Each day, universities conduct and invest in research that has an impact on science, medical, and technology industries. And while schools of higher education serve a larger purpose, patenting those research results and licensing those patents to industries can generate much-needed funds that benefit those universities.
Patents are assets, even if they are not immediately used. As such, campus assets borne from technology created by colleges and universities usually can be licensed, sometimes later in their useful lifetimes. Dormant patents represent potential revenue sources for colleges and universities who find that those patents are infringed upon.
A growing number of universities are hiring technology transfer managers who are responsible for generating revenue by licensing out university patents to industry.
With apologies to the crusty old prospector in the 1948 western Yellow Sky, “Thar’s gold in them thar patents!” New York University, the University of California, the University of Colorado, Cornell, and Stanford have hit pay dirt pursuing patent infringers. Shouldn’t every university’s leadership team be wondering if they might be sitting on a goldmine?
More and more owners of dormant patents are discovering gold—sometimes lots of it—in their patent portfolios. Here are a few more comparatively recent examples:
• 1999: The University of California and Eolas Technologies filed a patent infringement lawsuit against Microsoft Corp. In 2003, the case went to trial, and the jury awarded UCal and Eolas $520 million. In 2005, Microsoft appealed the decision, and the Court of Appeals for the Federal Circuit sent it back to District Court to be retried. In August 2007, the parties settled the claim for an undisclosed amount.
• 1999: The University of California filed a patent infringement lawsuit against Genentech. The case resulted in a $200 million settlement for UCal.
• 2002: Cornell University filed a patent infringement lawsuit against Hewlett-Packard Co. In 2008, the case went to trial, and the jury awarded Cornell $184 million. Hewlett-Packard announced its intention to appeal the award, and the judge reduced the award to $53 million.
• 2003: Texas Instruments and Stanford University filed a patent infringement lawsuit against Conexant Systems. In 2006, the case went to trial, and the jury awarded TI and Stanford $112 million. Shortly after the trial, the parties settled the case for $70 million.
According to Chris Holman of the University of Missouri-Kansas City School of Law, in just this decade, universities filed 139 patent infringement lawsuits. Although most of these lawsuits were filed by exclusive licensees with universities joining them as co-plaintiffs, 51 of these lawsuits were filed by universities alone.
Patent and licensing history was made on June 29, 2009, when a jury in Marshall, Texas, granted the largest patent award verdict in U. S. history.
Call it a jury verdict, or perhaps the largest university windfall ever awarded, but Abbott Laboratories was ordered to pay $1.6 billion to Centocor, a Johnson & Johnson subsidiary, because Abbott Laboratories’ Numira arthritis treatment was found to infringe Centocor’s U.S. patent.
The patent was developed at New York University and licensed exclusively to Centocor, which makes a medicine called Remicade that competes with Numira. The jury was out for five hours before returning the verdict, which specified $1.17 billion for lost profits and $504 million as a reasonable royalty.
Earlier in patent history, the second-highest patent verdict was a $1.5 billion award that Alcatel-Lucent won against Microsoft, but that was later overturned. The third largest patent award, and still the largest ever enforced, was a $910 million judgment for Polaroid in 1986, a suit that ultimately wiped out Kodak’s full line of instant camera products. Some report that this award was actually $925 million, the full amount of the settlement in 1991 that finally ended the litigation.
These landmark cases suggest it certainly would pay licensors, be they universities, corporations, or other owners of dormant U.S. patents, to look where they have not looked before for the money it takes to fulfill their organization’s mission or beef up the bottom line.
Two types of licensing
Licensing comes in two varieties: “carrot” and “stick.” A “carrot license” is a license taken voluntarily by a licensee that is not yet using the patented technology and is under no compulsion to license it. A value proposition in “carrot” licensing is, “License our patent(s) because our patented technology is better and you can make more money with it.”
Carrot licensees tend to be exclusive, as the licensor wants to be assured of exclusivity before investing in developing the patent technology. A “stick license,” on the other hand, is an exercise in assertive licensing that is appropriate when the patented technology is already in use by an infringer of the patent.
In this case, the value proposition is, “License our patent(s), or we’ll see you in court.” Stick licenses are usually non-exclusive. A non-exclusive license is, in essence, a covenant not to sue, and is usually taken to avoid (or settle) litigation.
Unfortunately, litigation cannot always be avoided. If the infringer refuses to take a license, assertive licensing turns into patent enforcement, i.e., patent infringement litigation.
In reality, every “carrot” license is a “stick” license in disguise—if not for the unspoken threat of litigation, who would ever license a patent, which, at the end of the day, is nothing more than a right to sue for infringement?
