The issue you are referring to involves certain provisions of the Tax Reform
Act of 19??.  It is not quite as you  put it, that "giving away any and all
IP rights" threatens tax exempt bond status, and I don't think it affects
just "state" universities.

The issue revolves around a legislated threshold of commercial activity that
is conducted within the facility that was financed with tax exempt bonds.
 There are two considerations to keep in mind, the threshold of permissible
activity, and the definition of commercial activity.

I'm sorry that I'm a bit fuzzy on the actual details, but my recollection is
that the threshold is around 10%.  Thus, as explained to me by tax
attorneys, up to 10% (or whatever the threshold is) of a facility's activity
may be designated as "commercial", with no effect on the tax exempt status
of the bonds which financed construction of that facility.  This "level of
activity" can be measured in any number of ways, e.g., space occupied by the
activity, revenue generated, employees, etc.

Also, the definition of what constitutes "commercial" is very important.  If
a university contracts with a vendor to provide cafeteria services within a
building, this is considered a commercial activity, and must be included
into the base of commercial activity, when determining if the threshold has
been met or exceeded.  If a start-up company leases space in the facility,
this must be counted into the base of commercial activity.

My understanding is that basic research sponsored by a private company is
NOT considered commercial activity as long as certain tests are met:

 a)  the research is conducted by employees of the university;
 b)  the research is free of  any restrictions on publication; AND, (this
is where the IP stuff comes in)
 c)  the research agreement clearly states that the university retains
ownership of all IP generated by the work;
 d)  the research agreement governing the work does not include
predetermined royalty rates on any inventions emanating from the work.

The question of whether industrially sponsored "clinical research",
"clinical trials", or "work-for-hire" is commercial activity is subject to
interpretation.  What little information I have been privy to suggests that
the IRS would like to define such activities as commercial, as well as being
subject to UBIT.

Thus, it is not a question of "giving away" IP rights per se, it is a matter
of making sure that there is a limit on commercial activity, which can be
managed by not ceding away IP rights or by not agreeing to predetermined
royalty rates.

I am unaware of any provisions of the Act which limit this only to state
universities.  My understanding is that it affects any entity which can
legally float tax exempt bonds.

If I'm off base on any of this, I hope that someone with more expertise on
the topic can provide additional insight and/or corrections.

Leonard P. Paplauskas
Asst. VP for Research
Univ. of Connecticut Health Center

 ----------
From: Research Administration Discuss
To: Multiple recipients of list RES
Subject: Intellectual Property
Date: Tuesday, April 01, 1997 10:08AM

We have heard through the research administration grapevine about an IRS
ruling (not sure of the specific reference) regarding negotiation of
intellectual property rights with private companies.

Apparently, the IRS' position is that a state-assisted university, by
"giving away" any and all intellectual property rights when doing research
for a for-profit company, may threaten the tax-exempt status of any bonds
the university may have outstanding.

We don't have any other details on this other than what I've outlined above.
Has anyone else heard about this ruling?
Barry W. Tate, CPA, Director
Contract & Grant Administration
Sam Houston State University
xxxxxx@shsu.edu