Research-Technology Management • September—October 2012 | 1
Today, land-grant universities such as
Penn State are called upon to be en-
gines for national and regional innova-
tion. To ful?ll that mission, these
universities need all innovation avenues
to be wide open for the two-way traf?c
that is translational research and devel-
opment. At Penn State we are respond-
ing to that call by seeking to transform
our culture from that of a traditional
research-intensive, public land-grant
university to one that is more dynamic
and nimble and better able to drive the
transfer of science into technology. As
a part of this effort, in addition to fos-
tering entrepreneurship, we seek to
spur the growth and development of in-
dustrial research partnerships. The goal
is to make the university a model for
open innovation in the twenty-?rst
century, while at the same time bringing
us back to our core historical mission.
To do all of this we have developed a
seven-point plan to reinvigorate our
culture (see “Penn State’s Seven-Point
Plan,” p. XXX ), to be implemented over
the next two years.
Of these seven points, none is more
important than the second—to spur
growth in research by taking a more
?exible approach to IP ownership—nor
has any garnered more attention from
industry and from academia. After a
thorough analysis, Penn State has con-
cluded that it is no longer viable to
maintain the long-held position that we
must own all intellectual property that
derives from any and all research that
we do, even that which is the product of
industry-funded research. This change
in approach arises directly from a re-
newed engagement with our core mis-
sion to bene?t students and society. It is
our view that it is to the bene?t of soci-
ety, and to our students and faculty, to
let the ownership of IP developed with
industrial funds ?ow back to the spon-
sor. This, we believe, will catalyze more
commercialization of new technology,
help the university build stronger ties to
practitioners, and create new adjacen-
cies between theory and practice from
which both students and faculty can
learn. In this article, I lay out the factors
that led the university to make this
change and try a wholly new approach
to IP developed at the university.
Background
Land-grant universities were estab-
lished by the Morrill Act of 1862, which
allocated land grants to each state and
speci?ed
that all moneys derived from the
sale of the lands aforesaid by the
States . . . the interest of which shall
be inviolably appropriated, by each
State, . . . to the endowment, sup-
port, and maintenance of at least
one college where the leading ob-
ject shall be, without excluding
other scienti?c and classical stud-
ies, and including military tactics,
to teach such branches of learning
as are related to agriculture and the
mechanic arts, in such manner as
the legislatures of the States may
respectively prescribe, in order to
promote the liberal and practical
education of the industrial classes
in the several pursuits and profes-
sions in life.
This is the historical basis for Penn
State’s mission, its raison d’être . As the
nation’s ?rst land-grant institution, Penn
State’s core purpose has always been
to do research with practical value and
to disseminate that new knowledge for
the betterment of society. For most of
its history, the university did exactly
that and did it well. The creation of
new inventions and innovation was
in the core mission, but we did not call
it intellectual property, nor did we think
in terms of its market value. For many
decades, the university did not even
seek to protect its inventions and inno-
vations. Rather, as an institution well
supported by public funding, Penn State
simply disseminated ?ndings as effec-
tively and as quickly as possible, with
Henry C. “Hank” Foley was appointed vice pres-
ident for research and dean of the graduate
school at Penn State University on January 1,
2010. He is also the president of the Penn State
Research Foundation, a separate 501(c)(3) organi-
zation that holds and manages all of the universi-
ty’s intellectual property. Foley is responsible for
overseeing a research enterprise with over $800
million in expenditures and over 13,000 graduate
students in more than 150 degree programs. He
has authored more than 100 papers, holds 15
patents, and is author of the textbook Introduc-
tion to Chemical Engineering Analysis Using
Mathematica . Foley returned to the University in
2000 as the Walter L. Robb Family Endowed
Chair and head of the department of chemical
engineering. He earned a BS from Providence
College, an MS from Purdue University, and a
PhD from Penn State University, all in chemistry.
[email protected]
DOI: 10.5437/08956308X5505008
POINT OF VIEW
A New Approach to Intellectual Property
Management and Industrially Funded Research
at Penn State
Henry C. Foley
2 | Research-Technology Management Point of View
little thought of institutional commer-
cial gain.
This changed, for Penn State and for
many universities, approximately three
decades ago, circa 1980. In a signi?-
cant departure from the practice of over
100 years, university inventions and
technological innovations that were
the products of our research, whether
funded publically or privately, were to
be protected with patents and held as
the institution’s intellectual property
for license to industry. The shift had
two drivers: the Bayh-Dole Act of 1980
and the recognition of the success of
a few schools—for example Florida,
Wisconsin, Michigan State—with block-
buster inventions that lifted them to
new levels of ?nancial success. The
Bayh-Dole Act had as its goal to push
more of the products of federally funded
research to the marketplace. To do so,
it transferred IP rights from the fund-
ing agency to the university where the
research was done. With this transfer
of rights came the expectation that the
university would show due diligence in
seeking to license the intellectual prop-
erty for commercialization. The second
driver—the realization that the products
of university research that had been
given away for decades could actually
have very high value in the market-
place—led to the formation of univer-
sity IP of?ces charged with protecting
university research with patents and
then licensing the technology for com-
mercialization. It was thought at that
time that the kind of market success
that a few schools had seen could be
systematized and duplicated elsewhere.
