UNIVERSITIES AS GUARDIANS OF THEIR INVENTIONS Liza Vertinsky* Abstract There is a growing belief both within and outside of Congress that the system of university technology transfer upon which U.S. innovation relies is broken. Too many good ideas, ranging from promising drug candidates to revolutionary clean energy technologies, either fail to reach the public or remain significantly underutilized. Yet, in the search for new ways to expedite the movement of science into the marketplace, a critical avenue continues to be overlooked. Universities, the traditional “engines” of innovation, seem to be trapped in an institutional framework that limits both their interest and their involvement in postdiscovery innovation. This impedes solutions to innovation barriers. Growing failures to put inventions to effective public use can be largely attributed to changes in the ways that science is produced, financed, patented, and consumed. Trying to fit these shifting innovation processes into an unchanged legal system contributes to technology transfer failures. This Article suggests that if universities obtained more discretion, responsibility, and accountability over the post-discovery development paths for their inventions, they might be able to improve the trajectory for many promising scientific discoveries. Why? Because universities have unique organizational characteristics that give them a comparative advantage over firms and government agencies in navigating the mixed processes of knowledge creation and application that characterize modern day innovation processes. This advantage is particularly strong where private and social benefits from university discoveries diverge. Universities should thus be viewed not simply as “engines,” but rather as guardians of their inventions, and the law should be designed to encourage their responsible involvement in shaping the post-discovery future of their wards.

* © 2012 Liza Vertinsky, Associate Professor, Emory University School of Law. Special thanks to Paul Heald, Timothy R. Holbrook, Michael Kang, Timothy P. Terrell, Kay Levine, William W. Buzbee, Bill Church, and participants of the Emory-University of Georgia Summer Conference, July 2011, the Wake Forest Junior/Senior Conference, October 2011, and the Intellectual Property Works in Progress Conference at the University of Houston, February 2012, for valuable comments. Thanks also to Abigail Rives and Rachel Erdman for their research assistance and to the editors of the Utah Law Review for their comments and editorial contributions. While this Article and my broader project on universities and innovation responds to and benefits from the ideas shared, all views and in particular all shortcomings are my own.

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INTRODUCTION Universities occupy a central position in U.S. innovation policy as the engines of innovation.1 To fuel the development of new and socially useful technologies, federal and state policymakers charged with encouraging innovation channel billions of dollars into universities for the purpose of generating and disseminating knowledge.2 They expect universities to produce inventions that can be patented and moved into the private sector for commercialization, a policy approach that was hardwired into law with the passage of the Bayh-Dole Act in 1980.3 The seeming success of this university-driven, patent-centered innovation strategy has prompted a number of other countries to pursue similar strategies.4 But while other countries have been busy importing the U.S. model— including the supporting legal framework—university technology transfer is under attack back home, and for good reason. A growing number of promising university-generated inventions are failing to reach the public in accessible and usable forms.5 Policymakers thus search for ways of traversing what is often 1

This reference to universities as engines of innovation can be found in many discussions of innovation policy, including both scholarly work and government white papers. As a core concept of U.S. policy it dates back to the blueprint of U.S. innovation policy developed by Vannevar Bush for President Roosevelt in 1945, entitled Science: The Endless Frontier. This blueprint provided the foundation for a comprehensive federal policy on the role of science and its relationship to economic growth. See VANNEVAR BUSH, SCIENCE: THE ENDLESS FRONTIER 15 (1945). 2 The term “innovation” is used throughout this Article to refer to the creation, development, and deployment of scientific and technological improvements. This includes the movement from discovery through to the useful application(s) of the discovery, whether in the form of creating new products, solving new problems, or serving as an input in further innovation. See, e.g., Stuart Minor Benjamin and Arti K. Rai, Fixing Innovation Policy: A Structural Perspective, 77 GEO. WASH. L. REV. 1 (2008) (defining innovation in context of federal innovation policy). 3 Bayh-Dole Act of 1980, Pub. L. No. 96-517, § 6(a), 94 Stat. 3019 (codified as amended at 35 U.S.C. §§ 201–11 (2006)). 4 A number of countries, including India, Brazil, South Africa, Malaysia, Jordan, Japan, India, Philippines, Austria, Denmark, Finland, Belgium, Germany, Norway, Korea, Taiwan (P.R.C.), Hong Kong, SAR (P.R.C.), and People’s Republic of China (mainland) are considering or have recently passed legislation modeled on the U.S. Bayh-Dole Act. See, e.g., Gregory D. Graff, Echoes of Bayh-Dole? A Survey of Intellectual Property and Technology Transfer Policies in Emerging and Developing Economies, in INTELLECTUAL PROPERTY MANAGEMENT IN HEALTH AND AGRICULTURAL INNOVATION: A HANDBOOK OF BEST PRACTICES 169, 172–87 (Anatole Krattiger et al. eds., 2007); David C. Mowery & Bhaven N. Sampat, The Bayh-Dole Act of 1980 and University–Industry Technology Transfer: A Model for Other OECD Governments?, 30 J. TECH. TRANSFER 115, 115–27 (2005) (examining recent initiatives among OECD countries aimed at emulating the BayhDole Act). 5 This conclusion is based largely on a combination of anecdotal data drawn from the voluminous technology transfer literature in journals such as Research Policy and the Journal of Technology Transfer, as well as efforts made by government and private sector

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referred to as the “valley of death” in which promising drug candidates, clean energy technologies, and breakthroughs in nanotechnology languish.6 Even when university inventions reach the public, many cutting-edge discoveries remain underutilized because of restrictive patenting and licensing practices.7 Prominent examples include restrictive patenting and licensing practices for blockbuster AIDS drugs, stem cell technologies, and breast cancer genes.8 This Article suggests that in the search by federal, state, and local governments and their relevant agencies for new ways to enhance the movement of science into the marketplace, one fundamental element of the problem has been overlooked: we are increasingly unable to draw clear boundaries between the production of fundamental knowledge, the traditionally claimed domain of the university, and commercial application, the supposed domain of the private sector. The nature and organization of science combined with changes in patent law have generated growing numbers of inventions with a dual nature that includes both fundamental knowledge, which serves as the input for further discovery, and commercially applicable knowledge, which is a patentable commodity.9 Examples analysts to map spending on research and development against tangible outcomes such as the number and market value of new products developed. These measures are imprecise, and commentators disagree as to the nature, source, and costs of technology transfer failures. See PHILLIP E. AUERSWALD ET AL., NAT’L INST. FOR STANDARDS & TECH., NIST GCR 02-841A, UNDERSTANDING PRIVATE-SECTOR DECISION MAKING FOR EARLY-STAGE TECHNOLOGY DEVELOPMENT, A “BETWEEN INVENTION AND INNOVATION PROJECT” REPORT 14 (2005); LEWIS M. BRANSCOMB & PHILLIP E. AUERSWALD, NAT’L INST. FOR STANDARDS & TECH., NIST GCR 02-841, BETWEEN INVENTION AND INNOVATION: AN ANALYSIS OF FUNDING FOR EARLY-STAGE TECHNOLOGY DEVELOPMENT 130–31 (2002); Phillip E. Auerswald & Lewis M. Branscomb, Valleys of Death and Darwinian Seas: Financing the Invention to Innovation Transition in the United States, 28 J. TECH. TRANSFER 227, 229–35 (2003) [hereinafter Auerswald & Branscomb, Valleys of Death]. 6 See, e.g., Auerswald & Branscomb, Valleys of Death, supra note 5; Arti K. Rai et al., Pathways Across the Valley of Death: Novel Intellectual Property Strategies for Accelerated Drug Discovery, 8 YALE J. HEALTH POL’Y L. & ETHICS 1 (2008); Elizabeth Burleson, Dynamic Governance Innovation, 24 GEO. INT’L ENVTL. L. REV. (forthcoming 2013) (examining innovation valley of death for green technologies). But see T. Randolph Beard et al., A Valley of Death in the Innovation Sequence: An Economic Investigation, 18 RES. EVALUATION 343, 344–45 (2009). 7 See, e.g., JAMES BOYLE, THE PUBLIC DOMAIN: ENCLOSING THE COMMONS OF THE MIND 160–61 (2008); Rebecca S. Eisenberg, Public Research and Private Development: Patents and Technology Transfer in Government Sponsored Research, 82 VA. L. REV. 1663, 1702 (1996); Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anti-Commons in Biomedical Research, 280 SCIENCE 698, 698 (1998). 8 See Amy Kapczynski et al., Addressing Global Health Inequities: An Open Licensing Approach for University Innovations, 20 BERKELEY TECH. L.J. 1031, 1046– 51 (2005). 9 The blurring of basic and applied research and its implications for the public domain has been a subject of much discussion by scholars interested in the intersection of intellectual property and biotechnology. See, e.g., Heller & Eisenberg, supra note 7, at 698–701; Arti K. Rai & Rebecca S. Eisenberg, Bayh-Dole Reform and the Progress of

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include the patenting and direct applications of genes, stem cells, and pollutioneating algae, but extend more generally to the patenting of many very early-stage scientific discoveries.10 Pushing the development of inventions beyond the initial discovery phase often requires the integration of very different kinds of research and development efforts targeted at the mixed goals of knowledge production and commodification.11 This inevitable modern overlap of public non-commercial knowledge and private commercial knowledge cannot be adequately accommodated within the existing legal and institutional framework, particularly that governing university technology transfer.12

Biomedicine, 66 L. & CONTEMP. PROBS. 289, 298–303 (2003); Rochelle Cooper Dreyfuss, Varying the Course in Patenting Genetic Material: A Counter-Proposal to Richard Epstein’s Steady Course, in PERSPECTIVES ON PROPERTIES OF THE HUMAN GENOME PROJECT 195, 195–202 (F. Scott Kieff ed., 2003). Patent law has contributed to these challenges. See Joshua D. Sarnoff & Christopher M. Holman, Recent Developments Affecting the Enforcement, Procurement, and Licensing of Research Tool Patents, 23 BERKELEY TECH. L.J. 1299, 1301–02 (2008). But it has broader implications for the appropriate management of development paths for all inventions that have this dual nature as knowledge and as patentable commodities either intrinsically or as inputs into commercial products. 10 See Dreyfuss, supra note 9. 11 Examples include advances in genomics and proteomics, where inventions may have both immediate applications as treatments or diagnostics and value as research tools in exploring the nature of disease. Recent litigation over use of a test for the gene BRCA 1, which is associated with a certain form of breast cancer, illustrates the tensions that arise with dual use inventions. Myriad Pharmaceuticals, the owner of patent rights in the test, has asserted its rights against medical researchers seeking to learn more about breast cancer. 12 Patent scholars such as Rebecca Eisenberg, Arti Rai, Rochelle Dreyfuss, and Katherine Strandburg make arguments for change in the technology transfer process for effectively the same reasons as indicated here, although their responses have been directed largely towards broadening and protecting the public domain through regulatory and legal interventions rather than through a change in governance of the innovation process. See Eisenberg, supra note 7, at 1695–705; Arti K. Rai, Regulating Scientific Research: Intellectual Property Rights and the Norms of Science, 94 NW. U. L. REV. 77, 136–51 (1999); Katherine J. Strandburg, Curiosity-Driven Research and University Technology Transfer, in 16 ADVANCES IN THE STUDY OF ENTREPRENEURSHIP, INNOVATION & ECONOMIC GROWTH 93, 94–95 (Gary D. Libecap ed., 2005) (illustrating dispute over how technology transfer office policies may affect academic research) [hereinafter Strandburg, Curiosity-Driven]; Katherine J. Strandburg, What Does the Public Get? Experimental Use and the Patent Bargain, 2004 WIS. L. REV. 81, 119–21, 142–46 [hereinafter Strandburg, What Does the Public Get?] (providing alternative way of designing experimental use exemption based on distinctions between different kinds of inventions that would better protect the benefit to the public from their patent bargain without hampering innovation); see also J.H. Reichman & Paul F. Uhlir, A Contractually Reconstructed Research Commons for Scientific Data in a Highly Protectionist Intellectual Property Environment, 66 L. & CONTEMP. PROBS. 315, 338–41 (2003) (examining intersection of IP rights and traditional modes of sharing scientific information, including pressures on universities to

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Innovation processes combine intellectual production with practical applications in ways that do not always fit the existing system of university technology transfer, resulting in technology transfer failures. Where commercial applications of discoveries require significant investment and risk in the development of early-stage inventions, or where much of the valuable information about the discovery takes the form of tacit knowledge about the potential features of the invention, transfer of the invention to the private sector for development becomes difficult.13 This leads to one kind of technology transfer failure. In contrast, where commercial application of fundamental knowledge is apparent and relatively immediate, transfer of the invention to the private sector is often too quick and too complete, resulting in restricted public access and impeding cumulative innovation. This produces a different kind of technology transfer failure. New organizational strategies are required to effectively manage the development and transfer of inventions that have these dual characteristics and uses.14 overprotect and undershare information). Brett Frischmann examines the tensions between public and private interests in university research from the demand side, pointing to concerns that universities will optimize their research systems to meet commercial demands. See Brett Frischmann, The Pull of Patents, 77 FORDHAM L. REV. 2143, 2163– 64 (2009). 13 The importance of increasing investment in public infrastructure to support the development and commercialization of scientific discoveries is becoming increasingly clear to agencies such as the NIH and NSF, which are now offering significant grants to universities that can demonstrate the ability to move inventions downstream. For a discussion of the importance of public infrastructure, including knowledge infrastructure, in the context of science and technology policy, see Brett Frischmann, Innovation and Institutions: Rethinking the Economics of U.S. Science and Technology Policy, 24 VT. L. REV. 347 (2000) [hereinafter Frischmann, Innovation]; Frischmann, supra note 12, at 2164–66. 14 This recognition is not a new one. For example, Rochelle Dreyfuss describes this dual nature in terms of a blurring of the distinction between fundamental and end-use work. She also describes it as the intersection of science and technology. See Rochelle Dreyfuss, Protecting the Public Domain of Science: Has the Time for an Experimental Use Defense Arrived?, 46 ARIZ. L. REV. 457, 463 (2004); see also Robert Merges, Property Rights Theory and the Commons: The Case of Scientific Research, in SCIENTIFIC INNOVATION, PHILOSOPHY, AND PUBLIC POLICY 145, 156–57 (Ellen Frankel Paul et al. eds., 1996) (discussing the history of the expanding intersection between science and technology); Fiona Murray, The Oncomouse That Roared: Hybrid Exchange Strategies as a Source of Distinction at the Boundary of Overlapping Institutions, 116 AM. J. SOCIOLOGY 341, 341– 42 (2010) (arguing that when institutional logics such as academic and commercial interests overlap, it is possible to maintain a distinct and coexisting hybrid system for the two logics); Fiona Murray & Scott Stern, Learning to Live with Patents: Assessing the Impact of Legal Institutional Change on the Life Science Community 3 (Nov. 2008) (unpublished manuscript), available at http://fmurray.scripts.mit.edu/docs/ Murray.Stern_LearningtoLivewithPatents.pdf (discussing a theory on how changes in patent law affect knowledge communities). This Article focuses on the implications of this dual nature of inventions for organizational choice, and identifies the organizational

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To generate ways of becoming innovative about innovation, this Article proposes that we reconsider the utility of a basic premise: universities are not simply “engines” of invention—they are unique guardians of inventions. As such, they should not relinquish their duties over their wards too soon. As startling and counterintuitive as this may appear to both the academic and commercial world, my argument is that universities should be given more discretion, more responsibility, and more accountability in shaping the development paths for their inventions.15 Why? Universities have organizational characteristics that provide them with a comparative advantage over government agencies and the market in managing the dual nature of inventions as both fundamental knowledge and commercial knowledge where both public and private interests are at stake.16 However else they may differ from each other in detail, universities share three unique characteristics that derive from a shared basic mission of creating and disseminating knowledge: (1) they are constructed as specialized entities with public knowledge functions; (2) they have an autonomous, decentralized governance structure; and (3) their decisions are shaped by multiple stakeholders invested in different aspects of public knowledge production and consumption. These characteristics, which make universities good producers of knowledge, can also be harnessed to make them good managers of the further development and application of knowledge for the public benefit.17 features that make universities good at managing decisions about whether and what to patent and how to utilize the patent once obtained. But see Rai & Eisenberg, supra note 9, at 291 (arguing that funding agencies such as the NIH will be better at making decisions about what to patent with the public interest in mind). 15 This Article takes as given that the goal of university technology transfer should be to ensure the greatest public benefit from university research results. Alternative goals that policy makers might have include ensuring the greatest public access to research results, the greatest measure of national economic growth, or alternatively, the greatest contribution to local economic growth, all of which may lead to somewhat divergent policy prescriptions. This Article also takes as given that universities will remain important players in the publicly subsidized creation of knowledge, leaving for further research the question of whether universities are the best types of organizations to conduct publicly funded research. 16 As discussed further below, the agricultural sciences in particular have demonstrated this organizational strength. Land grant colleges and universities have had a long history of engaging in translational research and the development of new agricultural technologies. See COMM. ON THE FUTURE OF THE COLLS. OF AGRIC. IN THE LAND GRANT UNIV. SYS., NAT’L RESEARCH COUNCIL, COLLEGES OF AGRICULTURE AT THE LAND GRANT UNIVERSITIES 39 (1996). Many universities are experimenting with broader roles in the innovation process. See Liza Vertinsky, Making Knowledge and Making Drugs? Experimenting with University Innovation Capacity, 62 EMORY L.J. (forthcoming 2013). 17 These characteristics allow for multiple decentralized sites of knowledge production and use, for example, which can be tailored to different development processes through varying degrees of openness both in terms of participation and access to results. At the same time, the public knowledge function of the overall organization supports investments in public knowledge infrastructures that both constrain and support the

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Yet because universities do not fully internalize the social benefits of these downstream activities, a further step needs to be taken. Universities need to be given greater incentives to modify their technology transfer strategies and capabilities in ways that promote beneficial public use from university generated inventions. The steps that they take can and should vary in response to differences in research and development capabilities, resources, and the nature of the inventions involved. But the goal should remain one of ensuring that knowledge is both produced and utilized in ways that serve publicly beneficial goals.18 Part I of this Article provides a brief background of the traditional approach to university technology transfer and its critical role in the U.S. national innovation strategy. It then explores how changes in the organization and nature of science have increased university technology transfer failures in ways that call for a fundamental response. Part II examines the importance of organizational choices in addressing the challenges posed by modern processes of innovation. It discusses the unique characteristics of universities and why these characteristics may make universities better than firms or government agencies at deciding how their inventions should be developed and disseminated to best serve the public interests in producing, accessing, and using knowledge. Part III identifies ways in which the legal and regulatory framework could be modified to both facilitate and encourage universities as guardians of innovation. It also responds to potential concerns with the proposal to give universities more managerial responsibility and control over the post-discovery phases of innovation. A unique window of opportunity currently exists for rethinking the ways in which universities participate in processes of innovation. This opportunity should be exploited as vigorously as any new invention. I. UNIVERSITIES AS ENGINES OF INVENTION The modern system of university technology transfer in the U.S. arose from a model of innovation that dates back to the 1940s. This enduring, but now outdated, national vision of innovation sheds valuable light on the design choices and limitations of the current approach towards universities and their role in U.S.

activities of individual project sites. For an application of this approach, see, e.g., Vertinsky, supra note 16. 18 The proposals in this Article are most relevant for U.S. research universities with significant research budgets. These institutions account for the bulk of funding, inventions, and scientific publications. Both funding and patenting are concentrated in a relatively small number of U.S. research universities. During 1998–2008, for example, 200 research institutions accounted for 96% of all patents awarded to academic institutions. In 2007, the top 100 academic institutions, measured in terms of receipt of federal R&D funds, received 82.6% of the total federal R&D support for science and engineering to colleges and universities. Publication rates in top journals are similarly concentrated. See CHRISTINE M. MATTHEWS, CONG. RESEARCH SERV., R41895, FEDERAL SUPPORT FOR ACADEMIC RESEARCH (2012).

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national innovation strategies.19 Understanding the assumptions behind this vision also helps to illuminate sources of disconnect between the existing system of university technology transfer and the modern innovation processes it is intended to support. Part I describes the evolution of the existing system of university technology transfer. It examines sources of technology transfer failure that occur within this system and suggests that these failures are at least partly the result of the growing disconnect between the ways in which science is produced, financed, patented, and consumed and the legal framework that governs university technology transfer. A. Traditional University Role in Innovation The publicly and privately supported colleges, universities, and research institutes are the centers of basic research. They are the wellsprings of knowledge and understanding. As long as they are vigorous and healthy and their scientists are free to pursue the truth wherever it may lead, there will be a flow of new scientific knowledge to those who can apply it to practical problems in Government, in industry, or elsewhere.20 Under the modern U.S. approach to university technology transfer, U.S. research universities are expected to produce inventions and move them into the private sector for commercialization. They have been broadly characterized within U.S. national innovation policies as “engines” of innovation, designed to generate and disseminate new discoveries without attention to the trajectories that these discoveries will take in the marketplace. The private sector is left to manage postdiscovery paths of development and application. To understand the evolution of this approach, this Article first describes the traditional, linear model of innovation that influenced its design. It then examines how this linear model became hardwired in the law. This model was a departure from an even earlier alternative system of technology transfer deployed in the agricultural sciences, one that required broad university involvement in the development and application of agricultural innovations. Part I contrasts these two approaches and suggests that the

19

As discussed later in this Article, the role of universities in agricultural science and technology has been somewhat different, as a result of perhaps prescient legislation in the late 1800s and early 1900s establishing land grant institutions and imbuing them with the mission of expanding the agricultural sciences and moving these advances into application. See EXPERIMENT STATION COMM. ON ORG. & POLICY, ASS’N OF PUB. & LAND-GRANT UNIVS., A SCIENCE ROADMAP FOR FOOD AND AGRICULTURE 2 (2010) (“The land-grant university system, through their colleges of agriculture, Agricultural Experiment Stations, and Cooperative Extension Services, has a long tradition of solving societal problems by balancing strong science with benefits and consequences to society. It can do so because it has the broad disciplinary expertise to address both the bench-science and human dimensions of issues.”). 20 BUSH, supra note 1, at 7.

