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Patents, Trade Secrets and Open Licenses
The traditional model, of universities assuming ownership over patentable technology created under their policies, and then licensing it out to the highest bidders in the market, has not managed to yield the best results due to:
- Fixed royalties
- Relatively narrow portfolios of licensable patents
- The cost of supporting technology transfer operations between universities and the relevant industry.
A widely cited Brookings study in 2013 suggested that universities nurture their own startups to effectively utilize patents created by university members. However, this direct startup mode may face other constraints like the amount of stake a university may hold in each startup, the extent of control over decision-making that the university can actually exercise, and the further elusiveness of balancing a university’s public responsibility with its quest to realize returns from investing in its own startups.
Following recent reports of Waym seeking up to $2.6 billion dollars for an alleged theft of a trade secret by a current Uber employee, universities and their incubated startups are becoming more aware of the additional implications of how they choose to guard their IP.
While the earlier trend has been to instantly file for patents, often during the initial development stages of new technology, this trend of patenting is being re-examined. During the open-source wave, when research groups at universities were keen on ensuring advancement through collaboration – and more importantly, universal access – active enforcement of patents had taken a back-seat. Instead, what most patent-holders chose to do, like the Computer Research Group at Berkeley (creators of FreeBSD), was to patent (and copyright) their software inventions, and license it out to the public under a General Public License – whose current versions are now better known as the licensing terms for the Linux kernel.
However, with university startups riding on the current wave of smartphone applications, softwares developed under such licenses may be incompatible with the user licenses in online app stores. This had led to the question of which inventions to patent, which code to copyright, and what to maintain as a trade secret.
With a growing inclination among companies to provide cloud-based software-as-a-service models, maintaining proprietary information as a trade secret is easier, as is enforcement of secrecy using the Defend Trade Secrets Act (DTSA). This Act allows for ex parte orders against trade secret appropriation and also allows for statutory damages – thus creating a viable incentive to not disclose information for patent applications.
Unlike patents, through which an almost unrestricted monopoly is granted over an invention once filed for and disclosed, and which are easier to enforce, trade secrets pose nearly contrary issues – both legal and practical. Where patents require disclosing the invention, trade secret require positive efforts at secret-keeping. Where even mistaken infringement of a patent may form grounds for awarding damages, an innovator independently recreating a trade secret technology might be a defense against theft/appropriation. A trade secret can usually be disclosed and patented later, with limited exceptions. However, once the cat is out of the bag (through disclosure), it’s impossible to return to keeping it a trade secret. Of course, the devil is in the details, but it is often difficult to protect some parts of an invention through patents while maintaining other parts of it as a trade secret.
Arguably, patents and trade secrets are not mutually exclusive, and are sometimes required to be used to protect software inventions, which have been subjected to increasingly narrow protectability by courts. Though this denial of patentability could have broader implications in the industry, it affects the IP portfolio of a university start-up to a greater extent in terms of its valuation as an investment or acquisition target, thus also affecting the university’s stake (in both equity and goodwill).
At the university level, the sheer number of members involved in advising and mentoring startups, and their lack of an exclusive contract with any single startup (or industry collaborator) is often the largest obstacle to keeping a secret. Unlike the more formal confidentiality agreements entered into during external accelerator programs and funding rounds, the confidentiality agreements between universities and their startups are practically non-existent.
This could stem from either a misunderstanding of the role of the university in managing the startup, a sometimes misplaced commitment to continuing collaborative research, or an eagerness of part of the startup founders and their mentors to “pitch” to prospective investors and acquirers. Which works perfectly while selling an idea that the company has patented / copyrighted (with or without university involvement), but completely muddles the plot when the company is sitting on a gold mine which it hasn’t yet decided how to protect and monetize in the future.
Universities appear to have developed and refined their policies over time on patents and copyrights for IP created at the university, and have a reasonably flexible system in place for assignments and royalties. However, with respect to confidential information like trade secrets, most universities are yet to develop a policy which separates information owned by the university and information created at the university. As antithetical as it might seem in academic cultures known for collaboration, confidentiality agreements for trade secrets are inevitable. While universities will have to tailor the terms of such agreements more carefully to benefit the company as well as the university, they are likely to be worth the effort to both beneficiaries.
The way forward
Not all monetizable IP is born out of concentrated efforts at research and development. The ideas for some of today’s well-known brands were formulated through class projects, pet projects of students, or university start-up competitions. A few, like Stubhub and Trulia were created almost entirely by students, while others, like Coursera, were almost entirely the efforts of professors. And in each case, universities have been involved to a different degree in encouraging the founders to pursue their idea, in forming and incubating a startup, and in managing and attempting to monetize the resulting IP.
When a startup is still being run out of university workspaces, it lacks full access to corporate and IP counsel unless provided through the law school. The advice that these startups receive most often through outside counsel comes in the form of events co-conducted by the university and by a law firm. At the initial stages, founders rarely have an opportunity to interact with attorneys who specialize in building a business from the ground. Even at later stages during the life of such startups, startups are caught between consulting attorneys affiliated with their university, counsel provided by their investors or incubators, and brand managers – all of whom can not only offer conflicting advice, but also not paint the full picture.
More universities now prefer to have their own incubators to guide and manage startup founded on campus or by university members, with a variety of necessary resources. These include free co-working space, summer accelerator programs, mentorship, preliminary funding with or without equity stakes, and corporate entrepreneurship certifications. Through cross-campus collaborations between STEM and business schools, students are more aware of financial and technical hurdles involved in building their own businesses. However, more specific and targeted measures have to be taken (and in many universities already are), to advise students about the nature and valuation of their IP, brand-building, incorporating in different forms, confidentiality with investors and future employees, and creating a robust model of protecting their IP for commercial use.
Creating a more entrepreneurial environment within the university, investing directly in startups through a university venture fund, and publicizing research efforts through common media will help the university to reach out to a wider market, and also to create awareness about the universities’ research orientation among future students and faculty. It will also ensure greater control over the direct utilization of patents, of choosing the best form of IP protection for derivative or subsequently created IP (like copyrights from publishing research or trademarks of the licensee startup), and of customizing the business models based on the nature and potential of the underlying IP.
Ashwini Arun graduated with an LLM (Master of Laws) from University of California Berkeley, School of Law in 2017 with a focus on technology and business laws. She holds a Bachelor of Policy Science and Law (BPSc LLB) from National Law University Jodhpur (India) with a specialization in trade and investment law. She has a keen interest in the development of legal tech and policy frameworks for emerging technology. She enjoys hiking, tennis, martial arts, and writing.