JOHN R. KROGER

ATTORNEY GENERAL

EXECUTIVE SUMMARY

“Technology transfer,” as discussed in this report, refers to the conveyance of rights in intellectual property from a university to external entities, typically participants in the private marketplace. The transfer ideally provides an economic return to the university and delivers technological innovation for private development and public benefit. Technology transfer generally consists of identifying emerging innovations or useful technology in the universities, matching those innovations and technologies with a commercial or other interest, and consummating an agreement under which that party may market, use or develop the technology.

Oregon’s technology transfer processes are subject to persistent criticism from various quarters. Critics argue the Department of Justice’s contract review is an unwarranted impediment to business relations and to economic development.

Attorney General John Kroger accordingly announced this examination of Oregon’s technology transfer processes on January 6, 2009, the day after being sworn into office. That announcement is consistent with Attorney General Kroger’s commitment-embodied in the Department of Justice’s new mission statement-to promote a positive business climate in the state. President Obama’s address to Congress on February 24, 2009, referred to innovations in the nation’s universities as a key component for economic recovery. The Attorney General intends to ensure that the Oregon Department of Justice is facilitating so far as practicable that important objective.

Under Oregon law, Department of Justice review is required for technology transfer contracts over $100,000 and for technology transfer contracts with other states or nations, unless such contracts are exempted by the Attorney General. The Attorney General has authorized certain special assistant attorneys general (SAAGs) employed by the universities to conduct this review.

To determine whether a change in the existing contract-review processes is warranted, we have considered among other things: (1) the private marketplace’s perception that Department of Justice review causes intolerable delays, rendering business with the state’s universities less attractive; (2) the assurances of the universities within the OUS that they are fully equipped, able, and committed to providing all reasonable and prudent contract review internally or through outside counsel; and (3) the fact that the current process, requiring Department of Justice review of some technology transfer contracts, is anomalous and inconsistent with accepted and successful practices in other states.

Based on the aggregate of all pertinent considerations, the Attorney General has decided-effective immediately-to exempt all OUS technology transfer agreements from any mandatory Department of Justice review, including legal-sufficiency review and review under ORS chapter 190. The Attorney General also will promptly and on an ongoing basis consider for approval as special assistant attorneys general any attorney the universities anticipate wanting to voluntarily consult on technology transfer matters. Together, these changes should eliminate any hindrance that Department of Justice review may have created to technology transfer at the universities.

BACKGROUND

1. Scope of this report.

Oregon’s technology transfer program-like other universities’ technology transfer programs-advances complementary objectives. First, technology transfer is intended to deliver intellectual property from the universities to the private sector, where it may generate economic development and where it can benefit society. Further, technology transfer is intended to compensate the universities for their critical role in facilitating innovation, thereby funding the universities’ missions going forward. Those purposes are well-settled and are not questioned in this review. This report instead has focused on efficiencies in achieving those settled objectives.

Specifically, we have undertaken a cost-benefit analysis of the existing requirements for Department of Justice contract review. That has included a national survey and a comparative look at technology transfer processes in other states.^[1] We also have solicited and drawn on insights from stakeholders and participants in Oregon’s and other states’ technology transfer processes.^[2] 

2. The existing technology transfer systems and processes.

Because each of the universities within the Oregon University System has tailored its own technology transfer system and processes, no generic description applies universally at any level of detail. The technology transfer programs do, however, generally seek to identify promising technology in development, to match that technology with appropriate business ventures, and to negotiate contractual terms by which to license private use of the technology.

The separate universities have differing strategies and differing levels of involvement at the phase of identifying potentially marketable innovations and connecting those innovations with appropriate private interests. Once that connection is made, the systems in place to negotiate and finalize contracts also may vary somewhat from one university to another. Under Oregon law, the Attorney General is to review technology transfer contracts over $100,000, or such contracts with other states or nations.

3. Summary of consultations about Oregon’s existing processes.

We have conferred with representatives of industry, including the venture capital market, attorneys who represent private clients in technology transfer negotiations, the special assistant attorneys general employed by the OUS and its member institutions, and representatives of the universities’ technology transfer offices, among other people. Discussions with all stakeholders provided a clear picture of dissatisfaction with Oregon’s existing technology transfer systems and processes.

Stakeholders stress the critical importance of alacrity in finalizing technology transfer contracts. Even a short delay to comply with legal review requirements reportedly may scuttle a potentially lucrative deal. Furthermore, a perception clearly exists that the requirement for Department of Justice review is a significant obstacle. The expectation that such delays will be a routine part of working with Oregon universities-regardless of whether that expectation is well- or ill-founded-creates a significant disincentive to potential business partners.

We also encountered consensus among university SAAGs that the existing requirement for review of technology transfer contracts is cumbersome and unwarranted. Through its SAAGs, the university system recommended broad and categorical exemptions for technology transfer contracts. The SAAGs expressed unqualified assurances of their own intent and qualifications to conduct all appropriate and prudent contract reviews. The SAAGs represented that “campuses are very willing to be ultimately responsible for these agreements, including any risks the agreements might present.”

4. Comparative review of other states’ processes.

Our comparative review included several components. First, we researched regulatory requirements in different jurisdictions. Second, given the absence of any uniform and objective measure for the success of a technology transfer system, we conferred with experts on that question. Last, we took advantage of the National Association of College and University Attorneys’ extensive resources on technology transfer.

We have found that the current approach in Oregon-incorporating Department of Justice review of some technology transfer contracts-is anomalous among the states. Most leading universities instead use their own university counsel and private specialists in the technology transfer area. Review by the state’s attorney general is not generally required. Such review instead would be considered redundant.

