Fool's Gold

© David F. Noble
(Used by permission)

In January, 1998, a controversy erupted at UCLA over its relationship with a private company, The Home Education Network (THEN), with which it was engaged in the delivery of distance education. The controversy was prompted by disclosure in the first installment of this Digital Diploma Mills series, and subsequent media coverage, of some of the details of the arrangement, by that time already five years in the making but still relatively unknown on the UCLA campus. Two days after the appearance of an article on the deal in the Los Angeles Times, Robert Lapiner, UCLA's Dean of Continuing Studies and University Extension (UNEX), wrote a letter to the newspaper's editor. Lapiner clarified that THEN was not a part of UCLA but an independent privately-capitalized company, and UNEX was not UCLA but rather an independent self-supporting division of UCLA. He maintained that the UNEX-THEN relationship was sound and beneficial.

The very next day, however, Lapiner sent off a dispatch to Julie Gordon at the University of California Office of the President, copied to UCLA's Chancellor Albert Carnesale, which suggested a different tale. Lapiner urged that his response to the LA Times be circulated "for the sake of damage control", and acknowledged that "this affair is not going to go away". Here Lapiner conceded that there had indeed been problems with the relationship and he sought to reassure the chancellor, who had only recently assumed office, that these problems would not tarnish the reputation of UCLA as a whole and were being remedied. "From the outset of our relationship with THEN," Lapiner wrote, "I put in a firewall between Extension and the rest of the campus, so that whatever might go wrong (and much has) in the relationship, it would not impact others' initiatives or strategic interests. Indeed, I tried to reenforce [sic] that firewall over the last couple of years, but for reasons outside of UNEX's span of control our bargaining power was egregiously compromised". Lapiner emphasized that earnest efforts were underway "to protect the university from greater risk and to fix something we didn't break". A short while later Lapiner told an Academic Senate subcommittee looking into the matter that, while he himself had serious reservations about some key aspects of the collaborative arrangement, "I was told to sign it anyway". He did not reveal who gave the order.

At the end of his letter to the LA Times, Lapiner complained that the newspaper had failed to try to get a full picture of the arrangement and noted cryptically that "there's a compelling story about public-private relationships here". This is a belated attempt to tell that story. It is based upon a review of several thousand pages of documents obtained from UCLA under the California Public Records Act as well as conversations with some of the principal participants. It is offered as a cautionary tale, an example not simply of university-based distance education but, more significantly, of the private commercial hijacking of public higher education via distance education. It examines the current craze for distance education from the perspective not of technology but of political economy, and shifts our attention for a moment from the machinery to the machinations. In particular, it examines in detail, by way of a case study, the great expectation of financial returns - fuelled by extravagant technological fantasies - which underlies much of today's enthusiasm for distance education. This expectation, and the corollary pursuit of what appears increasingly to be little more than fool's gold, has already led to a worrisome relaxation of sound financial management practice and legal safeguards of the public interest, a bending of the rules of established procedure, and quite possibly even the breaking of the law.

The collaboration between public higher education institutions and private for-profit companies, as in the development and delivery of online instruction, entails an encounter between two fundamentally different cultures and betrays an increasing academic enchantment with the entrepreneurial ethos of the commercial world, a deference to and awe of, and a naive impulse to emulate, the risks and realpolitik of business (using public moneys and resources) and a corresponding sacrifice of the core values that define universitities as unique and invaluable. This sacrifice entails a loss not merely to the universities but, more important, to the public which sustains them and depends upon them.

* * *

The relationship between UCLA and THEN (later renamed - OLN) emerged out of joint discussions begun in January, 1993, exactly five years before the controversy about it erupted. THEN was the brainchild of Alan Arkatov, a TV Producer and political media consultant who enjoyed very close ties to the entertainment industry and higher Democratic political circles. As vice president of the political media consulting firm Doak, Shrum, and Associates, Arkatov had worked on myriad Democratic mayoral, gubernatorial, and senatorial campaigns and, in 1992, served as senior advisor to Mickey Kantor, chairman of the Clinton presidential campaign. In establishing his company, therefore, Arkatov was able to draw upon what Lapiner admiringly referred to as his "connections".

One of the early important associates of THEN, for example, was Charles Manatt, whom Arkatov described as a "lifelong friend". Manatt was the former chairman of the Democratic National Committee, head of the Southern California Democratic Party and co-chair of the Clinton-Gore campaign. He was also a member of the Board of Governors of the UCLA Foundation. From the start, THEN was represented by Manatt's law firm, Manatt and Phelps, a major player in the entertainment industry. Another key participant was Arkatov's "friend" Ralph Ochoa, an influential attorney, political lobbyist, and deal broker who had been a member of the University of California Board of Regents in his capacity as head of the University of California Alumni Association. Like Manatt, Ochoa also sat on the Board of Governors of the UCLA Foundation and was, in addition, a member of UCLA's Board of Trustees and Board of Visitors. Ochoa enjoyed considerable influence in the office of the UCLA Chancellor.

From the outset, the association with UCLA was the sine qua non for the new company. Arkatov sought to build his private firm upon the taxpayer-created foundation of UCLA's brand name and curriculum; the initial focus was UCLA Extension, the nation's largest university extension progam, but Arkatov envisioned an expanded relationship with all of UCLA, and, eventually, with the entire University of California system. His plans took shape in January 1993 - the same month he filed the incorporation papers for the new firm - in discussions with Lapiner, to whom he was introduced through Ochoa. Thus, the initiation of the relationship with UCLA and the establishment of THEN took place more or less at the same time.

