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Draw lines carefully when licensing technology to sponsored research partners

By David Schwartz
Published: August 29th, 2012

What appear to be sweet licensing deals with sponsored research partners can turn sour if they tread the same ground as a little-known but important 1996 case in which researchers successfully argued they were cut out of royalties, which were “mischaracterized as research funds.”

The case involved what was apparently a “sweetheart” deal, in which a medical device company that supplied research funding to the University of California signed a license for a two UC researchers’ magnetic resonance imaging technology that carried an inordinately low royalty rate. The case — Singer v. The Regents of the University of California — cost the school more than $4 million by the time it was all said and done. The decision addresses a dangerous gray area in tech transfer operations, and experts say it offers an important lesson on the need to carefully separate sponsored research from licensing activity.

The Singer case centered on the researchers’ employment pacts with the school. As court documents from the suit point out, the agreement “required — as a condition of employment — that [they] assign to the university any patentable technology developed while working in university facilities on university time. In return, plaintiffs were guaranteed a portion of the royalties received by the university when it commercially exploited that technology.” The two scientists were working on the MRI technology at UC’s Radiological Imaging Laboratory, which had for years been receiving research funding from the licensee.

Attorney James F. Valentine, a partner with Perkins Coie LLP of Palo Alto, who assisted with the case for the university, argued — and still argues today — that the inventors’ salaries while they made their discoveries had been paid out of the sponsored research funds. “They had minimal teaching duties,” he notes. The researchers successfully countered, however, that “the manner in which the university characterized ‘royalties’ constitutes breach of contract,” according to court documents.

That claim was based on the school’s patent policy, which granted inventors “50% of the net royalties and fees received by the [university].” Further, “net royalties” in the document is defined as “gross royalties and fees” minus a 15% administrative costs charge. UC asserted that a passage in the same document — making royalties paid “subject to restrictions arising from overriding obligations of the Regents pursuant to grants, contracts or other agreements with outside organizations — expressly contemplates ‘outside agreements’ such as the research funding arrangements negotiated by the university and its third-party licensees.”

What was not disputed, however, was the miniscule royalty rate in the license agreement — 0.56% of the net selling price of all covered products that incorporated the licensed technology. The researchers, according to court records, alleged “that at the same time the university’s right hand was negotiating a 0.56% royalty rate with [the licensee, a division of Pfizer], its left hand was entering into a separate, albeit informal, research funding arrangement with Pfizer, allegedly receiving well over $20 million in ‘research funds’ since 1980. [That] money has not been shared with plaintiffs. It is not difficult to discern the genesis of [their] unhappiness.” The court also noted that “clearly, the university would have an incentive for such a tradeoff, [because it is] required to share ‘royalties and fees’ but not research funds.”

The jury in the case decided against the university, but its $4 million award was far less than the $50 million the plaintiffs sought, allowing both sides to claim victory. The next twist in the case was the university’s motion for a judgment notwithstanding the verdict (JNOV). Initially the motion was granted, illustrating the fine line being drawn in the case. But on appeal the JNOV was overturned, reinstating the verdict and the cash award. The state’s highest court then refused to hear any further appeals.

Where to draw the line

The question for TTOs, as the Singer verdict helped answer, is how to make sure they avoid the perception that a sweet-as-candy licensing deal is tied to the flow of sponsored research funds, at the expense of the inventors’ royalty share.

The answer may not be clear-cut, particularly given the subjectivity and range of legitimate influences that can play into license negotiations. And it may depend, too, on the judge’s analysis, as shown when the JNOV was initially granted by Superior Court Judge James L. Warren. He noted in his ruling that the plaintiffs were required to “prove the existence of a single ‘deal’ to divide the income into royalties and research funds.” In his view, Singer failed to do so.

“The virtually uncontradicted evidence was overwhelming that the university entered into two, separate and distinct — albeit related — decision making processes that resulted in [the licensee] paying both royalties and research finds,” he wrote. “[That] evidence establishes that the ‘royalty’ train and the ‘research funds’ train were on two separate tracks and, while connected in certain respects, they proceeded down those tracks pulled by separate engines.”

Warren specifically alluded to the university’s separation of powers, as it were, and touched on the tensions that often arise between licensing and sponsored research. “While [the head of industry-sponsored research] undoubtedly wanted to use the royalty ‘carrot’ to convince licensees to agree to the research fund ‘stick,’ [he] only had authority in the research fund arena. [The head of the Office of Technology Transfer], who negotiated the royalties, played no role in the negotiations for research funds. Moreover, while the record is riddled with testimony illustrating the frequently comical internal tension between the OTT and [sponsored research], their respective lines of authority were clear and mutually observed, even if the individuals viewed each other with more animus than respect.”

Warren’s analysis went on to note that the option to have first crack at any new technology was the real carrot, not the low royalty rate. But in either case, he argued, the university has wide discretion in determining license agreement term, and is pretty much free to tie any carrot to any stick, even the kind of “deal” the plaintiffs say cut them out of contractually promised money.

“‘Why,’ [the plaintiffs] reason, ‘should the university have the discretion to divide the income it receives from third-party use of MRI technology into two pots, one of which (the little one) it can characterize as royalties and share with us, and the other (the very big one) it can call research finds and keep?’” Warren continued in his opinion. “The answer, not to plaintiffs’ liking but legally sufficient, is that the university is given absolute discretion to make that decision.”

