Thursday, 28 February 2013

The IP Puzzle That Is 3-D Manufacture

Perhaps the last place I had planned to encounter a cutting-edge issue regarding IP was in the column by James Saft, "The Coming Dollar Bull Run", which appeared in the February 26 issue of Reuters, here The article considered the economic reasons why, according to Saft (and others), the U.S. dollar will become the currency of choice, leading to its strengthening vis-à-vis other currencies. Against this backdrop, towards the end of the piece, the following observation was made:
"Don't underestimate the power of the energy and manufacturing changes now taking root in the U.S. More domestic energy means less money sent overseas and will also tend to make manufacturing at home more internationally competitive. The U.S. also appears to have substantial strengths in the development of 3-D printing, in which highly customizable objects are literally sprayed into existence. To the extent it develops, 3-D manufacturing will be located close to markets and in places where intellectual property - a large part of a 3-D manufacturer's value - are well protected."
Much of the debate about U.S. manufacturing is whether it has arrested and even clawed back some of the position that it once enjoyed on the world business stage. The notion that 3-D manufacturing (a.k.a. additive manufacturing) could serve as a lever significant enough to change the world position of US manufacturers, and that IP will be a central element in that predicted transformation, was something that I had not directly encountered previously. This challenged me to consider Saft's comments further.

First, a brief description of what is meant by 3-D manufacturing. As described by Makerbot, a leader in the world of "3-D printing, also called additive manufacturing, means making things layer by layer according to a 3-D design file. This differs from traditional manufacturing, such as machining, which often involves subtracting a material in order to achieve a certain shape." Per se, 3-D manufacturing has been around for a while, here. What is new is the way that the technology has become scalable and affordable as never before. Customized manufacture, literally on one's desk, will soon be available to a huge swathe of the population.

How does IP fit into this? As with any disruptive technology that promises to improve our ability to both manufacture and distribute products,rights holders may be challenged to protect their interests in the face of the new technology. Think the printing press, photocopy machine, stand-alone PC and the internet—and now, the personal 3-D manufacturing device. The particular challenge raised by 3-D manufacturing seems to focus on copyright issues. In that connection, Rimmer reports the observations made by Michael Weinberg, a researcher for the NGO Public Knowledge here. Thus, Weinberg notes that:
" '[w]hile there are copyright implications for 3D printing, the fact that copyright has traditionally avoided attaching to functional objects – objects with purposes beyond their aesthetic value – may very well limit its importance.’ He comments: ‘Copyright law has long avoided attaching to functional objects on the grounds that patent law should protect them (if they should be protected at all).’ Nonetheless, Weinberg observes: ‘It is unavoidable that some functional objects also serve the types of decorative and creative purposes protected by copyright.’ "
This concern is heightened when files are posted for all to use in their own 3-D manufacture, where third parties have sought to challenge the legality of the files under the copyright laws. It is fair to say that the resolution (and possible legislation) of copyright challenges posed by 3-D manufacturing is only in its infancy.

All of which brings us back to Saft's assertion that effective IP protection in connection with respect to 3-D manufacturing will serve to aid in the continuing renaissance of US manufacturing. I must confess that I am not certain if I fully understand why this should be the case. For one thing, the US will not enjoy a monopoly in the use of 3-D manufacturing technology; other countries with robust IP enforcement systems will also successfully take advantage of the technology. Secondly, it is not clear in which direction IP protection will go—and in particular whether greater or lesser copyright protection will be accorded. Thus, arrangements for public access of 3-D manufacturing designs might well result in low, rather than high copyright protection, where the interest of the common good is placed above the rights of any single individual. Thirdly, IP protection might not really matter at the end of the day; the correlation between successful 3-D manufacturing and robust IP protection might be low.

From the IP perspective, it will be exciting to see how all of this plays out. But protection for 3-D manufacturing in the service of a strengthening US dollar—well, for me, the jury is still out.

