Alan Greenspan coined the term “irrational exuberance” in 1996, when he was chairman of the Federal Reserve Board, to describe the attitudes of investors at the time. But the term is just as applicable to the current state of affairs in university technology transfer, the process by which academic inventions get commercialized.
Eager for new sources of revenue, and salivating over the promise of biotechnology in particular, universities are doing their utmost to move what is on the lab bench into the marketplace. Evidence of exuberance in that pursuit is clear from the growth in academic patenting since the paradigm-changing Bayh-Dole Act became law, 26 years ago, in effect putting the federal government on record as saying that privatizing the intellectual commons is good for the country’s economic development.
At first blush, the exuberance appears rational. Each year hundreds of new products patented by universities do reach the marketplace, collectively earning millions of dollars for academic institutions in licensing revenues. Florida State University has made over $200-million from its patent on Taxol; the University of Florida has earned over $80-million on Gatorade; and a patent on something as innocuous as a variety of strawberry brings the University of California around $3-million every year.
But it is indeed irrational exuberance, for two reasons. First, my research and that of others shows that after subtracting their operating costs — i.e., expenditures for patenting, staffing, and overhead — more than half of universities consistently lose money on technology transfer. Very few have experienced windfalls like those in Florida and California.
Second, technology transfer as universities currently practice it has created ethical conflicts that institutions have not adequately responded to. For example, financial interests at times cloud institutional or faculty judgment: Universities have allowed businesses that support research to control its publication; professors have used students as cheap labor for companies that license a patented product, sometimes to the detriment of the students’ education. And although federal regulations require faculty members to disclose potential financial conflicts of interest, colleges and universities vary in how thoroughly they enforce such requirements and are under no obligation to report their own possible conflicts of interest.
It is not rational to tolerate those sorts of threats to academic integrity, which is the basis of the research university. Academe may get away with ethical violations for a time, but they will eventually erode the public trust and jeopardize far more than just revenues from patents. That sort of behavior ultimately threatens support for federal research grants and state appropriations, and is likely to lead to new federal and state regulation of academic institutions.
I am not opposed to technology transfer. But universities need to rethink their current hopes and practices if they are to realize the true intent of Bayh-Dole: to increase the number of technologies that, with the help of federal money, are developed in academe, and to speed up their progress into the marketplace. That is what I call the public-benefits mission of the legislation. Although Bayh-Dole sought to use the lure of profits to achieve that mission, the current technology-transfer process has done a better job of raising universities’ financial hopes than it has of realizing them.
University leaders need to let go of their dreams of windfalls. Such expectations are not realistic. Furthermore, the hope for blockbuster revenues may actually work against the intent of Bayh-Dole. If administrators place royalty and stock-ownership terms ahead of decisions about the best way to get a technology into the marketplace, they may create an environment of secrecy, which is never good for academic innovation; license a basic technology to a single company, which could hamper further development; and become all too quick to sue for patent infringement, risking large sums of money and sending the ill-advised message that academe considers research private, not public, property.
In contrast, focusing on the public benefits of technology transfer correctly emphasizes getting the technology into the marketplace as efficiently as possible, with concerns about revenue playing no more than a secondary role. Thus, for example, universities would be more reluctant than they currently are to license a basic technology exclusively to one business, or to license it for only narrow uses. In addition, they would insist on the unimpeded rights of researchers — including those who are not parties to a licensing contract — to conduct follow-up work.
A program driven by public benefits would also insist on transparency in the terms of licensing deals, including the financial arrangements and the inventor’s involvement with the licensing company’s activities. My analysis of documents filed with the U.S. Securities and Exchange Commission reveals that while some universities and their licensees make such information public, many do not. All universities should insist on disclosure; their integrity depends on it.
Transparency, of course, means reporting on an invention’s full costs as well as the revenues, to give a more complete financial picture, and also providing updates on how a technology is being used in the marketplace. That sort of information could appear in a university’s annual reports. The fact that some companies already disclose in news releases or government filings information that other corporations consider proprietary suggests that greater transparency is possible — especially if it becomes a norm for companies doing business with universities.
