Berkeley's Gilbert challenges Baker's forecast of large Proposition 71 patent royalties
IPBiz has previously noted inconsistent positions on stem cell patent royalties from Proposition 71 arising from different professors at Stanford University (Baker compared to Noll).
Another professor (Richard J. Gilbert of UC-Berkeley in 21 Berkeley Tech. L.J. 1107) has challenged Baker's analysis indicating large patent royalties. Curiously, neither Gilbert nor Noll mention Hwang or the impact of the Hwang fraud on the timeline for embryonic stem cell research. From the Gilbert article:
In addition to the potential for stem cell research to improve
lives, some supporters of Proposition 71 also promised large royalty income from
the licensing of new technologies that would result from CIRM-funded
research. n3 A study prepared by Laurence Baker, Professor of Health Research and
Policy at Stanford University, and Bruce Deal of Analysis Group ("Baker-Deal
study") predicted that the state would earn from $ 537 million to $ 1.1 billion
in royalties from research funded by Proposition 71. n4
(...)
The Baker-Deal study uses a "prospective" approach to estimate
royalty income from CIRM-funded research. This method estimates the likely number of major new therapies that will be introduced using technologies developed with CIRM research support and the expected revenues from these new therapies,
and applies a royalty rate to estimate licensing income. An alternative approach is
"retrospective," based on actual royalty [p. 1110] generation by
research funded by universities, hospitals, and research institutes. Both approaches
have merit as a means of estimating likely royalty income. n5 The time cost of
revenues is a major issue, because it takes years to apply basic stem cell research to produce useful therapies and many more years for those therapies to
wind their way through the U.S. Food and Drug Administration approval process .
(...)
The obvious problem with this [Baker-Deal] calculation is that a dollar of
revenue earned ten years in the future does not have the same value to the state as a [p. 1111] dollar of revenue earned in the present. (...) A correct value calculation should discount future revenue flows by the time value of money. While reasonable people may disagree over the appropriate choice of a discount rate, a number at the low end of the range is the rate of interest paid by ten-year treasury bonds.
(...)
Applying the interest rate on treasury bonds reduces the estimated
royalties in the Baker-Deal study by about sixty-five percent. A higher discount
rate, which is arguably appropriate to account for the high risk of stem cell
R&D, would result in still lower present value royalty income.
(...)
Under these scenarios, the state's financial return from royalty income for
research funded by CIRM will be extremely modest. The state of California will not earn a profit from royalties on stem cell technologies funded [p. 1113] by CIRM, nor will royalties return a significant fraction of CIRM expenditures to the
state.
[In a retrospective approach -->]
These policies reduce my estimate of the state's licensing revenues to less
than one percent of CIRM-funded expenditures on stem cell R&D, one sixth of the
estimate of total rate of return on research investment, which is 4.5 percent.
(...)
Forecasting is risky. Research funded by CIRM could lead to
technologies that have as much or more commercial success as the Cohen-Boyer technology or other blockbuster patents such as Florida State's patent on Taxol. However, if we have to forecast, it is safer to rely on historical average returns for a large sample of R&D investments, rather than extrapolating from Taxol or
gene-splicing technologies to all CIRM-funded R&D.
(...)
[With the conclusions -->]
The approach that CIRM will pursue to collect revenues from the
licensing of intellectual property created with CIRM R&D support is yet another
source of controversy in the brief history of this institute. n85 A main
conclusion of this Article is that this particular controversy is a tempest in a
teapot. The present value of licensing revenues is unlikely to be a source of
income that will substantially offset the cost of R&D by CIRM, taking into account
the likely long lag between R&D funding and the realization of commercial
therapies made possible with CIRM support. This conclusion applies only to
licensing income and does not diminish the prospect that research funded by CIRM
will lead to important health benefits. n86
***
IPBiz had earlier discussed Baker's work.
