University exception to fee shifting in PATENT Act won’t help Iowa State or University of Iowa

Senator Chuck Grassley (R-IA).

Senator Chuck Grassley (R-IA), Chair of Senate Judiciary Committee.

One of the more contentious patent reform issues continues to be associated with statutory fee-shifting language that would codify a loser-pays system. In an attempt to win support from Universities, who have come together to oppose patent reform, Senator Chuck Grassley (R-IA) added language to the fee-shifting provisions in the PATENT Act that would offer an economic hardship exception to fee shifting for “an institution of higher education.” While this may sound reasonable it raises several very important questions.

First, if fee-shifting is so important to the functioning of the patent system why should anyone be exempt? It just doesn’t seem appropriate to sweeten the pot for Universities in an attempt to buy off their opposition while other patent owners, including small businesses and startup companies that overwhelmingly create the most jobs are not similarly exempted. If loser pays is what Congress wants then there is no reason not to apply it across the board. If the loser paying the attorneys fees of the prevailing party is such a great idea then it has to be applied evenly without exception.

Second, even if this University exception is well intended it creates at least two-tiers of University patent owners. In other words, the PATENT Act favors certain Universities and discriminates against other Universities. Ironically, two of the entities that are discriminated against are Iowa State University and the University of Iowa, the two flagship institutions in Senator Grassley’s home state. Why Grassley didn’t offer a economic hardship exception to fee shifting to University of Iowa and Iowa State when he is offering it to certain other Universities is curious. Normally you would expect “home cooking” to result in favorable treatment rather than discriminatory and harmful treatment.



The University Exception to Fee Shifting

The reason that Iowa State and the University of Iowa find themselves on the outside looking in is because of the way they have structured their patent ownership and licensing efforts. As is rather common, Iowa State and the University of Iowa place ownership of patents outside the institution and in the hands of a Research Foundation, which is a separate entity altogether. Thus, Iowa State University Research Foundation and the University of Iowa Research Foundation own the patents of Iowa State University and the University of Iowa, respectively.

Surely there is a mistake? Unfortunately there is no mistake. The PATENT Act specifically ties the economic hardship exception to fee shifting to “an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)))…” Section 1001(a) reads:

(a) Institution of higher education

For purposes of this chapter, other than subchapter IV, the term “institution of higher education” means an educational institution in any State that—

(1) admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such a certificate, or persons who meet the requirements of section 1091 (d) of this title;

(2) is legally authorized within such State to provide a program of education beyond secondary education;

(3) provides an educational program for which the institution awards a bachelor’s degree or provides not less than a 2-year program that is acceptable for full credit toward such a degree, or awards a degree that is acceptable for admission to a graduate or professional degree program, subject to review and approval by the Secretary;

(4) is a public or other nonprofit institution; and

(5) is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has been granted preaccreditation status by such an agency or association that has been recognized by the Secretary for the granting of preaccreditation status, and the Secretary has determined that there is satisfactory assurance that the institution will meet the accreditation standards of such an agency or association within a reasonable time.

Research Foundations do not provide educational programs or admit students. Therefore, for this and other reasons, a separate entity that owns patents outside of the University would by the express terms of Section 1001(a) not qualify for the exception.

Some may race to the conclusion that this has to be an oversight on the part of the Senate Judiciary Committee. Perhaps it is, but if it is an oversight Senator Grassley and his staff have some explaining to do. Later in the PATENT Act there is a provision that clearly envisions it being applicable to both institutions of higher education and to those entities that own patent rights on their behalf, such as Research Foundations.

For example, under the PATENT Act there are certain certifications that may be required of the patent owner if the defendant files a statement alleging “that the primary business of the party alleging infringement is the assertion and enforcement of patents or the licensing resulting thereform.” This time the PATENT Act exempts institutions of higher education and Research Foundations. The language of the PATENT Act specifically exempts an “institution of higher education… or a non-profit technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by 1 or more institutions of higher education…” This language relating to non-profit technology transfer organizations is missing from the economic hardship exception to fee shifting.

Under universally accepted canons of statutory construction the PATENT Act as written would be interpreted such that Research Foundations and other non-profit technology transfer organizations would be subject to paying the fees of the defendant if they were to lose a patent infringement lawsuit. They would not, however, need to make the certifications required by the bill.

The way this would get argued in court is as follows: In one section of the statute Congress clearly exempted non-profit technology transfer organizations, so we know that they were aware of the existence of such organizations and that they would not fit within the definition of an “institution of higher education.” Thus, the failure to allow non-profit technology transfer organizations to avail themselves of the economic hardship exception to fee shifting must have been intentional.


Research Foundations

In addition to the University of Iowa Research Foundation and the Iowa State University Research Foundation, here is a non-exclusive list of University Research Foundations that would find themselves still on the hook for attorneys fees and not entitled to the economic hardship exception to fee shifting if the PATENT Act were to become law. Interestingly, there are number of institutions from New York that will be affected, so it would seem that Senator Chuck Schumer (D-NY) likely has some explaining to do as well.

