Universities Buy Into The Patent Chase

For being at the right place at the wrong time, Bernard Erlanger missed the road to riches back in 1957. The Columbia University microbiologist knew that he had helped pioneer a powerful technique for making antibodies to steroids, and he even suspected that it might have commercial applications. Indeed, the method is now commonly used for everything from controlling animal litter size to testing human hormonal disorders—and the paper Erlanger wrote has become one of the most cited in history. At the time, a company was anxious to pursue the method’s possibilities, but it wouldn’t proceed without a guarantee of exclusivity. And when the microbiologist and his three colleagues approached the dean of Columbia’s medical school about patenting the discovery, the notion was quickly squelched. “The dean said, ‘No, this is unethical. Biomedical material should not be patented,”’ sighs Erlanger. “We chuckle and say ‘Boy, just think if the dean had said patent it, we’d be What a difference a few decades make. Now Columbia has an Office of Science and Technology Development that sniffs around the university’s labs looking for the modern-day equivalents of Erlanger’s technique to patent. And the same holds true at institutions around the nation, as straight-laced deans have given way to smooth-talking business specialists on university payrolls. In fact, the 24-year-old Society of University Patent Administrators (SUPA) has grown from 60 original members to nearly 500 today. Even Harvard, which once avoided patenting entirely, has just helped form a $30 million venture capital pool to invest in its own medical school research (see story, page 5). The name of the game, proclaims Niels Reimers, director of technology licensing at Stanford University and the dean of the new approach, is “marketing, marketing, marketing.” The marketing even extends to the selling of science itself In addition to developing inventions, many new university licensing offices also have the task of getting industry to fund potentially patent-producing research. And the payoff for both approaches adds up to big bucks. No one has exact figures, but according to the best estimates, U.S. universities have gone from taking in less than $10 million annually 10 years ago to more than $50 million a year today in royalties and licensing agreements alone. Some 15% to 30% of that typically goes directly into the pockets of scientists themselves. Jay Forrester, for example, the inventor of the “random-access coincident-current magnetic core memory” for computers has netted several million in personal royalties, enabling him to switch fields entirely; he is now at MIT’s School of Management studying the nature of social systems and how they influence behavior. ‘The funds really gave me some of the freedom to do that,” he says today. Yet even as academia takes science to the bank, some researchers and administrators worry that the whole trend is unhealthy. What happens to the timeworn academic canons of openness and collaborations when decisions about science are based on the bottom line? Will scientists and universities neglect basic research in favor of areas that promise short-term gains? These fears are so strong that most institutions with science patent scouts also have set up committees and guidelines to prevent abuses. “I don’t think that the process itself is evil, but there are enough corrupting influences that strong watch-dog committees are important,” explains Dr. Bernard L Mirkin, a professor of pediatrics and pharmacology who sits on the University of Minnesota’s Industry-University Relations Committee. These worries, however, haven’t slowed universities’ race to squeeze revenue from science. Stanford University, for example, has a technology licensing office with 16 members—including 10 engineers and scientists—whose job it is to find scientist-inventors and urge them to fill out disclosure forms about their work as soon as anything develops. If things look good after a review and evaluation process, the office hires a patent attorney to take the next step. Such a full court press on marketable science, coupled with Stanford’s coterie of top-notch scientists, has resulted in more than 100 licensing agreements—and revenue of $9.2 million for the university last year alone (see graph, page 5). That is tops among U.S. academic institutions (see chart, page 4). “Nine million dollars may not be significant compared to the $250-plus million of research funds at Stanford,” says Reimers. “However those funds to the departments and the schools are unrestricted and can assume a very great value.” In short, instead of submitting proposals and wading through bureaucratic red tape, Stanford’s various schools and departments can use their windfall for whatever they want—from buying new equipment to sending students to key conferences. But there are plenty of challengers to Stanford’s number one slot. Although still well behind in licensing revenue, with $5.5 million in the past fiscal year, MIT took first place last year in patents issued— edging out the entire University of California system 66 to 65 (see graph, page 4). And the University of Wisconsin is right on Stanford’s heels in revenue. “Universities are prepared to patent any kind of discovery that looks