Doing so, it was reasoned, would create
a signi?cant revenue stream, helping
the institutions while serving to ful?ll
the goal of the Bayh-Dole Act.
While this thinking seemed sound, it
had a few hidden assumptions beneath
it: 1) that the percentage of university re-
search that was of value to industry was
large enough to justify the added costs of
managing IP in this new way; and 2) that
universities, which had never been in
the IP business, would learn how to do
this and would do it well. It also did not
account for the very different percep-
tions of value and risk held by industry
and academia. Universities tend to think
that the subject of a patent is much closer
to market than industry does, and so
there is a built-in, signi?cant difference
in the perception of value.
Even more importantly, this new
thinking did not account for the very
real change the shift made in the unwrit-
ten compact with society that public
land-grant universities had subscribed to
for over a century—namely that they
would serve as public institutions for the
betterment of all, not for the betterment
of the institution itself. One can argue
that the seeds of today’s trend toward
the privatization of public higher ed-
ucation were planted with this subtle
shift. With the bene?t of hindsight, it
seems that such a signi?cant change
should have been approached more
carefully with a fuller analysis of un-
intended consequences. Today, it is
easier to see how this shift in IP man-
agement could affect the mission of a
public institution, but then it was viewed
as simply pragmatic.
The Research and IP Experience
at Penn State
Penn State’s experience over the last
30 years illustrates how the hidden
assumptions in IP management have
played out over three decades. Research
expenditures have grown signi?cantly
at Penn State since 1990 as the ef?cacy
of the university’s research enterprise
has improved ( Figure 1 ). As research
Penn State’s Seven-Point Plan for Reinvigorating the
Research Culture
In late 2010, after much analysis of our past performance and in recognition of
growing expectations that research will have economic impact and of our aspira-
tions for the future, Penn State created a seven-point plan to foster a shift in our
research culture. The goal is to reinvigorate and to reenergize those entrepreneur-
ial members of our research community who are excited by the prospect of moving
more Penn State research from the laboratory to the marketplace.
1. Create an Of?ce of Technology Management, uniting functions now performed
by the Industrial Research Of?ce and the Intellectual Property Of?ce.
2. Spur growth in industry-funded research with more ?exible intellectual property
policies.
3. Manage master agreements in a way that provides real value to the industry
partner and to the university by building end-to-end partnerships.
4. Create a culture of entrepreneurship by creating more trust, ownership, and
excitement among the faculty.
5. Raise revenue by selling off existing university-owned intellectual property.
6. Rename and explain the con?ict of interest policy to encourage participation
and better protect faculty members and the university.
7. Create the Techcelerator innovation center by collocating the new Small
Business Development Center, the new Of?ce of Technology Management, the
Of?ce of Sponsored Programs, and the Ben Franklin Technology Partners’
Center with the New Business Incubator, the Innovation Park Management
Of?ce, and the Centre County Chamber of Business and Commerce.
Universities tend to think that the subject of a patent
is much closer to market than industry does, and so
there is a built-in, signi?cant difference in the perception
of value.
Point of View September—October 2012 | 3
has grown, so too has the activity in in-
tellectual property—from just 66 inven-
tion disclosures in 1990 to over 200 in
2000 ( Figure 2 ). At the peak of disclo-
sure ?lings, about one-third of disclo-
sures were converted into issued patents
and this number was rising, as were ex-
penditures for this activity. It was al-
ready evident by 2001 that a problem
was developing in that expenditures to
create and manage IP were very much
outpacing revenues. By 2002, Penn
State was expending about $1.9 million
on patent costs each year, but the li-
censing revenue, including patent cost
reimbursement, was well below that
( Figure 3 ).
In order to control this imbalance,
the then vice president of research
concluded that fewer invention dis-
closures would be patented. An in-
ventions disclosure review committee
was created to select those disclosures
deemed to have enough promise to
merit patent protection. This had the
predictable effect of throttling the num-
ber of disclosures ?led and the number
of patents issued to Penn State each
year. From almost 70 patents issued in
the peak years of 2001 and 2002, the
number settled to about 35 to 40 per
year. Disclosures that were not patented
were abandoned. However, even as
the number of disclosures ?led and
patents issued dropped over the course
of the next decade, IP management
costs continued to escalate. By 2010,
the gap between expenditures and
reimbursements had grown to nearly
$1,000,000 per year. Cost recoveries
were never 100 percent and were never
expected to be; however, the univer-
sity’s intellectual property enterprise
was expected to be self-supporting and
overall revenues were expected to ex-
ceed expenditures. Yet, at no time in
the last 30 years has this happened;
expenditures continue to mount and
always exceed revenues, as we wait
for that one invention that will be lu-
crative enough to compensate for this
accumulation of losses. At this point,
FIGURE 1 . Penn State’s research expenditures over two decades
Data such as this must lead to serious questioning of
the assumptions that have undergirded the last 30
years of university IP management.
