FUNDING STREAMS INITIATIVE
SUMMARY REPORT
Patent Revenue
Report to the Funding Streams Budget & Tax Workgroup
Summary
Pre‐Funding Streams
• Currently, Technology Transfer activities occur in two different locations: the systemwide Office of Technology
Transfer (OP‐OTT) and the local Technology Transfer Office (Campus TTO).
 Since decentralization was allowed in 1994, Campus TTO has managed 99.9% of its patent activities.
 In recent years up to 2009/10, UCSD generated about $22M in Patent Revenue each year.
 Of the patent revenue the campus generates, approximately 50%‐60% is distributed based on license
agreements and systemwide/campus distribution policy. These are mandatory distributions to joint
holders, inventors, patent prosecution expenses1, and departmental and research laboratory support.
 The campus makes two additional contributions to systemwide activities:
 About 25% of the net Patent Revenue 2 is allocated to the systemwide UCGF Budget.
 Additionally, the campus shares the cost to operate OP‐OTT, a $4M operation. In 2010/11, UCSD’s
share was $11.8%, or $475k.
Post‐Funding Streams
• The management of UCGF budgets will be decentralized to the campus. This decentralization, dubbed the
“unpooling” of UCGF income, will give campuses full authority to manage the funds. However, there are
several stipulations:
 The GF share previously retained by UCOP will be a fund swap with 19900 funds permanently budgeted.
 Must now be expended as UC General Funds on 199xx (19933, 19941, or 19942).
 Campus must continue to budget 25% of net patent revenue as UCGF and make annual budget
adjustment to reflect the appropriate, defensible level of UCGF income for that year.
 Campus will cover any shortfalls when income falls below the budget. Campus will retain surpluses.
• UCSD’s share of OP‐OTT costs will be eliminated and replaced with the campus general tax.
Current Funds Flow (Attachment 1)
• The $22M of patent revenue3 currently generated is distributed as follows:
 ~ $13M is spent for mandatory distributions to joint holders, inventors, etc.
 ~ $3M is contributed to OP via two assessments:
 UCGF shares from Patent Revenue
 Support for systemwide Technology Transfers office (OP‐TTO)
 Remaining balance of ~ $6M is retained by the Chancellor.
1
Legal expenses associated with patent prosecution, net of reimbursements. Legal reimbursements are primarily driven by
specific agreements.
2
Net Patent Revenue = Gross Patent Revenue less payments to joint holders, inventors, and legal expenses. Net Patent
Revenue also excludes income from copyrights and MTA’s.
3
Figures based on a two‐year average ( 2008/09‐2009/10)
Page 1 of 2
FSIWG – Patent Revenue
May 2, 2011
FUNDING STREAMS INITIATIVE
SUMMARY REPORT
Known or Potential Issues Identified
• A major patent expires this year, reducing gross patent revenue from ~$22M to ~ $13M annually.
• The fund swap of $1.9M from 19900 to 199xx is not supported by estimated future income, therefore, it
actually results in a budget reduction.
 UCGF income is projected to be $523K and $1.5M for FY 11/12 and FY 12/13, respectively, using the
historical OP methodology (25% of net patent revenue).
 After the initial shortfall of $1.4M in FY 11/12, the ongoing shortfall is $400k annually.
 Campus must develop options to cover these shortfalls.
• Another major patent will expire in 3 years; however, it is difficult to estimate impact at this time given other
patents that may come on‐line.
• There is no known new major patent revenue forthcoming from new patent agreements.
• Patent revenue, along with other UCGF sources, will now be excluded from the General Fund budget base
used to calculate future State funding augmentations and reductions.
• The General Fund base budget used for State funding undesignated augmentation (i.e. Inflationary Block) will
include two primary sources: State General and Educational Fee funds (net of return‐to‐aid).
 UCSD’s initial share of undesignated State support will decrease from 12.3% to 11.8% (net result of all
Funding Streams changes). However, the base budget is recalculated annually, thus the proportion will
change and may increase for campuses with growing enrollments.
