Does Profit-Distribution to Professors Spoil Princeton’s Non-Profit Status?

By Dennis Crouch

Like many universities, Princeton University (my Alma Mater) receives millions of dollars in patent royalty revenue. By agreement, some of that money goes directly to individual inventor/professors as an equity-type profit distribution compensation. In an interesting lawsuit, a coalition of local citizens has partially challenged the private university’s New Jersey Non-Profit status based upon this profit-sharing arrangement and other commercial activities of the University. The basic idea here is that Princeton should be paying local property taxes on facilities used for commercial profit-making. In the plaintiff’s words, “under the law they are not even entitled to a tax exemption because they are engaged in commercial patent licensing, and the school give out a percentage of profits to faculty. Under the law in New Jersey, if a nonprofit gives out profits, it is not entitled to an exemption at all.” The case is now moving forward after the NJ court denied Princeton’s motion on the pleadings.

27 thoughts on “Does Profit-Distribution to Professors Spoil Princeton’s Non-Profit Status?

  1. I would have thought that the gallery of academic pundits would have wanted to weigh in on this topic….

  2. Rockefeller conservative LOL. Is that like a fiscally restrained democrat, or more like military intelligence? I know, it’s like a relaxing Monday morning, right?

  3. MM, I didn't know that Petraeus was still active duty at the time of the affair. If not, it seems to me that what Petraeus did for recreation was his own is largely his business so long as it does not affect others. But that is my point about bringing up his college post. If he chases skirt and is unfaithful to his spouse, that might be a relevant consideration considering.

  4. I think he lost his job for chasing skirt…

    He resigned. Adultery can be prosecuted under the U.S. Code of Military Justice (Art. 134, para. 62).

    are we to learn that disgraced priests are to be hired as boy scout leaders?

    Fraudster and money launderer Ralph Reed was on TV last Sunday to provide the always-craved Chr-stian dominionist viewpoint on gay marriage. So anything is possible.

  5. CUNY is conservative?

    I don’t know. But Petraeus is (self-described “Rockefeller conservative”). Or at least he pretends to be, with the help of his “handlers” (Robert Barnett et al.).

  6. I bet that they think that because it’s true. Those darn conservatives are always worried about what’s true and what’s not. It’s got to be burdensome.

  7. Thanks Dan.

    It sounds like a professor AND wishful thinking.

    Count is 0-2.

    Watch for a curveball.

  8. Anon, he didn’t provide a rationale – he only wrote that he thought this case “is going nowhere fast” despite what the trial judge is reported to have said. Nor did he relate to the putative patent aspect of this case, but as I said, not having seen the complaint or the motion to dismiss, I don’t even know if that angle is really in play. He did mention that “In the tax-exemption area, there are some legitimate issues raised by the increasing commercial connections of university research arrangements, particularly joint ventures with for-profit companies.”

  9. Failure? I think he lost his job for chasing skirt…

    Now, what abounds on college campi?

    Next, are we to learn that disgraced priests are to be hired as boy scout leaders?

  10. No, but the beatdowns have.

    It’s almost sad to see how pathetic Malcolm is.

    Well, no not really.

  11. Meanwhile, at another non-profit:

    link to gawker.com

    In April, CUNY announced that Petraeus would do a stint as a visiting professor of public policy at the school’s Macaulay Honors College, leading a seminar on “developments that could position the United States…to lead the world out of the current global economic slowdown.” According to documents Gawker obtained from CUNY via a Freedom of Information Law request, the fallen war architect will net a whopping $200,000 a year for the course, which will total about three hours of work, aided by a group of graduate students to take care of “course research, administration, and grading.” (He will also throw in two lectures.)

    The proud conservative tradition of rewarding failure is alive and well. I wonder where Petraeus stands on patenting new uses for touching an old touch-screen?

  12. Professors are well known to be ardent free market capitalists, are they not?

    It seems to be a popular belief among Repukkke types.

  13. I wonder if they’ll stop advocating for higher taxes now. Ha ha. They’ll just complain that they’re subject to the same rules as everyone else; the rules that they support.

  14. Princeton should be paying local property taxes on facilities used for commercial profit-making.

    On its face, that proposition doesn’t seem particularly controversial.

  15. What do they want, patent royalties to go into the general fund an student fees lowered?

    Why, that is socialism? Professors are well known to be ardent free market capitalists, are they not? Asking them to share would violate their principles.

    Err….,

    Maybe I got that backwards.

  16. Anybody who thinks that Harvard, Princeton, Yale, Stanford, or any university or college for that matter, is a “non-profit” organization, please contact me, I have some beach front property in Nebraska you may want to buy.

  17. The plaintiffs are a bunch of whiners (university lets them use the facilities like the gym and the pool but charges for it, ergo it’s a for-profit entity; would they be happier if the university didn’t let them on campus?). On the other hand, Princeton has an endowment of at least $15 billion (Harvard’s is bigger), on which it earns a healthy return every year. Sounds like a big business to me.

    While they’re at it, maybe they can start levying property tax on all the football stadiums, and income tax on the football revenues, none of which has anything to do a university’s educational mission.

  18. Princeton is not the only school facing this issue – and the issue may also extend to the loss of perks under the AIA.

    To wit, the AIA uses the definition of unversity under 20 U.S.C. 1001(a) [and not (b)]. Section 20 U.S.C. 1001(a)(4) includes the requirement: “is a public or other nonprofit institution.”

    Goodbye micro-entity status. Goodbye PUR protection.

    (and yes, do you know what other famed bastion of intellectual property prowess is susceptible? None other than Lemley’s Stanford)

  19. Dennis, I also saw these news stories (e.g. link to nj.com), but they’re short on information – such as the case number, the basis for the motion to dismiss, the plaintiffs’ arguments in response, and the judge’s reasoning. If you can find that info, or any of the documents filed in the case, please post it.

    There was a story in the Daily Princetonian link to dailyprincetonian.com in April 2011 when the suit was originally filed, better written than the stuff appearing now, that doesn’t mention anything about the patent angle. That makes me wonder if this is actually an angle that’s being argued, or if it’s just the plaintiffs’ lawyer mouthing off. His comment that “If they wanted to act like a traditional university they would put the patent [on Lilly's Alimta anti-lung cancer drug, owned by the university, which generated royalties sufficient to build a new chemistry building for $280 million] into the public domain, and let everyone benefit from it equally” is a hoot – putting the patent in the public domain would likely have insured that no drug was ever developed.

    FWIW I had some correspondence with a law professor who’s a specialist in this and he thinks the university will prevail; maybe one of your colleagues has some thoughts on the matter.

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