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A new kind of auction at PSU, but will it work?

Written by Ben Allen, General Assignment Reporter | Apr 10, 2014 4:16 AM

(Harrisburg) -- Penn State is making history. It's believed to be the first university to hold an auction of intellectual property developed by its own staff.

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Professors, research assistants, and students spend countless hours in a lab trying to come up with a new technique or technology or discovery, but now, it could just take a couple thousand dollars to buy patents that resulted from what might have taken years to develop. 

"We realized that one-third of the patents were successfully licensed, but that means two-thirds of the patents had not been," says Ron Huss, Penn State's Associated Vice President for Research and Tech Transfer.

"So our office tried really hard. Our researchers helped where they could, but we were not successful in licensing large numbers of patents."

Huss and Don Mothersbaugh, also in the Tech Transfer Office,  put together the idea for the auction. Some universities have gone to auction houses to sell their patents. But PSU wanted to maintain some level of control and try something new.

It’s not much different than your typical eBay auction. You register, browse the patents available, and place a bid. However, these are not your typical technologies. With names like “Transfer having a coupling coefficient higher than its active material” or “Active-passive hybrid constrained layer for structural damping augmentation”, they’re awfully specialized. 

"The word is esoteric," And therein lies the problem, says Tom Major, Vice President of auction house IP Offerings. 

"They’re so advanced, they’re so esoteric. A professor walks in, he’s excited about it, sounds promising, they file a patent on it. He’s got a few experiments that show how it works. Most bigger companies would rather spend $50 million on buying a company that’s got some product that’s on the road to commercialization."

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Major once worked in the technology transfer office at the University of Utah and saw much of the same problem. He says his auction house probably wouldn’t even take some of the patents up for sale. 

"I work primarily on commission, so if all I could get is $5,000 for a patent, I wouldn’t want to do that deal."

Huss and Mothersbaugh, the architects of the Penn State approach, say they would consider the auction a success if they sell 15 to 20 percent of the patents.

"We are getting a lot of inquiries from companies and individuals that we've never spoken with in the past, who are now speaking to us about other patents that are not in the auction that are available for patenting. It’s already a success," says Huss.

Major says after looking over the list, he would be surprised if two or three patents sold. 

As of last check, not a single bid has been placed on any of the about 70 patents available. Most fall within the range of $5,000 - $10,000.

"May just take one on a lark, thinking that it wouldn’t hurt for that price. Boy, it’s a low price and I’m not even sure it’s going to pay for the patent expenses," says Tom Major.

Don't forget about the patent expenses. It costs money to register for a patent, and fees along the 20 year life of a patent. So if this sounds like a money maker for Penn State, even the architects didn’t see that.

PSU may have to confront another, more complicated issue though. They're often referred to as patent trolls, but are more formally known as non-producing or non-practicing entities (NPEs). ("This American Life" wonderfully illustrated what it means to be a patent troll in this episode.)

Robin Feldman is a law professor and director of the Institute for Innovation Law. After reviewing the license agreement offered by Penn State, she saw a serious risk patents, if sold, end up with patent trolls.

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"Much of the NPE activity is not societally productive, the way it is operating right now," says Feldman.

"We aren’t seeing new products, what we’re seeing is a tax on production and a tax on companies of all different kinds."

Universities that turn patents over to auction houses often adopt a “Don’t ask, don’t tell” attitude towards where the patents end up. What concerns Feldman is if Penn State’s auction is successful, more universities will feel pressure to try this, and more patents could end up with trolls.

"I think it is a marvelous idea for universities to be proactive, if it were coupled with some type of protections to make sure that new products will come out of it and that it does not end up in schemes that are societally non-productive and economically draining, it would be a wonderful thing."

For its part, PSU says most of the inquiries have come from companies that do intend to actually use the patent and not just as a weapon to extract money from other tech and manufacturing companies. Feldman says if government grants were used to help move research along to get a patent, universities would be better off just turning the technology over to the public domain.

Putting all that aside for now, Ron Huss with Penn State says the school can only deal with what they know right now.

"The auction has drawn much, much more attention than we would’ve ever imagined, and it seems to have captured people’s imagination."

Attention is one thing. Those in the intellectual property industry and at universities across the country are watching for the results.

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