Fiat Lucre

Ideas are UC Berkeley’s greatest asset. If only you could bank on them.
By Glen Martin

The wolf may not be butting against Academe’s door, but it is sniffing around in the front yard. Money, especially for public universities, is tight and getting tighter. Although there’s no satisfactory substitute for public funding, many academics insist some bootstrapping is in order. The best public schools—Berkeley among them—are staffed by brilliant people with brilliant ideas, and many of those ideas can translate into new and highly profitable technologies. In other words, academic patents can help—must help—the universities endure these lean times.

“We have no choice,” says Richard Mathies, dean of Berkeley’s College of Chemistry and, with 39 patents to his name, the intellectual property kingpin of Berkeley’s faculty. “We’re really going to have to walk the walk. Public funding for the University is collapsing. [Staff] patents can help remedy the deficit.”

Professor Mathies knows of what he speaks. Two of his patents are now standard tools for gene analysis and manipulation. “They have been patented for about 15 years, and they’re still very powerful technologies, earning [in total] about $2 million in royalties annually,” he says. “Each year, they’re among [the top] patent revenue producers for the UC system. Sometimes, [they’ve been] number one and number two.”

But this time around they won’t be. Last year, the University scored a much bigger jackpot in a deal with drug maker Bristol-Myers Squibb, which made a one-time payment of $87.5 million (in lieu of future royalties) to secure the rights to a promising new cancer treatment developed by former Berkeley immunology professor James Allison. Berkeley will receive $62.5 million of that lump sum payment, and officials say the money will support operations at the University’s Cancer Research Laboratory, the Division of Biological Sciences at the College of Letters and Science, and other research.

Alas, such payouts are rare. In fiscal year 2010, the entire UC system received only $125.3 million in technology transfer payments, and Berkeley ranked fifth overall, with $6.8 million in returns—less than the budget shortfall at Cal Athletics and a mere pittance compared to the University’s total operating budget of nearly $2 billion. Furthermore, few academic institutions are doing significantly better. According to data published in The Chronicle of Higher Education, three universities (Northwestern, Columbia, and NYU) had greater revenue from licensing fees in 2009 and 2010 than did the ten-campus UC system. Clearly, if intellectual property is going to contribute substantially to the bottom line, the University of California—and universities in general—will have to ramp up efforts, both in terms of patenting inventions and protecting those patents from lawsuits.

That, in turn, may require a shift in institutional culture. Historically, university researchers have spurned commerce, considering it a dreary, even dangerous diversion from academe’s “true” mission of disseminating truth, light, and knowledge. But bleak economic realities are changing attitudes, says Mathies. “The view that there is this dramatic ‘tension’ between the corporate and research worlds was certainly true 20 years ago, but it is no longer the case,” he says. “It has been significantly reduced.”

Reduced among researchers anxious to transform their ideas into royalty-generating products, perhaps. But the organizations charged with securing academic patents—university technology transfer offices—can seem more old school in their outlook, still championing the ideals of “pure” research.

Berkeley’s Office of Intellectual Property and Industry Research Alliances (IPIRA) occupies the upper floors of a building on Shattuck Avenue. The unit’s operations are divided into the Office of Technology Licensing, which pursues patents, and the Industry Alliance Office, which drums up private partnerships based on the University’s intellectual properties. An average of 240 patents a year are filed from these deathly still corridors and hushed offices; a good many more ideas come here to die.

Indeed, for any number of reasons, many seemingly worthy inventions never even make it as far as a patent application. As Michael Katz, the executive director of IPIRA, explains, “Sometimes technology can move so fast that a patent is irrelevant by the time we see it. Or it may be that a patent would inhibit rather than advance innovation&8230;. With [intellectual property], an excessive number of patents can slow down the adoption of new technologies.” Avoiding such bottlenecks, Katz says, is a paramount goal of IPIRA: “We want our efforts to encourage new technology, not stymie it. For us, that’s a consideration that takes precedence over royalties.”

