Research Universities Face Licensing Limitations Sought by Electronic Frontier Foundation

By Chris Gallagher
August 25, 2016

bombs-businessman-335During a week when private university graduate research and teaching students have been deemed “employees” under the National Labor Relations Act (NLRA), entitling them to National Labor Relations Board (NLRB) protection from employer violations of the multiple employee rights conferred thereby, it is now necessary that private universities build into their research and tech transfer budgets the costs of ensuring NLRA compliance.

Although heightened during union organization campaigns, NLRA employee protection is far broader than ordinary state law and is now officially in place. (See) …But wait, there’s more!…

Another incursion into research university governance and operations is now underway. And this time all research universities are affected. Led by the DC Based Electronic Frontier Foundation, a leftist anti-patent activist coalition that has initiated a 50-state legislative campaign to shrink research university patent licensing rights at the state level. (See) The measure’s purported objective is to prevent publicly funded university research patents from being licensed to so-called “Patent Assertion Entities” (PAEs, also known by the pejorative term “patent trolls”).

Whether or not this national initiative is repulsed, its mere possibility will further deter investment and further waste already-stressed research university tech transfer time and treasure. Worse, its consideration will play into the hands of the megatechs’ patent troll anti-patent cartel by further “spreading the word” locally to support its “bait and switch troll crisis” ploy. The IT megatechs are trying to lay the Congressional groundwork for more infringement damages litigation protection for their “efficient infringement” business model. Like HR 9 and S.1137 whose passage the state initiative it will aid, the measure’s enactment will further degrade research university patents and patent values.

The proposed draft legislation can be reviewed in a few minutes. Its thrust is obvious. Its drafting is imprecise however, making it even more dangerous than first appears. To the extent that it purports to limit patent enforcement, it is likely preempted by federal law. Patent licensing, however, is governed by state contract law. This proposed draft is short, but it is rife with sloppy verbal imprecision.

If it is enacted, patchwork producing state courts will be forced to untangle its legal uncertainties and definitional scope, adding even more uncertainty to commercialization of publicly funded university research. This will require considerable research university expense. Between AIA and SCOTUS, research university commercialization already has been severely damaged. Although its main thrust is to curtail the licensing of patented technologies owned by research universities to patent assertion entities (PAEs), the key words and phrases are poorly defined.

In fact, the meaning of “universities”, “inventions”, and even “PAEs” is ill defined. What about their affiliated tech transfer agencies? What about patents already licensed? The list of unanswered questions is virtually endless. We have already seen what happens when individual states independently enact and interpret troll demand letter legislation. When multiple state legislatures, then state courts finish untangling this jurisdictional and definitional hairball, the independent commercialization of publicly aided research university commercialization will be virtually impossible.

Accordingly, the immediate challenge is to “nip it in the bud” before it is enacted anywhere. Here are some of the issues to consider in that state level effort.

  1. Opposing such legislation puts universities into the apparent posture of defending PAEs or “patent trolls”. That of course is exactly what both its DC-based left- and right-wing anti-patent proponents want. They will use it in their quest to pass HR 9 and S.1137. But there is no need to fall into the “patent troll” briar patch. Secondary markets are well-understood regarding real property. The same secondary support encourages the development of intellectual property.

    Regarding the promising results of federally funded research, these entities, including Venture Capitalists, expand the probability of fruitful commercialization and distribution of federally funded R&D, an expansion sorely needed after the Supreme Court and Congress (by and through the AIA) have done their harmful work! Commercialization is sought by annual Congressionally-appropriated R&D funding granted to achieve the respective objectives of NSA, NIH, DOD, and many other federal government agencies. As is the case with real property bank mortgages, secondary markets can be abused, of course, but they cannot and should not be completely abolished.

  2.  

  3. It is important to enlist the oppositional aid of state economic development entities who have taxpayer-funded “skin in the game” of in state early stage innovation. Because it appears that the draft’s vague definition of PAEs covers Angel Investors and Venture Capital firms, these state agencies, established to support and strengthen in-state early stage innovation and the economic development, which follows, could provide effective opposition to the bill. These folks already understand university research and technology transfer. They will understand the draft bill’s adverse economic impact on their economic development programs. They also are typically well connected and respected in state legislative and Administrative circles.

    Because this initiative will detract from the intended outcomes of state funding they administer, their opposition can be very effective with state budgetary officials. Indeed, once these folks are stirred-up, they could also have significant beneficial impact on Congressional patent reform efforts as well.

  4.  

