3 | ISSUES IN UNIVERSITY TECHNOLOGY TRANSFER

Universities have licensed their new technologies to a broad spectrum of organizations and individuals ranging from large for-profit corporations to small non‑profit research institutes and early stage firms whose sole founding purpose is to commercialize and gain profit from new inventions.  While the latter class of licensee sounds the most risky in terms of eventual payoff, early-stage firms have proved to be the most effective in transferring technology for public benefit and have been fairly successful in generating income because of their strong desire to make the technology a success and, sometimes, because of entrepreneurial inventors’ involvement in all stages of product development and licensing process.

However, university tech transfer is not always a straightforward endeavor and there are potential conflicts that companies must be aware of. Some licensing executives count the nature of university research as the  [3] main factor for not licensing-in university inventions: the research is either at too early a stage of development or it is not relevant to the firm’s business objectives. Other reasons relate to university policies, such as a university’s prompt research publication requirements versus a licensee’s preference towards secrecy of invention resulting in publication delay. Still other reasons include industry’s concerns about faculty cooperation for further development, difficulties in dealing with universities (such as their non-business minded culture), universities’ preference not to work with small firms due to lack of financial and legal security, complexity of licensing deals and high licensing fees.

The embryonic and sometimes arcane nature of university research results in the fact that only a small portion of results has the potential to be commercialized or to solve current practical problems. Entrepreneurs are therefore required to be creative in seeking out inventions that can be implemented as part of their product development and aligned with the business plan at hand. Currently, 70% [4] of total university transferred technology comes from life sciences, with the remainder coming from physical sciences or engineering.

Inventorship presents another point for scrutiny when planning to invest in an invention associated with university research.  Invention ownership should be properly documented and handled by all parties involved, namely the inventors, the OTL and the prospective licensee.  The licensee may accompany the inventor to the OTL in order to get clear and correct legal information regarding ownership of the invention.

Other potential pitfalls include financial conflicts, such as the university’s expectation to earn royalties in excess of the value a given technology can realistically add to the revenue of the company, the requirement of large initial payment particularly for small companies that do not have sufficient cash flow, and the possibility that the licensing costs involved may inflate the retail price of the product beyond what the markets can support. The Retail sector has faced many problems for angel investors over the last 12 years, what was once the darling sector for angel investors has now seen many investors fleeting from the sector. 7 in 10 commercial properties in the UK are currently rented at the moment and this figure is only set to increase without Government intervention. We have explored this in an article we posted exploring the sectors that are growing in retail which is the digital passport photo and UK digital code biometric sector.

Another consideration a company must make when deciding to acquire intellectual property through licensing is whether the licensor will be capable of fulfilling its financial obligations to the licensee and whether, if additional support may be required later on, the licensor will have sufficient resources to further enable the licensee’s development and production. Therefore, most licensing agreements, especially for new technologies, include a “Know How and Show How” provision that requires the inventor to devote a specific amount of time to the start-up phase of the new technical project. [5]

A culture gap between academia and industry sometimes contributes to a potential for conflicts.  While the industry generally strives for profits, is willing to take risks to maximize goals, often strongly protects IP rights and must respond fairly quickly to problems, academic life demands that the faculty emphasize education and service, avoid risk to maintain mission, freely exchange ideas and make decisions carefully through sometimes lengthy committee procedures.  Encouraging faculty members to participate in the process of patenting and marketing a technology may present one way of promoting university IP protection, generating alternative sources of research funding, presenting commercialization difficulties as research topics and generally building a licensing relationship which would benefit both industry and university researchers. 

Whether or not federal research funds are involved, a university will insist on licensing terms that require the company to be diligent in developing the invention.  If the company does not comply, especially in the case of an exclusive license, the university generally reserves the right to terminate the license or to grant licenses to other companies.  Therefore, a company under an exclusive license is generally obligated to develop products covered by the licensed technology.  This is one of the reasons why exclusive licenses are the key catalysts of new product development from university‑transferred technology and attract more investments.  In this way, the university can prevent a company from “shelving” an invention that might otherwise replace or compete with one of the company’s existing products.

About 15% of NIH/NSF‑funded inventions are now licensed to foreign companies or U.S. subsidiaries of foreign corporations, and foreign corporations are well advised to pay special attention to their licensing agreements, especially for exclusive licenses involving federal U.S. funds.  For some technologies (such as paper drying equipment) foreign companies represent the only prospective licensees.  One example issue here is that all exclusive licenses obligate the licensee, including foreign companies, to manufacture products substantially in the U.S., which may or may not be in the interest of the foreign licensee.  A number of other stringent regulations exist for foreign investors.

It may be appropriate at this point to point out that income from licensing is fairly small in comparison to a university’s total budget, or even in comparison to a university’s sponsored research budget.  Even at universities with the greatest amount of licensing income this percentage is only around 3-5%, and at most universities only around 1-2%.  Universities’ royalty generally income flows back into research and teaching.  According to federal law, universities must also share their royalty income with the inventors. While the specific percentages vary from institution to institution, a typical royalty sharing policy provides, after tech transfer and other expenses, about 1/3 of the net income to the inventor, 1/3 to the inventor’s department, and the final 1/3 to the university’s general research fund.