The article below appeared in the March 2011 issue of Technology Transfer Tactics. Click here to subscribe.
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The prospect of offshoring certain tech transfer functions to create jobs in the United States seems counterintuitive. Under the proper circumstances, however, offshoring can improve productivity, reduce costs, and save jobs in U.S. TTOs.
Offshoring isn’t new. Many U.S. companies began sending work offshore decades ago, although the outcome of those activities remains a source of contentious debate.
“I share the same reservations about offshoring work that any American does,” says tech transfer strategist and former university tech transfer professional Melba Kurman, founder and principal of Triple Helix Innovation in Ithaca, NY. “But strange as it may seem, universities that offshore knowledge work such as patent analysis and market research see a significant increase in new invention disclosures and happier faculty inventors.”
Another plus: providing full-time TTO staff with additional time to work on strategic, high-visibility projects rather than chasing paper trails may raise the perceived value of TTO services to faculty researchers.
But is it ethical, or even legal? Some universities worry that sending tech transfer services offshore could support companies that pay meager wages or provide sweatshop work conditions. And no one disputes that offshoring the wrong services could put a TTO at risk of violating export control laws or exposing innovations to IP theft.
Gene Quinn, a patent attorney with Zies, Widerman & Malek and founder and president of the legal blog IPWatchdog (www.ipwatchdog.com) in Leesburg, VA, isn’t a huge fan of offshoring. In a blog entry earlier this year, Quinn cautioned that outsourcing of patent searches and preparation of patent applications violates U.S. law, “which seems to bother no one — that is, no one other than those in the industry that are losing their jobs to the shoddy work provided by outsourcing companies in India.”
Quinn also worries about ethical concerns, conflict of interest issues, and lack of respect for IP rights. He wonders why U.S. TTOs would consider sending “the crown jewels of their research” to countries where “people move from job to job for an extra dollar a week, literally. When your IP moves from place to place like that, it’s not terribly secure,” he tells TTT.
Offshoring also places TTOs in the position of managing an entity halfway around the world where employees “almost certainly” don’t speak English as their first language, making projects vulnerable to gross misunderstandings, Quinn cautions. He cites the example of a patent search undertaken by an Indian firm for a wild boar trap developed by a U.S. farmer. In communicating about the technology, the inventor used the term “hog,” which the offshore firm translated as “pig.” The ensuing search results were riddled with unrelated plumbing references to connection traps commonly called “pigs.”
Still, even Quinn concedes that offshoring makes sense for some TTO activities.
“There’s probably no reason you can’t outsource basic activities such as internet research or telephone surveys,” he says. Offshore vendors also may also fit the bill for discrete, defined projects, such as writing software code for specific applications that will become part of a larger software project.
In offshoring, size matters, Quinn insists. “My experience is that the larger the project, the less likely you’ll be happy with the outcome,” he says. “I’m not sure offshoring works well when you give people a lot of freedom.”
Consider benefits vs. drawbacks
Despite these warnings, offshoring does offer considerable potential benefits, Kurman asserts, and potential applications go beyond phone surveys and code writing to include prior art searches and substantive market research. She outlines a range of benefits including:
• Savings on legal fees. The amount of money universities spend annually protecting and maintaining their IP has grown steadily over the years, according to the Association of University Technology Managers, in tandem with increases in disclosures. According to AUTM’s FY2009 U.S. Licensing Activity Survey, 175 TTOs reported legal fees of $343.1 million in 2009, an average of nearly $2 million per TTO. These costs are only partially offset by licensees through legal fee reimbursements. In 2009, 175 institutions reported reimbursements of $166.7 million, or approximately $950,000 per institution — just 45.6% of legal fees paid.
Given the high costs, “investing in prior art patent searches may save money,” Kurman points out. “If a report uncovers prior art for a new invention, a university will know not to file a provisional patent application.” University TTOs that commission offshore prior art reports find that, on average, prior art exists for about 15% of new inventions, she adds.