Another factor weighing on the University’s patent strategies is investment—the sheer volume of cash needed for product development and protection, a funding chasm sometimes referred to as “The Valley of Death.”

“There’s a general lack of appreciation for the amount of money it can take to transfer an idea into an integrated, foolproof device,” says Martha Gilliland, vice president of the Research Corporation for Science Advancement, a philanthropic Tucson group that helps young academics secure funding for their ideas. (The center was founded in the early 20th century by Frederick Cottrell 1896, a UC alumnus and professor. Cottrell invented the electrostatic precipitator, a pollution-control device still used to “scrub” emissions from today’s industrial smokestacks.)

“It is by no means unusual for [development costs] to run $100 million or more,” says Gilliland. “Younger researchers often don’t realize this, and when they do, it can be pretty daunting. So we not only try to get them money—we also try to educate them, to prepare them for the challenges they’re going to face.”

Mathies calls it the Grad Student with the Ferrari Eyes. “A guy comes in with a patent disclosure. His idea is a pretty good one, and he’s got that gleam in his eye—that money gleam, that Ferrari gleam. And it’s kind of sad, but I have to disabuse him of the notion of easy cash. I have to tell him that his payday is years down the road—if then.”

Mathies uses one of his own inventions as an example: the capillary array electrophoresis separation system, now a cornerstone technology in DNA analysis and sequencing. “We got our first research grants in 1987,” Mathies says. “In 1990, we had demonstration units showing it actually worked. By 1992, we had engaged with companies to develop the product. Then it took us until 1997 to produce and deploy products in volume. And that timeline is pretty typical.”

But a successful product generates its own impediments to a robust revenue stream—and ultimately, that Ferrari. For starters, new technology attracts lawyers like fresh carrion lures buzzards. “There’s no way around it,” sighs Mathies. “If a new product comes out based on your patent, you will end up suing someone for patent infringement, or someone will sue you to prevent the product from being marketed. It’s almost inevitable that you will wind up in court.”

Suing to prevent the commercial application of patents has become so common as to spawn a neologism: so-called patent trolls, a.k.a. patent pirates, don’t actually develop products from the patents they own. Rather, they use their patents as a cudgel to extract money from companies that do develop products. “It’s definitely getting worse,” says Gilliland, speaking of the dread trolls. “It’s interesting. In Cottrell’s day, it really was about driving the social good. In fact, he offered his patent on the electrostatic precipitator to the Smithsonian Institution. And he wasn’t alone in thinking that way. Now, there’s a tendency to immediately claim infringement, and the lawyers pile on. I don’t think [trolls] inhibit research—pure research is still very strong in academe. But [trolls] can inhibit what is often termed the ‘innovation ecosystem’: the transfer of the ideas that result from research into useful technologies.”

Because fighting trolls is time consuming and expensive, the University of California seeks alternative solutions whenever possible. “If there’s [an infringement] and we are notified by an exclusive licensee, we will of course pursue it,” says Martin Simpson, resident counsel for the Office of Technology Transfer, which generally oversees patent development for UC’s ten campuses and Lawrence Berkeley National Laboratory. “But we also see if there are other things we can do to work things out. That said, the University is sometimes party to patent infringement lawsuits. In essence, a patent is simply a right to exclude others. So once in a while, when justified, you have to enforce that right to show people you’re serious.”

In 1990, UC got serious with the biotech giant Genentech, launching a $400 million suit against the company over the growth hormone Protropin, which the University maintained was developed from one of its patents. The effort paid off. Nine years later, Genentech settled for $200 million. Of that, $85 million went to the inventors, $30 million went to the University of California’s general fund, $50 million funded a new research facility at UCSF, and $35 million supported general UCSF research.