Of Noll's work, IPBiz had observed that Noll did not mention Baker (or Hwang):
Significantly, an article CALIFORNIA'S STEM CELL INITIATIVE: CONVERTING THE LEGAL AND POLICY CHALLENGES: Designing an Effective Program of State-Sponsored Human
Embryonic Stem Cell Research by Roger G. Noll of Stanford [21 Berkeley Tech. L.J. 1143] did not mention Hwang at all. Even more significantly, Noll's article, which tells California taxpayers NOT to expect significant royalties from patents on state-sponsored research on embryonic stem cells, does not mention assertions by Stanford professor Laurence Baker that there WILL BE significant royalties available to taxpayers. Thus, to get taxpayers to fund Proposition 71, one Stanford professor says "royalties" and when the taxpayers seek to collect after Proposition 71 is passed a different Stanford professor says "no royalties" [and does NOT mention the first Stanford professor.]
***
The initial posting identified "Gilbert" as Ronald, rather than Richard.
Separately, LBE had written in 88 JPTOS 239 back in March 2006:
States wishing to fund research in the area of embyronic cell
transfer, or in any area of cutting-edge research, will be well advised to note the
difficulty in assessing the validity of work at early stages. Further, states
should also note that the probability of securing money from patent royalties from
patents on early stage work is not high. Further, in the area of work regulated
by the FDA, the broad scope of protection from patent infringement offered by
35 USC 271(e)(1) may render early patents in a developing area of low economic
value.
The East Bay Times may be doing an article about Gilbert's material.
***
As a reminder, Professor Noll had made the following controversial remark:
...the Bayh-Dole Act has not had much of an effect on universities. First, the Act has not caused a change in the allocation of research among science and engineering disciplines [p. 1153] and, within disciplines, research priorities among fields of research. The most important factor affecting the allocation of faculty across research areas is the federal budget for basic research. n23 Second, although the Act
created a new financial incentive to find commercial applications of university
research, it has had no significant effect on the extent to which universities
commercialize research outputs.
IPBiz notes that the Bayh-Dole Act allowed non-profits (such as universities), subject to certain restrictions, to take title to patents developed with the use of federal funding. The Act recognizes that universities would not likely be commercializing embodiments of the inventions, so the act provides that the universities can license the patents, with a preference to small, American companies as licensees. It was never expected that the "universities commercialize research." Recognition of the reality that universities DON'T commercialize caused some to observe a similarity between "patent trolls" and universities, in that neither entity (generally) was actually making a product covered by claims of the patent in question. This same issue caused some careful wording in the Supreme Court's eBay decision on permanent injunctions.
Another professor (Richard J. Gilbert of UC-Berkeley in 21 Berkeley Tech. L.J. 1107) has challenged Baker's analysis indicating large patent royalties. Curiously, neither Gilbert nor Noll mention Hwang or the impact of the Hwang fraud on the timeline for embryonic stem cell research. From the Gilbert article:
In addition to the potential for stem cell research to improve
lives, some supporters of Proposition 71 also promised large royalty income from
the licensing of new technologies that would result from CIRM-funded
research. n3 A study prepared by Laurence Baker, Professor of Health Research and
Policy at Stanford University, and Bruce Deal of Analysis Group ("Baker-Deal
study") predicted that the state would earn from $ 537 million to $ 1.1 billion
in royalties from research funded by Proposition 71. n4
(...)
The Baker-Deal study uses a "prospective" approach to estimate
royalty income from CIRM-funded research. This method estimates the likely number of major new therapies that will be introduced using technologies developed with CIRM research support and the expected revenues from these new therapies,
and applies a royalty rate to estimate licensing income. An alternative approach is
"retrospective," based on actual royalty [p. 1110] generation by
research funded by universities, hospitals, and research institutes. Both approaches
have merit as a means of estimating likely royalty income. n5 The time cost of
revenues is a major issue, because it takes years to apply basic stem cell research to produce useful therapies and many more years for those therapies to
wind their way through the U.S. Food and Drug Administration approval process .
(...)
The obvious problem with this [Baker-Deal] calculation is that a dollar of
revenue earned ten years in the future does not have the same value to the state as a [p. 1111] dollar of revenue earned in the present. (...) A correct value calculation should discount future revenue flows by the time value of money. While reasonable people may disagree over the appropriate choice of a discount rate, a number at the low end of the range is the rate of interest paid by ten-year treasury bonds.
(...)
Applying the interest rate on treasury bonds reduces the estimated
royalties in the Baker-Deal study by about sixty-five percent. A higher discount
rate, which is arguably appropriate to account for the high risk of stem cell
R&D, would result in still lower present value royalty income.
