Jobs Council Seeks Open Source Approach to Tech Transfer

Recently the President’s Council on Jobs and Competitiveness, otherwise known as the Jobs Council, issued an interim report outlining a number of suggestions and recommendations.  Some of the suggestions are quite good, although hardly revolutionary.  Indeed, one obvious recommendation is for Congress and the Obama Administration to explore tax reforms that would increase the competitiveness of businesses locating in the United States.  I guess it is that type of outside-the-box thinking that only a Presidential blue-ribbon panel could come up with!

Indeed, many of the ideas in the interim report are quite broad and vague, but on the tax issue there were at least a couple specific recommendations.  The Jobs Council recommends eliminating capital gains taxes on investments of $25 million or less in privately held companies where the investment is held for 5 years or longer (see page 19).  Also recommended is eliminating corporate taxes for the first year a company is in existence and reduce corporate taxes by 50% in the second and third year of existence (see page 19).  The thinking here is that by reducing tax burden during the first three years companies will be able to invest in growth and expansion, which seems reasonable and also calculated to lead to job creation given that start-ups disproportionately are responsible for creating new jobs.  Unfortunately, being reasonable and calculated to lead to job creation likely means that it has no realistic chance of being implemented.

The reports also contains some observations and supporting evidence should sound alarm bells, such as for example the fact that the United States awards a smaller share of degrees in engineering compared to other countries and 35% of students who enroll in science, engineering and math programs leave after their first year (see page 33).

The interim report also gives some glimmer of hope relative to outsourcing, explaining that both China and India are experiencing “skyrocketing” wage inflation, which is expected to continue.  This is coupled with the reality that the cost to transport goods from China and India has grown and is becoming more and more volatile (see page 24).  On the other hand, the report is rather candid explaining that the United States does not have a coherent national strategy to attract businesses to locate in the U.S., saying: “[L]et’s face it: At the national level, our efforts to attract investment from the world’s best companies simply aren’t serious today.”

[Patent-Search]

As far as these types of reports go, there is a lot to like about the interim report from the Jobs Council, but will it do any good?  Likely not.  Congress and the Obama Administration, as well as the Bush Administration before it and the Clinton Administration before that, seem uninterested and unwilling participants in the future of America.  Politicians spend more and more time raising money to run for office and less and less time actually doing anything once elected.  Anyone who doubts the nature of the pay-for-play world of politics needs only to hear that those politicians that make up the so-called “supercommittee,” the group looking for $1.2 trillion in budget cuts, are bringing in handsome donations.  According to Politico, “A review of both Democratic and Republican leadership PAC filings for September found that the members of the supercommittee are taking cash from lobbyists, PACs and industries that may be affected by the panel’s deficit-reduction proposal.”

It would be bad enough if politicians did nothing once elected, but it seems that they have a knack for doing those things that will do the most harm.  That is why one of the recommendations in the interim report has me rather concerned.  On page 21 of the report the Jobs Council recommends: “the Administration should test an ‘open source’ approach to tech transfer and commercializations.”  What does that even mean?  It might sound good to some, and certainly is the “in thing” to recommend I suppose.  After all, “open source” is the solution to all the problems of the world, right?  Never mind that the open source community has yet to identify a long term, stable business model that makes money.

If you read on in the report you start to get at least some sense for what the Jobs Council was thinking, assuming they actually did think this part of the report through in any kind of deliberate manner, which is far from obvious.  On page 22 the report says:

America’s colleges and universities, funded with federal dollars, have produced many of the great breakthroughs in clean energy, information technology, biotechnology and nanotechnology that have led to new industries and jobs across the country. However, all too often potentially groundbreaking research that could find market success lingers in university labs.

The Council recommends allowing research that is funded with federal dollars to be presented to any university technology transfer office (not just the ones in which the research has taken place).

With a recommendation like that, which if implemented would turn technology transfer on its head as we know it, you would probably expect some kind of finds of fact to support the conclusion.  You might even settle for anecdotal evidence or one or more illustrative examples some underlying problem. That, of course, would be reasonable.  Unfortunately, there are no facts, anecdotes or discussions of a problem whatsoever.  In short, there is absolutely nothing in the report that would lead anyone to conclude that allowing researchers to shop around to the technology transfer office of their choosing is likely to lead to anything good.  There is no evidence that there is even a problem that needs addressing.

The Jobs Council seems to just assume that giving federal researchers more flexibility will result in more federally funded research getting out to start-up companies and small businesses.  The naivety of that assumption demonstrates that no one on the Jobs Council understands technology transfer operations, or the law as it pertains to invention and ownership of invention rights.

