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Since its founding in 1925, WARF has served the University of Wisconsin-Madison scientific community by patenting the discoveries of UW-Madison researchers and licensing these technologies to leading companies in Wisconsin, the United States and worldwide. In this way, WARF also facilitates the use of UW-Madison research for the maximum benefit of society. WARF distributes the income from commercial licenses to the UW-Madison, the inventors and their departments. Each year, WARF contributes over $30 million to fund additional UW-Madison research. The university refers to WARF's annual gifts as its "margin of excellence" funding.
Wisconsin Alumni Research Foundation, known as WARF, is a nonprofit foundation that patents discoveries made by researchers at the University of Wisconsin. WARF was the first such intellectual property organization in the United States, and it became a model for foundations at other leading research universities. WARF is a separate legal entity from the University of Wisconsin, though it stands on the university campus. It files patents for university researchers, licenses its patented products and processes, and then uses these funds to make grants to the university and to invest in start-up companies. WARF was founded with a small endowment from university alumni, and based its early fortunes principally on its first patent, for the production of vitamin D. By the early 2000s, WARF's endowment had grown to some $1.3 billion. It returned about $40 million annually to the University of Wisconsin.
A New Way to Fund Research in the 1920s
The Wisconsin Alumni Research Foundation began with a discovery made by biochemist Harry Steenbock in 1923. Dr. Steenbock was working on the enormous public health problem of the bone-softening disease rickets. Rickets affected a huge proportion of children--up to 50 percent--in the United States, causing skeletal malformations. Vitamin D had recently been discovered by one of Steenbock's colleagues, and this substance was known to prevent rickets. Sunlight also was known to prevent rickets, but scientists did not yet understand how this worked. Steenbock discovered that exposing rat food to sunlight or ultraviolet light synthesized vitamin D in the grain. Rats fed this irradiated food did not develop rickets.
Steenbock was sure he had discovered something vastly important, and he worried about the best way to get his idea from the laboratory to the public. He did not want to patent the vitamin D process himself, both because of the initial expense and because he believed that the University of Wisconsin should have the rights to what its faculty invented. Yet the university had already turned down an earlier offer from Dr. Steenbock to handle his patent on the isolation of vitamin A. Although the University of Wisconsin was at that time the leading American university in the number of doctorates in the sciences it awarded, the school was having trouble resolving how its researchers could be funded. In 1925, the University of Wisconsin accepted a private donation of $12,500 that came from John D. Rockefeller and the Republican Party. This gift ignited a long-brewing fight about private gifts to the school, and in August of that year, the university's governing board of regents resolved that it would no longer accept gifts from corporations or similar bodies. The intent was to free researchers from any taint that they could be bought by corporate or political interests. Yet the resolution also kept the university's regents from considering lucrative propositions in their own back yard, so to speak. Steenbock's vitamin D process was clearly valuable. He was unable to interest his own university in taking out a patent on it, yet the Quaker Oats Company was ready to pay him $900,000 for exclusive rights to it.
Finally Dr. Steenbock met with Charles Schlichter, dean of the university's graduate school. Schlichter was appalled that no one at the university had shown any interest in Steenbock's patent. Schlichter immediately went to New York and Chicago to contact some university alumni. He raised $10,000 from Wisconsin alumni, with the goal of setting up a private foundation. The foundation was to be entirely distinct from the University of Wisconsin. It would take out the vitamin D patent on Dr. Steenbock's behalf, and use royalties from the patent to fund further research. Schlichter next met with eight prominent men, including a leading Chicago patent attorney, a local judge, and the head of the University of Wisconsin alumni association. It turned out that Schlichter had not raised quite enough money to handle Steenbock's patent, and he asked the men gathered at his fishing shack to each contribute $100. With the money Schlichter had already raised and this additional $900, the group chartered the Wisconsin Alumni Research Foundation in November 1925.
Steenbock signed over his rights to the vitamin D process for a nominal fee of $10. WARF then licensed the process to the Quaker Oats Company, which had been trying for years to get the rights. Several pharmaceutical companies also bought rights to the process from WARF, and they made vitamin D concentrate available to consumers for the first time. Then WARF licensed the process to dairy producers. Milk was an ideal carrier for vitamin D, which is soluble in fat. Over the next decade, milk enriched with vitamin D became widely available, and rickets began to disappear. By 1945, when Steenbock's patent expired, it had brought WARF some $8 million in net royalties.
Managing the Foundation Through the Depression and World War II
WARF was initially run by a group of trustees. In 1929, the organization had grown to the point where it needed a full-time manager. The dean of the university's school of natural sciences, H.L. Russell, resigned that position in 1929 to take over WARF. He oversaw the foundation until his retirement in 1939. At first, WARF ran out of a small office in the basement of a university building. In 1930, WARF also established a testing laboratory, where it conducted quality control tests, principally on irradiated foods.
