Tech Transfer eNews Blog

Policy alone can’t resolve complications that arise in royalty distribution

By Jesse Schwartz
Published: September 18th, 2019

It’s tempting to think that in most instances when a patent is issued and then licensed, the royalty situation is fairly straightforward, and that the royalty sharing policy will be adequate to cover any issues that might arise. But that’s rarely the case, states Chris Harris, PhD, director of licensing for Vanderbilt University. “It’s the rarity when something goes by the books,” he says. “This is a complicated topic — much more complicated than most people acknowledge. How you address the complexity depends on many factors that are not often detailed in a policy.”

It’s easy to see why he makes that argument; so many things can change over the long life of an invention before any royalty dollars are realized. Inventorship can change, additional IP can be added to final product, several universities could become involved — and a host of other issues can complicate the final royalty distribution picture. “I would argue that it’s complicated most of the time,” Harris says.

But Ashley Stevens, PhD, president of the IP consulting firm Focus IP Group, LLC, in Winchester, MA, and former AUTM president, still believes that a policy can cover many bases, and it’s far better to have distribution issues spelled out in policy documents rather than argued about later. “You want get these things decided [in policy] when they are theoretical concepts, rather than when money is on the table and people want to get it divvied up,” he says.

At Boston University, where he served for many years as director of tech transfer, “we kind of defaulted to policy — equal shares to all inventors, unless all inventors signed a piece of paper saying something different. I think that is probably standard good practice.”

So, for him, a “complexity” such as multiple inventors “normally was a fairly straightforward license agreement, with all inventors the same on every package if there was more than one. When you do a divisional you should re-examine things and make sure each inventor contributed to at least one claim of the divisional.”

Harris agrees to a point, saying you want to have a system for addressing royalty distribution “in a consistent, objective, transparent and operationally efficient manner, so you probably need some backing in policy.”

What type of backing? “Policy really lays out the foundation for how you approach things,” he explains. “My philosophy is there’s really no one right way to do it — which makes it difficult — and lots of wrong ways.”

Harris remains keenly aware of the limitations policies have. The Vanderbilt policy, for example, “offers a straightforward percentage for a given technology,” but if you have $100,000 to distribute and seven technologies, each with a different group of inventors, how do you handle that?
“That’s where practice comes in,” he says. “For us, policy says who gets to share in the revenues. But for years in our practice, revenues were shared not just with named inventors, but they were also allowed to add contributors who were not listed on the face of the patent — maybe a technician who worked really hard to develop a prototype which the institution later commercialized.”

“If it gets more complicated you can do continuations in the patent if there are different inventors,” argues Stevens. “Our policy, unless a very strong case is made, is to allocate equally to each patent and equally to each inventor on each patent.”

When it comes to product-specific payments, developmental milestones, sales milestones, or running royalties, “you should go back and make sure the product in question uses all the patents,” Stevens continues. “If it doesn’t, then our policy was to distribute only to the inventor of the patents used in a specific product.”

An in-depth article exploring challenges associated with royalty distributions appears in the September issue of Technology Transfer Tactics. For subscription information, CLICK HERE.

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