Technology Review columnist Seth Shulman recently wrote a deceptively appealing essay advocating radical changes in the licensing practices of U.S. universities. As the head of technology licensing at a major research university, I think it is important not to let Shulman’s arguments stand unchallenged.
Shulman equates the collective U.S. academic innovation enterprise with IBM, based solely on the similarity of their royalty incomes. He labels academia “Big Ivory,” corresponding of course to the more familiar “Big Blue.” He praises IBM’s habit of granting non-exclusive licenses to its patents, and concludes that universities should not grant exclusive licenses to the patents they create.
There are some staggering leaps from mountaintop to mountaintop in this analysis, and some key facts are omitted.
First let’s examine how similar the inventive enterprises of “Big Ivory” and “Big Blue” in fact are. IBM is a single, cohesive, coordinated for-profit corporation; almost all of its research is carried out with commercial purposes in mind, its Nobel Prizes in 1973, 1986 and 1987 notwithstanding. Big Ivory consists of scores of independent research universities, plus another couple of dozen independent research institutes and teaching hospitals. Its research is overwhelmingly basic enquiry-science for science’s sake-funded by the government after having been reviewed for scientific merit by peer groups. The research programs are planned, the funds are raised and the work is carried out by individual investigators pursuing their own scientific agendas completely independently of the group in the next lab down the corridor. Less than 9 percent of their work is paid for by companies, which presumably have a commercial objective.
And what about the quantity of research? According to the most recent survey conducted by the Association of University Technology Managers, Big Ivory spent $28.1 billion on research in 2000-more than five times the $5.1 billion that IBM reported spending on R&D in the same year. Unsurprisingly, given the different purposes of the enterprises, IBM’s research is considerably more productive commercially. Big Blue was awarded 2,886 U.S. patents in 2000: one for every $1.8 million of R&D expenditures, while Big Ivory received only 3,598 U.S. patents, or one for every $7.8 million of R&D expenditures. Royalty income is similarly skewed. Big Blue earned $1.4 billion from licensing, or $1 for every $3.53 of R&D; Big Ivory earned $1.2 billion, a return of $1 in royalty income for every $23.3 in R&D expenditures.
Shulman ignores facts that interfere with his thesis. He neglects to point out, for example, that Big Blue started its nonexclusive licensing policy only as part of a 1956 settlement of an antitrust lawsuit by the U.S. government. In other words, IBM embraced this practice not because of any particular wisdom about how best to promote the development of technology, but because it had no choice. Nor are universities as completely in opposition to this policy as Shulman suggests. In fact, half of licenses executed by Big Ivory in 2000 were nonexclusive.
Shulman’s claim that license deals struck by universities are closely guarded secrets is manifestly untrue. Many academic license agreements enter the public domain when the licensee goes public and has to file its license agreements with the Securities and Exchange Commission. The details of these licenses are sitting in the SEC’s publicly accessible EDGAR database.
Most serious of the fallacies in Shulman’s article is his statement that exclusive licenses run counter to the tradition of openness of U.S. academia. Academic patents have nothing to do with preventing openness. By definition, a patent is an open document available to teach the world what its inventor has learned, so that others can build on the discovery. Academic scientists who hold patents continue to teach, to publish, to give lectures, and to consult for companies-including companies who haven’t licensed their patents. Patents allow control over commercial use of the discovery. They provide an incentive to invest in a technology by providing exclusivity if the outcome is successful.
It is a sad fact that those who ignore history are destined to repeat it. For 30 years after World War II, the United States had precisely the policy of nonexclusive licensing of federally funded inventions that Shulman advocates. The government owned the patents and would license them only on a nonexclusive basis. Under this system, no drug that the government owned rights to was ever developed and became available to the public. The government did its best to prevent the commercialization of Gatorade. As a result, scientists didn’t bother to disclose their inventions to the government. In the rare instances that the government did allow the developer of the technology to own the patents, studies showed that the invention was 10 times more likely to be developed than if the government owned the patent and applied its inflexible, nonexclusive licensing policy.
Howard Bremer has worked for the University of Wisconsin’s technology transfer arm for over 40 years and helped shape the current paradigm. Reviewing the history of how policy evolved, he observed that “the experience of licensing government-owned patent had without question been one of non-use of the technology.”
It took a concerted effort by universities, small businesses, and a group of visionaries within the U.S. government, led by Senators Birch Bayh and Robert Dole, to pass legislation that finally allowed the creators of technology to control how it was developed. Academic research is too broad, too diverse, and too fast-moving to be micromanaged by the government. The Bayh-Dole Act of 1980-which the Economist recently dubbed “the most inspired piece of legislation to be enacted in America over the last half century”-contributed massively to the revitalization of the U.S. economy and the rise of the knowledge economy.
Let’s not return to the dark ages.
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