Intellectual Property Strategy

• University Technology Commercialization
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• The MIT Press
• pp. CS-49-CS-57
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UNIVERSITY TECHNOLOGY COMMERCIALIZATION

The patenting of university research can be big business. In 2007, technology-licensing revenues generated by the top-ten universities alone accounted for nearly $1.5 billion.¹ This impressive revenue was built on a strong foundation of university-based research and development. The National Science Board reported that US academic institutions spent $48 billion on research and development in 2006, accounting for 33 percent of the total research nationally.² As the licensing-revenue numbers indicate, this laboratory research can resonate powerfully in our everyday lives. Large corporations like Google, Cirrus Logic, and Genentech have all based their products on university-licensed intellectual property.³

The Cohen-Boyer patents for recombinant DNA (rDNA) rank among the most revered and lucrative academic licenses in US history. These licenses were issued on a nonexclusive basis, rather than the conventional exclusive one. Despite the impressive returns that it has generated, the Cohen-Boyer IP strategy of nonexclusive licensing pursued by Stanford University and the University of California at San Francisco (UCSF) in the 1980s and 1990s has generally not been replicated in large part by universities throughout the United States. Instead, exclusive licensing has become the norm throughout US research universities.⁴ This case study explores the incentive structures that characterize university settings through the lens of the Cohen-Boyer patents.

The Cohen-Boyer Patents

In 1972, professors Stanley Cohen of Stanford University and Herbert Boyer of UCSF met at an academic conference in Hawaii.⁵ Within a decade of their collaboration, they had discovered a method for splicing strands of DNA from different organisms—rDNA. The technology provided a key part of the foundation for the modern biotechnology industry, and several prominent pharmaceuticals that treat cancer, diabetes, HIV/AIDS, and heart disease.⁶

The first breakthrough occurred in 1977, when Boyer created human insulin in his laboratory. The invention would become Genentech’s first product, as Boyer partnered with venture capitalist Robert Swanson to found the company.

The Cohen-Boyer intellectual property is actually a series of three separate patents for the rDNA process as well as two rDNA products generated through the use of prokaryotic and eukaryotic cells. Collectively, they have been referred to as “the most successful patent . . . in the entire history of university licensing” and the “gold standard” of university technology transfer.⁷ The Cohen-Boyer rDNA patents operated from 1980 through 1997, and contributed to the creation of over 2,400 products by over 460 companies.⁸ This tremendous productivity netted over $250 million in licensing revenues for Stanford and UCSF, from a base of $35 billion in international product sales.⁹

Convinced by technology-transfer pioneer Niels Reimers, founder of the Stanford Office of Technology Licensing, of the value of patenting their invention, Cohen and Boyer agreed to allow Stanford and UCSF to patent their discovery jointly. In developing a strategy for managing this valuable intellectual property, Reimers sought to balance Stanford University’s diverse goals. In addition to maximizing revenue for future education and research expenditures, Reimers pursued an IP strategy that reflected Stanford’s public service ideals, promoted timely commercialization of the technology for public benefit, and minimized the potential for biohazard.¹⁰

To achieve these ends, Reimers opted for a nonexclusive licensing scheme that offered varying rates to companies based on criteria such as firm size and product category. There were four product categories: basic genetic products, bulk products, end products, and process-improvement products. Under the framework that Reimers articulated, Stanford and UCSF would also receive royalties on sales of the final drug products in a novel arrangement known as “reach-through” licensing.¹¹

Yet despite the tremendous financial, academic, and societal benefits associated with Reimers’s management of the Cohen-Boyer IP, US research universities have not followed Stanford’s lead. Research universities are often criticized for their “single-minded focus” on maximizing royalty revenues through the exclusive licensing of university-owned patents.¹² To understand why, we must look to the regulatory, cultural, and academic framework in which university patenting occurs today.

Universities as a Unique Class of IP Owners

Regulatory Framework

The ability of Stanford and UCSF to patent the Cohen-Boyer technology in the first place turned in part on a landmark US Supreme Court case decided in June 1980, days before the Cohen-Boyer patent was filed.¹³ In Diamond v. Chakrabarty, the Supreme Court held that genetically engineered microorganisms were eligible for patent protection because they fell into the category of “anything under the sun that is made by man.”¹⁴

Later that same year, the Bayh-Dole Act marked a second major development in university patenting. This law is designed to encourage the commercialization of federally sponsored research in the basic sciences by granting exclusive patent rights to the university hosting the federally funded researchers. While the Cohen-Boyer patent predates the Bayh-Dole Act by several months, the control exerted by Stanford over the patent prosecution, ownership, and licensing previewed the dynamic that would become that norm in university licensing following Bayh-Dole. Typically, the university will retain the rights to the intellectual property, reserving a certain percentage of revenues as royalties for the inventing professor and their laboratory.¹⁵

Disparate Goals of the University

University leaders, like their counterparts in the non- and for-profit worlds, ought to seek IP strategies designed to achieve institutional goals. This strategic process can be difficult to manage. Each university has a variety of goals and a range of views among its leaders as to which is the most important.

