Harvesting Economic Growth

Charity seeks to create jobs by collecting patent rights

On the outskirts of Kansas State University lies a newly constructed technology park overlooking a field where cows graze.

Peering across the pasture near where his organization’s $5.5-million offices will soon be located, Ron Sampson says he dreams about a day when his many corporate and nonprofit ventures might help bring economic prosperity not only here — where white-collar jobs are scarce — but to other struggling small towns.

Mr. Sampson is president of the National Institute for Strategic Technology Acquisition and Commercialization, a nonprofit organization that in the past six years has persuaded dozens of corporations to donate more than 800 patents for technologies that the companies were not using. The institute’s primary goal has been to seek such patent donations, try to develop products using the patents, and in many cases form for-profit companies to market the products. In turn, the companies would create high-paying technology jobs in rural parts of Kansas, providing a financial lift to a state whose economy relies heavily on low-wage, low-skill jobs in uncertain industries like agriculture, aviation, and oil.

Although many of the patents that the companies have donated might ultimately hold little value, skeptics say, some are paying off nicely for Mr. Sampson’s organization. Four years ago, Procter & Gamble, Mr. Sampson’s former employer, donated patents for a fruit beverage. The drink now earns millions of dollars a year for a company Mr. Sampson helped create with money from the state and the city, and research assistance from Kansas State University. Royalties from the donated patent are funneled into Mr. Sampson’s nonprofit group, and revenue from the company has helped create jobs and has provided tax revenue for the city and state.

Change in Donation Law

But when President Bush signed into law in October sweeping regulations limiting the tax deduction companies can take for donations of patents, intellectual property, and other items, it cut off a major source of funds for the many nonprofit organizations that rely on such donations. The legislative change caused Mr. Sampson to set a new, more ambitious course for his organization: Instead of focusing its efforts on attracting patent donations and developing companies to help only small towns in rural Kansas, his group would spend more time broadening its work nationally.

“With no more tax incentive for corporations to donate patents, donations will probably dry up,” Mr. Sampson says. “If we don’t do something about it, that leaves us like any other charity — lining up asking for money.”

Starting Companies

Mr. Sampson is still talking with economic-development organizations, entrepreneurs, private foundations and other nonprofit organizations, state and federal governments, and venture capitalists in the hopes of persuading companies to continue making patent donations. But he also is spending an increasing amount of his time looking for ways to put his organization’s donated patents to work by starting companies in small cities and towns across the United States.

Behind Mr. Sampson’s bold play to convert his organization’s patents into commercially viable companies in rural areas is a university bent on gaining a national reputation outside of its agriculture school and Division I football program.

In partnership with the Kansas Technology Enterprise Corporation, a state economic-development program that focuses on the creation of high-technology jobs, Kansas State University — which is located an hour west of Topeka — hired Mr. Sampson in 1995 to help it start capitalizing financially on some of the technologies its faculty members and students were developing in its laboratories. The university set up Mr. Sampson’s organization — initially called the Mid-America Commercialization Corporation — to market and license products for its research foundation, which holds the college’s patents.

But Mr. Sampson, who spent 19 years helping to develop products at Procter & Gamble, quickly realized that the most efficient way to convert patents into products would be to get donations of consumer-tested, market-ready technologies from corporate America. He started tapping into his contacts in the business world, seeking transfers of their idle innovations.

Before long, companies were calling him to donate patents. Mr. Sampson, who has a background in engineering and technology and keeps a copy of The Chemical Engineers’ Handbook on his bookshelf, says he turned away 70 percent of what he was offered. When he accepted technology patents, Mr. Sampson secured cash donations from many companies to help pay for patent maintenance fees and to support additional research for the donated technologies.

In its 2003 fiscal year, Mr. Sampson’s organization was more successful financially than it had ever been. It received $124.4-million worth of intellectual-property donations, a 53.5-percent jump over 2002, largely because many business leaders knew that Congress was considering reducing the tax write-off that companies could take for intellectual-property gifts, and they wanted to make their donations before new limits took effect.

