Duke professors have raised concerns over a policy that entitles the University to a large percentage of the profit faculty and students receive from their inventions.

According to the Faculty Handbook, Duke is entitled to 50 to 75 percent of the net profit from faculty or student inventions created using University resources. These high royalties may pose a threat to entrepreneurship and innovation at Duke, and University policies for the distribution of collected earnings have left many faculty and administrators wanting. The policy that entitles Duke to such a large percentage has remained unchanged for over a decade and is something worth re-evaluating, said Gregory Wray, professor of biology and chair of the University Committee on Patent Policy, which oversees implementation and interpretation of the policy.

“Rewards need to go to the people who deserve it, and in such a way that they incentivize people,” Wray said. “Right now, we think that things might be a little bit out of balance.”

Under the current policy, Articles V and VI of the Policy on Inventions, Patents and Technology Transfer in Appendix P of the Faculty handbook require all inventions to be reported to the Office of Licensing and Ventures. Inventions are then divided into three general categories—those that are completely independent, those that use very little of Duke’s resources and those that rely heavily on Duke’s resources.

For the first category, all property and income rights go to the inventor. In both the second and third category, Duke first collects enough to cover the cost of the used University resources and then collects royalties. For the second, Duke has the right to collect a royalty of 10 percent of the gross income. The third category, which most University inventors usually fall under, gives Duke ownership of the invention and 50 percent of net earnings for inventions that earn anything less than $500,000, 67 percent for income between $500,000 and $2 million and 75 percent for anything over $2 million.

‘A chilling effect’

Duke is usually more generous than the actions outlined in Appendix P, said Bill Brown, professor of the practice of law. He said, however, that Appendix P could discourage the creation of inventions and entrepreneurship from occurring at Duke.

“It’s a chilling effect—knowing that if I have a big idea, I’m only going to get 25 percent of the profit,” Brown said.

The University of Virginia has adopted a policy where the University is entitled to 50 percent of royalties, regardless of the amount of income generated, Brown said. Stanford, like many other schools, has a one-third policy, in which a third of royalties goes to the inventor, another third goes to the inventor’s department and the last third goes to the university.

Brown noted that the Massachusetts Institute of Technology is even more generous.

“MIT, last year, only received 70 million dollars of royalties from its patents, and yet… the revenue of MIT-founded companies, if all put together, would represent the 11th largest country on earth,” he said. “MIT isn’t capturing this as royalties—they’re clearly more about creating an environment to allow this stuff to flourish rather than acting as a gatekeeper.”

Wray noted that although Duke’s 75 percent may be a bit higher than at other universities, it is rare for an invention to generate more than $2 million in net income, and if that were the case, 25 percent is still a lot of money for the inventor.

Furthermore, he added that Duke’s policy is unique in its use of a sliding scale, which looks into the amount of resources used.

“Most universities are pretty black and white on [resource use]—either you used it or you didn’t,” Wray said. “[Duke’s] second category gives us some middle ground to negotiate.”

Brown, however, said that Duke has never used the second category, and in fact, the gray area may actually confuse inventors and force them to be overly cautious.

“If you’re going to develop something out of your garage, make sure it’s fully out of your garage,” he said. “Even casual use of things like email or phones out of your university office—any one of these things could be problematic.”

An additional issue that Duke is trying to address is how student inventions and research play into this policy, Brown said. Currently, Duke students are subject to the same policy under Appendix P.

“For instance, if you developed something in your BME design class, you’d have to negotiate that with [Office of Licensing and Ventures],” he said. “There have been many situations in which that has occurred, and it has left many students frustrated.”

Allocating royalties

Bruce Sullenger, the director of the Duke Translational Research Institute, said lowering royalties would probably add some incentive for inventors and researchers at Duke. Sullenger, also the Joseph and Dorothy Beard professor of surgery, currently has a nucleic acid-based drug to prevent blood clotting licensed for future sale in the market, and said the biggest problem with Appendix P is how the collected money is distributed throughout the University.

Money that is not given to the inventor is distributed to a few divisions that the researcher is affiliated with, such as their lab, department and school. The rest of the money, however, is distributed to the Office of Licensing and Ventures and to the University itself as general research funding to be used at the discretion of the University president.

“The thing I don’t like is that the institutions that really help with those inventions are not being given any of the money,” Sullenger said. “The Duke Translational Research Institute helps inventors find opportunities to bring their inventions to the market, but they’re not on the list [in Appendix P].”

The allocation of money to the inventor’s department may be unjustified as well. Now more than ever, inventions are being made through the collaboration of two or more departments, Sullenger said. The inventor will probably belong to only one of those departments though, and it isn’t fair for only one of those departments to get money, he added.

“The invention and patenting process has a very complex structure, and that structure isn’t reflected at all in the distribution,” he said.

An outdated policy

Duke has taken steps in recent years to encourage entrepreneurship, but an outdated patent policy may slow the University’s progress toward this goal, Wray said. One thing that the patent policy has done is potentially deter innovative researchers from Duke faculty.

“If I’m on the job market, and I know that one thing that I really want to do is invent, I probably won’t go to Duke,” Wray said. “I’ll probably go to Stanford or MIT, where the way I do research will be nurtured.”

Wray believes that the only way to change this attitude is by building a more entrepreneurship-oriented campus community, but re-evaluating the patent policy is a necessary first step.

President Richard Brodhead has asked Wray to review the patent policy, and that process will be underway soon.

“The [royalty] rates have not been examined in the modern era where a large part of the revenue stream comes from medicine or software—it used to be all mechanical engineering,” Wray said. “It may be that the rates from back then are just fine, or maybe they need to be more generous or maybe less, but we won’t know until we look at it to see if it makes sense.”