Navigating the landscape of intellectual property (IP) licenses can be complex, especially when working with university technology transfer offices. Securing a license from these offices requires a strategic approach and a thorough understanding of the process. To help you succeed, here are some key considerations and steps for negotiating your license and managing your risks effectively.
University Technology Transfer Offices
University technology transfer offices manage and commercialize intellectual property from university researchers, aiming to promote innovation, generate revenue, and ensure public benefit. Their main activities include evaluating inventions, filing patents, and negotiating licenses with companies to bring technology to market.
Key Considerations for Negotiation
1. Know the Technology and its Market Potential:
Before entering negotiations with these offices, thoroughly understand the technology you're interested in. Assess its market potential, competitive landscape and development stage. This will strengthen your position and aid in framing the terms of the license. Also, consider whether you can develop alternative solutions, such as creating alternative software. If this is feasible, you can negotiate more assertively on financial terms with the university.
2. Understand University Objectives:
As mentioned, universities aim to foster innovation and ensure their inventions reach the market, while also generating revenue to support further research. However, universities tend to be risk-averse and wary of negative publicity. Aligning your proposal with these objectives can facilitate a smoother negotiation process.
3. Due Diligence:
Conduct comprehensive due diligence on the IP, including verifying patent status, understanding existing agreements, and evaluating the inventors' ongoing role. Ensure there are no encumbrances that could hinder commercialization, or if present, develop mitigation strategies to address potential concerns.
4. Type of License:
Determine the type of license that fits your business model. Options include exclusive, non-exclusive, and field-of-use licenses. An exclusive license means you have the sole right to commercialize the invention, which can be critical for high-risk, high-reward technologies. If you are unable to get full exclusivity, try to at least get a period of 2 to 3 years of exclusivity in which you can commercialize the technology without direct competition. Another alternative is to negotiate exclusivity in a field of use in which you want to commercialize the invention i.e., a sector like medical or pharmaceutical.
When starting the negotiating process with universities seek to have an exclusive period in which the university agrees not to negotiate with any third party. This should be extendable if negotiations take longer than expected.
5. Financial Terms:
Be prepared to negotiate various financial terms, including upfront fees, milestone payments, royalties, and equity stakes. Universities typically seek a balance between upfront compensation and long-term royalties. Benchmark the university's demands against other institutions, and try to avoid upfront payments as the startup will need the cash in its early stages. Similarly, seek to defer royalty payments for a period of time while the startup gets established and try to cap royalties on sales to a specific period. University equity should be dilutable for future investment rounds.
6. Professor Equity
If a professor is seeking equity, consider whether this is justified. What has the professor contributed so far? What will be professor's role will be going forward? For example, will the professor take an active role in the company? If so, what? How does this role fit with the other founders of the start-up? Will the professor provide resources to the company (e.g., laboratories for research, PhD students to undertake further research)?
7. Development and Commercialization Milestones:
Establish clear development and commercialization milestones. Universities want assurances that their technologies will be actively developed and brought to market particularly if they grant an exclusive license. Agreeing on realistic milestones demonstrates your commitment and capability. If targets are not met, the university may seek that the license becomes non-exclusive. Seek to have the option to extend the period of the commercialization milestone so that you can maintain exclusivity.
8. Management:
Clarify who will be responsible for IP management, including patent prosecution, maintenance fees, and infringement actions. This is crucial to avoid future disputes and ensure the technology is protected. Often universities do not want to have the responsibility to protect IP beyond the initial filings, if this is the case ensure that you have the right to do so.
9. Sub-licensing Rights:
Discuss sub-licensing rights if you plan to collaborate with other entities. Ensure the terms are clear about how sub-licenses will be handled and what share of revenue will be returned to the university. Avoid having terms that require the universities prior approval of sublicensing, instead negotiate the right to sublicense upfront on agreed commercial terms.
10. Dispute Resolution:
Include provisions for dispute resolution to address potential disagreements during the license term and specify the governing law. Note that opting for mediation or arbitration might be better, as these can provide structured mechanisms for resolving conflicts without resorting to litigation, which can be lengthy and more expensive.
11. Exit Strategies:
Plan for various exit strategies, including termination clauses. Examples include termination for breach of contract, termination for convenience, among others. It's important to understand the conditions under which the license can be terminated, the required notice periods, the timeframe for remedies of potential breaches, and the implications for all the parties involved.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.