Technology transfer managers typically do carrot licensing. They promote and market the university’s patent portfolio to industry and find businesses to commercialize some of those patents. There are technology transfer managers and technology transfer departments that generate tens of millions of dollars—even hundreds of millions of dollars—a year in revenue that is essentially found money for the school.
The result of ignoring patents
Few universities get as aggressive as New York University, the University of California, the University of Colorado, Cornell, or Stanford and actually pursue patent infringers. Neglecting stick licensing, however, has two problems.
First, it results in a loss of potential royalty and damages revenues from infringed patents, which, as we have seen, could amount to hundreds of millions of dollars.
Second, it undermines carrot licensing of both infringed and non-infringed patents. If an industry perceives a lax attitude on the part a university in enforcing its patents, it will think it can infringe with impunity. Under these circumstances, taking a license would be tantamount to a charitable gift, which few in this economic climate are inclined to do.
Most schools of higher education leave it up to their licensees to enforce the patents or, worse yet, think it is beneath them to enforce their patents. The proponents of this philosophy claim that, as institutions of higher learning, a university’s mission is to serve the public and the greater good, and not to litigate.
This position makes little sense. Universities invest millions of dollars in research and development and produce much of the cutting-edge science that eventually makes its way into drugs and new technologies. It behooves universities to obtain a return from this investment, producing funds that can be put back into research to produce more cures and cutting-edge science for the greater good.
Identifying patent infringement
Although a patent is a right to exclude others, it doesn’t come with its own police. It remains the responsibility of the patent owner to identify infringers and enforce the patent.
The greatest obstacle facing a university—or any patent owner—is identifying who is infringing its patent(s). There are a number of policies and procedures that can be implemented to identify possible patent infringers. These include reverse patent citation analysis, market studies, and interviews with the university researchers who named inventors on the patents.
In my countless conversations with technology transfer managers, most expressed the same frustration. They must cut through red tape and work their way through layers of bureaucracy when it comes to enforcing university-owned patents.
One needs to get approval from the general counsel, the president or the provost, and possibly the board of trustees. Such approvals are hard to obtain, because various constituencies have different reasons not to approve filing a patent infringement lawsuit.
It’s no wonder that relatively few patent infringement lawsuits are ever filed by universities. However, there is an approach that addresses many of these issues.
Hiring a law firm that specializes in patent litigation to represent the university might make sense. But patent litigation is very expensive. The cost of patent infringement litigation can be millions of dollars.
In addition to legal fees, there are disbursements. These are out-of-pocket litigation expenses such as filing fees, document production and discovery costs, taking depositions, expert witnesses and jury consultants, audio-visual services, trial demonstratives, and travel costs. These expenses quickly add up to hundreds of thousands of dollars and can easily exceed a million dollars.
There are companies other than law firms that specialize in patent enforcement, however. These companies offer a comprehensive, seamless, turnkey patent enforcement program. The better patent enforcement firms manage the entire process.
General Patent Corp., for example, is an IP management boutique firm that focuses on patent licensing and enforcement. Patent enforcement firms operate on a 100-percent contingency basis. They recoup the fees for the law firm, all out-of-pocket expenses, and their management fee from any proceeds produced by the lawsuit (or lawsuits if there are multiple infringers). Should the patent infringement action fail, the patent enforcement company absorbs all of the losses and the university pays nothing.
Patent enforcement firms offer another subtle but significant benefit: They transfer the patent to a special-purpose entity. The patent enforcement firm sets up an LLC that owns the patent, and the new entity is the plaintiff in the lawsuit. This is no different from creating a university spinoff with a mandate to monetize specific university patent(s).
If litigation ensues, it is the spinoff, not the university, who will be the plaintiff in the lawsuit. This reduces the involvement of the university and any negative publicity that could result from the lawsuit.
Using a patent enforcement firm to pursue patent infringers is an alternative with no costs, no risks, and minimal management of the process by university officials who are already plenty busy with their regular duties.
A patent is a wasting asset—sooner or later it will expire. An important factor in computing patent infringement damages is the remaining years on the patent.
Any organization with a patent portfolio of any size has to take a serious look at those assets and determine if there’s revenue that has not yet been, but could be, realized with minimal effort, modest costs, very little risk, and some old-fashioned gumption.
Alexander Poltorak is the chairman and CEO of General Patent Corp. and founder and president of American Innovators for Patent Reform, a nonprofit trade association formed to give voice to American innovators in the ongoing debate on patent reform. He is also the author of two books on patents: Essentials of Intellectual Property and Essentials of Intellectual Property Licensing.
- Research: Social media has negative impact on academic performance - April 2, 2020
- Number 1: Social media has negative impact on academic performance - December 31, 2014
- 6 reasons campus networks must change - September 30, 2014