New university technology transfer model will invite industry partners

IP ownership is one of the critical issues in sponsored research in university settings. Under most circumstances or unless otherwise specified, the Bayh-Dole Act allows that IP rights from government-sponsored research are owned by the university. What about industry-sponsored research?

Many universities have agreements in place specifying they own the IP rights stemming from faculty research, including industry-sponsored research. Feeling the policy was turning away potential collaborators and stifling innovation, Penn State has now opened up IP ownership from such research to negotiation.

Under the new rules, faculty inventors advise Penn State’s technology transfer professionals on ownership. VP for Research, Hank Foley, stated in a recent interview, “In the great preponderance of cases the faculty do not want us to ‘fight’ for the IP ownership, but in a few cases they may.”

Uniloc expert fails to analyze sufficiently comparable licenses

To calculate reasonable royalty damages for patent infringement, financial experts must now comply with the tighter Uniloc v. Microsoft standard, which only permits reliance on comparable licenses with a “discernible link to the claimed technology”. Importantly, this link must account for both the technological and economic differences between the prior licenses and the patents-in-suit.

Ironically, the same expert whose analysis failed in the Uniloc case appeared in a new case out of the federal district court in California. To calculate reasonable royalty damages for infringement of mobile phone technology, he relied on two comparable licenses that were technologically but not economically similar. In fact, the expert apparently provided “no analysis at all of the economic differences between the significant patent agreements,” the court held, and excluded his testimony under Daubert. The expert “bears the burden of proving comparability,” the court added, noting that simply picking a low royalty rate will not cure “a faulty damages analysis.” However, the court approved the expert’s application of the entire market value rule, and permitted him to “prepare and prepare” a Uniloc-compliant analysis prior to trial. Look for the complete digest of Dataquill Ltd. v. High Tech Computer Corp. 2011 U.S. Dist. LEXIS 138565 (Dec. 1, 2011) in the Feb. 2012 Business Valuation Update; the court’s opinion will be available soon at BVLaw.

ktMINE reaches new milestone

ktMINE—a unique, interactive, intellectual property database—now offers 11,000 full-text IP license agreements, including their non-redacted, variable royalty rate information. With precise search functionality and robust data-drilling capabilities, ktMINE lets you quickly find and analyze market comparables from a goldmine of IP licenses and documents. For more information, visit ktMINE or contact Randy Cochran.

New IP exchange to open in 2012

IPXI is almost ready to open a new public exchange of IP rights, allowing patent owners to publicly list and license rights to their technology in the form of Unit License Right™ (ULR) contacts. (IP managers will applaud their registration of the trademark.) Serving as an intermediary between IP owner and potential licensee, IPXI claims the new exchange will address current inefficiencies in the technology transfer system, ease and costs of deal-making being foremost, specifically IP valuation and legal transaction costs. “Each ULR purchased gives the buyer the right to use a pre-established unit of IP, for example the right to make and/or sell up to an established quantity of products covered by the patents in question.”

IPXI was created in 2009, so it has taken some time to line up the proverbial ducks. Last week they announced a successful round of funding, which they claim will be the only round needed. One of the investors is the Chicago Board Options Exchange. Patent owners who wish to participate must become members of IPXI, joining Philips, Com-Pac International, Rutgers University, Northwestern University and the University of Utah.

It’s still the “arm’s length” standard that rules in transfer pricing transactions

Since 1935, the arm’s length standard has been the fundamental principle behind Treas. Reg. Section 482: “[t]he standard to be applied in every case is that of an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.”

Regulations promulgated in 1968 reaffirmed the arm’s length standard as the fundamental principle in transfer pricing transactions, adding “the standard to be applied is the amount that would have been paid by an unrelated party for the same intangible property under the same circumstances.” (A top resource for finding license agreements from unrelated parties is ktMINE.) Where no comparable unrelated party transactions are available, the regulations provide a list of factors to consider: prevailing rates in the industry, offers of competitors, the uniqueness of the property and its legal protection, prospective profits to be generated by the intangible asset, and required investments necessary to exploit the intangible. These regulations are today the guideposts for international transfer pricing.

Under Treas. Reg. §1.482‐2(d), intangible assets include: (1) patents, invention, secret processes and formulas, designs, patterns, and know‐how; (2) copyrights and literary, musical, or artistic compositions; (3) trademarks, trade names, and brand names; (4) franchises, licenses, and contracts; (5) methods, programs, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, mailing lists, and technical data; (6) goodwill, related market position, customer acceptance, and distributing and servicing organizations; and (7) key employees.

How can searching the full text of licenses help with solving the what-is-the-value riddle?

Keith Mallinson, WiseHarbor, in a submission to IP Finance, states the crucial commercial question with respect to using intellectual property to build a product:  what is the value of the relevant IP?

Voluntary, bilateral negotiations may be the best means to establish fair market values for licensing IP between a licensor and licensee.  The difficulty comes when one moves to another set of players. Different business models, commercial strategies, and intended uses require different terms. (The popularity of the ktMINE database in searching for comparables hinges upon the ability to examine the full text of licensing agreements to find as similar circumstances as possible.)

There's a lot happening at BVR

Check your next issues of IP Management and Valuation for articles on how to use network-based analysis to manage patents and innovation, best practices of the new prior commercial use defense of the America Invents Act, Pellegrino on valuing IP, how to manage IP-related risk with insurance products, and revised IP R&D practice aid goes beyond earnings approach. And on January 18th, expert attorney R. Mark Halligan is presenting a thorough analysis of valuing trade secrets, so join us at 10 AM PST for much needed business and valuation clarity to a company's trade secrets and how the changing nature of our economy has increased their importance.