Intellectual Property Policy in New York State Roundtable
September 20, 2006, Canandaigua, NY

photo Assemblyman Magnarelli and David R. Smith, the Chief Executive Officer of Infotonics.

The Assembly Task Force on University-Industry Cooperation, chaired by Assemblymember William B. Magnarelli, and the Assembly Subcommittee on Manufacturing, chaired by Assemblymember Joseph D. Morelle, sponsored a roundtable discussion on Intellectual Property (IP) Policy in New York State on September 20, 2006, in Canandaigua at the Center of Excellence in Photonics and Microsystems. The purpose of the roundtable was to discuss whether the State should develop an intellectual property policy regarding innovations spawned from state-supported research and development (R&D).

Participants at the roundtable included faculty and administrators from the State's premier research institutions, as well as representatives from the New York State Science and Technology Law Center, private venture firms, public and private entities, and the New York State Foundation for Science, Technology and Innovation. The participants agreed that the challenge is how to develop a policy that continues to encourage investment but at the same time provides what might be an appropriate return to the State. Discussion focused on defining this policy question as well as how the State might better manage its IP assets.

For the purpose of summarizing the lively and informative exchange that took place at the Infotonics Center, the discussion has been broken down into several key issue areas.

The Role of the State in Cataloguing and Tracking Intellectual Property

  • There was general consensus that it is very important to categorize the IP so that it can be referred to when funding decisions are being made, by legislators as well as funding agencies. For example, it is important to have a clear picture of where R&D should be concentrated and in what issue areas. This way funding decisions could be based, in large part, on where commercialization would yield the greatest benefits - both in terms of jobs and in the quality of life for all New Yorkers.

  • The New York State Office of Science, Technology and Academic Research (NYSTAR) already catalogues IP, but participants suggested that it might be a good idea to have NYSTAR maintain and present this in a more readily available, clear, and well-organized manner.

    • Not only NYSTAR, but all funding entities catalogue IP, and all could share information among themselves in a more organized and thorough way than they do presently.

  • Offices of Technology Transfer at the State's research institutions could take more steps to collaborate and share technology marketing skills and best practices.

Coordination with Federal IP Policies

  • Without contradicting federal policy, the extent to which Bayh-Dole is mirrored should be left up to the institutions receiving State funds.

  • Opinion was divided on whether or not the State should mirror the federal policy of "march-in rights" as an answer to potentially profitable products/processes not being commercialized.

    • Companies often cite march-in rights as a disincentive for individuals and companies to work with a university project that is receiving federal funds.

    • Proponents noted that at the federal level these rights are rarely if ever exercised, but act as an incentive for a company to commercialize patents rather than keep them 'on the shelf.'

  • Like Bayh-Dole, the State could require that excess licensing revenue be used for research and education and be pumped back into the institution receiving the revenue.

State Ownership of IP

  • Most participants overwhelmingly maintained that the State should not "own" the IP resulting from its sponsored R&D, but it should provide technical support to institutions when needed with regard to intellectual property.

  • Assemblymembers and some of the participants noted that the universities get a return on their investment when there is licensing income. It is, therefore, more than reasonable to maintain that the State and its taxpayers should get a return on their investment. The issue is how that return on investment should be defined.

    • While some pointed out that lawmakers can tell taxpayers the benefits they receive are job creation, a better life through such things as medical and energy breakthroughs, and an enhanced university system that attracts world-class faculty and yields highly-qualified graduates, others countered that this may not be enough. For one thing, students who graduate from the State's colleges and universities frequently do not stay in the State.

    • Taking an additional share of IP for the State would either impose a cost on the academic institution or the private partner seeking to commercialize. The ultimate outcome could penalize university R&D or discourage private partners.

  • Anything other than entity-of-origin ownership would be contradictory with provisions under the federal Bayh-Dole Act and since many state-funded projects would likely be receiving federal funds as well as State funds, the federal requirements would have to be followed. Sorting out the funding of each project could be complex and time-consuming.

  • There should be no difference in IP agreements between what the State does with companies or research institutions and what it does with State agencies except that some participants stated that the State should own all IP developed at a State agency.

  • An alternative to owning IP is for the State to take an equity share or a royalty share, but not all participants agreed with this proposal, nor could they agree on how it could be implemented. [New York's Small Business Technology Investment Fund (SBTIF), although small in scale, follows this model of operation for the companies that it supports.] Arguments against taking a royalty share included:

    • It would not be worth the administrative cost to track all of the licensed IP and it would disincentivize individuals and institutions from engaging in R&D that could lead to commercialization.

    • Universities have to put out a lot of their own money to find companies to commercialize their discoveries if they are not already partnering with a company. Any royalty income the State takes would be reducing the university's return on its considerable up-front investment.

    • A report by the Association of University Technology Managers was cited by participants to note that less than half of licensed inventions actually yield income and, of those, only 1.5% yield $1 million or more. There is not as much "profit" as some assume.

  • Another option discussed for the State was a stock warrant with the State having the ability to sell the stock should the company be acquired, move out of State or go through an IPO. If the technology turns out to be a big hit, the State would get a huge return.

Require Manufacturing of IP To Be Done by New York State Companies

  • Assemblymembers noted that one possibility would be to utilize the stock option and have it triggered only if the company moves out of state. Some participants thought this was reasonable; others argued it would not be fair to universities who have to 'shop' for companies to commercialize their products and with this 'threat' some companies might not want to take the risk of partnering with the research institution. As a result, the university would not be able to license its IP to the 'best' company for the job. This would undermine the universities' fiduciary responsibility.

    • It was pointed out that the policymakers' fiduciary responsibility is to the citizens of the State and all citizens have the right to reap the benefits of State investments. Still, Members noted that requiring manufacturing to be done by NYS companies is impractical. A more acceptable alternative would be to require that where there is a profit, the State get a royalty which will be waived as long as the company stays in New York and employs New Yorkers. If the company leaves, then the State "turns the spigot on." The concern is whether or not that is in conflict with an optimal entrepreneurial environment.

photo Mary Boysel, Director of Operations at Infotonics shows Assemblyman Magnarelli a Thermal Gradient device - a DNA amplifier that was fabricated and assembled at Infotonics. This device increases a volume of DNA, enabling many genomic applications, such as the identification of human DNA (useful in forensics, paternity testing,etc.), biological agent DNA (defense and homeland security), or even plant DNA (agriculture).

State Support of Large Firms

  • Participants uniformly agreed that there should not be reluctance on the part of the State to fund R&D and commercialization efforts in large firms since maximum payoff frequently comes from the larger firms, as does economic growth in terms of job creation.

  • Some participants suggested giving large firms a low interest loan and an equity requirement, while requiring only equity from small firms in return for State funding.

The discussion concluded with participants observing that the State could take better steps to coordinate and inventory its IP and IP policy, and that to some extent this task already falls under the responsibilities of the new Foundation for Science, Technology and Innovation. Participants also generally agreed that developing an IP policy that provided a stream of revenue to the State would be difficult, but that some evidence of a return on investment (such as information on jobs or economic activity) was important for continued State support of R&D.

Assemblymembers as well as participants agreed that there is much more to discuss, and more stakeholders to hear from. To these ends, a second roundtable will be held in Albany in January of 2007. For more information please contact Maureen Schoolman at (518) 455-4884.