The leading association of university technology managers is re-examining a pledge to shun companies that buy patent rights as a litigation strategy, after several member institutions were found to be working with a reputed pioneer of the practice.
The institutions, including the California Institute of Technology and Duke University, were reported in September to be in partnership with Intellectual Ventures, a company known for assembling portfolios of patents sometimes used in revenue-generating lawsuits.
Caltech, Duke, and others have sold some of their patent rights to Intellectual Ventures. They also signed a 2007 statement of ethics that rejected the use of any licensees with a business model that relies more on infringement litigation than product commercialization, a practice known as “patent trolling.”
Confronted with that apparent contradiction, the Association of University Technology Managers, which published the nine-point ethical code, has begun to help its members re-examine it, said AUTM’s president, Sean P. Flanigan, an assistant director of technology partnerships at the University of Ottawa.
Financial pressures are driving the review, said Mr. Flanigan, whose university is also among those that both signed the 2007 code and are working with Intellectual Ventures. “There’s been a lot of change in the tech-transfer offices—a lot more scrutiny, a lot more expectations, the financial meltdown resulted in a lot of the offices being smaller and having shifting priorities,” he said.
His association, representing both university and corporate technology officers, is making the move at a time of already-heavy scrutiny of Intellectual Ventures and other companies purportedly involved in the practice of amassing and wielding large patent portfolios to force legal settlements on companies that may not have violated any of the patents but fear the cost of fighting in court.
Hearings are expected in the coming months on Capitol Hill on bills that would crack down on such patent trolls through steps that include requiring greater financial and technological disclosures, and raising the expectation that losers will pay legal costs.
Also in recent months, the Obama administration issued a report highly critical of patent trolls, and asked the U.S. Patent and Trademark Office to alert people of their rights. The Federal Trade Commission outlined plans for an investigation of such companies, the U.S. Supreme Court has asked for lower-court reviews of related cases, and several state attorneys general have opened inquiries.
Business Ethics
For universities, the troll controversy has proved to include a complicated mix of factors, like economic need, academic mission, and business and legal ethics.
Many universities on their own have identified cases of high-tech companies’ using their patented technologies without permission, and several have tried lawsuits. But legal experts say that it’s rare for universities to actually file, and that third-party contractors can provide the expertise to enforce patent rights while protecting the institution from possible repercussions, such as companies’ terminating research contracts or shunning graduates.
The University of Illinois at Urbana-Champaign encountered one aspect of that cost this year when Micron Technology wrote to its engineering professors saying that the company would no longer recruit their students because the university had filed a patent-infringement lawsuit against Micron.
Apart from helping universities with legal action, the practice of letting an outside company aggregate a broad portfolio of patent rights could prove a valuable tool for institutions waging a long-running struggle to translate science into commercially viable products. A company working with multiple academic partners could help coordinate separate discoveries into a productive use that none of the institutions saw individually, while avoiding the wasteful duplication of research efforts, advocates of the practice said.
“The reality is that if companies went to these aggregators, you might actually get tech transfer” from university research, said one supporter of the approach, Michael V. Risch, a professor of law at Villanova University.
In that regard, AUTM’s 2007 statement of ethical principles, signed by more than 100 universities, may not fully reflect the complicated trade-offs, Mr. Flanigan said. In its section concerning “patent aggregators,” the code suggests that universities require their patent licensees to “operate under a business model that encourages commercialization and does not rely primarily on threats of infringement litigation to generate revenue.”
Opaque Structure
Relying on a middleman such as Intellectual Ventures, the leader in the fast-growing field of patent aggregators, can carry its own risks, said Robin C. Feldman, a law professor at the University of California’s Hastings College of the Law.
Her research, including a study of more than 15,000 patent lawsuits over the periods 2007-8 and 2011-12, found that most are now being filed by entities like Intellectual Ventures, which don’t actually make any commercial products.
The company, with rights to at least 30,000 patents and ties to more than 1,200 subsidiaries, has an opaque structure that prevents outsiders from evaluating whether it is more interested in encouraging innovation through partnerships or stifling it through lawsuits.
