A Tight Grip on Tech Transfer;

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A U. of Wisconsin foundation fiercely protects its patent rights, but critics say it impedes stem-cell research

The Chronicle of Higher Education

Madison, WI — For most of its 81 years, the Wisconsin Alumni Research Foundation (WARF) has enjoyed a reputation as a pioneering and savvy leader in the commercialization of university inventions, the force that helped bring to market vitamin-D-enriched foods with to fight rickets, the blood thinner Warfarin to prevent strokes, and key technologies used in PlayStation 2 video-game machines.

Here on the flagship campus of the University of Wisconsin, the foundation commonly referred to as WARF is also widely heralded as an enduring and generous benefactor of the research enterprise. It has provided close to $1-billion for professorships, research grants, and new buildings — including, most recently, a matching gift that will help build the Wisconsin Institute for Discovery. The project, announced this spring, will foster cutting-edge collaborations in biology, nanotechnology, and computer science.

Lately, though, WARF has acquired a far less flattering reputation: as a bully.

As the patenting and licensing arm of the university where the pathologist James A. Thomson first isolated and cultivated stem cells from human embryos, WARF owns the seminal U.S. patent that covers one of science’s most promising — and politicized — fields of study. It also owns five of the 21 stem-cell lines on which scientists can conduct research that receives federal dollars under the Bush administration’s restrictions.

WARF has been a demanding owner of both the tangible and the intellectual property.

Its tactics for controlling those stem-cell rights have drawn fire from many quarters: scientists who say the licensing rules are too onerous and cumbersome, companies that say the licensing fees are too expensive, and a host of health, government, and public-interest groups, which say the rules and the fees combined have made an already difficult environment for stem-cell science in the United States even worse.

From patients’ and scientists’ perspectives, WARF‘s policies are as damaging to the field as the federal government’s restrictions, says Douglas A. Melton, a noted diabetes researcher at Harvard University who runs his own privately financed stem-cell bank there. His sentiment is echoed by many others. The Wisconsin foundation’s policies are “slowing down the research,” says Mr. Melton.

Human embryonic stem cells, which can become any kind of cell, hold the potential to cure a number of diseases, but the research is controversial among opponents of abortion because embryos are destroyed in the course of deriving the cells.

Academic and corporate scientists working in the field say WARF‘s tough-minded tactics are part of the reason that many companies have decided to take their research-and-development work overseas, where the patents don’t apply.

“It’s definitely having a chilling effect on small companies” that might otherwise be developing tools and tests that would advance the field, says James F. Battey Jr., chairman of the stem-cell-research task force at the National Institutes of Health.

Others offer an even darker critique.

“They’re trying to control the entire stem-cell industry,” says Daniel B. Ravicher, president and executive director of the Public Patent Foundation, an organization based in New York that challenges patents on behalf of what it sees as the public good.

‘Huge Dollar Signs’

In July Mr. Ravicher’s group, along with the Foundation for Taxpayer and Consumer Rights, in Santa Monica, Calif., filed a challenge to Mr. Thomson’s 1998 patent and two related ones, issued in 2001 and 2006, that are also owned by WARF.

The groups contend that the U.S. Patent and Trademark Office should have never granted the broad patents to Mr. Thomson, arguing that the work he did was obvious to someone skilled in the field, based on the scientific knowledge available at the time. Only novel, nonobvious inventions can be patented.

In their request for re-examination of the patents, the groups contend that foundation officials, in aggressively asserting its patent rights, are impeding stem-cell research “at its infancy.”

“They have huge dollar signs in their eyes,” says John M. Simpson, director of the California foundation’s Stem Cell Project.

Even colleagues in technology transfer say WARF‘s policies have been anything but collegial, particularly its demand that other academic institutions obtain a license from the foundation when their researchers undertake stem-cell research. It is a demand that most have apparently resisted on principle, although eight, including Harvard, have signed licenses. Universities often require licenses on their patents from companies, but not from each other. Such licenses are different from the “material-transfer agreements” that institutions often require to govern the exchange of tangible scientific property like cell lines.

“The entire academic community is troubled,” says Wendy D. Streitz, director of policy in the University of California’s technology-transfer office.

“They’re doing things for the good of Wisconsin and not thinking of the greater good,” says another official, who oversees patents and licensing at a prestigious research institution and asked not to be identified. “It gives academic technology transfer a very bad name.”

A Different Perspective

From WARF‘s headquarters atop one of Madison’s tallest buildings, with a sweeping view of the campus ‘ including dozens of the buildings constructed with gifts from the foundation — the situation is seen in a far different light.

WARF maintains that it has gone the extra mile to make the stem-cell technology as widely available as possible, most notably its creation in 1999 of the WiCell Research Institute, a nonprofit subsidiary. Located nearby, WiCell employs 37 people, mostly scientists, to cultivate, study, and distribute stem cells. WARF has spent millions to subsize the institute’s operations and WiCell has shipped its stem-cell lines to more than 350 research groups around the world.

