Author Archives: Alex Zapesochny

The Bayh-Dole Act and the Next Chapter in University Commercialization

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Bob Dole’s 89th birthday on Sunday got me thinking about the significance of the Bayh-Dole Act of 1980 and the history (and future) of university-based innovation commercialization.  My first job after law school was working as an aide to the Director of Policy of Bob Dole’s 1996 presidential campaign.  It was in that position that I first heard about Bayh-Dole and the simple idea behind it: give universities, rather than the federal government, the intellectual property and commercialization rights that result from federal research funding.

The impact of this bipartisan legislation has been transformative for American innovation and economic progress over the three decades since its passage.  At the time Bayh-Dole was enacted, the US government held over 28,000 patents, with less than 5% of those ever getting commercialized.  Since then many thousands of new products and companies have been created based on university research, including numerous critical healthcare advances such as synthetic penicillin, the hepatitis B vaccine, and key therapies for cancer and Crohn’s disease.

By one estimate, 30% of the value of the NASDAQ stock market is rooted in federally-funded university research, and the Economist has written that Bayh-Dole was “[p]ossibly the most inspired piece of legislation to be enacted in America over the past half-century,” and that it “[m]ore than anything…helped reverse America’s precipitous slide into industrial irrelevance.”

Yet as much as Bayh-Dole can be credited with tremendously accelerating the commercialization of university-developed innovations, many studies have also demonstrated that this commercialization can still be done much more optimally.  In particular, while tens of billions in federal funding is spent on university research, there are comparatively few resources available for building prototypes or conducting proof-of-concept activities to translate university research into potentially commercialization-ready inventions.

The dearth of this so-called “gap funding” has become a critical bottleneck in research commercialization.  And at Innovocracy, we are working with universities and inventors to see if the new simple idea of our time – the power that can be achieved from harnessing the wisdom and resources of a “crowd” – can help ameliorate this significant shortcoming.

In some ways you can think of what we do as providing a platform for micro-gapfunding, which enables each one of us to play a role in bringing into existence the university-originating technologies and solutions that we believe would be most useful to society.  We hope this may be another example of a simple concept having a historic and life-enhancing impact, and we look forward to working with all of you to turn this vision into a reality.

Crowdfunding lessons from the story of a bullied bus monitor

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Given that Innovocracy is headquartered in Rochester (NY), I watched with particular interest as a local story involving crowdfunding became an international sensation over the past week.  By now most of us are familiar with Karen Klein, a 68-year-old bus monitor who was mercilessly taunted by a group of middle schoolers on the last day of school.  One of the kids filmed the encounter and soon the appalling video had gone viral.  The video caused swift outrage, as well as an outpouring of sympathy and admiration for Klein.

A complete stranger in Canada by the name of Max Siderov decided to set up a crowdfunding campaign on Indiegogo.com to raise $5,000 so that Klein could go on a well-deserved vacation.  Within days hundreds of thousands of dollars in donations had come in, and by yesterday the total got up to a startling $661,000.

This story is of course about a lot more than crowdfunding, but that element of it is also remarkable and telling.  In particular, there seem to be at least three lessons relative to crowdfunding, and these would be worthwhile to keep in mind for those considering the submission of their projects to Innovocracy.

First, Klein’s story provides further confirmation, among many other indicators, that the breadth and magnitude of crowdfunding is expanding rapidly.  What began as a way to fund creative projects is now finding ever-wider applications in the realms of charity, social action, entrepreneurship and innovation.  Further, as more and more people utilize crowdfunding, the network effect will continue to grow, perhaps exponentially.  Over time it is likely that crowdfunding activity will be a central way in which many people will publicly and privately express who they are and what they care about.  This will greatly empower those individual contributors, and provide an unparalleled opportunity to those who can convince others of the merit of their ideas.

Second, while what happened to Klein was terrible, it was actually seeing what happened to Klein that really caused this news story and the resulting crowdfunding campaign to grow so large.  Of course few videos can achieve the raw emotional impact that the Karen Klein video has, but a well-presented video can make a huge impact on a crowdfunding campaign.  While there have been a number of articles recently arguing that every person should learn how to program a computer, an argument could be made that most people, and especially those seeking crowdfunding dollars, could also greatly benefit by learning to create well thought-out and poignant videos.  While the written description of your project is important, it will often be that video that really ends up swaying the decision, so effort on getting it done well is time well spent.

Third, Klein’s story also reinforces that what most often moves people to take action is a genuine emotional connection to the cause or goal behind the project.  Many of us really appreciate great science or new ideas, but we are passionate at a whole other level when it comes to doing something significant about the problems we most care about.  This is why we at Innovocracy continue to believe that projects in areas like healthcare, sustainability, poverty alleviation (via, for instance, extreme affordability) and early education are the kinds that will do best on our platform.  Further, this also means that the key to successfully using the Innovocracy platform will not only lie in explaining why your innovation is scientifically superior but in being able to clearly and compellingly explain why your project can make a dent in creating a better world.

From the way you express the problem you are trying to solve, to the video and text you use to describe your solution, you must remember that it is passion and not just science that will more often enable you to achieve your crowdfunding goal.

