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INDUSTRY-UNIVERSITY RESEARCH IN OUR TIMES
June 26, 2003
White Paper prepared by:
Robert Killoren, Assistant Vice President for Research,
Pennsylvania State University and
President, National Council of University Research Administrators
and
Susan B. Butts, Director, External Technology, The Dow Chemical Company and
Member, External Technology Directors Network, Industrial Research Institute
Background for the Project,
“Re-Engineering Intellectual Property Rights Agreements in Industry-University Collaborations”
ORGANIZED BY
Government-University-Industry Research Roundtable (GUIRR)
Industrial Research Institute (IRI)
National Council of University Research Administrators (NCURA)
The Government-University-Industry Research Roundtable (GUIRR) at the National Academy of Sciences and the Industrial Research Institute (IRI) have a fifteen-year history of engagement on the issue of industry-university research. This leadership has made industry support of U.S. universities an important part of the conduct of research and development in the United States and the transfer of technology and knowledge from the research lab to the marketplace for the benefit of all U.S. citizens.
HISTORY
1988 – Issuance of “Simplified and Standardized Model Agreements for University-Industry Cooperative Research,” issued jointly by the Roundtable and IRI. As the document states, the report presented a model agreement that could be used as a “starting point for negotiations between the industrial sponsor and the university on a specific contract.” This model agreement served (and continues to serve today to some extent) as the foundation of many industry-university interactions.
1993 – Issuance of “Intellectual Property Rights in Industry-Sponsored University Research: A Guide to Alternatives for Research Agreements,” issued jointly by the Roundtable and IRI. While the initial publication of the model agreement served well, additional concerns about intellectual property rights continued, “to pose significant hurdles to successful negotiation.” Thus, the Roundtable formed a Taskforce to study intellectual property concerns in contracts. Different scenarios were presented and approaches to those scenarios were proposed. Specific alternate clauses were presented along with discussions.
1995 – Issuance of “Industry-University Research Collaborations: Report of a Workshop.” A number of models of research partnerships between universities and industry were examined. Three case studies were examined and discussed. Approaches for improving industry – university partnerships in the U.S. were recommended.
1998 – Issuance of “Overcoming Barriers to Collaborative Research.” Despite a tremendous success in increasing industry support of university research, barriers to effective collaboration still existed. Among these, the report highlighted disposition of intellectual property and “background” rights; publication, copyright, and confidentiality concerns; worries about foreign access; and graduate student involvement. The document reported on the results of a workshop.
More recently another organization took up the banner of industry – university partnerships. The Business-Higher Education Forum published the results of its 2000 study in “Working Together, Creating Knowledge: The University-Industry Collaboration Initiative.” This comprehensive report examined the background to barriers existing between industry and universities and looked specifically in one chapter at negotiating agreements for industry-sponsored university research. Recommendations were made, but they tended to be generalized and called for flexibility and concern for the public good. Thus while it was good at identifying where we are, it was less than satisfactory in providing any clear indication of where we should be and how we should get there.
CURRENT SITUATION
The watershed period for industry-university research was the early 1980’s. Three factors intersected that made this an important time. First was the passage of the Bayh-Dole Act, which acted as a powerful stimulus to universities interacting with companies. Second, on the industry side, this period marked a transition away from self-sufficiency in corporate research. Many companies concluded that their big central research laboratories that did basic, long-range research were not cost effective so they looked for ways to leverage research capabilities in universities, research institutes and federal laboratories. Finally, the federal government was also a player in setting up this dynamic. President Reagan shortly after taking office, called for industry to support more of the cost of the nation’s fundamental research.
As we can clearly see from the chart above, prior to 1980 industry support of university research was rather constant. After 1980, the growth line rises dramatically. There is little doubt that this rapid increase in industry support of university research necessitated in large measure the 1988 Roundtable study and report. That growth has continued since 1988 through 2000. The National Science Foundation reports industry funding of science and engineering research at U.S. universities grew 150% from 1988, when the first Roundtable report was issued, through 2000 when the BHEF report was conducted.
This chart too speaks of a growing relationship between universities and industry in a research and technology transfer collaboration.
The key questions that the Roundtable’s first industry-university report addressed with the model agreement have not changed significantly. In actuality they have not changed that much in more than 70 years. For instance, the minutes of Penn State’s University Research Council meeting of February 6, 1928 asked the following two very familiar questions: “To what extent should the College enter into agreements with commercial concerns and under what conditions? What should be the institutional policy in reference to patents and patent rights?” But even though the subject matter under question may not have changed all that much in 75 years, it is clear that the “times” themselves have changed dramatically, and it is this notion of the times that drives us again and again to examine where we are in relationship to these key questions – how should industry and universities work together and under what conditions, with specific attention on intellectual property rights.