That legal showdown notwithstanding, some senior researchers, including Richard Mathies, think UC fails to do enough to protect its intellectual property. “In the simplest terms, we’d have a lot more money if the [University] handled patents better,” he says. “But they have shown they are reluctant to aggressively protect our patents, and I can only surmise it is due to ignorance.” Mathies thinks UC doesn’t have the necessary data about market potential and individual inventions to make informed decisions about litigation. “On my patents, they left millions on the table. It can be very frustrating, and it can make the difference between, say, $20 million and several hundred million dollars. When you have a university staffed with internationally renowned experts, you need to trust them enough to get behind their ideas. Who better knows the value of these patents than the inventors and their department colleagues?”

Carol Mimura, the assistant vice chancellor of IPIRA, points out that the decision on whether or not to sue does not rest with her office but rather with the UC Regents. She further maintains that her department does its utmost to support and promote the licensing of University of California patents—and that many researchers acknowledge this, despite the red tape, frustrations, and disagreements integral to the drawn-out process of licensing and marketing intellectual property.

“I have a note from Jim Allison that says, ‘Thank you for believing in me,’” says Mimura. “It’s one of my greatest treasures. We were behind [Allison] from the beginning, when no one was much interested [in his discovery] because it was counterintuitive. The risk/reward analyses weren’t encouraging—potentially, you were looking at an investment of more than $1 billion over the course of a decade, and then you were at the mercy of the FDA for [treatment] approval. But we were with him through the whole convoluted route to commercialization.”

Mimura also insists that tech transfer offices are not reflexively averse to innovative approaches; indeed, she says, they are seeking their own alternative paths to patent development.

“The standard model for developing intellectual property has been the ‘push’ variety,” she explains. “That’s where the funding originates from the government, the money is dispersed through grants to the researchers, and the University then files patents on the early technology and attempts to market it.”

An alternative would be the “pull” model. “That’s where industries fund research in areas that interest them,” she says. “They can’t hijack the research—the contracts are very explicit on that. Basically, they have to provide the money and stay out of the way. But they have first rights to negotiate on the technology that’s developed.”

As a prime example of a “pull” project, Mimura points to a 2007 partnership between UC Berkeley, Lawrence Berkeley National Laboratory, the University of Illinois at Urbana-Champaign, and British Petroleum to create the Cal-headquartered Energy Biosciences Institute, an alternative fuels skunkworks. (“Skunkworks” is tech industry jargon for research teams that are freed to develop radical innovations.) BP is contributing $500 million over a ten-year period to the project, and gets first shot at the IP goodies that are generated.

To date, the institute has funded about 300 researchers. More than 40 inventions have emerged from the consortium; of these, BP has snapped up all but one. By the terms of the deal, the petroleum giant—still licking its PR wounds from the catastrophic 2010 oil spill in the Gulf of Mexico—can’t simply sit on its alternative fuels patents until the oil runs out.

“An exclusive license [from the EBI] requires commercial diligence,” Mimura emphasizes. “In other words, they have to meet specific milestones; they have to get the products out. They can’t license something just to remove it from the marketplace.”

The enterprising Mathies has his own ideas for shaking up the status quo. He notes, for example, that the University traditionally has not allowed departments to invest in the companies that are based on faculty patents. “As best I can tell, this is custom, not law,” he says, “and it is a mindset that needs changing.”

Furthermore, Mathies thinks UC should invest in early-stage startup companies founded on a faculty member’s patent, investing 10 to 20 thousand dollars for each company. “Yes, eight or nine out of ten won’t pay off. That’s no significant loss. But that one out of ten that hits could pay tremendous dividends—and that could make a very profound and positive difference for the University.”

Carol Mimura pauses as she contemplates the difficulty of implementing her department’s dual goals of making money and spreading light.

“I really believe we can do both,” she says finally. “We’re trying to create a virtuous cycle with researchers, the University, and industry. We want to use the money we take in to stimulate more research, hire more professors, place more scientists on industry advisory boards. We know our researchers are inventing things that can heal the world. We just want to do what we can to make those technologies available.”

Glen Martin is a frequent contributor to California and the author of Game Changer, a new UC Press book about wildlife conservation struggles in Africa.
From the Spring 2012 Piracy issue of California.
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This is a remarkably negative article on tech transfer.

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