Universities fail at commercialization – results in increase deadweight costs and increases incentive to engage in patent litigation

[Christopher J. Jr., et al. "The Hidden Cost of University Patents." Berkeley Business Law Journal, vol. 21, no. 1, 2024, pp. 203-249. HeinOnline -tm]

Most university patents never make it to market for public consumption, and many university-produced and university-held patents have no real practical application that would make them commercially successful. 65 Recent estimates peg commercially-licensed patents around 5 percent of the typical university patent portfolio.66 If this is true, the American university patent portfolio is wildly under-commercialized and presents an opportunity for universities to pursue other strategies to extract profit from their patents that lack value.

To say nothing of their inability to commercialize their inventions, universities-as NPEs-lack the infrastructure and know-how to manufacture them.67 Universities and their technology transfer offices must rely on intermediaries to do both. This is an example of deadweight cost on two levels.

First, universities' reliance on intermediaries theoretically increases expenses for university patent funding. On the one hand, universities never internalize the costs associated with the manufacture and commercialization of the products they patent. But more importantly, on the other hand, they must settle for licensing fees instead of reaping the full benefit of manufacturing and bringing a product to market. Knowing this, it is possible that universities seek greater indirect costs (university-speak for "overhead") in grant funding to hedge against anticipated losses when dealing with these intermediaries. That is, universities may inflate proposed costs of research in their funding proposals to account for the deadweight loss of indirect costs. This would further drive not only the costs associated with research and development but also impact the fiscal outlay for funding such activity.

Second, technology transfer offices themselves are a deadweight cost; most universities do not earn enough from patent licensing revenue to cover the expenses of their technology transfer offices.68 Just 11 percent of university technology transfer offices operate at a profit.69 A direct cause of this is that university research and development, whether publicly funded or not, commonly never results in an invention with value great enough to offset the cost of the technology transfer offices. To offset these losses, these organizations are incentivized to resort to other means of revenue generation to justify their existence, including patent assertion litigation.