  5. Another avenue of opposition is through the university state legislative lobby itself, including (as always) state university graduates in the legislature and appropriators continually courted by state university lobbyists. There is no need to explain this approach in detail, but this measure constitutes an encroachment on university governance and its publicly funded programs supporting local economic development and jobs. It is designed to put universities on the defensive. The state university legislative complex will not likely welcome this intrusion into state economic and investment activities by DC left-wing activists. Many state legislatures have been cutting back on state university funding. Here is a chance to do something sought by their universities at zero fiscal cost. By getting state university lobbyists engaged locally, it could serve a useful purpose in DC as well.
  6.  

  7. Retailers and other Main Street level lobbying groups whose leaderships have thrived on the phony Hill “troll scare” may favor this legislation. They were drawn in to the fight here in DC by the IT megatechs and likely will try to get in-state megatechs engaged on their side back home. They also will understand the beneficial connection between this local initiative and the DC patent reform scene they have inhabited during recent years. On the other hand, once state policy-makers at every level sense that they are being sucked into a federal fracas, they likely will resent it.
  8.  

  9. The preemption argument will be useful. If the bill cannot apply to patent enforcement proceedings it will add confusion but will lack teeth. The entire field in fact may be federally preempted, nullifying the entire initiative. Legislators willing to vote against their universities may be less willing to do so if the measure is later doomed in the courts.

However research universities approach this initiative, they and the rest of the early stage innovation ecosystem must not ignore it. If enacted, the effect of this legislation would be to partially repeal Bayh-Dole state by state.

Just as universities must respond now to the new employee coverage declared at the NLRB, they also must tackle this state level initiative with all due haste so that it never gets enough momentum to be taken seriously in their state or anywhere else. That said, this is also another opportunity to explicitly make the case for university research and the many benefits of Bayh-Dole based public funding.

The Author

Chris Gallagher

Chris Gallagher is President of IP Strategic.com and a perennial selection to The Best Lawyers in America. Having spent years as one of the most influential and highly regarded advocates in the New Hampshire Legislature and state administrative agencies, Chris is now focused primarily on federal policies in Washington, DC. Chris has been involved in nearly every substantial New Hampshire economic regulatory initiative over the last 25 years. He has served as general counsel for the New Hampshire Bankers Association and has represented New Hampshire utilities, hospitals, insurers, aggregate manufacturers and numerous other entities. This experience provides him with a uniquely respected voice on Capitol Hill, enabling him to communicate effectively with members whose federal decision-making must reflect and respect the complexities of their home-state constituents.

A frequent speaker and commentator in local and national media on policy issues, regarding financial services, privacy, business and government, Chris has testified on financial services issues before U.S. House and Senate Committees and has been a panelist in Capitol Hill briefings on intellectual property issues. He can be reached at chris@ipstrategic.com

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments.

  1. EG August 25, 2016 7:50 am

    Hey Chris,

    Thanks for the alert on this nonsensical, propaganda-driven, and poorly drafted legislation proposed by the virulently anti-patent EFF. We definitely need to “get ahead” of this proposal before it gains traction. I would also add that such legislation is unnecessary in view of Bayh-Dole’s commercialization requirement.

  2. Logician August 25, 2016 8:36 pm

    How can we understand the convoluted logic of the Left?

    If universities are stopped from selling patents to private companies that enforce patents, and if infringers ignore patents via “efficient infringement,” hold out and refusal to deal, then all university patents are worthless unless they are licensed to companies.

    But the far left wants universities to have march-in rights to Bayh-Dole in which there are no exclusive rights. Yet no one would invest in a company without exclusive rights [Cf. Salk, Jonas].

    So the only thing is for universities to expend millions by enforcing patents in-house, which makes them trolls.

    There is nowhere to run here, unless universities make the products themselves, which is impossible and risky.

    This sad conclusion shows the inescapable solipsistic logic of the left.

    It is clear that the left has no one with business or finance experience and does not operate in the real world.

    But these mechanisms and alternative commercialization options need to be clearly described to legislators.

  3. What?!? August 26, 2016 2:22 pm

    I just read a copy of the draft legislation. Sloppy work indeed. For example, it defines the term “Patent Assertion” and then fails to use the defined term. Furthermore, if I were a University Tech Transfer office I’m not even sure I would know how to fully comply with section 1.

    The proposed legislation is also wrong and naive on so many levels, as noted by Logician.

    EFF is staffed with people who have a visceral hatred of all patents to be sure. But… they are (or at least should be) more thoughtful than this effort suggests. This must be a ploy of some sort as the author of this article suspects in paragraph 1.