Why Innovocracy Became One of New York State’s Early Adopters of Benefit (B) Corporation Status

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We have been asked a number of times why Innovocracy chose to become a Benefit Corporation (sometimes known as a B-corp), as opposed to operating as a traditional for-profit entity or as a non-profit.  Like for many organizations that have as its main mission an activity that could clearly be characterized as benefiting society, the decision of what legal form Innovocracy should take was a difficult one.  There are various considerable pros and cons to each type of legal entity.  But after New York State became the most recent jurisdiction on February 1, 2012 to allow entities to form as B-corps, we ultimately decided to become an early adopter of this potentially transformative hybrid model.

A B-corp largely operates as a for-profit entity, in that it is able seek profitability and pays full taxes in relation to those profits, the same as would a for-profit.  Importantly, the ability to make and distribute profits also means that B-corps are able to have investors.  In many cases this is crucial and was one of the main factors in Innovocracy’s decision.  While the non-profit model is best for some types of endeavors, what Innovocracy is doing in utilizing crowdfunding to support university-based innovation takes considerable and often rapid deployments of investment.  This is needed to hire enough qualified personnel to work with the universities and innovator teams and to make sure our website and platform provide a truly great user experience for all involved.  There are of course many generous people and organizations out there that would have contributed to a non-profit version of Innovocracy, but these charitable funding streams are generally smaller and it is hard to control the timing of when they are given.  For instance, the process of applying to foundations and similar organizations for funding often takes many months of effort and waiting.  Plus, we did not want to take charitable dollars that could instead be going to other entities and causes that are only able to operate within the realm of charitable activity, when in reality Innovocracy could also operate by seeking investment dollars.

While a B-corp operates in many ways like a traditional for-profit, it also operates with one very considerable constraint in that it must pledge to operate in a manner beneficial to society (the benefit provided must be a “general benefit” that reflects the company’s activities as a whole, though companies can additionally designate “specific benefits” that they will achieve).  Very importantly, B-corps must also regularly be measured against a third-party standard to determine whether they are meeting their pledges, and the results of that determination are distributed to shareholders and otherwise made known in order to promote transparency around each B-corp’s beneficial activities.

Another main difference between B-corps and for-profits is that a B-corp can take into consideration how its actions affect its benefit-related goals and do not have to make decisions purely to maximize profit.  Directors and officers at traditional for-profits generally do not have this flexibility, as they have a fiduciary duty to maximize investor returns, and can even be sued and held financially liable if they fail to do so by taking into account some non-financial consideration.

When we weighed all of these factors, we decided the most appropriate path for Innovocracy was as a B-corp.  This allows us to raise investment dollars, so that our technology can be quickly iterated over time and so that we have enough great personnel to work closely with our university partners.  This framework also reminds us each day that what we are doing is not just a vehicle for profit and that our decision making can and should reflect the long term benefits we are trying to achieve rather than short-term thinking about financial returns.  It further makes everyone at Innovocracy keenly aware that we will regularly need to prove to our various stakeholders that we are operating to provide a benefit to society.

Over the coming years, we hope to provide a lot of value to society by enabling many amazing technologies to benefit the general population.  We also hope that many new companies will spring up as a result of our efforts, and we are already seeing this becoming the case.  Along the way we plan to make some investors that risked their hard-earned capital on our dream happy as well.  The B-corp status enables all of that and more, and we are happy to be among the small but growing group of companies that are using this new organizational vehicle to, as the saying goes, do both good and well.

Academic Crowdfunding and Resulting Intellectual Property

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At Innovocracy we have often been asked by innovators interested in our platform what effects, if any, raising money through crowdfunding will have on the intellectual property (IP) rights related to the project for which they are seeking funding.

In the rush to participate in the exciting world of crowdfunding, this may be an underappreciated question.  As with most things related to law, the answer is somewhat context-specific.  However, there are certain mechanisms with academic crowdfunding that can create risks and delays in regard to IP and others that can avoid them.

For instance, if an innovator works with a crowdfunding site where the money raised goes directly to the innovator to further or make possible some project or invention, an argument could in some cases be made that the “research sponsors” have obtained some claim to resulting IP.  Presumably the involved crowdfunding site would have put in place legal terms and conditions applicable to the donors to prevent this kind of claim or misunderstanding, but even that does not mean that a donor may not have a legitimate (at least on its face) legal claim.  At that point many details related to the transaction would need to be examined, possibly by a court of law.

Are the terms and conditions on the website related to the transaction – as well as any other published descriptions of the process – adequate, conspicuous and clear in terms of the donor not having any rights to resulting IP?  Was the donor’s acceptance of those terms (often accomplished when someone clicks a box at the end of a pop-up window) adequate?  Were there any conflicting messages, communications or understandings that might have lead a donor to believe they have rights to IP?  Even if the answers to these questions ultimately favor the innovator, the initial lack of clarity could cause significant delay and expense.

Conversely, by actually working through the internal mechanisms of the university in which the innovator resides and having the funds flow to the university (pursuant to an agreement between the crowdfunding site and the university), this becomes a largely non-existent concern.  Universities have clear and consistent legal agreements with providers of funds about resulting IP, and the necessary language would be present in a mutually signed contract between the university and the crowdfunding site.

There are of course other advantages, beyond clarity of IP rights, to having funds raised through crowdfunding for academic innovation go through the university.  As one of my colleagues at Innovocracy has elaborated on in a recent blog post, the use of research funding within universities is a highly complex area.  Universities are required to put in place complex accounting and compliance systems to make sure funds for particular research and purposes are being accurately used and accounted for.

Funds that are provided to innovators outside of that university infrastructure (which in many universities could not even occur), can create considerable headaches and administrative hassle.

More on that topic in a future post.