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Excerpts from the OTL FY09 Annual Report
An Overview of IP Management & Commercialization Activities & Results
The Office of Technology Licensing (OTL) is the UC Berkeley organization for all activities related to the intellectual property (IP) associated with innovations developed by campus personnel. This is a broad role that includes (1) working with companies and principal investigators on the IP terms of research agreements, and (2) providing guidance to the Berkeley community on IP-related policies, practices and laws, in addition to (3) the OTL’s traditional role of licensing IP rights to companies.
Inspired by the innovative, entrepreneurial culture of UC Berkeley, the OTL has been evolving its approach to managing IP, and over the years this process has culminated in the reinvention of the university IP management office. Under Berkeley’s progressive approach, the office is (1) especially responsive to feedback from Berkeley principal investigators, inventors and software authors, as well as (2) interested in establishing long term, multifaceted relationships with companies; rather than on, simply maximizing licensing revenue (as is the conventional orientation of IP offices at many other universities).
The OTL is a service organization that is part of the UC Berkeley Office of Intellectual Property and Industry Research Alliances (IPIRA) in the Vice Chancellor for Research Office (VCRO). Under the auspices of the VCRO and IPIRA, the OTL pursues goals that go beyond the conventional metrics of licensing revenue and patents issued. The following information for the 2009 fiscal year (2008 July 1 through 2009 June 30) presents the OTL's activities and results in the context of the UC Berkeley’s progressive, enlightened IP practices and correspondingly broader goals and metrics.
2. Executive Summary
FY09 was a transformative period for the Office of Technology Licensing (OTL). To address financial challenges and continue the pursuit of organizational excellence, the office has implemented a wide range of practices and programs, as well as management tools and corresponding metrics.
2.1 Office Objectives and Related Changes
The OTL’s changes that were implemented in FY09 can be segmented into three areas: (1) cost controls, (2) productivity improvements, and (3) performance management tools. These changes are detailed in the body of this report, and they are included in this executive summary – but only in the context of highlighting the office’s objectives and financial results. The OTL’s four objectives are outlined and then detailed in this part of this executive summary:
(1) Pursue public benefits from UC Berkeley IP (including improvements to quality of life and economic development) by leveraging the IP rights of UC Berkeley innovations in ways that help catalyze the fast, broad application of those innovations.
(2) Establish IP terms of research partnerships by reconciling the IP policies and practices of the University with the IP rights that sponsors want in their research agreements.
(3) Provide IP-related guidance, education and feedback channels for the campus community, and also (as pertinent to UC Berkeley) for the public, industry, government and press.
(4) Lead Fiduciary Stewardship of UC Berkeley IP by obtaining fair compensation from companies for access to IP rights, and prudently managing the campus’s financial costs in securing IP rights.
2.1.1 Objective: Pursing Public Benefits from UC Berkeley IP
In pursuing benefits to the public by leveraging IP to help catalyze broad, fast application of UC Berkeley’s innovations, the fundamental performance metric for the office is the number of IP rights agreements that the OTL establishes with companies – and startups in particular. The connection between (1) catalyzing the application of innovations, and (2) IP rights agreements, is that the IP rights agreements help companies improve their business plans, that in turn helps them obtain the capital required to commercialize Berkeley innovations.
In FY09 the OTL established 38 IP rights agreements – that is a 30% increase over FY08. Of those 38 IP rights agreements, 15 were with startups – that is a slight increase over IP rights agreements with startups in FY08. The body of this report contains a list of the startups. For highlights of OTL licensing success stories, go to http://ipira.berkeley.edu. To help catalyze the formation of startups that are spun out of UC Berkeley research, OTL management authored a 1-page guide to establishing startup incubators in campus buildings.
