PRISM Magazine On-Line  -  January 2000
Taking Care of Business
Photographs by Amy Heller; maipulation by Doug Stern
Universities are reaping big rewards from selling technology developed on  campus, but some worry that teaching will suffer as the pressure for profits increases.

By Warren Cohen

In 1996, Norman Badler was frequently absent from his job as professor of computer and information science at the University of Pennsylvania. His time was taken up answering questions about a software product he developed that supplies animated simulation of the human body for computer-aided design projects. The software, which is called Jack, was getting a lot of attention from corporate and governmental users, but Badler longed to get back to his research on modeling behavior.

Then, Badler and Pennsylvania's Center for Technology Transfer agreed to form a new company around the software. The transfer center found a CEO, raised capital and licensed the patent. It was a win-win-win situation: the private sector got a dependable product with company support; the university received a cut of the new company's future revenues in return for the research performed at its facilities; and Badler was free to return to his lab. "I had become a salesman for Jack instead of doing research," says Badler. "With the help of the transfer office, I was able to get some sanity back into my life."

Many institutions like U. Penn have capitalized on the explosion of the knowledge economy by creating offices that oversee the transfer of technology developed on campus to industry. Once staffed by sleepy patent lawyers, today's schools have created burgeoning business centers filled with experts in intellectual property and corporate deal-making. These officials recruit venture capitalists, write business plans, and take equity in start-up companies. Some even occupy seats on the boards of newly spawned firms. The goal is to provide corporate America with the fruits of academic research, to further augment U.S. economic competitiveness, and to improve the university's bottom line.

Photographs by Amy Heller; maipulation by Doug Stern 

Many institutions have capitalized on the  explosion of the knowledge economy by creating offices that oversee the transfer of technology developed on campus to industry.

Patent Explosion

According to the Association of University Technology Managers (AUTM), faculty members reported 11,784 new discoveries from research in fiscal year 1998, an increase of 59 percent since the organization began keeping track in 1991. As a result, university applications for new patents have jumped 147 percent. More than 13,000 patents have been issued to universities during the past six years.

The deluge in discoveries has translated into a healthy revenue stream for universities. Research universities earned $725 million on the royalties and other income derived from the patents, up 19 percent from 1997. In some cases, the patents have reaped small fortunes.

Last year, for example, the University of California received $73 million, or about 10 percent of the total for all U.S. schools. However, the California system has also been victimized by unauthorized use of its technology. In November, the schools accepted a settlement of $200 million in a long-running lawsuit against Genentech, Inc., that accused the biotechnology pioneer of stealing human growth hormone research conducted at the university in 1978.

Even a single discovery can produce significant long-term revenue. Stanford's patent on recombinant DNA, for instance, has netted the university about $250 million over the years. "University technology transfer growth curves are substantial," says AUTM president Louis Berneman.

But not everyone on campus is convinced that this is a business schools should be in. Critics say that universities' quest for dollars—and their partnerships with the private sector—runs the risk of harming the basic academic mission, which is to teach and conduct research. And with universities keen on obtaining a financial stake in discoveries made on campus, institutional goals are sometimes pitted against the interests of faculty and student entrepreneurs seeking a cut of technology they invented. As technology transfer becomes more lucrative for everyone involved, these kinds of clashes will only become more frequent.

Photographs by Amy Heller; maipulation by Doug Stern 

Roughly 280,000 jobs have been created from university spinoffs since 1980, which has contributed approximately $33.5 billion to the economy.
And 2,578 new companies have formed based on licenses for inventions developed on campus.

Relative Newcomers

Universities didn't really become seedbeds of corporate innovation until the early 1980s. Groundbreaking discoveries and innovations had always come from university research labs, but the work existed primarily as intellectual exercises. Federal funds flowed to university research without any expectation of tangible returns. As a result, some important research languished because the government was slow to act on patents it owned.

But in 1980, when politicians began to fret about America losing its technological edge on foreign competitors, Congress passed a law that allowed for the speedy transfer of technology developed on campus to the private sector. The legislation grants colleges and universities ownership rights to anything invented on their premises, rather than leaving them in the hands of the federal government. Under this law, the public can benefit more quickly from new discoveries like drugs and other life-improving products. But if students or faculty members want to commercialize an invention, they must do so in partnership with the school.

Ever since the law was passed, critics have been questioning whether taxpayers are well-served by having federal research dollars aid the private sector. Some say that as companies acquire exclusive licenses to technology created with tax dollars, consumers are shelling out twice. And now with the number of patents and licenses exploding, the issue has become more controversial. A good example is the pharmaceutical industry, which has drawn attention because of the high cost of drugs. Legislation is now being considered that would require lower prices for any drug created at a university with federal research dollars. Politicians are hoping it will answer to the charge that taxpayers never recoup the research money they lay out annually.

The numbers seem to support the argument. Last year, universities received $14.6 billion for research from federal entities like the National Institutes of Health and the Department of Defense. Yet the $725 million that colleges received in return for royalties and other fees represents only 5 percent of research dollars spent. "The cost of research is borne by the taxpayer, the risk is to the taxpayer, but corporations get exclusive licenses for the technology and end up paying little in actual dollars for the research they generate," says Leonard Minsky, executive director of the National Coalition for Universities in the Public Interest.