All the school need prove is that its actions were not arbitrary or capricious, he said — and they were not. Neither, he added, was the university’s decision to seek research funds from its licensee, “even if [it] required the licensee to fund research as a condition to receipt of the exclusive use license.”

Degrees of separation

Despite Warren’s views, the final judgment in the case is the true precedent, and careful separation of sponsored research and licensing activity is the best way to avoid a Singer-like problem, TTO sources say.

One lesson learned from the matter, Valentine notes, is “when you accept collaborative research funding from anybody as part of an agreement, make it clear that those two things are on separate tracks. And get up-front agreements from your inventors that research funds are research funds, so they can’t come back later and claim they were disguised royalties.” He also advises operational separation, even though it didn’t help much in the Singer case. “At UC, licensing was done by the OTT, while research agreements were done by the campus administration,” he explains.

Eric Lund, PhD, MBA, was assistant director of the UC-San Diego licensing office from 1998 to 2001, and “during my tenure, we were scrupulous in obtaining written acknowledgment from the faculty for any case where it might be perceived Singer would apply,” he comments. Now a commercialization manager at the Pacific Northwest National Laboratory (PNNL) in Richland, WA, Lund advocates separate programs, with different lines of reporting. However, as is the case at PNNL, many institutions do “negotiate the intellectual property terms of sponsored research in conjunction with the contracts office.” At his lab, “we do attempt to keep [the two] separate, but for practical reasons and not legal ones. For example, we avoid referencing sponsored research agreements in license deals, as a change — or termination — to the SRA could necessitate a re-negotiation of the license.”

In fact, Lund says, “it’s impossible not to have some co-mingling, even in a non-competitive research market. Somebody needs to set IP policies, and that somebody really needs to be the licensing office.

 “A close tie is essential,” he adds. “We are quite explicit that the amount of sponsored research is one determinant in the financial aspects of a resulting or associated license deal. That mostly affects upfront fees and not royalties, but companies that have long-term research relationships with the lab can receive a preferential royalty rate as well. That mostly means accepting a royalty rate at the lower end of the range for that type of deal. That’s also used as part of the ‘sell’ when we approach companies we want to have a long-term research relationship with: The more you spend sponsoring research, the better the license deal.”

Fortunately for Lund, the researchers at PNNL — who at 15% have a smaller stake in their inventions than most university faculty, and who depend on research funding for their employment — don’t fuss about a give and take in the sponsored research and licensing arenas. “Researchers here only collect a paycheck if they bring in research money,” he says. “They are not opposed to the trade-off.”

Lisa Kuuttila, CEO and president at STC.UNM, the technology transfer operation for the University of New Mexico, also favors some separation — but not too much — and notes that her separation anxiety, so to speak, is based at least in part on Singer. “I think it’s an important case, and we definitely keep it in mind when negotiating our agreements,” she says. “We’ve had plenty of cases where the companies have asked to trade off, and we always explain why we can’t do that – and explain Singer as one of the reasons.”

The issue, she adds, while always present, isn’t one that causes her too much trouble because of the way her organization is set up. STC is a wholly owned non-profit subsidiary of the university. “We get assignment of IP from the university and we license just those technologies,” she says. “In fact, we help facilitate sponsored research agreements, but we’re not signatories. That provides for a degree of separateness that’s really important for a lot of reasons — and the Singer case is one of them.

 “Say we enter into a license agreement with a company for a technology and there’s a companion sponsored research agreement. The latter is negotiated with UNM directly. We want to be helpful in facilitating it, because that’s one of the mechanisms by which know-how is transferred. But we have a natural firewall,” Kuuttila explains. She concedes that “other universities may have to be a little bit more conscious of [an arm’s length approach] because they may have both functions within the same office.”

Like Lund, Kuuttila points out that total separation is neither feasible in the real world nor particularly wise. “It would be difficult not to have any communications,” she says, “because a common element is the inventor, who’s involved in both transactions. There will be some communications, and that’s necessary and helpful. It’s just when you start trading one thing off for another that you step into dangerous territory.”

Kuuttila also stresses a practical incentive for TTOs to avoid a royalty rate-sponsored research trade-off: keeping their inventors happy and on board with the tech transfer agenda.

“If you’re not benefiting your inventors, that’s problematic — and not just from a legal point of view, but from a fairness point of view as well,” she says. “Our philosophy is that the inventor is very, very important — central to the communications. While the final decision resides with us, we want to make sure our inventors are comfortable with the deals that are being done and that their interests are being well represented.”

Contact Valentine at 650-838-4469 or; Lund at 509-375-3764 or; and Kuuttila at 505-272-7905 or

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The Scientist’s ‘Best Places to Work’ sheds light on challenges facing university researchers

By David Schwartz
Published: August 29th, 2012

As depicted in the 10th anniversary of The Scientist’s survey of life science academics, institutions are contending with tighter budgets and larger administrative staffs while working to sustain and inspire their researchers. Back in 2003, researchers around the world valued relationships with their colleagues and collaborators above other priorities, followed by a desire for strong core facilities, according to The Scientist. In this year’s survey, collegiality and core facilities remain important, but the most desirable attribute is personal satisfaction with their workplace and the second is good health care coverage.

