The Atlantic Monthly; March 2000; The Kept University part 2
[Yale has four patents on the Osp A vaccine.]

The University as Business

THE Office of Technology Licensing at Stanford University occupies the third floor of a drab concrete building located just off the main loop that circles the palm-studded Palo Alto campus. This unprepossessing spot is the hub of a commercial enterprise that is the envy of universities across the country. The OTL's mission is to commercialize discoveries made by professors and to manage Stanford's growing patent portfolio. In the main lobby, encased in handsome wooden frames along the walls, are displays highlighting the various patents and products the office has recently helped bring to market. One describes a valve that creates high-resolution images on the surface of a silicon chip, another a new case-management system for heart failure that the university is hoping to license to the nation's hospitals.

"We're receiving about two hundred and fifty invention disclosures a year, roughly one in four of which is patented," says Jon Sandelin, a senior associate at the OTL. Sandelin says that Stanford earned $61 million from its technology-transfer activity last year -- a success he credits to creating the right entrepreneurial environment. "You have to understand -- initially the department chairmen and school deans weren't thrilled by having this new activity that was diverting the attention of their faculty away from teaching and research," he explains. "So how do you offset that? You make them stakeholders -- you make them beneficiaries."

Once professors and their departments learned that they could earn a cut from inventions, Sandelin says, they became more enthusiastic about bringing their ideas to the OTL. To reinforce the message, the OTL conducts aggressive outreach, organizing lunches with department heads; publishing a newsletter, Brainstorm,that touts the latest faculty discoveries; and dangling incentives in front of would-be inventors. In 1990 Stanford established a Research Incentive Fund to help professors convert academic concepts into "prototype products." "Got an idea for the next great whatchmacallit but don't have the funds to move from hypothesis to thesis?" a recent issue of Brainstorm asks. "This fund might just be your answer."

Traditionally, universities regarded patents as being outside their orbit, generally believing that proprietary claims were fundamentally at odds with their obligation to disseminate knowledge as broadly as possible. Today nearly every research university in the country has a technology-licensing office, and some have gone further. Johns Hopkins Medical School, for example, has established an internal venture-capital fund to bankroll commercially promising lines of research. The University of Chicago, renowned for its classical tradition, has created an affiliated non-profit, the ARCH Development Corporation, whose mission, in part, is to launch start-up companies based on faculty innovations. The dean of Chicago's medical school, Glenn D. Steele Jr., recently removed many faculty department heads and bluntly told Business Week that he plans to begin "insinuating the place ... with entrepreneurial people" -- a clear statement that commercial acumen is becoming an important qualification for new faculty.

SURPRISINGLY, two decades after Bayh-Dole was passed, no independent assessments of its economic impact have been made. But the Association of University Technology Managers, a consortium of over 300 universities and research institutions that engage in technology transfer, does publish an annual statistical survey of its members. In 1998 alone, the AUTM reports, 364 start-up companies were formed on the basis of a license to an academic invention, bringing the total since 1980 to 2,578. The group estimates that overall, university technology-transfer activities generated $34 billion that year, supporting 280,000 American jobs.

"There's clearly a kind of ferment going on at U.S. universities," says Lita Nelsen, the director of technology licensing at MIT. "When I went to MIT as an undergraduate, in 1964, the Kendall Square area was a bunch of vacant lots with a greasy old diner, and that was it. Now if you look out my window, it's brick high-rise buildings filled with little start-up companies -- everything from Lotus down the street, to Neurometrics across the alley, to Biogen and Sapient. The old mills with broken windows have been refurbished into high-tech incubators." The clustering of computer-engineering and biotech firms around academic-research centers in Silicon Valley; Austin, Texas; Route 128 in Massachusetts; and the Research Triangle, in North Carolina, derives in large measure from the synergy between universities and industry that Bayh-Dole has fostered.

No sector of the economy better illustrates the potential benefits of this synergy than biotechnology, a multibillion-dollar industry that grew out of university research labs. Garry Nolan, an assistant professor of molecular pharmacology at Stanford, epitomizes the new generation of professor-entrepreneurs. A few years ago Nolan founded Rigel, a biotech firm based in San Francisco that has pioneered a promising new method for identifying the proteins involved in asthma, allergies, immune disorders, and other health problems. "We've already attracted a hundred and fifty million dollars in investment from various drug companies interested in our work," Nolan says. "There's almost no greater and more immediate feedback than when you find a commercial entity interested in what you're doing."

