Imagine a university lab where students and professors work side by side developing the latest innovations, from digital television to virtual animals to computerized Legos. Funding, including full tuition and salary for students, is provided by corporate sponsors. And some of the most exciting products are eventually released to the public. Such a place exists - it has been around for more than 10 years.
The MIT Media Lab, brainchild of Being Digital author Nicholas Negroponte when he was still "analog," demonstrates the significance of the relationship between universities and the corporate sector when taken to the extreme. Lego/Logo computer-programmable toys, Apple's QuickTime technology, and the IBM PS/2 personal computer all were developed, partly or fully, at the Media Lab. The Media Lab is not soft-spoken about its intentions: to use university research, funded by big business, to produce and exploit new technology. Yet countless other universities have created countless other technological, biological and chemical inventions, from Internet software to cures for diseases. But at these universities, where the link between scholarly research and corporate exploitation is less obvious than at the Media Lab, problems remain. What universities are often unprepared for, and what is becoming an increasing problem as technology advances, are the legal intricacies involved in the conveyance of discoveries from inside the walls of academia out to the general marketplace.
Who's Really Mother of the Invention?
When a piece of software or other technology is developed, intellectual property - in the form of copyrights, trade secrets and priority patents - is created as well. The first and foremost question to be answered is that of ownership of such intellectual property. Any product developed at a university that has market potential instantly creates an arena for argument, and often litigation - a problem that plagues faculty and university administrators alike. In the article, "Faculty Inventions: Who Owns the Golden Egg?," Pat Chew points out that it is often assumed, without further inquiry, that, as the employer, the university owns faculty research. However, this assumption, barring the existence of an express agreement, is often wrong.
The precedent-setting patent case in this area, albeit not a case concerning university research, is United States v. Dubilier Condenser Corp., in which the Supreme Court concluded that an employer owns an invention only if the employee is specifically hired to invent. If, as in the factual scenario of Dubilier, the employee merely uses the employer's resources to invent, the most the employer retains is a "shop right" - the non-exclusive right to practice the invention. The employee/inventor continues to own the invention, as well as the exclusive rights conferred by the patent, if applicable. On the other hand, because of the shop right, the employer cannot be excluded from accruing benefits from the invention.
The application of Dubilier to the university setting is based on the "hired to invent" standard, understanding that how faculty are viewed by the courts determines their retention of rights in the invention of technology. According to Chew, cases since Dubilier, although rarely dealing with university research, suggest that even when faculty are hired mainly to do research, and extensive university resources are devoted to promoting research, the faculty fail to qualify as persons "hired to invent." Chew contends that the "hired to invent" standard is very narrow, leaving little room for the typical university faculty member to be considered an employee specifically "hired to invent."
Often, universities attempt to resolve the issue of ownership by establishing policies or entering into agreements regarding possession of rights in the event of an invention. Most of these policies assert university ownership of patentable technology. However, whether such policies are enforceable depends upon the nature of the faculty-university agreement, i.e., whether under contract law the faculty member legally consented to the assignment of rights. Additionally, local statutes often govern whether university policies are enforceable.
Therefore, in the case of faculty-invented technology, the university usually asserts ownership, via a policy or agreement, and the faculty usually accede to the university's claim, either because they are ignorant of their rights or unwilling to press the issue. Chew maintains, however, that the policy rationale for university ownership is weak, but until faculty become more aware of their legal rights of ownership, or until universities alter their policies to allow faculty to claim ownership, universities will continue to reap the benefits of faculty inventions.
The Copyright Question
Another question to be answered is that of copyright ownership. Traditionally, university policies allow faculty ownership of copyrightable work. In the absence of an enforceable policy or agreement, this issue becomes less clear. Under the Copyright Act's "work-for-hire" doctrine, employers can claim ownership of a copyrightable work if it is prepared "within the scope of his or her employment." The Copyright Act of 1909 included a "teacher's exception" to the work-for-hire doctrine, wherein faculty could claim ownership of works prepared within the scope of employment. However, the Copyright Act of 1976 ignored the teacher's exception, leaving the copyright ownership question unanswered.