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earlier system has strong parallels with the proposed vision of the university described in this Article. 1. Linear Model of Innovation The current U.S. science and technology policy and the system of technology transfer that it supports have their foundations in a linear model of innovation that was adopted by policy makers in the post–World War II period.21 In its most simplistic form, the model depicts innovation as a straight path that starts with an invention grounded in basic scientific knowledge, moving in a linear fashion through progressive stages of increasingly applied research and development and ending with commercial application.22 This model makes a clear distinction between scientific knowledge and its commercial application.23 Basic science, inherently noncommercial in nature, is viewed as a public good that publicly subsidized research universities should provide.24 These universities receive government funding to support basic research and, to a lesser degree, early phases of applied research, with the expectation that the private sector will identify potentially profitable inventions and finance development activities once government funding ends.25 Universities fueled by public money become the

21

What has become known as the linear model of innovation was first formalized by Vannevar Bush, scientific advisor to President Roosevelt. In 1945, the blueprint for the first national science policy, released in Science: the Endless Frontier, centered around a linear model of innovation beginning with invention and ending in commercial products and services. Basic research, typically publicly funded, was seen as the engine of the innovation process. See BUSH, supra note 1, at 1 (outlining linear model of innovation beginning with invention and ending in commercial products and services). 22 See Margherita Balconi et al., In Defence of the Linear Model: An Essay, 39 RES. POL’Y 1 (2010) (describing linear model and discussing its strengths and weaknesses). 23 Early versions of the model draw the line between basic and applied research, but this is and has always been a difficult line to draw and is closely tied to contested and often changing disciplinary boundaries. It is clearer to make the distinction between research, which is tied to the pursuit of knowledge, and development, which has as an objective the commercial application of an idea for use in a product or service. 24 “The postwar era essentially defined the research university as a public entity and scientific knowledge as a fundamental public good, destined to enjoy government patronage.” Diana R. Rhoten & Walter W. Powell, Public Research Universities: From Land Grant to Federal Grant to Patent Grant Institutions, in KNOWLEDGE MATTERS: THE PUBLIC MISSION OF THE RESEARCH UNIVERSITY 319, 323 (Craig Calhoun & Diana R. Rhoten eds., 2011) (examining the foundations of the federal strategies governing public research universities and the subsequent evolution of the university). 25 See PRESIDENT’S COUNCIL OF ADVISORS ON SCI. & TECH., UNIVERSITY-PRIVATE SECTOR RESEARCH PARTNERSHIPS IN THE INNOVATION ECOSYSTEM 27–29 (2008) (examining university and industry roles in innovation, emphasizing the role of universities in conducting research and the role of the private sector in funding and conducting research, development, and manufacturing).

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engines that drive economic growth by introducing new ideas into the marketplace for conversion by the private sector into new products and production processes. While this model has been largely dismissed as overly simplistic,26 the underlying idea of a progression from noncommercial, publicly supported research to commercial, privately financed development persists both in the institutional landscape and in national innovation policies.27 This linear model of innovation, with its separation of public knowledge and private development processes, has informed the federal science and technology programs that remain in place today. It has prompted the formation and growth of a series of federal agencies designed to fund basic scientific research, viewed as a public good, including the Office of Naval Research, the National Institute of Health (NIH), the Atomic Energy Commission, and the National Science Foundation (NSF).28 These agencies play a critical role in supporting and shaping the direction of university research activities. They provide significant financial support to universities and other research institutions primarily for the development of fundamental knowledge, viewed by policymakers as inherently

26

There is a rich literature seeking to uncover the complex relationships and feedback effects between inventions and innovators, science and technology, and academics and industry. See generally JOEL MOKYR, THE LEVER OF RICHES: TECHNOLOGICAL CREATIVITY AND ECONOMIC PROGRESS (1990) (presenting historical comparative analysis of the causes of technological creativity and distinguishing between the relationship between inventors and their physical environment, which determined their willingness to challenge nature, and the social environment, which determined the openness to new ideas). The complex interactions between government, academia, and industry are the subject of in-depth study as well. THE ECONOMICS OF SCIENCE AND INNOVATION (Paula E. Stephan & David B. Audretsch eds., 2000) (describing the complex interactions between the government, universities, and the private sector). For a study of the historical evolution of the linear model, see Benoit Godin, The Linear Model of Innovation: The Historical Construction of an Analytical Framework, 31 SCI., TECH. & HUM. VALUES 639 (2006), which examines the historical development of an analytical framework and argues statistics account for its survival. 27 Interestingly, in the effort to move public funding further downstream, industry and policymakers are drawing a new distinction between “competitive” and “precompetitive” collaboration, with efforts to draw public funding to support precompetitive collaboration. See Jill S. Altshuler et al., Opening Up to Precompetitive Collaboration, 2 SCI. TRANSLATIONAL MED., Oct. 6, 2010, at 1, 1–4 (discussing how precompetitive collaboration boosts efficiency and innovation); J.A. Wagner, Open-Minded to Open Innovation and Precompetitive Collaboration, 87 CLINICAL PHARMACOLOGY & THERAPEUTICS 511, 511 (2010); J. Woodcock, Precompetitive Research: A New Prescription for Drug Development?, 87 CLINICAL PHARMACOLOGY & THERAPEUTICS 521, 521–23 (2010); R.L. Woosley et al., The Critical Path Institute’s Approach to Precompetitive Sharing and Advancing Regulatory Science, 87 CLINICAL PHARMACOLOGY & THERAPEUTICS 530, 530–33 (2010). 28 See, e.g., Rhoten & Powell, supra note 24, at 323 (exploring a history of the changes in perception and public role of the university system).

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noncommercial.29 Only recently have additional funding programs, such as the Small Business Innovation Research Program (SBIR Program) and Small Business Technology Transfer Program (STTR Program), been formed to support later stages of research and the interface between research and development, and these programs remain a very small part of the total government funding.30 Moreover, these programs are targeted primarily at supporting the small businesses in their translation of university research results rather than at funding universities in downstream research activities. While the NIH, NSF, and other major government agency funders of research and development are now making efforts to change their funding priorities to support new models of post-discovery research and development, change both within and outside of the agencies is slow.31 29

The NIH, for example, had a budget of over $30.9 billion in 2011, and 80% of this budget goes to researchers in research institution via a competitive grant process. NIH Budget, NAT’L INSTS. HEALTH, http://www.nih.gov/about/budget.htm/ (last reviewed Sept. 18, 2012). See generally Matthews, supra note 18 (detailing the federal government’s financial support for academic research). 30 The SBIR program was established under the Small Business Innovation Development Act of 1982 with the goal of involving innovative small business concerns in federally funded research and development. Pub. L. No. 97-219, § 2, 96 Stat. 217, 217 (codified as amended 15 U.S.C. § 638 (2006)). Through fiscal year 2009, over 112,500 awards have been made totaling more than $26.9 billion. Awards, SBIR/STTR, http://www.sbir.gov/past-awards/ (last visited Oct. 2, 2012). The STTR program was modeled after the SBIR program. STTR was established as a pilot program by the Small Business Technology Transfer Act of 1992 with the goal of facilitating the transfer of technology developed by a research institution through the entrepreneurship of a small business. Pub. L. No. 102-564, § 202, 106 Stat. 4249, 4257 (codified as amended 15 U.S.C. § 638 (2006)). 31 There are significant new programs underway at NIH and other government agencies designed to target barriers to translational research. See, e.g., About the NIH Roadmap, NAT’L INSTS. HEALTH, http://commonfund.nih.gov/aboutroadmap.aspx (last updated Dec. 28, 2011) (describing the roadmap launched by the NIH in 2004 to address roadblocks in the application of discoveries to address health needs and transform the way biomedical research is conducted by overcoming specific hurdles or filling defined knowledge gaps). Examples of this shift in funding priorities towards post-discovery innovation include the NIH Institutional Clinical and Translational Science Awards, and most recently the NIH call for grant proposals to develop infrastructures for moving university discoveries through to early-stage commercial development. See RFA-RM-07002: Institutional Clinical and Translational Science Award, DEP’T HEALTH & HUM. SERVS., http://grants.nih.gov/grants/guide/rfa-files/rfa-rm-07-002.html (last visited Oct. 2, 2012) (describing NIH’s initiative to award and assist institutions in creation of a “uniquely transformative, novel, and integrative academic home for Clinical and Translational Science that has the resources to train and advance a cadre of well-trained multi- and inter-disciplinary investigators and research teams with access to innovative research tools and information technologies to promote the application of new knowledge and techniques to patient care”); RFA-HL-13-008: The NIH Centers for Accelerated Innovation (U54), DEP’T HEALTH & HUM. SERVS., http://grants.nih.gov/ grants/guide/rfa-files/rfa-hl-13-008.html (last visited Oct. 2, 2012) (describing the most

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The linear model is also reflected in the legal and regulatory framework governing public and private U.S. research universities.32 Tax regulators and funding agencies expect universities to govern themselves in a way that protects the public, noncommercial nature of their research efforts. Universities receive special tax treatment that is tied to the public, knowledge-based nature of the university mission. As a consequence of this public support, universities have fiduciary obligations to use university resources in a way that is consistent with this mission.33 Legal restrictions are also imposed on the amount of space universities can devote to activities that are commercial in nature.34 Patent law requires reserved rights to publicly funded inventions for government use and has safeguards designed to ensure that inventions are utilized.35 Universities are expected to play little part in driving the downstream development of their inventions.36 They are instead expected to forge relationships with industry as a way of moving public research results into the hands of private developers upon completion of the discovery phase. Institutional norms and practices of the research university community have reinforced this understanding of universities as being focused on noncommercial research activities.37 With some exceptions, U.S. research universities, particularly recent grant from NIH Centers for Accelerated Innovations that will “develop Centers that (1) solicit and select promising emerging technologies, such as therapeutics (e.g., drugs, biologics), preventatives, diagnostics, devices, tools, etc. and (2) facilitate their translation to commercialized products that improve patient care and enhance health”). Nonetheless, most funding still follows traditional funding patterns, and institutional shifts within universities, even those with Clinical and Translational Science Awards (the CTSAs), is limited. 32 See generally DAVID C. MOWERY ET AL., IVORY TOWER AND INDUSTRIAL INNOVATION: UNIVERSITY-TECHNOLOGY TRANSFER BEFORE AND AFTER THE BAYH-DOLE ACT (2004) (examining the history of university patent and licensing activities); Richard G. Hamermesh, et al., Technology Transfer at U.S. Universities, HARV. BUS. REV., June 2007 (exploring the history of technology transfer emphasizing the Bayh-Dole Act and subsequent university practice). 33 See, e.g., COUNCIL ON GOV’T REL., http://www.cogr.edu/ (last visited Oct. 3, 2012) (providing guidelines for universities in their interactions with industry, including considerations of their nonprofit status and the use of tax exempt bonds and other taxrelated opportunities afforded to them); Council on Gov’t Relations, UNIVERSITYINDUSTRY RELATIONS BROCHURE, 10 (2007), available at http://www.cogr.edu/ viewDoc.cfm?DocID=151558/ (discussing tax issues). 34 See 26 U.S.C. § 141 (2006) (establishing the Private Business Use Test). 35 Bayh-Dole Act of 1980, 35 U.S.C. §§ 200–12 (2006). 36 In practice universities have long been engaged in applied research, working in collaboration with industry and receiving private funding to support applied research. But these activities have been seen as supplemental to the core role of universities in national innovation strategies. 37 See Melissa S. Anderson et al., Extending the Mertonian Norms: Scientists’ Subscriptions to Norms of Research, 81 J. HIGHER EDUC. 366 (2010) (describing Mertonian norms of academic science and study and how these norms are adopted and modified in practice); Strandburg, Curiosity-Driven, supra note 12 (exploring how technology transfer

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private research universities, have historically viewed their mission as one that excludes product-development activities as being inherently commercial activities and as therefore falling outside of the academic realm. The norms of the research university community include an emphasis on public service and the pursuit of public knowledge that differentiates—to a varying degree—university participants from their counterparts in industry.38 The importance of philanthropy in supporting university activities has provided additional incentives to universities to protect their reputations as institutions engaged in public service.39

policy would benefit from more attention to basic purposes of scientific research and the characteristics of researchers). Concerns about how these norms might be changing, however, as a result of the pressures of modern science, including patenting and pressures to publish, has been the subject of increasing attention. See Katherine J. Strandburg, User Innovator Community Norms: At the Boundary Between Academic and Industry Research, 77 FORDHAM L. REV. 2237 (2009) (exploring consequences of the convergence of academic research with commercial interests for sharing norms); Merges, supra note 14, at 147 (examining the “creeping propertization” that characterizes science today and argues for a more carefully constructed set of property rights that takes into account the nature of scientific research and its characteristics as a limited-member, shared-access commons); Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. CHI. L. REV. 1017, 1021 (1989) (examining the interaction of patent laws and the norms of scientific research). Additional influential work has highlighted the tensions between academic and commercial science more generally. See DEREK BOK, UNIVERSITIES IN THE MARKETPLACE: THE COMMERCIALIZATION OF HIGHER EDUCATION (2003) (examining whether everything in the university is for sale and arguing that universities must be vigilant to avoid compromising the primary mission and purpose of an academic mission); JENNIFER WASHBURN, UNIVERSITY, INC: THE CORPORATE CORRUPTION OF HIGHER EDUCATION (2006) (arguing that universities are selling out to corporate sponsorship and IP is being transferred too readily to industry). 38 See, e.g., Michael Roach & Henry Sauermann, A Taste for Science? PhD Scientists’ Academic Orientation and Self-Selection into Research Careers in Industry, 39 RES. POL’Y 422 (2010) (examining potential heterogeneity in researchers’ taste for science and to potential selection effects on careers in industry versus academia, focusing on choice of Ph.D. students between academia and industry); Henry Sauermann & Paula E. Stephan, Twins or Strangers? Differences and Similarities Between Industrial and Academic Science (Nat’l Bureau of Econ. Research, Working Paper No. 16113, 2010), available at http://www.nber.org/papers/w16113/ (developing a framework to compare and contrast academic and industrial science along four key dimensions: (1) the nature of research (e.g., basic versus applied); (2) organizational characteristics (e.g., degree of independence, pay); (3) researchers’ preferences (e.g., taste for independence); and (4) the use of alternative disclosure mechanisms (e.g., patenting and publishing). 39 The role of philanthropy in shaping universities and their activities is often ignored. Philanthropy plays a particularly important role in areas directed towards health. See Fiona E. Murray, Evaluating the Role of Science Philanthropy in American Research Universities, 13 INNOVATION POL’Y & ECON. 23 (2012) (noting that when combined with endowment income, university research funding from science philanthropy is $7 billion a year with much of this philanthropy directed at translational medical research).

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This approach to technology transfer can be contrasted with another much older legislative framework supporting university-industry cooperation.40 While translational research has become the “new” rallying cry for policymakers looking to address the gap between invention and innovation, particularly in biomedicine and other newly emerging areas such as nanotechnology, translational research in the context of agriculture has had an enduring and successful history among land grant universities. Legislation in the late 1860s and early 1900s established land grant institutions and imbued these institutions with a mission that included developing the agricultural sciences and educating professionals in the field about these advances.41 Subsequent legislation supported the development of agricultural experiment stations and structures for disseminating the information gleaned from these stations to students and to professionals in the field.42 Over time, the land grant institutions took on a mission that included conducting practical research into agriculture and industry, educating students in the latest technologies, and extending research results to the broader agricultural community.43 These institutions, many of them now research universities, have continued to play a significant role in developing agricultural technologies, moving well beyond earlystage discovery to applied research and development of these technologies.44 40

Land grant universities are U.S. higher education institutions designated by each state to receive the benefits of the Morrill Acts of 1862 and 1890. The mission of these land grant institutions has been expanded over time. A key component of the land grant system is the agricultural experiment station program created by the Hatch Act of 1887. This Act authorized the payment of federal grant funds to states, with required matching contributions by states, to support the program. The Smith-Lever Act of 1914 created a Cooperative Extension Service designed to facilitate dissemination of the information gleaned from the experiment stations. There is now at least one land grant institution in every state and territory of the United States, as well as the District of Columbia. See generally COMM. ON THE FUTURE OF THE COLLS. OF AGRIC. IN THE LAND GRANT UNIV. SYS., supra note 16 (examining the history of the educational mission for colleges of agriculture and the strategies for its achievement in the future); ASS’N OF PUB. & LANDGRANT UNIVS., THE LAND GRANT TRADITION (2012) (providing a detailed description of the legislation relating to land grant institutions and the development of the land grant system). 41 ASS’N OF PUB. & LAND GRANT UNIVS., supra note 40, at 3–7 (detailing the chronology of legislation relevant to land grant system). 42 Id. at 1. 43 The two Morrill Acts and two subsequent pieces of land grant legislation, the 1887 Hatch Act and the 1914 Smith-Lever Act, together instilled a three-part mission of teaching, research, and extension in the land grant institutions. The third part of this mission was geared toward linking the institution’s research programs to social needs through mechanisms such as education and technology transfer. The legislation created an enduring partnership between the federal and state governments in the support of agricultural research and technology. COMM. ON THE FUTURE OF THE COLLS. OF AGRIC. IN THE LAND GRANT UNIV. SYS., supra note 16, at 1–2, 14. 44 See EXPERIMENT STATION COMM. ON ORG. & POLICY, supra note 19; ASS’N OF PUB. & LAND-GRANT UNIVS., supra note 40.

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Although beyond the scope of this Article, a reexamination of this earlier approach to translational research in the agricultural sciences is warranted as we rethink the modern approach to university technology transfer. Even this earlier system of university-industry partnerships has come under challenge, however, as the agricultural sciences increasingly intersect with biotechnology and other newly emerging fields.45 Universities are again relegated to their role as engines in agricultural biotechnology. 2. Patents as Vehicles for Moving Inventions from University to Market While the traditional approach described above depends on effective transfer of inventions to the private sector, patents were not initially seen as essential to this process. University patenting activity was historically very limited, and few universities had a centralized technology transfer office.46 Funding agencies determined ownership of university inventions developed using federal funds on an agency-by-agency basis, and few universities negotiated with federal agencies for ownership rights over inventions or engaged in patenting and licensing activities. Indeed, many regarded patenting as antithetical to academic pursuits.47 Much of what is now the domain of formal technology transfer was left to informal technology transfer practices such as faculty consulting, research contracting services, informal collaborations with industry, and publication.48 Universities began to move away from purely nonproprietary institutional modes for transferring knowledge only as patenting became viewed both as an appropriate university activity and as an effective way of moving university inventions into the 45

See As Public Funding Lessens, Corporate Support of University Agricultural Research Draws Worries, CLIMATE CONNECTIONS (June 7, 2012), http://climateconnections.org/2012/06/07/as-public-funding-lessens-corporate-support-of-universityagricultural-research-draws-worries/ (exploring the tension between public and private interests in university role in agricultural development). 46 While a growing number of universities had adopted formal patent policies by the 1950s, many of the policies, particularly in medical schools, prohibited patenting of inventions, and university-patenting activity was limited. Many universities chose not to manage patenting and licensing by themselves. See Mowery & Sampat, supra note 4, at 118. 47 See, e.g., Bhaven Sampat, Private Parts: Patents and Academic Research in the Twentieth Century 1 (2003) (unpublished manuscript), available at https://www.card.iastate.edu/research/stp/papers/SAMPAT-Nov-03.pdf (providing a broad overview of changes in universities’ patenting policies, procedures, and practices throughout the twentieth century, including changes in the balance between public and private aspects of academic science). 48 Universities were actively engaged in collaborations with industry that spanned many channels of technology and knowledge exchange, such as publishing, training, faculty consulting, and other activities. See Mowery & Sampat, supra note 4 (examining the lengthy history of collaboration and technology transfer in universities post-1980, argues that Bayh-Dole simply intensified changes that were already underway in university patenting and transfer activities).

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marketplace for commercialization. Over time, patenting activity by universities continued to grow and university technology transfer activities became increasingly patent focused.49 Patents have now become a dominant part of the accepted strategy for bridging the move from university lab to market.50 3. Hardwiring this Innovation Model into the Law The increasingly patent-centered linear model of innovation discussed above was ultimately hardwired into the law in 1980 with the passage of the University and Small Business Patent Procedures Act, commonly referred to as the Bayh-Dole Act.51 The Act focuses on patents as the primary vehicle for commercializing publicly funded inventions and shifts the presumption of ownership over publicly funded university inventions from the government to the university.52 Universities can elect to retain title to an invention but must then seek patent protection and engage in efforts to move the inventions into commercial development paths, typically through licensing to the private sector.53

49

See Lawrence Rudolph, Overview of Federal Technology Transfer, 5 RISK 133 (1994), available at http://ipmall.info/risk/vol5/spring/rudolph.htm (describing an overview of the history and nature of federal technology transfer legislation); Bhaven N. Sampat & Richard R. Nelson, The Evolution of University Patenting and Licensing Procedures: An Empirical Study of Institutional Change, 19 ADVANCES STRATEGIC MGMT. 135, 138–56 (2002) (tracking historical development of patent development at U.S. research institutions). 50 See MOWERY ET AL., supra note 32 (exploring the history of university-industry technology transfer and contributions of academic research to innovation based on a blend of historical research, econometric analysis, and case studies and arguing that the primary effect of Bayh-Dole was to harmonize federal policy, and that at most it provided further impetus to the increase in academic patenting that was taking place as a result of changes in IP rights and the transformation of biomedical sciences). 51 35 U.S.C. §§ 200–11 (2006). The main piece of federal technology transfer legislation focuses primarily on the ownership, patenting, and commercialization of federally funded inventions and is included as a part of the Patent Act. See id. Numerous statutes, regulations, and other instruments have amended and supplemented the Bayh-Dole Act. See Technology Transfer Commercialization Act of 2000, Pub. L. 106-404, § 6, 114 Stat. 1745 (codified as amended at 35 U.S.C. §§ 202(e), 207(a)); Trademark Clarification Act of 1984, Pub. L. No. 98-620, § 501, 98 Stat. 3335 (codified as amended at 35 U.S.C. §§ 201–03, 206, 212); Stevenson-Wydler Technology Innovation Act of 1980, Pub. L. No. 96-480, 94 Stat. 2311 (codified as amended at 15 U.S.C. §§ 3701–14 (2006)); 48 C.F.R. 52.227-11 (2011). 52 See 35 U.S.C. § 200 (“It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development.”); id. § 202(a) (allowing recipient of federal funds to elect title to patents obtained on inventions developed using these funds). 53 See id. § 202(c)(2) (requiring that each agreement with a nonprofit organization contain a written election to retain title and patent protection be sought).