Wednesday, 27 February 2013

The U.S. National Science Foundation I-Corps Program: The Goal is Commercialization

The I-Corps Program is a collaboration between the U.S. National Science Foundation [NSF], Kaufmann Foundation and Deshpande Foundation designed to help bring government funded—NSF funded—inventions to market.  As fellow blogger, Neil Wilkof has discussed, the valley of death is a real problem and a search for effective solutions is ongoing.  The I-Corps Program is another attempt to solve the problem.  The I-Corps Program started out on July 28, 2011 with a plan to fund 100 projects per year at $50,000 for each project.  Basically, the program has several parts:

There are three distinct components of I-Corps: Teams, Nodes and Sites. I-Corps Teams are composed of the principal investigator(s) (PI), an entrepreneurial lead (EL), and a mentor. The I-Corps Nodes serve as hubs for education, infrastructure and research that engage academic scientists and engineers in innovation; they also deliver the I-Corps Curriculum to I-Corps Teams. The I-Corps Sites are academic institutions that catalyze the engagement of multiple, local teams in technology transition and strengthen local innovation.

Here is the I-Corps Teams’ role:  

Over a period of six months, each I-Corps team, composed of the principal investigator, a mentor, and an entrepreneurial lead, will systematically identify and address knowledge gaps to ascertain the technology disposition: What resources will be required? What are the competing technologies? What value will this innovation add? The I-Corps program will also pilot innovative merit review processes through which promising discoveries emerging from NSF-funded research projects will be identified quickly and efficiently for financial support as well as for mentorship through the national network.

A key component of the program appears to be the required curriculum for all I-Corps teams based on a Stanford “Lean Launchpad” course that is described as “The I-Corps curriculum provides real-world, hands-on, immersive learning about what it takes to successfully transfer knowledge into products and processes that benefit society.  . . . [T]he entire I-Corps Team will be engaged with industry; talking to customers, partners, and competitors; and encountering the chaos and uncertainty of creating successful innovations. Getting out of the laboratory/university is what the effort is about.”  The Lean Launchpad course was developed by Stanford faculty member Steve Blank and is available online here via Udacity. 

According to Xconomy and TechnologyTransfer Tactics, the program is being expanded to include more than the original I-Corps I-Core Sites and/or Nodes—Stanford University, Georgia Tech and the University of Michigan.  Now UC Berkeley, UC San Francisco, University of Maryland, Virginia Tech, George Washington University, City University of New York, New York University and Columbia University will participate as I-Core Sites and/or Nodes.  Are there any similar programs in other countries?
 

Dogs and Cats Living Together? The New WIPO, WTO and WHO Book.

On February 5, 2013, WIPO, the WTO, and the World Health Organization issued a jointly authored book titled, “Promoting Access to Medical Technologies and Innovation – Intersections between public health, intellectual property and trade.”  The 253 page book is an ambitious one—tackling the intersection of innovation and access.  The press release states:

Today’s health policy‑makers need a clear understanding both of the innovation processes that lead to new technologies and of the ways in which these technologies are disseminated in health systems. This study captures a broad range of experience and data in dealing with the interplay between intellectual property, trade rules and the dynamics of access to, and innovation in, medical technologies.

The study is intended to inform ongoing technical cooperation activities undertaken by the three organizations and to support policy discussions. Based on many years of field experience in technical cooperation, the study has been prepared to serve the needs of policy‑makers who seek a comprehensive presentation of the full range of issues, as well as lawmakers, government officials, delegates to international organizations, non‑governmental organizations and researchers.

The book has four parts: 1) Medical Technologies: The Fundamentals; 2) The Policy Context for Action for Innovation and Access; 3) Medical Technologies: The Innovation Dimension; and 4) Medical Technologies: The Access Dimension.  The study is very complete and attempts to tie together a lot of different concepts, and generally does so well (although I know I need to spend more time with it).  Some interesting items in the report include: a statement that a goal of the report is to find some “policy coherence” between the three organizations and that the report was made in a spirit of cooperation began by the Doha Declaration, the WIPO Development Agenda, and the WHO Global Strategy and Plan of Action for Global Health; a specific section on traditional medicine and knowledge; a statement that “[t]he overarching condition for providing access to needed medical technologies and health services is a functioning national healthcare system”; a dizzying chart concerning Tanzania’s medical supply systems; placing the human right to health within the intellectual property law context; and a helpful table breaking down pharmaceutical related provisions in FTAs.