The courts have yet to deal conclusively with this issue, and the plain language of the work-for-hire doctrine invites valid argument from both sides. But, as long as most university policies grant faculty ownership of copyrightable work, the issue does not present a problem, except in the case of faculty-created software, which could be copyrightable, patentable, or both.
Because of the market potential associated with computer software, the distinction between copyrightability and patentability becomes particularly important. Again, the problem has no clear resolution, and the answer is often dictated by university policy, faculty acquiescence, and the terms of any written agreements between faculty and the institution.
When Partnering With Uncle Sam
Another question of ownership arises when the invention of technology occurs during a university partnership with the federal government. Federal agencies often encourage specific research by contracting, providing grants, and/or entering into cooperative agreements with universities. The university's rights in an invention created within one of these scenarios are protected by the Bayh-Dole Act, which allows nonprofit organizations (e.g., universities) to retain title to an invention created with federal funds, subject to certain obligations. Most significantly, the university must:
-Make timely disclosure of the invention to the government agency
-Elect to retain title within a reasonable time after disclosure
-File patent applications within a reasonable time
-Acknowledge the government's support and rights in the invention on the patent applications
-Grant the government agency a non-exclusive, nontransferable, irrevocable, paid-up license to practice the invention for or on behalf of the United States throughout the world.
By providing universities with an opportunity to profit from federally funded research, the Bayh-Dole Act has "had a significant impact on the transfer of technology from academia to industry," according to Mark Wisner, in his article, "Recent Development: Proposed Changes to the Laws Governing Ownership Inventions Made with Federal Funding."
One of the most high-profile recent examples of profit reaped from university research and development is the hugely successful commercialization of derivatives of the Mosaic World Wide Web browser, including those of Netscape and Spyglass, both of which can be traced to development work at the University of Illinois' National Center for Supercomputing Applications (NCSA), which is partially federally funded.
The Price of Protection
Technology transfer is rarely an issue when the software, scientific process or new technology is not protected under copyright, patent, trade secret or trademark laws. A work that falls outside the scope of such protection is essentially part of the public domain, and is freely marketable without permission of the inventor. This is why intellectual property protection is a pressing concern for universities desiring to profit from their research investments. Intellectual property protection gives the university the ability to grant exclusive licenses to developers and marketers, and prevents others from appropriating university-developed ideas and expressions. But aggressive protection of new technology comes at a price.
University research labs are not businesses, and when universities become involved in entrepreneurial activities, they run the danger of confusing their priorities. For example, university researchers engaged in the scholarly exchange of ideas through the publication of articles in journals or postings on the Internet could defeat potential patent protection if they wait too long before filing a patent application. This is because the Patent Act denies a product patent protection if "the invention was . . . described in a print publication in this or a foreign country . . . more than one year prior to the date of the application for patent in the United States." Since information-exchange activities are a fundamental part of a university's academic mission, the profit motive can interfere with the researcher's autonomy, forcing monetary and monopoly concerns to overshadow the quest for ideas and technological advancements.
Another example of the dangers of universities becoming entrepreneurs involves the issue of funding: university research labs can find themselves competing with the university itself for corporate funds. When Nicholas Negroponte first started the Media Lab, MIT insisted that, in search of endowments, he not approach corporations that already endow the university. Eventually, under the premise of "academic freedom," the Media Lab acquired funding from those same sponsors - calling into question the distinction between university and business interests.
Moreover, technology transfer from the university introduces potential liability risks. By becoming involved in the production and marketing of a faculty-generated invention, the university could expose itself to product-liability actions based on the ultimate market reception of the developed product. While it is unclear whether the courts would find the university liable, the risks are there.