4 | Research-Technology Management Point of View
Penn State holds 579 active patents,
the great majority of which have not
garnered any interest, let alone pro-
duced revenue-generating licenses.
Data such as this must lead to seri-
ous questioning of the assumptions
that have undergirded the last 30 years
of university IP management. While
I cannot state that Penn State’s experi-
ence has been the same as others, I can
say unequivocally that only a few schools
have netted outstanding IP revenues;
these cases are well documented and
few in number. It seems likely that more
than a few other public and private
institutions have had relatively modest
or little gain from their IP enterprises.
How, then, can we change this
dynamic?
We must begin by reexamining the
motivations behind current practice.
The Bayh-Dole Act prescribes how we
handle IP derived from federally funded
research. It leaves open, however, the
FIGURE 2 . Invention disclosures and issued patents over two decades
FIGURE 3 . Growth in IP expenditures versus licensing revenues over two decades
Point of View September—October 2012 | 5
handling of IP derived from industry-
funded research. Nevertheless, Penn
State, like other universities, persisted
in applying the same standard to all
research, insisting that if we did the
research, we own the IP. Several rea-
sons have been proffered for such ri-
gidity. Bayh-Dole is often cited, as are
requirements associated with the in-
stitution’s not-for-pro?t tax status. But
driving the entire thought process is
the notion that the IP developed in
the course of industry-funded research
is potentially more valuable because
industry-funded research will be more
applied, and thus any resulting inven-
tion will be closer to commercialization.
The assumption is that the institution
should share in this value.
None of these arguments stands
against a logical approach. Bayh-Dole
does not apply unless the industry fund-
ing is a pass-through of federal dollars or
the research is based substantially on
previous work done with federal dollars.
The argument that the tax-free status of
the institution could be jeopardized is
one that needs to be considered at each
institution, but tax regulations are a set
of issues to be managed, not insur-
mountable barriers. Institutions rou-
tinely manage them and manage them
well in other spheres of their business.
Thus, the only argument that stands
is that of the potential loss in license
revenue if one were to let the ownership
of the IP ?ow to the sponsor, and this
argument is one that we can test with
data. Industry-funded research com-
prises at most 12 percent of research ex-
penditures each year at Penn State. But,
of the 1,197 inventions disclosed at
Penn State between 2000 and 2007, only
92 disclosures—less than 8 percent—
resulted from de novo industry-funded
research, which is to say that over 90
percent of the university’s IP is derived
from other forms of research funding,
namely that from federal and state agen-
cies. This ?gure stands in stark contrast
to expectations. Given the argument for
the higher value of industry-funded re-
search, we had expected more disclo-
sures per dollar expended than from
federally supported research. On this
basis, we expected the number of dis-
closures based on industry-funded
research to have been 20 to 25 percent,
or more like 300–400 disclosures.
Nor did those disclosures lead to a
higher licensing rate, and commensu-
rately higher revenues, than did disclo-
sures from other research. Of the 92
invention disclosures resulting from
industry-funded research, 30 led to 18
license agreements. Worse, of those 18
licenses, only 4 generated any revenue—
a total of $92,000 between 2000 and
2007, or $13,000 per year. Even in the
absence of detailed calculations, it is
clear that both the return on invest-
ment and the cost-bene?t ratio are
markedly negative.
Clearly, this analysis does not sup-
port the argument that it would be
?nancially irresponsible to let IP own-
ership ?ow to the sponsor. In fact,
quite the opposite: it shows just how
costly IP ownership is in general and
how little return there is on investment
in owning the IP from industry-funded
research. Yet, because this analysis had
never been done, Penn State had been
negotiating vigorously with industry for
ownership of IP resulting from spon-
sored research. We had done this for
over 30 years, in a manner consistent
with what we knew other universities
were doing and in a way that led to
much tension with would-be industry
partners.
Lost Opportunities to Innovate
Openly and Collaboratively
This analysis raises some provocative
questions: If Penn State had not insisted
on retaining the ownership of IP that
resulted from industry-funded research
over the last 30 years, what would have
changed? Would we have better served
our mission as a public land-grant
university? Would there have been
more national and regional innovation
had we yielded on this point?
These are hard questions to answer
and thoughtful people can come to
quite different conclusions. However,
we can all agree that doing research
leads to new products and innovations
and that doing more research, whatever
the source of funding, generally in-
creases the number of inventions and
innovations. Within that framework, it
becomes clear that lost opportunities—
in the form of failed negotiations with
potential research partners—likely did
result in less innovation. Penn State
does not keep records of unsuccessful
research negotiations per se, but we
do have an intuitive feel for the prob-
abilities of success. In practice, there
are actually two hurdles to be cleared
in negotiating research contracts with
industry. The ?rst is IP ownership.
