COLUMN ONE : Academia Wises Up on Patents : These days, universities aren’t shy about asserting their rights to potentially lucrative research patents. It wasn’t always that way.
The University of Florida made about $2 million last year in royalties on a patent for Gatorade Thirst Quencher, a sports drink that generates some $500 million to $600 million a year in revenue for Quaker Oats Co.
The payments place the university among the top five in the nation in income from patent royalties.
Oh, but if some people on the Gainesville, Fla., campus could just turn back the clock. “If we had done Gatorade right, we would be getting $5 or $6 million (a year),” laments Donald Price, director of the university’s office of corporate programs. “It is a classic example of how not to handle a patent idea,” he added.
Gatorade was developed in 1965 when many universities were ill equipped to judge the commercial potential of ideas emerging from their research labs. Officials blew the university’s chance to control the Gatorade royalties when they declined to develop a professor’s idea.
But Florida was not the only institution to make a costly misjudgment. Indiana University in 1957 licensed a fluoride compound to Procter & Gamble that led to Crest toothpaste. But it got less than $5 million from a royalty agreement based on the amount of the compound in the toothpaste instead of the $100 million or so it may have gotten over the life of the patent had the payments been based on toothpaste sales.
It is probably a safe bet that no university would make such a mistake today.
Academia is vastly more sophisticated about the commercial potential of its research. Technology transfer--the process of getting ideas from lab to markets--has become an integral part of the academic consciousness. The federal government spurred many universities into action in 1980 when it granted small businesses and nonprofit institutions exclusive license to all patents developed with federal funding.
Among the institutions with the longest and most successful track records are Stanford University and the University of Wisconsin--which has licensed patents since 1925 and has earned millions from the generic rat poison Warfarin and a series of vitamin D discoveries. Other successful universities are the nine-campus University of California, and Massachusetts Institute of Technology.
Stanford, which got $11.5 million last year in royalties from various patents, shares with UC the patent for recombinant DNA technology. UC’s 1989 royalties were about $9.8 million. The university has about 600 patents, but biotechnology patents generated about 40% of 1989 income.
Michigan State University hit the jackpot with cisplatin, a cancer drug that has earned close to $60 million in royalties, yet the patent has about seven more years before expiration. Most of the universities generating significant income from patents owe it to “just one hit,” Price said.
University administrators are quick to say that they are not simply motivated by dollars and cents. “What we really want to do is rekindle the competitiveness of America,” said Carl Wootten, director of the UC patent office. Exploiting university research is essential to bringing new technology to the marketplace, he added.
Money may not be a major motivation, but many universities aren’t shy about vigorously asserting rights to potentially lucrative patents. UC regents recently sued Eli Lilly & Co., claiming that the pharmaceuticals company infringed on its biotechnology patent for making human insulin. Financial analysts estimate that Lilly sold about $295 million worth of the insulin last year. Lilly insists that UC has no right to share the revenue and refused to negotiate a royalty agreement. UC promptly marched into federal court in San Francisco.
The University of Florida also went to court before it obtained any rights to Gatorade. Dr. Robert J. Cade, an associate professor of medicine at the university, used his own time and money to develop Gatorade. But Cade first asked his department at the university to develop and patent his idea for a liquid that when consumed entered the blood stream about 10 times faster than water. He was turned down. Years later, when Gatorade became a commercial success, the university claimed rights because Cade was its employee. And the National Institutes of Health also claimed rights because Cade had used NIH grants to conduct hormone research at the university.
The litigation resulted in a court settlement under which the university was assigned 20% of the royalties and the remainder distributed to a trust that includes Cade and other individuals associated with the development of Gatorade. Florida has learned its lesson well.
Price said the university now requires all of its faculty members to sign employment agreements assigning the university rights to all patents resulting from their research. Faculty members are required to disclose all inventions to a university committee that reviews the potential to obtain a patent and the commercial prospects of the invention, Price said.
Such employment agreements are now common on campus. They may prevent a professor from patenting an idea for a number of years even if the university initially decides not to apply in its own name. However, if the university obtains a patent, the agreements commonly include a formula for the university to share some portion of the royalties with the inventor.
