Research Foundation - USM Forum -- Message Board

Date: Jun 28, 2004

Research Foundation

Date: Jun 28, 2004

http://www.hattiesburgamerican.com/news/stories/20040628/southernmissnews/736702.html

Let's see if this works...

Date: Jun 28, 2004

This is a very interesting article. Could some of our more technically-savvy board members (and intellectual property-savvy board members) comment on it?

Date: Jun 28, 2004

One thing that's immediately clear from the article: Burge may be a good guy, but for public consumption he has to pretend that Angie Dvorak is a brilliant administrator. From what DCEagle was able to find on the Research Foundation, its assets did not grow nearly so spectacularly under AD's direction than Thames has already claimed. (In fact, this article does not repeat the Thames mantra of "only $10,000 when Angie took over.")

AD is, in fact, admitting that the assets valued at $39 million have produced $0 in revenue for USM so far.

Question: What will the principals of Noetic be raking off, and what will actually go to the university, if any of these patents are licensed and begin producing income?

Also: how often does the IRS audit university foundations? In other words, if the $39 million evaluation were grossly inflated, would the IRS be likely to notice, or to do anything about it?

Robert Campbell

Date: Jun 28, 2004

quote:
Originally posted by: Robert Campbell
"
Question: What will the principals of Noetic be raking off, and what will actually go to the university, if any of these patents are licensed and begin producing income?
"

I am one Mississippi taxpayer that is really confused now.

A company can donate "intellectual property" to the university & take a tax deduction for the donation. The amount of the donation is determined by a 3rd party appraiser. So far, so good.

But then, a for-profit markets the IP & gets to take a piece of the action for its troubles. This is what the article says Noetic does.

Here's the problem: Is the donor company making a donation to the university or to another for-profit (Noetic)? Is it legal to get a tax deduction for transferring IP to another for-profit entity?

I am really confused now. I thought Noetic existed so the spouses of university employees could be employed without violating state nepotism laws. Now it turns out that Noetic exists to market IP that has been donated to the university.

Maybe all this is legal. But it sure looks crooked.

Date: Jun 28, 2004

Yes, Invictus and it’s also a big gamble. I heard that of all patent "applications" only about 50% end up as patents and of those only about 30% actually end up producing money by way of licensing etc. So .5x.3 = .15 = 15% wins money for your investment. (Patents require attorney cost.)
This (15%)is a little better that taking your money to the casinos and trying to make a profit.

Date: Jun 28, 2004

quote:
Originally posted by: LeavingASAP
"Yes, Invictus and it’s also a big gamble. I heard that of all patent "applications" only about 50% end up as patents and of those only about 30% actually end up producing money by way of licensing etc. So .5x.3 = .15 = 15% wins money for your investment. (Patents require attorney cost.) This (15%)is a little better that taking your money to the casinos and trying to make a profit. "

BUT...big BUT here...if the patent is viewed as profitable in the near term, the company that develops it keeps it. They either produce the product themselves or they license it to another company and take one of a variety of methods to recover money from their patent (sale, license agreement, whatever).

If the company does not see an immediately viable return on this 'asset', they can donate it to a Research Foundation and take the tax deduction. The RF uses the amount that the donor says it is worth, as the RF can not (by law) value the item. It is between the donor and the IRS what will actually be used for their deduction. But the value that is given to the RF is usually the cost to develop the product / idea/ whatever from inception through the patent process.

So, if you accept the above stated .15 as being a positive cash flow, the actual number that would be in the RF portfolio is considerable smaller...say X.01. So I would guess that .0015 is a more realistic number. It looks like you need a thousand in the bag to begin a positive cash flow of some sort.

Date: Jun 28, 2004

quote:
Originally posted by: R A
"
BUT...big BUT here...if the patent is viewed as profitable in the near term, the company that develops it keeps it. They either produce the product themselves or they license it to another company and take one of a variety of methods to recover money from their patent (sale, license agreement, whatever).
If the company does not see an immediately viable return on this 'asset', they can donate it to a Research Foundation and take the tax deduction. The RF uses the amount that the donor says it is worth, as the RF can not (by law) value the item. It is between the donor and the IRS what will actually be used for their deduction. But the value that is given to the RF is usually the cost to develop the product / idea/ whatever from inception through the patent process.
So, if you accept the above stated .15 as being a positive cash flow, the actual number that would be in the RF portfolio is considerable smaller...say X.01. So I would guess that .0015 is a more realistic number. It looks like you need a thousand in the bag to begin a positive cash flow of some sort."

Thanks for your interesting analysis R A. The numbers I reported were presented to faculty for the benefit those who may have intellectual property and may seek patent applications. Your analysis could be considered an estimate of the probability that the RF will generate real money.

Date: Jun 28, 2004

quote:
Originally posted by: Invictus
" I thought Noetic existed so the spouses of university employees could be employed without violating state nepotism laws. Now it turns out that Noetic exists to market IP that has been donated to the university. "

Don't forget that the Noetic folks WERE on the university payroll while they were doing their due diligence.