Arkatov proposed to UCLA that he would develop the means of distributing UNEX courses electronically beyond the classroom, via video (and later online), in exchange for exclusive electronic rights to all UNEX courses. His success was due as much to his connections with the UCLA administration as to the intrinsic virtues of his proposal. At the heart of the effort, as he well understood, was the securing of exclusive rights to the intellectual property embodied in course material, for commercial exploitation. The title of his company prospectus made clear the nature of the enterprise: "UCLA Extension via Multimedia: Education as a Business".

On the UCLA side, enthusiasm for the proposal stemmed from the expectation of enormous financial returns which Arkatov had kindled, a growing emphasis upon entrepreneurial efforts within the university at a time of fiscal restraint, and an awe of the real-world power and glamour of the entertainment industry. University officials wanted to be seen as players in this high-stakes world, to be taken seriously, to show that they too had the vision and the guts to make it big. Accordingly, UCLA granted Arkatov the exclusive rights he sought (see Digital Diploma Mills Part II for details of the contract) and adopted the posture of a venture capital operation, expending public funds andoffering THEN the use of its public resources in anticipation of a windfall. UCLA appears to have afforded Arkatov privileged use of the UCLA brand name, access to its marketing and publication facilities and staff, and even mailing lists, to the point that its own personnel began to complain. In making the deal with THEN, UCLA waived its legal remedies of preliminary and permanent injunction, agreed to secrecy about the deal through a confidentiality clause in the contract, and apparently seriously entertained no other bids for these services. UCLA also appears to have circumvented the review and oversight of the Academic Senate, including the standing committee on extension, and risked allegations of conflict of interest. John Kobara, vice-chancellor of UCLA for marketing and public relations, became the president of THEN. There was at least one instance of preferential hiring when Arkatov's brother-in-law was given a job at UNEX, over the strenuous objections of the associate dean. Moreover, it appears that UCLA sidestepped Regental review of the contract in the final hours before it was signed; the University of California Board of Regents, in whose name the contract was signed, never even saw much less approved the unprecedented arrangement. Finally, in claiming rights to the intellectual property embodied in course materials authored by instructors, without ever having obtained an assignment of these rights, the parties appear to have violated copyright law and proceeded without any legal foundation.

* * *

Late in the summer of 1993, Lapiner and Ralph Ochoa, who was representing Arkatov, met with Chancellor Charles Young to discuss the proposed project. Afterward Lapiner wrote Young that the meeting had been of great value and predicted that "the time we spent with Ralph Ochoa will prove as profitable (in all senses of the word) for UCLA and UCLA Extension". Lapiner and his colleagues had great expectations. They noted that the financial opportunities "appear strongly to outweigh the risks ... The estimated revenue projections, based on the market research to date, would seem to provide resources greatly in excess of costs". While UNEX would bear initial costs, "the magnitude of the financial returns thereafter should provide Extension with the assurance that its 'venture capital' will have been well invested". They projected a gross distribution to UCLA by the second year of between three and four million dollars, which would "grow exponentially" thereafter, to an estimated thirty-one million in year four - "an amount comparable to our total annual revenue for all programs over the last few years". Thus, there was, in their view, a "compelling economic argument". "The persuasive reason to move forward ... is that the spread between expenses and potential revenue is of such magnitude that even a significantly smaller profit [than projected] is still likely to be sizable".

As negotiations continued, the projections became more sober, as indicated in the evolving terms for termination of the agreement. At first UCLA had the right to terminate if there were no revenues after two years or less than fifty million after five years or one hundred million after seven years. This was later reduced drastically to less than three million after five years; when the contract was signed the figure was reduced further to two million after five years. Three years later, in the face of practical operational realities, the figure was finally dropped down to $400,000, more than a hundred-fold reduction from the original estimate of fifty million. And as the five-year deadline approached in 1999, the company, facing considerable losses and pleading poverty, was barely able to meet even that condition.

The original expectations of financial returns produced an eagerness on the part of UCLA that caused them to throw caution to the wind. This is clear in their agreement to waive legal safeguards of the public interest. In its proposed agreement, THEN, following the example of the entertainment industry, included a requirement that both UNEX and all participating instructors had to waive their legal rights to preliminary and injunctive relief in the event of any dispute. THEN would be willing to settle for monetary compensation but did not want to risk the interruption of its operations or the rescission of UNEX's assignment of rights to THEN, which an injunction would entail. Thus they insisted that "under no circumstances shall the instructor [or UNEX] be entitled to injunctive relief".

The university's counsel viewed this request as out of the question. "For obvious reasons", Ruth Simon wrote to Arkatov's attorney, "we cannot agree to include this paragraph, or any part of it, in our contract with the instructor or THEN ... any mention of limitation of remedies, whether by Instructor or by UNEX, will inflame the Regents ... We simply cannot agree to any limitation of our remedies". On the eve of the signing THEN continued to insist that the waiving of injunctive relief was "standard practice in the film, TV, publishing, and recording industry where producers/distributors are making huge investment in product". "No one", THEN insisted, "would want to give the right to injunctive relief to several hundred instructors". The Office of General Counsel and Chancellor Young both still maintained that such a limitation of their remedies was "unacceptable".

Aside from sound legal practice, there was a particular reason why UCLA was especially sensitive to THEN's request regarding limitation of remedies, which was indicated by Simon's warning that it would "inflame the Regents". At the very time the agreement with THEN was being negotiated a public scandal erupted regarding an earlier episode involving the junk-bond felon Michael Milken. Without the Regents' knowledge, UCLA, under the auspices of Young and Simon, had contracted with Milken for the delivery of some lectures and had agreed to grant Milken exclusive rights to the recordings. In addition, UCLA agreed to waive its right to injunctive relief. When the Regents belatedly found out about this contract, they were furious. Aside from their anger at having heard about it only after the fact, they were particularly upset about the assignment of exclusive rights and the limitation of remedies.

