Questions Raised by “Free Agency” Tech Transfer Provisions in Startup Act

There’s been a lot of discussion among universities and others about the inclusion of the “free agency” concept in Section 7 of the Moran–Warner Startup Act (you can download the bill summary or its full text). This is the idea proposed by the Kauffman Foundation to allow professors to choose their own agents to help transfer their technology rather than be tied to their home university’s technology transfer office (TTO).

This post is not about the merits of the idea. (Frankly, I’m already on the record about that.) I’m writing this post to point out some key questions that need to be answered for such a plan to be realistically implemented.

First, let’s make sure we’re clear that “free” in this context refers to giving faculty inventors the freedom to choose the tech transfer professionals who help commercialize their technology. It does not mean “no cost.” So let’s start by considering the costs.

Before the technology can be marketed to licensees, it must be protected, especially given recent patent reform. For a U.S. patent alone, the cost is about $20K to $25K, mostly in attorney’s fees. Who will pay those fees? The innovators? Their home university? The “free agency”?

BTW: Kauffman fellows have asked why commercialization, controlled by the university’s tech transfer office, is any different than controlling the publication of academic papers, which is not a centralized function at universities but controlled by each faculty member. The main difference, as indicated above, is that there are significant costs and legal ownership issues associated with patents that are not present in publishing papers.

Perhaps the “free agency” would work on carried interest, covering all of the up-front costs of patenting and marketing in exchange for future royalties. This raises more questions:

  • How will the “free agency” select technologies and determine how many resources to commit? Won’t that decision be based on speed to the fastest profit? What if this decision doesn’t match up with long-term economic development goals or the university’s strategic goals for seeking future research funding?
  • Whose portion of the royalties will the “free agency” be paid from: the innovator’s, the home university’s, or both? A contract would have to be entered into by all three parties to be binding. Why? Because innovators do not usually have direct authority over their IP, which is owned by their home university as per their employment contract. Is the idea that the innovators would sign away some of their own royalties to pay the “free agency”?

This begins to raise more questions about the “free agency”:

  • If the “free agency” is another university, will that institution commit resources to an outside innovation over its home technologies? Won’t universities favor their home technologies, where they retain more of the royalty revenue and need to build relationships with their own faculty?
  • If the “free agency” is a consultant paid on a time-and-materials basis, how would those services be retained and paid for? Innovators cannot enter into such contracts on behalf of their home university, so are they paying for it themselves?

If innovators pay for the contracts themselves, this raises still more questions:

  • How will the innovators find and select the best company for the job?
  • Many TTOs currently augment their in-house resources with consultants, going through a competitive process to choose the consultant and have contracts executed by the university. Will innovators have the time and desire to do this themselves?
  • How will the university ensure that the consultant is reputable and has delivered as promised?

Again, I am not questioning the merit of the concept that freedom of choice begets access to better services. My point is: There are significant issues that must be addressed in order to implement the “free agency” concept. It won’t be easy, but working through these issues is essential before our government and universities move forward with adopting this concept.

From what I have seen of the discussions, the concerns university TTOs have with the “free agency” idea are not that their professors will abandon them and they will lose their jobs. The TTOs are concerned that the above implementation questions have been ignored and thus policy makers have not fully appreciated the ramifications of such a program, which may end up creating new problems and not solving the original issue of speed to market.

Does anyone have answers to these questions? I for one would love to hear them.

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4 Responses to Questions Raised by “Free Agency” Tech Transfer Provisions in Startup Act

  1. James R. Lowell, Jr., Ph.D. says:

    There is another problem not mentioned above, regarding the comparison of the patenting process to publishing research papers. Publication costs are an allowable expense on Federal grants; patent costs are not. Not only is publishing far less costly, to the professor himself it is without cost. Any page charges are paid for from the grant. Few professors have the funds to apply for patents on their inventions. The ones that do very likely obtained that wealth from royalties they received from their TLO. Baye-Dole has served the US extremely well since its inception; it is NOT broken, and we don’t need any ill-advised fixes. I have been a licensing professional since 1982, with for-profit companies, and that’s my opinion.

    • Laura Schoppe says:

      Jim, you bring up a good point on professor motivations. In addition to the “who pays” aspect of patenting v. publication, there is also the rewards aspect for tenure track. Professors need to have publications for tenure and not all universities recognize (or encourage) the use of patents as part of that reputation building. (Actually, R&D Magazine recently posted something about this very issue.) Timing is also a problem with patent v. publish—a paper may take months to go through the review process before being published but a patent takes years before the professor can proclaim that they have a “published patent” to add to their resume.

  2. Sam Finegold says:

    Ms. Schoppe,

    I am interested in hearing your opinion of Melba Kurman’s solution: http://triplehelixinnovation.com/keep-the-baby-and-the-bathwater/477

    Ms. Kurman proposes delaying the use of the free agency model for a period of time and giving the TLO first pickings on patents. If the TLO does not act to license an invention within a certain time frame, then the professor has the right to seek a license by himself or to seek a license with a third party contractor.

    I see this solution as a compromise. It seems attractive in that it preserves the current system but allows some room for an increase in the volume of patents. While I do not believe it will have significant impact, as most professors do not have much experience in commercialization, I also believe that it will not cause much harm.

    • Laura Schoppe says:

      Thank you for your comment, Sam. This idea is actually not new, though setting a hard timeline would be a change in current practices. Universities already have the ability to “release” a technology to an innovator if they choose not to pursue patent and commercialization activities.

      Usually universities go through an evaluation process (some level of triage, we call it preliminary screening and in-depth, market-based assessment) to decide if there is enough potential for a technology to merit the investment in patenting and marketing. If the TTO decides there is not enough return on that investment and chooses not to pursue commercialization (what we call release in our illustration of proactive IP management), innovators can ask to pursue patenting and commercialization on their own… at their own expense. (Note: If the innovator licenses it, the university may get a small portion of the royalty revenues as a condition of releasing the IP – 5% is typical.)

      This policy exists at many universities, and those that have a formal evaluation process usually also inform innovators when they are releasing the IP in case the innovator wants it. In my experience, no innovator has personally pursued a technology after the TTO has evaluated it and found no market potential. (After all, the TTO declined to pursue it for a reason.)

      In cases where innovators and TTOs both see potential for the technology, innovators are free to apply for a license and pursue commercialization (again, at their own expense). But the innovator will be in competition with the other potential licensees that the TTO may have identified. Then it becomes a matter of the TTO valuing each prospect and making a decision in the best interest of the institution. (And don’t forget that the innovator reaps the benefits of a license to a third party – at many universities, innovators receive up to 25% of the royalties.)

      If what’s proposed is that, after a certain timeframe of inactivity by the TTO (regardless of the results of any evaluation), innovators should be free to pursue whatever course of action they see fit (e.g., filing for patents in the US and EU, hiring a technology broker) and that the university should be obligated to pay for all of their chosen actions, I have to strongly disagree with this approach. I have written about all of the implementation issues associated with this approach, so I won’t belabor them here again.