Just this year the United States Supreme Court issued a decision in Stanford v. Roche, which addressed whether the Bayh-Dole Act automatically vested ownership of patent rights in Universities when the underlying research was federally funded.  The Supreme Court once and for all settled the law by determining that Bayh-Dole does not automatically vest title, which was really the appropriate decision.  Chief Justice Roberts explained that any other ruling would only upset 200+ years of U.S. patent law, which has always held that initial ownership vests in the inventor.

But why is Stanford v. Roche relevant to the Jobs Council?  Simply stated, it doesn’t seem that it was considered relevant because if it were they wouldn’t have come up with a naked recommendation that researchers be allowed to shop around their inventions.  The nightmare that was the the convoluted fact pattern in Stanford v. Roche unfolded due to a particularly tortured and lengthy relationship where invention rights were not well documented.  The readers digest version (taking some liberties) is that Researcher invents and assigns to University.  Researcher then needs access to equipment and data held by private company, who requires Researcher to agree to assign rights to any invention resulting from use of equipment/data.  So now Researcher has two different obligations to assign rights.  University winds up not being able to sue company Researcher gave rights to.  For a more thorough treatment see: Supreme Court Affirms CAFC in Stanford v. Roche on Bayh-Dole.

The relationships and dispute at the core of Stanford v. Roche spanned from 1985 through 2011, with a great many twists and turns, including intervening acquisition of rights.  You see, as it turns out, tracking invention rights isn’t all that easy, particularly when there is a joint venture or partners involved.  Can you imagine the nightmare if researchers were allowed to take federal money, through employment have an obligation to assign to their own University and then subsequently solicit and receive help from a technology transfer department at another university?  Would this second technology transfer department be tasked with collecting royalties and remitting to the first University who it the owner of the rights in the underlying innovation?  Why would a second technology transfer department want to work for free and turn over royalties?  Would the second technology transfer department acquire some kind of ownership interest in the underlying intellectual property?  Would there be some kind of time-limit or right of first refusal for the researcher’s University employer to act to preserve rights?  There are a great number of questions that need to be answered, and any change would strike at the heart of Bayh-Dole.

On top of the litany of questions that need to be considered, but seem to be unappreciated, who in their right mind thinks any technology transfer department has enough time and enough resources to even maximize the innovation at their own institutions let alone being solicited by outside researchers?

In terms of the underlying law, I wonder if the Jobs Council envisions re-writing Bayh-Dole in order to bring this nebulous “open source” idea into being?  If yes, which parts of Bayh-Dole would be re-written?  Would the Supreme Court decision in Stanford v. Roche be legislated away?  With a change of this magnitude, which would have to in some ways address ownership rights, pursuing this idea would essentially unravel Bayh-Dole.

It is not at all an exaggeration to say that Bayh-Dole is one of the most successful pieces of domestic legislation ever enacted into law.  The Bayh-Dole Act, which was enacted on December 12, 1980, was revolutionary in its outside-the-box thinking, creating an entirely new way to conceptualize the innovation to marketplace cycle.  Prior to Bayh-Dole, which grants ownership rights in patented innovations to Universities, it was nearly impossible for federally funded research to be licensed.  The process wasn’t working.  In my interview with Senator Birch Bayh (ret.), who was the driving force behind the Bayh-Dole legislation, he explained to me that it was certainly logical to believe that since taxpayer dollars funded the innovation any inventions coming therefrom should be freely available.  The business reality, however, was that federally funded innovations were not being licensed, which meant that federally funded research was largely not benefiting anyone. Senator Bayh was willing to explore a new solution, indeed a counter-intuitive solution, that leveraged ownership and exclusive rights.  The result has been a staggering success of epic proportions.

In the 30+ years since Bayh-Dole was enacted it is responsible for the creation of 7,000 new businesses based on the research conducted at U.S. Universities. As a direct result of the passage of Bayh-Dole countless technologies have been commercialized, including many life saving cures and treatments for a variety of diseases and afflictions. In fact, the Economist in 2002 called Bayh-Dole the most inspired and successful legislation over the previous half-century. Everyone who is fair-minded and comes to this with no agenda and no preconceived notions can do anything other than conclude that Bayh-Dole has been a success beyond the wildest imagination of even the most imagineering optimist.  Why would we want to set about undoing Bayh-Dole in order to take a shot with an “open source approach to tech transfer and commercialization”?

It seems the Jobs Council doesn’t have a clue what it would entail to even begin to think about this tech transfer recommendation. My fear, however, is that because the recommendation uses some critical buzz words many will want to embrace the brave new world of “open source innovation” and simply change lanes.  Change for the sake of change is rarely wise, and here it would be downright stupid.  Thus, it likely has a real chance of happening, which is a sad commentary in and of itself.