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Patenting their discoveries does not pay off for most universities, study says

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From page A1 | November 26, 2013 |

By Richard Pérez-Peña

Universities try to cash in on discoveries — gene splicing, brain chemistry, computer-chip design — but the great majority of them fail to turn their research into a source of income, according to a new study from the Brookings Institution.

Research universities have “technology transfer” offices that make thousands of business deals annually for the use of their patents. But in any given year, at about seven of eight universities, the resulting revenue funneled into university budgets is not even enough to cover the cost of running that office, said the study’s author, Walter D. Valdivia.

Universities make money from patents primarily by licensing them to outside companies, which turn them into commercial products. Valdivia said the universities needed to become more aggressive about nurturing new businesses, encouraging professors to start new companies based on the patents and making licensing deals that would give them an ownership stake in corporations, not just a share of the royalties.

A 1980 federal law gave universities ownership of patents arising from federally funded research, and the results have generally been seen as a boon to universities. They make more than 4,000 patent licensing agreements annually and collect about $2 billion a year in licensing revenue, according to surveys by the Association of University Technology Managers.

But only a small number of universities consistently produce lucrative breakthroughs and collect the vast majority of the money. A blockbuster discovery can alter a university’s fortunes, like the patents on inserting foreign DNA into cells, which brought $790 million to Columbia University, or the patents leading to the drug Remicade, used to treat autoimmune diseases, from which New York University collected more than $1 billion.

The vast majority of licensing deals yield little or no money, and for most universities the royalty returns are low. And the odds of finding the elusive game changer are small.

“There’s nothing inherently wrong with the current model, but it isn’t enough. There need to be more alternatives,” Valdivia said. “They have historically put all their efforts into hoping for a blockbuster patent and then aggressively negotiating licensing fees, which alienates industry instead of making it a partner.”

Universities are increasingly eager to find new sources of revenue, as they see projections of shrinking student populations, declining government support and growing resistance to tuition increases.

The report touches on a long-running debate within universities about the proper role of academia, and whether professors should be entrepreneurs and their labs business incubators. That approach has been embraced for years in some disciplines, notably computer sciences, and at some universities, like Stanford, which has converted work done within its walls into minority stakes in high-tech companies including Google.

Some schools have gone so far as to set aside space for budding business moguls to get started, a central feature of Cornell University’s planned applied-sciences graduate school on Roosevelt Island. The number of university licensing agreements grows each year, but the share that give the university an ownership stake in the company (about one in 10) or result in the creation of a startup company (about one for every seven deals) has changed little in the last several years.

Some schools, like the University of North Carolina at Chapel Hill and the University of Utah, make dozens of such deals annually, but many more research universities go years without making any.

Those strategies can take years to earn a financial return, if they ever do, whereas collecting royalties from a major corporation can pay off quickly. And start-ups often need help with things like navigating government bureaucracy and finding work space.

“There’s a growing understanding, more in some places than in others, that it can’t just be about revenue,” Valdivia said. “It’s about creating an entrepreneurial environment, about taking advantage of the strengths in your university and your region’s economy, and if you do that the benefits will follow.”

In a typical licensing deal, the royalties are split three ways — by the researchers, their academic department and the university’s general fund — an arrangement that can seem very generous to the scientist but paltry to the school. In a typical year, Valdivia estimated, that last one-third covers the cost of operating technology-transfer offices at only 13 percent of research universities.

The Brookings report calls on Congress to make it easier for researchers to use patented technology, short of commercializing it, and to direct funding to university technology transfer.

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