Is it time for simplified licensing?

Licensing schemes for transferring technology are the bane of university technology licensing officers and their corporate partners alike, with most licenses requiring their own special terms.  

There have been earlier efforts, like the TurboNegotiator software developed by the US University-Industry Demonstration Partnership. The programme aims to help universities and industry quickly identify areas of agreement and areas that still need work, speeding the negotiating process.

Meanwhile, the Kauffman Foundation Experts’ Solution for University Technology Licensing Reform has argued that university technology licensing offices have, over time, become monopolies that slow commercialisation. It recommended that faculty choose their own licensing agents, saying the increased competition would speed up commercialisation of new technologies, while at the same time allowing universities to collect the same royalties as they do under the current system.

Royalties without equity

The UNC method, called the Carolina Express License, takes out the negotiation step. “We believe we’ve come up with a set of terms that will work for all UNC start-up licenses, that is fair and reasonable to all stakeholders, and can be put in place without negotiation,” Cathy Innes, director of the Office of Technology Development, said in a statement when the scheme was announced in December 2009.

Not having to conduct negotiations also can save on legal fees and gain time to devote to getting a business up and running.

Under the scheme, all UNC star-ups will be offered the same terms. Key provisions include a 1 per cent royalty on products that require approval from the US Food and Drug Administration based on human clinical trials, and a 2 per cent royalty on all other products.

In addition, a cash payout equal to 0.75 per cent of the company’s fair market value will be paid to UNC upon a merger, stock sale, asset sale or initial public offering. The license includes provisions to encourage broad commercialisation of the licensed technology, including making products available for humanitarian purposes in developing countries.

The UNC scheme does not include taking equity in the company or milestone fees. Instead of an upfront cash fee, most universities take an equity position in a company. “We learned during the process that equity is actually difficult for the university to manage and by the time a liquidation event occurs, the university position is not that significant,” said Joseph DeSimone, a serial entrepreneur and professor of chemistry at UNC, who co-chaired the committee on how to speed up licensing.

Will one template work for all?

The plan has met with mixed reviews. Riccardo Pietrabissa, vice rector at Politechnico di Milano, Italy, who started that university’s technology licensing office, doubts a standard license agreement will succeed. “Each case is different,” he said. He does, however, believe in the ethical use of patents so that a company can make money in certain situations on a patent, but also make it available for free in the case of orphan disease or needy populations. Pietrabissa recently won an ACES award given by the Science|Business Innovation Board.

Garheng Kong, general partner at venture capital company Intersouth Partners and an advisor to the UNC committee, believes the license provides commercially reasonable terms for the majority of situations likely to be encountered by the university and the licensee. “It should also help expedite the formation of new companies and eliminate much of the unnecessary back-and-forth that is frequently repeated with some university technology licenses.”

Ashley Stevens, executive director of technology transfer at Boston University and president-elect of the Association of University Technology Managers, had a mixed response. “US universities have been active in technology transfer for almost 30 years, yet there is still enormous transactional friction in the system. Whenever we do a license or collaboration - whether with a new start-up or an existing company - it feels as if we're transferring an academic innovation to the private sector for the first time. The same issues come up each time and we’ve failed to capture the body of accumulated experience and translate it into a better starting point for new deals.”

He added that it is fashionable to blame technology transfer offices for this failure, but the problem is a collective one also involving law firms, venture capitalists and corporate attorneys.

“I applaud UNC for this initiative and hope that others will follow their lead and develop similar template agreements that work in their communities,” he said. “However, the terms UNC is offering companies to induce them to accept these standard terms are highly concessionary, and I suspect that many universities will not be prepared to accept such a diminished share of the rewards of future success in order to streamline the licensing process.”