The problems of our times are clearly different than what was going on in 1988. We have experienced more than twenty years of accelerating industry-university research. One of the first things we need to acknowledge is the success that growth connotes. We are obviously doing something right or else the investments would not increase. But the success of our times brings new challenges as well. Among them:
• There appears to be a divergence in culture in industry between the pharmaceutical industry and the traditional manufacturing industries (including chemical, automotive, and aerospace), with the high-tech computer industry vacillating somewhere in between. There also exist differences in culture between universities, for instance, between public and private institutions. To say there is a single model for how industry and universities ought to relate would ignore the divergence of cultures.
• Balancing the need for security with the freedom to publish is an area that is becoming more and more important.
o University Perspective – Universities enjoy a unique position in regards to national security: they retain the right to publish anything that is considered fundamental research. Fundamental research basically is defined as anything that can be freely published. As soon as there are any restrictions on publication (for example, needing to obtain the approval of a sponsor prior to publication) the fundamental research exemption under U.S. export control laws is negated. At this point all the security obligations associated with the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR) come into affect – obligations that are contrary to the free environment of a university and very difficult for a university to comply with.
o Industry Perspective - Companies in the US are subject to export regulations under ITAR and EAR and can be penalized with high fines and loss of product export privileges for violations. A critical issue for companies working collaboratively with universities is to ensure that proprietary information that is subject to export control is not disclosed to foreign nationals. Companies also need to ensure that other types of valuable proprietary information, such as trade secrets, are not inadvertently disclosed through publication of the research they sponsored. Therefore, contract language must protect against the leaking of this sensitive information through academic publications. A pre-review of publications is necessary, with the sponsor having the ability to strike any confidential and ITAR/EAR controlled information from publications.
• Research is becoming increasingly complex, multidisciplinary, and inter-related.
o University Perspective – It is getting more and more difficult to “build walls” between research projects, especially between those funded by industry and those funded with federal funds. This difficulty in building walls around research projects makes it almost impossible for a university to assign IP rights fully to a company whenever the possibility of overlap with federal research exists. (Please note the use of the word assign, which is a totally different situation than licensing.) The Bayh-Dole Act prohibits universities from assigning rights to a third party on any invention arising from federally funded research.
o Industry Perspective - Companies understand that co-mingling of private and federal funds in support of a project introduces Bayh-Dole restrictions on assignment of resulting patent rights. They expect the university to avoid creating a situation in which co-mingling (either with federal funds or other third party funds) can occur unless the corporate sponsor has been consulted and has approved the action. Companies look at sponsored research as a research investment, not philanthropy, and they expect a reasonable return on this investment. Universities that choose to accept corporate funding should take reasonable steps to ensure that sponsor’s rights to research results are not tainted.
• IRS rules regarding Tax-Exempt Bonds
o University Perspective – IRS Procedure 97-14 states limitations on the use of university facilities that are funded by tax-exempt bonds. For instance, if royalty rates are set in advance or if assignment of ownership is given to industrial sponsors, a university may risk the tax-exempt status of the affected bond issues. Universities tend to read this regulation very broadly and use it as an important negotiation point with companies on intellectual property issues.
o Industry Perspective – Companies understand that universities do not want to jeopardize the tax-exempt status of their bonds. However, the intent of IRS Procedure 97-14 is to prevent private research sponsors from receiving a direct benefit from the use of tax-exempt bonds. The regulation was promulgated in 1997 and has not yet been interpreted by the IRS through audits and enforcement actions. Companies feel that universities should not use rev proc 97-14 to limit pre-licensing terms in research agreements unless the university can show that the privately sponsored project receives direct benefit from facilities or equipment financed by a tax-exempt bond.
• As research is getting more complex, so is the technology arising from it – inventions are often interlaced and overlapping. The issue of background rights thus becomes more and more critical to industry and universities working together successfully.
o University Perspective – Faculty build each new research project on what they have learned from the past. Sometimes a solution to a new problem might emerge unexpectedly from another technology, possibly even one that is already licensed to some other company. While a university would do everything possible to avoid that situation, it could happen, and the company could be forced to get a sublicense from another party. Likewise, faculty at universities largely operate as individual enterprises. When entering a research relationship it is sometimes impossible to know how technologies might overlap between researchers, in such a way that the invention of one faculty member might be background for the invention of another faculty member. Again, it is difficult for universities to predict what is going to happen in a research project and they are thus reluctant to make too broad promises about background rights.
o Industry Perspective – A university that accepts funding from a company must recognize its responsibilities to the company in regard to the outcome of the research. Primarily this means that universities must disclose potential background rights before accepting funding and must notify the sponsor if, during the course of the project, any other protected technology is used in the research. To do less would mean that the sponsor’s rights to use the research results could be encumbered.
• U.S. universities no longer hold any kind of “corner on the market” in regards to industry-sponsored research. Non-U.S. universities are competing successfully in gaining industry support for research from even U.S.-based companies. Universities in developing countries are willing to grant favorable intellectual property rights to sponsors in order to attract industrial funding for their research. Different factors come into play in highly developed countries outside the US. For instance, faculty at technical universities in Europe often have ample government funding for their research but want interesting and challenging real-world projects for their students to work on. Getting projects from industrial sponsors is a priority, generating licensing income for their universities is not. At the same time, however, universities abroad are also discovering the potential for their research to be commercialized and are interested in following the U.S. model of technology and economic development. Many are asking U.S. universities how to negotiate industry-sponsored agreements so that they retain rights to IP.