This year’s survey also found that new institutions are springing up to address unmet needs within the research community. One example of an innovative not-for-profit is this year’s #2 institution, Sage Bionetworks. The medical research organization opened its doors just three years ago, thanks to scientific luminaries Stephen Friend, formerly a senior vice president at Merck, and Eric Schadt, who helped Pacific Bioscience develop its SMRT single molecule DNA sequencer and remains its chief scientific officer while heading up the Institute for Genomics and Multiscale Biology at Mount Sinai School of Medicine in New York. Sage is seeking to spur collaborations among computational biologists and academic and clinical researchers so they can make sense of the data deluge from some of the most advanced sequencing and proteomic analyses in order to develop disease models for rational drug development.

Another example of the innovators attracting top researchers is this year’s #4 institution, the Research Center for Molecular Medicine (CeMM), in Vienna, Austria, whose year-old facility gives it an edge in translational research. “We have the second-largest hospital in the world right next to us,” helping to reinforce the ties between researchers and clinicians, says Andreas Bergthaler, a viral immunologist at CeMM.

In the 10 years since The Scientist began to survey academic researchers, funding has remained essentially flat and universities have put freezes on hiring — even forcing faculty to take unwanted leave. Through it all, the administrative work force in academia has continued to increase. “In the past couple of decades, we all have noticed an enormous expansion in university administrative ranks,” says Ben Ginsberg, a professor of political science at Johns Hopkins University and author of the recent book The Fall of the Faculty. “This greatly undermines both research and teaching,” he says, adding that administrators value research “only in terms of the dollars it brings in.”

This puts incredible pressure on life sciences faculty to develop commercial products, not only skewing the course of research but also causing conflict when researchers are ready to publish results. “Academics want to see their ideas publicized,” Ginsberg says. “More and more, this is thwarted by university patent offices, which don’t let any ideas [be] shared unless [they are] properly patented and commercialized.”

The pressure to commercialize research is compounded by increased competition for funding. “The money has dried up, both federally and at the state level,” says Martin Snyder, senior associate general secretary at the American Association of University Professors. “One place that [academic researchers] are going is to private sources — the oil industry, tobacco industry, pharmaceutical companies. But the research money comes with strings attached. It’s just the antithesis of academic freedom and research.”

Even while the pressure to commercialize mounts, full-time faculty who are in a position to deliver such products are being cut, according to the report. “Seventy percent of faculty in the U.S. are part-time, or [on] short-term contracts,” and don’t have traditional tenure or tenure-track jobs, Snyder says. In the last 30 years, the proportion of university faculty working full time has fallen from about 60 percent to less than 40 percent. Now, for many academics, the “only security is the state of their funding,” Snyder says. “I’m not sure how you build a research career on that kind of unstable foundation.” Read the full report, which The Scientist shared with eNews Platinum readers, at this link.

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Report examines crowdfunding model, trends

By David Schwartz
Published: August 29th, 2012

The UK innovation foundation Nesta has released The Venture Crowd: Crowdfunding Equity into Investment, by Liam Collins and Yannis Pierrakis, which examines the state of crowdfunding — an investment model that has turned into big business. The idea of financing projects or businesses with small contributions from large numbers of people now accounts for significant amounts of money. In 2011 alone, €1.5 billion was raised through crowdfunding for projects and businesses in need of funds, according to the Nesta report.

The model not only provides finance but also offers access to a large number of people who can test and market an idea. Crowdfunding takes a number of different forms, the most successful of which has been the reward-based model where participants receive non-financial rewards in exchange for donating to a project. The model effectively harnesses not only the contributors’ desire for the reward but also the intrinsic or social motivations to back a project.

Other forms of crowdfunding also are growing rapidly, including equity crowdfunding, in which individuals receive small stakes in a privately owned young business in return for investment. Read the full study here.

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UC-San Diego MTA process “seeds” technology and proves its market appeal

By David Schwartz
Published: August 29th, 2012

One of the keys to successful tech transfer is recognizing an opportunity to maximize your commercialization options when you see it. And that’s exactly what the University of California at San Diego did, initially using the school’s materials transfer program to ship working samples of a wireless technology called “CalRadio” to potential buyers before a licensing deal was contemplated. The device’s enthusiastic reception to such market “seeding” added just the proof of market appeal needed to seal a distribution deal right away.

“The unique aspect of our commercialization of CalRadio was using material transfer agreements to assess the market for it, and then using the knowledge gained to lower the licensee’s risk, find equitable deal terms — both in expected sales volume and in royalties — and create some initial product awareness for the licensee to step in and build upon,” recalls Dave Gibbons, senior licensing officer for physical sciences licensing in the UCSD technology transfer office. “As a university, we have the installed base to create one unit, five units or 25 units. If the project fizzles, no worries. We just move on. If the idea strikes a chord with the market, we can step out of the way and let the private sector assume the responsibility when orders surpass our ability to keep up. Our mission, after all, is not to compete with industry, but to create new ideas that can be adopted by industry and brought to market for the benefit of society and to foster new job growth.”