• Expanding your business capability. Early-stage university research has no commercial value without a market context, Kurman observes. “When I worked in a university TTO, the most common complaint about our technology marketing efforts was from business people, who complained that we provided technical information but nothing about the potential business value of an invention.
“We agreed, but our staff simply didn’t have the time to conduct this type of research,” she adds. “Commissioning high-quality market research reports and patent assessments of university inventions was expensive, so that wasn’t a priority.” Most staff time is spent on paperwork related to patents or contracts. When TTO staff are racing to meet patent deadlines, high-value tasks such as market research fall by the wayside.
“Market research is a specialty that people underestimate,” Kurman says. “Even when they have those skills, tech transfer offices usually don’t have time to do real market research.”
• Redeploying TTO staff for higher value functions. Small TTOs are the norm at U.S. research universities. Although university TTOs reported an average of 5.8 FTEs per office in 2009, according to AUTM, 25% of university TTOs reported three or fewer staff and only 24% reported 14 or more employees. Offshoring lower-level legal work could free staff to work more closely with inventors and expand the overall capacity of the office, Kurman says.
• Improving speed and efficiency. U.S. TTOs averaged 112 new invention disclosures in 2009, according to AUTM; however, the 20 largest TTOs averaged more than 300 invention disclosures. “University TTO staff are burdened with hundreds of inventions to manage, so digging into the details of a single invention can take months,” Kurman says, blaming this bottleneck, in part, for the failure of most university inventions to find commercial licensees. “By contrast, it takes an offshore company about a week to conduct a simple prior art and market search and three weeks to conduct a complex analysis.”
• Improving relationships with university inventors. Although most TTOs maintain that their primary mission is to serve university researchers, overcoming chilly relationships with inventors is a perennial challenge.
“When I worked in a university, it used to worry me when we told an inventor her technology was not worth patenting but we couldn’t offer substantial evidence to support our decision,” Kurman recalls. “As a result, some inventors lost trust in us.”
Spend $1,000 to save $10,000
Lee M. Taylor, JD, LLM, licensing associate in the University of Hawaii (UH) Office of Technology Transfer and Economic Development, has heard the arguments, pro and con, and he’s convinced that offshoring has greatly expanded the reach of his four-person TTO, to the benefit of UH researchers.
Taylor uses an offshore company called Ashmar Technologies and Research Pvt. Ltd., which is incorporated in the U.S. but operates in New Delhi. Founded by Anurag Bist, a Princeton-educated civil engineer, the company provides patentability and marketability studies for approximately $1,000 each. U.S. attorneys quoted Taylor $3,000 to $5,000 for patentability studies alone.
UH began using Ashmar two years ago, and the company now provides reports for about 45% of the TTO’s disclosures. “Every time we do a utility patent, we obtain an Ashmar report,” Taylor says. “That’s due diligence. We’re not going to spend $10,000 on a utility filing without having a very good sense from these reports of what the patent field and market look like. These services have been very powerful for us to leverage.”
Bist understands the desire of TTOs to license and commercialize university IP, since he grew his first start-up into a company that employed 200 and was acquired by Intel in 2001.
“Over the course of my professional career, I filed a lot of patents and worked with different attorneys to make sure the patents were granted in the right manner,” then monetized those inventions, he explains. “I’ve gone through the whole innovation cycle, from conception to patent to monetization.”
Bist and several colleagues in the U.S. bootstrapped Ashmar “to bridge the gap between the inventors and the attorneys as well as the gap between the very early-stage inventors and commercialization,” he says. The company employs individuals with advanced degrees in different domains and trains them in U.S. and international patent law, working with TTOs of various sizes in several countries. “We’re not serving as attorneys, but we’re filling a vital gap by offering domain expertise and analyzing intellectual property to help universities monetize research in the best possible way,” Bist says.
The 20- to 25-page reports include an executive summary, a list of potential licensees, and detailed prior art search results that include feature maps and analysis. Ashmar also explains its search methodology and cites patents analyzed during the search. Faculty members “love the reports and ask for them by name,” Taylor says.
