Drafting a Better Patent Policy for Students
Amar G. Bose
For decades MIT had a well-articulated, uniformly applied, fair policy with respect to student inventions. Last December I became aware that in recent years this policy was changed to one that is neither well-articulated nor uniformly applied and is blatantly unfair to our students. This policy was created because it was deemed that its predecessor did not bring in sufficient revenue.
In personal meetings commenced in January of this year, the administration confirmed the following points:
1. Straight licensing of student patents to the students is a losing proposition for MIT.
2. This, as is well known, occurs because the vast majority of patents do not amount to anything financially.
3. It is through demanding equity in the student start-up companies that MIT earns money. And this money is a direct result of the ingenuity of the students who cause their company to flourish independent of the value of their patent.
The inescapable conclusion that must be drawn from the above three points is that the current policy of the MIT Technology Licensing Office, which demands equity in student start-ups in partial return for licensing back to the students their own inventions, is unethical. It is unethical because the TLO is giving the student something (the license) which they know has a very small probability of having value, and demanding in return something (equity) which they know has a much higher probability of having value because it is not tied to the value of the patent. The TLO is not willing to tie their income from the patent to that derived from the patent by the licensee as is common practice in industry. Why should MIT demand more from its students than industries demand from each other?
Unfortunately, the TLO’s willingness to help a student inventor depends upon how much money they sense is in it for them. And this usually boils down to whether or not a company will be formed by the student from which they can extract a piece. For example, in a recent case a student approached the TLO wanting to patent his invention relating to bandwidth reduction on Internet links. He was told that since he had no plans to form a company and since there was no faculty member involved, the TLO was not interested in pursuing the patent. Further, he was told that if he could get a faculty member interested in starting a company, then the TLO would be interested in pursuing the patent. He was unaware, and not informed by the TLO, that there was an attractive alternate path that could have been opened for him at that point which would have cost the TLO only the time to write one letter. His patent died right there.
A further problem with the TLO policy arises from the conflict of interest that the TLO has with the student inventors. This is manifested, among other ways, in the financial advice that they give to the students. As government funds for research continue to diminish, this country needs more companies that are prepared to invest a larger proportion of their earnings into research. Such action requires a long-term corporate strategy that is often easier to maintain in privately held companies. The TLO guides students toward short-term strategies by offering to introduce them to venture capital sources of financing. They know that these sources have the objective of getting a fast return on their, and thus the TLO’s, investment by rapidly taking the company public. Venture capital sources are useful for companies that desire to go public quickly, but are inappropriate for companies that wish to take a long-term strategy and invest in research. If any financial advice or introduction to funding sources is to be given to our students, it should be balanced and consistent with their own goals.
In addition, during the process of extracting equity in the start-up company, the TLO portrays their equity as help to the student in raising money because MIT will be a stockholder. Any student wishing to test the sincerity of this portrayal should try to decline the help and negotiate a license on conventional terms without TLO equity. His or her certain failure to negotiate on this basis should shed some light on exactly who is helping whom with respect to equity.
In the fundamental conflict of interest between the TLO and the students, the TLO has a distinct advantage. The students are inexperienced in patent matters and are no match for the TLO staff. Thus I recommend to all students the following guidelines: First, do not enter the TLO office to report or discuss an invention without your own lawyer by your side. (I think MIT should feel obligated to notify all students to this effect.) Second, under no circumstances should you mention to the TLO any plans you may have to form a company after graduation. You are under no obligation to mention or in any way acknowledge such plans and to do so would be a big mistake. If you follow these two guidelines, with the help of your lawyer you will have a better chance of emerging with a fair disposition of the rights in your invention.
In April of this year I proposed the following to the administration:
1. The TLO should stop demanding equity as part of the license agreements because it is unethical to do so.
2. As was confirmed by the administration, without equity the TLO is left with a losing operation. In this circumstance, their best course of action is to eliminate their losses by reducing their staff to a level sufficient to simply assure that all students, who would then be free to file their own patent applications, honor any contractual agreements that MIT might have with the sponsors of research that the students worked on. The cost of this reduced staff would be recovered in the overhead that the Institute levies on its sponsored research.
I believe that the proposed solution would:
1. Promote entrepreneurship among students, which is a goal at MIT.
2. Lead to effective commercialization of new technology because no one is as dedicated to this as an inventor who owns his or her patent.
3. Introduce students to the experience of patenting their own inventions.
4. Generate a select group of inventive students who would be most likely to succeed and who would, as alumni and alumnae, be much more inclined to contribute to their alma mater.
5. Eliminate the unhealthy environment that now prevails in which students are hiding their inventions from MIT as a consequence of the spreading reputation of the TLO.
Recently I received feedback (third-hand) that the Institute dismissed my proposal as a giveaway to the students which did not allow MIT to earn any money from the student inventions. In fact, I have no objection to MIT earning money from student inventions provided that they can find an ethical way of doing it.
What I find additionally troubling about the current situation is that the TLO has not limited its objectionable practices to the MIT campus, but has actually engaged in teaching other universities how to increase their revenues by doing the same thing to their students.
In all my years on the faculty I have never seen anything like this situation. I am sure that no one in MIT set out to design an unfair or unethical policy for our students. However, when one focuses so strongly on bringing in money, it is sometimes surprising how principles, mission statements, and short-term policies can be rationalized, while fairness to our students and long-term consequences are overlooked. It is also surprising that any institution can be so intransigent with respect to changing a policy that they cannot defend. Perhaps the current ten million dollar revenue that the TLO brings in tends to cloud one’s view of the issues.
In the end, it may only be our students, either in their current role or when they become alumni and alumnae and are solicited for contributions, who will be able to effect the needed change for the benefit of all future students.
Amar G. Bose ’51 is a Professor of Electrical Engineering and Computer Science.