Walter Powell, a sociologist at the University of Arizona who has tracked the growth of the biotech industry worldwide, believes that the close links between universities and industry are a principal reason why U.S. firms now dominate the biotech market -- a lesson America's competitors are taking to heart. "You're seeing other countries moving in the same direction," Powell says, pointing out that the University of Munich has been involved in spinning off at least five private companies in Germany in the last two years alone. Lita Nelsen says her office at MIT has been overrun with visitors from other countries, including Japan, which recently passed its own version of the Bayh-Dole Act.

The surprising twist, however, is that although university licensing offices are churning out patents, most of these offices are themselves barely breaking even. "Everybody was waiting for a hundred million dollars a year out of their technology-transfer offices," Nelsen says. "The reality is that hardly any schools earn anywhere near that." Although some academic achievements -- such as the discovery of recombinant DNA and the development of the hepatitis B vaccine (developed jointly at the University of California and the University of Washington) -- have generated millions, most have not, and Nelsen says it is impossible to predict which will be lucrative.

Far from restraining universities, however, the difficulty of turning a profit seems to have made them more aggressive. A growing number of schools, for example, are buying equity stakes in the very companies that stand to profit from their faculties' research -- a practice that both raises the potential for conflict of interest and is financially risky. In the 1980s and early 1990s Boston University poured $85 million (nearly a fifth of its endowment) into Seragen, a biotech firm specializing in cancer research, which several BU professors had founded. Convinced that the company would generate windfall profits, BU President John Silber also personally invested heavily in Seragen and persuaded numerous professors and trustees to do likewise. But from 1991 to 1997 Seragen lost almost $150 million. The university, which at one point owned 91 percent of the company's stock, was accused of egregiously mismanaging the school's endowment to prop up the company and to protect the trustees' investments.

Might such a cautionary tale dissuade other universities from going down the same road? To the contrary: the University of California recently established a policy allowing it to acquire equity stakes in start-ups and now owns shares in thirty companies committed to developing UC technologies. Stanford took a similar step in 1994.

Meanwhile, universities are devising increasingly creative -- and controversial -- ways to raise their royalty earnings. Michigan State University, for example, recently took the unusual step of applying for a new, slightly altered patent on a widely prescribed cancer drug, cisplatin, that was patented by the university in 1979. Filing twice on the same invention is prohibited, but MSU's original patent, which along with its analog, carboplatin, generated $160 million in royalties, was about to expire. Thus the slight alteration. The move may have been good for MSU's bottom line, but did it serve the public interest? MSU's action prevented four generic-drug manufacturers from marketing a cheaper version of cisplatin, and these companies are now suing MSU -- all of which prompted Barnett Rosenberg, the drug's developer and a now-retired professor, to complain that his work has "led to the creation of a lot of selfish, money-hungry university personnel."

Stanford has advanced beyond mere patenting. The university recently invested more than $1 million to develop its own brand-name product, Sondius-XG, a sound-synthesis technology that it will market in conjunction with Yamaha. Why? Because unlike patents, which expire after twenty years, brands generate revenue forever. Mary Watanabe, who works with Jon Sandelin at the Office of Technology Licensing, let slip during an interview that the university is also considering launching a "Stanford company." She declined to divulge details.

If these activities appear to be out of keeping with the university's nonprofit educational mission, that's because they are. In a provocative 1996 article in the University of Pennsylvania Law Review, Peter Blumberg, then a law student, argued that technology-transfer activity at universities is so far removed from the university's public mission that it "could be treated as unrelated business income for tax purposes." Universities, Blumberg writes, "enjoy their tax exemption because of a belief that they are producing research that no other market actor would produce absent a public subsidy; basic research, publishable research, research that educates students and ... is usable by the whole society."