Offshoring “isn’t an excuse to leave your brain at the door,” he adds. About 20% of the time, the Ashmar reports indicate that an invention isn’t patentable or marketable. UH still files utility patents on a small subset of these inventions, “but we’ve done it with open eyes that the protection might be more narrow than we think,” Taylor explains.
The reports have allowed the TTO to operate in an “incredibly efficient” manner, freeing licensing staff to “walk the halls” with researchers and to develop new programs, such as technology showcases, he adds. Offshoring also has enabled the TTO to stay nimble when university budgets fluctuate.
“If you hire a PhD, that’s a real commitment,” Taylor says. “But you can add and drop service providers with very little transaction cost, which allows you to stay flexible from year to year.”
Vendors work to gain customer trust
Columbia University has used offshore vendors for two major projects, both with excellent results, reports Orin Herskowitz, executive director of Columbia Technology Ventures (CTV) and vice president for intellectual property and technology transfer.
In 2004, when the TTO switched to a single contracting system, earlier contracts — dating back to 1984 — were stuffed into file drawers or scanned as images. For the next four years, contracts were scanned at the time they were executed but only cursory information was extracted.
By 2008, the TTO had amassed several thousand contracts that were still valid, yet it had no way to conduct an automated search and extract data such as royalty rates, compliance obligations, or reporting dates. CTV developed a project to improve the data collected since 2004 and to capture, for the first time, data from previous contracts.
The scope of work was massive, precluding staff from handling the project on a timely basis. Instead, CTV sent RFPs to two U.S. law firms, two U.S. data processing firms, and “as an experiment” two Indian firms. Bids on the project ranged from $100,000 to $2 million. Ultimately, CTV selected Pangea3 LLC, a legal outsourcing firm with offices in New York and Mumbai.
“We were skeptical, at first, but when we reviewed Pangea’s offer and met with their team, we were very impressed,” Herskowitz recalls. The group used attorneys in India, who had been vetted for quality and offered constructive suggestions to improve the project. “We weren’t asking them to interpret U.S. law,” he adds. “This was about finding the royalty clause, extracting the start and end date, and checking to see if there was a provision to reimburse patent expenses.”
The project did take longer than expected, “only because it took a couple of iterations on our end to figure out what was feasible and what was not,” Herskowitz admits, noting that CTV managers were eager to expand the scope of work to incorporate every data outlier. The lesson learned was that “we didn’t realize early enough that we were asking the impossible,” he says. “We lost sight of the objective along the way.”
CTV was pleased with the final results, however, which included a customized database that allowed the TTO to conduct its own review of Pangea’s data entry.
Two years ago, CTV turned to 3Alpha Outsourcing Services of Gujarat, India, to convert 20 years of data on its costs for outside counsel so the TTO could track these costs and require licensees to provide appropriate reimbursement. Prior to the data conversion, “if we wanted to find out patent costs prior to 2008, we had to literally dig through 20 years worth of file boxes,” Herskowitz says.
“We had more than 100,000 data rows that had to be entered from old legal bills,” adds Tony Cerone, CTV’s director of finance. 3Alpha completed the job for less than $25,000, charging just pennies per record.
“We had them do the data entry into Excel spreadsheets so it could be uploaded and also to take the actual bills and split them into separate dockets so we could have files that were docket by docket rather than firm by firm,” Cerone says. 3Alpha also created separate PDFs for each docket and sorted the bills chronologically, and “their accuracy was phenomenal,” he adds.
The managerial staff at 3Alpha has 12 to 15 years of experience and the production staff has three to five years of experience in areas such as data and directory conversion, online data extraction, and invoice and bill entry, according to Herat Patel, the company’s CEO, who launched the company in 2008. 3Alpha has worked on data conversion projects for university clients in the U.S. and U.K., offers five different pricing options, and has the capability to contract any number of staff on a job, including remote staff five days a week for eight hours per day.
“The main challenge, for us, has always been to gain the trust of the customer if they are not familiar with outsourcing,” Patel admits, adding that the company offers references and “is always ready to sign a nondisclosure agreement and follow the client’s data security policies.”