The U.S. economy had boomed through the 1920s, and hit a wall with the stock market crash of October 1929. The University of Wisconsin, supported primarily through state funds, was hit hard by the Great Depression. In 1932, the state legislature cut the university's research budget in half. The university was faced with the prospect of laying off even senior faculty, and junior faculty and graduate students had little hope of seeing fellowship money. Then WARF, still flush with money from licensing Steenbock's patent, stepped in. WARF had given the university some money annually, beginning in 1928. In 1931, WARF donated some $18,000, as grants for ten different projects. In 1933, with the university desperate for funds, WARF donated more than $147,000. The money went to research fellowships for students and faculty. Although most of the WARF funds went to faculty in the sciences, it also began funding scholars in the humanities and social sciences. With generous backing from WARF, the University of Wisconsin remained one of the leading U.S. universities in the sciences throughout the years of the Depression.
World War II also put a strain on the university. WARF increased the amount of money it donated to the university year by year through the 1930s and 1940s. It also put special funds to use in researching war materials. With gasoline and rubber rationed because of the war, WARF invested in research on artificial gasoline and artificial rubber. WARF also funded researchers at the university who developed high-yielding strains of penicillin. Immediately after the war, the university burgeoned, as former soldiers returned to school. In 1951, WARF made a special grant of $2.8 million to the university, which went to build badly needed new housing.
WARF brought in millions from Dr. Steenbock's work on vitamin D. It took out many other patents on behalf of other faculty. WARF's initial arrangement was to split the net royalties of a patent with its inventor 85-15, with the inventor getting the smaller cut. WARF took out about 60 patents a year, though only a very few of these yielded marketable products. Aside from Steenbock's vitamin D patents, WARF had claim to one other set of extraordinarily valuable patents. These were for the work in the 1930s and 1940s of Dr. Karl Paul Link, who invented the blood anticoagulants dicumarol and warfarin. Link investigated the strange phenomenon of dairy cows that hemorrhaged to death after eating spoiled clover hay. Link isolated the factor that made the cows ill, publishing his first paper on the subject in 1941. Link discovered that the factor in the spoiled hay, which he named dicumarol, could be used to keep blood from clotting, and this became a widely used drug. Later in the 1940s, Link thought of developing a variant of dicumarol that could be used to poison rats and mice. WARF provided the funds for his research, and Link named his new poison for the foundation: warfarin. Warfarin was widely used around the world as a rodenticide as well as to treat some medical conditions in humans. Warfarin was patented in 1950 and was a large source of royalties for WARF.
Quieter Times: 1970s-80s
Although Steenbock's initial patents expired in 1945, WARF continued to bring in royalties for other work related to vitamin D. WARF supported Steenbock's student Hector DeLuca in the 1960s and 1970s. The work of DeLuca and others meant that WARF still derived 70 percent of its patent income from vitamin D-related work as late as the 2000s. In 1969, WARF began building itself a huge new building on the University of Wisconsin campus. WARF took only the top two floors of the distinctive triangular high-rise for itself, and leased the rest to the university as office and laboratory space. WARF funded more than a thousand projects at the University of Wisconsin (including both the Madison and Milwaukee campuses) in 1969, and its total grants to the university topped $3 million. The foundation paid for named professorships for top faculty, for grants to promising junior faculty, for laboratories, and for other special projects. According to an article in the Wisconsin (Madison) State Journal (November 9, 1971), many university faculty thought that WARF's money was absolutely essential to maintaining Wisconsin's eminence in the sciences: "The income from these funds, they say, makes the difference between greatness and mediocrity."
WARF began to run into some difficulties in the early 1970s, however. Most of WARF's grants had gone to the main Madison campus of the university, with about 20 percent earmarked for the Milwaukee campus since the late 1960s. But the University of Wisconsin unified into a larger state college system in 1971, sparking fears that WARF's money might have to be spread among the smaller, far-flung campuses as well. Then in 1972, the Internal Revenue Service (IRS) challenged WARF's nonprofit status. The IRS claimed that WARF should not be exempt from taxes because it was in fact a for-profit organization. WARF contested this, and won back its tax-exempt standing, but only after it sold off its development laboratories. According to Forbes magazine (May 24, 2004), the brouhaha with the IRS changed WARF from an entrepreneurial institution to a much more cautious one. According to Forbes, "For the next 20 years, WARF was run like a stuffy investment portfolio." The foundation revealed in 1976 that it had assets of more than $1 million. By that year, WARF had 42 patents that had become profitable. Of these, three had earned more than $1 million, and 23 had earned from $10,000 to $1 million, leaving almost half its patents earning less than $10,000. WARF's goal in the mid-1970s was said to be satisfying intellectual curiosity, rather than looking for short-term gain in marketable ideas.
WARF continued to give large grants to the University of Wisconsin annually. By the mid-1980s, it was giving out about $8 million. In 1983, WARF changed the formula that it used to divide royalties with inventors. WARF added an initial payment of $1,000 for a patentable idea, and set aside 20 percent of gross income from the invention for the inventor. WARF also allotted 15 percent of gross income for a patent for the inventor's graduate school. But the foundation was making money off only a small percentage of its patents. By 1983, WARF claimed only 76 patents that had made any money at all, and it derived 90 percent of its income from just ten patents. Total income from patents was about $30 million in the mid-1980s.