(...)
Under these scenarios, the state's financial return from royalty income for
research funded by CIRM will be extremely modest. The state of California will not earn a profit from royalties on stem cell technologies funded [p. 1113] by CIRM, nor will royalties return a significant fraction of CIRM expenditures to the
state.
[In a retrospective approach -->]
These policies reduce my estimate of the state's licensing revenues to less
than one percent of CIRM-funded expenditures on stem cell R&D, one sixth of the
estimate of total rate of return on research investment, which is 4.5 percent.
(...)
Forecasting is risky. Research funded by CIRM could lead to
technologies that have as much or more commercial success as the Cohen-Boyer technology or other blockbuster patents such as Florida State's patent on Taxol. However, if we have to forecast, it is safer to rely on historical average returns for a large sample of R&D investments, rather than extrapolating from Taxol or
gene-splicing technologies to all CIRM-funded R&D.
(...)
[With the conclusions -->]
The approach that CIRM will pursue to collect revenues from the
licensing of intellectual property created with CIRM R&D support is yet another
source of controversy in the brief history of this institute. n85 A main
conclusion of this Article is that this particular controversy is a tempest in a
teapot. The present value of licensing revenues is unlikely to be a source of
income that will substantially offset the cost of R&D by CIRM, taking into account
the likely long lag between R&D funding and the realization of commercial
therapies made possible with CIRM support. This conclusion applies only to
licensing income and does not diminish the prospect that research funded by CIRM
will lead to important health benefits. n86
***
IPBiz had earlier discussed Baker's work.
Of Noll's work, IPBiz had observed that Noll did not mention Baker (or Hwang):
Significantly, an article CALIFORNIA'S STEM CELL INITIATIVE: CONVERTING THE LEGAL AND POLICY CHALLENGES: Designing an Effective Program of State-Sponsored Human
Embryonic Stem Cell Research by Roger G. Noll of Stanford [21 Berkeley Tech. L.J. 1143] did not mention Hwang at all. Even more significantly, Noll's article, which tells California taxpayers NOT to expect significant royalties from patents on state-sponsored research on embryonic stem cells, does not mention assertions by Stanford professor Laurence Baker that there WILL BE significant royalties available to taxpayers. Thus, to get taxpayers to fund Proposition 71, one Stanford professor says "royalties" and when the taxpayers seek to collect after Proposition 71 is passed a different Stanford professor says "no royalties" [and does NOT mention the first Stanford professor.]
***
The initial posting identified "Gilbert" as Ronald, rather than Richard.
Separately, LBE had written in 88 JPTOS 239 back in March 2006:
States wishing to fund research in the area of embyronic cell
transfer, or in any area of cutting-edge research, will be well advised to note the
difficulty in assessing the validity of work at early stages. Further, states
should also note that the probability of securing money from patent royalties from
patents on early stage work is not high. Further, in the area of work regulated
by the FDA, the broad scope of protection from patent infringement offered by
35 USC 271(e)(1) may render early patents in a developing area of low economic
value.
The East Bay Times may be doing an article about Gilbert's material.
***
As a reminder, Professor Noll had made the following controversial remark:
...the Bayh-Dole Act has not had much of an effect on universities. First, the Act has not caused a change in the allocation of research among science and engineering disciplines [p. 1153] and, within disciplines, research priorities among fields of research. The most important factor affecting the allocation of faculty across research areas is the federal budget for basic research. n23 Second, although the Act
created a new financial incentive to find commercial applications of university
research, it has had no significant effect on the extent to which universities
commercialize research outputs.
IPBiz notes that the Bayh-Dole Act allowed non-profits (such as universities), subject to certain restrictions, to take title to patents developed with the use of federal funding. The Act recognizes that universities would not likely be commercializing embodiments of the inventions, so the act provides that the universities can license the patents, with a preference to small, American companies as licensees. It was never expected that the "universities commercialize research." Recognition of the reality that universities DON'T commercialize caused some to observe a similarity between "patent trolls" and universities, in that neither entity (generally) was actually making a product covered by claims of the patent in question. This same issue caused some careful wording in the Supreme Court's eBay decision on permanent injunctions.
posted by Lawrence B. Ebert at 6:14 PM
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