Legislature(2005 - 2006)BUTROVICH 205
03/02/2006 08:30 AM JUDICIARY
Download Mp3. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 92-UNIV. OF ALASKA & NONPROFIT CORP STOCK 8:53:38 AM CHAIR RALPH SEEKINS announced CSHB 92(JUD) to be up for consideration. 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 carried. 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 thing. 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 that. 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 controlled. 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 mistake. 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.