The first 50 or so CalRadio units made in the lab at UCSD were shipped from campus directly to corporate, federal and academic organizations via the MTA program. “Expecting demand, we streamlined the MTA process for the CalRadio project,” Gibbons recalls. The school crafted “a template MTA that could be downloaded from the web and mailed in with payment.” Upon receipt of a properly executed MTA and payment, Gibbons’ office transferred the funds to the UCSD lab to initiate production of the devices. The recipients of the transferred materials covered the cost of their production and the cost of shipping them.

The CalRadio technology was developed “as a useful new tool intended for other researchers in the wireless communications space.” It is a hardware platform “that can be completely re-configured at the software layer, making it a very flexible test bed for trying new wireless communications schemes without expensive hardware redesign. That expedites design, testing and validation of new ideas,” Gibbons explains. “But it quickly outgrew our ability to meet demand, and became of quick interest to industry and government customers.” Multiple industry orders, beginning with three from Honeywell, and a large order from the U.S. military quickly outstripped the lab’s capacity, he reports.

The demand fostered by the MTA-covered “seed” devices led to a commercialization deal with MaXentric Technologies LLC, a Fort Lee, NJ-based high-tech firm with a significant presence in San Diego. “I believe that the positive response and repeat orders factored heavily into MaXentric taking the deal,” Gibbons says, “as well as establishing the market potential and royalty burden appropriate for the license. We knew what it cost to make the units in small batches, what savings could be realized in bulk and what pricing might look like. It was a very helpful step in proving the market and establishing agreeable license terms for both parties without a lot of uncertainty regarding the market or pricing.”

Of course, using a MTA for such a device stretched the typical definition of “material” and the typical use of such agreements. But in this case it worked, and the seeding approach could be usefully adapted by other institutions. Like most universities, Gibbons notes, “we normally use the MTA process to transfer research samples, such as cell lines, genetically modified mice and research-use software. But applying it to CalRadio was an obvious course to meet the initial interest from other academic labs, as there was no commercial source for CalRadio and the academic research community was not a large enough market to entice a licensee.”

The MaXentric deal marked the university’s first use of the MTA process as a seeding vehicle, Gibbons recalls, but it wasn’t the last. UCSD subsequently explored other technologies that could transition in a similar manner.

One such project was UCSD’s HiPerWall super-high-resolution display system — a 220 mega-pixel display wall designed as a scalable visualization tool that can be configured in the current 55 display array or in smaller variants as users require. The TTO installed multiple systems under MTAs at other research centers to create market awareness and iron out the kinks, then helped to spin it out as a start-up. “Using the MTA model in that case was great, as the bill for materials alone for the display wall is in the six figures and would have been very difficult for a start-up to carry while it sought out its first couple of customers,” Gibbons points out.

Generally though, using MTAs as viable licensing tool has its limits, he concedes. “Very few university inventions are product-ready,” he notes, “and most require several years of further development before they can hit the market. In niche examples, though, where you have products that are ready to use, the MTA approach seems like a very viable way to test the waters with very little risk to your potential licensees.”

Contact Gibbons at 858-534-0175 or

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Use communication to fight IP leakage in faculty consulting arrangements

By David Schwartz
Published: August 29th, 2012

Question: Several of our faculty have consulting arrangements with outside corporations in areas like pharma, biotech, energy, and medical devices, which they have properly disclosed to us. However, these consulting deals are completely outside the scope of their employment and negotiated without any input on our part — and our TTO and university counsel are pretty much in the dark about what the scope of the consulting arrangement is. At the same time, these researchers are working on some very exciting innovations that we have a major interest in protecting, and ultimately patenting and commercializing. What steps can and should we take to ensure that no university IP is disclosed or compromised as a result of these consulting arrangements?

Answer: Several steps should be taken to ensure that the university IP is not compromised when faculty researchers are working with outside companies. My recommendations center around a single concept: communication.

Yes, this is a simple concept — but difficult to practice. Given that most TTOs are faced with large caseloads, a limited budget, and tight time constraints, the practice of providing clear, consistent, and constant communication is often not top priority. However, you must be connected with your researchers to avoid being left in the dark. Many times, faculty view the TTO as a bureaucratic hindrance — a perception that can be overcome by using communication to position the TTO as a resource for your researchers. Your goal should be to earn cooperation and respect by working more cooperatively with faculty, and by showing the positive results that can stem from that cooperation.

Communication with faculty may come in two forms — a carrot and a stick. Let’s begin with the stick. You should remind your researchers that the university is their primary employer and, as part of their employment agreement, they made a legally binding promise to assign ownership of IP to the university.

Generally this is true even if the researcher’s off-campus collaboration is not within the faculty member’s primary area of research. Faculty may find that, the further the area of collaboration is beyond their university-based research, the more likely it is that the university will grant an exception, negotiate a favorable exclusive license, or agree to a transfer of ownership. But that does not diminish the need to remind faculty of the university’s policy that unless an exception is granted, all IP generated from consulting and sponsored research is owned by the university.

Now, for the carrot. Rules faculty perceive as advantageous are almost always easier to administer. You can educate your faculty as to why university-sponsored research exists in the first place: to promote science, develop advances beneficial to society, and generate licensing revenue for the faculty member and university.

Take time from your schedule to occasionally visit the labs. Don’t wait for your phone to ring — schedule meetings with department heads and educate the faculty about their responsibilities regarding external projects. Use e-mail and newsletters from the TTO to regularly reach out to your researchers.

