Startup Act 2.0: Free Agency’s Still There, Still a Problem

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On May 22nd, Sens. Moran and Warner were joined by Sens. Rubio and Coons in introducing Startup Act 2.0, a revised version of legislation proposed last December that contained questionable provisions to allow university professors to choose their own agents to help transfer their technology rather than be tied to their home university’s technology transfer office (TTO)—the so-called free agency provision.

I dug into the new legislation, comparing it to the original wording, to figure out exactly what’s changed (besides the fact that the accelerated commercialization of research provisions are now part of Section 8 rather than 7). Here’s what I figured out.

This legislation is not much better than the original version when it comes to the free agency issue in managing university intellectual property (IP). All of my previously stated concerns (as well as those stated by AUTM®) about the practicality of giving individual innovators authority to commercialize their own technologies still holds.

But let’s look at the specifics in the bill.

The Grant Program in General

  • What it says: Per Section 8(b)(1) on page 25, funding will come from taking $150K for every $100M in R&D funding from all government agencies and giving it to the U.S. Dept. of Commerce’s Advisory Council on Innovation and Entrepreneurship for awarding two types of grants: Capacity Building Grants and Accelerator Grants.
  • What it means: Less funding is available for the actual work of developing innovative technologies. There also is no indication of how this funding will be split between the two types of grants.
  • My thoughts: R&D funding is already on the decline, and this funding structure will further erode that critical situation. Furthermore, the legislation should state how much is to be allocated to Capacity Building Grants versus Accelerator Grants. Not only is this needed for transparency, but it also would make clear Congress’s intent for supporting technology transfer initiatives, because there are key differences in these two grants, as you will see below.

Capacity Building Grants vs. Accelerator Grants

  • What it says: The stated goal of the Capacity Building Grants (Section 8(b)(2)(B) on page 27) is to accelerate commercialization through licensing and startups and, in particular, “to support innovative approaches to achieving these goals that can be replicated by other institutions.” There is no goal stated for the Accelerator Grants; rather, it states only that it will “allow faculty to directly commercialize research” (Section 8(b)(2)(B) on page 28).
  • What it means: The Accelerator Grants appear to be in conflict with the Capacity Building Grants because, by basing their construct on individual innovators (i.e., their personal skills and desires), it’s impossible to develop best practices and a repeatable, sustainable structure.
  • My thoughts: The Accelerator Grants will be one-off successes (or failures) where the return on investment to our society as a whole cannot be fully realized, even if a few of the grantees do achieve some economic success. (Not only will the investment be far greater than the payback, but the success can’t be leveraged by or replicated at other institutions or in related situations.) Furthermore, the implementation appears not to have been thought through. For example, let’s look at…

Awarding of Grants

  • What it says: Per Section 8(b)(2)(A)(i) on page 25, the two types of grants shall be awarded “to institutions of higher education.”
  • What it means: Well, I’m not sure, because I can’t figure out how the Accelerator Grants are to be implemented by the innovator if funding has to be awarded to the institution. Is the intent that the institution (e.g., its TTO) actually receives and controls the funds and is responsible for the implementation of singular projects, much like a seed fund? If this is the case, then it is erroneous (or perhaps disingenuous) to state that the Accelerator Grant allows “faculty to directly commercialize research” since they in fact are not directly responsible or have the authority to do the commercialization project.
  • My thoughts: This legislation should be changed so that either (a) Section 8(b)(2)(A)(i) is clarified to include the ability for individual innovators to apply for and receive grants or (b) Section 8(b)(2)(B) is modified to more accurately describe a seed-type program. (BTW, I have no objections to a seed-type program, but I think the funding levels should be substantially lower than those of the Capacity Building Grants.)

At the end of Section 8 (on page 32), the bill explicitly states that nothing in the section changes the Bayh-Dole Act, which specifically authorizes the institution to hold the IP rights and therefore control the decisions on commercialization. This control also includes an institution’s ability to “release” the technology to the innovators to allow them to expend their own resources (time and money) to patent, license, and otherwise commercialize the technology.

It’s kinda funny that this aspect of how TTOs can release the IP to the innovator is equivalent to the desires of Kauffman’s free agency concept but provides clarity on authority and responsibility.

Well, I guess you’d need a pretty dark sense of humor to find that funny.

Posted by Laura Schoppe

6 Responses to Startup Act 2.0: Free Agency’s Still There, Still a Problem

  1. Dan Chilton says:

    In the guise of a bipartisan bill to keep startups and foreign graduates with STEM graduate degrees, working innovating and creating start-ups and jobs here in America, Startup 2.0 is a tax haven; a zero percent tax investment in foreign jobs to the detriment of Americans.

