Legislature(2005 - 2006)BUTROVICH 205

03/02/2006 08:30 AM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 298(JUD) Out of Committee
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 284(JUD) Out of Committee
Moved CSSB 249(JUD) Out of Committee
          HB 92-UNIV. OF ALASKA & NONPROFIT CORP STOCK                                                                      
8:53:38 AM                                                                                                                    
CHAIR  RALPH  SEEKINS   announced  CSHB  92(JUD)  to   be  up  for                                                              
REPRESENTATIVE  MIKE KELLY,  bill sponsor,  advised the  committee                                                              
of  a new  committee substitute  (CS) for  the bill.  SCS CSHB  92                                                              
version  X would  permit the  University  of Alaska  to invest  in                                                              
corporations who  would produce and market inventions  coming from                                                              
the  university.  The  bill  that passed  the  House  limited  the                                                              
investment to  non-profit organizations  but the current  CS would                                                              
allow  for  investment  opportunities in  profit  corporations  as                                                              
well. The  university has seen  tremendous growth in  money coming                                                              
in for  sponsored research and  that has a tremendous  multiplier,                                                              
creating  thousands  of  jobs.   That  has  been  instrumental  in                                                              
changing  the  university's  funding  from  a  majority  of  state                                                              
funding to tuition and other funds.                                                                                             
Part of a successful  research university is the  ability to "spin                                                              
off"  intellectual   properties  into   applied  science   and  to                                                              
contribute to the  economy. Presently the university  is prevented                                                              
from  investing   in  corporations   due  to  fear   of  liability                                                              
associated with  "piercing the corporate  veil." HB 92  would make                                                              
it  possible for  the  university to  invest  in corporations  but                                                              
would   not  allow   the   university  to   be   liable  for   the                                                              
corporation's debts.                                                                                                            
When the House  stripped away the for-profit  corporation ability,                                                              
it  took away  a large  portion of  the potential  benefit of  the                                                              
bill. The current CS would add that ability back in.                                                                            
8:57:47 AM                                                                                                                    
SENATOR  GENE   THERRIAULT  moved   24-LS0344\X  as   the  working                                                              
document before  the committee. Hearing no objections,  the motion                                                              
DR.  CRAIG DORMAN,  Vice  President of  Academic  Affairs for  the                                                              
University of  Alaska Statewide  System, explained that  the basis                                                              
of the university's  request was based on public  law that permits                                                              
universities to  take ownership of  inventions that are  made with                                                              
federal  funding.   To  take  advantage  of  the   inventions,  it                                                              
requires that  things move  into the  commercial line  of business                                                              
and  would  start  by encouraging  the  individual  who  made  the                                                              
invention to patent or license it.                                                                                              
9:00:28 AM                                                                                                                    
DR. DORMAN  said when  a scientist  invents a  piece of  equipment                                                              
used  to  further  his  research   it  can  be  useful  for  other                                                              
researchers  around  the world.  The  form  of ownership  that  it                                                              
would  typically  take could  include  the university  putting  up                                                              
it's  own  portion  of  the invention  rights  as  outlined  in  a                                                              
collective bargaining  agreement or  have stock rights  or partial                                                              
interest in a corporation.                                                                                                      
DR.  DORMAN gave  an  example of  using  a non-profit  last  year.                                                              
Currently  the  university  is  involved  with  the  Alaska  Ocean                                                              
Observing   System.  The   university   is  in   the  process   of                                                              
establishing  rules and  governance processes  whereby it  becomes                                                              
part of the national  federation of regional agencies  and thus it                                                              
could accrue significant  federal funding, he noted.  Although the                                                              
university  wants  to  be  involved in  such  ventures,  there  is                                                              
concern  with regard  to  the university  being  seen  as a  "deep                                                              
pocket." Therefore,  the intent  of HB 92  is to avoid  losing the                                                              
university's  assets by  allowing  it to  participate in  start-up                                                              
ventures and charitable nonprofits.                                                                                             
9:02:16 AM                                                                                                                    
SENATOR  GRETCHEN GUESS  asked  Dr. Dorman  the  amount of  public                                                              
universities that have the same provision.                                                                                      
DR.  DORMAN  said from  his  experience  it was  common  practice.                                                              
Universities have a  variety of ways of allowing for  this type of                                                              
REPRESENTATIVE   KELLY  explained  to   the  committee   that  the                                                              
university legal counsel  was unable to be present  today but they                                                              
put  the  language  for the  original  bill  together.  There  are                                                              
several states that have similar language as HB 92.                                                                             
9:03:28 AM                                                                                                                    
SENATOR  GUESS  asked  Representative  Kelly  whether  the  normal                                                              
practice  was for  someone to  form  a corporation  but leave  the                                                              
university  not   liable  for  losses.   She  said  she   did  not                                                              
understand  why  anyone would  enter  into  an agreement  such  as                                                              
REPRESENTATIVE  KELLY responded  they would  be liable within  the                                                              
