As revenue pressures increase, tech transfer offices must evolve

Tech transfer offices are still defined by major licensing blockbusters – for example Northwestern’s royalties from epilepsy drug Lyrica or Columbia’s Axel patents, which cover a method of introducing foreign proteins into nucleated cells – but the field is taking on new dimensions as universities increasingly see those offices as critical revenue drivers. As a result, the future looks more dynamic, sustainable and exciting for all involved.

While the traditional focus of tech transfer offices has been to license intellectual property (IP) to spinouts, many universities have struggled to generate meaningful revenues from this licensing strategy.  At the same time, tech transfer offices are facing mounting pressure to generate revenue in new and innovative ways.  Rather than licensing their IP at a steep discount, universities are encouraging their top academic talent to develop technologies that have commercial applications capable of generating meaningful licensing revenue for the university. 

This shift represents a response to the increasing pressures faced by universities to supplement traditional revenue sources such as public funding, endowments, and tuition, while at the same time fostering a dynamic environment that encourages new ideas and research capable of raising an institute’s profile, attracting new talent and inspiring innovation.

Startups on the rise – revenue on the decline

Recent research by the Milken Institute illustrates the fundamental change rippling through tech transfer offices. The total number of spinouts launched per year in the mid-1990s was about 200; by 2015, the annual number reached 1,000 – and it continues to rise. Total licensing income, meanwhile, has fallen by almost $1bn since it peaked at about $3.5bn in 2008, despite a steady climb in the number of patents and licences.

The quest for blockbusters has not stopped – why would it? – but the number of blockbuster innovations is extremely limited.  This requires tech transfer offices to begin functioning like industrial innovators: efficient and effective units that mold ideas into marketable products all the while generating new innovations. The best research institutes are at the center of economic ecosystems that foster innovation, where the line between academia and industry intersect.

As an extension of this, those who excel in the tech transfer field are catalysts for innovation comfortable in operating in both worlds – people who see a synergy between private-sector success and the university’s non-profit mission.

The importance of IP

Among the many things tech transfer offices have in common with private sector companies is the fundamental importance of intellectual property. Like their private sector counterparts, the business arms of universities face the same risks and budgetary constraints in protecting their IP. 

This is where tech transfer offices could benefit from an innovative approach to IP monetisation.  Universities must begin to think about IP as a valuable asset capable of driving revenue.  Resources like litigation finance are available to help achieve these monetisation goals without burdening budgets.

Tech transfer offices must also realise that while blockbuster monetisation successes do occur – such as Marvell Semiconductor paying Carnegie Mellon University $750m and Wisconsin Alumni Research Foundation winning a $234m verdict against Apple – such successes are not the only way to generate meaningful licensing revenue.  Strong patent portfolios supported by a robust legal toolkit – to be deployed strategically when cases of theft or infringement arise – lay the groundwork for a steady revenue stream that can, in turn, drive investment in further innovation and increase the value of existing patents.

Robust IP protection makes a university’s IP portfolio much more valuable to prospective buyers and licensees, while failing to defend a university’s IP can drastically reduce its value.  This is no secret among those familiar with IP law, however many universities, and companies big and small, often choose to forego enforcing their IP.

The reason? IP enforcement is seen as being too expensive and risky. Universities are cash-strapped as it is, and the idea of investing significant money on IP enforcement is simply not possible without the help of outside financial resources.

An innovative approach to revenue generation

Innovative tech transfer offices must find ways to maximise the value of IP and return more revenue to universities and the populations they serve.  Using outcome-based fee arrangements or litigation funding, universities can extract more value from their investment in IP and offset almost all of the risk usually associated with an IP monetisation effort. 

It is a strategy already adopted by many in the private sector, and it has particularly high usage among attorneys trying IP cases for corporations. It allows companies that rely heavily on their patent portfolios to protect their IP lifeblood without draining capital from operations and growth.

As universities behave more like cutting-edge innovators in industry, it only makes sense that their tech transfer offices adapt accordingly.

Michael Nicolas (pictured left) is a co-founder and managing director of Longford Capital, responsible for Longford’s portfolio management, including underwriting, investment selection, and overseeing the due diligence process. He has more than 15 years of experience representing a wide array of corporate clients involved in complex litigation throughout the United States.

Russell Genet (pictured right) is a director of Longford Capital, responsible for Longford’s portfolio management, including underwriting, investment selection, and overseeing the due diligence process. He is a patent attorney registered to practice before the U.S. Patent Office and has nearly 20 years of experience litigating intellectual property cases in federal courts throughout the United States.