    Businesses have soured somewhat on high tech off shore jobs because remote workers several time zones away, tend to work doing what you wrote, not what you meant or what you need. This bill brings off-shored jobs to America, but not for Americans.

    As a STEM professional myself, I see not only robust competition from foreign workers now, but a numerous term modular contract positions for the duration of the business project, and avoidance of ‘permanent’ employees and long term integration of technical expertise into the company.

    Touted as a high tech startup and jobs bill, Startup Act 2.0 is primarily a tax haven with a ZERO percent tax on investments in ‘high tech’ companies. It is also a labor cost reducing measure. It authorizes 75,000 visas for foreign STEM graduates who will be motivated to accept relatively low wages to get their visa extended. This will DISCOURAGE Americans from getting advanced STEM degrees and degrade the quality and quantity of job prospects for US STEM workers. It will lower wages, benefits, and will treat STEM workers as commodities rather than integral parts of business industry and society.
    The hypocrisy here is that the ‘free market capitalist’ supporters of this bill want want to kill the natural reaction of the market to increase wages of American STEM employees because of their relative scarcity here at home.

    The bill also siphons off a fraction of federal agencies’ budgets to pay educational institutions to instruct STEM graduates to become entrepreneurs.

    The bill lacks assurances that these new start-ups by STEM graduates are actually ‘High Tech’ or that there is a substantial requirement to hire Americans.

    As written, this bill will create a quick way to ‘import’ cheaper foreign offshore workers to compete for American jobs, discourage Americans from going into STEM careers themselves, and create a “high tech” tax loophole for investors to pay Zero tax on their profits.

    • Laura Schoppe says:

      Your comment about siphoning a fraction of federal R&D funding to teach entrepreneurship touches on my concern about how people and programs will be selected for funding and the potential negative effects of further reducing R&D funding. Thanks for your comments.

  2. Joe Allen says:

    Thank you, Laura, for your excellent critique of the new language, which may actually be worse than the old as it’s now broader and vaguer.

    Just to clarify your last point: under Bayh-Dole, universities cannot “release” patented technologies to their inventors on their own if they are made with federal government support. If they want to do so, the university must first notify the funding agency, which then has the option of taking title itself. Only when the university and the federal agency both agree to waive the invention can patent ownership flow down to the campus inventors.

    Thus, Bayh-Dole *permits* inventor ownership — but certainly doesn’t see it as an optimal model for protecting taxpayers’ interests in commercializing federally funded R&D. That is why this path is made rather cumbersome to pursue. Bayh-Dole clearly promotes university ownership and management of federally funded inventions as the preferred option. Claims that Bayh-Dole has been misunderstood, and actually considers inventor management or actual ownership of federally funded inventions as an equally valid approach are simply not accurate.

    Therefore, the Start Up Act’s provisions in this regard are not consistent with Bayh-Dole, despite the fig leaf language in the revised bill.

    More importantly, the erroneous assumption our university tech transfer system has largely failed is debunked by a major new study released at the BIO International Convention a couple of weeks ago. The findings, which has a first-rate methodology behind it, document the impressive contribution the Bayh-Dole system of university patent management makes to a hard pressed U.S. economy. The impacts are summarized in this BIO press release:

    This is not to argue that we cannot always work to get better, but those seeking to use federal grants to lure universities down a completely uncharted path based on an unproven theory should face a great deal of skepticism. It’s important that policy makers understand the serious consequences of the tech transfer provisions in the Start Up Act. I don’t question the sponsors good intentions– but we all know where the road paved with just good intentions leads.

    Keep up the good work!

    • Laura Schoppe says:

      Thanks for the clarification and addition Joe. To your point, I just read a Technology Transfer Tactics article (June 2012 issue, page 85) in which I thought Gail Norris from University of Rochester worded the “release” process well:

      “If the TTO does not plan to patent…UR has a process in place where the university will waive its ownership rights to the faculty member as long as all obligations are met to funding agencies and sponsors.”

      I glossed over that a bit :-). Your comments about BD are also welcome given your depth of knowledge on it. Let’s hope the powers that be take these issues into consideration before they pass this into law.

  3. Putri says:

    The rate of and commercialization is not the only pritenent criterion in evaluating the Bayh-Dole Act. The increased engagement of the university research community in addressing current technological and medical issues is valuable in itself, particularly since mega-corporations tend to skimp on R&D in favor of marketing. Of course, not every research project undertaken will result in a new blockbuster drug, but perhaps that shouldn’t be the main focus. Some of the increased research will undoubtedly increase our store of scientific knowledge, and that in itself is worthwhile.

    • Laura Schoppe says:

      Good point. The ability to protect the IP as provided in Bayh-Dole also gives corporations the incentive to collaborate with universities for the betterment of creating innovation.