Wednesday, November 02, 2005

Unanswered Questions about Stem Cell Research and IP

We received an interesting and detailed note from a well-informed observer about many of the issues involving California stem cell research and intellectual property. The immediate impetus for his comments was the background paper provided for Monday's legislative hearing on IP issues.

The writer is Terry Feuerborn, formerly Executive Director of Research Administration and Technology Transfer within the Office of the President at the University of California. He currently serves as the Technology Transfer Ombudsman for the Lawrence Livermore National Laboratory and the Lawrence Berkeley National Laboratory. Here are his comments.

"There are a lot of problems with the Background Paper. There is little real understanding of the higher education research environment, academic science, the pros and cons of the Bayh-Dole Act, or the realities of patenting and licensing new technology. It is not possible to deal with all the deficiencies of this report. Much of it is devoted to dealing with aspects of Prop. 71 that present issues. One such issue is the provision that the state "benefit from royalties, patents, and licensing fees that result from the research." This requirement, admirable on the surface, needs more analysis than the report provides.

"The proposition assumed that there would eventually be royalty income and that this should be shared with the state. Where will this royalty income come from and how will it be generated? Let us begin with the total dollars committed to basic research by CIRM. Funds used for buildings, training, and for administration are not likely to produce inventions. For the sake of being very conservative, however, let us say that all $3 billion will go to support basic research. How many inventions will that produce? For many years, technology transfer managers have used various estimates for the number of inventions that can be expected for a given amount of basic research conducted. Realities vary, of course, from institution to institution based on local factors. A handy estimate used a good bit of the time, however, is that you can expect one invention to be reported for every $2 million of funded basic research. Other estimates can be used, but the logic involved is what is important. Accordingly, for $3 billion, there may be 1500 inventions reported--give or take hundreds in either direction. Each invention reported will require a highly specialized technical analysis just to decide whether or not a patent application should be filed. This is necessary because it is too costly to file a patent application for every invention reported.

"There are often legal and scientific reasons for not filing a patent application as well. Who will perform these evaluations and who will bear the cost? CIRM? The State of California? Where will the expertise and funds come from? Most likely it will have to be from the grantees--who already have patenting and licensing offices. How many patent applications will be filed from the pool of reported inventions? If research grants are made with good judgment, to the best scientists, it is possible that patent applications will be filed on 25% to 50% of the reported inventions. The higher estimate would cast a broad net to insure that patent applications are filed on all of the most promising inventions. Accordingly, there could be up to 750 patent applications, give or take hundreds in either direction.
It costs a lot to file and prosecute patent applications in the US. It can cost $200,000 or more to file corresponding patent applications in Europe and Japan. Who will pay these costs? CIRM? The State?
Licensees can be expected to pay for the costs of patenting inventions for which they have a license, but how many patents will be licensed? For that matter, how many patents will be awarded in response to all of the patent applications? In addition, patenting is an extremely litigious activity. There are infringement suits, interferences in the Patent Office, and legal disputes of all sorts--particularly if breakthrough inventions are involved. In other words, patenting and licensing is a very difficult and costly activity for an institution of higher education with a lot of risk involved. To what extent will the State share in those costs and risks if it expects to share in the benefits? If there is to be a state share of royalties, will it come from the grantee institutions or directly from licensees? There are serious practical and legal issues involved in either approach. And finally, what formula for sharing would seem to be appropriate? Until matters such as this are discussed in detail and dealt with in a reasonable and fair way, policies may be put in place that will have unanticipated consequences."

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