On the Bayh-Dole Act and similar policies, the report states:

Such policies, and a general trend towards more active management of technologies created through publicly funded research, are leading to the steady accumulation of publicly held patent portfolios, including on key upstream technologies that provide platforms for a range of new medical technologies.

This report appears to be a great step toward harmonizing a lot of concepts in public health and intellectual property.  There is no question that trying to find solutions to the problems outlined in the report requires expertise in a lot of different areas and much collaboration. 

Wednesday, 20 February 2013

Stronger, Better--even FASTR? The Fair Access to Science and Technology Research Act


On Valentine’s Day, the Fair Access to Science andTechnology Research Act [FASTR] was introduced in the U.S. Senate and House of Representatives.  FASTR is a version of the previously introduced Federal Research Public Access Act (three times before), which failed to become law.  FASTR requires that federally funded scientific research in papers is made available to the public after six months.   Apparently, the agencies responsible for funding the research are also charged with ensuring the publications are accessible to the public free of charge.   This seems like a good idea—the public funds the research through taxes so why shouldn’t the public get free access to the research results?  And, there are many supporters (Electronic Frontier Foundation, Infojustice, PLOS, the Associationof College and Research Libraries, American Library Association, Association of Academic Health Sciences Libraries, Association of Research Libraries, CreativeCommons, Greater Western Library Alliance, Public Knowledge, Public Library of Science and SPARC).  But, there is also opposition by the Association of American Publishers.  Why the opposition?  Well, the Association of American Publishers released some comments in 2008 against the National Institutes of Health’s public access policy to research results after one year (which is somewhat similar to FASTR):

The National Institutes of Health (NIH) policy seeks to address a challenge or problem that has not been proven to exist. In doing so, the NIH policy introduces legal conflicts with an author’s and publisher’s copyright and undermines intellectual property rights and the economic incentive of publishers and rights holders. The policy makes their copyrighted material available without compensation in online sites, for dissemination to anyone, anywhere, anytime. Such mandatory open access erodes and disrupts the proven, balanced economic model that supports and sustains journals as dynamic and effective vehicles for promoting scientific communication for centuries. It removes the substantial safeguards that journal publishers take to protect their journals from unauthorized misappropriation.

North American-based science and technology publishers account for upwards of 40% of all peer-reviewed scientific research papers published annually. Therefore, mandatory public access policies will disproportionately impact U.S. publishers. By severely restricting the scope of protection for a critical class of copyrighted works, the NIH policy deprives both authors and publishers of their free choice to use the business model best suited for disseminating content and could ultimately reduce incentives to make substantial investments in peer reviewing, publishing, and disseminating scientific research.

At the same time, the primary beneficiaries will largely be non-US entities who neither fund nor invest in research but will have free access to the information in the copyrighted journal articles. U.S. publishers have already gathered evidence that companies in China and India are planning to resell and distribute without authorization articles downloaded from NIH's PubMed Central database — material produced by U.S publishers at their own expense.

So, most of the argument seems to be a little protectionist.  If we are concerned about the impact on US publishers, we should be able to obtain a rough estimate of the impact of the policy—several years have passed since the policy has been in effect.  Indeed, SPARC reports that:

In some disciplines, freely accessible online archives have been proven to boost journal readership, not detract from it. In physics, for example, where nearly 100% of new articles are freely available from birth in the arXiv.org open-access archive created more than a decade ago with US Department of Energy funding, subscription-based journals have continued to thrive. In a report to Congress on the results of its Public Access Policy, NIH reported that it “has no evidence to indicate that the Policy has had any impact on peer review.”

Just as newspaper articles today are read in print form, on their publishers’ Web sites, and in aggregations such as LexisNexis®, potential readers of publicly funded journal articles are well-served by having them accessible in many forms and contexts for differing uses. Even before the Internet, publishers flourished at the same time public libraries provided citizens with free access to their publications.