Regent Frank W. Clark, a prominent attorney, bemoaned the fact that "UCLA officials waived the university's right to rescind the agreement or even file an injunction against [Milken]". "There are serious legal problems with this document", he declared. Regent Ward Connerly went so far as to suggest that the Regents should take back the powers it delegates to university administrators to make deals. At the same time, two state senators harshly criticised UCLA for "waiving virtually all their legal rights" and suggested that UCLA officials "were seduced" by Milken's prior multi-million dollar donations to the university.

Now confronted by THEN's request for a similar waiver of remedies, UCLA officials were understandably hesitant - until the final hour. In the end, after getting THEN to agree to particular conditions for termination - which included the establishment of a financial benchmark (two million by the fifth year), and the granting to UNEX of the specific rights to specify classes, update courses, and give final approval of course content - UCLA capitulated. Once again UCLA agreed (and without their knowledge or consent committed its instructors to agree) to waive its right to preliminary and permanent injunctive relief. UCLA agreed that there could be no termination of exploitation rights to the course recordings, just of production rights. (In the event of a termination of the production of new courses, THEN would continue to be able to market already existing recordings). Three days before the signing of the deal, Simon informed THEN's lawyer of her conversation with Jim Holtz, general counsel of the University of California, who, she reported, was "comfortable with the way we negotiated the question of injunctive relief".

In the wake of the Milken imbroglio, the Board of Regents were most disturbed that they had only learned about the agreement belatedly, after it was too late to rescind or revise. For this reason, among others, UCLA officials were sensitive to the need to have the Regents sign off on the THEN deal. From the start, therefore, they insisted upon Regental approval. "The project being proposed by THEN is unique in its scope", UCLA general counsel Ruth Simon wrote to Arkatov's attorney in December, 1993. "It is the sheer magnitude that raises complex questions. We will also need to be assured that the Regents is consulted about the use of its name in all forms of marketing and presentation in the videotapes".

UCLA's insistence upon securing the necessary high-level support and authorization from the Chancellor and the Regents slowed down the negotiating process, to Arkatov's mounting dismay. Intent upon attracting investors and getting his show on the road, and habituated to the fast and loose deal-making of the entertainment industry, Arkatov grew increasingly impatient and tried to pressure UCLA into moving more quickly. UCLA nevertheless maintained its position on the necessity of Regental approval. In February Lapiner's associate dean Michael Bley wrote to him that "Alan's [Arkatov] concern has increased about the university's ability to move with any speed, relative to normal industry standards, particularly with the specter looming of the necessity of Regental approval. Ralph [Ochoa] spoke with me as well as Alan noting that any activity without such a step, given the high visibility of the project, could possibly be quite detrimental". (Arkatov later recalled that Ochoa "made sure that we follow the necessary steps to secure approval from the Chancellor and Regents"). Bley went on to report that they "also discussed the possibility of effecting an interim compromise and 'conciliatory' measure of good faith on the part of the university, which would meet Alan's needs, by issuing a signed contract (with the Chancellor's approval) subject to Regental clearance. Ralph felt comfortable pursuing this possibility [with Chancellor Young]". "However", Bley cautioned, "conversations today with Ruth [Simon] indicated that such actions have not been well-received in the past".

The spectre of Michael Milken clearly haunted the negotiations, in contradictory ways. On the one hand, the Regents' reaction to having heard about the Milken deal after the fact made UCLA officials sensitive to the need for prior Regental approval. On the other hand, the Regents' critical response to the granting of exclusive rights to Milken and the waiving of legal remedies made the officials extremely wary of having the Regents review a new deal which contained the very same provisions. In February, 1994, Simon wrote a memorandum to her file about discussions with Lapiner and Arkatov, noting that "Robert presented the issues to Alan as political issues that needed to be resolved in order to get the deal through the Regents". A month later, after the Milken scandal hit the press, Arkatov expressed concern about the key issues of copyright assignment and the waiving of remedies. In response, Simon unsuccessfully proposed a new clause for the contract: "Approvals. THEN acknowledges that no agreement between the parties shall be effective unless and until approval by the UCOP [University of California Office of the President] and by the Regents at a meeting regularly noticed and held". Arkatov's attorney replied in a phone conversation that "approvals be changed to disapprovals", i.e. that the agreement would stand unless UCOP and the Regents disapproved within sixty days of the signing. By this novel construction the Regents, the supreme legal authority of the University of California, would be relegated to a mere rubber-stamp function, after the fact and within a limited time. Neither version of this clause survived the day. The controversy they reflected, however, persisted until the eleventh hour before the agreement was signed.

At the end of May, a month before the signing, Ruth Simon was still assuming that Regental approval was on the agenda. She wrote to an official at San Francisco State University for a copy of a contract between that institution and the Wadsworth Publishing Company, which Arkatov suggested might strengthen their case before the Regents. "My interest in this", Simon explained, "is that we are in the midst of negotiating a distance learning contract which will go before the Regents; our thought is that the SFSU agreement may be helpful as a point of comparison for the Regents". Two weeks later, however, after another meeting between Lapiner, Ralph Ochoa and Chancellor Young, she appears to have moved markedly in Arkatov's direction. Reporting on arrangements for a meeting between the UCLA Chancellor and several vice presidents and the general counsel of the University of California Office of the President, Simon reminded Arkatov that "as you know, UCOP approval is critical to an item being placed on the Regents' agenda". She added without reservations, however, "Chancellor Young intends to raise with the vice presidents whether Robert [Lapiner] can sign the agreement before it is presented to the Regents, subject, of course to the Regents' right to disapprove". Simon had now clearly endorsed Arkatov's position.

