Discover more from The Muckrake by Sahaj Sharda
Seize The University Patents
Or How to Defeat the Patent-Plunder Final Boss
The University Patent-Plunder Racket has likely stolen years from your lifespan, and yet I doubt you know anything about it. This is an important story, so pay attention.
The basics are simple. The patent-plunder racket refers to when academic administrators use billions of dollars of your tax money to blackmail or kill startups that would have made your life better. In this post, I explain how universities operate the patent-plunder racket, how they avoid getting scrutinized for it, and how we can stop them.
Why the Public Funds Research
In order to have nicer things, we need new scientific insights. To gain more scientific insights, we need public funding. We can enjoy Netflix on iPhones, in part, because DARPA helped pave the way for the internet and because federal funding produced insights into computing and telecommunications. In the absence of federal funding, would people have naturally looked into and invented all the little things that make up your iPhone? Would anyone have been able to invent satellites without government resources? The answer to both these questions is probably not.
The main reason we need public funding is because the market doesn’t naturally reward basic research. It’s not super lucrative to create insights that are so fundamental they enter the domain of common knowledge. Albert Einstein didn’t get particularly rich off of E=MC^2. Even with public funding of basic research, scientists don’t often drive Ferraris and our brightest minds often work at Citadel the financial firm instead of citadels of research.
Without new basic research, how would we achieve the scientific breakthroughs which later filter into products we love and medicine we need? Public funding is super important, and we should do it. And we do. A lot of taxpayer money goes into federally funded research. A lot. And much of this federally funded research occurs at our research universities. For example, in 2020, the federal government funded over $46 Billion worth of research at our research universities. That’s a fuckload of money, and we spend that much or more every year.
But beyond just total dollars spent, how those resources are spent matters also. Societal progress hinges on our ability to get the best return on our public investment.
Where Our Money Goes
In a big shock, a small number of research universities monopolize virtually all the major government funding for research. As the National Science Foundation admits, “U.S. academic R&D performance was concentrated in a small percentage of higher education institutions.” For example, in 2020, Harvard University received $800 million in research funding, with 70 percent coming from the federal government. The other Ivies aren’t far behind. Between 2010 and 2015, the eight Ivy League schools got an aggregate of $23.89 billion in federal grants.
This distributional inequity might not be so objectionable if these schools were off the charts efficient with the research funding they received. For example, if these schools had unique and innovative processes that continuously opened new frontiers of progress which led to rapid economic growth, then maybe I could understand why the government chose to deeply fund a narrow cartel of research universities.
But empirically that’s not what has happened. Instead, we’ve seen the exact opposite. For all the money we’re currently spending on scientific and technological research, we’re just not seeing much of an economic impact. In fact, as Jay Bhattacharya and Mikko Packalen conclude in a recent study on scientific stagnation, “New ideas no longer fuel economic growth the way they once did.” The famous Founders Fund riff on this phenomenon is, “We wanted flying cars, and instead we got 140 characters.”
There’s a lot of reasons for this scientific stagnation, not least of which is the way elite research universities incentivize researchers to publish about trendy, citable, and low-risk topics that produce very marginal insight. But, today I don’t want to even get into the sheer wasteful way our research universities conduct basic research.
Instead, I want to focus on a really specific problem that very few people know about. This isn’t the problem of bad basic research. Rather, it is the problem of commercializing the fruits of the university conducted research that isn’t bad.
Essentially, there is a supply chain for new products that starts at basic research and ends with products that people can afford. Sequentially, once basic research does produce insights, it moves into applied research, and then it finally moves into spin outs and companies. But, our societal deployment of this research is only as effective as the most broken part of that innovation supply chain.
The Basics of Patent Plunder
Unfortunately, one of the most broken parts of that innovation supply chain is the link between research at universities and commercial spin-offs. In a well functioning system, universities would be pushing as much federally funded research into the hands of industry as possible. Instead, in our system, many universities look to greedily extract their cut off of research that the public paid for. Specifically, universities blackmail startups and spinouts with patents that universities have already filed in advance.
The impact of this patent-plunder mentality is that deployment is slowed down dramatically. This type of greed either prevents commercialization outright or else it makes it more expensive for people to do. Universities even sometimes pull this racket on technology that is already being deployed by startups.
