This journal entry is a critique of the university intellectual property license market, which is based on my experience negotiating many intellectual property licenses on behalf of a variety of different commercial organizations.
In my experience, this market is highly inefficient, due largely in part to university middle men that have obtained perhaps unwarranted control over entrepreneurs and their ideas.
It is not always the case, some universities do a great job.
But more often than not, university intellectual property licensing is a substantial drain on time and capital for ventures attempting to commercialize impactful technology.
So what is this imbalance, and how is it caused?
To explain, we can look to a hypothetical example of the evolution of an aspiring Ph.D. student entrepreneur.
An aspiring Ph.D. student enters their program in order to learn and contribute to the knowledge of a given subject. They choose their institution for a variety of factors; most notable are the existing mentors they will interact with, the facilities that they will have access to, and the notoriety of that institution’s degree.
In exchange, the student not only pays tuition for the opportunity, but is also required to contribute something more intangible: the rights to any intellectual property they develop while affiliated with that institution.
And with any luck, they may develop something during their study that is the seed to an impactful technology that has real world commercial application.
After obtaining their degree, many newly minted Ph.D.’s opt not to follow an academic path, and instead desire to bring their technology to the market. It could be an improvement to a medical device, a piece of software, or other product that could provide immediate tangible benefits to the world.
The problem is, the university now owns that idea, and the entrepreneur must buy it back from them.
Universities often justify this, by pointing to the very same reasons the entrepreneur attended the institution in the first place.
Look at our facilities you had access to, we need to pay for those. Look at the knowledge you had access to, we own that too. Look to the value of your degree, it is derived from those facilities and knowledge.
But where did the actual funds for those facilities and knowledge base come from?
First and foremost, it comes from the tuition the student already paid (and others), which has averaged a 5% inflation rate between 2001 and 2021. That is no surprise to anyone who still carries student loan debt (which universities have no liability for, especially in the case where they provided degree programs with no financial prospects).
And second, it comes from federal grants that the university obtains because of the student researcher.
And now, the entrepreneur is asked to pay again to regain the rights to their own creations.
And these costs often are not nominal. They involve an upfront issue fee for the license, recurring minimum royalty payments to keep the license alive, actual royalty payments when the entrepreneur begins selling a product, and often milestone payments for developmental accomplishments.
(These milestone requirements are often a side effect of the free federal grant monies that paid for the entrepreneur’s research under the Bayh-Dohl act; however the monetization of those milestones is a university creation).
So how do we fix this?
A first answer is to simplify the licensing process. Sure, universities should receive some compensation for documenting the intellectual property and administering it on behalf of the student (who often doesn’t have substantial monetary resources). A flat fee for the rights and repayment of these administrative costs should be sufficient, perhaps with a reasonable return on that upfront investment.
But universities should not be entitled to ongoing royalties, which only divert capital away from the commercial market and the continued development of these inventions.These inventions were largely paid for already, both by tuition and federal grant monies.
Universities should refocus on providing education to allow students to prosper, not playing venture capitalist by holding their student’s ideas captive. We already have many venture capitalists, and they are better at their trade.
This reform will benefit the economy, by streamlining commercialization and allowing entrepreneurs to allocate their capital more efficiently, for example, to things like actually making and marketing their inventions.
