What better way to study the pros and cons of a major shift in strategy than to examine its impact on a similar organization that took the plunge? In 2005, the University of Utah’s new president Michael Young, in response to the state’s investments in Utah’s knowledge economy, plucked the technology commercialization office out of the research administration division and handed its oversight to Jack Brittain, then Dean of Utah’s business school. The university combined three previously independent units under Brittain into a new division called “Technology Ventures” whose mandate was to accelerate the rate of start-up formation, connect the technology transfer office to the university’s Lassonde Entrepreneur Center, improve the university’s industry research partnerships, and streamline its technology licensing strategy.
Most universities house their technology transfer units inside an administrative division that oversees research functions, such as managing the paperwork around grant funding and providing lab animal care. At many universities, the head of this research administration is a former faculty member who had a solid career as a research scientist, but typically has no exposure to the industry product development process, nor the way businesses think and operate. There are many solid reasons for housing the management of a university’s patent portfolio inside the research division.
However, there are equally compelling reasons to move the university’s commercialization efforts into greater alignment with other entrepreneurial activity on campus.
What happened at Utah after it overhauled its strategy for bringing university inventions to market? Last year the University of Utah spun off the highest number of start-ups based on licensed university technology in the nation — but that fact has already been talked to death. I spoke to Jack Brittain a few weeks ago to get the inside scoop on Utah’s re-organization, six years after the shakeup. Here’s what else I learned.
1. Check out those darn books already
Before the transition to Tech Ventures, Brittain compares the University of Utah’s approach to its licensing its patent portfolio to a rare book library where patrons are forced to wade through heavy regulatory barriers, intense scrutiny of their plans and motives, and sometimes fees in order to read the precious volumes. After Tech Ventures was formed, Brittain hired Brian Cummings to run Utah’s technology commercialization office. “Brian told me we’re going to check out these books,” says Brittain.
2. Stop squeezing nickels and leaving dollars on the table
Universities must learn to loosen their grip on their IP portfolios by changing their strategy from focusing on “protecting” inventions, to a volume approach, liberally checking out university inventions so they can be useful to somebody. When a technology transfer unit is used as a cost recovery center to recoup the costs of office overhead and patent prosecution, small businesses and start-ups can’t afford to play the game. And large businesses complain that the license negotiating process becomes onerous – slow and too restrictive. Sticky IP clauses in industry sponsored research agreements are another barrier to high volume, efficient technology licensing.
“The university was squeezing nickels and leaving dollars on the table,” says Brittain. Since a typical university licenses fewer than a quarter of its active invention portfolio, any licensing agreement has to pay the costs for three bad patents plus all the office overhead. When technology licenses become a revenue vehicle via fees and annual payments, an administrative-minded university may become reluctant to license inventions to small businesses and startups that have limited cash flow. As a result, federally funded research ends up in the grasp of larger businesses that have pockets deep enough to pay hefty, non-negotiable licensing fees.
Though counter-intuitive, Utah’s decision to morph its technology commercialization office from administrative fee-collector to high volume technology broker has actually increased licensing revenue. Since 2005, Utah’s volume approach has yielded nearly two times as many licenses as its previous cost recovery strategy.
3. Don’t say “No” just because it’s easier and safer
I think that a quick and easy licensing process is key to a productive university technology transfer office. In general, I think that the concept of “negotiating” unfairly gets a bad rap when it’s used as a synonym for unproductive wrangling or worse, a “take it or leave it” attitude. For example, when some people hear the word “negotiate,” they imagine fierce discussions over the market valuation of a university patent accompanied by unproductive verbal sword-fighting over percentage points in fees and nuances in licensing terms. In response, many forward-thinking universities are exploring the use of click-thru, or express licenses with good results. Yet, if managed correctly, case-by-case license negotiations do not necessarily need to inject hardship into a industry/university partnership.
Given the fact that the trend appears to be towards online, standard licenses with set terms, I was somewhat surprised to learn that the University of Utah prefers to negotiate most of its license agreements. Brittain explains Utah’s bent towards negotiation as preference but not a requirement “If a company doesn’t want to discuss terms and requests a quick, upfront license, we’ll do it. We like to negotiate not because we want to fight over fees and terms, but because we think face to face contact is the key to building a longer term relationship between the university and the business partner,” says Brittain.