Congress passed the law restricting the tax deductions companies may claim when they donate patents to charities because some lawmakers felt that companies were reducing their taxes by writing off intellectual property of little or no value.

A Potential Gold Mine

While Mr. Sampson has yet to convert into viable products many of the patents his organization has received, many people in Kansas and around the country who have worked with him believe he is sitting on a gold mine of economic opportunity.

“What they’re doing is extremely promising for the future of our city and the state of Kansas and many other small towns across the country,” says Diane Stoddard, the assistant city manager of Manhattan, which has given Mr. Sampson’s organization $6.65-million, including money to build its new offices. “They’re very well positioned in what they have acquired to date, and they still have a huge patent portfolio they haven’t even tapped yet.”

Says Robert J. Bogart, a senior adviser to the U.S. assistant secretary of commerce for economic development, who has met Mr. Sampson and other people in his organization: “I would be surprised if they don’t have a lot of success with their idea to take these resources they’ve been given and tie them in with entrepreneurs.”

Some critics, however, argue that Mr. Sampson’s patents might hold little value because if the companies that donated them had believed they could make any money on the use of those technologies, they would have held onto the rights. Mr. Sampson contends that many large companies he has worked with expect to make $100-million a year from each product they introduce. If they don’t believe they can receive such a high level of revenue, he says, they often table the technology.

“But if those technologies can generate $10-million in sales instead of lying dormant in some company, they could keep many small rural communities from dying,” he says. In Manhattan, which is supported by a military base and the university and its 24,000 students, but no other large employers, Mr. Sampson has helped create jobs for about 100 people with average salaries of $43,000 — nearly twice the average wage paid by businesses in the city.

Officials at Kansas State University believe that their efforts to assist Mr. Sampson’s group in converting technology patents into products will help the university earn up to $30-million a year in income within a decade, says Bob Krause, the school’s vice president for institutional advancement.

Some of the technology patents that Mr. Sampson’s group has acquired have been jointly licensed to Kansas State University for research purposes. Under that arrangement, Mr. Sampson says, any changes or improvements to the patents made by researchers at Kansas State are owned by the university, but can be bundled with the original patent and commercially licensed to benefit both groups.

Many of the technologies are then licensed to companies created by Mr. Sampson’s institutions, allowing his organization and its financial partners to exploit the patents rather than letting other companies license them and make most of the profits.

“Most university licensing offices don’t deal with start-up companies,” Mr. Sampson says. “We know how to build companies.”

‘Can’t Steal Their Way Out’

Two years ago, to help him understand more about starting and running small businesses, Mr. Sampson hired Kent Glasscock, a former speaker of the Kansas House of Representatives who owns a lumber company with stores in three states. Mr. Glasscock had traveled the Midwest and understood how many small towns lacked the kinds of jobs that would help retain young, upwardly mobile professionals.

“I’ve seen the desperation out there,” Mr. Glasscock says. “Kansas and Missouri and a lot of states are losing their best and brightest people. Rural communities across the country realize they’re chained to a commodity-based economy, and they’re starting to figure out that they can’t steal their way out of it by trying to attract companies to come to their towns — it’s gotten too expensive to do that.”

To help rural cities and towns overcome those problems, the National Institute for Strategic Technology Acquisition and Commercialization created Manhattan Holdings, whose mission is to look for marketable business ideas. The company has received about $2-million from the city, the state, and the university’s fund-raising arm — and those investors split shares of the profits that Mr. Sampson’s companies generate.

So far, the archetype for Manhattan Holdings’s mission is NutriJoy, a company Mr. Sampson helped start after receiving patents for two technologies from Procter & Gamble. NutriJoy — which stands for “nutrition to enjoy” — markets a calcium-fortified, fruit-flavored beverage called Cal-C, and low-fat cheese-filled wheat crackers called GoodBites. Even though Procter & Gamble had spent millions of dollars testing those products with consumers, the products were never sold nationally, in part because the company was getting out of the food and beverage businesses.

