IP Grey Markets at Research Universities

What a crazy week! I’m finally done with the rough draft of a very large paper, some of which deals with IP issues in this age of easy to copy digital media and CAD designs.

Speaking of rogue IP, today’s post is about grey markets. About a third of university research commercialization transactions take place in an IP grey market. At least two separate research surveys have arrived at the same conclusion: roughly 30% of university research is commercialized in self-regulated networks made up of primarily of university researchers and industry product developers. The formal market, the university tech transfer office, handles only a portion of the university’s intellectual property dealings. See Aldridge and Audretsch and Link, Siegel and Bozeman.

Grey markets emerge when the formal market isn’t giving people everything they want or need. For example, my relatives in the former Soviet Union, during the Soviet era, like everybody else, were part of an elaborate, self-regulated network of under-the-table buyers and sellers of pork, cigarettes, baked goods, liquour and other goods. People bartered what they grew or made in exchange for what they needed; periodically, someone would collect everybody’s money and make the long drive across the border to a Russia-based hub of cheap gasoline and things that could not be produced locally. The state-provided grocery stores were dismal: if you relied on them for food, you would soon be missing teeth from scurvy. Twenty years after the Berlin wall came down, the grey market in former Soviet countries still thrives, but on a smaller scale. The pig that used to live in my second cousin’s back yard is no longer necessary and the variety and freshness of the food in the local grocery stores rivals that of the U.S. When the formal market improved, the grey market shrank.

Why, despite the hard working, dedicated tech transfer offices, does almost a third of university/industry technology development take place outside the formal channels?

Because patents and licenses are only one of many connection points between university researchers and industry. In fact, according to NSF and other data, publications are the primary conduit between university research labs and companies, followed by conferences and consulting, then student internships and post-graduation hires. Companies report that formal licensing is their least active channel to university innovation. Despite the relatively small role of formal licenses in industry product development, the current university tech transfer model (set in motion by the 1980 Bayh Dole Act) is based on the belief that universities should own patents so they can license those patents to industry. A common interpretation of the Bayh-Dole Act is that each university should have a central tech transfer office to patent and license faculty inventions.

Many people, when asked their position on the current model, state that they are “in favor of protecting Bayh Dole.” What does that mean? If you “protect” Bayh Dole, then you’re in favor of… what? A typical thought process is as follows:

1. The university tech transfer office should be the commercialization broker on campus
2. Patents give universities needed “control” over the commercialization process
3. Patents and licenses are necessary vehicles to encourage local companies to take a chance on early stage university inventions
4. Faculty do not understand how industry works, so it’s better that the tech transfer office manage the relationships between the university inventor and interested industry reps

So to put this in another context, imagine that you were a citizen of the former Soviet Union before 1989 and were told that you should not partake in the grey market. Instead, you should rely entirely on the state-managed food chain; you should not make your own grey market arrangements, but as a good citizen, should live on black bread and the occasional gristly piece of pork. Maybe with a few withered potatoes thrown in on a lucky day when the system worked as it should. Any takers?

The Bayh Dole Act was a great start. But it’s time to evolve. The vigorous IP grey market on university campuses is a wake-up call for all of us to take a step back and re-evaluate the how we’ve chosen to interpret Bayh-Dole. About a third of faculty and their industry colleagues choose not to use the office to manage their inventions, sidestepping a formal license. Instituting “crack downs” on how faculty manage their research is not the solution. Nor is blind defense of the status quo, which will only buy our faltering commercialization system a little more time, but won’t solve the underlying problem. Unfortunately, it’s all-too-common to hear critics of the current system place the blame on the operational inefficiencies or skill deficiencies of the university technology transfer office. That’s just not fair. The presence of an active IP grey market is not the fault of the university tech transfer services. In fact, many of the savvier tech transfer practitioners know that faculty make their own arrangements with industry and, when invited to the table, have learned to add value by helping write business plans for startups, providing market research or good advice on comparable patents. Employee turnover in university tech transfer units is high, also perhaps a sign that practitioners are frustrated with the constraints of their role. My former office, in just four years, turned over almost half of its staff.

The presence of a grey market suggests a few things:

1. Many channels flow information back and forth between university research labs and companies
2. Faculty do indeed know how to work with industry
3. People would prefer not to negotiate the use of a university technology thru a central office
4. Companies prefer to go direct to the faculty researcher rather than deal with middlemen
5. The chimerical carrot of future fat license royalties that universities wave in front of their inventors’ noses doesn’t fly. Consulting gigs and industry sponsored research pay a lot now.
6. Patents are not necessary in many cases
7. A heck of a lot of technology was commercialized before the Bayh Dole Act was passed, and continues to be.

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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.