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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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July 8, 2013

Suing Your Grad School, And Your Professor

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Posted by Derek

As anyone who's negotiated with them knows, Harvard plays hardball when it comes to patent rights. But so do the university's students, apparently. C&E News has a report on Mark Charest, a former graduate student in the Myers lab, who is suing the university over patent royalties.

Myers, Charest, and others reported a new synthetic route into the tetracycline antibiotics, and this led to a new company (Tetraphase), which is developing these in the clinic. The dispute is over how the royalties are divided up: Charest, in his legal complaint, claims that the university forced him in 2006 to take a lower share than he considered his due, and he further claims that the university reduced his share even further in 2009.

Note that all of these disputes are over the scraps: Harvard is taking 65% of the royalties right off the top, and no one's going to be reducing that. And I'm not sure how far Charest is going to get with this lawsuit: the article says that an independent panel was called on at one point to review his contributions, so whether he liked the terms he was given or not, they've been scrutinized and he is presumably on record as having agreed to them.

It looks like he's going to claim that this agreement was made under duress and/or under false pretences, though. ChemBark has more details, including statements by Charest in his complaint (link via Paul at ChemBark) that he felt threatened both by Prof. Myers and by Harvard's technology transfer office, and is also alleging fraud (Halvorsen, below, is with Harvard's Office of Technology Development):

74. Dr. Halvorsen threatened that he would award all the inventors an equal 20% share, but that he would allocate 50% of the Inventor Royalties to a wholly separate, undisclosed patent application on which Dr. Charest was not an inventor (the “undisclosed patent application”).
75. Dr. Charest understood Dr. Halvorsen to be threatening him; he wrote to Dr. Halvorsen that “[i]n your previous email you issued the written warning that my portion of the inventor allocation would be reduced if I proceed forward.”
76. Dr. Halvorsen used this separate, undisclosed patent application to force Dr. Charest to take OTD’s offer.
77. The undisclosed patent application, however, was, on information and belief, filed after financial terms were agreed to between Harvard and Tetraphase and added to the license between Harvard and Tetraphase just prior to finalization of their license agreement.
78. Dr. Charest only later learned that this separate, undisclosed patent application was only a ruse to force Dr. Charest to sign OTD’s offer.

No such patent application ever published, the document says. Much of the complaint also focuses on Harvard's decision to give 50% of the inventor royalties to Myers, dividing up the rest between the students and/or postdocs on the patent, and claims that this is a violation of the university's stated policies. So there's no way that this cannot get ugly - it's gotten ugly already. My guess is that Harvard will do whatever it can to get this thrown out (naturally), but if they're unsuccessful in that, that there will be some sort of out-of-court settlement. I really don't see them signing up to have all this dragged though the courts (and the public record) - even if the university did nothing wrong (and I'm agnostic about that), there's still no upside for them.

So for anyone out there whose grad school experience was a bit on the rough side, take heart: at least it didn't end up in court. Updates on this case as it slowly drags itself through the legal system.

Comments (36) + TrackBacks (0) | Category: Graduate School | Patents and IP


COMMENTS

1. Mous on July 8, 2013 8:46 AM writes...

Shame, I recall seeing Prof Meyers present this work at an RSC Heterocyclic Symposium around 2006 and it remains, in my humble opinion, the most impressive piece of applied organic chemistry I've yet encountered. Even Profs Rees and Katritzky, usually very much in their Statler & Waldorf roles at these conferences, were gushing in their praise...

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2. Curryworks on July 8, 2013 9:43 AM writes...

Hell of a way to open the post 4th of July blog posts. Do the drugs really work in the first place?

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3. DLIB on July 8, 2013 9:50 AM writes...

I believe everyone who has ever gotten a PhD understands the unequal footing and relationship there is between a grad student and their advisor. This definitely extends into the area of patents and royalties. I had an even more egregious experience happen to me...outright theft of an idea. The University of California abandoned the application they had filed and I got rights to a subsequent patent ( while still in school ) from the government then had to get an exemption from the University Patent policy from the Office of the President in Oakland to continue grad school. Otherwise I would have had to cease being a grad student and give up on the PhD in my 5th year. In my case it was a young professor that desperately was trying to get tenure, and patents look good in the file of accomplishments.