corporation and so  the investment would be at risk.  It would not                                                              
be any different  than the average person in  that the corporation                                                              
couldn't reach into the university.                                                                                             
CHAIR SEEKINS  said it was more  of a corporate iron  curtain than                                                              
a corporate veil.                                                                                                               
SENATOR  GUESS posed  a hypothetical  example.  If the  university                                                              
owns  forty percent  of a  corporation and  that corporation  goes                                                              
bankrupt  and  incurs $100,000  worth  of  losses, she  asked  who                                                              
would pay the liable loss.                                                                                                      
REPRESENTATIVE KELLY  explained that it  would be the same  as any                                                              
investment in a  corporation and that the  university's investment                                                              
would be  at risk but the  corporation could not submit  that bill                                                              
to the Board of  Regents. It would be strictly  within that profit                                                              
or non-profit corporation.                                                                                                      
SENATOR GENE  THERRIAULT commented  it was  no different  than any                                                              
other  corporation. The  assets of  the business  are at risk  but                                                              
the bank could not reach through to confiscate anyone's home.                                                                   
9:07:47 AM                                                                                                                    
REPRESENTATIVE KELLY  commented that  the bill was  timely because                                                              
currently  there  is approximately  $150  million  dollars a  year                                                              
brought in  from the outside into  the university system.  He said                                                              
he is  very comfortable with the  bill and reminded  the committee                                                              
that  it  involves  the  Board of  Regents  and  is  very  tightly                                                              
SENATOR CHARLIE HUGGINS expressed support for the bill.                                                                         
9:09:45 AM                                                                                                                    
SENATOR  THERRIAULT  asked  Representative  Kelly the  reason  the                                                              
House dropped out the for-profit corporations in the bill.                                                                      
REPRESENTATIVE  KELLY  said  it  happened in  the  House  Economic                                                              
Development  and Tourism  Committee  out of  a "fairness"  concern                                                              
that there be no injury to the public.                                                                                          
SENATOR THERRIAULT  said he did not understand why  there would be                                                              
any difference.                                                                                                                 
REPRESENTATIVE  KELLY commented  the  concern was  about tort  and                                                              
fraud  but the  bill would  actually protect  the university  from                                                              
those sorts of things.                                                                                                          
CHAIR SEEKINS  speculated  the reason the  committee dropped  non-                                                              
profit  from the  bill  was due  to  a basic  misunderstanding  of                                                              
corporate law.                                                                                                                  
SENATOR  HUGGINS  asked  Representative Kelly  whether  the  House                                                              
Economic Development  and Tourism  Committee now understood  their                                                              
REPRESENTATIVE KELLY  said he couldn't comment. There  was another                                                              
side to  the issue,  which was  that the  bill now clarifies  that                                                              
the  corporate  entity  of  the university  does  not  enter  into                                                              
liability with the corporation.                                                                                                 
9:13:13 AM                                                                                                                    
SENATOR HOLLIS  FRENCH said he had  a question for  the university                                                              
legal  counsel and  hoped to be  able to  question someone  before                                                              
the  bill left  committee. He  said he  wanted to  know the  other                                                              
states that use the same model that the bill proposes.                                                                          
BRIAN  ROGERS, member,  University  of Alaska  Fairbanks Board  of                                                              
Regents,  expressed  support for  the  bill. Testimony  last  year                                                              
indicated  that  the  legal  protections  the  bill  provides  the                                                              
university  are identical  to  those that  are  provided to  state                                                              
agencies,  such  as  Alaska  Industrial   Development  and  Export                                                              
Authority  (AIDEA). The  university  has been  trying to  transfer                                                              
technology  to the  private sector  for some  time. They tried  in                                                              
the early  1990s to  set up a  technology development  corporation                                                              
but were not successful.                                                                                                        
9:16:12 AM                                                                                                                    
MR. ROGERS  gave an  example of an  invention that identifies  pin                                                              
bones in  a fish and  removes them, making  for a better  product.                                                              
Without  a corporate  veil  or  legal protections  the  university                                                              
could become  liable if someone were  to choke on a pin  bone that                                                              
did not  get removed.  The standard  university  stance is  to not                                                              
take risks  and so the  bill provides a  balance so that  the only                                                              
risk to  the university  would be the  investment. HB  92 balances                                                              
the protections  yet allows  them to  create economic  development                                                              
from the  university  and in the  long run,  provides revenues  to                                                              
the university.                                                                                                                 
CHAIR SEEKINS announced a brief recess at 9:18:07 AM.                                                                         
9:25:11 AM                                                                                                                    
CHAIR SEEKINS held the bill in committee.                                                                                       

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