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A bad day for innovation: how Boston University’s 1997 patent is hurting research

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It looks like Boston University struck gold: after claiming to own rights to some of the most popular devices in America, including the iPhone 5 and the Kindle Paperwhite, the school has persuaded big tech companies like Apple(S aapl) and Amazon(s amzn) to pay the school a tribute of sorts.

In a triumphant blog post, BU announced that 25 companies bought a license for one of its patents from 1997, and vowed to keep suing those that haven’t done likewise. This outcome, according to the university, is a victory for one of its professors and a validation of its intellectual property strategy.

The reality is more complicated — and more troubling. The settlements appear to be the latest example of what a recent Nature article calls “unseemly partnerships” between universities and third party businesses that exploit old patents. And according to one expert, BU’s activities could produce an ugly chain reaction by inspiring other schools to scrounge for intellectual property money at the expense of public research.

Making Apple and Amazon pay for a 1997 “invention”

The BU lawsuits are based on a patent obtained by one of its professors in 1997 for the use of gallium nitride films. The university claims the technology is found in screens produced by Microsoft(s msft), Dell, Amazon and, seemingly, any company that uses blue LED’s. In response, many of the companies settled, according to court records. As a BU administrator explained in the blog post:

“The creation of new knowledge is fundamental to our mission. [Professor] Ted Moustakas created a process that significantly improves the performance of these products. It’s incredibly important for a university to defend its intellectual property.”

The situation, on the surface, looks like a financial and public relations coup for BU: the school can tout its research prowess while also enjoying a new source of revenue. But donors, alumni and everyone else should take a closer at just how BU obtained the money, and how it is being spent.

In a phone interview, a BU spokesperson repeatedly refused to say how much money the school gets under patent deal, including what share of it will go to fund “new knowledge” – and what share will instead go to lawyers and other middlemen tied to the deal. It’s possible, however, to make some guesses by looking at the players involved.

For one thing, BU employed a Texas law firm called Shore Chan DePumpo whose web page touts a variety of contingency fee schemes. The firm refused to provide any details about its arrangement with BU, but it’s a good guess that the two parties entered a joint venture of sorts in which they divide up the proceeds from the patent lawsuits.

The BU deal also involves another familiar middleman: the patent broker RPX, which bought the license on behalf of Apple and the other companies, and which does a brisk business selling patent insurance. Some critics suggest RPX is engaged in a form of extortion, and point out that patent trolling in general is good for RPX’s business.

In this case, the tech companies targeted by BU appear to have decided it was cheaper to use RPX as a vehicle to pay off the university — rather than spending more to challenge the patent. And, as is the case with paying contingency fee lawyers, it’s unclear how enriching companies like RPX contributes to “new knowledge.”

The reality of university technology transfer

“Purdue University.. is losing money from a seemingly unlikely source: its patent portfolio. The Midwestern research juggernaut, ranked among the top-twenty graduate programs in engineering, computer science, chemistry, and agriculture, can’t seem to make a buck licensing the hundreds of patents it receives annually on faculty and student innovations.”

The quote is from a recent scholarly paper that shows how schools regularly lose money from the technology transfer offices that are supposed to be a profit source. The paper’s author, Santa Clara law professor Brian Love, describes the situation as “patent roulette.”

For school administrators, the appeal of patent roulette is the prospect of windfall money wrapped up in the gloss of phrases like “leveraging intellectual property.” But the practice may not only cause a university to lose money. It also inflicts collateral damage on everyone else as a result of expensive patent litigation that is hard to justify from a policy or economic standpoint.

In the case of BU, the school’s behavior is especially hard to justify. Recall that the patent at the center of the lawsuits is 17 years old — if the invention it describes is so important, and is being stolen by dozens of big technology companies (like the school claims), why did BU wait so long to take action? Worse, it may inspire a gaggle of other schools to likewise begin demanding new money for old rope.

“Widespread, aggressive patent enforcement is still a rare activity for universities, but it may not be for long.  Universities are always looking for new sources of revenue and, inspired by rare successes like Carnegie Mellon’s billion-dollar verdict against Marvell Semiconductors, are likely to continue filing suits with greater frequency,” noted Love in a recent email.

For practical purposes, this could mean a growing list of schools knocking on companies’ doors with age-old patents. This is turn will lead to higher prices for consumers and institutions shifting their attention to old patents rather than to new knowledge.

Betraying the research mission

The opportunistic exploitation of old patents has failed to deliver obvious economic benefits to the public. It also appears to be undercutting the public research mission that universities like Boston University have traditionally espoused.