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The Bayh-Dole Act was widely heralded as landmark legislation that would promote increased utilization of university discoveries.54 The legislation was premised on the idea that universities would be better than governments at securing private sector partners to license or otherwise develop federally funded inventions.55 Underlying this presumption was the belief that private markets would be the best sites for managing the development of university inventions.56 At the time of its passage, political opposition to the Act focused largely on arguments that the results of publicly funded research should be freely available for use by the public.57 In response, advocates of the Act argued that many research results would never reach the public in any usable form without further investment, and that attracting this further investment required a vehicle—patents—for appropriating the benefits of investing.58 This latter argument won the day and continues to be used as a justification for a patent-focused model of university technology transfer.59

54

The Economist, for example, called Bayh-Dole “[p]ossibly the most inspired piece of legislation to be enacted in America over the past half-century” and described it as a way of unlocking all of the inventions and discoveries made in laboratories throughout the United States with the help of government money. Innovation’s Golden Goose, ECONOMIST (Dec. 12, 2002), http://www.economist.com/node/1476653/. 55 For a detailed review of technology transfer related legislation, including but not limited to the Bayh-Dole Act, see SEAN O’CONNOR ET AL., LEGAL CONTEXT OF UNIVERSITY INTELLECTUAL PROPERTY AND TECHNOLOGY TRANSFER (2010), available at http://sites.nationalacademies.org/xpedio/groups/pgasite/documents/webpage/pga_ 058897.pdf. 56 As described by former Senator Birch Bayh in reflecting on the thirtieth birthday of the Bayh-Dole Act that he helped to engineer, [T]here’s something to be said for the private enterprise system and we think we ought to hook the private enterprise system up with the intellectual enterprise in our universities so we have the entrepreneurial skills of the free enterprise system and the intellectual capacity of our researchers, we meld those together. Gene Quinn, Exclusive Interview: Senator Birch Bayh on Bayh-Dole at 30, IP WATCHDOG (Nov. 7, 2010, 8:27 PM), http://www.ipwatchdog.com/2010/11/07/exclusive-interviewsenator-birch-bayh-on-bayh-dole/id=13198/. 57 For a discussion of the issues and debates surrounding the Bayh-Dole Act, see Rebecca S. Eisenberg, Public Research and Private Development: Patents and Technology Transfer in Government-Sponsored Research, 82 VA. L. REV. 1663 (1996); David C. Mowery & Bhaven N. Sampat, University Patents, Patent Policies, and Patent Policy Debates in the USA, 1925–1980, 10 INDUS. & CORP. CHANGE 781 (2001); Sampat, supra note 47. For a wide ranging review of the Bayh-Dole Act and its effects, see MOWERY ET AL., supra note 32. 58 See Sampat supra note 47, at 6 (detailing how past researchers felt “that patents and exclusive licenses were necessary to induce commercialization”). 59 See Eisenberg, supra note 57, at 1668 (reciting “standard” argument for patents in providing incentives to invest).

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As the only major modern piece of federal legislation dealing specifically with university technology transfer, the Bayh-Dole Act set the stage for the broader vision of how universities should engage in moving early-stage scientific discoveries to the private sector.60 Read in the narrowest way, the Act simply shifts the presumption of ownership over inventions that are developed at least in part with federal funds from the government to the universities and other entities that received the federal funding. At a more fundamental level, however, the Act provides a patent-centered commercialization mandate for universities.61 The first section of the Bayh-Dole Act makes this patent-centric vision of innovation explicit, stating: It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development . . . to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor . . . .62 While recognizing utilization as the goal of technology transfer, the BayhDole Act places emphasis on the use of patents as the vehicle and commercialization as the best path for achieving this goal. Although the Act does not require universities to patent inventions arising from federal funds, it makes patenting a condition for electing title to the inventions.63 Once the university elects title, it then has obligations to seek patent protection and to take steps to ensure utilization.64 The original version of the Act did not even reference concerns with encumbering future research and discovery, and the Act gives no guidance as to how universities should balance the need for public access with the interests in creating proprietary rights as a vehicle for commercialization. It makes no statement about the ways in which utilization should be measured and competing 60

Many technology transfer officers see their job as shaped by the mandate provided by the Bayh-Dole Act. See Jerry G. Thursby & Marie C. Thursby, Who Is Selling the Ivory Tower? Sources of Growth in University Licensing, 48 MGMT. SCI. 90, 92, 95, 101 (2002). 61 See JENNIFER A. HENDERSON & JOHN J. SMITH, ACADEMIA, INDUSTRY, AND THE BAYH-DOLE ACT: AN IMPLIED DUTY TO COMMERCIALIZE (2002), available at http://www.cimit.org/news/regulatory/coi_part3.pdf (presenting view of Bayh-Dole as creating an implied duty on the part of grant recipients and government contractors to partner with industry to commercialize promising federally funded research). 62 35 U.S.C. § 200 (2006). 63 The Bayh-Dole Act provides that the university “may” elect to retain title of a subject invention, but if this election is made they must seek patent protection and engage in efforts to utilize the invention. Id. § 202(a), (c). 64 Id.

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forms of utilization compared. Instead, the Act focuses on the mechanics for reporting, patenting, and licensing publicly funded university inventions. In this way the Act not only facilitates, but also encourages universities to move federally funded inventions into the hands of the private sector for commercial development.65 This legal framework has supported the institutionalization of formal technology transfer practices within universities, even those with very limited patenting activity, and the professionalization of technology transfer managers.66 Today, most U.S. research universities have a technology transfer office of some kind, either as a separate administrative unit of the university or in some cases a separate entity, that is charged with managing the flow of proprietary information and materials outside of the university and with patenting and licensing decisions.67 While the transfer of university-generated knowledge to the public occurs through many different paths, offices of technology transfer focus largely on patenting, licensing, and material transfer arrangements.68 65

See HENDERSON & SMITH, supra note 61 and accompanying text. The institutional effects of the increase in university patenting have been significant. See generally Elizabeth P. Berman, Why Did Universities Start Patenting? Institution-Building and the Road to the Bayh-Dole Act, 38 SOC. STUD. SCIENCE 835 (2008) (discussing the rise of university patenting in terms of an institution-building process, using institutional theory to explain the rise of patenting by universities); Sampat & Nelson, supra note 49, at 138–56; Jerry G. Thursby et al., Objectives, Characteristics and Outcomes of University Licensing: A Survey of Major U.S. Universities, 26 J. TECH. TRANSFER 59 (2001) (detailing statistical survey on university-owned patents as well as total research funds received and income generated). The first efforts at organizing a community of university patent administrators occurred well before the passage of the Bayh-Dole Act and may help to account for the ultimate success of the legislation. These early efforts at organizing university patent administrators have evolved into a national professional association, the Association of University Technology Managers (AUTM), that focuses more broadly on university technology transfer. This organization has grown substantially and now has over 3,400 members. Karen Hersey, Building Networks: The National and International Experiences of AUTM, in INTELLECTUAL PROPERTY MANAGEMENT IN HEALTH AND AGRICULTURAL INNOVATION: A HANDBOOK OF BEST PRACTICES 617, 618 (A. Krattiger et al. eds., 2007). 67 See, e.g., Irene Abrams et al., How are U.S. Technology Transfer Offices Tasked and Motivated—Is it All About the Money?, 17 RES. MGMT. REV. 18 (2009) (analyzing a survey of technology transfer offices (TTO) at U.S. academic institutions to determine how they are organized, tasked, financed and motivated); see also Barry Bozeman, Technology Transfer and Public Policy: A Review of Research and Theory, 29 RES. POL’Y 627, 635 (2000) (“In short, much public sector technology transfer activity . . . was a direct result of formal mandates, not bottom-up change in the way of doing business. The StevensonWydler Act required establishing technology transfer offices and the setting aside of 0.05% of research budgets for technology transfer.”). 68 Important modes of technology transfer include publication of research results, informal networks for sharing information such as conferences, professional meetings and industrial liaison programs, educating students who move to the private sector or to other institutions, private contracting by university employees, and firm sponsored research arrangements such as sponsored research. See NAT’L RESEARCH COUNCIL, MANAGING 66

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The design and practices of these offices, and the metrics used to evaluate their performance, continue to be a direct reflection of the linear, patent-centered model of innovation, with an additional focus on revenue generation.69 This post–Bayh-Dole system of university technology transfer continues to be regarded by many as a vast improvement over the prior system of governmentowned inventions and laissez faire efforts to promote public utilization.70 But while the current system may be better than the one it replaced, many barriers to the successful development and dissemination of university inventions persist. As a result, many promising university inventions remain either unutilized or underutilized, resulting in costly technology transfer failures.71 B. The Gap Between Invention and Innovation Reasons for the failure to move promising inventions into use can be roughly divided into two categories. The first arises from breakdowns in securing resources for the further development of promising inventions—what this Article refers to as problems of inadequate resources. The other arises from breakdowns in ensuring sufficiently open access to discoveries that may have possible uses—what this Article refers to as problems of inadequate access. Both kinds of problems emerge from the same underlying challenge of managing and supporting mixed processes of intellectual and commercial production. 1. Inadequate Resources The first category of technology transfer failures includes inventions with commercial potential that fail to make it into the marketplace in any usable form. UNIVERSITY INTELLECTUAL PROPERTY IN THE PUBLIC INTEREST 60 (Stephen A. Merrill & Anne-Marie Mazza eds., 2011). 69 See Jill Ann Tarzian Sorenson & Donald A. Chambers, Evaluating Academic Technology Transfer Performance by How Well Access to Knowledge Is Facilitated— Defining an Access Metric, 33 J. TECH. TRANSFER 534 (2008) (proposing novel metric for evaluating success of technology trade offices that centers on facilitating access to knowledge); Thursby et al., supra note 66, at 59–60, 70–71 (describing approach of technology trade offices); Thursby & Thursby, supra note 60, at 92–94 (describing increase in university licensing and practices of technology trade offices). 70 See, e.g., Quinn, supra note 56; Michael J. Remington, The Bayh-Dole Act at Twenty-Five Years: Looking Back, Taking Stock, Acting for the Future, 17 J. ASSOC UNIV. TECH. MANAGERS 15 (2005). For a thoughtful review of the different arguments and evidence concerning the effects of Bayh-Dole in the context of a contested area of patenting, see Charles R. McManis & Sucheol Noh, The Impact of the Bayh-Dole Act on Genetic Research and Development: Evaluating the Arguments and Empirical Evidence to Date, in PERSPECTIVES ON COMMERCIALIZING INNOVATION 435 (F. Scott Kieff & Troy A. Paredes eds., 2011). For a more critical view of the Bayh-Dole Act, see Rai & Eisenberg, supra note 9. 71 For a look at the complexity of the problems and the inadequacy of the current technology transfer framework, see Frischmann, Innovation, supra note 13.

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The most widely cited reason—although by no means the only reason—for this kind of failure is the lack of resources, including but not limited to funding to support further development of the invention.72 As discussed above, the significant public funding provided under U.S. science and technology programs typically ends at the post-discovery stage of research, with the expectation that further resources will be supplied by the private sector. But in many cases sufficient private support for continuing development of even commercially promising inventions fails to materialize.73 Barriers to securing sufficient private sector involvement in the development of these inventions include the high risk and cost and long time frames associated with developing early-stage discoveries,74 asymmetric information about the value of the invention and its potential commercial feasibility,75 difficulties in ensuring the transfer of tacit knowledge about the invention,76 and difficulties in securing the continuing effort of the inventors where needed to exploit the possibilities of the invention.77 72

For a discussion of the various financial aspects of moving an invention from lab to the marketplace, see L.M. MURPHY & P.L. EDWARDS, NAT’L RENEWABLE ENERGY LAB., BRIDGING THE VALLEY OF DEATH: TRANSITIONING FROM PUBLIC TO PRIVATE SECTOR FINANCING (2003), available at http://www.nrel.gov/docs/gen/fy03/34036.pdf; see also Beard et al., supra note 6. It is important here to distinguish funding problems that arise because of the absence of a viable commercial market and problems that arise despite the potential for a viable commercial market. In some cases, technologies may be socially valuable but not commercially valuable. A good example would be the development of drugs to address neglected diseases—high social value, but poor commercial return based on an inability by the population in need of the drug to pay for it. In many cases the failure to develop these kinds of socially important products is not primarily the result of the technology transfer process but rather a failure to allocate enough public resources to make up for the lack of private resources. 73 See Auerswald & Branscomb, Valleys of Death, supra note 5, at 227–39 (focusing on the process by which an idea with possible commercial value may be turned into a product, and exploring “the hypothesis that asymmetries of information and motivation, as well as institutional ‘gaps,’ may systematically deter private investment into early-stage technology development”). 74 See Beard et al., supra note 6, at 343–46 (pointing to high uncertainty and significant investment requirements as contributing to “Valley of Death”). 75 See, e.g., Deepak Hedge, Tacit Knowledge and the Structure of License Contracts: Evidence from the Biomedical Industry, J. ECON. & MGMT. STRATEGY (forthcoming 2014). Hedge—beginning with a simple framework based on an inventor of a new drug who has patent protection but lacks downstream development capabilities—offers empirical evidence relating asymmetric information problems to the design of contracts and then tests the evidence against high value life science transactions. Id. 76 See Robert A. Lowe, Who Develops a University Invention? The Impact of Tacit Knowledge and Licensing Policies, 31 J. TECH. TRANSFER 415, 420 (2006) (noting that firms may not be cost effective at incorporating and developing inventions that have “tacit knowledge” different from firms’ knowledge basis). 77 See Richard Jensen & Marie Thursby, Proofs and Prototypes for Sale: The Licensing of University Inventions, 91 AM. ECON. REV. 240, 241 (2001) (arguing necessity of royalties to incentivize further development of embryonic inventions by researchers).

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To illustrate these kinds of barriers, consider a hypothetical university research team that genetically engineers a new kind of pollution-eating algae.78 Although this discovery may promise great potential social benefits, there are a number of barriers that may delay or prevent development of the algae into a commercially viable product. The university, or its inventors, must be able to signal the value of the discovery to investors, and both parties must be able to agree upon a common price for the transfer of rights to the discovery. The private sector investors must find some way to determine whether the expected commercial benefits will exceed the expected private development costs. They must have some ability to appropriate the benefits from investing in development of the algae and some assurance that the relevant university actors will provide any nonpatented know-how required for development. Successful commercial development may require the continued commitment and involvement of the inventors, a commitment that may be difficult for the private party to monitor and enforce through contract. Where the technology is early-stage and complex, development may require access to expensive development infrastructure. The private benefits of building this infrastructure may be inadequate, leaving the university to provide it. Successful development may also require the interest and commitment of various other constituencies within the university: the inventors, the technology transfer office that negotiates the contractual arrangements surrounding access to and use of university assets, and the university administration that oversees decisions about investments in technology development and transfer infrastructure.79 University interest in and willingness to invest in development infrastructure is often lacking because of inadequate incentives to support such investments and barriers to the use of university funds for such purposes. Underinvestment by both the university and the private sector in development infrastructure contributes to technology transfer failures.80 78

A quick Google search reveals a number of university technology transfer offices seeking commercial partners for such technologies. See, e.g., Ind. Univ.-Purdue Univ. Indianapolis, A Hybrid Pond-Bioreactor for Mass Algal Culture, ASS’N U. TECH. MANAGERS, http://gtp.autm.net/network/indiana-univ-purdue-university-indianapolis/ technology/view/17298/ (last visited Jan. 12, 2012). This particular example is based on past experience working with these kinds of technology development and transfer challenges and should sound familiar to those engaged in the university technology transfer space. 79 Infrastructure could take the form of proof of concept centers designed to reduce the risk of investing in early-stage technologies. It could, for example, take the form of investing in computer technologies to facilitate the searching of university technologies, or personnel and resources to develop innovative contracting practices and explore alternative kinds of collaborative development strategies. See Brett Frischmann, Commercializing University Research Systems in Economic Perspectives: A View from the Demand Side, in 16 ADVANCES IN THE STUDY OF ENTREPRENEURSHIP, INNOVATION & ECONOMIC GROWTH, supra note 12, at 155, 169–78 (discussing university technology transfer systems as infrastructure). 80 See generally Jensen & Thursby, supra note 76 (highlighting importance of revenue factors through survey data of technology transfer officers); Jay P. Kesan, Transferring

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2. Inadequate Access The second category of technology transfer failures includes inventions that are underexploited because they are removed too quickly or too completely from the publicly available realm of research to an overly restrictive proprietary environment. In some cases, access to inventions that have valuable uses as inputs for further discoveries is limited or blocked through patenting and exclusive licensing. Private actors do not internalize the social costs of restricting access to an invention that has many potential uses, and as a result may either increase the cost of access or restrict access altogether once they obtain exclusive rights over an invention.81 In other cases, decisions about how to deploy patents may be made without sufficient attention to broader public interests in access. Two prominent examples of important but underutilized university discoveries illustrate these problems. The first example is the Harvard OncoMouse, a genetically modified mouse that provides an important model system for studying cancer and early-stage testing of cancer drugs.82 Harvard University patented the mouse technology and exclusively licensed it to the large chemical company DuPont.83 DuPont initially refused to make this technology accessible for research purposes unless the institution agreed to strict commercial requirements disfavored by many academic institutions. The company changed its approach only after years of negotiating and pressure from the academic community and the NIH to make the technology relatively accessible to academic institutions.84 A second example of socially costly restrictions on access is the exclusive licensing of broad patents covering bone marrow stem cell antibodies by Johns Hopkins University.85 The patents, useful in designing cancer therapies, were exclusively licensed to Baxter Pharmaceuticals, and Baxter ultimately used the

Innovation, 77 FORDHAM L. REV. 2169 (2009) (analyzing university technology transfer practices and suggesting the need for broader focus on alternative technology transfer mechanisms). 81 Examples include patenting and restrictive licensing practices for gene and stem cell technologies that have many potential applications for further innovation. For a discussion of the effects of patenting on cumulative innovation, see Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, J. ECON. PERSP., Winter 1991, at 29. 82 For a discussion of the importance of the Harvard OncoMouse and the transactions surrounding the Harvard OncoMouse, see Fiona Murray & Siobhán O’Mahony, Exploring the Foundations of Cumulative Innovation: Implications for Organization Science, 18 ORG. SCI. 1006, 1012 (2007). 83 See the full story in Murray, supra note 14, at 346. 84 Id. at 361–69. 85 See Barbara M. McGarey & Annette C. Levey, Patents, Products, and Public Health: An Analysis of the CellPro March-In Petition, 14 BERKELEY TECH. L.J. 1095, 1100 (1999).

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patents to shut out the development of a competing and most likely superior stem cell separating technology by its rival CellPro.86 In addition to specific instances of overly restrictive licensing of platform technologies, the increase in university patenting that occurred in the 1980s and 1990s fed concerns among advocates of a strong public domain of knowledge that patenting of research results would harm academic research more generally. Some suggested that this early-stage patenting by universities would lead to a “tragedy of the anticommons” in which numerous fragmented property rights to product inputs or lines of research create high transaction costs that prevent or delay the pursuit of the product or research path.87 The NIH noted these fears and argued that patenting of gene fragments or mutations create the preconditions for an “anticommons” in developing new drug therapies.88 In addition to fragmentation, advocates of a strong public domain argued that broad patents over discoveries in a particular research area could dampen follow-on research.89 The existence of broad patents could potentially scare away investigators who might otherwise pursue research in the field or deter or limit certain lines of inquiry within a given field. There is little evidence to date that shows a strong anticommons effect in research. Few would disagree, however, that the direct and indirect effects of patenting and other proprietary mechanisms for managing research assets, such as material transfer agreements, have influenced and will likely continue to influence 86

CellPro, a rival company, developed a stem cell separator instrument for use in cancer therapies based on competing technologies. Avital Bar-Shalom & Robert CookDeegan, Patents and Innovation in Cancer Therapies: Lessons from CellPro, 80 MILBANK Q. 637, 638–40 (2002) (discussing the demise of CellPro through a patent dispute with rival Baxter). CellPro obtained FDA approval for its instrument two years before Baxter but ultimately lost patent infringement litigation initiated by Baxter. Id. at 650–51. CellPro sought to compel licensing of the technology on reasonable terms, but the NIH elected not to compel Baxter to license the technology, and CellPro ultimately went bankrupt, selling its technology to Baxter. Id. at 651–54. 87 See, e.g., Heller & Eisenberg, supra note 7, at 698 (1998). 88 Examples of patented research tools that have broad importance in drug discovery and development include recombinant DNA, polymerase chain reaction (PCR), genomics databases, transgenic mice, and embryonic stem cells. See John P. Walsh et al., Effects of Research Tool Patents and Licensing and Biomedical Innovation, in PATENTS IN A KNOWLEDGE BASED ECONOMY 285, 287 (Wesley M. Cohen & Stephen A. Merrill eds., 2003) (discussing changes in the patenting and licensing for drug discoveries); see also Harold Varmus, Government, in INTELLECTUAL PROPERTY RIGHTS AND RESEARCH TOOLS IN MOLECULAR BIOLOGY: SUMMARY OF A WORKSHOP HELD AT THE NATIONAL ACADEMY OF SCIENCES, FEB. 15–16, 1996, at 66, 66–70 (1997), available at http://www.nap.edu/ openbook.php?record_id=5758/ (providing general discussion of personal and NIH involvement in disputes about the patentability of express sequence tags (ESTs) and access to genome sequence databases). 89 See generally Roberto Mazzoleni & Richard R. Nelson, Economic Theories About the Benefits and Costs of Patents, 32 J. ECON. ISSUES 1031 (1998) (providing an overview of economic theories about the benefits and costs of patenting, including the potential effects of patents on follow-on research).

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both the conduct of research and the ways in which universities disseminate the research results.90 The real concerns about access have less to do with whether inventions are patented, however, and more to do with how patenting influences organizational choices, and how patents are used once they are obtained. The relationships between modes of ownership, licensing, and access are complex ones, as illustrated by the emergence of patent pools for neglected diseases and the use of patents by organizations committed to open innovation processes.91 In some cases patents can facilitate public interest oriented strategies for sharing and disseminating knowledge. In other cases decisions not to patent early-stage discoveries may be preferable. But the present system of university technology transfer does not provide sufficient incentives or flexibility for universities to explore the full range of technology development and transfer mechanisms with the public interest in mind. It provides no meaningful accountability for the consequences of patenting and licensing decisions. As a result, opportunities for more effective dissemination of university discoveries to serve the public interest remain unexplored. C. Why These Problems Are Getting Worse There are many reasons to believe that the losses stemming from both inadequate resources and inadequate access are growing.92 While the cost of research continues to increase, many of the resulting university inventions remain undeveloped, even those inventions that universities have decided to patent.93 The cost of these failures is particularly large for inventions relevant to areas of

90

See Rebecca S. Eisenberg, Noncompliance, Nonenforcement, Nonproblem? Rethinking the Anticommons in Biomedical Research, 45 HOUS. L. REV. 1059, 1062 (2008) (discussing patents’ effects on research); Merges, supra note 14, at 166–67 (noting development of two-tier system of property rights in the area of science research). 91 See Geertrui Van Overwalle, Individualism, Collectivism and Openness in Patent Law: From Exclusion to Inclusion Through Licensing, in INDIVIDUALISM AND COLLECTIVENESS IN INTELLECTUAL PROPERTY LAW 71, 92–96 (Jan Rósen ed., 2012); Nari Lee et al., Interfacing Intellectual Property Rights and Open Innovation (Lappeenranat Univ. of Tech., Dep’t of Indus. Mgmt., Research Report No. 225, 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1674365/. 92 See NAT’L RESEARCH COUNCIL, supra note 68, at 59–82 (discussing need for greater access and investment). 93 Funding agencies such as the NIH have recognized the challenges of what is sometimes referred to as “translational research” or research aimed at bridging the gap between discovery and application. They have responded with funding strategies geared specifically towards intermediate stages of research and support of public-private partnerships to further the development of new and socially useful discoveries. But these modest interventions only scratch the surface of growing gaps between resources needed and resources supplied to move development of promising inventions forward.