But, there are other arguments, for example, there is a concern with taking away the publisher’s role in the peer review process.  However, the Electronic Frontier Foundation has a quick and cogent argument against that and then some:

[T]he traditional system . . . gives journal publishers substantial control over access to academic work, even though they don't pay a dime in exchange to the authors who do the research, the peer-reviewers who vet the research, or the institutions that help make it possible. Those publishers will doubtless oppose the bill, but it is their own decision to continually raise the bar to access that is driving support for the legislation. For example, subscription prices have outpaced inflation by over 250 percent in the past 30 years, forcing university libraries to pick and choose between journal subscriptions. The result: students and citizens have difficulty accessing information they need; professors have a harder time reviewing and teaching the state of the art; and cutting-edge research is often hidden behind paywalls.

SPARC also states, in response to a question whether FASTR would harm peer review, that:


No. The Fair Access to Science and Technology Research Act contains two key provisions that protect journals and the peer review process:
A delay of up to six months in requiring free access to the articles(versus immediate access for journal readers).

Inclusion in the public archive of the author’s final manuscript rather than the publisher’s formatted, paginated version preferred for citation purposes.
And, that leaves us to the Association of American Publisher’s final argument: “It would require federal agencies to undertake extensive, open-ended work already being performed successfully by the private sector. It would add significant, unspecified, ongoing costs to those agencies’ budgets in the midst of ongoing federal deficit reduction efforts.”  What do you think of that argument? 

Finally, if you are interested in learning more about FASTR and how it will impact faculty, please see SPARC’s helpful FAQ site here and Harvard’s Berkman Center for Internet and  Society’s Harvard Open Access Project page here. 

Friday, 15 February 2013

What Kind of Damages Does an NPE Deserve?

With all of the media attention that has been given the $1.05 billion dollar verdict in the Apple suit against Samsung, it is a bit surprising that there has been relatively less coverage of the $1.17 billion dollar verdict given on December 26, 2012 in favour of Carnegie-Mellon University (CMU) in its patent infringement action against Marvell Technology Group. The jury verdict, if it stands (and not surprisingly Marvell has sought to overturn it), ranks as one of the largest such awards ever given.

The case is now back in the headlines, following the court filing made by CMU this week, requesting that the court award it up to three times the jury award (so-called treble damages) on the ground that Marvell was a willful infringer of the CMU patents here. Under U.S. law, a court may make an award of three times the amount of damages for infringement in such circumstances. Also, CMU is seeking $321 million in pre-judgment interest. The patents in question were issued in 2001 and 2002 and the case was filed only in 2009. The claim is that Marvell, a major chip maker, has sold without CMU's permission billion of chips that incorporate the patented technology.

The court award and CMU's most recent court filing raise once again several related questions in connection with the current state of patent litigation in the U.S. The first is how to calculate damages when the plaintiff is a non-practising entity (NPE). While few would call CMU a patent troll per se, it being a major university engaged in high level research and teaching, the fact remains that CMU is not primarily in the business of creating technology for purposes of tech transfer and commercialization. True, the school seeks commercial opportunities for such transfer and commercialization, but this is certainly ancillary to its educational function. Moreover, whatever the place of such commercial activities within CMU, they do not include manufacture of products made under the university's patents. And so the question—should a special standard be applied for assessing damages be applied when the plaintiff is an NPE of the CMU type?

Second, what should we make of CMU's request for treble damages? Even for a PE-type of plaintiff, the issue of treble damages raises policy issues. In particular, does an award of treble damages provide any realistic deterrent against "willful infringement"? After all, the award is made from one private party to another. In a sense, the private party plaintiff is awarded a windfall in the name of the public interest in future deterrence of patent infringement. Unless there is some good evidence that deterrence does in fact take place, the argument for treble damages seems flimsy. This is especially so, given the sometimes legal hyper-technical nature of what constitutes willful infringement.

A fortiori, should an award of treble damages to an NPE of the CMU type ever be justified? True, as a private university, CMU can use every dollar that it can in maintaining the university (who can't). Still, do we really want CMU (or indeed any NPE) fully engaged in the same manner as Apple and Samsung over the issue of treble damages?