As Love observes, universities’ assertion of old patents can deprive the public of useful knowledge, and can also amounts to a form of financial double-dipping on the part of the schools:

“[F]ederal and state resources support virtually all university research in some form or fashion.  When universities exercise patent rights, they exclude the public from the fruits of research funded from public coffers, forcing consumer to effectively pay twice for university-developed technology,” he wrote.

This may explain in part why some BU alumni, as well as high profile figures like investor and Dallas Mavericks owner Mark Cuban, reacted with anger to BU’s decision to demand that Apple pay it royalties for the iPhone. And for donors to the school, they may have pause to wonder if their gifts are supporting “new knowledge” or if opportunities for real research philanthropy lie elsewhere.

(Image by Solovyova Lyudmyla via Shutterstock)

19 Responses to “A bad day for innovation: how Boston University’s 1997 patent is hurting research”

  1. Academic

    What is the point in having a patent if you don’t protect the rights it is designed for?? This IPR doesn’t at all affect the new knowledge that it embodies, the ability to publish nor the ability to research patented subject matter. Patents create innovation, partnerships and growth and should be seen as a legitimate part of academic research rather than going to the “Dark Side”.

  2. the question of how innovation is encouraged is fairly easy to address – when other professors see Moustakas getting rich off of his share of the licensing return they are encouraged to invent more. And that is true whether they are at BU or elsewhere.

    The main reason why TT organizations at universities such as Purdue are losing money is because 1) they file and prosecute patents which cost money and 2) they are generally averse to suing to enforce those patent rights. The combination is insane, but is changing with the eye popping CMU decision.

      • Jeff – I’m not making that assumption at all. I’m assuming that it is a significant factor. From my experience, as a professor for over ten years in a major US research university, money is indeed a significant factor for most. Though I agree – quite often not the primary factor.

        But I’m sorry, did you seriously suggest that all ideas can be tied up in patents? Really? That means that they are not inventing anything anyway – because its all been invented already regardless of if it was patented or not. I’ve got more faith in human ingenuity and creativity. We haven’t run out of ideas yet and I don’t see any evidence that we are slowing down – indeed the exact opposite seems to be the case.

        I do also wonder about your statement that “universities’ assertion of old patents can deprive the public of useful knowledge”. How exactly can that be the case? The patent must be published specifically to share the useful knowledge with the public. Thats the intent of the system and in fact exactly how it works in practice. There certainly may be other problems with the system but I fail to see how holding back knowledge from the public is one of them.

  3. Rational Man

    1) How is the Amazon Paper white part of this story? (Paper white is an E Ink based or an electrophoretic display not a LED)
    2) Broader question is patents, not BU’s IPR on their patents. BU has the right or obligation from their stakeholders point of view to defend their patent portfolio, kinda like companies do as well.
    3) Many patents (especially basic research) are not defended many years later as their is no infringement.
    4) How is BU’s defense of their patents different than a public or private company? As a research university they have given up their legal rights?

  4. This seems incoherent.

    Does the author believe that universities should have patents in the first place?

    If not, and he believes that all their research should be public domain, that it one thing, and a thing that most universities would disagree with, unless they were to receive massive extra public subsidy.

    If universities *should* be allowed to have patents, to reward research work that is valuable to the economy, those ‘rewards’ do not suddenly become irrelevant because they are old.

    It does not matter if the university has been tardy to realise that corporations (poor, defence, small player Apple for instance) have been exploiting its ideas. They still should be paid, even if delayed, as this funding (which should have been delivered earlier) *encourages more innovation*.

    • Tulpa, can you please explain why you think universities paying contingency fee lawyers to game the patent system “*encourages more innovation*?”

      Also, the idea of patents is not to “reward” anyone. The point of patents is an economic trade-off intended to benefit the public: the government provides temporary monopolies in exchange for the inventor disclosing their ideas. That trade-off doesn’t appear to be working in the case of BU where the school is providing neither new ideas or public research.

      • Not a fan

        What is the basis for your assessment that the school is providing no new ideas? Have you looked at the specific patent in question, and asked why is it important? Is there any prior history of litigation with respect to this patent? Isn’t the professor in question a 2013 Charter Fellow of the National Academy of Inventors? What have you invented? Who is the troll here?

          • John Tabor

            Should we have no patent rights at all? Is the BU patent worth money? If Apple, Samsung, etc refuse to pay a license for the patent, what other recourse does BU have?