Nevertheless, universities increasingly are becoming entrepreneurial. While the main reason for this may be monetary, university creation of marketable technology also boosts university prestige, possibly attracting better faculty. Therefore, universities interested in technology transfer must take positive steps to protect their inventions. One way is to establish a technology transfer office, offering a combination of information and resources regarding intellectual property protection to help transform the fruits of research into a marketable product, often in conjunction with companies whose interests are aligned with the particular technology involved. Another way is to establish the university research facility with the intention of working with outside companies, as in the case of the MIT Media Lab - where the distinction between university and business is substantially blurred.
To License, or not to License?
Once a technology-related product with market potential is identified, and steps are taken to secure appropriate intellectual property protection, the actual commercialization, or transfer of the technology from the university to the marketplace, can commence. The process basically involves finding a suitable company to handle production and marketing of the product and the negotiation of licensing terms. Licensing is the most important step in the process because it ultimately determines what benefits the university, and in some cases the inventor, will reap from the invention.
As defined by Jay Dratler, Jr., in his book Licensing of Intellectual Property, licensing is "granting rights in property without transferring ownership of it." A university may be inclined to pursue a licensing strategy as opposed to producing and marketing the product itself, because universities have limited resources and capabilities, not to mention the liability issue. Alternatively, universities may elect to sell the invention and the corresponding intellectual property rights, although this option results in a loss of control and future benefits, making licensing preferable to most.
The decision to license has both benefits and drawbacks. For the university, the greatest benefit is the ability to reap a profit on everyday research without wasting valuable time and expense in production and marketing - functions that companies typically can perform better and more efficiently. Licensing can also broaden the potential market for a product, because it permits a company with more in-depth market knowledge to attract customers unknown to the university. Another advantage to licensing is the possibility for what Dratler calls technology "barter."
Simply stated, the licensor can reserve a grant-back option in the license, requiring the licensee to give the licensor rights to any improvement in the licensed product. The recent licensing agreement between the University of Illinois and Spyglass, Inc., for example, contains this type of barter agreement. The University of Illinois, owner of the software copyright to NSCA Mosaic, an Internet browser, assigned all commercial licensing rights for Mosaic to Spyglass. As part of the deal Spyglass has agreed to provide a number of improvements for incorporation back into the public-with-copyright version. As a result, the university can achieve further advancements in technology without committing more of its own resources to research, through the use of a grant-back option.
Licensing also benefits the licensor's reputation, if their name remains attached to the marketed product. A university may receive future indirect payoffs from increased awareness of their contributions to a field of research, in part because of the licensee's ability to broaden the product's reach.
Finally, licensing can help a university control exploitation of an invention, by restricting the competitive efforts of a company engaged in similar research. Additionally, for universities in particular, intellectual property infringement claims are costly to pursue. By licensing a product, the university reduces the risk of harmful infringements entering the market, while reaping some benefit from the license itself. This is of particular value in light of the prevalence of online software piracy. Granting individuals a limited license to a software product, for personal, non-commercial use, can boost product popularity while keeping open the possibility of profit-generating licenses for commercial users.
Licensing also has its drawbacks. Most significantly, licensing restricts the university's ability to commercially exploit its own product. The licensor is basically removed from the commercialization equation, since the licensee does the work, while the licensor simply gets a share of the profits. But for many universities, this is not a drawback at all, since universities are ill-equipped to undertake the sort of production and marketing efforts necessary to effect technology transfer autonomously. For the university, licensing allows the realization of profits without all the underlying work.
The decision to license may not always be the university's best course of action. The result of the traditional cost-benefit analysis regarding whether a university ought to be a "manufacturer" of its inventions may change significantly in the information economy. The technological ability to distribute digitized electronic materials essentially for free over the Internet, with "remanufacturing" costs negligible and no need to maintain "inventory" is a key development. Even advertising and promotion cost equations are changing as World Wide Web (WWW) hyperlinkers provide quick and easy access to "hot" sites. For example, a university with a useful software product could make the software available directly to customers via a WWW server. Customers can then pay "electronic cash" directly to the school to download the software. In this scenario, licensing would be advantageous only to access customers not linked to the Internet, or, as in the case of NSCA Mosaic, to provide a commercial-use version of the software.