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4. anon the II on July 8, 2013 10:43 AM writes...

Giving an inventor next to nothing for a patent is good training for industry, except that in industry, your boss doesn't get anything either.

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5. fooz on July 8, 2013 10:44 AM writes...

As a former harvard grad student, the stated policy is that all inventors on a patent, including the PI, receive an equal share after H takes its 2/3rds share off the top.

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6. leftscienceawhileago on July 8, 2013 11:11 AM writes...

The shenanigans that are alluded to are familiar to many grad students...particularly when it comes to mere paper authorship.

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7. Hap on July 8, 2013 11:26 AM writes...

1) The review committee's output might explain why Myers deserved so much more than the others people on the patent, but it wouldn't refute any accusations of coercion, even were it external, since all roads to the patent assignments run through Harvard. It might be interesting to hear about if discovery ever happens.

2) 65% off the top to Harvard on patents? Wow. On top of rather high overhead rates (from the post: "For instance, Harvard has a rate that stands at 69%, while the national average is 52%.", and other schools in Harvard's geographic area do not receive similar overhead compensation). If I were a (potential) professor and interested in generating IP, I would have to wonder if the added costs of generating it at a BNU are going to generate enough money (added grant awards, better students, better ability to secure and defend IP) to be worth it. Is the 65% comparable to what other universities take?

This would also be expected to be a side effect of research contraction - as money shrinks, if research grant awards are concentrated at certain schools (or even in certain schools in certain fields or subfields), then the schools can claim what they want off the top of patents in those areas, because "where else are you going to go?" It also is a likely side effect of pharma and other companies setting up shop near BNU concentrations - the universities probably need the companies' money less than the companies need their research, and the patent leverage of the university or the IP costs to companies might increase accordingly.

It's still really cool research, though, and a neat idea. It's a shame that that aphorism about politics and sausage comes to mind.

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8. a. nonymaus on July 8, 2013 11:26 AM writes...

From footnote 38 of the paper: "This work was
supported by NIH grant AI48825, NSF predoctoral
graduate fellowships (M.G.C. and J.D.B.), and the
Deutscher Akademischer Austausch Dienst (C.D.L.)."

The real scandal is that this work, funded by the public, is being locked up by a patent monopoly after being paid for. It's time to repeal Bayh-Dole and return patents to be an incentive to disclose things that wouldn't have been published otherwise. Similarly, journals should treat patent applications as prior publication of the work.

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9. MTK on July 8, 2013 11:48 AM writes...

@9,

Uh, no.

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10. Zurzal on July 8, 2013 12:57 PM writes...

@7

My institution (Large state research university) takes a straight 50% royalty on patents after recovery of costs.

I found Yale's information, and they take 50% for royalties less than $100,000, 60% for royalties $100,000-$200,000, and 70% for royalties greater than $200,000

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11. Hap on July 8, 2013 1:06 PM writes...

Wow. Patents are lucrative work if you're a university.

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12. DLIB on July 8, 2013 1:19 PM writes...

Just so everyone is clear....these are not royalty rates you're discussing, but the percentage of how any revenue is split between the inventors and the university. The royalty rates on revenues from a company the university receives from a patent is likely in the teens (depending on the nature of the industry). Most tech transfer offices know that the likelihood of ever receiving a royalty based on revenue for any given patent is nil (the company has to sell stuff for that to happen). They like the upfront fee part so they can get money in hand and also get the patent paid for.

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13. Hap on July 8, 2013 2:07 PM writes...

It's still an awful lot of the royalty money for a patent that you didn't come up with or pay for, though. Universities pay the professor's salary, but (I assume) most of professors' research (and grad students) is funded by research grants from others, the facilities are paid for by grant overhead, and the ideas almost certainly did not come from the university.

Tech transfer and patenting are things the university can do better than professors and perhaps private IP lawyers, but if you had private lawyers perform those roles, and even counting their fees, I would not think they would get half of the royalty revenue. The rates seem high enough that while most patents don't pay off, you would probably choose to pay them yourself if that were an option. If government tax rates of < 40% are supposed to discourage innovation, what does a royalty fraction of > 60% do, exactly?