2.1.2 Objective: Establishing IP Terms of Research Partnerships
The amount of funding that UC Berkeley derives for corporate sponsored research is far greater than the amount of revenue derived from the licensing of IP rights; and the OTL keeps this perspective foremost in mind when working with principal investigators and corporate sponsors to establish the terms for IP that might result from research agreements. This mindset has strengthened the collaboration that the OTL has with PIs and the two campus offices that lead the negotiation of research agreements: the Sponsored Projects Office (SPO), and the Industry Alliances Office (IAO). As a result, the number of research agreements that the OTL was asked to work on grew by 25% from 77 in FY08 to 97 in FY09. The body of this report highlights the companies that the OTL worked with on research agreements.
2.1.3 Objective: Providing IP-related Guidance, Education & Feedback Channels
Over the past several years, the OTL has endeavored to build stronger relationships with individual faculty, students and entrepreneurs as well as academic units, student groups, venture capital firms, companies and industry organizations. This outreach and the resulting stronger relationships enable the OTL to more readily market opportunities for (1) commercializing Berkeley innovations, (2) licensing University IP, and (3) sponsoring campus research. It also enables the OTL to spread an understanding of the rationale of UC policies, and an awareness of the success of OTL practices – as well as offer a conduit for feedback.
In order to assess the extent to which this objective is achieved, in FY09 the OTL started tracking the number of significant interactions that it has with the community that (1) are initiated at the request of faculty or senior administrators, (2) aren’t associated with an innovation disclosure or research agreement (and therefore not double-counted via other metrics), and (3) require more than just a phone call, email and/or meeting. In FY09, the OTL tracked 51 of these significant projects, and in FY10 the office is on a run-rate to surpass 100 of these projects. The body of this report highlights these FY09 projects.
2.1.4 Objective: Leading Fiduciary Stewardship of the University’s IP
Financially stewarding the University’s IP has never been more important because of a compounding of factors in FY09: (1) the historic recession, California state financial crisis, and corresponding UC campus budget reductions; as well as (2) anticipated expirations and terminations of license agreements that have amounted to a material percentage of the OTL’s revenue. As documented in last year’s FY08 Annual Report, the OTL recognized its financial challenges even before the recession and budget crisis became evident on campus.
Accordingly, in early FY09 the OTL embarked on a series of changes to reduce costs, improve productivity, and understand its operations. The cost reductions have been focused on patenting costs and in particular, implementing new practices for deciding whether to file patent applications. These practices reversed a long-time trend in which the
number of annual patent filings has increased yearly. In comparison to FY08, FY09 annual patent filings decreased by 11%, and more importantly, FY09 annual patent filings that have to be funded by the campus decreased by 12%. However, the long-time steady increase in patent filings has resulted in a large pipeline of inertial patent prosecution. These patent prosecutions incur numerous, intermittent, relatively small costs (i.e. responses to patent office actions) that are challenging to control but large in aggregate costs.
In addition to changes in the patent filing decision process, the OTL implemented other cost-reduction changes including (1) attempts to decrease the administrative activities and corresponding charges from our outside patent counsel, (2) additional oversight of the payment of patent maintenance fees that need to be funded by the campus, (3) systematic focus on the collection of overdue accounts receivables for patent costs as well as preventing licensees from accruing large, overdue balances, and (4) the piloting of a practice that enables campus inventors to finance patent costs from their unrestricted funds (because the patent isn’t funded by a company) such that their unrestricted funds are reimbursed if/when the IP is licensed.
The productivity improvements and performance management tools that the OTL implemented in FY09 include, (1) launch of an enhanced web-based IP marketing service (developed by UCOP/OTT), (2) development of an email-based IP marketing communication service and corresponding subscription system, (3) development of a web based self-service agreement system (for simple license agreements and material transfer agreements), and (4) implementation of a suite of management tools that track and analyze key metrics in real-time.
2.2 Office Financials
In FY09 the OTL had an operating profit of $0.3 M – but this is before outflows for (1) a campus administrative assessment (i.e. a 4% tax on revenue), (2) the distribution of the “department share” of IP revenue to academic units, and (3) nominal extraordinary income.
