Internship university asks to give up all intellectual property
Can I do something about it?


There aren't any magical answers here, but aside from the obvious options of either signing the contract and accepting that this is a price you'll have to pay for a really good professional development opportunity, or refusing to sign the contract under any conditions and seeking an alternative internship at a more accommodating institution, I see a third option: negotiate.

There are many possible ways to go about this, but here's one: I assume you were accepted to the internship by a PI/researcher who thought that you had good qualifications and that his/her lab would benefit from your work and talent. This person could be your ally. What I would do is write them a polite email along the following lines:


  Dear Professor Smith,
  
  Thank you for offering me the internship at your fusion reactor lab. I am excited about this wonderful opportunity and am looking forward to starting in a couple of months, and have even begun doing some background reading on flux capacitor technology to make sure I can be as productive and helpful as possible from day one. I am writing however to express a concern about an issue that came up and that may prevent me from taking on the internship. I was informed by your Office of Research that your university is refusing to accept the standard internship contract my own university advised me to use (see the email I received from them, appended below) and are asking me to agree to a change in the standard intellectual property clause, which in its present form is designed to protect the interests of myself, yourself and both our respective universities, to an alternative version that transfers all IP rights to your institution. I am afraid I don't see this as an acceptable or balanced arrangement from either a moral or practical point of view. I am happy to assign any rights that would allow your lab to exploit and make use of any work I do while at your lab as in my proposed contract, but since among other activities I will be developing code that I may want to use in the future for my thesis research or other legitimate purposes, I do not think it is reasonable to accept the terms offered by your university.
  
  For this reason, I am asking for your help in resolving this situation. If we cannot reach an agreement, sadly I may be forced to withdraw my acceptance of your internship.
  
  Best wishes,
  
  [your name]


The thing to remember is that while you are negotiating with a counterparty that's massively more powerful than you (which is why they feel they can get away with making such demands), you do have a bit of leverage: they want something from you. Whether you will succeed depends on the personalities of the people involved, how badly the PI wants you, how many other talented students are lining up to take your place, how unique are the skills that you have to offer, how rigid the university's bureaucratic machinery is, etc. If the PI is unwilling or unable to help, you will find yourself back where you started, so you'll still have the option of either accepting the terms you're offered, or giving up the internship.