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significant social need such as clean energy technologies and new vaccines.94 As the scientific knowledge underlying applied problems increases, so does the cost and risk of developing this knowledge into products, widening the gap between what we know and what we can do. Of those university inventions that do get picked up by private developers, an increasing number are early-stage discoveries that have potential uses as inputs in further innovation. Many university inventions are research tools—that is, inputs to further research, such as animal models, assays, and genomics databases.95 Many others have both immediate commercial application and further uses as research inputs, such as genes and stem cells.96 Restrictive licensing strategies for such technologies can distort and increase the cost of innovation. This Article suggests that the widening and deepening gap between invention and utilization is due at least in part to the poor fit between the existing legal and regulatory approach to university technology transfer and the ways in which innovation is being transformed. 1. Changes in How Science Is Produced and Consumed At the heart of this transformation is a blurring of the lines between fundamental knowledge—the claimed domain of the research university—and commercial application—the traditional domain of the private sector—and an accompanying need for development infrastructure that can support intertwined processes of creating and applying knowledge. This transformation is a result of changes in the organization of science that include: (1) the effects of early-stage patenting and licensing of discoveries by universities; (2) increasing specialization and a corresponding need for collaboration in producing and applying scientific knowledge; (3) a blurring of the traditional lines between basic research, applied research, and commercial development along with the equipment and facilities needed to engage in these activities; and (4) rapid changes in the technologies needed for disseminating and using scientific knowledge. Changes in patent law have, ironically, played an important role both in sustaining the traditional system of technology transfer and in reducing its effectiveness in moving inventions into socially beneficial uses. Congress passed a series of laws in the 1980s designed to improve the functioning of the U.S. patent system and reduce constraints on the activities of firms. These laws were motivated largely by congressional concerns about U.S. competitiveness and a

94

See Rai et al., supra note 6, at 15. See generally Thomas A. Kalil, Nanotechnology and the “Valley of Death,” 2 NANOTECH. L. & BUS. 265 (2005) (proposing a way to accelerate the commercialization of nanotechnology). 95 See Walsh et al., supra note 88, at 295–96. 96 See Murray & O’Mahony, supra note 82, at 1010; Fiona Murray, The Stem-Cell— Patents and the Pursuit of Scientific Progress, 356 NEW ENG. J. MEDICINE 2341, 2341–43 (2007).

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growing belief that stronger patent rights would encourage innovation.97 The reforms included the creation of a centralized appellate court with jurisdiction over all patent infringement appeals, the Court of Appeals for the Federal Circuit (Federal Circuit). The Federal Circuit moved quickly to strengthen many of the rights of patent owners through a combination of procedural and substantive rules addressing issues such as patent scope, patentability of subject matter, damages, and the availability of injunctions.98 During this same period Congress also passed the Bayh-Dole Act, giving universities the ability to patent and elect title to federally funded inventions.99 These initiatives marked a long period of optimism regarding the role of patents in supporting innovation and the effectiveness of private markets as locations for managing the development and use of patented inventions.100 University patenting activity dramatically increased in the 1980s, and it has remained on an upward trend.101 This increase was driven by the confluence of 97

See, e.g., Rosemarie Ham Ziedonis & Bronwyn H. Hall, The Effects of Strengthening Patent Rights on Firms Engaged in Cumulative Innovation: Insights from the Semiconductor Industry, in 13 ENTREPRENEURIAL INPUTS AND OUTCOMES: NEW STUDIES OF ENTREPRENEURSHIP IN THE UNITED STATES 133, 134–40 (Gary D. Libecap ed., 2001). 98 See generally Martin J. Adelman, The New World of Patents Created by the Court of Appeals for the Federal Circuit, 20 U. MICH. J.L. REFORM 979 (1987) (discussing changes in patent rules that favor patent owners). 99 35 U.S.C. §§ 200–12 (2006). While there is some suggestion that this support for strong patent rights may be eroding, only modest efforts at reducing the strength of patent rights have been made to date. The Supreme Court continues to review and push back on the decisions of the Federal Circuit, with the more limited approach to availability of injunctions provided in eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), being only one example. Advocates of patent reform gained traction in Congress, as evidenced by the passage of the Leahy-Smith America Invents Act, 35 U.S.C. §§ 321–29 (Supp. 2011), but the reforms fell far short of the reductions in patent strength that were proposed. 100 For a discussion of the effects of the Bayh-Dole Act on university technology transfer see David C. Mowery et al., The Effects of the Bayh-Dole Act on U.S. University Research and Technology Transfer, in INDUSTRIALIZING KNOWLEDGE 269, 269, 298 (Lewis M. Branscomb et al. eds., 1999) (tracking the effect of Bayh-Dole on research at various universities and concluding “[a]n array of developments in research, technology, industry, and policy combined to increase U.S. universities’ activities in technology licensing, and Bayh-Dole, while important, was not determinative”). 101 Mowery & Sampat, supra note 4, at 115, 119; Michael L. Katz & Janusz A. Ordover, R&D Cooperation and Competition, 1990 BROOKINGS PAPERS ECON. ACTIVITY: MICROECONOMICS 137, 142 (“Since 1983, the Congress has passed fourteen laws strengthening protection of intellectual property rights. Also, the 1982 creation of the Court of Appeals for the Federal Circuit established a single forum for all patent appeals and appears to have increased the enforceability of patents: it has upheld patent rights in 80 percent of the cases that it has heard, compared with the pre-1982 rate of about 30 percent.”); see also Rebecca Henderson et al., Universities as a Source of Commercial Technology: A Detailed Analysis of University Patenting, 1965–1988, 80 REV. ECON. & STAT. 119, 119–21 (1998).

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changes in patent law with changes in the nature of discovery and development, particularly in the area of biotechnology, which has resulted in many now patentable inventions with dual natures as inputs into further discovery and inventions with immediate commercial application. Universities could, and did, seek patent protection for increasingly earlier-stage discoveries, some of which had immediate relevance and value for industry.102 Much of the current university patenting activity now involves patenting of embryonic stage inventions.103 Universities have often been able to obtain relatively broad patent rights over discoveries in very new and rapidly evolving areas of science, such as biotechnology and nanotechnology.104 Furthermore, universities have been increasingly aggressive not only in patenting, but also in negotiating licenses and asserting their patent rights against infringers.105 This activity has challenged views of the university as a contributor to and protector of the public domain of knowledge. As a result, universities are more vulnerable as users of potentially patented inventions to produce further innovation.106 Universities occupy conflicting roles—as both consumers and producers of knowledge—thereby embodying the tension between the private and public use of scientific knowledge.107 These changes in university patenting behavior are influencing the organization of academic scientific pursuits in ways that are not yet fully understood.108 102

See generally Rebecca S. Eisenberg, Proprietary Rights and the Norms of Science in Biotechnology Research, 97 YALE L.J. 177 (1987) (discussing the effects of patents on traditional scientific research). 103 See, e.g., Jensen & Thursby, supra note 77, at 240–41, 255–59; Thursby & Thursby, supra note 60, at 90–94 (describing increase in university licensing). 104 E.g., Mark A. Lemley, Patenting Nanotechnology, 58 STAN. L. REV. 601, 606–07 (2005). 105 Jacob H. Rooksby, University Initiation of Patent Infringement Litigation, 10 J. MARSHALL REV. INTELL. PROP. L. 623, 638–44 (2011) (examining university involvement in patent litigation and implications for broader conversation about science, education, and innovation); Scott Shane & Deepak Somaya, The Effects of Patent Litigation on University Licensing Efforts, 63 J. ECON. BEHAV. & ORG. 739, 740 (2007) (discussing increasing involvement of universities in offensive patent litigation and potential disconnect between university and policymaker goals that this activity may reveal); Jerry G. Thursby & Marie C. Thursby, Industry Perspectives on Licensing University Technologies: Sources and Problems, 15 INDUSTRY & HIGHER EDUC. 289, 294 (2001). 106 Mark A. Lemley, Are Universities Patent Trolls?, 18 FORDHAM INTELL. PROP., MEDIA & ENT. L.J. 611, 614–16 (2008). 107 For a discussion of the importance and the challenges of corporate-academic linkages, see BUS. HIGHER EDUC. FORUM, WORKING TOGETHER, CREATING KNOWLEDGE: THE UNIVERSITY-INDUSTRY RESEARCH COLLABORATION INITIATIVE (2001), available at http://www.bhef.com/solutions/documents/working-together.pdf. 108 See, e.g., Eisenberg, supra note 37, at 1018 (examining the interaction of patent laws and the norms of scientific research); Merges, supra note 14, at 149–51 (examining the “creeping propertization” that characterizes science today and arguing for more carefully constructed set of property rights that takes into account the nature of scientific

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A second change in the organization of science is a shift towards greater specialization and a corresponding need for collaboration. The world of science is now primarily one of collaborative research and, increasingly, collaborative invention.109 The complexity of modern scientific research has resulted in higher costs and risks and a growing need for researchers to specialize and work in teams. The higher costs and risks of research, coupled with declines in public financing, have pushed academic researchers to find new sources of financial support and have made cooperation and risk sharing more attractive to private companies.110 The collaborative production of knowledge is evident even at the stage of initial discovery. Empirical studies show that almost all significant new technologies are invented simultaneously or nearly simultaneously by two or more teams of people working independently of one another, suggesting that invention has become, in large part, a social rather than individual phenomenon.111 Similarly, inventions are increasingly the creation of teams of people rather than individuals.112 Increased collaboration in research and development is evident both across disciplines within universities and between university, government, and private actors.113 A third and closely related change in the organization of science is the blurring of disciplinary and institutional lines between basic research, applied research, and development efforts.114 Basic research has traditionally been used to imply some kind of fundamental research that seeks to reveal new phenomena or approaches to understanding basic properties about the world.115 Basic research has been contrasted with applied research, which is understood as work aimed at finding practical solutions to real world problems. The latter has historically been seen as the domain of engineering departments and the research and development

research and its characteristics as a limited-member, shared-access commons); Strandburg, Curiosity-Driven, supra note 12. For an examination of the ways in which intellectual property rights shape how the scientific community accesses and builds on knowledge generated by prior generations, see Murray & Stern, supra note 14. 109 See JOHN R. THOMAS, CONG. RESEARCH SERV., RL33063, INTELLECTUAL PROPERTY AND COLLABORATIVE RESEARCH 9 (2005); Rochelle Cooper Dreyfuss, Commodifying Collaborative Research, in THE COMMODIFICATION OF INFORMATION 397, 397–98 (Neva Elkin-Koran & Neil Weinstock Netanel eds., 2002). 110 See Frischmann, Innovation, supra note 13, at 401. 111 See Mark A. Lemley, The Myth of the Sole Inventor, 110 MICH. L. REV. 709, 710– 12 (2012). 112 See, e.g., Dreyfuss, supra note 109, at 397–98. 113 See BUS. HIGHER EDUC. FORUM, supra note 107; Rochelle Cooper Dreyfuss, Collaborative Research: Conflicts on Authorship, Ownership, and Accountability, 53 VAND. L. REV. 1161, 1164–65 (2000). 114 See Jeffrey Grossman, It’s Time to Blur the Lines Between Basic and Applied Research, CHRON. HIGHER EDUC. (May 22, 2009), http://chronicle.com/article/It-s-Timeto-Blur-the-Lines/44392/. See generally TO PROFIT OR NOT TO PROFIT: THE COMMERCIAL TRANSFORMATION OF THE NONPROFIT SECTOR (Burton A. Weisbrod ed., 1998). 115 It is most often used within the context of disciplines such as math, physics, chemistry, and biology. See, e.g., Grossman, supra note 114.

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facilities of private enterprises.116 Although there is organizational resistance to the blurring of these different kinds of research and development pursuits, the types of problems that confront researchers and developers do not fall neatly into any one category. The complexity of modern technologies means that many phases of development involve both discovery of basic natural properties or phenomena and exploration of commercial applications and feasibility. This requires a flexible, adaptive and collaborative process of mixed research and development. Research on important issues such as clean energy, high-density energy storage, and abundant clean water illustrate this model of innovation. Each of these areas of research requires discoveries that relate both to a fundamental understanding of the basic properties and mechanisms of the materials involved— the traditional domain of basic research—and new ways of making and scaling up manufacture of these materials—the traditional domain of applied research. Discovery requires the joint pursuit of both types of understanding, and advances in one area may both rely on and prompt advances in the other. In many cases, innovation and developments arising out of this mixed process reflect aspects of both fundamental knowledge and practical application.117 A fourth change in the organization of science involves the ways in which scientific results are accessed and consumed as a result of changes in technologies for disseminating and consuming scientific knowledge.118 Changes in communication technologies such as the Internet have rapidly reduced the cost and increased the speed with which information can be disseminated, opening up new avenues for decentralized, distributed production and use of scientific knowledge.119 New modes for disseminating ideas and new ways of allowing for user contributions to these ideas create important alternative paths for technology transfer that are often in tension with the traditional linear, patent-centered model of technology transfer.120 Examples include user-generated innovation and open source production models.121 The success of these alternative systems underscores the increasing difficulty of drawing sharp boundaries between domains of discovery and development.

116

Id. See Murray, supra note 14; see also Dreyfuss, supra note 109, at 399–411 (discussing problems associated with collaborative research and suggesting the law could better account for the collaborative nature of modern science research). 118 See ERIC VON HIPPEL, DEMOCRATIZING INNOVATION 128–31 (2005). 119 See, e.g., Jorge L. Contreras, Data Sharing, Latency Variables and the Science Commons, 25 BERKELEY TECH. L.J. 1601, 1603–05 (2010). 120 See, e.g., Dan L. Burk, Intellectual Property in the Context of e-Science, 12 J. COMPUTER-MEDIATED COMM. 600, 600–01 (2007). 121 See, e.g., Carliss Baldwin & Eric von Hippel, Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation, 22 ORG. SCI. 1399 (2011); Eric von Hippel, Horizontal Innovation Networks—By and for Users, 16 INDUS. & CORP, CHANGE 293 (2007); Katherine J. Strandburg, Users as Innovators: Implications for Patent Doctrine, 79 U. COLO. L. REV. 467, 474–78 (2008). 117

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2. Implications for the Gap Between Invention and Utilization As a result of these changes in the organization of science, there is a need to retain the involvement and interest of researchers while at the same time attracting development capital and resources. However, high levels of risk, high costs, and long time frames in ascertaining the commercial potential of technologies, coupled with challenges in sustaining mixed forms of collaboration and continuous sharing of tacit knowledge in the face of asymmetric information and divergent incentives, create barriers to private investment.122 Developing an early-stage discovery with significant unexplored knowledge content may require substantial investment by private investors in exploratory research—investments that commercial players are unfamiliar with and uncomfortable making. High levels of uncertainty about the commercial rewards from investment and asymmetric information about the true commercial potential of early-stage findings can reduce the willingness of private sector participants to pursue the development process. Moreover, where the knowledge component of inventions is high, development of the invention into applied forms will generally require the continued involvement of the inventor(s) in the further development of the basic properties of the discovery. Inventors become more important players in later stages of development, yet may be less interested in remaining engaged in the larger project. Development is also more likely to require the exchange of tacit information between university and industry players. While the need for inventor engagement and transfer of tacit knowledge increases, the tools for ensuring that this need is met are limited. Contracts governing investment of effort and transfer of tacit knowledge will inevitably be incomplete and difficult to enforce as a result of asymmetric information and hidden effort levels.123 The problems of incentivizing effort in the face of hidden effort levels and uncertain outcomes are exacerbated in situations of team production.124 These barriers to moving complex pieces of knowledge into a commercially oriented process of development reduce the likelihood that the invention will reach the market in usable form. The second category, inadequate access, is closely related to the dual nature of certain kinds of discoveries as knowledge and inputs into commercial products. 122

See Peter Lee, Transcending the Tacit Dimension: Patents, Relationships, and the Industrial Organization of Technology Transfer, 100 CALIF. L. REV. 1503, 1503–04 (2012). 123 See, e.g., Emmanuel Dechenaux et al., Appropriability and Commercialization: Evidence from MIT Inventions, 54 MGMT SCI. 893, 893–94 (2008) [hereinafter Dechenaux et al., Appropriability] (describing risks in intellectual property transfer arising out of uncertainty and technical challenges); Emmanuel Dechenaux et al., Shirking, Sharing Risk, and Shelving: The Role of University License Contract, 27 INT’L J. INDUS. ORG. 80, 83–84 (2009) [hereinafter Dechenaux et al., Shirking] (describing effect of contractual relationships on technology transfer, particularly university patent licensing). 124 See Dechenaux et al., Appropriability, supra note 123, at 893–94; Dechenaux et al., Shirking, supra note 123, at 83–84.

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Some university discoveries that have valuable potential as both inputs for further innovation and as the basis for new products or processes are patented and licensed at a very early stage and access to these inventions is subsequently restricted. This reduces the socially valuable innovation that builds upon the initial research.125 Even when development remains within the university, paths of development are often undertaken pursuant to industry-sponsored and industry-managed research. As a result, research plans focus on the commercial, rather than the public knowledge, aspects of the discovery. Where inventions are valuable inputs for further discovery, restrictive licensing or inadequate investment in the knowledge aspects of these discoveries can have significant negative consequences for followon innovation. This problem of inadequate access is exacerbated by lack of public and private investment in infrastructures for communicating and sharing relevant knowledge across organizational and discipline boundaries. These problems of inadequate resources and inadequate access increase as the distinctions between fundamental knowledge and commercial application blur. As decades of research in theories of the firm have shown, these are situations in which organizational choices become important in determining outcomes.126 In Part II, the Article argues that universities have a comparative advantage in managing the production and development of knowledge-intensive inventions in ways that can minimize barriers to both technology transfer and public utilization. II. CHANGING THE STRATEGY: UNIVERSITIES AS GUARDIANS OF THEIR INNOVATIONS U.S. research universities have unique characteristics which have made them successful as producers and disseminators of public knowledge. Part II argues that the same characteristics that make universities good at these public knowledge functions can be harnessed to make them good managers of the further development and application of knowledge in the public interest.127 It goes on to suggest that the role of the university needs to change in order to take advantage of these characteristics to improve the socially beneficial utilization of university

125

Examples include the Myriad Pharmaceuticals patent on breast cancer gene, BRCA 1 and Baxter’s refusal to license technology—originally licensed from Johns Hopkins—that covers all antibodies recognizing CD34 to CellPro for development of a promising method of using stem cells for cancer therapy. See, e.g., Bar-Shalom & CookDeegan, supra note 86. 126 Theories of the firm explain why certain transactions occur within hierarchies instead of through markets. See Nicolai J. Foss et al., The Theory of the Firm, in 3 ENCYCLOPEDIA OF LAW AND ECONOMICS: THE REGULATION OF CONTRACTS 631, 643–45 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000). 127 While this Part compares universities to alternative existing institutional choices for managing post-discovery development of inventions, it leaves for further inquiry the broader question of whether new organizations, or partnerships between existing organizations, could be constructed that would perform better.

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discoveries.128 Proposals for legal change to support the role of universities as guardians of their inventions are the subject of Part III. A. Unique Characteristics of Universities While U.S. research universities diverge from each other in many ways, including differences between public and private universities, they have in common three unique characteristics that derive from a shared basic mission of creating and disseminating knowledge: (1) they are constructed as specialized entities with public knowledge functions; (2) they have a decentralized, autonomous governance structure; and (3) their decisions are shaped by multiple stakeholders invested in different aspects of public knowledge production and consumption. Taken together, these characteristics give U.S. research universities a comparative advantage over government agencies and private firms as producers and disseminators of knowledge.129 The following Section suggests that these characteristics also confer upon universities a comparative advantage in managing the post-discovery research and development paths of their inventions as measured in terms of public benefit from the knowledge generated and its applications. 1. Specialized Entities with Public Knowledge Functions U.S. research universities are unique in their organizational focus on the pursuit and dissemination of public knowledge through research, education, and community engagement.130 These functions have been deliberately combined 128

This Article does not address the question of whether universities are the best conceivable locations for making or managing inventions, but instead focuses on a comparative analysis of universities as compared to alternative existing institutions. The analysis is also restricted to science- and technology-based discoveries, although many of the arguments and even the conclusions can be readily generalized to encompass other types of university-based discoveries, such as innovations in the law or new forms of social networking. 129 This discussion applies primarily to U.S. research universities, as distinguished from other types of higher education institutions in the United States or abroad. These are institutions characterized by significant federally funded research. See CENTER FOR MEASURING U. PERFORMANCE, http://mup.asu.edu/ (last visited Oct. 8, 2012) (providing reports on top American research universities and discussing different characteristics of major U.S. research universities and the metrics used to evaluate their performance, including funding sources). There are a number of nonprofit colleges and other higher education institutions that focus primarily on teaching, and there has also been significant growth in for-profit higher education institutions, most of them focused solely on teaching. See DANIEL L. BENNET ET AL., FOR-PROFIT HIGHER EDUCATION: GROWTH, INNOVATION AND REGULATION 10–13 (2010) (providing statistics about for-profit education and its growth). While playing important roles in the knowledge economy, these entities do not perform the same kind of role in innovation policy. 130 See Michael J. Madison et al., The University as Constructed Cultural Commons, 30 WASH. U. J.L. & POL’Y 365, 378–83 (2009). For an in-depth exploration of the

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within a single organization based on the premise that they are different aspects of the underlying goals of increasing knowledge and its public availability and use. Over time, universities have adapted their public–knowledge based functions to fit changing economic, political, and technological circumstances.131 For example, while the university as a locus for scholarship and teaching has a long history, dating back at least to the eleventh century in Europe, the research function of the university is a more recent phenomenon driven by changes in national innovation strategies.132 The centrality of research to the conception of the university emerged only in the nineteenth century, and the notion of universities as deliberately constructed sites for unfettered research and the training of researchers was a product of the twentieth-century post–World War II vision of national innovation discussed in Part I.133 Today, the pursuit of knowledge through research and the refinement and dissemination of knowledge through scholarship are integral to the concept of the research university. These functions largely define the ways in which U.S. research universities organize and deploy their resources and the reputations that research universities rely on to attract resources.134 This Article suggests that the modern U.S. research university can be usefully understood as a specialized entity that is designed to support and govern a collection of distinct operational units that perform varying mission-driven functions.135 To draw an analogy to corporate law, the university can be seen as a holding company for these operational units.136 It provides an umbrella ownership emergence of the university as a knowledge-centered institution, see JAROSLAV PELIKAN, THE IDEA OF THE UNIVERSITY: A REEXAMINATION (1992). 131 See ROGER L. GEIGER, RESEARCH AND RELEVANT KNOWLEDGE: AMERICAN RESEARCH UNIVERSITIES SINCE WORLD WAR II 334–37 (1993). 132 See id. 133 But see PARTHA DASGUPTA & PAUL A. DAVID, Toward a New Economics of Science, 23 RES. POL’Y 487 (1994), reprinted in 1 THE ECONOMICS OF SCIENCE AND INNOVATION, supra note 26, at 108 (discussing the changing nature of scientific research and the timing of research programs). 134 Rankings play an important role in university reputations. There are a variety of national and international rankings based on varying measures of university “quality.” For a discussion of university rankings and a description of the methodology employed by one important source of U.S research university rankings, see JOHN V. LOMBARDI ET AL., THE CTR. FOR MEASURING UNIV. PERFORMANCE, THE TOP AMERICAN RESEARCH UNIVERSITIES: 2011 ANNUAL REPORT (2011), available at http://mup.asu.edu/ research2011.pdf (discussing how universities are classified into groups and ranked based on variables such as federal research dollars, total research dollars, number of faculty in national academies, number of faculty awards, and doctorates awarded). 135 This picture of the university builds on the work of Michael J. Madison, Brett M. Frischmann, and Katherine J. Strandburg, who describe the university as a unique form of constructed cultural commons. It is a “longstanding complex of nested commons” that “inherits degrees of constructed openness from the parent institution.” Madison et al., supra note 130, at 374, 386. 136 A holding company is a company that owns the outstanding stock of one or more other companies. It usually refers to a company that does not itself produce goods or