 Campus is now required to generate cost increase revenues for UCGF. Campus will identify funding
sources to cover mandatory cost increases related to UCGF/patent revenue.
FSIWG – Patent Revenue
Page 2 of 2
May 2, 2011
UC FUNDING STREAMS INITIATIVE
Attachment 1 ‐ Patent Revenue Activities
Figures based on UCSD Financial Link
1
GROSS PATENT REVENUE
Actual
% of
Actual
% of
Estimated
% of
Projected
% of
Projected
% of
2008/09
rev
2009/10
rev
2010/11
rev
2011/12
rev
2012/13
rev
21,257,000
$ 13,348,000
B
$ 13,348,000
‐5%
‐37%
$ 22,292,000
$
% Incr/Decr from Prior Year
$ 13,348,000
A
MANDATORY DISTRIBUTIONS
2
3
4
5
Inventors
Joint Holders
Research Support
Patent Prosecution
(9,118,505)
(420,530)
(2,515,835)
(2,019,038)
$ (14,074,000)
(8,643,860)
(367,797)
(2,185,549)
(153,714)
63%
$ (11,351,000)
(5,143,600)
(367,797)
(2,079,324)
(1,373,934)
53%
$ (8,965,000)
(5,143,600)
(367,797)
(1,316,449)
(1,373,934)
67%
$ (8,202,000)
(5,143,600)
(367,797)
(1,316,449)
(1,373,934)
61%
$ (8,202,000)
61%
B
SYSTEMWIDE CONTRIBUTIONS
6
7
UCGF ‐ 25% net Patent Revenue (a)
OP‐TTO Assessment
(3,487,000)
(65,000)
OP‐TTO Assessment
‐
Total Contributions
$
(3,552,000)
REMAINING BALANCE:
$
44,666,000
666 000
(2,740,250)
(475,000)
‐
‐
Est. Campus Tax ( 1.6%)
8
(2,562,750)
(65,000)
$
(2,627,750)
21%
21%
$
77,278,250
278 250
(1,504,500)
‐
‐
(383,000)
‐
16%
(523,500)
‐
‐
‐
(50,979)
12%
$
(3,598,250)
27%
$
(574,479)
34%
$
784
750
784,750
6%
$ 44,571,521
571 521
C ‐ est. UCGF (standard formula)
(50,979)
4%
$
(1,555,479)
34%
$ 33,590,521
590 521
D
replace w/ campus tax
E
beginning 2011/12
F
12%
G= C thru F
27%
27%
H= A + B + G
UC GENERAL FUNDS - PATENT REVENUE
9
OP FUNDING STREAM TRANSACTIONS ‐ UCGF
FS ‐ OP's Assigned UCGF Perm. Budget $
‐
FS ‐ OP's Assigned General Fund Reduction
Net Budget Change
10 CAMPUS ADJUSTMENTS:
Reduce OP's assigned permanent budget (unrealized revenue)
New Campus Permanent Budget
Estimated UCGF Revenue
Estimated Revenue Shortfalls
$
‐
$
‐
$
2,637,000
(1,924,000)
713,000
(713,000)
1,924,000
(523,500)
‐
‐
‐
n/a
1,924,000
(1,504,500) unless there is new patent income
$ 1,400,500
$
419,500
on horizon, this deficit continues
[a] UCGF OP Calculations ‐ based on actual cash‐flow (GF is assessed one year in arrear)
Revenues (excl. copyright fee, MTA income)
Less:
Inventor Payments
Joint Holders Payments
Net Patent Prosecution Costs
Total Exclusions
Net Patent Revenue (a)
FSIWG ‐‐ Patent Revenue
$
22,693,714
(8,416,690)
(335,826)
7,454
$
22,157,632
(9,426,154)
(366,657)
(2,114,275)
$
20,883,405
(9,067,049)
(424,770)
(430,312)
$
12,902,848
(9,067,000)
(368,000)
(1,374,000)
$
12,902,848
(5,143,000)
(368,000)
(1,374,000)
$
$
(8,745,062)
13,949,000
$
$
(11,907,086)
10,251,000
$
$
(9,922,131)
10,961,000
$
$
(10,809,000)
2,094,000
$
$
(6,885,000)
6,018,000
5/2/11
Page 1 of 2
UC FUNDING STREAMS INTIATIVE
Attachment 1 ‐ Patent Revenue Activities
Explanations
1 IP income includes royalty fee, agreement fee, maintenance fee, copyright income, materials mamagement (MTA), including income from sub-licenses.