After receiving the patent for the fruit drink, Mr. Sampson hired David Yang to help market and sell the product. Mr. Yang, a 17-year Procter & Gamble employee, was the product manager for the drink at his former company and took the job with NutriJoy because he believes Cal-C can be the next Gatorade.

Two years after first distributing Cal-C, the product has reached the shelves at Wal-Mart, Costco, and dozens of grocery stores — and has revenue in the millions. Neither Mr. Yang nor Mr. Sampson would disclose precisely how much money NutriJoy generates for fear that they might give away a trade secret and cause a competitor to use the figure to force them off the market.

“Every time we go in a new store, someone else gets kicked out,” Mr. Sampson says. “You can’t let any competitor get a feel for your resources, or they will try to use it against you and put you out of business.”

Seeking Markets

Not every business Mr. Sampson has helped start has succeeded as quickly as NutriJoy. NanoScale Materials, a chemical company, took eight years to get its first product on the market. Most of its income, which Mr. Sampson says is also in the millions, comes from research the company does for large corporate partners and from the federal government.

Many of the institute’s other technologies have yet to find a market, including an herbicide developed from more than 100 patented compounds donated by DuPont and compact-engine technology donated by Caterpillar that Mr. Sampson says has the potential to power hybrid cars. But Mr. Sampson believes many of those technologies can be put to use.

“We simply don’t have the resources or expertise in this organization — or in our state — to use some of the technologies we have acquired,” Mr. Sampson says. “We need to find able partners across the country.”

One such group it has started to work with is Innovation Philadelphia, a three-year-old economic-development organization that supports technology businesses through investment, commercialization, and research in the metropolitan Philadelphia region.

The two groups recently submitted a proposal to the U.S. Department of Commerce, through its Economic Development Administration, asking for $450,000 in government support to develop a program that would introduce the work Mr. Sampson’s groups have done in Kansas to charities and economic-development officials nationwide. Their goal is to show others how for-profit and nonprofit groups can work with governments to create jobs and keep regional economies alive.

“We want to be the first economic-development organization in history to pay back to its sponsor communities more cumulative money than they paid into the organization,” Mr. Sampson says. “So you get jobs and economic impact at no cost. You actually make money.”

SPREADING ECONOMIC BENEFITS: HOW DONATIONS OF PATENT RIGHTS HAVE HELPED

Since it was created in 1994, the National Institute for Strategic Technology Acquisition and Commercialization, in Manhattan, Kan., has received donations of more than 800 technology patents from dozens of companies. Below are some examples of the technologies that companies have donated to the organization, and what it has done with the gifts.

Technology acquired: Beverage technology
Company that donated it: Procter & Gamble
What the technology does: Allows for production of shelf-stable beverage products to be made with combinations of milk and fruit juice.
How the technology is used: Licensed beverage, in 2002-less than two years from time of donation. The beverage is sold in some Wal-Mart and Costco stores, and in dozens of grocery stores. Royalties from product sales go to the technology-acquisition institute and to other nonprofit, government, and for-profit collaborators.

Technology acquired:

Fuel vapor control technology
Company that donated it: Eaton
What the technology does: Used to control emissions from fuel tanks.
How the technology is used: Licensed to an automotive-equipment manufacturer that put the products on the market less than two years after the time of donation. Royalties from product sales return to the technology-acquisition institute.

Technology acquired:

Herbicide technology
Company that donated it: DuPont
What the technology does: Enables production of herbicides for crop, orchard, and turf-grass applications.
How the technology is used: Subject of extensive greenhouse and of it sponsored by groups and people hoping to license the technology.

Technology acquired:

Compact engine technology
Company that donated it: Caterpillar
What the technology does: Allows for production of low-emission engines that offer high energy output per unit size and weight. Potential applications include unmanned aerial vehicles and hybrid automobiles.
How the technology is used: Technology licensed to the Compact Engine Company. A research and development team is being formed to commercially develop the engine.