Wednesday, 13 February 2013

SMEs, SSOs and Patent Thickets

In this guest posting authored by regular IP Finance contributor Keith Mallinson (WiseHarbor), Keith considers the allegedly thorny issues with so-called patent thickets. The UK IPO’s October 2012 report entitled “A Study of Patent Thickets” and its inconclusive 2011 report on the same matter examine whether patent thickets are a “barrier to entry into patenting for UK enterprises, in particular [SMEs].” While Keith also finds that the latest IPO report lends only convoluted and qualified support to theories of harm from patent thickets, he presents a variety of empirical evidence showing that thousands of SMEs and many others are, instead, flourishing by virtue of—not despite—extensive IP developments, patenting and licensing of Standard-Essential Patents (SEP)s, and with Standard Setting Organizations (SSOs).

Patent thicket -- or work of art? See "Visualizing patent statistics
by means of social network analysis tools", here
According to Keith’s analysis, the open and standards-based environment for ICT in conjunction with (F)RAND licensing that has developed over the last couple of decades has been very fertile technically and commercially for large and small companies including new market entrants. For example, he cites another IPO report which found from survey results that SMEs in hi-tech, (e.g., including communications equipment), where the patent thickets are supposedly most prevalent, have a significantly higher propensity to rely on patents to protect IP than in other sectors. Keith cites evidence of upstream patenting and contributions to standards by start-ups and SMEs with examples in venture capital and mobile communications at SSO ETSI. Examples of successful market entry for SMEs and others in SEP-based market sectors include video codecs (as required for digital TV), mobile handsets and associated software applications where 500,000 U.S. jobs have been created since 2007. For ease of reading, Keith's contribution (which is rather longer than usual) can be accessed here as a PDF document.

What is the Value of IP After A Country (Competitor) Steals It? Coordinating the Private Sector with Government to Protect Against the Theft of Trade Secrets

A number of reports have issued from US government officials concerning the theft of trade secrets or cyber-espionage by government sponsored agents.  The countries regularly named as sponsors of cyber-espionage include China and Russia.  However, one article notes that France and Israel are also guilty although to a much lesser extent than, at least, China.  The Washington Post recently reported that a classified National Intelligence Estimate by the National Intelligence Council in the United States indicates that China is by far the largest sponsor of cyber-espionage against the United States. Moreover, the victims do not include just the United States—this report by the Office of the National Counterintelligence Executive lists and discusses other victims such as the United Kingdom, Germany and South Korea (and, it should be noted that this is a two way street—there are allegations of cyber-espionage against the United States).  Unfortunately, the harm of cyber-espionage may be hard to quantify because of the unwillingness by private industry to disclose what was taken and its worth (and it may be some time before they even discover the theft).  The White House has recently released (February 12, 2013) an Executive Order that may help encourage more cooperation between the private sector and the Government.  The Executive Order is titled, “Improving Critical Infrastructure Cybersecurity.”  The Executive Order provides: 

Sec. 4. Cybersecurity Information Sharing. (a) It is the policy of the United States Government to increase the volume, timeliness, and quality of cyber threat information shared with U.S. private sector entities so that these entities may better protect and defend themselves against cyber threats. Within 120 days of the date of this order, the Attorney General, the Secretary of Homeland Security (the "Secretary"), and the Director of National Intelligence shall each issue instructions consistent with their authorities and with the requirements of section 12(c) of this order to ensure the timely production of unclassified reports of cyber threats to the U.S. homeland that identify a specific targeted entity. The instructions shall address the need to protect intelligence and law enforcement sources, methods, operations, and investigations.

(b) The Secretary and the Attorney General, in coordination with the Director of National Intelligence, shall establish a process that rapidly disseminates the reports produced pursuant to section 4(a) of this order to the targeted entity. Such process shall also, consistent with the need to protect national security information, include the dissemination of classified reports to critical infrastructure entities authorized to receive them. The Secretary and the Attorney General, in coordination with the Director of National Intelligence, shall establish a system for tracking the production, dissemination, and disposition of these reports.

(c) To assist the owners and operators of critical infrastructure in protecting their systems from unauthorized access, exploitation, or harm, the Secretary, consistent with 6 U.S.C. 143 and in collaboration with the Secretary of Defense, shall, within 120 days of the date of this order, establish procedures to expand the Enhanced Cybersecurity Services program to all critical infrastructure sectors. This voluntary information sharing program will provide classified cyber threat and technical information from the Government to eligible critical infrastructure companies or commercial service providers that offer security services to critical infrastructure.  . . .

