Carl Gulbrandsen is the Managing Director at the Wisconsin Alumni Research Foundation, which is more commonly known in the industry as WARF. Founded in 1925, WARF continues to serve as the technology transfer organization for the University of Wisconsin-Madison. It manages a $2.6 billion endowment and supports innovation at UW-Madison by obtaining patent rights for the university’s discoveries and licensing those patents commercially.
For the past 90 years WARF has promoted scientific research and innovation at UW-Madison, and their success has inspired many Technology Transfer Offices (TTOs) to adopt a similar business model. Over the last 90 years, WARF has helped to bring many life-changing technologies developed by UW-Madison to the market, beginning in the 1920’s with the vitamin D discovery made by UW–Madison professor Harry Steenbock which eventually eliminated the disease Rickets worldwide. Warfarin, the basis for CoumadinÒ, originated at WARF and is still the most widely used blood thinner used for treading cardiovascular disease. As a result, WARF has a particular expertise in biotech and life sciences, although their innovation is wide-ranging. The organization has earned more than $800 million in patent royalty revenues over the years and has generated $1.25 billion in revenue for the institution.
Rob Sterne and Caren Yusem recently had an opportunity to speak with Gulbrandsen on the record as a part of the Thomson Reuters webcast series, which also offers CLE credit for attorneys, New IP Business Models: Innovation or Commodization? Sterne and Yusem are the moderators in this webinar series that explores the current patent landscape, and the new innovation business models emerging in both the U.S. and Europe. I’ve been provided with a transcript of their conversation with Gulbrandsen, which is fascinating.
Like many patent portfolio managers, whether they are at universities or in the private sector, Gulbrandsen is worried about the state of the industry. In fact, at one point during the conversation Sterne asked Gulbrandsen if he could envision research currently being done in the United States being outsourced to Europe. “Yes, I think we can see a shift away from the U.S. into Europe and to Asia,” Gulbrandsen replied. “It’s sad.”
Gulbrandsen’s chief complaint with the U.S. system centers around the fact that it has become enormously easy to challenge issued patents once they have been granted. In fact, organizations in pursuit of acquired technology are leveraging the kill-rate at the Patent Trial and Appeal Board (PTAB) at the United States Patent and Trademark Office (USPTO), to negotiate lower licensing payments. Threats are made that patents will be challenged in Inter Partes review, “so that you amend the license and reduce the fees,” Gulbrandsen explained. “So, immediately you know that devalues the patent and devalues the license agreement that you’ve got.”
One fear that is gripping the industry relates to the tactics employed by Kyle Bass, who is shorting companies and then filing IPR proceedings to destroy their pharmaceutical related patents and thereby devalue the stock in the targeted company. Still other reports I have heard say that some patent owners receive threats in advance of an IPR being filed. For example, an IPR draft petition is sent with a message to the patent owner – pay me or we will file this IPR petition to knock out your patent. Even if the patent owner prevails the cost of prevailing on a single patent in an IPR proceeding is going to be an absolute minimum of $300,000, but in many cases the cost is approaching $1 million. With challenges to pharmaceutical patents and other patents that cover extremely valuable commercial products the amount spent to defend and prevail can easily surpass $1 million.
“While we have not had a post-grant review filed against us yet but, I have heard the large industry spokesman talk about the fact that their in-house patent teams are going to be watching what is published,” Gulbrandsen explained. “So, I think it is just a matter of time that we also have to deal with the post-grant proceedings.”
As the Biotechnology Industry Organization (BIO) pointed out in a statement about the Bass IPR Petition by their President and CEO Jim Greenwood, these types of cynical post grant strategies are not what Congress intended. Gulbrandsen agrees. “[T]he intent of all of this was to get rid of bad patents,” Gulbrandsen explained. Yet, there are those who are filing IPRs on valuable patents for various strategic purposes, which was not anticipated when post grant proceedings were first envisioned. IPRs have evolved into just another tool to fight the patent owner and not necessarily a tool used only to get rid of bad patents.
Indeed, there is unease surrounding the unpredictable nature of post grant review proceedings at the PTAB within the university community. “Many universities are not going to take the [IPR] challenge because they don’t have the budget to fund a cost like that,” Gulbrandsen explains. “An IPR proceeding is not one they initiate and even if it’s a start-up company that gets it, often times the university can get sucked into that proceeding which again is a cost that they never anticipated bearing.”
There is a growing sense of unease within the biotech and pharma communities as well. When these post grant procedures where put into place few people thought that biotech and pharmaceutical inventions would be subject to these requests for reconsideration. So much revenue is riding on so few patents in the biotech and pharmaceutical space, which is quite unlike the high-tech gadget sector where any one product could embody hundreds, or even thousands, of innovations. Biotech and pharmaceutical companies tend to have far fewer patents, and each product or offering is covered by at best a small handful of patents. The patents tend to be of a higher caliber across the board because even at the earliest stages it is appreciated that the patent rights could be extremely valuable, potentially worth billions of dollars if things play out properly for the patent owner.
But post grant proceedings, particularly IPR, have been a concern for biotech and pharmaceutical patents, which also means that it is a very real concern for universities, particularly universities like Wisconsin where they engage in biotechnology and pharmaceutical related innovation.
Since passage of the Bayh-Dole Act in 1980, some 153 drugs have made it to market growing out of initial research conducted at American Universities. Prior to passage of Bayh-Dole not a single drug invented at a University ever made it to market. Over the last generation Universities working together with the private sector have changed the face of the biotech and pharmaceutical industries, and consumers have benefited from life saving innovations (see Meet Betsy de Parry). Anything that makes it more difficult for Universities like Wisconsin to do what they do best is simply not in the best interest of the public. For example, the loser pay provisions found in several patent reform bills pending in Congress would send a chill through the university community and significantly disrupt the enormously successful innovation model created by Bayh-Dole, which is the envy of nations around the world.
For those who are interested, the entire Gulbrandsen interview is available through Thomson Reuters’ West LegalEdcenter in video form (with CLE credit available in most states.) Further, Sterne and Yusem have organized a one-day conference sponsored by Thomson Reuters on April 23rd in Palo Alto, California, where many of those who participated in the Thompson Reuters webcast series and other IP decision-makers will collaboratively discuss these and other issues with peers. If you are interested in attending you can register here.