Business Impact
Big Ivory Takes License
Universities should take a lesson from IBM’s nonexclusive patenting practice.
IBM did some justifiable crowing recently when official government tallies confirmed that for the 10th consecutive year, it had garnered more U.S. patents than any other company on the planet, adding 3,288 patents to its collection in 2002. IBM says its massive patent portfolio has generated roughly $10 billion in licensing revenues over the past decade.
The numbers are impressive, but even more noteworthy is IBM’s open licensing policy: Big Blue makes nonexclusive licensing deals with just about anyone willing to pay for access to its technology. The strategy has served the company well over the years. IBM won big, for instance, when it nonexclusively licensed its seminal patents on the personal computer and PC “clones” flooded the marketplace. Such PC powerhouses as Dell, Gateway, and Compaq-to name a few licensees-owe their very existence to this policy. And IBM has enjoyed a healthy stream of licensing revenues.
But let’s compare Big Blue’s record to that of another esteemed U.S. engine of innovation-one we might call Big Ivory.
I’m talking, of course, about the U.S. universities and nonprofit research institutions that make up the proverbial ivory tower. According to the most recent figures available from the Association of University Technology Managers, Big Ivory garnered 3,598 U.S. patents in fiscal year 2000 (compared with IBM’s 2,886 that calendar year). With those patents alone, Big Ivory generated $1.24 billion in licensing revenues-in the same ballpark as the “more than $1 billion” reported by IBM during that time. Here’s the rub: in stark contrast to IBM, roughly half of Big Ivory’s licenses are granted on an exclusive basis. In other words, universities regularly make deals in which a single company gains complete control over a patented technology.
Some technology-licensing managers at universities argue that exclusive arrangements are the only way to bring embryonic technologies to market. In theory, that’s a sound argument. It makes sense for a university to grant exclusivity to a startup that is founded specifically to bring a particular bit of research to market. (Some 90 percent of such arrangements with universities are exclusive deals.) But startups aren’t the only beneficiaries. Figures from the university technology managers show that more than one-third of the technology licenses academia grants to large, established companies are exclusive deals as well. This is bad technology policy.
Exclusive technology licenses go against the ethic of openness that has helped build U.S. universities into research powerhouses. The terms of most of these arrangements are tightly guarded secrets. No doubt the practice is driven by the fact that exclusive licensing deals boost the up-front payments industry partners are willing to make. But considering that U.S. taxpayers fund nearly two-thirds of Big Ivory’s research, we need to think about more than just the short-term payoff. Even IBM recognizes that exclusive licenses can block innovation. And that’s an outcome that runs counter to the public interest.
Perhaps the most powerful example of such untoward results is the notorious CellPro case. The case was resolved back in 1998, but it is brilliantly reexamined and analyzed in all its sorry detail in the latest issue of the Milbank Quarterly, a health policy journal. Authors Avital Bar-Shalom and Robert Cook-Deegan-the first, a fellow at the American Association for the Advancement of Science; the second, the director of the Center for Genome Ethics, Law, and Policy at Duke University-detail the potential pitfalls of exclusive university licensing.
The CellPro case centered on a bitter fight over a technology for isolating stem cells from bone marrow; the technology can be used in cancer treatment. Cell separation technology developed at Johns Hopkins University-with funding from the National Institutes of Health-was exclusively licensed to Chicago-based biomedical giant Baxter International. Around the same time, CellPro, an innovative Seattle-based startup, developed a related technology and beat Baxter to the market by two and a half years with a government-approved technology for treating advanced cancers.
In the late 1990s, brandishing its exclusive license from Johns Hopkins, Baxter went to court. By that time, CellPro’s device was in widespread use: the treatment of some 5,000 dying patients at 300 hospitals was hanging in the balance. But Baxter’s exclusive license from Big Ivory forced CellPro into bankruptcy when it lost the patent lawsuits. “It’s disturbing that an exclusive license from a publicly funded research institution could effectively block innovation, but the CellPro case illustrates this quite starkly,” Cook-Deegan says. “In this case,” he adds, “the laggard innovators won.”
Cook-Deegan cautions against drawing sweeping conclusions from one case study. But there can be no doubt that the pervasiveness of exclusive licensing is stymieing innovation, and it is just a matter of time before the next CellPro debacle arises.
What’s the answer? The first step is to let in some sunshine. The Bayh-Dole Act of 1980 allows universities to license their patents without publicly disclosing the deals they make. Disclosure can arm policymakers with the information they need to foster wide dissemination of publicly funded emerging technology. As Cook-Deegan puts it, taxpayers “should know what’s happening with the intellectual property they pay to create.” It’s not often you’ll catch me saying this, but here it’s true: what’s good for IBM is good for the country.