Institutions of higher education have traditionally focused on the creation and dissemination of knowledge. At many schools, this historic focus comes into conflict with the contemporary goals of technology commercialization and revenue generation through patent licensing. For example, while knowledge dissemination can frequently best be achieved through publication in a scholarly journal, such public disclosure can affect the manner in which the invention is available for patent protection, thereby jeopardizing potential licensing revenues.¹⁶ Further threatening knowledge dissemination, existing companies seeking exclusive license to a university-developed technology may do so for the sole purpose of keeping the innovation away from a competitor or unavailable to consumers.¹⁷

Though partner companies such as Genentech petitioned to secure exclusive licenses and accompanying windfall profits, Stanford’s Reimers followed the nonexclusive patent route for Cohen-Boyer in order to pursue knowledge dissemination through commercialization.¹⁸ Some credit the decision to license nonexclusively with allowing the entire biotechnology industry to sprout.¹⁹

In 1989, Reimers incorporated an additional element of the contemporary research university’s mission—namely, regional economic development.²⁰ Recognizing the strength of the Cohen-Boyer technology to generate new start-up companies, Reimers created more affordable royalty provisions for small firms, yielding licensing agreements with over two hundred fledgling firms, many of which were located in the nearby San Francisco Bay Area.²¹

University IP Valuation and Strategy

There are many reasons why the Cohen-Boyer story does not lend itself to replication in all cases. According to participants in a forum hosted by the National Academy of Sciences, the Cohen-Boyer patent strategy is hard to pursue because the nature of the Cohen-Boyer technology sets it apart from most advances. The invention was inexpensive to reuse; there were no alternative technologies; and the science was truly groundbreaking in nature.²² Paradoxically, however, technology-transfer directors throughout the nation often treat new discoveries as carrying Cohen-Boyer potential, and thereby requiring adequate patent protection to secure potential future revenue streams. No technology-transfer director wants to face a university president having allowed the next Google to leave campus without ensuring that there’s an ongoing revenue stream or other payment associated with it. Yet an overly aggressive negotiating stance can keep university-based technologies on laboratory shelves.

Some scholars have pointed out the difficulty, if not impossibility, of a fair valuation of intellectual property in its early stages in university laboratories.²³ Given this uncertainty, technology-transfer officials looking at the historical record have noted that at schools generating significant licensing revenues, those revenues sprout from relatively few “home run” patents.²⁴ When the Cohen-Boyer patent expired in 1997, it represented a full 62 percent of Stanford’s licensing revenues and 27 percent of the entire University of California system’s licensing revenues.²⁵

Despite a general preference for exclusive licenses, over the years some universities have developed interesting alternatives. Carnegie Mellon University employs a standard agreement entitling it to a 5 percent equity share of any spin-off company resulting from university-generated technology.²⁶ In 1998, the University of California at Berkeley pursued a controversial but lucrative partnership with Novartis, receiving twenty-five million dollars in cash over five years in exchange for seats on the Department of Plant and Microbial Biology’s research committee and exclusive licenses to one-third of university-owned patents resulting from departmental research.²⁷ Stanford, for its part, continued to lead IP strategy innovation with its Engineering Portfolio of Inventions for Commercialization program. Instead of charging royalties on the finished product down the road (as Stanford did with Cohen-Boyer), this program pooled licenses, allowing industry partners to “subscribe” to a portfolio of intellectual property assets and then receive nonexclusive license to it in exchange for a single up-front payment.

Looking Forward: The Politics of Innovation

Given the existing incentive structures within research universities, a wholesale move from exclusive licensing remains unlikely without a fundamental change in perspective or the background law. Such change could be prompted by a larger regulatory shift or a shift in funding methods. The Bayh-Dole Act has been criticized by some for creating an “anticommons” of excessive patenting of upstream technologies, where new technologies cannot be developed due to the high cost of licensing necessary predicate technologies.²⁸ This kind of impact could be imagined if the Cohen-Boyer patents had been exclusive rather than widely disseminated. After thirty years and significant technological development, the act could be ripe for reform with more open licensing identified as a goal.

Funders may also affect the range of approaches that universities take when it comes to licensing. Agencies such as the National Institutes of Health, the National Science Foundation, and the US Department of Energy all require elaborate applications from researchers seeking grants. As the federal government increasingly focuses on innovation and technology commercialization, these grant applications could begin to require up-front commitments on creative strategies to deploy intellectual property so as to speed widespread commercialization.

Even absent changes in these external factors, universities ought to think broadly about the range of options with respect to intellectual property licensing beyond the standard exclusive license, with a view toward fulfilling institutional goals beyond revenue maximization. This kind of experimentation can lead to dividends that may not be easily captured on a university’s balance sheet but instead may benefit humankind in ways that help to fulfill our universities’ deeper missions.