Princeton University is a for-profit institution and should have to pay property taxes like any other company, or so asserts a lawsuit that last week survived an attempt by the university to have it thrown out of court.
State tax court judge Vito Bianco issued a ruling June 27 declining to dismiss the lawsuit, which was filed in 2011 by Princeton lawyer Bruce Afran representing a group of Princeton taxpayers. The suit argues that the town should have the right to tax 19 of the university’s 150 buildings. The disputed buildings are home to a computer store for students, a cafe, a health clinic for faculty and their families, a travel agency for alumni, and several other ventures. But the crux of the case is that Princeton overall violated its tax-exempt status that year when it licensed a cancer drug developed by university researchers and collected royalties from its sale and redistributed the profits directly to the faculty members who invented the drug.
Princeton University vice president and secretary Bob Durkee said in a statement that the university’s nonprofit status was justified.
“The judge decided that he wanted the parties to more fully develop the facts in this case, so he elected not to grant the partial summary judgment that had been requested,” Durkee said. “In state court summary judgment requests are often not granted. The case will now proceed to trial where the facts can be presented and assessed. We welcome the opportunity to develop the facts and address the issues. Princeton University’s mission is to serve the public good through programs of teaching and research, and the purpose of tax exemption is to allow the university to devote its resources to this mission, as we do. Our exempt properties are properties that support our educational mission. We have every confidence that the court will uphold our tax exemption.”
In a legal brief filed for the case, Afran argues that when Princeton made a deal with Eli Lilly to license the university-developed cancer drug Alimta, it lost the right to call itself a nonprofit. Afran argues that the university went so far as to sue Israeli drugmaker Teva Pharmaceutical Industries to block it from making a competing generic version of Alimta.
“They said they licensed the drug because they wanted to share it with the world,” Afran says. “If that’s what they wanted to do, then they should have acted like a traditional university and put it in the public domain. Instead, they’ve licensed it to a single maker, Eli Lilly, and they even went to court to prevent a generic drugmaker from competing with them. It’s a lifesaving drug, yet they are trying to keep the price high by preventing competition. That’s not what a university does, that’s what a profit-making biotech company does.”
The university made $115,206,000 in 2011 from various licensing agreements, the lawsuit says, and shared about 25 percent of that income with the faculty members who invented the products. Afran asserts this type of arrangement is not unlike the way money is distributed in the private sector. Afran says the university has given out $118,493,000 in patent licensing royalties to faculty members since it started its profit-sharing program in 2005. (See U.S. 1, May 29, for a comprehensive story on the university’s technology transfer and licensing programs undertaken since the passage of the University and Small Business Patent Procedures Act of 1980.)
The lawsuit argues that since this money was given to faculty members and not to the academic departments where the researchers worked, that the university has violated its nonprofit status.
Afran says one reason for filing the lawsuit is that Princeton makes a relatively small amount of payment in lieu of taxes (PILOT payments) to the town of Princeton. Until recently, the university paid $500,000 annually, and recently increased the amount to $2 million.
“Princeton University has been very stingy, quite frankly, in payments in lieu of taxes it makes compared to other major universities,” Afran says.
Afran says the impact on Princeton taxpayers would be huge if he wins the case: he says the average resident’s property tax bill would go down by a third if the university had to pay its fair share.
Afran says it could also have far-reaching consequences beyond Princeton, setting a precedent for all nonprofit groups that engage in commercial behavior.
The suit attacks Princeton’s nonprofit status on two fronts: First it argues that the university engages in profit-making activity when it licenses patents and that therefore it is not a nonprofit, even if it uses the profits to support its educational mission. Afran compares this case to the 1961 suit that deprived the Princeton University Press of its nonprofit status because it used its presses for commercial as well as academic purposes.
The second line of attack is that Princeton’s profit sharing with employees violates its nonprofit status.
This is not first time Afran has appeared in a lawsuit against a major institution. In 2006 Afran sued the NSA seeking a halt to a phone call monitoring program, and succeeded in forcing the institution to go through a secret intelligence court before proceeding with wiretaps. Last year Afran sued the Obama administration and members of congress in a bid to thwart the government’s ability to indefinitely detain terror suspects.
Also in 2006 Afran represented a group of centenarians who were the children of slaves, in suing commercial banks that had engaged in the slave trade before 1865. They ultimately lost the case.
More recently, he tried to stop the Institute for Advanced Study from building housing near or on the Princeton Battlefield. Afran’s side suffered a setback June 21 when a judge ruled to uphold the planning board’s approval of the project.
Afran is also representing a group of commuters in an ongoing lawsuit against Princeton University over whether or not the Dinky train station should be moved to accommodate the construction of an arts center. Afran has not exhausted all legal options in that case, but the work is already under way and New Jersey Transit has decided to move the station in accordance with the university’s plan.
Afran teaches constitutional law at Rutgers University as well as a seminar on corruption law. In addition to his public interest work, he litigates commercial cases.
Afran grew up on Long Island. His mother was a bookkeeper and his father was a public school teacher in New York. Now living in Princeton with his wife, a professor of medicine at Rutgers, he has two children who are attending college.
Afran’s career has also included a foray into politics: In 2000 he ran for the U.S. Senate as the Green Party candidate, and in 2008 he was Ralph Nader’s election lawyer.
If Princeton were to lose its overall tax-exempt status, it would be the first major university to do so. Afran estimates the university would also face property tax payments of $20 to $30 million a year, or even as much as $45 million. He is also seeking back payments of taxes to 2005, which would be nearly $200 million. Afran acknowledges that the way Princeton is behaving is little different from other major research universities such as Stanford and Harvard, which have not had their tax-exempt statuses revoked.
However, he said, it may be that this case turns out to be a landmark one. “Every idea starts somewhere,” he says.