In negotiations for license deals with established companies and startups, Utah’s faculty are permitted to be at the negotiating table, if they so desire. Prospective university startups face less scrutiny than they used to, when in the old days, the technology transfer office demanded a detailed business plan, sometimes proof of funding, and upfront fees and payments. Today, the emphasis in startup formation is on getting the technology into play; Utah takes equity in lieu of fees for startups that don’t have the money up front.
4. The license is the least important part of the commercialization process
Brittain believes that “the license is the least important part of the commercialization process.” By decreasing the emphasis on licensing revenue, Utah broke from traditional university wisdom. Brittain explains that unrealistic and inflexible IP clauses in industry sponsored research collaborations cost the university more in lost opportunities than the university could ever realistically earn from licensing resulting patents. In fact, universities earn far more from the administrative overhead they take from industry sponsored research grants, which at Utah, is 51%. Consider the fact that even at universities considered to have high-performing technology transfer offices, technology licensing revenue earns just a few percentage points of the university’s income from federal, state, and industry grants. Industry sponsored research is also a repeat business, meaning that if the research collaboration goes well, the company will continue to invest in its relationship with the university.
University of Utah’s agreements for industry research sponsorships offer the sponsoring company a no cost, exclusive option to any resulting patents that arise from the sponsored research. Further down the road, if the company wants to license the patents resulting from their sponsored research, the company and university return to the negotiation table. Asking sponsoring businesses to “pay twice” by licensing the research results they funded remains a controversial practice. Yet, companies tend to overlook the fact that the university will foot the bill for legal costs and spend staff time on managing the company’s licensed patents and paying university inventors. Again, moving away from a short-sighted, cost recovery attitude is key. “We hope – and our economics depend on it – that we are going to be doing repeat business with clients. We will take an agreement in that direction if it is the intent of the parties,” says Brittain. If there is no patent, then the company has full rights in the data or report that is generated.
In my opinion, Utah’s simplified approach to company research partnerships is perhaps the strategic shift that will have the most profound long-term impact on fostering an entrepreneurial on-campus culture. Again, though counter-intuitive to mainstream wisdom, Utah’s decision to introduce more flexible IP clauses into sponsored research contracts not only increased the number of companies willing to invest in research partnerships, but in five years, has substantially increased the number of resulting downstream commercial patent licenses.
5. Hire good people and get out of the way
Keeping good staff in the tech transfer unit is not easy, as high performers are tempted by higher pay and greater opportunities for professional advancement outside the university. Old-fashioned management approaches attract and retain the wrong kind of employees. Only in an environment where high turn-over is not frowned upon would a manager be encouraged to vigilantly survey petty inputs, such as the times that staff clock in and out of the office; barring staff from pursuing professional development opportunities in the name of “not wanting them to get distracted” from their job duties is another morale killer. In order to retain good staff, Utah Tech Ventures staff have flex time and are encouraged to get MBAs (which the university will fund). Despite the significant changes to their work environment, reporting structure and mission, Utah staff turn-over has remained below industry average.
Utah’s technology commercialization office has 25 full-time employees and 25 part-time law and MBA students. In 2005, the university hired four staff members to manage Utah’s industry research sponsorships in the life sciences, engineering /physical sciences energy, and clinical trials. To provide businesses with a smooth end-to-end experience with a single university contact, what Brittain calls “total mission integration,” these staff members are part of Tech Ventures. As a result, the same staff member who arranges the industry sponsored research agreement also manages any resulting intellectual property.
So what do you think? It’s important to point out that a university cannot create an entrepreneurial climate on campus simply by shifting its technology transfer function into a new, business-oriented unit. The University of Utah benefits from the state of Utah’s business friendly climate that offers world class skiing, a low cost of living, and a state corporate tax of 5%. Many economically depressed regions of the US aren’t lucky enough to have Utah’s business climate and gorgeous scenery. However, given our challenges in defining university technology transfer strategies and future directions, Utah’s re-vamped business-friendly technology commercialization culture provides some food for thought.
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Melba Kurman writes and speaks about innovative tech transfer from university research labs to the commercial marketplace. Melba is the president of Triple Helix Innovation, a consulting firm dedicated to improving innovation partnerships between companies and universities.