The second is the university’s licens-
ing practices: Under previous practice,
the university would not establish a
license cost until the invention had
been reduced to practice so that it could
be valued, which was unacceptable to
many potential industry partners. Nor
would Penn State promise not to li-
cense the invention to another com-
pany, should licensing negotiations with
the sponsor fail. This presents poten-
tial research sponsors with the daunting
risk that a successful research outcome
could end up in the hands of their
competitors.
If we assume that 50 percent of
would-be sponsors accept the IP owner-
ship provisions and that 50 percent of
those will proceed even after the licens-
ing arrangements are detailed (and
50 percent likely overestimates the real
number of negotiations that succeed
when these two issues arise), that means
Penn State has concluded that its insistence on
ownership of the IP resulting from industry-funded
research is not bene?cial to the institution, to our
students, or to the public that the university was
established to serve.
6 | Research-Technology Management Point of View
only 25 percent of potential research
agreements would be successfully con-
cluded. Removing the ?rst hurdle by
de?nition removes the second hurdle.
So we can conclude that at least four
times more industry-funded research
could have been done over the last 30
years, had Penn State not followed the
rest of academia in insisting on IP own-
ership. It seems reasonable to conclude
that if Penn State, as a top-tier research
institution, could have done at least
three to four times more research with
industry, then it is probably true that
other top research institutions could
have as well.
This is an enormous amount of re-
search that was never done—at least in
partnership with these universities. It
represents an enormous loss to univer-
sities in terms of opportunities for both
faculty members and students to ac-
quire new learning, apply their knowl-
edge in industry contexts, and develop
new relationships and new interests. It
is also a loss to industry and to the na-
tion, in that new innovations with real
commercial success and economic ben-
e?t could have emerged from such re-
search. For these reasons we felt a new
approach to this portion of our research
enterprise was warranted.
A New Approach to Industry
Partnerships
From this analysis, Penn State has dis-
passionately concluded that its insistence
on ownership of the IP resulting from
industry-funded research is not bene?-
cial to the institution, to our students, or
to the public that the university was es-
tablished to serve. We are now resolved
to engage with prospective industry
partners from a more open, ?exible
stance, captured in four simple prin-
ciples intended to guide negotiations
with industry:
1. The value to Penn State of industry-
sponsored research lies in research
itself, in the support of that research
and in the relationship with the
partner, not in the creation and
ownership of IP.
2. The best agreement is the simplest
form of agreement that is necessary
and suf?cient to meet the needs of
the program and reduce negotiation
to a minimum.
3. If industry funding is a pass-through
of federal dollars, or if industry fund-
ing is matching federal funding, then
Penn State must retain ownership of
IP by law. In such cases, Penn State
will offer ?exible licensing options.
4. When there must be an exception to
the above principles, Penn State will
strive to explain it fully and clearly to
the industry sponsor and then seek
the best way to handle the exception
to the bene?t of both partners.
The ?rst principle gets at our core
mission, which is to do research and
teaching for the bene?t of society and
to our students. Therefore, the real value
of industry-sponsored research lies in
the value of the research itself, in the
economic bene?t it may provide to soci-
ety and in the deeper relationships that
it fosters between faculty members and
students and their counterparts in indus-
try. Indeed, engagement in industry-
sponsored research bene?ts even stu-
dents who are not directly involved.
Faculty members who engage with
practitioners develop a deeper appre-
ciation of the connections between the-
ory and practice, which informs their
teaching, opening up new channels of
thinking for them, and making them
better able to prepare students for the
working world.
Conclusions
At Penn State, we have always been
mindful of the core and strategic aspects
of our mission, and we take these very
seriously. Key among these is student
success; Penn State’s ?rst-place rank-
ing in the 2010 Wall Street Journal
survey of corporate recruiters rein-
forced this for us. The ?rst priority in
the university’s strategic plan is to
ensure student success, and this new
approach will help us to do this. Al-
though the law makes clear that we
cannot change our responsibilities in
the management of IP resulting from
research funded with federal dollars,
the fact that there is so much more
research that can be done with indus-
try makes this change well worth
pursuing.
This year, Penn State and other
land-grant institutions mark the one
hundred ?ftieth anniversary of the
Morrill Act. At Penn State, 2013 is also
the 150th anniversary of graduate edu-
cation and of research at Penn State.
Though many things have changed
markedly since our founding, our role
is not that different today than it was
at the university’s inception: to drive
progress for the nation and to help
young people make their way to a bet-
ter life. Both from the practical and the
historical vantage points, taking this
new approach to intellectual property
management at Penn State makes good
sense, and it is consistent with our
principles.
Both from the practical and the historical vantage
points, taking this new approach to intellectual property
management at Penn State makes good sense, and it is
consistent with our principles.
Number 1 of 1
AUTHOR QUERIES
DATE 12/07/2012
JOB NAME RTM
ARTICLE 2891
QUERIES FOR AUTHORS Henry C. Foley
PLEASE ANSWER THE AUTHOR QUERIES WHERE THEY APPEAR IN THE TEXT.
