Free IP Circumvents the Nickel-and-Dime’ing in SRAs

Nickel-and-dime'ingThere have been a lot of articles recently about universities giving away IP rights for free. The specifics of each vary, and most seem to have advantages that will help accelerate the transfer of technology. But some go further than others. (Editor’s note: In addition to the stories described below, check out the stories discussed in our 10/15/2012 post: “Streamlined/Low-Cost Licensing: Making Sure Faster and Cheaper Are Better.”)

There’s Easy Access IP, which is a collaborative project established by three U.K. universities “to increase the engagement between universities and industry” and accelerate tech transfer. (New South Innovations, which is the commercialization company for the University of New South Wales, has a downloadable brochure that explains the program quite well.) More universities are joining, and it seems the deals are flowing.

Then there’s Binghamton University, which was featured in the December 2011 issue of Technology Transfer Tactics for its BEST Deal License. (BEST stands for Binghamton Express Square Terms.) BEST is a nonexclusive, royalty-free license on patentable innovations that arise from sponsored research agreements (SRAs). (If you’re not a subscriber, you can get a snapshot of this on The Tech Transfer Blog.) Binghamton’s effort to be more user-friendly is definitely a step in the right direction.

But the story that really caught my attention was a mid-December editorial about Penn State University. I did a little more digging and found that, while not as extreme as the writer made it sound, Penn State is doing something pretty unique. Basically, Penn State will give away the IP rights in their industry (not government) SRAs. The company keeps any developments, essentially rendering it a work-for-hire arrangement.

This approach strikes me as a very big leap and one that I believe will pay off for Penn State. In a work-for-hire situation, the sponsor retains the IP. There is no license. This completely avoids the IRS rules that preclude giving favorable licensing rights to a corporate SRA party.

UPDATE | Oct. 4, 2012: After further conversation with Ron Huss from Penn State, their model has become clearer to me. Though they want the agreement to “feel” like a work-for-hire arrangement to the company, it still uses a license agreement and is therefore potentially subject to the IRS issue (depending on the bond status of the building in which the research is performed). These agreements are expected to apply mostly to research performed in “bond-free” (and therefore not subject to the IRS issue) buildings so they can pre-negotiate terms without violating the rules.

Penn State’s approach is likely to be very appealing to companies, who don’t much care for the IRS rule. (UPDATE | Sept. 30. 2014: Although at one time the IRS rule was reasonable, times have changed and I think the IRS rule should be changed.) Penn State likely will be able to attract more sponsored-research funding without having a major impact on their current licensing revenue stream.

I wonder to what extent universities are nickel-and-dime’ing their research sponsors to death. A recent New York Times article talked about how a lot of pharmaceutical companies are sending their R&D to universities in China. I suspect this is, in part, because China’s universities are easier to work with and don’t insist they hold onto the IP.

I would suggest universities ask themselves: How much royalty revenue have we seen for the IP developed under industry SRAs? And how did that revenue compare to the SRA funding itself? Is retaining IP rights really the best place to dig in our heels? Having a long-term relationship with an R&D sponsor is much less expensive to secure and maintain.

I look forward to seeing how all of these efforts pay off for the universities involved.

Is your institution taking similar approaches? How is it working out? Post a comment below or send me a private message through our Contact Us page.

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Posted by Laura Schoppe

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