Dupont's Patent Donations

In December 1998, an intellectual property executive at DuPont pondered a new program for the 196-year-old company. The executive was reviewing a proposal to donate DuPont patents to universities around the United States. The move promised substantial financial benefits for DuPont—the company could save on fees to maintain the patents, and they could gain significant tax deductions. But should DuPont make such a donation, and if so, should it offer patents in the life sciences or in another discipline? Did the program hold any strategic or tax-related risks for DuPont? Excerpt UVA-C-2224 DuPont's Patent Donations In December 1998, an intellectual property executive at E.I. du Pont de Nemours and Company (DuPont) approached the new year with a new program for the 196-year-old company. The executive was reviewing a proposal to donate DuPont patents to universities around the United States. The donation promised substantial financial benefits for DuPont, which was then a beleaguered giant in the chemicals and materials industries that was making a strategic thrust into life sciences. By donating some of its 17,000 patents, the company would save fees paid to maintain the patents and gain a tax deduction equal to the fair market value of the patent. During 1998, DuPont faced market turmoil and strategic transition. Battered by a cyclic downturn in commodity chemicals, as well as sales declines in Asia, the company had suffered a 7% drop in pre-tax earnings from continuing operations, excluding non-recurring items. By mid-December, its stock price had fallen 39% from a high set in May. Management had reorganized the firm's business categories. The company had sold part of its Conoco oil business, and announced plans to divest the remainder. Charles O. Holliday, Jr., Chairman and CEO, had declared that life sciences would be DuPont's future “centerpiece.” The company had recently spent $ 6 billion on acquisitions in the life sciences area, including a 20% stake in Pioneer Hi-Bred International (Pioneer), a world leader in the seed industry. Agricultural life science was itself in transition. Many of the world's largest seed providers had changed hands in the 1990s. Chemical manufacturers such as DuPont had bought a number of these seed providers for synergies with their herbicide lines. Biotech firms had acquired others as delivery vehicles for their genetics. The Monsanto Company, in particular, had reshaped the industry by making $ 8 billion in life science acquisitions and launching genetically engineered seed lines that promoted loyalty to its Roundup herbicide. As a competitor to Monsanto, with interests in both crop seed and herbicide, DuPont evaluated various potential responses to these moves. Meanwhile, patent litigation roiled the life sciences industry, raising questions about the enforceability of the intellectual property (IP) in which much of its value was grounded. Amid this ferment, the IP executive at DuPont considered the proposal to make a patent donation. He asked himself: In light of the public relations, financial, and tax ramifications of the proposal, should the company make such a donation? If so, should it offer patents in the life sciences or another discipline? Did the program hold any strategic or tax-related risks for DuPont? . . .