In the end the Regents were not even afforded the right of after-the-fact disapproval. According to Ann Shaw, the Secretary of the Regents, the Regents never saw the agreement either before or after it was signed. Chancellor Young, after meeting with Ochoa and Lapiner and the University of California vice presidents and general counsel, unilaterally gave Lapiner permission to sign the deal. Arkatov acknowledged Young's role in a thank-you letter a few weeks after the signing. "I want to thank you for providing THEN the opportunity to create with UCLA Extension a new vision of distance learning for continuing education". Lapiner was more explicit. In a letter to Arkatov a year later he referred to "Chancellor Young's involvement in my intra-campus negotiations that allowed us to sign our contract". Thus, the Regents did not know about this new Milken-like undertaking, with its assignment of exclusive copyright to a private firm and its waiver of legal remedies. When Regent Ward Connerly was finally informed about the deal in 1999, by UCLA English Professor Edward Condren, he expressed complete surprise. In all probability, had the Regents rightfully been given the opportunity to review the agreement between UCLA and THEN, as was anxiously anticipated throughout the negotiations, the deal would never have been approved.

If UCLA officials bent the rules of established procedure by doing an end-run around the Regents, it appears they went even further in granting THEN exclusive electronic rights to all UNEX courses without the approval of the instructors: they broke the law. According to the U.S. Copyright Act an author is automatically endowed with all rights (including electronic distribution rights) to his or her work - in this case the course material - unless some or all of those rights have been assigned in writing to another party (as a condition of employment or on a contract basis). It is abundantly clear from the documentary record that both UCLA and THEN were fully aware of this requirement from the start, namely, that they had to secure a written assignment from the instructors as a precondition of doing business, and that they chose ultimately to ignore it.

In the prospectus for his new company Arkatov had emphasized that "the owners of intellectual properties ... will be the leaders and winner in the field" and in his "letter of intent" to Lapiner he made it explicit that he understood that the intellectual property in question belonged in part or entirely to the instructors. "Extension [UNEX] is in the business of employing individuals ('teachers') to prepare and provide the classes", he wrote to Lapiner. "Network [THEN] is desirous of acquiring the exclusive right to produce and exploit Programs based upon the classes" and would like to negotiate an agreement in which "Extension shall grant to Network the sole and exclusive right to exhibit and otherwise exploit such programs by all means and media now known or hereafter devised ... throughout the world". In return for this grant of rights, UNEX would receive a proportion of the net profits and "Extension shall divide such net profit participation between Extension and the teachers". Although the teachers were not party to the negotiations, their compensated contribution was clearly seen as being essential to the enterprise.

From the earliest discussions about the proposed agreement within UNEX, questions were raised about the legal rights of the instructors and the legality of UNEX granting THEN, on the instructors' behalf, rights to their course materials. One of Lapiner's staff, Inju Sturgeon, noted that "since many courses and course materials are 'authored' by our instructors who receive a fairly modest salary in the context of our nonprofit status, I would anticipate some legal objections to our just 'selling' their work and course materials to a profit-making business enterprise ... ". Fred Churchill, another UNEX staff member, also raised the "copyright issue of who owns the material - UNEX or the instructor". In the light of these concerns, Lapiner sought the advice of UCLA's experts on such matters.

In November, 1993, Lapiner received a report from Connie Little of UCLA's Budget and Planning Office about her discussion of the matter with Carli Rodgers, UCLA's Copyright Officer. "During my discussion with Carli it became apparent that we must see the copyright wording in the contract with THEN due to several issues. The most important issue is even if we re-work the course material and have the course reapproved, all we own is the course material; the presentation is that of the instructor and is copyrightable to him/her". In essence, UCLA might perhaps own the physical course materials but not the copyright to the content, which belonged to the author/instructor. A few days after receiving this clarification, Lapiner reviewed a letter from Arkatov's attorney which maintained that THEN would own the copyright to the recordings of UNEX courses and he noted in the margin "we need permission of each instructor".

Arkatov's attorney clearly understood this as well and had already begun to draft an "instructor's contract" which would provide the legally-required written assignment of rights. "Instructors and guest lecturers will enter into agreements directly with Extension", he wrote. "Each such agreement shall provide that THEN is an intended third party beneficiary and that the rights of the Instructors and guest lecturers in and to such courses are being assigned by Extension to THEN." "As between Extension and THEN", he added, "Extension shall be the sole party responsible for compensating such Instructors and guest lecturers for their services and for any rights they convey with respect to Extension courses being videotaped for THEN". Again, both parties to the proposed agreement understood fully that they had to secure a written assignment of rights from the Instructors as a legal precondition for their joint enterprise. The following month UCLA's general counsel wrote to Arkatov's attorney, "while Extension is willing to agree to exclusivity, we must together face the difficulty of getting the Instructors to agree".

In January, 1994, Simon received confirmation of this understanding regarding "copyright ownership in lectures" and conveyed it to Arkatov's counsel. "I have consulted with the Office of the General Counsel [of the University of California] in Oakland about interpretation of the UC Policy on Copyright Ownership. I have been informed that it is most likely that the rights in a lecture would be determined under Section IV.A. of that policy, as 'scholarly/aesthetic work'. A lecture read from an outline or a prepared text would have a different status from one given extemporaneously, but under Section IV.A. the copyright to the outline or text would belong to the faculty member". "It seems, therefore", she once again concluded, "that in every case there will have to be an assignment of copyright to the Regents". Before UNEX, acting on behalf of the Regents, could making any grant of rights to THEN, it would itself first have to secure an assignment of those rights from the Instructors.

The mechanism envisioned for this transfer of rights from the instructors to UNEX was the "instructor's agreement", initially a part of the text of the UNEX-THEN agreement and later appended as an expanded "Exhibit A", at Simon's suggestion. "We think that the body of the Agreement should simply refer to UNEX's understanding to use its best efforts to have Instructors sign an agreement in the form of Exhibit A attached to the Agreement", she wrote to Arkatov's attorney. "We therefore suggest that the paragraph read simply: UNEX shall exert its reasonable best efforts to cause the Instructors to enter into agreements concerning the production and exploitation of the Recordings". Eager to embark upon what they imagined was a golden opportunity, UCLA officials had thus decided to contractually assume the burden of getting the instructors to sign on to the project by surrendering their copyright.

