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University-Industry Engagement Advisor

Consider alternatives to pass-through billing to handle licensee legal costs


By Jesse Schwartz
Published: May 29th, 2019

Despite the burden it brings, TTOs often act as the middle man between law firms and faculty start-ups or licensees, paying bills for incurred legal fees related to filings, company formation, and other legal work and then invoicing the responsible party. The billing is typically set up this way because the university is the one with the ties to the law firm, and the parties actually incurring the fees are fine with having someone else be the primary contact for payment.

For TTOs that are often understaffed and looking to boost productivity, however, the work associated with the task can be a significant drain and source of frustration. There are alternatives, but they involve more consideration than simply telling the other party to pay their legal bills directly, says K. Lance Anderson, JD, an attorney with Dickinson Wright in Austin, TX.

Direct billing is an option, but the sticking point often comes down to who actually is the law firm’s client, Anderson says. Law firms often find themselves dealing directly with licensees on issues such as prosecution and maintenance related to the licensee’s agreement with the university, he explains. The university is copied on much of that but remains the law firm’s client.

“Law firms can set up billing to be directed to licensees, so a lot of times you’ll see universities say ‘please bill the licensee directly but we will remain the client,’” Anderson says. “That means they want to be copied on the communications but they will let the licensee drive, or at least weigh in initially, on what they would like to see happen. I’ve seen that model used a lot because it gets the university out of being a bank for the licensee’s obligations.”

That approach also helps the law firm by making the billing process more direct and eliminating payment delays, he says. “Law firms are very willing to utilize those models if it means a faster turnaround on accounts receivable,” Anderson says. “The drawback there is that the communication with the licensee might not be privileged. Another drawback with that model is that you may not always be able to see directly what charges are being passed along to the other party, so if you need those dollars to be reflected in what is being spent on that matter or technology even though the university may not be paying it, sometimes it can be hard when you have invoices going directly to someone else instead of through the university.”

A detailed article on the pros and cons of a variety of alternatives to pass-through billing appears in the May issue of Technology Transfer Tactics. To subscribe and access the full article, as well as the publication’s 12-year archive of best practices and success strategies for TTOs, CLICK HERE.

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