'Intellectual property' draws Utah scrutiny

Some of the ideas and innovations of Utah professors can be and often are worth millions of dollars in the open market. And indeed, universities routinely license "intellectual property" to entrepreneurs in exchange for stock in the start-up companies.

But that practice might run afoul of the Utah Constitution, which prohibits government entities from "subscribing" to stock or bonds that would aid a private individual or business.

The threat that the practice could be challenged in court has prompted the Utah Constitutional Revision Commission to consider a constitutional amendment that clarifies that the state and institutions of higher education can acquire an equity interest in private companies without running afoul of the prohibition against purchasing stocks or bonds.

"We've been working with the governor to clear up the uncertainty," said University of Utah President Bernie Machen.

Machen told the commission Friday that the U. never sells its intellectual property, but it does routinely license professors ideas in exchange for an equity interest. Often, it is the professor who wants to take the idea into the open market but has no capital to pay the university for the intellectual property.

By taking an equity interest, the university stands to make a pretty penny if the idea proves successful. If it doesn't work out, the university, which contributed nothing in terms of investment capital or services, hasn't lost anything.

"We have millions of shares of worthless stock" from ideas that never panned out, Machen said.

The commission was not convinced the current practice violates the constitution. But it might.

And there was enough uncertainty that representatives of institutions of higher education and the Utah Department of Community and Economic Development are petitioning for the constitutional amendment. "We need to make it absolutely clear" that the practice is legal, said DCED director David Harmer.

What is not so clear is how far the principle can be pushed. Smaller colleges, like Salt Lake Community College, are petitioning for their own change to the constitution that would allow them to assume an equity interest in companies they help get started with business plans or services they provided. SLCC, for example, has an "incubation" center where they offer office space, training and other services to cash-strapped companies just getting started.