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14. Vince on July 8, 2013 2:50 PM writes...

@8 I wholeheartedly agree. If the research is funded by the public then how it ever ends up in the private sector to profited from is beyond me. NIH should be treated as a shareholder and royalties or some sort of compensation should be put back into the system. It's their 'ahem' our money.

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15. MTK on July 8, 2013 3:15 PM writes...

@8 and 14,

I disagree. The role of shareholder is what an investor does. It's not, nor should it be the role of government. If the government started acting like an investor you'd see R01 grant rates drop to low single digits.

In the case of scientific research government should should foster innovation and research, train new professionals, and fund basic research. The government gets paid back in tax revenues from the resulting economic development that occurs.

If the government started asking for royalties the incentive to commercialize would decrease and there'd be less economic development.

Walk around Kendall and Central Square and tell me the government hasn't made their money. To ask for royalties on top of that would be double dipping and would throw another obstacle to new businesses and jobs being created.

(Oh, and when I posted above, there was a double post which has since been deleted, so my @9 was not self-referential, but at the time directed toward 8.)

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16. Evan Bayh on July 8, 2013 3:42 PM writes...

Patents are VERY expensive to prosecute. VERY. That's why tech transfer offices & universities take a cut upfront: they front the costs of preparing the patent, filing the provisional, re-upping after a year, paying more if it might be licensed outside the US, following up with it for years, etc. In most cases, I doubt their take recoups their costs, and it certainly doesn't recoup the costs of the provisionals they file and later abandon.

If it were up to labs to pay the prosecution costs, even setting aside the question of knowledge and expertise at filing and working with outside counsel, no one would file patents. Could you even spend gov't research grants on patent fees?

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17. Hap on July 8, 2013 3:49 PM writes...

1) I was the double post (previously 7 and 8). Sorry.

2) I don't know if I'd be eager for the government to collect royalties, but I wonder if there wouldn't be more businesses and jobs if universities (or individuals) weren't able to patent inventions funded by grants. There was an argument over this with the Wisconsin stem-cell patents, and the conclusion was that patents didn't impede research and commercialization. I found that hard to believe - if stem-cell growth and RCM catalysts hadn't been patented, don't you think more people would be able to use them to make money and jobs if they weren't patented? Since they were funded by grant money, it seems harder to say than for private research that they would not have been developed had the ability to profit directly from them not existed.

In addition, the ability to patent them seems to both contradict the point of government-funded research (to make inventions able to be used to create jobs and businesses and knowledge for others to use). It benefits universities and professors (and sometimes, grad students and postdocs), while inhibiting businesses from using that research until the patents run out (20 years) or until the research becomes useless (in which case, businesses that could have used it were either unable to start or were less likely to profit because of the added cost of the licensing). I don't think much of the money that goes into universities is likely to be beneficial to the overall populace - while some probably ends up in financial aid or other funds that enable people to be educated more cheaply, the increases in tuition without increase in teaching capacity implies that it likely enables more administrators to remain employed; in some cases that may be good, but mostly not.

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18. Hap on July 8, 2013 4:26 PM writes...

1) No, I don't think they could use grant money on patenting (they have to front it themselves, even if they could) - I think professors who are interested in patenting stuff would have to go elsewhere. Maybe that's why universities can charge so much - if you're a professor, you don't have many choices.

There's an awful lot of businesses who live on patenting (and not just trolls) - if it's so expensive to do this, how do they manage without gov't funding?

2) People get annoyed when lawyers take 33-50% of a court payout, and they did most of the work to get that. So why should patenting and patent defense require nearly twice as much?

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19. MoMo on July 8, 2013 5:13 PM writes...

Saw this coming! Tetraphases' S-1 filing had verbage about that they could be sued by University types and that it would be a mess. I wondered who that would be.

But my questions would be to that Dr. Baker, the TDO's legal counsel.