One of the reasons this patent-plunder doesn’t attract media scrutiny is because the universities deliberately hide their involvement in the legal proceedings. As Eisenberg and Cook-Deegan confirm, “Criticized for behaving like patent trolls, universities have sometimes sought to avoid the reputational costs of litigation by selling their rights to undisputed patent trolls.” As Mark Lemley exemplifies, “One notable example is Eolas Technologies, Inc. v. Microsoft Corp., in which the University of California licensed a software patent to a company that really does look like a patent troll, however you want to define that term, and then shared with that company a jury award of $520.6 million against Microsoft.”
Of course, this type of legal blackmail and the threat of this type of legal blackmail chills the atmosphere for investment in frontier technologies. After all, who wants to invest in a company that could get sued by a university-allied patent troll firm tomorrow? This forces startups and spinouts to give away large amounts of equity to universities, just to avoid future litigation. Unfortunately, this too chills investor interest. When universities own so much equity, it reduces the upside for investors. Generally, in a world of patent-plunder capital costs at the earliest stages go up. With less investment, the future trickles into the present much more slowly.
Why Patent Plunder Was Made Legal
Remember that the public funds a majority of the research at our research universities. Therefore, one might expect that the fruits of that research would belong to the public. Yet, in 1980, the Bayh-Dole Act made it legal for universities to patent the insights produced by federally funded research. In other words, universities could take public money and privatize it through patents. Why did Congress allow this? First, Congress extended this patent power because Congress assumed that universities wouldn’t exploit this privilege. Everyone assumed that universities would always act in the public interest. As Eisenberg and Cook-Deegan describe, “The perceived halos over universities lit the path to passage of the Bayh-Dole Act.” Second, Congress extended this patent power because Congress felt that patent rights would lead to more economic productivity.
To be fair to Congress, there is a handful of cases where universities patenting research is economically productive. One specific example could be a breakthrough made in the biotechnology industry. The issue in the biotechnology industry is that new ideas for cures aren’t the bottleneck preventing us from getting better medicine. In fact, we have plenty of ideas for cures that never make it to market. Instead, what stops commercialization is the high regulatory barriers to getting a new treatment approved by regulators. This is why few firms are willing to spend billions of dollars to commercialize new medicines or treatments unless they are guaranteed monopoly profits for their efforts. In the case of a biotech breakthrough, maybe an argument can be made that research universities patenting research and then selling it to a biotechnology firm is economically productive. This type of narrow biotechnology example was the whole reason Congress passed Bayh-Dole in the first place. Otherwise, there is little reason to allow universities to privatize public research for only their own benefit.
How Patent Plunder Got Out of Control
But in a betrayal of public trust, universities haven’t used their Bayh-Dole patent powers only in these narrow use-cases. Unfortunately, Congress made the statue too broad, and universities pounced on these expanded powers. As Eisenberg and Cook-Deegan describe, “The statute did not limit the new ownership rule to inventions requiring follow-on investment to promote development. And universities have not imposed such limits on themselves. Universities soon came to regard their Bayh-Dole patents as entitlements, using them to generate revenue even when licensing rights were unnecessary for commercialization. The result may actually impede commercialization in some cases, and certainly makes it more expensive.”
