University Technology Transfer

and Licensing AgreementsDetermining Type of Transfer Agreement to Use, Structuring Key Provisions,

Overcoming Unique Challenges

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TUESDAY, OCTOBER 30, 2018

Presenting a live 90-minute webinar with interactive Q&A

Heather Meeker, Partner, O’Melveny & Myers LLP, Menlo Park, Calif.

Christopher Reed, Intellectual Property Officer, UC Santa Cruz, Santa Cruz, Calif.

Sean D. Solberg, Shareholder, Davis Brown Koehn Shors & Roberts, Des Moines, Iowa

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OFFICE OF RESEARCH

University Technology Transfer and Licensing Agreements

Christopher Reedchreed@ucsc.edu

OFFICE OF RESEARCH

Technology Transfer Agreements with Universities

• University agreements differ from typical commercial agreements for good reason

• The major categories of agreements are:• Option• Sponsored Research• Material Transfer Agreement (MTA)• Intellectual Property License

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OFFICE OF RESEARCH

University Agreements Differ from Commercial Agreements

• Universities are non-profits under law and face legal requirements to:– Not provide a private benefit

– Limit the liability in agreements

• Universities have resource limitations and are restricted in their autonomy and discretion:– Cannot raise money to take inventions as far as a

private entity might

– Inventors need to publish and so there is little chance of using trade secret protection

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OFFICE OF RESEARCH

University Motivations to work with Industry

• Universities and their inventors want the results of their research to have the greatest impact

• University IP output mostly knowledge about the world– Greatest impact often achieved through publication

and the university only takes the work so far

• Industry is needed to carry that work forward in ways the university is not equipped to do

• Provides researchers exposure to real world problems and links students to jobs

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OFFICE OF RESEARCH

Other Non-Commercial Objectives

• Univ. should reserve right of other Univ.’s and non-profits to practice inventions

• Exclusive licenses should be structured to encourage development and use of technology

• Strive to minimize the licensing of “future improvements”• Anticipate and help manage conflicts of interest• Ensure broad access to research tools (See NIH tools guidelines)• Enforcement action should be carefully considered• Be mindful of export regulations• Be mindful of the implications of working with patent aggregators• Consider provisions that address unmet needs: neglected

patient populations or geographies

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OFFICE OF RESEARCH

University Motivations to License

• Universities are non-practicing entities and in nearly all cases will want to license instead of practice because they are not built for:

– Scale up

– Completing regulatory process

– Taking on liability

– Changing business models and seeking customers

– Maintaining trade secrets

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OFFICE OF RESEARCH

Outside partners

• Commercial partners – Financial investment in creativity + effort needs to

be recouped

– Exclusivity from IP mechanisms on the front end allows profits to be made on the back end

• Non-commercial partners– Investment in project is recouped through the

shared result

– Upstream rights and licenses guarantees downstream fidelity to open source principles

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OFFICE OF RESEARCH

Option Agreement

• Money to owner of IP in exchange for owner forbearing encumbering the IP

• Generally are not long periods– Less than 6-12 months, but can negotiate longer

term if patent costs covered

• Relatively simple financial terms– One-time up-front payment, no running royalty

• Well defined IP like a particular patent or a specific copyrighted work

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OFFICE OF RESEARCH

Industry Sponsored Research Agreements• Supporting research, not hiring researcher

• If no financial support, then can be called a Collaboration Agreement

• Professors need to publish

• IP ownership follows inventorship – University will not assign IP to sponsor

• ISRAs grants to sponsors may include:• Limited 1st right to negotiate an exclusive license to new IP

• Limited period of exclusive rights

• Internal use license without rights to sub-license

• Grant has to be commensurate with the funding (don’t expect a NERF (non-exclusive royalty free))

• IP is NOT developed at the time of the agreement – harder to define terms

• Universities want sponsors and want sponsors to become licensees 13

OFFICE OF RESEARCH

Material Transfer Agreements (MTAs)

• To control the use of goods provided by one party to another

• Most applicable when the only thing transferred is material– If there’s communication/collaboration between the

parties, research collaboration agreement is a better fit

• Universities can only agree to particular indemnification provisions

• Look to UBMTA for common provisions

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OFFICE OF RESEARCH

License Agreement

• A license is a subset of full ownership rights• Most commonly exclusive is required for

licensee to be viable• Granted in exchange for money that may

include:– Royalties– Upfront fees– Periodic minimums– Equity– Reimbursement for patent costs and/or other

expenses

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OFFICE OF RESEARCH

University Objectives

• Get a deal done that:– Is with a qualified licensee that can

succeed and will enable the research to create impact

– Includes terms consistent with the regulations and tax law the university must operate under