THERE ARE NO QUERIES
doc_186972239.pdf
Today, land-grant universities such as
Penn State are called upon to be en-
gines for national and regional innova-
tion. To ful?ll that mission, these
universities need all innovation avenues
to be wide open for the two-way traf?c
that is translational research and devel-
opment. At Penn State we are respond-
ing to that call by seeking to transform
our culture from that of a traditional
research-intensive, public land-grant
university to one that is more dynamic
and nimble and better able to drive the
transfer of science into technology. As
a part of this effort, in addition to fos-
tering entrepreneurship, we seek to
spur the growth and development of in-
dustrial research partnerships. The goal
is to make the university a model for
open innovation in the twenty-?rst
century, while at the same time bringing
us back to our core historical mission.
To do all of this we have developed a
seven-point plan to reinvigorate our
culture (see “Penn State’s Seven-Point
Plan,” p. XXX ), to be implemented over
the next two years.
Of these seven points, none is more
important than the second—to spur
growth in research by taking a more
?exible approach to IP ownership—nor
has any garnered more attention from
industry and from academia. After a
thorough analysis, Penn State has con-
cluded that it is no longer viable to
maintain the long-held position that we
must own all intellectual property that
derives from any and all research that
we do, even that which is the product of
industry-funded research. This change
in approach arises directly from a re-
newed engagement with our core mis-
sion to bene?t students and society. It is
our view that it is to the bene?t of soci-
ety, and to our students and faculty, to
let the ownership of IP developed with
industrial funds ?ow back to the spon-
sor. This, we believe, will catalyze more
commercialization of new technology,
help the university build stronger ties to
practitioners, and create new adjacen-
cies between theory and practice from
which both students and faculty can
learn. In this article, I lay out the factors
that led the university to make this
change and try a wholly new approach
to IP developed at the university.
Background
Land-grant universities were estab-
lished by the Morrill Act of 1862, which
allocated land grants to each state and
speci?ed
that all moneys derived from the
sale of the lands aforesaid by the
States . . . the interest of which shall
be inviolably appropriated, by each
State, . . . to the endowment, sup-
port, and maintenance of at least
one college where the leading ob-
ject shall be, without excluding
other scienti?c and classical stud-
ies, and including military tactics,
to teach such branches of learning
as are related to agriculture and the
mechanic arts, in such manner as
the legislatures of the States may
respectively prescribe, in order to
promote the liberal and practical
education of the industrial classes
in the several pursuits and profes-
sions in life.
This is the historical basis for Penn
State’s mission, its raison d’être . As the
nation’s ?rst land-grant institution, Penn
State’s core purpose has always been
to do research with practical value and
to disseminate that new knowledge for
the betterment of society. For most of
its history, the university did exactly
that and did it well. The creation of
new inventions and innovation was
in the core mission, but we did not call
it intellectual property, nor did we think
in terms of its market value. For many
decades, the university did not even
seek to protect its inventions and inno-
vations. Rather, as an institution well
supported by public funding, Penn State
simply disseminated ?ndings as effec-
tively and as quickly as possible, with
Henry C. “Hank” Foley was appointed vice pres-
ident for research and dean of the graduate
school at Penn State University on January 1,
2010. He is also the president of the Penn State
Research Foundation, a separate 501(c)(3) organi-
zation that holds and manages all of the universi-
ty’s intellectual property. Foley is responsible for
overseeing a research enterprise with over $800
million in expenditures and over 13,000 graduate
students in more than 150 degree programs. He
has authored more than 100 papers, holds 15
patents, and is author of the textbook Introduc-
tion to Chemical Engineering Analysis Using
Mathematica . Foley returned to the University in
2000 as the Walter L. Robb Family Endowed
Chair and head of the department of chemical
engineering. He earned a BS from Providence
College, an MS from Purdue University, and a
PhD from Penn State University, all in chemistry.
[email protected]
DOI: 10.5437/08956308X5505008
POINT OF VIEW
A New Approach to Intellectual Property
Management and Industrially Funded Research
at Penn State
Henry C. Foley
2 | Research-Technology Management Point of View
little thought of institutional commer-
cial gain.
This changed, for Penn State and for
many universities, approximately three
decades ago, circa 1980. In a signi?-
cant departure from the practice of over
100 years, university inventions and
technological innovations that were
the products of our research, whether
funded publically or privately, were to
be protected with patents and held as
the institution’s intellectual property
for license to industry. The shift had
two drivers: the Bayh-Dole Act of 1980
and the recognition of the success of
a few schools—for example Florida,
Wisconsin, Michigan State—with block-
buster inventions that lifted them to
new levels of ?nancial success. The
Bayh-Dole Act had as its goal to push
more of the products of federally funded
research to the marketplace. To do so,
it transferred IP rights from the fund-
ing agency to the university where the
research was done. With this transfer
of rights came the expectation that the
university would show due diligence in
seeking to license the intellectual prop-
erty for commercialization. The second
driver—the realization that the products
of university research that had been
given away for decades could actually
have very high value in the market-
place—led to the formation of univer-
sity IP of?ces charged with protecting
university research with patents and
then licensing the technology for com-
mercialization. It was thought at that
time that the kind of market success
that a few schools had seen could be
systematized and duplicated elsewhere.