 (e) In order to maximize the utility of cyber threat information sharing with the private sector, the Secretary shall expand the use of programs that bring private sector subject-matter experts into Federal service on a temporary basis. These subject matter experts should provide advice regarding the content, structure, and types of information most useful to critical infrastructure owners and operators in reducing and mitigating cyber risks.

***

Sec. 7. Baseline Framework to Reduce Cyber Risk to Critical Infrastructure. (a) The Secretary of Commerce shall direct the Director of the National Institute of Standards and Technology (the "Director") to lead the development of a framework to reduce cyber risks to critical infrastructure (the "Cybersecurity Framework"). The Cybersecurity Framework shall include a set of standards, methodologies, procedures, and processes that align policy, business, and technological approaches to address cyber risks. The Cybersecurity Framework shall incorporate voluntary consensus standards and industry best practices to the fullest extent possible. The Cybersecurity Framework shall be consistent with voluntary international standards when such international standards will advance the objectives of this order, and shall meet the requirements of the National Institute of Standards and Technology Act, as amended (15 U.S.C. 271 et seq.), the National Technology Transfer and Advancement Act of 1995 (Public Law 104-113), and OMB Circular A-119, as revised.

(b) The Cybersecurity Framework shall provide a prioritized, flexible, repeatable, performance-based, and cost-effective approach, including information security measures and controls, to help owners and operators of critical infrastructure identify, assess, and manage cyber risk. The Cybersecurity Framework shall focus on identifying cross-sector security standards and guidelines applicable to critical infrastructure. The Cybersecurity Framework will also identify areas for improvement that should be addressed through future collaboration with particular sectors and standards-developing organizations. To enable technical innovation and account for organizational differences, the Cybersecurity Framework will provide guidance that is technology neutral and that enables critical infrastructure sectors to benefit from a competitive market for products and services that meet the standards, methodologies, procedures, and processes developed to address cyber risks. The Cybersecurity Framework shall include guidance for measuring the performance of an entity in implementing the Cybersecurity Framework.

***

Sec. 8. Voluntary Critical Infrastructure Cybersecurity Program. (a) The Secretary, in coordination with Sector-Specific Agencies, shall establish a voluntary program to support the adoption of the Cybersecurity Framework by owners and operators of critical infrastructure and any other interested entities (the "Program").

(b) Sector-Specific Agencies, in consultation with the Secretary and other interested agencies, shall coordinate with the Sector Coordinating Councils to review the Cybersecurity Framework and, if necessary, develop implementation guidance or supplemental materials to address sector-specific risks and operating environments.

(c) Sector-Specific Agencies shall report annually to the President, through the Secretary, on the extent to which owners and operators notified under section 9 of this order are participating in the Program.

(d) The Secretary shall coordinate establishment of a set of incentives designed to promote participation in the Program. Within 120 days of the date of this order, the Secretary and the Secretaries of the Treasury and Commerce each shall make recommendations separately to the President, through the Assistant to the President for Homeland Security and Counterterrorism and the Assistant to the President for Economic Affairs, that shall include analysis of the benefits and relative effectiveness of such incentives, and whether the incentives would require legislation or can be provided under existing law and authorities to participants in the Program.

***

The US government is taking other steps to combat state sponsored cyber-espionage.  For example, one hundred US prosecutors are being trained to prosecute cases involving cyber-espionage.   (Note section 4(e) of the Executive Order— the start of the “cyberdraft”?).

Have other countries adopted more aggressive policies in helping the private sector combat cyber-espionage? (Be sure to click on the Office of the National Counterintelligence Executive poster below if you can't read the fine print.)
 






Thursday, 7 February 2013

Medical Product Developments and the Valley of Death

It is called the "valley of death". While the phrase may seem to conjure up the words of the 23rd Psalm written over two millennia ago ("Yea, though I walk through the valley of the shadow of death"), we are talking about something that is very here and now—the financing of medical R&D. There is a serious disjunction between the advances in medical R&D and the financial environment for bringing these advances to market. In particular, there is a severe funding shortfall at the stage between basic research (which is often government –supported) and when final approval is given. This intermediate stage, with its acute shortfall in funding, is called the "valley of death".

