U. creates new position to market research amid lawsuit over tax exemption

The announcement that the University’s Office of Technology Licensingestablishedthe position of executive in residence to help commercialize its research comes in the midst of alawsuitagainst the University regarding its tax-exempt status.

Local plaintiffs, who filed the suit in 2011, cite the University’s commercialized research revenue as a reason to increase its tax duties, leading some community members to interpret the creation of the new position as a recognition of the University’s corporate priorities.

Although the University does not pay taxes on most of its property, it spends about$10 million a yearon taxes for nonexempt properties and voluntarily pays taxes on some graduate student housing, making it the largest tax contributor in town.

“They’re being sued in a nationally renowned lawsuit over abusing tax-exempt privileges,” the plaintiffs’ representative and Princeton-based lawyer Bruce Afran said of the University. “In the midst of that lawsuit, they move full speed ahead to hire someone whose job it is to increase commercial license.”

There is no connection between the creation of this position and the lawsuit, University spokesperson Martin Mbugua said in an email.

The position was established to allow more flexibility in the department and generally to provide more manpower, Office of Technology Licensing Director John Ritter said. Although the position was first created at the University this year, it already exists at other institutions such as Columbia University, Ritter noted.

He declined to comment on the possible effects of the position on the lawsuit.

“The more the University institutionalizes its commercial research fund, the less it is an academic organization,” Afran said, adding that it will be up to Judge Vito Bianco of the Tax Court of New Jersey to decide whether the addition of this new role is significant to the lawsuit.

The University’s income from technology licensing has been steadily rising since 2004, when income stood at $3 million. It rose to $63 million by 2009 and has since jumped to $136 million in 2013, according to the Office for the Dean of Research’s annual report.

The Office of Technology Licensing issued 33 patents and licensed 29 technologies in the 2013 fiscal year, the report states.

One of the University’s most successful patents has been the cancer-fighting drug Alimta, which brought the school $524 million in licensing income from 2005-12, according toBloomberg. The University and the pharmaceutical company Eli Lilly sued a company for patent infringement in 2009, an action criticized by complainants as inappropriate for a nonprofit institution.

Of last year’s $136 million, $39,990,000, or close to 30 percent of net income, went to inventors, according to the University’s IRS990 forms. The University’s policy dictates that inventors are paid 50 percent of the first $100,000 of net income from royalties, 40 percent of the next $400,000 and 30 percent of amounts exceeding $500,000, according to the Princeton Alumni Weekly.

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In the last five fiscal years, patent income distributed to investors has ranged between $18 million and close to $40 million.

Caplin & Drysdale tax lawyer Marcus Owens said he doesn’t think the creation of the new position will have a particular impact on the lawsuit, since the University already has a large body of employees with similar functions.

“From a federal tax standpoint, the issue is whether the income stream qualifies for exclusion,” Owens said, noting that the University's entire engagement in research commercialization will be taken into account rather than focusing on one new position. It may stand as a data point, Owens said, but he thinks the case will be decided on more general grounds.

“I think it shows that [the University] is aware that it has an asset,” Owens said, adding that if the court rules that the University’s operations are not fully appropriate for tax exemption, the University would probably relocate its commercialization offices off campus as an independent subsidiary.

“That is classically what tax-exempt organizations do when they’re faced at the federal level with this unrelated business tax,” Owens said, allowing them to continue their activities without using tax-exempt property.

“I think it’s great,” former council member and local lawyer Roger Martindell said of the new position. “With the increased focus on its intellectual property hedge fund, [the University] will be in a better position to shoulder its fair share of the costs to the municipality that the University community imposes.”

He added that creating this new position may focus the public’s attention on how much the University earns from the efforts of those who live and work in its buildings and who operate on its property, of which much is probably “inappropriately” tax exempt, he said.