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In this chapter we provide a general overview of the university licensing process and its dramatic growth over the past decade. We then discuss the role faculty play in commercialization through the licensing process. Concerns have been voiced in recent years over the possibility that the recent growth in university licensing suggests that the traditional role of faculty in the generation of “basic” research results – as well, possibly, as their role in “open science” – has been compromised. We discuss the available evidence for this downside to faculty licensing. Finally, we consider several impediments to the licensing process.

In the last two decades the subject of intellectual property rights (IPR) took on major significance as an element of global trade regulation and commercial policy. Implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) at the World Trade Organization (WTO) in 1995 obliged member countries, over various transition periods, to adopt and enforce minimum standards of protection for patents, copyrights, trademarks, trade secrets, and related policies. This mandate forced legislative and administrative changes in virtually all countries, but had particular impact in developing nations, which had generally weaker IPR standards prior to TRIPS. Since 1995 there have been additional multilateral negotiations, largely at the World Intellectual Property Organization, over stronger global standards for patents and copyrights for digital electronic goods. Most controversially, in its negotiations of bilateral free trade areas the United States aggressively demands highly rigorous standards, beyond those called for in TRIPS, for patent rules governing pharmaceutical products and new biotechnological goods in the agricultural and life sciences.

This chapter discusses current issues raised by the use of patents in university-industry technology commercialization. After introducing how patent laws operate in the global marketplace, this chapter provides an overview of the U.S. patent system, describing aspects of the process by which patents are obtained and enforced. The focus of the chapter then turns to some of the benefits and costs to academia of the impact of the Bayh-Dole Act, which allows universities to capture returns from federally funded research. The chapter identifies some of the challenges created by the expanding scope of subject matter eligible for patent protection and concludes with a discussion of some of the issues and opportunities associated with the strategic licensing and enforcement of patents that may impact invention and innovation in the academy and beyond.

Scientific knowledge has characteristics of a pure public good. It is non-rivalrous in the sense that once generated, it is neither depleted nor diminished by use. Knowledge is also non-excludable since, once it is made available, in the absence of clearly defined property rights, users cannot be excluded from using it. These aspects imply that private market mechanisms will not provide adequate incentives for knowledge creation. Legal property rights, such as patents, are one means of dealing with this problem. Patronage in the form of government support for research provides another solution, as does the priority system of awarding credit for scientific discoveries to the first to find them. In the last two decades, there has been a growth in the relative importance of the use of legal property rights in the university setting and with it a growing controversy as to whether the costs may be outweighing the benefits. In this chapter, we discuss issues and evidence with regard to the ownership and licensing of publicly funded research intellectual property rights (IPR). We begin with an overview of incentives created by the patent system and discuss the ways in which these incentives differ from traditional norms of science. We then draw on the legal and economic literatures which distinguish among the incentives to invent, disclose, and innovate, and argue that the rationale for providing IPR for university research stems from the last of these. Finally, we discuss the available evidence on the creation and diffusion of academic research under current IPR regimes.

Successful technology commercialization requires the integration of multiple perspectives and collaboration of experts from very different backgrounds. More often than not, key individuals in the process reside in different organizational units – each with their own mission, agenda, and culture. In large corporations, successful commercialization ultimately depends on coordination of marketing, legal, and research and development (R&D) personnel distributed across the firm. And, as innovation systems become more open, large and small companies alike increasingly collaborate with nonprofit institutions, either for technological expertise or as a source of inventions themselves (Chesbrough, 2003; Thursby, Thursby, & Fuller, 2009).

This chapter is designed for use by commercialization teams evaluating the commercial relevance of a new invention. To be relevant commercially, an invention must create value in one or more markets, which involves solving a problem or satisfying customer needs currently unmet. Unmet needs create market opportunities, and the goal is to identify and evaluate the profitability of these opportunities. The chapter provides an overview of concepts and techniques commonly used in the process. Important distinctions between market and industry concepts are introduced along with common rubrics for categorizing inventions in terms of their technological and market implications. These concepts are then used to discuss the roles of prior experience, lead users, and brainstorming in identifying market opportunities for various types of inventions. Techniques covered include market analysis, Porter’s five forces of industry profitability, analysis of political, economic, social, and technical environments (PEST), and the analysis of strengths, weaknesses, opportunities, and threats (SWOT). The use of these techniques is illustrated for two startup commercialization teams.

Licensing from US universities is done within the overall legal framework of the Bayh–Dole Act of 1980 and the employment agreements of universities. This chapter explains common contracts used by universities to license technologies developed by their faculty and students within the context of these laws. In addition to the legal framework, the nature of license agreements is affected by the embryonic nature of most university inventions, which necessitates faculty and student involvement in development, and the entrepreneurial goals of the university. Universities have diverse goals in terms of revenue, licenses executed, inventions commercialized, patents filed, and number of startups formed. The somewhat obvious problem is that the goals of faculty, students, the university, and the licensee may not be aligned. Common contracts used are meant to align these goals. While some contracts include multiple terms such as upfront fees, running royalties, annual payments, and equity, Express Licenses are increasingly being used to accommodate the entrepreneurial environment. This chapter discusses these issues and also the importance of the rights to sublicense inventions.

The debate about university technology transfer policy would benefit from increased attention to two parts of the technology transfer equation: the societal purpose of basic scientific research and the characteristics of scientific researchers.11This Chapter was prepared for the Colloquium on University Entrepreneurship and Technology Transfer hosted by the Karl Eller Center of the University of Arizona and sponsored by the Ewing Marion Kauffman Foundation. I am grateful to them for their support. I am also grateful to the participants in the Colloquium for helpful comments. Finally, I thank my research assistant, David Zelner, for assistance with this project. One purpose of curiosity-driven research is to provide a demand function that can serve as a proxy for the socially optimal (but unknowable) demand function for the unpredictable research that is necessary for long-term technological progress. Preserving the curiosity-driven research peer review “market” is thus important for that progress. This analysis highlights the importance of adequate funding for curiosity-driven research. A model of typical university scientists’ preferences can be used to assess how technology transfer policies may affect the social norms of the research community and the long-term viability of the curiosity-driven research endeavor. The analysis suggests that patenting will be an ineffective technology transfer mechanism unless researchers are precluded from using patenting to maintain control over follow-on research.