Doing so, it was reasoned, would create
a signi?cant revenue stream, helping
the institutions while serving to ful?ll
the goal of the Bayh-Dole Act.
While this thinking seemed sound, it
had a few hidden assumptions beneath
it: 1) that the percentage of university re-
search that was of value to industry was
large enough to justify the added costs of
managing IP in this new way; and 2) that
universities, which had never been in
the IP business, would learn how to do
this and would do it well. It also did not
account for the very different percep-
tions of value and risk held by industry
and academia. Universities tend to think
that the subject of a patent is much closer
to market than industry does, and so
there is a built-in, signi?cant difference
in the perception of value.
Even more importantly, this new
thinking did not account for the very
real change the shift made in the unwrit-
ten compact with society that public
land-grant universities had subscribed to
for over a century—namely that they
would serve as public institutions for the
betterment of all, not for the betterment
of the institution itself. One can argue
that the seeds of today’s trend toward
the privatization of public higher ed-
ucation were planted with this subtle
shift. With the bene?t of hindsight, it
seems that such a signi?cant change
should have been approached more
carefully with a fuller analysis of un-
intended consequences. Today, it is
easier to see how this shift in IP man-
agement could affect the mission of a
public institution, but then it was viewed
as simply pragmatic.
The Research and IP Experience
at Penn State
Penn State’s experience over the last
30 years illustrates how the hidden
assumptions in IP management have
played out over three decades. Research
expenditures have grown signi?cantly
at Penn State since 1990 as the ef?cacy
of the university’s research enterprise
has improved ( Figure 1 ). As research
Penn State’s Seven-Point Plan for Reinvigorating the
Research Culture
In late 2010, after much analysis of our past performance and in recognition of
growing expectations that research will have economic impact and of our aspira-
tions for the future, Penn State created a seven-point plan to foster a shift in our
research culture. The goal is to reinvigorate and to reenergize those entrepreneur-
ial members of our research community who are excited by the prospect of moving
more Penn State research from the laboratory to the marketplace.
1. Create an Of?ce of Technology Management, uniting functions now performed
by the Industrial Research Of?ce and the Intellectual Property Of?ce.
2. Spur growth in industry-funded research with more ?exible intellectual property
policies.
3. Manage master agreements in a way that provides real value to the industry
partner and to the university by building end-to-end partnerships.
4. Create a culture of entrepreneurship by creating more trust, ownership, and
excitement among the faculty.
5. Raise revenue by selling off existing university-owned intellectual property.
6. Rename and explain the con?ict of interest policy to encourage participation
and better protect faculty members and the university.
7. Create the Techcelerator innovation center by collocating the new Small
Business Development Center, the new Of?ce of Technology Management, the
Of?ce of Sponsored Programs, and the Ben Franklin Technology Partners’
Center with the New Business Incubator, the Innovation Park Management
Of?ce, and the Centre County Chamber of Business and Commerce.
Universities tend to think that the subject of a patent
is much closer to market than industry does, and so
there is a built-in, signi?cant difference in the perception
of value.
Point of View September—October 2012 | 3
has grown, so too has the activity in in-
tellectual property—from just 66 inven-
tion disclosures in 1990 to over 200 in
2000 ( Figure 2 ). At the peak of disclo-
sure ?lings, about one-third of disclo-
sures were converted into issued patents
and this number was rising, as were ex-
penditures for this activity. It was al-
ready evident by 2001 that a problem
was developing in that expenditures to
create and manage IP were very much
outpacing revenues. By 2002, Penn
State was expending about $1.9 million
on patent costs each year, but the li-
censing revenue, including patent cost
reimbursement, was well below that
( Figure 3 ).
In order to control this imbalance,
the then vice president of research
concluded that fewer invention dis-
closures would be patented. An in-
ventions disclosure review committee
was created to select those disclosures
deemed to have enough promise to
merit patent protection. This had the
predictable effect of throttling the num-
ber of disclosures ?led and the number
of patents issued to Penn State each
year. From almost 70 patents issued in
the peak years of 2001 and 2002, the
number settled to about 35 to 40 per
year. Disclosures that were not patented
were abandoned. However, even as
the number of disclosures ?led and
patents issued dropped over the course
of the next decade, IP management
costs continued to escalate. By 2010,
the gap between expenditures and
reimbursements had grown to nearly
$1,000,000 per year. Cost recoveries
were never 100 percent and were never
expected to be; however, the univer-
sity’s intellectual property enterprise
was expected to be self-supporting and
overall revenues were expected to ex-
ceed expenditures. Yet, at no time in
the last 30 years has this happened;
expenditures continue to mount and
always exceed revenues, as we wait
for that one invention that will be lu-
crative enough to compensate for this
accumulation of losses. At this point,
FIGURE 1 . Penn State’s research expenditures over two decades
Data such as this must lead to serious questioning of
the assumptions that have undergirded the last 30
years of university IP management.