commercially feasible,” sums up Erlanger, who has now used the technology development office at Columbia to help patent several inventions. “Scientists are very aware of the fact that the universities are interested in patenting discoveries so that they can find their way to public use as quickly as possible.” Commercialization’s Boots The explosion of academia’s interest in patents may be relatively new, but the roots of the idea go hack to 1925. That was when a group of University of Wisconsin graduates established the now-famous Wisconsin Alumni Research Foundation. At the time, says WARP patent counsel Howard Bremer, “patenting was considered to be a dirty word by the faculty.” But foundation officials convinced their alma mater that scientists and the university could avoid the stigma of commercialization, as well as the costs of patenting, by assigning inventions and processes to WARP. In return, the foundation would patent and develop the ideas, and kick back intrends and new developments made licensing look much more attractive. Perhaps the biggest boost was Public Law 96-517, passed by Congress in 1980. The law allowed universities doing governmentfunded research to retain basic patent rights to their discoveries. Previously these rights were assigned to the government agency sponsoring the research—and many scientists and private industry officials complained the feds muddled the marketing process, causing the country to miss valuable commercial opportunities. Indeed, relates Stanford’s Reimers, studies showed that when the government held patents, far fewer licenses were issued than when the patents rested in university hands. Another boost came in 1984 with Public Law 98-620. Until then, exclusive licenses (with the exception of those granted to small businesses) were good only for five years from the first commercial sale, or eight years from the patent date, whichever was shorter. This limitation discouraged companies from acquiring licenses for technology and processes. The new law allowed patent holders to determine for themselves the length of the exclusive license—up until the life of the patent, a minimum of 17 years. Now, as federal funding for science appears to be leveling off after decades of growth, the idea of money from patents has become even more attractive to universities. And the current drive to increase U.S. technological competitiveness has helped universities and their scientists over the ethical hurdles of marketing their research. “Probably lurking in the background was the realization that as a nation we have to get more innovation in our products,” says Reimers. More cynical observers contend that some scientists are quick to put aside their scruples when they see royalties filling the pockets of colleagues. “They take notice when one of their fellows shows up in his new Porsche,” says Richard Mullins, senior policy adviser for the Office of Federal Technology Management, which helped push through the two laws. Still, the selling of university science is no easy task, and it often pays to try creative approaches. Take the case of the recombinant DNA technique pioneered by Stanford researcher Stanley Cohen and Herb Boyer of the University of California, San Francisco in the early 1970s. The patent on the technique wasn’t issued until 1980, nearly six years after it was first filed. Along the way. Reimers was forced to negotiate his way through a thicket of involved parties. The University of California got a slice of the royalties, for example, while the government agencies that had sponsored the pair’s research agreed to give up their rights to the patent. Once the patent was issued, Stanford faced the question of how to market the invention. Because it was so fundamentally important, officials decided it should not be licensed exclusively to any one firm. So the school held a press conference in August 1981 and took out ads in the journals Science and Nature announcing that licenses were available to all interested parties. And because royalties might not stream in from the fledgling biotechnology industry until after the 17-year life of the patent, any companies taking licenses by that December were offered a special bargain. The deal: for each $10,000 payment—up to a maximum of $60,000—firms received a credit equal to paying $50,000 in future royalties. As a marketing scheme it was a masterstroke; the patent so far has brought in more than $10 million. While Stanford depends on its in-house team to put together innovative deals, other universities have turned to outsiders for marketing savvy. Washington University in St. Louis, for example, became a leader in pulling in industry dollars after it formed a dynamic limited partnership with Berkeley-based venture capital stalwart Alafi Capital Co. in 1986. Called the A/W Co., the partnership’s goal is to develop new businesses from research discoveries. Faculty members anxious to forge ties with industry are not forced to deal with A/W, but the firm usually gets the first crack at any potentially lucrative research. The reason: A/W president Brian Clevinger is a Washington University associate professor on leave— and he maintains an office on campus. “I’m there every day,” he says. “I know a lot of people on campus already because several of them have been research collaborators