In an attempt to make it easier for researchers to commercialize their work, officials at Cornell University’s New York City campus are reconsidering how they make money off intellectual property.
Instead of going through a laborious revenue-sharing negotiation with researchers who believe they have a valuable idea, an institute at Cornell Tech is going to let a set of postdocs keep exclusive license to their IP and take a fixed dollar amount of equity if the researchers create a spinoff company.
Officials believe this simple deal will cut through red tape that discourages both inventors and investors from working with academic software developers. The institution's experiment comes at a time of much debate about how universities take new technologies from collegiate laboratories to the commercial marketplace.
The Joan and Irwin Jacobs Technion-Cornell Innovation Institute -- a joint nonprofit created by Cornell and Technion, an Israeli-based technology institute, and temporarily housed in Google’s Manhattan office -- is modeling its role after that of angel investors, which typically invest up to $200,000 in companies just getting off the ground.
The institute is considering postdocs' salary and time on campus as an angel investment worth $150,000. If the postdoc decides to create a spinoff, that $150,000 would be converted to equity in the resulting startup company -- roughly 5 percent for a startup that got a few million dollars in initial funding. But unlike other universities that ask for equity, the institute’s stake would automatically shrink as new investors put in money, said the institute’s director, Adam Shwartz.
He said universities should realize they are not good at running software startups.
“That’s one thing all universities want -- they want control, they want to control the decisions you make,” Shwartz said.
This discourages outside investment because universities want board seats and a fixed percentage of ownership, he said. That fixed percentage can turn away large venture capitalists who don’t want to pour in a bunch of money and fail to gain a corresponding ownership stake.
If an institute startup makes it big, then the institute could miss out on money it would have made using typical IP contracts, but 5 percent of a few startups is better than 30 percent of no startups, Shwartz said. He said universities are too worried about missing out on the next Google.
“If you really, really make a huge company with a huge impact, then the Jacobs Institute will get a very nice share of money,” he said. “But for somebody who is going to start something small, then we’re very happy breaking even, and if we lose a little bit, that’s O.K.”
The plan applies only to a special software-related program that will involve just six postdocs a year, though Shwartz said if the investment model works, it could be adopted by Cornell and the Technion.
Cornell Tech is a special campus that, with the backing of former New York City Mayor Michael Bloomberg, is designed to increase high-tech innovation in the city. It does not open until 2017. The Jacobs Institute, which is associated with Cornell Tech and is temporarily operating inside Google's building, will enroll its first class of about a dozen graduate students this fall.
The campus’s dean, Daniel Huttenlocher, said Cornell Tech is looking at a series of new intellectual property models besides the angel investor plan. He said software, in particular, is a different ballgame from "molecules," which he said most university technology transfer processes are designed to commercialize.
“The idea is to make it as easy possible for these postdocs in fields related to technology to develop at the university,” he said.
Typically, academics -- faculty, graduate students and postdocs -- get about 30 percent of the profit that their intellectual property makes. But they often don’t have much control over what happens to their ideas.
Shwartz said the process can frustrate inventors and cause them to stop trying to commercialize inventions or to leave an institution and try not to get caught monetizing something that could belong to the university. He said universities that lose some share of their IP revenue may be able to make it up in philanthropic donations from alumni who didn’t have to deal with the headaches of the current IP scheme.
Jane Muir, the president of the Association of University Technology Managers and director of the technology transfer program at the University of Florida, said the Cornell Tech-based program sounds relatively new in how it combines various elements that other universities are using to spur commercialization.
She said board membership and the potential for conflicts have generated a lot of discussions.
“A lot of institutions that take equity, some of them will take a board seat, some of them won’t take a board seat, some of them will take a board seat but no voting rights,” Muir said. “There’s a lot of opportunity for potential conflict but more opportunity for managing that conflict.”
Cary Nelson, immediate past president of the American Association of University Professors and a professor of English at the University of Illinois at Urbana-Champaign, said universities that do take equity can risk succumbing to perverse incentives, like failing to admit graduate students who are not interested in working on an idea the university is investing in.
“Simply going for the highest profit, I can understand Dow Chemical doing it, but it’s not so good if Harvard does it,” he said. “There has to be a difference between Dow Chemical and Harvard somewhere down the line, or else why have a Harvard?”
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