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and funding structure for a variety of distinct, semiautonomous units. It allows a partitioning of its intellectual assets and resources while retaining centralized responsibility for a shared research and development infrastructure and centralized ownership of the physical and intellectual property rights that flow from various projects. Some of these units, such as academic medical centers, are run in ways that are analogous to businesses. Others, such as multidisciplinary institutes or centers, are loose arrangements between different individuals within the university that operate more like informal public knowledge commons.137 The nature and boundaries of the units within the university and the ways in which the units interact with each other shift over time.138 The university as holding company performs two critical functions. The first is to establish the financial, administrative, and physical infrastructure to support the various operational units. The second is to facilitate the governance structure for the allocation and use of resources, including both formal rules governing intellectual property ownership, conflicts of interest, and promotion and tenure rules as well as informal rules that influence the culture and norms of actors within the university. The university, as holding company, exercises varying degrees of control over the management and results of these operational units, and the units vary in terms of degrees of economic self-sufficiency. The holding company has multiple stakeholders, as discussed below, but no shareholders. Instead, the governance structure is, or at least should be, designed to foster and protect the university’s public knowledge mission.139 Within the university’s research focused

services but rather is established simply to hold the stock of other operating companies. A number of universities, particularly public universities, have established holding companies to manage and license their intellectual property. This Article is using the concept in a different sense, to refer to the ability of the organization as a whole to house semiautonomous and in some cases self-financing units under a single organizational umbrella. This idea finds its roots in the work of Paul Heald, who has used corporate law analogies to illuminate patent law. See, e.g., Paul Heald, A Transaction Cost Theory of Patent Law, 66 OHIO ST. L.J. 473 (2005). 137 See Madison et al., supra note 130, at 371–78; see also Charlotte Hess & Elinor Ostrom, Introduction: An Overview of the Knowledge Commons, in UNDERSTANDING KNOWLEDGE AS A COMMONS: FROM THEORY TO PRACTICE 3–4 (Charlotte Hess & Elinor Ostrom eds., 2006) (claiming information is shared across disciplines and is thus common). 138 In some cases, units within the university may establish partnerships with units from other research institutions or with industry. See History of BME, WALLACE H. COULTER DEP’T BIOMEDICAL ENGINEERING, http://www.bme.gatech.edu/welcome/ history.shtml (last visited Dec. 13, 2012) (describing creation of joint department by the Emory School of Medicine and Georgia Tech that exemplifies the shifting organizational structure of the university). 139 U.S. universities are generally 501(c)(3) entities with an education- and researchbased mission. In addition they receive public funding and philanthropic support based on their public-oriented mission. Universities also rely on their reputations to attract resources—including both financial resources and human capital—and reputations are largely determined by success in attracting research funds, star faculty, and good

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units, individual researchers and research groups engage in their own knowledgebased projects. These units can be usefully characterized as knowledge commons—intentionally constructed institutions for managing the production and dissemination of knowledge for particular uses.140 The commons serves as a metaphor for resources that are shared and managed by a particular population of contributors and consumers—the members of the commons—based on some degree of openness.141 As further discussed below, the governance structure of the university allows for different types of knowledge commons that emerge in response to specific knowledge production contexts, such as new forms of collaboration between disciplines or industry-sponsored development work.142 Knowledge-sharing processes are defining features of the research university.143 Knowledge moves outside the university through the education of students and the more specialized training of graduates. Knowledge also moves within, between, and outside of universities through the peer review process for grants and publications, research collaboration, and informal exchanges at meetings and conferences. A combination of formal and informal rules protects the public nature of these processes. Formal rules include both federal and state regulations tied to the tax treatment and financial support of universities— particularly public universities. For example, a public mandate to use university

undergraduate, graduate, and postdoctoral students. See LOMBARDI ET AL., supra note 134, at 7. 140 Pioneering work by Elinor Ostrom in the natural resources context has shaped understandings of commons as intentionally constructed institutions for managing resources. See ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION 61–82 (1990) (illustrating Ostrom’s case studies of communal tenure and irrigation). 141 The concept of the “commons” emerged predominantly from the natural resources context, including the well known work of Garrett Hardin and his description of the challenges of managing a pasture that is open to all. See Garett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243, 1243–48 (1968) (arguing tragedy of commons is akin to herdsmen sharing a common pasture where some limitlessly add cattle to the limited realm). 142 Examples of other modern constructed commons include the formation of patent pools and standard setting organizations. See Robert P. Merges, Institutions for Intellectual Property Transactions: The Case of Patent Pools 16–39 (rev. ed. Aug. 1999) (unpublished manuscript), available at http://www.law.berkeley.edu/files/pools(1).pdf. The metaphor of the constructed knowledge commons plays a useful role in exploring universities and the relationship between openness and innovation. Mertonion notions of academic science are grounded in images of an open commons, characterized by free exchange of information. See Merges, supra note 14, at 147–48 (noting that the operation of academic science has been portrayed as a “[l]imited-access commons,” reflecting the tensions between norms of openness and incentives to limit access due to patenting and competitions for funding and first publication). 143 The degree to which university activities are open and transparent has been a subject of debate and a matter of concern for advocates of the Mertonian vision of academic science. See Merges, supra note 14, at 145–49.

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assets in furtherance of universities’ educational and research mission attaches to public funding of even private universities.144 This public mandate arises not only from their receipt of public research funds, but also from their nonprofit tax status and other tax incentives and tax breaks.145 It carries over to the individuals charged with managing university resources.146 Informal rules include widely shared norms of information sharing and exchange.147 These norms shift over time in response to both technological and organizational change, as mediated by university guidelines intended to preserve the mission-based nature of university activities.148 Universities and their constituents also respond to reputational concerns and other pressures from the competitive landscape.149 These formal and informal rules and

144

See, e.g., COUNCIL ON GOVERNMENTAL RELATIONS, MANAGING EXTERNALLY FUNDED RESEARCH PROGRAMS: A GUIDE TO EFFECTIVE MANAGEMENT PRACTICES 2, 13– 14 (rev. ed. 2009), available at http://www.cogr.edu/viewDoc.cfm?DocID=151537/ (providing guidelines attached to private use of assets stemming from tax exempt bonds and nonprofit status). 145 As an example, many universities use tax-exempt bonds to finance buildings, and as a result must comply with accompanying rules restricting the amount of university space devoted to private activities. See, e.g., Policy: Use of Buildings Financed with Tax-Exempt Debt, U. VIRGINIA (Mar. 18, 2010), https://policy.itc.virginia.edu/policy/ policydisplay?id=FIN-029/ (providing university policy concerning this tax issue). The role of universities in helping with local economic development through job and business creation has become a hot topic for public universities in a number of states, creating a tension between knowledge-based and economic-based concerns. For a stark example, the governor of Florida has suggested that state universities direct resources away from areas that are not important for job creation. Reductions in federal funding for basic research and the need to secure more private funding are also creating pressures on universities to focus on commercial activities. 146 The officers of the university and others with decision-making authority have a fiduciary duty to manage the university resources in furtherance of this mission. See CASE WESTERN RESERVE UNIVERSITY INTELLECTUAL PROPERTY POLICY 2–3 (2003), available at http://library.case.edu/media/IntellectualPropertyPolicy.pdf (requiring that officers “pursue commercialization expeditiously and in consultation with the creator”). 147 See Merges, supra note 14. 148 As entrepreneurial practices have become a greater part of the experience of faculty members, particularly where faculty-entrepreneurs occupy positions as heads of departments or are otherwise influential, new norms of engagement with patenting and start-up activities have emerged among some pockets of the academic community. In some cases, such as Texas A&M University and the University of Maryland, tenure standards have been modified to incorporate commercialization and patenting activities. See Goldie Blumenstyk, U. of Maryland to Count Patents and Commercialization in Tenure Reviews, CHRON. HIGHER EDUC. (June 13, 2012), http://chronicle.com/article/ articlecontent/132261/. As emerging technologies have changed the speed and ease of sharing, copying, and using data, norms regarding the sharing and use of data have responded. See, e.g., OPEN SCI. PROJECT, http://www.openscience.org/blog/ (last visited Mar. 28, 2012). 149 As an example, the metrics used to determine the rankings of universities incorporate federal research funds received. See, e.g., American Research University Data,

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pressures influence the ways in which universities and their constituents understand and pursue their public–knowledge based mission. 2. Autonomous, Decentralized Governance The second characteristic of universities is their autonomous, decentralized system of governance.150 It is this feature that allows universities to operate as unique specialized holding companies supporting a variety of different but connected knowledge-focused operating units, or knowledge commons.151 Looking first to the university as a whole, even public universities have a fair degree of autonomy to make their own decisions, shaped by their own constituents, about how to achieve their knowledge-based mission. Each university is charged with creating its own strategy for succeeding in education, scholarship, and research. These strategies can be designed in light of the features of the local geographies and economies within which each university operates. Universities exercise their autonomy within a system of formal and informal rules that both constrain and respond to the choices they make. First, universities must decide how to pursue their knowledge-based mission within a system of shared norms. Even as universities are driven to seek increasing private sector revenue to supplement stagnant or shrinking public grants, for example, most continue to strive to obtain resources in ways that are as consistent as possible with their knowledge-based goal. Second, universities compete with each other for students, faculty, public grants, and private funding based on reputations derived from their knowledge-based activities. Competition among universities is increasingly driven by market-determined rankings that give significant weight to variables such as the amount of federal research funds the university attracts.152 Universities allocate resources with an eye towards the likely impact of their investments on their rankings. Third, universities must comply with the legal rules and regulations governing their activities. In the context of technology transfer, for example, rules governing the patenting and commercialization of publicly funded

CTR. FOR MEASURING UNIV. PERFORMANCE, http://mup.asu.edu/research_data.html (last visited April 23, 2013). 150 See LAWRENCE BUSCH ET AL., EXTERNAL REVIEW OF THE COLLABORATIVE RESEARCH AGREEMENT BETWEEN NOVARTIS AGRICULTURAL DISCOVERY INSTITUTE, INC. AND THE REGENTS OF THE UNIVERSITY OF CALIFORNIA 10, 17–19 (2004). 151 See Madison et al., supra note 130, at 378–80. 152 The importance that universities are now giving to rankings such as the U.S. News & World Report rankings is illustrated by the development and expansion of biomedical facilities (which are more likely to attract federal funds) at universities that are ill equipped to handle and sustain successful biomedical research programs. As Part III argues, the intensifying competition among universities makes the design of appropriate metrics that accurately reflect contributions to the public even more critical than in the past.

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inventions curtail universities’ discretion and shape their perceived mandate.153 The autonomy of the university allows for variation in organizational design and organizational strategy as it competes within this system of public knowledge production and dissemination for resources and reputation. This autonomy and self-governance is also reflected within the organizational structure of the university. Although there is some variation across universities, all of the major research universities and many of the other higher education institutions share a basic structure that provides relative autonomy to different units within the organization.154 This autonomy, however, is largely concentrated in units with research functions. The internal organization within units varies depending on their functions, with more decentralization, autonomy, and reliance on peer evaluation where academic research functions dominate. Research faculty are provided with relative freedom to select their projects and organize their time and are evaluated based on mechanisms such as peer review and publication records that are geared towards rewarding contributions to knowledge.155 Administrative units such as the central administration tend to be more hierarchical in nature, reflecting their very different tasks within the organization. There are complex interactions between the units arising from the overlapping, and in some cases competing or conflicting, objectives that they have. The organizational structure is relatively fluid, particularly within individual units of the organization, and universities have the capacity—although not always the incentive or the level of buy-in needed—to experiment with alternative structures and ways of understanding their different knowledge-based roles and responsibilities.156 Different knowledge commons within the university can be constructed using varying rules of membership and degrees of openness.157 153

See Bayh-Dole University and Small Business Patent Procedures Act, Pub. L. No. 96-517, § 6(a), 94 Stat. 3015, 3018–29 (1980) (codified as amended at 35 U.S.C. §§ 200– 12 (2006)). 154 See BUSCH ET AL., supra note 150, at 16–19 (highlighting the importance of this kind of autonomy to the university). 155 For a more detailed description of the organizational structure of universities, refer to Thomas H. Hammond, Herding Cats in University Hierarchies: Formal Structure and Policy Choice in American Research Universities, in GOVERNING ACADEMIA 91 (Ronald G. Ehrenberg ed., 2004). 156 This experimentation even takes place in ways of handling technology transfer functions. See, e.g., Irwin Feller et al., The State of Practice for University Technology Transfer Activities, RES. MGMT. REV., Summer/Fall 2002, at 8, 10 (examining the organization of technology transfer offices across universities and noting the continuing search for effective organizational forms; identifying several structural features of effectiveness, which include: “(1) its ability to coordinate its activities with those of several other work units, such as sponsored research, corporate giving, and industrial liaison; (2) its ability to process, that is, to receive, interpret, synthesize, and disseminate information both within and without the university; and (3) an effective alignment of incentives between and among the TTO, faculty, and administrative units”). 157 See Madison et al., supra note 130, at 379 (applying this concept to the cultural environment). Madison and his coauthors offer the university as one of the most important

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Examples of different knowledge commons include a lab in which lab members share proprietary materials and information only with each other for some limited period of time, generally until publication of the results to a larger community, and faculty member blogs that are used to share ideas and information rapidly and openly.158 The decentralized governance structure for research units preserves individual autonomy to pursue research with highly uncertain, unpredictable, and potentially commercially unviable outcomes. Research faculty have relative autonomy in selecting projects that will yield contributions to fundamental knowledge, although they also have autonomy to select projects that will yield commercially applicable results. Decentralized governance also allows unique incentive structures that support diversity in both the subject matter and approach to research projects. Incentive structures incorporate peer review, tenure protection, public subsidies that support research, and reputation effects. Increasingly, patents and industry sponsorship are also a part of the reward equation for certain fields. Universities thus provide opportunities for sustaining research projects that would not be viable in a commercial or traditional government setting, particularly projects with high risk and long-term horizons. 3. Multiple Stakeholders with Diverse Interests The third characteristic shared by universities is the responsiveness of university decision making to the interests of multiple stakeholders who represent different aspects of the production and use of knowledge. Universities are composed of multiple internal constituencies including faculty, students, administrative employees, and trustees. A board of trustees drawn from both the public and the private sector typically governs universities. In addition to internal constituencies, universities must respond to government funding agencies—such as the NIH and NSF. Universities must also respond to the needs of the private sector, including industry partners who provide funding through mechanisms such as sponsored research, licensing of university inventions, and joint research projects, as well as employment for university graduates and consulting opportunities for university faculty. As government funding has become harder to obtain, industry support has become more important, with corresponding concerns

and enduring examples of the commons in the cultural environment. The university is an anomaly, they suggest, because “[t]he university as constructed commons is both a stable, centuries-old institution and the locus of enormous dynamism.” Id. For further discussion of these views, see Michael J. Madison, Law as Design: Objects, Concepts, and Digital Things, 56 CASE W. RES. L. REV. 381 (2005) (explaining how “things” in law can cross multiple disciplines). 158 See Phillipe De Ridder, Universities! Let Open Innovation In!, OPEN INNOVATORS (Oct. 13, 2007), http://www.openinnovators.net/universities-let-open-innovation-in-forentrepreneurship/ (advocating openness as a means of spurring entrepreneurship).

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that private industry interests will distort university decision making.159 Philanthropy has also played an important role in supporting universities, and this type of giving is inextricably tied to the public nature of the university mission.160 The need to foster altruism and to cultivate multiple sources of charitable giving plays an important role in university decision making at the administrative level, injecting additional incentives to protect the public interest orientation of university activities. Taken together, these constituencies reflect the multiple public and private aspects of knowledge creation and dissemination. By incorporating these diverse interests in the production and dissemination of knowledge into the decisionmaking structure, universities internalize many of the inevitable tradeoffs between the public and the private nature of university-generated discoveries. In addition, the need to take these multiple interests into account disciplines the decision making of the university. Indeed, the various constituencies must themselves take into account many of the tradeoffs that arise in managing the public and private aspects of universities. Students may care about ensuring global humanitarian access to universitydiscovered drugs, for example, but they will also care about how their home institution ranks in comparison to competitor institutions and the implications of this for their prospects of employment. Faculty may care about the reputation of the university as a top research institution and the implications for public funding, but they may also have very mixed views about the role of commercial partnerships and the importance of preserving the public domain of knowledge. University administrators, therefore, must work to balance the needs and interests of the university as a producer and consumer of knowledge. They are aware that Boards of trustees will incorporate both public and private interests, while also remaining keenly aware of the political issues relating to funding and education. B. Implications for Managing Paths of Innovation These defining features of U.S. research universities—specialized knowledge function, decentralization, autonomy, and diversity of stakeholders—make them 159

Examples of university-industry deals that raised broad public concerns include a $25 million five-year research deal between a group of plant biologists at U.C. Berkley and Novartis. The agreement gave Novartis first dibs on potentially lucrative discoveries emerging from the research. Of equal interest is the serious negative response from within the university and within the university community to this restrictive arrangement. See BUSCH ET AL., supra note 150, at 10 (“The issues with respect to the University of California-Berkeley–Novartis agreement (UCB-N) all revolve around the contestation over the institutional meaning, weighting and form of creativity, autonomy, diversity, exchange, need and dessert.”). 160 The influence of philanthropic giving on universities takes many different forms. In some cases there is a religious overtone, in others there is a particular research objective in mind. For a thoughtful analysis of the role of philanthropy in university science and technology, see Murray, supra note 39.

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uniquely capable of handling the inevitable modern overlap of public noncommercial knowledge and private commercial knowledge in ways that support socially beneficial knowledge and innovation goals. Taken together, this combination of characteristics can reduce barriers to effective paths of innovation while protecting public knowledge functions by (1) adjusting the parameters of public knowledge commons in a centrally coordinated way to support varying combinations of public and private knowledge production and use, (2) employing alternative incentive structures and localized governance to reduce barriers to team production and collaboration, and (3) protecting diverse public interests in the production and use of knowledge. 1. Adjustable Parameters and Localized Governance Moving discoveries towards commercial application while preserving opportunities for cumulative innovation involves a careful tailoring of the open and closed features of knowledge production at different stages of the development process. Some projects may work best with free entry and access to the results; other projects may require limited access and restricted use of the results. As suggested earlier, analogies can be drawn with the concept of a knowledge commons—used here to mean shared knowledge resources with localized rules of access and use of the common resource.161 Different kinds of knowledge commons will support different projects and different types of innovation processes. For some research projects, such as the discovery of a promising drug target, restricted access to early-stage results may be critical in securing later private sector involvement as well as sufficient lead time to discover and publish results. For other research projects, particularly where the novel and publishable aspects of the research are the methodologies or processes employed rather than the results ultimately obtained from using them, or where public input and contribution of data are needed, open and relatively unrestricted access may be important. The decentralized nature of the university allows for the coexistence of multiple types of knowledge commons with varying degrees of openness. The level of autonomy and self-governance that the organization can support allows for localized choices about access to and use of project resources. For example, different constituencies within the university, such as principal investigators and their labs, research institutes, and departments, have some discretion in fashioning their own localized rules of access and use of research results. The university can create and support a range of alternative systems of knowledge production, experimenting with different ways of organizing intellectual production.162 161

See, e.g., Hess & Ostrom, supra note 137 (discussing knowledge as a shared resource). 162 It is important to draw a clear distinction between a constructed knowledge commons and the public domain. Some have characterized the public domain as a fully open commons. In the intellectual property context, it describes intangible assets that can be freely used. See James Boyle, The Second Enclosure Movement and the Construction of the Public Domain, 66 L. & CONTEMP. PROBS. 33, 37 (2003); David Lange, Reimagining

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This capacity is evidenced by the variation among systems of production both within and across different disciplines within the university. For example, the sharing of materials and the release of early-stage findings is slower for resourceintensive, grant-dependent basic science labs than it is for members of a law school faculty. Researchers who depend heavily on industry funds to run their lab may work in an environment that is less open than researchers working on a project funded by the government or charitable public. Universities are often the sites for experiments with new modes of open knowledge production, such as massive open online courses (MOOCs),163 open-source biology,164 and experiments with crowd science.165 The ability to support different kinds of knowledge commons becomes particularly important in the context of collaborations between universities and third parties, including other academic institutions, government, and industry partners.166 Differences in the objectives and interests of the members of the collaboration can be accommodated through negotiation of a shared set of rules of access and use to the research results. This structure can be used to facilitate cooperation between different entities in the joint production of commercial and noncommercial results. Sometimes the goal will be to preserve open access to knowledge, as was the case in a well publicized collaboration between Merck & Co. and Washington University to create the Merck Gene Index, a public database of gene sequences corresponding to human genes.167 The purpose of the project was to preserve open access to knowledge that could aid in drug discovery, and the index expressly preempted patent rights.168 In other cases, the goal is to pursue proprietary product development, as is the case in many university-industry sponsored research agreements such as the exclusive license and sponsored research agreement between Merck and the University of Texas for the

the Public Domain, 66 L. & CONTEMP. PROBS. 463, 463 (2003) (“[T]he public domain is perhaps most usefully seen as a commons . . . .”). This is only one of the many forms of knowledge commons that the university, as a parent institution, can accommodate. 163 See, e.g., Stephen Carson & Jan Philipp Schmidt, The Massive Open Online Professor, ACAD. MATTERS, May 2012, at 20. 164 See, e.g., JODY RANCK, OPEN-SOURCE MOLECULAR BIOLOGY: WILL OPENSOURCE BIOTECH STIMULATE INNOVATION IN HEALTHCARE? (2006), available at http://www.iftf.org/uploads/media/SR%20978%20A%20HH%20Signals%20lg.pdf (discussing university experiments with open biology). 165 See, e.g., Sally James, Paper Uncovers Power of Foldit Gamers Strategies, U. WASHINGTON (Nov. 7, 2011), http://www.washington.edu/news/2011/11/07/paperuncovers-power-of-foldit-gamers-strategies/; FOLDIT, http://fold.it/portal/ (last visited March 28, 2013). 166 See supra notes 109–121 and accompanying text. 167 Alan R. Williamson, The Merck Gene Index Project, 4 DRUG DISCOVERY TODAY 115, 115–19 (1999). 168 Robert P. Merges, A New Dynamism in the Public Domain, 71 U. CHI. L. REV. 183, 188–89 (describing the Merck Gene Index as an example of efforts to preempt patent rights and protect the public domain for inputs into drug discovery and development).