Structuring Strategies
Once a university decides to undertake licensing an invention through a commercial manufacturer/distributor, potential licensees must be found and contacted. Consulting companies often assist with this step by identifying companies whose interests are aligned with those of the university. Several universities have taken advantage of the Internet to publish information regarding technology available for licensing.
Once a suitable licensee has been found, negotiations address the number of alternative structural approaches to product licensing. These involve differing levels of ownership and license rights, depending on how much control each party wishes to maintain. A number of factors should be taken into consideration, including:
-The types of marketing contemplated for the product and its related materials
-Whether the product will be used as a core technology, integrated with other technology, or serve as a stand-alone product
-What type of distribution would offer the best protection of proprietary materials
-The extent of the right to make modifications to the product and the right to use the preexisting proprietary materials or confidential materials in future endeavors
-The type of support and maintenance to be used throughout development and marketing
-The subsequent competition by employees or co-developers and their use of the product and associated proprietary or confidential materials.
One structural approach is a limited license, with the university retaining all ownership rights in the intellectual property. For example, the license issued could be limited to the licensee's internal use only, or it could also grant the licensee the right to sublicense the developed product as well as the right to make subsequent modifications for use by particular markets. Another alternative would be to permit the licensee to use portions of, but not the whole, developed product for subsequent projects. Using this structure, the licensee may also receive a limited license to the work product and certain proprietary materials. Within this structure, any payment made by the purchaser of the rights should reflect the significant rights retained by the university, and the university's subsequent ability to market the product and any modifications.
A second approach is a grant of a non-exclusive, unrestricted license grant-back. The university retains ownership, and the licensee has all the rights of ownership except title. This allows the university to enforce the underlying proprietary interests against others, but gives the licensee virtual free reign to exploit the product. Although the non-exclusivity of the license can translate into a better bargain for the licensee than an exclusive license, this arrangement has disadvantages. The scope of the license must be broad to encompass all potential future uses, including catch-all language regarding new techniques. In addition, the non-exclusive licensee cannot sue a third party for intellectual property infringement. Instead, it must rely on the university to ensure protection against infringement.
A third structure is the grant of an exclusive license that precludes the licensor from granting additional licenses to third parties. While it is often unclear whether or not an exclusive license also limits the licensor's freedom to exploit the intellectual property itself, this is not a pressing concern for the university because the licensing agreement provides a substitute for the university's own efforts in exploiting the product (i.e., the university that grants an exclusive license usually has no intentions of attempting to produce and market the invention itself). If the university wishes to retain some rights to practice the intellectual property, these wishes must be explicit. The exclusive license is the most valuable type of license for the licensee, and the university should be rewarded with an appropriately generous fee and royalty arrangement.
Other structural approaches exist with varying combinations of ownership and rights. Once the licensing agreement is reached, the technology transfer process is fully underway. The university must then maintain a close watch on the activities of the license, to ensure that appropriate efforts are made to produce and market the product per the licensing agreement, and that fees and royalties are being channeled to the appropriate parties.
Technology transfer is an increasingly important part of a university's everyday operations. Many faculty-generated inventions can yield enormous profits in the general market, but appropriate steps must be taken to ensure that a university's intellectual property rights are protected. The various steps involved in securing a university's rights are also applicable to other research laboratories or companies that invent. The decision to license makes sense for the university, and a mutually beneficial licensing agreement can result in profits to fund future endeavors. The process, from the invention to intellectual property protection to licensing, can be complicated, but the importance of technology transfer to academia, industry and the public at large cannot be underestimated.
Barry D. Weiss is a partner in the Chicago-based information-technology law firm Gordon & Glickson P.C. [email protected]