Law360, New York (June 24, 2014, 10:23 AM ET) — Universities and other institutions of higher learning often count renowned scientists and other industry leading experts among their faculty. These faculty members engage in research to further our knowledge and understanding of the arts and sciences. As a result of such research, universities amass a wealth of knowledge and innovations.
For example, according to IPAdvocate.org, saccharin, Gatorade, liquid crystal displays, retractable seat belts and Allegra, among others, were invented at a university or other institution of higher learning. However, universities typically do not have the resources to produce or commercialize their innovations. Such expertise lies with industry. For example, many companies have established cost-effective mass production capabilities and distribution channels. Thus, for a university innovation to become commercially available, collaboration between the university and industry is often necessary. Such collaboration can be accomplished through “technology transfer.”
Technology Transfer and Its Role
Technology transfer refers to the formal transfer of rights from one party to another, to use and/or commercialize discoveries and innovations resulting from, e.g., scientific research. Technology transfer benefits academic institutions and industry in many ways. Technology transfer provides universities with a means of unlocking potential public benefit within their innovations. By transferring technology to industry, the university is able to have its academic research developed and commercialized for the public’s benefit in exchange for income (e.g., a royalty stream). Universities often use this income to fund further research.
Technology transfer also allows companies to collaborate with universities by partnering with faculty members on special projects. For example, a company faced with a problem that lies outside of the company’s competencies may enter into a joint or sponsored research project with a university faculty member having expertise in the area of the problem. Such joint or sponsored research projects also may allow the company access to specialized and costly testing equipment without having to acquire such equipment.
While in some countries access to an invention developed by university faculty is gained through a direct agreement with the faculty member, in the United States such inventions are typically owned by the university and therefore accessed through a license agreement with a designated office (e.g., the technology transfer office) of the university.
A university license agreement, however, can include a number of differences as compared to the typical company-to-company license agreement. These differences derive from universities (and their faculty) and companies often having differing goals when it comes to use of, and access to, technology and innovations. For example, academics typically engage in research to advance our understanding of the arts and sciences. As a result, they strive for free and open communication. Companies, on the other hand, are driven by economic goals. Consequently, companies do everything possible to maintain competitive edges, including maintaining information in confidence.
When negotiating an agreement between a university and a company, it is important to keep these differing goals in mind. Doing so will help to identify issues that can be easily resolved and those which justify negotiation. For example, in university-industry licensing deals, there typically are certain aspects or provisions that have greater importance to one party relative to the other. Certain aspects of an agreement may be critical to the university while a company may be indifferent to them, and vice versa. Identifying the issues that are critical to each party and of little import to the other can help limit negotiations to only those issues of relative importance to both parties. Indeed, savvy licensees can significantly limit legal costs by recognizing that negotiating against certain university requirements can be futile.
Issues That Are Typically Critical to Universities
Universities are institutions of higher learning and value the ability to conduct research. As a result, universities insist on reserving rights to licensed technology for further academic research. Such reservation of rights is usually non-negotiable from the university’s standpoint. In addition, universities license their innovations so that they may ultimately benefit the public in exchange for some revenue. Thus, universities want to ensure a company does not license its technology and sit on the licensed rights for defensive purposes.
Accordingly, universities often require a commercialization plan from the licensee, and that the licensee reach commercial milestones, to verify the licensee’s intent to commercialize the licensed technology. Companies should also understand that academic institutions need to maintain their respected reputations and therefore should accept restrictions on use of a university’s name and logo.
Additionally, university innovations are sometimes funded by the U.S. government. As such, any agreement relating to innovations developed with federal funding needs to comply with the Bayh-Dole Act of 1980. Companies taking licenses to such innovations, therefore, should refrain from expending resources to negotiate against the inclusion of certain Bayh-Dole provisions requiring, e.g., diligent development of the licensed technology, manufacturing in the U.S. for products sold in the U.S., and royalty-free sales to the U.S. government.
While the Bayh-Dole provisions in a license cannot be removed, companies may request that the university, as the federal grant recipient, apply for a waiver of the U.S. manufacturing requirement on their behalf. There is a strong preference for substantial manufacture in the U.S., and manufacturing waivers are not easily granted. However, upon a compelling showing by the university that it made reasonable, but unsuccessful, efforts to license the IP along with a strong argument by the company for why domestic manufacture is infeasible, the federal agency may be persuaded to grant such a waiver.
Issues That Are Typically Critical to Companies
On the other hand, certain issues are of great importance to a company taking a license, and universities often do not challenge them. For example, universities recognize that companies taking licenses to their technology greatly value exclusivity to the licensed technology so that the competitive field is limited. In addition, should a competitor emerge, licensees value the right and ability to enforce such exclusivity. Accordingly, unless extenuating circumstances are present, a university typically will not take issue with granting a licensee the appropriate levels of exclusivity to the licensed technology or the right to enforce intellectual property rights protecting that exclusivity.