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development of a vaccine.169 Here, the ability to restrict access to the results was believed to be critical to ensuring further private investment in the development of the drug candidate. As translational research becomes a more important source of funding and expectations of federal funding include more immediate and tangible returns on research dollars, universities will become the sites for increasingly diverse and mixed collaborative knowledge commons due, at least in part, to their ability to support varying types of knowledge commons.170 While governmental entities and private firms can and do create their own knowledge commons, there is a clear advantage to fashioning the rules of these localized commons within a university. Universities provide critical institutional structures for stages of intertwined noncommercial and commercial research and development, where mediated access and use to advance both public and private goals are important. Because universities are structured around public, knowledgebased functions, efforts to adapt to the needs of private markets are made from within an inherently public knowledge commons that limits the restrictions placed on access to and use of knowledge. Universities may tolerate delays in the publication of faculty discoveries, for example, but they will rarely agree to keep the discovery secret. They can also respond to the needs of private development processes in ways that government labs cannot because of the additional layers of regulation and bureaucratic limitations on government collaboration with the private sector. This is not to say that universities, if left to their own devices, will always draw the socially beneficial boundaries around knowledge commons. It simply means that they have the organizational capabilities to do so.

169

Press Release, Univ. of Tex. at San Antonio & Univ. of Tex. Health Scis. Center at San Antonio, UTSA, Health Science Center Collaborate with Merck & Co., Inc. to Develop Chlamydia Vaccine (Apr. 27, 2009), available at https://www.merck.com/ licensing/our-partnership/sttm-partnership.html. 170 We can understand many of the programs advanced by the NIH Roadmap as efforts at creating alternative kinds of knowledge commons that involve public, academic, and private players. For example, the NIH Clinical and Translational Science Awards (CTSAs) were designed to “assist institutions to forge a uniquely transformative, novel, and integrative academic home for Clinical and Translational Science” that will incorporate industry and community involvement in moving discoveries more quickly and successfully into commercial use. RFA-RM-06-002: Institutional Clinical and Translational Science Award, DEP’T HEALTH & HUM. SERVS. (Oct. 12, 2005), http://grants.nih.gov/grants/guide/ rfa-files/RFA-Rm-06-002.html. Also, the NIH U54 grant to support Centers for Accelerated Innovation was designed to help support a cooperative specialized research center for moving discoveries rapidly towards development endpoints such as a license or SBIR grants. RFA-HL-13-008: The NIH Centers for Accelerated Innovations (U54), supra note 31. This is basically a grant to support the infrastructure for a university incubator. Id.

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2. Alternative Incentive Structures Moving from invention to utilization in complex scientific areas typically involves high risk, high expense, and long time horizons for ascertaining commercial potential. These barriers to securing private involvement are highest for discoveries that are at earlier stages of development and where there are limits on the appropriability of the assets generated during the development process. The deterrent effects of this risk, cost, and long time horizon for private investors and developers is compounded by significant problems of moral hazard, asymmetric information, and incomplete contracting that make the translation of discoveries into products difficult. The unique incentive structures and decentralized forms of governance that universities offer can be harnessed to reduce or remove at least some of these barriers to post-discovery development of inventions. In the popular literature, this is referred to more generally as “de-risking” university technologies to make them more attractive and accessible to private sector investors and developers.171 This Article pushes this argument further to suggest that universities could, in some cases and with adequate investment in development capacity and skills, be better placed than industry to control the early-stage development of inventions. The comparative advantages that the university offers will be greatest where there is significant uncertainty about the commercial potential of the inventions, asymmetric information about the chances for commercial development and the effort needed to succeed, positive scientific value from further exploration, and limited ability to identify and measure the allocation of university effort between research and development. The decentralized structure of the university and the autonomy given to individual units supports risk taking in uncertain projects. Moreover, the incentive schemes supported by this organizational structure—including peer review and publication—reward the discovery of fundamental knowledge. Universities, and their relevant constituents—including in this case the inventor(s) and members of their research team—have an interest both in making further discoveries about the invention and in securing private sector investment to develop the invention. The greater the opportunities for generating fundamental knowledge as part of the postdiscovery development process, the greater the advantages of keeping the university involved in, perhaps even in control of, the development of the underlying intellectual assets. Moreover, universities will be able to sustain certain types of collaborative production even when appropriability is limited because of the value they derive from the discovery and development process itself. Returns on investment can take 171

Scotia Macleod, De-risking—Getting Ready for Investment, VENTURE CAP. CENTRE (Jan. 23, 2012), http://www.venturecapitalcentre.com.au/2012/01/23/make-yourbusiness-more-attractive-to-venture-capital-investors-by-derisking/ (“Derisking is the process of removing risk factors from your business in order to make it more attractive to an outside investor or to an outside buyer.”).

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the form of first publication rights, rather than exclusive rights over the intellectual property involved. Along these same lines, industry partners may be more willing to engage in joint research and development projects with universities because of the complementary nature of their respective interests and activities. Recent trends in collaborative drug discovery illustrate the advantages of greater university involvement in downstream development processes for these very reasons. University incentive structures and the alternative development strategies they support can also address problems of asymmetric information. Inventors and their teams will often have the best information about the characteristics and possibilities of the invention. Where their interest lies in securing private funding, they will have an incentive to overstate the value of their invention or to understate the amount of additional funding it might take to further the development of the invention. They will have incentives to invest only in those aspects of the project that relate to the discovery of fundamental (i.e., publishable) knowledge. Universities may have better information about their employee-inventors and inventor projects than firms, and they can monitor reporting and create incentive structures that allow for better self-revelation by inventors about the possibilities of a project. Universities can also overcome problems of asymmetric information about the value of their inventions by signaling value through continued selfdevelopment or willingness to engage in joint development. They can, for example, signal their best bets for commercial development through their own investments in developing the inventions. Where private investors are unwilling to make investments that seem justified based on the university’s better information about the value of the invention, universities can explore ways to move the invention further down the development path to reach better commercialization options.172 A major challenge to public-private partnerships arises from uncertainty about what the development path and results for a discovery will look like and the unavoidable incompleteness of contracts.173 Capturing the intellectual efforts of the required actors in a project is just one way in which contracts are invariably incomplete. Where inventions require significant continuing investment by the inventor, and where the inventor’s effort level is hidden, problems of moral hazard may impede private party contracting. Universities are more effective than private firms at harnessing the effort of research faculty and staff on projects where the knowledge component is important and the results uncertain. Universities can 172

This is the approach Emory’s Institute for Drug Discovery takes, which seeks to fill the gap between early-stage discovery of promising drug targets and late-stage clinical testing. See Vertinsky, supra note 16. 173 For an example of the application of incomplete contract theory to challenges posed by innovation processes, see Erik Brynjolfsson, Information Assets, Technology, and Organization, 40 MGMT. SCI. 1645, 1645–46, 1655 (1993) (exploring how growth in information technology will impact the tradeoffs inherent in different structures for organizing work using incomplete contract theory); Rai et al., supra note 94 (offering strategies for addressing challenges of incomplete contracting in the context of publicprivate collaborations to bridge the valley of death for drug discovery and development).

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provide reward structures for the knowledge aspects of inventions that induce efficient inventor involvement in joint projects based on peer review of the scientific content of the project and assessment of the publications generated. Contracts are also often inadequate ways of capturing the transfer of tacit knowledge.174 Research suggests, for example, that university licensing is less successful where the value of the asset is not captured by a patent but rather takes the form of know-how.175 In this case some kind of knowledge commons becomes an important way of sustaining the interest and participation of both university and industry partner. The challenges of incomplete contracts may be smaller where the parties care about different aspects of the research results—free access for research use versus control over rights needed for commercial development, for example. Risks of opportunism may be lower because universities are repeat players in markets for sponsored research and other forms of industry-supported projects. In these ways universities can play an important role in the design and, in some cases the implementation, of innovation pathways for promising inventions with significant and valuable potential to generate further knowledge. It is no surprise that many of the current experiments with public-private partnerships involve universities and, most often, take place either on or beside university campuses.176 3. Protecting Public Interests A third reason why universities may make relatively better managers of postdiscovery development paths than firms or governments lies in the universities’ internalizing and balancing of the often competing public and private interests in knowledge production and use. First, their role as both consumers and users of knowledge, combined with the diverse sources of funding and competing public and private interests of their internal constituencies, make universities well equipped to handle the tensions between public and private interests in their intellectual assets. Second, because they respond to multiple constituencies reflecting different public interests in the production and dissemination of knowledge, universities are more likely to act in the public interest in their resource allocation decisions. Third, universities can act to police each other where individual actions deviate from a shared norm of supporting the production and dissemination of knowledge for the public good.

174

See Lee, supra note 122, at 1521 (“Inventors retain highly valuable ‘tacit’ knowledge regarding their inventions, and direct relationships with inventors represent the most effective conduit for transferring this knowledge to licensees.”). 175 See Ashish Arora, Licensing Tacit Knowledge: Intellectual Property Rights and the Market for Know-How, 4 ECON. INNOVATION & NEW TECH. 41, 48 (1995) (showing why licensing has limitations as a strategy for appropriating rents from innovation). 176 See Bronwyn H. Hall, University-Industry Research Partnerships in the United States (European Univ. Inst., Working Paper No. 2004/14, 2004) (discussing the growth of university-industry partnering in the United States).

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As a result, universities are forced to confront and adapt to the dual nature of intellectual production and the dual nature of the knowledge they produce in ways that other organizations are not. There is an extensive literature debating the appropriate roles and mission of the U.S. research university.177 These debates are heightened by changes in the sources of funding available to universities. Universities receive a mix of public and private funds, including federal funds, state funds, local government funds, federal grants made by government agencies, industry grants, student fees, and charitable donations. In response to the competing interests and demands of these multiple stakeholders, universities must build ways of balancing interests and managing conflicts into their organizational structure. Examples of these internal structures include the conflict of interest and conflict of commitment guidelines and apparatus that are becoming a central part of university administration.178 They also include structures for allocating resources within and between different departments and units within the university, including resources allocated to traditional technology transfer functions. Ideally, universities will be encouraged to devote more time and resources to these internal structures as their role in development increases. While the influence of industry funding on project choice and project structure is undeniable and in many cases unavoidable, the effects of industry funding are limited to some extent by both formal and informal rules. External rules, such as tax rules, set parameters around public and private uses of university resources. University norms of information sharing and research use act in conjunction with the legal framework to support the public aspects of different knowledge commons.179 Universities are influenced not only by the divergent sources of funding and funders, but also more generally by the needs and concerns of multiple stakeholders, with each group reflecting different interests in the university’s activities and decisions. Stakeholders include faculty, students, non-faculty employees, alumni, federal and state governments, government agencies, industry partners, and other members of the higher education community. The role of these multiple public stakeholders in shaping university decisions and their unique knowledge-based function will promote more balanced decision making about alternative development paths for university inventions. It will also increase the

177

See, e.g., DEREK BOK, UNIVERSITIES IN THE MARKETPLACE: THE COMMERCIALIZATION OF HIGHER EDUCATION 1–17 (2003) (discussing debate over the commodification of higher education and increased commercialization on college campuses). 178 Many universities have a central office for managing conflicts of interest. See, e.g., EMORY UNIV. CONFLICT INT. OFF., http://www.coi.emory.edu/ (last visited Dec. 13, 2012). 179 See BUSCH ET AL., supra note 150, at 16 (“There are arguably three central principles and associated practices that must stand at the core of any university that is worthy of the title: creativity, autonomy, and diversity. Although occasionally lost sight of, these principles are central to the ethical framework of the university.”).

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likelihood that broad public access rights are considered where inventions have multiple socially beneficial uses.180 The pressures multiple stakeholders with diverse interests in the knowledge commons exert increase the likelihood that both the costs and the benefits of reducing openness are taken into account in the development of university inventions. As an illustration, consider the role of students in shaping university technology transfer practices. In 2001, a group of Yale University law students worked together with Doctors without Borders to convince Yale and its licensee, Bristol-Myers Squibb, to permit generic production of a Yale discovered HIV/AIDS drug in sub-Saharan Africa.181 The success of this student-run campaign marked the beginning of what is now Universities Allied for Essential Medicines (UAEM), a student-run coalition at more than fifty U.S. research universities that promotes the responsibility and role of universities in supporting and making medical innovations available to address global health needs.182 This is only one example of the unique roles that multiple stakeholders play in policing the decisions that universities make about their technology discoveries. Faculty interested in publishing and pursuing their own new research ideas will push back on overly restrictive publication rules sought by industry, as demonstrated by the open science and open publishing movements.183 Public outcry at restricted access to critical health technologies by needy groups will influence university licensing decisions.184 NIH and NSF pressures on universities to follow voluntary guidelines on limiting patenting and licensing of research tools will inform university decisions about when and what to patent.185 The Association of University Technology Managers (AUTM) has also played a role in advocating best practices for university licensing.186 The university provides a forum for diverse stakeholders to voice their interests and concerns about different aspects of knowledge production and use. The influence of these diverse stakeholders on decision making also provides a disciplining function on university decision making at the administrative level, 180

See id. at 153. History, UNIVS. ALLIED FOR ESSENTIAL MEDS., http://essentialmedicine.org/aboutus/history/ (last visited Oct. 5, 2012). 182 Id. 183 See, e.g., OPEN SCI. PROJECT, http://www.openscience.org/blog/ (last visited Mar. 28, 2013) (canvassing latest developments in open science and open publishing, including legislative trends and university trends). 184 The importance of philanthropic giving in supporting translational medical research shapes university practices in this area as well. See Fiona E. Murray, Evaluating the Role of Science Philanthropy in American Research Universities (Nat’l Bureau of Econ. Research, Working Paper No. 18146, 2012), available at http://www.nber.org/ papers/w18146/. 185 The NIH guidelines on gene patenting and licensing are one example. 186 CAL. INST. OF TECH. ET AL., IN THE PUBLIC INTEREST: NINE POINTS TO CONSIDER IN LICENSING UNIVERSITY TECHNOLOGY (2007), available at http://otl.stanford.edu/ documents/whitepaper-10.pdf. 181

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reducing the risk that resources will be diverted too strongly in one direction at the expense of others.187 Moreover, and perhaps more importantly, giving voices to the multiple constituents in processes of knowledge production and dissemination produces a more vibrant, innovative, and productive site for the creation of new knowledge and the transformation of existing knowledge. The organizational characteristics of the university—specialized knowledge function, decentralization, autonomy, and diversity of stakeholders—may thus support innovation processes that result in improved social outcomes. Their benefits come from enabling different intellectual production processes, solving incentive and information problems inherent in both collaborative production and technology transfer, and giving greater reflection to the public interest in their management of the innovation process. III. CHANGING THE RULES: GIVING UNIVERSITIES REASON TO INNOVATE Universities clearly have the potential to improve the development trajectory of their inventions with the public interest in mind. Yet this potential is unlikely to be realized without changes in the incentives and opportunities that universities and their constituents have for engaging in post-discovery activities while also protecting disinterested, curiosity driven science.188 Part III identifies modest changes in the legal and regulatory framework governing university technology transfer that are needed to support a new guardian-like role for universities.189 These changes are directed at broadening university discretion in relation to moving discoveries into public use, increasing university responsibility and accountability for the post-discovery choices they make, and increasing university incentives to become responsibly involved in the post-discovery paths of their 187

Examples include the role of student and faculty groups in pushing universities to include global access terms in their licenses for essential medicines and the role of philanthropic funding in guiding choices about research projects. See, e.g., Murray, supra note 184, at 1–4 (exploring level and distribution of philanthropic funding on university research). The recent debates over whether universities should reallocate resources towards STEM subjects and away from the liberal arts illustrate the importance of giving multiple stakeholders with the ability to counterbalance each other roles in university decision making. 188 Although the emphasis in this Article is on addressing problems with the development of discoveries, protecting the independence and integrity of scientific inquiry is also critically important. See, e.g., Huda Y. Zoghbi, Editorial, The Basics of Translation, 339 SCI. 250 (2013). Giving universities more responsibility for managing the development of their ideas is not necessarily incompatible with protecting independent science. While the tensions remain, at least the university is forced to confront and manage them in a responsible and transparent manner. 189 These proposals assume, of course, that universities will remain important sites for originating new and useful discoveries and that they will continue to receive public support for these efforts. They further assume that the ultimate goal of policy makers concerned about university inventions is to ensure effective public utilization of the fruits of university research, measured in terms of U.S. public benefit.

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inventions. The proposed changes are also designed to address some of the challenges associated with giving universities a greater role in the innovation process. The challenges include: collective action problems among universities that might undermine access to cutting edge discoveries; problems of inadequate resources devoted to an expanded management function; undesirable distortions in research agendas and resource allocations towards research; and difficulties in defining, identifying, and rewarding “good” performance. After describing the potentially useful changes, I respond to some of the concerns that both advocates of both greater market control and advocates of greater government control might have with an expanded, guardian-like university role over post-discovery paths of innovation. A. Proposed Changes in the Legal Framework The legal framework needs to change in order to encourage universities to become innovative about innovation, although it does not have to change very much. With small changes in the legal structure, most of the work can be done by downstream changes in the norms and practices of funding agencies and universities. Just as the original passage of the Bayh-Dole Act served as a catalyst for what are now fairly uniform technology transfer practices across universities, minor amendments to the Act could nicely serve as a catalyst for a collective shift in how universities approach their role in technology transfer. These minor amendments would need to (1) emphasize the public mandate and reduce the patent focus of the legislation, (2) provide the university with more discretion in how utilization of federally funded discoveries is achieved, (3) increase university responsibility and accountability for the post-discovery trajectory of their inventions, and (4) reduce collective action problems. The changes suggested here allow for a greater variation in technology development and transfer practices to fit the varying needs and research areas of different universities. They also facilitate experimentation across universities and competition between alternative approaches. 1. Emphasize Public Mandate and Reduce Patent Focus of Legislation The decision to incorporate the only major piece of university technology transfer legislation—the Bayh-Dole Act—into the U.S. Patent Act reflects the underlying bias in innovation policy towards patents as vehicles for transforming inventions into economically useful innovations. Indeed, as discussed in Part II, the first section of the Bayh-Dole Act makes this patent-centric vision of innovation explicit.190 This legal picture of university technology transfer has played an important role in shaping how universities understand their role in the innovation process, and it has shaped how university decision makers charged with

190

See supra Part I.

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managing inventions understand their duties.191 The patent-centric approach supported by the Act has been institutionalized in university technology transfer offices. Technology transfer managers see the Act as providing a mandate to move inventions into the marketplace soon after discovery, typically through licensing early-stage inventions to companies.192 The policies underlying the Act have even encompassed university decisions regarding inventions that have been developed without direct use of federal research funds. As a result, university decision making about the post-discovery development of their inventions is limited to an overly narrow set of innovation pathways. Moreover, the metrics used to measure success in technology transfer have centered around revenues from commercialization. Contemplation of new paths, when it occurs, is generally limited to areas of high social importance but low market value that are overlooked by existing technology transfer practices, such as developing drugs for neglected diseases.193 Universities, particularly their technology transfer offices, look to the BayhDole Act to understand their role in technology development and transfer. Thus, as a first step in changing the role of the university in technology transfer, the BayhDole Act should be revised to emphasize its public mandate to promote utilization of federally funded discoveries to serve the public interest. The Bayh-Dole Act is unusual in that it includes a statement of policy and objectives at the beginning of the Act.194 This statement plays a formative role in public understandings about the obligations that attach to the fruits of federally funded research. The current statement includes a patent focus and an emphasis on commercial objectives through patenting and transfer to industry that needs to be revised. This Article proposes modifying the statement to highlight the central goal of ensuring effective public utilization of federally funded research and to emphasize the responsibility of the recipients of federal funding in supporting this goal. A revised version of 35 U.S.C. § 200 could read something like this:

191

See Henry Etzkowitz, Entrepreneurial Scientists and Entrepreneurial Universities in American Academic Science, 21 MINERVA 198 (1983) (discussing how universities manage their inventions). 192 See Thursby & Thursby, supra note 60, at 101–02 (observing that the Act had the intended effect of encouraging greater licensing by universities); Thursby et al., supra note 66, at 59–60 (surveying effect of legislation on university technology transfer offices). The Act provides for a preference for small businesses. In some cases, the inventor or inventors may be interested in forming a start-up company and licensing the inventions themselves, and many universities have made efforts to work with and license to faculty-led start-ups, with mixed success. There is an inherent bias towards licensing to established companies, however, due in part to risk aversion and the need for immediate revenue by technology transfer offices. Scott Shane, Executive Forum: University Technology Transfer to Entrepreneurial Companies, 17 J. BUS. VENTURING 537, 542 (2002). 193 See, e.g., Stephen M. Maurer et al., Finding Cures for Tropical Diseases: Is Open Source an Answer?, 1 PLOS MED. 183 (2004). 194 35 U.S.C. § 200 (2006).

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It is the policy and objective of the Congress to promote the utilization of inventions arising from federally supported research or development for the benefit of the public. This includes use of the patent system to: promote collaboration between commercial concerns and nonprofit organizations, including universities; ensure that inventions made by nonprofit organizations and small business firms are used in a manner that reasonably promotes the public utilization of inventions; promote an appropriate balance between the need to support future research and discovery and free competition and enterprise in light of public innovation objectives; promote the public utilization of inventions made in the United States by United States industry and labor; ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and minimize the costs of administering policies in this area. The nonprofit organization and small business firm recipients of federal funding supporting research and development have a responsibility to act in a manner consistent with and supportive of these policies and objectives in managing the postdiscovery disposition of their research results.195 2. Increase University Discretion in How Utilization is Achieved In pursuit of this public mandate, the Act should not preempt university decisions about how to ensure the utilization of their discoveries and should not foreclose trajectories for patentable inventions that involve decisions not to patent. Rather, it should be designed to support disparate paths of technology development and transfer where they are likely to result in effective public utilization of university discoveries. To provide for this flexibility in pursuing alternative 195

This suggested revision seeks to retain much of the existing text, but it might make more sense to redraft the statement. The current statement reads as follows: It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area. Id.