IP income drops $8M in 2010/11 due to the expiration of a major patent contract
Mandatory Distributions:
2
3
4
5
6
7
Inventors/Authors in accordance to the UC policies of 1985 or 1997.
Joint holders: per license agreement, payments to 3rd party such as our collaboration with Stanford or the VA
Campus research support is also determined by the UC policies of 1985 or 1997 and Campus policy of 1999.
UCSD Patent Prosecution (PP) activities (net of legal reimbursement s) are related to the costs of legal services that we use in our management of the intellectual property.
PP expenses cover legal bills that we pay outside attorney for their services, as they are incurred. These expenses happen prior to and after the licensing of a new technology (patent).
Since decentralization of the IP activities to the campus, there have been more opportunities for the campus to negotiate thus control the level of legal spending.
Campus TTO may be more selective about the # of patents prosecuted and to provide better oversight for prosecution expenses as well as procedures to avoid potential law suits and limit expens
Legal Reimbursements are generally driven by the following factors: a. Specific contractual agreement between UCSD and the licensee that includes the provision for
reimbursement and the amount of reimbursement. b. Timing of the billing and reimbursement may occur in different years; This year's bill might potentially be reimbursed in the
following year or whenever the invention is licensed. UCGF Contribution
Based on OP's policy, GF assessment against patent income represents 25% of the "net" IP income which excludes inventor payment, joint holder payment and net patent
prosecution costs. This funding is added to the UCGF income pot of money which includes other sources of revenues such as NR tuition, ICR, STIP and used for systemwide determined priorities.
This funding mechanism is based on the concept that UC is expected to self-fund a portion of the core operating budget using its own income sources.
Per FS initiative, the Patent Revenue related to GF assessment will be allocated to the campus and in return OP will reduce our GF budget by same amt which will result in revenue neutral.
GF assessment is one year in arrears.
Campus assessments supporting the OP-TTO operation. This assessment will be replaced with a general campus tax starting 2011/12. Tax amount is based on 1.6% of total campus expenses.
For 2010/11, OP included a campus assessment for the OP-TTO operations ($4M). Distribution of this assessment was based on share of the general fund budget so UCSD's share is $475k,
or 11.9% ( instead of 23%-25% if based on Patent income earnings). This assessment was communicated to the campus via the 2010/11 OP's allocations letter dated 11/15/10.
The campus Budget Committee approved funding to cover this assessment via the 2010/11 Campus Resource Allocation - Sources and Uses.
Additionally, OP also "asked" (via email communications) to share retroactively one-half of the 2009/10 costs. Total OP-TTO expenses were $3.4M in 2009/10' OP covers 1/2 (1.7M) and
the remaining 1/2 is to be distributed to the campuses. UCSD's share was $383k (23%) based on income earnings. OP said the retro assessment will be implemented via recharge.
In the prior years, OP covered this cost centrally via one-time resources, thus campus was not assessed.
8 Chancellor retains the remaining Patent Revenue.
9 OP Funding Streams Transactions: effective 2011/12, campus begins to manage UCGF for Patent Income in 19941. OP's assigned UCGF budget is $2.6M but GF budget reduction was $1.9M
thus creating a "surplus" of $713k.
10 Due to projected revenue shortfalls, campus must asjust the UCGF budget for Patent Revenue in future years and identify sources of funding to cover the anticipated deficits.
FSIWG ‐‐ Patent Revenue
5/2/11
Page 2 of 2