– Is consistent with the inventor’s vision and aspirations

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OFFICE OF RESEARCH

Terms Universities Cannot Negotiate

• Liability– Private institutions/foundations must protect endowment

• Enforcement– University retains control

• Assignment– University required to retain ownership

• Reservation of rights for research, educational purposes, and publication

• Bayh-Dole and Federal funding requirements

• Governing law limits public institutions whereas private institutions are generally less restricted even if non-profits

• Tax law limits all non-profits

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University Technology Transfer and Licensing

Agreements:Key Provisions

Sean D. Solberg

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University Licensing Unique

• History of Bayh Dole

o Improved access to university technology

• University must maintain integrity

o Primary purpose – education

oConsistency/fairness in licensing is required

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• Licensing terms different as result

oUniversity must continue research mission –could lead to new, competing technologies

oUniversity cannot be expected to have knowledge of industry

• Good summaries of university prioritieso Nine Points to Consider - https://www.autm.net/advocacy-

topics/government-issues/principles-and-guidelines/nine-points-to-consider-when-licensing-university

o Univ. of Southern Mississippi Guiding Principles -https://www.usm.edu/sites/default/files/groups/office-technology-development/pdf/guidingprinciples-usm-nov-2013.pdf

University Licensing Unique

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Non-Negotiable/Fairly Strict Provisions

• Reps/Warranties and Indemnification

• Publication

• Retained Rights – non-commercial purposes

• Sublicensing/Affiliates

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Reps & Warranties/Indemnification/Liability

• Universities cannot assume any risk/warrant anything – non-negotiable

o Licensee responsible for claims and liabilities resulting from commercialization

oDisclaim warranties re fitness, merchantability, validity of patent rights, etc.

• Licensee must indemnify university against all claims

• Licensee must get insurance (general liability, product liability, etc.)

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Publication Requirement

• Issue/Tension

oUniversity requirement to publish vs. confidentiality of new inventions

• Standard provision – licensee gets opportunity to review any article prior to publication

o Typically can revise/make revision suggestions to avoid disclosure of confidential info

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Retained Rights• Tied to restrictions/obligations of

university

oMust be free to continue research and educational activities

• Ownership – non-negotiable

o Royalty payments – excluded from taxation

• University must retain right to use technology for educational and research purposes

o Typically also retain right to share with other research institutions

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Sublicense/Affiliates

• Typically fairly strict provisions

• Sublicensees typically must agree to substantially the same terms as licensee

o Typically, sublicense must be reviewed and approved by university

oAlternatively, can only sublicense if meeting all milestones/diligence obligations

• Affiliates typically bound by same obligations as licensee and licensee remains responsible

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Compensation: Variables

• Terms – including payment structures –are case-specific

• Variableso Type of technologyo Stage of developmento Size of potential marketo Profit margin of producto Strength of patents

o Estimated dollar valueo Cost of further

developmento Scope of license (exclusive?)o Royalty rates in industryo Cost to bring to market

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Upfront Compensation

• Upfront Licensing Fee

o Typical range: few thousand to hundreds of thousands

• Variables

oDeveloped technology/larger licensee: larger upfront fee

o Early-stage technology/startup licensee: smaller upfront fee or even no fee

oCan be paid in installments over time

• Equity instead of upfront fee?

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Ongoing Compensation: Royalty Rates

• Rates vary

oWide range: 1-10% or more (typically 3-6%) of net sales

o Processed technologies: lower rate

oDirect/significant commercialization – higher rate

• Variables

o Lower upfront compensation – higher royalty rates

oVery market dependent – do your research

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Ongoing Compensation: Royalty Rates

• Interesting software trend

o Startups pushing back on any royalties for software technologies

o Prefer equity and milestones

• Universities aren’t expected to know the market

oMay follow internal guidelines for royalties

o Best negotiation tactic – explain impact of various royalty rates on licensee’s business

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Additional Compensation

• Ongoing research

o Some universities seek payment for ongoing R&D for the same invention/technology

o Basically sponsored research added to license for additional access

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Distribution of Compensation

• Large percentages of income (royalties, etc.) are distributed to the inventors and the originating department based on university’s IP policy

• Bayh-Dole Requirement

o Royalties must be shared with inventor and also be used for research, development, and education.