As Simon had anticipated, however, the task would prove "difficult". THEN's formulation of the "instructor agreement" declared "instructor shall warrant, represent, and covenant that instructor: has the full right, power, and authority to enter into and perform the agreement and to grant to and vest in UNEX, for assignment to THEN, all rights therein set forth [see Digital Diploma Mills, Part II for a detailed description], free and clear of all claims, rights, and obligations whatsoever". Upon first reading this language, Simon confided to Arkatov's attorney, "we do not think any Instructor would agree to this". Indeed, a preliminary survey of instructors about the proposed deal had already indicated precisely that. In June, just weeks before the agreement was signed, a summary report of a meeting of the parties (excluding the instructors) indicated that they all understood that instructor cooperation would not be forthcoming. The view of the UC Office of General Counsel was summarized: "Must cut back on rights. Unlikely that Instructors will sign" and that of UNEX: "Concerned that low-paid UNEX Instructors will not find compensation attractive enough to sign away rights".

The summary of THEN's position is startling: "THEN believes it needs to have all included rights. Willing to take risk that Instructors will not sign". Fully aware that instructors would more than likely not sign the instructors agreement, the acknowledged legal sine qua non for the deal, THEN decided to proceed anyway, and so too did UCLA. When asked by this author five years later why he signed the agreement in the knowledge that it lacked a secure legal foundation, Arkatov answered - sidestepping the question but not denying the truth of the allegation - "it was an exciting opportunity to play a significant role in helping to expand UNEX's outreach to the world via distance education".

For four years after the signing of the agreement, and after the effort shifted its focus from videotape reproductions to online delivery, UNEX again and again sought in vain to secure a written assignment of rights from the instructors, without which it had no legal basis for its grant of rights to THEN. In the meantime, the partners earnestly embarked upon the profit-making business of delivering UNEX courses electronically anyway, with THEN (later renamed declaring to the world that it held "exclusive electronic rights" to all UNEX courses.

Throughout 1995, with the shift to online delivery, significant tensions emerged between the partners regarding the suitability of the existing agreement to the new situation. Lapiner argued in vain that they needed to negotiate a significantly amended contract while Arkatov maintained that all of the existing provisions applied equally to online delivery. One of the central questions that arose was whether or not the instructors were being offered incentives adequate enough to cause them to surrender their copyright. At the same time, some UCLA officials, including Lapiner, began to entertain the wishful thinking that the Regents might automatically own the copyright in the online medium and that there would therefore be no need for an instructor assignment of rights to the university. Nevertheless, as obligated by the agreement, UNEX undertook to get the instructors to sign the instructor agreement [for details of this agreement, see Digital Diploma Mills, Part II]. The effort was overseen by Kathleen McGuire who at the beginning of 1996 began to receive very clear signals from her staff about "instructor reticence", a resistance which had, if anything, increased with the shift to online delivery.

In February McGuire and Lapiner received a memo about the situation from staff member Linda Venis. "We are currently plannng our on-line curriculum", wrote Venis, "but do not want to enter these courses in the [catalogue] - commit to them for Summer - until we can determine whether the instructors will sign the contract ... . We need to know now if we can count on our instructors". Venis was not optimistic. "It is important to stress that the response to signing the contract thus far, based on individual discussions and our own meeting with on-line instructors, is 'No'. I know that, Kathy, you reiterated that instructors are 'only' signing away recording rights - fair enough in the context of video and audio, as those are akin to performances which can be recreated. However - and it is a huge 'however' - 'recording rights' in the on-line context are quite different, as the lessons transmitted would be owned in perpetuity by THEN and could be used in any electronic format". "Electronic publishing is a huge issue with our instructors" Venis stressed, and she recommended sending copies of the instructor contract to all instructors as soon as possible to get a good reading. She suggested that UNEX hire an in-house legal consultant who could advise instructors about the contract, indicating that she and her staff were "very uncomfortable" interpreting it. In the end, and in no uncertain terms, she warned her superiors that "we anticipate that most, if not all, on-line instructors will not sign away the right to their materials" and emphasized that "a timeline and some real consideration about what happens if the instructors refuse to sign the on-line contract is critical".

The following week Lapiner wrote to Arkatov about "our instructors' refusal", again insisting on the inadequacy of the existing agreement in the online context. (A week later Lapiner was, according to his own account, compelled by Chancellor Young to sign an amendment which simply declared that the original agreement would apply to online delivery). Especially in the new online environment, Lapiner reported, "no faculty member will surrender rights". With regard to "intellectual property rights", he noted, "most UNEX instructors and all UCLA faculty queried will not agree to assigning these to THEN in perpetuity, or probably at all ... ". Echoing Venis, he stressed the fact that "this has become the critical impediment to realizing the agreement".

In March, 1996, despite the fact that all parties acknowledged that there were as yet "no instructor contracts", the decision was made to begin online delivery of UNEX courses by THEN on a pilot basis during the Spring term. As UNEX's new associate dean David Menninger rather matter-of-factly and cryptically reported that fateful step to Arkatov, "it was agreed that execution of instructor agreements would not be a requirement for courses to be offered in Spring 1996 on a pilot basis". He also indicated that UNEX was already preparing for a full online program with THEN for the summer. In anticipation of the summer program, UNEX redoubled its efforts to get the instructors to sign their contracts. "It was agreed that development and selection of courses for Summer is a priority, as is finalization of terms for a revised instructor's agreement", Menninger summarized a senior staff meeting. McGuire noted in her notes of the meeting that "the model for the instructor contract needs to move fast, if [supervisors] are to contact instructors for summer courses". A week later Arkatov informed Menninger that "Dean Lapiner has asked us to focus on the instructor agreement as a top priority (a new draft has been sent to Kathy McGuire)".

