Universities and other research organizations can be a source of highly innovative developments in technology. However, universities do not always make the best business partners. There are many pitfalls to acquiring or licensing university technology for commercialization.
So how can you leverage university technology for your company, and what issues should you look out for in the process?
Advantages of University Technology
Universities often have (or have access to) specialized equipment, laboratory space and student researchers—resources that would be prohibitively expensive for a small business or startup to acquire or hire out. This can be particularly advantageous for inventions that require additional testing or development, which the university could carry out through a joint development or laboratory services agreement.
In addition, strategic partnerships with a public or private university may give your company access to funding, donors or other benefits, such as incubator space, not generally available other places. Universities are often eager to promote their licensees and otherwise provide free publicity, which can be invaluable to your company.
Disadvantages of University Technology
One of the major drawbacks is that most universities, like many large organizations, are notoriously slow. This is not only a general frustration for the more agile small business or startup eager to commercialize, but can lead to a more expensive process when negotiations are delayed.
Most universities also are tremendously risk-averse. This means that initial license drafts often have you (the licensee) paying large up-front fees, immediately reimbursing hefty patent costs and taking on virtually all of the risk.
In addition, the university technology transfer officer often has very little authority to stray too far beyond the official licensing template. Any major changes impacting the university’s rights or obligations under the license agreement must be sent to a higher authority, such as in-house counsel, for approval. Accordingly, the ultimate decision-makers are not involved in initial negotiations and may have no direct interaction with you. This can lead to further protracted (and more expensive) negotiations.
In the context of university-based startups, where one of the company founders also is a faculty member at the university, continued research and collaboration between the university and company can raise substantial conflict-of-interest questions, preventing the faculty member from being involved in either capacity.
5 Strategies for Working with University Technology
1. Don’t overpay up-front fees // One of the major pitfalls of licensing university technology is paying too much cash up front for the license, draining limited capital resources. Examine other areas of the agreement where you are willing to “give” to reduce up-front fees.
2. Be careful about giving away
ownership interest // Universities are often willing to forego some up-front fees in exchange for an ownership stake in the company. However, universities are not in the business of running businesses and can make terrible business partners, especially if they have any decision-making authority. (Remember the comment about universities being slow and risk-averse?) If possible, avoid giving any ownership interest to the university, or structure the interest in terms of a monetary benefit with no voting rights or decision-making authority.
3. Take over control of securing the intellectual property (IP) // This can be tough to negotiate, but having control of securing the IP can save significant costs when obtaining the patents. Otherwise, you may be stuck “double paying.” You’ll pay once for the university’s patent attorney and a second time to have your own patent attorney review and provide recommendations on the strategy.
4. Include non-faculty founders // University spinouts should consider including a founding member who is not affiliated with the university. This member can then take over in transactions that raise conflict-of-interest questions for the faculty founder(s).
5. Be candid // At the end of the day, the company wants a competitive advantage from the licensed technology, while the university wants a monetary return on its investment in the research. Don’t be afraid to state these objectives during the initial meetings, and don’t let the minutiae of the negotiations cloud these goals.
Structure the agreement so that the university shares some of the initial risk by not receiving as big of an up-front license fee or immediate reimbursement of the patent costs, in exchange for a larger percentage of the success in commercializing the technology or selling the company. Most importantly, don’t be afraid to be creative in the structure of the license. Your agreement should be as unique as the technology you’re licensing.