One attempt to address this problem is discussed in January 26, 2013 issue of The Economist ("Financing medical research—disease or cure"?) here. As reported in the article, over the past decade there has been a perfect storm in which the returns of pharmaceutical companies have significantly declined, the stock price of leading pharmaceutical companies has diminished by as much as 50%, and venture capital funding in the field has more or less disappeared. It does not help that a critical mass of new therapies is emerging which rests on gene marker technology and addresses markets with less commercial scope than those enjoyed by the more general block-buster drugs of the past two decades. All of these factors have contributed to the "valley of death" in medical product funding.

What to do? One suggestion, according to the article and which seems to have garnered significant attention, is based on a research paper published last year—"Commercializing biomedical research through securitization techniques"— by Andrew Lo and Jose-Maria Fernandez of MIT and Roger Stein of Moody's. Lo, Fernandez and Stein first describe one approach, namely investing in the royalties of approved drugs (what The Economist calls "a return [to the investor] that has similarities to a diversified portfolio"). This structure is already in effect by such entities as Royalty Pharma, DRI Capital and Cowen Healthcare.
But these authors go beyond this relatively straightforward (conceptually at least) investment vehicle to suggest a much broader approach. The contours of their proposal contain the following elements:
1. A number of so-called "megafunds" in an amount up to $30 billion dollars will be created. These funds will be financed by a combination of equity and that dreaded word from the Great Recession—securitization.

2. Unlike a venture-capital fund (at least in the current form of the industry), these megafunds will not have a short-term time horizon for cashing out its investment.

3. Unlike a mutual fund, the megafunds will hold a lot of illiquid assets, such as "products, patents, licences and royalties", "anything in medical research that may eventually produce a cash flow."

4. If structured "properly", the megafunds will have a high likelihood of success in at least one of the invested companies. The scale and diversity of the megafunds will presumably reduce aggregate risk. As such, the expected returns from such funds will be in line with average returns for holding equity or debt.

5. This structure is intended to result in a more even distribution of investment in medical research, unlike the current situation, which is characterized by a small number of successes, if any, and a large number of commercial failures.

6. In response to comments following the publication of their article, Lo, Fernandez and Stein have suggested alterations to their proposal, including "use of credit-default swaps and government guarantees to encourage investors." [Readers will no doubt recall that "credit-default swaps" and "government guarantees" were two main vehicles that are crediting with leading to the financial crisis in 2009.]
The Economist is not overly optimistic about the actual launching of any such megafund. It seems to me that the underlying question is whether high level financial engineering is really the way to address the problem of medical product funding in general. "Securitization" is still in many popular circles a dirty word. The fact that the investment community fell prey to the dark side of securitization in financing the residential housing market, an industry of long-standing and supposedly well-understood, does not bode well for the inherently more risky and uncertain world of royalty streams from medical developments. I have the feeling that challenges of funding in this area will require more than the most imaginative form of financial engineering to get it back on its feet.

Tuesday, 5 February 2013

Basic Research – Soon to be a Thing of the Past?

One concern since the Bayh-Dole Act was passed in the United States has been the effect of the Act on the direction of research.  Would the Bayh-Dole Act—allowing grant recipients such as universities to take title to government funded invention—make researchers move their agendas away from basic research to applied research?  To many, this would be a negative impact of the Act; although some would disagree.  And, to some, the movement to applied research is not happening fast enough.  I have heard rumors over the years that some universities have already changed tenure standards for professors in the “hard” sciences to include things such as, number of company spin-outs or patents.  The other day I received an email from Technology Transfer Tactics which mentions a possible “policy change” in tenure standards at Oklahoma State University and a change in standards at the University of Texas.  Apparently, the changes include adding commercialization factors.  Here is the text of some of the email:


Live Webinar ~ March 19, 2013 ~ 1:00pm - 2:30pm ET
(also available on DVD, On-Demand Video and Print Transcript)






The push for commercialization of university research has become more like a giant shove. Federal and state governments are pinning their hopes on it, economic development agencies work hard to enable it, and university presidents demand it. Pitch competitions, accelerators, funding schemes, outreach efforts, partnerships, incubators, and mentoring programs abound, all trying to encourage it. But there is one glaring, gigantic disconnect in the innovation ecosystem: tenure policy.