Lapiner was intent upon making the partnership with THEN a success; reminding them of "the Chancellor's expectations", he urged his staff to do their "best to make this project a visibly important and successful enterprise". Likewise, Menninger, the associate dean, exhorted the staff: "I am encouraging you to participate heartily in this venture by proposing more online courses". But all the while the instructor agreements were not forthcoming, either for the Summer or even the Fall terms. In the middle of the summer, McGuire informed course supervisors that "the status of the instructor contract is still liquid" and that, even given THEN's willingness to redraft the terms, "a final contract will probably not be available until August 26". By mid-August Menninger was now referring to "the infamous instructor contract" and internal UNEX communications took note of the "unresolved instructor contractual issues". Despite this difficulty, UNEX issued a press release announcing the pathbreaking collaborative venture with THEN, the success of the pilot courses, and robust plans for the Fall. The agreement, UNEX explained, gives THEN "exclusive rights to electronic recordings of UNEX courses" in return for a percentage of revenues; moreover, UNEX attested, "the agreement ... ensures that all intellectual property rights ... are appropriately protected".

Within the university, apparently, not everyone was so sure, especially in the absence of any agreement with the instructors. At the end of December, 1996, Lapiner wrote to UCLA vice-chancellor John Kobara, due to become THEN's president in January. "As you probably know, in some noisy quarters within UCLA and UNEX itself, the contract was and continues to be attacked as 'selling' UCLA property, and out of synch with UC policy on ownership of intellectual property". Again, Lapiner urged THEN to provide UNEX with a revised instructor agreement suitable for online course delivery and acceptable to instructors. Internally, UNEX had already adopted a policy of giving instructors a one-time "honorarium" of five hundred dollars for course development, as an incentive to instructors and tacit compensation for the surrender of their intellectual property rights. At the same time, UNEX officials moved further in their wishful thinking that the university somehow already automatically owned these rights in the online context. Accordingly, Menninger began to contest THEN's public claims that it owned "exclusive electronic rights to UNEX courses" and suggested that THEN adopt more precise language which would convey the fact that it held the rights to online "distribution" of the courses but not to the "content" which, Menninger believed, were retained by the Regents.

By this time, early 1997, tension between UNEX and THEN was reaching the breaking point, as each party blamed the other for the slow start up of operations; THEN accused UNEX of dragging its feet in the development of new online courses and disputing the nature and extent of THEN's acquired rights, while UNEX complained about THEN's failure to produce promised market research, cost reimbursements and royalties, and a "feasible instructor contract for online production". BY mid-April, Arkatov's lawyer accused Lapiner, UNEX, UCLA, and Regents of "material breach" and threatened to file suit. A week later, Menninger inquired of McGuire, "Kathy, just to confirm: we never settled the instructor's agreement, did we?" "No", McGuire replied, "it's just sort of sitting there ... they [THEN] may have abandoned the idea".

A few weeks later - now nearly three years after the UNEX-THEN deal was signed - Menninger once again brought the matter of the instructor agreement up with THEN. "This brings back into focus the instructor agreement that has not yet been finalized", he wrote Kobara. "Ideally the agreement will have terms sufficient to cover any activity between UNEX and THEN, be it online or taped recording. If THEN has determined the terms that it believes need to be included in a satisfactory instructor agreement/release, please forward them to me and I will work to get the process moving again toward mutual agreement". "Yes", Kobara replied, "we need to address the overall instructor agreement issue. It seems to me that we should start anew. What do you suggest as the next logical step in this process? Should we draft something? I need your advice on how to proceed to avoid whatever problems we encountered in the last go-around". The next day Menninger explained the situation to Kobara. "Regarding the instructor agreement; with the switch in emphasis to online a year ago, the draft agreement attached to the UNEX/THEN contract became problematic. (There had already been indications in any case of instructor resistance to the terms of the agreement anyway). THEN agreed to the need to revise the agreement to make it more acceptable and relevant to online, and was to have provided UNEX with a starting position to negotiate into a final agreement that UNEX would then present to instructors for execution. That's still where we need to pick things up. So, yes, a draft of your preferred terms are the place to start".

Plainly, at least up to this point officials of UNEX and UCLA were still insistent upon the need for a written assignment of rights from the instructors, even with the shift to online course delivery and even while some of them had begun to imagine that the university could automatically claim these rights without it. In her response to the breach of contract charge levelled by THEN's attorney, UCLA general counsel Simon blamed THEN for the "uneven progress" in the on-line area, the lack of revenues to "UNEX and its instructors" and, in particular, for "the absence of an instructor's agreement". "THEN has not followed through on this with a clear statement of its expectations for such an agreement and a prompt negotiation of final terms". "A workable instructor contract that spells out to instructors what their rights are", Simon emphasized, "is the foundation of a solid working relationship with UNEX instructors and UCLA faculty".

In January, 1998, the public controversy erupted over the UNEX/THEN deal, in the wake of the publication of the first installment of "Digital Diploma Mills" and subsequent press coverage. By this time UNEX officials had somehow firmly convinced themselves that an instructors agreement was no longer necessary and that the Regents could claim rights to course material absent any such assignment. In response to public questions raised about intellectual property rights, Lapiner wrote to the new UCLA Chancellor Albert Carnesale and Julie Gordon of the UC Office of the President that "all intellectual property rights to materials and curricula belong to the instructor and the Regents". In his disarmingly simple assertion Lapiner of course begged the crucial question as to the distinction between, and the legal relationship between, the instructor and the Regents: how can the Regents claim author rights without author assignment? In response to this author's request for a copy of the UNEX/THEN contract, including the instructor's agreement, Menninger took the next step, explaining that "since the focus of the Extension/THEN relationship has shifted to Extension online courses, for which the Regents of the UC retain ownership, no such instructor agreement has ever been used, nor is any further need anticipated". Like magic, through the devices of determined self-delusion and rhetorical legerdemain, the heretofore acknowledged legal foundation of the entire deal had been rendered irrelevant.

