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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.