            So how does this benefit society? By proving that patents, ideas and innovations, have worth, and that if you create something that is being used by the rest of the world you deserve to be paid for doing that.

          • The answers are:

            BU did not wait 17 years. There is a long history of BU exercising its IP rights to this technology, as anyone with a shred of journalistic competence would have discovered. This goes back more than 15 years.

            Like every university, BU has a legal obligation to protect its IP when it is generated through federal funding sources. You call that trolling because you can’t think of anything original to add to the discussion.

            It benefits society that we have efficient blue LEDs, and that benefit was made possible by a BU invention. The only two means to protect that IP are by licensing or litigation. Licensing us the first option.

            • “BU has a legal obligation to protect its IP when it is generated through federal funding sources” – where did you get this information from? Federal law is going the other direction — requiring scholars who receive federal funding to make research available to the public:

              And my point is that what BU is doing may be legal but it’s not ethical.

            • John Tabor

              Would love to hear answers to my original questions:

              Should we have no patent rights at all? Is the BU patent worth money? If Apple, Samsung, etc refuse to pay a license for the patent, what other recourse does BU have?

            • Where did I say there should be no patent rights?

              And as for the value of the BU patent, that’s still unclear. Apple and Amazon’s decision to buy a license doesn’t mean that it’s valuable or even valid; under America’s dysfunctional patent system, it’s cheaper to pay patent plaintiffs to go way than engage in expensive litigation. The perverse economic incentives of patent litigation are what make lawsuits like those filed by BU so attractive.

              Please go back and read my story — including the pieces I link to — and explain why these lawsuits benefit anyone except the contingency law firm and a handful of people at BU.

            • John Tabor

              Lawsuits and monetizing patents via litigation is extremely wasteful, that I agree with.

              As you said, this has more to do with a broken system than BU being greedy. If their patent is worth money, which I’m going to assume it is, then they deserve to get paid for their R&D that they put into the creation of this technology. So the question is, given our current system, how can they monetize their patent?

              They have 2 options, ask Apple and Samsung to license or sue. I don’t have any insight as to whether BU pursued a licensing strategy, a commentor above says they are very active in it.

              I am of the belief that IP has value. I believe that there should be a more effective and efficient way of realizing that value, lawyers are expensive but unfortunately are the only current recourse. But I am also fine with seeing a patent holder/inventor obtain value for their patent, it will encourage future innovation by showing that IP has value.

      • Jeff – universities hire lawyers to act as advocates for them. Not to “game the system”. And they hire contingency firms when they want to reduce their risk. The practice is a fundamental part of the US legal system. The lawyers are a tax to make via specialization to make the system work, just like tax accountants, police, and the fire department.

        Furthermore, while the goal of the patent system is to benefit society, the mechanism involves incentivizing inventors to enter into the social bargain, by offering them compensation (i.e. rewarded) in the form of a temporary monopoly. That tradeoff is illustrated as working perfectly in this case, to wit BU told the world how to utilize their invention (benefit society) and companies then did exactly that and produced valuable products (benefit society). That patent is a tangible example of a new idea, when it was filed, and new research. The patent has been referenced 54 times in other patents, examples of other inventors building new inventions on top of what BU disclosed, a further benefit to society. Presumably the BU and inventor share of licensing will also help support further new ideas and public research.

        • pj, thanks for the thoughtful comment. I agree that lawyers are simply a tax or transaction cost (albeit a very expensive one) that help the patent system to function. But, in this case, BU is still using them as a tool to game the patent system. I stand by “gaming” as an appropriate word choice because, like Intellectual Ventures and the other patent trolls, BU is not using patents as Congress (and most ordinary people I think) imagined — they are not using it to protect an invention from a free-riding competitor but instead are, as I put it above, seeking new money for old rope. If BU is really committed to idea and public research they should disclose the details of the transactions, including the cut paid to the Texas law firm (don’t even get me started on the Texas patent trolling industry).

          As for your second point, yes, the patent has been cited by others. But this doesn’t mean that society would not know about the LED technology but for the BU patent (again, see Lemley’s article “The Myth of the Solo Inventor”). You’re asking the public to pay sizable transaction costs simply on faith that it’s necessary for future innovation.

          More broadly, there are hundreds of universities with a trove of old patents — if every one of them resorts to BU’s sleazy money grab tactics, and Apple and the other companies likewise pay them to go away, it’s not hard to image that the price of everyday gadgets won’t go through the roof.