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development paths, universities should be able to elect title to an invention without having to seek patent protection for the invention. The Act currently requires that the university agrees to file a patent application prior to any statutory bar date that may occur under this title due to publication, on sale, or public use, and shall thereafter file corresponding patent applications in other countries in which it wishes to retain title within reasonable times, and that the Federal Government may receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times.196 The university’s right to elect title should instead be based on a requirement to engage in reasonable efforts to support the public utilization of the invention, with patenting considered as one alternative strategy. Reporting requirements that follow this election of title should similarly be revised to reflect the shift from patenting and licensing to broader and more diverse technology and development efforts. These changes would give the university more discretion in determining how to satisfy broad goals of public utilization in light of competing opportunities and interests, with the chance to give equal consideration to strategies requiring patenting and those involving no patenting. Providing universities with this broader discretion will require restrictions on the ability of federal funding agencies to impose their own patenting and development requirements as a condition of federal research funding. The Act already provides that funding agreements must respect the right of the university to elect title to subject inventions except under certain conditions, such as “in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter.”197 There is little guidance as to what constitutes “exceptional circumstances.” The NIH recently proposed to use a determination of exceptional circumstances for two of the translational research programs run by its National Center for Advancing Translational Sciences (NCATS): the Therapeutics for Rare and Neglected Diseases and the Bridging Interventional Development Gaps programs.198 Without clear and sensible limits on what constitutes “exceptional 196

35 U.S.C. § 202(c)(3) (2006). Id. § 202(a)(ii). 198 Nat’l Insts. of Health, Preclinical Drug Development Services for the NIH Center for Translational Therapeutics (NCTT), National Center for Advancing Translational Sciences (NCATS), FED. BUS. OPPORTUNITIES (May 2, 2012), https://www.fbo.gov/ index?s=opportunity&mode=form&tab=core&id=45b3bb1ae6f1505ef1021e62cc36cdd3& _cview=1/ (“The National Center for Advancing Translational Sciences (NCATS) is seeking public comment on a proposed use of a Determination of Exceptional Circumstances (DEC), as provided for under the Bayh-Dole Act, for its Preclinical Drug Development Services Program.”). 197

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circumstances” this provision could undermine changes designed to give universities greater discretion in managing the post-discovery paths of their inventions.199 Instead of seeking to limit university discretion, agencies should be encouraged to work with universities to identify common goals and strategies, particularly in areas involving federally supported public-private partnerships such as the NCATS programs mentioned above. In addition to removing the requirement to patent in order to retain title, the Bayh-Dole Act should be modified to include any inventions developed by university employees and consultants using federal funds. The recent Supreme Court case Stanford v. Roche200 clarified that the obligations of the Bayh-Dole Act extend only to inventions assigned to the contractor-university.201 This case provided a forum for an intensified debate about whether inventors should have greater freedom to control their own inventions, and whether universities are effective intermediaries in moving discoveries into the market. This Article suggests that in light of the significant positive externalities that many federally funded discoveries can generate if managed properly, giving individual inventors more control over these discoveries is generally not a good idea. Universities are more likely to take the broader public interests into account, particularly if they are required to do so and held accountable for not doing so. Therefore, it would make sense to modify the Act to include all inventions that have been made with the use of federal funds.202 This change might reduce problems of gray market activity where faculty inventors working with industry or interested in their own entrepreneurial efforts seek to evade university decisions and control by failing to disclose inventions to the university or obtaining their own patents covering those inventions. Such an amendment would also alleviate pressures on universities to adopt lenient intellectual property policies solely to attract top research faculty.

199

Whether we should limit or broaden this use of exceptional circumstances by federal agencies such as the NIH depends on an assessment of relative institutional competencies for managing innovation in the public interest. Arti Rai and Rebecca Eisenberg have argued, for example, that federal funding agencies should be given more, not less, discretion over the disposition of IP rights in federal funding contracts. Rai & Eisenberg, supra note 9, at 291. Interestingly, the NIH in this case was seeking to allow for greater contractor control over IP rights rather than seeking to limit patenting to protect the public domain. Recent economic pressures on funding agencies to show faster and greater tangible returns from their funding decisions might be influencing their incentives and decision making in ways that could be less aligned with the long term public interest than they were in the past. 200 131 S. Ct. 2188 (2011). 201 Id. at 2194–99 (concluding Bayh-Dole Act does not alter the presumption that inventors own their own inventions in the absence of effective assignment of their rights). 202 Broadening the scope of Bayh-Dole in this way would only be a good idea if universities were incentivized to take seriously their roles as managers of post-discovery development paths in the public interest and were both rewarded and required to invest in the resources needed to ensure effective public utilization of their inventions.

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These measures need to be accompanied, however, by greater effort and accountability at the university level for ensuring effective utilization of faculty inventions with the public interest in mind. In addition, existing informal processes for taking the interests of the faculty inventors into account in technology transfer decisions should also be formalized and required. These processes should be designed to support the interests of and encourage the participation of faculty inventors in order to protect both the incentives and the autonomy interests of the inventors. The requirement for some kind of participatory technology transfer process when determining the future trajectory of a university discovery could be built into the Act, although only after careful research into the costs and effectiveness of alternative processes. These changes would still leave the university free to decide not to elect title to the invention, in which case it would be free from the additional obligations imposed by the Act. It is worth exploring whether the obligation to support public utilization of an invention should be one that the university can choose not to undertake rather than one it is required to satisfy. This Article suggests that universities should indeed be obligated to take a more active role in supporting the post-discovery development of their inventions. This obligation, however, should be construed more in terms of a fiduciary-like duty to act in the public interest when managing invention than in terms of strict guidelines for how each invention should be handled. Thus, this Article confines the public mandate to the revised preamble proposed above, rather than trying to incorporate a list of more specific requirements into the Act. 3. Increase Responsibility and Accountability Increased responsibility and accountability must accompany the expanded university discretion proposed in this Article. Currently, after creating the presumption of patenting and licensing as an effective vehicle for achieving the public utilization of university inventions, the Bayh-Dole Act leaves the mechanics of this commercialization process to universities. Moreover, there is little provision for effective government oversight.203 In principle the Act includes a collection of reporting and review provisions that together provide government oversight over university compliance with the Act and its underlying objectives. In practice, however, funding agencies have played the primary external role in guiding university practices through the use of suggested guidelines and moral suasion, and this with mixed success.204 This Article proposes an expansion of the limited review mechanisms in the Act, along with guidelines for how they are to be used.

203

See NAT’L RESEARCH COUNCIL, supra note 68. See David Malakoff, NIH Roils Academe with Advice on Licensing DNA Patents, 303 SCIENCE 1757, 1757–58 (2004) (discussing a disagreement between the NIH and funded universities). 204

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The limited review mechanisms include the following: The Act provides for a review by the comptroller general of the United States every five years.205 Government agencies may invoke an exception to the contractor title rule, but the administrative requirements and appeal process make invocation of the exception unattractive even in situations that might warrant intervention.206 The Act also includes march-in rights by the federal government under certain stated conditions involving the failure to utilize the technology or to make it available to address significant public needs.207 But although their use has been threatened, the marchin rights have never been granted, and they are unlikely to be exercised in their current form.208 In addition, federal agencies can audit grantees and contractors, and they can also issue recommendations and guidelines for licensing practices.209 These guidelines are typically not legally binding. Despite these provisions, or rather because of their limited nature, the federal government role in policing university technology transfer is limited to recommendations and to other methods of persuasion. Efforts should be made to reinvigorate this cluster of review mechanisms and put them to use in a clear, transparent, and coordinated way. In short, the mechanisms need to be used and designed in a way that encourages and enforces the responsibility of the university to pursue the public interest in access to and utilization of knowledge when electing title to its discoveries. One of the most limiting factors in encouraging accountability and rewarding performance is the absence of good metrics for measuring performance. Policy makers, working in partnership with different constituencies within the university, should identify and adopt appropriate metrics for evaluating compliance with the mandate and for measuring success. Universities as institutions are currently evaluated, and their reputations made or lost, based on metrics such as the amount of federal research funding received, the number and types of publications and citations, and other reputational factors tied largely to the perceived or actual research success of the institution.210 Within research universities, the various 205

Remington, supra note 70, at 18; see 15 U.S.C. § 3710c(c) (2006); 35 U.S.C. § 202(b)(3) (2000). 206 35 U.S.C. § 202(b) (2006); 37 C.F.R. § 401.6 (2011). 207 35 U.S.C. § 203. 208 John H. Raubitschek & Norman J. Latker, Reasonable Pricing—A New Twist for March-In Rights Under the Bayh-Dole Act, 22 SANTA CLARA COMPUTER & HIGH TECH. L.J. 149, 151–57 (2005) (discussing history of march-in rights prior to the passage of the Bayh-Dole Act and noting that the government never used such rights between 1980 and 2005). According to Raubitschek and Latker, “Several authors have suggested that the Government will never exercise these rights.” Id. at 157 n.31. 209 See 37 C.F.R. pt. 404 (2011) (describing agency procedure for patent licensing and technology transfer); Remington, supra note 70 (discussing rights and responsibilities of federal agencies to audit grantees and contractors for compliance with the Act and to issue recommendations and guidelines). 210 See generally LOMBARDI ET AL., supra note 134 (discussing university rankings and the challenges inherent in making and using such rankings); Ranking Systems

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constituencies concerned with the post-discovery innovation process are evaluated in ways that tend to ignore or discount their contributions to the effective dissemination of knowledge and discoveries for the public good. Technology transfer offices are currently evaluated primarily based on the number of patents filed, licenses entered into, and revenue earned. These metrics not only fail to capture many socially valuable technology transfer activities, but also distort the incentives of technology transfer professionals by rewarding only patenting and licensing.211 Principal investigators and other faculty members are evaluated and rewarded for publishable results rather than for investments in incremental improvements needed to push discoveries downstream. While investment in shared university infrastructure for developing and disseminating discoveries is badly needed, these investments are rarely rewarded. Variables that might contribute to improved metrics for capturing technology development and transfer include: (a) the number of post-discovery collaborations with industry that produced publishable results; (b) creation or growth of user communities; (c) investments in infrastructure that support the dissemination and use of knowledge, and size of audience reached; (d) number of applications developed for university discoveries; and (e) scope and effectiveness of skillsdevelopment programs for members of the university community who play some role in the invention and innovation process. Developing the right metrics is an ongoing project for a number of stakeholders in the university community, and their findings can augment this list. Efforts have been made to develop broader metrics for measuring knowledge transfer by universities, for example.212 The Association for University Technology Mangers has engaged in efforts to compare and evaluate technology transfer metrics in different countries and is seeking to create and generate support for new broader measures of the impact of university technology transfer activities.213 Organizations such as Universities Allied for Clearinghouse, INST. FOR HIGHER EDUC. POL’Y, http://www.ihep.org/Research/ rankingsystemsclearinghouse.cfm (last visited Oct. 6, 2012) (providing metrics of various ranking schemes). 211 The need for greater accountability was emphasized in the National Research Council Report Managing University Intellectual Property in the Public Interest as one of the key recommendations for improving the current system, but with little detail about implementation. NAT’L RESEARCH COUNCIL, supra note 68, at 41–55. Efforts are also underway to establish new and better metrics for measuring the success of technology transfer. See Press Release, Nat’l Inst. for Standards & Tech., NIST to Help Speed Technology Transfer from Federal Labs (Nov. 8, 2011), available at http://www.nist.gov/director/techtransfer-110811.cfm (discussing NIST’s efforts to improve metrics). 212 MARTIN HOLI ET AL., METRICS FOR THE EVALUATION OF KNOWLEDGE TRANSFER ACTIVITIES AT UNIVERSITIES 1–15 (2008), available at http://ec.europa.eu/invest-inresearch/pdf/download_en/library_house_2008_unico.pdf. 213 John Fraser, Communicating the Full Value of Academic Technology Transfer: Some Lessons Learned, TOMORROW’S TECH. TRANSFER, Winter 2009, at 9, 13–14, available at http://www.research.fsu.edu/techtransfer/documents/Communicating%20the% 20Full%20Value%20of%20Technology%20Transfer.pdf.

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Essential Medicines have proposed additional metrics based on access principles.214 Once appropriate metrics have been identified, universities should be required to provide annual reports based on these metrics and these reports should be submitted to a reviewing agency and made available to university constituents. In addition to metrics, a key aspect of increasing responsibility and accountability is finding the funds to support adequate investments in technology development and transfer infrastructure. Efforts need to be made to incorporate funding for technology transfer activities and, more particularly, funding for innovations in technology practices, as part of the legal framework. The Stevenson Wydler Act, which governs technology transfer from government labs, requires a certain portion of funds to be set aside for funding technology transfer activities.215 This at least recognizes technology transfer as an important part of the function of federal labs. SBIR and STTR programs, both targeted at early stages of development of new inventions by small businesses, receive funding from required contributions from government agencies with extramural research and development budgets exceeding $100 million (for SBIR funding) or $1 billion (for STTR funding). While a similar funding requirement for university technology development and dissemination could be built into the Bayh-Dole Act, this would be an unfunded mandate and add stress to an already bleak university funding picture. As an alternative, funding requirements could be attached to public grants. For example, this amendment could require universities to direct some of the portion reserved for indirect costs to support technology transfer efforts. As discussed below, an alternative, or perhaps complementary, approach might be to reward universities’ organizational innovation efforts that result in improved technology transfer outcomes. Government agencies such as the NSF and the NIH have made modest inroads in supporting organizational innovation, but their efforts add up to a small percentage of their total funding and much more needs to be done.216

214

The Universities Allied for Essential Medicines conducted a pilot survey of the effects of access to essential medicines provisions that have been incorporated in some university technology licensing guidelines, with the goal of identifying and encouraging practices that facilitate access. Access Metrics Index, UNIVS. ALLIED FOR ESSENTIAL MEDS., http://essentialmedicine.org/projects/metrics/access-metrics-index/ (last visited Oct. 5, 2012). 215 For an overview of this and other aspects of the Stevenson Wydler Act, see Howard Bremer, U.S. Laws Affecting the Transfer of Intellectual Property, in INTELLECTUAL PROPERTY MANAGEMENT IN HEALTH AND AGRICULTURAL INNOVATION 265, 266 (Anatole Krattiger et al. eds., 2007), available at http://www.ipHandbook.org/ handbook/chPDFs/ch03/ipHandbook-Ch%2003%2009%20Bremer%20US%20Laws%20 and%20TechTransfer.pdf. 216 The NIH has made modest efforts to do this with programs such as the CTSAs and its newest funding for centers for accelerated innovation. The NSF has made similar efforts. See supra note 31 and accompanying text, and infra note 222 and accompanying text (discussing new programs for accelerated innovation at NIH and NSF).

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4. Reduce Collective Action Problem Although universities operate with a mandate that reflects the public interest, they are also private actors competing with each other for faculty, students, grants, industry partners, and other resources. Competition occurs not just between universities, but also within universities as different constituents compete for limited resources. Universities, as consumers of knowledge, benefit from a robust public domain for use in training, scholarship, and research. But they each have private incentives to delay or restrict the use of inventions that may confer competitive advantages in research efforts. If a professor at one university discovers an invention that the university can use as a key research tool to spur more inventions in a cutting edge research area, the university will be in no hurry to allow its competitors free access to the same key research tool. Moreover, by controlling access to the research tool, the university with control over this asset has a greater ability to retain the inventor as an employee. In this sense, although universities as a group may be better off with rules that ensure access to inventions for research use, the university that controls a cutting edge discovery may be better off by restricting collective access. To date, efforts have been made to address this and other collective action problems through the development of group norms rather than through legal change. Efforts include the issuance of a set of guidelines for university licensing practices advocated by a group of top research universities.217 The Association for University Technology Transfer Managers and most of the major U.S. research universities have endorsed this set of technology transfer guidelines.218 Despite the stated support for these guidelines, however, there is little evidence that informal measures such as these have been adequate to curtail universities’ self-interested actions in the face of increasing competition for scarce resources. Establishing provisions in the legal framework that explicitly recognize and address the most basic collective action problems may facilitate the adoption and sustainability of these broader, socially beneficial norms. Moreover, small shifts in the law accompanied by shifts in funding targets and requirements may together influence the competitive environment within which universities compete in ways that promote the reputational value of post-discovery development efforts. As a start, the collective action problem involving access to research tools and discoveries that are useful in further scientific discovery could be addressed by broadening existing reserved rights requirements under the Bayh-Dole Act to include not only governments, but also universities and their constituents for

217

See generally CAL. INST. OF TECH. ET AL., supra note 186 (recommending nine areas of consideration for universities engaging in licensing). 218 Endorse the Nine Points to Consider, ASS’N OF UNIV. TECH. MANAGERS, http://www.autm.net/source/NinePoints/ninepoints_endorsement.cfm (last visited Feb. 28, 2013).

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research use only.219 In addition, the costs and risks attached to being a first mover in new forms of university technology development and transfer could be reduced by pushing universities as a group to alter their traditional practices. If the Act requires universities to justify their decisions to patent, for example, they will have to think more carefully about alternatives. If the Act requires universities to report new metrics, they will have to pay more attention to the activities underlying these metrics. In other words, collective action problems in changing technology transfer practices can be addressed through collective pressure to reevaluate and justify existing practices. B. Proposed Changes to the Regulatory Framework The changes in the Bayh-Dole Act suggested above would need to be made in coordination with supporting changes in the regulatory framework that governs universities and their research and development activities. Universities are subject to a variety of federal, state and local regulations. Some of these regulations arise from universities’ government funding, some attach to the nonprofit tax status or other tax advantages conferred on universities, and others relate to the teaching and training functions of universities.220 Public universities are subject to an additional layer of regulations as a result of their status as state owned entities. This section focuses on a particular form of regulation—the use of funding targets and requirements—as a means of supporting universities in their role as managers of innovation, leaving other regulatory paths for future inquiry.221 In particular, this Article argues that the regulatory framework would provide a better framework for innovation if it were altered to (1) provide more support for development, (2) reward effective technology transfer, and (3) account for new metrics in determining success. 1. More Support for Development Traditional funding strategies have focused on supporting research that leads to new discoveries.222 Yet, pressures on government funding agencies to respond to 219

Dreyfuss, supra note 113, at 1192–95; Dreyfuss, supra note 109, at 399–411 (discussing problems associated with collaborative research and suggesting the law could better account for the collaboration inherent in modern science research). 220 See O’CONNOR ET AL., supra note 55 (describing the legal context for university intellectual property and technology transfer). 221 While an overview of the regulatory structure as a whole and the ways in which the rules work together to shape university activities and policies is beyond the scope of this Article, an investigation into how various regulations could be modified to support responsible management of university inventions would be an important next step in implementing this Article’s suggestions. 222 NSF’s annual budget represents about 20% of the total federal budget for basic research conducted at U.S. colleges and universities, and this share increases to about 60% when medical research supported by the NIH is excluded. In many fields NSF is the

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the “valley of death,” when public funding ends without sufficient private sector support, and to demonstrate tangible returns from the investment of public money have prompted policymakers to rethink their funding strategy. Recognizing the challenges of securing private funding for very early stages of post-discovery research and development, policymakers have created grants that are targeted at later stages of development, primarily through support for small businesses that work alone or in collaboration with research institutions pursuant to SBIR and STTR grants.223 These sources of funding are modest in comparison to the much larger resources devoted to basic research and they do not play a significant role at the university end of research and development.224 Recognizing the limitations of existing approaches, the NIH and the NSF have increasingly focused on funding strategies to support what they term “translational research”—research focused upon bridging the gap between discovery and application.225 The NIH, for example, is moving slowly and modestly down the path of rewarding organizational innovation with programs such as the NIH Clinical and Translational Science Awards, which provide funding and organizational support for developing and sustaining creative public-private partnerships and multi-institution consortiums that focus on translational research.226 The NSF has a cluster of programs such as Engineering Research

primary source of federal academic support. See generally NAT’L SCI. FOUND., FEDERAL FUNDS FOR RESEARCH AND DEVELOPMENT: FISCAL YEARS 2009–11 (2012), available at http://www.nsf.gov/statistics/nsf12318/pdf/nsf12318.pdf (providing an overview of NSF funding and the percentage of funding that goes towards college and university research and development). 223 See Bremer, supra note 215, at 270–72 (describing the SBIR program); About SBIR, SBIR/STTR, http://www.sbir.gov/about/about-sbir/ (last visited Jan. 13, 2013) (describing the SBIR program, mission, and general program overview); About STTR, SBIR/STTR, http://www.sbir.gov/about/about-sttr/ (last visited Jan. 13, 2013) (detailing the STTR program, mission, and general program overview). 224 The SBIR program is a set-aside program (2.6% of an agency’s extramural budget in FY2012) for domestic small business concerns to engage in research/research and development (R/R&D) that has the potential for commercialization. Federal agencies with extramural R&D budgets over $1 billion are required to administer STTR programs using an annual set-aside of 0.35% (FY2012). Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs, NAT’L INSTS. HEALTH, http://grants.nih.gov/grants/funding/sbirsttr_programs.htm (last visited Dec. 15, 2012). 225 The NIH Roadmap for Medical Research was launched in September 2004 to address roadblocks to research and to transform the way biomedical research is conducted by overcoming specific hurdles or filling defined knowledge gaps. See About the NIH Roadmap, supra note 31; NAT’L SCI. FOUND., DIRECTORATE FOR ENGINEERING: THE ROLE OF THE NATIONAL SCIENCE FOUNDATION IN THE INNOVATION ECOSYSTEM (2010), available at http://www.nsf.gov/eng/iip/innovation.pdf (describing the NSF’s strategy, which includes emphasis on and development of translational research). 226 See Clinical and Translational Science Awards, NAT’L CENTER FOR ADVANCING TRANSLATIONAL SCI., http://www.ncats.nih.gov/research/cts/ctsa/ctsa.html (last visited Jan. 19, 2013). The National Center for Advancing Translational Sciences was established to

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Centers, Industry/University Cooperative Research Centers, and the Partnership for Innovation that focus on bridging the innovation gap through public-private partnerships.227 These efforts, however, miss the same fundamental issue emphasized in this critique of technology transfer: the need for a changed university role in managing the dual nature of research efforts as both knowledge-producing and productdriven activities. 2. Rewards for Effective Technology Transfer All universities should be paying attention to and fostering alternative pathways for the development and dissemination of knowledge.228 With very few exceptions, however, organizational innovation aimed at achieving technology transfer objectives has not been central to university planning, and investments in organizational innovation have not been adequately rewarded.229 Universities compete based on their knowledge-based capabilities, and thus have incentives to arrive at new and improved forms of knowledge production. These same kinds of broad based improvements in managing the post-discovery paths for this knowledge will only take place if competition among universities—for funding, for faculty, for other scarce resources—captures efforts to innovate in technology transfer. This is related to the collective action problems discussed above. The historical neglect of organizational innovation directed at technology development is starting to change. This change is driven in large part by incentives from local and state governments eager to see new local jobs and businesses. Not surprisingly, efforts at organizational innovation appear to be more prevalent and more pronounced at state universities because they feel more pressure to engage in local economic development activities. Experiments are targeted at a variety of different barriers to effective utilization of university inventions. Many take the coordinate existing programs and develop new programs to facilitate translational research. National Center for Advancing Translational Sciences, NAT’L INSTS. HEALTH, http://www.ncats.nih.gov/ (last visited Dec. 13, 2012). 227 See Steven McKnight et al., Dear Colleague Letter: Supplemental Opportunity for Translational Research in the Academic Community (TRAC), NSF 10-044, NAT’L SCI. FOUND. (Mar. 10, 2010), http://www.nsf.gov/pubs/2010/nsf10044/nsf10044.jsp; NAT’L SCI. FOUND., supra note 225. 228 The decentralized organizational structure of universities allows for experimentation around alternative structures. The autonomy that universities have allows for responsiveness to local resources and constraints, including the dictates of geography and the research base and research outputs of the university. Not all research universities may need a technology transfer office, for example, and not all universities should be engaging in patenting. But all research universities should be engaging in efforts to plan for and support effective post-discovery pathways for their inventions. 229 See generally MARYANN P. FELDMAN & JANET BERCOVITZ, ORGANIZATIONAL STRUCTURE AS A DETERMINANT OF ACADEMIC PATENT AND LICENSING BEHAVIOR: A SURVEY OF AMERICAN RESEARCH UNIVERSITIES 1–3, 9–10 (2010) (discussing the different organizational approaches to technology transfers)

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form of centers and institutes directed at early-stage, translational post-discovery research and development efforts. Examples of these initiatives include the Deshpande Center at MIT230 and Georgia Tech’s GA Advanced Technology Development Centers (ATDC),231 which support the transition of novel early-stage research into privately fundable technologies. Local and state government initiatives such as the high-profile project to create a New York City–supported science and technology innovation hub are also prompting research institutions to extend beyond traditional research functions. Efforts to push discoveries further down the development path include Emory University’s Emory Institute for Drug Development, which aims to close the gap between early-stage drug discovery and clinical stages of development by providing capabilities for post-discovery drug development. These post-discovery capabilities seek to ensure a continuous progression path for Emory discoveries into clinical settings.232 All of these initiatives operate around the idea of entrepreneurship ecosystems designed to support the transition of knowledge into companies. Some universities have pursued aggressive commercialization strategies that focus on spinning out and supporting new businesses based on university discoveries. The University of Wisconsin, through its affiliated private, nonprofit IP holding company Wisconsin Alumni Research Foundation (WARF), has had one of the longest histories of university licensing and supporting startup ventures.233 Since the early 1990s WARF began to aggressively license its intellectual property to university startup companies, working actively to support the formation and growth of such companies and taking equity in many of them.234 Other universities are newer entrants to the startup world. The University of Utah provides an interesting example of organizational innovation. In 2005, the university created a new Technology Ventures Development Office, run by the former dean of its business school, to replace its former office housed within its 230

See Deshpande Center for Technological Innovation, MIT SCH. ENGINEERING, http://web.mit.edu/deshpandecenter/ (last visited Oct. 3, 2012) (describing the Deshpande Center). 231 About, ADVANCED TECH. DEV. CENTER, http://atdc.org/about/about/ (last visited Oct. 3, 2012) (describing Georgia Tech’s Advanced Technology Development Center). 232 EIDD Overview, EMORY INST. FOR DRUG DEV., http://eidd.emory.edu/eiddoverview/ (last visited Sept. 5, 2012); see Vertinsky, supra note 172 (providing further discussion of this and other university experiments with development). 233 WARF was formed in 1925 to manage a University of Wisconsin-Madison discovery directed to curing the childhood disease rickets. It has focused on building partnerships between the University of Wisconsin-Madison and industry. Some of these partnerships, and the underlying licensing structures, have been controversial. See generally Sanjay Jain & Gerard George, Technology Transfer Offices as Institutional Entrepreneurs: The Case of Wisconsin Alumni Research Foundation and Human Embryonic Stem Cells, 16 INDUS. & CORP. CHANGE 535, 535–36 (2007) (providing an indepth discussion of WARF and its role in stem cell technologies). 234 See For Startups, WIS. ALUMNI RES. FOUND., http://www.warf.org/startups/ index.jsp (last visited Oct. 3, 2012) (providing general information about WARF’s relationship with start-up companies).