Of course it was not at all irrelevant, as other universities which had begun parallel online effors well understood. Thus even UNEX's major rival within the University of California system, the extension program of UC Berkeley (which had its own deal with America Online) required its online instructors to sign an instructor agreement, assigning copyright to the Regents, as a condition of employment. UCLA, however, had chosen to fly without wings. In May, 1998, Jeff Gerdes, a UCLA economics instructor, inquired about the UNEX program and requested clarification of its intellectual property policy. Kathy McGuire responded with an extended explanation based upon an amended agreement not made public until July, 1999. According to this amended contract, she assured Gerdes, the rights granted to THEN (recently renamed were "limited to marketing and distribution during the term of the contract" and copyright ownership was retained by the author. "Extension policy on ownership of course materials conforms to standard university policy", she explained. "Faculty and instructors own materials they develop, whatever the medium of instruction". The concern over copyright was thus dismissed as a non-issue. "It's not an issue, period", UNEX associate dean declared to the San Francisco Chronicle. "Nobody has pointed to anybody who's ever had to sign over their rights."

But that was precisely the issue. There never was any assignment of rights by the author. As McGuire maintained, the faculty and instructors retained ownership of the copyright to the materials they developed. How, then, did THEN ( obtain the now "limited" commercial rights of marketing and distribution of the materials? Ownership of copyright entails the ownership of all rights to the author's creation, including the commercially crucial ones of marketing and distribution. According to the Copyright Act, in the absence of a written assignment of those specified rights by the author directly to THEN or indirectly to THEN, via assignment to the Regents, the company would have no rights whatsoever with which to conduct business.

The second Amendment to the UNEX/THEN agreement, signed by Lapiner and Kobara on July 8, 1999 but effective January 1, 1998, indelibly enshrined the slippery and self-contradictory thinking of the parties. It asserted that the instructors and the Regents retained ownership of the copyright while failing either to clarify the precise nature of the relationship between instructors and the Regents or to account for the possession of rights by the Regents (and, hence, the granting of rights by the Regents to in the absence of any assignment by the author-instructor, as required by law. Whereas in her explanation of the copyright policy to Gerdes, presumably based upon this amendment, McGuire had forthrightly stated that the faculty and instructors owned the materials they developed, in the actual amendment the matter was fudged. In the critical clauses the amendment alternately coupled the instructors with the Regents and UNEX when spelling out the ownership of rights. "As between OLN, on the one hand, and the Regents and the Instructors, on the other hand, the Regents or the Instructors, as appropriate, shall be the owner of all right, title and interest, including without limitation, the copyright, in and to all content, class material and curricula (collectively the 'Course Materials") of UNEX Classes produced by or for OLN hereunder, and, for purposes of Title 17 of the U.S. Code also known as the Copyright Act of 1976, as amended (the 'Copyright Act') UNEX and the Instructors shall be deemed the author of the Course Materials". There is no provision for any assignment from the instructor to UNEX or the Regents, merely the simple assertion of authorship and ownership by UNEX and the Regents.

Moreover, according to the amendment, all of these rights presumably held by the Instructors, the Regents, and UNEX were now restricted, "subject to the exclusive right to distribute UNEX's Classes by On-Line Means conveyed to OLN herein". Since the amendment was signed by Lapiner, on behalf of UNEX and the Regents, and the instructors were neither party to the negotiations nor signatories of the amendment, it is clear that the exclusive distribution rights granted OLN were being conveyed by UNEX and the Regents without any instructor assignment to UNEX, the Regents, or OLN. Again, if the instructor was the author and owner of "all right", as the amendment declares, how did OLN obtain its right of distribution absent instructor assignment. If, as the parties claim, OLN was granted its rights by the Regents and UNEX, how did the Regents and UNEX obtain them in the first place, absent the instructor assignment which both signatories to the amendment had long known (and presumably still knew) was legally required. (In November, 1998, this author had an opportunity to discuss the matter with both Lapiner and Kobara at a joint UNEX-OLN event. Lapiner insisted that the amendment solved the copyright problem and pointed out that, as indicated in the amendment, instructors would be given "full knowledge" of the UNEX-OLN arrangement and their attendant responsibilities. I maintained that any agreement between the two signatories, whatever the specific language regarding instructors, was insufficient without a written assignment from the instructors themselves. Kobara nodded, turned to Lapiner and said "he's right".) For all the inventiveness and effort of the parties, the collaboration between UNEX and OLN, it appears, remained illegal.

One person who has most forcefully questioned the legality of the arrangement is Edward Condren, a long-time UCLA English professor and Chaucer scholar who for many years has moonlighted as a copyright expert in legal cases involving the entertainment industry. He sat on one of the Academic Senate committees that had been circumvented by the UNEX/THEN entrepreneurs in their rush to cement the deal and later had an opportunity to question Lapiner during a belated committee inquiry. He does not see how the instructors can own the copyright, on the one hand, and OLN can have exclusive distribution rights, on the other; both cannot be true without some written assignment from the instructor to OLN. In Condren's informed view, what the amendment "practically means is that I may own the house, but you have the right to rent it to somebody and get revenue from it. In other words, it is absurd. Federal law makes it abundantly clear that the ownership of copyright means the right to market, distribute, and so forth". Condren's legal opinion appears sound in light of the law but it is no substitute for the opinion of a court, which alone could declare the arrangement illegal.