In their zeal to maximize revenue, many schools are not only raising questions about their nonprofit status -- they are getting into some embarrassing skirmishes with their own students and professors over the rights to potentially lucrative ideas. In the most extraordinary case to date Peter Taborsky, a student at the University of South Florida, wound up on the chain gang of a maximum-security state prison after colliding with his university over the rights to a discovery he made as an undergraduate. Taborsky had been working as a research assistant on a project sponsored by the Florida Progress Corporation, a local holding company. At the end of the sponsored research period, Taborsky claims, he received permission from Robert Carnahan, a dean in the College of Engineering, to begin work on his own experiments, following a different approach, which he hoped to use as the basis for a master's thesis. But as soon as Taborsky made his research breakthrough, which had obvious commercial utility as a way to remove ammonia from wastewater, Florida Progress and USF both laid claim to his discovery. The university filed criminal charges against Taborsky and spent more than ten times the amount of the original research grant on outside legal counsel alone. In 1990 a jury found Taborsky guilty of stealing university property, and the State of Florida required him to begin serving his sentence on a chain gang in 1996. But the case became an embarrassing media spectacle, and Governor Lawton Chiles soon intervened to offer Taborsky clemency, which Taborsky, on principle, refused.
Why would a state university go to such lengths? To protect future investments, of course. As Seth Shulman argues in Owning the Future, a new book about intellectual property in the information age, the Taborsky case "underscores what can happen when universities, beholden to industry for an increasing share of research dollars, let financial concerns overshadow the notion of research as a shared intellectual pursuit."

Today it is common for universities to pay exorbitant legal fees to defend their intellectual property. According to the Association of University Technology Managers annual report, dozens of major universities -- Brandeis, West Virginia, Tufts, and Miami among them -- actually spent more on legal fees in fiscal year 1997 than they earned from all licensing and patenting activity that year. A growing number of disputes pit universities against their own faculty members. In 1996 a jury awarded $2.3 million to two professors, Jerome Singer and Lawrence Crooks, who filed suit against the University of California for shortchanging them on royalties resulting from their pathbreaking research on magnetic resonance imaging, a widely utilized medical test known as the MRI. An appeals court found that the university improperly sheltered revenue by dramatically discounting the patents it licensed to manufacturers in exchange for more than $20 million in research funding.

IS this where the Bayh-Dole Act was supposed to lead? Two summers ago a working group at the National Institutes of Health issued a report to the NIH director, Harold Varmus, warning that changes in the way universities guard their intellectual property are endangering the free exchange of basic research tools -- such as gene sequences and reagents -- that are crucial to all research. The NIH found that the terms universities impose on their research tools, through their technology-licensing offices, "present just about every type of clause that universities cite as problematic in the [contracts] ... they receive from industry." These include requirements that universities be allowed to review manuscripts prior to publication and provisions extending their ownership claims to any future discoveries deriving from use of their research materials. Universities, the NIH charges, "have no duty to return value to shareholders, and their principal obligation under the Bayh-Dole Act is to promote utilization, not to maximize financial returns. It hardly seems consistent with the purposes of the Bayh-Dole Act to impose proprietary restrictions on research tools that would be widely utilized if freely disseminated. Technology transfer need not be a revenue source to be successful." Ironically, the proliferation of ownership claims threatens not only to stifle the free exchange of ideas but also to impede economic growth. James Boyle, an expert on intellectual-property law at American University, warns that if current trends continue, "creators will be prevented from creating," as the public domain is "converted into a fallow landscape of walled private plots."


Controlling the Research Agenda
IMMEDIATELY after the April faculty meeting at Berkeley several members of Students for Responsible Research gathered in an outdoor courtyard at La Burrita, a pub just off campus, to air their concerns about the Novartis deal -- and to let off steam. "This place has some of the cheapest pitchers around," said Jesse Reynolds, one of the group's leaders, as glasses were poured and beers were passed around a long picnic table.

Unlike the student radicals of the sixties, these students never intended to lock horns with the university establishment. Reynolds, who studies California water resources, says he's relatively new to student politics -- and to politics altogether. "I'm generally one of those people who gripe a lot and do nothing," he explained. "But when the best state agricultural college in the country makes this kind of leap, the world is bound to follow. I really fear that."

David Quist, a second-year graduate student in environmental science, laughed as he told a story illustrating the culture that now permeates the university. The previous October, Quist said, at a town-hall meeting where the Novartis deal was first made public, Dean Gordon Rausser invited concerned students to examine the contract for themselves. "So the next day I came to his office," Quist recalled. "I was given some materials and sat down to take notes. But as soon as an administrator saw me, she said, 'Oh, no, you can't do that.'" Quist's notes were confiscated and held at the dean's office for several months.