Columbia is a conservative organization, so the offshore projects weren’t undertaken lightly. In both cases, CTV conducted “a crazy number of reference checks” and “we didn’t go with the low bidder on either project,” Herskowitz says. “We took all reasonable precautions, and our legal department reviewed the contracts thoroughly.”
Balance savings with time commitment
Offshoring often sensitive functions should not be undertaken without suitable investigation. Look for a vendor that operates in a business style your TTO considers “appropriate,” Quinn says, advising TTOs to negotiate specific quality metrics and examine “failure to perform” clauses before signing a long-term contract.
Conflict of interest concerns also loom large, since many hands at an offshore firm may touch your data or market research, and employee turnover is notoriously high. Thus, a project you assign could unwittingly become part of another entity’s research at some point down the road.
“Ask the company how they vet their projects to make sure they’re not working on similar projects for competitors so there’s no information seep,” Quinn suggests. He also advises TTOs to check turnover rates to help ensure the person writing software or developing a market research report will still be available for questions if needed.
High turnover isn’t inevitable; Ashmar has maintained its core group of 10 employees for more than a decade, Bist says. His company also short circuits potential confidentiality or conflict of interest concerns by disseminating various sections of each report to different employees, who may not even know the name of the client.
Establish clear expectations up front about the deliverables, Kurman suggests. With respect to market research, for instance, clarify whether you want a full competitive analysis to support new product development or a “quick and dirty” industry overview for public relations purposes.
Always ask for samples of the offshore company’s work as well as client references — especially from other TTOs, start-ups, or basic research organizations, which have vastly different needs than industrial giants such as Microsoft and Motorola.
“Transparency is huge,” Kurman advises. “Does the company cheerfully offer samples or protest that its reports are confidential? As with hiring any other vendor, if you don’t feel comfortable during initial conversations, that’s a big red flag.”
To improve the comfort level of U.S. clients, most offshore vendors are willing to perform their first assignment on spec, Taylor adds.
“You must do your due diligence,” he says, “but offshore companies want to work with universities because they represent a steady source of income. Just by asking, we’ve previewed a lot of services for free or at cost. Vendors often consider this part of their business development.” To be fair, Taylor makes clear up front that he’s testing a service with no guarantee of signing a contract.
TTOs also must weigh the value of potential savings against the time needed to manage a vendor they can’t necessarily see and touch on a regular basis.
“Vendor management is not trivial,” Kurman cautions. “If a vendor doesn’t sense energy and commitment from you — for example, a weekly phone call — it’s not going to make your work a high priority.”
India’s service sector has progressed quickly, but the attitude of local companies toward deliverables and accountability is different than in the U.S., Bist concedes. At Ashmar, TTO clients never talk directly to employees in India, he says. Instead, Bist and his partners spend most of their time in the U.S., where they’re available in the same time zones, at the convenience of clients. Bist then relays the requirements of each job to the back-office staff in India. The final review of all projects also takes place in the U.S., not India.
In fact, offshore companies often use time zone differences to the advantage of their clients, Patel adds. “Someone sitting in America can send us data when they are leaving the office, and we can turn around that particular data and have it ready for them the next day when they arrive at the office,” he points out. “The time zone difference actually offers a quick turnaround.”
Done properly, offshoring should allow your office to offer value-added service to faculty. In the long term, that view could enhance the status of your office within the university and, perhaps, attract additional staff and resources for your work.
Bottom line, Kurman asks, “if a university could save money, place more inventions into the marketplace, create more start-ups, attract more invention disclosures, and free up staff time for more strategic work activities, isn’t offshoring at least worth exploring?”
Editor’s note: Contact Bist at email@example.com; Cerone at 212-851-7130 or firstname.lastname@example.org; Herskowitz at 212-854-1242 or email@example.com; Kurman at 607-227-2876 or firstname.lastname@example.org; Patel at +91 794 002 5191 or email@example.com; Quinn at 703-999-1130 or firstname.lastname@example.org; and Taylor at 808-956-9035 or email@example.com.
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