Foundation leaders say many of the knocks against WARF come from companies that just don’t like the idea of having to pay a licensing fee. Other attacks, they say, are uninformed, disingenuous, and, particularly in the case of some of the California-based critics, self-serving.

“People are casting about for someone to blame for the slow progress of the science,” says Elizabeth L. Donley, a former general counsel at the foundation, who is director of WiCell.

Carl E. Gulbrandsen, WARF‘s managing director since 2000, also notes that some of the licensing terms that companies, academics, and the NIH found objectionable have been modified. He points out, for example, that WARF no longer demands that universities that use its stem-cell lines promise to share any potential profits from the research with the foundation.

Most universities, however, would never have tried to impose such revenue sharing on another university for such research uses.

Because of an NIH grant to WiCell, universities now pay $500, rather than the $5,000 WiCell originally charged, for the cells themselves.

Mr. Gulbrandsen also notes that in 2001, WARF undertook a lawsuit against the Geron Corporation that resulted in freeing some of the exclusive commercial rights previously granted to the pharmaceutical company as a result of its early sponsorship of Mr. Thomson’s research. Skeptics say the university should not have given such exclusivity to Geron in the first place.

But WARF still imposes strict rules on scientists who use its tangible property — its cell lines — prohibiting them from sharing the material with colleagues without explicit permission.

Researchers say the policies are more than a minor inconvenience and discourage the kinds of collaborations that are common in science. Some say the foundation shortsighted, since, after all, it stands to gain in the long run from progress in stem-cell science.

“They’re hurting themselves by slowing research,” says Lawrence S.B. Goldstein, a stem-cell researcher at the University of California at San Diego, who has worked under those rules. WARF says the rules are necessary to ensure that conditions set by the original donors of the embryos — such as not implanting the cells in a uterus — are met.

Mr. Gulbrandsen says that for ethical and political reasons, it is important that the foundation demonstrate that it is upholding those conditions, particularly in light of the influence of antiabortion constituencies in Wisconsin, which continue to try to outlaw research on human embryonic stem cells.

Ms. Donley, of WiCell, says companies’ complaints about the costs of upfront fees for the cells and commercial licenses, which begin at $75,000 for small companies and run to more than $1-million, plus royalties on sales, are just that, complaints. She says WiCell has active licenses with a dozen companies, big and small.

As for the licenses that WARF has sought from academic institutions whose researchers’ work falls under the broad stem-cell patent, Ms. Donley acknowledges that it is unusual. But, she argues, “it’s unusual technology.”

The foundation believes such licenses will help it to ensure that companies don’t use their sponsorship of research at universities as a backdoor way to evade WARF‘s patent. (Traditionally, universities granted each other “research exemptions” for academic work in fields covered by patents, although a 2003 court decision has raised questions about the scope of such exemptions.)

Complaints From 4 Universities

The licenses do not require universities to pay WARF when their researchers conduct stem-cell research. But they do say that if any of that research is being supported by a sponsor that expects to receive rights to commercialize any results of the research, WARF would consider that arrangement a potential infringement of its patent. Most industry-supported research agreements at universities include terms that give sponsors the right to negotiate for such rights.

Last November the University of California and three other universities — Rockefeller, Stanford, and Yale wrote WARF to complain about the licensing requirement. They never received a response. All four continue to conduct stem-cell research.

Mr. Gulbrandsen says the foundation has no intention of suing universities, but the licensing requirement remains.

As for companies, if they are going to make a lot of money from stem-cell innovations developed under their sponsored research agreements at universities, they should “pay fair consideration” to the patent holder, he says. The patent expires in January 2015.

Besides, he adds, WARF has its own licensees to protect. “My mission isn’t to please or subsidize other universities,” says Mr. Gulbrandsen.

WARF has taken the same attitude toward the California state agency created by voters there in 2004 with the goal of eventually spending $3-billion on stem-cell research in that state.

The foundation contends that if the agency, the California Institute for Regenerative Medicine, starts acting like a business — receiving income from the companies and universities that it supports — then it should be treated like any other business working with stem cells and obtain a license from WARF. The institute plans to raise money by issuing bonds, which it would repay in part with income from its grantees.

“They’re building a program on our rights,” says Ms. Donley. It would be “inequitable,” she argues, for the California agency to take a share of revenue “when we’re not.”

For now, this war of words between the states remains at a standoff. The California agency is at least months away from awarding its first research grants, because of lawsuits challenging the institute.

Meanwhile critics like Mr. Ravicher, of the Public Patent Foundation, are unconvinced that WARF‘s actions — including its support for its subsidiary WiCell, where scientists from around the world can learn techniques to work in this complex field — are anything but self-serving.