33

Patent Prosecution

• Payment for prosecution

o Standard approach – licensee pays for ongoing prosecution

• Either (1) pay fees and bill licensee or (2) deduct fees from ongoing royalties owed

• If worried about ability to pay, consider upfront payments for large expenses (national stage filings, etc.)

o Past prosecution can be negotiable – often depends on university

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Patent Prosecution

• Control of prosecution

o Standard approach – licensor controls with input from licensee (amount of input varies)

• Tied to requirement to manage assets in best interest of the public

• If license terminated, must know patents/applications are high quality

• Concern licensee may favor own technology over university’s during prosecution

oOccasionally – licensee controls (typically smaller tech transfer offices)

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Additional Grant Provisions

• Know How and Related Technology

o Required to develop/commercial technology

oUniversity prefers non-exclusive

• Could be necessary for other uses/technologies

• Value for licensee – protected patent rights

• Rights Prior to Patent Issuance

o Typically, royalty fees attach for pending applications (as well as issued patents)

o Licensee has early access to technology and freedom to develop

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Improvements

• Also tied to university obligations

oAcademic freedom requires that researchers can investigate areas of their choosing without restriction

o Tax-exempt bond issuances

• Result – future improvements typically not included

o License relates to technology in hand at time of agreement

oOf course, licensee is logical target for improvements

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Change of Control/Assignment

• Change in management/new ownership/funding event

• Universities understand that change of control is common for startups

• Options

• No prior approval required.

• Prior written approval required.

• Fee – typically equal to some percentage of the value of the liquidity event/investment.

• Right of termination – least desirable.

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Diligence of Licensee

• Issue/Tension – diligence of licensee

oUniversity must rely on licensee to develop, commercialize, and market

oNeed to prevent company from licensing and shelving technology to exclude competitor

o Bayh Dole requires practical application of invention to avoid federal government exercising march-in rights

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Diligence of Licensee• Provisions

o Business/product development plan

oMinimum annual royalty payments

oAnnual/recurring progress/marketing reports

o Specific milestones with specific dates

• Typically provided by licensee

• Alternatively – specific funding requirements

o Specific date for first commercial sale

o “Reasonable commercial efforts” likely insufficient

o Typically renegotiable if good relationship

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Buyout Options

• Royalty cap – agreement to cap total royalties at some predetermined amount

o Saves licensee money if product is successful

• Buyout – payment of remaining royalty cap amount

o Eliminates ongoing royalty payment (such as after a funding event)

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SEAN D. SOLBERG

seansolberg@davisbrownlaw.com

515-246-7859

THANK YOU!

October, 2018

Hiring the Best and Brightest – Working

with University Professors

Technology Companies Need Professors

• Professors

• Researchers

• Students–We will call them all “Professors” for this talk

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IP Issues and Moonlighting

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University IP Policies

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• Most policies allow professors to retain (and assign to private employers) IP that is:

–Not developed as part of the professor’s work for the university AND

–Not developed making substantial use of university resources

• Most universities publish their policies, but…

• Many professors need help to understand them

Separating IP

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• Overlap = due diligence issues

• Many universities will not provide useful “comfort letters” regarding separation of IP

• Use lab notebooks and records to track separation

• Don’t use university physical assets

–Computer processing

–Equipment

–Be careful about use of data or other intangibles

UIP

MyIP

University IP Policies – Extra Credit

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• About the odd case of copyright and software–http://copyright.universityofcalifornia.edu/ownership/works-created-at-uc.html

–Copyrights were historically retained by professors

• Open source software –IP placed in the “public domain”

–Some Universities have open source policies

–UC: https://security.ucop.edu/resources/open-source-software-licensing.html

University Work Policies

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• Ensure your contemplated engagement does not cause the professor to violate moonlighting policies

• Most universities allow 1 day/week or 1 week/month outside work

• The consequence of violating them is mostly an employment problem for the professor, not an IP problem for your company…

– But their problems are your problems

Some Example Policies

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• Carnegie Mellon IP Policy

https://www.cmu.edu/policies/administrative-and-governance/intellectual-property.html

• Stanford Moonlighting Policy

https://doresearch.stanford.edu/policies/research-policy-handbook/conflicts-commitment-and-interest/consulting-and-other-outside-professional-activities-members-academic-council-and-medical-center-line-faculty

Navigating University IP Issues

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• Is the professor an employee of the university?–Professors and researchers are usually employees

–Students and lecturers sometimes are not

–Employment status affects copyright ownership

• Did the professor sign an IP agreement?–These usually refer to published IP policies

–Sometimes they are not part of a written agreement

• How will the professor’s work for your company and the university be separated?

–Subject matter

–Location

–Time

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Heather Meekerhmeeker@omm.com+1-510-463-1116

Open (Source) for Business (2nd Edition)Available in Kindle or paperback form on Amazon.com, or in pdf form at:www.heathermeeker.com/book-update-pagePassword: MeekerOSFB1.1

Technology Transfer with a University or National LaboratoryLexis Practice Advisor Journal

https://www.lexisnexis.com/lexis-practice-advisor/the-journal/b/lpa/archive/2016/03/11/technology-transfer-with-a-university-or-national-laboratory.aspx

Thank You for Your Time!