The OTL engages in a variety of activities, in order to pursue the four goals described in the Executive Summary. These activities can be divided into three areas: (1) managing IP rights of Berkeley innovations; (2) reconciling IP rights in Berkeley research agreements; and (3) educating the Berkeley community on IP laws, UC IP policies and OTL IP practices. The key activities in each of these three areas are highlighted in this section.
3.1 Leveraging the IP Rights of Berkeley Innovations
3.1.1 Innovation Disclosures
Managing IP formally starts with a Berkeley researcher (often in conjunction with the corresponding research team) submitting an innovation disclosure to the OTL – for a patentable invention or copyrightable software. Over the past six years the number of disclosures per year has been generally increasing, with the number of FY09 disclosures reaching 142. The spikes in the number of disclosures in FY06 and FY08 can be attributed to anomalies such a class project in which submitting a disclosure was part of each project team’s requirement. About 60% of the FY09 disclosures were from researchers in the College of Engineering or physical science departments. However, a growing number of these innovations are related to the biosciences – especially as a growing amount of Berkeley research has become multi-disciplinary – integrating engineering innovations with life science discoveries.
Note that many UCB professors have joint appointments with LBL, and depending on their appointment and/or their funding, will disclose innovations to LBL's IP office. The LBL IP office and the OTL work collaboratively, as any attempt by either office to uncooperatively overreach could result in tension between the two offices that would not be productive to either the campus or lab.
3.1.2 IP Rights Agreements
The OTL pursues IP rights agreements to help catalyze the fast, broad application of Berkeley innovations in order to, (1) benefit the public and the regional economy, (2) help financially support research and education on campus, and (3) reward Berkeley inventors for their ingenuity. Accordingly, the number of IP rights agreements that are completed is an important metric for the OTL to track. These IP agreements include, (1) short-term simple IP letter agreements, (2) intermediate-term IP option agreements, and (3) long-term IP license agreements.
In FY09 the OTL completed 38 commercial IP rights agreements – that is 30% more than the number completed in FY08. Also, licensing productivity continued to improve. It is interesting to note that in contrast to the marketing organization at for-profit companies, the IP marketing offices at universities don’t influence the direction of university research, and correspondingly don’t have a role in controlling the licensing potential of innovations that result from the research.
The 38 IP rights agreements completed in FY09 were transacted with 36 companies of which 15 could be characterized as startups (that haven’t had sales on a first production release of an initial product) – this is a slight increase over FY08. The FY09 early stage companies were: Berkeley Bionics (exoskeletons to augment human strength and endurance during locomotion), CellASIC (microfluidic tools for cell biology research), Cognitive Wearable Devices (applications based on individual’s cognitive states), Covarium/Health Interactive (analytical software for decision making), Harmonic Devices (RF components for wireless devices), Joule Biotechnologies (biofuel), Lumiphore (biological detection systems), NanoGripTech (adhesives based on biological nanostructures), NanoMedical Systems (personalized molecular drug-delivery system), O.N. Diagnostics (software for bone analysis), Photoswitch Biosciences (light-activated ion channels), Redwood Biosciences (protein pharmaceuticals), Silicon BioDevices (diagnostic medical devices), Solexel (solar photovoltaics), Vitapath Genetics (individual DNA testing). For a highlight of OTL licensing success stories, go to http://ipira.berkeley.edu.
To help catalyze the formation of startups that are spun out of UC Berkely research, OTL management authored a 1-page guide to establishing startup incubators in campus buildings.
