Pact with the CEO

As technology licensing programs gain more currency in American universities, universities will surely gain more American currency, but will research suffer?

BY JAMES C. LUH | The networking technology John Cioffi had invented was showing promise, but it didn't quite fit with his employer's line of business. So with the employer's blessing Cioffi took a leave of absence to start his own company, Amati Communications. Cioffi's employer still owned the relevant patents, but it sensed an opportunity and so granted a license to the technology in exchange for a share of the take. Interest in Cioffi's invention exploded, and in 1997 Texas Instruments bought Amati for $396 million. Cioffi's employer cashed out for $8 million -- and still stands to earn $20 million to $30 million more in future royalties.

Impressive, perhaps, but a modest success by Silicon Valley standards. What makes the story worth noting is just who Cioffi's savvy employer is: not Cisco Systems or Lucent Technologies but Stanford University, where Cioffi is associate professor of electrical engineering. Cioffi started Amati with the blessing of Stanford's Office of Technology Licensing, one of a new crop of university offices staffed with MBAs and engineers and charged with pitching university research to the private sector. These technology licensing offices -- think of them as university marketing departments -- scour university labs for potentially lucrative inventions, shepherd them through the patenting process and ultimately match them with industry buyers who bring the results to market and share their profits with the universities.

Licensing efforts are succeeding wildly, bringing the nation's top universities hundreds of millions each year. But with corporate cash pouring into academic coffers, some critics have voiced concern that technology licensing could tempt universities to stray from their fundamental mission as teaching and research institutions. Why study the origins of a rare but fatal cancer when a new Viagra-for-women might rake in millions for the scientists? And why should a young professor concern herself with teaching the next generation of software designers when several multimedia companies are encouraging her to pursue a new 3-D rendering platform?

Only a rare few licensing deals bring in numbers as high as Stanford realized from Amati, whose technology is now being used to deliver high-speed Internet access over ordinary telephone lines. But staggering profits from exceptional deals more than make up for the disappointments. Annual surveys by the Association of University Technology Managers indicate license revenues at participating universities grew about 20 percent per year between 1991 and 1996. Moreover, the latest AUTM survey shows that in their respective 1997 fiscal years 132 universities recorded total license revenue of $293 million from some 9,306 active licenses and options. The same survey showed a whopping 33 percent increase in royalties from 1996 to 1997 going to universities for their inventions. The lion's share of the revenue goes to a few top research universities -- with University of California at the top of the heap with 61.3 million in revenues from 1996-97 fiscal year -- but it's only a matter of time before all research institutions attempt to compete in this lucrative new field.

Carnegie Mellon University recently received a windfall from the Lycos Web search engine, which grew out of research conducted by Carnegie Mellon professor Michael Mauldin. The university gave Lycos exclusive rights to Mauldin's technology in exchange for royalty payments and a 20 percent stake in the company. On the day of Lycos' initial public offering in 1996, Carnegie Mellon's shares were worth more than $60 million. Carnegie Mellon has since sold some of its stock and, according to the university, the proceeds helped build a $20 million computer sciences building.

Florida State University, another big beneficiary of technology licensing, helped professor Robert A. Holton in marketing his newly patented process for synthesizing the breast cancer drug Taxol. The pharmaceuticals giant Bristol-Myers Squibb negotiated exclusive rights to the process and has so far paid FSU $100 million in royalties.

With the 1980 passage of the Bayh-Dole Act, which granted universities the rights to inventions arising from federally funded research, such licensing deals got a boost from Congress. But the growth of technology licensing is just another adaptation to a rapidly changing research environment that increasingly favors applied research over basic (or what is sometimes called pure) research. While government and corporate sponsorship of basic research has dried up in recent years, corporations have poured money into commercially promising applied research at universities as a cheaper alternative to running their own laboratories.

N E X T_ P A G E .|. Professors for sale