Further, universities recognize that changing economic landscapes may limit a licensee’s ability to commercialize the licensed technology. As a result, universities will typically grant the right to sublicense the technology since universities would prefer to have the technology commercialized rather than returned to them. As another example, universities understand that today’s business world is driven by mergers, acquisitions, and other corporate maneuvers. Thus, universities typically do not hesitate to grant companies the ability to transfer any licensed technology and associated intellectual property rights to, e.g., an acquirer.
Issues With Competing Interests And Potential Solutions
Notwithstanding the above, university-industry license agreements include many issues with competing interests. Experienced negotiators understand these issues, the competing interests, and the solutions for overcoming negotiation hurdles. For example, one issue may be the rights to control the prosecution of patents covering the licensed technology. The licensee company desires control so that prosecution strategies can be tailored to commercial embodiments and the competitive landscape. At the same time, universities prefer to retain control to ensure the licensee does not intentionally pursue worthless claims to avoid a royalty obligation.
One possible solution for accommodating these competing interests includes providing one party with control of patent prosecution while ensuring the other party is afforded an opportunity to review and comment on filings or other decisions. In addition, or alternatively, should the controlling party choose to cease its pursuit of patent protection, the non-controlling party is permitted to take over. Another solution may include providing the company (i.e., licensee) with control over patent prosecution, but the university (i.e., licensor) is permitted to prosecute a continuation application with review and comments from the company. Another mechanism for balancing these interests may include untying university compensation from particular claims pursued in patent applications. For example, an agreement may include the payment of minimum annual royalties to the university regardless of patent claim scope or, for that matter, obtaining any patents at all.
Another issue that raises competing interests involves improvements based on collaboration between employees of a company and faculty member(s). From the company’s perspective, such improvements are based on the underlying licensed technology and thus should be automatically included in the original license grant without additional compensation. However, universities are hesitant to assign or license innovations without further compensation. Additionally, a university’s compensation obligations to the faculty member may complicate the grant of automatic assignments or licenses to improvements.
These competing interests may be resolved by the parties agreeing that jointly developed innovations will be jointly owned. While joint ownership may provide a resolution, it may not be most desirable depending on particular circumstances. Thus, another solution might include the company (i.e., licensee) assigning its interests in an improvement to the university, without compensation, in exchange for the university granting a license back without additional consideration. Still further, the differing interests surrounding innovations resulting from collaboration may be bridged by the university only granting an automatic license to a defined scope of improvements while the company is provided with an option to negotiate anew for other joint inventions.
Publication of technology may be another point of contention between the parties. Companies, for example, require time to evaluate innovations and decide whether to pursue patent protection, and also prefer, during development, to keep innovations from the public as long as possible. As such, the company may want to prevent publication of data or otherwise keep that information as a trade secret. Academics, however, view timely publication critical to the progress of science and promotion of themselves and the university. One possible solution for balancing these competing interests includes providing the company with a defined period of time to review publications for specific purposes (e.g., filing a patent application) prior to public dissemination.
Further, companies and universities may have diverging goals when addressing financial terms in an agreement. Companies want low-cost licenses to, e.g., put resources to product development and maintain profit margins. Such low-cost licenses allow companies to use early-stage resources to gauge and eliminate risk wherever possible, overcome any necessary regulatory hurdles, and bring products to market. Universities, however, want reimbursement of their out-of-pocket costs plus consideration of intellectual property value. These costs and possible values may include incurred patent expenses (e.g., filing and prosecution costs, attorney fees, and patent maintenance fees), the present value of intellectual property, and the upside potential of the intellectual property. In other words, universities are sensitive to missing the boat on large sales milestones, lucrative sublicensing deals, and/or favorable acquisitions.
Technology transfer agreements can address these concerns in a number of ways. For example, a deal may be structured with various terms in view of the intellectual property, potential licensee, and maturity of the technology. Compensation owed to the university may be apportioned among any of an upfront license fee, royalties on pending claims, minimum annual royalties, a sliding scale of royalty rates, prosecution costs, sales/diligence milestones, equity and sublicensing consideration, etc., to accommodate the licensee-company’s financial position.
Conclusion
Academic institutions play a vital role in advancing our understanding of the arts and sciences. However, industry is best suited to develop commercial applications based on university innovations. While academia and industry share many common goals, licensing university technology raises a number of competing interests. By recognizing the university’s unique position, a potential licensee can avoid disputes relating to issues critical to the university and conserve resources for negotiating issues important to the company and within the university’s appetite for compromise.
—By Ami D. Gadhia, Johns Hopkins University Technology Transfer, and Dinesh N. Melwani, Jessica F. Winchester and Les I. Bookoff, Bookoff McAndrews PLLC
Ami Gadhia is the technology licensing portfolio director at Johns Hopkins Technology Transfer in Baltimore. Dinesh Melwani, Jessica Winchester and Les Bookoff, are attorneys with Bookoff McAndrews in Washington, D.C.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the University, the firm or its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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