What did you know, when did you know it, and how much does Harvard TDO pay you? Where was your technology and licensing team? Stuck in traffic on Massachusetts Ave? Why should anyone listen to you that isn't Harvard?


Now that TP-434, what's it for again? How much does it cost after 73 steps?

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20. DH0 on July 8, 2013 7:28 PM writes...

A couple of points regarding Universities filing patents:

1. Most university tech transfer offices lose money. A decent provisional application costs minimum ~$10k, and 80–90% are never licensed and never generate revenue. Out of the 10–20% that are licensed, only a few percent actually recoup the very substantial costs of prosecution and maintenance (100's of thousand if filed internationally). Maybe 1% of patents are actually profitable, and the profit the university keeps is used to offset the other 99%.

2. If university's didn't file patents, many promising inventions would never be commercialized. Let's say an academic lab discovers a new compound that is a fantastic antibiotic and publishes the research without filing a patent. Even if it's potentially better than everything else on the market, pharma would be extremely reluctant to take it through trials because it would immediately be subject to generic competition (exaggerating a bit by ignoring formulation patents, etc.). Good IP is absolutely necessary for a lot of inventions to be brought to market. University tech transfer is not so much about making money as it is about finding a way to get these types of inventions to market.

3. On life science/pharma patents, university royalties are more like 1–3% (because it costs so much to get the drug to market). For something that's easier to commercialize, high teens sounds reasonable.

4. Patenting is extremely expensive. It's too bad, but it's a very long and complicated process, and good attorneys, at least where I am (Silicon Valley) charge between $500 and $800/hour.

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21. Sisyphus on July 8, 2013 8:48 PM writes...

MC should feel lucky that he is even included on the patent. I know many a professor who believe that all the work in his lab is a direct product of his own imagination. GSs and PDs are simply a pair of hands to reduce the idea to practice.

On another note, it seems that royalties are a pittance compared to the potential equity stake in a small company. After the post-IPO holding period, the University dumps the stock for a big profit. Any royalties just cover the transaction costs.

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22. Sisyphus on July 8, 2013 9:08 PM writes...

@ 15 MTK: Well done. I could not have written it better myself. If we describe it as a "jobs creation plan" where the govt "spends" money (grants for basic research) to "create" jobs (within the new private sector companies that are formed) then 8/14 might understand. And, going further, the tax base has been increase (payroll taxes, income taxes, gas taxes, property taxes, etc, etc.) with the creation and success of the new company (assuming it is not named Solyndra).

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23. anon on July 8, 2013 9:31 PM writes...

@21 I know many a professor who believe that all the work in his lab is a direct product of his own imagination.


- And it is true, as revealed by a cursory glance at the retraction watch site.

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24. Hap on July 9, 2013 7:41 AM writes...

@20: 1) One of the major points for government funding of research is to make useful techniques available. There would be fewer jobs creating new RCM catalysts or developing new stem cell techniques if they weren't patented, but there would probably be a lot more people using them to make new products (combination of cost of licensing and that licensing is most lucrative when it is used to assure one company of a temporary monopoly on something). I am guessing that if Materia weren't making RCM catalysts or licensing them, Aldrich and Strem would be making those catalysts, and probably more cheaply.

2) Patent lawyers aren't cheap, and they're likely more expensive than trial lawyers, but trial lawyers have more of a role in the results of their work, and yet are paid far less as a fraction of the money received. If the ratio of patent lawyers to trial lawyers were far higher (so that competition among patent lawyers would be substantially more limited than among trial lawyers), that might explain it.

3) If there are lots of businesses popping up in an area (banks, child care, online universities, research universities), particularly when they require substantial startup investments (substantial being proportionate to the means of who starts it - child care probably only requires a few hundred thousand, but for the people that start one, it's probably ten to twenty years' pay), there is usually a good reason for it, and usually that good reason is that they expect to make money. If banks were losing so much money, then why are there two banks on each corner, both roughly charging the same fees? Unless the answer is "because they're dumb", it's because they're making money, probably a lot.

