases where graduate students work on things that

can‟t be publicized, they could instead receive course credits. But if schools

consider faculty and staff salaries as federally sourced, they may still see Bayh-

Dole as applicable. Also, the cost of building labs or leasing space off campus to

avoid violating tax laws could prove too steep for industry. Moreover, as Dean

Masnari says, it would be a shame for researchers to lose access to federally

funded equipment on campus that could prove hard or expensive to duplicate.

     • Templates. Certainly the dream outcome would be a few boilerplate

contracts that mostly satisfy both industry and academia, so that with very little

tweaking they could accommodate most IP negotiations. But the diversity of

American industry makes that an unlikely outcome. But, one possibility might be a

series of templates that are sector-specific.

     • Question time. Another approach endorsed by Crowell -- and also suggested

by the GUIRR‟s University-Industry Partnership -- would be a computerized

“series of questions designed to cut to the quick.” Such as: Where did the idea

originate? Where was the background research done and who did it? Who is doing

most of the investigative work? The answers could be compared to a pool of

historical data of university-industry interactions to help determine the likelihood



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that any IP would result from the sponsored research. That could help negotiators

tailor an agreement that needs little negotiating.

     • Dialogue. Clearly there can be no solutions without ongoing dialogue

between research schools and industry that is underscored by mutual goodwill and

a desire to fix the problem. One venue for such dialogue is the American Society

for Engineering Education‟s IP Workshop scheduled for February 2006 in

Washington, D.C.

     And, of course, the GUIRR and its partnership are engaged in an ongoing

dialogue between research schools and industry. (A synopsis of the partnership‟s

draft set of guiding principles is appended.)



This paper was produced by Thomas K. Grose for the American Society for

Engineering Education.




                                                                                    29
Appendices
Appendix 1

Article I: Harvey Mudd College



     At first blush, Harvey Mudd College‟s (HMC) Engineering Clinic Program

would seem to have little bearing on the discussions in this White Paper because

HMC is an undergraduate school only. But every year, 25 companies -- some of

them major ones -- rush to give the HMC‟s seniors “real-world” research projects.

Bearing in mind that it‟s not a research school -- and also that it‟s a private college,

so it has more flexibility in how it treats intellectual property (IP) -- Harvey

Mudd‟s Clinic Program still offers America‟s big research institutions a few object

lessons in how to deal with corporate-funded research.

     HMC‟s Clinic Program essentially gives final-year students capstone projects.

And the school wants each project to be fully based in the world of workplace

engineering. So each year, program director Patrick Little -- who is an associate

professor of engineering -- lines up 25 research projects from 25 different


                                                                                      30
companies. Each company pays $41,000. If any IP results from the project, the

company owns it. And that‟s not an infrequent result, either. Last year‟s projects

came up with 13 patent disclosures. “That‟s kind of remarkable for an

undergraduate program,” Little says. Companies don‟t fear “giving us neat

projects” because they know they don‟t risk losing control, he adds.

     “We are not in the IP business; we are in the education business,” Little

explains. “If I get 25 great projects, the students are excited, the sponsors are

excited and our educational mission is advanced.” If he instead got one big royalty

hit and 24 lousy projects, he‟d consider that a failure. “That‟s no good to us.”

     The project‟s certainly a relationship-builder. Many companies trek back to

Harvey Mudd year in, year out.

     Little says the program is also devoid of red tape and legal hassles. “I don‟t

believe we have a lawyer on campus,” he says. Trying to negotiate and enforce

patent rights “would be a hell of a cost.” It is enough of an administrative headache

trying to collect tuition from all of the students, he notes. “And we know where

they are.”

     The program brings in a little more than $1 million a year in funding. “Could

we collect $1 million a year in royalties?” Little asks. “That would be pretty iffy.”




                                                                                      31
Appendix 2

Article II: Proposed Guiding Principles for University-Industry Endeavors



     Here is a short synopsis of the three guiding principles drafted and proposed

last July by the University-Industry Partnership of the Government-University-

Industry Research Roundtable:



     1.) A successful university-industry collaboration should support the mission

of each partner. Any effort in conflict with the mission of either partner will

ultimately fail.



     2.) Institutional practices and national resources should focus on fostering

appropriate long-term partnerships between universities and industry.



     3.) Universities and industry should focus on the benefits to each party that

will result from collaborations by streamlining negotiations to ensure timely

conduct of the research and development of the research findings.




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Appendix 3

TABLE 1. R&D expenditures at universities and colleges, by source of funds and

science and engineering field: FY 1996–2003. Download Excel file (37kb).

TABLE 2. Total and federally financed R&D expenditures in engineering at

universities and colleges, ranked by FY 2003 total for the first 100 institutions: FY

2000–03. Download Excel file (86kb).

TABLE 3. U.S. research and development expenditures, by performing sector and

source of funds: 1993–2003. Download Excel file (60kb).

TABLE 4. Federal obligations for total research, by detailed science and

engineering field: FY 1982–2003. Download Excel file (72kb).

TABLE 5. International research and development expenditures and research and

development as percentage of gross domestic product, by selected country and for

all Organisation for Economic Co-operation and Development countries: 1981–

2001. Download Excel file (95kb).

TABLE 6. International research and development expenditures for selected

countries, by performing sector and source of funds: 2000 or 2001. Download

Excel file (126kb).




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