Promote positive faculty relations by announcing accomplishments such as funding, licensing deals, and issued patents. Make use of your outside counsel by inviting them to host a “lunch and learn.” Most counsel would jump at the chance to market their services through the TTO. Outside counsel may be quite willing to sponsor the expense of the lunch.

It’s also important to make sure faculty understand the full scope of assistance available from the TTO — many may not realize the expertise and resources available to them. Use the media outlets available to you on campus to consistently broadcast a positive message that the TTO is there to help make the most of their ideas.

Remind faculty that you have access to licensing expertise, and make clear your commitment to assisting researchers in protecting their IP. And when it comes to outside consulting, you can likewise be seen as a faculty resource. If a researcher is in doubt of IP ownership related to their consulting agreements, ask them to submit a copy to you. Any sensitive information, such as compensation, maybe redacted out. You can assist them in pointing out any clauses regarding IP ownership that are contrary to universities policy.

Ultimately, you’ll benefit by shining a bright light on the many resources available to faculty through the TTO, while also providing important IP ownership policy information.

Guest legal advisor: Jon Gibbons, Registered Patent Attorney, Fleit Gibbons Gutman Bongini & Bianco P.L., Boca Raton, FL. Phone: 561-989-9811; e-mail:

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Take proactive steps when licensees face economic stress

By David Schwartz
Published: August 22nd, 2012

Most university TTOs license a sizable percentage of their early-stage technologies to small companies, so dealing with cash-strapped licensees isn’t a new phenomenon, says Daniel Burns, president of Daniel Burns & Associates, Inc., in San Francisco. However, the U.S. economy’s nosedive into the Great Recession exacerbated the problem.

Even today, the prospects for raising cash remain poor, Burns says. “Liquidity issues are affecting companies along the spectrum from those that are small and privately held to large public companies.” Given this scenario, experts suggest TTOs act proactively to prepare for overdue payments from licensees and other industry partners:

• Review your portfolio for licensee trouble spots. Proactive TTOs should review their portfolios before a flood of licensee phone calls begins, starting with valuable properties that are licensed exclusively, advises Burns, whose firm specializes in IP valuation and royalty auditing.

“Go through the portfolio and ask: ‘Who do we know is in financial trouble?’ and ‘Who do we think is likely to be in financial trouble in the foreseeable future?’” Based on this analysis, TTOs can start to think about what strategies they will employ “if the wheels start coming off the track for any of those licensees,” he says. “Would you want to work with them? For example, would you want to renegotiate the license?”

There’s no need to develop a detailed game plan before licensees indicate they have a problem. However, advises Burns, at least address the basic question: “Will it make sense to give the licensee some financial breathing room to help them through this period until they may be able to raise financing on better terms?”

• Weed out dead-weight technologies. A portfolio re-evaluation can help TTOs find ways to cut operating expenses — and create a buffer against their licensees’ financial problems, says Karina L. Edmonds, PhD, technology transfer coordinator at the U.S. Department of Energy and former director of Jet Propulsion Laboratory technology transfer at the California Institute of Technology (Caltech) in Pasadena.

“Technology often moves in different directions. A technology that you thought was going to be really useful several years ago may have been overtaken by a newer technology,” notes Edmonds. “So you should reevaluate entire patent families and be more strategic as far as which applications you keep alive. It may be time to cut your losses and stop paying maintenance fees on some technologies that aren’t likely to get licensed.” Such a re-evaluation requires a strong relationship with the university’s inventors, says Edmonds. “They are usually in the best position to tell you whether this intellectual property is still useful or whether you can let it go.”

• Strengthen post-license management. “Whether economic times are good or bad, a university tech transfer operation needs to set up a management system for the post-licensing operation,” advises Michael J. Martin, CLP, president of TechTransfer Associates, Inc., in Blacksburg, VA. “That means reviewing the licensing agreement that you have negotiated with your business support staff.”

Some TTOs have their own internal business staff, while others must work through the university business operations. “But in all cases, my experience is that these business support staff don’t understand what the terms are in a licensing agreement that need to be monitored after the agreement is in place,” says Martin. “Support staff need to understand what the obligations are, both in financial terms (e.g., royalty payments) and diligence terms (e.g., a business development or product development milestones),” he explains. “If it is a financial payment, you also want staff to understand not only when the item is due, but when it becomes a critical issue as far as past-due payment.” The business support staff can translate the language of the licensing agreements into a tickler system “that will remind you as the liaison with this licensee that this item is due,” says Martin.

• Talk to your licensees. Keep an open line of communication with licensees, suggests Billy B. Houghteling, director of NC State’s Office of Technology Transfer in Raleigh.

Maintaining close contact helps encourage licensees to get out in front of any financial problems, Burns agrees. “What the university doesn’t want is for the licensee to wait until the last possible minute when they are in a desperate situation — and then they come forward and ask the university for help or forgiveness on some terms.

“If you have maintained a post-licensing relationship, you won’t be a stranger who suddenly picks up the phone and asks, ‘Where is our money?’” Martin notes.