If tech transfer is a money loser, why are (so many) universities engaging in it? I have seen little from universities to believe in their willingness to act solely in the public interest rather than their own - they act like businesses when they can make money by doing so, and public institutions when they cannot. (The "Graduate School" section above would give some examples). The interest in getting inventions out doesn't seem sufficient to explain tech transfer proliferation, unless the federal government or some other entity were funding it. Since that's probably not the case, and it's probably their own money funding it, I would assume that they intend to make money.

@21: From the Wikipedia article cited by a commenter to Chemjobber's post:

"Generally, conception is "the complete performance of the mental part of the inventive act", and "the formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention as it is thereafter to be applied in practice..". An idea is usually not "definite and permanent" or "complete" where changes result from experimentation."
I guess he can believe what he wants, as long as he has the whip in his hand, but he'd better make sure he doesn't drop it.

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25. newnickname on July 9, 2013 9:20 AM writes...

@21: I know of cases of outright theft of ideas from students. Students' ideas get incorporated into proposals to generate funding, often w/o attribution. Students' ideas also get incorporated into patent filings w/o attribution. Students: keep copies of memos and notes; archive your e-mails.

@24: I am pretty sure that patent litigators (trial lawyers) get paid substantially more than patent prosecutors (writers/filers) ... unless you were comparing patent prosecutors to more generic trial lawyers. If litigants are pursuing a patent dispute in court, you know that there must be Big Bucks involved and the litigators are going to try to prove their worth by billing appropriately ... even if they lose.

Did you ever get the "The reason we charge more than the other guy to prosecute your patent will be shown to be important should it ever go to court." Of course, as noted, most patents end up in the waste bin, not in court. If it does go to court, the difference between $300 per hour and $600 per hour probably doesn't matter (assuming that the filing was done 100% competently, of course): If Big Bucks are involved, they will argue over the meaning of a semi-colon.

For enough billable hours, "It depends on what the meaning of the word 'is' is."

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26. Hap on July 9, 2013 9:58 AM writes...

No, I hadn't thought that clearly - I was comparing general trial lawyers (personal injury and other lawsuits, mostly on contingency, where limits on the percentage of any settlement claimed by the lawyers are limited by the states) versus patent lawyers (mostly agents, rather than actual patent litigators). Sorry.

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27. MTK on July 9, 2013 10:09 AM writes...

Hap,

I saw a survey of tech transfer offices and basically most of them are loss centers. However, that is very dependent on how large an institutions they are. Only 15% of tech transfer offices at what were termed "very large" institutions lost money, while those termed "very small" had about 80% of the tech transfer offices being money losers.

Whether or not the tech transfer office is a direct loss center, however, probably doesn't tell the whole tale of why every university has one now. There are reasons why to maintain one besides direct benefit.

a) Like the lottery, you can't win unless you buy a ticket. A lot of colleges and universities probably see it as a risk worth taking for that one great opportunity.

b) If you want to attract and retain talent, and the grant money that follows that talent, you better have an active tech transfer office.

c) If you want to attract investment money for new companies which the grant-getting talent want to start then you need to have an active tech transfer office.

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28. Hap on July 9, 2013 10:25 AM writes...

The "If you want to win, you have to buy a ticket" theory makes sense. Attracting/keeping talent also makes sense, but then making the portion of royalties that the university keeps so high would seem to work against recruiting, unless the talent isn't counting on patent royalties but something else (direct profits from started companies, stock sales, etc.) to make it worth their while.

Did they say why the profitability of tech transfer offices correlates with institution size? Is it a lack of qualified people at small places (spending too much on the wrong things), or a lack of patents (too many fixed costs), or something else?

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29. Hap on July 9, 2013 10:30 AM writes...

Maybe the best analogy to my argument (including weaknesses) would be to athletic programs (football, basketball) at universities - not many supposedly make money, but everyone has to have one. In that case, external money (from graduates) is a part of the reason, and the accounts receiving money and the accounts spending money are different which explain some of why schools pursue them though they (directly) lose money.

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30. MTK on July 9, 2013 10:48 AM writes...

I didn't read the whole thing that carefully to be honest to get into the reasons why there was such a good correlation between size and profitability. I would assume that it's a shots on goals type thing.

