In it for the Money: The Effect of Professor’s Privelege
University researchers sit on the edge of the technological frontier and often create valuable intellectual property and technology including Insulin discovered in 1921 by scientists from the University of Toronto, the first solar power house constructed at MIT by Hoyt Hottl, and the nicotine patch invented in 1986 by Frank Estcorn at New Mexico Tech. The research produced brings considerable societal value, and so it is important to understand the incentives of the researchers and how they can be motivated towards innovation. Ownership and profit rights can be a key driving force behind new inventions.
The Bayh Doyl Act in 1980 established a more uniform patent law that granted universities ownership rights to all inventions made under federally funded research. More generally, in the United States that individuals own their own inventions, except when there is express agreement providing for assignment of inventions to an employer or when there is implied agreement to assign is found because the employee: was hired or assigned to invent, was hired or assigned to solve a specific problem, or served the employer in a fiduciary. Outside of express or implied employer ownership, the invention may be subject to the employer’s “shop right” to use the invention if the invention was made with the employer’s resources or facilities. In this case, the inventor keeps rights to the invention, however the employer retains a royalty-free nonexclusive license to use the invention.
In the United States, university employees and visitors are typically required to sign invention assignment agreements (IAAs). This falls under the express agreement for assignment of inventions. However even outside of IAAs, there has been considerable legal support for implied assignment of inventions under the idea that professors and researchers are hired to invent. In Speck v. North Carolina Dairy Foundation, Inc. et al., the inventions were professors and researchers who developed a secret process and had not assigned IAAs. They were paid by the university developed their invention using university resources. The Supreme Court of North Carolina found that the invention belonged to the University. University Patents, Inc. v Kligman et al. resulted similarly. In this case, Kligman invented a Vitamin A preparation to slow the effects of skin aging and did not sign an IAA. Additionally, Kligman was not as closely connected with the university as in the Speck case. The U.S. District Court for the Eastern District of Pennsylvania found that an implied contract was formed and that again the university retained rights to the invention. All of these examples provide further weight for universities to retain at least some ownership.
Inspired by US universities, Germany, Austria, Denmark, Finland, and Norway have enacted new laws that end “professor’s privilege” or professor’s full rights to new business ventures and intellectual property they create. While these reforms may encourage university investment they will simultaneously discourage university based researchers. With this mix of incentives, the effects may be ambiguous. In the university context, where the researcher and the institution make separate investments in pursuit of a common outcome. The researcher invests in the idea creation while the university supports infrastructure, facilitates patent applications and assists with licensing. Investments by both researchers and universities are important for innovation and must be supported by income rights to the final creation.
A paper titled University Innovation and the Professor’s Privilege by Hans K. Hvide and Benjamin F. Jones studies this effect in Norway. In 2003, a new policy transferred two-thirds of these rights to the universities themselves. They leveraged several registry data sets that provided detailed information about workers and firms along with a vast amount of information about the individuals themselves. They also separately collected all patents issued in Norway for the analysis. They found that “the shift in rights from researcher to university led to an approximate fifty percent drop in the rate of start-ups by university researchers. This drop appears in the simple before and after comparison, when compared to the rates of startups in Norway outside of academia and when analyzed at the individual level. Patent rates for university researchers fell by a similar magnitude, suggesting a decrease in the quality of innovation in addition to the quantity.
Additionally, additional costs imposed by technology transfer offices, legal battles, and haggling between researchers and universities may further destroy surplus from invention. The results from the Hvide and Jones paper showed that both quantity and quality of innovation declined with the shift in rights from researcher to institution. They also suggest that rights should be balanced between both the university and the researcher, but tilted towards the researcher. Overall, the findings raise questions whether the world in general is depriving itself from greater innovation with policy that over compensates institutions over researchers.
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