Startup Act 2.0: Free Agency Is Still There, Still A Problem

Editor’s note: Laura A. Schoppe is the president and founder of Fuentek, LLC, a consulting firm that provides intellectual property and technology transfer services.

On May 22nd, Sens. Moran and Warner were joined by Sens. Rubio and Coons in introducing Startup Act 2.0, a revised version of legislation proposed last December that contained questionable provisions to allow university professors to choose their own agents to help transfer their technology rather than be tied to their home university’s technology transfer office (TTO)—the so-called free agency provision.

I dug into the new legislation, comparing it to the original wording, to figure out exactly what’s changed (besides the fact that the accelerated commercialization of research provisions are now part of Section 8 rather than 7). Here’s what I figured out.

This legislation is not much better than the original version when it comes to the free agency issue in managing university intellectual property (IP). All of my previously stated concerns (as well as those stated by AUTM®) about the practicality of giving individual innovators authority to commercialize their own technologies still holds.

But let’s look at the specifics in the bill.

The Grant Program in General

What it says: Per Section 8(b)(1) on page 25, funding will come from taking $150K for every $100M in R&D funding from all government agencies and giving it to the U.S. Dept. of Commerce’s Advisory Council on Innovation and Entrepreneurship for awarding two types of grants: Capacity Building Grants and Accelerator Grants.
What it means: Less funding is available for the actual work of developing innovative technologies. There also is no indication of how this funding will be split between the two types of grants.
My thoughts: R&D funding is already on the decline, and this funding structure will further erode that critical situation. Furthermore, the legislation should state how much is to be allocated to Capacity Building Grants versus Accelerator Grants. Not only is this needed for transparency, but it also would make clear Congress’s intent for supporting technology transfer initiatives, because there are key differences in these two grants, as you will see below.

Capacity Building Grants vs. Accelerator Grants

What it says: The stated goal of the Capacity Building Grants (Section 8(b)(2)(B) on page 27) is to accelerate commercialization through licensing and startups and, in particular, “to support innovative approaches to achieving these goals that can be replicated by other institutions.” There is no goal stated for the Accelerator Grants; rather, it states only that it will “allow faculty to directly commercialize research” (Section 8(b)(2)(B) on page 28).
What it means: The Accelerator Grants appear to be in conflict with the Capacity Building Grants because, by basing their construct on individual innovators (i.e., their personal skills and desires), it’s impossible to develop best practices and a repeatable, sustainable structure.
My thoughts: The Accelerator Grants will be one-off successes (or failures) where the return on investment to our society as a whole cannot be fully realized, even if a few of the grantees do achieve some economic success. (Not only will the investment be far greater than the payback, but the success can’t be leveraged by or replicated at other institutions or in related situations.) Furthermore, the implementation appears not to have been thought through. For example, let’s look at…

Awarding of Grants

What it says: Per Section 8(b)(2)(A)(i) on page 25, the two types of grants shall be awarded “to institutions of higher education.”
What it means: Well, I’m not sure, because I can’t figure out how the Accelerator Grants are to be implemented by the innovator if funding has to be awarded to the institution. Is the intent that the institution (e.g., its TTO) actually receives and controls the funds and is responsible for the implementation of singular projects, much like a seed fund? If this is the case, then it is erroneous (or perhaps disingenuous) to state that the Accelerator Grant allows “faculty to directly commercialize research” since they in fact are not directly responsible or have the authority to do the commercialization project.
My thoughts: This legislation should be changed so that either (a) Section 8(b)(2)(A)(i) is clarified to include the ability for individual innovators to submit and receive grants or (b) Section 8(b)(2)(B) is modified to more accurately describe a seed-type program. (BTW, I have no objections to a seed-type program, but I think the funding levels should be substantially lower than those of the Capacity Building Grants.)

At the end of Section 8 (on page 32), the bill explicitly states that nothing in the section changes the Bayh-Dole Act, which specifically authorizes the institution to hold the IP rights and therefore control the decisions on commercialization. This control also includes an institution’s ability to “release” the technology to the innovators to allow them to expend their own resources (time and money) to patent, license, and otherwise commercialize the technology.

It’s kinda funny that this aspect of how TTOs can release the IP to the innovator is equivalent to the desires of Kauffman’s free agency concept but provides clarity on authority and responsibility.

Well, I guess you’d need a pretty dark sense of humor to find that funny.