But administrators counter by saying that the return on research dollars doesn't accurately describe the benefits of technology transfer. They point to other economic measures, such as jobs created by technology transfer. According to AUTM, roughly 280,000 jobs have been created from university spinoffs since 1980, which has contributed approximately $33.5 billion to the economy. And 2,578 new companies have formed based on licenses for inventions developed on campus. Administrators also say that many of the benefits accrue locally: According to AUTM, 79 percent of university-generated spinoffs locate in the state where the school is based. "We've put money back into the economy by creating a skilled workforce to help industry become more successful and profitable," says AUTM's Berneman. "The partnership between the government and industry in the research enterprise is a wonderful success."

Conflicting Interests

Not everyone is pleased with the way that success comes about, however. As technology licensing proliferates, some students and professors claim that universities pursue their own profits at the expense of the faculty and student inventors. Although the mission statement of most technology transfer offices state that they strive to commercialize technology, retain faculty, and promote economic growth ahead of generating income, there are those who believe that the goals clash.

When Vanu Bose was a Ph.D. student at MIT, he developed a technology that creates software for a variety of wireless devices, from TV remote controls and garage door openers to digital phones. As he neared graduation, Bose, whose father created the famous Bose sound system, became interested in forming his own company based on his thesis work.

But when he went to the university technology office to obtain the license for the patents, they insisted on terms that he considered a death knell: $1.25 million over the next eight years in licensing fees, along with royalties of 10 percent on licensed services, 10 percent on software the firm developed, 4 percent on computer hardware, and 6 percent on software embedded in hardware. They also wanted a 6 percent equity stake.

While MIT has since made some concessions, the two sides have not come to an agreement. Now more than a year later, Bose has started his company but without the initial patent that formed the basis of his graduate research. "Asking for equity and royalties is contradictory, " says Bose. "If you're seeking equity, you're in for the long term and the last thing you want to do is siphon costs from a new company."

Photographs by Amy Heller; maipulation by Doug Stern 

Critics say that universities' quest for dollars—and their partnerships with the private sector—runs the risk of harming the basic academic mission, which is to teach and conduct research.

Critics also charge that in their haste to find discoveries to commercialize, technology transfer officers overlook promising products in favor of proven winners. They say that the technology administrators—most often drawn from the ranks of business or university administration—are often ignorant about scientific advances and can't properly evaluate the commercial potential of new discoveries.

William W. Ward, associate professor of biochemistry at Rutgers University, has been a pioneer in research on bioluminescence, in which proteins are derived from jellyfish and other sea creatures. Ward believes that the protein could potentially be used in U.S. crops to illuminate plants, which could provide visual early warnings of approaching disease. But he says that he can't get the licensing officers to focus on his work. "When I've made a discovery or breakthrough, I want to be able to run with it," says Ward. "But I sit here in total frustration because I can't get anyone at the university in a position of authority to act."

Danger Ahead?

Campus inventors who have clashed with their technology transfer offices warn that current practices may well backfire on schools that have them. If campus inventors think their university is going to be greedy or indifferent, they may choose to hide their discoveries until they can start their own companies. To make matters worse, numerous reports have identified businesses that demand that university professors resist publishing their research findings until well after a patent has been filed, which can harm a professor's career and inhibit fund-raising for other projects.

Whereas technology transfer is supposed to reward researchers by giving them a fair share of the license money for future research, failure to do so may drive many professors to the private sector. Indeed, with a high-flying stock market and a greater share of economic rewards flowing to "star" performers like CEOs or chief scientists, universities may be playing a dangerous game.

Gifted students are especially disadvantaged under the current system. Professors can receive some stock in fledgling companies for their work, but students can't, even if they've been a primary researcher. Claudio Filippone spent more than a year in a dispute with the University of Maryland over the patent status of his discovery, which would recycle used nuclear waste into fuel. "The inventor puts years into his work and the technology office gets a paycheck, no matter what," he says. "They never suffered for the technology but now they say that I owe them half of the work."

Squabbling with students over licensing fees may also be shortsighted, possibly resulting in reduced donations from successful alumnie. MIT, for instance, has built a $4.3 billion endowment with the help of gifts from successful graduates. But overly tough licensing agreements may force some students to flee and may erode goodwill from those who do graduate. "I know a number of people who will drop out of grad school when they form a company," says Bose, "I'm not planning on donating any money."

Perhaps the real danger in all of this is the possibility that teaching will suffer as the pressure for profits increases. The computer science and engineering department at the University of Washington has helped the school form 140 new companies, employing more than 6,500 people. But department chair Ed Lazowska is always mindful that the institution must not forget its foremost educational mission. "If universities lose sight that the business they're in is education, it starts an incredible death spiral," he says. "If the focus of a university is on commercialization and enriching the place, then it forgets about long-range research and educating students."

So far, Lazowska says his university's technology transfer office adheres to the school's central mission. But others feel that there will always be tension between academia and corporate America. As the economic lucre increases, it remains to be seen whether the deepening relationship between campus and corporations will be good for higher education.

 

Warren Cohen is a freelance writer in Chicago.