While the drumbeat sounds for new models of entrepreneurship and commercialization support, a very old model -- steeped in the academic traditions of yesteryear -- presents a major barrier to realizing the full potential of university innovations. Tenure policies, which reward publishing and teaching but do nothing to incentivize commercialization, arguably represent the single biggest missing link in the innovation ecosystem that so many now agree is critical to economic growth, jobs, and global competitiveness.

These policies -- if they are adjusted to take commercial-focused research into account -- also represent a tremendous untapped opportunity for universities to unleash a deluge of research with market potential, by simply rewarding the behavior that forms the essential foundation for the dynamic innovation activity the world is clamoring for. But changing the entrenched system is anything but simple.

While most university systems continue to resist formal recognition of commercialization activities when evaluating faculty for tenure, a select few have emerged on the leading edge of this issue. Oklahoma State University and the University of Texas System have both gone down the road of including commercialization within their tenure policies. In fact, OSU is currently in the throes of policy change.  * * *

Live Webinar ~ March 19, 2013 ~ 1:00pm - 2:30pm ET
(also available on DVD, On-Demand Video and Print Transcript)


Please join Bryan T. Allinson, Executive Director of Technology Commercialization for the University of Texas System - Austin, and Dr. Stephen W. S. McKeever, Vice President for Research and Technology Transfer with Oklahoma State University, for this cutting-edge program. These forward-thinking leaders will present case studies illustrating the key strategies used to gain administration and faculty support, as well as the specifics of their tenure policy changes. Here’s a quick look at the agenda:
  • Laying the foundation for culture change with:

o    Tools for creating an open dialogue with faculty

o    Outlining business terms

o    Evidence to back up commercialization vs societal impact: they can coexist!
  • Strategies for getting buy-in from university policy-makers
  • The benefits of including commercialization as a requirement for tenure consideration
  • Details of policy changes
  • Handling push-back from faculty and/or administration
  • Tactics for obtaining early support from key leadership

Wow!  Will basic research be a thing of the past?  Changing tenure standards is extreme and a huge threat to academic freedom that I suspect will be ultimately very harmful to the production of break through research that benefits the public.  Does anyone have any information about what is happening at OSU?  Also, has anyone’s university changed its tenure policies to include commercialization-related factors?  If so, I am very interested to see your policy. 

Friday, 1 February 2013

Is Nothing Sacred? Samsung Takes Its "Anti-IP" Case to the People.

The American Football championship—the Super Bowl—is this weekend.  And, along with it, there is the opportunity to capture the attention and imagination of the American consumer (and make a few bucks)—and IP issues abound.  The two teams playing are the San Francisco 49ers and the Baltimore Ravens.  Interestingly, the teams are coached by brothers.  The 49ers a.k.a. Niners are coached by Jim Harbaugh and the Baltimore Ravens are coached by John Harbaugh.  An entrepreneurial fan last year attempted to obtain a trademark registration for the “Harbowl” and “Harboughbowl.”  The National Football League (NFL) pressured the fan to abandon his trademark application.  The NFL is notorious for enforcing the Super Bowl trademark.  And, we have heard about the “Kaepernicking” trademark from fellow blogger Neil Wilkof. 

Now Samsung is taking the game to a new level.  One of the traditions of the Super Bowl is the anticipation and viewing of creative commercials during the game.  Indeed, some fans enjoy the commercials during the Super Bowl more than the game itself, and every year people always ask—what was the best commercial.  This year Samsung has an early strong entry that is getting play with the media already.  Samsung is taking its “IP law and enforcement is out of control" message to the American consumer—a continuation of its theme from the Apple v. Samsung case.  Here is the commercial.

 
What do you think?  I wonder if I'll get a cease and desist letter from the NFL for using "Super Bowl" in this blog entry.  Anyone care to analyze the issues?