3.1.3 Material Transfer Agreements and Other Agreements
In addition to IP rights agreements, the OTL is also responsible for other types of agreements including (1) confidentiality agreements with companies for the disclosure of pre-published and pre-patented innovations, (2) inter-institutional agreements with other institutions that jointly own IP with UC Berkeley, and (3) material transfer agreements (from UC Berkeley to other researchers). Material transfer agreements (MTAs) enable research materials to be transferred to other institutions such that IP rights that might emerge from the materials are protected and UC is protected against liabilities that might arise from use of the materials. MTAs are a good example of service that the OTL performs with little or no remuneration. The number of MTAs that the OTL completed has been growing at about 15% over the past six years and reached 125 in FY09.
3.2 Reconciling IP Rights in Sponsored Research Agreements
The number of corporate research agreements at UC Berkeley has been growing over the past several years. These corporate sponsors increasingly want the innovations that result from their research agreements to have IP rights that are favorable to the sponsoring corporation. Sometimes their proposed IP rights are not consistent with the mission of the University and its corresponding IP policies. When the IP proposals of a sponsor conflict with the policies of the University, then the OTL works to reconcile those differences.
Reconciling the IP terms of research agreements has become a substantial component of the OTL workload. Accordingly, in FY08 the office began tracking the research agreements for which the IAO or SPO requested the OTL’s involvement. In FY09, the OTL was asked to get involved with 97 sponsored research agreements – a 25% increase over FY08. Note that in all of those research agreements, the IAO or SPO initiated the request for the OTL to get involved (in other words, the OTL is not overstepping its bounds).
Examples of companies with whom the OTL worked-out the IP terms of research agreements in FY09 include: Boeing, Chevron, Dow, Dupont, Genetech, Honda, HP, IBM, Intel, Nokia, Novartis, Roche, and Siemens.
3.3 UC Berkeley IP-related Guidance, Education and Feedback
Over the past several years, the OTL has made a concerted effort to ramp up its interaction with faculty, students, departments, centers, student groups, industry organizations, companies, investors and entrepreneurs. These relationships enable the OTL to more readily (1) market innovations, (2) license IP rights, (3) identify potential research sponsors, (4) catalyze startups, and (5) disseminate information about IP law, UC policy, and OTL practices – including their rationale and successes. Likewise, the OTL is periodically asked by campus faculty and senior administrators to help on IP-related projects that aren't associated with either research agreements or innovation disclosures.
To better understand and document this value-added contribution to the campus, in January of FY09, the OTL began tracking what it has designated as "Campus Cases". Campus Cases are projects that have all of the following attributes: (1) initiated at the request of faculty or senior administrators, (2) take more time to complete than a meeting,
phone call or email, and (3) aren't associated with a research agreement, innovation disclosure or a disclosure’s corresponding IP agreements (and therefore tracked via other metrics and double-counted).
In FY09 the IP office tracked 51 of these significant projects, and in FY10 the office is on a run-rate to surpass over 100 of these projects. Examples of FY09 campus cases include:
- Requests to present to classes, organizations, and visiting delegations;
- Requests to modify the Patent Acknowledgement for new, special hires;
- Requests to advise on copyright issues related to manuscripts, photos and software;
- Requests to meet with spin-out founders to advise on startup issues;
- Requests to help with Terms of Service for new web sites;
- Requests to advise on the IP agreement between researchers and other organizations.
The OTL has two cash inflows that it characterizes as revenue: royalty and fees from IP rights agreement, and payments for the reimbursement of patenting costs.
4.1.1 Royalty and Fees
Revenues for FY09 from IP rights agreements were $7.4 M comprised of $5.1 M from royalties and fees, and $2.3 M from patenting reimbursements. The OTL royalty and fee revenue doesn’t include revenue from UC Berkeley innovations that were funded via LBL (i.e. DOE) and licensed by the LBL IP Office. OTL royalty and fee revenues have fluctuated between $6.1 M (FY07) and $4.0 M (FY06) over the past five years. Accordingly, while the FY09 royalty and fee revenues of $5.1 M are $0.2 M less than FY08 royalty and fee revenues, the FY09 revenues are within the norm of the past five years. Likewise, IP revenue – excluding patent costs reimbursements, remain above $1 M per licensing professional FTE.
