University ownership creates perverse incentives – their profit comes from rent seeking, not actual tech utilization. This crushes tech startup efforts.

[Gerald, “10 Ways Universities Deal in Patents,” Research Enterprise, 5/24/23, https://researchenterprise.org/2023/05/24/10-ways-universities-deal-in-patents/, accessed 7/17/24, GDI-JCR]

University takes ownership of invention and licenses it back to the inventors as founders of a startup. This is not really technology transfer as the inventors know more about their invention than the university does. By taking away the invention and then handing it back with strings, the university does not transfer the technology but rather intervenes to exact a rent and to complicate and delay startup efforts.

The startup may get seed funding (from the university, even, or from the state, or from an angel fund) or may even get venture funding and then get acquired by a big company or sublicense exclusively to a big company (a “strategic partnership”). And nothing happens. Yes, the university gets reimbursed its patenting costs (usually) and there may be a payment (even a relatively big payment) with a round of financing or exclusive sublicense or acquisition, but the licensed invention does not result in a product. Maybe some other product is developed, but the likelihood of anything developed is near zero. Consider, the University of Washington claimed 18 startups in 2014 (really, only 1 qualified as a startup in that fiscal year), while receiving over 200 invention disclosures per year. But of those 18 startups, one is successful, run by the inventor after UW failed to do anything with the invention the inventor was required to assign to UW, one was bought out without any products by a Japanese company, and a third, which did have a run of providing on line services failed when the company that bought it failed. The rest putzed around, maybe got some seed funding or federal grants, and then withered or zombied. At the University of Utah, which made a big deal about its startups, when the state legislature investigated what happened to the $100M that it had allocated to chase such startups, they found a culture of “lies and deception.” And a bunch of paper startups with no operations and business addresses at the university’s licensing office. Nothing, plus public fraud.

When a university makes money licensing exclusively to a smaller company, the income often comes in the form of the value of company stock when there’s a round of funding or the company is acquired. Taking an equity interest in a company rather than relying on a running royalty on sales of licensed product means that the university gets paid if the company is successful in puffing up its future value rather than when and only when the company produces licensed product. You can see the switcheroo, then, in how universities report licensing income but fail to distinguish between all the licensing fees, patenting cost repayments, and realized equity on the one hand, and running royalties on licensed products on the other. A university can make a lot of money from a patent deal without ever seeing things through to product sales of licensed product. The patent deal helps a startup get investment funding, and the investment funding helps the company sell out to another company or develop a product that’s not subject to the patent license. There’s technology transfer in a stubby dysfunctional way, since the patent gets used but the invention mostly doesn’t.