What to do when the trouble starts

What should you do once a licensee or industry partner either fails to meet a payment obligation to the university or reveals that an upcoming payment dead line won’t be met? No single approach will work in every case, says Burns. “How the university responds to these kinds of inquiries by licensees is always going to depend on the [specifics] of the situation.” Nevertheless, TTOs can navigate these treacherous waters by following some basic guidelines:

• Be reasonable. At NC State, “we notify each of our licensees of any material breach in writing,” says Houghteling. “But we typically try to work through these breaches without any formal collection efforts.”

• Pay attention to payment history. Consider the track record of the company that is requesting relief, advises Edmonds. “The current economic downturn hurt everyone, but it’s important to know: Has this company been meeting their obligations in the past? I would definitely consider that in affording a company a little more leeway.”

• Take the market sector into account. TTOs have to do their homework on any licensee or industry partner that requests debt forgiveness or other help meeting their financial responsibilities, says Martin. “Start with market research,” he advises. “What is the status of the sector that this new innovation was to allow company X to participate in? What are the economic factors? The technology trend factors? The marketing trend factors?” To perform such an assessment, he adds, “you can also leverage your student interns to do the necessary research work.”

• Investigate the company’s current financial situation. “TTOs need to understand the licensee’s liquidity problems, so they shouldn’t be reluctant to ask the company about the status of their money-raising efforts,” Burns observes. “Get their most recent financial statements, even if they are interim financials, and find out what their cash position is,” he suggests. “Then figure out what their monthly operating expenses are. From that, you should be able to determine a burn rate [and figure out] how long the company is likely to remain viable.” If the licensee’s cash won’t last long and fundraising opportunities are bleak, re-negotiating financial terms might not be useful, says Burns. “At that point, you may really need to consider some alternative licensing prospects for this property.” However, “if the university still has confidence in the licensee’s commercialization path, then the TTO can work with the company to provide them with some financial breathing room,” he adds.

• Audit licensees with a sales history. “When the product has already been in the market and has a sales history, it is not inappropriate to audit, as allowed for by your licensing agreement, if there is a fall-off,” says Martin. Lower sales might be directly related to the recession, but “noncompliance gives you the opportunity to ensure that all products that may be covered by your patent are actually being reported on,” he notes. “If you’ve maintained communication with the licensee, an audit shouldn’t hurt your relationship.” Depending on the estimated value of audit revenue recoveries, some auditors will work on a contingency basis, says Martin. “All universities don’t have auditing fees in their budget, so hiring an auditor on a contingency basis is a reasonable approach.”

Renegotiation may offer opportunities

• Don’t be afraid to renegotiate. If the licensee demonstrates that the license agreement includes barriers to product development, “TTOs should be flexible enough to use that noncompliance as another opportunity for conversation,” says Martin. “What does the licensee need to overcome this barrier? And then, as a consequence, what is that value to the university?”

A renegotiation of terms offers TTOs an opportunity to clean up aspects of the original agreement “that they weren’t altogether thrilled with,” Burns notes.

One issue that may need to be examined is exclusivity, Edmonds says. Many annual minimum payments stem from exclusivity, she explains. “If the company no longer needs exclusivity in the field, you might consider renegotiating to move the license from exclusive to non-exclusive. Then you can remove some of those onerous terms as far as annual minimums.”

TTOs should look forward several years when negotiating new terms, suggests Edmonds. “For example, if I am going to amend someone’s agreement because they can’t make the annual minimum royalty payment of $5,000 this year, is it realistic that they will be able to pay us the $25,000 minimum due next year? Probably not. So you can save the TTO a lot of work in subsequent years by realistically re-evaluating multiple terms in the agreement to determine if you need to restructure the entire payment plan.”

• Consider payment plans. Payment plans offer licensees “a bit more leeway in meeting their obligations,” says Houghteling. “Several of our licensees have agreed to be put on payment plans to reimburse the university for any outstanding debt.”

Such plans can be a good option for licensees that can demonstrate ongoing commercialization efforts. “If a licensee or industry partner has been able to document through its reporting requirements that it still is investing funds toward the development of a new product or service that could benefit consumers, then the university would give that type of partner additional leeway in terms of repayment of any historic debt,” Houghteling explains. “We don’t want events outside of a company’s control to hamper their commercialization efforts.”

Successful payment plans include several parameters, he says. First, a payment plan should “remind the licensee that it does not waive their obligations under the license agreement that is already in effect,” he stresses. Second, the plan should “place a deadline on the licensee for becoming compliant with the terms and conditions of the license agreement or contract,” Houghteling suggests. “We are giving the licensee a brief period to cure any material breaches of the contract. Moving forward, the expectation is that they will be compliant in the very near future.”

NC State generally offers licensees a six-month window in which to make payments related to their outstanding debt, “assuming that they will keep their current obligations current,” Houghteling tells TTT. “So when we invoice for new expenses moving forward, the expectation is that they will pay that debt within the current 30-day payment cycle while they are in the process of paying their historic debt as well. We are not adding the licensee’s current debt to their historic debt.” For small start-ups, he recommends going a bit further if necessary. “We have to be pretty creative when we craft those repayment plans,” Houghteling says.

The capabilities of your business office need to be considered when setting up a payment plan, advises Edmonds. “You have to be realistic about how many payments your financial staff can process and keep your database updated. For smaller offices, payment plans probably should be due no more often than quarterly.”

