Last month we won the lottery – not the mega millions, but for a seat at President Clinton’s keynote address to the “Open for Business” conference in Albany. President Clinton provided the economic developers in the room a number of tips and ideas, particularly focusing on clean energy industries and how to support existing businesses and entrepreneurs. He cited several examples of innovative ideas and successful projects that he has personally encountered during his travels. Among President Clinton’s ‘tips’ was a suggestion to check out Massachusetts Institute of Technology’s (MIT’s) policy regarding the licensing of intellectual property.  So what is so special about MIT’s licensing system?

First, a very brief primer: Licensing of university property is an important form of technology transfer, i.e.  the movement of knowledge and discoveries from academia to the general public.  Universities that accept federal research dollars can patent intellectual property from that research and then license it to third parties for a fee and/or royalties.

Many universities see this as a welcome source of funding to support research or general operations.  For over a decade, however, MIT’s primary objective has been to view technology transfer as a public service and not a business.  Its mission is to (a) foster commercial investment in the development of inventions and discoveries, and (b) through these investments, and the economic development and products that follow, provide direct benefit to public.  We note the clear absence of the ideas of “maximization of profit”.

We see the following as key elements of MIT’s track record of leveraging its intellectual property to maximize public benefits:

• Very low initial licensing fees ($25,000-$100,000) reduce the barrier to entry.
• Low royalties (3-5%) allow the commercial entity a higher probability of reaching profitability.
• The Institute will accept a limited equity position in partial lieu of royalty payments, allowing the commercial enterprise to attain positive cash flow more quickly.  This also allows MIT to enjoy potential upside without a significant investment or risk of loss (other than the opportunity cost of the lost royalties).
• While allowing for exclusive license arrangements, MIT imposes several important limitations that assure that the indirect public benefits are maximized.

On this last point, MIT will issue an exclusive arrangement only for a limited term.  It also imposes other performance milestones on the licensees that require them to hit benchmarks in terms of employment, sales and sub-licensing.  That way, if a licensee fails to leverage the intellectual property in an economically friendly manner, MIT can reclaim and relicense the property to others.  This assures the Institute that the property not be tied up and under-utilized (intentionally or unintentionally).

MIT credits these particular policies with its track record of exceptionally high levels of commercialization attainment.  However, you might wonder how large of a subsidy is required for the Technology Licensing Office to operate.  After all, the TLO also operates all the normal incubator-type services: counseling and coaching, some formal education, patent fees, negotiations with interested partners, not to mention a staff of 33 professionals!  TLO does attempt to recapture some of its costs from licensing through fees and royalties.  In fact, after recovering basic legal costs of patenting and licensing IP, the TLO then takes a cut of 15% of any royalty payments.  The balance of royalties is distributed in thirds between the IP inventor, the inventor’s department at MIT and the MIT general administrative office.  This cut allows the TLO to cover its basic operating costs and more.  In fiscal year 2010, the TLO grossed revenues of $76 million, of which $60 million came from royalties, $9 million for patent reimbursements and $1 on equity cash-in.

Can any research center accomplish this track record?  The TLO’s website responds with a resounding “Yes” and explains, “Start with outstanding people; clear, articulated policies; and a streamlined process.  To get started, however, you will also need a sum of money to invest in filing patents and building a portfolio. Do not expect to break even for five years or more.”  In other materials, the TLO provides the following insights on “lessons learned” on how to position stakeholders, IP policies and the technology transfer organization for maximum effect:

• With the exception of the occasional "blockbuster", licensing revenue is small. 
• Don't expect product royalties for 8 -10 years
• Most companies want quick time-to-market
• Publishing lists of available technology is not effective
• The inventor is the best source for leads