Wilhelm Gruissem, a professor in the Department of Plant and Microbial Biology who helped to negotiate the Novartis deal, insists that the negotiations were as open as possible without divulging the company's proprietary secrets. But even students within the department felt shut out. In December of 1998 twenty-three graduate students sent a letter to the faculty complaining that their views had never been solicited and that they had been "forced to rely on rumors and supposition throughout the negotiation process."

What most concerns the Students for Responsible Research is that as university-industry ties grow more intimate, less commercially oriented areas of science will languish. "Let's say you're a graduate student interested in sustainable agriculture or biological control or some other area that is not commercial," Reynolds explained. "My guess is you're not going to come to Berkeley, or you'll at least think twice about it."

Donald Dahlsten, the associate dean of the College of Natural Resources, shares this concern. "Molecular biology and genetic engineering have clearly risen as the preferred approach to solving our problems, and that's where the resources are going," Dahlsten says. "New buildings have gone up, and these departments are expanding, while the organismic areas of science -- which emphasize a more ecological approach -- are being downsized." Dahlsten once chaired Berkeley's world-renowned Division of Biological Control. Today that division, along with the Department of Plant Pathology and more than half of all faculty positions in entomology, are gone -- in part, many professors believe, because there are no profits in such work. "You can't patent the natural organisms and ecological understanding used in biological control," Andy Gutierrez, a Berkeley entomologist, explains. "However, if you look at public benefit, that division provided billions of dollars annually to the state of California and the world." In one project Gutierrez worked on, he helped to halt the spread of a pest that threatened to destroy the cassava crop, a food staple for 200 million people in West Africa.

Gordon Rausser counters that far from draining resources from other areas, the Novartis deal will benefit the college as a whole, because a quarter of the money will be spent outside the Department of Plant and Microbial Biology. "I'm sitting here with three science buildings that were built in the 1920s, thirties, and forties," Rausser says. "I can't get those buildings modernized for first-rate research without resources."

Chris Scott, who until recently oversaw industry collaborations at Stanford's medical school, describes another reason that working with the private sector is essential. Scott points out that for the past several years industry researchers have consistently been ranked among the most frequently cited scientific authors, making academic isolation intellectually deleterious. But Scott, too, recognizes the danger of allowing market criteria to dictate the paths of scientific inquiry. "Show me an industry-sponsored research project on schistomiasis -- a liver parasite that afflicts people in the Third World -- or malaria or river blindness or dengue fever," Scott says. All these diseases primarily afflict people in developing nations who can't afford to pay high prices for medicine, he says, so all have been dropped from the pharmaceutical industry's docket. Mildred Cho, of Stanford's Center for Biomedical Ethics, agrees, pointing to vaccine research as another neglected area. "Public-health services simply can't afford to pay high prices," Cho says. "If research is market-driven, it raises potential problems not only for the research agenda but for public health."

As the research agendas of universities and corporations merge, there is one other danger: namely, that universities will cease to serve as places where independent critical thought is nurtured. Anne Kapuscinski, a visiting professor from the University of Minnesota who studies genetically engineered organisms, and other scholars we met with at Berkeley fear that raising questions about the safety of genetically altered crops -- a principal research focus of Novartis -- may prove difficult if more and more agricultural colleges turn to corporations to finance their research. Concerns about genetic engineering are mounting, Kapuscinski notes. A study published last May in Nature found that the toxins dispersed from the pollen of Bt (Bacillus thuringiensis) corn, a Novartis product, can kill nonpest insects, including the monarch butterfly -- a problem with potentially enormous ecological implications. Such dangers prompted the Food and Drug Administration to convene a series of public hearings last November on genetically altered crops, whose use has provoked huge demonstrations in Europe and elsewhere. Ignacio Chapela, of the College of Natural Resources' executive committee, believes that the most important thing Novartis stands to gain from the alliance is legitimacy. "The sheer value of having the logo of the University of California next to the logo of Novartis is immensely valuable to the company right now," he says.

Maybe so -- but the plan may end up backfiring. At last year's graduation ceremony, in a graphic display of dissent, a student speaker placed the blue-and-orange Novartis logo directly above Berkeley's, while a hundred students in the audience mockingly donned graduation caps emblazoned with the Novartis logo -- hardly the public exposure the company sought.

Illustrations by Seymour Chwast.
Copyright © 2000 by The Atlantic Monthly Company. All rights reserved.
The Atlantic Monthly; March 2000; The Kept University - 00.03 (Part Three); Volume 285, No. 3; page 39-54.

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