Universities filing patents outside of narrow use cases like biotechnology is exceptionally odd because if research universities are doing basic research then there shouldn’t really be much to patent. For example, fundamental basic research insights like E=MC^2 belong to the commons as knowledge we can all benefit from. So, when research universities file a patent, it is often one of two types of misconduct—
The first explanation for university patents is that they can be an overreaching attempt to claim intellectual property rights to things that ought to be common knowledge. As Mark Lemley explains, “more and more university patents are patents on the very earliest stages of technology. It is universities, perhaps not surprisingly given their role in basic research, who are patenting the basic building blocks in new technologies.” This is obviously bad because we want as little friction as possible in getting basic building blocks into hands that can build entirely new industries out of them. An example of this type of harm is in the field of nanotechnology. There is no doubt that given enough time, nanotechnology will result in all sorts of innovations we can’t even imagine now. Innovative companies will build a new world out of nanotechnology and they will solve all sorts of problems with it. Yet, this becomes less likely when universities “account for 12% of all patents in nanotechnology, and more than two-thirds of what I identify as the basic building block patents in nanotechnology.” But, it’s also not just nanotechnology that is being slowed down. It’s all types of frontier industries. As Eisenberg and Cook-Deegan confirm, “Some of the most lucrative university patents covered broad enabling technologies that would have been ready for widespread use with or without university patents. These included the Cohen-Boyer patents on basic recombinant dna techniques (which have generated approximately $255 million for Stanford University and the University of California) and the Axel patents on methods to introduce genes for foreign proteins in eukaryotes (which have generated approximately $800 million for Columbia University). Such technologies face little risk of languishing in academic archives if they are published without patents.” These types of basic building block insights need to made available for free. The public paid for it, and it is time for the public to fully benefit from it.
The second explanation for university patents is that they can be an attempt at patenting applied research and not basic research. But this is also a type of misconduct because this second possibility isn’t really why the public chooses to fund research at universities. After all, there are plenty of other private actors far better at applied research and already likely to want to invest in applied research without the need for public funding. Corporate research arms like Google’s DeepMind, Xerox PARC, or Bell Labs are examples. As Mark Lemley confirms, “there is substantial literature on how the shift to university patenting has actually moved universities away from basic research and towards more applied research in ways that are arguably bad for society in the long run.”
Here is the basic description of the patent loot scheme: the public funds extensive research at elite research universities with tax-dollars, elite research universities then file patents that exclude the public from using the research that the public funded, and then the universities use the patents to blackmail private industry for even more money, leading to less research actually ending up in products that benefit the public.
As Mark Lemley explains, “Time and again, when I talk to people in a variety of industries, their view is that universities are the new patent trolls.” As Eisenberg and Cook-Deegan confirm, “Universities prize such patents as a source of unfettered discretionary funds, but they do not promote commercialization; rather, they make commercial development more costly by imposing a need to negotiate and pay for licenses.”
An Emerging Patent Cartel
Today, research universities have become the patent plunder final boss. In fact, research universities have even formed a patent cartel to make it easier to collude and extract more revenue from their frontier technology patents.
In January of 2021, 15 research universities, including Yale, Harvard, Brown, Penn, Columbia, and Princeton, came together to launch the jointly run University Technology Licensing Program. Also known as UTLP, this patent cartel organization is explicitly focused on extracting a vig from industries where commercialization is already taking place. In their DOJ antitrust business review request letter, the UTLP lawyers explicitly cite patent pooling only in the areas of autonomous vehicles, Internet of Things, and Big Data. These are obviously areas where deployment is already happening. In fact, the letter explicitly states that part of the rationale for the patent pool is "many universities do not routinely receive compensation for commercial use of their patented inventions, which they otherwise could invest into their non-profit educational and research missions".
This type of patent cartel is obviously against the spirit of what Bayh-Dole was meant for. To clarify, I have no issue with housing all of these patents under one organization. But, once that is accomplished, the publicly funded patents should be open-sourced and open to anyone for free. This is especially true in areas where commercialization is already happening. After all, the whole point of Bayh-Dole was to help with commercialization, and therefore it is entirely against the spirit of the law for universities to use it to make already occurring commercialization more expensive instead. As a general matter of principle, as much research as possible should be made public and free.
But, the research universities are certainly not abiding by that principle. In fact, the reason we have the UTLP cartel is because research universities will never open-source patents out of their own volition. As Eisenberg and Cook-Deegan describe, “technology transfer offices, as opposed to faculty, have come to dominate the voice of universities in debates about patent policy. The result is a tail wagging-the-dog distortion, in which the interests of universities as patent owners may be overwhelming their broader interests in widespread dissemination and utilization of new knowledge for the public benefit.”