“It’s like Microsoft offering training in how to use Windows,” says Mr. Ravicher. “That’s not philanthropy.”

‘Hard to Bankrupt’

Founded in 1925, WARF is higher education’s oldest technology-transfer office. With an endowment of $1.6-billion, it is also the richest and most independent university-related patent foundation in the country. That wealth and autonomy has allowed it to play an unusually high-profile role, both on this campus and on the national stage.

Thanks in part to negotiations by WARF, Madison in 1968 became the first university in the country to win the right to own patents on inventions financed with federal money. The arrangements, later extended to other universities, eventually became the basis for the Bayh-Dole Act, the 1980 federal law that gives all universities the right to own and exploit inventions developed with federal grants.

Commercialization of research is now a major focus for colleges and universities, in some cases yielding tens of millions of dollars in revenue. WARF itself now earns tens of millions annually — $56-million in the 2006 fiscal year. (Although the foundation’s annual licensing revenues typically land it among the top 10 academic licensers in earnings, the amount pales next to the money it earns each year from its hefty endowment, which in the past few years has seen returns in the range of 9 percent to 11 percent.)

WARF exerts its influence in legal and political affairs. It frequently files friend-of-the-court briefs in appellate cases when patent issues are at stake. In the past year, it has been front and center before Congressional committees in hearings over ways to change the patent laws — at times voicing positions that have put it at odds with the Washington-based higher-education associations.

“We have the freedom to speak up for what we believe is in the best interests of university technology transfer,” says Mr. Gulbrandsen, the managing director. At other universities, patent lawyers or technology-transfer directors would typically need approval from the general counsel, university president, or state attorney general before taking such stands.

WARF also isn’t shy about suing companies that it believes are infringing its patents. Other universities usually are reluctant to undertake such litigation unless they have the financial backing of a licensee, for fear that the cases will be too costly.

The foundation doesn’t have that worry.

WARF is hard to bankrupt,” says John D. Wiley, chancellor at Madison, who has himself been the beneficiary of such a lawsuit. WARF sued Sony and Toshiba in 2003, claiming that a chip in the PlayStation 2 infringed a patented circuit design that Mr. Wiley had helped invent. The parties later settled.

Mr. Gulbrandsen says it was precisely those deep pockets that enabled WARF to pursue the lawsuit against Geron in 2001 that allowed it to win back in a settlement some of the exclusive commercialization rights it had granted to the company. (Geron still has exclusive rights to develop therapeutic and diagnostic products from neural, cardiovascular, and pancreatic cells grown from embryonic stem cells.)

WARF employees do answer to a Board of Trustees, which includes Mr. Wiley and seasoned business executives like Lee F. Raymond, a former chairman of ExxonMobil, and John P. Morgridge, current chairman of Cisco Systems. All the foundation’s trustees except the chancellor must be alumni of Madison.

But Mr. Gulbrandsen, who is himself a patent lawyer with a Ph.D. in physiology (he earned both degrees at Madison) says the trustees give him great leeway in matters of public policy and legal strategy.

Got Milk?

As might be expected here in America’s dairyland, WARF‘s fortunes began with research on vitamin D and milk. In the early 1920s, a professor, Harry Steenbock, discovered that the amount of vitamin D in foods could be increased by irradiating them with ultraviolet light. He wanted to patent his findings and give the intellectual property to the university. It turned him down.

So he turned to nine alumni, each of whom put up $100 to create a foundation that would control the patents, and the Wisconsin Alumni Research Foundation was born. Its first patent-licensing deal was an agreement with Quaker Oats, which used the technique to fortify the vitamin-D content of its breakfast cereal. A few years later the foundation executed deals with equipment manufacturers to create a process for irradiating milk, which gave birth to the era of vitamin-D-fortified milk. WARF earned about $14-million from the Steenbock inventions.

“It was 50 years ahead of its time,” says Hector F. DeLuca, a professor of biochemistry who came to Wisconsin in 1951 as Professor Steenbock’s protégé. Mr. DeLuca still conducts research on vitamin D, although the focus has moved on from rickets to conditions like osteoporosis.

With some 250 patents and four spinoff companies to his name, Mr. DeLuca is the university’s most prolific and financially successful inventor. He says his patents have brought in about $150-million for the foundation.

That money, and millions more from a host of other inventions — including technology used in magnetic-resonance imaging and a technique for treating hairballs in cats — has allowed WARF to leave its mark on nearly every building and laboratory on this sprawling campus.

In the years before there was substantial support from the National Institutes of Health or the National Science Foundation, patent income coupled with the investment earnings from that income, were the major source of research funds at Wisconsin. Today such income supports about 17 percent of the university’s nonfederal research spending and about 4 percent of its research spending over all. Chancellor Wiley says the money is “critical” because “it comes to us essentially unrestricted.”