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research administration office.235 This organizational change was a direct reflection of the objectives of the university’s leadership and the culture of entrepreneurship that has been fostered among members of the university community.236 According to the Association of University Technology Managers (AUTM) 2009 data, the University of Utah spun out more new companies than MIT or CalTech in 2009.237 The University of Maryland has engaged in similar concerted efforts to encourage a culture and provide an infrastructure that fosters entrepreneurship. These efforts include a joint effort between technology transfer offices on different campuses called UM Ventures, a creation of the Maryland Technology Enterprise Institute that seeks to align incentives in support of translational research by expanding tenure requirements to incorporate patents and start up activity.238 The university’s initiatives have been supported by and taken in conjunction with aggressive efforts by the state government to encourage and fund technology transfer and commercialization, efforts that resulted in a recent U.S. Chamber of Commerce ranking of the State of Maryland as number one in entrepreneurship and innovation.239 The University of Michigan has been involved in a similar state-initiated drive to encourage local start-ups based on state university technologies.240 Its efforts include the Michigan Venture Center, which assists with business funding and strategies,241 and the Venture Accelerator, which provides incubator space and resources for businesses based on the university’s technologies.242 Most recently the university invited the Michigan Venture Capital Association to move onto campus, opening a collaboration office at the University of Michigan’s Tech

235

See Technology Venture Development, U. UTAH http://www.techventures.utah.edu/ (last visited Oct. 3, 2012). 236 Id. Institutional developments are not limited to research faculty, but extend to students through programs such as a center that encourages students to commercialize new inventions. See Lassonde Entrepreneur Center, U. UTAH, http://www.lassonde.utah.edu/ (last visited Oct. 3, 2012) (highlighting the availability of resources available for entrepreneurial students at the University of Utah). 237 Courtney Rubin, University of Utah Leads the Nation in Startup Creation, AM. EXPRESS OPEN F. (Dec. 2, 2011), http://www.openforum.com/articles/university-of-utahleads-the-nation-in-startup-creation/. 238 About Mtech, U. MARYLAND, http://www.mtech.umd.edu/ (last visited Oct. 3, 2012) (explaining the Maryland Technology Enterprise Institute). 239 Press Release, Univ. of Md., University of Maryland Leadership Shows as State Named #1 in Entrepreneurship and Innovation (June 28, 2012), available at http://www.newsdesk.umd.edu/mail/mail_form.cfm?ArticleID=2730/. 240 Resources for Start-up Ventures, U. MICHIGAN, http://www.techtransfer.umich.edu/resources/venturecenter/index.php (providing information about available resources for start-ups seeking to use University of Michigan technology). 241 Id. 242 Id. (providing a basic overview of the Venture Center as well as more detailed information on how the Venture Center helps foster start-ups).

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Transfer’s Venture Accelerator.243 Georgia Tech’s GA Venture Labs and related programs and facilities for moving discoveries into companies resemble the University of Michigan efforts, again relying on support from the state government.244 These examples are simply illustrations of the experimentation underway in U.S. research universities, most of it relatively recent and focused on traditional patenting and commercialization pathways for university discoveries. The experiments discussed above underscore the importance of concerted efforts by state and local governments, local industry, and universities in supporting successful innovation ecosystems. More work needs to be done, however, in examining and refining the legal and regulatory structures that support the various partnerships and collaborations that are emerging in this new technology development and transfer space. In many cases the intellectual property implications of encouraging public-private collaborations within university campuses have not been fully explored. Organizational innovation needs to be evaluated and rewarded in ways similar to technological innovation.245 Competition among universities engaged in organizational innovation directed at post-discovery development paths for their research results should be encouraged and extended to new and improved forms of knowledge development and transfer. Financial and reputational rewards need to be extended to include investments in technology development and transfer capabilities, particularly innovations in these capabilities. Public funding agencies, as well as philanthropic organizations with public interest objectives, can play a role both in incentivizing these kinds of experiments and in shaping the directions that these experiments take in light of competing public and private interests in the production and use of knowledge. Alternative ways of doing this might include specific funds for organizational innovation such as the infrastructure grants recently proposed by the NIH, prizes for universities who engage in socially beneficial technology development and transfer initiatives, and efforts to augment funding for existing research projects if robust plans for further development and application accompany those efforts.

243

See Press Release, Univ. of Mich., U-M Venture Accelerator to Welcome Michigan Venture Capital Association and an 18th Startup Company (June 22, 2012), available at http://ns.umich.edu/new/multimedia/videos/20609-u-m-venture-accelerator-towelcome-michigan-venture-capital-association-and-an-18th-startup-company/. 244 See Venture Lab: A Unit of the Enterprise Innovation Institute, GA. TECH, http://venturelab.gatech.edu/ (last visited Jan. 13, 2012) (describing the Georgia Tech Venture Lab). 245 The importance of organizational innovation as complementary to technological innovation has long been emphasized in the organizational policy literature. See generally ALFRED D. CHANDLER, JR., STRATEGY AND STRUCTURE: CHAPTERS IN THE HISTORY OF THE AMERICAN INDUSTRIAL ENTERPRISE (1962) (highlighting the importance of organizational innovation as complementary to technological innovation and noting that it has long been emphasized in the organizational policy literature).

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3. New Metrics for Determining Success As discussed above,246 the quest for new metrics that effectively measure the performance of technology transfer offices has been underway for a number of years. This quest has been spearheaded by technology transfer professionals who recognize the disconnect between revenue-based indicators and a broader mission of public utilization of knowledge.247 New metrics are required to reflect public benefits from different modes of technology transfer, including efforts to preserve the openness of technologies that are important to further research, efforts to increase access to proprietary materials that are important research tools, and experimentation with alternative modes for disseminating technologies.248 Funding agencies are only now starting to grasp the importance of incentivizing public infrastructure investments in technology development, but they are still anchoring their review metrics on the number of products that move into later stages of commercial development.249 C. Responding to Competing Proposals for Institutional Change While many agree that the current system of technology transfer needs to change, disagreement continues about where and why the current approach fails and what to do about it.250 Existing proposals for reform of the university system of technology transfer advocate decreasing the discretion of universities in determining when and how university-generated research results are commercialized, either by increasing the control of public agencies over patenting and licensing decisions or by increasing the role of private markets in determining 246

See supra Part III (suggesting current metrics used to measure technology transfer offices distort the true performance of these offices). 247 See, e.g., NAT’L RESEARCH COUNCIL, supra note 68, at 59–67. 248 See, e.g., Mary S. Spann et al., Measures of Technology Transfer Effectiveness: Key Dimensions and Differences in Their Use by Sponsors, Developers and Adopters, 42 IEEE TRANSACTIONS ON ENGINEERING MGMT. 19, 19–23 (1995) (recognizing limitations of existing metrics and articulating an “exploratory, empirically based taxonomy of current metrics” to evaluate the effectiveness of metrics used by different actors in technology transfer). 249 See, e.g., RFA-HL-13-008: The NIH Centers for Accelerated Innovation (U54), supra note 31 (establishing centers to facilitate translation of “novel early stage scientific advances and discoveries into commercially viable products . . . that improve patient care and advance public health”). 250 See, e.g., Press Release, Ewing Marion Kauffman Found, Kauffman Foundation Experts’ Solution for University Technology Licensing Reform Named to List of “Ten Breakthrough Ideas for 2010” by Harvard Business Review (Dec. 17, 2009), available at http://www.kauffman.org/newsroom/kauffman-foundation-experts-solution-named-to_listof-ten-breakthrough-ideas-for_2010-by-harvard-business-review.aspx (announcing free market approach to eliminate bottlenecks caused by channeling innovation through technology transfer offices). Advocates of a more robust public domain for early-stage university discoveries point to potential failures in systems of cumulative innovation.

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when and how inventions are utilized. To the contrary, universities should be given more discretion in managing the development paths for their inventions. This is not to say that universities are ideal organizations for this task, only that their organizational characteristics may enable better outcomes than existing alternatives. 1. Can the Market Do Better? Influential proponents of free enterprise argue that universities impede technology transfer by making it too difficult and expensive for entrepreneurs to secure rights to university inventions.251 As evidence that universities are ineffectual intermediaries impeding technology development, advocates of this increased-market-access position point to the large number of university inventions that remain undeveloped, the poor rate of return on federal funding, and to examples of fundamental discoveries coming out of U.S. universities, such as solar panels, that are not effectively transferred to U.S. industry but instead are picked up and developed by foreign competitors.252 This group focuses on removing barriers to the commercialization of university discoveries by the private sector. They point to the competencies of private markets as vehicles for commercialization and the benefits of streamlining processes that move inventions into the hands of entrepreneurs.253 Proposals include streamlining licensing procedures and increasing opportunities for inventors to control their own inventions.254 While streamlining negotiation and licensing practices and otherwise minimizing the role of the university in transferring patent rights into the hands of the private sector might reduce some transaction costs some of the time, there is little if any evidence that university licensing costs are an important, let alone the most important, source of technology transfer failures. There are many other important barriers that arise in moving a knowledge-intensive discovery into commercial development, and the private sector has not demonstrated the ability or the interest in finding ways to overcome many of these barriers. Indeed, in many industries firms are looking for ways to downsize their early-stage development activities, the pharmaceutical industry being a prominent example. It is not 251

Breakthrough Ideas for 2010, HARV. BUS. REV., Jan.–Feb. 2010, at 41, 52–53; Press Release, Ewing Marion Kauffman Found., supra note 250. 252 Creating an open, competitive licensing system for university innovators is one of Harvard Business Review’s “Ten Breakthrough Ideas for 2010” and the brainchild of researchers at the Ewing Marion Kauffman Foundation. Press Release, Ewing Marion Kauffman Found., supra note 250. According to the Kauffman Foundation, its solution is one of the ten ideas that “will make the world better.” Id. 253 Id. 254 See JOSEPH M. DESIMONE ET AL., EWING MARION KAUFFMAN FOUND., FACILITATING THE COMMERCIALIZATION OF UNIVERSITY INNOVATION: THE CAROLINA EXPRESS LICENSE AGREEMENT 3–6 (2010), available at http://www.kauffman.org/ uploadedFiles/UNCagreements_4-19-10.pdf.

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surprising that many of the proposals made, particularly those focusing on increasing the rights of faculty-inventors to control the rights to their inventions and those seeking to encourage competition among technology transfer intermediaries, are sketchy on the details of how such schemes would be implemented. This market-focused approach also neglects the significant costs associated with moving valuable knowledge-intensive discoveries too quickly and too comprehensively out of the public domain. Private actors will not take into account the full social benefits of knowledge assets when making decisions about alternative development pathways, resulting in underuse of many socially important discoveries and neglect of potentially valuable alternative pathways for moving inventions into public use. 2. Can the Government Do Better? A second group of commentators argues forcefully for strengthening the public domain of knowledge and suggests that the government will be better than alternative institutions at guarding this domain.255 Reasons for preferring government involvement include concerns that universities are too much like private market actors concerned with maximizing licensing revenue at the expense of protecting the public interest in access to inventions. Some advocates of this position emphasize the importance of open public access to early-stage discoveries and the need to protect norms supporting universities as sites for “research commons” through public mandate.256 Some point to failures in systems of cumulative innovation, particularly in the life sciences industry where patents on early-stage platform technologies such as stem cells and genes threaten to impede cumulative discovery and interfere with the operations of academic science.257 Proposals for reform to increase the role of government in managing postdiscovery innovation are directed at increasing public control over the fruits of federally funded research. This public control would be achieved through measures such as broader research-use exemptions and greater discretion on the part of government agencies to restrict the patenting and exclusive licensing of inventions that are key inputs in further innovation.258

255

See Rai & Eisenberg, supra note 9. See, e.g., Eisenberg, supra note 7; Frischmann, supra note 12; Rai, supra note 12; Strandburg, What Does the Public Get?, supra note 12; see also Merges, supra note 14 (discussing the notion of academic science as a semicommons and importance of watching the interplay of patenting with trends in the semicommons); Peter Lee, Contracting to Preserve Open Science: Consideration-Based Regulation in Patent Law, 58 EMORY L.J. 889, 899 (2009) (suggesting that consideration-based contracting may be a way of managing the tension between the public and private functions of technology transfer). 257 See Rai & Eisenberg, supra note 9 (arguing for greater control over patenting and licensing decisions by public funders such as the NIH). 258 See Dreyfuss, supra note 14. But see Lee et al., supra note 91. 256

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A core theme running through arguments for expanding agency control over technology development decisions is the fear that universities will not sufficiently incorporate public interests into their decision making.259 One of the major concerns voiced by critics of existing technology transfer practices is that universities are aggressively patenting early-stage technologies that should instead be contributed to the public domain or, at the very least, made available on a nonexclusive, low cost basis.260 The NIH shares in these concerns, and has responded by issuing nonbinding guidelines concerning the patenting of research tools.261 While there are legitimate concerns about the ability of universities to act in the public interest, as discussed further below, this Article suggests that getting the incentives right for universities, rather than relying on agency guidelines and enforcement, could nonetheless yield better outcomes. Many agency guidelines concerning patentability and licensing practices are responsive rather than proactive, and they sweep with a broad brush rather than being tailored to the characteristics of the invention and the development potential. Moreover, agency resource-allocation decisions are not themselves immune from the influence of private interest groups.262 Approaches that focus on the initial decision makers will go much further in developing and sustaining norms and institutionalizing technology transfer practices that support effective management of university inventions for public benefit.263 If universities do indeed share core values about

259

See Rebecca S. Eisenberg & Robert R. Nelson, Public vs. Proprietary Science: A Fruitful Tension?, 77 ACAD. MED. 1392, 1392–95, 1398–99 (2002) (examining the question of what should be public and what should be private in scientific research, and concluding by reasserting the value of public science as a broadly valuable and enabling social commitment that extends beyond the products or technologies it spawns); Rai & Eisenberg, supra note 9 (suggesting that universities will not adequately reflect the broader public interest when making patenting decisions and that government agencies such as the NIH should therefore be given more discretion to determine when publicly funded research should be committed to the public domain). 260 Eisenberg & Nelson, supra note 259; Rai & Eisenberg, supra note 9. 261 In 1999 the NIH released a policy called Sharing Biomedical Research Resources: Principles and Guidelines for Recipients of NIH Research Grants and Contracts, 64 Fed. Reg. 72,092, which addresses concerns about the exchange and availability of a wide variety of research tools and materials. 262 See, e.g., Pierre Azoulay et al., NIH Peer Review: Challenges and Avenues for Reform 2 (Nat’l Bureau of Econ. Research, Working Paper No. w18116, 2012); see also Deepak Hegde & Bhaven Sampat, Interest Groups, Congress, and Federal Funding for Science (Nov. 5, 2011) (unpublished manuscript), available at http://ssrn.com/ abstract=1962937 (effects of interest groups on allocation of public funds for science). 263 See generally Frischmann, supra note 79 (discussing universities’ decisions concerning the degree to which they participate in the process of commercializing research); Rai, supra note 12 (discussing the current debate about the proper scope of intellectual property rights in noncommercial scientific research). But concerns have been raised about the ability to sustain such norms and the need to consider seriously proposals

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the production and dissemination of knowledge for the public good, then finding ways to ensure that these values are translated into university decisions will be far more effective than having third party rules governing university practices.264 3. Trusting Universities One of the biggest concerns with vesting more control over how universities use inventions remains anxiety over whether universities can be trusted to make decisions that reflect social benefit. Universities already have in place mechanisms for managing the inevitable tensions between public and private activities that can be usefully employed in this broader context.265 They have systems for managing conflicts of interest in the research process that extend naturally to decisions following discovery. But these systems are notoriously imperfect. In addition, universities suffer from collective action problems, and the need to guard against some of the more egregious free riding activities of universities who want to both guard their own resources and benefit from a rich public domain for research is evident. The questions of whether “universities” can be trusted and who exactly it is that we are trusting must be taken seriously. We need to consider whether universities, as organizations, can muster the competence and motivation to make decisions that result in the largest public benefit and the incentive to select actions that favor public benefit over private interests. We also need to consider whether universities can make such choices with efficiency and good judgment, taking into account the implementation risks and costs of alternative strategies. Many of the changes proposed above are designed with these specific concerns in mind. Although these concerns about trusting universities are valid, we should at least explore whether measures like those suggested in this Article can begin to address them. A key part of this proposal involves finding ways of making universities both more responsible and more accountable for their performance in post-discovery research and development activities. Technology transfer should be broadly construed to capture diverse kinds of investments in the post-invention development and dissemination of inventions. This broader view of technology to amend the Bayh-Dole Act to give agencies such as the NIH more authority to limit the patenting of publicly funded research platforms. See Rai & Eisenberg, supra note 9, at 300. 264 Consider, for example, the role of AUTM (Association of University Technology Managers) in professionalizing and institutionalizing university technology transfer. AUTM has provided a valuable vehicle for raising concerns about university patenting and licensing practices that jeopardize the robust public domain that universities rely on to support research activities. Twelve universities from across the United States recently proposed a set of guidelines, called Nine Points to Consider in Licensing University Technology, which include reserving rights for research use, minimizing impact on followon innovation, and ensuring broad access to research tools. Supra notes 186, 218 and accompanying text. 265 Id.

2020

UTAH LAW REVIEW

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transfer should be more carefully and comprehensively integrated into the university’s defined public knowledge mission. Accountability could be improved by increasing the transparency and openness of the decision-making and funding processes for technology transfer efforts, particularly those designed to move inventions towards public use. Universities should be required to develop and publish clear guidelines that describe how university projects are selected for translational research and development, how they are funded, and what rights the various participants—particularly the inventors and investors—have in this process. Accountability can also be improved by developing metrics for measuring performance, similar to metrics such as the h-index that have been developed to measure academic impact. Factors to include in a technology transfer index could include the number of successful community partnerships in which knowledge changes behavior in a positive way, investment in or creation of technologies that facilitate the open sharing and use of ideas, and contributions made to the operations of consortiums that are emerging as forums for information sharing. Efforts are also required to encourage and reward organizational innovation that produces new modes of technology transfer. Examples worthy of reward include the development of new distribution technologies or new modes of open innovation. Universities, their constituents, and their regulators need to approach organizational innovation with the same gravity and determination as they do scientific and technological innovation. CONCLUSION For decades, U.S. innovation strategies have relied on universities as the engines for innovation while ignoring their potential as drivers of the innovation process. Even as increasing technology transfer failures have led U.S. policy makers to question the appropriateness of the current approach to university technology transfer, the marginalization of the university in the post-discovery management of inventions persists. As a result, the unique capabilities of universities and the opportunities they offer beyond their traditional domain of creating fundamental knowledge continue to be overlooked in the national search for solutions to innovation failures. If we are to improve innovation outcomes from university-based discoveries in the modern era of complex knowledge production processes, we need to abandon the traditional notion of universities as engines churning out inventions. We need to think instead of universities as guardians of inventions charged with navigating effective paths from discovery to public use. Universities have unique capabilities that can be harnessed to handle the inevitable modern overlap of public and commercial knowledge production in ways that serve the public interest. However, the legal framework governing technology transfer—both statutory and regulatory—must be rewired to take advantage of these capabilities. To make this shift from university as engine to university as driver, we need to alter how we think about, regulate, and evaluate the U.S. research university and its role in managing critical aspects of modern innovation processes. To effect this

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UNIVERSITIES AS GUARDIANS OF THEIR INVENTIONS

2021

I have suggested modest changes in the legal and regulatory framework that will facilitate an expanded role for universities in managing the destiny of their inventions.266 These changes are directed at increasing the discretion, responsibility, and accountability of universities in selecting and managing postdiscovery development choices for their inventions. The success of this proposal, of course, depends on concerted efforts by legislators, agency directors, and university officers and associations to support the kinds of organizational innovations needed to promote universities as effective and responsible managers of modern innovation pathways. Just as we expect universities to equip the students in their charge with the skills and vision needed to succeed in the modern world, we should also expect universities to move their discoveries along pathways that are most likely to support socially beneficial innovation. We have a unique opportunity to be innovative about innovation, and it should be exploited as vigorously as any new invention.

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Interestingly, and not surprisingly, this proposal coincides with a discussion about expanded roles for universities in the destiny of their student graduates in the face of challenging job markets.