Patent plunder is an anchor on innovation. Yet, this racket is not something that has emerged naturally. Instead, it is the direct result of political influence campaigns. The research universities actively use their influence with Congress as an offensive weapon against startups and other companies. An obvious example of this is all the lobbying that went into passing and protecting Bayh-Dole. Further, even more scandalous behavior is exemplified in narrow legislation. As Eisenberg and Cook-Deegan describe, “Universities have also sought to expand their patent rights by lobbying Congress to change the patent laws in their favor, with mixed results. This strategy backfired in a campaign by Columbia University to extend the term of its lucrative Axel patents. Columbia worked through Senator Judd Gregg of New Hampshire, a Columbia alumnus, who introduced three different bills in an attempt to extend Columbia’s patent term. The patents were then under license to multiple commercial firms, none of which stood to benefit by prolonging their royalty obligations to Columbia. When Senator Gregg’s backroom legislative maneuvers became public, there was a strong backlash against both him and Columbia from drug manufacturers, consumer groups, and other members of Congress.” This type of corruption needs to end. The system is in desperate need of reform.
How We End the Era of Plunder
I don’t want to understate the magnitude of this problem. This patent racket directly costs the American public tens of billions of dollars a year, and that is not even including the indirect costs that it also forces us to absorb. Worse, this racket is one of the reasons we don’t have robot butlers, flying cars, or unlimited and cheap energy. It is a direct impediment to any hope of an “abundance agenda.” We need to end it. So, what are our options? I list three ideas in order of easiest to hardest.
First, a rich philanthropist, or a few of them, can intervene to save the system by blackmailing universities right back. Specifically, universities are massively vulnerable to being sued themselves for all manner of patent infringement. As Eisenberg and Cook-Deegan describe,“Patent infringement litigation against universities and academic researchers is quite rare. This allows university scientists to infringe patents in their laboratories with relative impunity even as universities enforce their patents against other institutions. But this is largely the result of forbearance by patent owners rather than legal immunity from suit.” Essentially, what this means is that a charity could be set up and funded with the express purpose of finding and buying the specific patents that this small handful of research universities tend to infringe upon. By buying up those patents and using them as leverage, such a charity can then protect startups and companies that want to commercialize different technologies. For if the universities come looking for their vig, such a charity could deter universities through litigation M.A.D.
Second, the Biden administration (or future administrations) could actually exercise its powers to protect the public. One way this could happen is through the use of march-in rights. The same Bayh-Dole legislation, which gave universities the right to patent publicly funded research, also gave funding agencies the right to march-in and open up the patents if they were not being used to further commercialization. In plenty of cases where the university patents are on the most basic technologies, march-in rights obviously ought to be exercised. This is how we free up nanotechnology, for example.
However, although the government retains march-in rights, these powers have never been exercised. In order for the federal funding agencies to exercise march-in rights, they have to be petitioned for by someone who wants access to the patents. Yet, there is a Catch-22 in this area. Since the federal government hasn’t exercised march-in rights, no one petitions anymore. Since no one petitions anymore, the federal government hasn’t exercised march-in rights. We need to break this cycle.
Frankly, simple reforms could fix this broken process. As Ryan Whalen suggests, “allow petitioners to appeal agency decisions not to march in on Bayh–Dole subject inventions, mandating a duty to use “best efforts” to bring subject inventions to the point of practical application and to report on those efforts.” This is also an area where private philanthropy can help. For if charities show a willingness to fund petitioning for use of march-in rights, then pressure on funding agencies will grow to actually do their job. Also, an actually aggressive stance taken by the administration on increasing commercialization of basic research could induce people to file petitions.
Also, the federal government spends tens of billions of dollars on federally funded research. Research universities are deeply dependent on that money. I don’t want to suggest anything too nefarious, but any administration, and any President, could use that strong level of financial leverage to get the research universities to behave. Crack some skulls.
Third, Congress could fix the mess it created. Congress ought to pass a law that bans patenting basic science, unless the patent-filer can explicitly prove that such research needs patents to attract follow on investment. Further this law should instruct the agencies overseeing these applications to have a very strong default presumption against granting patents on basic science. This would solve the fundamental challenge of overreaching patents on things that should have never have been patented. Further, Congress should make it illegal for research universities to exercise their patents against technology that is already being commercialized without need for licensing. Legislation can kill the research university vig.
In sum, patent plunder is bad. Let’s finally do something about it.
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