Date: Jun 28, 2004

Upon arriving home this evening, I was able to read the full print article. Here's the most interesting tidbit for me:

To date, all of the intellectual property donations have dealt with the polymer industry.

Surprise.

As an aside, how many people not affiliated with USM or Noetic are actually employed in the "polymer industry" in Forrest, Lamar & Jones counties? More to the point, I'd like to know how many non-research (i.e., manufacturing) jobs there are locally in the "polymer industry."

Date: Jun 28, 2004

quote:
Originally posted by: Invictus
"As an aside, how many people not affiliated with USM or Noetic are actually employed in the "polymer industry" in Forrest, Lamar & Jones counties? More to the point, I'd like to know how many non-research (i.e., manufacturing) jobs there are locally in the "polymer industry.""

I found the following story from the Sun Herald from just a few days ago. The polymer industry employs over 18,600 people at more than 350 companies in the state, 10 percent of the manufacturing work force.

http://www.sunherald.com/mld/sunherald/8997667.htm

Some of the local companies that I found were Hybrid Plastics, Owens-Illinois, Western Container, Dickten & Masch, Excel Injection Molding, Dynamic Mold & Manufacturing. The Sunbeam plant was big into polymers also. It must be fairly big job market since Petal HS, Jones and Pearl River all have programs to teach manufacturing plastics. Also, don’t forget that the paint industry is also polymers.

By the way, why all the negativity against the research foundation? Just because AD is now in charge? How about when Don Cotten was running it? Does it matter whether 100 patents pay off or if only 1 pays off? If they are donated, the only cost to the university is AD’s salary and probably a secretary. Considering that the payoff for a patent could be worth many millions of dollars, that sounds like a decent investment.

Date: Jun 28, 2004

If the polymer industry was so important to SFT and the boys, why has the Mississippi Polymer Institute been devalued (and gretly underfunded) since Sheby (sic) took over? If someone would check the numbers for the financing (all sources) for the MPI pre- vs. post- SFT, it would be an interesting review.

If you are one of the people shouting "Follow the money!" this is an interesting storyline. Hint!

Date: Jun 28, 2004

quote:
Originally posted by: R A
" The RF uses the amount that the donor says it is worth, as the RF can not (by law) value the item. It is between the donor and the IRS what will actually be used for their deduction. But the value that is given to the RF is usually the cost to develop the product / idea/ whatever from inception through the patent process."

R A --

What you say is consistent with my understanding of other charitable donations, i.e., the donee does not set the value, that "is between the donor and the IRS." The donor MAY choose to hire a third party appraiser and perhaps SHOULD hire a third party if there is substantial likelihood that the IRS might challenge the valuation of the donation. However, that is of absolutely NO concern to the donee.

That being the case, why is so much emphasis being put on the "value" of the assets owned by the RF? In particular, why does the headline of the article today read, "Third parties assess value of research group" and the lead paragraph state that the value "was calculated under strict guidelines, said Angie Dvorak, . . ."? Not just regular old guidelines, mind you, but the special "strict" ones.

Somebody the other day -- WiseGuy, I think it was -- also took you to task on this valuation distinction. Why?

The only thing I can figure is that the good Mrs. Dr. Dr. is engaged in intentional obfuscation. First she says, in effect, "it's really worth $39 million. Third parties, say so, not us. See we're really telling the truth." But she goes on two paragraphs later to say, "Intellectual property is worthless unless . . ." She's got her cake and is eating it, too. I just can't see what difference it all makes.

I also wonder about the next paragraph: "The foundation has about $1.2 million in cash, she said." She did not really mean "cash," did she? She means liquid investments, right?

I get the feeling I am listening to the Red Queen. Words mean what she says they mean.

Date: Jun 28, 2004

quote:
Originally posted by: ram
" Not just regular old guidelines, mind you, but the special "strict" ones. "

Mr. Wonderful,

I am not trying to sidetrack an important discussion but please make note of this quote for your July 4 award - it's priceless!

Date: Jun 28, 2004

'Very true,' said the Duchess: 'flamingoes and mustard both bite. And the moral of that is - 'Birds of a feather flock together.''

'Only mustard isn't a bird,' Alice remarked.

'Right, as usual,' said the Duchess: what a clear way you have of putting things!'

Date: Jun 28, 2004

quote:
Originally posted by: Malapropism
" Mr. Wonderful, I am not trying to sidetrack an important discussion but please make note of this quote for your July 4 award - it's priceless!"

Duly noted, Mal.

Date: Jun 28, 2004

quote:
Originally posted by: Charles Dodgson
"'Very true,' said the Duchess: 'flamingoes and mustard both bite. And the moral of that is - 'Birds of a feather flock together.'' 'Only mustard isn't a bird,' Alice remarked. 'Right, as usual,' said the Duchess: what a clear way you have of putting things!'"

This should be on the thread about the USM logo...

paraphrasing Richard Giannini: "The only thing similar about our logo and Iowa's is that they're both birds and they're both yellow."