• Even though U.S. universities and those abroad may be seen in competition with one another at times, there is also an enormous opportunity for all of society and industry to gain by having them work together more closely. Looking at industry – university collaboration on an international scale would be beneficial to all parties.
These issues and others involved in industry-university collaborations are without a doubt controversial, and when industry and universities get together over them discussions can become contentious. To dive right into debates on these four areas or others might lead to a kind of bi-partisan bickering that could rival our US Congress. Our work will begin by bringing together a wide range of national experts to first develop a series of principles that should govern industry-university collaborations. On these, we may be able find consensus – Why is it important for industry and universities to work together? How does this collaboration benefit industry, universities, and the nation? What do companies need from of a relationship? What do universities need? What would the ideal industry-university relationship look like? What would it produce? Who would benefit? What would other non-deliverable outcomes be? If agreement can be reached on the principles, perhaps working on the details would flow more smoothly.
Draft Implementation Plan for the Current Project, “Re-Engineering IP Agreements in Industry-University Collaborations”
As follow-on to the earlier GUIRR-IRI effort, GUIRR, IRI and the National Council of University Research Administrators (NCURA) are co-sponsoring the convening of a Congress of delegates -- leaders from various sectors of industry, from universities, and from government -- to explore the current barriers to effective partnerships and seek solutions that will overcome the barriers so that partnerships can succeed. The word “congress” best describes what we want this national forum to be... a “coming together” of “delegates” from “constituent organizations” to “discuss problems and arrive at solutions.” Participants from GUIRR, IRI, NCURA, and other relevant organizations will continue the work of the Congress over the course of a year. A direct outcome of this endeavor will be the development of, first, a set of principles upon which industry-university collaborations can be built and, second, the development of new model agreements/ language/ strategies for industry-university research collaborations that allow for the interests of all parties (university, professor, industry scientists/engineers, and managers) to be appropriately protected.
Specific events and timetables:
• Formation of a Task Force consisting of individuals from the sponsoring organizations -- the External Technology Directors Network of IRI and NCURA -- along with individual members of GUIRR. The Task Force will develop the operational plan, direct the project, select participants for the various activities, and develop agendas for national meetings.
• Formation of the Industry/University Congress – The word “congress” best describes what we want this national forum to be... a “coming together” of “delegates” from “constituent organizations” to “discuss problems and arrive at solutions.” Delegates to the Congress shall consist of individuals representing the main segments of industry (from both large and small companies) who engage regularly with universities for research, university research and technology administrators, representatives of not-for-profit organizations and government agencies, bench scientists and engineers, and leadership representatives from industry, universities, and government. Membership will be assembled in consultation with such organizations as GUIRR, the IRI External Technology Directors Network, NCURA, Association of University Technology Managers (AUTM), and National Association of College and University Attorneys (NACUA). Thus, it will engage individuals who work in this arena day-in and day-out, who are very familiar with the issues and who can propose realistic options for change.
• Convening the I/U Congress – The Congress will explore the principles that should govern industry-university collaboration and identify an array of strategies for translating those into IP agreements. The Congress will take place August 19-20, 2003 in conjunction with the San Francisco conference entitled, “University/Industry Collaborations: International Partnerships in the Research Enterprise,” presented by NCURA in cooperation with IRI, AUTM, and NACUA and scheduled for August 17-19, 2003. The Taskforce will develop the agenda for the Congress. The Congress will continue to gather (usually electronically) in working groups through the next year.
• Convene the I/U Summit – In the fall of 2004 a “summit” of national leaders of industry, university and government will be held at the National Academies in Washington, D.C., to develop and endorse solutions for IP agreements that will foster the creation and commercialization of new knowledge and new technologies while appropriately protecting the interests of all parties.
• Generate a report on principles of, and strategies for enhancing, industry-university research collaborations and industry support of university research, arising out of the Summit – to be accomplished by the summer of 2005. The final published report will include an array of strategies and practical solutions for developing effective industry-university collaborations, perhaps including several model agreements addressing the needs of the various sectors of industry, the needs of differing kinds of projects (from truly basic research through to funding research for incremental advances), and the needs of universities, their researchers, and their technology transfer programs, as well as the public responsibilities of all parties.
i. Academic Research and Development Expenditures: Fiscal Year 2000 (NSF 02-308) Table B-1, published by National Science Foundation, 2002.
ii. AUTM Licensing Survey: FY2000, A Survey Summary of Technology Licensing (and Related) Performance for U.S. and Canadian Academic and Nonprofit Institutions, and Patent Management Firms, published by the Association of University Technology Managers, 2001.
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