The bitterest pill that university leaders and technology-transfer officers must swallow, though, is a willingness to miss out on a possible lottery win. All of the actions I am recommending are predicated on a willingness to let the big one get away.
A helpful example is the story of Indiana University and fluoride. The university patented the addition of fluoride to toothpaste in the early 1950s and licensed the discovery to Procter & Gamble, which included fluoride in its new brand of toothpaste, Crest. By the time the patent expired, in the mid-1970s, the university had received about $4-million in royalties. Today’s licensing administrators would probably have insisted on tying royalty payments to product sales rather than to the amount of fluoride in each toothpaste tube, as their predecessors did. Using a sales basis might have resulted in more than $100-million in royalties to the university.
Viewed through a public-benefit lens, though, surely society won. Had the university insisted on a greater share of the profits, Procter & Gamble might have walked away from the deal, or charged more for the new toothpaste. In either case, the public’s dental health would not have improved as rapidly as it did.
State and federal policy makers can do much to encourage universities to pay more attention to public benefits than to revenues. First, legislators must realize what they now do to stimulate irrational behavior. One problem is that they are offering universities incentives to contribute to economic development — like targeted grant programs or funds available only to institutions that meet certain development goals. One natural response to the incentives is for a university to set up its own tech-transfer office, business incubator, or business-development program, all of which require substantial investment of resources.
Policy makers should realize that not all universities are well suited to technology transfer. For example, those located in rural areas may not have easy access to potential licensee companies or to venture capital to support the smaller, regional businesses that often license university technologies. And many institutions do not produce large amounts of research suitable for patenting and licensing.
Governments might do better to insist that similar institutions pool their resources and to negotiate specific economic-development goals for a university on the basis of its mission, including its emphasis on teaching, research, and service. Regional state universities, for instance, are getting increasingly involved in technology transfer and look to flagship institutions as models. But establishing a stand-alone program might be less efficient or effective for a regional institution than sharing resources with other institutions of similar size, or setting up technology-licensing partnerships or subcontracts with flagships.
Legislators should also ask pointed questions of any university seeking funds — or even just approval — for activities related to technology transfer, like setting up an office to handle procedures, especially if the plan is to continue the activities for some time. Tying up money and staff members in work that does not fit well with an institution’s mission is always a poor idea.
Finally, it is time for legislators to insist that universities be more accountable when it comes to technology transfer. Academe is still struggling with conflicts of interest, despite calls by federal agencies and other groups for greater self-regulation by each university. State and federal governments should establish uniform policies to monitor conflicts of interest, or should expect academic associations and accrediting bodies to do so, if their members do not wish to risk losing state appropriations and federal grants.
As part of that reform, the federal government should require institutions to disclose possible conflicts of interest, following the model of regulations now in place for individual researchers. In addition, both federal agencies and universities should establish clear penalties for violations. At the moment, few have policies that spell out consistent consequences for breaches of ethical standards, such as when an individual or institution would be reprimanded, lose some privilege, or face disciplinary action or a fine.
Such changes could do much to shore up public confidence in the processes of both university research and commercialization of discoveries, as well as advance the public-benefit intent of the Bayh-Dole Act.
A hundred years ago, Frederick G. Cottrell, then a chemistry professor at the University of California at Berkeley, who is the father of the modern academic patent, worried that if universities became too directly involved in the management of patenting and licensing operations, their thirst for profits could lead to erosion of the openness that is necessary for research to flourish. Today his worries seem well founded. Irrational exuberance, at least at the moment, is carrying the day.
Joshua B. Powers is an associate professor of educational leadership, administration, and foundations at Indiana State University. This essay is adapted from his chapter in Privatization and Public Universities (Indiana University Press, 2006), edited by Douglas M. Priest and Edward P. St. John.
http://chronicle.com Section: The Chronicle Review Volume 53, Issue 5, Page B18