• Think about accepting equity. While reimbursement for out-of-pocket patent costs is typically not in the mix of renegotiated items, when it comes to milestone payments, you may want to consider equity in lieu of cash due, says Burns. When renegotiating a license, it’s a red flag when the university is willing to take equity, but the licensee balks, he cautions. “You have to ask: If they are unwilling to part with a little equity when you are willing to work with them, how acute can their cash problem really be?”

• Don’t settle for zero. Other options for easing a licensee’s financial crunch include reducing royalty payments, delaying annual minimums another year, negotiating a higher annual minimum but at a later date, and delaying patent cost reimbursement, says Edmonds. “But whatever route works best, we always try to get a good faith payment. The licensee should be willing to pay something within a realistic range rather than foregoing any payment at all.”

• Be prepared to end the license agreement. “At some point we have to take a strategic look at whether our current partner will be able to help us meet our obligation to ensure that technology is commercialized for the benefit of consumers,” Houghteling concedes. “There does come a time and place where material breaches should warrant termination of a license agreement and the identification of a new industry partner.”

The tipping point, he says, is when the licensee indicates that its commercialization efforts are no longer progressing. “If they are not able to invest in their internal research programs and they are not able to reimburse the university for their contractual obligations, that dual sign is one that should trigger a re-evaluation of that licensee.”

“What the university doesn’t want is a company just sitting on the technology — not doing anything while they try to deal with some of their other organizational challenges,” agrees Burns. “So in some cases, the university may decide to terminate the license, take the property back, and find someone who is better equipped to commercialize it.”

Contact Burns at 415-738-6022 or; Edmonds at 240-780-6529 or; Martin at 540-953-1712 or; and Houghteling at 919-515-7199 or

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Simple financial projection tool helps student entrepreneurs, start-ups

By David Schwartz
Published: August 22nd, 2012

The folks at ExecutivePlan have developed a web application called ProjectionHub designed to help student entrepreneurs create realistic financial projections without the need for a PhD in spreadsheet modeling. Any college student with a .edu email address can create a set of financial projections using the ProjectionHub web application at no cost, according to ExecutivePlan and ProjectionHub co-founder Adam Hoeksema.

Student entrepreneurs can simply answer questions about their business and input sales and expense projection data, and the tool will automatically create a bank- or investor-ready set of financial projections. Users can create one- to three-year cash flow or profit and loss projections, which will automatically be delivered by email as an Excel spreadsheet that can be edited or revised in the future.

The free tool is designed to improve university entrepreneurship programs and help student entrepreneurs in completing business plan financial projections, participating in business plan competitions, and providing projections to potential investors. The easy-to-use, low-cost tool also is available for start-ups to make initial financial projections. For more information, email Hoeksema at

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Danish IT Trade Portal features helpful tools, resources

By David Schwartz
Published: August 22nd, 2012

The Danish Patent and Trademark Office has unveiled IP Trade Portal, a website featuring several helpful online tools and templates, as well as guidance designed to help TTOs and IP professionals to learn more about trading IP rights; entering into confidentiality, sales, licensing, and other agreements; valuing IP; and gathering statistics on IP. For example, the website suggests that, when trading IPR, an IPR agreement should include provisions on:

  • the purpose of transferring the right;
  • the obligations of the seller/licensor, such as the duties of the seller/licensor in relation to registration or re-registration of the right;
  • the obligations of the buyer/licensee under the agreement, such as financial obligations;
  • breach, which describes the consequences of one party, for example, not fulfilling its obligations under the agreement;
  • damages, establishing when the parties are liable for damages in relation to each other;
  • term and termination, describing the duration of the contract and how it can be terminated; and
  • legal venue and choice of law, describing where the parties may attempt to resolve disputes and which country’s law shall apply and determine the resolution of disputes.

An IP Valuation Page provides information on popular valuation models and allows users to access an IP valuation tool that can be used for patents, trademarks, and designs. In addition, a Contracting Page provides standard contracts for patents and utility models, including a confidentiality agreement, purchase/sales agreement, non-exclusive license agreement, and exclusive license agreement. The model contracts can be used as a basis for negotiation, a template for developing a customized contract, or a checklist for evaluating a first draft of the other party’s contract.

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Nanotech report offers strategies to support R&D and cluster development

By David Schwartz
Published: August 22nd, 2012

In the 2012 Illinois Nanotechnology Report, members of the Illinois Nanotechnology Collaborative examine the general market for nanotech applications as well as the opportunities in Illinois. According to BCC Research, the global market for nanotechnology products will grow from an estimated $11.7 billion in 2009 to nearly $26.7 billion in 2015 — a compound annual growth rate of 11.1%. Certain segments are forecast to grow at an even faster clip. Global Industry Analysts reports that the worldwide market for nanotechnology-enabled products in such sectors as automotive, chemicals, electronics, and health care will reach $2.41 trillion by 2015, according to the Illinois report.