4.1.2 Reimbursements of Patent Costs
Cash inflows from licensees for the reimbursement of the University’s patent costs are shown as revenue on the OTL’s income statement. These proceeds are shown as revenue because in structuring IP agreements with licensees, the OTL uses discretion in how it positions costs to licensees. For example, if a licensee seems more amenable to paying for patent costs (i.e. in an exclusive license), then in the license agreement with that company, the OTL is more likely to characterize the licensee’s payments as patent reimbursement costs. Conversely, if a licensee seems more adamant to not pay for patent costs (i.e. in a non-exclusive license), then in the license agreement with that company, the OTL is more likely to characterize the licensee’s payments as license fees. Moreover, regardless of how those proceeds are characterized, the University accounting is similar in that the proceeds first go towards paying down patenting costs, and then the remainder is applied to the University’s distribution schedule.
Patenting reimbursements have been steadily rising over the past five years (in conjunction with patent expenses), with FY09 reimbursements flattening at $2.3 M – just under FY08 reimbursements. These reimbursements amount to 62% of the patent costs. The UC system-wide average reimbursement for patent costs over the past 5 years is 57%.
The OTL has two material expenses: patent costs and operating costs (that are mostly employee compensation).
4.2.1 Patent Expenses
Patenting expenses have been steadily rising over the past five years with FY09 patent expenses reaching $3.7 M. However, patent expenses that have to be funded by the campus (i.e. they don’t have a licensee, and therefore the University has to cover the costs) decreased by $140K or 12% in FY09 – largely due to a reduction in foreign patent prosecution funded by the campus. These campus-funded patent costs amount to about one-third of total FY09 patent costs.
In FY09 the OTL implemented new practices for deciding whether to file patent applications. These practices reversed a long-time trend in which the number of annual patent filings has increased yearly. In comparison to FY08, FY09 annual patent filings decreased by 11%, and more importantly, FY09 annual patent filings that have to be funded by the campus decreased by 12%. However, the long-time steady increase in patent filings has resulted in a large pipeline of inertial patent prosecution. These prosecutions incur numerous, intermittent, relatively small costs (i.e. responses to patent office actions) that are challenging to control but large in aggregate costs.
4.2.2 Operating Expenses
Operating expenses for the OTL are largely comprised of employee compensation. Note that, in contrast to other operational units, the campus does not fund the OTL’s rent in an off-campus commercial building.
The OTL organization is comprised of:
- 4 IP Officers of whom 3 have the title, Associate Director. These 4 employees have
advanced degrees and years of licensing experience;
- 3 IP Specialists that assist the above IP Officers;
- a Financial Manager and an Accounting Specialist; as well as
- an Acting Director that also manages a full case load equivalent to the Associate Directors, and has years of management experience in addition to licensing experience.
Operating expenses in FY09 were $1.3 M, an increase from FY08 of about $0.1 M. This increase was forecasted in last year’s FY08 Annual Report, and is attributed to replacing two employees who resigned in late FY07 and late FY08 – an IP Officer and an IP Specialist.
4.3 Distributions of IP Revenue
The OTL distributes IP revenue for each license based on formulas from four distribution policies associated with the IP and inventor(s) of each license. Distribution of IP revenue to campus departments is transacted in the year following the year in which the distribution is obligated. FY09 distributions (incurred in FY08) amounted to about $3.2 M of which $1.6 M went to inventors, and $0.8 M went to 17 academic units – with the most material distributions going to Chemistry ($0.38 M), MCB ($0.22 M), and EECS ($0.072 M).
4.4 Net Financial Results
In FY09 the OTL had an operating profit of $0.3 M – but this is before outflows for (1) a campus administrative assessment (i.e. a 4% tax on revenue, not income), (2) the 100% allocation of the “department share” of IP revenue, and (3) nominal extraordinary income.