States considered to have model technology transfer programs include California, Florida, Maryland, Michigan, Minnesota, North Carolina and Washington. We found no legal compulsion in those states for public universities to secure Department of Justice review of their technology transfer contracts. Indeed, a former president of the Association of University Technology Managers said he was unaware of any other state that required its Department of Justice to review university licensing deals.

ANALYSIS OF DEPARTMENT OF JUSTICE PROCEDURES

The existing Department of Justice contract reviews are intended to mitigate potential risk to the state. To take several specific examples, the reviews are intended to avoid potential liability to the state, to avoid lost economic opportunity, and to prevent inadvertent waiver of rights (such as immunities) or commitment to unlawful contract terms. Those are, of course, meritorious objectives, and the Department of Justice possesses considerable expertise in those areas.

Nevertheless, we recognize that competent and able counsel are authorized as special assistant attorneys general in the university system. Several of these attorneys have received Department of Justice training in contract review and already are authorized to provide contract reviews internally for some categories of contracts. We are mindful of the universities’ assurances that they are able and committed to provide all prudent and appropriate review for technology transfer contracts.

Our analysis also is affected significantly by the comparative review of practices in other states, particularly the fact that potentially redundant Department of Justice review in Oregon is anomalous, at least among states with successful programs. Ultimately, we are persuaded that the risk-avoidance served by contract review is adequately served by internal review of technology transfer contracts, guided by and reliant on the professional judgment of the special assistant attorneys general within the OUS. We accept the universities’ assurances of that fact.

Several other factors weigh further in favor of accepting those assurances and eliminating Department of Justice review, as requested by OUS. Some of those factors have been alluded to above.

First, market participants perceive that Department of Justice review presents a significant, consistent, and time-consuming hurdle in technology transfer dealings. Notably, we have found on closer examination that much of the criticism may be unfair and ill-founded. Indeed, the Department of Justice has had a vanishingly limited role in technology transfer agreements for several years. It remains the case, though, that a negative perception exists, and it is clear that the perception alone could have a disruptive effect on business relationships.

Moreover, Department of Justice review, when required, necessarily does take some time. The review typically takes a few days, at least where problems are not identified. While that delay may seem modest, we are persuaded by discussions with market participants that even a short delay-together with the uncertainty that a review entails-significantly dissuades many potential business partners from engaging with the universities.

On balance, we conclude that the value added by Department of Justice review of technology transfer contracts does not warrant the adverse ramifications. We rely on the universities’ representations that all appropriate care will be taken to avoid risk of public liability, to protect the state’s opportunities for profit, to avoid inadvertent waiver of immunities, and to ensure that subject contracts are lawful in all particulars.

ACTIONS

Based on our review of practices in other states, and based on the specific concerns expressed about Oregon’s idiosyncratic contract review procedures-most particularly in view of the adverse climate for business created by the reputation for delay-we have concluded that changes to the Department of Justice’s role are appropriate and are within the Attorney General’s control. Specifically, in view of the university system’s representation that “the campuses are completely capable of managing the business and legal aspects” of technology transfer transactions, we will implement the following actions.

First, we will exempt, by rule, OUS technology transfer agreements^[3] from mandatory review under ORS Chapter 190. This exemption will not prevent OUS from establishing its own internal legal review requirements, if it deems such requirements appropriate.

Second, we will exempt, by rule, all OUS technology transfer agreements from required legal sufficiency review. This change will generally expand the exemption that previously was limited by a $100,000 cap. This exemption will not prevent OUS from establishing its own internal legal review requirements, if it deems such requirements appropriate.

Third, we will add outside counsel firms for technology transfer matters as the universities may request from time to time, provided the firms and proposed SAAGs within the firms are acceptable to the Attorney General. We will designate the university SAAGs as supervising attorneys with responsibility to ensure adequate protocols for payment to outside counsel, oversight of their performance and review of their work product for consistency with state law and applicable DOJ policies.

Once these steps are taken, it will be incumbent on the university system’s in-house SAAGs, as the Attorney General’s representatives, to ensure that appropriate legal services that protect the interests of the state are provided in these matters. We also expect those SAAGs to notify the Attorney General in the event circumstances change such that the exemptions are no longer appropriate.

The Department of Justice will schedule and provide training on recurrent issues in technology transfer. This training will be mandatory^[4]. Further trainings may be held as deemed by the Attorney General to be warranted.

The Department of Justice also will require each university-employed SAAG to include in each quarterly report a section on technology transfer. In that section, the SAAGs will be expected to describe any technology transfer deals or issues they worked on during the period.

Of course, The Department of Justice will remain available to consult about technology transfer matters with the Oregon University System and its member institutions, if the universities voluntarily seek advice on particular matters.

^[1] For example, Venture Capital – University Interface:  Best Practices to Make Maximum Impact at http://stevens.usc.edu/docs/vcstudy.pdf.

^[2] We are grateful for the generous participation and input we received from dozens of people in the course of this review.  Of course, the descriptions and conclusions in this review are our responsibility alone.

^[3] “Technology transfer agreements” means material transfer agreements (contracts that govern the transfer of tangible research materials between OUS and another organization) or agreements with a predominant purpose to grant a license in OUS intellectual property and related agreements.  Related agreements are agreements to manage interests in OUS intellectual property, to combine management of interests in OUS intellectual property with management of interests in intellectual property from other parties, agreements that transfer ownership of intellectual property between OUS and other parties, agreements governing revenue sharing from licensing, and confidentiality agreements regarding intellectual property.

^[4] Those university-employed SAAGs who already have received this training need not attend this session.

Contact:

Tony Green, (503) 378-6002 tony.green@doj.state.or.us |