4 | Research-Technology Management Point of View
Penn State holds 579 active patents,
the great majority of which have not
garnered any interest, let alone pro-
duced revenue-generating licenses.
Data such as this must lead to seri-
ous questioning of the assumptions
that have undergirded the last 30 years
of university IP management. While
I cannot state that Penn State’s experi-
ence has been the same as others, I can
say unequivocally that only a few schools
have netted outstanding IP revenues;
these cases are well documented and
few in number. It seems likely that more
than a few other public and private
institutions have had relatively modest
or little gain from their IP enterprises.
How, then, can we change this
dynamic?
We must begin by reexamining the
motivations behind current practice.
The Bayh-Dole Act prescribes how we
handle IP derived from federally funded
research. It leaves open, however, the
FIGURE 2 . Invention disclosures and issued patents over two decades
FIGURE 3 . Growth in IP expenditures versus licensing revenues over two decades
Point of View September—October 2012 | 5
handling of IP derived from industry-
funded research. Nevertheless, Penn
State, like other universities, persisted
in applying the same standard to all
research, insisting that if we did the
research, we own the IP. Several rea-
sons have been proffered for such ri-
gidity. Bayh-Dole is often cited, as are
requirements associated with the in-
stitution’s not-for-pro?t tax status. But
driving the entire thought process is
the notion that the IP developed in
the course of industry-funded research
is potentially more valuable because
industry-funded research will be more
applied, and thus any resulting inven-
tion will be closer to commercialization.
The assumption is that the institution
should share in this value.
None of these arguments stands
against a logical approach. Bayh-Dole
does not apply unless the industry fund-
ing is a pass-through of federal dollars or
the research is based substantially on
previous work done with federal dollars.
The argument that the tax-free status of
the institution could be jeopardized is
one that needs to be considered at each
institution, but tax regulations are a set
of issues to be managed, not insur-
mountable barriers. Institutions rou-
tinely manage them and manage them
well in other spheres of their business.
Thus, the only argument that stands
is that of the potential loss in license
revenue if one were to let the ownership
of the IP ?ow to the sponsor, and this
argument is one that we can test with
data. Industry-funded research com-
prises at most 12 percent of research ex-
penditures each year at Penn State. But,
of the 1,197 inventions disclosed at
Penn State between 2000 and 2007, only
92 disclosures—less than 8 percent—
resulted from de novo industry-funded
research, which is to say that over 90
percent of the university’s IP is derived
from other forms of research funding,
namely that from federal and state agen-
cies. This ?gure stands in stark contrast
to expectations. Given the argument for
the higher value of industry-funded re-
search, we had expected more disclo-
sures per dollar expended than from
federally supported research. On this
basis, we expected the number of dis-
closures based on industry-funded
research to have been 20 to 25 percent,
or more like 300–400 disclosures.
Nor did those disclosures lead to a
higher licensing rate, and commensu-
rately higher revenues, than did disclo-
sures from other research. Of the 92
invention disclosures resulting from
industry-funded research, 30 led to 18
license agreements. Worse, of those 18
licenses, only 4 generated any revenue—
a total of $92,000 between 2000 and
2007, or $13,000 per year. Even in the
absence of detailed calculations, it is
clear that both the return on invest-
ment and the cost-bene?t ratio are
markedly negative.
Clearly, this analysis does not sup-
port the argument that it would be
?nancially irresponsible to let IP own-
ership ?ow to the sponsor. In fact,
quite the opposite: it shows just how
costly IP ownership is in general and
how little return there is on investment
in owning the IP from industry-funded
research. Yet, because this analysis had
never been done, Penn State had been
negotiating vigorously with industry for
ownership of IP resulting from spon-
sored research. We had done this for
over 30 years, in a manner consistent
with what we knew other universities
were doing and in a way that led to
much tension with would-be industry
partners.
Lost Opportunities to Innovate
Openly and Collaboratively
This analysis raises some provocative
questions: If Penn State had not insisted
on retaining the ownership of IP that
resulted from industry-funded research
over the last 30 years, what would have
changed? Would we have better served
our mission as a public land-grant
university? Would there have been
more national and regional innovation
had we yielded on this point?
These are hard questions to answer
and thoughtful people can come to
quite different conclusions. However,
we can all agree that doing research
leads to new products and innovations
and that doing more research, whatever
the source of funding, generally in-
creases the number of inventions and
innovations. Within that framework, it
becomes clear that lost opportunities—
in the form of failed negotiations with
potential research partners—likely did
result in less innovation. Penn State
does not keep records of unsuccessful
research negotiations per se, but we
do have an intuitive feel for the prob-
abilities of success. In practice, there
are actually two hurdles to be cleared
in negotiating research contracts with
industry. The ?rst is IP ownership.