States and regions seeking to attract nanotech R&D and cluster development should focus on five key factors, according to the report. They include R&D and innovation leadership, smart capital, talent, infrastructure, and networks. Winners could attract nanotech applications with a major impact on the growth and dynamism of four sectors:

Energy and energy storage. Recent exploration and refining breakthroughs have increased the supply of resources such as natural gas and oil, effectively buying the world more time to develop technologies that can improve energy efficiency. Nanotechnology can figure prominently in these efforts. Scientists are using nanotechnology to develop clean, affordable, and renewable energy sources that can reduce overall energy consumption and its environmental impact. In addition, nanotechnology can contribute to longer-lasting, high-density batteries that are less flammable, quicker charging, more efficient, and lighter weight.

Clean water. Almost half of the world’s population lacks access to basic sanitation, and nearly 1.5 billion have no source of clean water. As a result, water-related diseases kill thousands of people each day. Nanoparticles could someday be used to clean industrial water pollutants in ground water through chemical reactions at much lower cost than pumping water out of the ground for treatment. Technologies that can sanitize water from any source could drastically reduce water consumption as well as the costs associated with transporting clean water. Improving water treatment methods could also have a substantial impact on economic development in emerging markets.

Personalized medicine. Nanotechnology holds particular promise in the fields of health care and medical devices. Research and diagnosis, for example, could become far more efficient, and single-molecule technologies can markedly increase the detection of diseases and decrease misdiagnoses. The large-scale replication of nanostructures can make medical instruments and equipment more effective. Nanotechnology can also contribute to the production of sensors and implantable devices that could enable continuous health monitoring and semi-automated treatment.

Advanced manufacturing. Nanotechnology can make a significant impact on advanced manufacturing, which involves the integration of technology to improve fabrication processes or products. The National Nanotechnology Initiative is actively supporting applications made possible by projects on a nanoscale level to promote the development of new and improved products and services for commercial and public benefit.

The report, which the IST Coalition shared with eNews Platinum readers, also outlines the opportunities, challenges, and resources needed to attract nanotech developers in key disciplines.

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Quote of the week

By David Schwartz
Published: August 22nd, 2012

“The company really grew out of the frustration of seeing all these amazing things in academic institutions, and realizing that in some situations it may only require as little as $3,000, $10,000, or perhaps $15,000, and very commercially-oriented prototyping, to make the difference between a start-up and no start-up or a licensing deal and no licensing deal.”

— Mikael Totterman, a co-founder and chairman of start-up Innovocracy, discussing his firm’s crowdfunding platform in the July issue of Technology Transfer Tactics.

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Use this standardized MTA for routine transfers between institutions

By David Schwartz
Published: August 15th, 2012

Dr. Phil Clare, associate director of research services and head of knowledge exchange at the University of Oxford, UK, participated as part of the Brunswick Group in the development of a material transfer agreement (MTA) for use between two universities to facilitate routine transfers between academic institutions. Although “not quite a blanket MTA,” Clare says, “the form was intended to cover most situations and to cut down on negotiation between academic institutions — especially those situations when you find yourself arguing vehemently for a clause when you are a donor, whilst simultaneously trying to get the same thing deleted when you are a recipient.”

In developing the form, the rules of engagement were simple. Participants were not permitted to introduce a clause they weren’t prepared to sign both as donor and recipient. “This cut out a surprising amount of verbiage, and the result was quite short,” Clare observes. The document can be downloaded at the PraxisUnico news site, which also features a list of institutions using the form. “Anyone prepared to use it is welcome to add their name to the list,” Clare says.

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Kauffman study: Student entrepreneurs critical to university start-up efforts

By David Schwartz
Published: August 15th, 2012

Graduate and post-doctoral students are critical participants in university commercialization efforts, according to a study by the Ewing Marion Kauffman Foundation. University Technology Transfer through Entrepreneurship: Faculty and Students in Spinoffs, which the Foundation shared with eNews Platinum readers, examines the roles of students in university start-ups and compares the functions and responsibilities of faculty, entrepreneurs and students in successfully moving university innovations to market. 

Authors, Wai Fong Boh of Nanyang Technological University, Uzi De-Haan of Technion-Israel Institute of Technology, and Robert Strom of the Kauffman Foundation analyze four to eight cases of technology commercialization attempts by faculty and students at each of eight major U.S. institutions. They conclude that four primary pathways lead to spinoff development. Partnerships between faculty and experienced entrepreneurs represented 23% of the commercialization cases in the study, with most faculty members interviewed by the authors citing this type of partnership as the ideal pathway to tech transfer.

However, experienced CEOs often are reluctant to join a start-up team during the initial stages of a venture. Consequently, other pathways represent alternatives to grow a start-up to the stage at which experienced entrepreneurs may be enticed to join. These include partnerships between faculty and PhD/post-docs (41%); collaborations among faculty, PhD/post-docs and business school students (13%); and student-only ventures (23%).

“The research also showed that successful entrepreneurial output requires more than a proficient technology transfer office with effective policies and a strong incentive system,” Strom says. “It also relies on an overall university ecosystem that helps to reduce the venture’s market and technological risk by providing programs and resources that give students and faculty freedom — and time — to develop strategic lab-to-market plans.”

Independent of their TTOs, many of the eight universities studied have adopted mentoring programs, business plan competitions, accelerator programs, entrepreneurship training for students and faculty, and project-based classes that bring together interdisciplinary or MBA student teams to work on business plans and create roadmaps for commercialization. According to the study, these programs and practices have enhanced entrepreneurial efforts and allowed the universities to serve as business incubators.

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