Condren believes that, if not challenged (or corrected voluntarily), the arrangement could set a dangerous precedent for faculty. Over time the arrangement could some day be sanctioned by a court as accepted or established practice and faculty would forfeit copyright to the university by default. And the loss of their intellectual property rights to their course materials, he argues, would invariably lead to the loss of their academic freedom as well, in that "it would undermine the legal protection that enables faculty to freely express their views without fear of censorship or appropriation of their ideas". But where might such a challenge come from? What financially-strapped non-unionized online instructor who must depend upon the good graces of administrators for the next job and paycheck would be willing to file an infringement suit? And what member of the California population would be so motivated to file fraud charges against OLN, especially given the financial and legal resources at its disposal. In the summer of 1994, on the eve of the signing of the UNEX-THEN agreement, THEN indicated its willingness to take the risk of proceeding with its proposed project knowing that instructors might not sign over their rights. So far it appears to have been a risk worth taking.

* * *

As a cautionary tale in the commoditization of higher education, this account of an early episode in the evolution of online distance education should give us pause. For, as the tale demonstrates, the glitter of gold drives men if not mad at least dangerously incautious. In an exchange with a UCLA vice chancellor, Ed Condren asked him what he thought might be done about the controversial arrangement and the administrator replied, "Ed, we are learning". So, in this spirit, let us learn from this example.

In large measure, the ethical and legal lapses evident in this enterprise resulted from a woeful lack of disclosure, debate, and democratic decision-making. The existence of the arrangement, much less the details, was not even known by people at UCLA until the contract was made public by a visiting scholar from Canada four years after it was launched. And once it became known, and controversial, faculty were reluctant to talk about it for fear of administration reprisal. Silence, after all, is the unspoken but well understood rule on campus, where collegial conformity and resigned cynicism passes for sophistication.

Meanwhile, administrators had anxieties of their own. Condren recalled that when his Academic Senate committee expressed an interest in participating in the negotiation of the second amendment, Lapiner exclaimed "Arkatov will sue us!" (A not unreasonable expectation given the fact that Arkatov had twice threatened litigation against UNEX.) The entire enterprise, then, remains hermetically-sealed from serious scrutiny: those outside the select circle of decision-makers know little or nothing about what is happening, while those in the know are not talking. (Indeed, they are signing contracts which specifically prohibit them from talking.) Fuelled by technological and financial fantasies and given to entrepreneurial excess in imitation of their "real-world" role models, they are accountable to no one. Entrusted as they are with the stewardship of public institutions, their failings have dire consequences not only for themselves and their institutions but, more importantly, for the public which supports and relies upon the integrity of these institutions.

It is inconceivable that these administrative misjudgements would have prevailed had there been wider knowledge and discussion of the Arkatov initiative from the outset. Thus, one modest proposal would be an insistance upon full and timely disclosure and a required transparency of all transactions involving public goods and the public interest. All contracts above a specified dollar amount should as a matter of course be posted on the university website. And through the medium of open debate, wherein significant proposals are made subject to sober and dispassionate analysis, administrators should be encouraged to temper their enthusiasms and extravagant fantasies by bearing the burden of defending their decisions before they are taken. Above all, a new fashion must somehow be fostered of ongoing vigilance against such untoward and heretofore unchecked tendencies as have been described.

Finally, lest it be said that this episode is a particularly egregious example, the exception rather than the rule from which little can be generalized, it must be pointed out that, in retrospect, there is something almost quaint about the UCLA experience; if anything, things have gotten worse. At least UCLA administrators still sought revenues through the generation of fees paid for courses by students, and thus were required to develop courses, secure enrollments, and attend to the details of educational administration. The latest fashion among university administrators is dispense with such drudgery and instead seek imagined fortunes through outright Wall Street speculation in the education industry. One university after another is either setting up its own for-profit online subsidiary or otherwise working with Street-wise collaborators to trade on its brand name in soliciting investors, enlarging its portfolio of stock options, and closing in on the IPO (initial public offering) jackpot. [For details, see the conclusion of Digital Diploma Mills, Part IV]. In the continuing Gold Rush of distance education, then, the aspirants from UCLA were, if anything, just beginners.

And now, in the year 2001, these latest academic entrepreneurs of distance education have begun to encounter the same sobering reality earlier confronted by UCLA and THEN, namely, that all that glitters is not gold. Columbia University's high-profile, for-profit venture Fathom is reported to be "having difficulty attracting both customers and outside investors" compelling the institution to put up an additional $10 million - on top of its original investment of $18.7 million - just to keep the thing afloat. According to Sarah Carr's report in the Chronical of Higher Education, Columbia's administrators remain behind the venture whether or not it makes money.

Howevermuch it might enable administrators to restructure the institutions of higher education to their advantage vis a vis the professoriate, the investment in online education is no guarantee of increased revenues. "Reality is setting in among many distance education administrators", Carr reports. "They are realizing that putting programs online doesn't necessarily bring riches". Ironically, among those now preaching this new-found wisdom is none other than John Kobara, the UCLA vice chancellor who left the university to run Arkatov's company, which was founded upon the expectation of such riches. "The expectations were that online courses would be a new revenue source and something that colleges had to look into", Kobara remembered. "Today", he told Carr, [chancellors and presidents] are going back and asking some important and tough questions, such as: 'Are we making any money off of it?' 'Can we even pay for it?' 'Have we estimated the full costs?'" Barely eight years after Lapiner and his UCLA colleagues first caught the fool's gold fever, Kobara mused aloud, "I don't think anybody has wild notions that it is going to be the most important revenue source".

Historian David Noble teaches at York University in Toronto. He can be reached at (416) 778-6927.