And I agree with you regarding the high royalty rates. As in a lot of areas things go awry when people get greedy and universities have a marked tendency toward being greedy. The problem is that every university starts benchmarking against Stanford when most have zero shot of even approaching that benchmark.

This, of course, brings up another issue. How do you best measure the effectiveness of a tech transfer office? Patents, # of startups, licensing agreements, income, total market cap of companies started, any of these as a function of federal funding? There's lots of ways all leading to different answers.

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31. Ellis on July 9, 2013 1:45 PM writes...


States are going to start suing universities over their tax exempt status. Princeton has a 15 billion dollar endowment and they call it non-profit?

That's where the real theft is. DOWN WITH THE HARVARD THIEVES!


//www.nj.com/mercer/index.ssf/2013/06/lawsuit_challenging_princeton_universitys_tax-exempt_status_wont_be_dismissed.html?goback=.gde_77094_member_254317561%29,

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32. Richard on July 9, 2013 2:24 PM writes...

@Hap, @MTK

Profitability for a TTO is also best measured over extended timeframes. If my office expenses (I'm a TTO director, but not at a Harvard-tier school) run $1,000,000 below royalty revenue 90% of the time, but we receive $10,000,000+ in windfall royalties once a decade, are we profitable? Depends on the reporting period of whomever is asking. And if the TTO being startup-friendly helps recruit higher profile Deans/Chairs/PI's, $1,000,000 a year is a pretty decent investment.

The last #'s I saw were that only 10-15 schools completely cover their TTO costs with the retained royalties.

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33. Hap on July 9, 2013 3:28 PM writes...

...because the grant overhead from a bigger prof might cover some of that money. That would make sense.

If Harvard has an equity stake in Tetraphase or any of its profs' other companies, for example, they might make money on that as well, and other universities might make money on that as well (although that seems even more hit-and-miss than patent royalties).

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34. DR on July 12, 2013 4:22 PM writes...

regarding the TTO issue, couple of thoughts

- In every issued patent, whose research has been supported, in whole or in part, by the government; The gov HAS a ROYALTY FREE license;
- Before Bayh-Dole (BD), the rate of licenses taken by business form the gov was extremely low. Business didn't license those technologies because it was a p..in the a.. to get one;
- BD helps improve those numbers and put technology in the market, in people's hands;
- The government gets paid, somehow, when a technology goes to the market, How? Sold products pay taxes, companies pay taxes, workers of those companies pay taxes;
- A TTO normally gets assignment of the patent rights, and filled for patents, only if it makes sense. I mean, They filed for a patent only if a business will need one to develop the technology. Many biz won't do it if they cannot secure their market (it's sad that none of us cannot ask Steve Jobs about it, but we stil can talk to Samsung);
- Universities reserve rights for the use of the technologies within other universities or non-for profit institutions. The patent can be enforced only against commercial activities, but research can be done. Every decent university has this term in its license agreement;
- Research produce great science, but not all that science in suitable to be marketed. That's why TTOs only license 10-20% of what they get;
- I'm pretty sure I missed something. However when criticizing patents and especially BD, one should think how the capitalist world works. Don't get disconnected on how biz people/corporations make decisions

Best,

DR

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35. Hap on July 12, 2013 5:45 PM writes...

1) My assumption, though, was that the commercial licences inhibit the ability of other companies to use the technology to create jobs - there is a trade off of jobs making the technology versus using it. I assume that it's overall not good (companies using would create more than companies making in the absence of patents on the tech), but I could be wrong.

2) I didn't think the gov't had patents on most stuff under B-D, so without university patents on the tech, companies would be free to use it. No licensing from the gov't would be necessary in most cases, which would make it possible to use or sell reagents without much encumbrance.

What am I missing?

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36. rxc on July 29, 2013 5:33 AM writes...

You are all working in the wrong business. Patents are only good for 20 years. If you instead learned how to draw a cartoon of a mouse, you would be able to keep the royalties from it for life + 70 years. You could send all your great-grandchildren to Harvard on the royalties.

See how much society values all the work that techies do to create stuff that really helps people?

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