The Other Senate: Big Money Inventions?

This is the first in a series of posts I plan to make about reports to the Faculty Senate entitled The Other Senate, first mentioned here.

Stanford is universally recognized as a major center of innovation, with top-ranked research centers in almost every field. As it sits at the heart of Silicon Valley and as its grads have gone on to found companies like major powerhouses Google and Hewlett-Packard, its reputation certainly attracts talented engineers and scientists. However, besides attracting great students (who, it should be mentioned, also make great alumni: Hewlett and Packard together donated a cool $300 million to Stanford University), what does all this innovation do for Stanford?

In 1970, Stanford University became the first university to establish an Office of Technology and Licensing (OTL) to handle the patenting and licensing of inventions made with the help of university resources. The OTL may file for patents on inventions that are:

…conceived or first reduced to practice in whole or in part by members of the faculty or staff of the University in the course of their University responsibilities or with more than incidental use of University resources… [emphasis in the original]

Indeed, any invention that meets those criteria must be disclosed to Stanford, which gains immediate title over it. The inventor may choose to release his invention into the public domain, but otherwise, Stanford owns it.

Since 1970, Stanford associated inventors (faculty and students) have disclosed about 7,400 inventions, of which it appears that the OTL has chosen to pursue roughly 5,000, as it has executed 2,800 licenses already and has 2,200 active cases. Once an invention is chosen to be licensed, it still takes years to see any benefit. The patent process takes 3-5 years, followed by a search for firms needing the technology, and finally the time taken to bring a product that uses the technology involved to market. For the most part, the OTL relies on inventions from 10-15 years ago for its current income.

This, of course, brings us to the really interesting question: what kind of income are we talking about? The answer: 1.14 billion dollars, of which over $1 billion went to Stanford or to the inventor. Where did this money come from? A lot of small inventions or a few big ones? Well, as I suspect it is with donors, the answer is basically a few big inventions. Check out this list of featured inventions:

![Major Inventions Covered by the OTL](
Major Inventions Covered by the OTL
As you can see, about half of the income comes from two inventions: recombinant DNA and Google’s improved search. Throw in functional antibodies and you can see that almost ***61*** percent of the OTL’s income has come from the top ***.1*** percent of inventions that it has licensed. From the report given by the Director of the OTL, Katherine Ku, it appears that only 77 inventions (or 2.75 percent of inventions licensed thus far) have broken the $1 million mark, meaning the the overwhelming majority of inventions bring it much less.

Based on the statistics given by Director Ku, that “only 19 cases brought in over 5 million” and that 58 cases “brought in about a million dollars,” using the above chart, and assuming that unmentioned “over $5 million” inventions brought in exactly $5 million we get this picture: the top 77 inventions brought in 988.5 million dollars. This means that the other 2723 licensed inventions have, on average, brought in only about $46,000. The actual answer is even slightly less than this because of the assumptions I used, but this should give a good picture.

Given that the cost of a patent is about $20,000-$25,000 (I assume that this includes labor on Stanford’s end), this is still fine, since it probably takes only about $50,000 or so in licensing revenues for an invention to break even (the additional costs are involved in finding companies to use the invention; remember that the money invested in actually creating a product based on the invention comes out of the company, not out of Stanford). The average invention likely breaks even (roughly), but the winners are what make this office important.

Clearly the OTL will continue to an important, if unpredictable (the profit from Google comes from the fact that Stanford takes equity stakes in start-ups that can’t afford conventional licensing; who could have predicted its rise?) source of income for the university. Who knows what the next big one will be?

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