with me. It’s a gigantic foot in the door.” Several projects are being nursed along—and the first two companies, both in medical instrumentation, were formed this year. Washington University is still the only school to be so closely linked with a venture capital company, but a number of other institutions have followed Wisconsin’s famous model by forming partnerships with foundations designed to market their research. Six years ago, for instance, Seattle businesspeople and University. of Washington alumni formed the Washington Research Foundation—and within six months the foundation hustled up guarantees from 35 companies for a $600,000 line of credit to support science at the University of Washington. “The university had lost quite a lot of good technology without any return,” explains foundation president Robert Sloman. “We thought that a private foundation could respond more quickly to market needs and become more expert in contacting companies and marketing technologies.” Marketing Counsel So far, some 35 licenses have generated about $1 million in revenue for the University of Washing- ton—and Sloman is looking ahead to almost double that this year. Riches of this sort are even within reach of universities too small or too reluctant to create their own marketing body. They can call on ‘Tucson-based Research Corporation Technologies Inc., which handles inventions for any nonprofit research institution not equipped to market them alone. In return for rights to an invention, RCT deals with the headaches of patenting and finding existing companies to develop the new technologies. RCT now has about 50 active agreements with U.S. institutions, and revenues from the projects have totaled between $100 million and $150 million. Big Payoff For individual scientists, the payoff can be enormous. At Stanford and MIT, for example, the technology licensing office takes 15% of the gross for operating expenses, then deducts out-of-pocket expenses for such costs as the patent filing fee. The remaining gross royalties are divided roughly equally between the university’s general fund, the inventor, and the inventor’s academic department— meaning that more than 25% of all royalties goes to the discoverers. For Stanford’s Stanley Cohen, coholder of the recombinant DNA patent, this has translated into more than $1 million. But as scientists become millionaires, and their universities vie to win more royalties and funding from industry, does science itself suffer? Some university officials and scientists worry that competition for the big buck might undermine their integrity as pursuers of basic research. At the very least, the fear of losing patent rights might encourage investigators not to openly discuss their work. Some observers, such as Leonard Minsky, executive director of the National Coalition for Universities in the Public Interest, even argue that the commercialization of science is an underlying cause of fraud and misconduct (see Opinion section, page 9). Certainly academic research is not as “pure” as it once was. “I’ve seen scientists who have people in their labs working on company projects,” says Richard Mulligan, a biologist at MIT's Whitehead Institute for Biomedical Research. “Or they’re getting money from a company to do something for the company—so it’s a contract. And I think that’s disgraceful.” Mulligan sees nothing wrong with scientists forming companies, however—in-deed he started up one of his own earlier this year (see The Scientist, May 30, page 7). But the business, he says, should be kept distinct from academic research. Universities claim to be aware of the pitfalls. “Everybody is concerned and wants to be sure that when industry does support research at a university it does not result in any kind of change as to what the researcher is doing,” says Joyce Brinton, director of Harvard’s Office for Patents, Copyrights, and Licensing. Indeed, every institution purports to have established safeguards to curb ethical abuses. Many schools prohibit companies from funding the research of someone already involved in their firms, and they monitor funding proposals for potential conflicts of interest. And while sponsors can consult with a researcher, they cannot direct his or her work. Some businesses are also aware of the potential dangers. Says former researcher Brian Clevinger, now president of A/W Co., “Because I came from the other end, I know how important it is for the investigators to maintain the stream of publications and maintain their collaborations. That’s the way research grows and develops—free communication.” The key, he maintains, is filing for patent protection as early as possible—freeing researchers to discuss their work openly. “It’s a balancing act,” he admits. “I do nothing to discourage communication. We just try to make sure patents get in early.” No one is sanguine that the race to squeeze revenue from science won’t lead to abuses. As pediatrician and pharmacologist Bernard Mirkin of the University of Minnesota says, “there are enough corrupting influences that strong watchdog committees are important.” But like it or not, the commercialization of science seems here to stay. Robert Buderi is a freelance writer based in San Francisco.

Universities Buy Into The Patent Chase

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