Amid suit over tax status and patents, U. lobbies in D.C. over same issues

The University has been lobbying the federal government on intellectual property policy and tax legislation for the end of 2013 and all of 2014 so far, according to lobbying disclosure forms filed with the U.S. House of Representatives and the Senate.

At the same time, Princeton is facing a lawsuit in New Jersey challenging its tax-exempt status based on its practice of sharing patent royalties.

The documents also show that the University incurred over $280,000 in lobbying expenses while lobbying for specific issues in Congress and the executive branch in 2013.Through Sept. 30 of this year, the University disclosed $240,000 in the same lobbying expenses. Lobbying disclosure forms are filed four times a year. The University has a small office in Washington, D.C., that deals with its regulatory interests.

These records shed light on some of the University’s priorities. The University lobbies on the issues that are important to its “core mission,” said Joyce Rechtschaffen ’75, the University’s director of government affairs and its chief lobbyist.

“Financial aid for students, support for key science and humanities agencies, and educational policy,” as well as “patent and tax policy,” are among these issues, she explained.

The University has also expressed interest in fusion energy issues, higher education initiatives such as the White House College Scorecard and the President’s Plan to Make College More Affordable, and the impact of a budget sequestration on education and research in 2012.

The issues of financial aid, research funding, and educational and tax policy have been the subject of the University’s lobbying in multiple quarters across 2012, 2013 and 2014, while patent policy has been the subject of lobbying in the last quarter of 2013 and the first two quarters of 2014. The University did not disclose lobbying relating to patent or tax issues in the third quarter of 2014.

In the fourth quarter of 2013, the University disclosed that it had lobbied on the proposed Innovation Act regarding the issues of loser-pays fee shifting and mandatory joinder in patent infringement lawsuits.

Loser-pays fee shifting is the practice of requiring losing parties in suits involving patents to pay litigation costs. Mandatory joinder occurs when the law requires multiple parties — in this case, defendants in patent litigation — to fight the plaintiff’s complaint together.

According to Andrew Baluch in an article for IPWatchdog, universities typically oppose mandatory joinder and sometimes fee shifting, because they are concerned about being “hauled into costly patent litigation against their will if their licensees/startups ever need to enforce their patent rights in court.”

The Association of American Universities, with whom the University lobbies collectively on many issues, published a statement in November 2013 criticizing the proposed fee shifting and mandatory joinder provisions.

“The fee-shifting provisions of amended Sec. 285 are extremely broad,”the statement reads in part. “The combination of fee-shiftingprovisions and mandatory joinder would likely constitute an unfunded mandate onuniversities, both public and private.”

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In the first quarter of 2014, the University again engaged in lobbying relating to fee shifting and mandatory joinder. This time, however, it also took positions on the Patent Abuse Reduction Act of 2013 relating to pleading requirements, joinder of interested parties, discovery limits and cost and expenses; a position on the Patent Litigation Integrity Act of 2013 relating to litigation and other expenses; and a position on the Patent Transparency and Improvements Act of 2013 relating to transparency of patent ownership, customer stay and bad-faith demand letters.

The Patent Abuse Reduction Act would require plaintiffs in patent cases to give defendants much more detailed information about the nature of their grievances in their initial contact with the defendant. It would expand defendants’ options about whether to exercise joinder.

The Patent Litigation Integrity Act includes a similar provision for awarding litigation costs.

The Patent Transparency and Improvements Act would require plaintiffs in patent litigation to list all of their stockholders, which would present a significant barrier to bringing such cases, because stockholders are often obscured by a number of intermediaries such as 401(k) managers.

It would alsointroduce provisions to consider patent-related demand letters, which demand that an alleged infringer immediately stop the supposed offending activity, to be an “unfair and deceptive trade practice” if the letter is falsely threatening.

The end of 2013 and the beginning of 2014 similarly saw a flurry of legislative activity related to intellectual property, Barry Toiv, vice president of public affairs for the Association of American Universities, said. The University is a member of the AAU, which helps to organize advocacy on Capitol Hill among elite universities. A common issue among them in recent quarters has been patent and tax reform.

“This was the legislation intended to combat patent trolls, Toiv said. Patent trolls areentities that enforce patent rights against accused infringers, but do not manufacture or use the patented product or service themselves.

"Patent trolls are a serious problem. Congress should pass legislation to address that problem, but in doing so, it should not undermine the ability of universities and other patent holders to defend their patents,” Toiv explained. “And the concern was the legislation went so far that universities would not be able to defend their patents, and if universities can’t defend their patents, it upsets the whole system of innovation.”

In May, the AAU released a statement applauding the Senate Judiciary Committee’s decision to delay working on “potential patent legislation” and expressing concern that that legislation would have “overly burdened the legitimate enforcement of patents.”

In July, the AAU expressed support for a new piece of similar legislation called the Targeting Rogue and Opaque Letters Act.

“By distinguishing between legitimate patent communications made in good faith and abusive mass mailings of demand letters, the approach taken in the Chairman’s mark appropriately targets abusive behavior while maintaining the integrity of legitimate patent enforcement activity,” the AAU said in a July statement.

In the second quarter of 2014, the University lobbied on behalf of a position on a discussion draft of the Tax Reform Act of 2014, relating to excise taxes on tax-exempt entities.

The legislation requires that “private colleges and universities with assets valued at … at least $100,000 per student would be subject to 1 percent excise tax on net investment income.”

The legislation would also impose a 25 percent excise tax on entities on the excess over $1 million of the salaries of the five most highly paid employees.

The University receives 10 times as much per student in tax breaks on endowment income, grants and capital gains exemptions than the nearby College of New Jersey, according to an article published on Tuesday by The Atlantic. The article argued that the current tax exemptions in the tax code disproportionately benefit wealthier colleges and universities.

The University has also been involved in litigation over taxes recently.

In fall 2013, Judge Vito Bianco of the Tax Court of New Jersey had ruled against a motion to dismiss a lawsuit by town residents challenging the University’s tax-exempt status. The residents allege that the University should not be allowed to claim tax exemptions on its property while distributing what they allege are royalty profit-sharing payments to faculty.

The University collected approximately $524 million in profit sharing payments from 2005-12.