The second is the university’s licens-
ing practices: Under previous practice,
the university would not establish a
license cost until the invention had
been reduced to practice so that it could
be valued, which was unacceptable to
many potential industry partners. Nor
would Penn State promise not to li-
cense the invention to another com-
pany, should licensing negotiations with
the sponsor fail. This presents poten-
tial research sponsors with the daunting
risk that a successful research outcome
could end up in the hands of their
competitors.
If we assume that 50 percent of
would-be sponsors accept the IP owner-
ship provisions and that 50 percent of
those will proceed even after the licens-
ing arrangements are detailed (and
50 percent likely overestimates the real
number of negotiations that succeed
when these two issues arise), that means
Penn State has concluded that its insistence on
ownership of the IP resulting from industry-funded
research is not bene?cial to the institution, to our
students, or to the public that the university was
established to serve.
6 | Research-Technology Management Point of View
only 25 percent of potential research
agreements would be successfully con-
cluded. Removing the ?rst hurdle by
de?nition removes the second hurdle.
So we can conclude that at least four
times more industry-funded research
could have been done over the last 30
years, had Penn State not followed the
rest of academia in insisting on IP own-
ership. It seems reasonable to conclude
that if Penn State, as a top-tier research
institution, could have done at least
three to four times more research with
industry, then it is probably true that
other top research institutions could
have as well.
This is an enormous amount of re-
search that was never done—at least in
partnership with these universities. It
represents an enormous loss to univer-
sities in terms of opportunities for both
faculty members and students to ac-
quire new learning, apply their knowl-
edge in industry contexts, and develop
new relationships and new interests. It
is also a loss to industry and to the na-
tion, in that new innovations with real
commercial success and economic ben-
e?t could have emerged from such re-
search. For these reasons we felt a new
approach to this portion of our research
enterprise was warranted.
A New Approach to Industry
Partnerships
From this analysis, Penn State has dis-
passionately concluded that its insistence
on ownership of the IP resulting from
industry-funded research is not bene?-
cial to the institution, to our students, or
to the public that the university was es-
tablished to serve. We are now resolved
to engage with prospective industry
partners from a more open, ?exible
stance, captured in four simple prin-
ciples intended to guide negotiations
with industry:
1. The value to Penn State of industry-
sponsored research lies in research
itself, in the support of that research
and in the relationship with the
partner, not in the creation and
ownership of IP.
2. The best agreement is the simplest
form of agreement that is necessary
and suf?cient to meet the needs of
the program and reduce negotiation
to a minimum.
3. If industry funding is a pass-through
of federal dollars, or if industry fund-
ing is matching federal funding, then
Penn State must retain ownership of
IP by law. In such cases, Penn State
will offer ?exible licensing options.
4. When there must be an exception to
the above principles, Penn State will
strive to explain it fully and clearly to
the industry sponsor and then seek
the best way to handle the exception
to the bene?t of both partners.
The ?rst principle gets at our core
mission, which is to do research and
teaching for the bene?t of society and
to our students. Therefore, the real value
of industry-sponsored research lies in
the value of the research itself, in the
economic bene?t it may provide to soci-
ety and in the deeper relationships that
it fosters between faculty members and
students and their counterparts in indus-
try. Indeed, engagement in industry-
sponsored research bene?ts even stu-
dents who are not directly involved.
Faculty members who engage with
practitioners develop a deeper appre-
ciation of the connections between the-
ory and practice, which informs their
teaching, opening up new channels of
thinking for them, and making them
better able to prepare students for the
working world.
Conclusions
At Penn State, we have always been
mindful of the core and strategic aspects
of our mission, and we take these very
seriously. Key among these is student
success; Penn State’s ?rst-place rank-
ing in the 2010 Wall Street Journal
survey of corporate recruiters rein-
forced this for us. The ?rst priority in
the university’s strategic plan is to
ensure student success, and this new
approach will help us to do this. Al-
though the law makes clear that we
cannot change our responsibilities in
the management of IP resulting from
research funded with federal dollars,
the fact that there is so much more
research that can be done with indus-
try makes this change well worth
pursuing.
This year, Penn State and other
land-grant institutions mark the one
hundred ?ftieth anniversary of the
Morrill Act. At Penn State, 2013 is also
the 150th anniversary of graduate edu-
cation and of research at Penn State.
Though many things have changed
markedly since our founding, our role
is not that different today than it was
at the university’s inception: to drive
progress for the nation and to help
young people make their way to a bet-
ter life. Both from the practical and the
historical vantage points, taking this
new approach to intellectual property
management at Penn State makes good
sense, and it is consistent with our
principles.
Both from the practical and the historical vantage
points, taking this new approach to intellectual property
management at Penn State makes good sense, and it is
consistent with our principles.
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