  1. Auburn Research Foundation
  2. University of Alabama Birmingham Research Foundation
  3. Brown University Research Foundation
  4. University of Southern California Research Foundation
  5. San Diego State University Research Foundation
  6. San Jose State University Research Foundation
  7. California State University Chico Research Foundation
  8. Clemson University Research Foundation
  9. Colorado State University Research Foundation
  10. University of Connecticut Research Foundation
  11. Cornell Research Foundation
  12. University of Delaware Research Foundation
  13. Florida State University Research Foundation
  14. University of Florida Research Foundation
  15. University of South Florida Research Foundation
  16. Research Foundation of the University of West Florida
  17. University of Georgia Research Foundation
  18. Georgia State University Research Foundation
  19. Georgia Tech Research Corporation
  20. University of Illinois Research Foundation
  21. Northern Illinois Research Foundation
  22. Indiana University Research Foundation
  23. Kansas State University Research Foundation
  24. University of Kentucky Research Foundation
  25. Northern Kentucky University research Foundation
  26. Western Kentucky University Research Foundation
  27. University of Louisville research Foundation
  28. Louisiana State University Research and Technology Foundation
  29. Louisiana Tech University Research Foundation
  30. University of Massachusetts Research Foundation
  31. University of Mississippi Research Foundation
  32. University of Southern Mississippi Research Foundation
  33. Research Foundation for the University of Albany (New York))
  34. Research Foundation of State University of New York (SUNY)
  35. Research Foundation of University of Buffalo (SUNY)
  36. Research Foundation of City University of New York (CUNY)
  37. Binghamton University Research Foundation
  38. University of Nevada Las Vegas Research Foundation
  39. University of North Carolina Wilmington Research Foundation
  40. University of North Dakota Research Foundation
  41. Ohio State University Research Foundation
  42. Oklahoma State Research Foundation
  43. University of Akron Research Foundation
  44. Penn State Research Foundation
  45. Purdue Research Foundation
  46. University of Rhode Island Research Foundation
  47. University of Tennessee Research Foundation
  48. University of Memphis Research Foundation
  49. East Tennessee State University Research Foundation
  50. Texas A&M Research Foundation
  51. Utah State University Research Foundation
  52. University of Utah Research Foundation
  53. Old Dominion University Research Foundation
  54. University of Virginia Patent Foundation
  55. Virginia Tech Research Foundation
  56. Washington Research Foundation
  57. Washington State Research Foundation
  58. West Virginia University Research Foundation
  59. Wisconsin Alumni Research Foundation
  60. University of Wisconsin-Milwaukee Research Foundation

This list just focuses on Research Foundations. There are numerous other entities that would be left out of this hardship exemption, such as STC.UNM (which is a separate non-profit that holds title to patents from the University of New Mexico), non-profits associated with medical schools, and hospitals associated with institutions of higher education.



Was the Senate Judiciary Committee trying to pull a fast one on non-profit technology transfer organizations that operate outside the corporate existence of an institution of higher education? I doubt it. But what this does show is that in order to make a bad bill more palatable Senator Grassley has created a scenario whereby certain Universities will be treated differently simply because of the corporate structure they employ for the purpose of owning patent rights.

Of course, this is what you get when line items are added to legislation to appease special interests – a whole bunch of unforeseen and unintended consequences.


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Join the Discussion

5 comments so far.

  • [Avatar for Texas Inventors for Justice]
    Texas Inventors for Justice
    July 7, 2015 04:13 pm

    ‘It just doesn’t seem appropriate to sweeten the pot for Universities in an attempt to buy off their opposition while other patent owners, including small businesses and startup companies that overwhelmingly create the most jobs are not similarly exempted.’

    Texas inventors agree. It is now extraordinarily difficult for inventors and other small entities to get and enforce their patents. Our large competitors are substantially now held unaccountable and free to steal as we are unable to bring them to justice. We propose a number of changes that will restore strong patent protection for all inventors -large and small, as Americas founders intended and as is consistent with fundamental American principles of property rights.

  • [Avatar for Brad Olson]
    Brad Olson
    July 7, 2015 01:35 pm

    Gene: Very well-reasoned article. There is probably a real backstory as to the reason/influence behind the carve out safe harbor for Universities and especially to the rationale for the exception to the carve out for university-affiliated research foundations. You are likely on to something.

  • [Avatar for Randy Landreneau]
    Randy Landreneau
    July 6, 2015 03:52 pm

    Gene, the point I meant to make in my comment above is that if universities end up with all the carve-outs they want, the bill will still have potentially devastating unintended consequences not only from provisions we are aware of, but also from who knows how many provisions that are hidden within the text, such as the one mentioned above. This provision is also in Grassley’s PATENT Act (amended version that passed the Judiciary, page 31, lines 15-17).

  • [Avatar for EG]
    July 6, 2015 01:55 pm

    Hey Gene,

    I know the folks in the Iowa State University TTO well and they won’t be happy with what their local Senator has done here. That goes for many of the other non-profit research foundations such as WARF whose folks I also know well.

  • [Avatar for Randy Landreneau]
    Randy Landreneau
    July 6, 2015 11:56 am

    I am not an attorney, and when I have found the time to read parts of The Innovation Act, H.R.9, I have usually paid little attention to things that seem benign, like Page 7, Lines 3-5 of the amended version of H.R.9 that passed the Judiciary Committee: “(B) AMENDMENT.-Section 273 of title 35, United States Code, is amended by striking subsection (f).”

    Guess what? This section of our law regards “Defense to Infringement based on prior commercial use.” And subsection (f) says that if an infringer is found guilty and also found to have mounted a frivolous defense, the case can be found to be exceptional for the purpose of awarding attorney fees. So “striking subsection (f)”, which is in the original H.R.9 and the amended version, will apparently protect a guilty infringer who mounts a frivolous defense from any fee reversal.

    How many other hidden protections for those who steal intellectual property are there in this terrible legislation? How long will we continue to allow the largest corporations in the world to attack the property rights that our Founders considered to be among the most important to this great nation?

    The potential unintended consequences of The Innovation Act, H.R.9 and The PATENT Act, S.1137, are staggering. It is time for everybody who has been sitting on the sideline to get active in stopping this legislation. The House could vote on this bill this week or next. Keep up with the grass-roots effort to stop this legislation at