“A university has a dual responsibility—they are keepers of the academic flame, and they are recipients of taxpayer money,” Ms. Feldman said. “With those two deeply important goals, I hope they would think carefully about the entities with which they do business.”
Intellectual Ventures acknowledges that it keeps its operations private, as would any other private company. But, said Patrick Ennis, the company’s global head of technology, universities and other providers of patent rights are kept fully apprised of how their patents are being used.
Examples of positive uses of patent rights, he said, include new artificial materials discovered at Duke, for which Intellectual Ventures found commercial partners, leading to two companies: Kymeta, which develops satellite-antenna technology, and Evolv, which makes imaging and detection technology for security scanning.
“The right side of history is strengthening intellectual property rights and patents,” Mr. Ennis said.
Intellectual Ventures has handled patent licensing for 60 American universities in 26 states, a company spokeswoman said. However, she said, Duke and Caltech are the only two for which the process has led to commercial products.
As for the possibility that Intellectual Ventures transfers some of its patent rights to partner companies that engage in abusive lawsuits, that’s outside its control, Mr. Ennis said.
“Once we sell something, and we have no relation with it, well, then whoever owns that patent can do with it whatever they wish,” he said.
Critics contend that the examples of abusive outcomes for patent rights owned by Intellectual Ventures are far more numerous than the Duke examples cited by Mr. Ennis. They include such high-profile cases as the lawsuits filed against credit-card companies after American Express gave away its patent for the security code on the backside of cards. That patent ended up under the control of Intellectual Ventures.
Still, the appeal for universities to try something different is strong. Some 95 percent of patents that they obtain sit unused, draining the resources—patent agencies require periodic maintenance fees—of tech-transfer offices that lack the expertise to handle them, said Jaideep Goswami, assistant director of technology transfer at the University of Delaware. “So we are looking for newer and better ways to try and license them out,” he said.
And patent-aggregation companies like Intellectual Ventures have found the model highly profitable in recent years, said Maulin V. Shah, founder and managing director at Envision IP, which studies such companies. Their use could grow quite quickly, depending on how policy makers respond to them, Mr. Shah said.
“Universities are going to be waiting to see how Congress is going to address the issue going forward, and if it’s favorable to Intellectual Ventures and the patent trolls, I think universities are definitely going to, with more frequency, use companies like” them, he said.
‘Great Cost to Innovation’
Congress should refrain from taking immediate action against patent aggregators, said Adam Mossoff, a law professor at George Mason University, since courts already have enough tools to crack down on genuine patent trolls, including the ability to order penalties against frivolous lawsuits. He said lawmakers also should give their last round of patent reforms, the 2011 law establishing the first-to-file patent system, time to work before layering on more attempted fixes.
As for universities, the use of abusive patent aggregators seems likely to remain part of a continuing cost-benefit analysis. Most institutions should recognize them as a representing a very short-sighted financial strategy, given that the threat of lawsuits deters innovative companies, said Daniel Nazer, a staff lawyer at the Electronic Frontier Foundation, an advocacy group that promotes civil liberties online. “It’s a little bit of money now at great cost to innovation as a whole,” he said.
Several of the university officials involved in drafting the existing technology-managers association code of ethics said they are not opposed to revisiting the language to allow a greater use of patent aggregators, though some questioned the need, given that the key message of the guidelines was simply for universities to exercise caution.
The AUTM code is advisory only, said Katharine Ku, director of technology transfer at Stanford University, who organized the meeting that led to the 2007 principles. Little would be gained, she said, by slightly rephrasing the current wording and obtaining a new round of university approvals.
Technology-transfer officials at Worcester Polytechnic Institute, which signed the AUTM statement in June, making it one of the most recent additions, already see the need to be wary.
“I’m sure there could be a situation where it makes sense to consider a patent aggregator,” said Todd S. Keiller, technology-transfer director at Worcester. “But I would continue to push for the diligence, and I would think it would be the exception rather than the norm.”