However, such contracts haven’t entirely eliminated disputes.
The University of Pennsylvania claims it was robbed of a chance to share in the success of Retin-A, the so-called anti-wrinkle cream sold by a unit of Johnson & Johnson, precisely because a professor violated his employment contract.
When the university’s patent agency heard that dermatology professor Albert M. Kligman had given credit to the university for participating in the invention of this so called fountain-of-youth-in-a-jar, it was dumbfounded that the patent was not issued through the university. It concluded that Dr. Kligman had filed for the patent without notifying the university and made a secret deal with Johnson & Johnson’s Upjohn Co. for royalties. Kligman couldn’t be reached for comment.
The agency, University Patents Inc., a 19-year-old technology transfer company hired in 1978 by the university to evaluate faculty inventions, file patents, and to secure licensing agreements, demanded an investigation. After about a year of unsuccessful efforts by the university to get information from Kligman, University Patents sued last spring, dragging an institution reluctant to sue a respected faculty member into federal court as an involuntary plaintiff. The university sued in its own name in January, including a complaint charging Johnson & Johnson with intentionally interfering with Kligman’s obligations to the school.
University Patents’ contract with the school called for it to collect royalties from university inventions in its own name, but distribute 60% of income to the university. The company claims it has already lost more than $5 million in income because of Kligman’s alleged breach of contract.
One value of a university contracting with a company like University Patents is that they will vigorously defend patent rights, said Charles McCord, director of the University of Colorado Foundation, which is responsible for university inventions. “And that is no small undertaking,” he added.
Litigation is the “unfortunate down side of the business,” UC’s Wootten said. “It’s a fundamental decision each university has to make if it is going to be in this business. You have to protect your patents.”
UC is organized to handle its own patenting and licensing activities as is Stanford. “We are here to make deals,” said Kathy Ku, Stanford’s acting patent administrator. “There are no lawyers on staff. We are all scientists and we all have business backgrounds,” she said in describing the office’s staff of eight professionals.
University Patents has shifted its primary focus to corporate technology transfer, but president A. Sidney Alpert said he believes many universities are making a mistake in attempting to handle technology transfer on their own. “It’s not a job that can be done on a part-time basis,” he said.
Although they know more about the process than ever, many university officials acknowledge that they don’t have enough people on staff to fully exploit research. A concern some university officials have in contracting with for-profit companies is that they will “cherry pick the inventions that have the most income-producing potential” and not take on those that have scientific value but no great royalty potential, McCord said. The university’s primary concern must be scientific advancement, he added.
Colorado officials have contracted with University Patents and similar private companies in the past to help exploit university research, but decided to go on its own after review last year. It also considered a proposal to invest in a for-profit company that would seek patents for university sponsored research and market any products that result. The university rejected the proposal, McCord said. “But that doesn’t mean it might not happen later.”
Some Colorado professors were skeptical of the idea--voicing concern raised elsewhere when universities have considered going into business in order to exploit patents. Skeptical professors wondered if universities wouldn’t also compromise their scientific mission in favor of promoting the science that offers to produce the most income.
Harvard University in 1988 overcame qualms about too closely mixing enterprise and academic research when it came up with the idea for a venture capital fund that would bankroll the development of research from Harvard Medical School and return a profit to the university.
The result was Medical Science Partners but, as structured, the organization operates at “completely arms length” from the medical school, said Andre L. Lamotte, a former executive of a French drug company whose limited partnership manages Medical Science Partners. Harvard’s major interest was to find a way to close the funding gap between research and development, he said.
“We have no preferential access to Harvard technology. We must compete as others and the price we pay to develop a technology is the market price. There are also no restrictions on us investing in technology from other universities.”
Lamotte said Medical Science Partners works with university scientists to develop research to the point that it can be taken to the venture capital community. The organization forms limited partnerships to invest in specific projects. To date, it has taken three projects from Harvard, including potential drugs and medical devices, Lamotte said.
The problem of funding development after a patent is granted is a significant issue, UC’s Wootten said. “We’re making a major push to get industry involved in research,” he said, explaining that the university invites industry to fund research and development in exchange for first rights to licensing agreements.