WARF was one of the largest patent-driven foundations in the country in the early 1990s, in fourth place behind the University of California, Stanford University, and Columbia University. Nevertheless, patent income had fallen sharply, from some $30 million in 1986 to $15.8 million in 1993. That year WARF recruited a new director, a former pharmaceutical company executive, Richard Leazer.
Entrepreneurial Spirit in the 1990s and 2000s
Leazer began to move WARF into a more aggressive stance. The foundation, still maintaining its nonprofit status, began taking an equity stake in young companies working to commercialize WARF patents. WARF also upped the pace at which it issued licenses for patents. When Leazer became managing director in 1993, WARF issued only 21 licenses. Over the 1996-97 academic year, that number increased to 61, and two years later WARF issued 92 licenses.
WARF had asked for large fees from companies wishing to license its patented technology. In 1993, WARF came to what was then a unique agreement with a genetic testing company cofounded by a University of Wisconsin chemistry professor. The company's principals told WARF they could not afford the licensing fee, but they were nevertheless sure they could make money on their genetic diagnostics. According to the Milwaukee Journal (June 14, 2003), they told WARF, "We want you to trust us." WARF took an equity stake in the company, Third Wave Technologies, which ten years later had gone public on NASDAQ and expected sales of around $39 million.
Leazer retired in 1999, and was succeeded by WARF's former director of patents and licensing, Carl Gulbrandsen. Gulbrandsen continued in the direction Leazer had mapped out. Three years into his tenure as managing director, WARF had equity stakes in almost 30 start-up companies, which were developing everything from cancer treatment devices to pharmaceuticals to plant-based sweeteners to nanotechnology. WARF also formed two new subsidiaries in the early 2000s. WARF had worked almost exclusively with researchers from the University of Wisconsin's main Madison campus. In 2000, WARF formed a subsidiary called WiSys Technology Foundation, which sought out patents and provided patent licensing for inventions discovered at other University of Wisconsin campuses. The next year, the WiSys subsidiary entered an agreement with a consortium of Milwaukee-area colleges to promote technological development in the broader southeastern Wisconsin region. Then in 2002, WARF opened its first satellite office. The foundation hoped to take advantage of the concentration of new technology companies on the West Coast by opening an office in San Diego, California. This was in line with WARF's push in the 2000s to commercialize its patents more quickly. WARF had an enormous number of patents, owning rights to some 1,700 inventions by 2003.
WARF opened another subsidiary in the 2000s, the Wicell Research Institute. This was a private, nonprofit institute that researched embryonic stem cells. University of Wisconsin professor James Thomson was at the forefront of this research, working with cells derived from human embryos that could then transform into various kinds of tissue. Thomson was the first to isolate these so-called master cells in 1998. Stem cell research held out hope for sufferers of various diseases, including Parkinson's disease and diabetes, but it was also controversial. Federal regulations restricted research on cells derived from human embryos or fetuses. WARF set up Thomson's lab as a private foundation in 2000, and it began licensing one of its stem cell lines to other laboratories. Thomson became a noted figure in the national debate over embryonic vs. adult stem cell research. WARF controlled his patents, not only to the cell lines he had derived, but also for the methods used in the laboratory to grow the cells. In 2001, President George W. Bush declared that federal money could be used to support embryonic stem cell research, as long as it was restricted to certain already existing cell lines. Five of these existing lines were WARF's. WARF hoped to distribute the technology widely, to encourage the quickest and best applications of stem cell technology to medical problems. It sued Geron Corp., a California company that also had funded Thomson and claimed rights to some of his inventions, in 2001. The suit was settled in 2002, with Geron taking exclusive rights to half of Thomson's cell lines. On settling the suit, WARF hoped to lay the legal issues to rest so that it could proceed with licensing this new medical research, though the ethical issues would still remain.
By the mid-2000s, WARF ranked as one of the top earners from university-based patents. It signed more than 150 patent licensing agreements in 2002, and estimated that during 2003, more than $1 billion worth of products based on its patents were sold around the world. It still derived a large proportion of its income from vitamin D research, as several new drugs were under development based on patents held by WARF for Dr. Steenbock's student Hector DeLuca. But WARF had also moved in many new directions in the past ten years, taking stakes in a cadre of small young companies. Since its inception, WARF had contributed some $650 million to the University of Wisconsin, and it continued to help the university uphold its reputation as a leader in the sciences. In the mid-2000s WARF earmarked $80 million for a building grant to the university, contributing to the construction of four new biochemistry buildings. WARF's endowment had grown to $1.3 billion by 2004, and its research grant to the university reached about $40 million annually.
Principal Subsidiaries: Wicell Research Institute; Wisys Technology Foundation.
Principal Competitors: Columbia University; University of California; Stanford University.