As some universities often rely on athletics booster groups to supplement the salaries of football coaches, Wisconsin sometimes calls upon WARF to provide the money for “retention packages” to keep star faculty members at Madison. Last year, for example, the foundation put up $6-million to help build a new viral-studies institute, along with undisclosed additional amounts to help the university retain a noted bird-flu researcher. Mr. Wiley says the foundation has also helped to keep Mr. Thomson from being recruited away after he was featured on the cover of Time magazine.

The foundation also donates sizable sums for buildings: In 2001 it pledged $80-million for three new science buildings. A few months ago, it announced plans for a gift to match a $50-million donation from Mr. Morgridge and his wife, Tasha, to help build the Wisconsin Institute for Discovery. The state is contributing another $50-million.

With its gift, WARF is shifting into a role unusual for a technology-transfer office, and even a little unusual for WARF. Not only will it provide money to help develop the new science complex (and, as a condition of the Morgridges, be responsible for overseeing its design and construction), but it will also play a role in the new center’s activities. The complex will include a private research institute, named for the Morgridges, to which faculty members can receive temporary appointments.

The foundation’s trustees have agreed to subsidize the private institute’s operations for at least its first five years, a commitment that could run to $40-million annually if other donors or grant makers don’t step in. Mr. Gulbrandsen says WARF can afford those subsidies without cutting into its traditional level of support to the university, which in the past five years has grown from $45-million to $58-million.

Mr. Gulbrandsen says he hopes that the major new institute and its private component will attract more companies to support and collaborate with the university. Although the scope of the research programs to be undertaken in the two institutes is still being determined, university leaders expect that at least a portion of the complex will be set aside as “pre-incubator space,” where professors can take their early-stage research and, in a nonuniversity setting, advance it to the point where it could be commercialized. “The goal here is to increase the size of the pie for Madison,” says Mr. Gulbrandsen.

While some professors and deans here quietly wonder if WARF has larger designs, Mr. Gulbrandsen says influencing the direction of research at the institutes is not on the foundation’s agenda. All he wants, he says, is that WARF handle the patenting and licensing of any inventions that may result.

An Innovator by Necessity

Patenting and licensing remain major activities for WARF.

Last year it received more than 400 invention disclosures from faculty members and elected to pursue patents and licenses on about 60 percent of them, an unusually high rate but one that it can afford because of its endowment.

Among technology-transfer offices, WARF is considered an innovator. Given its location, far from the venture-capital hubs on the East and West Coasts, it sometimes has to be. Four years ago, for example, WARF opened a satellite office in San Diego, so that its licensing officers could be closer to potential licensee companies in the information-technology and biotechnology hubs there.

WARF also operates the WiSys Technology Foundation, a six-year-old subsidiary that handles patenting and licensing on the University of Wisconsin System’s 12 other four-year campuses, its 13 two-year colleges, and its extension service. The venture, which is augmented with funds from the state, has been cited by experts as a model of a cost-effective way to promote technology transfer at smaller institutions.

Last October the NIH designated WiCell as the National Stem Cell Bank and awarded it $16-million over four years to establish a distribution program for the 21 stem-cell lines eligible for federal funds. But as of today, the bank is distributing only WiCell’s five lines and three of six from a Singapore company, ES Cell International. The owners of the other cell lines, including the University of California at San Francisco, have so far failed to provide them to WiCell to distribute.

San Francisco researchers say they are still negotiating over whether to use the stem-cell bank. WARF acknowledges that it may never get the other lines. In some cases, says Ms. Donley, companies that own the cell lines are holding out because they have been unable to come to terms with WiCell and WARF over rights to conduct research covered by the foundation’s patents.

Wisconsin officials say they recognize that WARF‘s policies may have alienated companies and academics. But while they hardly welcome the criticism, they don’t apologize.

“Companies expect universities to be complete patsies,” and WARF isn’t going to play that role, says Mr. Wiley, Madison’s chancellor. Many of the academic critics are just jealous of WARF‘s leverage, he says: “If UCSF or Stanford owned these patents, you’d be having the exact same charges leveled against them.”

Mr. Gulbrandsen says WARF‘s position today is reminiscent of its control of those early vitamin-D patents, which gave Mr. Steenbock and his supporters their start. The patents did make a lot of money, he says, “but they also eradicated rickets” and saved lives.

Mr. Gulbrandsen says he expects WARF eventually to make money on its stem-cell patents, too, although probably not nearly as much as it will have spent promoting them.

Still, he says, the recompense in terms of scientific breakthroughs and perhaps even cures for debilitating diseases, will be the greater reward. Ultimately, he says, the payback will come in a currency “worth a lot more than dollars.”

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